As filed with the Securities and Exchange Registration No. 333-15817
Commission on November 25, 1997 Registration No. 811-4536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
- --------------------------------------------------------------------------------
Variable Life Account B of Aetna Life Insurance and Annuity Company
(Exact Name of Trust)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RE4A, Hartford, Connecticut 06l56
(Complete Address of Depositor's Principal Executive Offices)
- --------------------------------------------------------------------------------
Julie E. Rockmore, 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 :
immediately upon filing pursuant to paragraph (b) of rule 485
- ------
X on November 28, 1997 pursuant to paragraph (b) of Rule 485
- ------
60 days after filing pursuant to paragraph (a)(1) of Rule 485
- ------
On --------------------- pursuant to paragraph (a)(1) of Rule 485
- ------
this post-effective amendment designates a new effective date for a
- ------
previously filed post-effective amendment.
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Post-Effective Amendment No. 1 to
Registration Statement on Form S-6
Cross Reference Sheet
N-8B-2
Item No. Part I (Prospectus dated August 8, 1997, and as amended by Supplement
dated November 28, 1997)
1 Cover Page, and as amended; The Separate Account; The Company and
Management, and as amended
2 Cover Page, and as amended; The Separate Account; The Company and
Management, and as amended
3 Not Applicable
4 Distribution of the Certificates
5 The Separate Account; The Company and Management, and as amended
6 The Separate Account; The Company and Management, and as amended
7 Not Applicable
8 Not Applicable
9 Additional Information - Legal Matters
10 The Separate Account; Certificate Rights; Certificate Choices;
Additional Information; Miscellaneous Certificate Provisions;
Termination or Change in Coverage; Allocation of Premiums, and as
amended - Fund Additions, Deletions or Substitutions
11 Allocation of Premiums, and as amended - The Funds
12 Allocation of Premiums, and as amended - The Funds
13 Charges & Fees, and as amended
14 Certificate Choices
15 Allocation of Premiums, and as amended; Certificate Choices;
Certificate Values
16 The Separate Account; Allocation of Premiums, and as amended - The
Funds; Certificate Values
17 Certificate Rights
18 The Separate Account
19 Additional Information - Reports to Owners
<PAGE>
N-8B-2 Part I (Prospectus dated August 8, 1997, and as amended by Supplement
Item No. dated November 28, 1997)
20 Not Applicable
21 Certificate Rights - Certificate Loans
22 Not Applicable
23 The Company and Management, and as amended
24 Not Applicable
25 The Company and Management, and as amended
26 Not Applicable
27 The Company and Management, and as amended
28 The Company and Management, and as amended
29 The Company and Management, and as amended
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information - State Regulation
36 Not Applicable
37 Not Applicable
38 Additional Information - Distribution of the Certificates
39 The Company and Management, and as amended
40 Not Applicable
41 The Company and Management, and as amended
42 Not Applicable
43 Not Applicable
44 Charges & Fees, and as amended; Certificate Values
45 Not Applicable
46 The Separate Account; Certificate Values
47 Not Applicable
48 Not Applicable
49 Not Applicable
<PAGE>
N-8B-2 Part I (Prospectus dated August 8, 1997, and as amended by Supplement
Item No. dated November 28, 1997)
50 The Separate Account
51 Cover Page, and as amended; Certificate Choices
52 Allocation of Premiums, and as amended - Fund Additions, Deletions or
Substitutions; Termination or Change in Coverage
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements of Separate Account; Financial Statements of
Insurance Company
<PAGE>
Supplement to Prospectus Dated August 8, 1997
Flexible Premium Group Variable Universal Life Insurance for
New York State United Teachers Benefit Trust ("NYSUT Trust")
Aetna Life Insurance and Annuity Company
Variable Life Account B
The prospectus dated August 8, 1997 is amended as follows:
Cover:
The following Funds are added to the list of Variable Options after the
close of business of the New York Stock Exchange on November 26, 1997:
Portfolio Partners, Inc. MFS Emerging Equities Portfolio
Portfolio Partners, Inc. MFS Research Growth Portfolio
Portfolio Partners, Inc. Scudder International
Growth Portfolio
The Date of this Supplement is November 28, 1997
Form No. X.15817-97
1
<PAGE>
Prospectus - Page 3
The table under Charges & Fees--Charges Assessed Against the Underlying
Funds is amended by adding the following Funds:
<TABLE>
<CAPTION>
Investment
Advisory Fees Other Expenses
(after expense (after expense Total Annual
reimbursement) reimbursement) Fund Expenses
<S> <C> <C> <C>
Portfolio Partners, Inc. MFS Emerging Equities Portfolio ...... .70%(2) .13% .83%(1)
Portfolio Partners, Inc. MFS Research Growth Portfolio ...... .70%(2) .15% .85%(1)
Portfolio Partners, Inc. Scudder International Growth
Portfolio ................................................... .80% .20% 1.00%(1)
</TABLE>
(1) Each Portfolio's aggregate expenses are limited to the advisory and
administrative fees disclosed above through April 30, 1999.
(2) The advisory fee is .70% of the first $500 million in assets and .65% on the
excess.
Prospectus - Page 6
In the Section Allocation of Premiums, the following Funds are added after
the close of business of the New York Stock Exchange on November 26, 1997:
Portfolio Partners, Inc. MFS Emerging Equities Portfolio seeks long-term
growth of capital by investing primarily in common stocks issued by companies
that its subadviser believes are early in their life cycle but which have the
potential to become major enterprises (emerging growth companies).
Portfolio Partners, Inc. MFS Research Growth Portfolio seeks long-term
growth of capital and future income by investing primarily in common stocks or
securities convertible into common stocks issued by companies that the
subadviser believes to possess better-than-average prospects for long-term
growth, and, to a lesser extent, in income-producing securities including bonds
and preferred stock.
Portfolio Partners, Inc. Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities.
Aetna Life Insurance and Annuity Company serves as the investment adviser
to each Portfolio of Portfolio Partners, Inc. Scudder, Stevens & Clark, Inc.
serves as the subadviser to the Scudder International Growth Portfolio, and
Massachusetts Financial Services Company serves as the subadviser to the MFS
Emerging Equities and MFS Research Growth Portfolios.
<PAGE>
Prospectus - Page 19--The Company and Management
The list of Directors and Executive Officers under The Company and
Management is replaced by the following:
2
<PAGE>
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
- ---------------------- -------------------------- --------------------------------------------
<S> <C> <C>
Thomas J. McInerney Director, President and President (since September 1997), Aetna
Chairman, Executive Life Insurance and Annuity Company;
Committee (Principal President (since September 1997),
Executive Officer) Aetna Insurance Company of America;
President (since September 1997), Aetna
Retirement Holdings, Inc.; President (since
August 1997), Aetna Retirement Services,
Inc.; Executive Vice President (since August
1997), Aetna Inc.; Vice President, Strategy
(March 1997-August 1997), Aetna Inc.; Vice
President, Strategy, Finance, &
Administration (July 1995-April 1996), Aetna
Inc.; Vice President, Guaranteed Products
(November 1992-July 1995), Aetna Inc.
Christopher J. Burns Director and Senior Vice President and Chief Executive and
President Operating Officer (since November 1996),
Aetna Investment Services Inc.; Senior
Vice President, Sales & Service (February
1996-September 1997), Senior Vice
President, Sales & Financial Planning
(since September 1997), and Senior Vice
President, Life (March 1991-February
1996), Aetna Life Insurance and Annuity
Company.
J. Scott Fox Director and Senior Vice Managing Director, Chief Operating Officer,
President Chief Financial Officer (since October
1997), Aeltus Investment Management,
Inc.; Senior Vice President, Operations
(since March 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.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
- ------------------- --------------------------------- ------------------------------------------
<S> <C> <C>
Timothy A. Holt Director, Senior Vice President Senior Vice President, Business Strategy
and Chief Financial Officer & Finance, and Chief Financial Officer
(since February 1996), Aetna Life
Insurance and Annuity Company; Vice
President, Portfolio Management/
Investment Group (August 1992-February
1996), Aetna Life and Casualty Company.
John Y. Kim Director and Senior Vice President (since December 1995), Aeltus
President Investment Management, Inc.; Chief
Investment Officer (since May 1994),
Aetna Services, Inc. (formerly 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 Senior Vice Senior Vice President, Product
President Management (since September 1997); Vice
President, Products Group (since February
1996 to September 1997), Senior Vice
President, Strategic Markets and Products
(February 1993-February 1996), and
Senior Vice President, Mutual Funds
(March 1991-February 1993), Aetna Life
Insurance and Annuity Company.
Kirk P. Wickman Vice President, General Vice President, General Counsel and
Counsel and Corporate Corporate Secretary (since November
Secretary 1996), Aetna Life Insurance and Annuity
Company; Vice President and Counsel
(June 1992-November 1996), Aetna Life
Insurance Company.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
- ---------------------- ------------------------------- -------------------------------------------
<S> <C> <C>
Deborah Koltenuk Vice President and Treasurer, Vice President, Investment Planning and
Corporate Controller Financial Reporting (April 1996 to July
1996), Aetna Life Insurance Company; Vice
President and Treasurer, Corporate
Controller (since March 1996) Aetna
Retirement Holdings, Inc.; Vice President,
Investment Planning and Financial Reporting
(October 1994 to April 1996), The Aetna
Casualty and Surety Company and The
Standard Fire and Insurance Company;
Assistant Vice President, Finance and
Administration (June 1994 to October 1994),
Aetna Life Insurance Company; Controller
(September 1993 to June 1994), Aetna
Information Technology; Assistant Vice
President (December 1990 to September
1993), Aetna Life and Casualty Company.
Frederick D. Kelsven Vice President and Chief Vice President, Chief Compliance Officer
Compliance Officer (since February 1997), Aetna Life
Assignment Company; Vice President &
Chief Compliance Officer (since November
1996), Aetna Investment Services, Inc.;
Director of Compliance (January 1985 to
September 1996), Nationwide Life
Insurance Company.
</TABLE>
* The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut.
These individuals may also be directors and/or officers of other affiliates of
the Company.
Prospectus - Page 26--Illustrations of Death Benefit and Total Account Values.
The Section Illustrations of Death Benefit and Total Account Values is replaced
with the following:
Illustrations of Death Benefit and Total Account Values
The following pages provide a hypothetical illustration of how the Option 1
Death Benefit and Total Account Values can change over time for a Certificate
issued to an Age 45 preferred risk non-smoker Insured if premiums are
accumulated at 5% interest per year or the investment return on the assets held
in each Fund were a uniform gross annual rate of 0%, 6%, and 12%, respectively,
based upon a number of assumptions.
There are two pages of values. The first page illustrates the assumption that
the guaranteed maximum Cost of Insurance rates and other charges at maximum
rates are charged in all years. The second page illustrates the assumption that
the current scale of Cost of Insurance rates for a $250,000 Specified Amount
and other charges at current rates are charged in all years. Current cost of
Insurance rates are generally lowest for Certificates having Specified Amounts
of at least $250,000. We expect to review our current cost of Insurance rates
on at least an annual basis in light of the actual mortality experience of
participants under the NYSUT group Policy.
The values shown in these illustrations vary according to assumptions used for
charges and gross rates of investment return. The actual investment returns
experienced by the Certificates and the charges deducted may be higher or lower
than those illustrated. The charges reflected on the first
5
<PAGE>
page consist of the maximum allowable charges under the Certificate, including
1.25% for years 1-10 and 0.40% for the eleventh year and after, for mortality
and expense risks in all Certificate Years and 0.70% for expenses of the Funds.
The charges reflected on the second page consist of the current charges imposed
under the Certificates, including 0.85% for mortality and expense risks in
Certificate Years 1 through 10 only and (as is currently planned) 0%
thereafter, and 0.70% for Fund expenses. The charge for Fund expenses reflected
in the illustrations assumes that Total Account Values have been allocated
equally among all Funds and represent a fixed, unweighted average of the Funds'
investment advisory fees (after expense reimbursements) and other operating
expenses (after expense reimbursements) for the year ended December 31, 1996,
or, for Funds first offered after December 31, 1996, for the current period.
After deduction of these amounts, the illustrated gross annual investment rates
of return of 0%, 6% and 12% correspond to approximate net annual rates of
- -1.55%, 4.45% and 10.45%, respectively, during the first 10 Certificate Years,
and -0.70%, 5.30% and 11.30%, respectively, thereafter on a current basis. On a
guaranteed basis, the illustrated gross annual investment rates of return of
0%, 6% and 12% correspond to approximate net annual rates of -1.95%, 4.05% and
10.05% during the first 10 years and -1.10%, 4.90% and 10.90% during the
eleventh year and after, respectively.
The Death Benefit and Total Account Values would be different from those shown
if the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above and below those averages for individual
Certificate Years. The illustrations also assume payment of premiums as
indicated, no Certificate Loans, no increases or decreases in Specified Amount,
no Death Benefit Option changes, no Partial Surrenders and no supplemental
rider benefits.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and, in that event,
the gross annual investment rate of return would have to exceed 0%, 6%, or 12%
by an amount sufficient to cover the tax charges in order to produce the Death
Benefit and Total Account Values shown.
Upon request, we will provide a comparable personalized illustration based upon
the Age and underwriting classification of the proposed Insured, including the
Specified Amount and premium requested, the proposed frequency of premium
payments and any available riders requested. A fee of $25 may be charged for
each such illustration. The hypothetical gross annual investment return assumed
in such an illustration will not exceed 12%.
6
<PAGE>
FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
UNISEX ISSUE AGE 45
$1548.48 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1 (GUARANTEED VALUES)
<TABLE>
<CAPTION>
Death Benefit
Premiums Gross Annual Investment Return of
Accumulated ---------------------------------------
at 5% Interest
Year per Year Gross 0.0% Gross 6.0% Gross 12.0%
- --------- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
1 1626 250,000 250,000 250,000
2 3333 250,000 250,000 250,000
3 5126 250,000 250,000 250,000
4 7008 250,000 250,000 250,000
5 8984 250,000 250,000 250,000
6 11059 250,000 250,000 250,000
7 13238 250,000 250,000 250,000
8 15526 250,000 250,000 250,000
9 17928 250,000 250,000 250,000
10 20450 250,000 250,000 250,000
15 35085 0 0 250,000
20 53762 0 0 0
25 77600 0 0 0
30 108023 0 0 0
20 53762 0 0 0
(Age 65)
<CAPTION>
Total Account Value Cash Surrender Value
Gross Annual Investment Return of Gross Annual Investment Return of
--------------------------------------- --------------------------------------
Year Gross 0.0% Gross 6.0% Gross 12.0% Gross 0.0% Gross 6.0% Gross 12.0%
- --------- ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 364 415 467 364 415 467
2 761 889 1023 761 889 1023
3 1088 1317 1570 1088 1317 1570
4 1343 1696 2103 1343 1696 2103
5 1521 2016 2615 1521 2016 2615
6 1616 2267 3094 1616 2267 3094
7 1618 2437 3528 1618 2437 3528
8 1512 2503 3895 1512 2503 3895
9 1288 2449 4174 1288 2449 4174
10 937 2258 4346 937 2258 4346
15 0 0 2911 0 0 2911
20 0 0 0 0 0 0
25 0 0 0 0 0 0
30 0 0 0 0 0 0
20 0 0 0 0 0 0
(Age 65)
</TABLE>
Assumes no Policy loan has been made and no supplemental rider benefits
have been elected. If premiums are paid more frequently than annually, the
Death Benefit could be, and the Total Account Values would be, less than those
illustrated. Zeroes indicate Certificate lapses if additional premiums are not
paid.
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 Owner's allocations, and the Funds'
rates of return. The Total Account Values for a Certificate 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 years.
7
<PAGE>
FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
UNISEX ISSUE AGE 45
$1548.48 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1 (CURRENT VALUES)
<TABLE>
<CAPTION>
Death Benefit
Premiums Gross Annual Investment Return of
Accumulated ---------------------------------------
at 5% Interest
Year per Year Gross 0.0% Gross 6.0% Gross 12.0%
- --------- --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
1 1626 250,000 250,000 250,000
2 3333 250,000 250,000 250,000
3 5126 250,000 250,000 250,000
4 7008 250,000 250,000 250,000
5 8984 250,000 250,000 250,000
6 11059 250,000 250,000 250,000
7 13238 250,000 250,000 250,000
8 15526 250,000 250,000 250,000
9 17928 250,000 250,000 250,000
10 20450 250,000 250,000 250,000
15 35085 250,000 250,000 250,000
20 53762 250,000 250,000 250,000
25 77600 250,000 250,000 250,000
30 108023 0 250,000 250,000
20 53762 250,000 250,000 250,000
(Age 65)
<CAPTION>
Total Account Value Cash Surrender Value
Gross Annual Investment Return of Gross Annual Investment Return of
--------------------------------------- --------------------------------------
Year Gross 0.0% Gross 6.0% Gross 12.0% Gross 0.0% Gross 6.0% Gross 12.0%
- --------- ------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 670 732 794 670 732 794
2 1421 1590 1768 1421 1590 1768
3 2156 2483 2840 2156 2483 2840
4 2876 3412 4021 2876 3412 4021
5 3580 4379 5323 3580 4379 5323
6 4270 5385 6758 4270 5385 6758
7 4944 6432 8340 4944 6432 8340
8 5604 7523 10086 5604 7523 10086
9 6249 8659 12013 6249 8659 12013
10 6857 9819 14117 6857 9819 14117
15 8730 15566 27943 8730 15566 27943
20 7143 19343 47982 7143 19343 47982
25 767 19215 78482 767 19215 78482
30 0 10761 127333 0 10761 127333
20 7143 19343 47982 7143 19343 47982
(Age 65)
</TABLE>
Assumes no Policy loan has been made and no supplemental rider benefits
have been elected. If premiums are paid more frequently than annually, the
Death Benefit could be, and the Total Account Values would be, less than those
illustrated. Zeroes indicate Certificate lapses if additional premiums are not
paid.
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 Owner's allocations, and the Funds'
rates of return. The Total Account Values for a Certificate 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 years.
8
<PAGE>
VARIABLE LIFE ACCOUNT B
FINANCIAL STATEMENTS
Index
<TABLE>
<S> <C>
Statement of Assets and Liabilities as of September 30, 1997 (unaudited) ............... S-2
Statements of Operations and Changes in Net Assets for the nine months
ended September 30, 1997 and September 30, 1996 (unaudited) ........................ S-4
Condensed Financial Information for the nine months ended September 30, 1997 (unaudited) S-5
Notes to Financial Statements -- September 30, 1997 (unaudited) ........................ S-8
Statement of Assets and Liabilities -- December 31, 1996 .............................. S-12
Statements of Operations and Changes in Net Assets for the years ended
December 31, 1996 and 1995 ......................................................... S-14
Condensed Financial Information for the year ended December 31, 1996 .................. S-15
Notes to Financial Statements -- December 31, 1996 .................................... S-18
</TABLE>
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1997 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 3,196,319 shares (cost $99,508,839) ........................ $131,027,138
Aetna Income Shares; 1,442,314 shares (cost $18,506,001) ........................ 18,856,596
Aetna Variable Encore Fund; 1,141,899 shares (cost $15,002,124) .................. 15,053,505
Aetna Investment Advisers Fund, Inc.; 1,269,183 shares (cost $18,194,063) ......... 20,942,265
Aetna Ascent Variable Portfolio; 105,799 shares (cost $1,377,537) ............... 1,597,706
Aetna Crossroads Variable Portfolio; 33,041 shares (cost $412,360) ............... 461,347
Aetna Legacy Variable Portfolio; 47,758 shares (cost $574,815) .................. 603,725
Aetna Variable Index Plus Portfolio; 61,593 shares (cost $852,252) ............... 875,204
Alger American Small Capitalization Portfolio; 443,588 shares (cost $19,897,819) 20,697,798
American Century VP Capital Appreciation Fund; 649,356 shares (cost $6,600,874) ... 7,220,836
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 552,358 shares (cost $11,584,391) ..................... 13,146,117
Growth Portfolio; 134,592 shares (cost $4,465,705) .............................. 5,033,748
Overseas Portfolio; 46,329 shares (cost $848,995) .............................. 953,003
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 119,521 shares (cost $1,854,784) ........................ 2,107,161
Contrafund Portfolio; 872,975 shares (cost $15,798,493) ........................ 17,634,099
Janus Aspen Series:
Aggressive Growth Portfolio; 500,689 shares (cost $9,126,974) .................. 10,103,908
Balanced Portfolio; 373,464 shares (cost $5,583,127) ........................... 6,434,792
Growth Portfolio; 545,924 shares (cost $8,679,709) .............................. 10,225,157
Short-Term Bond Portfolio; 150,415 shares (cost $1,514,462) ..................... 1,537,242
Worldwide Growth Portfolio; 876,969 shares (cost $18,447,152) .................. 21,319,109
Scudder Variable Life Investment Fund--
International Portfolio; 943,907 shares (cost $12,021,744) ..................... 14,120,843
-------------
NET ASSETS (cost $270,852,220) ................................................... $319,951,299
=============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Variable Fund:
Policyholders' account values ................................................... $131,027,138
Aetna Income Shares:
Policyholders' account values ................................................... 18,856,596
Aetna Variable Encore Fund:
Policyholders' account values ................................................... 15,053,505
Aetna Investment Advisers Fund, Inc.:
Policyholders' account values ................................................... 20,942,265
Aetna Ascent Variable Portfolio:
Policyholders' account values ................................................... 1,597,706
</TABLE>
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1997 (unaudited &
continued):
<TABLE>
<S> <C>
Aetna Crossroads Variable Portfolio:
Policyholders' account values .............................. $ 461,347
Aetna Legacy Variable Portfolio:
Policyholders' account values .............................. 603,725
Aetna Variable Index Plus Portfolio:
Policyholders' account values .............................. 875,204
Alger American Small Capitalization Portfolio:
Policyholders' account values .............................. 20,697,798
American Century VP Capital Appreciation Fund:
Policyholders' account values .............................. 7,220,836
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values .............................. 13,146,117
Growth Portfolio:
Policyholders' account values .............................. 5,033,748
Overseas Portfolio:
Policyholders' account values .............................. 953,003
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values .............................. 2,107,161
Contrafund Portfolio:
Policyholders' account values .............................. 17,634,099
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values .............................. 10,103,908
Balanced Portfolio:
Policyholders' account values .............................. 6,434,792
Growth Portfolio:
Policyholders' account values .............................. 10,225,157
Short-Term Bond Portfolio:
Policyholders' account values .............................. 1,537,242
Worldwide Growth Portfolio:
Policyholders' account values .............................. 21,319,109
Scudder Variable Life Investment Fund--International Portfolio:
Policyholders' account values .............................. 14,120,843
-------------
$319,951,299
=============
</TABLE>
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
(Unaudited) (Unaudited)
-------------------- -------------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ......................................................... $ 11,181,934 $ 3,885,187
Expenses: (Notes 2 and 5)
Valuation Period Deductions ....................................... (1,872,259) (1,080,847)
------------- -------------
Net investment income ............................................. 9,309,675 2,804,340
------------- -------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................. 139,757,147 20,651,970
Cost of investments sold .......................................... 128,709,226 18,373,466
------------- -------------
Net realized gain (loss) ....................................... 11,047,921 2,278,504
Net unrealized gain (loss) on investments: (Note 5) ...............
Beginning of period ............................................. 14,132,669 4,391,574
End of period ................................................... 49,099,079 15,114,855
------------- -------------
Net change in unrealized gain (loss) ........................... 34,966,410 10,723,281
------------- -------------
Net realized and unrealized gain (loss) on investments ............ 46,014,331 13,001,785
------------- -------------
Net increase (decrease) in net assets resulting from operations ... 55,324,006 15,806,125
------------- -------------
FROM UNIT TRANSACTIONS:
Variable life premium payments .................................... 84,887,351 79,490,652
Sales and administrative charges deducted by the Company ......... (2,894,734) (2,425,262)
Premiums allocated to the fixed account ........................... (2,076,993) (2,340,043)
------------- -------------
Net premiums allocated to the variable account .................. 79,915,624 74,725,347
Transfers to the Company for monthly deductions .................. (15,533,434) (11,102,414)
Redemptions by contract holders .................................... (20,908,061) (2,903,147)
Transfers on account of policy loans .............................. (2,096,102) (3,395,109)
Other ............................................................ 75,383 (10,234)
------------- -------------
Net increase in net assets from unit transactions (Note 5) ...... 41,453,410 57,314,443
------------- -------------
Change in net assets ............................................. 96,777,416 73,120,568
NET ASSETS:
Beginning of period ................................................ 223,173,883 126,515,779
------------- -------------
End of period ...................................................... $ 319,951,299 $ 199,636,347
============= =============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Value Increase
Per Unit (Decrease)
in Value of Reserves
Beginning End of Accumulation at End
of Period Period Unit of Period
----------- --------- ------------------ ------------
<S> <C> <C> <C> <C>
Aetna Variable Fund:
Aetna Vest ........................ $34.932 $45.812 31.15% $65,467,133
Aetna Vest II ..................... 19.507 25.577 31.12% 20,668,426
Aetna Vest Plus .................. 16.389 21.489 31.12% 35,633,026
Aetna Vest Estate Protector ...... 11.675 15.326 31.27% 886,387
Corporate Specialty Market ...... 14.805 19.413 31.12% 8,372,166
Aetna Income Shares:
Aetna Vest ........................ $21.850 $23.082 5.64% 5,989,256
Aetna Vest II ..................... 14.691 15.519 5.64% 975,075
Aetna Vest Plus .................. 11.764 12.427 5.64% 2,046,769
Aetna Vest Estate Protector ...... 10.452 11.054 5.76% 214,179
Corporate Specialty Market ...... 11.354 11.995 5.64% 9,631,317
Aetna Variable Encore Fund:
Aetna Vest ........................ $16.577 $17.118 3.27% 2,564,616
Aetna Vest II ..................... 12.117 12.513 3.27% 158,376
Aetna Vest Plus .................. 11.388 11.760 3.27% 5,977,410
Aetna Vest Estate Protector ...... 10.333 10.683 3.38% 169,449
Corporate Specialty Market ...... 10.895 11.251 3.27% 6,183,654
Aetna Investment Advisers Fund, Inc.:
Aetna Vest ........................ $17.547 $20.914 19.19% 2,262,647
Aetna Vest II ..................... 17.742 21.143 19.16% 4,931,529
Aetna Vest Plus .................. 14.880 17.731 19.16% 7,889,770
Aetna Vest Estate Protector ...... 11.340 13.314 17.41% (1) 126,662
Corporate Specialty Market ...... 12.954 15.436 19.16% 5,731,657
Aetna Ascent Variable Portfolio:
Aetna Vest ........................ $11.828 $14.221 20.23% 296,098
Aetna Vest II ..................... 11.828 14.212 20.16% 138,916
Aetna Vest Plus .................. 11.828 14.212 20.16% 1,119,184
Aetna Vest Estate Protector ...... 11.886 14.245 19.85% (2) 43,508
Aetna Crossroads Variable Portfolio:
Aetna Vest ........................ $11.474 $13.446 17.19% 68,703
Aetna Vest II ..................... 11.544 13.438 16.41% (1) 29,300
Aetna Vest Plus .................. 11.474 13.438 17.12% 361,206
Aetna Vest Estate Protector ...... 11.487 13.468 17.25% 2,138
Aetna Legacy Variable Portfolio:
Aetna Vest II ..................... $11.263 $12.576 11.66% (2) 11,119
Aetna Vest Plus .................. 11.118 12.576 13.11% 561,269
Aetna Vest Estate Protector ...... 11.344 12.604 11.11% (3) 31,337
Aetna Variable Index Plus Portfolio:
Aetna Vest ........................ $12.017 $12.762 6.20% (4) 94,956
Aetna Vest II ..................... 11.345 12.762 12.49% (4) 76,612
Aetna Vest Plus .................. 11.172 12.762 14.23% (3) 409,202
Aetna Vest Estate Protector ...... 12.371 12.778 3.29% (5) 77,859
Corporate Specialty Market ...... 12.785 12.762 (0.18%)(6) 216,575
</TABLE>
S-5
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Months Ended September 30, 1997
(unaudited & continued)
<TABLE>
<CAPTION>
Increase
Value Per Unit (Decrease)
in Value of Reserves
Beginning End of Accumulation at End
of Period Period Unit of Period
----------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Alger American Small
Capitalization Portfolio:
Aetna Vest ........................ $16.051 $18.926 17.92% 1,479,421
Aetna Vest II ..................... 16.052 18.928 17.92% 664,375
Aetna Vest Plus .................. 16.043 18.918 17.92% 10,299,964
Aetna Vest Estate Protector ...... 9.982 11.783 18.05% 553,593
Corporate Specialty Market ...... 13.201 15.566 17.92% 7,700,445
American Century VP Capital
Appreciation Fund:
Aetna Vest ........................ $12.534 $13.826 10.31% 881,640
Aetna Vest II ..................... 12.590 13.888 10.31% 294,690
Aetna Vest Plus .................. 12.419 13.698 10.31% 4,592,275
Aetna Vest Estate Protector ...... 9.511 10.503 10.43% 100,399
Corporate Specialty Market ...... 11.358 12.528 10.31% 1,351,832
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest ........................ $10.871 $13.549 24.64% 169,511
Aetna Vest II ..................... 10.871 13.549 24.64% 67,118
Aetna Vest Plus .................. 10.871 13.549 24.64% 4,134,876
Aetna Vest Estate Protector ...... 10.883 13.580 24.78% 585,334
Corporate Specialty Market ...... 12.512 15.594 24.64% 8,189,278
Fidelity Investments Variable
Insurance Products Fund:
Growth Portfolio:
Corporate Specialty Market ...... $11.255 $13.906 23.55% 5,033,748
Overseas Portfolio:
Corporate Specialty Market ...... $11.241 $13.335 18.62% 953,003
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market ...... $12.022 $14.093 17.23% 2,107,161
Contrafund Portfolio:
Aetna Vest ........................ $11.525 $14.386 24.82% 481,708
Aetna Vest II ..................... 11.525 14.386 24.82% 106,699
Aetna Vest Plus .................. 11.525 14.386 24.82% 3,455,189
Aetna Vest Estate Protector ...... 11.538 14.419 24.96% 520,560
Corporate Specialty Market ...... 12.396 15.474 24.83% 13,069,943
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest ........................ $16.153 $17.738 9.81% 905,943
Aetna Vest II ..................... 16.153 17.738 9.81% 531,805
Aetna Vest Plus .................. 16.153 17.738 9.81% 5,523,172
Aetna Vest Estate Protector ...... 9.797 10.770 9.93% 627,618
Corporate Specialty Market ...... 12.120 13.309 9.81% 2,515,370
</TABLE>
S-6
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Months Ended September 30, 1997
(unaudited & continued):
<TABLE>
<CAPTION>
Increase
Value Per Unit (Decrease)
in Value of Reserves
Beginning End of Accumulation at End
of Period Period Unit of Period
----------- --------- ----------------- -----------
<S> <C> <C> <C> <C>
Balanced Portfolio:
Aetna Vest ........................ $13.966 $16.550 18.50% 126,696
Aetna Vest II ..................... 14.075 16.679 18.50% 166,787
Aetna Vest Plus .................. 13.960 16.542 18.50% 3,046,452
Aetna Vest Estate Protector ...... 11.101 13.169 18.63% 110,546
Corporate Specialty Market ...... 12.242 14.507 18.50% 2,984,311
Growth Portfolio:
Aetna Vest ........................ $14.898 $18.346 23.14% 684,594
Aetna Vest II ..................... 14.884 18.326 23.14% 1,143,611
Aetna Vest Plus .................. 14.863 18.303 23.14% 6,587,329
Aetna Vest Estate Protector ...... 10.857 13.385 23.28% 492,886
Corporate Specialty Market ...... 12.232 15.063 23.14% 1,316,737
Short-Term Bond Portfolio:
Aetna Vest ........................ $11.289 $11.772 4.27% 7,426
Aetna Vest II ..................... 11.277 11.759 4.27% 1,534
Aetna Vest Plus .................. 11.247 11.727 4.27% 529,601
Aetna Vest Estate Protector ...... 10.389 10.818 4.13% (1) 9,958
Corporate Specialty Market ...... 10.468 10.916 4.27% 988,724
Worldwide Growth Portfolio:
Aetna Vest ........................ $16.364 $20.576 25.74% 2,234,729
Aetna Vest II ..................... 16.368 20.582 25.74% 1,184,713
Aetna Vest Plus .................. 16.348 20.556 25.74% 10,139,649
Aetna Vest Estate Protector ...... 11.811 14.868 25.88% 648,134
Corporate Specialty Market ...... 13.459 16.924 25.74% 7,111,884
Scudder Variable Life Investment
Fund--International Portfolio:
Aetna Vest ........................ $14.543 $16.692 14.78% 2,307,215
Aetna Vest II ..................... 14.453 16.589 14.78% 746,333
Aetna Vest Plus .................. 14.373 16.496 14.78% 6,951,136
Aetna Vest Estate Protector ...... 10.898 12.522 14.90% 201,188
Corporate Specialty Market ...... 12.043 13.823 14.78% 3,914,970
</TABLE>
Notes to Condensed Financial Information:
(1)--Reflects less than a full year of performance activity. Funds were
first received in this option during January 1997.
(2)--Reflects less than a full year of performance activity. Funds were
first received in this option during February 1997.
(3)--Reflects less than a full year of performance activity. Funds were
first received in this option during May 1997.
(4)--Reflects less than a full year of performance activity. Funds were
first received in this option during June 1997.
(5)--Reflects less than a full year of performance activity. Funds were
first received in this option during July 1997.
(6)--Reflects less than a full year of performance activity. Funds were
first received in this option during August 1997.
S-7
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1997 (Unaudited):
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 September 30, 1997:
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 Investment
Aetna Variable Index Plus Portfolio Fund--International Portfolio
Alger American Small
Capitalization Portfolio
American Century VP Capital
Appreciation Fund
Fidelity Investments Variable Insurance Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
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-8
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1997 (unaudited & 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 nine month periods ended September 30, 1997
and September 30, 1996 aggregated $190,520,232 and $139,757,147 and
$80,774,933 and $20,651,970, respectively.
S-9
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1997 (unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Invesments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------- ---------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund:
PolicyHolders' account values ...... $ 4,806,166 $ (759,765) $ 7,628,880 $ 5,575,341 $ 2,053,539
Aetna Income Shares:
PolicyHolders' account values ...... 371,054 (97,068) 1,779,972 1,823,228 (43,256)
Aetna Variable Encore Fund:
PolicyHolders' account values ...... 372,968 (100,707) 43,104,359 42,850,706 253,653
Aetna Investment Advisers Fund, Inc.:
PolicyHolders' account values ...... 1,720,435 (127,224) 1,636,280 1,316,961 319,319
Aetna Ascent Variable Portfolio:
PolicyHolders' account values ...... 13,550 (7,125) 779,440 770,289 9,151
Aetna Crossroads Variable Portfolio:
PolicyHolders' account values ...... 4,060 (1,903) 181,294 178,792 2,502
Aetna Legacy Variable Portfolio:
PolicyHolders' account values ...... 7,636 (2,023) 216,181 198,502 17,679
Aetna Variable Index Plus Portfolio:
PolicyHolders' account values ...... 0 (1,350) 2,893 2,642 251
Alger American Small Capitalization
Portfolio:
PolicyHolders' account values ...... 576,583 (97,515) 27,120,190 25,868,551 1,251,639
American Century VP Capital
Appreciation Fund:
PolicyHolders' account values ...... 132,455 (45,867) 3,235,827 3,442,376 (206,549)
Fidelity Investments Variable Insurance
Products Fund:
Equity-Income Portfolio:
PolicyHolders' account values ...... 1,485,715 (123,125) 11,734,663 9,571,434 2,163,229
Growth Portfolio:
PolicyHolders' account values ...... 192,233 (39,162) 6,082,672 5,284,973 797,699
Overseas Portfolio:
PolicyHolders' account values ...... 46,706 (4,712) 46,070 41,030 5,040
Fidelity Investments Variable Insurance
Products Fund II:
Asset Manager Portfolio:
PolicyHolders' account values ...... 175,953 (12,238) 96,650 91,251 5,399
Contrafund Portfolio:
PolicyHolders' account values ...... 235,708 (63,309) 4,141,445 3,321,787 819,658
Janus Aspen Series:
Aggressive Growth Portfolio:
PolicyHolders' account values ...... 0 (67,528) 15,604,169 15,153,080 451,089
Balanced Portfolio:
PolicyHolders' account values ...... 123,266 (34,252) 982,085 824,394 157,691
Growth Portfolio:
PolicyHolders' account values ...... 277,232 (61,963) 3,109,251 2,424,122 685,129
Short-Term Bond Portfolio:
PolicyHolders' account values ...... 101,542 (28,323) 3,489,096 3,386,095 103,001
Worldwide Growth Portfolio:
PolicyHolders' account values ...... 274,427 (109,951) 5,994,187 4,447,419 1,546,768
Scudder Variable Life Investment Fund--
International Portfolio:
PolicyHolders' account values ...... 264,245 (87,149) 2,791,543 2,136,253 655,290
------------ ------------ ------------- ------------- -----------
Total Variable Life Account B ...... $11,181,934 $ (1,872,259) $139,757,147 $128,709,226 $11,047,921
============ ============ ============= ============= ===========
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
- ------------- ------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 7,294,643 $31,518,299 $24,223,656 $ 7,831,916 $ 92,871,626 $131,027,138
(190,180) 350,595 540,775 4,905,304 13,179,787 18,856,596
106,394 51,381 (55,013) 5,490,419 9,092,185 15,053,505
1,383,931 2,748,202 1,364,271 1,873,923 15,791,541 20,942,265
15,645 220,169 204,524 832,228 545,378 1,597,706
(191) 48,987 49,178 283,818 123,692 461,347
20 28,909 28,889 537,581 13,963 603,725
0 22,952 22,952 853,351 0 875,204
172,057 799,979 627,922 5,253,086 13,086,083 20,697,798
(146,911) 619,963 766,874 91,398 6,482,525 7,220,836
1,096,283 1,561,726 465,443 (4,155,358) 13,310,213 13,146,117
294,867 568,043 273,176 (1,242,727) 5,052,529 5,033,748
37,941 104,008 66,067 307,575 532,327 953,003
134,978 252,377 117,399 410,462 1,410,186 2,107,161
730,883 1,835,606 1,104,723 8,625,629 6,911,690 17,634,099
249,074 976,934 727,860 (670,440) 9,662,927 10,103,908
243,163 851,665 608,502 2,005,240 3,574,345 6,434,792
566,478 1,545,448 978,970 1,171,142 7,174,647 10,225,157
26,773 22,780 (3,993) (2,462,833) 3,827,848 1,537,242
872,277 2,871,957 1,999,680 7,693,049 9,915,136 21,319,109
1,244,544 2,099,099 854,555 1,818,647 10,615,255 14,120,843
----------- ------------ ----------- ------------ ------------- -------------
$14,132,669 $49,099,079 $34,966,410 $41,453,410 $223,173,883 $319,951,299
=========== ============ =========== ============ ============= =============
</TABLE>
S-11
<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
</TABLE>
See Notes to Financial Statements
S-12
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1996 (continued):
<TABLE>
<S> <C>
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
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-13
<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>
See Notes to Financial Statements
S-14
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1996
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
----------- --------- --------------------- ------------- -------------------------
<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
</TABLE>
S-15
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1996 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
----------- --------- --------------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C>
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
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
</TABLE>
S-16
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1996 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
----------- --------- --------------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
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-17
<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 Investment
Alger American Small Fund--International Portfolio
Capitalization Portfolio TCI Portfolios, Inc.--Growth Fund
Fidelity Investments Variable
Insurance Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
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-18
<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-19
<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 Invesments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------- ---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund:
PolicyHolder's account values ......... $ 9,712,578 ($ 991,737) $ 5,373,083 $ 4,466,494 $ 906,589
Aetna Income Shares:
PolicyHolder's account values ......... 810,294 (121,325) 1,564,483 1,544,041 20,442
Aetna Variable Encore Fund:
PolicyHolder's account values ......... 477,308 (71,555) 9,490,775 9,560,169 (69,394)
Aetna Investment Advisers Fund, Inc.:
PolicyHolder's account values ......... 1,201,085 (127,990) 1,717,127 1,435,761 281,366
Aetna Ascent Variable Portfolio:
PolicyHolder's account values ......... 18,222 (1,210) 127,981 124,671 3,310
Aetna Crossroads Variable Portfolio:
PolicyHolder's account values ......... 2,462 (91) 1,317 1,263 54
Aetna Legacy Variable Portfolio:
PolicyHolder's account values ......... 671 (36) 503 486 17
Alger American Small Capitalization
Portfolio:
PolicyHolder's account values ......... 33,925 (93,143) 2,003,029 1,400,608 602,421
Fidelity Investments Variable Insurance
Products Fund:
Equity-Income Portfolio:
PolicyHolder's account values ......... 19,619 (57,181) 625,427 574,716 50,711
Growth Portfolio:
PolicyHolder's account values ......... 85,627 (30,149) 243,345 245,938 (2,593)
Overseas Portfolio:
PolicyHolder's account values ......... 14,172 (4,004) 478,644 450,003 28,641
Fidelity Investments Variable Insurance
Products Fund II:
Asset Manager Portfolio:
PolicyHolder's account values ......... 62,788 (13,383) 981,022 966,124 14,898
Contrafund Portfolio:
PolicyHolder's account values ......... 10,199 (36,829) 353,531 314,886 38,645
Janus Aspen Series:
Aggressive Growth Portfolio:
PolicyHolder's account values ......... 79,809 (68,571) 1,171,119 858,482 312,637
Balanced Portfolio:
PolicyHolder's account values ......... 70,301 (23,444) 452,062 367,517 84,545
Growth Portfolio:
PolicyHolder's account values ......... 140,964 (46,593) 808,709 590,651 218,058
Short-Term Bond Portfolio:
PolicyHolder's account values ......... 84,482 (17,596) 424,360 415,377 8,983
Worldwide Growth Portfolio:
PolicyHolder's account values ......... 105,214 (49,874) 1,127,422 777,300 350,122
Scudder Variable Life Investment Fund -
International Portfolio:
PolicyHolder's account values ......... 173,534 (85,922) 1,752,475 1,537,715 214,760
TCI Portfolios, Inc.--Growth Fund:
PolicyHolder's account values ......... 710,224 (64,504) 960,494 802,090 158,404
------------ ------------ ------------ ------------ ----------
Total Variable Life Account B ......... $13,813,478 ($ 1,905,137) $29,656,908 $26,434,292 $3,222,616
============ ============ ============ ============ ==========
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets 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>
$ 65,391 $ 7,294,643 $ 7,229,252 $ 5,056,913 $ 70,958,031 $ 92,871,626
189,278 (190,180) (379,458) 2,798,667 10,051,167 13,179,787
138,935 106,394 (32,541) 3,268,179 5,520,188 9,092,185
1,031,584 1,383,931 352,347 4,815,033 9,269,700 15,791,541
0 15,645 15,645 509,411 0 545,378
0 (191) (191) 121,458 0 123,692
0 20 20 13,291 0 13,963
595,950 172,057 (423,893) 7,688,994 5,277,779 13,086,083
28,202 1,096,283 1,068,081 11,810,807 418,176 13,310,213
(36,211) 294,867 331,078 3,470,007 1,198,559 5,052,529
21,923 37,941 16,018 (102,302) 579,802 532,327
47,435 134,978 87,543 298,650 959,690 1,410,186
10,253 730,883 720,630 5,090,135 1,088,910 6,911,690
376,606 249,074 (127,532) 5,949,433 3,517,151 9,662,927
60,589 243,163 182,574 2,648,699 611,670 3,574,345
196,848 566,478 369,630 3,974,072 2,518,516 7,174,647
6,078 26,773 20,695 3,383,696 347,588 3,827,848
227,523 872,277 644,754 7,436,957 1,427,963 9,915,136
431,463 1,244,544 813,081 2,808,258 6,691,544 10,615,255
999,727 (146,911) (1,146,638) 745,694 6,079,345 6,482,525
---------- ----------- ------------ ----------- ------------- -------------
$4,391,574 $14,132,669 $ 9,741,095 $71,786,052 $126,515,779 $223,173,883
========== =========== ============ =========== ============= =============
</TABLE>
S-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income for the three and nine months ended September 30, 1997
and 1996 (unaudited) ................................................................. F-2
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 F-3
Consolidated Statements of Changes in Shareholder's Equity for the nine months ended
September 30, 1997 and 1996 (unaudited) ............................................. F-4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
1996 (unaudited) ...................................................................... F-5
Condensed Notes to Consolidated Financial Statements as of September 30, 1997 (unaudited) F-7
Independent Auditors' Report ............................................................ F-10
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 F-11
Consolidated Balance Sheets as of December 31, 1996 and 1995 ........................... F-12
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December
31, 1996, 1995 and 1994 .............................................................. F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and F-14
1994
Notes to Consolidated Financial Statements ............................................. F-16
</TABLE>
F-1
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
----------------- ------------------
(unaudited) (unaudited)
1997 1996 1997 1996
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Premiums $ 68.2 $ 35.5 $ 200.1 $ 99.9
Charges assessed against policyholders 127.7 99.1 350.2 289.3
Net investment income 269.5 259.7 804.9 771.8
Net realized capital gains 8.8 0.1 17.9 17.2
Other income 9.6 9.4 28.8 34.6
------- ------- --------- ---------
Total revenue 483.8 403.8 1,401.9 1,212.8
Benefits and expenses:
Current and future benefits 286.5 245.6 853.4 719.1
Operating expenses 84.5 84.6 247.3 261.3
Amortization of deferred policy acquisition costs 40.1 17.9 92.4 46.6
Severance and facilities charges -- 47.3 -- 61.3
------- ------- --------- ---------
Total benefits and expenses 411.1 395.4 1,193.1 1,088.3
Income before income taxes 72.7 8.4 208.8 124.5
Income taxes 21.3 1.4 63.9 34.3
------- ------- --------- ---------
Net income $ 51.4 $ 7.0 $ 144.9 $ 90.2
======= ======= ========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- -------------
Assets (unaudited)
- ----------------------------------------------------------------- ---------------
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(amortized cost:$12,736.4 and $12,539.1) $13,257.1 $12,905.5
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $143.4 and $107.6) 166.5 119.0
Investment in affiliated mutual funds (cost: $42.0 and $77.3) 55.1 81.1
Common stock .8 .3
Short-term investments 111.8 34.8
Mortgage loans 12.9 13.0
Policy loans 453.7 399.3
---------- ----------
Total investments 14,057.9 13,553.0
Cash and cash equivalents 614.2 459.1
Accrued investment income 183.0 159.0
Premiums due and other receivables 37.3 26.6
Deferred policy acquisition costs 1,620.6 1,515.3
Reinsurance loan to affiliate 474.4 628.3
Other assets 40.1 33.7
Separate accounts assets 21,494.5 15,318.3
---------- ----------
Total assets $38,522.0 $31,693.3
========== ==========
Liabilities and Shareholder's Equity
- ----------------------------------------------------------------
Liabilities:
Future policy benefits $ 3,757.8 $ 3,617.0
Unpaid claims and claim expenses 28.0 28.9
Policyholders' funds left with the Company 11,074.5 10,663.7
---------- ----------
Total insurance reserve liabilities 14,860.3 14,309.6
Other liabilities 295.2 354.7
Income taxes:
Current 37.1 20.7
Deferred 74.8 80.5
Separate accounts liabilities 21,468.6 15,318.3
---------- ----------
Total liabilities 36,736.0 30,083.8
========== ==========
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized; 55,000
shares issued and outstanding) 2.8 2.8
Paid-in capital 418.0 418.0
Net unrealized capital gains 96.7 60.5
Retained earnings 1,268.5 1,128.2
---------- ----------
Total shareholder's equity 1,786.0 1,609.5
---------- ----------
Total liabilities and shareholder's equity $38,522.0 $31,693.3
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
9 Months Ended September 30,
----------------------------
(unaudited)
1997 1996
---------- -------------
Shareholder's equity, beginning of year $1,609.5 $ 1,583.0
Net change in unrealized capital gains 36.2 (93.4)
Net income 144.9 90.2
Common stock dividends (8.3) (1.5)
Other changes 3.7 --
-------- ----------
Shareholder's equity, end of period $1,786.0 $ 1,578.3
======== ==========
See Condensed Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
9 Months Ended September 30,
----------------------------
(unaudited)
1997 1996
------------ -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 144.9 $ 90.2
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Increase in accrued investment income (24.0) (13.0)
Increase in premiums due and other receivables (8.8) (2.3)
Increase in policy loans (54.4) (29.5)
Increase in deferred policy acquisition costs (105.3) (127.2)
Decrease in reinsurance loan to affiliate 153.9 22.1
Net increase in universal life account balances 224.1 172.5
Decrease in other insurance reserve liabilities (165.5) (125.2)
Net (decrease) increase in other liabilities and other assets (122.4) 126.8
Decrease in income taxes (3.9) (23.5)
Net accretion of discount on investments (51.9) (51.1)
Net realized capital gains (17.9) (17.2)
---------- ----------
Net cash (used for) provided by operating activities (31.2) 22.6
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 3,828.5 3,830.6
Equity securities 61.3 114.5
Mortgage loans 0.1 8.6
Investment maturities and collections of:
Debt securities available for sale 966.8 681.8
Short-term investments 43.2 21.5
Cost of investment purchases in:
Debt securities available for sale (4,811.0) (4,996.5)
Equity securities (53.6) (63.7)
Short-term investments (120.1) (35.5)
Other, net -- (9.1)
---------- ----------
Net cash used for investing activities (84.8) (447.8)
---------- ----------
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows (Continued)
(millions)
<TABLE>
<CAPTION>
9 Months Ended Sept. 30,
--------------------------
(unaudited)
1997 1996
---------- -------------
<S> <C> <C>
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts $1,230.2 $ 1,140.6
Withdrawals of investment contracts (925.8) (860.7)
Dividends paid to shareholder (8.3) (1.5)
Capital contribution to Separate Account (25.0) --
-------- ----------
Net cash provided by financing activities 271.1 278.4
-------- ----------
Net increase (decrease) in cash and cash equivalents 155.1 (146.8)
Cash and cash equivalents, beginning of period 459.1 568.8
-------- ----------
Cash and cash equivalents, end of period $ 614.2 $ 422.0
-------- ----------
Supplemental cash flow information:
Income taxes paid, net $ 68.7 $ 61.4
======== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. (collectively, the "Company"). Aetna Life
Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement
Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna
Retirement Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1996 financial information to conform to
the 1997 presentation. These interim statements necessarily rely heavily on
estimates, including assumptions as to annualized tax rates. In the opinion of
management, all adjustments necessary for a fair statement of results for the
interim periods have been made. All such adjustments are of a normal, recurring
nature. The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes as presented in the Company's 1996 Annual Report on Form 10-K. Certain
financial information that is normally included in annual financial statements
prepared in accordance with generally accepted accounting principles, but that
is not required for interim reporting purposes, has been condensed or omitted.
2. Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued in
June 1996 and provides accounting and reporting standards for transfers of
financial assets and extinguishments of liabilities.
FAS No. 125 is effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending are not effective until January 1, 1998. Provisions effective in 1997
did not have a material effect on the Company's financial position or results
of operations. The Company does not expect adoption of this statement for
provisions effective in 1998 to have a material effect on its financial
position or results of operations.
FAS No. 130, Reporting Comprehensive Income, was issued in June 1997 and
establishes standards for the reporting and presentation of comprehensive
income and its components in a full set of financial statements. Comprehensive
income encompasses all changes in shareholder's equity (except those arising
from transactions with owners) and includes net income, net unrealized capital
gains or losses on available for sale securities. As this new standard only
requires additional information in a financial statement, it will not affect
the Company's financial position or results of operations. FAS No. 130 is
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted. The Company is currently evaluating the presentation
alternatives permitted by the statement.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (Continued)
2. Future Application of Accounting Standards (Continued)
FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes FAS No. 14, Financial Reporting for Segments
of a Business Enterprise, which requires reporting segment information by
industry and geographic area (industry approach). Under FAS No. 131, operating
segments are defined as components of a company for which separate financial
information is available and is used by management to allocate resources and
assess performance (management approach). This statement is effective for
year-end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company
does not anticipate that this standard will significantly impact the
composition of its current operating segments, which are consistent with the
management approach.
3. Financial Instruments
The Company engages in hedging activities to manage interest rate and price
risks. Such hedging activities have principally consisted of using off-balance
sheet instruments such as futures and forward contracts and interest rate swap
agreements. There were no such contracts or agreements open as of September 30,
1997.
4. Severance and Facilities Charges
In the second quarter of 1996, the Company was allocated severance and
facilities reserves from Aetna to reflect actions taken or to be taken to
reduce the level of corporate expenses and other costs previously absorbed by
Aetna's property-casualty operations.
In the third quarter of 1996, the Company established severance and facilities
reserves in the Financial Services and Individual Life Insurance segments to
reflect actions taken or to be taken in order to make its businesses more
competitive.
Activity for the nine months ended September 30, 1997 within the severance and
facilities reserves (pretax, in millions) and positions eliminated related to
such actions were as follows:
Reserve Positions
---------- ----------
Balance at December 31, 1996 ...... $ 47.9 524
Actions taken (1) .................. (19.5) (129)
-------- -----
Balance at September 30, 1997 ...... $ 28.4 395
======== =====
(1) Includes $9.9 million of severance-related actions and $7.0 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed by
March 31, 1998. The corporate allocation actions and vacating of certain leased
office space are expected to be substantially completed in 1997.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (Continued)
5. Related Party Transactions
Effective December 31, 1988, the Company entered into a reinsurance agreement
with Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the nonparticipating individual life and annuity business written by Aetna Life
prior to 1981 was assumed by the Company. Effective January 1, 1997, this
agreement has been amended to transition (based on underlying investment
rollover in Aetna Life) from a modified coinsurance to a coinsurance
arrangement. As a result of this change, reserves will be ceded to the Company
from Aetna Life as investment rollover occurs and the loan previously
established will be reduced.
6. Litigation
The Company is involved in numerous lawsuits arising, for the most part, in the
ordinary course of its business operations. While the ultimate outcome of
litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related 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.
7. Dividends
On June 27, 1997 and August 15, 1997, the Company paid a $5.3 million and $3.0
million, respectively, dividend to HOLDCO. The additional amount of dividends
that may be paid by the Company to HOLDCO in 1997 without prior approval by the
Insurance Commissioner of the State of Connecticut is $62.8 million.
F-9
<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-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)--
<TABLE>
<CAPTION>
December 31,
-------------------------
Assets 1996 1995
- ------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
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 Accounts 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 Accounts 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
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
---------- ------------- -------------
<S> <C> <C> <C>
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
======== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement 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)
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows (Continued)
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
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
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
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
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.
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.
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)
1. Summary of Significant Accounting Policies (Continued)
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 investments, 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.
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.
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)
1. Summary of Significant Accounting Policies (Continued)
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.
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
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)
1. Summary of Significant Accounting Policies (Continued)
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.
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-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)
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-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)
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>
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.
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)
2. Investments (Continued)
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.
Included in the Company's total debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
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)
2. Investments (Continued)
<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.
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
------- ------ ----- --------
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)
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.
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
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)
3. Financial Instruments (Continued)
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.
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:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- ----------
(millions)
<S> <C> <C>
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
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
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)
4. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
(millions)
<S> <C> <C> <C>
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
========= ========= ========
</TABLE>
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.
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
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)
6. Capital Gains and Losses on Investment Operations (Continued)
Net realized capital gains on investments were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
(millions)
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
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 policy-holder
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
Changes in shareholder's equity related to changes in unrealized capital gains
(losses), (excluding those related to experience rated contractholders), were
as follows:
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)
6. Capital Gains and Losses on Investment Operations (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------- ------------
(millions)
<S> <C> <C> <C>
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)
========== ======== =========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
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)
======== ======== =========
</TABLE>
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)
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.
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
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)
8. Income Taxes (Continued)
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-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)
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:
<TABLE>
<CAPTION>
1996 1995
------- -----
(millions)
<S> <C> <C>
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
====== ======
</TABLE>
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.
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.
F-31
<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
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 certain 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.
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.
F-32
<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)
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.
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.
F-33
<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)
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.
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.
F-34
<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)
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.
The following table includes premium amounts ceded/assumed to/from affiliated
companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
--------- ----------- ------------ --------
(millions)
<S> <C> <C> <C> <C>
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
======== ======= ======= ========
</TABLE>
F-35
<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
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.
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.
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
- ----------------------------------- ---------- ---------- ----------
F-36
<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) (Continued)
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-37
<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.
REPRESENTATION PURSUANT TO PARAGRAPH (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.
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 1 to Registration Statement No. 333-15817 is
comprised of the following papers and documents:
The facing sheet
A cross-reference sheet
One supplement to the Prospectus for the Flexible Premium Group Variable
Universal Life Insurance Policy consisting of 66 pages
The undertaking to file reports
The undertaking pursuant to Rule 484
Representation pursuant to Section 26(e)(2)(A) of the Investment Company
Act of 1940
The signatures
Written consents of the following persons:
A. Consent of Counsel (included as part of Exhibit 2 below)
B. Actuarial Consent (included as part of Exhibit 6 below)
C. Consent of Independent Auditors (included as Exhibit 7 below)
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)
(3)(v) Restated and Amended Third Party Administration and Transfer
Agent Agreement(2)
(4) Not Applicable
(5)(i) Form of Group Policy (70267-97)(3)
(5)(ii) Form of Certificate Under Group Policy (70263-97)(3)
(5)(iii) Form of Disability Benefit Rider (70264-97)(3)
(5)(iv) Form of Accelerated Death Benefit Rider (70265-97)(3)
(5)(v) Form of Accidental Death Benefit Rider (70266-97)(3)
(5)(vi) Accelerated Death Benefit Disclosure Statement(3)
(5)(vii) Children Insurance Rider Term Insurance (70267-97)(3)
(6)(i) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company, Depositor(4)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(5)
(6)(iii) By-Laws, as amended September 17, 1997, of Aetna Life
Insurance and Annuity Company(6)
(7) Not Applicable
<PAGE>
(8)(i) 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(5)
(8)(ii) Fifth Amendment, dated as of May 1, 1997, to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994 and
amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996, and March 1, 1996(7)
(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(5)
(8)(iv) Fifth Amendment, dated as of May 1, 1997, to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994 and
amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996, and March 1, 1996(7)
(8)(v) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investment Institutional Operations
Company dated as of November 1, 1995(8)
(8)(vi) Amendment dated January 1, 1997 to Service Agreement between
Aetna Life Insurance and Annuity Company and Fidelity
Investments Institutional Operations Company dated as of
November 1, 1995(7)
(8)(vii) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Janus Aspen Series dated April 19,
1994 and amended June 15, 1994, July 31, 1995, and March 1,
1996(7)
(9) Not Applicable
(10)(i) Form of Application for Group Variable Universal Life
Insurance (Application for Group Policy) (70262-97NYApp)(3)
(10)(ii) Form of Supplement to Application for Variable Life
Insurance (Supplement to Application for Certificate)
(70268-97)(3)
(10)(iii) Form of Application for Individual Life Insurance Policy New
York (Application for Certificate) (70095- 96NY)(3)
(10)(iv) Form of Application for Group Life Insurance Policy
(Application No. 70272-97(A)ZNY)(3)
(11) Issuance, Transfer and Redemption Procedures(3)
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
5. See Item (27) below
6. Actuarial Opinion and Consent
7. Consent of Independent Auditors
8. Copy of Power of Attorney9
(27) Financial Data Schedule
<PAGE>
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 (Accession No. 0000912057-
96-0027723).
2. Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on
April 25, 1995.
3. Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form S-6 (File No. 333-15817), as filed
electronically on July 17, 1997 (Accession No. 0000950146-97-
001071).
4. 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 (Accession No.
0000950146-96-000534).
5. 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 (Accession No.
0000950146-97-000159).
6. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-91846), as filed
electronically on October 30, 1997 (Accession No.
0000950146-97-001589).
7. Incorporated by Reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on September 29, 1997 (Accession No.
0000950146-97-001485).
8. 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 (Accession No.
0000928389-96-000136).
9. Incorporated by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on September 29, 1997 (Accession No. 0000950146-97-001485).
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
(Accession No. 0000912057-96-006383).
<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 the requirements of Securities Act Rule 485(b) for effectiveness
of this Post-Effective Amendment to its Registration Statement on Form S-6 (File
No. 333-15817) and has duly caused this Post-Effective Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, and the seal of the
Depositor to be hereunto affixed and attested, all in the City of Hartford, and
State of Connecticut, on this 25th day of November, 1997.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Karen A. Peddle AETNA LIFE INSURANCE AND
----------------------------- ANNUITY COMPANY
Karen A. Peddle (Depositor)
Assistant Corporate Secretary
By: Thomas J. McInerney*
----------------------------
Thomas J. McInerney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement No. 333-15817 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>
Thomas J. McInerney* Director and President )
- --------------------- (Principal Executive Officer) )
Thomas J. McInerney )
)
Christopher J. Burns* Director )November
- --------------------- )
Christopher J. Burns )25, 1997
)
Timothy A. Holt* Director and Chief Financial Officer )
- --------------------- )
Timothy A. Holt )
)
<PAGE>
)
John Y. Kim* Director )
- --------------------- )
John Y. Kim )
)
)
Shaun P. Mathews* Director )
- --------------------- )
Shaun P. Mathews )
)
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 *
99-1.3(v) Restated and Amended Third Party Administration and Transfer Agent *
Agreement
99-1.5(i) Form of Group Policy (70267-97) *
99-1.5(ii) Form of Certificate Under Group Policy (70263- 97) *
99-1.5(iii) Form of Disability Benefit Rider (70264-97) *
99-1.5(iv) Form of Accelerated Death Benefit Rider (70265-97) *
99-1.5(v) Form of Accidental Death Benefit Rider (70266- -97) *
99-1.5(vi) Accelerated Death Benefit Disclosure Statement *
99-1.5(vii) Children Insurance Rider Term Insurance (70267-97) *
99-1.6(i) Certification of Incorporation of Aetna Life Insurance and Annuity *
Company
99-1.6(ii) Amendment of Certificate of Incorporation of Aetna Life Insurance *
and Annuity Company
99-1.6(iii) By-Laws, as amended September 17, 1997, of Aetna Life Insurance and *
Annuity Company
</TABLE>
*Incorporated by Reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.8(i) 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
99-1.8(ii) Fifth Amendment, dated as of May 1, 1997, to the Fund Participation *
Agreement between Aetna Life Insurance and Annuity Company,
Variable Insurance Products Fund and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996, and March 1,
1996
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) Fifth Amendment, dated as of May 1, 1997, to the Fund Participation *
Agreement between Aetna Life Insurance and Annuity Company,
Variable Insurance Products Fund II and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996, and March 1,
1996
99-1.8(v) Service Agreement between Aetna Life Insurance and Annuity Company *
and Fidelity Investment Institutional Operations Company dated as
of November 1, 1995
99-1.8(vi) Amendment dated January 1, 1997 to Service Agreement between Aetna *
Life Insurance and Annuity Company and Fidelity Investments
Institutional Operations Company dated as of November 1, 1995
99-1.8(vii) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Janus Aspen Series dated April 19, 1994 and
amended June 15, 1994 and July 31, 1995, and March 1, 1996
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.10(i) Form of Application for Group Variable Universal Life Insurance *
(Application for Group Policy) (70262-97NYApp)
99-1.10(ii) Form of Supplement to Application for Variable Life Insurance *
(Supplement to Application for Certificate) (70268-97)
99-1.10(iii) Form of Application for Individual Life Insurance Policy New York *
(Application for Certificate) (70095-96NY)
99-1.10(iv) Form of Application for Group Life Insurance Policy (Application *
No. 70272-97(A)ZNY)
99-1.11 Issuance, Transfer and Redemption Procedures *
99-2 Opinion and Consent of Counsel ------
99-6 Actuarial Opinion and Consent ------
99-7 Consent of Independent Auditors ------
99-8 Copy of Power of Attorney *
27 Financial Data Schedule ------
</TABLE>
*Incorporated by reference
[Aetna logo]
[Aetna letterhead]
151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
November 25, 1997
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Re: Aetna Life Insurance and Annuity Company and its
Variable Life Account B
Post-Effective Amendment No. 1 to the Registration Statement on Form S-6
Prospectus Title: Flexible Premium Group Variable Universal Life
Insurance for New York United Teachers Benefit Trust ("NYSUT Trust")
SEC File Nos. 333-15817 and 811-4536
Gentlemen:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act")
pursuant to Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I have reviewed the S-6 Registration Statement,
as amended to the date hereof, and this Post-Effective Amendment No. 1 (the
"Registration Statement"). I have also examined originals or copies, certified
or otherwise identified to my satisfaction, of such documents, trust records and
other instruments I have deemed necessary or appropriate for the purpose of this
opinion. For purposes of such examination, I have assumed the genuineness of all
signatures on original documents and the conformity to the original of all
copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, I am of the opinion that the Securities have been
legally authorized and, assuming that the Securities are issued and sold in
accordance with the provisions of the prospectus being registered, will be
legally issued.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
Jo-Anne Rankin, FSA, MAAA
Pricing Actuary
Life Products Group, TN41
(860) 273-4436
November 18, 1997 (860) 273-4438 Fax
Re: NYSUT Opportunity Lifeline (File No. 333-15817)
Dear Sir or Madam:
In my capacity as Actuary of Aetna Life Insurance and Annuity Company (ALIAC), I
have provided actuarial advice concerning ALIAC's NYSUT Opportunity Lifeline
Variable Life Insurance Policy (the "Policy"). I also provided actuarial advice
concerning the preparation of Post-Effective Amendment No. 1 to Registration
Statement on Form S-6, File No. 333-15817 (the "Registration Statement") for
filing with the Securities and Exchange Commission under the Securities Act of
1933 in connection with the Policy.
In my opinion the illustrations of benefits under the Policy included in the
prospectus under the caption "Illustrations of Death Benefit and Total Account
Values" are, based on the assumptions stated in the illustrations, consistent
with the provisions of the Policy. Also, in my opinion the age selected in the
illustrations is representative of the manner in which the Policy operates.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Jo-Anne Rankin
Jo-Anne Rankin
Pricing Actuary
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 in registration statement (No. 333-15817) on Form S-6.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
November 25, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000785986
<NAME> Aetna Variable Life Account B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 209,041,214
<INVESTMENTS-AT-VALUE> 223,173,883
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 223,173,883
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 0
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 223,173,883
<DIVIDEND-INCOME> 13,813,478
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,905,137
<NET-INVESTMENT-INCOME> 11,908,341
<REALIZED-GAINS-CURRENT> 3,222,616
<APPREC-INCREASE-CURRENT> 9,741,095
<NET-CHANGE-FROM-OPS> 24,872,052
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 FOR AETNA LIFE INSURANCE AND ANNUITY COMPANY AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000785986
<NAME> AETNA LIFE INSURANCE AND ANNUITY COMPANY
<MULTIPLIER> 1,000,000
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 12,906
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 200
<EQUITIES> 13
<MORTGAGE> 0
<REAL-ESTATE> 13,553
<TOTAL-INVEST> 459
<CASH> 10
<RECOVER-REINSURE> 1,515
<DEFERRED-ACQUISITION> 31,693
<TOTAL-ASSETS> 3,617
<POLICY-LOSSES> 1
<UNEARNED-PREMIUMS> 28
<POLICY-OTHER> 10,664
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
3
<COMMON> 1,607
<OTHER-SE> 31,693
<TOTAL-LIABILITY-AND-EQUITY> 134
1,046
<INVESTMENT-INCOME> 20
<INVESTMENT-GAINS> 45
<OTHER-INCOME> 969
<BENEFITS> 0
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 199
<INCOME-PRETAX> 58
<INCOME-TAX> 141
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 141
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000785986
<NAME> Aetna Variable Life Account B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 270,852,220
<INVESTMENTS-AT-VALUE> 319,951,299
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 319,951,299
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 319,951,299
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 319,951,299
<DIVIDEND-INCOME> 11,181,934
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (1,872,259)
<NET-INVESTMENT-INCOME> 9,309,675
<REALIZED-GAINS-CURRENT> 11,047,921
<APPREC-INCREASE-CURRENT> 34,966,410
<NET-CHANGE-FROM-OPS> 55,324,006
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-Q FOR THE FISCAL QUARTER ENDED
SEPTEMBER 30, 1997 FOR AETNA LIFE INSURANCE AND ANNUITY COMPANY AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000785986
<NAME> Aetna Life Insurance and Annuity Company
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 13,257
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 222
<MORTGAGE> 13
<REAL-ESTATE> 0
<TOTAL-INVEST> 14,058
<CASH> 614
<RECOVER-REINSURE> 9
<DEFERRED-ACQUISITION> 1,621
<TOTAL-ASSETS> 38,522
<POLICY-LOSSES> 3,758
<UNEARNED-PREMIUMS> 1
<POLICY-OTHER> 27
<POLICY-HOLDER-FUNDS> 11,075
<NOTES-PAYABLE> 0
0
0
<COMMON> 3
<OTHER-SE> 1,783
<TOTAL-LIABILITY-AND-EQUITY> 38,522
200
<INVESTMENT-INCOME> 805
<INVESTMENT-GAINS> 18
<OTHER-INCOME> 29
<BENEFITS> 853
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<INCOME-PRETAX> 209
<INCOME-TAX> 64
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<EXTRAORDINARY> 0
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<CUMULATIVE-DEFICIENCY> 0
</TABLE>
