As filed with the Securities and Exchange Registration No. 33-76018
Commission on June 25, 1996 Registration No. 811-4536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 6 TO REGISTRATION STATEMENT
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
- --------------------------------------------------------------------------------
Variable Life Account B of Aetna Life Insurance and Annuity Company
(Exact Name of Trust)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06l56
(Complete Address of Depositor's Principal Executive Offices)
- --------------------------------------------------------------------------------
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C, Hartford, Connecticut 06l56
(Name and Complete Address of Agent for Service)
- --------------------------------------------------------------------------------
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on __________________ pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________________ pursuant to paragraph (a)(1) of Rule 485
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1995
on February 29, 1996.
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
Form N-8B-2
Item No. Part I (Prospectus)
1 Cover Page; The Separate Account; The Company
2 Cover Page; The Separate Account; The Company
3 Not Applicable
4 Additional Information - Distribution of the Policies
5 The Separate Account; The Company
6 Not Applicable
7 Not Applicable
8 Financial Statements
9 Additional Information - Legal Matters
10 Policy Choices; Charges and Fees; Policy Values; Policy
Rights; Additional Information - Right to Instruct Voting of
Fund Shares
11 Allocation of Premiums; Policy Choices
12 Cover Page; Allocation of Premiums; The Funds
13 Charges and Fees; Additional Information - Distribution of the
Policies
14 Policy Summary; Miscellaneous Policy Provisions
15 Policy Summary; Allocation of Premiums; Policy Choices -
Premium Payments
16 Policy Summary; The Funds; Policy Values
<PAGE>
Form N-8B-2
Item No. Part I (Prospectus)
17 Policy Rights; Policy Values - Cash Surrender Value
18 Policy Values; Policy Rights - Policy Loans
19 Additional Information - Reports to Policy Owners; Records and
Accounts
20 Not Applicable
21 Policy Rights - Policy Loans
22 Not Applicable
23 Directors and Officers
24 Not Applicable
25 The Separate Account; The Company
26 Charges and Fees
27 The Company
28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information - The Registration Statement
36 Not Applicable
37 Not Applicable
38 Additional Information - Distribution of the Policies
<PAGE>
Form N-8B-2
Item No. Part I (Prospectus)
39 See Item 25
40 See Item 26
41 See Item 27
42 See Item 28
43 Financial Statements
44 Policy Values; Financial Statements
45 Not Applicable
46 Policy Values
47 Policy Choices; Policy Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Not Applicable
52 The Separate Account; Charges and Fees Associated with the
Variable Funding Options
53 Tax Matters
54 Not Applicable
55 Illustrations of Death Benefit, Total Account Values and Cash
Surrender Values
56 Financial Statements
57 Not Applicable
58 Not Applicable
59 Financial Statements
<PAGE>
AetnaVest Plus
Flexible Premium Variable Life Insurance Policy
VARIABLE LIFE ACCOUNT B
Aetna Life Insurance and Annuity Company
Supplement dated June 24, 1996 to the Prospectus dated May 1, 1996
At a June 17, 1996 Special Meeting of the shareholders of Aetna Variable Fund,
Aetna Income Shares, Aetna Investment Advisers Fund, Inc., Aetna Ascent Variable
Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy Variable
Portfolio ("Funds"), shareholders of the respective Funds approved a proposal to
increase the advisory fees for each of the Funds effective August 1, 1996.
Accordingly, this supplement amends certain sections of the May 1, 1996
Prospectus (the "Prospectus") that are impacted by such change.
(bullet) The following section is added at the end of the subsection entitled
"Charges and Fees Associated with the Variable Funding Options" on page
9 of the Prospectus:
The following table illustrates the investment advisory fees, other expenses and
total expenses paid by each of the Funds as a percentage of average net assets
based on figures for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Investment
Advisory Fees Other
(1) Expenses Total Fund
(after (after Annual
expense expense Expenses
reimbursement) reimbursement) (2)
------------- ------------- ----------
<S> <C> <C> <C>
Aetna Variable Fund (2)(3) 0.25% 0.06% 0.31%
Aetna Income Shares (2)(3) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund (3) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc. (2)(3) 0.25% 0.08% 0.33%
Aetna Ascent Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Aetna Crossroads Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Aetna Legacy Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Fidelity VIP II Contrafund Portfolio (4) 0.61% 0.11% 0.72%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Janus Aspen Aggressive Growth Portfolio (5) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio (5) 0.82% 0.55% 1.37%
Janus Aspen Growth Portfolio (5) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond Portfolio (5) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth Portfolio (5) 0.68% 0.22% 0.90%
Scudder International Portfolio Class A
Shares 0.88% 0.20% 1.08%
TCI Growth (6) 1.00% 0.00% 1.00%
</TABLE>
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Policy. These reimbursements are paid out
of the investment advisory fees and are not charged to investors.
(2) As of August 1, 1996, the Investment Advisory Fees and, consequently, the
Total Fund Annual Expenses for these Funds will change as follows: Aetna
Variable Fund--0.50% and 0.56%, respectively; Aetna Income Shares-- 0.40%
and 0.48%, respectively; Aetna Investment Advisers Fund, Inc.--0.50% and
0.58%, respectively; Aetna Ascent, Crossroads and Legacy Variable
Portfolios--0.60% and 0.75%, respectively.
(3) As of May 1, 1996, the Company provides administrative services to the Fund
and assumes the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not based
on figures for the year ended December 31, 1995, but reflect the fee payable
under this Agreement.
(4) A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.73% for the Contrafund Portfolio.
Form No. X76018.1 Page 1 June 1996
<PAGE>
(5) The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth
and Worldwide Growth Portfolios reduce the management fee to the level of
the corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, the Management Fee, Other Expenses and Total
Portfolio Operating Expenses would have been 0.82%, 0.11% and 0.93% for
Aggressive Growth Portfolio; 1.00%, 0.55% and 1.55% for Balanced Portfolio;
0.85%, 0.13% and 0.98% for Growth Portfolio; 0.65%, 0.72% and 1.37% for
Short-Term Bond Portfolio; and 0.87%, 0.22% and 1.09% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the waivers
or reductions at any time upon 90 days' notice to the Portfolio's Board of
Trustees.
(6) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees, expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses. These
expenses have historically represented a very small percentage (less than
0.01%) of total net assets in a fiscal year.
For further details on each Fund's expenses, please refer to that Fund's
prospectus.
(bullet) The following replaces footnote (1) under the list of "Investment
Advisers of the Funds" on page 4 of the Prospectus:
(1) Aetna Life Insurance and Annuity Company (investment adviser)*
*Effective August 1, 1996, Aeltus Investment Management, Inc. (Aeltus) will
become the subadviser for Aetna Variable Fund, Aetna Income Shares, Aetna
Investment Advisers Fund, Inc. and Aetna Ascent, Crossroads and Legacy Variable
Portfolios. The proposal relating to the approval of Aeltus as a subadviser for
Aetna Varible Encore Fund will be submitted to shareholders at a meeting to be
held on or about July 19, 1996. If approved, such proposal would be effective
on August 6, 1996 or as soon thereafter as practicable.
(bullet) The following is added at the end of the section entitled "Directors &
Officers" on page 21 of the Prospectus:
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Aetna Casualty and Surety
Company.
Form No. X76018.1 Page 2 June 1996
<PAGE>
(bullet) The following replaces Tables I through VIII in the section entitled
"Illustrations of Death Benefit, Total Account Values and Surrender
Values" contained on pages 31 through 38 of the Prospectus. For the
purposes of the illustrations, the advisory fees used for the Aetna
funds are the fees that will be effective beginning August 1, 1996:
AetnaVest Plus Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6720 500000 500000 500000
2 13776 500000 500000 500000
3 21185 500000 500000 500000
4 28964 500000 500000 500000
5 37132 500000 500000 500000
6 45709 500000 500000 500000
7 54714 500000 500000 500000
8 64170 500000 500000 500000
9 74099 500000 500000 500000
10 84523 500000 500000 500000
15 145008 500000 500000 500000
20 222203 500000 500000 500000
25 320726 500000 500000 500000
30 446469 500000 500000 658865
20 (Age 65) 222203 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4328 4647 4967 656 975 1295
2 8602 9515 10468 4930 5843 6796
3 12662 14446 16387 8990 10774 12715
4 16503 19438 22760 12831 15766 19088
5 20113 24475 29620 16441 20803 25948
6 23490 29554 37011 20155 26219 33676
7 26606 34648 44961 23638 31680 41993
8 29436 39728 53504 26835 37127 50903
9 31960 44773 62682 29726 42539 60448
10 34144 49743 72534 32277 47876 70667
15 39092 72466 134172 39061 72435 134141
20 30179 87228 225284 30179 87228 225284
25 0 82205 368926 0 82205 368926
30 0 31446 615762 0 31446 615762
20 (Age 65) 30179 87228 225284 30179 87228 225284
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 3 June 1996
<PAGE>
AetnaVest Plus Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 4080 500000 500000 500000
2 8364 500000 500000 500000
3 12862 500000 500000 500000
4 17585 500000 500000 500000
5 22545 500000 500000 500000
6 27752 500000 500000 500000
7 33219 500000 500000 500000
8 38960 500000 500000 500000
9 44988 500000 500000 500000
10 51318 500000 500000 500000
15 88041 500000 500000 500000
20 134909 0 500000 500000
25 194727 0 0 500000
30 271070 0 0 0
20 (Age 65) 134909 0 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1891 2061 2231 0 0 0
2 3770 4231 4714 98 559 1042
3 5476 6349 7303 1804 2677 3631
4 7001 8401 9999 3329 4729 6327
5 8330 10369 12794 4658 6697 9122
6 9458 12238 15692 6123 8903 12357
7 10356 13972 18669 7388 11004 15701
8 10994 15530 21701 8393 12929 19100
9 11348 16879 24767 9114 14645 22533
10 11379 17965 27830 9512 16098 25963
15 5640 17769 41906 5609 17738 41875
20 0 1019 47967 0 1019 47967
25 0 0 27199 0 0 27199
30 0 0 0 0 0 0
20 (Age 65) 0 1019 47967 0 1019 47967
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 4 June 1996
<PAGE>
AetnaVest Plus Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6720 500000 500000 500000
2 13776 500000 500000 500000
3 21185 500000 500000 500000
4 28964 500000 500000 500000
5 37132 500000 500000 500000
6 45709 500000 500000 500000
7 54714 500000 500000 500000
8 64170 500000 500000 500000
9 74099 500000 500000 500000
10 84523 500000 500000 500000
15 145008 500000 500000 500000
20 222203 500000 500000 500000
25 320726 500000 500000 618904
30 446469 500000 500000 967834
20 (Age 65) 222203 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4906 5247 5590 1234 1575 1918
2 9810 10806 11845 6138 7134 8173
3 14554 16527 18668 10882 12855 14996
4 19113 22389 26091 15441 18717 22419
5 23463 28374 34152 19791 24702 30480
6 27579 34460 42891 24244 31125 39556
7 31478 40666 52401 28510 37698 49433
8 35174 47010 62778 32573 44409 60177
9 38677 53511 74130 36443 51277 71896
10 41982 60169 86558 40115 58302 84691
15 55873 96493 170085 55842 96462 170054
20 63456 137122 306095 63456 137122 306095
25 62041 181655 533538 62041 181655 533538
30 44985 228409 904517 44985 228409 904517
20 (Age 65) 63456 137122 306095 63456 137122 306095
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 5 June 1996
<PAGE>
AetnaVest Plus Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 4080 500000 500000 500000
2 8364 500000 500000 500000
3 12862 500000 500000 500000
4 17585 500000 500000 500000
5 22545 500000 500000 500000
6 27752 500000 500000 500000
7 33219 500000 500000 500000
8 38960 500000 500000 500000
9 44988 500000 500000 500000
10 51318 500000 500000 500000
15 88041 500000 500000 500000
20 134909 500000 500000 500000
25 194727 500000 500000 500000
30 271070 0 500000 500000
20 (Age 65) 134909 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2395 2584 2773 0 0 0
2 4826 5358 5914 1154 1686 2242
3 7130 8164 9290 3458 4492 5618
4 9282 10977 12898 5610 7305 9226
5 11256 13767 16734 7584 10095 13062
6 13023 16502 20789 9688 13167 17454
7 14599 19194 25105 11631 16226 22137
8 15995 21850 29717 13394 19249 27116
9 17222 24478 34672 14988 22244 32438
10 18270 27066 39995 16403 25199 38128
15 21132 39654 74185 21101 39623 74154
20 17752 49027 124946 17752 49027 124946
25 4769 50747 202401 4769 50747 202401
30 0 34557 325994 0 34557 325994
20 (Age 65) 17752 49027 124946 17752 49027 124946
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and risk charges, administrative charges, and
premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 6 June 1996
<PAGE>
AetnaVest Plus Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6360 500000 500000 500000
2 13038 500000 500000 500000
3 20050 500000 500000 500000
4 27412 500000 500000 500000
5 35143 500000 500000 500000
6 43260 500000 500000 500000
7 51783 500000 500000 500000
8 60732 500000 500000 500000
9 70129 500000 500000 500000
10 79995 500000 500000 500000
15 137240 500000 500000 500000
20 210299 500000 500000 500000
25 303544 500000 500000 500000
30 422551 500000 500000 604071
20 (Age 65) 210299 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4025 4325 4625 515 815 1115
2 8011 8866 9759 4501 5356 6249
3 11796 13466 15282 8286 9956 11772
4 15368 18111 21219 11858 14601 17709
5 18726 22801 27610 15216 19291 24100
6 21863 27526 34491 18675 24338 31303
7 24751 32257 41886 21914 29420 39049
8 27374 36975 49830 24888 34489 47344
9 29707 41653 58357 27572 39518 56222
10 31718 46255 67501 29934 44471 65717
15 36316 67322 124672 36287 67293 124643
20 28372 81171 208864 28372 81171 208864
25 0 76714 339596 0 76714 339596
30 0 30973 564553 0 30973 564553
20 (Age 65) 28372 81171 208864 28372 81171 208864
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 7 June 1996
<PAGE>
AetnaVest Plus Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 3900 500000 500000 500000
2 7995 500000 500000 500000
3 12295 500000 500000 500000
4 16809 500000 500000 500000
5 21550 500000 500000 500000
6 26527 500000 500000 500000
7 31754 500000 500000 500000
8 37242 500000 500000 500000
9 43004 500000 500000 500000
10 49054 500000 500000 500000
15 84156 500000 500000 500000
20 128957 0 500000 500000
25 186136 0 0 500000
30 259112 0 0 0
20 (Age 65) 128957 0 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1754 1915 2076 0 0 0
2 3509 3943 4398 0 433 888
3 5101 5922 6819 1591 2412 3309
4 6515 7830 9330 3005 4320 5820
5 7750 9661 11937 4240 6151 8427
6 8794 11397 14635 5606 8209 11447
7 9618 13001 17400 6781 10164 14563
8 10201 14443 20217 7715 11957 17731
9 10516 15684 23059 8381 13549 20924
10 10527 16676 25893 8743 14892 24109
15 5235 16514 38983 5206 16485 38954
20 0 1471 45024 0 1471 45024
25 0 0 26846 0 0 26846
30 0 0 0 0 0 0
20 (Age 65) 0 1471 45024 0 1471 45024
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 8 June 1996
<PAGE>
AetnaVest Plus Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
1 6360 500000 500000 500000
2 13038 500000 500000 500000
3 20050 500000 500000 500000
4 27412 500000 500000 500000
5 35143 500000 500000 500000
6 43260 500000 500000 500000
7 51783 500000 500000 500000
8 60732 500000 500000 500000
9 70129 500000 500000 500000
10 79995 500000 500000 500000
15 137240 500000 500000 500000
20 210299 500000 500000 500000
25 303544 500000 500000 582399
30 422551 500000 500000 911562
20 (Age 65) 210299 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4593 4915 5237 1083 1405 1727
2 9191 10128 11105 5681 6618 7595
3 13645 15499 17511 10135 11989 14001
4 17930 21009 24486 14420 17499 20976
5 22032 26645 32072 18522 23135 28562
6 25921 32385 40306 22733 29197 37118
7 29618 38250 49275 26781 35413 46438
8 33128 44251 59065 30642 41765 56579
9 36468 50411 69784 34333 48276 67649
10 39630 56727 81525 37846 54943 79741
15 52999 91223 160376 52970 91194 160347
20 60534 129853 288424 60534 129853 288424
25 59385 171806 502068 59385 171806 502068
30 43472 215177 851927 43472 215177 851927
20 (Age 65) 60534 129853 288424 60534 129853 288424
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 9 June 1996
<PAGE>
AetnaVest Plus Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 3900 500000 500000 500000
2 7995 500000 500000 500000
3 12295 500000 500000 500000
4 16809 500000 500000 500000
5 21550 500000 500000 500000
6 26527 500000 500000 500000
7 31754 500000 500000 500000
8 37242 500000 500000 500000
9 43004 500000 500000 500000
10 49054 500000 500000 500000
15 84156 500000 500000 500000
20 128957 500000 500000 500000
25 186136 500000 500000 500000
30 259112 0 500000 500000
20 (Age 65) 128957 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2254 2433 2613 0 0 0
2 4548 5051 5578 1038 1541 2068
3 6729 7708 8774 3219 4198 5264
4 8772 10376 12196 5262 6866 8686
5 10661 13038 15848 7151 9528 12338
6 12365 15660 19721 9177 12472 16533
7 13900 18256 23858 11063 15419 21021
8 15272 20827 28288 12786 18341 25802
9 16498 23389 33062 14363 21254 30927
10 17565 25927 38203 15781 24143 36419
15 20721 38430 71324 20692 38401 71295
20 18173 48257 120732 18173 48257 120732
25 6456 50990 195880 6456 50990 195880
30 0 37273 315147 0 37273 315147
20 (Age 65) 18173 48257 120732 18173 48257 120732
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
Form No. X76018.1 Page 10 June 1996
<PAGE>
(bullet) The following March 31, 1996 unaudited financial statements supplement
the December 31, 1995 audited financial statements of the Separate
Account contained in the Prospectus.
Variable Life Account B
Statement of Assets and Liabilities--March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 2,467,158 shares at $30.77 per share (cost $71,754,094) $ 75,925,713
Aetna Income Shares; 924,931 shares at $12.80 per share (cost $11,848,313) 11,842,332
Aetna Variable Encore Fund; 407,333 shares at $13.47 per share (cost $5,308,191) 5,487,776
Aetna Investment Advisers Fund, Inc.; 817,516 shares at $14.87 per share (cost
$10,896,769) 12,155,981
Alger American Fund--Alger American Small Capitalization Portfolio; 172,781 shares at
$40.87 per share (cost $6,331,268) 7,061,577
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 86,791 shares at $19.20 per share (cost $1,651,470) 1,666,395
Growth Portfolio; 50,994 shares at $28.61 per share (cost $1,514,593) 1,458,950
Overseas Portfolio; 34,096 shares at $17.26 per share (cost $559,505) 588,494
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 130,336 shares at $15.21 per share (cost $1,969,788) 1,982,408
Contrafund Portfolio; 113,588 shares at $14.26 per share (cost $1,562,790) 1,619,768
Janus Aspen Series:
Aggressive Growth Portfolio; 230,297 shares at $18.70 per share (cost $3,607,738) 4,306,556
Balanced Portfolio; 159,805 shares at $13.55 per share (cost $2,084,064) 2,165,357
Growth Portfolio; 219,229 shares at $14.58 per share (cost $2,795,446) 3,196,358
Short-Term Bond Portfolio; 35,353 shares at $10.00 per share (cost $349,724) 353,526
Worldwide Growth Portfolio; 145,028 shares at $16.62 per share (cost $2,048,610) 2,410,364
Scudder Variable Life Investment Fund--International Portfolio; 638,445 shares at $12.09
per share (cost $7,135,942) 7,718,801
TCI Portfolios, Inc.--TCI Growth; 518,429 shares at $12.04 per share (cost $5,285,516) 6,241,887
------------
NET ASSETS $146,182,243
============
</TABLE>
Form No. X76018.1 Page 11 June 1996
<PAGE>
Variable Life Account B
Net assets represented by:
<TABLE>
<CAPTION>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
<S> <C> <C> <C>
Aetna Variable Fund:
AetnaVest 1,595,062.3 $29.954 $47,777,753
AetnaVest II 774,062.0 16.726 12,947,337
AetnaVest Plus 998,417.0 14.053 14,030,849
Corporate Specialty Market 92,142.8 12.695 1,169,774
Aetna Income Shares:
AetnaVest 293,192.0 20.928 6,136,014
AetnaVest II 87,325.2 14.071 1,228,739
AetnaVest Plus 115,930.9 11.267 1,306,250
Corporate Specialty Market 291,606.5 10.875 3,171,329
Aetna Variable Encore Fund:
AetnaVest 200,179.5 16.060 3,214,875
AetnaVest II 10,560.9 11.739 123,976
AetnaVest Plus 88,112.2 11.033 972,120
Corporate Specialty Market 111,493.2 10.555 1,176,805
Aetna Investment Advisers Fund, Inc.:
AetnaVest 114,756.9 15.740 1,806,290
AetnaVest II 229,085.2 15.915 3,646,002
AetnaVest Plus 384,450.3 13.347 5,131,406
Corporate Specialty Market 135,310.5 11.620 1,572,283
Alger American Fund--Alger American
Small Capitalization Portfolio:
AetnaVest 67,956.4 16.098 1,093,995
AetnaVest II 45,569.5 16.100 733,667
AetnaVest Plus 182,354.1 16.091 2,934,300
Corporate Specialty Market 173,686.5 13.240 2,299,615
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Corporate Specialty Market 144,783.0 11.510 1,666,395
Growth Portfolio:
Corporate Specialty Market 140,028.4 10.419 1,458,950
Overseas Portfolio:
Corporate Specialty Market 56,713.0 10.377 588,494
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 182,159.0 10.883 1,982,408
Contrafund Portfolio:
Corporate Specialty Market 150,594.8 10.756 1,619,768
See Notes to Financial Statements.
Form No. X76018.1 Page 12 June 1996
<PAGE>
Variable Life Account B
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
Janus Aspen Series:
Aggressive Growth Portfolio:
AetnaVest 44,341.1 $16.507 $ 731,925
AetnaVest II 32,308.6 16.507 533,308
AetnaVest Plus 133,290.2 16.507 2,200,190
Corporate Specialty Market 67,915.0 12.385 841,133
Balanced Portfolio:
AetnaVest 6,564.3 12.595 82,678
AetnaVest II 2,834.5 12.693 35,980
AetnaVest Plus 51,133.8 12.589 643,741
Corporate Specialty Market 127,076.1 11.040 1,402,958
Growth Portfolio:
AetnaVest 26,102.4 13.737 358,569
AetnaVest II 38,815.5 13.725 532,724
AetnaVest Plus 74,124.0 11.279 836,024
Corporate Specialty Market 107,189.1 13.705 1,469,041
Short-Term Bond Portfolio:
AetnaVest 1,296.7 10.907 14,143
AetnaVest II 20,289.0 10.895 221,049
AetnaVest Plus 10,739.7 10.866 116,692
Corporate Specialty Market 162.4 10.114 1,642
Worldwide Growth Portfolio:
AetnaVest 35,204.8 13.871 488,314
AetnaVest II 26,623.3 13.874 369,385
AetnaVest Plus 91,702.5 13.857 1,270,741
Corporate Specialty Market 24,710.9 11.409 281,924
Scudder Variable Life Investment Fund--International
Portfolio:
AetnaVest 136,306.8 13.360 1,821,019
AetnaVest II 75,216.9 13.277 998,681
AetnaVest Plus 318,410.2 13.203 4,204,079
Corporate Specialty Market 62,821.5 11.063 695,022
TCI Portfolios, Inc.--TCI Growth:
AetnaVest 94,052.6 13.193 1,240,859
AetnaVest II 34,581.5 13.252 458,286
AetnaVest Plus 302,971.3 13.072 3,960,295
Corporate Specialty Market 48,720.2 11.955 582,447
------------
$146,182,243
============
</TABLE>
See Notes to Financial Statements.
Form No. X76018.1 Page 13 June 1996
<PAGE>
Variable Life Account B
Statement of Operations--Three Month Period Ended March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Fidelity Investments Variable Insurance Products Fund--
Equity-Income Portfolio $ 19,619
Fidelity Investments Variable Insurance Products Fund--
Growth Portfolio 85,627
Fidelity Investments Variable Insurance Products Fund--
Overseas Portfolio 14,172
Fidelity Investments Variable Insurance Products Fund II--
Asset Manager Portfolio 62,788
Fidelity Investments Variable Insurance Products Fund II--
Contrafund Portfolio 10,199
Scudder Variable Life Investment Fund--International
Portfolio 166,996
----------
Total investment income 359,401
Valuation period deductions (Note 2) (216,034)
----------
Net investment income 143,367
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales $3,428,998
Cost of investments sold 3,005,963
----------
Net realized gain 423,035
Net unrealized gain on investments:
Beginning of period 4,391,574
End of period 9,478,418
----------
Net unrealized gain 5,086,844
----------
Net realized and unrealized gain on investments 5,509,879
----------
Net increase in net assets resulting from operations $5,653,246
==========
</TABLE>
See Notes to Financial Statements.
Form No. X76018.1 Page 14 June 1996
<PAGE>
Variable Life Account B
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1996 December 31,
(Unaudited) 1995
--------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 143,367 $ 11,815,436
Net realized and unrealized gain on investments 5,509,879 11,633,204
--------------- ----------------
Net increase in net assets resulting from
operations 5,653,246 23,448,640
--------------- ----------------
FROM UNIT TRANSACTIONS:
Variable life premium payments 21,128,211 44,310,537
Sales charges deducted by the Company (632,971) (1,381,985)
Premiums allocated to the fixed account (1,644,459) (3,260,098)
--------------- ----------------
Net premiums allocated to the variable account 18,850,781 39,668,454
Transfers from the Company for monthly deductions (3,306,575) (11,297,188)
Redemptions by policyholders (1,152,122) (3,238,332)
Transfers on account for policy loans (422,131) (2,076,373)
Other 43,265 41,863
--------------- ----------------
Net increase in net assets from unit
transactions 14,013,218 23,098,424
--------------- ----------------
Change in net assets 19,666,464 46,547,064
NET ASSETS:
Beginning of period 126,515,779 79,968,715
--------------- ----------------
End of period $146,182,243 $126,515,779
=============== ================
</TABLE>
See Notes to Financial Statements.
Form No. X76018.1 Page 15 June 1996
<PAGE>
Variable Life Account B
Notes to Financial Statements--March 31, 1996 (Unaudited)
1. Summary of Significant Accounting Policies
Variable Life Account B ("Account") is registered under the Investment Company
Act of 1940 as a unit investment trust. The Account is sold exclusively for use
with life insurance product contracts as defined under the Internal Revenue Code
of 1986, as amended.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value per
share as determined by each Fund on March 31, 1996
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Alger American Fund--Alger American Small
Capitalization Portfolio
Fidelity Investments Variable Insurance Products
Fund--
(bullet) Equity-Income Portfolio
(bullet) Growth Portfolio
(bullet) Overseas Portfolio
Fidelity Investments Variable Insurance Products
Fund II--
(bullet) Asset Manager Portfolio
(bullet) Contrafund Portfolio
Janus Aspen Series--
(bullet) Aggressive Growth Portfolio
(bullet) Balanced Portfolio
(bullet) Growth Portfolio
(bullet) Short-Term Bond Portfolio
(bullet) Worldwide Growth Portfolio
Scudder Variable Life Investment Fund--
International Portfolio
TCI Portfolios, Inc.--TCI Growth
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986, as
amended.
Form No. X76018.1 Page 16 June 1996
<PAGE>
Variable Life Account B
Notes to Financial Statements--March 31, 1996 (Unaudited) (continued)
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the policies and are paid to the Company.
3. Dividend Distributions
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid to
the Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of each Fund's undistributed net investment income and
accumulated net realized gain on investments is included in net unrealized gain
on investments in the Statement of Operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the three month period ended March 31, 1996
aggregated $17,583,396 and $3,428,998, respectively.
5. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net assets
of the Account.
Form No. X76018.1 Page 17 June 1996
<PAGE>
(bullet) The following March 31, 1996 unaudited financial statements supplement
the December 31, 1995 audited financial statements of Aetna Life Insurance and
Annuity Company contained in the Prospectus.
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Income
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
----- ------
<S> <C> <C>
Revenue:
Premiums $ 14.1 $ 32.2
Charges assessed against policyholders 92.0 74.9
Net investment income 257.6 235.8
Net realized capital gains 14.9 5.1
Other income 12.2 12.7
----- ------
Total revenue 390.8 360.7
----- ------
Benefits and expenses:
Current and future benefits 217.0 215.1
Operating expenses 87.8 74.0
Amortization of deferred policy acquisition
costs 17.5 12.5
----- ------
Total benefits and expenses 322.3 301.6
----- ------
Income before federal income taxes 68.5 59.1
Federal income taxes 20.0 18.8
----- ------
Net income $ 48.5 $40.3
===== ======
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
Form No. X76018.1 Page 18 June 1996
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
Assets 1996 1995
- ------- --------- ------------
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $12,030.4 and $11,923.7) $12,332.2 $ 12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $54.3 and $51.3) 59.1 57.6
Investment in affiliated mutual funds (cost: $160.3 and
$173.4) 182.0 191.8
Common stock (cost: $6.9) -- 8.2
Short-term investments 24.6 15.1
Mortgage loans 21.1 21.2
Policy loans 344.6 338.6
--------- ------------
Total investments 12,963.6 13,353.3
Cash and cash equivalents 554.6 568.8
Accrued investment income 186.4 175.5
Premiums due and other receivables 27.7 37.3
Deferred policy acquisition costs 1,375.6 1,341.3
Reinsurance loan to affiliate 646.0 655.5
Other assets 21.4 26.2
Separate Accounts assets 12,072.9 10,987.0
--------- ------------
Total assets $27,848.2 $ 27,144.9
========= ============
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits $ 3,545.1 $ 3,594.6
Unpaid claims and claim expenses 25.9 27.2
Policyholders' funds left with the Company 10,298.9 10,500.1
--------- ------------
Total insurance reserve liabilities 13,869.9 14,121.9
Other liabilities 188.6 259.2
Federal income taxes:
Current 35.7 24.2
Deferred 125.5 169.6
Separate Accounts liabilities 12,072.9 10,987.0
--------- ------------
Total liabilities 26,292.6 25,561.9
--------- ------------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized; 55,000
shares issued and outstanding) 2.8 2.8
Paid-in capital 407.6 407.6
Net unrealized capital gains 56.6 132.5
Retained earnings 1,088.6 1,040.1
--------- ------------
Total shareholder's equity 1,555.6 1,583.0
--------- ------------
Total liabilities and shareholder's equity $27,848.2 $27,144.9
========= ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
Form No. X76018.1 Page 19 June 1996
<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)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Shareholder's equity, beginning of period $1,583.0 $ 1,088.5
Net change in unrealized capital gains and
losses (75.9) 156.7
Net income 48.5 40.3
---------- -----------
Shareholder's equity, end of period $1,555.6 $1,285.5
========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
Form No. X76018.1 Page 20 June 1996
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsudiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 48.5 $ 40.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Increase in accrued investment income (10.9) (6.3)
Decrease in premiums due and other receivables 0.5 10.9
Increase in policy loans (6.0) (26.0)
Increase in deferred policy acquisition costs (34.3) (31.7)
Decrease in reinsurance loan to affiliate 9.5 14.6
Net increase in universal life account balances 53.0 44.5
(Decrease) increase in other insurance reserve liabilities (52.4) 20.5
Net (decrease) increase in other liabilities and other
assets (81.8) 113.3
Increase in federal income taxes 8.3 16.3
Net accretion of discount on debt securities (16.9) (15.5)
Net realized capital gains (14.9) (5.1)
Other, net -- 1.5
---------- -----------
Net cash (used for) provided by operating activities (97.4) 177.3
---------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 1,634.8 965.3
Equity securities 48.7 66.7
Investment maturities and collections of:
Debt securities available for sale 255.4 104.3
Short-term investments 10.0 30.0
Cost of investment purchases in:
Debt securities available for sale (1,918.0) (1,427.6)
Equity securities (26.1) (98.1)
Short-term investments (19.5) (0.5)
---------- -----------
Net cash used for investing activities (14.7) (359.9)
---------- -----------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
Form No. X76018.1 Page 21 June 1996
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows (continued)
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Deposits and interest credited for investment
contracts $ 429.9 $ 497.7
Withdrawals of investment contracts (332.0) (278.3)
---------- -----------
Net cash provided by financing activities 97.9 219.4
---------- -----------
Net (decrease) increase in cash and cash
equivalents (14.2) 36.8
Cash and cash equivalents, beginning of period 568.8 623.3
---------- -----------
Cash and cash equivalents, end of period $ 554.6 $ 660.1
========== ===========
Supplemental cash flow information:
Income taxes paid, net $ 11.7 $ 2.5
========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
Form No. X76018.1 Page 22 June 1996
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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 Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of
Aetna Life and Casualty Company ("Aetna").
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1995 financial information to conform to
1996 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.
Form No. X76018.1 Page 23 June 1996
<PAGE>
Variable Life Account B
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(203) 275-4995
Prospectus Dated June 24, 1996
The Flexible Premium Variable Life Insurance Policy
This Prospectus describes AetnaVest Plus, a variable universal life insurance
policy ("Policy") offered by Aetna Life Insurance and Annuity Company (the
"Company"). This Policy is intended to provide life insurance benefits, and is
designed to allow flexible premium payments, a choice of underlying funding
options, and a choice of two death benefit options. Your policy's cash value may
vary with the investment performance of the underlying funding options you
choose. Although policy values may vary, the Policy can be guaranteed to stay in
force through the Guaranteed Death Benefit Provision. Policy cash value may be
used to continue your policy in force, may be borrowed within certain limits,
and may be fully or partially surrendered (subject to a surrender charge).
You may also choose to select one of the annuity settlement options upon
Maturity of the Policy, or, prior to Maturity of the Policy, you may apply the
value of your Policy (minus any applicable surrender charges and the amount
necessary to repay any loans in full), to one of the annuity settlement options.
Upon death of the Insured, the beneficiary will be paid (a) the value of the
Death Benefit Option in one lump sum, or (b) under one of the annuity settlement
options.
The Policy has a Free-Look Period during which you may return it to the
Company's Home Office for a refund. The refund may be more or less than the
premiums paid. (See "Right to Examine the Policy.")
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with an AetnaVest Plus
Policy. The AetnaVest Plus Policy is not available for use in a pension or
profit-sharing plan.
This Prospectus is intended to describe the variable options used to fund this
Policy through Variable Life Account B (the "Separate Account"). The variable
funding options currently available through the Separate Account are as follows:
Aetna Variable Fund; Aetna Income Shares; Aetna Variable Encore Fund; Aetna
Investment Advisers Fund, Inc.; Aetna Generation Portfolios, Inc.--Aetna Ascent
Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy
Variable Portfolio; Fidelity's Variable Insurance Products Fund II--Contrafund
Portfolio; Fidelity's Variable Insurance Products Fund--Equity-Income Portfolio;
Janus Aspen Series--Growth Portfolio, Aggressive Growth Portfolio, Worldwide
Growth Portfolio, Balanced Portfolio and Short-Term Bond Portfolio; Scudder
Variable Life Investment Fund--International Portfolio Class A Shares; TCI
Portfolios, Inc.--TCI Growth (collectively, the "Funds"). Unless specifically
mentioned, this Prospectus only describes the variable investment options. Not
all Funds may be available under all Policies or in all jurisdictions.
Please read this Prospectus carefully and retain it for future reference.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
i
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Definitions iv
Policy Summary 1
The Separate Account 1
Allocation of Premiums 2
Fixed Account 2
The Funds 2
Mixed and Shared Funding 4
Charges and Fees 4
Premium Load 4
Charges and Fees Assessed Against the Total Account Value 5
Charges and Fees Associated with the Variable Funding Options 5
Charges Assessed Against the Underlying Funds 6
Surrender Charge 7
Surrender Charges on Full and Partial Surrenders 7
Policy Choices 7
Death Benefit 8
Guaranteed Death Benefit Provision 8
Premium Payments 9
Transfers and Allocations to the Funding Options 10
Automated Transfers (Dollar Cost Averaging) 10
Policy Values 11
Total Account Value 11
Accumulation Unit Value 11
Maturity Value 12
Cash Surrender Value 12
Policy Rights 12
Partial Surrenders 12
No-Lapse Coverage Provision 12
Reinstatement of a Lapsed Policy 13
Policy Loans: Preferred and Nonpreferred 13
Policy Changes 14
Right to Examine the Policy 15
Death Benefit 15
Policy Settlement 16
Settlement Options 16
Calculation of Settlement Payments 17
Special Plans 18
Pension Plans 19
The Company 19
Directors and Officers 19
Additional Information 22
Reports to Policy Owners 22
Right to Instruct Voting of Fund Shares 22
Disregard of Voting Instructions 23
State Regulation 23
Legal Matters 23
The Registration Statement 23
Distribution of the Policies 24
Records and Accounts 24
ii
<PAGE>
Independent Auditors 24
Tax Matters 24
General 24
Federal Tax Status of the Company 24
Life Insurance Qualification 25
General Rules 25
Modified Endowment Contracts 25
Diversification Standards 26
Investor Control 26
Other Tax Considerations 27
Miscellaneous Policy Provisions 27
The Policy 27
Payment of Benefits 28
Age and Sex 28
Incontestability 28
Suicide 28
Coverage Beyond Maturity 28
Protection of Proceeds 28
Nonparticipation 29
Illustrations of Death Benefit, Total Account Values and Cash Surrender
Values 29
Financial Statements of the Separate Account S-1
Financial Statements of the Company F-1
</TABLE>
iii
<PAGE>
Definitions
Accumulation Unit: A unit used to measure the value of a Policyowner's interest
in each applicable funding option used to calculate the value of the variable
portion of the Policy before election of a Settlement Option.
Additional Premiums: Any premium paid in addition to Planned Premiums.
Amount at Risk: The Death Benefit before subtraction of outstanding loans, if
any, divided by 1.0036748, minus the Total Account Value.
Annuitant: A person who receives annuity payments.
Annuity: A series of payments for life or for a definite period.
Attained Age: The Issue Age of the insured increased by the number of Policy
Years elapsed.
Basic Premium: The amount of premium which must be paid to assure that the
Policy remains in force for at least five years after issue, assuming there have
been no loans or surrenders.
Cash Surrender Value: The amount a Policy Owner can receive in cash by
surrendering the Policy. This equals the Total Account Value minus the
applicable surrender charge and the amount necessary to repay any loans in full.
Cost of Insurance: The portion of the Monthly Deduction attributable to the
basic insurance coverage, not including riders, supplemental benefits or monthly
expense charges.
Death Benefit: The amount payable to the beneficiary in accordance with the
Death Benefit Option elected, upon the death of the Insured, after deduction of
the amount necessary to repay any loans in full, and overdue deductions.
Death Benefit Option: Either of two methods for determining the Death
Benefit.
Fixed Account: The fixed interest option offered under the Policy that
guarantees principal and a minimum interest rate of 4.5% per year.
Fixed Account Value: The non-loaned portion of this Policy's Total Account
Value attributable to the non-variable portion of the Policy. The Fixed
Account Value is held in the General Account.
Fund(s): One or more of the underlying funding options available under the
Policy (as described in this Prospectus). Each of the Funds is an open-end
management investment company (mutual fund) whose shares are available to fund
the benefits provided by the Policy.
General Account: The Company's general asset account, in which assets
attributable to the non-variable portion of Policies are held, i.e., the Loan
Account Value, and the Fixed Account Value.
iv
<PAGE>
Grace Period: The 61-day period beginning on the Monthly Deduction Day on which
the Policy's Cash Surrender Value is insufficient to cover the current Monthly
Deduction. The Policy will lapse without value at the end of the 61-day period
unless a sufficient payment described in the notification letter is received by
the Company.
Guaranteed Death Benefit Premium: A specified premium that, if paid, will keep
the Policy in force to attained age 80 or 100, even if the cash value is
insufficient to cover current monthly deductions.
Home Office: The Company's principal executive offices, located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Insured: The person on whose life the Policy is issued.
Issue Age: The Insured's age on his/her birthday on or prior to the Policy's
Issue Date.
Issue Date: The effective date of initial coverage. The Date of Issue and the
effective date for any change in coverage will be the Date of Coverage Change
shown in Supplemental Policy Specifications which will be sent to you. Coverage
is conditional on payment of the first premium, if required, and issue of the
Policy as provided in the application.
Loan Account Value: The sum of all unpaid loans (Preferred and Nonpreferred).
The amount necessary to repay all loans in full is the Loan Account Value plus
any interest accrued since the last Policy anniversary. Such interest is payable
in order to discharge any policy indebtedness.
Maturity Date: The Issue Date anniversary on which the Insured reaches
Attained Age 100 and the Policy is considered matured.
Maturity Value: The Total Account Value on the Maturity Date, less the amount
necessary to repay any loans in full if the Guaranteed Death Benefit Provision
is not in effect. Otherwise, the greater of the Total Account Value and the
Specified Amount on the Maturity Date, less the amount necessary to repay any
loans in full.
Monthly Deduction: The Monthly Deduction from the Total Account Value which
includes the Cost of Insurance, charges for supplemental riders or benefits, and
an administrative expense charge.
Monthly Deduction Day: The day that the Monthly Deduction is actually taken.
Net Premium: The premium paid, less the premium load.
Nonpreferred Loan: Loans taken in the first ten Policy Years, and beginning
in the eleventh Policy Year, loans taken in excess of the Preferred Loan
Amount.
Planned Premium: The amount of premium the Policy Owner chooses to pay the
Company on a scheduled basis. This is the amount for which the Company sends
a bill.
v
<PAGE>
Policy: The life insurance contract described in this Prospectus, under which
flexible premium payments are permitted and the Death Benefit and contract
values may vary with the investment performance of the funding option(s)
selected.
Policy Owner: The owner of the Policy, referred to as "you."
Policy Year: Each twelve-month period, beginning on the Issue Date, during
which the Policy is in effect.
Preferred Loan Amount: A portion of the maximum loan amount available beginning
in the eleventh Policy Year, for a loan, at no net cost to the Policy Owner. The
preferred loan is the amount taken.
Separate Account: Variable Life Account B (and Variable Annuity Account B
when referring to a Settlement Option).
Separate Account Value: The portion of the Total Account Value attributable
to Variable Life Account B.
Settlement Option(s): Several ways in which a beneficiary may receive Annuity
payments due from a Death Benefit, or which the Insured may choose to receive
Annuity payments from the Cash Surrender Value of the Policy.
Settlement Option Units: A measure of the net investment results of the
investment options used to calculate the amount of the Settlement Option
payments.
Specified Amount: The amount (at least $100,000), originally chosen by the
Policy Owner, used in determining the Death Benefit. It is initially equal to
the Death Benefit. The Specified Amount may be increased or decreased as
described in this Prospectus.
Surrender Charge: The amount retained by the Company, upon the full or
partial surrender of the Policy.
Total Account Value: The sum of the Fixed Account Value, Separate Account
Value and the Loan Account Value.
Valuation Period: The period of time for which a Fund determines its net asset
value, usually from the close of business each day the New York Stock Exchange
is open until the close of business on the next such business day.
Valuation Reserve: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the settlement option period and the
value of a commutation right, if available, under Settlement Option 2 when
elected on a variable basis.
Variable Life Account B: A Separate Account of the Company established for the
purpose of segregating assets attributable to the variable portion of life
insurance contracts from other assets of the Company. It is organized as a unit
investment trust.
vi
<PAGE>
Policy Summary
This is a flexible premium variable universal life insurance policy. This Policy
provides that cash values may be either fixed or variable or a combination of
fixed and variable.
At the time of purchase, you must choose between the two Death Benefit Options
and decide if you want the Guaranteed Death Benefit Provision. The amount
payable under either option will be determined as of the date of the Insured's
death. Under Option 1, the Death Benefit will be the greater of the Specified
Amount, or the applicable percentage of the Total Account Value. Under Option 2,
the Death Benefit will be the greater of the Specified Amount plus the Total
Account Value, or the applicable percentage of the Total Account Value. (See
"Death Benefit.")
The Policy also offers a Guaranteed Death Benefit Provision (not available in
New York) which ensures that the Policy will stay in force even if the cash
value is insufficient to cover the current monthly deductions due to fund
performance. Sufficient premiums must be paid in order to maintain a Guaranteed
Death Benefit to Age 80 or 100. (See "Guaranteed Death Benefit Provision.")
At the time of purchase, you must also choose the amount of premium you intend
to pay. You may vary premium payments to some extent and still keep your Policy
in force. However, sufficient premiums must be paid to continue the Policy in
force. Premium reminder notices will be sent for planned premiums and for
premiums required to continue this Policy in force. If this Policy lapses it may
be reinstated. (See "Reinstatement of a Lapsed Policy.")
Finally, you must choose how to allocate Net Premiums. Net Premiums allocated to
the Separate Account must be allocated to one or more Funds, and allocations
must be in whole percentages. The variable portion of this Policy is supported
by the Funds you choose. The cash value in each Fund is not guaranteed and will
vary with the investment performance of that Fund.
If the Fixed Account is selected, the Fixed Account Value will accumulate at
rates of interest we determine. Such rates will not be less than 4.5% a year.
Proceeds as described in this Policy will be paid upon surrender, maturity, or
death of the Insured.
The Separate Account
The Separate Account established for the purpose of providing Variable Options
to fund the Policy is Variable Life Account B. Amounts allocated to the Separate
Account are invested in the Funds. Each of the Funds is an open-end management
investment company whose shares are purchased by the Separate Account to fund
the benefits provided by the Policy. The Funds currently available under the
Separate Account, including their investment objectives and their investment
advisers, are described briefly in this Prospectus. Complete descriptions of the
Funds' investment objectives and restrictions and other material information
relating to an investment in the Funds are contained in the prospectuses for
each of the Funds which accompany this Prospectus.
Variable Life Account B was established pursuant to a June 18, 1986 resolution
of the Board of Directors of the Company. Under Connecticut Insurance Law, the
income, gains or losses of the Separate Account are credited without regard to
the other income, gains or losses of the Company. These assets are held for
1
<PAGE>
the Company's variable life insurance policies. Any and all distributions made
by the Funds with respect to shares held by the Separate Account will be
reinvested in additional shares at net asset value. The assets maintained in the
Separate Account will not be charged with any liabilities arising out of any
other business conducted by the Company. The Company is, however, responsible
for meeting the obligations of the Policy to the Policyowner.
No stock certificates are issued to the Separate Account for shares of the Funds
held in the Separate Account. Ownership of Fund shares is documented on the
books and records of the Funds and of the Company for the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust under the Investment Company Act of 1940 and
meets the definition of separate account under the federal securities laws. Such
registration does not involve any approval or disapproval by the SEC of the
Separate Account or the Company's management or investment practices or
policies. The Company does not guarantee the Separate Account's investment
performance.
Allocation of Premiums
You may allocate all or a part of your Net Premiums to the Fixed Account (part
of the Company's General Account) or to the Funds currently available through
the Separate Account in connection with this Policy. Not all Funds are available
under all Policies or on all jurisdictions. The investment results of the Funds,
whose investment objectives are described below, are likely to differ
significantly. You should consider carefully, and on a continuing basis, which
Fund or combination of Funds is best suited to your long-term investment
objectives. Except where otherwise noted, all of the Funds are diversified, as
defined in the Investment Company Act of 1940.
Fixed Account
(bullet) Amounts held in the Fixed Account are guaranteed and will be
credited with interest at rates of not less than 4.5% per year. Credited
interest rates reflect the Company's return on Fixed Account invested assets and
the amortization of any realized gains and/or losses which the Company may incur
on these assets.
The Funds
(bullet) Aetna Variable Fund seeks to maximize total return through
investments in a diversified portfolio of common stocks and securities
convertible into common stocks.(1)
(bullet) Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio consisting
primarily of debt securities.(1)
(bullet) Aetna Variable Encore Fund seeks to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments. An investment in this Fund is neither
insured nor guaranteed by the U.S. Government.(1)
(bullet) Aetna Investment Advisers Fund, Inc. is a managed mutual fund
which seeks to maximize investment return consistent with reasonable safety of
principal by investing in one or more of the following asset classes: stocks,
bonds and cash equivalents based on the Company's judgment of which of those
sectors or mix thereof offers the best investment prospects.(1)
(bullet) Aetna Generation Portfolios, Inc.--Aetna Ascent Variable Portfolio
seeks to provide capital appreciation by allocating its investments among
equities and fixed income securities. Aetna Ascent
2
<PAGE>
Variable Portfolio is managed for investors who generally have an investment
horizon exceeding 15 years, and who have a high level of risk tolerance. See the
Fund's prospectus for a discussion of the risks involved.(1)
(bullet) Aetna Generation Portfolios, Inc.--Aetna Crossroads Variable
Portfolio seeks to provide total return (i.e., income and capital appreciation,
both realized and unrealized) by allocating its investments among equities and
fixed income securities. Aetna Crossroads Variable Portfolio is managed for
investors who generally have an investment horizon exceeding 10 years and who
have a moderate level of risk tolerance.(1)
(bullet) Aetna Generation Portfolios, Inc.--Aetna Legacy Variable Portfolio
seeks to provide total return consistent with preservation of capital by
allocating its investments among equities and fixed income securities. Aetna
Legacy Variable Portfolio is managed for investors who generally have an
investment horizon exceeding five years and who have a low level of risk
tolerance.(1)
(bullet) Alger American Fund--Alger American Small Capitalization Portfolio
seeks long-term capital appreciation. Except during temporary defensive periods,
the Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of such securities, have total market
capitalization within the range of companies included in the Russell 2000 Growth
Index, updated quarterly. The Russell 2000 Growth Index is designed to track the
performance of small capitalization companies. At March 31, 1996, the range of
market capitalization of these companies was $20 million to $3.0 billion.(2)
(bullet) Fidelity Investments' Variable Insurance Products Fund
II--Contrafund Portfolio seeks maximum total return over the long term by
investing its assets mainly in equity securities of companies that are
undervalued or out-of-favor.(3)
(bullet) Fidelity Investments' Variable Insurance Products
Fund--Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Fund will
also consider the potential for capital appreciation.(3)
(bullet) Janus Aspen Series--Aggressive Growth Portfolio is a
non-diversified portfolio that seeks long-term growth of capital. The Portfolio
pursues its investment objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies. Medium-sized
companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index, which as of December 29, 1995 included
companies with capitalizations between approximately $118 million and $7.5
billion, but which is expected to change on a regular basis.(4)
(bullet) Janus Aspen Series--Balanced Portfolio seeks long-term capital
growth consistent with preservation of capital and balanced by current income.
The Portfolio pursues its investment objective by investing 40%-60% of its
assets in securities selected primarily for their growth potential and 40%-60%
of its assets in securities selected primarily for their income potential.(4)
(bullet) Janus Aspen Series--Growth Portfolio seeks long-term growth of
capital consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing in common stocks of a large number of issuers
of any size.(4)
(bullet) Janus Aspen Series--Short-Term Bond Portfolio seeks as high a
level of current income as is consistent with preservation of capital. The
Portfolio pursues its investment objective by investing primarily in short- and
intermediate-term fixed income securities.(4)
(bullet) Janus Aspen Series--Worldwide Growth Portfolio seeks long-term
growth of capital consistent with the preservation of capital. The Portfolio
pursues its investment objective primarily through investments in common stocks
of foreign and domestic issuers.(4)
3
<PAGE>
(bullet) Scudder Variable Life Investment Fund-International Portfolio
Class A Shares seeks long term growth of capital primarily through diversified
holdings of marketable foreign equity investments.(5)
(bullet) TCI Portfolios, Inc.--TCI Growth (a Twentieth Century Fund) seeks
capital growth. The Fund seeks to achieve its objective by investing in common
stocks (including securities convertible into common stocks) and other
securities that meet certain fundamental and technical standards of selection,
and, in the opinion of TCI Growth's management, have better than average
potential for appreciation.(6)
Investment Advisers of the Funds:
(1) Aetna Life Insurance and Annuity Company (investment adviser)*
(2) Fred Alger Management, Inc.
(3) Fidelity Management & Research Company
(4) Janus Capital Corporation
(5) Scudder, Stevens & Clark, Inc.
(6) Investors Research Corporation
*Effective August 1, 1996, Aeltus Investment Management, Inc. (Aeltus) will
become the subadviser for Aetna Variable Fund, Aetna Income Shares, Aetna
Investment Advisers Fund, Inc. and Aetna Ascent, Crossroads and Legacy Variable
Portfolios. The proposal relating to the approval of Aeltus as a subadviser for
Aetna Variable Encore Fund will be submitted to shareholders at a meeting to be
held on or about July 19, 1996. If approved, such proposal would be effective
on August 6, 1996 or as soon thereafter as practicable.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the
prospectuses of the Funds for a discussion of the risks associated with an
investment in those Funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the Policy described in this Prospectus. Because Fund shares are offered to
separate accounts of both affiliated and unaffiliated insurance companies, it is
conceivable that, in the future, it may not be advantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
these Funds simultaneously, since the interests of such Policyowners or
contractholders may differ. Although neither the Company nor the Funds currently
foresees any such disadvantages either to variable life insurance or to variable
annuity Policyholders, each Fund's Board of Trustees/Directors has agreed to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate accounts
might withdraw its investment in a Fund. This might force that Fund to sell
portfolio securities at disadvantageous prices.
Charges & Fees
Premium Load
A deduction, currently 3.5% of each premium payment (guaranteed to be no higher
than 6%), will be made to cover the premium load. This load represents average
applicable state premium taxes (ranging up to 4%) as well as administrative
expenses and federal income tax liabilities.
4
<PAGE>
Charges and Fees Assessed Against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly
Deduction includes the Cost of Insurance and any charges for supplemental riders
or benefits. The Cost of Insurance depends on the Attained Age, risk class of
the Insured, the Specified Amount of the Policy and in all states except
Massachusetts and Montana, sex of the Insured.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will be charged as of the Issue Date, even if the Issue Date is earlier
than the date the application is signed (see "Premium Payments"). If the
Policy's issuance is delayed due to underwriting requirements, the charges will
not be assessed until the underwriting is complete and the application for the
policy is approved. Cost of Insurance charges will be in amounts based on the
Specified Amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period is for a lesser amount. If we decline an
application, we will refund the full premium payment made.
The Monthly Deduction also includes a monthly administrative expense charge
of $20 during the first Policy Year and $7 during subsequent Policy Years. This
charge is for items such as premium billing and collection, policy value
calculation, confirmations and periodic reports and will not exceed our costs.
The Monthly Deduction is deducted proportionately from each funding option,
if more than one is used. This is accomplished by liquidating Accumulation Units
and withdrawing the value of the liquidated Accumulation Units from each funding
option in the same proportion as their respective values have to your Fixed
Account and Separate Account Values. The Monthly Deduction is made as of the
same day each month, beginning with the Issue Date.
Charges and Fees Associated with the Variable Funding Options
The Company deducts a daily charge from the assets of Variable Life Account
B for mortality and expense risks assumed by it in connection with the Policy.
This charge is currently equal to an annual rate of 0.70% of the average daily
net assets of the Separate Account. The mortality and expense risk charge is
assessed to compensate the Company for assuming certain mortality and expense
risks under the Policies.
The Company reserves the right to increase the mortality and expense risk
charge if it believes that circumstances have changed so that current charges
are no longer adequate. In no event will the charge exceed 0.90% of average
daily net assets on an annual basis.
The morality risk assumed is that insureds, as a group, may live for a
shorter period of time than estimated and, therefore, the cost of insurance
charges specified in the Policy will be insufficient to meet actual claims. The
expense risk assumed is that other expenses incurred in issuing and
administering the Policies and operating the Separate Account will be greater
than the charges assessed for such expenses.
The Company also deducts a daily administrative charge equivalent on an
annual basis to 0.30% of the average daily net assets of Variable Life Account B
to compensate the Company for expenses associated with the administration and
maintenance of the Policy. These types of expenses are described above in
connection with the monthly administrative charge. The daily administrative
charge and the monthly administrative charge work together to cover the
Company's administrative expenses. In later years of the Policy, the revenue
collected from the daily asset-based charge grows with the Total Account Value
to cover increased expenses from Account-based transactional expenses. The
charge is guaranteed not to exceed 0.50% of the average daily net assets of the
Separate Account on an annual basis.
5
<PAGE>
Charges Assessed Against the Underlying Funds
The following table illustrates the investment advisory fees, other expenses and
total expenses paid by each of the Funds as a percentage of average net assets
based on figures for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Investment
Advisory Fees Other
(1) Expenses
(after (after Total Fund
expense expense Annual
reimbursement) reimbursement) Expenses
------------- ------------- ----------
<S> <C> <C> <C>
Aetna Variable Fund (2)(3) 0.25% 0.06% 0.31%
Aetna Income Shares (2)(3) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund (3) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc. (2)(3) 0.25% 0.08% 0.33%
Aetna Ascent Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Aetna Crossroads Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Aetna Legacy Variable Portfolio (2)(3) 0.50% 0.15% 0.65%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Fidelity VIP II Contrafund Portfolio (4) 0.61% 0.11% 0.72%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Janus Aspen Aggressive Growth Portfolio (5) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio (5) 0.82% 0.55% 1.37%
Janus Aspen Growth Portfolio (5) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond Portfolio (5) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth Portfolio (5) 0.68% 0.22% 0.90%
Scudder International Portfolio Class A Shares 0.88% 0.20% 1.08%
TCI Growth (6) 1.00% 0.00% 1.00%
</TABLE>
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Policy. These reimbursements are paid out
of the investment advisory fees and are not charged to investors.
(2) As of August 1, 1996, the Investment Advisory Fees and, consequently, the
Total Fund Annual Expenses for these Funds will change as follows: Aetna
Variable Fund--0.50% and 0.56%, respectively; Aetna Income Shares--0.40% and
0.48%, respectively; Aetna Investment Advisers Fund, Inc.--0.50% and 0.58%,
respectively; Aetna Ascent, Crossroads and Legacy Variable Portfolios--0.60%
and 0.75%, respectively.
(3) As of May 1, 1996, the Company provides administrative services to the Fund
and assumes the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not based
on figures for the year ended December 31, 1995, but reflect the fee payable
under this Agreement.
(4) A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.73% for the Contrafund Portfolio.
(5) The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth
and Worldwide Growth Portfolios reduce the management fee to the level of
the corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, the Management Fee, Other Expenses and Total
Portfolio Operating Expenses would have been 0.82%, 0.11% and 0.93% for
Aggressive Growth Portfolio; 1.00%, 0.55% and 1.55% for Balanced Portfolio;
0.85%, 0.13% and 0.98% for Growth Portfolio; 0.65%, 0.72% and 1.37% for
Short-Term Bond Portfolio; and 0.87%, 0.22% and 1.09% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the waivers
or reductions at any time upon 90 days' notice to the Portfolio's Board of
Trustees.
(6) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees, expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses. These
expenses have historically represented a very small percentage (less than
0.01%) of total net assets in a fiscal year.
For further details on each Fund's expenses, please refer to that Fund's
prospectus
6
<PAGE>
Surrender Charge
If you surrender your Policy (in whole or in part) a surrender charge may apply,
as described below.
This charge is imposed in part as a deferred sales charge and in part to
enable the Company to recover certain first year administrative costs. The
maximum portion of the Surrender Charge applied to reimburse the Company for
sales and promotional expense is 30% of the first year's Basic Premium. (Any
surrenders may result in tax implications, see "Tax Matters.")
The initial Surrender Charge, as specified in your Policy, is based on the
Specified Amount. It also depends on the Insured's age, risk class and in most
states, sex of the Insured (except for group arrangements described under
"Special Plans"). Once determined, the Surrender Charge will remain the same for
five years following the Issue Date. Thereafter, it declines monthly so that
beginning sixteen years after the Issue Date (assuming no increases in the
Specified Amount) the Surrender Charge will be zero.
If you increase the Specified Amount, a new Surrender Charge will be
applicable, in addition to the then existing Surrender Charge. This charge will
be determined based on the Insured's Attained Age, risk class, and in most
states, sex of the Insured. The Surrender Charge applicable to the increase will
be 70% of the Surrender Charge on a new policy whose Specified Amount equals the
amount of the increase, and will cover administrative expenses. The additional
Surrender Charge will also remain constant for five years from the start of the
Policy Year in which the increase occurs, and will decrease to zero by the
beginning of the sixteenth year.
If you decrease the Specified Amount while the Surrender Charge applies, the
Surrender Charge will remain the same.
Based on its actuarial determination, the Company does not anticipate that
the Surrender Charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution expenses, would be charged
to and paid by the Company.
Surrender Charges on Full and Partial Surrenders
Full Surrender: All applicable Surrender Charges are imposed.
Partial Surrender: A proportional percentage of all Surrender Charges is
imposed. The proportional percentage is the amount of the net partial surrender
divided by the sum of the Fixed Account Value and the Separate Account Value
less full Surrender Charges. When a partial surrender is made, any applicable
remaining Surrender Charges will be reduced in the same proportion. A
transaction charge of $25 or 2% of the amount of the net surrender payment,
whichever is less, will be made against the Total Account Value. (See "Partial
Surrenders.")
Note: The surrender charge will vary between 41% and 100% of one year's basic
annual premium, depending on the Insured's age, risk class and in most states,
sex of the Insured.
Policy Choices
When you buy a Policy, you make four important choices:
1) Which one of the two Death Benefit Options you would like;
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<PAGE>
2) Whether you want the Guaranteed Death Benefit Provision, and to what age;
3) The amount of premium you intend to pay; and
4) The way your premiums will be allocated to the Funds and/or the Fixed
Account.
Each of these choices is described in detail below.
Death Benefit
At the time of purchase, you must choose between the two available Death Benefit
Options. The amount payable under either option will be determined as of the
date of the Insured's death.
Under Option 1, the Death Benefit will be the greater of the Specified Amount
(a minimum of $100,000 on the date of this Prospectus), or the applicable
percentage of the Total Account Value. The percentage is 250% through age 40 and
decreases yearly to 100% at age 100. Option 1 generally provides a level Death
Benefit.
Under Option 2, the Death Benefit will be the greater of the Specified Amount
(a minimum of $100,000 on the date of this Prospectus), plus the Total Account
Value, or the applicable percentage (described above) of the Total Account
Value. Option 2 provides a varying Death Benefit which increases or decreases
over time, depending on the amount of premium paid and the investment
performance of the underlying funding options you choose.
Under both Option 1 and Option 2, the Death Benefit may be affected by
partial surrenders. The Death Benefit for both options will be reduced by the
amount necessary to repay any loans in full.
Guaranteed Death Benefit Provision
The Guaranteed Death Benefit Provision assures that, as long as the Guaranteed
Death Benefit Premium test, as described below, is met the Policy will stay in
force even if the cash value is insufficient to cover the current Monthly
Deductions.
The Guaranteed Death Benefit Provision must be selected on the application.
It may not be available to all risk classes and is only available in those
states where it has been approved. (Note: not available in New York.) The
Guaranteed Death Benefit Provision is available to age 80 or to age 100.
We will test annually to determine if the cumulative (or sum of all)
premiums paid to date are sufficient to support the Guaranteed Death Benefit
Provision. In order for the Guaranteed Death Benefit Provision to be in effect,
the cumulative premiums paid less partial surrenders must be greater than or
equal to the required monthly Guaranteed Death Benefit Premium times the number
of months elapsed since the Policy's Issue Date.
However, if these premiums are deficient, the Policy Owner will be notified
and given two months to pay the amount deficient. If the Guaranteed Death
Benefit Provision to age 100 had been in place, and the amount deficient is not
received within the two-month period: (1) the Guaranteed Death Benefit Provision
to age 80 will be substituted, but only if the cumulative premium test is
satisfied based on the Guaranteed Death Benefit Premium to age 80; or (2) the
Guaranteed Death Benefit Provision to age 100 will terminate. If the Guaranteed
Death Benefit Provision to age 80 had been in place and the amount deficient is
not received within the two-month period, the Guaranteed Death Benefit Provision
will terminate.
If a Guaranteed Death Benefit Provision is terminated it may not be
reinstated.
Increases, decreases, partial surrenders, and option changes may affect the
Guaranteed Death Benefit Premium. These events and loans may also affect the
Policy's ability to remain in force even if the cumulative annual Guaranteed
Death Benefit Provision test has been met.
8
<PAGE>
Premium Payments
During the first five Policy Years, payment of the Basic Premium assures that
the Policy will remain in force, as long as there are no surrenders or loans
taken during that time. The Basic Premium is stated in the Policy. If Basic
Premiums are not paid, or there are surrenders or loans taken during the first
five Policy Years, the Policy will lapse if the Cash Surrender Value is less
than the next Monthly Deduction.
Basic Premiums are current if premiums paid, minus loans and minus partial
surrenders, are greater than or equal to the Basic Premium (expressed as a
monthly amount) multiplied by the number of months the Policy has been in force.
After the first five Policy Years, your Policy will not lapse as long as the
Policy's Cash Surrender Value is sufficient to cover the next Monthly Deduction.
Planned Premiums are those premiums you choose to pay on a scheduled basis.
We will bill you annually, semiannually, or quarterly, or at any other
agreed-upon frequency. Pre-authorized automatic monthly check payments may also
be arranged.
Additional Premiums are any premiums you pay in addition to Planned Premiums.
Payment of Basic Premiums, Planned Premiums, or Additional Premiums in any
amount will not, except as noted above, guarantee that your Policy will remain
in force. Conversely, failure to pay Planned Premiums or Additional Premiums
will not necessarily cause your Policy to lapse. Not paying your Planned
Premiums can, however, cause the Guaranteed Death Benefit Provision to
terminate. (See "Guaranteed Death Benefit Provision.")
You may increase your Planned Premium at any time by submitting a written
notice to us or by paying Additional Premiums, except that:
(bullet) We may require evidence of insurability if the Additional Premium
or the New Planned Premium during the current Policy Year would increase the
difference between the Death Benefit and the Total Account Value. If
satisfactory evidence of insurability is requested and not provided, we will
refund the increase in premium without interest and without participation of
such amounts in the underlying funding options.
(bullet) In no event may the total of all premiums paid exceed the
then-current maximum premium limitations established by federal law for a Policy
to qualify as life insurance. (See "Tax Matters--Modified Endowment Contracts.")
(bullet) If, at any time, a premium is paid which would result in total
premiums exceeding such maximum premium limitation, we will only accept that
portion of the premium which will make total premiums equal the maximum. Any
part of the premium in excess of that amount will be returned or applied as
otherwise agreed and no further premiums will be accepted until allowed by the
then-current maximum premium limitations prescribed by law.
(bullet) If you make a sufficient premium payment when you apply for a
Policy, and have answered favorably certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for (subject to
stated maximum) will be provided.
(bullet) After the first premium payment, all premiums must be sent
directly to our Home Office and will be deemed received when actually received
at the Home Office. Your premium payments will be allocated as you have
directed, as of the next Valuation Period after each payment is received in the
Home Office.
(bullet) You may reallocate your future premium payments at any time free
of charge. Any reallocation will apply to premium payments made after you have
received written verification from us.
9
<PAGE>
Under limited circumstances, we may backdate a Policy, upon request, by
assigning an Issue Date earlier than the date the application is signed but no
earlier than six months prior to state approval of the Policy. Backdating may be
desirable, for example, so that you can purchase a particular Policy Specified
Amount for lower cost of insurance rates based on a younger insurance age. For a
backdated Policy, you must pay the minimum premium payable for the period
between the Issue Date and the date the initial premium is invested in the
Separate Account. Backdating of your Policy will not affect the date on which
your premium payments are credited to the Separate Account and you are credited
with Accumulation Units. You cannot be credited with Accumulation Units until
your net premium is actually deposited in the Separate Account. (See "Policy
Values--Total Account Value.")
Transfers and Allocations to Funding Options
At purchase, you must decide how to allocate your Net Premiums among the Funds
and/or the Fixed Account. Net Premiums must be allocated in whole percentages.
Before the Maturity Date, you may transfer Policy values from one Fund to
another at any time, or from Variable Life Account B to the Fixed Account. And,
within the 45 days after each Policy anniversary, you may also transfer a
portion of the Fixed Account Value to one or more Funds before the Maturity
Date. This type of transfer is allowed only once in the 45-day period after the
Policy anniversary and will be effective as of the next Valuation Period after
your request is received in good order at the Company's Home Office. The amount
of such transfer cannot exceed the greater of (a) 25% of the Fixed Account
Value, or (b) $500. If the Fixed Account Value is less than or equal to $500,
you may transfer all or a portion of the Fixed Account Value. We may increase
this limit from time to time.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of Accumulation Units based on the Accumulation Unit
values next determined after a written request is received by us at our Home
Office. (See "Accumulation Unit Value.") You should carefully consider current
market conditions and each Fund's investment policies and related risks before
allocating money to the Funds. We reserve the right to limit the total number of
Funds you may elect to 15 over the lifetime of the Policy.
Automated Transfers (Dollar Cost Averaging)
Dollar Cost Averaging describes a system of investing a uniform sum of money at
regular intervals over an extended period of time. Dollar Cost Averaging is
based on the economic fact that buying a security with a constant sum of money
at fixed intervals results in acquiring more of the item when prices are low and
less of it when prices are high.
You may establish automated transfers of Fund Account Values on a monthly or
quarterly basis from the Aetna Variable Encore Fund to any other investment
option through Written Request or other method acceptable to the Company. You
must have a minimum of $5,000 allocated to the Aetna Variable Encore Fund in
order to enroll in the Dollar Cost Averaging program. The minimum automated
transfer amount is $50 per month. You may start or stop participation in the
Dollar Cost Averaging program at any time, but you must give the Company at
least 30 days notice to change any automated transfer instructions that are
currently in place. The Company reserves the right to suspend or modify
automated transfer privileges at any time.
Before participating in the Dollar Cost Averaging program, You should
consider the risks involved in switching between investments available under the
Policy. Dollar Cost Averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses.
Therefore, You should carefully consider market conditions and each Fund's
investment policies and related risks before electing to participate in the
Dollar Cost Averaging program.
10
<PAGE>
Policy Values
Total Account Value
Once your Policy has been issued, each Net Premium allocated to a variable
funding option of the Separate Account is credited in the form of Accumulation
Units of the funding option based on that funding option's Accumulation Unit
value (see below). Each Net Premium will be credited to your Policy at the
Accumulation Unit value(s) determined for the Valuation Period in which it is
received and accepted by us at our Home Office following the Issue Date of the
Policy. The number of Accumulation Units credited is determined by dividing the
Net Premium by the value of an Accumulation Unit next computed after we receive
the premium. Shares in the Funds are purchased by the Separate Account at the
net asset value next determined by the Fund following receipt of the Net
Purchase Premium by the Separate Account, which will be no later than one
business day following the purchase of the Accumulation Units attributable to
the Funds. Since each Fund has a unique Accumulation Unit value, a Policy Owner
who has elected a combination of funding options will have Accumulation Units
credited to each funding option.
The Total Account Value of your Policy is determined by: (a) multiplying the
total number of Accumulation Units credited to the Policy for each applicable
Fund by its appropriate current Accumulation Unit value; (b) if you have elected
a combination of Funds, totaling the resulting values; and (c) adding any values
attributable to the Fixed Account and any values attributable to the Loan
Account Value.
The number of Accumulation Units credited to a Policy will not be changed by
any subsequent change in the value of an Accumulation Unit. The number is
increased by subsequent contributions to or transfers into that funding option,
and decreased by charges and withdrawals from that funding option.
The Fixed Account Value reflects amounts allocated to the General Account
through payment of premiums or transfers from the Separate Account. The Fixed
Account Value is guaranteed; however, there is no assurance that the Separate
Account Value of the Policy will equal or exceed the Net Premiums paid and
allocated to the Separate Account.
You will be advised at least annually as to the number of Accumulation Units
which remain credited to the Policy, the current Accumulation Unit values, the
Separate Account Value, the Fixed Account Value, and the Total Account Value.
Accumulation Unit Value
The value of an Accumulation Unit for any Valuation Period is determined by
multiplying the value of an Accumulation Unit for the immediately preceding
Valuation Period by the net investment factor for the current period for the
appropriate Fund. The net investment factor equals the net investment rate plus
1.0000000. The net investment rate is determined separately for each Fund as
follows.
The net investment rate equals (a) the net assets of the Fund held in
Variable Life Account B at the end of a Valuation Period, minus (b) the net
assets of the Fund held in Variable Life Account B at the beginning of that
Valuation Period, plus or minus (c) taxes or provisions for taxes, if any,
attributable to the operation of Variable Life Account B, divided by (d) the
value of the Accumulation Units held by Variable Life Account B at the beginning
of the Valuation Period, minus (e) a daily charge for mortality and expense
risk, and administrative expenses. (See "Charges and Fees Associated with the
Variable Funding Options.")
11
<PAGE>
Maturity Value
The Maturity Value of the Policy is the Total Account Value on the Maturity
Date, less the Loan Account Value and any unpaid accrued interest.
Cash Surrender Value
The Cash Surrender Value of your Policy is the amount you can receive in cash
by surrendering the Policy. All or part of the Cash Surrender Value may be
applied to one or more of the Settlement Options. (See "Surrender Charge.")
Policy Rights
Partial Surrenders
A partial surrender may be made at any time after the first Policy Year.
The amount of a partial surrender may not exceed the Cash Surrender Value on
the date the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a Settlement Option.
For an Option 1 Policy (see "Death Benefit"), a partial surrender will reduce
the Total Account Value, Death Benefit, and Specified Amount. The Specified
Amount and Total Account Value will be reduced by equal amounts and will reduce
any past increases in the reverse order in which they occurred.
For an Option 2 Policy (see "Death Benefit"), a partial surrender will reduce
the Total Account Value and the Death Benefit, but it will not reduce the
Specified Amount.
Payment of any amount due from the Separate Account Values on a full or
partial surrender will be made within seven calendar days after we receive your
written request at our Home Office in form satisfactory to us. Payment may be
postponed when the New York Stock Exchange has been closed and for such other
periods as the SEC may require. Payment from the Fixed Account Values may be
deferred up to 6 months, except when used to pay premiums to the Company.
The Specified Amount remaining in force after a partial surrender may not be
less than $100,000. Any request for a partial surrender that would reduce the
Specified Amount below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding decrease in the Specified
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited to the extent necessary
to meet the federal tax law requirements.
If, at the time of a partial surrender, your Total Account Value is
attributable to more than one funding option, the Surrender Charge, transaction
charge and the amount paid to you upon the surrender will be taken
proportionately from the Accumulation Unit values in each funding option.
No-Lapse Coverage Provision
This Policy will not terminate during the five-year period after its Issue Date
or the Issue Date of any increase if, on each Monthly Deduction Day within that
period, the sum of premiums paid equals or exceeds: 1) the sum of the Basic
Premiums for each Policy month from the Issue Date, including the current month;
plus 2) any partial surrenders; plus 3) any increase in Loan Account Value since
the Policy's Issue Date or the Issue Date of any increase.
12
<PAGE>
If, on each Monthly Deduction Day within the five-year period, the sum of
premiums paid is less than the sum of the items 1, 2, and 3 above, and the
Cash Surrender Value is insufficient to cover the current Monthly Deduction,
the Grace Period provision will apply. (See "Grace Period.")
After the five-year period expires, and depending on the investment
performance of the Funds, the Total Account Value may be insufficient to keep
this Policy in force, and payment of an additional premium may be necessary,
unless the Guaranteed Death Benefit Provision has been elected.
Reinstatement of a Lapsed Policy
A lapse occurs if your Monthly Deduction is greater than the Cash Surrender
Value and no payment to cover the deduction is made within the 61 days of our
notifying you. This may happen after the first five Policy Years, or during the
first five Policy Years if your Basic Premiums are not current.
You can apply for reinstatement within five years after the date of
termination and before the Maturity Date. To reinstate your Policy we will
require satisfactory evidence of insurability and an amount sufficient to pay
for the current Monthly Deduction plus two additional Monthly Deductions.
If the Policy is reinstated within five years of this Policy's Issue Date or
while the No-Lapse Coverage Provision (see "No-Lapse Coverage Provision") would
be in effect if this Policy had not lapsed, all values including the Loan
Account Value will be reinstated to the point they were on the date of lapse.
However, the Guaranteed Death Benefit Provision will not be reinstated.
If the Policy is reinstated after the No-Lapse Coverage Provision (see
"No-Lapse Coverage Provision") has expired, this Policy will be reinstated on
the Monthly Deduction Day following our approval. This Policy's Total Account
Value at reinstatement will be the Net Premium paid less the Monthly Deduction
due that day. Any Loan Account Value will not be reinstated, and the Guaranteed
Death Benefit will not be reinstated.
If the Policy's Cash Surrender Value less any Loan Account Value plus accrued
interest is not sufficient to cover the full Surrender Charge at the time of
lapse, the remaining portion of the Surrender Charge will also be reinstated at
the time of Policy reinstatement.
Policy Loans: Preferred and Nonpreferred
Unless otherwise required by state law, the maximum loan amount is 90% of the
Cash Surrender Value at the time of a loan.
Loans taken during the first ten Policy Years are considered nonpreferred
loans. Beginning in the eleventh Policy Year, up to 10% of the maximum loan
amount available at the beginning of a Policy Year can be taken as a preferred
loan during that Policy Year. Amounts borrowed that are in excess of the maximum
loan amount available for a preferred loan will be considered a nonpreferred
loan. An amount equal to what you receive for a loan, together with any interest
added to the loan for due and unpaid interest, as described below, will be added
to the Loan Account Value.
If you are using more than one underlying funding option, the amount of the
loan will be withdrawn in proportion to the value of each funding option.
Interest on loans will accrue at an annual rate which will be the greater of:
1) The monthly average (i.e., the Composite Yield on Corporate Bonds as
published by Moody's Investors Service, Inc.) for the calendar month which
ends two months before the month in which the Policy Anniversary occurs, or
2) 5.5%.
Increases or decreases to the current interest rate will occur only when the
new Policy Year's annual
13
<PAGE>
interest rate is greater or lower than the prior Policy Year's annual interest
rate by at least 0.5%.
We will notify you of the current interest rate charged for a loan at the
time a loan is made. If your Policy has a loan outstanding, we will notify you
of any change in the interest rate before the new rate becomes effective.
Interest is payable once a year on each anniversary of the loan, or earlier
upon surrender, payment of proceeds, or maturity of a Policy. Any interest not
paid when due becomes part of the loan and bears interest.
An amount equal to what you receive for a loan, together with any accrued but
not paid interest, will be added to the Loan Account Value. We will credit
interest on the Loan Account Value. The Loan Account Value for nonpreferred
loans will be credited interest, during any Policy Year, at an annual rate that
is the interest rate charged on the loan minus 2%. However, in no case will the
credited interest rate be less than 4.5% annually.
The Loan Account Value on preferred loans will be credited interest at a rate
equal to the interest rate charged. In no case will the credited interest rate
be less than 5.5% annually.
If a policy loan is requested, the amount to be borrowed will be withdrawn by
the Company from the funding options and Fixed Account Value in proportion to
the value of the Policy attributable to each funding option and the Fixed
Account. Repayments on the loan will be allocated among the funding options in
the same proportion the loan was taken from the funding options. The Loan
Account Value will be reduced by the amount of any loan repayment.
Policy Changes
You may make changes to your Policy, as described below, by submitting a written
request to our Home Office in form satisfactory to us.
Increases: Beginning in the second Policy Year, you may increase the
Specified Amount of your Policy subject to the following conditions:
(bullet) Satisfactory evidence of insurability may be required.
(bullet) The Cash Surrender Value at the time of an increase must be at
least three times the sum of (a) the most recent Monthly Deduction from the
Total Account Value and (b) the amount of the increase, divided by 1000, times
the applicable Cost of Insurance Rate.
(bullet) An increase in the Specified Amount will increase the Surrender
Charge.
(bullet) The Basic Monthly Premium will be increased when the Specified
Amount is increased. The Policy will not terminate within five years of the
Issue Date of the increase if the conditions of this provision and the No-Lapse
Coverage Provision are met.
(bullet) Increases through the fifth year are limited to four times the
initial Specified Amount.
(bullet) Increases in the Specified Amount will increase the Guaranteed
Death Benefit Provision amount and will affect the Guaranteed Death Benefit
Premium.
Decreases: Beginning in the sixth Policy Year decreases will be allowed,
however:
(bullet) No decrease may reduce the Specified Amount to less than the
minimum for this type of policy. (See Death Benefit.)
(bullet) Any decrease will cause a decrease in the Guaranteed Death Benefit
Provision.
Death Benefit Option Change: A Death Benefit Option change will be allowed,
subject to the following conditions:
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<PAGE>
(bullet) The change will take effect on the Monthly Deduction Day on or
next following the date on which the Company receives your written request.
(bullet) There will be no change in the Surrender Charge, and evidence of
insurability may be required.
(bullet) We will not allow a change in the Death Benefit Option if the
Specified Amount will be reduced below the minimum Specified Amount.
(bullet) Changes from Option 1 to Option 2 are allowed beginning in the
sixth Policy Year. The new Specified Amount will equal the Specified Amount less
the Total Account Value at the time of the change.*
(bullet) Changes from Option 2 to Option 1 are allowed after the first
Policy Year. The new Specified Amount will equal the Specified Amount plus the
Total Account Value as of the time of the change.*
*Changes in the Death Benefit Option also affect the Guaranteed Death Benefit
Provision amount and the Guaranteed Death Benefit Premium.
Right to Examine the Policy
The Policy has a free-look period during which you may examine the Policy. If
for any reason you are dissatisfied, it may be returned to our Home Office for a
refund. It must be returned within ten days (state variations may apply) after
you receive the Policy and the written notice of withdrawal right, or within 45
days after you sign the application for the Policy, whichever occurs latest. If
you return (cancel) the Policy, we will pay a refund of (1) the difference
between payments made and amounts allocated to the Separate Account, plus (2)
the value of the amount allocated to the Separate Account as of the date the
returned Policy is received by us, plus (3) any fees imposed on the amounts
allocated to the Separate Account. If state law does not permit such a refund,
then the refund will equal premiums paid, without interest. Refunds will usually
occur within seven days of notice of cancellation, although a refund of premiums
paid by check may be delayed until the check clears your bank.
Death Benefit
The Death Benefit under the Policy will be paid in a lump sum within seven
days after we receive due proof of the Insured's death (a certified copy of
the death certificate), unless you or the beneficiary have elected that it be
paid under one or more of the Settlement Options. (See "Settlement Options.")
Payment of the Death Benefit may be delayed if the Policy is being contested.
While the Insured is living, you may elect a Settlement Option for the
beneficiary and deem it irrevocable. You may revoke or change a prior election.
The beneficiary may make or change an election within 90 days of the death of
the Insured, unless you have made an irrevocable election. A beneficiary who has
elected Settlement Option 1 may elect another option within two years after the
Insured's death.
All or a part of the Death Benefit may be applied under one or more of the
Settlement Options, or such options as we may choose to make available in the
future.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any excess Death Benefit due will be paid as
elected.
15
<PAGE>
Policy Settlement
Proceeds in the form of Settlement Options are payable by the Company upon the
Insured's death, upon Maturity of the Policy, or upon election of one of the
following Settlement Options or any we make available (after any applicable
Surrender Charges have been deducted).
A written request may be made to elect, change, or revoke a Settlement Option
before payments begin under any Settlement Option. This request must be in form
satisfactory to us, and will take effect upon its filing at our Home Office. If
no Settlement Option has been elected by the Policy Owner when the Death Benefit
becomes payable to the beneficiary, that beneficiary may make the election.
The first variable Settlement Option payment will be as of the tenth Valuation
Period following our receipt of the properly completed election form.
Settlement Options
Option 1 -- Payment of interest on the sum left with us;
Option 2 -- Payments for a stated number of years, at least three but no more
than thirty;
Option 3 -- Payments for the lifetime of the Annuitant. If also chosen, we
will guarantee payments for 60, 120, 180, or 240 months;
Option 4 -- Payments during the joint lifetimes of two Annuitants. At the
death of either, payments will continue to the survivor. When this option is
chosen, a choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 66-2/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to
continue to the survivor;
e) 100% of the payment to continue to the survivor if the survivor is the
Annuitant, and 50% of the payment to continue to the survivor if the survivor
is the Second Annuitant.
In most states, no election may be made that would result in a first payment of
less than $25 or that would result in total yearly payments of less than $120.
If the value of the Policy is insufficient to elect an option for the minimum
amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in the General Account.
Proceeds in the General Account will be used to make payments on a fixed-dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3%. We may add interest daily at any higher rate.
Under Option 1, the Annuitant may later tell the Company to (a) pay to him or
her a portion or all of the sum held by the Company; or (b) apply a portion or
all of the sum held by the Company to another Settlement Option.
Proceeds applied under Options 2, 3 and 4 will be held (a) in the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options, or (c) a mix of (a) and (b). Proceeds held in
Variable Annuity Account B will be used to make payments on a variable basis.
If payments are to be funded on a variable basis (by the Funds), the first and
subsequent payments will vary depending on the Assumed Net Investment Rate. This
rate will be 3% per year, unless a 5% annual rate is chosen. The Assumed Net
Investment Rate is chosen by the payee.
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<PAGE>
Selection of a 5% rate causes a higher first payment, but subsequent payments
will increase only to the extent the actual net investment rate exceeds 5% on an
annualized basis, and they will decline if the rate is less than 5%. Use of the
3% Assumed Net Investment Rate causes a lower first payment, but subsequent
payments will increase more rapidly or decline more slowly as changes occur in
the actual net investment rate. The investment performance of the underlying
funding option(s) must equal such assumed rate, plus enough to cover the
mortality and expense risk and administrative fee charges, if future payments on
a variable basis are to remain level.
If payments on a variable basis are not to decrease, gross return on the assets
of the underlying funding option must be:
a) 4.75% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 3% is chosen; or
b) 6.25% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 5% is chosen.
Option 2, 3 or 4 may be chosen on a fixed-dollar basis. However, if the
guaranteed payments are less than the payments which would be made from the
purchase of the Company's current single premium immediate annuity, the larger
payment will be made instead.
As to funds held under Option 1, the Annuitant may elect to make a withdrawal or
to change options. Under Option 2, if payments are made on a variable basis, the
current value may be withdrawn at any time. Amounts held in the Fixed Account
may not be withdrawn under Option 2. No withdrawals or changes of option may be
made under Options 3 and 4.
When an Annuitant dies while receiving payments under Option 2, 3 or 4, the
present value of any remaining guaranteed payments will either be paid in one
sum to the Annuitant's beneficiary, or upon election by that beneficiary, any
remaining guaranteed payments will continue to that beneficiary. If no
beneficiary exists, the present value of any remaining guaranteed payments will
be paid in one sum to the Annuitant's estate. If the Annuitant dies while
receiving payments under Option 1, the current value of the Option will be paid
in one sum to the beneficiary, or to the Annuitant's estate.
If the Annuitant's beneficiary dies (and there is no contingent beneficiary),
while receiving payments, the current value of the account (Option 1), or the
present value of any remaining guaranteed payments will be paid in one sum to
the estate of that beneficiary. The interest rate used to determine the first
payment will be used to calculate the present value.
Calculation of Settlement Payments
When you have chosen payment on a variable basis, the first payment is
calculated as follows:
a) the portion of the proceeds applied to make payments on the variable
basis; divided by
b) 1,000; times
c) the payment rate per $1000 of proceeds for the option chosen as shown in
the policy.
Such amount, or portion, of the variable payment will be divided by the
Settlement Option Unit value (described below), as of the tenth Valuation Period
before the due date of the first payment, to determine the number of Settlement
Option Units. Each future payment is equal to the number of Settlement Option
Units, times the Settlement Option Unit value as of the tenth Valuation Period
prior to the due date of the payment.
17
<PAGE>
For any Valuation Period, the Fund(s) Settlement Option Unit value is equal
to:
a) The Settlement Option Unit value for the previous Valuation Period; times
b) The Net Return Factor (as defined below) for the Valuation Period; times
c) A factor to reflect the Assumed Net Investment Rate.
The factor for 3.5% per year is 0.9999058; for 5% per year, it is 0.9998663.
The Net Return Factor equals:
1) The net assets of the applicable fund held in Variable Annuity Account B
at the end of a Valuation Period; minus
2) The net assets of the applicable fund held in Variable Annuity Account B
at the beginning of that Valuation Period; plus or minus
3) Taxes or provision for taxes, if any, attributable to the operations of
Variable Annuity Account B; divided by
4) The value of Settlement Option Units and other accumulation units held in
Variable Annuity Account B at the beginning of the Valuation Period; minus
5) A daily charge at an annual rate of 1.25% for annuity mortality and expense
risk and the then-current daily administrative expense charge.
The number of Settlement Option Units remains fixed. However, the dollar value
of the Settlement Option Unit values and the payment may increase or decrease
due to investment gain or loss.
Payments will not be affected by changes in the mortality or expense results or
administrative expense charges.
Special Plans
Where allowed by law, the Company may reduce or eliminate certain charges for
Policies issued under special circumstances that result in lower expenses to the
Company (i.e., group arrangements with a sponsoring employer). The amount of any
reduction, the charges to be reduced, and the criteria for applying a reduction
will reflect the reduced sales effort, costs and differing mortality experience
appropriate to the circumstances giving rise to the reduction. The charges will
be reduced in accordance with the Company's practice in effect when the Policies
are issued. Reductions will not be unfairly discriminatory against any person,
including the purchasers to whom the reduction applies and all other owners of
the Policies.
The Company offers Policies on a unisex and simplified underwriting basis to
certain group or sponsored arrangements. A "group arrangement" includes a
program under which an employer purchases individual Policies covering a group
of individuals on a group basis. A "sponsored arrangement" includes a program
under which an employer permits group solicitation of its employees for the
purchase of the Policies on an individual basis. Under both arrangements, the
employer pays all or part of the premium. The benefits and values of these
Policies do not vary based on the sex of the insured in order to be used by
employers in employee benefit plans where sex discrimination is prohibited by
federal or state laws. The Company recommends that any employer proposing to
offer the Policies to employees under either arrangement consult its attorney
before doing so.
18
<PAGE>
Pension Plans
AetnaVest Plus is not designed to be used in a pension or profit-sharing plan as
an investment vehicle or to provide life insurance protection. Therefore, an
AetnaVest Plus Policy will not be issued to such a plan. Transfer of ownership
of an AetnaVest Plus Policy to a tax-qualified pension or profit-sharing plan
after the Policy has been issued is not recommended because the Policy terms may
be in conflict with federal law governing these plans.
The Company
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company organized under the insurance laws of the State of Connecticut
in 1976. Through a merger, it succeeded to the business of Aetna Variable
Annuity Life Insurance Company (formerly Participating Annuity Life Insurance
Company organized in 1954). The Company is engaged in the business of issuing
life insurance policies and annuity contracts in all states of the United
States. The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna Life and Casualty Company.
The Company is registered as an investment adviser under the Investment Advisers
Act of 1940. It is also registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
Directors & Officers
<TABLE>
<CAPTION>
Name and Address* Position with Company Principal Occupation During Past 5 Years
- ----------------------- ----------------------------- -----------------------------------------------
<S> <C> <C>
Daniel P. Kearney Director, President and President (since December 1993), Aetna Life
Chairman, Executive Committee Insurance and Annuity Company; Executive Vice
(Principal Executive Officer) President (since December 1993), and Group
Executive, Financial Division (February
1991--December 1993), Aetna Life and Casualty
Company.
Christopher J. Burns Director and Senior Vice Senior Vice President, Sales & Service (since
President February 1996), and Senior Vice President, Life
(March 1991--February 1996), Aetna Life
Insurance and Annuity Company.
19
<PAGE>
Name and Address* Position with Company Principal Occupation During Past 5 Years
- ----------------------- ----------------------------- -----------------------------------------------
Laura R. Estes Director and Senior Vice Senior Vice President, Manage/Design Products
President and Services (since February 1996), and Senior
Vice President, Pensions (March 1991--February
1996), Aetna Life Insurance and Annuity
Company.
Timothy A. Holt Director, Senior Vice Senior Vice President, Strategy & Finance, and
President and Chief Financial Chief Financial Officer (since February 1996),
Officer Aetna Life Insurance and Annuity Company; Vice
President, Portfolio Management/Investment
Group (August 1992--February 1996), Aetna Life
and Casualty Company; Treasurer (February
1990--July 1991), Aeltus Investment Management,
Inc.
Gail P. Johnson Director and Vice President Vice President, Service and Retain Customers
(since February 1996); Vice President, Defined
Benefit Services (September 1994--February
1996); Vice President, Plan Services, Pensions
and Financial Services (December 1992--
September 1994); Managing Director, Business
Strategy (July 1991--December 1992); Assistant
Vice President, Portfolio Management, Financial
Division (June 1987--July 1991); -- Aetna Life
Insurance and Annuity Company.
John Y. Kim Director and Senior Vice President (since December 1995), Aeltus
President Investment Management, Inc.; Chief Investment
Officer (since May 1994), Aetna Life and
Casualty Company; Managing Director
(September 1993--April 1994), Mitchell
Hutchins Institutional Investors (New York,
New York); Vice President and Senior
Portfolio Manager (October 1991--August
1993), and Vice President, Investor
Relations (1990--1992), Aetna Life and
Casualty Company.
20
<PAGE>
Name and Address* Position with Company Principal Occupation During Past 5 Years
- ----------------------- ----------------------------- -----------------------------------------------
Shaun P. Mathews Director and Vice President Vice President, Products Group (since February
1996); Senior Vice President, Strategic
Markets and Products (February 1993--February
1996); and Senior Vice President, Mutual
Funds (March 1991--February 1993) -- Aetna
Life Insurance and Annuity Company.
Glen Salow Director and Vice President Vice President, Information Technology (since
February 1996), Vice President, Information
Technology, Investments and Financial Services
(February 1995-- February 1996); Vice
President, Investment Systems (1992--1995), AIT
-- Aetna Life Insurance and Annuity Company;
Senior Vice President (December 1986--August
1992), Lehman Brothers.
Creed R. Terry Director and Vice President Vice President, Select and Manage Markets
(since February 1996), Market Strategist
(August 1995--February 1996) -- Aetna Life
Insurance and Annuity Company; President
(1991--1995), Chemical Technology Corporation
(a subsidiary of Chemical Bank).
Zoe Baird Senior Vice President and Senior Vice President and General Counsel
General Counsel (since April 1992), Vice President and General
Counsel (July 1990--April 1992), Aetna Life and
Casualty Company.
Susan E. Schechter Counsel and Corporate Counsel (since November 1993), Aetna Life and
Secretary Casualty Company; Associate Attorney (September
1986--October 1993), Steptoe & Johnson.
Eugene M. Trovato Vice President and Treasurer, Vice President and Treasurer, Corporate
Corporate Controller Controller (since February 1996), Vice
President and Controller (February
1995-- February 1996), Aetna Life Insurance
and Annuity Company; Vice President,
Financial Reporting (December 1991--February
1995), Assistant Vice President, Financial
Reporting (June 1989--December 1991),
Aetna Life and Casualty Company.
21
<PAGE>
Name and Address* Position with Company Principal Occupation During Past 5 Years
- ----------------------- ----------------------------- -----------------------------------------------
Diane B. Horn Vice President and Chief Vice President and Chief Compliance Officer
Compliance Officer (since February 1996), and
Senior Compliance Officer (August 1993--
February 1996), Aetna Life Insurance and
Annuity Company; Director of Compliance
(May 1991--July 1993), Kemper Life Insurance
Company.
</TABLE>
*The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut.
These individuals may also be directors and/or officers of other affiliates of
the Company.
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Aetna Casualty and
Surety Company.
Additional Information
Reports to Policy Owners
Within 30 days after each Policy Anniversary and before proceeds are applied to
a Settlement Option, we will send you a report containing the following
information:
1) A statement of changes in the Total Account Value and Cash Surrender Value
since the prior report or since the Issue Date, if there has been no prior
report. This includes a statement of monthly deductions and investment results
and any interest earnings for the report period;
2) Cash Surrender Value, Death Benefit, and any Loan Account Value as of the
Policy Anniversary;
3) A projection of the Total Account Value, Loan Account Value and Cash
Surrender Value as of the succeeding Policy Anniversary.
If you have Policy values funded in either Separate Account you will receive
such additional periodic reports as may be required by the SEC.
Some state laws require additional reports; these requirements vary from state
to state.
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each Separate Account. The votes will be cast at
meetings of the shareholders of the Fund and will be based on instructions
received from Policy Owners. However, if the Investment Company Act of 1940 or
any regulations thereunder should be amended or if the present interpretation
thereof should change, and as a result we determine that we are permitted to
vote the shares of the Fund in our own right, we may elect to do so.
The number of votes each Policy Owner is entitled to direct with respect to a
Fund will be determined by dividing the portion of Total Account Value
attributable to a Fund, if any, by the net asset value of one share in the Fund.
During the settlement option period, the number of votes is determined by
dividing the Valuation Reserve attributable in the Fund, if any, by the net
asset value of one share of the Fund. Fractional votes will be counted.
Where the value of the Total Account Value or the
22
<PAGE>
Valuation Reserve relates to more than one Fund, the calculation of votes will
be performed separately for each Fund.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by us, but not more than 90 days before the meeting of
the Fund. Voting instructions will be solicited by written communication at
least 14 days before such meeting.
Fund shares for which no timely instructions are received, and Fund shares
which are not otherwise attributable to Policy Owners, will be voted by us in
the same proportion as the voting instructions which are received for all
Policies participating in each Fund through Variable Life Account B.
Policy Owners having a voting interest will receive periodic reports relating
to the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund. In
addition, we may disregard voting instructions in favor of changes initiated by
a Policy Owner in the investment policy or the investment adviser of the Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities or we determined that
the change would have an adverse effect on the Separate Accounts in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Policy Owners.
State Regulation
We are subject to regulation and supervision by the Insurance Department of the
state of Connecticut, which periodically examines our affairs. We are also
subject to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. The Policies have been approved by the Insurance
Department of the state of Connecticut and in other jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and compliance
with local insurance laws and regulations.
Legal Matters
The Company knows of no material legal proceedings pending to which the Separate
Account is a party or which would materially affect the Separate Account.
The legal validity of the securities described in the prospectus has been
passed on by Susan E. Bryant, Counsel.
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed with
the Securities and Exchange Commission relating to the offering described in
this Prospectus. This Prospectus does not include all the information set forth
in the Registration Statement, certain portions of which have been omitted
pursuant to the rules and regulations of the SEC. The omitted information may be
obtained at the SEC's principal office in Washington, D.C., upon payment of the
SEC's prescribed fees.
23
<PAGE>
The Policies are offered for sale in all jurisdictions where we are authorized
to do business except Guam, Puerto Rico, and the Virgin Islands.
Distribution of the Policies
The Company will serve as underwriter of the securities offered hereunder as
defined by the federal securities laws. The Company is registered as a
broker-dealer with the SEC and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The Company will contract with one or more
registered broker-dealers including broker-dealers affiliated with it
("Distributors") to offer and sell the Policies. The Company may also offer and
sell policies directly. All persons selling the Policies will be registered
representatives of the Distributors, and will also be licensed as insurance
agents to sell variable life insurance.
The maximum commission payable by the Company to salespersons and their
supervising broker-dealers for policy distribution is 55% of the Guaranteed
Death Benefit Premium to age 80, or, in the event of an increase in the
Specified Amount, 55% of the Guaranteed Death Benefit Premium to age 80,
attributable to the increase. In particular circumstances, we may also pay
certain of these professionals for their administrative expenses.
The Company may also contract with independent third party broker-dealers who
will act as wholesalers by assisting the Company in finding broker-dealers to
offer and sell the Policies. These parties may also provide training, marketing
and other sales related functions for the Company and other broker-dealers and
may provide certain administrative services to the Company in connection with
the Policies. The Company may pay such parties compensation based on premium
payments for the Policies purchased through broker-dealers selected by the
wholesaler.
Records and Accounts
All records and accounts relating to the Separate Accounts and the Funds will be
maintained by the Company. All reports required to be made and information
required to be given will be provided by the Company.
Independent Auditors
KPMG Peat Marwick LLP, City Place II, Hartford Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
Tax Matters
General
The following is a discussion of the federal income tax considerations relating
to the Policy. This discussion is based on the Company's understanding of
federal income tax laws as they now exist and are currently interpreted by the
Internal Revenue Service ("IRS"). These laws are complex, and tax results may
vary among individuals. A person or persons contemplating the purchase of or the
exercise of elections under the Policy described in this Prospectus should seek
competent tax advice.
Federal Tax Status of the Company
The Company is taxed as a life insurance company in accordance with the Internal
Revenue Code of 1986, as amended ("Code"). For federal income tax purposes, the
operations of the Separate Account
24
<PAGE>
form a part of the Company's total operations and are not taxed separately,
although operations of the Separate Account are treated separately for
accounting and financial statement purposes.
Both investment income and realized capital gains of the Separate Account
(i.e., income, capital gains and dividends distributed to the Separate Account
by the Funds) are reinvested without tax since the Code does not impose a tax on
the Separate Account for these amounts. The Company reserves the right, however,
to make a deduction for such taxes should they be imposed with respect to such
items in the future.
Life Insurance Qualification
Section 7702 of the Code includes a definition of life insurance for tax
purposes. The Secretary of the Treasury has been granted authority to prescribe
regulations to carry out the purposes of this section, and proposed regulations
governing mortality charges were issued in 1991. The Company believes that the
Policy meets the statutory definition of life insurance. As such, and assuming
the diversification standards of Section 817(h) (discussed below) are satisfied,
then except in limited circumstances (a) death benefits paid under the Policy
should generally be excluded from the gross income of the beneficiary for
federal income tax purposes under Section 101(a)(1) of the Code, and (b) a
Policyowner should not generally be taxed on the cash value under a Policy,
including increments thereof, prior to actual receipt. The principal exceptions
to these rules are corporations that are subject to the alternative minimum tax,
and thus may be subject to tax on increments in the Policy's Total Account
Value, and Policyowners who acquire a Policy in a "transfer for value" and thus
can become subject to tax on the portion of the Death Benefit which exceeds the
total of their cost of acquisition and subsequent premium payments.
The Company intends to comply with any future final regulations issued under
Sections 7702 and 817(h) of the Code, and therefore reserves the right to make
such changes as it deems necessary to ensure such compliance. Any such changes
will apply uniformly to affected Policyowners and will be made only after
advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
Modified Endowment Contract, the Policyowner will be taxed on the Surrender
Value only to the extent that it exceeds the gross premiums paid less prior
untaxed withdrawals. The amount of any unpaid Policy Loans will, upon surrender,
be added to the Surrender Value and will be treated for this purpose as if it
had been received.
Assuming the Policy is not a Modified Endowment Contract, the proceeds of any
Partial Surrenders are generally not taxable unless the total amount received
due to such surrenders exceeds total premiums paid less prior untaxed Partial
Surrender amounts. However, Partial Surrenders made within the first 15 Policy
Years may be taxable in certain limited instances where the Surrender Value plus
any unpaid Policy debt exceeds the total premiums paid less the untaxed portion
of any prior Partial Surrenders. This result may occur even if the total amount
of any Partial Surrenders does not exceed total premiums paid to that date.
Loans received under the Policy will ordinarily be considered indebtedness of
the Policy Owner, and assuming the Policy is not considered a Modified Endowment
Contract, Policy Loans will not be treated as current distributions subject to
tax. Generally, amounts of loan interest paid by individuals will be considered
nondeductible "personal interest."
Modified Endowment Contracts
A class of contracts known as "Modified Endowment Contracts" has been created
under Section 7702A of the Code. The tax rules applicable to loan proceeds and
proceeds of a Partial Surrender of any Policy that is considered to be a
Modified Endowment Contract will differ from the general rules noted above.
25
<PAGE>
A contract will be considered a Modified Endowment Contract if it fails the
"7-pay test." A Policy fails the 7-pay test if, at any time in the first seven
Policy Years, the amount paid into the Policy exceeds the amount that would have
been paid had the Policy provided for the payment of seven (7) level annual
premiums. In the event of a distribution under the Policy, the Company will
notify the Policy Owner if the Policy is a Modified Endowment Contract.
Each Policy is subject to retesting under the 7-pay test during the first
seven Policy Years and at any time a material change takes effect. A material
change, for these purposes, includes the exchange of a life insurance policy for
another life insurance policy or the conversion of a term life insurance policy
into a whole life or universal life insurance policy. In addition, an increase
in the future benefits provided constitutes a material change unless the
increase is attributable to (1) the payment of premiums necessary to fund the
lowest Death Benefit payable in the first seven Policy Years or (2) the
crediting of interest or other earnings with respect to such premiums. A
reduction in death benefits during the first seven Policy Years may also cause a
Policy to be considered a Modified Endowment Contract.
If the Policy is considered to be a Modified Endowment Contract, the proceeds
of any Partial Surrenders and any Policy Loans will be currently taxable to the
extent that the Policy's Total Account Value immediately before payment exceeds
gross premiums paid (increased by the amount of loans previously taxed and
reduced by untaxed amounts previously received). These rules may also apply to
Policy Loans or Partial Surrender proceeds received during the two-year period
prior to the time that a Policy becomes a Modified Endowment Contract. If the
Policy becomes a Modified Endowment Contract, it may be aggregated with other
Modified Endowment Contracts purchased by you from the Company (and its
affiliates) during any one calendar year for purposes of determining the taxable
portion of withdrawals from the Policy.
A penalty tax equal to 10% of the amount includable in income will apply to
the taxable portion of the proceeds of any Policy Surrender or Policy Loan
received by any Policy Owner of a Modified Endowment Contract who is not an
individual. The penalty tax will also apply where taxable Policy Loans are
received by an individual who has not reached the age of 59-1/2. Taxable policy
distributions made to an individual who has not reached the age of 59-1/2 will
also be subject to the penalty tax unless those distributions are attributable
to the individual becoming disabled, or are part of a series of equal periodic
payments made not less frequently than annually for the life or life expectancy
of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Funds, intends to comply with these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise
26
<PAGE>
investment control over the assets. The Treasury Department has also announced,
in connection with the issuance of regulations under Section 817(h) concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., you), rather than the insurance company,
to be treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular Funds
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from those described by the IRS in pre-Section 817(h) rulings
in which it was determined that Policy Owners were not owners of separate
account assets. For example, a Policy Owner has additional flexibility in
allocating premium payments and account values. While the Company does not
believe that these differences would result in a Policy Owner being treated as
the owner of a pro rata portion of the assets of the Separate Account, there is
no regulation or ruling of the IRS that confirms this conclusion. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent a Policy Owner from being considered the owner
of a pro rata share of the assets of the Separate Account.
Other Tax Considerations
Business-owned life insurance may be subject to certain additional rules.
Section 264(a)(1) of the Code generally prohibits employers from deducting
premiums on policies covering officers, employees or other financially
interested parties. Additions to the Policy's Total Account Value may also be
subject to tax under the corporation alternative minimum tax provisions. In
addition, Section 264(a)(4) of the Code limits the Policy Owner's deduction for
interest on loans taken against life insurance covering the lives of officers,
employees, or other financially interested in the Policy Owner's trade or
business. Under current tax law, interest may generally be deducted on an
aggregate total of $50,000 of loans per covered life with respect to all life
insurance policies covering each officer, employee or others who may have a
financial interest in the Policy Owner's trade or business.
Depending on the circumstances, the exchange of a policy, a change in the
Policy's Death Benefit Option, a Policy Loan, a Full or Partial Surrender, a
change in Ownership or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, estate,
inheritance and other tax consequences of policy ownership, premium payments and
receipt of policy proceeds depend on the circumstances of each Policy Owner or
beneficiary.
Misc. Policy Provisions
The Policy
The Policy which you receive and the application you make when you purchase the
Policy are the whole contract. A copy of the application is attached to the
Policy when it is issued to you. An application for changes, once approved by
us, will become part of the Policy.
Application forms are completed by the applicant and forwarded to the Company
for acceptance. Upon acceptance, the Policy is prepared, executed by duly
authorized officers of the Company, and
27
<PAGE>
forwarded to the Policy Owner.
Payment of Benefits
All benefits are payable at our Home Office. We may require submission of the
Policy before we grant loans, make changes or pay benefits.
Age and Sex
If age or sex is misstated on the application, the amount payable on death will
be that which would have been purchased by the most recent monthly deduction at
the correct age and sex. (If the application is taken in a state or under an
agreement where unisex rates are used, the Insured's sex is inapplicable.)
Incontestability
We will not contest coverage under the Policy after the Policy has been in force
during the lifetime of the Insured for a period of two years from the Policy
Issue Date. Our right to contest coverage is not affected by the Guaranteed
Death Benefit Provision.
For coverage which takes effect on a later date (e.g., an increase in
coverage), we will not contest such coverage after it has been in force during
the lifetime of the Insured more than two years from its effective date.
Suicide
In most states, if the Insured commits suicide within two years from the Issue
Date, the only benefit paid will be the sum of:
a) premiums paid less amounts allocated to the Separate Account; and
b) the Separate Account Value on the date of suicide, plus the portion of the
Monthly Deduction from the Separate Account Value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the Loan Account Value transferred to the Separate Account Value, and any
surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the Monthly Deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
You may, by written request, in the 30 days before the Maturity Date of this
Policy, elect to continue coverage beyond the Maturity Date. At Age 100, the
Separate Account Value will be transferred to the Fixed Account. If coverage
beyond maturity is elected, we will continue to credit interest to the Total
Account Value of this Policy. Monthly Deductions will be calculated with a Cost
of Insurance rate equal to zero (this provision is not available in New York).
At this time, uncertainties exist regarding the tax treatment of the
Policy should it continue beyond the Maturity Date. You should therefore
consult with your tax advisor prior to making this election. (See "Tax
Matters.")
Protection of Proceeds
To the extent provided by law, the proceeds of the Policy are subject neither to
claims by a beneficiary's creditors nor to any legal process against any
beneficiary.
28
<PAGE>
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company.
No dividends are payable.
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND CASH SURRENDER VALUES
The tables on the following pages illustrate how the Death Benefit, Total
Account Values, and Cash Surrender Values of a Policy change with the investment
experience of the Funds. The tables show how the Death Benefit, Total Account
Values, and Cash Surrender Values of a Policy issued to an insured of a given
age and a given premium would vary over time if the investment return on the
assets held in each Fund were a uniform, gross, annual rate of 0%, 6%, and 12%,
respectively.
Tables I through IV illustrate Policies issued to males, age 45, in the
preferred nonsmoker rate class and Policies issued on a unisex basis according
to the Special Plans section of this Prospectus for both males and females, age
45, in the preferred nonsmoker rate class. Tables V through VIII illustrate
Policies issued on a unisex basis, age 45, in the preferred nonsmoker rate class
for contracts issued in states where unisex rates are required. The Death
Benefit, Total Account Values, and Cash Surrender Values would be different from
those shown if the gross annual investment rates of return averaged 0%, 6%, and
12%, respectively, over a period of years, but fluctuated above and below those
averages for individual Policy Years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the Death Benefitof a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through the eleventh columns illustrate the Cash Surrender Values of each Policy
over the designated period. Tables I, II, V and VI assume that the maximum Cost
of Insurance allowable under the Policy are charged in all Policy Years. These
tables also assume that the maximum allowable mortality and expense risk charge
of 0.90% on an annual basis, the maximum allowable administrative expense charge
of 0.50% on an annual basis, and the maximum allowable premium load of 6% are
assessed in each Policy Year. Tables III, IV, VII and VIII assume that the
current scale of Cost of Insurance Rates applies during all Policy Years. These
tables also assume that the current mortality and expense risk charge of 0.70%
on an annual basis, the current administrative expense charge of 0.30% on an
annual basis, and the current premium load of 3.5% are assessed.
The amounts shown for Death Benefit, Cash Surrender Values, and Total Account
Values reflect the fact that the net investment return is lower than the gross
return on the assets held in each Fund as a result of expenses paid by each Fund
and other charges levied by the Separate Account.
The investment advisory fees and other Fund expenses vary by Fund from 0.35%
to 1.37%. For the purposes of the illustrations, the advisory fees used for the
Aetna funds are the fees that will be effective beginning on August 1, 1996. A
weighted average has been used for the illustrations assuming that the
Policyowner has invested in the Funds as follows: 30% in Aetna Variable Fund; 3%
in Aetna Income Shares; 12% in Aetna Variable Encore Fund; 3% in Aetna
Investment Advisers Fund; 2% in the Aetna Ascent Variable Portfolio; 2% in the
Aetna Crossroads Variable Portfolio; 2% in the Aetna Legacy Variable Portfolio;
7% in the Alger American Small Cap Portfolio; 3% in Fidelity's Contrafund
Portfolio; 3% in Fidelity's Equity-Income Portfolio; 3% in Janus Aspen Growth
Portfolio; 5% in Janus Aspen Aggressive Growth Portfolio; 3% in Janus Aspen
Worldwide Growth Portfolio; 1% in Janus Aspen Balanced Portfolio; 1% in Janus
Aspen Short-Term Bond Portfolio; 10% in the Scudder International Portfolio; and
10% in TCI Growth.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit, Total Account Values, and Cash Surrender Values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all Net Premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the Policy
Owner has not requested an increase or decrease in the Specified Amount of the
Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed
Insured's age, sex of Insured (if necessary), and underwriting classification,
the Specified Amount or premium requested, the proposed frequency of premium
payments and any available riders requested. A fee of $25 is charged for each
such illustration.
The hypothetical gross annual investment return assumed in such an
illustration will not exceed 12%.
29
<PAGE>
AetnaVest Plus Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ------------ ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6720 500000 500000 500000
2 13776 500000 500000 500000
3 21185 500000 500000 500000
4 28964 500000 500000 500000
5 37132 500000 500000 500000
6 45709 500000 500000 500000
7 54714 500000 500000 500000
8 64170 500000 500000 500000
9 74099 500000 500000 500000
10 84523 500000 500000 500000
15 145008 500000 500000 500000
20 222203 500000 500000 500000
25 320726 500000 500000 500000
30 446469 500000 500000 658865
20 (Age 65) 222203 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4328 4647 4967 656 975 1295
2 8602 9515 10468 4930 5843 6796
3 12662 14446 16387 8990 10774 12715
4 16503 19438 22760 12831 15766 19088
5 20113 24475 29620 16441 20803 25948
6 23490 29554 37011 20155 26219 33676
7 26606 34648 44961 23638 31680 41993
8 29436 39728 53504 26835 37127 50903
9 31960 44773 62682 29726 42539 60448
10 34144 49743 72534 32277 47876 70667
15 39092 72466 134172 39061 72435 134141
20 30179 87228 225284 30179 87228 225284
25 0 82205 368926 0 82205 368926
30 0 31446 615762 0 31446 615762
20 (Age 65) 30179 87228 225284 30179 87228 225284
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
30
<PAGE>
AetnaVest Plus Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 4080 500000 500000 500000
2 8364 500000 500000 500000
3 12862 500000 500000 500000
4 17585 500000 500000 500000
5 22545 500000 500000 500000
6 27752 500000 500000 500000
7 33219 500000 500000 500000
8 38960 500000 500000 500000
9 44988 500000 500000 500000
10 51318 500000 500000 500000
15 88041 500000 500000 500000
20 134909 0 500000 500000
25 194727 0 0 500000
30 271070 0 0 0
20 (Age 65) 134909 0 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1891 2061 2231 0 0 0
2 3770 4231 4714 98 559 1042
3 5476 6349 7303 1804 2677 3631
4 7001 8401 9999 3329 4729 6327
5 8330 10369 12794 4658 6697 9122
6 9458 12238 15692 6123 8903 12357
7 10356 13972 18669 7388 11004 15701
8 10994 15530 21701 8393 12929 19100
9 11348 16879 24767 9114 14645 22533
10 11379 17965 27830 9512 16098 25963
15 5640 17769 41906 5609 17738 41875
20 0 1019 47967 0 1019 47967
25 0 0 27199 0 0 27199
30 0 0 0 0 0 0
20 (Age 65) 0 1019 47967 0 1019 47967
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return.
The Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
31
<PAGE>
AetnaVest Plus Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6720 500000 500000 500000
2 13776 500000 500000 500000
3 21185 500000 500000 500000
4 28964 500000 500000 500000
5 37132 500000 500000 500000
6 45709 500000 500000 500000
7 54714 500000 500000 500000
8 64170 500000 500000 500000
9 74099 500000 500000 500000
10 84523 500000 500000 500000
15 145008 500000 500000 500000
20 222203 500000 500000 500000
25 320726 500000 500000 618904
30 446469 500000 500000 967834
20 (Age 65) 222203 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4906 5247 5590 1234 1575 1918
2 9810 10806 11845 6138 7134 8173
3 14554 16527 18668 10882 12855 14996
4 19113 22389 26091 15441 18717 22419
5 23463 28374 34152 19791 24702 30480
6 27579 34460 42891 24244 31125 39556
7 31478 40666 52401 28510 37698 49433
8 35174 47010 62778 32573 44409 60177
9 38677 53511 74130 36443 51277 71896
10 41982 60169 86558 40115 58302 84691
15 55873 96493 170085 55842 96462 170054
20 63456 137122 306095 63456 137122 306095
25 62041 181655 533538 62041 181655 533538
30 44985 228409 904517 44985 228409 904517
20 (Age 65) 63456 137122 306095 63456 137122 306095
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
32
<PAGE>
AetnaVest Plus Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45-UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ------------ -------------------------------
<S> <C> <C> <C> <C>
1 4080 500000 500000 500000
2 8364 500000 500000 500000
3 12862 500000 500000 500000
4 17585 500000 500000 500000
5 22545 500000 500000 500000
6 27752 500000 500000 500000
7 33219 500000 500000 500000
8 38960 500000 500000 500000
9 44988 500000 500000 500000
10 51318 500000 500000 500000
15 88041 500000 500000 500000
20 134909 500000 500000 500000
25 194727 500000 500000 500000
30 271070 0 500000 500000
20 (Age 65) 134909 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2395 2584 2773 0 0 0
2 4826 5358 5914 1154 1686 2242
3 7130 8164 9290 3458 4492 5618
4 9282 10977 12898 5610 7305 9226
5 11256 13767 16734 7584 10095 13062
6 13023 16502 20789 9688 13167 17454
7 14599 19194 25105 11631 16226 22137
8 15995 21850 29717 13394 19249 27116
9 17222 24478 34672 14988 22244 32438
10 18270 27066 39995 16403 25199 38128
15 21132 39654 74185 21101 39623 74154
20 17752 49027 124946 17752 49027 124946
25 4769 50747 202401 4769 50747 202401
30 0 34557 325994 0 34557 325994
20 (Age 65) 17752 49027 124946 17752 49027 124946
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and risk charges, administrative charges, and
premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
33
<PAGE>
AetnaVest Plus Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6360 500000 500000 500000
2 13038 500000 500000 500000
3 20050 500000 500000 500000
4 27412 500000 500000 500000
5 35143 500000 500000 500000
6 43260 500000 500000 500000
7 51783 500000 500000 500000
8 60732 500000 500000 500000
9 70129 500000 500000 500000
10 79995 500000 500000 500000
15 137240 500000 500000 500000
20 210299 500000 500000 500000
25 303544 500000 500000 500000
30 422551 500000 500000 604071
20 (Age 65) 210299 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4025 4325 4625 515 815 1115
2 8011 8866 9759 4501 5356 6249
3 11796 13466 15282 8286 9956 11772
4 15368 18111 21219 11858 14601 17709
5 18726 22801 27610 15216 19291 24100
6 21863 27526 34491 18675 24338 31303
7 24751 32257 41886 21914 29420 39049
8 27374 36975 49830 24888 34489 47344
9 29707 41653 58357 27572 39518 56222
10 31718 46255 67501 29934 44471 65717
15 36316 67322 124672 36287 67293 124643
20 28372 81171 208864 28372 81171 208864
25 0 76714 339596 0 76714 339596
30 0 30973 564553 0 30973 564553
20 (Age 65) 28372 81171 208864 28372 81171 208864
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
34
<PAGE>
AetnaVest Plus Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 3900 500000 500000 500000
2 7995 500000 500000 500000
3 12295 500000 500000 500000
4 16809 500000 500000 500000
5 21550 500000 500000 500000
6 26527 500000 500000 500000
7 31754 500000 500000 500000
8 37242 500000 500000 500000
9 43004 500000 500000 500000
10 49054 500000 500000 500000
15 84156 500000 500000 500000
20 128957 0 500000 500000
25 186136 0 0 500000
30 259112 0 0 0
20 (Age 65) 128957 0 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 1754 1915 2076 0 0 0
2 3509 3943 4398 0 433 888
3 5101 5922 6819 1591 2412 3309
4 6515 7830 9330 3005 4320 5820
5 7750 9661 11937 4240 6151 8427
6 8794 11397 14635 5606 8209 11447
7 9618 13001 17400 6781 10164 14563
8 10201 14443 20217 7715 11957 17731
9 10516 15684 23059 8381 13549 20924
10 10527 16676 25893 8743 14892 24109
15 5235 16514 38983 5206 16485 38954
20 0 1471 45024 0 1471 45024
25 0 0 26846 0 0 26846
30 0 0 0 0 0 0
20 (Age 65) 0 1471 45024 0 1471 45024
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
35
<PAGE>
AetnaVest Plus Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 6360 500000 500000 500000
2 13038 500000 500000 500000
3 20050 500000 500000 500000
4 27412 500000 500000 500000
5 35143 500000 500000 500000
6 43260 500000 500000 500000
7 51783 500000 500000 500000
8 60732 500000 500000 500000
9 70129 500000 500000 500000
10 79995 500000 500000 500000
15 137240 500000 500000 500000
20 210299 500000 500000 500000
25 303544 500000 500000 582399
30 422551 500000 500000 911562
20 (Age 65) 210299 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 4593 4915 5237 1083 1405 1727
2 9191 10128 11105 5681 6618 7595
3 13645 15499 17511 10135 11989 14001
4 17930 21009 24486 14420 17499 20976
5 22032 26645 32072 18522 23135 28562
6 25921 32385 40306 22733 29197 37118
7 29618 38250 49275 26781 35413 46438
8 33128 44251 59065 30642 41765 56579
9 36468 50411 69784 34333 48276 67649
10 39630 56727 81525 37846 54943 79741
15 52999 91223 160376 52970 91194 160347
20 60534 129853 288424 60534 129853 288424
25 59385 171806 502068 59385 171806 502068
30 43472 215177 851927 43472 215177 851927
20 (Age 65) 60534 129853 288424 60534 129853 288424
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
36
<PAGE>
AetnaVest Plus Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums
Accumulated Death Benefit
at Gross Annual Investment
5% Return of
Interest -------------------------------
Policy Year Per Year Gross 0% Gross 6% Gross 12%
- ----------- ----------- -------------------------------
<S> <C> <C> <C> <C>
1 3900 500000 500000 500000
2 7995 500000 500000 500000
3 12295 500000 500000 500000
4 16809 500000 500000 500000
5 21550 500000 500000 500000
6 26527 500000 500000 500000
7 31754 500000 500000 500000
8 37242 500000 500000 500000
9 43004 500000 500000 500000
10 49054 500000 500000 500000
15 84156 500000 500000 500000
20 128957 500000 500000 500000
25 186136 500000 500000 500000
30 259112 0 500000 500000
20 (Age 65) 128957 500000 500000 500000
</TABLE>
<TABLE>
<CAPTION>
Total Account Value Cash Surrender Value
Annual Investment Return of Annual Investment Return of
------------------------------- -------------------------------
Policy Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2254 2433 2613 0 0 0
2 4548 5051 5578 1038 1541 2068
3 6729 7708 8774 3219 4198 5264
4 8772 10376 12196 5262 6866 8686
5 10661 13038 15848 7151 9528 12338
6 12365 15660 19721 9177 12472 16533
7 13900 18256 23858 11063 15419 21021
8 15272 20827 28288 12786 18341 25802
9 16498 23389 33062 14363 21254 30927
10 17565 25927 38203 15781 24143 36419
15 20721 38430 71324 20692 38401 71295
20 18173 48257 120732 18173 48257 120732
25 6456 50990 195880 6456 50990 195880
30 0 37273 315147 0 37273 315147
20 (Age 65) 18173 48257 120732 18173 48257 120732
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
These investment results are illustrative only and should not be considered a
representation of past or future investment results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rates of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown if the actual investment rates of return averaged 0%, 6%, and
12% over a period of years, but fluctuated above or below those averages for
individual Policy Years. No representations can be made that these rates of
return will definitely be achieved for any one year or sustained over a period
of time.
37
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<CAPTION>
<S> <C>
Statement of Assets and Liabilities--March 31, 1996 (Unaudited) S-2
Statement of Operations--Three Month Period Ended March 31, 1996 (Unaudited) S-5
Statements of Changes in Net Assets--Three Months Ended March 31, 1996 (Unaudited) and Year
Ended December 31, 1995 S-6
Notes to Financial Statements (Unaudited) S-7
Independent Auditors' Report S-9
Statement of Assets and Liabilities--December 31, 1995 S-10
Statement of Operations--Year Ended December 31, 1995 S-13
Statements of Changes in Net Assets--Years Ended December 31, 1995 and 1994 S-14
Notes to Financial Statements S-15
</TABLE>
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 2,467,158 shares at $30.77 per share (cost $71,754,094) $ 75,925,713
Aetna Income Shares; 924,931 shares at $12.80 per share (cost $11,848,313) 11,842,332
Aetna Variable Encore Fund; 407,333 shares at $13.47 per share (cost $5,308,191) 5,487,776
Aetna Investment Advisers Fund, Inc.; 817,516 shares at $14.87 per share (cost
$10,896,769) 12,155,981
Alger American Fund--Alger American Small Capitalization Portfolio; 172,781 shares at
$40.87 per share (cost $6,331,268) 7,061,577
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 86,791 shares at $19.20 per share (cost $1,651,470) 1,666,395
Growth Portfolio; 50,994 shares at $28.61 per share (cost $1,514,593) 1,458,950
Overseas Portfolio; 34,096 shares at $17.26 per share (cost $559,505) 588,494
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 130,336 shares at $15.21 per share (cost $1,969,788) 1,982,408
Contrafund Portfolio; 113,588 shares at $14.26 per share (cost $1,562,790) 1,619,768
Janus Aspen Series:
Aggressive Growth Portfolio; 230,297 shares at $18.70 per share (cost $3,607,738) 4,306,556
Balanced Portfolio; 159,805 shares at $13.55 per share (cost $2,084,064) 2,165,357
Growth Portfolio; 219,229 shares at $14.58 per share (cost $2,795,446) 3,196,358
Short-Term Bond Portfolio; 35,353 shares at $10.00 per share (cost $349,724) 353,526
Worldwide Growth Portfolio; 145,028 shares at $16.62 per share (cost $2,048,610) 2,410,364
Scudder Variable Life Investment Fund--International Portfolio; 638,445 shares at $12.09
per share (cost $7,135,942) 7,718,801
TCI Portfolios, Inc.--TCI Growth; 518,429 shares at $12.04 per share (cost $5,285,516) 6,241,887
------------
NET ASSETS $146,182,243
============
</TABLE>
Net assets represented by:
<TABLE>
<CAPTION>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
<S> <C> <C> <C>
Aetna Variable Fund:
AetnaVest 1,595,062.3 $29.954 $47,777,753
AetnaVest II 774,062.0 16.726 12,947,337
AetnaVest Plus 998,417.0 14.053 14,030,849
Corporate Specialty Market 92,142.8 12.695 1,169,774
Aetna Income Shares:
AetnaVest 293,192.0 20.928 6,136,014
AetnaVest II 87,325.2 14.071 1,228,739
AetnaVest Plus 115,930.9 11.267 1,306,250
Corporate Specialty Market 291,606.5 10.875 3,171,329
S-2
<PAGE>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
Aetna Variable Encore Fund:
AetnaVest 200,179.5 $16.060 $3,214,875
AetnaVest II 10,560.9 11.739 123,976
AetnaVest Plus 88,112.2 11.033 972,120
Corporate Specialty Market 111,493.2 10.555 1,176,805
Aetna Investment Advisers Fund, Inc.:
AetnaVest 114,756.9 15.740 1,806,290
AetnaVest II 229,085.2 15.915 3,646,002
AetnaVest Plus 384,450.3 13.347 5,131,406
Corporate Specialty Market 135,310.5 11.620 1,572,283
Alger American Fund--Alger American
Small Capitalization Portfolio:
AetnaVest 67,956.4 16.098 1,093,995
AetnaVest II 45,569.5 16.100 733,667
AetnaVest Plus 182,354.1 16.091 2,934,300
Corporate Specialty Market 173,686.5 13.240 2,299,615
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Corporate Specialty Market 144,783.0 11.510 1,666,395
Growth Portfolio:
Corporate Specialty Market 140,028.4 10.419 1,458,950
Overseas Portfolio:
Corporate Specialty Market 56,713.0 10.377 588,494
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 182,159.0 10.883 1,982,408
Contrafund Portfolio:
Corporate Specialty Market 150,594.8 10.756 1,619,768
Janus Aspen Series:
Aggressive Growth Portfolio:
AetnaVest 44,341.1 16.507 731,925
AetnaVest II 32,308.6 16.507 533,308
AetnaVest Plus 133,290.2 16.507 2,200,190
Corporate Specialty Market 67,915.0 12.385 841,133
Balanced Portfolio:
AetnaVest 6,564.3 12.595 82,678
AetnaVest II 2,834.5 12.693 35,980
AetnaVest Plus 51,133.8 12.589 643,741
Corporate Specialty Market 127,076.1 11.040 1,402,958
S-3
<PAGE>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
Growth Portfolio:
AetnaVest 26,102.4 $13.737 $ 358,569
AetnaVest II 38,815.5 13.725 532,724
AetnaVest Plus 74,124.0 11.279 836,024
Corporate Specialty Market 107,189.1 13.705 1,469,041
Short-Term Bond Portfolio:
AetnaVest 1,296.7 10.907 14,143
AetnaVest II 20,289.0 10.895 221,049
AetnaVest Plus 10,739.7 10.866 116,692
Corporate Specialty Market 162.4 10.114 1,642
Worldwide Growth Portfolio:
AetnaVest 35,204.8 13.871 488,314
AetnaVest II 26,623.3 13.874 369,385
AetnaVest Plus 91,702.5 13.857 1,270,741
Corporate Specialty Market 24,710.9 11.409 281,924
Scudder Variable Life Investment Fund--International
Portfolio:
AetnaVest 136,306.8 13.360 1,821,019
AetnaVest II 75,216.9 13.277 998,681
AetnaVest Plus 318,410.2 13.203 4,204,079
Corporate Specialty Market 62,821.5 11.063 695,022
TCI Portfolios, Inc.--TCI Growth:
AetnaVest 94,052.6 13.193 1,240,859
AetnaVest II 34,581.5 13.252 458,286
AetnaVest Plus 302,971.3 13.072 3,960,295
Corporate Specialty Market 48,720.2 11.955 582,447
------------
$146,182,243
============
</TABLE>
See Notes to Financial Statements.
S-4
<PAGE>
Variable Life Account B
Statement of Operations--Three Month Period Ended March 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Fidelity Investments Variable Insurance Products Fund--
Equity-Income Portfolio $ 19,619
Fidelity Investments Variable Insurance Products Fund--
Growth Portfolio 85,627
Fidelity Investments Variable Insurance Products Fund--
Overseas Portfolio 14,172
Fidelity Investments Variable Insurance Products Fund II--
Asset Manager Portfolio 62,788
Fidelity Investments Variable Insurance Products Fund II--
Contrafund Portfolio 10,199
Scudder Variable Life Investment Fund--International
Portfolio 166,996
----------
Total investment income 359,401
Valuation period deductions (Note 2) (216,034)
----------
Net investment income 143,367
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales $3,428,998
Cost of investments sold 3,005,963
----------
Net realized gain 423,035
Net unrealized gain on investments:
Beginning of period 4,391,574
End of period 9,478,418
----------
Net unrealized gain 5,086,844
----------
Net realized and unrealized gain on investments 5,509,879
----------
Net increase in net assets resulting from operations $5,653,246
==========
</TABLE>
See Notes to Financial Statements.
S-5
<PAGE>
Variable Life Account B
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, 1996 December 31,
(Unaudited) 1995
--------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 143,367 $ 11,815,436
Net realized and unrealized gain on investments 5,509,879 11,633,204
--------------- ----------------
Net increase in net assets resulting from
operations 5,653,246 23,448,640
--------------- ----------------
FROM UNIT TRANSACTIONS:
Variable life premium payments 21,128,211 44,310,537
Sales charges deducted by the Company (632,971) (1,381,985)
Premiums allocated to the fixed account (1,644,459) (3,260,098)
--------------- ----------------
Net premiums allocated to the variable account 18,850,781 39,668,454
Transfers from the Company for monthly deductions (3,306,575) (11,297,188)
Redemptions by policyholders (1,152,122) (3,238,332)
Transfers on account for policy loans (422,131) (2,076,373)
Other 43,265 41,863
--------------- ----------------
Net increase in net assets from unit
transactions 14,013,218 23,098,424
--------------- ----------------
Change in net assets 19,666,464 46,547,064
NET ASSETS:
Beginning of period 126,515,779 79,968,715
--------------- ----------------
End of period $146,182,243 $126,515,779
=============== ================
</TABLE>
See Notes to Financial Statements.
S-6
<PAGE>
Variable Life Account B
Notes to Financial Statements--March 31, 1996 (Unaudited)
1. Summary of Significant Accounting Policies
Variable Life Account B ("Account") is registered under the Investment Company
Act of 1940 as a unit investment trust. The Account is sold exclusively for use
with life insurance product contracts as defined under the Internal Revenue Code
of 1986, as amended.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value per
share as determined by each Fund on March 31, 1996
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Alger American Fund--Alger American Small
Capitalization Portfolio
Fidelity Investments Variable Insurance Products
Fund--
(bullet) Equity-Income Portfolio
(bullet) Growth Portfolio
(bullet) Overseas Portfolio
Fidelity Investments Variable Insurance Products
Fund II--
(bullet) Asset Manager Portfolio
(bullet) Contrafund Portfolio
Janus Aspen Series--
(bullet) Aggressive Growth Portfolio
(bullet) Balanced Portfolio
(bullet) Growth Portfolio
(bullet) Short-Term Bond Portfolio
(bullet) Worldwide Growth Portfolio
Scudder Variable Life Investment Fund--
International Portfolio
TCI Portfolios, Inc.--TCI Growth
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986, as
amended.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the policies and are paid to the Company.
S-7
<PAGE>
Variable Life Account B
Notes to Financial Statements--March 31, 1996 (Unaudited) (continued)
3. Dividend Distributions
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid to
the Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of each Fund's undistributed net investment income and
accumulated net realized gain on investments is included in net unrealized gain
on investments in the Statement of Operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the three month period ended March 31, 1996
aggregated $17,583,396 and $3,428,998, respectively.
5. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net assets
of the Account.
S-8
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Policyholders of Variable Life Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Life Account B (the "Account") as of
December 31, 1995, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year
period then ended, and condensed financial information for the year ended
December 31, 1995. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Aetna Life Insurance and Annuity Company Variable Life Account B
as of December 31, 1995, the results of its operations for the year then ended,
changes in its net assets for each of the years in the two-year period then
ended, and condensed financial information for the year ended December 31, 1995
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
S-9
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 2,442,148 shares at $29.06 per share (cost $70,892,640) $ 70,958,031
Aetna Income Shares; 773,062 shares at $13.00 per share (cost $9,861,889) 10,051,167
Aetna Variable Encore Fund; 415,129 shares at $13.30 per share (cost $5,381,253) 5,520,188
Aetna Investment Advisers Fund, Inc.; 639,193 shares at $14.50 per share (cost
$8,238,116) 9,269,700
Alger American Fund--Alger American Small Capitalization Portfolio; 133,920 shares at
$39.41 per share (cost $4,681,829) 5,277,779
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 21,701 shares at $19.27 per share (cost $389,974) 418,176
Growth Portfolio; 41,047 shares at $29.20 per share (cost $1,234,770) 1,198,559
Overseas Portfolio; 34,006 shares at $17.05 per share (cost $557,879) 579,802
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 60,778 shares at $15.79 per share (cost $912,255) 959,690
Contrafund Portfolio; 79,021 shares at $13.78 per share (cost $1,078,657) 1,088,910
Janus Aspen Series:
Aggressive Growth Portfolio; 205,922 shares at $17.08 per share (cost $3,140,545) 3,517,151
Balanced Portfolio; 46,943 shares at $13.03 per share (cost $551,081) 611,670
Growth Portfolio; 187,250 shares at $13.45 per share (cost $2,321,668) 2,518,516
Short-Term Bond Portfolio; 34,655 shares at $10.03 per share (cost $341,510) 347,588
Worldwide Growth Portfolio; 93,270 shares at $15.31 per share (cost $1,200,440) 1,427,963
Scudder Variable Life Investment Fund--International Portfolio; 566,120 shares at $11.82
per share (cost $6,260,081) 6,691,544
TCI Portfolios, Inc.--TCI Growth; 504,092 shares at $12.06 per share (cost $5,079,618) 6,079,345
------------
NET ASSETS $126,515,779
============
</TABLE>
Net assets represented by:
<TABLE>
<CAPTION>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
<S> <C> <C> <C>
Aetna Variable Fund:
AetnaVest 1,615,316.3 $28.351 $45,795,395
AetnaVest II 767,277.4 15.831 12,147,120
AetnaVest Plus 900,446.3 13.301 11,976,945
Corporate Specialty Market 86,433.0 12.016 1,038,571
Aetna Income Shares:
AetnaVest 291,207.2 21.305 6,204,271
AetnaVest II 82,916.4 14.324 1,187,723
AetnaVest Plus 108,102.3 11.470 1,239,985
Corporate Specialty Market 128,186.3 11.071 1,419,188
S-10
<PAGE>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
Aetna Variable Encore Fund:
AetnaVest 216,354.9 $15.891 $3,438,075
AetnaVest II 17,280.3 11.616 200,721
AetnaVest Plus 69,086.7 10.917 754,192
Corporate Specialty Market 107,929.6 10.444 1,127,200
Aetna Investment Advisers Fund, Inc.:
AetnaVest 114,498.0 15.390 1,762,081
AetnaVest II 223,977.3 15.561 3,485,324
AetnaVest Plus 278,606.2 13.050 3,635,852
Corporate Specialty Market 34,014.8 11.361 386,443
Alger American Fund--Alger American
Small Capitalization Portfolio:
AetnaVest 66,765.4 15.562 1,039,005
AetnaVest II 39,259.9 15.563 611,019
AetnaVest Plus 135,063.0 15.555 2,100,905
Corporate Specialty Market 119,296.0 12.799 1,526,850
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio:
Corporate Specialty Market 37,815.1 11.058 418,176
Growth Portfolio:
Corporate Specialty Market 120,931.6 9.911 1,198,559
Overseas Portfolio:
Corporate Specialty Market 57,811.4 10.029 579,802
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Corporate Specialty Market 90,569.7 10.596 959,690
Contrafund Portfolio:
Corporate Specialty Market 105,491.7 10.322 1,088,910
Janus Aspen Series:
Aggressive Growth Portfolio:
AetnaVest 44,764.1 15.114 676,573
AetnaVest II 30,158.9 15.114 455,826
AetnaVest Plus 114,021.3 15.114 1,723,348
Corporate Specialty Market 58,323.5 11.340 661,404
Balanced Portfolio:
AetnaVest 6,403.1 12.142 77,745
AetnaVest II 4,014.0 12.237 49,117
AetnaVest Plus 38,817.0 12.136 471,097
Corporate Specialty Market 1,288.2 10.643 13,711
S-11
<PAGE>
Accumulation
Unit
Policyholders' account values: Units Value
----------- -----------
Growth Portfolio:
AetnaVest 21,515.4 $12.704 $ 273,328
AetnaVest II 37,270.8 12.692 473,053
AetnaVest Plus 79,675.5 12.674 1,009,837
Corporate Specialty Market 73,083.9 10.430 762,298
Short-Term Bond Portfolio:
AetnaVest 887.8 10.967 9,736
AetnaVest II 23,124.1 10.955 253,322
AetnaVest Plus 7,737.1 10.925 84,530
Worldwide Growth Portfolio:
AetnaVest 27,375.5 12.809 350,657
AetnaVest II 23,865.7 12.813 305,784
AetnaVest Plus 60,290.6 12.797 771,522
Scudder Variable Life Investment Fund--International
Portfolio:
AetnaVest 135,108.9 12.798 1,729,105
AetnaVest II 73,569.7 12.719 935,731
AetnaVest Plus 280,624.9 12.648 3,549,365
Corporate Specialty Market 45,040.2 10.598 477,343
TCI Portfolios, Inc.--TCI Growth:
AetnaVest 99,512.9 13.248 1,318,352
AetnaVest II 32,444.9 13.307 431,757
AetnaVest Plus 284,645.5 13.126 3,736,206
Corporate Specialty Market 49,400.2 12.005 593,030
------------
$126,515,779
============
</TABLE>
See Notes to Financial Statements.
S-12
<PAGE>
Variable Life Account B
Statement of Operations--Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividend distributions: (Notes 1 and 3)
Aetna Variable Fund $11,632,771
Aetna Income Shares 602,737
Aetna Variable Encore Fund 3,963
Aetna Investment Advisers Fund, Inc 582,871
Fidelity Investments Variable Insurance Products Fund--
Equity-Income Portfolio 3,272
Fidelity Investments Variable Insurance Products Fund
II--Contrafund Portfolio 14,059
Janus Aspen Series--Aggressive Growth Portfolio 32,796
Janus Aspen Series--Balanced Portfolio 7,676
Janus Aspen Series--Growth Portfolio 49,596
Janus Aspen Series--Short-Term Bond Portfolio 17,025
Janus Aspen Series--Worldwide Growth Portfolio 5,411
Scudder Variable Life Investment Fund--International Portfolio 9,378
TCI Portfolios, Inc.--TCI Growth 3,682
------------
Total investment income 12,965,237
Valuation period deductions (Note 2) (1,149,801)
------------
Net investment income 11,815,436
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales $28,828,178
Cost of investments sold 25,993,679
-----------
Net realized gain 2,834,499
Net unrealized gain (loss) on investments:
Beginning of year (4,407,131)
End of year 4,391,574
-----------
Net unrealized gain 8,798,705
------------
Net realized and unrealized gain on investments 11,633,204
------------
Net increase in net assets resulting from operations $23,448,640
============
</TABLE>
See Notes to Financial Statements.
S-13
<PAGE>
Variable Life Account B
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 11,815,436 $ 8,175,684
Net realized and unrealized gain (loss) on investments 11,633,204 (9,665,883)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 23,448,640 (1,490,199)
------------ ------------
FROM UNIT TRANSACTIONS:
Variable life premium payments 44,310,537 28,389,827
Sales charges deducted by the Company (1,381,985) (913,534)
Premiums allocated to the fixed account (3,260,098) (2,052,433)
------------ ------------
Net premiums allocated to the variable account 39,668,454 25,423,860
Transfers from the Company for monthly deductions (11,297,188) (8,879,679)
Redemptions by policyholders (3,238,332) (3,575,365)
Transfers on account of policy loans (2,076,373) (785,448)
Other 41,863 (318,777)
------------ ------------
Net increase in net assets from unit transactions 23,098,424 11,864,591
------------ ------------
Change in net assets 46,547,064 10,374,392
NET ASSETS:
Beginning of year 79,968,715 69,594,323
------------ ------------
End of year $126,515,779 $79,968,715
============ ============
</TABLE>
See Notes to Financial Statements.
S-14
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1995
1. Summary of Significant Accounting Policies
Variable Life Account B ("Account") is registered under the Investment Company
Act of 1940 as a unit investment trust. The Account is sold exclusively for use
with life insurance product contracts as defined under the Internal Revenue Code
of 1986, as amended.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value per
share as determined by each Fund on December 31, 1995:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Alger American Fund--Alger American Small
Capitalization Portfolio
Fidelity Investments Variable Insurance Products
Fund--
(bullet) Equity-Income Portfolio
(bullet) Growth Portfolio
(bullet) Overseas Portfolio
Fidelity Investments Variable Insurance Products
Fund II--
(bullet) Asset Manager Portfolio
(bullet) Contrafund Portfolio
Janus Aspen Series--
(bullet) Aggressive Growth Portfolio
(bullet) Balanced Portfolio
(bullet) Growth Portfolio
(bullet) Short-Term Bond Portfolio
(bullet) Worldwide Growth Portfolio
Scudder Variable Life Investment Fund--
International Portfolio
TCI Portfolios, Inc.--TCI Growth
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986, as
amended.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the policies and are paid to the Company.
S-15
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1995 (continued)
3. Dividend Distributions
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid to
the Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of each Fund's undistributed net investment income and
accumulated net realized gain on investments is included in net unrealized gain
on investments in the Statement of Operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended December 31, 1995 aggregated
$71,231,087 and $28,828,178, respectively.
5. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net assets
of the Account.
S-16
<PAGE>
Variable Life Account B
Condensed Financial Information
Change in Value of Accumulation Unit--January 1, 1995 to December 31, 1995
<TABLE>
<CAPTION>
Increase
(Decrease)
Value at Value at in Value of
Beginning End Accumulation
of Period of Period Unit
--------- --------- ------------
<S> <C> <C> <C>
Aetna Variable Fund:
AetnaVest $21.654 $28.351 30.93%
AetnaVest II 12.092 15.831 30.93%
AetnaVest Plus 10.159 13.301 30.93%
Corporate Speciality Market 10.000 12.016 20.16% (2)
Aetna Income Shares:
AetnaVest $18.200 $21.305 17.06%
AetnaVest II 12.236 14.324 17.06%
AetnaVest Plus 9.798 11.470 17.06%
Corporate Speciality Market 10.000 11.071 10.71% (2)
Aetna Variable Encore Fund:
AetnaVest $15.135 $15.891 4.99%
AetnaVest II 11.063 11.616 4.99%
AetnaVest Plus 10.398 10.917 4.99%
Corporate Speciality Market 10.000 10.444 4.44% (1)
Aetna Investment Advisers Fund, Inc.:
AetnaVest $12.202 $15.390 26.13%
AetnaVest II 12.338 15.561 26.13%
AetnaVest Plus 10.347 13.050 26.13%
Corporate Speciality Market 10.000 11.361 13.61% (3)
Alger American Fund--Alger American
Small Capitalization Portfolio:
AetnaVest $10.890 $15.562 42.90%
AetnaVest II 10.893 15.563 42.88%
AetnaVest Plus 10.886 15.555 42.89%
Corporate Speciality Market 10.000 12.799 27.99% (2)
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio:
Corporate Speciality Market $10.000 $11.058 10.58% (4)
Growth Portfolio:
Corporate Speciality Market $10.000 $ 9.911 (0.89%) (4)
Overseas Portfolio:
Corporate Speciality Market $10.000 $10.029 0.29% (4)
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Corporate Speciality Market $10.000 $10.596 5.96% (4)
Contrafund Portfolio:
Corporate Speciality Market $10.000 $10.322 3.22% (4)
S-17
<PAGE>
Variable Life Account B
Increase
(Decrease)
Value at Value at in Value of
Beginning End Accumulation
of Period of Period Unit
--------- --------- ------------
Janus Aspen Series:
Aggressive Growth Portfolio:
AetnaVest $11.976 $15.114 26.21%
AetnaVest II 11.976 15.114 26.21%
AetnaVest Plus 11.975 15.114 26.22%
Corporate Speciality Market 10.000 11.340 13.40% (5)
Balanced Portfolio:
AetnaVest $ 9.837 $12.142 23.43%
AetnaVest II 9.894 12.237 23.67%
AetnaVest Plus 9.823 12.136 23.54%
Corporate Speciality Market 10.000 10.643 6.43% (6)
Growth Portfolio:
AetnaVest $ 9.848 $12.704 28.99%
AetnaVest II 9.848 12.692 28.88%
AetnaVest Plus 9.834 12.674 28.88%
Corporate Speciality Market 10.000 10.430 4.30% (6)
Short-Term Bond Portfolio:
AetnaVest $10.113 $10.967 8.45%
AetnaVest II 10.102 10.955 8.44%
AetnaVest Plus 10.074 10.925 8.45%
Worldwide Growth Portfolio:
AetnaVest $10.165 $12.809 26.01%
AetnaVest II 10.168 12.813 26.01%
AetnaVest Plus 10.155 12.797 26.01%
Scudder Variable Life Investment Fund--International
Portfolio:
AetnaVest $11.633 $12.798 10.01%
AetnaVest II 11.562 12.719 10.01%
AetnaVest Plus 11.497 12.648 10.01%
Corporate Speciality Market 10.000 10.598 5.98% (2)
TCI Portfolios, Inc.--TCI Growth:
AetnaVest $10.216 $13.248 29.68%
AetnaVest II 10.253 13.307 29.80%
AetnaVest Plus 10.113 13.126 29.80%
Corporate Speciality Market 10.000 12.005 20.05% (2)
</TABLE>
1--Available for investment less than 1 year, contract commenced operations
February 1995.
2--Available for investment less than 1 year, contract commenced operations
May 1995.
3--Available for investment less than 1 year, contract commenced operations
June 1995.
4--Available for investment less than 1 year, contract commenced operations
July 1995.
5--Available for investment less than 1 year, contract commenced operations
August 1995.
6--Available for investment less than 1 year, contract commenced operations
October 1995.
S-18
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Aetna Life Insurance and Annuity Company and Subsidiaries
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Consolidated Statements of Income for the three months ended March 31, 1996 and 1995
(Unaudited) F-2
Consolidated Balance Sheets as of March 31, 1996 (Unaudited) and December 31,
1995 F-3 Consolidated Statements of Changes in Shareholder's Equity for the
three months ended March 31, 1996 and 1995 (Unaudited) F-4
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995
(Unaudited) F-5
Condensed Notes to Consolidated Financial Statements (Unaudited) F-7
Independent Auditors' Report F-8
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993 F-9
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-10
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1995, 1994 and 1993 F-11
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-12
Notes to Consolidated Financial Statements F-14
</TABLE>
F-1
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Income
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
----- ------
<S> <C> <C>
Revenue:
Premiums $ 14.1 $ 32.2
Charges assessed against policyholders 92.0 74.9
Net investment income 257.6 235.8
Net realized capital gains 14.9 5.1
Other income 12.2 12.7
----- ------
Total revenue 390.8 360.7
----- ------
Benefits and expenses:
Current and future benefits 217.0 215.1
Operating expenses 87.8 74.0
Amortization of deferred policy acquisition
costs 17.5 12.5
----- ------
Total benefits and expenses 322.3 301.6
----- ------
Income before federal income taxes 68.5 59.1
Federal income taxes 20.0 18.8
----- ------
Net income $ 48.5 $ 40.3
===== ======
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
Assets 1996 1995
- ------ --------- ------------
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $12,030.4 and $11,923.7) $12,332.2 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $54.3 and $51.3) 59.1 57.6
Investment in affiliated mutual funds (cost: $160.3 and
$173.4) 182.0 191.8
Common stock (cost: $6.9) -- 8.2
Short-term investments 24.6 15.1
Mortgage loans 21.1 21.2
Policy loans 344.6 338.6
--------- ------------
Total investments 12,963.6 13,353.3
Cash and cash equivalents 554.6 568.8
Accrued investment income 186.4 175.5
Premiums due and other receivables 27.7 37.3
Deferred policy acquisition costs 1,375.6 1,341.3
Reinsurance loan to affiliate 646.0 655.5
Other assets 21.4 26.2
Separate Accounts assets 2,072.9 10,987.0
--------- ------------
Total assets $27,848.2 $27,144.9
========= ============
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits $ 3,545.1 $ 3,594.6
Unpaid claims and claim expenses 25.9 27.2
Policyholders' funds left with the Company 10,298.9 10,500.1
--------- ------------
Total insurance reserve liabilities 13,869.9 14,121.9
Other liabilities 188.6 259.2
Federal income taxes:
Current 35.7 24.2
Deferred 125.5 169.6
Separate Accounts liabilities 2,072.9 10,987.0
--------- ------------
Total liabilities 26,292.6 25,561.9
--------- ------------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized; 55,000
shares issued and outstanding) 2.8 2.8
Paid-in capital 407.6 407.6
Net unrealized capital gains 56.6 132.5
Retained earnings 1,088.6 1,040.1
--------- ------------
Total shareholder's equity 1,555.6 1,583.0
--------- ------------
Total liabilities and shareholder's equity $27,848.2 $27,144.9
========= ============
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-3
<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)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Shareholder's equity, beginning of period $1,583.0 $1,088.5
Net change in unrealized capital gains and
losses (75.9) 156.7
Net income 48.5 40.3
---------- -----------
Shareholder's equity, end of period $1,555.6 $1,285.5
========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 48.5 $ 40.3
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Increase in accrued investment income (10.9) (6.3)
Decrease in premiums due and other receivables 0.5 10.9
Increase in policy loans (6.0) (26.0)
Increase in deferred policy acquisition costs (34.3) (31.7)
Decrease in reinsurance loan to affiliate 9.5 14.6
Net increase in universal life account balances 53.0 44.5
(Decrease) increase in other insurance reserve liabilities (52.4) 20.5
Net (decrease) increase in other liabilities and other
assets (81.8) 113.3
Increase in federal income taxes 8.3 16.3
Net accretion of discount on debt securities (16.9) (15.5)
Net realized capital gains (14.9) (5.1)
Other, net -- 1.5
---------- -----------
Net cash (used for) provided by operating activities (97.4) 177.3
---------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 1,634.8 965.3
Equity securities 48.7 66.7
Investment maturities and collections of:
Debt securities available for sale 255.4 104.3
Short-term investments 10.0 30.0
Cost of investment purchases in:
Debt securities available for sale (1,918.0) (1,427.6)
Equity securities (26.1) (98.1)
Short-term investments (19.5) (0.5)
---------- -----------
Net cash used for investing activities (14.7) (359.9)
---------- -----------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows (continued)
(millions)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Deposits and interest credited for investment
contracts 429.9 497.7
Withdrawals of investment contracts (332.0) (278.3)
---------- -----------
Net cash provided by financing activities 97.9 219.4
---------- -----------
Net (decrease) increase in cash and cash equivalents (14.2) 36.8
Cash and cash equivalents, beginning of period 568.8 623.3
---------- -----------
Cash and cash equivalents, end of period $ 554.6 $ 660.1
========== ===========
Supplemental cash flow information:
Income taxes paid, net $ 11.7 $ 2.5
========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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 Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of
Aetna Life and Casualty Company ("Aetna").
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1995 financial information to conform to
1996 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.
F-7
<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.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 6, 1996
F-8
<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.
F-9
<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.
F-10
<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.
F-11
<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)
--------- --------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows (continued)
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
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.
F-13
<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.
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.
F-14
<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)
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.
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.
F-15
<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)
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.
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
F-16
<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)
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.
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.
F-17
<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)
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.
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>
F-18
<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>
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.
F-19
<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)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ---------
(millions)
<S> <C> <C>
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
========= =========
</TABLE>
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.
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:
<TABLE>
<CAPTION>
Amortized Fair
Debt Securities Cost Value
-------- --------
(millions)
<S> <C> <C>
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
</TABLE>
F-20
<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)
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).
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
F-21
<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)
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:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
------- --------- --------- --------
(millions)
<S> <C> <C> <C> <C>
1995
- ----
Equity Securities $ 231.6 $27.2 $1.2 $ 257.6
------- --------- --------- --------
1994
- ----
Equity Securities $ 230.5 $ 6.5 $7.9 $ 229.1
------- --------- --------- --------
</TABLE>
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:
F-22
<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)
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ------
(millions)
<S> <C> <C> <C>
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
===== ==== ======
</TABLE>
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.
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:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- -------
(millions)
<S> <C> <C> <C>
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
====== ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(millions)
<S> <C> <C> <C>
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
</TABLE>
F-23
<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)
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- ------
(millions)
<S> <C> <C> <C>
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
====== ======== ======
</TABLE>
4. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ -------
(millions)
<S> <C> <C> <C>
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
======== ====== =======
</TABLE>
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.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
5. Dividend Restrictions and Shareholder's Equity (Continued)
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.
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:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(millions)
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
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:
F-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)
6. Federal Income Taxes (Continued)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(millions)
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
------ -------
(millions)
<S> <C> <C>
Deferred tax assets:
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
====== =======
</TABLE>
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.
F-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)
6. Federal Income Taxes (Continued)
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.
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.
F-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)
7. Benefit Plans (Continued)
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested in
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.
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.
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
F-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)
8. Related Party Transactions (Continued)
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.
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.
F-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)
9. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from affiliated
companies as discussed in Note 8 above.
<TABLE>
<CAPTION>
Assumed
Ceded to from
Direct Other Other Net
Amount Companies Companies Amount
------- --------- --------- -------
(millions)
<S> <C> <C> <C> <C>
1995
- ----
Premiums:
Life Insurance $ 28.8 $ 8.6 $28.0 $ 48.2
Accident and Health
Insurance 7.5 7.5 -- --
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
Insurance 9.3 9.3 -- --
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
Insurance 12.9 12.9 -- --
Annuities 31.3 -- 0.7 32.0
------- --------- --------- -------
Total earned premiums $ 66.6 $18.5 $34.0 $ 82.1
======= ========= ========= =======
</TABLE>
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:
F-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)
10. Financial Instruments (Continued)
<TABLE>
<CAPTION>
1995 1994
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- ---------
(millions)
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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.
F-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)
10. Financial Instruments (Continued)
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.
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:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
-------- ---------
<S> <C> <C>
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
</TABLE>
(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
F-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)
11. Commitments and Contingent Liabilities (Continued)
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.
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:
<TABLE>
<CAPTION>
(Millions) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
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 income
taxes $ 260.0 $ 216.5 $ 219.1
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Millions) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ---------------------------------------------------------------------------
</TABLE>
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATIONS, DESCRIPTION AND UNDERTAKINGS
PURSUANT TO PARAGRAPH (B)(13)(iii)(F) OF RULE 6e-3(T)
UNDER THE INVESTMENT COMPANY ACT OF 1940
REGISTRANT MAKES THE FOLLOWING REPRESENTATIONS:
(1) Section 6e-3T(b)(13)(iii)(F) is being relied upon.
(2) The level of the mortality and expense risk charge is within the range of
industry practice for comparable flexible contracts.
(3) Aetna Life Insurance and Annuity Company has concluded that there is a
reasonable likelihood that the distribution financing arrangement of
Variable Life Account B (the "VUL Account") will benefit the VUL Account
and Policy Owners.
(4) The VUL Account will invest only in management companies which if they
undertake a 12b-1 plan, the investment will undertake to have a board of
directors, a majority of whom are not interested persons of the Company,
formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
<PAGE>
The methodology used to support the representation made in paragraph (2) above
is based on an analysis of selected variable life insurance policies declared
effective by the Commission, which contain similar guarantees and are sold in
similar markets. Registrant undertakes to keep and make available to the
Commission upon request the documents used to support the representation in
paragraph (2) above and a memorandum setting forth the basis for the
representation in paragraph (3) above.
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 6 TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to Registration Statement No. 33-76018
comprises the following papers and documents:
(bullet) The facing sheet.
(bullet) One Variable Life Insurance (AetnaVest Plus) prospectus consisting of
94 pages, and one supplement to the AetnaVest Plus prospectus
consisting of 23 pages.
(bullet) The undertaking to file reports
(bullet) The undertaking pursuant to Rule 484
(bullet) Representations pursuant to Rule 6e-3(T)
(bullet) The signatures.
(bullet) Written consents of the following persons:
A. Actuarial Opinion and Consent
B. Consent of Independent Auditors
C. Consent of Counsel
(bullet) The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for
Form N-8B-2:
(1) Resolution establishing Variable Life Account B(1)
(2) Not applicable
(3)(i) Master General Agent Agreement(1)
(3)(ii) Life Insurance General Agent Agreement(1)
(3)(iii) Broker Agreement(1)
(3)(iv) Life Insurance Broker-Dealer Agreement(1)
(4) Not applicable
(5)(i) Form of AetnaVest Plus Policy(2)
(5)(ii) Term Rider to AetnaVest Plus Policy(2)
(6) Certificate of Incorporation and By-Laws of Aetna Life
Insurance and Annuity Company, Depositor(3)
(7) Not applicable
(8)(i) Fund Participation Agreement (Amended and Restated)
between Aetna Life Insurance and Annuity Company, Alger
American Fund and Fred Alger Management, Inc. dated as of
March 31, 1995(4)
<PAGE>
(8)(ii) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Fidelity Distributors Corporation
(Variable Insurance Products Fund) dated February 1, 1994
and amended March 1, 1996(4)
(8)(iii) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Fidelity Distributors Corporation
(Variable Insurance Products Fund II) dated February 1,
1994 and amended March 1, 1996(4)
(8)(iv) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Janus Aspen Series dated April 19,
1994 and amended March 1, 1996(4)
(8)(v) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Scudder Variable Life Investment
Fund dated April 27, 1992, and amended February 19, 1993
and August 13, 1993(4)
(8)(vi) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company, Investors Research Corporation and
TCI Portfolios, Inc. dated July 29, 1992 and amended
December 22, 1992 and June 1, 1994(4)
(9) Not applicable
(10) Form of Application for AetnaVest Plus Policy(2)
2. Opinion of Counsel(5)
3. Not applicable
4. Not applicable
5. Not applicable
6. Copy of Power of Attorney(6)
(27) Financial Data Schedule(7)
1. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on
February 16, 1996.
2. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 (File No. 33-76018), as filed on April 25, 1994.
3. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on
April 15, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on
April 12, 1996.
5. Incorporated by reference to Registrant's 24f-2 Notice for the fiscal year
ended December 31, 1995, as filed electronically on February 29, 1996.
6. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-75974), as filed electronically on April
9, 1996. In addition, a certified copy of the resolution adopted by the
Depositor's Board of Directors authorizing filings pursuant to a power of
attorney as required by Rule 478 under the Securities Act of 1933 is
incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on
April 12, 1996.
7. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form S-6 (File No. 33-76018), as filed electronically on
April 28, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Variable Life Account B of Aetna Life Insurance and Annuity Company,
certifies that it meets the requirements of Securities Act Rule 485(b) for
effectiveness of this Post-Effective Amendment No. 6 to its Registration
Statement on Form S-6 (File No 33-76018) and, has duly caused this
Post-Effective Amendment No. 6 to its Registration Statement on Form S-6 (File
No. 33-76018) to be signed on its behalf by the undersigned, thereunto duly
authorized, and the seal of the Depositor to be hereunto affixed and attested,
all in the City of Hartford, and State of Connecticut, on this 21st day of June,
1996.
VARIABLE LIFE ACCOUNT B OF AETNA LIFE
INSURANCE AND ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Susan E. Schechter
------------------------
Susan E. Schechter
Corporate Secretary
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Depositor)
By: /s/ Daniel P. Kearney*
----------------------------------------
Daniel P. Kearney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 to the Registration Statement No. 33-76018 has been signed below
by the following persons in the capacities indicated and on the dates indicated.
Signature Title Date
/s/ Daniel P. Kearney* Director and President )
- ----------------------------- (Principal Executive Officer) )
Daniel P. Kearney )
) June 21,
) 1996
)
/s/ Christopher J. Burns* Director )
- ----------------------------- )
Christopher J. Burns )
<PAGE>
/s/ Laura R. Estes* Director )
- ----------------------------- )
Laura R. Estes )
)
/s/ Timothy A. Holt* Director )
- ----------------------------- )
Timothy A. Holt )
)
/s/ Gail P. Johnson* Director )
- ----------------------------- )
Gail P. Johnson )
)
/s/ John Y. Kim* Director )
- ----------------------------- )
John Y. Kim )
)
/s/ Shaun P. Mathews* Director )
- ----------------------------- )
Shaun P. Mathews )
)
/s/ Glen Salow* Director )
- ----------------------------- )
Glen Salow )
)
/s/ Creed R. Terry* Director )
- ----------------------------- )
Creed R. Terry )
)
/s/ Eugene M Trovato* Vice President and Treasurer, )
- ----------------------------- Corporate Controller )
Eugene M. Trovato )
By: /s/ Julie E. Rockmore
----------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
99-1.1 Resolution establishing Variable Life Account B *
99-1.3(i) Master General Agent Agreement *
99-1.3(ii) Life Insurance General Agent Agreement *
99-1.3(iii) Broker Agreement *
99-1.3(iv) Life Insurance Broker-Dealer Agreement *
99-1.5(i) Form of AetnaVest Plus Policy *
99-1.5(ii) Term Rider to AetnaVest Plus Policy *
99-1.6 Certificate of Incorporation and By-Laws of *
Aetna Life Insurance and Annuity Company,
Depositor
99-1.8(i) Fund Participation Agreement (Amended and *
Restated) between Aetna Life Insurance and
Annuity Company, Alger American Fund and Fred
Alger Management, Inc. dated as of March 31,
1995
99-1.8(ii) Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Fidelity
Distributors Corporation (Variable Insurance
Products Fund) dated February 1, 1994 and
amended March 1, 1996
99-1.8(iii) Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Fidelity
Distributors Corporation (Variable Insurance
Products Fund II) dated February 1, 1994 and
amended March 1, 1996
99-1.8(iv) Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Janus Aspen
Series dated April 19, 1994 and amended March 1,
1996
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-1.8(v) Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Scudder
Variable Life Investment Fund dated April 27,
1992 and amended February 19, 1993 and
August 13, 1993
99-1.8(vi) Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company, Investors
Research Corporation and TCI Portfolios, Inc.
dated July 29, 1992 and amended December 22,
1992 and June 1, 1994
99-1.10 Form of Application for AetnaVest Plus Policy *
99-2 Opinion of Counsel *
99-6 Copy of Power of Attorney *
27 Financial Data Schedule *
*Incorporated by reference
John B. Dinius
Vice President and Actuary
[AETNA LOGO] Product Management, YFAC
151 Farmington Avenue
Hartford, Connecticut 06156
Phone 860-275-2773
Fax 860-275-4749
June 19, 1996
Re: AetnaVest Plus (File No. 33-76018)
Dear Sir or Madam:
This opinion is furnished in connection with registration by Aetna Life
Insurance and Annuity Company on Form S-6 of its flexible premium variable
universal life insurance product (the "Policies") under the Securities Act of
1933. The prospectus included in the Registration Statement was prepared under
my direction, and I am familiar with the Registration Statement, as amended, and
Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies included in the
prospectus under the caption "Illustrations of Death Benefits, Total Account
Values and Surrender Values," based on the assumptions stated in the
illustrations, are consistent with the provisions of the respective forms of the
Policies. Also in my opinion, the age selected in the illustrations is
representative of the manner in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ John B. Dinius
John B. Dinius
Vice President and Actuary
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Aetna Variable Life Account B:
We consent to the use of our reports dated February 6, 1996 and February 16,
1996 included herein and to the reference to our Firm under the caption
"Independent Auditors" in the
Prospectus.
Our report dated February 6, 1996 refers to a change in 1993 in the Company's
methods of accounting for certain investments in debt and equity securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
June 25, 1996
[Aetna Letterhead]
151 Farmington Avenue Susan E. Bryant
Hartford, CT 06156 Counsel
Law and Regulatory Affairs,
RE4C
(860) 273-7834
Fax: (860) 273-8340
June 19, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Variable Life Account B of Aetna Life Insurance and Annuity Company
Post-Effective Amendment No. 6 to the Registration Statement
on Form S-6 File Nos. 33-76018 and 811-4536
-----------------------------------------------
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1996 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1995 filed
on behalf of Variable Life Account B of Aetna Life Insurance and Annuity Company
on February 29, 1996) as an exhibit to this Post-Effective Amendment No. 6 to
the Registration Statement on Form S-6 (File No. 33-76018) and to my being named
under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
