<PAGE>
                      SECURITIES AND EXCHANGE COMMISSION 
                            Washington, D.C. 20549
 
                                  Form 10-Q
 
                 Quarterly Report Pursuant to Section 13 or 15(d) 
                     of the Securities Exchange Act of 1934
 
For the quarterly period ended March 31, 1997   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) 273-0123 

                                      None 
Former name, former address and former fiscal year if changed since last report
 
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date. 

                                                   Shares Outstanding 
Title of Class                                     at April 30, 1997 

Common Stock, 
par value $50                                      55,000 

The registrant meets the conditions set forth in General Instruction H(1)(a) 
and (b) of Form 10-Q and is therefore filing this Form with the reduced 
disclosure format.

<PAGE>
 
            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES 
           (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                               PAGE
                                                                              -------
<S>                                                                           <C> <C> 
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements

                  Consolidated Statements of Income...........................   3
                  Consolidated Balance Sheets.................................   4
                  Consolidated Statements of Changes in Shareholder's Equity..   5
                  Consolidated Statements of Cash Flows.......................   6
                  Condensed Notes to Consolidated Financial Statements........   7
                  Independent Auditors' Review Report.........................  10

Item 2.           Management's Analysis of the Results of Operations..........  11


PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings...........................................  17

Item 5.           Other Information...........................................  17

Item 6.           Exhibits and Reports on Form 8-K............................  17

Signatures....................................................................  18
</TABLE>
 
 
                                       2
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 

 
              AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES 
            (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
 
                        Consolidated Statements of Income
                                    (millions)
 
<TABLE>
<CAPTION>
                                                                              
                                                                               3 MONTHS ENDED MARCH 31,
                                                                               --------------------------
<S>                                                                            <C>        <C>
                                                                                 1997       1996
                                                                               ---------  ---------
Revenue:
Premiums                                                                       $    52.3  $    34.0
Charges assessed against policyholders                                             109.7       92.0
Net investment income                                                              267.8      257.6
Net realized capital gains                                                           5.0       14.9
Other income                                                                         9.7       12.2
                                                                               ---------  ---------
Total revenue                                                                      444.5      410.7

Benefits and expenses:
Current and future benefits                                                        272.0      236.9
Operating expenses                                                                  78.2       87.2
Amortization of deferred policy acquisition costs                                   19.9       17.5
                                                                               ---------  ---------
Total benefits and expenses                                                        370.1      341.6

Income before income taxes                                                          74.4       69.1

Income taxes                                                                        24.0       20.6
                                                                               ---------  ---------
Net income                                                                     $    50.4  $    48.5
                                                                               ---------  ---------
                                                                               ---------  ---------
</TABLE>
 
    See Condensed Notes to Consolidated Financial Statements.

                                      3


<PAGE>

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


                        Consolidated Balance Sheets 
                       (millions, except share data)
 
<TABLE>
<CAPTION>
                                                              MARCH 31,       DECEMBER 31,
ASSETS                                                          1997              1996
----------------------------------------------------------  --------------  ---------------
<S>                                                         <C>             <C>         
Investments:
Debt securities, available for sale, at fair value
  (amortized cost:  $12,378.5 and $12,539.1)                   $ 12,428.6        $ 12,905.5
Equity securities, available for sale:
Non-redeemable preferred stock (cost:$141.3 and $107.6)             152.1             119.0
Investment in affiliated mutual funds (cost:$64.2 and $77.3)         67.9              81.1
Common stock (cost:$0.0 and $0.0)                                     0.1               0.3
Short-term investments                                               45.5              34.8
Mortgage loans                                                       12.9              13.0
Policy loans                                                        408.4             399.3
                                                            --------------  ---------------
Total investments                                                13,115.5          13,553.0
Cash and cash equivalents                                           758.9             459.1
Accrued investment income                                           185.3             159.0
Premiums due and other receivables                                   32.6              26.6
Deferred policy acquisition costs                                 1,560.1           1,515.3
Reinsurance loan to affiliate                                       593.7             628.3
Other assets                                                         32.6              33.7
Separate Accounts assets                                         16,460.1          15,318.3
                                                            --------------  ---------------
Total assets                                                    $32,738.8        $ 31,693.3
                                                            --------------  ---------------
                                                            --------------  ---------------
Liabilities and Shareholder's Equity

Liabilities:
Future policy benefits                                           $3,613.3        $  3,617.0
Unpaid claims and claim expenses                                     37.4              28.9
Policyholders' funds left with the Company                       10,529.2          10,663.7
                                                            --------------  ---------------
Total insurance reserve liabilities                              14,179.9          14,309.6
Other liabilities                                                   392.8             354.7
Income taxes:
Current                                                              29.1              20.7
Deferred                                                             62.1              80.5
Separate Accounts liabilities                                    16,460.1          15,318.3
                                                            --------------  ---------------
Total liabilities                                                31,124.0          30,083.8
                                                            --------------  ---------------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized;
  55,000 shares issued and outstanding)                               2.8               2.8
Paid-in capital                                                     418.0             418.0
Net unrealized capital gains                                         13.6              60.5
Retained earnings                                                 1,180.4           1,128.2
                                                            --------------  ---------------
Total shareholder's equity                                        1,614.8           1,609.5
                                                            --------------  ---------------
Total liabilities and shareholder's equity                      $32,738.8        $ 31,693.3
                                                            --------------  ---------------
                                                            --------------  ---------------
</TABLE>


See Condensed Notes to Consolidated Financial Statements.

                                      4
<PAGE>

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

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


                                                        3 Months Ended March 31,
                                                        ------------------------
                                                           1997         1996
                                                         --------     --------
Shareholder's equity, beginning of year                  $1,609.5     $1,583.0

Net change in unrealized capital gains                      (46.9)       (75.9)

Net income                                                   50.4         48.5

Other changes                                                 1.8            -
                                                         --------     --------
Shareholder's equity, end of period                      $1,614.8     $1,555.6
                                                         --------     --------
                                                         --------     --------


See Condensed Notes to Consolidated Financial Statements.

                                      5


<PAGE>

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

                        Consolidated Statements of Cash Flows
                                      (millions)

<TABLE>
<CAPTION>


                                                                       3 Months Ended March 31,
                                                                      -------------------------
                                                                        1997           1996
                                                                      ---------      ---------
<S>                                                                   <C>            <C>
Cash Flows from Operating Activities:
  Net income                                                              $50.4          $48.5
  Adjustments to reconcile net income to net cash provided by
   (used for) operating activities:
  Increase in accrued investment income                                   (26.3)         (10.9)
  (Increase) decrease in premiums due and other receivables                (3.2)           0.5
  Increase in policy loans                                                 (9.1)          (6.0)
  Increase in deferred policy acquisition costs                           (44.8)         (34.3)
  Decrease in reinsurance loan to affiliate                                34.6            9.5
  Net increase in universal life account balances                          63.6           53.0
  Decrease in other insurance reserve liabilities                         (22.0)         (52.4)
  Net decrease in other liabilities and other assets                       (4.9)         (85.3)
  Increase in income taxes                                                 18.4           11.8
  Net accretion of discount on investments                                (16.9)         (16.9)
  Net realized capital gains                                               (5.0)         (14.9)
                                                                      ---------      ---------
     Net cash provided by (used for) operating activities                  34.8          (97.4)
                                                                      ---------      ---------

Cash Flows from Investing Activities:
  Proceeds from sales of:
    Debt securities available for sale                                  1,380.4        1,634.8
    Equity securities                                                      14.8           48.7
    Mortgage loans                                                          0.1              -
  Investments maturities and collections of:
    Debt securities available for sale                                    227.4          255.4
    Short-term investments                                                 10.4           10.0
  Cost of investment purchases in:
    Debt securities available for sale                                 (1,376.5)      (1,918.0)
    Equity securities                                                     (33.8)         (26.1)
    Short-term investments                                                (21.1)         (19.5)
                                                                      ---------      ---------
     Net cash provided by (used for) investing activities                 201.7          (14.7)
                                                                      ---------      ---------

Cash Flows from Financing Activities:
  Deposits and interest credited for investment contracts                 390.2          429.9
  Withdrawals of investment contracts                                    (326.9)        (332.0)
                                                                      ---------      ---------
     Net cash provided by financing activities                             63.3           97.9
                                                                      ---------      ---------

Net increase (decrease) in cash and cash equivalents                      299.8          (14.2)
Cash and cash equivalents, beginning of period                            459.1          568.8
                                                                      ---------      ---------

Cash and cash equivalents, end of period                                 $758.9         $554.6
                                                                      ---------      ---------
                                                                      ---------      ---------

Supplemental cash flow information:
  Income taxes paid, net                                                   $9.4          $12.0
                                                                      ---------      ---------
                                                                      ---------      ---------

</TABLE>

 
See Condensed Notes to Consolidated Financial Statements.


                                          6



<PAGE>
            AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
         (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
               CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. 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. (collectively, the "Company"). Aetna 
Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna 
Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of 
Aetna Retirement Services, Inc., whose ultimate parent is Aetna Inc. 
("Aetna").
 
    These consolidated financial statements have been prepared in accordance 
with generally accepted accounting principles and are unaudited. Certain 
reclassifications have been made to 1996 financial information to conform to 
the 1997 presentation. These interim statements necessarily rely heavily on 
estimates, including assumptions as to annualized tax rates. In the opinion 
of management, all adjustments necessary for a fair statement of results for 
the interim periods have been made. All such adjustments are of a normal, 
recurring nature. The accompanying condensed consolidated financial 
statements should be read in conjunction with the consolidated financial 
statements and related notes as presented in the Company's 1996 Annual Report 
on Form 10-K. Certain financial information that is normally included in 
annual financial statements prepared in accordance with generally accepted 
accounting principles, but that is not required for interim reporting 
purposes, has been condensed or omitted.
 
2. FUTURE APPLICATION OF ACCOUNTING STANDARDS
 
    Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers 
and Servicing of Financial Assets and Extinguishments of Liabilities, was 
issued in June 1996 and provides accounting and reporting standards for 
transfers of financial assets and extinguishments of liabilities.
 
    FAS No. 125 is effective for 1997 financial statements; however, certain 
provisions relating to accounting for repurchase agreements and securities 
lending are not effective until January 1, 1998. Provisions effective in 1997 
did not have a material effect on the Company's financial position or results 
of operations. The Company does not expect adoption of this statement for 
provisions effective in 1998 to have a material effect on its financial 
position or results of operations.
 
3. FINANCIAL INSTRUMENTS
 
    The Company engages in hedging activities to manage interest rate and 
price risks. Such hedging activities have principally consisted of using 
off-balance sheet instruments such as futures and forward contracts and 
interest rate swap agreements. There were no such contracts or agreements 
open as of March 31, 1997.
 
                                       7
<PAGE>
          AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES 
        (A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
 
             Condensed Notes to Consolidated Financial Statements 
                                  (Continued)
 
4. SEVERANCE AND FACILITIES CHARGES
 
    In the second quarter of 1996, the Company was allocated severance 
and facilities reserves from Aetna to reflect actions taken or to be taken to 
reduce the level of corporate expenses and other costs previously absorbed by 
Aetna's property-casualty operations.
 
    In the third quarter of 1996, the Company established severance and 
facilities reserves in the Financial Services and Individual Life Insurance 
segments to reflect actions taken or to be taken in order to make its 
businesses more competitive.
 
    Activity for the three months ended March 31, 1997 within the severance 
and facilities reserves (pretax, in millions) and positions eliminated 
related to such actions were as follows:
 
<TABLE>
<CAPTION>
                                                     RESERVE       POSITIONS
                                                    -----------  -------------
<S>                                                    <C>          <C>
Balance at December 31, 1996.....................   $    47.9           524
Actions taken (1)................................       (10.9)          (88)
                                                    -----------  -------------
Balance at March 31, 1997........................   $    37.0           436
------------------------------------------------------------------------------
</TABLE>
 
------------------------
 
(1) Includes $6.3 million of the Company's severance-related actions and $3.9
    million of corporate allocation-related actions.
 
    The Company's severance actions are expected to be substantially 
completed by March 31, 1998. The corporate allocation actions and vacating of 
certain leased office space are expected to be substantially completed in 
1997.
 
5. RELATED PARTY TRANSACTIONS
 
    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. 
Effective January 1, 1997, this agreement has been amended to transition 
(based on underlying investment rollover in Aetna Life) from a modified 
coinsurance to a coinsurance arrangement. As a result of this change, 
reserves will be ceded to the Company from Aetna Life as investment rollover 
occurs and the loan previously established will be reduced.
 
6. LITIGATION
 
    The Company is involved in numerous lawsuits arising, for the most part, 
in the ordinary course of its business operations. While the ultimate outcome 
of litigation against the Company cannot be determined at this time, after 
consideration of the defenses available to the Company and any related 


                                       8
<PAGE>

reserves established, it is not expected to result in liability for amounts 
material to the financial condition of the Company, although it may adversely 
affect results of operations in future periods.

                                       9
<PAGE>

                     INDEPENDENT AUDITOR'S REVIEW REPORT


The Board of Directors
Aetna Life Insurance and Annuity Company:

We have reviewed the accompanying condensed consolidated balance sheet of 
Aetna Life Insurance and Annuity Company and Subsidiaries as of March 31, 
1997, and the related condensed consolidated statements of income, changes in
shareholder's equity and cash flows for the three-month periods ended 
March 31, 1997 and 1996.  These condensed consolidated financial statements 
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the 
American Institute of Certified Public Accountants.  A review of interim 
financial information consists principally of applying analytical procedures 
to financial data and making inquiries of persons responsible for financial 
and accounting matters.  It is substantially less in scope than an audit 
conducted in accordance with generally accepted auditing standards, the 
objective of which is the expression of an opinion regarding the financial 
statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that 
should be made to the accompanying condensed consolidated financial 
statements for them to be in conformity with generally accepted accounting 
principles.

We have previously audited, in accordance with generally accepted auditing 
standards, the consolidated balance sheet of Aetna Life Insurance and Annuity 
Company and Subsidiaries as of December 31, 1996, and the related 
consolidated statements of income, changes in shareholder's equity, and cash 
flows for the year then ended (not presented herein); and in our report dated 
February 4, 1997, we expressed an unqualified opinion on those consolidated 
financial statements.  In our opinion, the information set forth in the 
accompanying condensed consolidated balance sheet as of December 31, 1996, is 
fairly presented, in all material respects, in relation to the consolidated 
balance sheet from which it has been derived.


                                                      /s/ KPMG Peat Marwick LLP

Hartford, Connecticut
May 5, 1997


                                       10

<PAGE>
ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
 
Consolidated Overview:
 
<TABLE>
<CAPTION>
                                                                  3 MONTHS ENDED   MARCH 31,
OPERATING SUMMARY (MILLIONS)                                           1997           1996
----------------------------------------------------------------  ---------------  ----------
<S>                                                               <C>              <C>
Premiums (1)....................................................    $      52.3    $     34.0
Charges assessed against policyholders..........................          109.7          92.0
Net investment income...........................................          267.8         257.6
Net realized capital gains......................................            5.0          14.9
Other income....................................................            9.7          12.2
                                                                  ---------------  ----------
          Total revenue.........................................          444.5         410.7
                                                                  ---------------  ----------
Current and future benefits (1).................................          272.0         236.9
Operating expenses..............................................           78.2          87.2
Amortization of deferred policy acquisition costs...............           19.9          17.5
                                                                  ---------------  ----------
          Total benefits and expenses...........................          370.1         341.6
                                                                  ---------------  ----------
          Income before income taxes............................           74.4          69.1
          Income taxes..........................................           24.0          20.6
                                                                  ---------------  ----------
          Net income............................................    $      50.4    $     48.5
                                                                  ---------------  ----------
                                                                  ---------------  ----------
     Net realized capital gains, net of tax (included above)....    $       3.2    $      9.7
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Deposits not included in premiums above:
     Annuities--fixed options...................................    $     280.2    $    307.3
     Annuities--variable options................................          818.1         659.3
     Individual Life Insurance..................................          120.5         102.8
                                                                  ---------------  ----------
          Total................................................     $   1,218.8    $  1,069.4
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Assets under management: (2) (3)
     Annuities--fixed options...................................    $  11,767.9    $ 11,156.3
     Annuities--variable options................................       15,047.7      11,514.4
                                                                  ---------------  ----------
          Subtotal Annuities....................................       26,815.6      22,670.7
     Other investment advisory (4)..............................        2,102.8       1,106.5
                                                                  ---------------  ----------
          Financial Services....................................       28,918.4      23,777.2
     Individual Life Insurance..................................        2,894.4       2,645.7
                                                                  ---------------  ----------
          Total................................................     $  31,812.8    $ 26,422.9
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Individual life insurance coverage issued.......................    $   1,393.8    $  1,242.7
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Individual life insurance coverage in force.....................    $  42,923.9    $ 40,357.9
                                                                  ---------------  ----------
                                                                  ---------------  ----------
</TABLE>
 
------------------------
 
(1) Includes $16.4 million and $19.9 million for the three months ended March 
    31, 1997 and 1996, respectively, for annuity contracts converting from 
    the accumulation phase to payout options with life contingencies.
 
(2) Excludes net unrealized capital gains of $50.1 million and $301.8 million at
    March 31, 1997 and 1996, respectively.
 
(3) Includes $4,989.3 million and $3,167.0 million at March 31, 1997 and 1996,
    respectively, of assets held and managed by unaffiliated mutual funds.

(4) March 31, 1997 includes $950.3 million of assets under management related to
    business previously written by an affiliate.
 
OVERVIEW
 
    The Company's net income for the three months ended March 31, 1997 
increased 4% compared with the same period a year ago. Excluding net realized 
capital gains, results for the three months ended March 31, 1997 increased $8 
million or 22% from the prior period reflecting improved earnings from both 
the financial services and life insurance segments.
 
    Assets under management, excluding the amount related to business 
previously written by an affiliate, increased by 17% primarily due to 
continued business growth through deposits and appreciation in the stock 
market.

                                       11
<PAGE> 
   Of the $11.8 billion and $11.2 billion of fixed annuity assets under 
management at March 31, 1997 and 1996, respectively, 25% and 23%, 
respectively, were fully guaranteed and 75% and 77%, respectively, were 
experience rated. The average annualized earned rate on investments 
supporting fully guaranteed contracts was 7.9% and 8.0% and the average 
annualized earned rate on investments supporting experience rated contracts 
was 8.1% and 8.2% for the three months ended March 31, 1997 and 1996, 
respectively. The average annualized credited rate on fully guaranteed 
contracts was 6.7% and 6.6% and the average annualized credited rate on 
experience rated contracts was 6.0% for each of the three months ended March 
31, 1997 and 1996, respectively. The resulting annualized interest margins on 
fully guaranteed contracts were 1.2% and 1.4% and on experience rated 
contracts were 2.1% and 2.2% for the three months ended March 31, 1997 and 
1996.
 
    The duration of the investment portfolios supporting the Company's 
liabilities is regularly monitored and adjusted in order to maintain an 
aggregate duration that is within 0.5 years of the estimated duration of the 
underlying liabilities. For additional information regarding the Company's 
asset/liability management practices please see the Company's 1996 Annual 
Report on Form 10-K.

                                       12
<PAGE>
SEGMENT RESULTS
 
Financial Services:
 
<TABLE>
<CAPTION>
 
                                                                 3 MONTHS ENDED   MARCH 31,
OPERATING SUMMARY (MILLIONS)                                           1997           1996
----------------------------------------------------------------  ---------------  ----------
<S>                                                               <C>              <C>
Premiums (1)                                                        $      17.8    $     22.0
Charges assessed against policyholders                                     57.5          45.6
Net investment income                                                     217.6         210.5
Net realized capital gains                                                  4.6          13.7
Other income                                                                9.3          10.7
                                                                  ---------------  ----------
         Total revenue                                                    306.8         302.5
                                                                  ---------------  ----------
Current and future benefits (1)                                           179.3         177.5
Operating expenses                                                         64.5          71.0
Amortization of deferred policy acquisition costs                          13.8           6.4
                                                                  ---------------  ----------
        Total benefits and expenses                                       257.6         254.9
                                                                  ---------------  ----------
        Income before income taxes                                         49.2          47.6
                                                                  ---------------  ----------
        Income taxes                                                       14.9          14.6
                                                                  ---------------  ----------
        Net income                                                  $      34.3    $     33.0
                                                                  ---------------  ----------
                                                                  ---------------  ----------
        Net realized capital gains, net of tax (included above)     $       3.0    $      8.9
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Deposits not included in premiums above:
  Annuities--fixed options                                          $     280.2    $    307.3
  Annuities--variable options                                             818.1         659.3
                                                                  ---------------  ----------
        Total                                                       $   1,098.3    $    966.6
                                                                  ---------------  ----------
                                                                  ---------------  ----------
Assets under management: (2) (3)
  Annuities--fixed options                                          $  11,767.9    $ 11,156.3
  Annuities--variable options                                          15,047.7      11,514.4
                                                                  ---------------  ----------
        Subtotal Annuities                                             26,815.6      22,670.7
  Other investment advisory (4)                                         2,102.8       1,106.5
                                                                  ---------------  ----------
        Total                                                       $  28,918.4    $ 23,777.2
                                                                  ---------------  ----------
                                                                  ---------------  ----------
</TABLE>
 
------------------------
 
(1) Includes $16.4 million and $19.9 million for the three months ended March 
    31, 1997 and 1996, respectively, for annuity contracts converting from 
    the accumulation phase to payout options with life contingencies.
 
(2) Excludes net unrealized capital gains of $51.7 million and $275.7 million at
    March 31, 1997 and 1996, respectively.
 
(3) Includes $4,888.9 million and $3,126.2 million at March 31, 1997 and 1996,
    respectively, of assets held and managed by unaffiliated mutual funds.
 
(4) March 31, 1997 includes $950.3 million of assets under management related to
    business previously written by an affiliate.
 
    Net income in the Financial Services segment for the three months ended 
March 31, 1997 increased 4% compared with the same period a year ago. 
Excluding net realized capital gains, results for the three months ended 
March 31, 1997 increased $7 million or 30% when compared with the same period 
a year ago. The increase in earnings reflects increased charges assessed 
against policyholders primarily from increased assets under management. 
Assets under management, excluding the amount related to business previously 
written by an affiliate, increased primarily due to continued business growth 
through deposits and appreciation in the stock market. Earnings for the three 
months ended March 31, 1997 also reflect a 9% decrease in operating expenses 
when compared with the same period a year ago, reflecting cost savings from 
previous restructurings.
 
                                       13
<PAGE>

    Individual Life Insurance:
 
<TABLE>
<CAPTION>
                                                                          3 MONTHS ENDED   MARCH 31,
OPERATING SUMMARY (MILLIONS)                                                   1997           1996
------------------------------------------------------------------------  ---------------  ----------
<S>                                                                       <C>              <C>         <C>        <C>
Premiums                                                                    $      34.5    $     12.0
Charges assessed against policyholders                                             52.2          46.4
Net investment income                                                              50.2          47.1
Net realized capital gains                                                          0.4           1.2
Other income                                                                        0.4           1.5
                                                                          ---------------  ----------
            Total revenue                                                         137.7         108.2
                                                                          ---------------  ----------
Current and future benefits                                                        92.7          59.4
Operating expenses                                                                 13.7          16.2
Amortization of deferred policy acquisition costs                                   6.1          11.1
                                                                          ---------------  ----------
           Total benefits and expenses                                            112.5          86.7
                                                                          ---------------  ----------
           Income before income taxes                                              25.2          21.5
           Income taxes                                                             9.1           6.0
                                                                          ---------------  ----------
           Net income                                                       $      16.1    $     15.5
                                                                          ---------------  ----------
                                                                          ---------------  ----------
           Net realized capital gains, net of tax (included above)          $       0.2    $      0.8
                                                                          ---------------  ----------
                                                                          ---------------  ----------
Deposits not included in premiums above:
  Individual Life Insurance                                                 $     120.5    $    102.8
                                                                          ---------------  ----------
                                                                          ---------------  ----------
Assets under management: (1) (2)
  Individual Life Insurance                                                 $   2,894.4    $  2,645.7
                                                                          ---------------  ----------
                                                                          ---------------  ----------
Individual life insurance coverage issued                                   $   1,393.8    $  1,242.7
                                                                          ---------------  ----------
                                                                          ---------------  ----------
Individual life insurance coverage in force                                 $  42,923.9    $ 40,357.9
                                                                          ---------------  ----------
                                                                          ---------------  ----------
</TABLE>
 
------------------------
 
(1) Excludes net unrealized capital losses of $1.6 million and net unrealized
    capital gains of $26.1 million at March 31, 1997 and 1996, respectively.
 
(2) Includes $100.4 million and $40.8 million at March 31, 1997 and 1996,
    respectively, of assets held and managed by unaffiliated mutual funds.
 
    Net income in the Individual Life Insurance segment for the three months 
ended March 31, 1997 increased 4% compared with the same period a year ago. 
Excluding net realized capital gains, earnings for the three months ended 
March 31, 1997 increased $1 million or 8% when compared with the same period 
a year ago. The increase in earnings reflects increased charges assessed 
against policyholders primarily from increased individual life insurance 
coverage in force, as well as lower operating expenses resulting from cost 
savings associated with previous restructurings. Such increases were 
partially offset by unfavorable mortality experience.

    Premiums and current and future benefits reflect $22.5 million for the 
three months ended March 31, 1997 related to the transition of the 
reinsurance agreement with Aetna Life from a modified coinsurance to a 
coinsurance arrangement (see Note 5 of the Condensed Notes to Consolidated 
Financial Statements).
 
                                       14

<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.
 
The Company's invested assets were comprised of the following:
 
<TABLE>
<CAPTION>
                                                                     MARCH 31,   DECEMBER 31,
(MILLIONS)                                                              1997         1996
-------------------------------------------------------------------  ----------  ------------
<S>                                                                  <C>         <C>
Debt securities, available for sale, at fair value.................  $ 12,428.6   $ 12,905.5
Equity securities, available for sale:
Non-redeemable preferred stock.....................................       152.1        119.0
Investment in affiliated mutual funds..............................        67.9         81.1
Common stock.......................................................         0.1          0.3
Short-term investments.............................................        45.5         34.8
Mortgage loans.....................................................        12.9         13.0
Policy loans.......................................................       408.4        399.3
                                                                     ----------  ------------
Total Investments..................................................  $ 13,115.5   $ 13,553.0
                                                                     ----------  ------------
                                                                     ----------  ------------
</TABLE>
 
At both March 31, 1997 and December 31, 1996, the Company's carrying value
of investments in debt securities represented 95% of total general account
invested assets. At March 31, 1997 and December 31, 1996, $9.9 billion and $10.3
billion, respectively, or 80% of total debt securities supported experience
rated products for both periods.

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 at both March 31, 1997 and December 31, 
1996 was AA-.
 
<TABLE>
<CAPTION>
                                      DEBT SECURITIES INVESTMENTS BY MARKET
DEBT SECURITIES QUALITY RATINGS                      SECTOR
       AT MARCH 31, 1997                        AT MARCH 31, 1997
-------------------------------    -------------------------------------------
<S>                                <C>                                        
AAA                       46.1%     U.S. Corporate Securities           38.1%
                                    Residential Mortgage- Backed
AA                         9.7      Securities                          25.0
                                    Foreign Securities--U.S. Dollar
A                         24.4      Denominated                         13.9
                                    Commercial/Multifamily
BBB                       12.4      Mortgage-
BB                         5.1      Backed Securities                    8.8
B and Below                2.3      Asset-Backed Securities              7.3
                         100.0%     U.S. Treasuries/Agencies             6.9

                                                                       100.0%

</TABLE>

                                      15


<PAGE>
<TABLE>
<CAPTION>
                                      DEBT SECURITIES INVESTMENTS BY MARKET
DEBT SECURITIES QUALITY RATINGS                      SECTOR
     AT DECEMBER 31, 1996                     AT DECEMBER 31, 1996
-------------------------------    -------------------------------------------
<S>                                <C>                                        
AAA                      47.3%      U.S. Corporate Securities           36.8%
                                    Residential Mortgage- Backed
AA                       10.5       Securities                          24.6
                                    Foreign Securities--U.S. Dollar
A                        23.9       Denominated                         15.2
BBB                      11.9       U.S. Treasuries/Agencies             8.4
                                    Commercial/Multifamily
BB                        4.3       Mortgage-
B and Below               2.1       Backed Securities                    8.0
                        100.0%      Asset-Backed Securities              6.9
                                    Other                                0.1

                                                                       100.0%
</TABLE>
                                      16


<PAGE>

                           PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related reserves
established, it is not expected to result in liability for amounts material to
the financial condition of the Company, although it may adversely affect results
of operations in future periods.
 
ITEM 5. OTHER INFORMATION.
 
        (a) NAIC IRIS RATIOS

            The NAIC IRIS ratios cover 12 categories of financial data with 
            defined usual ranges for each category. The ratios are intended to 
            separate out, for further review, those insurers who might warrant
            special attention. At December 31, 1996, the Company had one ratio
            falling outside the usual range. The Company does not have any 
            significant subsidiaries.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
        (a) Exhibits
 
            (27) Financial Data Schedule.
 
        (b) Reports on Form 8-K
 
            None.
 
                                      17

<PAGE>

                                 SIGNATURES
 
Pursuant to the requirements 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)
 

 
 
      May 14, 1997               By /s/ Deborah Koltenuk      
        (Date)                      Deborah Koltenuk
                                    Vice President and Treasurer, Corporate 
                                    Controller 
                                    (Chief Accounting Officer)


                                      18