<PAGE>

                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549
                                   
                               Form 10-K
                                   
         Annual Report Pursuant to Section 13 or 15(d) of the
                    Securities Exchange Act of 1934
                                   
The registrant meets the conditions set forth in General Instruction J(1)(a) 
and (b) of Form 10-K and is therefore filing this Form with the reduced 
disclosure format.

For the fiscal year ended DECEMBER 31, 1995  Commission file number   33-23376

               AETNA LIFE INSURANCE AND ANNUITY COMPANY
------------------------------------------------------------------------------
         (Exact name of registrant as specified in its charter)

           CONNECTICUT                          71-0294708
------------------------------------------------------------------------------
  (State or other jurisdiction of            (I.R.S.   Employer
   incorporation or organization)            Identification No.)

  151 FARMINGTON AVENUE, HARTFORD, CONNECTICUT                   06156
------------------------------------------------------------------------------
    (Address of principal executive offices)                   (ZIP Code)

Registrant's telephone number, including area code     (860)273-0978
                                                       -------------
Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  None
                                   
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                    Yes ___X___    No _______

Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.

                                   [X]

As of February 29, 1996 there were 55,000 shares of common stock outstanding, 
par value $50 per share, all of which shares were held by Aetna Retirement 
Services, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of Aetna Life and Casualty Company's 1994 Proxy Statement 
filed on March 18, 1994, its 1992 Form 10-K filed on March 17, 1993 and its 
1993 Form 10-K filed on March 18, 1994 are incorporated by reference into 
Part IV of this report.

                                     (1)

<PAGE>

        AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
                  Annual Report For 1995 on Form 10-K
                                   
                           TABLE OF CONTENTS
                                   
                                   

        PART I                                                          PAGE
                                                                    
                                                                    
        Item 1.  Business**...........................................    3
        Item 2.  Properties**..........................................  10
        Item 3.  Legal Proceedings.....................................  10
        Item 4.  Submission of Matters to a Vote of Security Holders*
                                                                    
        PART II
                                                                    
        Item 5.  Market for Registrant's Common Equity and Related
                 Stockholder Matters...................................  11
        Item 6.  Selected Financial Data*                           
        Item 7.  Management's Analysis of the Results of Operations**..  12
        Item 8.  Financial Statements and Supplementary Data...........  19
        Item 9.  Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure...................  48
                                                                    
        PART III
                                                                    
        Item 10. Directors and Executive Officers of the Registrant*
        Item 11. Executive Compensation*
        Item 12. Security Ownership of Certain Beneficial Owners and
                 Management*
        Item 13. Certain Relationships and Related Transactions*
                                                                    
        PART IV
                                                                    
        Item 14. Exhibits, Consolidated Financial Statement Schedules,
                 and Reports on Form 8-K...............................  48
                                   
        Index to Consolidated Financial Statement Schedules............  51
        Signatures.....................................................  56


** Item prepared in accordance with General Instruction J(2) of Form 10-K.
* Omitted pursuant to General Instruction J(2) of Form 10-K.

                                     (2)

<PAGE>

PART I

Item 1. Business

Aetna Life Insurance and Annuity Company is a stock life insurance company 
organized in 1976 under the insurance laws of Connecticut.  Aetna Life 
Insurance and Annuity Company, together with its two wholly owned 
subsidiaries, Aetna Insurance Company of America and Aetna Private Capital, 
Inc., is herein called the "Company".  The Company is a wholly owned 
subsidiary of Aetna Retirement Services, Inc. ("ARSI").  ARSI is a wholly 
owned subsidiary of Aetna Life and Casualty Company ("Aetna") which, with 
Aetna's subsidiaries, constitutes one of the nation's largest 
insurance/financial services organizations based on its assets at December 
31, 1994.  Two subsidiaries, Systematized Benefits Administrators, Inc. 
("SBA") and Aetna Investment Services, Inc. ("AISI"), which were previously 
reported with the Company's operations were distributed in the form of 
dividends to ARSI in December of 1995.  The impact to the Company's 
operations of distributing these dividends was immaterial.  The Company's 
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.

The Company markets a variety of life insurance, retirement and other savings 
and investment products including individual and group annuities, financial 
services and mutual funds.  The Company's products are designed for 
individuals, pension plans, small businesses and employer-sponsored groups.  
The Company's operations are reported through two major business segments:  
financial services and life insurance.

FINANCIAL SERVICES SEGMENT

The financial services segment includes individual and group annuity products 
which offer a variety of funding and distribution options for personal and 
employer-sponsored retirement plans that qualify under Internal Revenue Code 
Sections 401, 403, 408, and 457, and individual and group nonqualified 
annuity contracts.  These contracts may be immediate or deferred and are 
offered primarily to individuals, pension plans, small businesses and 
employer-sponsored groups in the health care, government, education 
(collectively "not-for-profit" organizations) and corporate markets.  The 
Company also offers life insurance supplemental contracts.  Financial 
services also include pension plan administrative services.  In 1995, the 
Company discontinued writing structured settlements of certain liabilities.

Annuity products typically offer fixed (fully guaranteed and experience 
rated) investment options and variable investment options (discussed below).  
For fully guaranteed and experience rated options the Company earns a spread 
representing the difference between income on investments and interest 
credited to customer reserves.

                                     (3)

<PAGE>

The Company's variable products (variable annuity and variable life 
contracts) utilize Separate Accounts to provide contractholders with a 
vehicle for investments under which the contractholders assume the investment 
risks as well as the benefit of favorable performance.  Assets held under 
these products are invested, as designated by the contractholder or 
participant under a contract, in Separate Accounts, which in turn invest in 
shares of mutual funds that are managed by the Company or other selected 
mutual funds that are not managed by the Company.  The Company acts as an 
investment adviser for its affiliated mutual funds (a retail fund - Aetna 
Series Fund, Inc. and variable products funds - Aetna Variable Fund, Aetna 
Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, 
Aetna Get Fund Series B) and receives advisory fees for its investment 
management services.  The Company also receives from the Aetna Series Fund, 
Inc. service fees for providing administrative and shareholder services and 
distribution fees for promoting sales of the Adviser Class shares.  The 
Company is compensated by the Separate Accounts for bearing mortality and 
expense risks pertaining to variable annuity contracts (actuarial margin) 
(see Note 8 of the Notes to the Consolidated Financial Statements).

Product retention is a key driver of profitability for annuity products.  To 
encourage product retention, annuity contracts typically impose a surrender 
charge on policyholder balances withdrawn for a period of time after the 
contract's inception.  The period of time and level of the charge vary by 
product.  In addition, a new approach being incorporated into recent variable 
contracts with fixed interest account investment options allows 
contractholders to receive an incremental interest rate if withdrawals from 
the fixed account are spread over a period of five years. Further, more 
favorable credited rates may be offered after policies have been in force for 
a period of time.  Existing tax penalties on annuity distributions prior to 
age 59 1/2 provide an additional disincentive to premature surrenders of 
annuity balances, but do not impede transfers of those balances to products 
of other competitors.

Certain of the Company's annuity products allow customers to borrow against 
their policies.  Outstanding policy loans on annuity policies at December 31, 
1995 were $181.3 million. Net investment income on annuity policy loans was 
$4.0 million for the year ended December 31, 1995.

In the financial services segment markets, competition arises from other 
insurance companies, banks, mutual funds and other investment managers.  
Principal competitive factors are cost, service, level of investment 
performance and the perceived financial strength of the investment manager or 
sponsor.  Competition in financial services markets may affect, among other 
matters, both business growth and the pricing of the Company's products and 
services.

Products sold in the corporate pensions market are sold through pension 
professionals, stock brokers and third party administrators who work closely 
with salaried field office employees.  Products sold in the not-for-profit 
organization market are distributed primarily through dedicated career 
agents, registered life brokers and broker/dealers. Products sold in the 
individual market are distributed primarily through dedicated career agents, 
registered life brokers, banks and broker/dealers.

                                     (4)

<PAGE>

Reserves for limited payment contracts (immediate annuities with life 
contingent payout) are computed on the basis of assumed investment yield, 
mortality, morbidity and expenses (including a margin for adverse deviation), 
which generally vary by plan, year of issue and policy duration.  Reserves 
for investment contracts (deferred annuities and immediate annuities without 
life contingent payouts) are equal to cumulative deposits plus credited 
interest less charges thereon.  Of those investment contracts which are 
experience-rated, the reserves also reflect net realized capital gains/losses 
(which the Company reflects through credited rates on an amortized basis) and 
unrealized capital gains/losses related to Financial Accounting Standard 
("FAS") No. 115 (see Note 1 of the Notes to the Consolidated Financial 
Statements).

The following table summarizes assets under management for the principal 
customer groups of the financial services segment.  Amounts reflected exclude 
unrealized gains (losses) of $689.9 million and $(337.7) million at December 
31, 1995 and 1994, respectively, related to market value adjustments required 
under FAS 115.  See Management's Analysis of the Results of Operations and 
Note 1 for further discussion on assets under management and FAS 115, 
respectively.

----------------------------------------------------------------------------
(Millions)                                1995         1994       1993
----------------------------------------------------------------------------
Corporate pensions                     $ 4,233.5    $ 3,217.4  $ 2,886.2
Not-for-profit organizations            12,086.1     10,025.9    9,087.1
Individuals                              6,214.8      4,879.6    3,981.0
                            ------------------------------------------------
                            Total      $22,534.4    $18,122.9  $15,954.3
----------------------------------------------------------------------------


Deposits, which are not included in premiums or revenue, are shown in the 
following table for the years indicated:

----------------------------------------------------------------------------
(Millions)                                1995         1994       1993
----------------------------------------------------------------------------
Corporate pensions                     $ 1,075.9    $   890.3  $   714.5
Not-for-profit organizations             1,093.0      1,093.3    1,107.8
Individuals                              1,200.6        670.2      460.9
                            ------------------------------------------------
                            Total      $ 3,369.5    $ 2,653.8  $ 2,283.2
----------------------------------------------------------------------------

LIFE INSURANCE SEGMENT

The life insurance segment includes universal life, variable universal life, 
interest-sensitive whole life and term insurance.  These products are offered 
primarily to individuals, small businesses, employer-sponsored groups and 
executives of Fortune 2000 companies.  The Company's universal life insurance 
product accounted for approximately 92% of individual life insurance sales in 
1995.

The Company's in-force block of insurance includes a sizable block of 
traditional ordinary life insurance originally written by an affiliate, Aetna 
Life Insurance Company ("Aetna Life"), and transferred to the Company via a 
reinsurance agreement in 1988 (see Note 8 of the Notes to the Consolidated 
Financial Statements).  This closed book of business contributed 29% of the 
life insurance segment's earnings in 1995.

                                     (5)

<PAGE>

Universal life products include a cash value component that is credited with 
interest at competitive rates.  The Company earns the spread between 
investment income and interest credited on customer cash values.  Universal 
life cash values are charged for cost of insurance coverage and for 
administrative expenses.  The Company is also compensated by the Separate 
Accounts for bearing mortality and expense risks pertaining to variable 
universal life contracts.

Life insurance products typically require high costs to acquire business.  As 
with the financial services segment, retention is an important driver of 
profitability and is encouraged through product features.  For example, 
universal and interest-sensitive whole life insurance contracts typically 
impose a surrender charge on policyholder balances withdrawn within seven to 
twenty years of the contract's inception or for variable life within ten 
years.  The period of time and level of the charge vary by product.  In 
addition, more favorable credited rates and policy loan terms may be offered 
after policies have been in force for a period of time.  To further encourage 
retention, life insurance agents are typically paid renewal commissions or 
service fees.

Certain of the Company's life insurance products allow customers to borrow 
against their policies.  Outstanding policy loans on individual life policies 
at December 31, 1995 were $157.3 million.  Net investment income on 
individual life policy loans was $9.7 million for the year ended December 31, 
1995.

The markets for life insurance products are highly competitive among 
insurance companies.  Competition largely is based upon product features and 
prices.  Competition in life insurance markets may affect, among other 
matters, both business growth and the pricing of the Company's products and 
services.

Life insurance products are marketed by managing general agents, regional 
brokers, banks and broker/dealers.

Reserves for universal life and interest-sensitive whole life products (which 
are all experience-rated) are equal to cumulative deposits less withdrawals 
and charges, plus credited interest thereon, plus/less net realized capital 
gains/losses (which the Company reflects through credited rates on an 
amortized basis).  These reserves also reflect unrealized capital 
gains/losses related to FAS 115. Reserves for all other fixed individual life 
contracts are computed on the basis of assumed investment yield, mortality, 
morbidity and expenses (including a margin for adverse deviation), which 
generally vary by plan, year of issue and policy duration.  These reserves 
are computed amounts that, with additions from premiums and deposits to be 
received, and with interest on such reserves compounded annually at assumed 
rates, are expected to be sufficient to meet the Company's policy obligations 
at their maturities or to pay expected death or retirement benefits or other 
withdrawal requests.

Reinsurance arrangements with affiliated and non-affiliated insurance 
companies are utilized to limit exposure to losses in excess of predetermined 
amounts per individual life.  The Company's retention limit per individual 
life is $2.0 million (see Notes 8 and 9 of the Notes to the Consolidated 
Financial Statements).

                                     (6)

<PAGE>

          Life Insurance in Force and Other Statistical Data*

The following table summarizes changes in individual life insurance in force 
before deductions for reinsurance ceded to other companies for the years 
indicated:

<TABLE>
<CAPTION>
(millions, except as noted below)                            1995       1994       1993
------------------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>
Sales and additions:
   Direct:
     Permanent.........................................   $ 3,757.9  $ 3,369.4  $ 2,767.0
     Term..............................................     2,600.4      559.9      237.2
   Assumed:
     Permanent.........................................     1,358.5          -          -
                                                        ----------------------------------
       Total...........................................   $ 7,716.8  $ 3,929.3  $ 3,004.2
                                                        ----------------------------------
                                                        ----------------------------------

Terminations:
   Direct:
     Surrenders and Conversions........................   $ 1,467.0  $ 1,316.4  $ 1,632.6
     Lapses............................................       891.4      860.9      816.7
     Other.............................................       152.7      170.0      170.6
   Assumed:                                          
     Surrenders and Conversions........................        53.6       59.4       80.3
     Lapses............................................       331.8      303.9      376.2
     Other.............................................        54.2       57.9       55.1
                                                        ----------------------------------
       Total...........................................   $ 2,950.7  $ 2,768.5  $ 3,131.5
                                                        ----------------------------------
                                                        ----------------------------------

In force:
   Direct:
     Permanent.........................................   $32,333.2  $30,563.0  $29,507.1
     Term..............................................     3,698.3    1,621.3    1,095.2
   Assumed:
     Permanent.........................................     2,392.9    1,244.8    1,344.9
     Term..............................................     1,203.8    1,433.0    1,754.1
                                                        ----------------------------------
       Total...........................................   $39,628.2  $34,862.1  $33,701.3
                                                        ----------------------------------
                                                        ----------------------------------

Number of direct policies in force (thousands).........       378.1      378.3      384.6
                                                        ----------------------------------
                                                        ----------------------------------
                                                                              
Average size of direct policy in force (thousands).....   $    95.3  $    85.1  $    79.6
                                                        ----------------------------------
                                                        ----------------------------------
</TABLE>

*  Only nonparticipating business is written by the Company.

                                     (7)

<PAGE>

GENERAL ACCOUNT INVESTMENTS

Consistent with the nature of the contract obligations involved in the 
Company's operations, the majority of the general account assets are invested 
in long-term, debt securities such as corporate debt securities, residential 
mortgage-backed securities, commercial and multifamily mortgage-backed 
securities, other asset-backed securities and government securities.  It is 
management's objective that the portfolios be of high quality while achieving 
competitive investment yields and returns.  Investment portfolios generally 
match the duration of the insurance liabilities they support.  The general 
account of the Company has been segmented to improve the asset/liability 
matching process.  The duration of investments is monitored and security 
purchases and sales are executed with the objective of having adequate funds 
available to satisfy the Company's maturing liabilities.

Please see Investments on pages 17 and 18 of the Management's Analysis of the 
Results of Operations for a further discussion of investments.  For 
information concerning the valuation of investments, see Notes 1, 2 and 3 of 
the Notes to Consolidated Financial Statements.

OTHER MATTERS

REGULATION

The insurance business of the Company is subject to comprehensive, detailed 
regulation throughout the United States.  The laws of the various 
jurisdictions establish supervisory agencies with broad authority to 
regulate, among other things, the granting of licenses to transact business, 
trade practices, agent licensing, policy forms, underwriting and claims 
practices, reserve adequacy, insurer solvency, the maximum interest rates 
that can be charged on life insurance policy loans, the minimum rates that 
must be provided for accumulation of surrender values, the form and content 
of required financial statements and the type and amounts of investments 
permitted.  The Company is required to file detailed reports with supervisory 
agencies in each of the jurisdictions in which it does business, and its 
operations and accounts are subject to examination by such agencies at 
regular intervals.

Although the federal government does not directly regulate the business of 
insurance, many federal laws do affect the business.  Existing or recently 
proposed federal laws that may significantly affect or would affect, if 
passed, the insurance business cover such matters as pensions and other 
employee benefits, removal of barriers preventing banks from engaging in the 
insurance and mutual fund businesses, the taxation of insurance companies, 
and the tax treatment of insurance products.

Material changes in applicable federal and state laws and regulations could 
adversely affect the Company's business operations, although the Company is 
unable to predict whether any such changes will be implemented.

Several states, including Connecticut, regulate affiliated groups of insurers 
such as the Company and its affiliates under insurance holding company 
statutes.  Under such laws, intercorporate asset transfers and dividend 
payments from insurance subsidiaries may require prior notice to or approval 
of the insurance regulators, depending on the size of such transfers and 
payments relative to the financial position of the Company making the 
transfer.  Changes in control also are regulated under these laws.  As a 
Connecticut-domiciled insurance company, the Company is subject to 
comprehensive regulation under the Connecticut insurance laws and by the 
Connecticut Insurance Department.

                                     (8)

<PAGE>

In recent years, state insurance regulators have been considering changes in 
statutory accounting practices and other initiatives to strengthen solvency 
regulation.  The National Association of Insurance Commissioners (NAIC) has 
adopted risk-based capital ("RBC") standards for life insurers.  The RBC 
formula is a regulatory tool designed to identify weakly capitalized 
companies by comparing the adjusted surplus to the required surplus, which 
reflects the risk profile of the Company (RBC ratio).  Within certain ratio 
changes, regulators have increasing authority to take action as the RBC ratio 
decreases.  There are four levels of regulatory action ranging from requiring 
insurers to submit a comprehensive plan to the state insurance commissioner 
to when the state insurance commissioner places the insurer under regulatory 
control.  The Company's RBC ratio at December 31, 1995 was significantly 
above the levels which would require regulatory action.  Rating agencies also 
use their own risk-based capital standards as part of determining a company's 
rating.

The NAIC also is considering several other solvency-related regulations 
including the development of a model investment law and amendments to the 
model insurance holding company law which would limit types and amounts of 
insurance company investments.  In addition, in recent years there has been 
growing interest among certain members of Congress concerning possible 
federal roles in the regulation of the insurance industry.  Because these 
other initiatives are in a preliminary stage, management cannot assess the 
potential impact of their adoption on the Company.

Under insurance guaranty fund laws existing in all states, insurers doing 
business in those states can be assessed (up to prescribed limits) for 
certain obligations of insolvent insurance companies to policyholders and 
claimants.  The after tax charges to earnings for guaranty fund obligations 
for the years ended December 31, 1995, 1994 and 1993 were $1.4 million, $0.6 
million and $0.9 million, respectively. The amounts ultimately assessed may 
differ from the amounts charged to earnings thus far because such assessments 
may not be made for several years and will depend upon the final outcome of 
regulatory proceedings.

The Company provides a variety of products and services to employee benefit 
plans that are covered by the Employee Retirement Income Security Act of 1974 
("ERISA").  In December 1993, in a case involving an employee benefit plan 
and an insurance company, the United States Supreme Court ruled that assets 
in the insurance company's general account that were attributable to the 
non-guaranteed portion of a group pension contract issued to the plan were 
"plan assets" for purposes of ERISA and that the insurance company was an 
ERISA fiduciary with respect to those assets.  In reaching its decision, the 
Court declined to follow a 1975 Department of Labor ("DOL") interpretive 
bulletin that had suggested that insurance company general account assets 
were not plan assets.  The Company and other insurers are seeking 
clarification from the DOL of the effects, if any, of the decision on their 
businesses, as well as pursuing clarification of the decision through Federal 
legislation. Management is not currently able to predict how the decision, or 
the outcome of any legislative or regulatory initiatives, will ultimately 
affect its business.

Aetna Life Insurance and Annuity Company is regulated by the Securities and 
Exchange Commission ("SEC") and some state securities regulators as a 
broker-dealer and investment adviser.  The Company's variable products 
involve investments through Separate Accounts, some of which are registered 
as investment companies with the SEC, as are the retail mutual funds and the 
variable mutual funds offered by the Company.  Additionally, interests in 
some of the Separate Accounts, the retail mutual funds, the variable product 
mutual funds and certain other products used as funding vehicles for the 
Company's variable products are registered with the SEC.  Shares of the 
retail mutual funds are also registered with all fifty of the state 
securities regulators.

                                     (9)

<PAGE>

MISCELLANEOUS

According to the Fortune Service 500, as of December 31, 1994, the Company 
ranked 19th and 22nd among all United States domiciled life insurance 
companies based upon total assets and premium income, respectively.  As of 
December 31, 1995, the Company had approximately 2,700 employees.

The Company's rating at February 6, 1996 by A.M. Best was A+ (Superior).

Management believes that the Company's computer facilities, systems and 
related procedures are adequate to meet its business needs.  The Company's 
data processing systems and backup and security policies, practices and 
procedures are regularly evaluated by the Company's management and internal 
auditors and are modified as considered necessary.

The Company is not dependent upon any single customer and no single customer 
accounted for more than 10% of revenue in 1995.  In addition, neither segment 
of the Company's business is dependent upon a single customer or a few 
customers, the loss of which would have a significant impact on the segment.  
See Note 12 of the Notes to the Consolidated Financial Statements regarding 
segment information.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 ("the Act") provides a 
new "safe harbor" for forward-looking statements to encourage companies to 
provide prospective information about their companies, so long as those 
statements are identified as forward-looking and are accompanied by 
meaningful cautionary statements identifying important factors that could 
cause actual results to differ materially from those discussed in the 
statement.  The Company desires to take advantage of the new "safe harbor" 
provisions of the Act.  Certain information contained herein, particularly 
the information appearing under the heading "Outlook" contained in Item 
7-Management's Analysis of the Results of Operations, is forward-looking. 
Information regarding certain important factors that could cause actual 
results of operations or outcomes of other events to differ materially from 
any such forward-looking statement appear together with such statement within 
this section and within Item 7-Management's Analysis of the Results of 
Operations.

Item 2.   Properties

The Company occupies office space which is owned or leased by Aetna Life 
Insurance Company or other affiliates. Expenses associated with these offices 
are allocated on a direct and indirect basis to the Company and the other 
subsidiaries of Aetna.

Item 3.   Legal Proceedings

The Company and its Board of Directors know of no material legal proceedings 
pending to which the Company is a party or which would materially affect the 
Company.

                                     (10)

<PAGE>

                                PART II
                                   
Item 5.   Market for Registrant's Common Equity and Related Stockholder 
          Matters

All of the Company's outstanding shares are directly owned by ARSI, which is 
a wholly owned subsidiary of Aetna.  The shares were contributed to ARSI by 
Aetna in December, 1995. The Company distributed $2.9 million in the form of 
dividends of two of its subsidiaries, SBA and AISI, to ARSI in 1995.  Prior 
to the distribution of all of the Company's outstanding shares of SBA and 
AISI to ARSI in December, 1995, and for the years ended 1994 and 1993, the 
Company did not pay dividends to Aetna.

The amount of dividends which may be paid by the Company to ARSI without 
prior approval by the Insurance Commissioner of the State of Connecticut is 
subject to various restrictions. Based upon these restrictions, the Company 
is permitted a maximum of $70.0 million in dividend distributions in 1996.

                                     (11)

<PAGE>

Item 7.   Management's Analysis of the Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY

<TABLE>
<CAPTION>
Operating Summary (millions)                                    1995        1994        1993
-----------------------------------------------------------------------------------------------
<S>                                                          <C>         <C>         <C>
Premiums                                                     $   130.8   $   124.2   $    82.1
Charges assessed against policyholders                           318.9       279.0       251.5
Net investment income                                          1,004.3       917.2       911.9
Net realized capital gains                                        41.3         1.5         9.5
Other income                                                      42.0        10.3         9.5
       ----------------------------------------------------------------------------------------
         Total revenue                                         1,537.3     1,332.2     1,264.5
       ----------------------------------------------------------------------------------------
Current and future benefits                                      915.3       854.1       818.4
Operating expenses                                               318.7       235.2       207.2
Amortization of deferred policy acquisition costs                 43.3        26.4        19.8
       ----------------------------------------------------------------------------------------
         Total benefits and expenses                           1,277.3     1,115.7     1,045.4
       ----------------------------------------------------------------------------------------
         Income before federal income taxes                      260.0       216.5       219.1
Federal income taxes                                              84.1        71.2        76.2
       ----------------------------------------------------------------------------------------
         Net income                                          $   175.9   $   145.3   $   142.9
       ----------------------------------------------------------------------------------------
       ----------------------------------------------------------------------------------------
Deposits not included in premiums above:  Fully guaranteed    $   415.7   $   249.0   $   263.7
                                          Experience-rated      1,428.0     1,351.4     1,216.8
                                          Non-guaranteed        2,059.1     1,365.9     1,062.5
                                          -----------------------------------------------------
                                          Total               $ 3,902.8   $ 2,966.3   $ 2,543.0
------------------------------------------------------------------------------------------------
Assets under management: (1)              Fully guaranteed    $ 3,399.6   $ 2,620.3   $ 2,423.5
                                          Experience-rated     10,999.9     9,272.0     9,241.5
                                          Non-guaranteed       11,522.9     8,064.6     7,111.0
                                          ------------------------------------------------------
                                          Total               $25,922.4   $19,956.9   $18,776.0
------------------------------------------------------------------------------------------------
</TABLE>

(1) Included above are net unrealized capital gains (losses) of $797.1 
    million, $(386.4) million and $747.1 million at December 31, 1995, 1994
    and 1993, respectively.

OVERVIEW
The Company's adjusted earnings (after-tax) follow (in millions):

                                                1995       1994       1993
                                            ----------------------------------
Net Income                                     $175.9     $145.3     $142.9
 Less:
   Net realized capital gains                    26.8        1.0        6.2
                                            ----------------------------------
Adjusted earnings                              $149.1     $144.3     $136.7
                                            ----------------------------------
                                            ----------------------------------

The Company's adjusted earnings increased 3% in 1995 following a 6% increase 
in 1994.  Results in 1995 reflected improved earnings in the financial 
services segment, while earnings in the life insurance segment were level 
with the prior year.  The improvement in earnings related to the financial 
services segment reflected an increase in charges assessed against 
policyholders and increased net investment income related to the growth in 
assets under management which were partially offset by an increase in 
operating expenses.  This increase in operating expenses primarily reflects 
continued business growth.  The improvement in 1994 adjusted earnings 
reflected an increase in charges assessed against policyholders, primarily 
due to an increase in the volume of business in force, partially offset by 
increases in operating expenses, primarily related to the implementation of a 
new contract administration system.

Assets under management, excluding the effect of FAS 115, at December 31, 
1995 of $25.1 billion, were 24% above 1994 levels, primarily reflecting 
continued business growth and overall improvement in the stock and bond 
markets.

                                     (12)

<PAGE>

The Company's contracts typically impose surrender fees which decline over 
the duration of the contract.  Assets held under experience rated general 
account options have transfer and withdrawal limitations.  Withdrawals from 
the fully guaranteed accumulation options prior to maturity include an 
adjustment intended to reflect the estimated fair value of the assets 
supporting the contract at the time of withdrawal.  Approximately 91% and 90% 
of assets under management at December 31, 1995 and 1994, respectively, 
allowed for contractholder withdrawal, 63% and 57% of which, respectively, 
are subject to market value adjustments or deferred surrender charges at 
December 31, 1995.

SEGMENT RESULTS

FINANCIAL SERVICES SEGMENT

<TABLE>
<CAPTION>
Operating Summary (millions)                                    1995        1994        1993
-----------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>
Premiums                                                      $    82.6   $    70.2   $    32.0
Charges assessed against policyholders                            150.4       126.6       109.4
Net investment income                                             823.3       745.9       739.2
Net realized capital gains                                         37.8         1.4         9.1
Other income                                                       35.4         2.0         3.1
       -----------------------------------------------------------------------------------------
         Total revenue                                          1,129.5       946.1       892.8
       -----------------------------------------------------------------------------------------
Current and future benefits                                       704.4       639.9       624.1
Operating expenses                                                256.5       176.9       149.0
Amortization of deferred policy acquisition costs                  10.5         9.6        (1.4)
       -----------------------------------------------------------------------------------------
         Total benefits and expenses                              971.4       826.4       771.7
       -----------------------------------------------------------------------------------------
         Income before federal income taxes                       158.1       119.7       121.1
Federal income taxes                                               44.3        34.2        34.3
       -----------------------------------------------------------------------------------------
         Net income                                           $   113.8   $    85.5   $    86.8
       -----------------------------------------------------------------------------------------
       -----------------------------------------------------------------------------------------
Deposits not included in premiums above: Fully guaranteed     $   415.7   $   249.0   $   263.7
                                         Experience-rated         934.4     1,064.3       979.4
                                         Non-guaranteed         2,019.4     1,340.5     1,040.1
                                         ------------------------------------------------------
                                         Total                $ 3,369.5   $ 2,653.8   $ 2,283.2
------------------------------------------------------------------------------------------------
Assets under management: (1)             Fully guaranteed     $ 2,789.4   $ 1,999.1   $ 1,758.0
                                         Experience-rated       9,034.5     7,803.2     7,801.1
                                         Non-guaranteed        11,400.4     7,982.9     7,041.4
                                         -------------------------------------------------------
                                         Total                $23,224.3   $17,785.2   $16,600.5
------------------------------------------------------------------------------------------------

</TABLE>

(1) Included above are net unrealized capital gains (losses) of $689.9 
    million, $(337.7) million and $646.2 million at December 31, 1995, 1994
    and 1993, respectively.

Adjusted earnings in the Financial Services segment (after-tax) follow (in 
millions):

                                               1995       1994     1993
                                         ------------------------------------
Net Income                                    $113.8     $85.6     $86.8
Less:                                                      
  Net realized capital gains                    24.6       0.9       5.9
                                         ------------------------------------
Adjusted earnings                             $ 89.2     $84.6     $80.9
                                         ------------------------------------
                                         ------------------------------------

Effective January 1, 1995 the Company assumed responsibility for two service 
organizations, a plan administration service organization and a payment and 
retiree administration service organization, from an affiliate, with 
year-to-date combined adjusted income of $0.2 million.  As a result, other 
income and operating expenses include $39.1 million and $38.8 million, 
respectively, for the year ended December 31, 1995.

                                     (13)

<PAGE>

Adjusted earnings increased 5% in both 1995 and 1994.  The 1995 improvement 
in adjusted earnings reflected an increase in charges assessed against 
policyholders and increased net investment income related to the growth in 
assets under management which were partially offset by an increase in 
operating expenses.  The 1994 improvement in adjusted earnings reflected an 
increase in assets under management offset in part by an increase in 
operating expenses.

Premiums, related to annuity contracts containing life contingencies, 
increased by 18% in 1995, following a 119% increase in 1994.  The 1995 and 
1994 increases resulted primarily from increases in immediate annuity sales. 
Deposits, related to annuity contracts not containing life contingencies, 
reflected a 27% increase in 1995 following a 16% increase in 1994.  Deposits 
in 1995 included the assumption of a $300.1 million variable annuity block of 
business from an unaffiliated insurer. Deposits in 1994 included the $205.0 
million acquisition of a block of primarily individual annuity business from 
an unaffiliated insurer.

Charges assessed against policyholders for certain annuity contracts 
increased by 19% and 16% in 1995 and 1994, respectively, reflecting the 
increase in assets under management.

Net investment income increased by 10% in 1995, reflecting the increase in 
assets under management.  Net investment income increased by 1% in 1994, 
reflecting the increase in assets under management offset by a downward trend 
in the net investment yield on the Company's portfolio of investments.

Current and future benefits increased by 10% and 3% in 1995 and 1994, 
respectively, reflecting the increase in assets under management.

Operating expenses, excluding the impact of moving the two service 
organizations into the Company as discussed above, increased by 23% in 1995 
and 19% in 1994.  The 1995 increase primarily reflects continued business 
growth.  The 1994 increase primarily reflected expenses associated with the 
implementation of the new contract administration system.

Assets under management, excluding the effect of FAS 115, at December 31, 
1995 of $22.5 billion, were 24% above 1994 levels, primarily reflecting 
continued business growth and overall improvement in the stock and bond 
markets.

OUTLOOK

Sales of tax-qualified annuities are expected to continue to be strong in 
1996.  Sales of non-qualified products are expected to significantly exceed 
1995 levels as relationships formed with broker/dealers and banks in 1995 
build sales momentum.  The Company intends to expand its retirement planning 
capabilities.  The Company expects to evaluate opportunities for growth of 
its financial services businesses and strengthen their competitive position.

                                     (14)

<PAGE>

LIFE INSURANCE SEGMENT

<TABLE>
<CAPTION>
Operating Summary (millions)                                    1995       1994       1993
---------------------------------------------------------------------------------------------
<S>                                                           <C>        <C>        <C>
Premiums                                                      $   48.2   $   54.0   $   50.1
Charges assessed against policyholders                           168.5      152.4      142.1
Net investment income                                            181.0      171.3      172.7
Net realized capital gains                                         3.5        0.1        0.4
Other income                                                       6.6        8.3        6.4
       --------------------------------------------------------------------------------------
         Total revenue                                           407.8      386.1      371.7
       --------------------------------------------------------------------------------------
Current and future benefits                                      210.9      214.2      194.3
Operating expenses                                                62.2       58.3       58.2
Amortization of deferred policy acquisition costs                 32.8       16.8       21.2
       --------------------------------------------------------------------------------------
         Total benefits and expenses                             305.9      289.3      273.7
       --------------------------------------------------------------------------------------
         Income before federal income taxes                      101.9       96.8       98.0
Federal income taxes                                              39.8       37.0       41.9
       --------------------------------------------------------------------------------------
         Net income                                           $   62.1   $   59.8   $   56.1
       --------------------------------------------------------------------------------------
       --------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Deposits not included in premiums above: Experience-rated     $  493.6   $  287.1   $  237.4
                                         Non-guaranteed           39.7       25.4       22.4
                                         ----------------------------------------------------
                                         Total                $  533.3   $  312.5   $  259.8
---------------------------------------------------------------------------------------------
Assets under management: (1)             Fully guaranteed     $  610.2   $  621.2   $  665.5
                                         Experience-rated      1,965.4    1,468.8    1,440.4
                                         Non-guaranteed          122.5       81.7       69.6
                                         ----------------------------------------------------
                                         Total                $2,698.1   $2,171.7   $2,175.5
---------------------------------------------------------------------------------------------
</TABLE>

(1) Included above are net unrealized capital gains (losses) of $107.2 
    million, $(48.7) million and $100.9 million at December 31, 1995, 1994
    and 1993, respectively.

Adjusted earnings in the Life Insurance segment (after-tax) follow (in 
millions):


                                              1995      1994      1993
                                          ---------------------------------
     Net Income                               $62.1     $59.8     $56.1
     Less:
       Net realized capital gains               2.2       0.1       0.3
                                          ---------------------------------
     Adjusted earnings                        $59.9     $59.7     $55.8
                                          ---------------------------------
                                          ---------------------------------

Adjusted earnings in 1995 remained level with the prior year adjusted 
earnings, reflecting an increase in the volume of business in force as a 
result of strong sales offset by an increase in operating expenses.  Adjusted 
earnings in 1994 increased 7% when compared to 1993 adjusted earnings.  The 
1994 adjusted earnings improvement reflected higher business in force offset 
in part by lower net investment income.

Premiums, related to term and whole life insurance, decreased by 11% in 1995 
following an 8% increase in 1994. The decrease in premiums in 1995 is 
primarily due to lower whole life insurance premiums.  Deposits, related to 
universal life and interest-sensitive whole life insurance, grew by 71% and 
20% in 1995 and 1994, respectively. Deposits in 1995 included the assumption 
of a $172.4 million universal life block of business from an unaffiliated 
insurer and also reflected strong first year sales and retention.  The 
increase in premiums and deposits in 1994 reflected strong first year sales 
and retention.

Charges assessed against policyholders for universal life and 
interest-sensitive whole life insurance increased 11% in 1995 and 7% in 1994 
reflecting an increase in the volume of business in force.

                                     (15)

<PAGE>

Net investment income increased by 6% in 1995, reflecting an increase in 
universal life assets under management offset in part by the downward trend 
in the net investment yield on the Company's portfolio of investments.  Net 
investment income decreased 1% in 1994, reflecting the downward trend in the 
net investment yield on the Company's portfolio of investments, offset by the 
increase in universal life assets under management.

Current and future benefits decreased 2% in 1995 following a 10% increase in 
1994, reflecting improved mortality experience related to universal life 
insurance.  The increase in 1994 reflected higher mortality related to 
universal life insurance.  Amortization of deferred policy acquisition costs 
increased by 95% in 1995, reflecting the growth in current and estimated 
future gross profit margins related to universal life insurance.  
Amortization of deferred policy acquisition costs decreased 21% in 1994, 
primarily reflecting lower mortality margins related to universal life 
insurance.

Operating expenses increased 7% in 1995, reflecting continued business 
growth.  Operating expenses were level in 1994, reflecting savings from 
previous restructurings.

Assets under management, excluding the effect of FAS 115, at December 31, 
1995 of $2.6 billion, were 17% above 1994 levels, primarily reflecting 
continued business growth and overall improvement in the stock and bond 
markets.

OUTLOOK

Sales of life products through traditional channels (managing general agents 
and regional brokers) are expected to continue to be strong in 1996.  Sales 
of life products through non-traditional distribution channels (banks, 
broker/dealers, worksite), are expected to significantly exceed 1995 levels 
as the Company's retirement planning emphasis begins to build momentum.









                                     (16)

<PAGE>

GENERAL ACCOUNT INVESTMENTS

The Company's investment strategies and portfolios are intended to match the 
duration of the related liabilities and provide sufficient cash flow to meet 
obligations while maintaining a competitive rate of return.  The duration of 
these investments is monitored, and investment purchases and sales are 
executed with the objective of having adequate funds available to satisfy the 
Company's maturing liabilities.  The risks associated with investments 
supporting experience-rated products are assumed by those customers subject 
to, among other things, certain minimum guarantees.

 (Millions)                                        1995          1994
-------------------------------------------------------------------------
 Debt securities                                 $12,720.8     $10,191.4
 Equity securities:
   Non-redeemable preferred stock                     57.6          47.2
   Investment in affiliated mutual funds             191.8         181.9
   Common stock                                        8.2             -
 Short-term investments                               15.1          98.0
 Mortgage loans                                       21.2           9.9
 Policy loans                                        338.6         248.7
 Limited partnership                                     -          24.4
                                                 ------------------------
    Total Investments                             13,353.3      10,801.5
Cash and cash equivalents                            568.8         623.3
                                                 ------------------------
 Total Investments and Cash and Cash Equivalents $13,922.1     $11,424.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------


At December 31, 1995 and 1994, the Company's carrying value of investments in 
debt securities were $12.7 billion and $10.2 billion, 95% and 94%, 
respectively, of total general account invested assets.  At December 31, 1995 
and 1994, $10.0 billion and $8.0 billion, 79% and 78%, respectively, of total 
debt securities supported experience-rated products.

It is management's objective that the portfolio of debt securities be of high 
quality and be well-diversified by market sector.  The debt securities in the 
Company's portfolio are generally rated by external rating agencies, and, if 
not externally rated, are rated by the Company on a basis believed to be 
similar to that used by the rating agencies.  The average quality rating of 
the Company's debt security portfolio was AA- at December 31, 1995 and AA at 
December 31, 1994.

<TABLE>
<CAPTION>
Debt Securities Quality Ratings        Debt Securities Investments by Market Sector
12/31/95                               12/31/95
-------------------------------        -------------------------------------------------------
<S>                <C>                 <C>                                              <C>
AAA                46.0%               U.S. Corporate Securities                        44.7%
AA                 11.7                Residential Mortgage-Backed Securities           25.2
A                  25.4                Foreign Securities - U.S. Dollar Denominated     11.1
BBB                11.7                Asset-Backed Securities                           7.9
BB                  4.0                Commercial/Multifamily Mortgage-
B and Below         1.2                 Backed Securities                                6.1
                ----------             U.S. Treasuries/Agencies                          4.6
                  100.0%               Other                                             0.4
                ----------                                                           --------
                ----------                                                            100.0%
                                                                                     --------
                                                                                     --------
</TABLE>

                                     (17)

<PAGE>

<TABLE>
<CAPTION>
Debt Securities Quality Ratings        Debt Securities Investments by Market Sector
12/31/94                               12/31/94
-------------------------------        -------------------------------------------------------
<S>                <C>                 <C>                                              <C>
AAA                56.7%               U.S. Corporate Securities                        34.2%
AA                  8.3                Residential Mortgage-Backed Securities           32.1
A                  23.3                U.S. Treasuries/Agencies                         12.9
BBB                 8.5                Foreign Securities - U.S. Dollar Denominated      9.7
BB                  2.5                Asset-Backed Securities                           6.7
B and Below         0.7                Commercial/Multifamily Mortgage-
                 --------               Backed Securities                                4.0
                  100.0%               Other                                             0.4
                 --------                                                            --------
                 --------                                                             100.0%
                                                                                     --------
                                                                                     --------
</TABLE>

In 1995, as a result of a change in investment strategy, the Company reduced 
its investments in U.S. Treasuries/Agencies and residential mortgage-backed 
securities and increased its investments in U.S. Corporate securities (see 
Note 2 of the Notes to the Consolidated Financial Statements). Investments in 
U.S. dollar denominated foreign corporations and governments, asset-backed, 
and commercial/multifamily mortgage-backed securities also increased.
                                   
Asset-backed securities (securities backed by auto loans, credit card 
receivables, etc.) and commercial/multifamily mortgage-backed securities 
(securitized pools of mortgages) are predominantly AAA rated, and are not 
subject to the prepayment risk of residential mortgage-backed securities.

OUTLOOK

In 1996, the Company does not anticipate any major changes in market sector 
weightings, but will continue to marginally increase exposure to diversifying 
asset classes, such as securitized commercial mortgage-backed securities.  
The average quality rating of the Company's portfolio is not expected to 
change significantly.  Duration is anticipated to remain fairly constant and 
will be monitored and maintained in line with liability duration to minimize 
interest rate risk.

                                     (18)

<PAGE>

Item 8.  Financial Statements and Supplementary Data

                   Consolidated Financial Statements

                                 INDEX

                                                               PAGE

Independent Auditors' Report                                    20

Consolidated Financial Statements:

   Consolidated Statements of Income for the Years Ended
     December 31, 1995, 1994 and 1993                           21

   Consolidated Balance Sheets as of December 31, 1995
     and 1994                                                   22

   Consolidated Statements of Changes in Shareholder's Equity
     for the Years Ended December 31, 1995, 1994 and 1993       23

   Consolidated Statements of Cash Flows for the Years
     Ended December 31, 1995, 1994 and 1993                     24

   Notes to Consolidated Financial Statements                   25







                                     (19)


<PAGE>

                        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, 1995 and 
1994, 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, 1995. 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 statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Aetna 
Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 
and 1994, and the results of their operations and their cash flows for each 
of the years in the three-year period ended December 31, 1995, in conformity 
with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 1993 the 
Company changed its methods of accounting for certain investments in debt and 
equity securities.

/s/ KPMG Peat Marwick LLP


Hartford, Connecticut
February 6, 1996



                                     (20)



<PAGE>


         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
       (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                      Consolidated Statements of Income
                                  (millions)


<TABLE>
<CAPTION>

                                                                Years Ended December 31,
                                                              ----------------------------
                                                              1995        1994        1993
                                                              ----        ----        ----
<S>                                                           <C>         <C>         <C>

Revenue:
  Premiums                                                 $  130.8       $124.2   $   82.1
  Charges assessed against policyholders                      318.9        279.0      251.5
  Net investment income                                     1,004.3        917.2      911.9
  Net realized capital gains                                   41.3          1.5        9.5
  Other income                                                 42.0         10.3        9.5
                                                           --------     --------   --------
        Total revenue                                       1,537.3      1,332.2    1,264.5
                                                           --------     --------   --------

Benefits and expenses:
  Current and future benefits                                 915.3        854.1      818.4
  Operating expenses                                          318.7        235.2      207.2
  Amortization of deferred policy acquisition costs            43.3         26.4       19.8
                                                           --------     --------   --------
       Total benefits and expenses                          1,277.3      1,115.7    1,045.4
                                                           --------     --------   --------

Income before federal income taxes                            260.0        216.5      219.1

  Federal income taxes                                         84.1         71.2       76.2
                                                           --------     --------   --------

Net income                                                   $175.9       $145.3     $142.9
                                                           --------     --------   --------
                                                           --------     --------   --------

</TABLE>


See Notes to Consolidated Financial Statements.


                                     (21)


<PAGE>


          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                         Consolidated Balance Sheets
                                 (millions)

<TABLE>
<CAPTION>

                                                                              December 31,
                                                                          -------------------
ASSETS                                                                    1995           1994
                                                                          ----           ----
<S>                                                                       <C>            <C>
Investments:
  Debt securities, available for sale:
    (amortized cost:  $11,923.7 and $10,577.8)                         $12,720.8       $10,191.4
  Equity securities, available for sale:
    Non-redeemable preferred stock (cost:  $51.3 and $43.3)                 57.6            47.2
    Investment in affiliated mutual funds (cost:  $173.4 and $187.1)       191.8           181.9
    Common stock (cost:  $6.9 at December 31, 1995)                          8.2               -
  Short-term investments                                                    15.1            98.0
  Mortgage loans                                                            21.2             9.9
  Policy loans                                                             338.6           248.7
  Limited partnership                                                          -            24.4
                                                                       ---------       ---------
       Total investments                                                13,353.3        10,801.5

Cash and cash equivalents                                                  568.8           623.3
Accrued investment income                                                  175.5           142.2
Premiums due and other receivables                                          37.3            75.8
Deferred policy acquisition costs                                        1,341.3         1,164.3
Reinsurance loan to affiliate                                              655.5           690.3
Other assets                                                                26.2            15.9
Separate Accounts assets                                                10,987.0         7,420.8
                                                                       ---------       ---------

       Total assets                                                    $27,144.9       $20,934.1
                                                                       ---------       ---------
                                                                       ---------       ---------


LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:
  Future policy benefits                                               $ 3,594.6       $ 2,912.7
  Unpaid claims and claim expenses                                          27.2            23.8
  Policyholders' funds left with the Company                            10,500.1         8,949.3
                                                                       ---------       ---------
       Total insurance reserve liabilities                              14,121.9        11,885.8
  Other liabilities                                                        259.2           302.1
  Federal income taxes:
    Current                                                                 24.2             3.4
    Deferred                                                               169.6           233.5
  Separate Accounts liabilities                                         10,987.0         7,420.8
                                                                       ---------       ---------
       Total liabilities                                                25,561.9        19,845.6
                                                                       ---------       ---------

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                                                          407.6           407.6
  Net unrealized capital gains (losses)                                    132.5          (189.0)
  Retained earnings                                                      1,040.1           867.1
                                                                       ---------       ---------
       Total shareholder's equity                                        1,583.0         1,088.5
                                                                       ---------       ---------

         Total liabilities and shareholder's equity                    $27,144.9       $20,934.1
                                                                       ---------       ---------
                                                                       ---------       ---------
</TABLE>


See Notes to Consolidated Financial Statements.


                                     (22)


<PAGE>


          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

          Consolidated Statements of Changes in Shareholder's Equity
                              (millions)


<TABLE>
<CAPTION>

                                                        Years Ended December 31,
                                                     ------------------------------
                                                     1995         1994         1993
                                                     ----         ----         ----
<S>                                                  <C>          <C>          <C>

Shareholder's equity, beginning of year            $1,088.5     $1,246.7        $990.1
Net change in unrealized capital gains (losses)       321.5       (303.5)        113.7
Net income                                            175.9        145.3         142.9
Common stock dividends declared                        (2.9)           -             -
                                                   --------     --------      --------
Shareholder's equity, end of year                  $1,583.0     $1,088.5      $1,246.7
                                                   --------     --------      --------
                                                   --------     --------      --------

</TABLE>


See Notes to Consolidated Financial Statements.


                                     (23)


<PAGE>


           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                  Consolidated Statements of Cash Flows
                                 (millions)

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                      ------------------------------
                                                                      1995         1994         1993
                                                                      ----         ----         ----
<S>                                                                   <C>           <C>          <C>
Cash Flows from Operating Activities:
    Net income                                                     $   175.9    $   145.3     $  142.9
    Adjustments to reconcile net income to net cash
     provided by operating activities:
    Increase in accrued investment income                               (33.3)      (17.5)       (11.1)
    Decrease (increase) in premiums due and other receivables            25.4         1.3         (5.6)
    Increase in policy loans                                            (89.9)      (46.0)       (36.4)
    Increase in deferred policy acquisition costs                      (177.0)     (105.9)       (60.5)
    Decrease in reinsurance loan to affiliate                            34.8        27.8         31.8
    Net increase in universal life account balances                     393.4       164.7        126.4
    Increase in other insurance reserve liabilities                      79.0        75.1         86.1
    Net increase in other liabilities and other assets                   15.0        53.9          7.0
    Decrease in federal income taxes                                     (6.5)      (11.7)        (3.7)
    Net accretion of discount on bonds                                  (66.4)      (77.9)       (88.1)
    Net realized capital gains                                          (41.3)       (1.5)        (9.5)
    Other, net                                                              -        (1.0)         0.2
                                                                   ----------   ---------     --------
         Net Cash provided by operating activities                      309.1       206.6        179.5
                                                                   ----------   ---------     --------

Cash Flows from Investing Activities:
    Proceeds from sales of:
       Debt securities available for sale                             4,207.2     3,593.8        473.9
       Equity securities                                                180.8        93.1         89.6
       Mortgage loans                                                    10.7           -            -
       Limited partnership                                               26.6           -            -
    Investment maturities and collections of:
       Debt securities available for sale                               583.9     1,289.2      2,133.3
       Short-term investments                                           106.1        30.4         19.7
    Cost of investment purchases in:
       Debt securities                                               (6,034.0)   (5,621.4)    (3,669.2)
       Equity securities                                               (170.9)     (162.5)      (157.5)
       Short-term investments                                           (24.7)     (106.1)       (41.3)
       Mortgage loans                                                   (21.3)          -            -
       Limited partnership                                                  -       (25.0)           -
                                                                   ----------   ---------     --------
         Net cash used for investing activities                      (1,135.6)     (908.5)    (1,151.5)
                                                                   ----------   ---------     --------
Cash Flows from Financing Activities:
    Deposits and interest credited for investment contracts           1,884.5     1,737.8      2,117.8
    Withdrawals of investment contracts                              (1,109.6)     (948.7)    (1,000.3)
    Dividends paid to shareholder                                        (2.9)          -            -
                                                                   ----------   ---------     --------
         Net cash provided by financing activities                      772.0       789.1      1,117.5
                                                                   ----------   ---------     --------
Net (decrease) increase in cash and cash equivalents                    (54.5)       87.2        145.5
Cash and cash equivalents, beginning of year                            623.3       536.1        390.6
                                                                   ----------   ---------     --------
Cash and cash equivalents, end of year                                 $568.8      $623.3       $536.1
                                                                   ----------   ---------     --------
                                                                   ----------   ---------     --------
Supplemental cash flow information:
    Income taxes paid, net                                              $90.2       $82.6        $79.9
                                                                   ----------   ---------     --------
                                                                   ----------   ---------     --------

</TABLE>

See Notes to Consolidated Financial Statements.

                                     (24)

<PAGE>


           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                 Notes to Consolidated Financial Statements
                     December 31, 1995, 1994, and 1993


1. Summary of Significant Accounting Policies

   Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries 
   (collectively, the "Company") is a provider of financial services and life 
   insurance products in the United States.  The Company has two business 
   segments, financial services and life insurance.

   The financial services products include individual and group annuity 
   contracts which offer a variety of funding and distribution options for 
   personal and employer-sponsored retirement plans that qualify under 
   Internal Revenue Code Sections 401, 403, 408 and 457, and individual and 
   group non-qualified annuity contracts. These contracts may be immediate or 
   deferred and are offered primarily to individuals, pension plans, small 
   businesses and employer-sponsored groups in the health care, government, 
   education (collectively "not-for-profit" organizations) and corporate 
   markets. Financial services also include pension plan administrative 
   services.

   The life insurance products include universal life, variable universal 
   life, interest sensitive whole life and term insurance.  These products 
   are offered primarily to individuals, small businesses, employer sponsored 
   groups and executives of Fortune 2000 companies.

   BASIS OF PRESENTATION

   The consolidated financial statements include Aetna Life Insurance and 
   Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company 
   of America and Aetna Private Capital, Inc. Aetna Life Insurance and 
   Annuity Company is a wholly owned subsidiary of Aetna Retirement Services, 
   Inc. ("ARSI").  ARSI is a wholly owned subsidiary of Aetna Life and 
   Casualty Company ("Aetna"). Two subsidiaries, Systematized Benefits 
   Administrators, Inc. ("SBA"), and Aetna Investment Services, Inc. 
   ("AISI"), which were previously reported in the consolidated financial 
   statements were distributed in the form of dividends to ARSI in December 
   of 1995. The impact to the Company's financial statements of distributing 
   these dividends was immaterial.

   The consolidated financial statements have been prepared in conformity 
   with generally accepted accounting principles. Intercompany transactions 
   have been eliminated. Certain reclassifications have been made to 1994 and 
   1993 financial information to conform to the 1995 presentation.



                                     (25)

<PAGE>


          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

           Notes to Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

   ACCOUNTING CHANGES

   Accounting for Certain Investments in Debt and Equity Securities

   On December 31, 1993, the Company adopted Financial Accounting Standard 
   ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity 
   Securities, which requires the classification of debt securities into 
   three categories:  "held to maturity", which are carried at amortized 
   cost; "available for sale", which are carried at fair value with changes 
   in fair value recognized as a component of shareholder's equity; and 
   "trading", which are carried at fair value with immediate recognition in 
   income of changes in fair value.

   Initial adoption of this standard resulted in a net increase of $106.8 
   million, net of taxes of $57.5 million, to net unrealized gains in 
   shareholder's equity. These amounts exclude gains and losses allocable to 
   experience-rated (including universal life) contractholders. Adoption of 
   FAS No. 115 did not have a material effect on deferred policy acquisition 
   costs.

   USE OF ESTIMATES

   The preparation of financial statements in conformity with generally 
   accepted accounting principles requires management to make estimates and 
   assumptions that affect the amounts reported in the financial statements 
   and accompanying notes. Actual results could differ from reported results 
   using those estimates.

   CASH AND CASH EQUIVALENTS

   Cash and cash equivalents include cash on hand, money market instruments 
   and other debt issues with a maturity of ninety days or less when 
   purchased.

   INVESTMENTS

   Debt Securities

   At December 31, 1995 and 1994, all of the Company's debt securities are 
   classified as available for sale and carried at fair value. These 
   securities are written down (as realized losses) for other than temporary 
   decline in value. Unrealized gains and losses related to these securities, 
   after deducting amounts allocable to experience-rated contractholders and 
   related taxes, are reflected in shareholder's equity.

   Fair values for debt 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.


                                     (26)

<PAGE>
          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

            Notes to Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

   Purchases and sales of debt securities are recorded on the trade date.

   Equity Securities

   Equity securities are classified as available for sale and carried at fair 
   value based on quoted market prices or dealer quotations. Equity 
   securities are written down (as realized losses) for other than temporary 
   declines in value. Unrealized gains and losses related to such securities 
   are reflected in shareholder's equity. Purchases and sales are recorded on 
   the trade date.

   The investment in affiliated mutual funds represents an investment in the 
   Aetna Series Fund, Inc., a retail mutual fund which has been seeded by the 
   Company, and is carried at fair value.

   Mortgage Loans and Policy Loans

   Mortgage loans and policy loans are carried at unpaid principal balances 
   net of valuation reserves, which approximates fair value, and are 
   generally secured. Purchases and sales of mortgage loans are recorded on 
   the closing date.

   Limited Partnership

   The Company's limited partnership investment was carried at the amount 
   invested plus the Company's share of undistributed operating results and 
   unrealized gains (losses), which approximates fair value.  The Company 
   disposed of the limited partnership during 1995.

   Short-Term Investments

   Short-term investments, consisting primarily of money market instruments 
   and other debt issues purchased with an original maturity of over ninety 
   days and less than one year, are considered available for sale and are 
   carried at fair value, which approximates amortized cost.

   DEFERRED POLICY ACQUISITION COSTS

   Certain costs of acquiring insurance business have been deferred. These 
   costs, all of which vary with and are primarily related to the production 
   of new business, consist principally of commissions, certain expenses of 
   underwriting and issuing contracts and certain agency expenses. For fixed 
   ordinary life contracts, such costs are amortized over expected 
   premium-paying periods. For universal life and certain annuity contracts, 
   such costs are amortized in proportion to estimated gross profits and 
   adjusted to reflect actual gross profits. These costs are amortized over 
   twenty years for annuity pension contracts, and over the contract period 
   for universal life contracts.


                                     (27)

<PAGE>
          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

             Notes to Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

   Deferred policy acquisition costs are written off to the extent that it is 
   determined that future policy premiums and investment income or gross 
   profits would not be adequate to cover related losses and expenses.

   INSURANCE RESERVE LIABILITIES

   The Company's liabilities include reserves related to fixed ordinary life, 
   fixed universal life and fixed annuity contracts. Reserves for future 
   policy benefits for fixed ordinary life contracts are computed on the 
   basis of assumed investment yield, assumed mortality, withdrawals and 
   expenses, including a margin for adverse deviation, which generally vary 
   by plan, year of issue and policy duration. Reserve interest rates range 
   from 2.25% to 10.00%.  Assumed 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.

   Reserves for fixed universal life (included in Future Policy Benefits) and 
   fixed deferred annuity contracts (included in Policyholders' Funds Left 
   With the Company) are equal to the fund value. The fund value is equal to 
   cumulative deposits less charges plus credited interest thereon, without 
   reduction for possible future penalties assessed on premature withdrawal. 
   For guaranteed interest options, the interest credited ranged from 4.00% 
   to 6.38% in 1995 and 4.00% to 5.85% in 1994. For all other fixed options, 
   the interest credited ranged from 5.00% to 7.00% in 1995 and 5.00% to 
   7.50% in 1994.

   Reserves for fixed annuity contracts in the annuity period and for future 
   amounts due under settlement options are computed actuarially using the 
   1971 Individual Annuity Mortality Table, the 1983 Individual Annuity 
   Mortality Table, the 1983 Group Annuity Mortality Table and, in some 
   cases, mortality improvement according to scales G and H, at assumed 
   interest rates ranging from 3.5% to 9.5%. Reserves relating to contracts 
   with life contingencies are included in Future Policy Benefits. For other 
   contracts, the reserves are reflected in Policyholders' Funds Left With 
   the Company. 

   Unpaid claims for all lines of insurance include benefits for reported 
   losses and estimates of benefits for losses incurred but not reported.

   PREMIUMS, CHARGES ASSESSED AGAINST POLICYHOLDERS, BENEFITS AND EXPENSES

   Premiums are recorded as revenue when due for fixed ordinary life 
   contracts. Charges assessed against policyholders' funds for cost of 
   insurance, surrender charges, actuarial margin and other fees are recorded 
   as revenue for universal life and certain annuity contracts. Policy 
   benefits and expenses are recorded in relation to the associated premiums 
   or gross profit so as to result in recognition of profits over the 
   expected lives of the contracts.


                                     (28)

<PAGE>

          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

            Notes to Consolidated Financial Statements (Continued)

1. Summary of Significant Accounting Policies (Continued)

   SEPARATE ACCOUNTS

   Assets held under variable universal life, variable life and variable 
   annuity contracts are segregated in Separate Accounts and are invested, as 
   designated by the contractholder or participant under a contract, in 
   shares of Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore 
   Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna 
   Series Fund Inc., which are managed by the Company or other selected 
   mutual funds not managed by the Company. Separate Accounts assets and 
   liabilities are carried at fair value except for those relating to a 
   guaranteed interest option which is offered through a Separate Account. 
   The assets of the Separate Account supporting the guaranteed interest 
   option are carried at an amortized cost of $322.2 million for 1995 (fair 
   value $343.9 million) and $149.7 million for 1994 (fair value $146.3 
   million), since the Company bears the investment risk where the contract 
   is held to maturity. Reserves relating to the guaranteed interest option 
   are maintained at fund value and reflect interest credited at rates 
   ranging from 4.5% to 8.38% in both 1995 and 1994. 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 (losses) of the Separate Accounts are not reflected in the 
   Consolidated Statements of Income (with the exception of realized capital 
   gains (losses) on the sale of assets supporting the guaranteed interest 
   option). The Consolidated Statements of Cash Flows do not reflect 
   investment activity of the Separate Accounts.
                                   
   FEDERAL 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 benefits result from changes during the year in 
   cumulative temporary differences between the tax basis and book basis of 
   assets and liabilities.



                                     (29)

<PAGE>


          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
        (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

            Notes to Consolidated Financial Statements (Continued)

2. Investments

   Investments in debt securities available for sale as of December 31, 1995 
   were as follows: 

<TABLE>
<CAPTION>
                                                          Gross        Gross
                                           Amortized   Unrealized    Unrealized    Fair
                                             Cost         Gains       Losses      Value
                                           ---------   -----------   ---------    -----
                                                             (millions)
<S>                                        <C>         <C>           <C>          <C>
U.S. Treasury securities and obligations
 of U.S. government agencies and
 corporations                               $  539.5     $ 47.5           $ --   $   587.0

Obligations of states and political
 subdivisions                                   41.4       12.4             --        53.8

U.S. Corporate securities:
 Financial                                   2,764.4      110.3             2.1    2,872.6
 Utilities                                     454.4       27.8             1.0      481.2
 Other                                       2,177.7      159.5             1.2    2,336.0
                                           ---------     ------           -----  ---------
Total U.S. Corporate securities              5,396.5      297.6             4.3    5,689.8

Foreign securities:
  Government                                   316.4       26.1             2.0      340.5
  Financial                                    534.2       45.4             3.5      576.1
  Utilities                                    236.3       32.9              --      269.2
  Other                                        215.7       15.1              --      230.8
                                           ---------     ------           -----  ---------
Total Foreign securities                     1,302.6      119.5             5.5    1,416.6

Residential mortgage-backed securities:
  Residential pass-throughs                    556.7       99.2             1.8      654.1
  Residential CMOs                           2,383.9      167.6             2.2    2,549.3
                                           ---------     ------           -----  ---------
Total Residential mortgage-
  backed securities                          2,940.6      266.8             4.0    3,203.4

Commercial/Multifamily mortgage-
 backed securities                             741.9       32.3             0.2      774.0
                                           ---------     ------           -----  ---------
Total Mortgage-backed securities             3,682.5      299.1             4.2    3,977.4

Other asset-backed securities                  961.2       35.5             0.5      996.2
                                           ---------     ------           -----  ---------
Total debt securities available for sale   $11,923.7     $811.6           $14.5  $12,720.8
                                           ---------     ------           -----  ---------
                                           ---------     ------           -----  ---------
</TABLE>

                                    (30)

<PAGE>

             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
          (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

             Notes to Consolidated Financial Statements (Continued)

2. Investments (Continued)

   Investments in debt securities available for sale as of December 31, 1994 
   were as follows:


<TABLE>
<CAPTION>
                                                          Gross        Gross
                                           Amortized   Unrealized    Unrealized    Fair
                                             Cost         Gains       Losses      Value
                                           ---------   -----------   ---------    -----
                                                             (millions)
<S>                                        <C>         <C>           <C>          <C>

U.S. Treasury securities and obligations
 of U.S. government agencies and
 corporations                              $ 1,396.1        $ 2.0      $ 84.2    $ 1,313.9

Obligations of states and political
 subdivisions                                   37.9          1.2          --         39.1

U.S. Corporate securities:
 Financial                                   2,216.9          3.8       109.4      2,111.3
 Utilities                                     100.1           --         7.9         92.2
 Other                                       1,344.3          6.0        67.9      1,282.4
                                           ---------       ------      ------    ---------
Total U.S. Corporate securities              3,661.3          9.8       185.2      3,485.9

Foreign securities:
 Government                                    434.4          1.2        33.9        401.7
 Financial                                     368.2          1.1        23.0        346.3
 Utilities                                     204.4          2.5         9.5        197.4
 Other                                          46.3          0.8         1.5         45.6
                                           ---------       ------      ------    ---------
Total Foreign securities                     1,053.3          5.6        67.9        991.0

Residential mortgage-backed securities:
 Residential pass-throughs                     627.1         81.5         5.0        703.6
 Residential CMOs                            2,671.0         32.9       139.4      2,564.5
                                           ---------       ------      ------    ---------
Total Residential mortgage-
 backed securities                           3,298.1        114.4       144.4      3,268.1

Commercial/Multifamily mortgage-
 backed securities                             435.0          0.2        21.3        413.9
                                           ---------       ------      ------    ---------
Total Mortgage-backed securities             3,733.1        114.6       165.7      3,682.0

Other asset-backed securities                  696.1          0.2        16.8        679.5
                                           ---------       ------      ------    ---------

Total debt securities available for sale   $10,577.8       $133.4      $519.8    $10,191.4
                                           ---------       ------      ------    ---------
                                           ---------       ------      ------    ---------

</TABLE>

                                    (31)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

          Notes to Consolidated Financial Statements (Continued)

2. Investments (Continued)

   At December 31, 1995 and 1994, net unrealized appreciation (depreciation) 
   of $797.1 million and $(386.4) million, respectively, on available for 
   sale debt securities included $619.1 million and $(308.6) million, 
   respectively, related to experience-rated contractholders, which were not 
   included in shareholder's equity.

   The amortized cost and fair value of debt securities for the year ended 
   December 31, 1995 are shown below by contractual maturity.  Actual 
   maturities may differ from contractual maturities because securities may 
   be restructured, called, or prepaid.


                                          Amortized              Fair
                                            Cost                 Value
                                          ---------              ------
                                                    (millions)
  Due to mature:
   One year or less                      $   348.8             $   351.1
   After one year through five years       2,100.2               2,159.5
   After  five years through ten years     2,516.0               2,663.4
   After ten years                         2,315.0               2,573.2
   Mortgage-backed securities              3,682.5               3,977.4
   Other asset-backed securities             961.2                 996.2
                                         ---------             ---------
       Total                             $11,923.7             $12,720.8
                                         ---------             ---------
                                         ---------             ---------

   The Company engages in securities lending whereby certain securities 
   from its portfolio are loaned to other institutions for short periods of 
   time.  Cash collateral, which is in excess of the market value of the 
   loaned securities, is deposited by the borrower with a lending agent, 
   and retained and invested by the lending agent to generate additional
   income for the Company.  The market value of the loaned securities is 
   monitored on a daily basis with additional collateral obtained or 
   refunded as the market value fluctuates.  At December 31, 1995, the 
   Company had loaned securities (which are reflected as invested assets on 
   the Consolidated Balance Sheets) with a market value of approximately 
   $264.5 million.

   At December 31, 1995 and 1994, debt securities carried at $7.4 million 
   and $7.0 million, respectively, were on deposit as required by regulatory 
   authorities.

   The valuation reserve for mortgage loans was $3.1 million at December 31, 
   1994.  There was no valuation reserve for mortgage loans at December 31, 
   1995.  The carrying value of non-income producing investments was 
   $0.1 million and $0.2 million at December 31, 1995 and 1994, respectively.

                                    (32)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
       (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

           Notes to Consolidated Financial Statements (Continued)

2. Investments (Continued)

   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, 1995 are as follows:

  Debt Securities                                 Amortized    Fair
                                                    Cost       Value
                                                  ---------    ------
                                                       (millions)

  General Electric Corporation                     $314.9      $329.3
  General Motors Corporation                        273.9       284.5
  Associates Corporation of North America           230.2       239.1
  Society National Bank                             203.5       222.3
  Ciesco, L.P.                                      194.9       194.9
  Countrywide Funding                               171.2       172.7
  Baxter International                              168.9       168.9
  Time Warner                                       158.6       166.1
  Ford Motor Company                                156.7       162.6

   The portfolio of debt securities at December 31, 1995 and 1994 included 
   $662.5 million and $318.3 million, respectively, (5% and 3%,
   respectively, of the debt securities) of investments that  are considered 
   "below investment grade".  "Below investment grade" securities are defined 
   to be securities that carry a rating below BBB-/Baa3, by Standard &
   Poors/Moody's Investor Services, respectively.  The increase in below 
   investment grade securities is the result of a change in investment 
   strategy, which has reduced the Company's holdings in residential 
   mortgage-back securities and increased the Company's holdings in corporate 
   securities.  Residential mortgage-back securities are subject to higher 
   prepayment risk and lower credit risk, while corporate securities earning 
   a comparable yield are subject to higher credit risk and lower prepayment 
   risk.  We expect the percentage of below investment grade securities will 
   increase in 1996, but we expect that the overall average quality of the 
   portfolio of debt securities will remain at AA-.  Of these below
   investment grade assets, $14.5 million and $31.8 million, at December 31, 
   1995 and 1994, respectively, were investments that were purchased at 
   investment grade, but whose ratings have since been downgraded.

   Included in residential mortgage-back securities are collateralized 
   mortgage obligations ("CMOs") with carrying values of $2.5 billion and 
   $2.6 billion at December 31, 1995 and 1994, respectively.  The principal
   risks inherent in holding CMOs are prepayment and extension risks related 
   to dramatic decreases and increases in interest rates whereby the CMOs 
   would be subject to repayments of principal earlier or later than
   originally anticipated.  At December 31, 1995 and 1994, approximately 79% 
   and 85%, respectively, of the Company's CMO holdings consisted of 
   sequential and planned amortization class debt securities which are 
   subject to less prepayment and extension risk than other CMO instruments.
   At December 31, 1995 and 1994, approximately 81% and 82%, respectively, of 
   the Company's  CMO holdings were collateralized by residential mortgage
   loans, on which the timely payment of principal and interest was backed by 
   specified government agencies (e.g., GNMA, FNMA, FHLMC).

                                    (33)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
       (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

          Notes to Consolidated Financial Statements (Continued)

2. Investments (Continued)

   If due to declining interest rates, principal was to be repaid earlier 
   than originally anticipated, the Company could be affected by a decrease 
   in investment income due to the reinvestment of these funds at a lower 
   interest rate.  Such prepayments may result in a duration mismatch
   between assets and liabilities which could be corrected as cash from 
   prepayments could be reinvested at an appropriate duration to adjust the 
   mismatch.

   Conversely, if due to increasing interest rates, principal was to be 
   repaid slower than originally anticipated, the Company could be affected 
   by a decrease in cash flow which reduces the ability to reinvest
   expected principal repayments at higher interest rates. Such slower 
   payments may result in a duration mismatch between assets and liabilities 
   which could be corrected as available cash flow could be reinvested at 
   an appropriate duration to adjust the mismatch.

   At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of 
   the Company's CMO holdings consisted of interest-only strips ("IOs") or 
   principal-only strips ("POs").  IOs receive payments of interest and POs
   receive payments of principal on the underlying pool of mortgages.  The 
   risk inherent in holding POs is extension risk related to dramatic 
   increases in interest rates whereby the future payments due on POs could 
   be repaid much slower than originally anticipated.  The extension
   risks inherent in holding POs was mitigated somewhat by offsetting 
   positions in IOs.  During dramatic increases in interest rates, IOs 
   would generate more future payments than originally anticipated.

   The risk inherent in holding IOs is prepayment risk related to dramatic 
   decreases in interest rates whereby future IO cash flows could be much 
   less than originally anticipated and in some cases could be less than the
   original cost of the IO.  The risks inherent in IOs are mitigated 
   somewhat by holding offsetting positions in POs.  During dramatic 
   decreases in interest rates POs would generate future cash flows much 
   quicker than originally anticipated.

   Investments in available for sale equity securities were as follows:

                                      Gross          Gross        Fair
                           Cost     Unrealized     Unrealized     Value
                                      Gains          Losses
                           ----     ----------     ----------     -----
                                              (millions)
   1995
   ----
   Equity Securities      $231.6      $27.2            $1.2      $257.6
                          ------      -----            ----      ------
                          ------      -----            ----      ------
   1994
   ----
   Equity Securities      $230.5      $ 6.5            $7.9      $229.1
                          ------      -----            ----      ------
                          ------      -----            ----      ------

                                    (34)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

3. Capital Gains and Losses on Investment Operations

   Realized capital gains or losses are the difference between proceeds 
   received from investments sold or prepaid, and amortized cost.  Net 
   realized capital gains as reflected in the Consolidated Statements of 
   Income are after deductions for net realized capital gains (losses)
   allocated to experience-rated contracts of $61.1 million, $(29.1) million 
   and $(54.8) million for the years ended December 31, 1995, 1994, and 1993, 
   respectively.  Net realized capital gains (losses) allocated to 
   experience-rated contracts are deferred and subsequently reflected
   in credited rates on an amortized basis.  Net unamortized gains (losses), 
   reflected as a component of Policyholders' Funds Left With the Company, 
   were $7.3 million and $(50.7) million at the end of December 31, 1995 and 
   1994, respectively.

   Changes to the mortgage loan valuation reserve and writedowns on debt 
   securities are included in net realized capital gains (losses) and 
   amounted to $3.1 million, $1.1 million and $(98.5) million, of which 
   $2.2 million, $0.8 million and $(91.5) million were allocable
   to experience-rated contractholders, for the years ended December 31, 1995, 
   1994 and 1993, respectively.  The 1993 losses were primarily related to 
   writedowns of interest-only mortgage-backed securities to their fair 
   value.

   Net realized capital gains (losses) on investments, net of amounts 
   allocated to experience-rated contracts, were as follows:

                                       1995        1994      1993
                                       ----        ----      ----
                                               (millions)

   Debt securities                     $32.8       $1.0      $9.6
   Equity securities                     8.3        0.2       0.1
   Mortgage loans                        0.2        0.3      (0.2)
                                       -----       ----     ------
   Pretax realized capital gains       $41.3       $1.5      $9.5
                                       -----       ----     ------
                                       -----       ----     ------

   After-tax realized capital gains    $25.8       $1.0     $ 6.2
                                       -----       ----     ------
                                       -----       ----     ------

   Gross gains of $44.6 million, $26.6 million and $33.3 million and 
   gross losses of $11.8 million, $25.6 million and $23.7 million were 
   realized from the sales of investments in debt securities in 1995, 1994 
   and 1993, respectively.

                                    (35)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

3. Capital Gains and Losses on Investment Operations (Continued)

   Changes in unrealized capital gains (losses), excluding changes in 
   unrealized capital gains (losses) related to experience-rated contracts, 
   for the years ended December 31, were as follows:

                                                1995      1994     1993
                                                ----      ----     ----
                                                         (millions)

   Debt securities                             $255.9  $(242.1)   $164.3
   Equity securities                             27.3    (13.3)     10.6
   Limited partnership                            1.8     (1.8)       --
                                               ------  --------   ------
                                                285.0   (257.2)    174.9

   Deferred federal income taxes (See Note 6)   (36.5)    46.3      61.2
                                               ------  --------   ------

   Net change in unrealized capital
   gains (losses)
                                               $321.5  $(303.5)   $113.7
                                               ------  --------   ------
                                               ------  --------   ------

   Net unrealized capital gains (losses) allocable to experience-rated 
   contracts of $515.0 million and $104.1 million at December 31, 1995 
   and $(260.9) million and $(47.7) million at December 31, 1994 are 
   reflected on the Consolidated Balance Sheet in Policyholders' Funds Left
   With the Company and Future Policy Benefits, respectively, and are not 
   included in shareholder's equity.

   Shareholder's equity included the following unrealized capital gains 
   (losses), which are net of amounts allocable to experience-rated 
   contractholders, at December 31:

                                                1995      1994     1993
                                                ----      ----     ----
                                                         (millions)


    Debt securities
       Gross unrealized capital gains          $179.3    $  27.4   $164.3
       Gross unrealized capital losses           (1.3)    (105.2)      --
                                               ------    -------   ------
                                                178.0      (77.8)   164.3
                                               ------    -------   ------
    Equity securities
       Gross unrealized capital gains            27.2        6.5     12.0
       Gross unrealized capital losses           (1.2)      (7.9)    (0.1)
                                               ------    -------   ------
                                                 26.0       (1.4)    11.9
    Limited Partnership
       Gross unrealized capital gains              --         --       --
       Gross unrealized capital losses             --       (1.8)      --
                                               ------    -------   ------
                                                   --       (1.8)      --

    Deferred federal income taxes (See Note 6)   71.5      108.0     61.7
                                               ------    -------   ------

    Net unrealized capital gains (losses)      $132.5    $(189.0)  $114.5
                                               ------    -------   ------
                                               ------    -------   ------

                                    (36)

<PAGE>


         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

4. Net Investment Income

   Sources of net investment income were as follows:

                                                1995      1994     1993
                                                ----      ----     ----
                                                         (millions)

  Debt securities                              $891.5    $823.9    $828.0
  Preferred stock                                 4.2       3.9       2.3
  Investment in affiliated mutual funds          14.9       5.2       2.9
  Mortgage loans                                  1.4       1.4       1.5
  Policy loans                                   13.7      11.5      10.8
  Reinsurance loan to affiliate                  46.5      51.5      53.3
  Cash equivalents                               38.9      29.5      16.8
  Other                                           8.4       6.7       7.7
                                             --------    ------    ------
  Gross investment income                     1,019.5     933.6     923.3
  Less investment expenses                      (15.2)    (16.4)    (11.4)
                                             --------    ------    ------
  Net investment income                      $1,004.3    $917.2    $911.9
                                             --------    ------    ------
                                             --------    ------    ------

   Net investment income includes amounts allocable to experience-rated 
   contractholders of $744.2 million, $677.1 million and $661.3 million for 
   the years ended  December 31, 1995, 1994 and 1993, respectively.  
   Interest credited to contractholders is included in Current and
   Future Benefits.

5. Dividend Restrictions and Shareholder's Equity

   The Company distributed $2.9 million in the form of dividends of two of 
   its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 
   1995.

   The amount of dividends that may be paid to the shareholder in 1996 
   without prior approval by the Insurance Commissioner of the State of 
   Connecticut is $70.0 million.

   The Insurance Department of the State of Connecticut (the "Department") 
   recognizes as net income and shareholder's equity 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 
   $70.0 million, $64.9 million and $77.6 million for the years ended 
   December 31, 1995, 1994 and 1993, respectively.  Statutory shareholder's 
   equity was $670.7 million and $615.0 million as of December 31, 1995 and
   1994, respectively.

   At December 31, 1995 and December 31, 1994, the Company does not 
   utilize any statutory accounting practices which are not prescribed by 
   insurance regulators that, individually or in the aggregate, materially 
   affect statutory shareholder's equity.

                                    (37)

<PAGE>
        AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

6. Federal Income Taxes

   The Company is included in the consolidated federal income tax return of 
   Aetna.  Aetna allocates to each member an amount approximating the tax it 
   would have incurred were it not a member of the consolidated group, and 
   credits the member for the use of its tax saving attributes in the 
   consolidated return.

   In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) 
   was enacted which resulted in an increase in the federal corporate 
   tax rate from 34% to 35% retroactive to January 1, 1993.  The enactment 
   of OBRA resulted in an increase in the deferred tax liability of
   $3.4 million at date of enactment, which is included in the 1993 deferred 
   tax expense.

   Components of income tax expense (benefits) were as follows: 

                                                1995      1994     1993
                                                ----      ----     ----
                                                         (millions)
   Current taxes (benefits):
    Income from operations                    $ 82.9     $ 78.7    $ 87.1
    Net realized capital gains                  28.5      (33.2)     18.1
                                              ------     ------    ------
                                               111.4       45.5     105.2
                                              ------     ------    ------
   Deferred taxes (benefits):
    Income from operations                     (14.4)      (8.0)    (14.2)
    Net realized capital gains                 (12.9)      33.7     (14.8)
                                              ------     ------    ------
                                               (27.3)      25.7     (29.0)
                                              ------     ------    ------
       Total                                  $ 84.1     $ 71.2    $ 76.2
                                              ------     ------    ------
                                              ------     ------    ------

   Income tax expense was different from the amount computed by applying 
   the federal income tax rate to income before federal income taxes for 
   the following reasons:

                                                1995      1994     1993
                                                ----      ----     ----
                                                         (millions)

   Income before federal income taxes          $260.0    $216.5    $219.1
   Tax rate                                        35%       35%       35%
   Application of the tax rate                   91.0      75.8      76.7
                                               ------    ------    ------
   Tax effect of:
    Excludable dividends                         (9.3)     (8.6)     (8.7)
    Tax reserve adjustments                       3.9       2.9       4.7
    Reinsurance transaction                      (0.5)      1.9      (0.2)
    Tax rate change on deferred liabilities        --        --       3.7
    Other, net                                   (1.0)     (0.8)       --
                                               ------    ------    ------
      Income tax expense                       $ 84.1    $ 71.2    $ 76.2
                                               ------    ------    ------
                                               ------    ------    ------

                                    (38)

<PAGE>


         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

6. Federal 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:

                                                 1995        1994
                                                 ----        ----
   Deferred tax assets:                             (millions)
     Insurance reserves                         $290.4     $211.5
     Net unrealized capital losses                  --      136.3
     Unrealized gains allocable to
      experience-rated contracts                 216.7         --
     Investment losses not currently               
      deductible                                   7.3       15.5
     Postretirement benefits other than
      pensions                                     7.7        8.4
     Other                                        32.0       28.3
                                                ------     ------
   Total gross assets                            554.1      400.0
   Less valuation allowance                         --      136.3
                                                ------     ------
     Deferred tax assets, net of valuation       554.1      263.7


   Deferred tax liabilities:
     Deferred policy acquisition costs           433.0      385.2
     Unrealized losses allocable to                 
      experience-rated contracts                    --      108.0
     Market discount                               4.4        3.6
     Net unrealized capital gains                288.2         --
     Other                                        (1.9)       0.4
                                                ------     ------
   Total gross liabilities                       723.7      497.2
                                                ------     ------
   Net deferred tax liability                   $169.6     $233.5
                                                ------     ------
                                                ------     ------
                                                            
   Net unrealized capital gains and losses are presented in shareholder's 
   equity net of deferred taxes.  At December 31, 1994, $81.0 million of 
   net unrealized capital losses were reflected in shareholder's equity 
   without deferred tax benefits.  As of December 31, 1995, no valuation 
   allowance was required for unrealized capital gains and losses.  The
   reversal of the valuation allowance had no impact on net income in 1995.

   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, 1995.  
   This amount would be taxed only under certain conditions.  No income 
   taxes have been provided on this amount since management believes the 
   conditions under which such taxes would become payable are remote.

                                    (39)

<PAGE>
       AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
    (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
        Notes to Consolidated Financial Statements (Continued)

6. Federal Income Taxes (Continued)

   The Internal Revenue Service ("Service") has completed examinations of 
   the consolidated federal income tax returns of Aetna through 1986.  
   Discussions are being held with the Service with respect to proposed
   adjustments.  However, management believes there are adequate defenses 
   against, or sufficient reserves to provide for, such challenges.  The 
   Service has commenced its examinations for the years 1987 through 1990.

7. Benefit Plans

   Employee Pension Plans - The Company, in conjunction with Aetna, has 
   non-contributory defined benefit pension plans covering substantially 
   all employees.  The plans provide pension benefits based on years of 
   service and average annual compensation (measured over sixty consecutive
   months of highest earnings in a 120 month period). Contributions are 
   determined using the Projected Unit Credit Method and, for qualified 
   plans subject to ERISA requirements, are limited to the amounts that are
   currently deductible for tax reporting purposes.  The accumulated benefit 
   obligation and plan assets are recorded by Aetna.  The accumulated plan 
   assets exceed accumulated plan benefits.  There has been no funding to
   the plan for the years 1993 through 1995, and therefore, no expense has 
   been recorded by the Company. 

   Agent Pension Plans - The Company, in conjunction with Aetna, has a 
   non-qualified pension plan covering certain agents.  The plan provides 
   pension benefits based on annual commission earnings.  The accumulated 
   plan assets exceed accumulated plan benefits.  There has been no
   funding to the plan for the years 1993 through 1995, and therefore, no 
   expense has been recorded by the Company.

   Employee Postretirement Benefits - In addition to providing pension 
   benefits, Aetna also provides certain postretirement health care and 
   life insurance benefits, subject to certain caps, for retired employees. 
   Medical and dental benefits are offered to all full-time employees 
   retiring at age 50 with at least 15 years of service or at age 65 with 
   at least 10 years of service. Retirees are required to contribute to the 
   plans based on their years of service with Aetna.

   The cost to the Company associated with the Aetna postretirement plans 
   for 1995, 1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, 
   respectively.

   Agent Postretirement Benefits - The Company, in conjunction with Aetna, 
   also provides certain postemployment health care and life insurance 
   benefits for certain agents.

   The cost to the Company associated to the agents' postretirement plans 
   for 1995, 1994 and 1993 were $0.8 million, $0.7 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 $4.9 million, 
   $3.3 million and $3.1 million in 1995, 1994 and 1993, respectively.

                                    (40)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

7. Benefit Plans (Continued)

   Stock Plans - Aetna has a stock incentive plan that provides for stock 
   options and deferred contingent common stock or cash awards to certain 
   key employees.  Aetna also has a stock option plan under which executive 
   and middle management employees of Aetna may be granted options to 
   purchase common stock of Aetna at the market price on the date of grant 
   or, in connection with certain business combinations, may be granted 
   options to purchase common stock on different terms.  The cost to the 
   Company associated with the Aetna stock plans for 1995, 1994 and 1993, 
   was $6.3 million, $1.7 million and $0.4 million, respectively.

8. Related Party Transactions

   The Company is compensated by the Separate Accounts for bearing mortality 
   and expense risks pertaining to variable life and annuity contracts. 
   Under the insurance contracts, the Separate Accounts pay the Company a 
   daily fee which, on an annual basis, ranges, depending on the product, 
   from .25% to 1.80% of their average daily net assets.  The Company also 
   receives fees from the variable life and annuity mutual funds and The 
   Aetna Series Fund for serving as investment adviser.  Under the advisory
   agreements, the Funds pay the Company a daily fee which, on an annual 
   basis, ranges, depending on the fund, from .25% to 1.00% of their average 
   daily net assets.  The advisory agreements also call for the variable 
   funds to pay their own administrative expenses and for The Aetna Series 
   Fund to pay certain administrative expenses.  The Company also receives 
   fees (expressed as a percentage of the average daily net assets) from The 
   Aetna Series Fund for providing administration, shareholder services and
   promoting sales.  The amount of compensation and fees received from the 
   Separate Accounts and Funds, included in Charges Assessed Against 
   Policyholders, amounted to $128.1 million, $104.6 million and $93.6 
   million in 1995, 1994 and 1993, respectively.  The Company may waive
   advisory fees at its discretion.

   The Company may, from time to time, make reimbursements to a Fund for 
   some or all of its operating expenses. Reimbursement arrangements may 
   be terminated at any time without notice.

                                      (41)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

8. Related Party Transactions (Continued)

   Since 1981, all domestic individual non-participating life insurance of 
   Aetna and its subsidiaries has been issued by the Company.  Effective 
   December 31, 1988, the Company entered into a reinsurance agreement with 
   Aetna Life Insurance Company ("Aetna Life") in which substantially all of 
   the non-participating individual life and annuity business written by 
   Aetna Life prior to 1981 was assumed by the Company.  A $108.0 million
   commission, paid by the Company to Aetna Life in 1988, was capitalized as 
   deferred policy acquisition costs. The Company maintained insurance 
   reserves of $655.5 million and $690.3 million as of December 31, 1995 
   and 1994, respectively, relating to the business assumed.  In 
   consideration for the assumption of this business, a loan was established 
   relating to the assets held by Aetna Life which support the insurance 
   reserves.  The loan is being reduced in accordance with the decrease in 
   the reserves. The fair value of this loan was $663.5 million and $630.3
   million as of December 31, 1995 and 1994, respectively, and is based upon 
   the fair value of the underlying assets.  Premiums of $28.0 million, 
   $32.8 million and $33.3 million and current and future benefits of $43.0
   million, $43.8 million and $55.4 million were assumed in 1995, 1994 and 
   1993, respectively. 

   Investment income of $46.5 million, $51.5 million and $53.3 million was 
   generated from the reinsurance loan to affiliate in 1995, 1994 and 1993, 
   respectively.  Net income of approximately $18.4 million, $25.1 million 
   and $13.6 million resulted from this agreement in 1995, 1994 and 1993, 
   respectively.

   On December 16, 1988, the Company assumed $25.0 million of premium 
   revenue from Aetna Life for the purchase and administration of a life 
   contingent single premium variable payout annuity contract.  In addition, the
   Company also is responsible for administering fixed annuity payments that 
   are made to annuitants receiving variable payments.  Reserves of 
   $28.0 million and $24.2 million were maintained for this contract as of 
   December 31, 1995 and 1994, respectively.

   Effective February 1, 1992, the Company increased its retention limit per 
   individual life to $2.0 million and entered into a reinsurance agreement 
   with Aetna Life to reinsure amounts in excess of this limit, up to a 
   maximum of $8.0 million on any new individual life business, on a
   yearly renewable term basis.  Premium amounts related to this agreement 
   were $3.2 million, $1.3 million and $0.6 million for 1995, 1994 and 1993, 
   respectively.
                                   
   The Company received no capital contributions in 1995, 1994 or 1993.

   The Company distributed $2.9 million in the form of dividends of two of 
   its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 
   1995.

   Premiums due and other receivables include $5.7 million and $27.6 million 
   due from affiliates in 1995 and 1994, respectively.  Other liabilities 
   include $12.4 million and $27.9 million due to affiliates for 1995 and 
   1994, respectively.

                                    (42)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

8. Related Party Transactions (Continued)

   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.

9. Reinsurance

   The Company utilizes indemnity reinsurance agreements to reduce its 
   exposure to large losses in all aspects of its insurance business.  
   Such reinsurance permits recovery of a portion of losses from reinsurers, 
   although it does not discharge the primary liability of the Company as 
   direct insurer of the risks reinsured.  The Company evaluates the 
   financial strength of potential reinsurers and continually monitors the 
   financial condition of reinsurers.  Only those reinsurance recoverables 
   deemed probable of recovery are reflected as assets on the Company's 
   Consolidated Balance Sheets.

   The following table includes premium amounts ceded/assumed to/from 
   affiliated companies as discussed in Note 8 above.

                                        Ceded to     Assumed   
                             Direct       Other    from Other       Net
                             Amount     Companies   Companies      Amount
                             ------     ---------  ----------      ------
                                           (millions)
          1995
          ----

  Premiums:                                                  
    Life Insurance           $ 28.8       $ 8.6       $28.0      $ 48.2
    Accident and Health         7.5         7.5          --          --
     Insurance
    Annuities                  82.1          --         0.5        82.6
                             ---------------------------------------------
     Total earned premiums   $118.4       $16.1       $28.5      $130.8
                             ---------------------------------------------
                             ---------------------------------------------

          1994
          ----

  Premiums:                                                  
    Life Insurance           $ 27.3       $ 6.0       $32.8      $ 54.1
    Accident and Health         9.3         9.3          --          --
     Insurance
    Annuities                  69.9          --         0.2        70.1
                             ---------------------------------------------
     Total earned premiums   $106.5       $15.3       $33.0      $124.2
                             ---------------------------------------------
                             ---------------------------------------------

          1993
          ----

  Premiums:
    Life Insurance            $22.4      $ 5.6        $33.3      $ 50.1
    Accident and Health        12.9       12.9           --          --
     Insurance
    Annuities                  31.3         --          0.7        32.0
                             ---------------------------------------------
     Total earned premiums    $66.6      $18.5        $34.0       $82.1
                             ---------------------------------------------

                                    (43)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)
                                   
10. Financial Instruments
                                   
    ESTIMATED FAIR VALUE
                                   
    The carrying values and estimated fair values of the Company's financial 
    instruments at December 31, 1995 and 1994 were as follows:
                                   
                                              1995                     1994
                                      -----------------          ---------------
                                      Carrying   Fair          Carrying   Fair
                                       Value     Value           Value    Value
                                       -----     -----           -----    -----
                                                     (millions)
Assets:                                                   
    Cash and cash equivalents       $   568.8   $   568.8   $   623.3  $   623.3
    Short-term investments               15.1        15.1        98.0       98.0
    Debt securities                  12,720.8    12,720.8    10,191.4   10,191.4
    Equity securities                   257.6       257.6       229.1      229.1
    Limited partnership                    --          --        24.4       24.4
    Mortgage loans                       21.2        21.9         9.9        9.9
Liabilities:                                                        
    Investment contract liabilities:
        With a fixed maturity           989.1     1,001.2       826.7      833.5
        Without a fixed maturity      9,511.0     9,298.4     8,122.6    7,918.2


  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 expected 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 and liquidity risk, the fair values 
  of all assets and liabilities should be taken into consideration, not only 
  those above.
                                   
  The following valuation methods and assumptions were used by the Company 
  in estimating the fair value of the above financial instruments:
                                   
  SHORT-TERM INSTRUMENTS:  Fair values are based on quoted market prices or 
  dealer quotations.  Where quoted market prices are not available, the 
  carrying amounts reported in the Consolidated Balance Sheets approximates 
  fair value.  Short-term instruments have a maturity date of one year or 
  less and include cash and cash equivalents, and short-term investments.

                                    (44)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

10. Financial Instruments (Continued)

    DEBT AND EQUITY SECURITIES:  Fair values are based on quoted market 
    prices or dealer quotations.  Where quoted market prices or dealer 
    quotations are not available, fair value is estimated by using quoted 
    market prices for similar securities or discounted cash flow methods.

    MORTGAGE LOANS:  Fair value is 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. 
    The fair value estimate of mortgage loans of lower quality, including 
    problem and restructured loans, is based on the estimated fair value
    of the underlying collateral.

    INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT 
    WITH THE COMPANY):

    WITH A FIXED MATURITY:  Fair value is estimated by discounting cash 
    flows at interest rates currently being offered by, or available to, the 
    Company for similar contracts.

    WITHOUT A FIXED MATURITY:  Fair value is estimated as the amount payable 
    to the contractholder upon demand. However, the Company has the right 
    under such contracts to delay payment of withdrawals which may ultimately
    result in paying an amount different than that determined to be payable 
    on demand.

    OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL 
    INSTRUMENTS)

    During 1995, the Company received $0.4 million for writing call options 
    on underlying securities.  As of December 31, 1995 there were no option 
    contracts outstanding.

    At December 31, 1995, the Company had a forward swap agreement with a 
    notional amount of $100.0 million and a fair value of $0.1 million.

    The Company did not have transactions in derivative instruments in 1994.

                                    (45)

<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

10. Financial Instruments (Continued)

    The Company also holds investments in certain debt and equity securities 
    with derivative characteristics (i.e., including the fact that their 
    market value is at least partially determined by, among other things, 
    levels of or changes in interest rates, prepayment rates, equity
    markets or credit ratings/spreads).  The amortized cost and fair value 
    of these securities, included in the $13.4 billion investment portfolio, 
    as of December 31, 1995 was as follows:

                                             Amortized       Fair
   (Millions)                                  Cost          Value
                                             ---------       -----

   Collateralized mortgage obligations        $2,383.9     $2,549.3
   
     Principal-only strips (included above)       38.7         50.0
   
     Interest-only strips (included above)        10.7         20.7
   
   Structured Notes (1)                           95.0        100.3

  (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.

11. 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, 1995, 
    the Company had commitments to purchase investments of $31.4 million.  The
    fair value of the investments at December 31, 1995 approximated $31.5 
    million.  There were no outstanding forward commitments at December 31, 
    1994.

    LITIGATION

    There were no material legal proceedings pending against the Company as 
    of December 31, 1995 or December 31, 1994 which were beyond the ordinary 
    course of business.  The Company is involved in lawsuits arising, for 
    the most part, in the ordinary course of its business operations as an 
    insurer.

                                    (46)
<PAGE>

         AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
      (A wholly owned subsidiary of Aetna Retirement Services, Inc.)
                                   
          Notes to Consolidated Financial Statements (Continued)

12. Segment Information

    The Company's operations are reported through two major business 
    segments:  Life Insurance and Financial Services.

    Summarized financial information for the Company's principal operations 
    was as follows:


 (Millions)                                     1995      1994       1993
-----------------------------------------------------------------------------

Revenue:
  Financial services                         $ 1,129.4   $   946.1  $   892.8
  Life insurance                                 407.9       386.1      371.7
                                             ---------------------------------
      Total revenue                          $ 1,537.3   $ 1,332.2  $ 1,264.5
------------------------------------------------------------------------------
Income before federal income taxes:
    Financial services                       $   158.0    $  119.7  $   121.1
    Life insurance                               102.0        96.8       98.0
                                             ---------------------------------
     Total income before federal             $   260.0    $  216.5  $   219.1
      income taxes
-----------------------------------------------------------------------------
Net income:
    Financial services                       $   113.8    $   85.5  $    86.8
    Life insurance                                62.1        59.8       56.1
                                             ---------------------------------
Net income                                   $   175.9    $  145.3  $   142.9
-----------------------------------------------------------------------------

 (Millions)                                     1995       1994       1993

Assets under management, at fair value:
    Financial services                                   
                                             $23,224.3   $17,785.2  $16,600.5
    Life insurance                             2,698.1     2,171.7    2,175.5
-----------------------------------------------------------------------------
   Total assets under management             $25,922.4   $19,956.9  $18,776.0
-----------------------------------------------------------------------------

                                    (47)
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure

        None.
                                  PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules and 
         Reports on Form 8-K

(a)  The following documents are filed as part of this report:

     1. Financial statements.  See Item 8 on Page 19.
     2. Financial statement schedules.  See Index to Consolidated Financial
        Statement Schedules on Page 51.
     3. Exhibits:

        3(a) Certificate of Incorporation

             Incorporated herein by reference to post-effective amendment 
             No. 58 to Registration Statement on Form N-4 (File No. 2-52449) 
             as filed with the Securities and Exchange Commission on 
             February 28, 1994.

        3(b) By-Laws

             Incorporated herein by reference to post-effective amendment 
             No. 58 to Registration Statement on Form N-4 (File No. 2-52449) 
             as filed with the Securities and Exchange Commission on 
             February 28, 1994.

        4    Instruments Defining the Rights of Security Holders, Including 
             Indentures (Annuity Contracts)

             Incorporated herein by reference to Form S-1, File No. 33-42555, 
             as amended, originally filed with the Securities and Exchange 
             Commission on January 4, 1989 and most recently amended and 
             filed on April 4, 1995.

             Incorporated herein by reference to Form S-1, File No. 33-34583, 
             as amended, originally filed with the Securities and Exchange 
             Commission on January 4, 1989 and most recently amended and 
             filed on April 4, 1995.

             Incorporated herein by reference to Form N-4, File No. 2-52448, 
             as amended and filed most recently on April 28, 1995.

             Incorporated herein by reference to Form N-4, File No. 33-34370, 
             as amended and filed most recently on February 27, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-81216, as amended and filed most recently 
             on August 21, 1995.

             Incorporated herein by reference to Registration Statement 
             Form N-4, File No. 33-88722, as amended and filed most recently 
             on November 30, 1995.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75954, as amended and filed most recently 
             on April 28, 1995.

                                    (48)

<PAGE>

Item 14. Exhibits, Consolidated Financial Statement Schedules and 
         Reports on Form 8-K (Continued)

        4    Instruments Defining the Rights of Security Holders, Including 
             Indentures (Annuity Contracts) (Continued)

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75996, as amended and filed most recently 
             on February 16, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75956, as amended and filed most recently 
             on April 28, 1995.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 2-52449, as amended and filed most recently 
             on February 28, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75988, as amended and filed most recently 
             on February 22, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75976, as amended and filed most recently 
             on May 19, 1995.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-75984, as amended and filed most recently 
             on April 28, 1995.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-79122, as amended and filed most recently 
             on August 16, 1995.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 33-62473, as amended and filed most recently 
             on February 16, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form N-4, File No. 333-01107, as filed on February 21, 1996.

             Incorporated herein by reference to Registration Statement on 
             Form S-2, File No. 33-64331, as filed on November 16, 1995.

             Incorporated herein by reference to Pre-Effective Amendment 
             No. 2 to Registration Statement on Form S-2, File No. 33-64331, 
             as filed on January 17, 1996.

        10   Material Contracts (Management contracts/compensatory plans or
             arrangements)

             * The 1984 Stock Option Plan of Aetna Life and Casualty Company 
             and the amendments thereto; incorporated by reference to
             Aetna Life and Casualty Company's 1992 Form 10-K, filed on 
             March 17, 1993.
             Commission File Number 1-5704

             * Aetna Life and Casualty Company's Supplemental Incentive 
             Savings Plan; incorporated by reference to Aetna Life and
             Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
             Commission File Number 1-5704

                                    (49)

<PAGE>

Item 14. Exhibits, Consolidated Financial Statement Schedules and 
         Reports on Form 8-K (Continued)

        10   Material Contracts (Management contracts/compensatory plans or
             arrangements) (Continued)

             * Aetna Life and Casualty Company's Supplemental Pension 
             Benefit Plan; incorporated by reference to Aetna Life and
             Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
             Commission File Number 1-5704

             * Aetna Life and Casualty Company's 1986 Management Incentive 
             Plan as amended effective February 25, 1994; incorporated
             by reference to Aetna Life and Casualty Company's 1993 
             Form 10-K, filed on March 18, 1994.
             Commission File Number 1-5704

             * Aetna Life and Casualty Company's 1994 Stock Incentive Plan; 
             incorporated by reference to 1994 Proxy Statement of Aetna
             Life and Casualty Company.

             * Management contract or compensatory plan or arrangement

        21   Subsidiaries of the Registrant Incorporated by reference to 
             Exhibit Item 26 to Registration Statement on Form N-4
             (File Number 33-75982) as filed on February 20, 1996.

        24   Power of Attorney

             Filed herein immediately after Signature page.

        27   Financial Data Schedule

        Exhibits other than these listed are omitted because they are not 
        required or not applicable.

(b) Reports on Form 8-K.

    None.

                                    (50)

<PAGE>

    Index to Consolidated Financial Statement Schedules

                                                                Page
                                                                ----


    Independent Auditors' Report                                   52

    I.    Summary of Investments - Other than Investments in
          Affiliates as of December 31, 1995                       53

    III.  Supplementary Insurance Information as of and for the
          years ended December 31, 1995, 1994, 1993                54

    IV.   Reinsurance for the years ended December 31, 1995,
          1994, 1993                                               55


    Schedules other than those listed above are omitted because they are not
    required or are not applicable.




                                    (51)

<PAGE>


                         INDEPENDENT AUDITORS' REPORT


The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:


Under date of February 6, 1996, we reported on the consolidated balance 
sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of 
December 31, 1995 and 1994, 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, 1995, as included herein.  In 
connection with our audits of the aforementioned consolidated financial 
statements, we also have audited the related consolidated financial statement 
schedules as listed in the accompanying index.  These consolidated financial 
statement schedules are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these consolidated financial 
statement schedules based on our audits.

In our opinion, such consolidated financial statement schedules, when 
considered in relation to the basic consolidated financial statements as a 
whole, present fairly, in all material respects, the information set forth 
therein.

As discussed in Note 1 to the financial statements, in 1993 the Company 
changed its methods of accounting for certain investments in debt and equity 
securities.


/s/ KPMG Peat Marwick LLP

Hartford, Connecticut
February 6, 1996

                                     (52)


<PAGE>


             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
           (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                                  Schedule I

           Summary of Investments - Other than Investments in Affiliates


                                December 31, 1995

<TABLE>
<CAPTION>

                                                                                        Amount at
                                                                                       Which Shown
                                                                                         in the
      Type of Investment                                  Cost           Value*       Balance Sheet
      ------------------                                  ----           ------       -------------
                                                                       (millions)
<S>                                                       <C>           <C>           <C>

Debt Securities:
  U.S. Treasury securities and obligations
   of U.S. government agencies and corporations         $   539.5       $   587.0       $   587.0

  Obligations of states and political subdivisions           41.4            53.8            53.8
  U.S. Corporate securities                               5,396.5         5,689.8         5,689.8
  Foreign securities (1)                                  1,302.6         1,416.6         1,416.6
  Residential mortgage-backed securities                  2,940.6         3,203.4         3,203.4
  Commercial/Multifamily mortgage-backed securities         741.9           774.0           774.0
  Other asset-backed securities                             961.2           996.2           996.2
                                                        ---------       ---------       ---------
     Total debt securities                               11,923.7        12,720.8        12,720.8
                                                        ---------       ---------       ---------

Equity securities:
  Non-redeemable preferred stocks                            51.3            57.6            57.6
  Investment in affiliated mutual funds                     173.4           191.8           191.8
  Common stock                                                6.9             8.2             8.2
                                                        ---------       ---------       ---------
    Total equity securities                                 231.6           257.6           257.6
                                                        ---------       ---------       ---------
Short-term investments                                       15.1       ---------            15.1
Mortgage loans                                               21.2                            21.2
Policy loans                                                338.6                           338.6
                                                        ---------                       ---------
    Total investments                                   $12,530.2                       $13,353.3
                                                        ---------                       ---------
                                                        ---------                       ---------
</TABLE>

  * See Notes 1, 2 and 10 to the Consolidated Financial Statements.

(1) The term "foreign" includes foreign governments, foreign political 
    subdivisions, foreign public utilities and all other bonds of foreign
    issuers. All of the Company's foreign securities are denominated in
    U.S. dollars.


                                     (53)

<PAGE>



           AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                                Schedule III

                     Supplementary Insurance Information

         As of and for the years ended December 31, 1995, 1994 and 1993


<TABLE>
<CAPTION>


(Millions)

                      Deferred                      Unpaid                          Policyholders'
                       policy         Future        claims                            funds left                      Net
                    acquisition       policy       and claim      Unearned             with the        Premium     investment
   Segment             costs         benefits      expenses       premiums             company         revenue     income (1)
-------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>              <C>           <C>            <C>                <C>                <C>         <C>
1995
----
Financial Services   $  602.5       $1,018.9       $ 1.0           $ -                $10,483.3          $ 82.6     $  823.3
Life Insurance          738.8        2,574.3        26.2            1.4                    16.8            48.2        181.0
                     ----------------------------------------------------------------------------------------------------------
     Total           $1,341.3       $3,593.2       $27.2           $1.4               $10,500.1          $130.8     $1,004.3
                     ----------------------------------------------------------------------------------------------------------
                     ----------------------------------------------------------------------------------------------------------

1994
----
Financial Services   $  516.8       $  773.7       $ 1.4          $ -                 $ 8,942.9          $ 70.2     $  745.9
Life Insurance          647.5        2,137.3        22.4           1.7                      6.4            54.0        171.3
                     ----------------------------------------------------------------------------------------------------------
     Total           $1,164.3       $2,911.0       $23.8          $1.7                $ 8,949.3          $124.2     $  917.2
                     ----------------------------------------------------------------------------------------------------------
                     ----------------------------------------------------------------------------------------------------------

1993
----
Financial Services   $  440.8       $  720.3       $ 1.2           $ -                $ 8,898.8          $ 32.0     $  739.2
Life Insurance          610.8        2,109.3        26.0            1.7                     6.2            50.1        172.7
                     ----------------------------------------------------------------------------------------------------------
     Total           $1,051.6       $2,829.6       $27.2           $1.7               $ 8,905.0          $ 82.1     $  911.9
                     ----------------------------------------------------------------------------------------------------------
                     ----------------------------------------------------------------------------------------------------------


                                                           Amortization
                       Other income                         of deferred
                        (including         Current            policy            Other
                     realized capital     and future        acquisition       operating
                     gains and losses)     benefits            costs          expenses
---------------------------------------------------------------------------------------
<S>                  <C>                   <C>               <C>              <C>
1995
----
Financial Services    $223.6               $704.4            $10.5             $256.5
Life Insurance         178.6                210.9             32.8               62.2
                      -----------------------------------------------------------------
     Total            $402.2               $915.3            $43.3             $318.7
                     ------------------------------------------------------------------
                     ------------------------------------------------------------------


1994
----
Financial Services    $130.0               $639.9            $ 9.6             $176.9
Life Insurance         160.8                214.2             16.8               58.3
                      -----------------------------------------------------------------
     Total            $290.8               $854.1            $26.4             $235.2
                     ------------------------------------------------------------------
                     ------------------------------------------------------------------

1993
----
Financial Services    $121.6               $624.1            $(1.4)            $149.0
Life Insurance         148.9                194.3             21.2               58.2
                      -----------------------------------------------------------------
     Total            $270.5               $818.4            $19.8             $207.2
                     ------------------------------------------------------------------
                     ------------------------------------------------------------------
</TABLE>

(1) The allocation of net investment income is based upon the investment year
    method or specific identification of certain portfolios within specific
    segments.


                                     (54)



<PAGE>


             AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
           (A wholly owned subsidiary of Aetna Retirement Services, Inc.)

                                 Schedule IV

                                 Reinsurance


For the years ended December 31,
(Millions)

<TABLE>
<CAPTION>
                                                                                              Percentage
                                                     Ceded to       Assumed                    of Amount
                                       Direct          Other       from Other       Net        Assumed to
                                       Amount        Companies     Companies       Amount         Net
                                       ------        ---------     ----------      ------      ----------
<S>                                    <C>           <C>           <C>             <C>         <C>

  1995
  ----
Life insurance in force                $36,031.5     $1,846.8      $3,596.7        $37,781.4       9.5%
                                       -----------------------------------------------------
                                       -----------------------------------------------------
Premiums:
 Life Insurance                        $    28.8     $    8.6      $   28.0        $    48.2      58.1
 Accident and Health Insurance               7.5          7.5            -              -           -
 Annuities                                  82.1           -            0.5             82.6       0.6           -
                                       ------------------------------------------------------
  Total earned premiums                $   118.4     $   16.1      $   28.5        $   130.8      21.8
                                       -----------------------------------------------------
                                       -----------------------------------------------------

  1994
  ----
Life insurance in force                $32,184.3     $1,423.0      $2,677.8        $33,439.1       8.0%
                                       -----------------------------------------------------
                                       -----------------------------------------------------
Premiums:
 Life Insurance                        $    27.3     $    6.0      $   32.8        $    54.1      60.6
 Accident and Health Insurance               9.3          9.3            -              -           -
 Annuities                                  69.9           -            0.2             70.1       0.3           -
                                       -----------------------------------------------------
  Total earned premiums                $   106.5     $   15.3      $   33.0        $   124.2      26.6
                                       -----------------------------------------------------
                                       -----------------------------------------------------
  1993
  ----
Life insurance in force                $30,602.3     $1,210.2      $3,099.0        $32,491.1       9.5%
                                       -----------------------------------------------------
                                       -----------------------------------------------------
Premiums:
 Life Insurance                        $    22.4     $    5.6      $   33.3        $    50.1      66.5
 Accident and Health Insurance              12.9         12.9            -              -           -
 Annuities                                  31.3           -            0.7             32.0       2.2           -
                                       ------------------------------------------------------
  Total earned premiums                $    66.6     $   18.5      $   34.0        $    82.1      41.4
                                       -----------------------------------------------------
                                       -----------------------------------------------------

</TABLE>

                                     (55)


<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized.


                                   AETNA LIFE INSURANCE AND ANNUITY COMPANY
                                        (Registrant)

Date  March 29, 1996                By /s/  Eugene M. Trovato
                                       ---------------------------------
                                       Eugene M. Trovato
                                       Vice President, Treasurer, and
                                       Corporate Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
registrant and in the capacities indicated on March 29, 1996.


  Signature                                  Title


 /s/ Daniel P. Kearney                 President and Director
--------------------------             (Principal Executive Officer)
 Daniel P. Kearney


 /s/ Timothy A. Holt                   Senior Vice President, Chief Financial
--------------------------             Officer, and Director
 Timothy A. Holt


 /s/ Christopher J. Burns              Senior Vice President and Director
--------------------------
 Christopher J. Burns


 /s/ Laura R. Estes                    Senior Vice President and Director
--------------------------
 Laura R. Estes


 /s/ John Y. Kim                       Senior Vice President and Director
--------------------------
 John Y. Kim


 /s/ Gail P. Johnson                   Vice President and Director
--------------------------
 Gail P. Johnson


 /s/ Shaun P. Mathews                  Vice President and Director
--------------------------
 Shaun P. Mathews


 /s/ Glen Salow                        Vice President and Director
--------------------------
 Glen Salow


 /s/ Creed R. Terry                    Vice President and Director
--------------------------
 Creed R. Terry


 /s/ Eugene M. Trovato                 Vice President, Treasurer, and Corporate
--------------------------             Controller
 Eugene M. Trovato


*By:   /s/ Susan E. Schechter
    ------------------------------------------
    Susan E. Schechter, Corporate Secretary
    and Counsel


                                     (56)


<PAGE>


                                POWER OF ATTORNEY

We, the undersigned directors and officers of Aetna Life Insurance and 
Annuity Company, hereby severally constitute and appoint Susan E. Schechter 
and Eugene M. Trovato and each of them individually, our true and lawful 
attorneys, with full power to them and each of them to sign for us, and in 
our names and in the capacities indicated below, the 1995 Form 10-K and any 
and all amendments thereto to be filed with the Securities and Exchange 
Commission under the Securities Exchange Act of 1934, hereby ratifying and 
confirming our signatures as they may be signed by our said attorney to the 
Form 10-K and any and all amendments thereto.

WITNESS our hands and common seal on this 29th day of March, 1996.


  Signature                                  Title


 /s/ Daniel P. Kearney                 President and Director
--------------------------             (Principal Executive Officer)
 Daniel P. Kearney


 /s/ Timothy A. Holt                   Senior Vice President, Chief Financial
--------------------------             Officer, and Director
 Timothy A. Holt


 /s/ Christopher J. Burns              Senior Vice President and Director
--------------------------
 Christopher J. Burns


 /s/ Laura R. Estes                    Senior Vice President and Director
--------------------------
 Laura R. Estes


 /s/ John Y. Kim                       Senior Vice President and Director
--------------------------
 John Y. Kim


 /s/ Gail P. Johnson                   Vice President and Director
--------------------------
 Gail P. Johnson


 /s/ Shaun P. Mathews                  Vice President and Director
--------------------------
 Shaun P. Mathews


 /s/ Glen Salow                        Vice President and Director
--------------------------
 Glen Salow


 /s/ Creed R. Terry                    Vice President and Director
--------------------------
 Creed R. Terry


 /s/ Eugene M. Trovato                 Vice President, Treasurer, and Corporate
--------------------------             Controller
 Eugene M. Trovato



                                     (57)