As filed with the Securities and Exchange Registration No. 33-76004*
Commission on April 22, 1997 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
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06l56
- -------------------------------------------------------------------------------
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06l56
(Name and Complete Address of Agent for Service)
- -------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
--------
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, 1996
on February 28, 1997.
*Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the securities covered by Registration Statement No. 33-02339.
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Post-Effective Amendment No. 6 to
Registration Statement on Form S-6
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-8B-2
Item No. Part I (Prospectus)
-------- -------------------
<S> <C>
1 Cover Page; Description of the Company and the Separate Account
2 Cover Page; Description of the Company and the Separate Account
3 Not Applicable
4 Cover Page; Description of the Company; Distribution of the Policies
5 Description of the Company and the Separate Account
6 Description of the Company and the Separate Account
7 Not Applicable
8 Financial Statements
9 Legal Matters
10 "What Choices Do You Make When You Buy a Policy?"; "What Charges or Deductions Are
Made Under the Policy?"; "Right to Instruct Voting of Fund Shares"; "How Might Your
Policy Lapse?"; "If a Policy Has Lapsed, Can You Reinstate the Policy?"; "How is the
Value of Your Policy Computed?"; "What is an Accumulation Unit, and How is it
Calculated?"; "What is the Cash Surrender Value of Your Policy?"; "What is the Maturity
Value of Your Policy?"; "Can You Borrow on Your Policy?"; "What is the "Free-Look
Period"?; "How will the Death Benefit be Paid?"; "Settlement Options"; "Additional
Information"; "Miscellaneous Contract Provisions"
11 Cover Page; "Premium Allocation"; Description of the Company and Separate Account
12 Not Applicable
13 Summary of Charges and Fees For Aetna Vest and Aetna Vest II; "What Charges or Deductions
Are Made Under the Policy?"; "When Does the Surrender Charge Apply?"
14 "What Happens When Your Premium Payment is Made?"; How is the Value of Your Policy
Computed?"; "What is An Accumulation Unit, and How is it Calculated?"
15 "What Choices Do You Make When You Buy a Policy?"; "What Happens When Your Premium Payment
is Made?"; How is the Value of Your Policy Computed?"; "What is An Accumulation Unit, and
How is it Calculated?"
16 "How is the Value of Your Policy Computed?"; "What Choices Do You Make When You Buy a
Policy?"; "What Happens When Your Premium Payment is Made?"
<PAGE>
Form N-8B-2
Item No. Part I (Prospectus)
-------- -------------------
17 "What is the Cash Surrender Value of Your Policy?"; "When Does the Surrender Charge
Apply?"; "Can You Borrow on Your Policy?"
18 Tax Matters
19 Reports to Policy Owners; Right to Instruct Voting of Fund Shares; Records and Accounts
20 Not Applicable
21 "Can You Borrow on Your Policy?"
22 Not Applicable
23 Directors and Officers of the Company
24 Miscellaneous Contract Provisions
25 The Company
26 Not Applicable
27 The Company
28 The Company; Directors and Officers of the Company
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information
36 Not Applicable
37 Not Applicable
38 Additional Information
39 The Company
40 Not Applicable
41 The Company
42 Not Applicable
43 Not Applicable
44 "How is the Value of Your Policy Computed?"; "What is an Accumulation Unit, and How is it
Calculated?"
45 Not Applicable
46 Illustrations of Death Benefits, Total Account Values and Cash Surrender Values for
AetnaVest Policies; Illustrations of Death Benefits, Total Account Values and Cash
Surrender Values for AetnaVest II Policies
47 "What Choices Do You Make When You Buy a Policy?"; "How is the Value of Your Policy
Computed?"
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Not Applicable
<PAGE>
Form N-8B-2
Item No. Part I (Prospectus)
-------- -------------------
52 The Separate Account
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
<PAGE>
[Aetna logo]
Aetna Life Insurance and
Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Telephone: (800) 334-7586
AetnaVest & AetnaVest II
Variable Life Account B
Prospectus
Dated: May 1, 1997
--------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policies
--------------------------------------------------------------------
The Policies offered in connection with this Prospectus are two types of
variable life insurance policies issued by Aetna Life Insurance and Annuity
Company (the "Company" or "we"): AetnaVest and AetnaVest II. These policies are
intended to provide life insurance benefits, and are designed to allow flexible
premium payments, a choice of underlying funding options, and a choice of two
death benefit options. Your policy value will vary with the investment
performance of the underlying funding options you choose. The amount of death
benefit payable by the Company upon the death of the Insured may also increase
or decrease depending on the investment performance of the underlying funding
options. Policy values may be used to continue your policy in force, may be
borrowed with 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 the value of the Death
Benefit Option (a) in one lump sum, or (b) under one of the annuity settlement
options.
The Policies have a Free-Look Period during which you may return them to
our Home Office for a refund. The refund may be more or less than the premiums
paid. (See "What Is the Free-Look Period?")
The following funding options are available under the Policies: Under the
variable portion of the Policies, the Company offers these open-end management
investment companies (commonly called mutual funds), each with a different
investment objective: 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; Aetna Variable Portfolios, Inc.--Aetna Variable
Index Plus Portfolio; Alger American Fund--Alger American Small Capitalization
Portfolio; American Century Variable Portfolios, Inc.--American Century VP
Capital Appreciation; Fidelity's Variable Insurance Products Fund--Equity-Income
Portfolio; Fidelity's Variable Insurance Products Fund II--Contrafund Portfolio;
Janus Aspen Series--Aggressive Growth Portfolio, Balanced Portfolio, Growth
Portfolio, Short-Term Bond Portfolio and Worldwide Growth Portfolio; and Scudder
Variable Life Investment Fund--International Portfolio Class A Shares
(collectively, the "Funds"). The fixed interest option offered under these
Policies is the Fixed Account. Amounts held in the Fixed Account are guaranteed
and will earn a minimum interest rate of 4.5%. Unless specifically mentioned,
this Prospectus only describes the variable investment options.
Not all Funds may be available under all Policies or in all jurisdictions.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with these Policies.
This entire Prospectus, and those of the Funds, should be read carefully to
understand the Policies being offered. The Statement of Additional Information
("SAI") for any of the Funds may be obtained by calling (800) 334-7586.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES
FOR THE FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS AND OTHER INFORMATION ABOUT VARIABLE LIFE ACCOUNT B
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE FOUND IN
THE SEC'S WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION 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.
<PAGE>
TABLE OF CONTENTS
Page
----
Definitions .................................... 3
Summary of Charges and Fees for
AetnaVest and AetnaVest II .................. 5
What Choices Do You Make When You
Buy a Policy? ................................. 6
Death Benefit Options ........................ 6
Premiums .................................... 6
Premium Allocation ........................... 7
Mixed and Shared Funding ..................... 9
What Happens When Your Premium
Payment is Made? .............................. 9
How Is the Value of Your Policy Computed? ...... 9
What Is an Accumulation Unit, and
How Is It Calculated? ........................ 10
Can You Make Transfers Among the
Funding Options? .............................. 10
Telephone Transfers ........................ 11
Automated Transfers ........................ 11
What Is the Maturity Value of Your Policy? ... 11
What Is the Cash Surrender Value of
Your Policy? ................................. 11
What Charges or Deductions Are Made
Under the Policy? ........................... 11
When Does the Surrender Charge Apply? ......... 18
Full Surrenders .............................. 18
Partial Surrenders ........................... 18
How Might Your Policy Lapse?
What Effect Does a Lapse Have? ............... 18
If the Policy Has Lapsed, Can You
Reinstate the Policy? ........................ 19
Can You Borrow on Your Policy? ............... 19
Can You Change the Amount of Your
Insurance Coverage? ........................... 19
What Is the "Free-Look Period"? ............... 20
Can You Exchange Your Policy? .................. 20
How Will the Death Benefit Be Paid? ............ 20
Settlement Options
When Do Payments Under a Settlement
Option Occur? .............................. 21
What Are the Settlement Options? ............ 21
How Will Your Variable Settlement
Option Payments Be Calculated? ............ 22
Page
----
Description of the Company and the
Separate Account
The Company ................................. 23
The Separate Account ........................ 23
Directors and Officers of the Company ......... 24
Reports to Policy Owners ..................... 27
Right to Instruct Voting of Fund Shares ...... 27
Disregard of Voting Instructions ............ 27
State Regulation .............................. 27
Legal Matters ................................. 28
Additional Information
The Registration Statement .................. 28
Distribution of the Policies ............... 28
Records and Accounts ........................ 28
Independent Auditors ........................ 28
Tax Matters
General .................................... 28
Federal Tax Status of the Company ............ 28
Life Insurance Qualification ............... 29
General Rules .............................. 29
Modified Endowment Contracts ............... 29
Diversification Standards .................. 30
Investor Control ........................... 30
Other Tax Considerations ..................... 31
Miscellaneous Contract Provisions
The Contract ................................. 31
Payment of Benefits ........................ 31
Age and Sex ................................. 31
Incontestability ........................... 31
Suicide .................................... 31
Protection of Proceeds ..................... 32
Non-Participation ........................... 32
Coverage Beyond Maturity ..................... 32
Appendix A--Illustrations of Death Benefit,
Total Account Values and Cash Surrender
Values for AetnaVest Policies ............... 33
Appendix B--Illustrations of Death Benefit,
Total Account Values, and Cash Surrender
Values for AetnaVest II Policies ............ 38
Financial Statements of the Separate Account S-1
Financial Statements of the Company ......... F-1
2
<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.
AetnaVest: Flexible premium variable life insurance policy with Policy Form
number 38899 (with suffix variations).
AetnaVest II: Flexible premium variable life insurance policy with Policy Form
number 38899-90 (with suffix variations).
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 on whose life annuity payments are based and who may be
entitled to receive such payment.
Annuity: A series of payments for life or for a definite period.
Basic Premium: The amount of premium which must be paid to assure that the
Policy remains in force for at least two 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. The Cost of Insurance Rate is stated per $1,000 of Amount at
Risk.
Death Benefit: The amount payable to the beneficiary upon the death of the
Insured, in accordance with the Death Benefit Option elected, 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%.
Fixed Account Value: The portion of the Total Account Value, other than the Loan
Account Value, held in the Company's 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 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.
Grace Period: The 61-day period following the notification that 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.
Home Office: The Company's principal executive office located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Insured: The person on whose life the Policy is issued.
Issue Age: The age of the Insured on the nearest birthday on or prior to the
Issue Date.
Issue Date: The date on which the Policy, the benefits and provisions of the
Policy become effective.
Loan Account Value: The sum of all unpaid loans. The amount necessary to repay
all loans in full is the Loan Account Value plus any accrued interest. Such
interest is payable in order to discharge any policy indebtedness.
Maturity Date: The Issue Date anniversary after the insured reaches age 95 (for
AetnaVest Policies) or 100 (for AetnaVest II Policies) 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.
Monthly Deduction: The monthly deduction from the Total Account Value which
includes the Cost of Insurance, charges for supplemental riders or benefits, and
an adminstrative expense charge, if applicable.
Planned Premiums: 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.
3
<PAGE>
Policy: The AetnaVest and AetnaVest II life insurance contracts 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. The term Policy, whenever used in this
Prospectus, includes the individual Certificates issued under group multiple
employer trust plans. These Certificates contain all of the provisions of the
individual variable life insurance policies as described in this Prospectus.
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.
Separate Account: Variable Life Account B is 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 ("Separate Account" also includes 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
available investment options that are 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 Date: The date and time at which the Accumulation Unit Value of a
variable investment option is calculated. Currently, this calculation occurs
after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
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 the "Payments for a Specified
Period" nonlifetime Settlement Option when elected on a variable basis
under the Policy.
4
<PAGE>
SUMMARY OF CHARGES AND FEES
FOR AETNAVEST AND AETNAVEST II*
Premium Load
AetnaVest: A deduction of 2.50% of premiums paid (2.35% for California
residents) will be made to cover applicable premium taxes.
AetnaVest II: A deduction of not more than 6% of premiums paid (currently
3.5%) will be made to cover average applicable premium taxes and other expenses.
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, premium class of
the Insured, and in most states, sex, as well as the Specified Amount.
The Monthly Deduction also includes a monthly administrative expense
charge. For AetnaVest Policies, this charge ranges from $0 to $5 per month. For
AetnaVest II Policies, this monthly charge is $20 during the first Policy Year
and $5 during subsequent Policy Years.
Charges and fees associated with the Separate Account
We deduct a daily charge from the assets of the Separate Account for
mortality and expense risks assumed by us. This charge is currently equal to an
annual rate of 0.70% of 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.
- ------------
* For a complete explanation of the charges, see "What Charges or Deductions Are
Made Under the Policy?"
The mortality 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 Policies will be insufficient to meet actual claims. The
expense risk assumed is that other expenses incurred in issuing and
administrating the Policies and operating the Separate Account will be greater
than the charges assessed for such expenses.
We deduct a daily administrative charge equal to an annual rate of 0.30%
of the average daily net assets of the Separate Account (guaranteed not to
exceed 0.30% for AetnaVest and 0.50% for AetnaVest II). The administrative
charge is assessed to reimburse us for the expenses associated with
administration and maintenance of the Policies.
Surrender Charge
If you surrender all or a portion of your Policy values during the first
10 years (15 years for AetnaVest II), a surrender charge will be made. 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 Surrender Charge
is based on the Specified Amount, and also depends on the Insured's Issue Age
and sex. (For AetnaVest II Policies issued in Massachusetts and Montana, the
Surrender Charge will not be based on sex.) Once determined, the Surrender
Charge will remain the same for 5 years following the Issue Date. Thereafter, it
declines monthly so that 10 years for AetnaVest (15 years for AetnaVest II)
after the Issue Date (assuming no increases in the Specified Amount) the
Surrender Charge will be zero.
If a partial surrender is made, there will be an additional transaction
charge of $25 or 2% of the amount of the net surrender payment, whichever is
less. The charge will be made against the Total Account Value.
5
<PAGE>
WHAT CHOICES DO YOU MAKE WHEN YOU BUY A POLICY?
When you buy a Policy, you make three important choices:
1. Which one of the two Death Benefit Options you would like;
2. The amount of premium you intend to pay; and
3. The way your premiums will be allocated to the Funds and/or Fixed
Account.
Each of these choices is described in detail below.
Death Benefit Options
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.
Option 1 generally provides a level Death Benefit. Under Option 1, the
Death Benefit will be the higher of the Specified Amount (a minimum of
$100,000), or the applicable percentage of the Total Account Value. The
percentage is 250% through age 40 and decreases yearly to 100% at age 95 for
AetnaVest Policies (100 for AetnaVest II Policies).
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 selected. Under Option 2, the
Death Benefit will be the higher of either the Specified Amount plus the Total
Account Value; or the applicable percentage (described above) of the Total
Account Value.
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.
Premiums
At the time you purchase a Policy, you also choose the amount of premium
you will pay. You may vary premium payments to some extent and still keep your
Policy in force. To understand how this works, there are three terms you should
be familiar with. These are: Basic Premium, Planned Premiums, and Additional
Premiums.
During the first two Policy years, payment of the Basic Premium assures
that the Policy will remain in force as long as there are no surrenders or loans
(if available under the Policy) during that time. The Basic Premium is stated in
the Policy. If Basic Premiums are not paid, or if there are surrenders or loans
taken during the first two Policy Years, the Policy will lapse if the Cash
Surrender Value is less than the Monthly Deduction.
Your Basic Premiums are not current if your actual premiums paid, minus
loans and minus partial surrenders, are less than the Basic Premium (expressed
as a monthly amount) times the number of months the Policy has been in force.
After the first two Policy Years, as long as the Policy's Cash Surrender
Value is greater than the Monthly Deduction, your Policy will not lapse.
Planned Premiums are those premiums you choose to pay on a scheduled
basis. These are usually equal to or greater than the Basic Premium. We will
bill you annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Pre-authorized 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. (See "How Might Your Policy
Lapse? What Effect Does a Lapse Have?")
You may increase your Planned Premium at any time by submitting a written
notice to us or by paying Additional Premiums, except that:
1. 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;
2. No premiums can be accepted if they would disqualify the Policy as a
"life insurance policy" under federal tax laws. In no event may the total
of all premiums paid exceed the then-current
6
<PAGE>
maximum premium limitations established by federal law for a Policy to
qualify as life insurance. (See "Tax Matters"). 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; and
3. When there is an outstanding loan, all premiums paid in excess of the
Basic Premium will be considered repayment of the Loan Account Value
(this is true in all states for AetnaVest Policies and in all states
except Texas for AetnaVest II Policies).
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 credited to the
Separate Account. Backdating your Policy will not affect the date on which your
premium payments are credited to the Separate Account and your policy is
credited with Accumulation Units. Your Policy cannot be credited with
Accumulation Units until your net premium is actually deposited in the Separate
Account. See "How is the Value of Your Policy Computed?" in this Prospectus.
Premium Allocation
The third choice you make when you purchase a Policy is deciding how your
premiums will be allocated to the variable investment options. Allocations must
be in whole percentages.
You may allocate all or a part of your premiums to the Fixed Account,
which will be credited with interest at a rate determined by us from time to
time, but guaranteed to be at least 4.5%. The interest rate credited to each
premium payment will depend on the date the payment is received at our Home
Office.
Credited interest rates reflect the Company's return on the Fixed Account
invested assets and the amortization of any realized gains and/or losses which
the Company may incur on these assets.
You may also allocate all or a portion of your premiums to the Separate
Account and direct that they be invested in one or more of the Funds. Not all
Funds may be available under all Policies or in all jurisdictions. In addition,
the Company may add, withdraw or substitute Funds, subject to the conditions in
the Contract and to compliance with regulatory requirements. The investment
results of the Funds, whose 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, as amended.
[bullet] Aetna Variable Fund seeks to maximize total return through investments
in a diversified portfolio of common stocks and securities convertible
into common stock.
[bullet] Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.
[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
the Fund is neither insured nor guaranteed by the U.S. Government.
[bullet] Aetna Investment Advisers Fund, Inc. is a managed 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 adviser's judgment of
which of those sectors or mix thereof offers the best investment
prospects.
[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent Variable Portfolio
seeks to provide capital appreciation by allocating its investments
among equities and fixed income securities. The 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.
[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
7
<PAGE>
investments among equities and fixed income securities. The Portfolio
is managed for investors who generally have an investment horizon
exceeding 10 years and who have a moderate level of risk tolerance.
[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. The Portfolio is managed for investors who generally have
an investment horizon exceeding five years and who have a low level of
risk tolerance.
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Index Plus Portfolio
seeks to outperform the total return performance of publicly traded
common stocks represented by the S&P 500.
[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 ("Russell Index")
and the S&P SmallCap 600 Index ("S&P Index"), updated quarterly. As of
March 31, 1997 the range of market capitalization of the companies in
the Russell Index was $10 million to $1.94 billion; the range of market
capitalization of the companies in the S&P Index at that date was $32
million to $2.58 billion. The combined range was $10 million to $2.58
billion.
[bullet] American Century Variable Portfolios, Inc.-- American Century VP
Capital Appreciation (formerly TCI Portfolios, Inc.--TCI Growth) 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 the Fund's investment manager, have
better than average potential for appreciation.
[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.
[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.
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
portfolio that seeks long- term growth of capital. The Portfolio
pursues its investment objective by normally investing at least 50% of
its equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S&P MidCap 400 Index, which as of
December 30, 1996 included companies with capitalizations between
approximately $192 million and $6.5 billion, but which is expected to
change on a regular basis.
[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income.
The Portfolio pursues its investment objective by, under normal
circumstances, investing 40% - 60% of its assets in securities selected
primarily for their growth potential and 40% - 60% of its assets in
securities selected primarily for their income potential.
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing in common stocks of
companies of any size.
[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.
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
of capital in a manner consistent with the preservation of capital. The
Portfolio pursues its investment objective primarily through
investments in common stocks of foreign and domestic issuers.
[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.
8
<PAGE>
Investment Advisers of the Funds:
(1) Aetna Life Insurance and Annuity Company (adviser); Aeltus Investment
Management, Inc. (sub-adviser)
(2) Fred Alger Management, Inc.
(3) American Century Investment Management, Inc.
(4) Fidelity Management & Research Company
(5) Janus Capital Corporation
(6) Scudder, Stevens, & Clark, Inc.
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 current
prospectuses for the Funds for a discussion of the risks associated with an
investment in those funds. More comprehensive information, including a
discussion of potential risks, and more complete information about their
investment policies and restrictions are found in the current prospectus for
each Fund which is distributed with and accompanies this Prospectus. You should
read the Fund prospectuses and consider carefully, and on a continuing basis,
which Fund or combination of Funds is best suited to your long-term investment
objectives. Additional prospectuses and Statements of Additional Information for
each of the Funds can be obtained from the Company's Home Office at the address
and telephone number listed on the cover of this Prospectus.
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 Policies 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 Policy
Owners 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.
WHAT HAPPENS WHEN YOUR PREMIUM PAYMENT IS MADE?
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
maximums) will be provided.
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
Valuation Date on which each payment is received in the Home Office.
You may reallocate your future premium payments at any time, up to four
times per year, free of charge. After four times, a $10 charge is imposed on
each subsequent change in order to reimburse us for costs associated with
allocation changes. Any reallocation will apply to premium payments made after
you have received written verification from us.
HOW IS THE VALUE OF YOUR POLICY COMPUTED?
Once your Policy has been issued, each premium payment allocated to a
variable funding option of the Separate Account will be credited to your Policy
in the form of Accumulation Units of the funding option based on that funding
option's Accumulation Unit Value (AUV). Initial premium will be credited to your
Account at the AUV computed on the next Valuation Date following our acceptance
of the Application. Each subsequent premium received by the Company by the close
of business of the New York Stock Exchange will be credited to your Account at
the AUV computed on the next Valuation Date following our receipt of your
premium. The value of an Accumulation Unit may increase or decrease. The number
of Accumulation Units credited is determined by dividing the net premium (the
premium less the Premium Load) by the value of an Accumulation Unit next
computed after we receive the premium. Shares of the Funds are purchased by the
Separate Account at the net asset value next determined by the Fund following
receipt
9
<PAGE>
of the Net Premium Payment by the Company. 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 value of your Policy is determined by: (a) multiplying the total
number of Accumulation Units credited to the Policy for each funding option,
respectively, by the appropriate current Accumulation Unit Value; and (b) if you
have elected a combination of funding options, totalling the resulting values
for each portion of the Policy; and (c) adding any Fixed Account or Loan Account
Value.
The number of Accumulation Units credited to a Policy will not be
impacted by any subsequent change in the value of an Accumulation Unit. The
number of units is increased by subsequent contributions to or transfers into
that funding option, and decreased by charges and withdrawals from that funding
option.
Fixed Account Values will reflect amounts allocated to the General
Account through either payment of premiums or transfers from the Separate
Account. There is no assurance that the Separate Account Value of the Policy
will equal or exceed the 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, and
your Total Account Value.
WHAT IS AN ACCUMULATION UNIT, AND HOW IS IT CALCULATED?
An Accumulation Unit is the measure of the net investment result of each
variable funding option. The Accumulation Units are used to calculate the value
of the variable portion of your Policy (prior to the election of a Settlement
Option). Accumulation Units are valued at the end of each normal business day
Monday through Friday that the New York Stock Exchange is open (Valuation Date).
A Valuation Period is the period of time from one Valuation Date to the next
Valuation Date. 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 the
Separate Account at the end of a Valuation Period, minus (b) the net assets of
the Fund held in the Separate Account at the beginning of that Valuation Period,
plus or minus (c) taxes or provisions for taxes, if any, attributable to the
operation of the Separate Account divided by (d) the value of the Accumulation
Units held by the Separate Account at the beginning of the Valuation Period,
minus (e) a daily charge at an annual rate not to exceed 0.90% of the value of
the Fund shares held in the Separate Account for mortality and expense risks and
no more than 0.50% (0.30% for AetnaVest) of the value of the Fund shares held in
the Separate Account for the Company's administrative expenses attributable to
Policies funded through the Separate Account. The current charge for mortality
and expense risks is 0.70% per year, and the current administrative expense
charge is 0.30% per year.
CAN YOU MAKE TRANSFERS AMONG THE FUNDING OPTIONS?
You may elect to transfer your accumulated Separate Account Value among
any of the Funds, or from any of the Funds to the Fixed Account. Within the 45
days after your Policy's anniversary, you may also transfer a portion of the
Fixed Account Value to one or more Funds. This type of transfer is allowed only
once in the 45-day period and will be effective on the Valuation Date that your
request is received in good order at our Home Office. The amount of such
transfer cannot exceed the greater of (1) 25% of the Fixed Account Value, or (2)
$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. The first four transfers in any one Policy Year are made free of
charge. Each additional transfer will be subject to a $10 charge.
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, provided the request is received by the close of business of the New
York Stock Exchange. We reserve the right to limit the total number of Funds you
may elect to 17 over the lifetime of the Policy.
For AetnaVest II Policies, we will waive the $10 charge if you are
changing your allocation so that 100% of the existing Separate Account Value and
all future allocations are credited to the Fixed Account.
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<PAGE>
If you contemplate the transfer of assets, you should consider the risks
inherent in a shift from one funding option to another. In general, frequent
transfers based on short-term expectations will tend to accentuate the danger
that a transfer will be made at an inopportune time.
Telephone Transfers
You may request a transfer of Account Values either in writing or by
telephone. In order to make telephone transfers, a written telephone transfer
authorization form must be completed by the Policyowner and returned to the
Company at its Home Office. Once the form is processed, the Policyowner may
request a transfer by telephoning the Company at 800-334-7586. All transfers
must be in accordance with the terms of the Policy.
Transfer instructions are currently accepted on each Valuation Date. Once
instructions have been accepted and processed, they may not be rescinded;
however, new telephone instructions may be given on the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and You will be notified.
We will use reasonable procedures, such as requiring identifying
information from callers, recording telephone instructions, and providing
written confirmation of transactions, in order to confirm that telephone
instructions are genuine. Any telephone instructions which We reasonably believe
to be genuine will be Your responsibility, including losses arising from any
errors in the communication of instructions. As a result of this procedure, the
Policyowner will bear the risk of loss. If the Company does not use reasonable
procedures, as described above, it may be liable for losses due to unauthorized
instructions.
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 Account Values from the Funds 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. There is currently no charge for the
Dollar Cost Averaging Program. 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.
WHAT IS THE MATURITY VALUE OF YOUR POLICY?
The Maturity Value of the Policy is the Total Account Value on the
Maturity Date, less the amount necessary to repay any loans in full.
WHAT IS THE CASH SURRENDER VALUE OF YOUR POLICY?
The Cash Surrender Value of your Policy is the amount you can receive in
cash by surrendering the policy. The Cash Surrender Value equals the Total
Account Value minus the applicable Surrender Charge, less the amount necessary
to repay any loans in full. As discussed earlier, your Policy's Total Account
Value is equal to the sum of the Fixed Account Value; Separate Account Value;
and Loan Account Value.
The Cash Surrender Value will never be less than zero. All or a part of
the Cash Surrender Value may be applied to one or more of the Settlement
Options.
WHAT CHARGES OR DEDUCTIONS ARE MADE UNDER THE POLICY?
Premium Load
This load represents average applicable state premium taxes (ranging up
to 4%) as well as administrative expenses and federal income tax liabilities.
For
11
<PAGE>
AetnaVest Policies, a deduction of 2.50% of premiums paid (2.35% for California
issues) will be made. For AetnaVest II Policies, a deduction of 3.5% (guaranteed
to be no higher than 6%) will be made to cover such taxes and other expenses.
Insurance and Administrative Charges
Deductions are made from your Total Account Value on a periodic basis for
insurance and administrative costs. These insurance and administrative charges
and surrender charges are discussed below.
The charges for insurance and administrative costs will vary from Policy
to Policy. They are broken down as follows:
(a) A Monthly Deduction is made from the Total Account Value. This deduction
includes charges for the Cost of Insurance, for any supplemental riders or
benefits, and for administrative expenses.
The Cost of Insurance is equal to the Amount at Risk (the Death
Benefit before deductions for loans, divided by 1.0036748, minus the Total
Account Value), multiplied by the Cost of Insurance Rate which will not
exceed the rate shown in the Policy. (Such rate varies according to the
attained age, premium class and, in most states, sex of the Insured, and
is based on the Commissioner's 1980 Standard Ordinary Mortality Tables
(the "1980 CSO Tables"), nonsmoker and smoker versions.)
Charges for any supplemental riders or benefits are described in
the applicable rider or benefit policy form.
A monthly administrative charge and a daily asset-based charge (see
(c) following) are also charged. These charges are designed to recover
acquisition and maintenance costs under the Policy such as policy
underwriting and issue, policyholder reports and transaction handling. For
AetnaVest Policies, the monthly charge decreases by attained age. At
younger ages, the Account Value builds slowly so the daily asset-based
charge is small. In those years, the monthly charge must be larger to
cover the Company's expenses. As the Total Account Value grows, the
asset-based daily charge can cover the Company's expenses without as high
a monthly expense charge. The monthly charge varies according to the table
below:
AETNAVEST
ADMINISTRATIVE EXPENSES
Specified Amount
---------------------------
Attained $100,000- $1,000,000
Age 999,999 & Over
- ------------ ------------ ------------
Up to 29 $5.00 $3.00
30-39 4.00 2.00
40-49 3.00 1.00
50-59 2.00 0.00
60-69 1.00 0.00
70 & Over 0.00 0.00
For AetnaVest II Policies, the monthly charge for administrative
expenses in the first Policy Year is $20 and in all subsequent Policy
Years, the monthly charge is $5. The monthly administrative charge and the
asset-based administrative charge work together to cover the Company's
acquisition and maintenance costs. In later years of the Policy, revenue
collected from the daily asset-based charge grows with the Total Account
Value to cover increased expenses from Account-based transactional
expenses. The administrative charges 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 cancelling
Accumulation Units and withdrawing the value of the cancelled 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 at the same time each month, beginning with the Issue
Date.
(b) A daily deduction at a rate not to exceed 0.90% per year (currently 0.70%)
is taken only from the Separate Account Value for mortality and expense
risks. This charge may be raised or lowered to reflect our expectations
of future mortality and expense experience.
(c) A daily deduction at a rate not to exceed 0.30% per year for AetnaVest, or
0.50% per year for AetnaVest II (currently 0.30% for both Policies), is
also taken from the Separate Account Value to pay for administrative
expenses as described under (a) above.
Once a Policy is issued, Monthly Deductions, including Cost of
Insurance charges, will be taken from your Policy Values as of the Issue
Date, even
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<PAGE>
if the Issue Date is earlier than the date the application is signed (see
"Premiums"). 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.
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, 1996:
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses Total Fund
(after expense (after expense Annual
reimbursement) reimbursement) Expenses
------------------ ----------------- ------------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(2) 0.50% 0.08% 0.58%
Aetna Ascent Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Crossroads Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Legacy Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Index Plus Portfolio(2) 0.35% 0.15% 0.50%
Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88%
American Century VP Capital Appreciation
(formerly "TCI Growth")(3) 1.00% 0.00% 1.00%
Fidelity VIP Equity-Income Portfolio(4) 0.51% 0.07% 0.58%
Fidelity VIP II Contrafund Portfolio(4) 0.61% 0.13% 0.74%
Janus Aspen Aggressive Growth Portfolio(5) 0.72% 0.04% 0.76%
Janus Aspen Balanced Portfolio(5) 0.79% 0.15% 0.94%
Janus Aspen Growth Portfolio(5) 0.65% 0.04% 0.69%
Janus Aspen Short-Term Bond Portfolio(5) 0.47% 0.19% 0.66%
Janus Aspen Worldwide Growth Portfolio(5) 0.66% 0.14% 0.80%
Scudder International Portfolio Class A Shares 0.86% 0.19% 1.05%
</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 Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2) The Company provides administrative services to the Fund and assumes the
Fund's ordinary recurring direct costs under an Administrative Services
Agreement. The new Administrative Services Agreement became effective on May
1, 1996 for Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore
Fund, Aetna Investment Advisers Fund, Inc., Aetna Ascent Variable Portfolio,
Aetna Crossroads Variable Portfolio, and Aetna Legacy Variable Portfolio.
Therefore, for these Funds the "Other Expenses" shown are not based on
actual figures for the year ended December 31, 1996, but reflect the fee
payable under that Agreement. The Administrative Services Agreement was in
effect for Aetna Variable Index Plus Portfolio since its inception.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc.,
Aetna Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio, and
Aetna Legacy Variable Portfolio. The Advisory Fees shown above are not based
on actual figures for the year ended December 31, 1996, but reflect the
increased Investment Advisory Fees.
(3) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and 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.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent whereby interest earned on unin-
13
<PAGE>
vested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses would
have been 0.56% for Equity-Income Portfolio and 0.71% for Contrafund
Portfolio.
(5) The fees and expenses shown above are based on gross expenses of the Shares
before expense offset arrangements for the fiscal year ended December 31,
1996. 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 Fund Annual Expenses would have been 0.79%, 0.04% and
0.83% for Aggressive Growth Portfolio; 0.92%, 0.15% and 1.07% for Balanced
Portfolio; 0.79%, 0.04% and 0.83% for Growth Portfolio; 0.65%, 0.19% and
0.84% for Short-Term Bond Portfolio; and 0.77%, 0.14% and 0.91% for
Worldwide Growth Portfolio, respectively. Janus Capital may modify or
terminate the waivers or reductions at any time upon at least 90 days'
notice to the Portfolio's Board of Trustees.
For further details on each Fund's expenses please refer to that Fund's
prospectus.
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<PAGE>
Surrender Charge
There will also be a surrender charge if you surrender your Policy (in
whole or in part) before the end of ten years for AetnaVest Policies and fifteen
years for AetnaVest II Policies, from either the Policy Issue Date or from the
effective date of an increase in the Specified Amount under the Policy. The
Surrender Charge is imposed partially as a deferred sales charge, and also to
enable the Company to recover certain administrative costs.
The initial Surrender Charge is based on the Specified Amount. It also
depends on the Insured's Issue Age and, in most states, sex.
The dollar amount of the Surrender Charge will remain the same for five
years following the Issue Date. Thereafter, the charge will decline monthly for
the next five years so that, ten years after the Issue Date for AetnaVest
Policies and fifteen years after the Issue Date for AetnaVest II Policies
(assuming no increases in the Specified Amount), the Surrender Charge will be
zero.
If you decrease the Specified Amount while the Surrender Charge applies,
the Surrender Charge will remain the same.
If you increase the Specified Amount (which you can do at any time after
the first Policy Year subject to satisfactory evidence of the Insured's
insurability), 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, sex, and underwriting status at the Issue Date (except
for AetnaVest II Policies issued in Massachusetts and Montana where this charge
will not be determined based on sex). 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 at the end of ten years for AetnaVest Policies and fifteen
years for AetnaVest II Policies. See the example in the box below.
The maximum portion of the Surrender Charge which is to be applied to
reimburse the Company for sales and promotional expenses will be 30% of the
first year's Basic Premium (if you surrender in full during that year). Full
surrenders after the first year will result in the imposition of the same dollar
Surrender Charge for the initial five years and, therefore, the sales expense
portion of the Surrender Charge (expressed as a percentage of Basic Premiums
paid) will decline after the first Policy Year.
15
<PAGE>
AETNAVEST POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This Example assumes that you bought a Policy with an initial Stated Amount
of $100,000 that had a Surrender Charge at the time of issue equal to $890. The
Example is intended to illustrate the impact of an increase in your Specified
Amount by $50,000 at the beginning of the third Policy Year. For any given year,
your Surrender Charge will be less than it would have been for someone who
simply purchased a brand new Policy with a Specified Amount of $150,000.
As noted above, for original Specified Amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the tenth Policy Year. For any increase in Specified Amount,
the increase in Surrender Charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the tenth
year following increase.
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- --------------- ---------------------- --------------------- -----------
1 $890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 712.00 489.50 1,201.50
8 534.00 489.50 1,023.50
9 356.00 391.60 747.60
10 178.00 293.70 471.70
11 0 195.80 195.80
12 0 97.90 97.90
13 0 0 0
16
<PAGE>
AETNAVEST II POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This Example assumes that you bought a Policy with an initial Stated Amount
of $100,000 that had a Surrender Charge at the time of issue equal to $890. The
Example is intended to illustrate the impact of an increase in your Specified
Amount by $50,000 at the beginning of the third Policy Year. For any given year,
your Surrender Charge will be less than it would have been for someone who
simply purchased a brand new Policy with a Specified Amount of $150,000.
As noted above, for original Specified Amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the tenth Policy Year. For any increase in Specified Amount,
the increase in Surrender Charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the tenth
year following increase.
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- --------------- ---------------------- --------------------- -----------
1 $890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 801.00 489.50 1,290.50
8 712.00 489.50 1,201.50
9 623.00 440.55 1,063.55
10 534.00 391.60 925.60
11 445.00 342.65 787.65
12 356.00 293.70 649.70
13 267.00 244.75 511.75
14 178.00 195.80 373.80
15 89.00 146.85 235.85
16 0 97.90 97.90
17 0 48.95 48.95
18 0 0 0
The Company may offer the Policy in a group arrangement in connection
with a multiple employer trust plan under which a trustee, employer or
employers, or other similar entity purchases a Policy which covers a group of
individuals on a group basis. Certificates replicating all the provisions of a
Policy are issued to individual employees. In such arrangements, an employer may
permit group solicitation of its employees for the purchase of Policies on
either a group or individual basis.
The Company may reduce the Surrender Charge, the Monthly Deduction, or
both, in connection with Policies issued under such arrangements. Generally,
sales and administrative costs per Policy vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which Policies are
purchased, and other factors. The amount of reductions will be considered on a
case-by-case basis and will reflect the reduced sales effort and administrative
costs expected as a result of sales to a particular group or sponsored
arrangement.
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.
17
<PAGE>
WHEN DOES THE SURRENDER CHARGE APPLY?
A Surrender Charge applies when you make a full or partial surrender of
the Cash Surrender Value of the Policy, as described below.
Full Surrenders
When you surrender your Policy for the full Cash Surrender Value, all
applicable Surrender Charges are imposed.
Partial Surrenders
When you surrender part of your Policy, we will apply the same proportion
of the total applicable Surrender Charges as the amount to be paid bears to the
total Cash Surrender Value. Once you have made a partial surrender, or
surrenders, future applicable Surrender Charges will be reduced proportionately.
In addition, under Option 1, the Specified Amount will be reduced by the amount
surrendered.
Other rules apply to partial surrenders:
1. No partial surrender can be made until one year after the Issue Date;
2. The amount paid to you on a partial surrender must be at least $500;
3. If a partial surrender is made, there will be a transaction charge of $25
or 2% of the amount of the net surrender payment, whichever is less. The
charge will be made against the Total Account Value;
4. If, at the time of a partial surrender, your Total Account Value is
attributable to more than one funding option, both the Surrender Charge
and the amount paid to you upon the surrender will be taken
proportionately from the values accumulated in each funding option. You
cannot select the funding option to be used in the surrender;
5. A partial surrender will not be allowed if it would cause the Specified
Amount to drop below the minimum allowable Specified Amount; and
6. Partial surrenders may only be made prior to election of a settlement
option.
As mentioned previously, a partial surrender will also reduce the Death
Benefit (and the Specified Amount, if Option 1 is in effect), by the amount of
the reduction in your Total Account Value resulting from the surrender. If the
Specified Amount is reduced, the most recent increase in coverage is reduced
first, then the next most recent coverage, and so forth.
If the Death Benefit on an Option 1 Policy is calculated as a percentage
of the Total Account Value rather than as the Specified Amount, a partial
surrender will reduce the Specified Amount only if the partial surrender
decreases the difference between the Death Benefit and the Total Account Value.
A partial surrender will not reduce the Specified Amount of an Option 2 Policy.
Payment of any amount due from Separate Account Values on a full or
partial surrender will be made within seven calendar days after your written
surrender request is received at our Home Office, except that payment may be
postponed when the New York Stock Exchange has been closed and for such other
periods as the Securities and Exchange Commission may require. Payment of values
from the Fixed Account Value may be deferred for up to six months, except when
used to pay premiums to the Company.
If you surrender your Policy, in whole or in part, there may be tax
implications. Refer to "Tax Matters."
HOW MIGHT YOUR POLICY LAPSE?
WHAT EFFECT DOES A LAPSE HAVE?
A lapse occurs if your Monthly Deduction is greater than the Cash
Surrender Value and no payment to cover the deduction is made within 61 days of
our notifying you. This may happen after the first two Policy Years, or during
the first two Policy Years if your Basic Premiums are not current.
If the Cash Surrender Value of the Policy is insufficient to cover the
Monthly Deduction on the appropriate date, your insurance coverage will
terminate at the end of a 61-day Grace Period. The Grace Period begins with the
mailing of a notice to you, once we discover the insufficiency. We will require
the payment of the amount necessary to keep this Policy in force for the current
month, plus two additional months. During the Grace Period, a Policy has no Cash
Surrender Value, so that if the Policy is terminated at the end of the Grace
Period, no money will be paid to you.
If your Policy's Cash Surrender Value is insufficient to cover the
Monthly Deduction on the appropriate date, an amount equal to the Monthly
Deduction
18
<PAGE>
will be removed from the Total Account Value and will not participate in
investment performance. If a premium payment is subsequently made and the Cash
Surrender Value exceeds the amount of the Monthly Deduction, or, within the
first two years the Basic Premiums are paid, the amount removed will be returned
to the Total Account Value and will resume participation in investment
performance.
IF THE POLICY HAS LAPSED, CAN YOU REINSTATE THE POLICY?
We will consider reinstatement within five years after the date of
termination (provided it is before the Maturity Date). We will require
satisfactory evidence of insurability. Regardless of when the Policy lapses, the
original and any additional tables of Surrender Charges that were issued on this
Policy will apply upon reinstatement. The Loan Account Value will be reinstated.
All values will be reinstated as of the date of the Policy's termination.
Under AetnaVest II Policies issued in most states, if the Policy lapses
during the first two Policy Years, the payment required at reinstatement will
equal the sum of Basic Premiums for each Monthly Deduction day to date, less
premiums previously paid. If the Policy lapses after the first two Policy Years,
you must make a premium payment that will cause the surrender value upon
reinstatement to equal three times the next monthly deduction.
For AetnaVest Policies, upon reinstatement, no Surrender Charge deduction
will apply to coverage which was in force for two or more years (one or more
years for multiple employer trust policies) prior to the date of termination.
For terminated coverage which was in force less than two years, future Surrender
Charges will not be reduced from the original schedule. If you request
reinstatement during the first two Policy Years, the premium required at
reinstatement will be the lesser of (a) a premium sufficient to pay for three
Monthly Deductions plus any applicable Surrender Charge; or (b) overdue Basic
Premiums.
CAN YOU BORROW ON YOUR POLICY?
If you purchase an AetnaVest Policy you may borrow against your Policy
after the end of the second Policy Year (in California and Texas, after the end
of the first Policy Year). AetnaVest II Policy Owners may borrow against their
Policy beginning in the first Policy Year. For all Policies, loans must be taken
before the election of a settlement option.
The most you can borrow is 90% (100% for AetnaVest II policies issued in
Texas) of the Fixed Account and Separate Account Values less the Surrender
Charge applicable at the time of the loan. Interest on the loan, including
preferred loans (as described below), will accrue at 8% per year, payable once a
year at each anniversary of the loan. Any interest not paid when due becomes
part of the loan and bears interest.
The Loan Account Value is credited with the amount of any loans you make
on your Policy, as collateral. The Loan Account Value is credited with interest
at a rate of at least 4.5% per year (6% in New York). Such credited interest is
transferred out of the Loan Account Value monthly and reallocated
proportionately to the applicable funding options.
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 in excess of the maximum loan
amount available for a preferred loan will not be considered a preferred loan.
The portion of the Loan Account Value equal to the preferred loan will be
credited at the policy loan interest rate of 8% per year. The portion of the
Loan Account Value not considered a preferred loan will be credited interest as
described in "What Is the Cash Surrender Value of Your Policy?" The preferred
loan feature is only available in approving states as stated in your Policy.
If you are using more than one underlying funding option, the amount of
the loan will be withdrawn in proportion to the value held in each funding
option. You cannot select the funding option to be used for the loan.
The amount you receive as a result of the loan will, together with any
accrued but not paid interest, constitute the Loan Account Value. 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.
CAN YOU CHANGE THE AMOUNT OF YOUR INSURANCE COVERAGE?
Beginning one year after the Issue Date, you may increase or decrease the
Specified Amount of your Policy as follows:
1. For an increase, we will require satisfactory evidence of insurability
unless there is no increase in the Amount at Risk;
19
<PAGE>
2. 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 Total
Account Value and (b) the amount of the increase, divided by 1000, times
the applicable Cost of Insurance Rate;
3. An increase in the Specified Amount will increase the Surrender Charge
unless there is no increase in the Amount at Risk;
4. Increases are limited to four times the original Specified Amount;
5. Decreases in the Specified Amount will not decrease the Surrender Charge
or your Basic Premium. Decreases during the second year after the Issue
Date will usually not enable you to reduce your Planned Premium below the
Basic Premium without lapsing the Policy;
6. No decrease may reduce the Specified Amount to less than the then-current
minimum for this type of Policy;
7. The decrease will be applied first to the most recent coverage under the
Policy, then to the next most recent, and so forth.
You can also change from one Death Benefit Option to the other.
The Specified Amount will be changed when a change in Death Benefit
Option is made. If the change is from Option 1 to Option 2, the new Specified
Amount will equal the Amount at Risk as of the date of the change. If the change
is from Option 2 to Option 1, the new Specified Amount will equal the Death
Benefit as of the date of the change.
A change in Death Benefit Option will not be allowed if the new Specified
Amount would be less than the then-current minimum. We may require satisfactory
evidence of insurability before allowing the change. There will be no change in
the Surrender Charge (either increase or decrease) at the time of a change in
Death Benefit Option.
WHAT IS THE "FREE-LOOK PERIOD"?
The Policy has a "Free-Look Period" during which it may be returned to
our Home Office for a refund. You may return it to our Home Office within ten
days 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.
The refund will be the sum of (1) the difference between payments made
and amounts allocated to the Separate Account, (2) the value of the amount
allocated to the Separate Account as of the date the returned Policy is received
by us, and (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.
CAN YOU EXCHANGE YOUR POLICY?
You may exchange the AetnaVest Policy for a period of two years after the
Issue Date, for a new adjustable premium policy issued by the Company, under
which policy values and benefits do not vary with the investment performance of
a Separate Account. The new policy will have the same Issue Date as the old
Policy, and no evidence of insurability will be required. Since your Total
Account Value will be transferred from the old Policy to the new policy in its
entirety, the Cash Surrender Value under the new policy cannot exceed the Cash
Surrender Value under the old Policy at the time of exchange. We have the right
to adjust the Cash Surrender Value under the new policy to make sure this is the
case. You have the right to select whether the new policy has the same Death
Benefit or net amount at risk as the old Policy. There may be a charge due to
the Company, or a refund due to the Policy Owner, equal to the difference in
cash value between the old Policy and the new policy.
For AetnaVest II Policies you may simply transfer the entire Separate
Account Value of your Policy to the Fixed Account. No charge will be made for
any such transfer.
HOW WILL THE DEATH BENEFIT BE PAID?
The Death Benefit under the Policy will be paid in a lump sum within
seven days after we receive due proof of 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 described below.
Payment of the Death Benefit may be delayed if the Policy is being
contested. While the Insured is liv-
20
<PAGE>
ing, 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 proceeds of the Death Benefit may be applied under
one or more of the following 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 proceeds due will be
paid as elected.
SETTLEMENT OPTIONS
WHEN DO PAYMENTS UNDER A SETTLEMENT OPTION OCCUR?
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 is required to elect, change, or revoke a Settlement
Option. This request will take effect upon receipt or recording of the written
request, in good order, at our Home Office.
The first variable Settlement Option payment will be as of the tenth
Valuation Period following the receipt of the properly completed election form.
WHAT ARE THE SETTLEMENT OPTIONS?
The Settlement Options are as follows:
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 3.5%. 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 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, the first and
subsequent payments will vary depending on the Assumed Net Investment Rate. This
rate will be 3.5% per annum, unless a 5% annual rate is chosen. The Assumed Net
Investment Rate is chosen by the payee.
21
<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 3.5% 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 3.5% 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 beneficiary, or upon election by the beneficiary, any remaining
guaranteed payments will continue to the 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 a 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 the beneficiary. The interest rate used to determine the first payment will
be used to calculate the present value.
Payments will be made upon receipt of a written request filed with us. If
no settlement election has been made by the Policy Owner when the beneficiary
becomes entitled to proceeds, the beneficiary may make the election.
HOW WILL YOUR VARIABLE SETTLEMENT OPTION PAYMENTS BE CALCULATED?
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) 1000; times
(c) the payment rate for the Option chosen.
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
(the period of time between one Valuation Date and the next Valuation Date)
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.
For any Valuation Period, the 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 .9999058; for 5% per year, it is .9998663.
The Net Return Factor equals:
22
<PAGE>
(i) The net assets of the applicable fund held in Variable Annuity
Account B at the end of a Valuation Period, minus
(ii) The net assets of the applicable fund held in Variable Annuity
Account B at the beginning of that Valuation Period, plus or minus
(iii) Taxes or provision for taxes, if any, attributable to the
operations of Variable Annuity Account B, divided by
(iv) The value of Settlement Option Units and other accumulation units
held in Variable Annuity Account B at the beginning of the Valuation
Period, minus
(v) A daily charge at an annual rate of 1.25% for annuity mortality and
expense risk and a daily administrative expense charge that will not
exceed .25% on an annual basis.
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 charges.
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
The Company
The Aetna Life Insurance and Annuity 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 Inc.
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.
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 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.
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 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 Policy
Owner.
No stock certificates are issued to the Separate Account for shares 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 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 Commission 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.
23
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name and Address* Positions with Company Business Experience During Past 5 Years
- ---------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Daniel P. Kearney Director, President and President (since December 1993), Aetna Life
Chairman, Executive Insurance and Annuity Company; Executive Vice
Committee (Principal President (since December 1993), and Group
Executive Officer) Executive, Financial Division (February 1991--
December 1993), Aetna Life and Casualty Company.
Christopher J. Burns Director and Senior President, Chief Operations Officer (since
Vice President November 1996), Aetna Investment Services,
Inc.; Senior Vice President, Sales & Service
(since February 1996), and Senior Vice
President, Life (March 1991--February 1996),
Aetna Life Insurance and Annuity Company.
Laura R. Estes Director and Senior Senior Vice President, Manage/Design Products
Vice President and Services (since February 1996), and Senior
Vice President, Pensions (March 1991--February
1996), Aetna Life Insurance and Annuity Company.
J. Scott Fox Director and Senior Senior Vice President, Operations (since March
Vice President 1997), Aetna Life Insurance and Annuity
Company; Managing Director, Chief Operating
Officer, Chief Financial Officer, Treasurer
(April 1994--March 1997), Aeltus Investment
Management, Inc.; Managing Director and
Treasurer (March 1987--September 1993),
Equitable Capital Management Corporation.
Timothy A. Holt Director, Senior Vice Senior Vice President, Strategy & Finance, and
President and Chief Chief Financial Officer (since February 1996),
Financial Officer Aetna Life Insurance and Annuity Company;
Vice President, Portfolio Management/Investment
Group (August 1992--February 1996), Aetna
Life and Casualty Company.
Gail P. Johnson Director and Vice President, Service and Retain Customers
Vice President (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).
24
<PAGE>
Name and Address* Positions with Company Business Experience During Past 5 Years
- ---------------------- --------------------------- ------------------------------------------------------
John Y. Kim Director and Senior President (since December 1995), Aeltus
Vice 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), Aetna Services, Inc. (formerly
Aetna Life and Casualty Company).
Shaun P. Mathews Director and Vice President, Products Group (since February
Vice President 1996); Senior Vice President, Strategic Markets and
Products (February 1993--February 1996); Senior
Vice President, Mutual Funds (March 1991--
February 1993), Aetna Life Insurance and Annuity
Company.
Glen Salow Director and Vice President, Information Technology (since
Vice President 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, Select and Manage Markets
Vice President (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).
Kirk P. Wickman Vice President, General Vice President, General Counsel and Secretary
Counsel and Secretary (since November 1996), Aetna Life Insurance
and Annuity Company; Vice President and
Counsel (June 1992--November 1996), Aetna
Life Insurance Company.
Deborah Koltenuk Vice President and Vice President, Investment Planning and
Treasurer, Corporate Financial Reporting (April 1996 to July 1996),
Controller Aetna Life Insurance Company; Vice President,
Investment Planning and Financial Reporting
(October 1994 to April 1996) Aetna Life
Insurance Company. The Aetna Casualty and
Surety Company and The Standard Fire and
Insurance Company.
Frederick D. Kelsven Vice President and Chief Director of Compliance (January 1985 to
Compliance Officer September 1996), Nationwide Life Insurance
Company.
</TABLE>
25
<PAGE>
- ------------
* The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut.
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.
These individuals may also be directors and/or officers of other affiliates of
the Company.
26
<PAGE>
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 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 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 the Separate Account in accordance with
instructions received from Policy Owners having a voting interest in the Funds.
Policy Owners having such an interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions. The number
of shares which You have a right to vote will be determined as of a record date
established by the Fund. The number of votes that You are entitled to direct
with respect to a Fund will be determined by dividing the portion of Your Total
Account Value attributable to that Fund by the net asset value of one share in
the Fund. Voting instructions will be solicited by written communication at
least 14 days before such meeting.
The votes will 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.
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 the Separate Account.
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 a 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
The Company is subject to regulation and supervision by the Insurance
Department of the State of Connecticut, which periodically examines its affairs.
It is 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
27
<PAGE>
solvency and compliance with local insurance laws and regulations.
The Policies are offered for sale in all jurisdictions where we are
authorized to do business except the District of Columbia, Guam, Puerto Rico,
and the Virgin Islands.
LEGAL MATTERS
The Company knows of no material legal proceedings pending to which
either Separate Account is a party or which would materially affect either
Separate Account.
The legal validity of the securities described in the Prospectus has been
passed on by Counsel for the Company.
ADDITIONAL INFORMATION
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC 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.
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. 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 initial Basic
Premium or, in the event of an increase in the Specified Amount, 55% of the
Basic Premium attributable to the increase. In particular circumstances, we may
also pay certain of these professionals for their administrative expenses. In
addition, some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational and/or
business seminars. Supervisory and other management personnel of the Company may
receive compensation that will vary based on the relative profitability to the
Company of the funding options you select. Funding options that invest in Funds
advised by the Company or its affiliates are generally more profitable to the
Company.
The Company may also 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, CityPlace II, Hartford, Connecticut, 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 Policies. 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
28
<PAGE>
1986, as amended ("Code"). For federal income tax purposes, the operations of
each Separate Account form a part of the Company's total operations and are not
taxed separately, although operations of each 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. These rules generally place limits on the amount of premiums payable
under the contract and the level of cash surrender value. 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. 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. The Secretary of the Treasury has been
granted authority to prescribe regulations to carry out the purposes of Section
7702, 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 Policy Owner 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 Policy Owners 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 Policy Owners 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 Policy Owner 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 Policyowner, 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.
29
<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 Policyowner if the Policy is a Modified Endowment Contract.
Each Policy is subject to testing under the 7-pay test during the first
seven Policy Years and for the seven Policy Years following the 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, or after the seventh year where the reduced death benefit is lower
than the lowest death benefit provided during the first seven 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, any Policy Loans and most assignments 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 Policyowner of a Modified Endowment Contract who is not an
individual. Taxable policy distributions made to an individual who has not
reached the age of 591/2 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 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
30
<PAGE>
which it was determined that Policyowners were not owners of separate account
assets. For example, a Policyowner has additional flexibility in allocating
premium payments and account values. While the Company does not believe that
these differences would result in a Policyowner 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 Policyowner 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 where the employer is a beneficiary under the Policy.
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 Policyowner's deduction for interest on loans
taken against life insurance covering the lives of officers, employees, or
others financially interested in the Policyowner'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 only with respect to life insurance policies
covering each officer, employee or others who may have a financial interest in
the Policyowner's trade or business and are considered key persons. Generally, a
key person means an officer or a 20 percent owner. However, the number of key
persons will be limited to the greater of (a) 5 individuals, or (b) the lesser
of 5 percent of the total officers and employees of the tax payor or 20
individuals. Deductible interest for these Policies will be capped based on the
applicable Moody's Corporate Bond Rate.
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 Policyowner or
beneficiary. Any person concerned about these tax implications should consult a
competent tax adviser before initiating any transactions.
MISCELLANEOUS CONTRACT PROVISIONS
The Contract
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. Any 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 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
where unisex rates are used, the Insured's sex is inapplicable.)
Incontestability
We will not contest coverage under the Policy (other than any waiver of
premium rider) after it has been in force during the lifetime of the Insured
more than two years from the Issue Date.
For coverage which takes effect on a later date (i.e., an increase or
reinstatement of insurance), 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. Any contest of such later coverage will be based on the
supplemental application.
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) plus (b) minus (c),
where:
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(a) equals premiums paid less amounts allocated to the Separate Account; and
(b) equals the Separate Account Value on the date of suicide, plus the
portion of the Monthly Deductions deducted from the Separate Account
Value; and
(c) equals 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
Deductions for the increase, in lieu of the face amount of the increase.
All amounts will be calculated as of the date of death.
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.
Non-Participation
Neither Policy is entitled to share in the divisible surplus of the
Company. No dividends are payable.
Coverage Beyond Maturity (AetnaVest II only)
As an AetnaVest II Policy Owner, 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.
At this time, uncertainties exist regarding the tax treatment of the
Policy should the Policy continue beyond the Maturity Date. You should therefore
consult with your tax advisor prior to making this election. (See Tax Matters.)
The coverage beyond maturity provision is only available in approving states.
(This provision is not available in New York.)
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<PAGE>
APPENDIX A
AETNAVEST POLICIES
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES FOR AETNAVEST POLICIES
The following tables illustrate how the Total Account Values, Cash
Surrender Values, and Death Benefits of a Policy change with the investment
experience of the Funds. The tables show how the Total Account Values, Cash
Surrender Values, and Death Benefits 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%, 12%,
respectively.
Tables I through IV illustrate Policies issued to males, ages 25 and 40,
in the nonsmoker rate class. The Total Account Values, Cash Surrender Values,
and Death Benefits 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 the stated interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through eleventh columns illustrate the Cash Surrender Values of each Policy
over the designated period. Tables II and IV assume that the maximum Cost of
Insurance Rates 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 is assessed in each Policy Year. Tables I and
III assume that the current scale of Cost of Insurance Rates applies during all
Policy Years. These tables also assume that the current level of mortality and
expense risk charge, 0.70% on an annual basis, is assessed. A weighted average
has been used for the illustrations assuming that the Policyowner has invested
in the Funds as follows: 56% in Aetna Variable Fund; 6% in Aetna Income Shares;
4% in Aetna Variable Encore Fund; 7% in Aetna Investment Advisers Fund; 0% in
the Aetna Ascent Variable Portfolio; 0% in the Aetna Crossroads Variable
Portfolio; 0% in the Aetna Legacy Variable Portfolio; 5% in the Alger American
Small Capitalization Portfolio; 4% in American Century VP Capital Appreciation;
1% in Fidelity's Variable Insurance Products Fund II--Contrafund Portfolio; 1%
in Fidelity's Variable Insurance Products Fund--Equity-Income Portfolio; 4% in
the Janus Aspen Growth Fund; 3% in Janus Aspen Aggressive Growth Fund; 3% in
Janus Aspen Worldwide Growth Fund; 1% in Janus Aspen Balanced Fund; 0% in the
Janus Aspen Short-Term Bond Fund; and 5% in the Scudder International
Portfolio.
The amounts shown for the Death Benefits, 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 the Fund and other charges levied by the Separate Account.
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
Benefits, 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, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex, 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%.
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<PAGE>
AetnaVest Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 428 100000 100000 100000
2 878 100000 100000 100000
3 1351 100000 100000 100000
4 1846 100000 100000 100000
5 2367 100000 100000 100000
6 2914 100000 100000 100000
7 3488 100000 100000 100000
8 4091 100000 100000 100000
9 4724 100000 100000 100000
10 5388 100000 100000 100000
15 9244 100000 100000 100000
20 14165 100000 100000 100000
25 20446 100000 100000 100000
30 28462 100000 100000 100000
40 (Age 65) 51751 0 100000 114928
<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>
1 182 199 216 0 0 0
2 366 412 460 18 64 112
3 548 635 731 200 287 383
4 730 872 1033 382 524 685
5 909 1118 1366 561 770 1018
6 1098 1389 1748 814 1105 1464
7 1280 1668 2166 1065 1453 1951
8 1458 1957 2625 1313 1812 2480
9 1627 2254 3128 1552 2179 3053
10 1788 2559 3677 1782 2553 3671
15 2445 4177 7291 2445 4177 7291
20 2761 5871 12911 2761 5871 12911
25 2538 7426 21651 2538 7426 21651
30 1490 8489 35446 1490 8489 35446
40 (Age 65) 0 4900 94203 0 4900 94203
</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 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 Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 428 100000 100000 100000
2 878 100000 100000 100000
3 1351 100000 100000 100000
4 1846 100000 100000 100000
5 2367 100000 100000 100000
6 2914 100000 100000 100000
7 3488 100000 100000 100000
8 4091 100000 100000 100000
9 4724 100000 100000 100000
10 5388 100000 100000 100000
15 9244 100000 100000 100000
20 14165 100000 100000 100000
25 20446 100000 100000 100000
30 28462 100000 100000 100000
40 (Age 65) 51751 0 100000 104608
<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>
1 182 199 216 0 0 0
2 364 410 458 16 62 110
3 545 632 728 197 284 380
4 726 867 1027 378 519 679
5 903 1111 1357 555 763 1009
6 1089 1378 1734 805 1094 1450
7 1269 1653 2147 1054 1438 1932
8 1443 1938 2600 1298 1793 2455
9 1610 2230 3094 1535 2155 3019
10 1767 2528 3633 1761 2522 3627
15 2382 4079 7130 2382 4079 7130
20 2646 5661 12497 2646 5661 12497
25 2312 6990 20666 2312 6990 20666
30 1102 7684 33322 1102 7684 33322
40 (Age 65) 0 2336 85744 0 2336 85744
</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 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 Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 781 100000 100000 100000
2 1601 100000 100000 100000
3 2463 100000 100000 100000
4 3367 100000 100000 100000
5 4317 100000 100000 100000
6 5314 100000 100000 100000
7 6361 100000 100000 100000
8 7460 100000 100000 100000
9 8614 100000 100000 100000
10 9826 100000 100000 100000
15 16857 100000 100000 100000
20 25831 100000 100000 100000
25 37284 0 100000 100000
30 51902 0 100000 100000
25 (Age 65) 37284 0 100000 100000
<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>
1 455 490 525 0 0 0
2 888 987 1090 215 314 417
3 1298 1489 1697 625 816 1024
4 1687 1998 2352 1014 1325 1679
5 2051 2512 3056 1378 1839 2383
6 2393 3031 3817 1844 2482 3268
7 2705 3548 4634 2290 3133 4219
8 2985 4062 5509 2705 3782 5229
9 3234 4572 6450 3088 4426 6304
10 3450 5076 7461 3439 5065 7450
15 3942 7396 13812 3942 7396 13812
20 2766 8554 22668 2766 8554 22668
25 0 7524 35569 0 7524 35569
30 0 2410 55745 0 2410 55745
25 (Age 65) 0 7524 35569 0 7524 35569
</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 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 Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 781 100000 100000 100000
2 1601 100000 100000 100000
3 2463 100000 100000 100000
4 3367 100000 100000 100000
5 4317 100000 100000 100000
6 5314 100000 100000 100000
7 6361 100000 100000 100000
8 7460 100000 100000 100000
9 8614 100000 100000 100000
10 9826 100000 100000 100000
15 16857 100000 100000 100000
20 25831 100000 100000 100000
25 37284 0 100000 100000
30 51902 0 100000 100000
25 (Age 65) 37284 0 100000 100000
<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>
1 452 487 522 0 0 0
2 879 977 1080 206 304 407
3 1282 1471 1677 609 798 1004
4 1658 1966 2316 985 1293 1643
5 2008 2462 3000 1335 1789 2327
6 2328 2956 3730 1779 2407 3181
7 2618 3445 4511 2203 3030 4096
8 2876 3928 5345 2596 3648 5065
9 3100 4403 6236 2954 4257 6090
10 3288 4866 7188 3277 4855 7177
15 3598 6892 13046 3598 6892 13046
20 2187 7579 20904 2187 7579 20904
25 0 5473 31573 0 5473 31573
30 0 0 45968 0 0 45968
25 (Age 65) 0 5473 31573 0 5473 31573
</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 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>
APPENDIX B
AETNAVEST II POLICIES
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES FOR AETNAVEST II POLICIES
The following tables illustrate how the Total Account Values, Cash
Surrender Values, and Death Benefits of a Policy change with the investment
experience of the Funds. The tables show how the Total Account Values, Cash
Surrender Values, and Death Benefits 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%, 12%,
respectively.
Tables V through VIII illustrate Policies issued to males, ages 35 and
55, in the nonsmoker rate class. Tables IX through XII illustrate Policies
issued on a unisex basis, ages 35 and 55, in the nonsmoker rate class. These
tables are provided for use in those states where unisex rates are required. The
Total Account Values, Cash Surrender Values, and Death Benefits 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 the stated interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through eleventh columns illustrate the Cash Surrender Values of each Policy
over the designated period. Tables VI, VIII, X and XII assume that the maximum
Cost of Insurance Rates allowable under the Policy are charged in all Policy
Years. These tables also assume that the maximum allowable mortality and expense
risk charge of .90% on an annual basis, the maximum allowable administrative
charge of .50% and the maximum allowable premium load of 6% are assessed in each
Policy Year. Tables V, VII, IX and XI 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 .70% on an annual basis, the
current administrative charge of .30% on an annual basis, and the current
premium load of 3.5% are assessed. 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
Capitalization Portfolio; 10% in American Century VP Capital Appreciation; 3% in
Fidelity's Variable Insurance Products Fund II--Contrafund Portfolio; 3% in
Fidelity's Variable Insurance Products Fund--Equity-Income Portfolio; 3% in the
Janus Aspen Growth Fund; 5% in Janus Aspen Aggressive Growth Fund; 3% in Janus
Aspen Worldwide Growth Fund; 1% in Janus Aspen Balanced Fund; 1% in Janus Aspen
Short-Term Bond Fund; and 10% in the Scudder International.
The amounts shown for the Death Benefits, 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 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
Benefits, 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, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex (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%.
38
<PAGE>
AetnaVest II Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 1481 250000 250000 250000
2 3035 250000 250000 250000
3 4667 250000 250000 250000
4 6381 250000 250000 250000
5 8181 250000 250000 250000
6 10070 250000 250000 250000
7 12054 250000 250000 250000
8 14137 250000 250000 250000
9 16325 250000 250000 250000
10 18622 250000 250000 250000
15 31947 250000 250000 250000
20 48954 250000 250000 250000
25 70660 250000 250000 250000
30 98363 0 250000 250000
30 (Age 65) 98363 0 250000 250000
<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>
1 685 746 806 0 0 0
2 1519 1689 1867 169 339 517
3 2314 2648 3011 964 1298 1661
4 3068 3620 4245 1718 2270 2895
5 3778 4602 5573 2428 3252 4223
6 4441 5592 7005 3215 4366 5779
7 5061 6592 8553 3970 5501 7462
8 5631 7596 10222 4675 6640 9266
9 6152 8606 12027 5331 7785 11206
10 6621 9616 13977 5935 8930 13291
15 7989 14458 26309 7978 14447 26298
20 7243 18300 44465 7243 18300 44465
25 3750 20153 72087 3750 20153 72087
30 0 18356 115816 0 18356 115816
30 (Age 65) 0 18356 115816 0 18356 115816
</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 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.
39
<PAGE>
AetnaVest II Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 1481 250000 250000 250000
2 3035 250000 250000 250000
3 4667 250000 250000 250000
4 6381 250000 250000 250000
5 8181 250000 250000 250000
6 10070 250000 250000 250000
7 12054 250000 250000 250000
8 14137 250000 250000 250000
9 16325 250000 250000 250000
10 18622 250000 250000 250000
15 31947 250000 250000 250000
20 48954 250000 250000 250000
25 70660 0 250000 250000
30 98363 0 250000 250000
30 (Age 65) 98363 0 250000 250000
<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>
1 646 705 763 0 0 0
2 1439 1602 1773 89 252 423
3 2191 2509 2856 841 1159 1506
4 2899 3424 4020 1549 2074 2670
5 3560 4342 5265 2210 2992 3915
6 4173 5261 6599 2947 4035 5373
7 4731 6175 8024 3640 5084 6933
8 5236 7082 9549 4280 6126 8593
9 5682 7976 11178 4861 7155 10357
10 6069 8857 12923 5383 8171 12237
15 6931 12792 23590 6920 12781 23579
20 5363 15044 38284 5363 15044 38284
25 0 13118 57942 0 13118 57942
30 0 2491 84129 0 2491 84129
30 (Age 65) 0 2491 84129 0 2491 84129
</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 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.
40
<PAGE>
AetnaVest II Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
$4380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 4599 250000 250000 250000
2 9428 250000 250000 250000
3 14498 250000 250000 250000
4 19822 250000 250000 250000
5 25412 250000 250000 250000
6 31282 250000 250000 250000
7 37445 250000 250000 250000
8 43916 250000 250000 250000
9 50711 250000 250000 250000
10 57846 250000 250000 250000
15 99240 250000 250000 250000
20 152070 250000 250000 250000
25 219497 0 250000 250000
30 305552 0 0 369275
10 (Age 65) 57846 250000 250000 250000
<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 2272 2465 2659 0 0 0
2 4579 5114 5674 1123 1658 2218
3 6742 7772 8896 3286 4316 5440
4 8758 10436 12344 5302 6980 8888
5 10620 13099 16039 7164 9643 12583
6 12321 15753 20001 9182 12614 16862
7 13855 18392 24256 11061 15598 21462
8 15207 21001 28827 12759 18553 26379
9 16364 23565 33741 14262 21463 31639
10 17283 26040 39000 15526 24283 37243
15 17206 35829 71326 17177 35800 71297
20 6827 38497 120106 6827 38497 120106
25 0 23493 201591 0 23493 201591
30 0 0 351690 0 0 351690
10 (Age 65) 17283 26040 39000 15526 24283 37243
</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 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.
41
<PAGE>
AetnaVest II Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
$4380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 4599 250000 250000 250000
2 9428 250000 250000 250000
3 14498 250000 250000 250000
4 19822 250000 250000 250000
5 25412 250000 250000 250000
6 31282 250000 250000 250000
7 37445 250000 250000 250000
8 43916 250000 250000 250000
9 50711 250000 250000 250000
10 57846 250000 250000 250000
15 99240 0 250000 250000
20 152070 0 0 250000
25 219497 0 0 0
30 305552 0 0 0
10 (Age 65) 57846 250000 250000 250000
<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 1892 2070 2249 0 0 0
2 3743 4221 4723 287 765 1267
3 5365 6264 7248 1909 2808 3792
4 6746 8178 9817 3290 4722 6361
5 7863 9933 12408 4407 6477 8952
6 8691 11494 15002 5552 8355 11863
7 9205 12824 17572 6411 10030 14778
8 9365 13870 20079 6917 11422 17631
9 9122 14568 22473 7020 12466 20371
10 8426 14849 24697 6669 13092 22940
15 0 7292 31031 0 7263 31002
20 0 0 16952 0 0 16952
25 0 0 0 0 0 0
30 0 0 0 0 0 0
10 (Age 65) 8426 14849 24697 6669 13092 22940
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum 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 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.
42
<PAGE>
AetnaVest II Policy
Table IX
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 35
$1350.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 1418 250000 250000 250000
2 2906 250000 250000 250000
3 4469 250000 250000 250000
4 6110 250000 250000 250000
5 7833 250000 250000 250000
6 9642 250000 250000 250000
7 11541 250000 250000 250000
8 13536 250000 250000 250000
9 15630 250000 250000 250000
10 17829 250000 250000 250000
15 30588 250000 250000 250000
20 46871 250000 250000 250000
25 67653 250000 250000 250000
30 94177 0 250000 250000
30 (Age 65) 94177 0 250000 250000
<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>
1 640 698 755 0 0 0
2 1428 1589 1757 138 299 467
3 2180 2495 2839 890 1205 1549
4 2889 3410 4001 1599 2120 2711
5 3554 4333 5251 2264 3043 3961
6 4173 5260 6595 3001 4088 5423
7 4748 6193 8043 3705 5150 7000
8 5273 7126 9603 4359 6212 8689
9 5750 8061 11285 4965 7276 10500
10 6175 8993 13100 5519 8337 12444
15 7458 13521 24647 7447 13510 24636
20 6945 17309 41837 6945 17309 41837
25 3986 19421 68075 3986 19421 68075
30 0 18147 109359 0 18147 109359
30 (Age 65) 0 18147 109359 0 18147 109359
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current 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 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.
43
<PAGE>
AetnaVest II Policy
Table X
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 35
$1350.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 1418 250000 250000 250000
2 2906 250000 250000 250000
3 4469 250000 250000 250000
4 6110 250000 250000 250000
5 7833 250000 250000 250000
6 9642 250000 250000 250000
7 11541 250000 250000 250000
8 13536 250000 250000 250000
9 15630 250000 250000 250000
10 17829 250000 250000 250000
15 30588 250000 250000 250000
20 46871 250000 250000 250000
25 67653 0 250000 250000
30 94177 0 250000 250000
30 (Age 65) 94177 0 250000 250000
<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>
1 603 659 714 0 0 0
2 1351 1506 1667 61 216 377
3 2061 2363 2691 771 1073 1401
4 2726 3223 3785 1436 1933 2495
5 3345 4084 4955 2055 2794 3665
6 3917 4943 6206 2745 3771 5034
7 4434 5794 7539 3391 4751 6496
8 4901 6639 8965 3987 5725 8051
9 5309 7468 10484 4524 6683 9699
10 5662 8283 12109 5006 7627 11453
15 6398 11883 22010 6387 11872 21999
20 4844 13857 35573 4844 13857 35573
25 0 11948 53639 0 11948 53639
30 0 2155 77591 0 2155 77591
30 (Age 65) 0 2155 77591 0 2155 77591
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum 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 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.
44
<PAGE>
AetnaVest II Policy
Table XI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 55
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 4410 250000 250000 250000
2 9041 250000 250000 250000
3 13903 250000 250000 250000
4 19008 250000 250000 250000
5 24368 250000 250000 250000
6 29996 250000 250000 250000
7 35906 250000 250000 250000
8 42112 250000 250000 250000
9 48627 250000 250000 250000
10 55469 250000 250000 250000
15 95161 250000 250000 250000
20 145821 250000 250000 250000
25 210477 0 250000 250000
30 292995 0 0 370462
10 (Age 65) 55469 250000 250000 250000
<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 2253 2440 2629 0 0 0
2 4541 5062 5609 1229 1750 2297
3 6697 7706 8806 3385 4394 5494
4 8710 10357 12229 5398 7045 8917
5 10572 13009 15896 7260 9697 12584
6 12276 15654 19829 9268 12646 16821
7 13819 18288 24057 11142 15611 21380
8 15187 20898 28601 12841 18552 26255
9 16371 23474 33494 14356 21459 31479
10 17335 25978 38743 15651 24294 37059
15 17825 36280 71278 17797 36252 71250
20 8519 40053 120426 8519 40053 120426
25 0 28329 202666 0 28329 202666
30 0 0 352821 0 0 352821
10 (Age 65) 17335 25978 38743 15651 24294 37059
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current 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 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.
45
<PAGE>
AetnaVest II Policy
Table XII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 55
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
Premiums Death Benefit
Accumulated Gross Annual Investment
at Return of
Policy 5% Interest ------------------------------------
Year Per Year Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- -----------
1 4410 250000 250000 250000
2 9041 250000 250000 250000
3 13903 250000 250000 250000
4 19008 250000 250000 250000
5 24868 250000 250000 250000
6 29996 250000 250000 250000
7 35906 250000 250000 250000
8 42112 250000 250000 250000
9 48627 250000 250000 250000
10 55469 250000 250000 250000
15 95161 0 250000 250000
20 145821 0 0 250000
25 210477 0 0 0
30 292995 0 0 0
10 (Age 65) 55469 250000 250000 250000
<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 1809 1979 2150 0 0 0
2 3595 4053 4534 283 741 1222
3 5169 6032 6976 1857 2720 3664
4 6524 7900 9473 3212 4588 6161
5 7647 9639 12018 4335 6327 8706
6 8510 11211 14587 5502 8203 11579
7 9089 12584 17161 6412 9907 14484
8 9347 13708 19704 7001 11362 17358
9 9233 14519 22165 7218 12504 20150
10 8701 14953 24496 7017 13269 22812
15 0 9185 32410 0 9157 32382
20 0 0 24109 0 0 24109
25 0 0 0 0 0 0
30 0 0 0 0 0 0
10 (Age 65) 8701 14953 24496 7017 13269 22812
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum 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 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.
46
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
Statement of Assets and Liabilities...................................S-2
Statements of Operations and Changes in Net Assets....................S-4
Condensed Financial Information.......................................S-5
Notes to Financial Statements.........................................S-7
Independent Auditors' Report..........................................S-11
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities - December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 2,867,163 shares (cost $85,576,983) .................................................. $ 92,871,626
Aetna Income Shares; 1,044,098 shares (cost $13,369,967) .................................................. 13,179,787
Aetna Variable Encore Fund; 689,138 shares (cost $8,985,791) .............................................. 9,092,185
Aetna Investment Advisers Fund, Inc.; 1,044,556 shares (cost $14,407,610) ................................. 15,791,541
Aetna Ascent Variable Portfolio; 43,217 shares (cost $529,733) ............................................ 545,378
Aetna Crossroads Variable Portfolio; 10,326 shares (cost $123,882) ........................................ 123,692
Aetna Legacy Variable Portfolio; 1,241 shares (cost $13,943) .............................................. 13,963
Alger American Small Capitalization Portfolio; 319,875 shares (cost $12,914,026) .......................... 13,086,083
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 632,915 shares (cost $12,213,929) .............................................. 13,310,213
Growth Portfolio; 162,252 shares (cost $4,757,662) ...................................................... 5,052,529
Overseas Portfolio; 28,255 shares (cost $494,386) ....................................................... 532,327
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 83,295 shares (cost $1,275,209) ................................................ 1,410,186
Contrafund Portfolio; 417,373 shares (cost $6,180,807) .................................................. 6,911,690
Janus Aspen Series:
Aggressive Growth Portfolio; 529,766 shares (cost $9,413,853) ........................................... 9,662,927
Balanced Portfolio; 242,000 shares (cost $3,331,182) .................................................... 3,574,345
Growth Portfolio; 462,582 shares (cost $6,608,169) ...................................................... 7,174,647
Short-Term Bond Portfolio; 383,937 shares (cost $3,801,075) ............................................. 3,827,848
Worldwide Growth Portfolio; 510,038 shares (cost $9,042,860) ............................................ 9,915,136
Scudder Variable Life Investment Fund -
International Portfolio; 801,151 shares (cost $9,370,711) ............................................... 10,615,255
TCI Portfolios, Inc. - Growth Fund; 633,059 shares (cost $6,629,436) ...................................... 6,482,525
-------------
NET ASSETS (cost $209,041,214) .............................................................................. $ 223,173,883
=============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Variable Fund:
Policyholders' account values ........................................................................... $ 92,871,626
Aetna Income Shares:
Policyholders' account values ........................................................................... 13,179,787
Aetna Variable Encore Fund:
Policyholders' account values ........................................................................... 9,092,185
Aetna Investment Advisers Fund, Inc.:
Policyholders' account values ........................................................................... 15,791,541
Aetna Ascent Variable Portfolio:
Policyholders' account values ........................................................................... 545,378
Aetna Crossroads Variable Portfolio:
Policyholders' account values ........................................................................... 123,692
Aetna Legacy Variable Portfolio:
Policyholders' account values ........................................................................... 13,963
Alger American Small Capitalization Portfolio:
Policyholders' account values ........................................................................... 13,086,083
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values ........................................................................... 13,310,213
Growth Portfolio:
Policyholders' account values ........................................................................... 5,052,529
Overseas Portfolio:
Policyholders' account values ........................................................................... 532,327
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values ........................................................................... 1,410,186
Contrafund Portfolio:
Policyholders' account values ........................................................................... 6,911,690
</TABLE>
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values ............................................................................ $ 9,662,927
Balanced Portfolio:
Policyholders' account values ............................................................................ 3,574,345
Growth Portfolio:
Policyholders' account values ............................................................................ 7,174,647
Short-Term Bond Portfolio:
Policyholders' account values ............................................................................ 3,827,848
Worldwide Growth Portfolio:
Policyholders' account values ............................................................................ 9,915,136
Scudder Variable Life Investment Fund - International Portfolio:
Policyholders' account values ............................................................................ 10,615,255
TCI Portfolios, Inc. - Growth Fund:
Policyholders' account values ............................................................................ 6,482,525
-------------
$223,173,883
=============
</TABLE>
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ........................................................ $ 13,813,478 $ 12,965,237
Expenses: (Notes 2 and 5)
Valuation Period Deductions ...................................... (1,905,137) (1,149,801)
------------- -------------
Net investment income ............................................... 11,908,341 11,815,436
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................... 29,656,908 28,828,178
Cost of investments sold .......................................... 26,434,292 25,993,679
------------- -------------
Net realized gain ............................................... 3,222,616 2,834,499
Net unrealized gain (loss) on investments: (Note 5)
Beginning of year ................................................. 4,391,574 (4,407,131)
End of year ....................................................... 14,132,669 4,391,574
------------- -------------
Net change in unrealized gain ................................... 9,741,095 8,798,705
------------- -------------
Net realized and unrealized gain on investments ..................... 12,963,711 11,633,204
------------- -------------
Net increase in net assets resulting from operations ................ 24,872,052 23,448,640
------------- -------------
FROM UNIT TRANSACTIONS:
Variable life premium payments ...................................... 101,416,302 44,310,537
Sales and administrative charges deducted by the Company ............ (3,032,151) (1,381,985)
Premiums allocated to the fixed account ............................. (3,127,437) (3,260,098)
------------- -------------
Net premiums allocated to the variable account .................. 95,256,714 39,668,454
Transfers to the Company for monthly deductions ..................... (15,491,673) (11,297,188)
Redemptions by contract holders ..................................... (4,154,465) (3,238,332)
Transfers on account of policy loans ................................ (3,783,533) (2,076,373)
Other ............................................................... (40,991) 41,863
------------- -------------
Net increase in net assets from unit transactions (Note 5) ...... 71,786,052 23,098,424
------------- -------------
Change in net assets ................................................ 96,658,104 46,547,064
NET ASSETS:
Beginning of year ................................................... 126,515,779 79,968,715
------------- -------------
End of year ......................................................... $ 223,173,883 $ 126,515,779
============= =============
</TABLE>
S-4
<PAGE>
Variable Life Account B
Condensed Financial Information - Year Ended December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Value Increase(Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End At End
of Year Year Unit of Year of Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund:
Aetna Vest $28.351 $34.932 23.21% 1,517,474.5 $53,008,643
Aetna Vest II 15.831 19.507 23.21% 794,275.5 15,493,624
Aetna Vest Plus 13.301 16.389 23.21% 1,323,444.4 21,689,765
Aetna Vest Estate Protector 10.000 11.675 16.75% (2) 11,748.7 137,170
Corporate Specialty Market 12.016 14.805 23.21% 171,723.7 2,542,424
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares:
Aetna Vest $21.305 $21.850 2.56% 279,436.3 6,105,721
Aetna Vest II 14.324 14.691 2.56% 67,932.7 997,974
Aetna Vest Plus 11.470 11.764 2.56% 132,814.7 1,562,403
Aetna Vest Estate Protector 10.000 10.452 4.52% (2) 17.0 177
Corporate Specialty Market 11.071 11.354 2.56% 397,512.3 4,513,512
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund:
Aetna Vest $15.891 $16.577 4.32% 165,067.7 2,736,269
Aetna Vest II 11.616 12.117 4.32% 17,257.4 209,105
Aetna Vest Plus 10.917 11.388 4.32% 277,635.4 3,161,633
Aetna Vest Estate Protector 10.000 10.333 3.33% (2) 55,176.3 570,162
Corporate Specialty Market 10.444 10.895 4.32% 221,672.3 2,415,016
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.:
Aetna Vest $15.390 $17.547 14.02% 106,202.5 1,863,538
Aetna Vest II 15.561 17.742 14.02% 228,951.9 4,062,177
Aetna Vest Plus 13.050 14.880 14.02% 393,635.7 5,857,138
Corporate Specialty Market 11.361 12.954 14.02% 309,462.5 4,008,688
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio:
Aetna Vest $10.000 $11.828 18.28% (2) 3,460.3 40,930
Aetna Vest II 10.000 11.828 18.28% (2) 2,054.0 24,295
Aetna Vest Plus 10.000 11.828 18.28% (2) 40,593.4 480,153
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio:
Aetna Vest $10.000 $11.474 14.74% (2) 99.8 1,145
Aetna Vest Plus 10.000 11.474 14.74% (2) 10,665.0 122,368
Aetna Vest Estate Protector 10.000 11.487 14.87% (2) 15.6 179
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio:
Aetna Vest Plus $10.000 $11.118 11.18% (2) 1,255.9 13,963
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio:
Aetna Vest $15.562 $16.051 3.14% 77,047.6 1,236,667
Aetna Vest II 15.563 16.052 3.14% 52,282.1 839,239
Aetna Vest Plus 15.555 16.043 3.14% 381,746.1 6,124,522
Aetna Vest Estate Protector 10.000 9.982 (0.18%) (2) 21,147.3 211,085
Corporate Specialty Market 12.799 13.201 3.14% 354,114.8 4,674,570
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund :
Equity-Income Portfolio:
Aetna Vest $10.000 $10.871 8.71% (2) 6,532.8 71,015
Aetna Vest II 10.000 10.871 8.71% (2) 2,200.1 23,916
Aetna Vest Plus 10.000 10.871 8.71% (2) 118,798.4 1,291,404
Aetna Vest Estate Protector 10.000 10.883 8.83% (2) 10,991.4 119,619
Corporate Specialty Market 11.058 12.512 13.14% 943,466.6 11,804,259
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market $9.911 $11.255 13.56% 448,921.8 5,052,529
- --------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market $10.029 $11.241 12.09% 47,354.8 532,327
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market $10.596 $12.022 13.46% 117,298.4 1,410,186
- --------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest $10.000 $11.525 15.25% (2) 17,996.4 207,415
Aetna Vest II 10.000 11.525 15.25% (2) 3,659.1 42,173
Aetna Vest Plus 10.000 11.525 15.25% (2) 80,966.3 933,168
Aetna Vest Estate Protector 10.000 11.538 15.38% (2) 10,537.3 121,585
Corporate Specialty Market 10.322 12.396 20.10% 452,333.3 5,607,349
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest $15.114 $16.153 6.87% 55,921.6 903,288
Aetna Vest II 15.114 16.153 6.87% 35,775.8 577,877
Aetna Vest Plus 15.114 16.153 6.87% 221,641.2 3,580,130
Aetna Vest Estate Protector 10.000 9.797 (2.03%) (2) 15,306.0 149,948
Corporate Specialty Market 11.340 12.120 6.87% 367,315.7 4,451,684
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-5
<PAGE>
Variable Life Account B
Condensed Financial Information - Year Ended December 31, 1996 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Value Increase(Decrease) Units
Per Unit in Value of Outstanding Reserves
Beginning End of Accumulation at End At End
of Year Year Unit of Year of Year
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio:
Aetna Vest $12.142 $13.966 15.02% 6,502.2 $ 90,808
Aetna Vest II 12.237 14.075 15.02% 4,206.4 59,204
Aetna Vest Plus 12.136 13.960 15.02% 124,211.8 1,733,938
Aetna Vest Estate Protector 10.000 11.101 11.01% (2) 3,134.9 34,800
Corporate Specialty Market 10.643 12.242 15.02% 135,240.2 1,655,595
- -------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Aetna Vest $12.704 $14.898 17.27% 30,969.1 461,370
Aetna Vest II 12.692 14.884 17.27% 65,830.7 979,838
Aetna Vest Plus 12.674 14.863 17.27% 234,144.3 3,480,132
Aetna Vest Estate Protector 10.000 10.857 8.57% (2) 1,608.1 17,459
Corporate Specialty Market 10.430 12.232 17.27% 182,790.8 2,235,848
- -------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio:
Aetna Vest $10.967 $11.289 2.94% 595.3 6,721
Aetna Vest II 10.955 11.277 2.94% 751.0 8,469
Aetna Vest Plus 10.925 11.247 2.94% 17,621.2 198,177
Corporate Specialty Market 10.094 10.468 3.71% (1) 345,277.1 3,614,481
- -------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Aetna Vest $12.809 $16.364 27.75% 75,637.0 1,237,686
Aetna Vest II 12.813 16.368 27.75% 50,270.3 822,823
Aetna Vest Plus 12.797 16.348 27.75% 279,744.3 4,573,155
Aetna Vest Estate Protector 10.000 11.811 18.11% (2) 10,429.7 123,180
Corporate Specialty Market 10.964 13.459 22.76% (3) 234,655.4 3,158,292
- -------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio:
Aetna Vest $12.798 $14.543 13.63% 164,419.0 2,391,112
Aetna Vest II 12.719 14.453 13.63% 48,351.0 698,823
Aetna Vest Plus 12.648 14.373 13.63% 360,050.5 5,174,856
Aetna Vest Estate Protector 10.000 10.898 8.98% (2) 4,363.0 47,548
Corporate Specialty Market 10.598 12.043 13.63% 191,221.6 2,302,916
- -------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund:
Aetna Vest $13.248 $12.534 (5.39%) 84,078.3 1,053,865
Aetna Vest II 13.307 12.590 (5.39%) 29,273.6 368,568
Aetna Vest Plus 13.126 12.419 (5.39%) 361,778.0 4,492,803
Aetna Vest Estate Protector 10.000 9.511 (4.89%) (2) 29.2 278
Corporate Specialty Market 12.005 11.358 (5.39%) 49,922.3 567,011
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Condensed Financial Information:
(1) - Reflects less than a full year of performance activity. Funds were first
received in this option during February 1996.
(2) - Available for investment less than 1 year, contract commenced operations
during March 1996.
(3) - Reflects less than a full year of performance activity. Funds were first
received in this option during March 1996.
See Notes to Financial Statements
S-6
<PAGE>
Variable Life Account B
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Life Account B ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with variable life insurance product contracts as
defined under the Internal Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported therein. Although actual results could differ
from these estimates, any such differences are expected to be immaterial to
the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value
per share as determined by each fund on December 31, 1996:
Aetna Variable Fund Janus Aspen Series:
Aetna Income Shares [bullet]Aggressive Growth Portfolio
Aetna Variable Encore Fund [bullet]Balanced Portfolio
Aetna Investment Advisers Fund, Inc. [bullet]Growth Portfolio
Aetna Ascent Variable Portfolio [bullet]Short-Term Bond Portfolio
Aetna Crossroads Variable Portfolio [bullet]Worldwide Growth Portfolio
Aetna Legacy Variable Portfolio Scudder Variable Life
Alger American Small Investment Fund -
Capitalization Portfolio International Portfolio
Fidelity Investments Variable Insurance TCI Portfolios, Inc. - Growth
Products Fund: 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
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 - December 31, 1996 (continued):
3. Dividend Income
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 (distributions in excess of net investment income) and accumulated net
realized gain (loss) on investments is included in net unrealized gain (loss)
on investments in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December 31,
1995 aggregated $113,349,117 and $29,656,908 and $71,231,087 and $28,828,178,
respectively.
S-8
<PAGE>
Variable Life Account B
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $ 9,712,578 $ (991,737) $ 5,373,083 $ 4,466,494 $ 906,589
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 810,294 (121,325) 1,564,483 1,544,041 20,442
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 477,308 (71,555) 9,490,775 9,560,169 (69,394)
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 1,201,085 (127,990) 1,717,127 1,435,761 281,366
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 18,222 (1,210) 127,981 124,671 3,310
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 2,462 (91) 1,317 1,263 54
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 671 (36) 503 486 17
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization
Portfolio: 33,925 (93,143) 2,003,029 1,400,608 602,421
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 19,619 (57,181) 625,427 574,716 50,711
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 85,627 (30,149) 243,345 245,938 (2,593)
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 14,172 (4,004) 478,644 450,003 28,641
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 62,788 (13,383) 981,022 966,124 14,898
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 10,199 (36,829) 353,531 314,886 38,645
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 79,809 (68,571) 1,171,119 858,482 312,637
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 70,301 (23,444) 452,062 367,517 84,545
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 140,964 (46,593) 808,709 590,651 218,058
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 84,482 (17,596) 424,360 415,377 8,983
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 105,214 (49,874) 1,127,422 777,300 350,122
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 173,534 (85,922) 1,752,475 1,537,715 214,760
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 710,224 (64,504) 960,494 802,090 158,404
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $ 13,813,478 $ (1,905,137) $ 29,656,908 $ 26,434,292 $ 3,222,616
====================================================================================================================================
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase(Decrease) Net Assets
--------------------- Change in In Net Assets ---------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: $ 65,391 $ 7,294,643 $ 7,229,252 $ 5,056,913 $ 70,958,031 $ 92,871,626
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 189,278 (190,180) (379,458) 2,798,667 10,051,167 13,179,787
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 138,935 106,394 (32,541) 3,268,179 5,520,188 9,092,185
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 1,031,584 1,383,931 352,347 4,815,033 9,269,700 15,791,541
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 0 15,645 15,645 509,411 0 545,378
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 0 (191) (191) 121,458 0 123,692
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 0 20 20 13,291 0 13,963
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization
Portfolio: 595,950 172,057 (423,893) 7,688,994 5,277,779 13,086,083
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 28,202 1,096,283 1,068,081 11,810,807 418,176 13,310,213
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (36,211) 294,867 331,078 3,470,007 1,198,559 5,052,529
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 21,923 37,941 16,018 (102,302) 579,802 532,327
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 47,435 134,978 87,543 298,650 959,690 1,410,186
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 10,253 730,883 720,630 5,090,135 1,088,910 6,911,690
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 376,606 249,074 (127,532) 5,949,433 3,517,151 9,662,927
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 60,589 243,163 182,574 2,648,699 611,670 3,574,345
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 196,848 566,478 369,630 3,974,072 2,518,516 7,174,647
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 6,078 26,773 20,695 3,383,696 347,588 3,827,848
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 227,523 872,277 644,754 7,436,957 1,427,963 9,915,136
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund-
International Portfolio: 431,463 1,244,544 813,081 2,808,258 6,691,544 10,615,255
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 999,727 (146,911) (1,146,638) 745,694 6,079,345 6,482,525
PolicyHolders' account values
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $ 4,391,574 $ 14,132,669 $ 9,741,095 $ 71,786,052 $126,515,779 $223,173,883
====================================================================================================================================
</TABLE>
S-10
<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, 1996, and the related statements of operations and changes in net
assets for each of the years in the two-year period then ended, and condensed
financial information for the year ended December 31, 1996. 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, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Life Account B as
of December 31, 1996, the results of its operations and the 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, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
F-1
<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, 1996 and 1995,
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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Premiums $133.6 $212.7 $191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
------- ------- -------
Total revenue 1,640.8 1,619.2 1,399.6
------- ------- -------
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy
acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
------- ------- -------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
------- ------- -------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
------- ------- -------
Net income $141.1 $175.9 $145.3
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
December 31,
-------------------------
1996 1995
---- ----
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds
(cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
--------- ---------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Account assets 15,318.3 10,987.0
--------- ---------
Total assets $31,693.3 $27,144.9
========= =========
Liabilities and Shareholder's Equity
- -------------------------------------
Liabilities:
Future policy benefits $3,617.0 $3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
--------- ---------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Account liabilities 15,318.3 10,987.0
--------- ---------
Total liabilities 30,083.8 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 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
--------- ---------
Total shareholder's equity 1,609.5 1,583.0
--------- ---------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Shareholder's equity, beginning of year $1,583.0 $1,088.5 $1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- -------- --------
Shareholder's equity, end of year $1,609.5 $1,583.0 $1,088.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $141.1 $175.9 $145.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance
reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
-------- -------- --------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
-------- -------- --------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
-------- -------- --------
Net cash provided by financing activities 440.2 772.0 789.1
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
-------- -------- --------
Cash and cash equivalents, end of year $459.1 $568.8 $623.3
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $85.5 $92.8 $85.9
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned 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 individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services, financial planning and pension plan
administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned 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 Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996. This statement provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. Transactions covered by this statement would include
securitizations, sales of partial interests in assets, repurchase
agreements and securities lending. This statement requires that after a
transfer of financial assets, an entity would recognize any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available
for sale and carried at fair value. These securities are written down (as
realized capital losses) for other than temporary declines in value.
Unrealized capital gains and losses related to available for sale other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, fair values are measured utilizing quoted
market prices for similar securities or by using discounted cash flow
methods. Cost for mortgage-backed securities is adjusted for unamortized
premiums and discounts, which are amortized using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily represents an
investment in the Aetna Series Fund, Inc., a retail mutual fund which has
been seeded by the Company, and is carried at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in
the Consolidated Balance Sheets for changes in the fair value of the
agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For
fixed ordinary life contracts, such costs are amortized over expected
premium-paying periods (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross
profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00%.
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.
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 4.00% to 7.00%), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest.
Reserves on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments begin under contracts with life contingent
payouts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity, reflected as an offsetting amount in both premiums and current and
future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts
are segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, the Aetna Series Fund Inc., or the
Aetna Generation Funds (collectively, "Funds"), which are managed by the
Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $515.6 million for 1996 (fair value $523.0 million)
and $322.2 million for 1995 (fair value $343.9 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to
8.38% in 1995.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
--------- --------- --------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- --------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- --------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- --------- --------- ---------
Total Debt Securities $12,539.1 $ 432.6 $ 66.2 $12,905.5
========= ========= ========= =========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political
subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
--------- --------- --------- ---------
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
Utilities 236.3 32.9 269.2
Other 749.9 60.5 3.5 806.9
--------- --------- --------- ---------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 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
Other asset-backed securities 961.2 35.5 0.5 996.2
--------- --------- --------- ---------
Total Debt Securities $11,923.7 $ 811.6 $ 14.5 $12,720.8
========= ========= ========= =========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, net unrealized appreciation of $366.4
million and $797.1 million, respectively, on available for sale debt
securities included $288.5 million and $619.1 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in Future Policy Benefits and Policyholders' Funds
Left With the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.
Amortized Fair
Cost Value
--------- -----
(millions)
Due to mature:
One year or less $ 424.4 $ 425.7
After one year through five years 2,162.4 2,194.2
After five years through ten years 2,467.4 2,509.6
After ten years 2,568.4 2,675.4
Mortgage-backed securities 4,028.7 4,204.3
Other asset-backed securities 887.8 896.3
--------- ---------
Total $12,539.1 $12,905.5
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, 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, 1996 and 1995, the Company had loaned
securities (which are reflected as invested assets) with a market value of
approximately $444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and
$7.4 million, respectively, were on deposit as required by regulatory
authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1996.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of
the Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996
and 1995, approximately 3% of the Company's CMO holdings were in the
interest-only ("IOs") and principal-only ("POs") tranches, which are
subject to more prepayment and extension risks than other types of CMO
instruments. Remaining CMO holdings are in other tranches that have
prepayment and extension risks which fall between the degree of risk
associated with PACs and sequentials, and IOs and POs.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1996
Equity Securities $ 184.9 $ 16.3 $ 0.8 $ 200.4
======= ======= ======= =======
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $ 1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</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 future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' Funds Left With
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1996, Treasury
futures contracts were used to manage interest rate risk in the Company's
bond portfolio and stock index futures contracts were used to manage price
risk in the Company's equity portfolio. In 1996 and 1995, interest rate
swaps and forward commitments to enter into interest rate swaps,
respectively, were also used to manage interest rate risk in the Company's
bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
underlying assets at a specified future date. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk. Cash
settlements are made daily based on changes in the prices of the underlying
assets. There were no futures contracts open as of December 31, 1996 and
1995.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be exposed to credit-related losses in the
event of nonperformance by counterparties to financial instruments,
however, the Company controls its exposure to credit risk through credit
approvals, credit limits and regular monitoring procedures. The credit
exposure of interest rate swaps is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. There were no interest rate swap agreements open as of
December 31, 1996. At December 31, 1995, the Company had an open forward
swap agreement with a notional amount of $100.0 million and a fair value of
$0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996.
As of December 31, 1996 and 1995, there were no option contracts
outstanding.
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1996 was as follows:
Amortized Fair
Cost Value
---- -----
(millions)
Residential collateralized mortgage obligations $ 2,227.8 $ 2,309.0
Principal-only strips (included above) 44.5 53.3
Interest-only strips (included above) 10.3 22.8
Other structured securities with derivative
characteristics (1) 126.3 129.2
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
-------- -------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
-------- -------- --------
Net investment income $1,045.6 $1,004.3 $ 917.2
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those
amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$57.8 million, $70.0 million and $64.9 million for the years ended December
31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was
$713.6 million and $670.7 million as of December 31, 1996 and 1995,
respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
-------- -------- -------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
======== ======= =======
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======== ======= =======
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for
1994, allocable to experience rated contracts, were deducted from net
realized capital gains (losses) and an offsetting amount was reflected in
policyholder funds' left with the Company. Net unamortized gains were $53.3
million and $7.3 million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1
million and $1.1 million, of which $(3.2) million, $2.2 million and $0.8
million were allocable to experience rated contractholders, for the years
ended December 31, 1996, 1995 and 1994, respectively. There was no
valuation reserve for mortgage loans at December 31, 1996 or at December
31, 1995.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(millions)
Proceeds on Sales $5,182.2 $4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders), were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
-------- -------- --------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
-------- -------- --------
Net change in unrealized
capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
======== ======== ========
Net unrealized capital gains allocable to experience rated contracts of
$245.2 million and $43.3 million at December 31, 1996 and $515.0 million
and $104.1 million at December 31, 1995 are reflected on the Consolidated
Balance Sheets in Policyholders' Funds Left With the Company and Future
Policy Benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders, at December 31:
1996 1995 1994
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $101.7 $179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
------ ------ --------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
------ ------ --------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
------ ------ --------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
------ ------ --------
Net unrealized capital gains (losses) $ 60.5 $132.5 $(189.0)
====== ====== ========
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
---------------------------------------------------------------
Total Company $ 41.6 $ 1.4 $ 1.8 $ 2.5 $ 14.0 $ 61.3
- --------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on
a plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions
taken or expected to be taken to reduce the level of corporate expenses and
other costs previously absorbed by Aetna's property-casualty operations.
The cost allocated to the Company associated with this charge was $9.1
million after tax ($14.0 million pretax).
The activity during 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
Reserve Positions
---------------------------------------------------------------------------
Beginning of year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
-------------------------------
End of year $ 47.9 524
---------------------------------------------------------------------------
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed
by March 31, 1998. The corporate allocation actions and the vacating of the
leased office space are expected to be substantially completed in 1997.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns of Aetna. Aetna
allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal (3.5) (14.4) (8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1996 1995 1994
---- ---- ----
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1996 1995
---- ----
(millions)
Deferred tax assets:
Insurance reserves $ 344.6 $ 290.4
Unrealized gains allocable to
experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other
than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------- -------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------- -------
Total gross liabilities 622.3 725.5
------- -------
Net deferred tax liability $ 80.5 $ 169.6
======= =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 1996. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $4.3 million, $6.1
million and $5.5 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with
15 years of service or at age 65 with 10 years of service. Retirees are
generally required to contribute to the plans based on their years of
service with Aetna. The costs to the Company associated with the Aetna
postretirement plans for 1996, 1995 and 1994 were $1.8 million, $1.4
million and $1.0 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1996, 1995 and 1994 were $0.7 million,
$0.8 million and $0.7 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $5.4 million, $4.9 million and $3.3
million in 1996, 1995 and 1994, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1996, 1995
and 1994, were $8.1 million, $6.3 million and $1.7 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts. Under
the insurance contracts, the Separate Accounts pay the Company a daily fee
which, on an annual basis, ranges, depending on the product, from .10% to
1.90% 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 .85% of their average daily net assets. The Company
also receives fees (expressed as a percentage of the average daily net
assets) from the variable life and annuity mutual funds and The Aetna
Series Fund for providing administration services, and from The Aetna
Series Fund for providing shareholder services and promoting sales. The
amount of compensation and fees received from the Separate Accounts and
Funds, included in Charges Assessed Against Policyholders, amounted to
$185.4 million, $128.1 million and $104.6 million in 1996, 1995 and 1994,
respectively. The Company may waive advisory fees at its discretion.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor of all affiliated mutual funds and of most of the General
Account assets. Fees paid by the Company to Aeltus, included in both
Charges Assessed Against Policyholders and Net Investment Income, on an
annual basis, range from .06% to .55% of the average daily net assets under
management. For the year ended December 31, 1996, the Company paid $16.0
million in such fees.
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. An additional $6.1 million commission, paid by
the Company to Aetna Life in 1996, was capitalized as deferred policy
acquisition costs. The Company maintained insurance reserves of $628.3
million and $655.5 million as of December 31, 1996 and 1995, respectively,
relating to the business assumed. In consideration for the assumption of
this business, a loan was established relating to the assets held by Aetna
Life which support the insurance reserves. The loan is being reduced in
accordance with the decrease in the reserves. The fair value of this loan
was $625.3 million and $663.5 million as of December 31, 1996 and 1995,
respectively, and is based upon the fair value of the underlying assets.
Premiums of $25.3 million, $28.0 million and $32.8 million and current and
future benefits of $39.5 million, $43.0 million and $43.8 million were
assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and
$25.1 million resulted from this agreement in 1996, 1995 and 1994,
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 $28.9 million and
$28.0 million were maintained for this contract as of December 31, 1996 and
1995, 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 $5.2
million, $3.2 million and $1.3 million for 1996, 1995 and 1994,
respectively.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or
1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million
due from affiliates in 1996 and 1995, respectively. Other liabilities
include $10.7 million and $12.4 million due to affiliates for 1996 and
1995, 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.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1996
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
======= ======= ======= =======
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======= ======= ======= =======
1995
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
======= ======= ======= =======
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======= ======= ======= =======
1994
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
======= ======= ======= =======
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======= ======= ======= =======
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value
of the securities underlying the commitments. At December 31, 1996, the
Company had commitments to purchase investments of $17.9 million. The fair
value of the investments at December 31, 1996 approximated $18.3 million.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly
owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- --------------------------------------------------------------------------------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------------------------------
Net income $ 150.2 $ 175.9 $ 145.3
- --------------------------------------------------------------------------------
Assets under management: (3)
Financial Services $27,268.1 $22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- --------------------------------------------------------------------------------
Total assets under management $30,098.6 $25,125.3 $20,343.4
- --------------------------------------------------------------------------------
(1) The 1996 results include severance and facilities charges of $30.7 million,
after tax. Of this charge $21.5 million related to the Financial Services
segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services
and Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994,
respectively.
F-31
<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, PURSUANT TO SECTION 26(e)(2)(A) OF
THE INVESTMENT COMPANY ACT OF 1940
REGISTRANT MAKES THE FOLLOWING REPRESENTATION:
Aetna Life Insurance and Annuity Company represents that the fees and charges
deducted under the policies covered by this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the insurance company.
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 6 TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 6 to Registration Statement No. 33-76004 is
comprised of the following papers and documents:
[bullet] The facing sheet.
<PAGE>
[bullet] One Prospectus for the AetnaVest and Aetna Vest II Flexible Premium
Variable Life Insurance Policy prospectus consisting of 87 pages
[bullet] The undertaking to file reports
[bullet] The undertaking pursuant to Rule 484
[bullet] Representations pursuant to Section 26(e)(2)(A) of the Investment
Company Act of 1940
[bullet] The signatures
[bullet] Written consents of the following persons:
A. Actuarial Opinion and Consent
B. Consent of Independent Auditors
C. Consent of Counsel
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 I Policy (Policy No. 38899)
(5)(ii) Form of AetnaVest II Policy (Policy No. 38899-90)
(5)(iii) Amendment Rider (70194-94) to Form of Aetna Vest I
Policy (Policy No. 38899)
(5)(iv) Amendment Rider (70195-94) to Form of Aetna Vest II
Policy (Policy No. 38899-90)
(6)(i) Certificate of Incorporation and By-laws of Aetna Life
Insurance and Annuity Company(2)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(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)
(8)(ii) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March
1, 1996(3)
(8)(iii) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994,
February 1. 1995, May 1, 1995, January 1, 1996 and March
1,1996(3)
<PAGE>
(8)(iv) Service Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995(5)
(8)(v) 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)(vi) 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)(vii) Amendment dated as of February 20, 1996 to Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment
Fund dated April 27, 1992 as amended February 19, 1993
and August 13, 1993(5)
(8)(viii) 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)(i) Form of Application for AetnaVest I Policy(6)
(10)(ii) Form of Application for AetnaVest II Policy(7)
2. Opinion of Counsel(8)
3. Not Applicable
4. Not Applicable
5. See item (27) below
6. Copy of Power of Attorney(9)
(27) Financial Data Schedule
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 Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 11, 1997.
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 Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-88720), as filed electronically on June
28, 1996.
6. Incorporated by reference to Post-Effective Amendment No. 25 to
Registration Statement on Form S-6 (File No. 33-2339), as filed on April
25, 1995.
7. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on form S-6 (File No. 33-76004), as filed on April 25, 1995.
8. Incorporated by reference to Registrant's Rule 24f-2 Notice for fiscal year
ended December 31, 1996, as filed electronically on February 28, 1997.
<PAGE>
9. Incorporated by reference to Registration Statement on Form S-2 (File No.
33-60477), as filed electronically on April 4, 1997. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Variable Life Account B of Aetna Life Insurance and Annuity Company, certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 6 to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 6
to its Registration Statement 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 the 22nd
day of April, 1997.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Kirk P. Wickman
-----------------------------
Kirk P. Wickman
Secretary
By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
By: 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. 33-76004 has been signed below
by the following persons in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
Daniel P. Kearney* Director and President )
- ------------------------------------ (Principal Executive Officer) )
Daniel P. Kearney )
)
Christopher J. Burns* Director ) April
- ------------------------------------ )
Christopher J. Burns ) 22, 1997
)
<PAGE>
Laura R. Estes* Director )
- ------------------------------------ )
Laura R. Estes )
)
J. Scott Fox* Director )
- ------------------------------------ )
J. Scott Fox )
)
Timothy A. Holt* Director )
- ------------------------------------ )
Timothy A. Holt )
)
Gail P. Johnson* Director )
- ------------------------------------ )
Gail P. Johnson )
)
John Y. Kim* Director )
- ------------------------------------ )
John Y. Kim )
)
Shaun P. Mathews* Director )
- ------------------------------------ )
Shaun P. Mathews )
)
Glen Salow* Director )
- ------------------------------------ )
Glen Salow )
)
Creed R. Terry* Director )
- ------------------------------------ )
Creed R. Terry )
)
Deborah Koltenuk* Vice President and Treasurer, Corporate Controller )
- ------------------------------------ )
Deborah Koltenuk )
</TABLE>
By: /s/Julie E. Rockmore
------------------------------------------------------------
*Julie E. Rockmore
Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-1.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity *
Company 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-Dealer Agreement *
99-1.3(iv) Life Insurance Broker-Dealer Agreement *
99-1.5(i) Form of AetnaVest I Policy (Policy No. 38899) ------------------
99-1.5(ii) Form of AetnaVest II Policy (Policy No. 38899-90) ------------------
99-1.5(iii) Amendment Rider (70194-94) to Form of Aetna Vest I Policy (Policy No. 38899) ------------------
99-1.5(iv) Amendment Rider (70195-94) to Form of Aetna Vest II Policy (Policy No. ------------------
38899-90)
99-1.6(i) Certificate of Incorporation and By-laws of Aetna Life Insurance and Annuity *
Company
99-1.6(ii) Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity *
Company
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, *
Variable Insurance Products Fund and Fidelity Distributors Corporation dated
February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996 and March 1, 1996
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-1.8(iii) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, *
Variable Insurance Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1. 1995,
May 1, 1995, January 1, 1996 and March 1,1996
99-1.8(iv) Service Agreement between Aetna Life Insurance and Annuity Company and *
Fidelity Investments Institutional Operations Company dated as of November 1,
1995
99-1.8(v) Fund Participation Agreement between Aetna Life Insurance and Annuity Company *
and Janus Aspen Series dated April 19, 1994 and amended March 1, 1996
99-1.8(vi) 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(vii) Amendment dated as of February 20, 1996 to Fund Participation Agreement *
between Aetna Life Insurance and Annuity Company and Scudder Variable
Life Investment Fund dated April 27, 1992 as amended February 19, 1993
and August 13, 1993
99-1.8(viii) 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(i) Form of Application for AetnaVest I Policy *
99-1.10(ii) Form of Application for AetnaVest II Policy *
99-2 Opinion of Counsel *
99-6 Copy of Power of Attorney *
27 Financial Data Schedule
------------------
</TABLE>
*Incorporated by reference
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Hartford, Connecticut 06156
WILL PAY the Proceeds Payable Upon Death to the Beneficiary upon receipt of due
proof of the death of the Insured while this policy is in force and before the
Maturity Date; or
WILL PAY the Proceeds Payable Upon Maturity to the Owner on the Maturity Date if
the Insured is living on that date.
The provisions of this and the following pages are part of the policy.
RIGHT OF POLICY EXAMINATION
All premiums will be refunded if this policy is returned to Aetna at 151
Farmington Avenue, Hartford, CT 06156 or its representative for cancellation no
later than the latest of 10 days after the policy is delivered, 10 days after
Aetna mails notice to the policyholder of this right, or 45 days after the
application for insurance is signed by the applicant. The policy will then be
deemed void from its beginning.
Signed for Aetna on its Date of Issue.
/s/ George N. Gingold /s/ Dean E. Wolcott
Secretary President
----------------------------------------
Registrar
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY - MATURING AT AGE 95
Flexible premiums payable until maturity date or prior to death. Adjustable
death benefit payable upon death prior to maturity date. Total Account Value
less outstanding loan balance payable if insured is living on the maturity date.
Non-participating.
The minimum death benefit is equal to the Specified Amount shown on page 2. The
amount or duration of the death benefit may be fixed or variable under the
conditions stated on page 5.
Values in each sub-account of the separate account may increase or decrease
daily. Such values are not guaranteed as to dollar amount. See page 7.
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I. Definitions
General Account The Account which holds the assets of Aetna,
other than those assets of Aetna in the Separate
Accounts. The Fixed Account Value and Loan Account
Value are held in the General Account.
Variable Life An account set up by Aetna under the Connecticut
Account B Insurance Laws in order to set apart assets
attributable to the variable portion of life insurance
policies from other assets of Aetna. The Variable
Account Value is held in Variable Life Account B and
invested in shares of the Fund(s).
Fund(s) The open-end management investment companies (mutual
funds) registered under the Investment Company Act of
1940 and made available by Aetna.
Valuation Period The period of time from the close of the New York
Stock Exchange on one business day to the close of
the New York Stock Exchange on the next business day.
II. Proceeds Payable by Aetna
Death The proceeds payable upon death will equal the greater
of: (a) the death benefit computed at the start of the
policy month in which death occurred; or (b) the death
benefit computed on the date of death. Any outstanding
loan balance will be deducted from the proceeds.
Maturity The proceeds upon maturity will equal the Total
Account Value on the Maturity date, less any
outstanding loan balance.
Surrender The proceeds upon surrender will equal the Total
Account Value less any applicable surrender charge,
and less any outstanding loan balance.
All proceeds are subject to adjustment under the Age
and Sex, Incontestability, Suicide and Grace Period
provisions.
III. Death Benefit Options
Option 1 The Specified Amount includes the Total Account Value.
The Death Benefit will equal the greater of: (a) the
Specified Amount on the date of death plus any
increase in Total Account Value (but not less than
zero) from the beginning of the policy month in which
death occurs, until the date of death; or (b) a
"percentage" (described below) of the Total Account
Value on the date of death.
Option 2 The Specified Amount is in addition to the Total
Account Value. The Death Benefit will be the greater
of (a) the Specified Amount plus the Total Account
Value on the date of death; or (b) a "percentage"
(described below) of the Total Account Value on the
date of death.
<PAGE>
The "percentage" referred to is determined from the
table below. Use of such percentages means that the
"corridor" death benefit applies. When this occurs,
the policy is said to be in the "corridor".
<TABLE>
<CAPTION>
------------ ------------ ------------ ----------- ------------ ----------- ------------ -----------
Insured's Insured's Insured's Insured's
Age on Age on Age on Age on
first day Percentage first day Percentage first day Percentage first day Percentage
of the (%) of the (%) of the (%) of the (%)
policy year policy year policy year policy year
------------ ------------ ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
40 or less 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
------------ ------------ ------------ ----------- ------------ ----------- ------------ -----------
</TABLE>
IV. Premiums and Reinstatement
Premiums Policy anniversaries, policy years and policy months
Payable are measured from the Date of Issue. The first premium
is due on the Date of Issue. Premiums are payable at
any time before the Maturity Date. No benefit will be
provided on the basis of a premium until that premium
is paid.
Premiums may be paid to Aetna or its authorized
representatives. A receipt signed by an officer by
Aetna will be given upon request.
Premium Premium reminder notices for planned premiums will be
Reminders sent at frequencies of 3, 6 or 12 months, or at any
other frequency to which Aetna agrees. Planned
premiums as of the Date of Issue are shown on page 2.
Net The net premium is equal to the value of any premium
Premium paid, less the premium tax load, if any, shown on page
2.
Allocation of Each net premium will be credited to Variable Life
Premium Account B (and each of its Funds) and/or General
Account in the percentages indicated on page 2, or as
changed in accordance with the following provision.
Net payments credited to the General Account will be
credited directly to the policy's Fixed Account Value.
Changes in Allocation percentages may be changed at any time by
Allocation written notice to Aetna. The change will be effective
percentage as of the date of the next premium payment after the
request is received. The first four such changes may
be made during any policy year at no charge. Each
additional change during a policy year will result in
a $10 charge to the Total Account Value, allocated in
proportion to the values of each Variable Fund Account
and Fixed Account.
<PAGE>
Additional Additional premiums are premiums in excess of planned
Premiums premiums.
Premium Premium payments which exceed the limits allowed by
Limitations federal tax law will be refunded, in order to preserve
the favorable tax treatment of this policy as life
insurance. The amount and frequency of planned
premiums may be changed by written request, but may
not exceed the limits than allowed by federal tax law.
Additional premiums may be paid at any time while the
policy is in force and before the Maturity Date, but
only when there is no outstanding loan balance. (See
"Premium Limit Due to Loans")
If the corridor death benefit is in effect, evidence
of insurability satisfactory to Aetna may be required
before additional premiums are accepted by Aetna or
planned premiums are changed.
Premium Limit While there is an outstanding loan balance, the sum of
Due to Loans all payments to Aetna during each policy year in
excess of the premium limit due to loans will be
considered as loan balance repayments and not as
premiums. The premium limit due to loans during each
policy year will be the sum of the Basic Monthly
Premiums for each of the 12 months of that year.
All payments to Aetna during a policy year will be
counted in determining when the limit is reached,
whether or not there is an outstanding loan balance at
the time of payment. The Basic Monthly Premium on the
Date of Issue is shown on page 2.
Effective Dates The Date of Issue will be the effective date for the
coverage provided in the original application. For any
increase, addition to coverage, or reinstatement, the
effective date will be the monthly deduction day on or
next following the date of Aetna's approval.
Grace Period If the cash surrender value is insufficient to pay the
monthly deduction, then Aetna will send written notice
of the payment required to keep the policy in force.
The length of the grace period will be 61 days from
the date the notice is mailed to the last known
address of the Owner according to Aetna records. Aetna
may require payment of up to three times the monthly
deduction plus any other charges due on such date.
If the required payment is not made by the end of the
days of grace, then the policy will lapse without
value. However, termination will not occur if the
policy is being continued under the Basic Monthly
Premium provision.
Basic Monthly This policy will not terminate within 2 years after
Premium the Date of Issue if at the end of each deduction day
the premiums paid to date equal or exceed:
a) the sum of the Basic Monthly Premiums for
each monthly deduction day to date; plus
b) any outstanding loan balance and any
withdrawals to date.
<PAGE>
Reinstatement Reinstatement will be allowed within 5 years after the
date of lapse and before the Maturity Date, subject to
the following rules:
1. Evidence of insurability satisfactory to
Aetna must be submitted.
2. A premium sufficient to pay the current and
next two monthly deductions must be paid.
However, if reinstatement occurs within two
years after the Date of Issue, the premium
that must be paid will be the difference
between (a) the sum of Basic Monthly Premiums
for each monthly deduction day to date; and
(b) the premiums previously paid.
3. If reinstatement occurs within two years
after the Date of Issue, the table of
surrender charges will apply to the
reinstated policy. If reinstatement occurs
after those two years, no surrender charges
will apply.
V. Account Values/Total Account Value
Function of a. The Fixed Account Value for this policy will be
Accounts the value of the net premiums credited to the
Fixed Account, less the value of the deductions
from that Account, accumulated at interest at not
less than 4-1/2% per year, compounded annually.
b. The Loan Account Value will be credited with an
amount equal to any new policy loan, and debited
by the amount of any loan repayments. It will be
credited with interest at a rate of not less than
4-1/2% per year, compounded annually. The Loan
Account Value will be held in the General
Account.
c. The portion of each net premium which is applied
to a Fund will determine the number of Record
Units for that Fund. This number is equal to the
portion of the net premium credited to the Fund
divided by that Record Unit Value for that Fund
for the Valuation Period when the premium is
received. See below for definitions of Fund
Record Unit Value. The Variable Fund Account
Value of each Fund will equal the Fund Record
Unit Value multiplied by the number of Fund
Record Units.
d. The Variable Account Value will be the sum of the
values of each of the Variable Fund Account
Values.
e. The Total Account Value will be the sum of the
Fixed Account Value plus the Variable Account
Value plus the Loan Account Value.
<PAGE>
Transfers Within At any time, the Owner may transfer all or part of
Accounts each Variable Fund Account to any other Variable Fund
Account or to the Fixed Account. An appropriate number
of Record Units for each affected Fund will be added
to or subtracted from the total Record Units for that
Fund, based on each Fund's Record Unit Value as of the
Valuation Period when the request for such transfer is
received by Aetna. The first four such transfers
during any one policy year will be made at no charge.
Each additional transfer will result in a $10 charge
to the Total Account Value, allocated according to the
proportion that the Variable Fund Account and Fixed
Account values bears to the Total Account Value.
No part of the Fixed Account Value may be transferred
to any of the Funds.
Monthly The first monthly deduction occurs on the Date of
Deduction Issue. Subsequent monthly deductions occurs on the
first day of each policy month. The monthly deduction
is made up of:
1. The cost of riders, if any;
2. The monthly expense charge, if any; and
3. The cost of insurance.
The monthly deduction will be deducted from the
Variable and Fixed Account Values on a prorata basis,
based on the relationship of the Fixed Account Value
and each of the Variable Fund Account Values to the
sum of the Fixed and Variable Account Values.
The portion of the monthly deduction which is deducted
from the Fixed Account Value will be deducted as a
dollar amount. The portion of the monthly deduction
which is deducted from each Variable Fund Account
Value will first be divided by the Fund's Record Unit
Value for the Valuation Period when the monthly
deduction is being made. The resulting number of Fund
Record Units will be deducted from the total Fund
Record Units for that Fund.
The cost of any riders is described in the rider
itself.
The monthly expense charge, if any, is listed on page
2.
The amount at risk is equal to the death benefit,
divided by 1.0036748, minus the Total Account Value
before computing the monthly deductions for the policy
and any waiver of premium rider.
If there have been increases in the Specified Amount,
the amount at risk will be allocated first to the most
recent increase in Specified Amount, and then to the
next most recent increase in Specified Amount, and so
forth. This means that the most recent coverage is
more likely to have the largest amount at risk in
relation to the Specified Amount of that coverage.
<PAGE>
If the corridor death benefit applies, the amount at
risk will be allocated first to the corridor amount,
and then the remainder will be allocated according to
the preceding paragraph.
Cost of The cost of insurance is equal to the amount at risk,
Insurance multiplied by the cost of insurance rate.
Interest The Monthly Cost of Insurance is based on the
Crediting/ Insured's sex, attained age and premium class.
Investment Attained age means age on the birthday nearest the
Performance first day of the policy year in which the monthly
deduction day occurs. For the Initial Specified
Amount, the premium class on the Date of Issue will be
used. For each increase, the premium class for that
increase will be used.
The monthly Cost of Insurance rates may be adjusted by
Aetna from time to time. Adjustments will be on a
class basis and will be based on Aetna's estimates for
future cost factors, such as mortality, investment
income, expenses and the length of time policies stay
in force. Any adjustments will be made on a uniform
basis. However, the rate during any policy year may
never exceed the rate shown for that year in the Table
of Guaranteed Maximum Insurance Rates in this policy.
Those rates are based on the 1980 Commissioners
Standard Ordinary Smoker and Non-Smoker Mortality
Table.
Guaranteed Aetna will add interest to the Fixed Account Value and
Interest Loan Account Value at an annual rate of no less
Rate than 4-1/2%, compounded annually.
General
Account Aetna may add interest at a higher rate. Such higher
rate will be determined by Aetna from time to time.
The rate applied to the Fixed Account Value will
depend on the date of payment of premiums deposited
into the Account.
Unit Values The net premium credited to each Fund will determine
Separate Account the number of units invested in that Fund. This number
is equal to the net premium paid divided by the Fund
Record Unit Value at the time the premium is received
by Aetna.
Investment Investment Adjustment Factors are those items used to
Adjustment determine each Fund's net return factor for each
Factors Separate Valuation Period.
Account
The gross return for each Fund is equal to:
(a) investment income for the Fund; plus
(b) realized and unrealized capital gains for
that Fund, minus
(c) realized and unrealized capital losses for
that Fund; minus
(d) certain investment expenses for that Fund;
and minus
(e) a daily charge at an annual rate of .25% for
investment management expense and profit.
<PAGE>
The gross return for each Fund is divided by the net
assets of that Fund at the start of the Valuation
Period to compute the gross return rate. A gross
return rate may be more or less than 0. The net return
rate for each Fund is equal to:
(a) the gross return rate for each Fund; plus or
minus
(b) taxes (or charges to a tax reserve) on the
Separate Account; minus
(c) a daily charge at an annual rate not to
exceed 0.90% for mortality and expense risks
and profit; and minus
(d) a daily charge at an annual rate of 0.30% for
ongoing administrative expenses.
A net return rate may be more or less than 0.
A net return factor for each Fund is equal to the net
return rate plus 1.00000.
Fund Record Unit The Record Unit Value for each Fund is computed
Value Separate by multiplying the net return factor for the current
Account Valuation Period by that Fund's Record Unit Value for
the previous Period. The dollar value of each Fund's
Record Units, and each Fund Record Unit Value may go
up or down due to investment gain or loss.
VI. Nonforfeiture Provision
Continuation of If planned premiums are not paid, coverage will
Coverage continue so long as the cash surrender value is
sufficient to pay for each monthly deduction.
Surrender Value The surrender value equals the Total Account Value,
less the applicable surrender charge and less any
outstanding loan balance.
Surrender Charge The Table of Surrender Charges describes the amount of
the Surrender Charge.
Any increase in the Specified Amount will result in an
increase to the Table of Surrender charges, unless
there is no increase to the amount at risk. The amount
of increase in the Table of Surrender charges will be
based on the amount of increase in Specified Amount,
and age of the insured at the time of increase. It
will equal 70% of the charge applicable to a new
policy whose Specified Amount equals the amount of the
increase. The new table will become part of the
policy.
Partial Surrender Partial surrenders may be made at any time after the
first policy year. The minimum amount of any partial
surrender, after the surrender charge is applied, is
$500.
<PAGE>
The partial surrender charge will be a proportion of
the full surrender charge. The proportion will be the
portion of the Total Account Value surrendered divided
by the sum of the Fixed and Variable Account Values.
Future surrender charges will be reduced by the
calculated proportion. The partial surrender charge,
as well as the portion of the Total Account Value
surrendered, will be applied on a prorata basis to the
Fixed Account Value and each of the Variable Fund
Account Values. There will also be an administrative
charge in the amount of $25 for a partial surrender.
Each partial surrender will reduce the death benefit.
If Option 1 is in effect, the Specified Amount will be
reduced by the amount of the surrender. The original
Specified Amount will be reduced first, then then next
most recent, and so forth. If the corridor death
benefit is in effect, the Specified Amount will not be
reduced. The partial surrender will not be allowed if
the Specified Amount would be reduced to less than the
then current minimum. If Option 2 is in effect, the
Specified Amount will remain unchanged.
Payments of any values from the Variable Account Value
will be made within 7 days after receipt by Aetna of
the request. However, payment may be postponed when
the NY Stock Exchange has been closed and for such
other periods as the Securities and Exchange
Commission may permit. Payment of any values from the
Fixed Account Value may be deferred for up to 6
months, except when used to pay premiums to Aetna.
Paid-Up The Owner may make written election at any time to
Nonforfeiture continue the policy as fixed-benefit, paid-up life
Option insurance with the same Maturity Date. No premiums
will be accepted after the effective date of the
election. No supplementary benefit riders will remain
in force. No further monthly deductions will be made.
The cash surrender value of this Policy will be
applied as a net single premium to determine the face
amount of the paid-up insurance. The net single
premium will be based on the maximum cost of insurance
rates in this policy, and interest at 4-1/2% per year,
compounded annually.
Method of Aetna has filed a detailed description of how the
Calculations Filed values in this policy are calculated with the
insurance department of the state where this policy
was delivered.
VII. Policy Loans
No policy loan may be made during the first two policy
years. The maximum loan value will be 90% of the Total
Account Value, less the surrender charge at the time
of the loan. Interest on the loan will be charged at
8% per year, in arrears, compounded on each policy
anniversary.
<PAGE>
The amount of the loan is transferred out of the Fixed
and Variable Accounts on a prorata basis. Such amount
will become part of the Loan Account Value. Loan
repayments will be allocated to the Fixed and Variable
Account Values in the proportion in which the loan was
taken. In addition, the Loan Account Value will be
reduced by the amount of any loan repayment. The
outstanding loan balance at any time includes accrued
interest on the loan.
VIII. Changes in Insurance Coverage
The following changes may be made after the end of the
first policy year.
Increases With respect to increases and decreases in Specified
In Amount Amount: For increases in the Specified Amount;
1. For any increase, evidence of insurability
satisfactory to Aetna will be required,
unless there is no increase in the Amount at
Risk.
2. The Cash Surrender Value immediately after an
increase must be at least three times the sum
of: (a) the most recent monthly deduction
from Total Account Values; and (b) the amount
of the increase times the applicable cost of
insurance rate.
3. Any increase will increase the Surrender
Charge unless there is no increase in the
Amount of Risk.
4. Increases during the second through fifth
policy years are limited to four times the
initial Specified Amount.
Decreases For decreases in the Specified Amount;
In Amount
1. Decreases will not decrease the Surrender
Charge or the Basic Premium. Decreases during
the second year after the Issue Date will not
reduce the Surrender Charge.
2. No decrease may reduce the Specified Amount
to less than the minimum Specified Amount
which could then be designated by the
purchaser of a new policy.
3. Any decrease will be applied first to the
most recent increase in coverage under the
policy, then to the next most recent, and so
forth,
Change in A change from one Death Benefit Option to the other
Death Benefit may also be made. The Specified Amount will be changed
Option when a change in Death Benefit Option is made. If the
change is from Option 1 to the new Specified Amount
will equal the amount at risk. If the change is from
Option 2 to the new Specified Amount will equal the
Death Benefit as of the date of the change.
<PAGE>
A change in Death Benefit Option will not be allowed
if the new Specified Amount would be less than the
then current minimum for this plan type. Evidence of
insurability satisfactory to Aetna may be required
before the change is allowed. There will be no change
in surrender charge (either increase or decrease) at
the time of change in Death Benefit Option.
IX. Change of Fund(s):
Aetna, or Variable Life Account B and the Fund(s);
may:
(a) change the Fund(s) which may be invested in
Variable Life Account B; and
(b) replace the shares of Funds held in Variable
Life Account B with share of other Fund(s).
Changes must be:
(1) approved by a majority vote of persons having
an interest in Variable Life Account B and
the Fund(s); or
(2) deemed necessary by Aetna under the
Investment Company Account of 1940; or
(3) deemed necessary by Aetna to accomplish the
purpose of the Variable Life Account B.
Aetna will notify the Owner of any change.
X. Owner and Beneficiary
Owner During the lifetime of the Insured all rights granted
by the policy or allowed by Aetna belong to the Owner.
Beneficiary Unless this policy states otherwise, the rights of any
beneficiary who dies before the Insured belong to the
Owner.
Changes in Owner Unless this policy states otherwise, the Owner and the
and Beneficiary Beneficiary, or either of them, may be changed. This
may be done as often as desired during the lifetime of
the Insured and before the Maturity Date. A signed
request must be sent to Aetna. When Aetna gives its
written acceptance, the change will take effect as of
the date the request was signed. The change will be
subject to any action which Aetna takes before the
written acceptance.
Assignment No assignment will bind Aetna until it or a copy is
received at the Home Office. When it is received and
recorded, the rights of the Owner and of the
Beneficiary will from then on be subject to the
assignment. Aetna is not obliged to see that the
assignment is valid.
<PAGE>
XI. Exchange
At any time during the first two policy years, this
policy may be exchanged for a new fixed benefit, fixed
or adjustable premium policy which Aetna then issues,
and which is not a flexible premium variable life
insurance policy. The new policy will be based on the
insured's age at the Date of Issue of this policy. No
evidence of insurability will be required. The owner
may choose to have the new death benefit equal to the
old, or the amount at risk remain the same. There may
be a charge for such an exchange equal to the
difference in cash surrender values.
XII. Miscellaneous Provisions
The Contract This policy and the application are the whole
contract. A copy of the application is attached to the
policy at issue. Any new application for changes
approved by Aetna will become part of the policy.
Only an officer of Aetna may agree to a change in the
policy, and then only in writing. All statements made
by or for the Insured are representations and not
warranties. No statement will be used to void the
policy or defend against a claim unless it is
contained in an application. Aetna reserves the right
to amend this contract as may be necessary to comply
with applicable law.
Payment of All benefits are payable at Aetna's Home Office. Aetna
Benefits may require submission of the policy before it grants
loans, makes changes or pays benefits.
Age and Sex If age or sex is misstated, the policy values will be
changed to those which would have been provided for
the correct age and sex. The change will be based on
the difference between the monthly deductions made and
the correct monthly deductions. The Specified Amount
will be based on the ratio between the monthly
deductions made and the correct monthly deduction.
Incontestability Aetna will not contest this policy after it has been
in force during the lifetime of the Insured for 2
years from its Date of Issue.
For coverage which takes effect on a later date as an
increase or reinstatement of insurance, Aetna will not
contest such coverage after it has been in force
during the lifetime of the Insured for 2 years from
its effective date. Any contest of such later coverage
will be based on the supplemental application.
These incontestability paragraphs do not apply to any
waiver of premium rider.
Suicide If the Insured commits suicide, while sane or insane,
within two years from the Issue Date, the only benefit
paid will be the sum of: (a) premiums paid less
amounts allocated to Variable Life Account B; and (b)
the Variable Account Value on the date of suicide, and
minus any outstanding loan balance.
If the Insured commits suicide, while sane or insane,
within 2 years from the effective date of any increase
in coverage, Aetna will pay only the monthly
deductions for the increase.
<PAGE>
Protection of To the extent provided by law, the proceeds of this
Proceeds policy are not subject to claims by a beneficiary's
creditors nor to any legal process against any
beneficiary.
Non-Participation This policy is not entitled to share in surplus
distribution. No dividends are paid.
XIII. Annual Report
Aetna will send a report at least once during each
policy year. The report will show the Total Account
Value and the cash surrender value on the date of the
report. It will also show since the last report at
least the following information:
1. gross premiums paid;
2. the cost of insurance and the cost of riders;
3. interest and investment return credited to
the Total Account Value;
4. the amount of any surrenders or partial
surrenders;
5. the amount of surrender charges made; and
6. a summary of loan activity.
XIV. Projection of Benefits
Aetna will provide a projection of illustrative future
death benefits and Total Account Values at any time
upon written request. Aetna reserves the right to
charge a fee for this service. The illustration will
be based on the assumptions specified in the request
as to Death Benefit Options and premium payments, and
other necessary assumptions made in the request or by
Aetna.
XV. Settlement Options
Income Options All or part of the proceeds of this policy may be
applied under one or more of the following options, or
in any manner to which Aetna agrees.
Proceeds applied under Options 1 and 2 will be held by
Aetna in the General Account. Proceeds applied under
Options 3, 4 and 5 will be held
(a) in the General Account; or
(b) in the Variable Life Account B using any of
the sub-accounts available under this policy
for settlement option purposes; or
(c) a mix of (a) and (b).
<PAGE>
Terms of Options Proceeds in the General Account will be used to make
payments on a fixed dollar basis. Aetna will add
interest to such proceeds at an annual rate not less
than 3.5%. Aetna may add interest daily at any higher
rate. As to Option 1, Aetna may from time to time
offer higher interest rates with certain conditions on
withdrawal as are published by Aetna.
Proceeds in Variable Life Account B will be used to
make payments on a variable basis. An Assumed Annual
Net Return Rate of 5% may be chosen for such payments.
If not chosen, Aetna will use an Assumed Net Return
Rate of 3.5%. The Assumed Annual Net Return Rate is
the interest rate used to determine the amount of the
first payment on a variable basis. Variable Life
Account B must earn this 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.
Payments will be made at intervals of 1, 2, 6 or 12
months in equal amounts as elected. Rates for ages and
intervals not shown will be furnished upon request.
Method of An election shall be made by written request filed
Election with Aetna or by the exchange of this policy for a
contract which covers the election. Aetna may require
such an exchange before payments are made. If no
election has been made when the payee becomes entitled
to proceeds, the payee may make the election.
These options will be allowed only with the consent of
Aetna (1) if the payee is other than a natural person
receiving payments in his or her own right; (2) if the
payee is an assignee of the policy; or (3) if payments
would be less than $25 each or less than $120 in a
year.
Betterment If Option 3, 4 or 5 is chosen on a fixed dollar basis,
of Payments and if the guaranteed payments are less than of a
preferred annuity on the same plan, the larger amounts
will be paid instead. A preferred annuity is an
annuity which could be purchased from Aetna by the
proceeds at a reduced single premium rate. That rate
will be Aetna's base premium rate on the due date of
the first payment less a percentage. The percentage
will be that which is then provided by Aetna's
published rules.
If payments on a variable basis are not to decrease,
Aetna must earn a gross return on the assets of
Variable Life Account B of:
(a) 4.75% on an annual basis, plus an annual
return of up to .25% needed to offset the
administrative charge set at the time the
settlement option payments started, if an
Assumed Annual Net Return Rate of 3.5% is
chosen; or
(b) 6.25% on an annual basis, plus an annual
return of up to .25% needed to offset the
administrative charge set at the time the
settlement option payments started, if an
Assumed Annual New Return Rate of 5% is
chosen.
Payment will not change due to changes in the
mortality or expense results or administrative
charges.
<PAGE>
Purchase of Additional income may be purchased when the proceeds
Additional are applied to these options upon the death of the
Income Insured. If this policy is part of a retirement plan,
such a purchase may be made when proceeds of the
policy are so applied at other times as well. But in
that case, the plan must be one which qualifies for
favored federal income tax treatment. Each purchase
must be made no later than 120 days after the date as
of which the proceeds are so applied.
Withdrawal As to funds held under Options 1, 2 and 3, withdrawals
and Death and changes of option may be made if the payee makes
of Payee the election or if the election so permits. No
withdrawals or changes of option may be made under
Options 4 and 5. Upon the death of the payee, the
value of any guaranteed payments not yet paid will be
paid in one sum to the estate of the payee, unless the
election states otherwise.
Withdrawal values and death values will be discounted
at the guaranteed interest rate. However, for
preferred options, such values will be discounted at
the rate provided by Aetna's published rules.
Units Separate The number of Fund(s) Settlement Option Units is based
Account on the amount of the first payment on a variable
basis, which is equal to:
(a) the portion of the proceeds applied to make
payments on the variable basis; divided by
(b) 1,000; times
(c) the payment rate for the Option chosen.
Such amount, or portion, of the variable payment will
be divided by the Fund(s) Settlement Option Unit Value
on the tenth Valuation Period before the due date of
the first payment to determine the Fund(s) Settlement
Option Units. The number of Fund(s) Settlement Option
Units remains fixed. Each future payment is equal to
this number times the Fund(s) Annuity Unit Value on
the tenth Valuation Period prior to the due date of
the payment.
Unit Value For any Valuation Period the Fund(s) Settlement Option
Separate Unit Value is equal to
Account
(a) the Value for the previous Period; times
(b) the New Return Factor for the Period; times
(c) a factor to reflect the Assumed Annual New
Return Rate. The factor for 3.5% per year is
.9999058; for 5% per year it is .9998663.
The dollar value of the Fund(s) Settlement Option Unit
Values and payment may go up or down due to investment
gain or loss.
Option 1 Interest Payment of interest on Funds left with Aetna. Funds
may be left for longer than one lifetime only with the
consent of Aetna.
<PAGE>
Option 2 Stated Payment of stated dollar amount until the proceeds and
Amount interest are paid in full. The payments to be made in
a year must be at least $65 for each $1,000 of
proceeds applied. During any year, Aetna will have the
right to make as a minimum payment an amount equal to
105% of the interest for that year.
Option 3 Stated Payments for a stated number of years, at least 3 but
Period not more than 30
Option 4 Life Payments for the lifetime of the payee. If also
Income chosen, Aetna will guarantee payments for 60, 120, 180
or 240 months.
Option 5 Joint Payments during the joint lifetimes of two payees. At
Life Income the death of either, payments will continue to the
Reducing for survivor. When this option is chosen, a choice must be
Survivor 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.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY - MATURING AT AGE 95
Flexible premiums payable until maturity date or prior death. Adjustable death
benefit payable upon death prior to maturity date. Total Account Value less
outstanding loan balance payable if insured is living on the maturity date.
Nonparticipating.
The minimum death benefit is equal to the Specified Amount shown on page 2. The
amount or duration of the death benefit may be fixed or variable under the
conditions stated on page 5.
Values in each sub-account of the separate account may increase or decrease
daily. Such values are not guaranteed as to dollar amount. See page 7.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Hartford, Connecticut 06156
(A STOCK COMPANY)
While this Policy is in force, Aetna will pay Proceeds subject to all of this
Policy's provisions. Other rights and benefits are provided as described in this
Policy. The provisions of this and the following pages are part of this Policy.
THIS POLICY IS A LEGAL CONTRACT BETWEEN YOU AND AETNA
PLEASE READ YOUR POLICY CAREFULLY
RIGHT OF POLICY EXAMINATION
This Policy may be returned to Aetna or its representative within 10 days after
its receipt. Return this Policy to Aetna, Individual Life Insurance, at 151
Farmington Avenue, Hartford, Connecticut 06156. Upon its return, this Policy
will be deemed void from its beginning. The amount refunded will be:
1. the difference between payments made and amounts allocated to Variable Life
Account B; plus
2. the value of amounts allocated to Variable Life Account B on the date the
returned contract is received by Aetna; plus
3. any charges made under this Policy's terms on the amounts allocated to
Variable Life Account B.
Signed for Aetna on its Date of Issue.
/s/ George N. Gingold /s/ Edmund F. Kelly
Secretary President
-----------------------
Registrar
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
[bullet] FLEXIBLE PREMIUMS PAYABLE UNTIL MATURITY DATE OR DEATH
[bullet] PROCEEDS PAYABLE UPON THE FIRST EVENT TO OCCUR - SURRENDER, MATURITY
OR DEATH
[bullet] NON-PARTICIPATING - NO DIVIDENDS PAYABLE
The amount or duration of the death benefit may be fixed or variable. The death
benefit is payable as described in the Death Benefit Options and Proceeds
sections of this Policy.
Values in each Fund held in a Separate Account may increase or decrease daily.
Such values are not guaranteed as to dollar amount. Refer to the Policy Values
section of this Policy for more information.
<PAGE>
Table of Contents
- ----------------------------------------------------------
Page No.
Policy Specifications.................................PS1
Policy Summary..........................................1
Definitions.............................................1
Attained Age......................................1
Date of Issue.....................................1
Fixed Account Value...............................1
Fund(s)...........................................2
General Account...................................2
Home Office.......................................2
Loan Account Value................................2
Monthly Deduction Day.............................2
Minimum Specified Amount..........................2
Policy Month......................................2
Policy Year.......................................2
Proceeds..........................................2
Separate Account..................................2
Separate Account Value............................2
Subsequent Application............................2
Total Account Value...............................3
Valuation Date....................................3
Valuation Period..................................3
Variable Annuity Account B........................3
Variable Life Account B...........................3
We, Our, Us Company...............................3
Written Request...................................3
You, Your.........................................3
General Provisions......................................3
The Contract......................................3
Assignment........................................3
Non-Participation.................................4
Policy Settlement.................................4
Age and/or Sex....................................4
Owner.............................................4
Beneficiary.......................................4
Changes in Owner and Beneficiary..................4
Proceeds..........................................4
Right to Defer Payment............................5
Suicide and Incontestability............................5
Suicide...........................................5
Incontestability..................................6
Premiums and Reinstatement..............................6
Premiums..........................................6
Planned Premiums..................................6
Net Premium.......................................6
Additional Premiums...............................6
Allocation of Premium.............................7
Changes in Allocation Percentages.................7
No Lapse Coverage.................................7
Premium Limit Due to Loans........................7
Grace Period......................................7
Reinstatement.....................................8
Death Benefit Options...................................8
General...........................................8
Option 1..........................................8
Option 2..........................................9
Death Benefit Based on a Percentage...............9
Policy Values...........................................9
Method of Calculations Filed......................9
Interest Credited.................................9
Fixed Account Value...............................9
Separate Account Value...........................10
Total Account Value..............................10
Charges to Policy Values.........................11
Transfers Within Accounts........................11
Monthly Deductions...............................11
Cost of Insurance................................12
Cost of Insurance Rate...........................12
Nonforfeiture Provision................................12
Continuation of Coverage.........................12
Surrender Value..................................12
Surrender Charge.................................13
Paid-Up Nonforfeiture Option.....................13
Partial Surrender......................................13
Policy Loans...........................................14
General..........................................14
Interest.........................................14
Repayment........................................14
Changes in Insurance Coverage..........................14
General..........................................14
Increase in Specified Amount.....................14
Decrease in Specified Amount.....................15
Change in Death Benefit Option...................15
Change from Option 1 to 2........................15
Change from Option 2 to 1........................15
Change of Fund(s)......................................16
Separate Account.......................................16
Annual Report..........................................16
Projection of Benefits.................................17
Settlement Options.....................................17
Conditions.......................................17
Income Options...................................17
Option 1 - Interest..............................17
Option 2 - Stated Period.........................17
Option 3 - Life Income...........................18
Option 4 - Life Income for Two Payees............19
Terms of Options.................................20
Betterment of Payments...........................21
Separate Account.................................21
Fund(s) Settlement Option Units of Variable
Annuity Account B................................21
Fund(s) Settlement Option Unit Value of Variable
Annuity Account B................................21
Withdrawal and Death of Payee....................22
- --------------------------------------------------------------------------------
Any riders and a copy of the application(s) are at the end of this Policy.
<PAGE>
Policy Summary
It is important that You understand Your insurance policy. We have tried to use
understandable language throughout this Policy. However, should You have any
questions after You have read it, please call the representative who sold this
Policy to You or call Us. This summary is not a substitute for the detailed
policy provisions.
This is a flexible premium variable life insurance policy. This Policy provides
that cash values may be either fixed or variable or a combination of fixed and
variable.
You may allocate net premiums to the General Account, Variable Life Account B,
or both Accounts. Net premiums allocated to Variable Life Account B must be
allocated to one or more Funds. Shares of these Funds support the benefits
provided by the variable portion of this Policy. The cash value in each Fund is
not guaranteed and will vary with the investment performance of that Fund.
If the General Account is selected, the cash value in that Account 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.
Sufficient premiums must be paid to continue this Policy in force. Premium
reminder notices will be sent for planned premiums and for premiums required to
continue this Policy in force. This Policy may be reinstated.
Other rights and benefits are explained in this Policy.
Definitions
Attained Age
Issue age of the Insured as shown in the Policy Specifications increased by the
number of Policy Years elapsed.
Date of Issue
[bullet] First premium due date.
[bullet] Effective date of coverage:
[bullet] For Initial Coverage, the Date of Issue is shown in the Policy
Specifications.
[bullet] For any change in coverage, the Date of Issue, applying to the
change, is shown in the supplemental Policy Specifications
which will be sent to You.
Fixed Account Value
The non-loaned portion of this Policy's Total Account Value attributable to the
non-variable portion of this Policy. The Fixed Account Value is held in the
General Account.
<PAGE>
Fund(s)
One or more of the open-end management investment companies (mutual funds) whose
shares pay for the benefits provided by the variable portion of this Policy.
Shares of the Funds held pursuant to this Policy are held in Variable Life
Account B except that shares of the Funds referenced in the Settlement Options
section of this Policy are held in Variable Annuity Account B.
General Account
The account which holds the assets of the Company which are attributable to the
non-variable portion of this Policy. The Fixed Account Value and the Loan
Account Value are held in the General Account.
Home Office
Our Home Office is located at 151 Farmington Avenue, Hartford, Connecticut
06156.
Loan Account Value
The sum of all unpaid loans. The amount necessary to repay all loans in full is
the Loan Account Value plus any accrued interest. The Loan Account Value is held
in the General Account.
Monthly Deduction Day
The first Monthly Deduction Day is the Date of Issue. Monthly Deduction Days
occur each month thereafter on the same day of the month as the Date of Issue.
Minimum Specified Amount
The Specified Amount for this Policy cannot be decreased below this amount. The
Minimum Specified Amount for this Policy is shown in the Policy Specifications.
Policy Month
The Policy Month occurs each month on the same day of the month as the Date of
Issue.
Policy Year
The first Policy Year begins on the Date of Issue. Each succeeding Policy Year
is the Date of Issue plus 1 year, 2 years, etc. This is also known as a policy
anniversary.
Proceeds
The amount We will pay upon the death of the Insured, on the Maturity Date, or
upon surrender of this Policy.
Separate Account
Variable Life Account B; or, when referring to a settlement option as described
in the Settlement Option provision of this Policy, Variable Annuity Account B.
Separate Account Value
The portion of this Policy's Total Account Value attributable to the variable
portion of this Policy. This Policy's Separate Account Value is held in Variable
Life Account B.
Subsequent Application
Any application after the initial application initiated by You or by Us.
<PAGE>
Total Account Value
The sum of the Fixed Account Value, the Separate Account Value, and the Loan
Account Value. This Policy's cash value.
Valuation Date
Any day on which the New York Stock Exchange is open for trading.
Valuation Period
The period of time commencing at the close of business on each Valuation Date
and ending at the close of business on the next Valuation Date.
Variable Annuity Account B
A Separate Account established by Us for the purpose of segregating assets
attributable to the variable portion of annuity contracts and life insurance
settlement options from other assets of the Company. Its assets are invested in
shares of the Funds. Variable Annuity Account B holds all or a portion of this
Policy's Proceeds if a variable settlement option is elected.
Variable Life Account B
A Separate Account established by Us for the purpose of segregating assets
attributable to the variable portion of life insurance from other assets of the
Company. Its assets are invested in shares of the Funds.
We, Our, Us, Company
Aetna, its successors, or assigns.
Written Request
A request in writing, in a form satisfactory to Us and received by Us.
You, Your
The Owner(s).
General Provisions
The Contract
This Policy, the initial application, and any Subsequent Applications constitute
the entire contract. Copies of all applications are attached to and made a part
of this Policy.
Only the President, Executive Vice President, or the Corporate Secretary may
agree to a change in this Policy, and then only in writing.
All statements made by or for the Insured are representations and not
warranties.
No statement will be used to void this Policy or defend against a claim unless
it is contained in the initial application or Subsequent Applications.
Assignment
Written notice of the terms of a transfer or a copy of an assignment must be
filed at the Home Office. Until We receive such notice, We will not be required
to take notice of, or be responsible for, any transfer of interest in this
Policy by assignment, agreement, or otherwise.
<PAGE>
We will not be responsible for the validity of any assignment.
Any assignment made after the death of the Insured will be valid only with Our
consent.
Non-Participation
No dividends will be paid.
Policy Settlement
All amounts payable by Us are payable by the Home Office. The amount necessary
to repay any loans in full will be deducted from the amount payable at
settlement. We may require return of this Policy.
Age and/or Sex
If age and/or sex is misstated, the Proceeds on death will be that which would
have been purchased by the most recent monthly deduction at the correct age
and/or sex.
Owner
During the lifetime of the Insured all rights granted by this Policy or allowed
by Us belong to the owner.
Beneficiary
The beneficiary for any benefits payable on the death of the Insured is stated
in the application unless later changed.
If no designated beneficiary is living at the time of the death of the Insured,
all benefits will be paid to the owner or the owner's executors, administrators,
or assigns.
Changes in Owner and Beneficiary
Unless this Policy states otherwise, the owner and the beneficiary, or either of
them, may be changed. This may be done as often as desired during the lifetime
of the Insured and before the Maturity Date. Your Written Request must be sent
to Us. When We give Our written acceptance, the change will take effect as of
the date Your Written Request was signed. The change will be subject to any
action which We take before receipt of the written acceptance.
Proceeds
Proceeds on death will equal:
1. The death benefit as described in the Death Benefit Options provision on the
date of death; less
2. the amount necessary to repay any loans in full.
Proceeds on death are payable after receipt at the Home Office of due proof of
death of the Insured.
Proceeds on maturity of this Policy will equal:
1. The Total Account Value on the Maturity Date; less
2. the amount necessary to repay any loans in full.
<PAGE>
Proceeds upon surrender of this Policy will equal the Surrender Value as
described in the Surrender Value provision.
All Proceeds are subject to adjustment under the Age and/or Sex,
Incontestability, Suicide, and Grace Period provisions.
Right to Defer Payment
Payments of any Separate Account Value will be made within 7 days after Our
receipt of Your Written Request. However, payment may be postponed when the New
York Stock Exchange is closed or when the Securities and Exchange Commission
requires trading to be restricted or declares an emergency. For payments from
the Separate Account Value in such instances, We may defer payment of:
1. Surrender or partial surrender values;
2. any Proceeds on death in excess of the current Specified Amount; or
3. any portion of the loan value.
Payment of any Fixed Account Value may be deferred for up to six months, except
when used to pay premiums to Us.
Suicide and Incontestability
Suicide
If the Insured dies by suicide, while sane or insane, within two years from the
Date of Issue of this Policy, We will pay:
1. Premiums paid less amounts allocated to Variable Life Account B; plus
2. the Separate Account Value; plus
3. the portion of the monthly deductions that have been deducted from the
Separate Account Value; less
4. the sum of:
(a) the Loan Account Value transferred from the Fixed Account Value; plus
(b) the interest due on the Loan Account Value; plus
(c) the value of any partial surrenders transferred from the Fixed Account
Value; plus
(d) any interest earned on the Loan Account Value transferred to the
Separate Account Value.
If the Insured dies by suicide, while sane or insane, within 2 years from the
Date of Issue of any increase in coverage, We will pay only the monthly
deductions for the increase.
<PAGE>
If the Insured dies by suicide, while sane or insane, more than 2 years from the
Date of Issue of this Policy but within 2 years from the Date of Issue of any
increase in coverage, We will pay:
1. The Proceeds on death for any coverage in effect more than 2 years from the
Date of Issue of this Policy; plus
2. the monthly deductions for the increase in coverage.
All amounts will be calculated as of the date of death.
Incontestability
With respect to statements made in the initial application or any Subsequent
Application:
We will not contest this Policy after it has been in force during the lifetime
of the Insured for 2 years from its Date of Issue.
With respect to statements made in any Subsequent Application:
We will not contest coverage relating to Subsequent Applications after coverage
has been in force during the lifetime of the Insured for 2 years from the Date
of Issue of such coverage.
Premiums and Reinstatement
Premiums
The first premium is due on the Date of Issue.
Sufficient premiums must be paid to continue this Policy in force until the
Maturity Date.
Any premiums after the first premium are payable only at Our Home Office. Send
Your check or money order, payable to Aetna, to the Home Office. Please be sure
to write Your policy number on Your check.
A receipt signed by an officer of the Company will be given upon request.
Planned Premiums
Premium reminder notices for planned premiums will be sent at frequencies of 3,
6 or 12 months, or at any other frequency to which We agree. You may change the
amount and frequency of planned premiums by Written Request. Planned premiums as
of the Date of Issue are shown in the Policy Specifications.
Net Premium
The net premium is equal to the premium paid, less the premium load shown in the
Policy Specifications.
Additional Premiums
Additional premiums are premium payments in excess of planned premiums.
Additional premiums may be paid at any time while this Policy is in force and
before the Maturity Date. However, We will have the right to limit the amount
and number of additional premiums as well as the right to limit any increase in
planned premiums, subject to these rules:
[bullet] Additional premiums may be limited, as provided in the Premium Limit
Due to Loans provision.
<PAGE>
[bullet] We may apply limits as necessary to preserve the status of this Policy
as a life insurance policy under federal tax law.
[bullet] We may require satisfactory evidence of insurability on the Insured.
This will happen only if payment of 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.
Allocation of Premium
Each net premium will be credited to Variable Life Account B (and each of the
selected Funds) and/or the General Account in the percentages indicated in the
Policy Specifications. If these percentages are changed in accordance with the
Changes in Allocation Percentages provisions of this Policy, We will send a
letter to You confirming the change.
Changes in Allocation Percentages
Allocation percentages may be changed at any time by Your request to Us.
Percentages may be changed in whole percentage points only. The change will be
effective as of the date of the next premium payment after You notify Us. The
first four such changes may be made during any Policy Year at no charge. Each
additional change during a Policy Year will result in a $10 charge. This charge
will be deducted from this Policy's values as described in the Charges to Policy
Values provision of this Policy.
We will waive the $10 charge if You are changing this Policy's allocation
percentages so that 100% of the net premium is credited to the General Account.
No Lapse Coverage
This Policy will not terminate within the 2 year period after its Date of Issue
if on each Monthly Deduction Day within that period the sum of premiums paid
within that period equals or exceeds:
1. The sum of the basic monthly premiums for each Policy Month from the start
of the period, including the current month; plus
2. Any partial surrenders; plus
3. Any increase in the Loan Account Value since the start of the period.
The Basic Monthly Premium is shown in the Policy Specifications.
Premium Limit Due to Loans
During each Policy Year, payments to Us in excess of the sum of the basic
monthly premiums for that year will be considered repayment to the Loan Account
Value. The basic monthly premium on the Date of Issue is shown in the Policy
Specifications.
All payments to Us during a Policy Year will be counted in determining when the
limit is reached, whether or not there is any Loan Account Value at the time of
payment.
Grace Period
If the Surrender Value is insufficient to allow a monthly deduction on the
Monthly Deduction Day, We will send written notice of the payment required to
keep this Policy in force. We will allow 61 days of grace from the date the
notice is mailed to Your last known address, according to Our records, for
<PAGE>
payment of the premium that will cover the deduction. The notice will also be
mailed to the last known address of any assignee of record. We will require
payment of the amount necessary to keep this Policy in force for the current
month plus two additional months.
If the required payment is not paid within 61 days from the date the notice was
mailed, this Policy will lapse without value. However, termination will not
occur if this Policy is being continued under the No Lapse Coverage provision.
During the days of grace, this Policy will stay in force. If the death of the
Insured occurs during the days of grace, the Proceeds on death will equal the
Proceeds on death in effect immediately prior to the grace period, less the
minimum amount necessary to cover the overdue monthly deduction(s).
Reinstatement
If this Policy terminates as provided in the Grace Period provision, it may be
reinstated within 5 years after the date of termination and before the Maturity
Date.
We will require satisfactory evidence of insurability.
If this Policy lapses more than two years after its Date of Issue, a premium
payment which will cause the Surrender Value upon reinstatement to equal three
times the next monthly deduction plus any other charge must be paid to reinstate
this Policy. If this Policy lapses within 2 years after the Date of Issue, it
may be reinstated with a payment equal to:
1. The sum of Basic Monthly Premiums for each Monthly Deduction Day to date;
less
2. the premiums previously paid.
The original and any additional Table(s) of Surrender Charges that were issued
on this Policy will apply to the reinstated policy.
The Loan Account Value will be reinstated. All values will be reinstated to the
point that they were on the date this Policy terminated.
Death Benefit Options
General
The Proceeds payable upon the death of the Insured will be as provided under one
of the following Death Benefit options. The option for this Policy as of the
Date of Issue is shown in the Policy Specifications. If You have changed the
Death Benefit option, the option is shown in the supplemental Policy
Specifications which were sent to You.
Option 1
The Specified Amount shown in the Policy Specifications includes the Total
Account Value. Under this option, the death benefit will be the greater of: (a)
the Specified Amount on the date of death or (b) a percentage, as described in
the table below. Unless (b) applies, payment of a premium under this option will
not increase the death benefit.
<PAGE>
Option 2
The Specified Amount is in addition to the Total Account Value. Under this
option, the death benefit will be greater of (a) the Specified Amount plus the
Total Account Value on the date of death; or (b) a percentage, as described in
the table below.
Death Benefit Based on a Percentage
As determined below, Item (b) under either Death Benefit option will not be less
than a percentage of the Total Account Value on the date of death.
<TABLE>
<CAPTION>
- ---------------- --------------- --------------- -------------- --------------- --------------- --------------- ---------------
TOTAL ACCOUNT TOTAL ACCOUNT TOTAL ACCOUNT TOTAL ACCOUNT
ATTAINED AGE VALUE % ATTAINED AGE VALUE % ATTAINED AGE VALUE % ATTAINED AGE VALUE %
- ---------------- --------------- --------------- -------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250%
41 243 51 178% 61 128% 71 113%
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
50 185 60 130 70 115 95-99 100
- ---------------- --------------- --------------- -------------- --------------- --------------- --------------- ---------------
</TABLE>
Policy Values
Method of Calculations Filed
The values of this Policy equal or exceed those required by law in the state
where this Policy is delivered. A detailed statement has been filed with the
state which shows how to compute those values.
Interest Credited
We will credit interest to the Fixed Account Value and Loan Account Value at an
annual rate of not less than 4.5%, compounded annually. The interest credited to
the Loan Account Value will be returned to the Fixed Account Value and the
Separate Account Value in the same proportion in which the loan amount was
originally deducted from each of these Values.
We may credit interest at rates in excess of the guaranteed rate to the Fixed
Account Value and to the Loan Account Value. These rates may be determined by Us
from time to time.
Fixed Account Value
The Fixed Account Value for this policy will be:
1. The value of the net premiums credited to the Fixed Account Value; less
2. the portion of monthly deductions from the Fixed Account Value; plus
3. interest credited; less
4. any transfers of value out of the Fixed Account Value; plus
<PAGE>
5. any transfers from the Fund(s) to the Fixed Account Value; plus
6. any loan repayments credited to the Fixed Account Value.
Separate Account Value
The Separate Account Value of this Policy will be the sum of the Fund Account
Values.
A. Fund Account Value
The portion of each net premium allocated to a Fund plus any interest
earned on the Loan Account Value which is attributable to that Fund is
credited to this Policy in the form of accumulation units. Accumulation
units measure the net investment result of each Fund. The number of
accumulation units credited is equal to that portion of premium divided
by the accumulation unit value for that Fund for the Valuation Period in
which the premium is received.
The Fund Account Value of each Fund will equal the accumulation unit
value for that fund multiplied by the number of accumulation units for
that Fund credited to this Policy.
B. Accumulation Unit Value
The value of a Fund's accumulation unit is determined by multiplying the
value of the Fund's accumulation unit for the immediately preceding
Valuation Period by the net investment factor for the current period.
The net investment factor equals the net investment rate plus 1.0000000.
The net investment rate is determined separately for each Fund held in
Variable Life Account B as follows:
1. The net assets of the Fund held in Variable Life Account B at the end
of a Valuation Period; less
2. the net assets of the Fund held in Variable Life Account B at the
beginning of that Valuation Period, adjusted by any taxes or
provisions for taxes attributable to the operation of Variable Life
Account B; divided by
3. the value of the Fund's accumulation units held in Variable Life
Account B at the beginning of the Valuation Period; less
4. a daily charge at an annual rate not to exceed .90% of net assets of
the Fund for mortality and expense risks and not to exceed .50% of
net assets of the Fund for the Company's administrative expenses
attributable to policies funded through Variable Life Account B.
Total Account Value
The Total Account Value will be the sum of:
1. The Fixed Account Value; and
2. the Separate Account Value, and
3. the Loan Account Value.
<PAGE>
Charges to Policy Values
Charges and deductions made according to this Policy's provisions will be
deducted from the Separate Account Value and the Fixed Account Value in the same
proportion that these Values bear to the sum of the Fixed Account Value and the
Separate Account Value on the date of the deduction.
The portion of the deduction attributable to the Separate Account Value will
reduce each Fund Account Value proportionately. The value deducted from each
Fund is determined by dividing the amount of the deduction attributable to the
Fund by the Fund's accumulation unit value for the Valuation Period when the
charge was made. The resulting number of Fund accumulation units will be
deducted from the total accumulation units for that Fund.
The portion of the deduction attributable to the Fixed Account Value will be
deducted from that Value as a dollar amount.
Transfers Within Accounts
You may transfer all or part of each Fund Account Value to any other Fund or to
the Fixed Account Value at any time.
Within the forty-five days following this Policy's anniversary, You may request
a transfer of a portion of the Fixed Account Value to one or more of the Funds.
This type of transfer is allowed only once within these forty-five days and We
must receive Your request at the Home Office within the forty-five days. The
transfer will be effective on the Valuation Date that Your request is received
by the Home Office. The amount of such transfer cannot exceed the greater of (1)
25% of the Fixed Account Value, or (2) the total Fixed Account Value if such
amount is less than or equal to $500. We may increase this limit from time to
time.
Accumulation units for each Fund will be added to or subtracted from the total
accumulation units for that Fund, based on each Fund's accumulation unit value
at the end of the Valuation Date when request for such transfer is received by
Us. A dollar amount will be added to or subtracted from the Fixed Account Value
according to the terms of Your request for transfer. The first four such
transfers during any one Policy Year will be made at no charge. Each additional
transfer will result in a $10 charge. This charge will be deducted from this
Policy's values as described in the Charges to Policy Values provision.
We will waive the $10 charge if You are transferring all of this Policy's
Separate Account Value to the Fixed Account Value.
Monthly Deductions
Monthly deductions begin on the Date of Issue and occur on the same day of each
month thereafter. The monthly deduction will be deducted from this Policy's
values as described in the Charges to Policy Values provision.
The monthly deduction is equal to:
1. The cost of insurance as described below; plus
2. the monthly rider cost, if any, as described in the rider itself; plus
3. the monthly expense charge, shown in the Policy Specifications.
<PAGE>
Cost of Insurance
The cost of insurance on any Monthly Deduction Day will equal:
1. The cost of insurance rate on that date divided by 1,000; multiplied by
2. the death benefit on that date; divided by
3. 1.0036748; less
4. the Total Account Value less the sum of the monthly expense charge and the
monthly rider cost on that date before computing the monthly deductions for
this Policy.
Cost of Insurance Rate
The monthly cost of insurance is based on the Insured's sex, Attained Age, and
premium class. For the initial Specified Amount, the premium class on the Date
of Issue will be used. For any increase, the premium class for that increase
will be used.
The monthly cost of insurance rates may be adjusted by Us from time to time.
Adjustments will be on a class basis and will be based on Our estimates for
future cost factors such as mortality, investment income, expenses, and the
length of time policies stay in force. Any adjustments will be made on a uniform
basis. However, the rate during any Policy Year will never exceed the rate shown
for that year in the Table of Guaranteed Maximum Insurance Rates in the Policy
Specifications. Those rates are based on the 1980 Commissioners Standard
Ordinary Mortality Table, male or female, smoker or nonsmoker.
Nonforfeiture Provision
Continuation of Coverage
Coverage of this Policy will continue to the Maturity Date as long as the
Surrender Value is sufficient to cover each monthly deduction. If the Surrender
Value is not sufficient to cover a monthly deduction, the Grace Period provision
will apply. If this Policy continues to the Maturity Date, Proceeds paid will be
as described in the Proceeds provision.
This provision will not continue coverage beyond the Maturity Date.
Surrender Value
This Policy may be surrendered for its full surrender value at any time before
the Maturity Date while the Insured is living. Partial surrenders will also be
allowed.
The full Surrender Value will equal:
1. The Total Account Value on the date of surrender; less
2. the surrender charge; less
3. the amount necessary to repay any loans in full.
<PAGE>
Surrender Charge
At the time of surrender, We will deduct a surrender charge from the Total
Account Value. The applicable surrender charge for this Policy is shown in the
Policy Specifications in the Table of Surrender Charges.
Any increase in the Specified Amount will result in an additional surrender
charge applicable to the increase. The charge will be effective on the Date of
Issue for the increase. Supplemental Policy Specifications will be sent to You
once the change is complete and will reflect the additional surrender charge in
the Table of Surrender Charges.
The amount of the increase to the Table of Surrender Charges will be based on
the amount of the increase in Specified Amount and the age of the Insured at the
time of increase. It will equal 70% of the charge applicable to a new policy
whose Specified Amount equals the amount of the increase. The new table will
become part of this Policy.
Any decrease in the Specified Amount will not reduce the original or any
additional surrender charge.
Paid-Up Nonforfeiture Option
By Written Request, You may elect at any time to continue this Policy as fixed
benefit, paid-up life insurance with the same Maturity Date. No premiums will be
accepted after the effective date of the election. No supplementary benefit
riders will remain in force. No further monthly deductions will be made.
The Surrender Value of this policy will be applied as a net single premium to
determine the Specified Amount of the paid-up insurance. The net single premium
will be based on the maximum cost of insurance rates in this Policy and interest
at 4.5% per year, compounded annually.
Partial Surrender
Partial surrenders may be made at any time after the first Policy Year while
this Policy is in force.
A partial surrender charge and an administrative fee will be included in the
amount of the Total Account Value which is surrendered. The minimum amount of
any partial surrender after any partial surrender charge and administrative fee
is applied is $500.
The partial surrender charge will be in proportion to the surrender charge that
would apply to a full surrender. The proportion will be computed as the amount
of the net partial surrender divided by the sum of the Fixed Account Value and
the Separate Account Value less the full surrender charge. When the partial
surrender is made, any future surrender charge will be reduced in the same
proportion.
For each partial surrender, We will also charge an administrative fee of $25 or
2% of the partial surrender, whichever is less.
The partial surrender charge, the administrative fee, and the net amount
surrendered will reduce this Policy's values as described in the Charges to
Policy Values provision.
If the Death Benefit option for this Policy is option 1, 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. The
reduction will reduce any past increases in the reverse order in which they
<PAGE>
occurred. However, We will not allow a partial surrender if the Specified Amount
will be reduced below the Minimum Specified Amount.
If the Death Benefit option for this Policy is option 2, a partial surrender
will reduce the Total Account Value and the death benefit. The Specified Amount
will not be reduced.
Policy Loans
General
We will grant loans while this Policy is in force. The amount of the loan will
not be more than the loan value. The Loan Account Value will reduce any Proceeds
under this Policy.
The amount of the loan will be transferred out of the Fixed Account and Separate
Account Values as described in the Charges to Policy Values provision. The loan
amount is added to the Loan Account Value.
The loan value for this Policy is 90% of the sum of the Fixed Account Value and
the Separate Account Value less the surrender charge applicable at the time of
the loan.
Interest
Interest will be charged against any outstanding loan at the rate of 8% per
year. Interest accrues daily from the date of the loan and is due at the end of
each Policy Year or upon full repayment of the loan. If not paid when due, the
interest will be added to the loan and will itself bear interest on the same
terms.
If this Policy does not have sufficient Surrender Value to allow the addition of
the loan interest, the Grace Period provision will apply.
Repayment
The Loan Account Value may be repaid in full or in part at any time as long as
this Policy is in force. The amount necessary to repay all loans in full is the
Loan Account Value plus any accrued interest.
Loan repayments will be allocated to the Fixed Account Value and the Separate
Account Value in the same proportion in which the loan was taken. The Loan
Account Value will be reduced by the amount of any loan repayment.
Changes in Insurance Coverage
General
The changes described below will not be allowed in the first Policy Year. For
any change in coverage We will require Your Written Request. Supplemental Policy
Specifications will be sent to You once the change is completed.
Increase in Specified Amount
Satisfactory evidence of insurability on the Insured will be required.
The Date of Issue for any increase will be shown in the supplemental Policy
Specifications.
The Surrender Value immediately after an increase must be at least three times
the sum of (1) and (2) where:
<PAGE>
(1) is the most recent monthly deduction from the Total Account Value; and
(2) is the amount of the increase multiplied by the applicable cost of insurance
rate divided by 1000.
An increase in the Specified Amount will increase the surrender charge.
The basic monthly premium will be increased when the Specified Amount is
increased. This Policy will not terminate within 2 years of the Date of Issue of
the increase if the conditions of this provision and the No Lapse Coverage
provision are met.
Increases during the second through the fifth Policy Year are limited to four
times the initial Specified Amount.
Decrease in Specified Amount
The amount of a decrease cannot cause a reduction in this Policy's Specified
Amount below the Minimum Specified Amount.
The basic monthly premium will not be decreased if the Specified Amount is
decreased.
For a decrease in the Specified Amount, the Date of Issue will be the Monthly
Deduction Day on or next following the date on which Your Written Request is
received.
The decrease will reduce any past increases in the reverse order in which they
occurred.
Change in Death Benefit Option
Any change in the Death Benefit option is subject to the following conditions:
The change will take effect on the Monthly Deduction Day on or next following
the date on which Your Written Request is received.
There will be no change in the surrender charge.
Evidence of insurability may be required.
We will not allow a change in the Death Benefit option if the Specified Amount
will be reduced below the Minimum Specified Amount.
Change from Option 1 to 2
The Specified Amount will be reduced to equal the Specified Amount less the
Total Account Value at the time of the change.
Change from Option 2 to 1
The new Specified Amount will equal the Specified Amount plus the Total Account
Value as of the date of the change.
<PAGE>
Change of Fund(s)
The Company may:
1. Change the Fund(s) which may be invested in a Separate Account; and
2. replace the shares of Funds held in a Separate Account with shares of other
Fund(s).
Changes must be:
1. Approved by a majority vote of persons having an interest in the Separate
Account and its Fund(s); or
2. deemed necessary by Us under the Investment Company Act of 1940; or
3. deemed necessary by Us to accomplish the purpose of the Separate Account.
The investment policy of a Separate Account may not be changed without the
approval of the Insurance Commissioner of the State of Connecticut. The approval
process has been filed with the Commissioner.
We will notify You of any change.
Separate Account
Variable Life Account B is a Separate Account established by Us in accordance
with the laws of the State of Connecticut. Realized and unrealized gains and
losses from the assets of Variable Life Account B will be credited to or charged
against Variable Life Account B without regard to Our other income, gains, or
losses. Variable Life Account B's liabilities arise from the variable life
insurance policies that it supports. The assets of Variable Life Account B are
available to cover the liabilities of the General Account only to the extent
that Variable Life Account B's assets exceed its liabilities.
The value of the assets of Variable Life Account B is determined whenever the
policy benefits vary and at the end of every Valuation Period.
Annual Report
We will send You a report at least once during each Policy Year. The report will
show the Total Account Value, the Surrender Value and the death benefit on the
date of the report. It will also show since the last report at least the
following information:
1. Gross premiums paid;
2. the cost of insurance and the cost of riders;
3. interest and investment return credited to the Total Account Value;
4. the amount of any surrenders or partial surrenders;
5. the amount of surrender charges made;
<PAGE>
6. a summary of loan activity; and
7. any other information required by the State in which this Policy was
delivered.
Projection of Benefits
We will provide a projection of illustrative future death benefits and Total
Account Values at any time upon Written Request. We will charge a fee of $25 for
this service.
Settlement Options
Conditions
All or part of the Proceeds of this Policy may be applied under one or more of
the options described below or in any manner to which We agree. An election
shall be made by Written Request filed with the Home Office. The payee of
Proceeds may make this election if no prior election has been made.
Payments will be made at intervals of 1, 3, 6 or 12 months in equal amounts as
elected. Payments under a settlement option may be made on a fixed dollar or
variable basis. However, once payments begin on either the fixed or variable
basis, the option may not be changed for one with payments on the alternate
basis.
Our consent to the election of an option is required if:
1. The payee is other than a natural person who receives payments in his or her
own right;
2. the payee is an assignee of this Policy; or
3. payments would be less than $25 each or totaling less than $120 in a year.
Income Options:
Rates for ages and intervals not shown for any of the following income options
will be furnished upon request.
Option 1 - Interest
Payment of interest on Proceeds left with Us. By Written Request, the payee may
later elect to:
(1) Receive all or a portion of the amount held under this option; or
(2) apply all or a portion of this amount to options 2, 3 or 4 as described
below.
Proceeds held under this option may be left with Us after the death of the payee
only with Our consent.
Option 2 - Stated Period
Payments for a stated number of years, at least 3 but no more than 30. If
payments for this option are made on a variable basis, the present value of any
remaining payments may be withdrawn at any time.
<PAGE>
Rates for fixed Payments with Guaranteed Interest Rate of 3.5%; and
Rates for Variable Payments with Assumed Net Return Rate of 3.5%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PAYMENT PER $1,000 PROCEEDS
- ---------------------------- --------------------------- --------------------------- ----------------------------
YEARS OF YEARS OF
STATED PERIOD MONTHLY STATED PERIOD MONTHLY
- ---------------------------- --------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
3 $29.19 15 $7.10
4 22.27 20 5.75
5 18.12 25 4.96
10 9.83 30 4.45
- ---------------------------- --------------------------- --------------------------- ----------------------------
</TABLE>
Rates for Variable Payments with Assumed Net Return Rate of 5%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PAYMENT PER $1,000 PROCEEDS
- ---------------------------- --------------------------- --------------------------- ----------------------------
YEARS OF YEARS OF
STATED PERIOD MONTHLY STATED PERIOD MONTHLY
- ---------------------------- --------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
3 $29.80 15 $7.82
4 22.89 20 6.51
5 18.74 25 5.75
10 10.51 30 5.28
- ---------------------------- --------------------------- --------------------------- ----------------------------
</TABLE>
Option 3 - Life Income
Payments for the lifetime of the payee. If also chosen, We will guarantee
payments for 60, 120, 180, or 240 months.
Rates for Fixed Payments with Guaranteed Interest Rate of 3.5%; and
Rates for Variable Payments with Assumed Net Return Rate of 3.5%
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MONTHLY LIFE INCOME PER $1,000 PROCEEDS
- ------------------------------------------------------------------------------------------------------------------
WITH FIXED PERIOD
- ----------------- ---------------------------------------------------------------- WITHOUT
AGE FOR 120 MONTHS FOR 240 MONTHS FIXED PERIOD
NEAREST ------------------------------- -------------------------------- -------------------------------
BIRTHDAY MALE FEMALE MALE FEMALE MALE FEMALE
- ----------------- --------------- --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
50 $4.51 $4.18 $4.36 $4.11 $4.56 $4.20
51 4.58 4.24 4.42 4.16 4.64 4.26
52 4.66 4.30 4.48 4.21 4.72 4.32
53 4.74 4.36 4.53 4.27 4.80 4.39
54 4.82 4.43 4.59 4.32 4.89 4.46
55 4.91 4.50 4.65 4.38 4.99 4.54
56 5.00 4.58 4.72 4.44 5.09 4.62
57 5.10 4.66 4.78 4.50 5.20 4.71
58 5.20 4.75 4.84 4.57 5.32 4.80
59 5.31 4.84 4.91 4.63 5.44 4.90
60 5.42 4.93 4.97 4.70 5.57 5.00
61 5.54 5.03 5.03 4.77 5.71 5.11
62 5.66 5.14 5.09 4.84 5.86 5.23
63 5.79 5.25 5.16 4.91 6.02 5.36
64 5.93 5.37 5.21 4.98 6.20 5.49
65 6.07 5.49 5.27 5.05 6.38 5.64
66 6.22 5.63 5.32 5.12 6.58 5.79
67 6.38 5.76 5.38 5.18 6.79 5.95
68 6.53 5.91 5.42 5.25 7.02 6.13
69 6.70 6.06 5.47 5.31 7.26 6.32
70 6.86 6.23 5.51 5.37 7.52 6.53
71 7.03 6.39 5.54 5.42 7.80 6.75
72 7.21 6.57 5.57 5.47 8.09 6.99
73 7.38 6.75 5.60 5.51 8.41 7.26
74 7.55 6.94 5.63 5.55 8.75 7.54
75 7.73 7.13 5.65 5.59 9.12 7.85
- ----------------- --------------- --------------- --------------- ---------------- --------------- ---------------
</TABLE>
<PAGE>
Rates for Variable Payments with Assumed Net Return Rate of 5%
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MONTHLY LIFE INCOME PER $1,000 PROCEEDS
- ------------------------------------------------------------------------------------------------------------------
WITH FIXED PERIOD
- ----------------- ---------------------------------------------------------------- WITHOUT
AGE FOR 120 MONTHS FOR 240 MONTHS FIXED PERIOD
NEAREST ------------------------------- -------------------------------- -------------------------------
BIRTHDAY MALE FEMALE MALE FEMALE MALE FEMALE
- ----------------- --------------- --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.41 $5.09 $5.24 $5.01 $5.48 $5.12
51 5.48 5.14 5.29 5.05 5.55 5.17
52 5.55 5.20 5.34 5.10 5.63 5.23
53 5.62 5.26 5.40 5.15 5.71 5.30
54 5.70 5.33 5.45 5.20 5.80 5.37
55 5.79 5.39 5.51 5.25 5.89 5.44
56 5.87 5.47 5.56 5.31 5.99 5.52
57 5.97 5.54 5.62 5.37 6.10 5.60
58 6.06 5.62 5.68 5.42 6.21 5.69
59 6.17 5.71 5.74 5.48 6.33 5.79
60 6.28 5.80 5.79 5.55 6.46 5.89
61 6.39 5.90 5.85 5.61 6.60 6.00
62 6.51 6.00 5.91 5.67 6.75 6.11
63 6.64 6.10 5.96 5.73 6.91 6.23
64 6.77 6.22 6.02 5.80 7.09 6.37
65 6.91 6.34 6.07 5.86 7.27 6.51
66 7.05 6.46 6.12 5.92 7.47 6.66
67 7.20 6.60 6.16 5.99 7.68 6.82
68 7.35 6.74 6.21 6.04 7.91 7.00
69 7.51 6.89 6.25 6.10 8.15 7.19
70 7.67 7.04 6.28 6.15 8.41 7.39
71 7.83 7.21 6.32 6.20 8.69 7.62
72 8.00 7.38 6.35 6.25 8.99 7.86
73 8.16 7.55 6.37 6.29 9.31 8.12
74 8.33 7.73 6.39 6.33 9.65 8.41
75 8.50 7.92 6.41 6.36 10.02 8.72
- ----------------- --------------- --------------- --------------- ---------------- --------------- ---------------
</TABLE>
Option 4 - Life Income for Two Payees
Payments during the joint lifetimes of two payees. At the death of either,
payments will continue to the survivor. When this option is chosen a choice must
be made of:
1. 100% of the payment to continue to the survivor;
2. 66-2/3% of the payment to continue to the survivor;
3. 50% of the payment to continue to the survivor;
4. payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor; or
5. 100% of the payment to continue to the survivor if the survivor is the
original payee, and 50% of the payment to continue to the survivor if the
survivor is the second payee.
The following tables illustrate the applicable rates if number (3) of option 4
is chosen.
<PAGE>
Rates for Fixed Rate Payments with Guaranteed Interest Rate of 3.5%; and
Rates for Variable Rate Payments with Assumed Net Return of 3.5%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MONTHLY JOINT LIFE INCOME WITH 1/2 TO SURVIVOR PER $1,000 PROCEEDS
- ------------- -------------------------------------------------------------------------------------------------------
AGE OF AGE OF FEMALE PAYEE
MALE ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAYEE 50 55 60 65 70 75 80 85
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.37 $4.55 $4.77 $5.04 $5.37 $5.77 $6.23 $6.72
55 4.56 4.76 5.00 5.29 5.66 6.10 6.62 7.18
60 4.79 5.00 5.27 5.60 6.01 6.51 7.11 7.76
65 5.06 5.31 5.61 5.99 6.46 7.04 7.74 8.52
70 5.39 5.66 6.01 6.44 6.99 7.68 8.52 9.47
75 5.75 6.06 6.46 6.96 7.61 8.43 9.45 10.64
80 6.13 6.49 6.95 7.54 8.29 9.29 10.54 12.03
85 6.51 6.91 7.43 8.11 9.00 10.17 11.71 13.57
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Rates for Variable Rate Payments with Assumed Net Return Rate of 5%
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MONTHLY JOINT LIFE INCOME WITH 1/2 TO SURVIVOR PER $1,000 PROCEEDS
- ------------- -------------------------------------------------------------------------------------------------------
AGE OF AGE OF FEMALE PAYEE
MALE ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
PAYEE 50 55 60 65 70 75 80 85
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 $5.29 $5.46 $5.68 $5.95 $6.29 $6.73 $7.25 $7.82
55 5.48 5.66 5.89 6.18 6.56 7.03 7.60 8.24
60 5.71 5.91 6.16 6.49 6.90 7.42 8.06 8.78
65 6.01 6.23 6.51 6.87 7.33 7.93 8.67 9.50
70 6.36 6.61 6.93 7.34 7.87 8.56 9.43 10.43
75 6.78 7.05 7.42 7.89 8.51 9.33 10.35 11.57
80 7.23 7.54 7.96 8.51 9.23 10.20 11.44 12.95
85 7.68 8.05 8.53 9.16 10.00 11.14 12.64 14.51
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
Terms of Options
Proceeds applied under option 1 will be held by Us in the General Account.
Proceeds applied under options 2, 3 and 4 will be held:
1. in the General Account if payments on a fixed dollar basis are elected; or
2. in Variable Annuity Account B using any of its Funds available under this
Policy for settlement option purposes if payments on a variable basis are
elected; or
3. in both the General Account and the Variable Annuity Account B.
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 not less than
3.5%. We may add interest daily at any higher rate. As to option 1, We may from
time to time offer higher interest rates with certain conditions on withdrawal
which are currently published by Us.
Proceeds in Variable Annuity Account B will be used to make payments on a
variable basis. An assumed annual net return rate of 5% may be chosen for such
payments. If not chosen, We will use an assumed net return rate of 3.5%. The
assumed annual net return rate is the interest rate used to determine the amount
of the first payment on a variable basis. Variable Annuity Account B must earn
this 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.
<PAGE>
If payments on a variable basis are not to decrease, We must earn a gross return
on the assets of Variable Annuity Account B of:
1. 4.75% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge set at the time the settlement option
payments started, if an assumed annual net return rate of 3.5% is chosen; or
2. 6.25% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge set at the time the settlement option
payments started, if an assumed annual net return rate of 5% is chosen.
Payments will not change due to changes in the mortality or expense results or
administrative charges.
Betterment of Payments
If option 2, 3 or 4 is chosen on a fixed dollar basis, and if the guaranteed
payments are less than those of Our current single premium immediate annuity on
the same plan, those larger amounts will be paid instead.
Separate Account
Payments on a variable basis will be made from the Proceeds held in Variable
Annuity Account B. Variable Annuity Account B is a Separate Account established
by Us in accordance with the laws of the State of Connecticut. Realized and
unrealized gains and losses from the assets of Variable Annuity Account B will
be credited to or charged against Variable Annuity Account B without regard to
Our other income, gains, or losses. Variable Annuity Account B's liabilities
arise from the variable portion of annuity contracts and life insurance
settlement options that it supports. The assets of Variable Annuity Account B
are available to cover the liabilities of the General Account only to the extent
that Variable Annuity Account B's assets exceed its liabilities.
Fund(s) Settlement Option Units of Variable Annuity Account B
If payment on a variable basis is chosen, the first payment is calculated as
follows:
1. The portion of Proceeds applied to make payments on the variable basis;
divided by
2. 1,000; multiplied by
3. the payment rate for the option chosen.
This amount is divided by the Fund settlement option unit value on the tenth
Valuation Period before the due date of the first payment to determine the
number of Fund settlement option units. The number of Fund settlement option
units remains fixed. Each future payment is equal to this number multiplied by
the Fund settlement option unit value on the tenth Valuation Period prior to the
due date of the payment.
Fund(s) Settlement Option Unit Value of Variable Annuity Account B
For any Valuation Period the Fund settlement option unit value is equal to:
1. The value for the previous Period; multiplied by
2. the net return factor(s) for the Period; multiplied by
<PAGE>
3. a factor to reflect the assumed annual net return rate. The factor for 3.5%
per year is .9999058 or, for 5% per year, .9998663.
The dollar value of the Fund settlement option unit values and payments may
increase or decrease due to investment gain or loss.
Net Return Factor(s):
The net return factor(s) are used to compute Variable Annuity Account B values
and payments for any of its Funds.
The net return factor for each Fund is equal to 1.0000000 plus the net return
rate.
The net return rate is equal to:
1. The value of the shares of the Fund held by Variable Annuity Account B at
the end of a Valuation Period; less
2. the value of the shares of the Fund at the start of the Valuation Period;
adjusted by any taxes (or provisions for taxes) on Variable Annuity Account
B; divided by
3. the total value of the Fund settlement option units and other Fund
accumulation units of Variable Annuity Account B at the start of the
Valuation Period; less
4. a daily actuarial charge at an annual rate of 1.25% for annuity mortality
and expense risks and profit; and a daily administrative charge which will
not exceed .25% on an annual basis.
A net return rate may be more or less than 0.
The value of a share of the Fund is equal to the net assets of the Fund divided
by the number of shares outstanding.
The administrative charge may not be changed for amounts which have been used to
purchase a settlement option.
Withdrawal and Death of Payee
As to amounts held under option 1, withdrawals and change of option may be made
if the payee makes the election. Under option 2, if payments are made on a
variable basis, the present value of any remaining payments may be withdrawn at
any time. Amounts in the General Account under option 2 may not be withdrawn. No
withdrawals or changes of option may be made under options 3 and 4. Upon the
death of the payee, the current value of the amount held under option 1 or the
present value of any guaranteed payments not yet paid will be paid in one sum to
the beneficiary. The beneficiary may elect to continue the remaining payments
instead of receiving the lump sum amount. If no beneficiary exists, the present
value of any remaining payments will be paid in one sum to the estate of the
payee.
The interest rate used to determine the first payment will be used to calculate
the present value of any remaining payments.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
[bullet] FLEXIBLE PREMIUMS PAYABLE UNTIL MATURITY DATE OR DEATH
[bullet] PROCEEDS PAYABLE UPON THE FIRST EVENT TO OCCUR - SURRENDER,
MATURITY OR DEATH
[bullet] NON-PARTICIPATING - NO DIVIDENDS PAYABLE
The amount or duration of the death benefit may be fixed or variable. The death
benefit is payable as described in the Death Benefit Options and Proceeds
sections of this Policy.
Values in each Fund held in a Separate Account may increase or decrease daily.
Such values are not guaranteed as to dollar amount. Refer to the Policy Values
section of this Policy for more information.
AMENDMENT RIDER Aetna Life Insurance and Annuity Company
Hartford, Connecticut 06156
The following provisions are added to this Policy:
Preferred Loans
Beginning in the 11th policy year and on each policy anniversary thereafter, We
will determine a preferred loan amount for that policy year. A preferred loan
amount will equal 10% of the loan value on each policy anniversary. The interest
rate charged on the preferred loan amount will equal the interest rate earned by
the portion of the Loan Account Value equal to the preferred loan amount and
credited proportionately to the Fixed Account Value and Separate Account Value.
Loan Account Value existing in the 11th policy year or later, which is equal to
or less than the preferred loan amount will be treated as a preferred loan. Once
any portion of the Loan Account Value is treated as a preferred loan, that
portion will remain a preferred loan, regardless of the preferred loan amount in
subsequent policy years, until it is repaid.
Loan Interest Rate Credited
Loan Account Value equal to the non-preferred loan will earn interest as
described in the Function of Accounts provision.
Beginning in the 11th policy year interest earned by the portion of the Loan
Account Value equal to the preferred loan will be credited at the policy loan
interest rate of 8% per year. The interest earned by the Loan Account Value will
be credited to the Fixed Account Value and the Separate Account Value in the
same proportion in which the loan amount was originally deducted from these
values.
The second sentence of the first paragraph of the Policy Loans section of this
Policy is changed to read:
Interest on any outstanding loan, including preferred loans, will be charged at
the policy loan interest rate of 8% per year, in arrears, compounded on each
policy anniversary.
This amendment rider is attached to and made a part of this Policy.
Issued by AETNA LIFE INSURANCE AND ANNUITY COMPANY
/s/ Lucille M. Nickerson
Secretary
AMENDMENT RIDER Aetna Life Insurance and Annuity Company
Hartford, Connecticut 06156
The following provisions are added to this Policy:
Coverage Beyond Maturity
In the 30 days prior to the Maturity Date of this Policy, You may, by Written
Request, elect to continue coverage beyond the Maturity Date. Any extra benefit
riders will be terminated on the Maturity Date. If elected, the following will
apply:
[bullet] We will continue to credit interest to the Total Account Value of this
Policy as described in the Interest Credited provision.
[bullet] After the Insured reaches Attained Age 100 the Separate Account Value
of this Policy will be transferred to the Fixed Account.
[bullet] Monthly deductions will be calculated with a cost of insurance rate
equal to zero.
[bullet] Proceeds payable on death will be as described in the Proceeds
provision of this Policy under Proceeds payable on death.
All rights and benefits as described within the provisions of this Policy will
be available during the lifetime of the Insured.
This Policy may be subject to tax consequences when continued beyond the
Maturity Date.
Preferred Loans
Beginning in the 11th Policy Year and on each Policy Anniversary thereafter, We
will determine a preferred loan amount for that Policy Year. A preferred loan
amount will equal 10% of the loan value on each Policy Anniversary. The interest
rate charged on the preferred loan amount will equal the interest rate earned by
the portion of the Loan Account Value equal to the preferred loan amount and
credited proportionately to the Fixed Account Value and Separate Account Value.
Loan Account Value existing in the 11th Policy Year or later, which is equal to
or less than the preferred loan amount will be treated as a preferred loan. Once
any portion of the Loan Account Value is treated as a preferred loan, that
portion will remain a preferred loan, regardless of the preferred loan amount in
subsequent Policy Years, until it is repaid.
Loan Interest Rate Credited
Loan Account Value equal to the non-preferred loan will earn interest as
described in the Interest Credited provision.
Beginning in the 11th Policy Year interest earned by the portion of the Loan
Account Value equal to the preferred loan will be credited at the policy loan
interest rate of 8% per year. The interest earned by the Loan Account Value will
be credited to the Fixed Account Value and the Separate Account Value in the
same proportion in which the loan amount was originally deducted from these
values.
<PAGE>
The title Interest under the Policy Loans provision of this Policy is changed
to: Loan Interest Rate Charged. The first sentence of this provision is amended
to read:
Interest will be charged against any outstanding loan, including preferred
loans, at the policy loan interest rate of 8% per year.
This amendment rider is attached to and made a part of this Policy.
Issued by AETNA LIFE INSURANCE AND ANNUITY COMPANY
/s/ Lucille M. Nickerson
Secretary
[Aetna Letterhead]
[Aetna Logo]
151 Farmington Avenue
Hartford, CT 06156
April 18, 1996 Deborah E. Prince, FSA, MAAA
Product Manager
Life Products Group, TN41
(860) 273-4389
Fax: (860) 273-4438
RE: AetnaVest and AetnaVest II (File No. 33-76004)
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 use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Deborah E. Prince
Deborah E. Prince
Product Manager
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Policyholders of Aetna Variable Life Account B:
We consent to the use of our reports dated February 4, 1997 and February 14,
1997 included herein and to the reference to our Firm in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
April 22, 1997
[Aetna Letterhead]
[Aetna Logo]
151 Farmington Avenue
Hartford, CT 06156
April 22, 1997 Susan E. Bryant
Counsel
Law Division, RE4A
Investments & Financial Services
(860) 273-7834
Fax: (860) 273-0356
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1997 (incorporated herein
by reference to the Rule 24f-2 Notice for the fiscal year ended December 31,
1996 filed on behalf of Variable Life Account B of Aetna Life Insurance and
Annuity Company on February 28, 1997) as an exhibit to this Post-Effective
Amendment No. 6 to the Registration Statement on Form S-6 (File No. 33-76004
and 811-2512).
Sincerely,
/s/Susan E. Bryant
Susan E. Bryant
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