Supplement to Prospectus Dated May 1, 1997
AetnaVest Plus
Aetna Life Insurance and Annuity Company
Variable Life Account B
The prospectus dated May 1, 1997 and supplemented on August 21, 1997 is
amended as follows:
Cover:
The following Funds are added to the list of variable options available
through the Separate Account as of March 9, 1998.
Oppenheimer Global Securities Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners, Inc. MFS Value Equity Portfolio
Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio
The Date of this Supplement is February 25, 1998
Form No. X.76018-97-1
1
<PAGE>
Prospectus - Page 2
In the Section Allocation of Premiums, the following Funds are added as of
March 9, 1998:
Oppenheimer Global Securities Fund seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which are
considered to have appreciation possibilities. Current income is not an
objective. These securities may be considered to be speculative.
Oppenheimer Strategic Bond Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance such
income by writing covered call options on debt securities. The Fund intends to
invest principally in: (i) foreign government and corporate debt securities,
(ii) U.S. Government securities, and (iii) lower-rated high yield domestic debt
securities, commonly known as "junk bonds", which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
These securities may be considered to be speculative.
Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital
appreciation by investing primarily in common stocks.
Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, seeks to increase dividend income
by investing primarily in common stocks issued by a diversified group of
well-established growth companies.
OppenheimerFunds, Inc. serves as the investment adviser to the Oppenheimer
Global Securities and Strategic Bond Funds. Aetna Life Insurance and Annuity
Company serves as the investment adviser to each Portfolio of Portfolio
Partners, Inc. Massachusetts Financial Services Company ("MFS") serves as the
subadviser to the MFS Value Equity Portfolio, and T. Rowe Price Associates,
Inc. serves as the subadviser to the T. Rowe Price Growth Equity Portfolio.
Prospectus - Page 7
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>
Oppenheimer Global Securities Fund .......................... 0.73% 0.08% 0.81%
Oppenheimer Strategic Bond Fund ............................. 0.75% 0.10% 0.85%
Portfolio Partners, Inc. MFS Value Equity Portfolio ......... 0.65% 0.25% 0.90%(1)
Portfolio Partners, Inc. T. Rowe Price Growth
Equity Portfolio ........................................... 0.60% 0.15% 0.75%(1)
</TABLE>
(1) Each Portfolio's aggregate expenses are limited to the advisory and
administrative fees disclosed above through April 30, 1999. Without those
limits, the aggregate expenses for the fiscal year ended December 31, 1997 are
estimated to be as follows: .90% for the MFS Value Equity Portfolio; and .79%
for the T. Rowe Price Growth Equity Portfolio.
2
<PAGE>
Prospectus - Page 21--Directors and Officers
The list of directors and officers under Directors and Officers is replaced
by the following:
<TABLE>
<CAPTION>
Name and Address* Position with Company Business Experience During Past 5 Years
- ----------------- --------------------- ---------------------------------------
<S> <C> <C>
Thomas J. McInerney Director, President and Chairman, President (since September 1997), Aetna Life
Executive Committee (Principal Insurance and Annuity Company; President (since
Executive Officer) September 1997), 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.
J. Scott Fox Director and Senior Vice President Managing Director, Chief Operating Officer, 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.
Timothy A. Holt Director, Senior Vice President and Senior Vice President, Business Strategy &
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 President (since December 1995), Aeltus 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 President Senior Vice President, Product 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.
Thomas P. Waldron Director Vice President, Human Resources (since 1995), Aetna
Inc.; Senior Vice President, Human Resources (1990 to
1995), Nielson Marketing Research, Chicago, Illinois.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name and Address* Position with Company Business Experience During Past 5 Years
- ---------------------- --------------------------------- ------------------------------------------------------
<S> <C> <C>
Kirk P. Wickman Vice President, General Counsel Vice President, General Counsel and Corporate
and Corporate Secretary Secretary (since November 1996), Aetna Life Insurance and
Annuity Company; Vice President and Counsel (June 1992 -
November 1996), Aetna Life Insurance Company.
Deborah Koltenuk Vice President and Treasurer, Vice President, Investment Planning and Financial
Corporate Controller 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 (since
Compliance Officer 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.
4
<PAGE>
Prospectus - Page 25
A new subsection under Additional Information is added as follows:
Year 2000
Aetna Inc. (referred to collectively with its subsidiaries and affiliates as
"Aetna"), has developed and is currently executing a plan to make its computer
systems and applications accommodate date-sensitive information relating to the
Year 2000. The plan covers four stages including (i) inventory, (ii) assessment,
(iii) remediation and (iv) testing and certification. Aetna is currently in the
assessment or remediation stages of its plan for the systems and applications
related to the Separate Account, including those relating to the Company, and
Aeltus Investment Management, Inc., the subadviser to most Aetna affiliated
mutual funds. Testing and certification of these systems is targeted for
completion by mid 1999. The costs of these efforts will not affect the Separate
Account.
The Company, its affiliates and the mutual funds that serve as investment
options for the Separate Account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna is currently examining its relationships with third parties as part
of its Year 2000 plan. While the Company believes that United States securities
industry participants generally are preparing their computer systems and
applications to accommodate Year 2000 date-sensitive information, preparation by
third parties is outside the Company's control. There can be no assurance that
failure of third parties to complete adequate preparations in a timely manner,
and any resulting systems interruptions or other consequences, would not have an
adverse effect, directly or indirectly, on the Separate Account, including,
without limitation, its operation or the valuation of its assets and units.
Prospectus - Page 31
The fifth paragraph under Illustrations of Death Benefit, Total Account Values
and Cash Surrender Values is replaced with the following which supersedes the
comparable information contained in the supplement to prospectus dated August
21, 1997.
The investment advisory fees and other Fund expenses vary by fund from 0.35% to
1.00%. A weighted average has been used for the illustrations assuming the
Policyowner has invested in the funds as follows: 56% in Aetna Variable Fund; 6%
in Aetna Income Shares; 4% in Aetna Variable Encore Fund; 7% in Aetna Investment
Advisers Fund; 0% in the Aetna Ascent Variable Portfolio; 0% in the Aetna
Crossroads Variable Portfolio; 0% in the Aetna Legacy Variable Portfolio; 0% in
the Aetna Variable Index Plus Fund; 4% in the Portfolio Partners MFS Research
Growth Portfolio; 5% in the Portfolio Partners MFS Emerging Equities Portfolio;
1% in Fidelity's Contrafund Portfolio; 1% in Fidelity's Equity-Income Portfolio;
3% in Janus Aspen Growth Portfolio; 3% in Janus Aspen Aggressive Growth
Portfolio; 4% in Janus Aspen Worldwide Growth Portfolio; 1% in Janus Aspen
Balanced Portfolio; 5% in Portfolio Partners Scudder International Growth
Portfolio; 0% in the Oppenheimer Global Securities Fund; 0% in the Oppenheimer
Strategic Bond Fund; 0% in the Portfolio Partners MFS Value Equity Portfolio;
and 0% in the Portfolio Partners T. Rowe Price Growth Equity Portfolio.
5
<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
</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>
See Notes to Financial Statements
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1997 (unaudited & continued):
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
============
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:
<TABLE>
<S> <C>
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 Fund--
Aetna Variable Index Plus Portfolio 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
</TABLE>
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>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
FINANCIAL STATEMENTS
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
</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)
<TABLE>
<CAPTION>
9 Months Ended September 30,
-----------------------------
(unaudited)
1997 1996
---- ----
<S> <C> <C>
Shareholder's equity, beginning of year $ 1,609.5 $ 1,583.0
Net change in unrealized capital gains (losses) 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
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement 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 September 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
(unaudited)
1. Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company of
America and Aetna Private Capital, Inc. (collectively, the "Company"). Aetna
Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna
Retirement 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)
(unaudited)
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)
(unaudited)
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
