As filed with the Securities and Exchange Registration No. 33-76004*
Commission on April 13, 1998 Registration No. 811-4536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 11 TO
REGISTRATION STATEMENT
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
- --------------------------------------------------------------------------------
Variable Life Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06l56
Depositor's Telephone Number, including Area Code: (860) 273-4686
- --------------------------------------------------------------------------------
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 May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________________ pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
*Pursuant to Rule 429(a) under the Securities Act of 1933, the Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the securities covered by Registration Statement No. 33-02339.
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
Form N-8B-2
Item No. Part I - Prospectus
- ----------- -------------------
1 Cover Page; Description of the Company and the Separate Account
2 Cover Page; Description of the Company and the Separate Account
3 Not Applicable
4 Cover Page; Description of the Company; Distribution of the
Policies
5 Description of the Company and the Separate Account
6 Description of the Company and the Separate Account
7 Not Applicable
8 Financial Statements
9 Legal Matters
10 "What Choices Do You Make When You Buy a Policy?"; "What Charges
or Deductions Are Made Under the Policy?"; "Right to Instruct
Voting of Fund Shares"; "How Might Your Policy Lapse?"; "If a
Policy Has Lapsed, Can You Reinstate the Policy"; "How is the
Value of Your Policy Computed?"; "What is an Accumulation Unit,
and How is it Calculated?"; "What is the Cash Surrender Value of
Your Policy"; "What is the Maturity Value of Your Policy?"; "Can
You Borrow on Your Policy?"; "What is the "Free-Look Period"?";
"How will the Death Benefit be Paid?"; "Settlement Options";
"Additional Information"; "Miscellaneous Contract Provisions"
11 Cover Page; "Premium Allocation"; Description of the Company and
the Separate Account
12 Not Applicable
13 Summary of Charges and Fees For AetnaVest and AetnaVest II; "What
Charges or Deductions Are Made Under the Policy?"; "When Does the
Surrender Charge Apply?"
14 "What Happens When Your Premium Payment is Made"; "How is the
Value of Your Policy Computed? "; "What is An Accumulation Unit,
and How is it Calculated?"
15 "What Choices Do You Make When You Buy a Policy?"; "What Happens
When Your Premium Payment is Made?"; "How is the Value of Your
Policy Computed?"; "What is An Accumulation Unit, and How is it
Calculated?"
<PAGE>
Form N-8B-2
Item No. Part I - Prospectus
- ----------- -------------------
16 "How is the Value of Your Policy Computed?"; "What Choices Do You
Make When You Buy a Policy?"; "What Happens When Your Premium
Payment is Made"
17 "What is the Cash Surrender Value of Your Policy?"; "When Does
the Surrender Charge Apply?" "Can You Borrow on Your Policy?"
18 Tax Matters
19 Reports to Policy Owners; Right to Instruct Voting of Fund
Shares; Records and Accounts
20 Not Applicable
21 "Can You Borrow on Your Policy?"
22 Not Applicable
23 Directors and Officers of the Company
24 Miscellaneous Contract Provisions
25 The Company
26 Not Applicable
27 The Company
28 The Company; Directors and Officers of the Company
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information
36 Not Applicable
37 Not Applicable
38 Additional Information
39 The Company
40 Not Applicable
41 The Company
42 Not Applicable
43 Not Applicable
44 "How is the Value of Your Policy Computed?"; "What is an
Accumulation Unit, and How is it Calculated?"
45 Not Applicable
46 Illustrations of Death Benefits, Total Account Values
and Cash Surrender Values for AetnaVest Policies;
Illustrations of Death Benefits, Total Account Values
and Cash Surrender Values for AetnaVest II Policies
47 "What Choices Do You Make When You Buy a Policy?"; "How is the
Value of Your Policy Computed?"
48 Not Applicable
<PAGE>
Form N-8B-2
Item No. Part I - Prospectus
- ----------- -------------------
49 Not Applicable
50 Not Applicable
51 Not Applicable
52 The Separate Account
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
<PAGE>
[AETNA LOGO]
AetnaVest & AetnaVest II
Variable Life Account B
Prospectus
Dated: May 1, 1998
Aetna Life Insurance and
Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Telephone: (800) 334-7586
- --------------------------------------------------------------------------------
Flexible Premium Variable Life Insurance Policies
- --------------------------------------------------------------------------------
The Policies offered in connection with this Prospectus are two types of
variable life insurance policies issued by Aetna Life Insurance and Annuity
Company (the "Company" or "we"): AetnaVest and AetnaVest II. These policies are
intended to provide life insurance benefits, and are designed to allow flexible
premium payments, a choice of underlying funding options, and a choice of two
death benefit options. Your policy value will vary with the investment
performance of the underlying funding options you choose. The amount of death
benefit payable by the Company upon the death of the Insured may also increase
or decrease depending on the investment performance of the underlying funding
options. Policy values may be used to continue your policy in force, may be
borrowed with certain limits, and may be fully or partially surrendered (subject
to a surrender charge).
You may also choose to select one of the annuity settlement options upon
maturity of the Policy, or, prior to maturity of the Policy, you may apply the
value of your Policy (minus any applicable surrender charges and the amount
necessary to repay any loans in full) to one of the annuity settlement options.
Upon death of the Insured, the beneficiary will be paid the value of the Death
Benefit Option (a) in one lump sum, or (b) under one of the annuity settlement
options.
The Policies have a Free-Look Period during which you may return them to
our Home Office for a refund. The refund may be more or less than the premiums
paid. (See "What Is the Free-Look Period?")
The following funding options are available under the Policies: Under the
variable portion of the Policies, the Company offers the following open-end
management investment companies (commonly called mutual funds), each with a
different investment objective (collectively, the "Funds"):
[bullet] Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment
Advisers Fund, Inc.)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP
[bullet] Aetna Crossroads VP (formerly Aetna Crossroads Portfolio)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP
[bullet] Aetna Index Plus Large Cap VP (formerly Aetna
Variable Index Plus Portfolio)
[bullet] Aetna Legacy VP (formerly Aetna Legacy Variable
Portfolio)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Oppenheimer Global Securities Fund
[bullet] Oppenheimer Strategic Bond Fund
[bullet] Portfolio Partners MFS Emerging Equities
Portfolio
[bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Portfolio Partners Scudder International Growth
Portfolio
[bullet] Portfolio Partners T. Rowe Price Growth Equity
Portfolio
The fixed interest option offered under these Policies is the Fixed
Account. Amounts held in the Fixed Account are guaranteed and will earn a
minimum interest rate of 4.5%. Unless specifically mentioned, this Prospectus
only describes the variable investment options.
Not all Funds may be available under all Policies or in all jurisdictions.
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with these Policies.
<PAGE>
This entire Prospectus, and those of the Funds, should be read carefully to
understand the Policies being offered. The Statement of Additional Information
("SAI") for any of the Funds may be obtained by calling (800) 334-7586.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES
FOR THE FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
THIS PROSPECTUS AND OTHER INFORMATION ABOUT VARIABLE LIFE ACCOUNT B
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE FOUND
IN THE SEC'S WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION, OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Definitions ............................................ 5
Summary of Charges and Fees for
AetnaVest and AetnaVest II ............................. 7
What Choices Do You Make When You
Buy a Policy? .......................................... 8
Death Benefit Options ............................... 8
Premiums ............................................ 8
Premium Allocation .................................. 9
Mixed and Shared Funding ............................... 12
What Happens When Your Premium
Payment is Made? ....................................... 12
How Is the Value of Your Policy Computed? .............. 12
What Is an Accumulation Unit, and
How Is It Calculated? .................................. 13
Can You Make Transfers Among the
Funding Options? ....................................... 13
Telephone Transfers ................................. 14
Automated Transfers (Dollar Cost Averaging) ......... 14
What Is the Maturity Value of Your Policy? ............. 15
What Is the Cash Surrender Value of
Your Policy? ........................................... 15
What Charges or Deductions Are Made
Under the Policy? ...................................... 15
When Does the Surrender Charge Apply? .................. 20
Full Surrenders ..................................... 20
Partial Surrenders .................................. 21
How Might Your Policy Lapse?
What Effect Does a Lapse Have? ......................... 21
If the Policy Has Lapsed, Can You
Reinstate the Policy? .................................. 22
Can You Borrow on Your Policy? ......................... 22
Can You Change the Amount of Your Insurance
Coverage? .............................................. 23
What Is the "Free-Look Period"? ........................ 23
Can You Exchange Your Policy? .......................... 24
How Will the Death Benefit Be Paid? .................... 24
Settlement Options ..................................... 24
When Do Payments Under a Settlement
Option Occur? ....................................... 24
What Are the Settlement Options? .................... 24
How Will Your Variable Settlement
Option Payments Be Calculated? ...................... 26
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Description of the Company and the
Separate Account
The Company .......................................... 27
The Separate Account ................................. 27
Directors and Officers of the Company ................... 28
Reports to Policy Owners ................................ 30
Right to Instruct Voting of Fund Shares ................. 30
Disregard of Voting Instructions ..................... 30
State Regulation ........................................ 31
Legal Matters ........................................... 31
Additional Information
The Registration Statement ........................... 31
Distribution of the Policies ......................... 31
Records and Accounts ................................. 32
Independent Auditors ................................. 32
Year 2000 ............................................ 32
Tax Matters
General .............................................. 32
Federal Tax Status of the Company .................... 32
Life Insurance Qualification ......................... 33
General Rules ........................................ 33
Modified Endowment Contracts ......................... 34
Diversification Standards ............................ 34
Investor Control ..................................... 34
Other Tax Considerations ............................. 35
Withholding .......................................... 36
Miscellaneous Contract Provisions
The Contract ......................................... 36
Payment of Benefits .................................. 36
Age and Sex .......................................... 36
Incontestability ..................................... 36
Suicide .............................................. 36
Protection of Proceeds ............................... 37
Non-Participation .................................... 37
Coverage Beyond Maturity (AetnaVest II only) ......... 37
Appendix A--Illustrations of Death Benefit,
Total Account Values and Cash Surrender Values
for AetnaVest Policies .................................. 38
Appendix B--Illustrations of Death Benefit,
Total Account Values, and Cash Surrender Values
for AetnaVest II Policies ............................... 44
Financial Statements of the Separate Account ............ S-1
Financial Statements of the Company ..................... F-1
</TABLE>
4
<PAGE>
DEFINITIONS
Accumulation Unit: A unit used to measure the value of a Policy Owner's interest
in each applicable funding option used to calculate the value of the variable
portion of the Policy before election of a Settlement Option.
Additional Premiums: Any premium paid in addition to Planned Premiums.
AetnaVest: Flexible premium variable life insurance policy with Policy Form
number 38899 (with suffix variations).
AetnaVest II: Flexible premium variable life insurance policy with Policy Form
number 38899-90 (with suffix variations).
Amount at Risk: The Death Benefit before subtraction of outstanding loans, if
any, divided by 1.0036748, minus the Total Account Value.
Annuitant: A person on whose life annuity payments are based and who may be
entitled to receive such payment.
Annuity: A series of payments for life or for a definite period.
Basic Premium: The amount of premium which must be paid to assure that the
Policy remains in force for at least two years after issue, assuming there have
been no loans or surrenders.
Cash Surrender Value: The amount a Policy Owner can receive in cash by
surrendering the Policy. This equals the Total Account Value minus the
applicable surrender charge and the amount necessary to repay any loans in full.
Cost of Insurance: The portion of the Monthly Deduction attributable to the
basic insurance coverage, not including riders, supplemental benefits or monthly
expense charges. The Cost of Insurance Rate is stated per $1,000 of Amount at
Risk.
Death Benefit: The amount payable to the beneficiary upon the death of the
Insured, in accordance with the Death Benefit Option elected, after deduction of
the amount necessary to repay any loans in full, and overdue deductions.
Death Benefit Option: Either of two methods for determining the Death Benefit.
Fixed Account: The fixed interest option offered under the Policy that
guarantees principal and a minimum interest rate of 4.5%.
Fixed Account Value: The portion of the Total Account Value, other than the
Loan Account Value, held in the Company's General Account.
Fund(s): One or more of the underlying funding options available under the
Policy (as described in this Prospectus). Each of the Funds is an open-end,
management investment company whose shares are available to fund the benefits
provided by the Policy.
General Account: The Company's general asset account, in which assets
attributable to the non-variable portion of Policies are held.
Grace Period: The 61-day period following the notification that the Policy's
cash surrender value is insufficient to cover the current Monthly Deduction. The
Policy will lapse without value at the end of the 61-day period unless a
sufficient payment (described in the notification letter) is received by the
Company.
Home Office: The Company's principal executive office located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Insured: The person on whose life the Policy is issued.
Issue Age: The age of the Insured on the nearest birthday on or prior to the
Issue Date.
5
<PAGE>
Issue Date: The date on which the Policy, the benefits and provisions of the
Policy become effective.
Loan Account Value: The sum of all unpaid loans. The amount necessary to repay
all loans in full is the Loan Account Value plus any accrued interest. Such
interest is payable in order to discharge any policy indebtedness.
Maturity Date: The Issue Date anniversary after the insured reaches age 95 (for
AetnaVest Policies) or 100 (for AetnaVest II Policies) and the Policy is
considered matured.
Maturity Value: The Total Account Value on the Maturity Date, less the amount
necessary to repay any loans in full.
Monthly Deduction: The monthly deduction from the Total Account Value which
includes the Cost of Insurance, charges for supplemental riders or benefits, and
an administrative expense charge, if applicable.
Planned Premiums: The amount of premium the Policy Owner chooses to pay the
Company on a scheduled basis. This is the amount for which the Company sends a
bill.
Policy: The AetnaVest and AetnaVest II life insurance contracts described in
this Prospectus, under which flexible premium payments are permitted and the
death benefit and contract values may vary with the investment performance of
the funding option(s) selected. The term Policy, whenever used in this
Prospectus, includes the individual Certificates issued under group multiple
employer trust plans. These Certificates contain all of the provisions of the
individual variable life insurance policies as described in this Prospectus.
Policy Owner: The owner of the Policy, referred to as "you."
Policy Year/Policy Anniversary: The first Policy Year is the twelve month
period beginning on the Issue Date of the Policy. Your Policy Anniversary is
the Policy Issue Date plus 1 year, 2 years, etc.
Separate Account: Variable Life Account B is a Separate Account of the Company
established for the purpose of segregating assets attributable to the variable
portion of life insurance contracts from other assets of the Company. It is
organized as a unit investment trust ("Separate Account" also includes Variable
Annuity Account B when referring to a Settlement Option).
Separate Account Value: The portion of the Total Account Value attributable to
Variable Life Account B.
Settlement Option(s): Several ways in which a beneficiary may receive Annuity
payments due from a Death Benefit, or which the Insured may choose to receive
Annuity payments from the Cash Surrender Value of the Policy.
Settlement Option Units: A measure of the net investment results of the
available investment options that are used to calculate the amount of the
Settlement Option payments.
Specified Amount: The amount (at least $100,000) originally chosen by the Policy
Owner, used in determining the Death Benefit. It is initially equal to the Death
Benefit. The Specified Amount may be increased or decreased as described in this
Prospectus.
Surrender Charge: The amount retained by the Company, upon the full or partial
surrender of the Policy.
Total Account Value: The sum of the Fixed Account Value, Separate Account Value
and the Loan Account Value.
Valuation Date: The date and time at which the Accumulation Unit Value of a
variable investment option is calculated. Currently, this calculation occurs
after the close of business of the New York Stock Exchange on any normal
business day, Monday through Friday, that the New York Stock Exchange is open.
Valuation Reserve: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the settlement option period and the
value of a commutation right if available under the "Payments for a Specified
Period" nonlifetime Settlement Option when elected on a variable basis under the
Policy.
6
<PAGE>
SUMMARY OF CHARGES AND FEES
FOR AETNAVEST AND AETNAVEST II*
Premium Load
AetnaVest: A deduction of 2.50% of premiums paid (2.35% for California
residents) will be made to cover applicable premium taxes.
AetnaVest II: A deduction of not more than 6% of premiums paid (currently
3.5%) will be made to cover average applicable premium taxes and other expenses.
Charges and fees assessed against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly
Deduction includes the Cost of Insurance and any charges for supplemental riders
or benefits. The Cost of Insurance depends on the attained age, premium class of
the Insured, and in most states, sex, as well as the Specified Amount.
The Monthly Deduction also includes a monthly administrative expense
charge. For AetnaVest Policies, this charge ranges from $0 to $5 per month. For
AetnaVest II Policies, this monthly charge is $20 during the first Policy Year
and $5 during subsequent Policy Years.
Charges and fees associated with the Separate Account
We deduct a daily charge from the assets of the Separate Account for
mortality and expense risk assumed by us.
The current charge for mortality and expense risk under AetnaVest Policies
is equal to the following Funds' annual rates of average daily net assets:
<TABLE>
<S> <C>
Aetna Ascent VP; Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under AetnaVest Policies ........... 0.70%
</TABLE>
The current charge for mortality and expense risk under AetnaVest II
Policies is 0.70%.
The mortality and expense risk charge is assessed to compensate the Company
for assuming certain mortality and expense risks under the Policies. The Company
reserves the right to increase the mortality and expense risk charge if it
believes that circumstances have changed so that current charges are no longer
adequate. In no event will the charge exceed 0.90% of average daily net assets
on an annual basis.
The mortality risk assumed is that insureds, as a group, may live for a
shorter period of time than estimated and, therefore, the cost of insurance
charges specified in the Policies will be insufficient to meet actual claims.
The expense risk assumed is that other expenses incurred in issuing and
administrating the Policies and operating the Separate Account will be greater
than the charges assessed for such expenses.
We deduct a daily administrative charge equal to an annual rate of 0.30% of
the average daily net assets of the Separate Account (guaranteed not to exceed
0.30% for AetnaVest and 0.50% for AetnaVest II). The administrative charge is
assessed to reimburse us for the expenses associated with administration and
maintenance of the Policies.
Surrender Charge
If you surrender all or a portion of your Policy values during the first 10
years (15 years for AetnaVest II), a surrender charge will be made. This charge
is imposed in part as a deferred sales charge and in part to enable the Company
to recover certain first-year administrative costs. The Surrender Charge is
based on the
7
<PAGE>
Specified Amount, and also depends on the Insured's Issue Age and sex. (For
AetnaVest II Policies issued in Massachusetts and Montana, the Surrender Charge
will not be based on sex.) Once determined, the Surrender Charge will remain the
same for 5 years following the Issue Date. Thereafter, it declines monthly so
that 10 years for AetnaVest (15 years for AetnaVest II) after the Issue Date
(assuming no increases in the Specified Amount) the Surrender Charge will be
zero.
If a partial surrender is made, there will be an additional transaction
charge of $25 or 2% of the amount of the net surrender payment, whichever is
less. The charge will be made against the Total Account Value.
- ------------
* For a complete explanation of the charges, see "What Charges or Deductions
Are Made Under the Policy?"
WHAT CHOICES DO YOU MAKE WHEN YOU BUY A POLICY?
When you buy a Policy, you make three important choices:
1. Which one of the two Death Benefit Options you would like;
2. The amount of premium you intend to pay; and
3. The way your premiums will be allocated to the Funds and/or Fixed Account.
Each of these choices is described in detail below.
Death Benefit Options
At the time of purchase, you must choose between the two available Death
Benefit Options. The amount payable under either option will be determined as of
the date of the Insured's death.
Option 1 generally provides a level Death Benefit. Under Option 1, the
Death Benefit will be the higher of the Specified Amount (a minimum of
$100,000), or the applicable percentage of the Total Account Value. The
percentage is 250% through age 40 and decreases yearly to 100% at age 95 for
AetnaVest Policies (100 for AetnaVest II Policies).
Option 2 provides a varying Death Benefit which increases or decreases over
time, depending on the amount of premium paid and the investment performance of
the underlying funding options selected. Under Option 2, the Death Benefit will
be the higher of either the Specified Amount plus the Total Account Value; or
the applicable percentage (described above) of the Total Account Value.
Under both Option 1 and Option 2, the Death Benefit may be affected by
partial surrenders. The Death Benefit for both Options will be reduced by the
amount necessary to repay any loans in full.
Premiums
At the time you purchase a Policy, you also choose the amount of premium
you will pay. You may vary premium payments to some extent and still keep your
Policy in force. To understand how this works, there are three terms you should
be familiar with. These are: Basic Premium, Planned Premiums, and Additional
Premiums.
During the first two Policy years, payment of the Basic Premium assures
that the Policy will remain in force as long as there are no surrenders or loans
(if available under the Policy) during that time. The Basic Premium is stated in
the Policy. If Basic Premiums are not paid, or if there are surrenders or loans
taken during the first two Policy Years, the Policy will lapse if the Cash
Surrender Value is less than the Monthly Deduction.
Your Basic Premiums are not current if your actual premiums paid, minus
loans and minus partial surrenders, are less than the Basic Premium (expressed
as a monthly amount) times the number of months the Policy has been in force.
8
<PAGE>
After the first two Policy Years, as long as the Policy's Cash Surrender
Value is greater than the Monthly Deduction, your Policy will not lapse.
Planned Premiums are those premiums you choose to pay on a scheduled basis.
These are usually equal to or greater than the Basic Premium. We will bill you
annually, semiannually, or quarterly, or at any other agreed-upon frequency.
Pre-authorized monthly check payments may also be arranged.
Additional Premiums are any premiums you pay in addition to Planned
Premiums.
Payment of Basic Premiums, Planned Premiums or Additional Premiums in any
amount will not, except as noted above, guarantee that your Policy will remain
in force. Conversely, failure to pay Planned Premiums or Additional Premiums
will not necessarily cause your Policy to lapse. (See "How Might Your Policy
Lapse? What Effect Does a Lapse Have?")
You may increase your Planned Premium at any time by submitting a written
notice to us or by paying Additional Premiums, except that:
1. We may require evidence of insurability if the Additional Premium or the
new Planned Premium during the current Policy Year would increase the
difference between the Death Benefit and the Total Account Value. If
satisfactory evidence of insurability is requested and not provided, we
will refund the increase in premium without interest and without
participation of such amounts in the underlying funding options;
2. No premiums can be accepted if they would disqualify the Policy as a "life
insurance policy" under federal tax laws. In no event may the total of all
premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance. (See
"Tax Matters"). If, at any time, a premium is paid which would result in
total premiums exceeding such maximum premium limitation, we will only
accept that portion of the premium which will make total premiums equal the
maximum. Any part of the premium in excess of that amount will be returned
or applied as otherwise agreed and no further premiums will be accepted
until allowed by the then-current maximum premium limitations prescribed by
law; and
3. When there is an outstanding loan, all premiums paid in excess of the Basic
Premium will be considered repayment of the Loan Account Value (this is
true in all states for AetnaVest Policies and in all states except Texas
for AetnaVest II Policies).
Under limited circumstances, we may backdate a Policy, upon request, by
assigning an Issue Date earlier than the date the application is signed but no
earlier than six months prior to state approval of the Policy. Backdating may be
desirable, for example, so that you can purchase a particular Policy Specified
Amount for lower cost of insurance rates, based on a younger insurance age. For
a backdated Policy, you must pay the minimum premium payable for the period
between the Issue Date and the date the initial premium is credited to the
Separate Account. Backdating your Policy will not affect the date on which your
premium payments are credited to the Separate Account and your policy is
credited with Accumulation Units. Your Policy cannot be credited with
Accumulation Units until your net premium is actually deposited in the Separate
Account. See "How is the Value of Your Policy Computed?" in this Prospectus.
Premium Allocation
The third choice you make when you purchase a Policy is deciding how your
premiums will be allocated to the variable investment options. Allocations must
be in whole percentages.
You may allocate all or a part of your premiums to the Fixed Account, which
will be credited with interest at a rate determined by us from time to time, but
guaranteed to be at least 4.5%. The interest rate credited to each premium
payment will depend on the date the payment is received at our Home Office.
Credited interest rates reflect the Company's return on the Fixed Account
invested assets and the amortization of any realized gains and/or losses which
the Company may incur on these assets.
9
<PAGE>
You may also allocate all or a portion of your premiums to the Separate
Account and direct that they be invested in one or more of the Funds. Not all
Funds may be available under all Policies or in all jurisdictions. In addition,
the Company may add, withdraw or substitute Funds, subject to the conditions in
the Contract and to compliance with regulatory requirements. The investment
results of the Funds, whose objectives are described below, are likely to differ
significantly. You should consider carefully and on a continuing basis which
Fund or combination of Funds is best suited to your long-term investment
objectives. Except where otherwise noted, all of the Funds are diversified, as
defined in the Investment Company Act of 1940, as amended.
[bullet] Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.)
seeks to maximize investment return, consistent with reasonable safety
of principal by investing in a diversified portfolio of one or more of
the following asset classes: stocks, bonds and cash equivalents, based
on the investment adviser's judgment of which of those sectors or mix
thereof offers the best investment prospects.(1)
[bullet] Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return,
consistent with reasonable risk, through investments in a diversified
portfolio consisting primarily of debt securities.(1)
[bullet] Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize
total return through investments in a diversified portfolio of common
stocks and securities convertible into common stock.(1)
[bullet] Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide
high current return consistent with preservation of capital and
liquidity through investment in high-quality money market instruments.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent VP (formerly Aetna
Ascent Variable Portfolio) seeks to provide capital appreciation. The
Portfolio is designed for investors who have an investment horizon
exceeding 15 years and who have a high level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Crossroads VP (formerly Aetna
Crossroads Variable Portfolio) seeks to provide total return (i.e.,
income and capital appreciation, both realized and unrealized). The
Portfolio is designed for investors who have an investment horizon
exceeding 10 years and who have a moderate level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Legacy VP (formerly Aetna
Legacy Variable Portfolio) seeks to provide total return consistent
with preservation of capital. The Portfolio is designed for investors
who have an investment horizon exceeding five years and who have a low
level of risk tolerance.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
(formerly Aetna Variable Index Plus Portfolio) seeks to outperform the
total return performance of publicly traded common stocks represented
by the S&P 500 Composite Stock Price Index.(1)
[bullet] Fidelity Investments Variable Insurance Products Fund--Equity-Income
Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In selecting investments, the fund
also considers the potential for capital appreciation.(2)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Contrafund
Portfolio seeks maximum total return over the long term by investing
mainly in securities of companies whose value the investment adviser
believes is not fully recognized by the public.(2)
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
portfolio that seeks long-term growth of capital. The Portfolio pursues
its investment objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations fall
within the range of companies in the S&P MidCap 400 Index, which as of
December 31, 1997 included companies with capitalizations between
approximately $213 million and $13.7 billion, but which is expected to
change on a regular basis.(3)
10
<PAGE>
[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income.
The Portfolio pursues its investment objective by, under normal
circumstances, investing 40%-60% of its assets in securities selected
primarily for their growth potential and 40%-60% of its assets in
securities selected primarily for their income potential.(3)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing primarily in common
stocks of issuers of any size. This Portfolio generally invests in
larger, more established issuers.(3)
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth
of capital in a manner consistent with the preservation of capital. The
Portfolio pursues its investment objective primarily through
investments in common stocks of foreign and domestic issuers.(3)
[bullet] 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, but which may be considered to be speculative.(4)
[bullet] 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) securities of the U.S. Government and
its agencies and instrumentalities ("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. Current income is
not an objective.(4)
[bullet] Portfolio Partners, Inc.--MFS Emerging Equities Portfolio seeks to
provide long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Portfolio's
investment objective.(5)(a)
[bullet] Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(5)(a)
[bullet] Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital
appreciation. Dividend income, if any, is a consideration incidental
to the Portfolio's objective of capital appreciation.(5)(a)
[bullet] Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio
of marketable foreign equity securities.(5)(b)
[bullet] Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, to increase dividend
income by investing primarily in common stocks of well established
growth companies.(5)(c)
Investment Advisers for each of the Funds:
(1) Aeltus Investment Management, Inc.
(2) Fidelity Management & Research Company
(3) Janus Capital Corporation
(4) OppenheimerFunds, Inc.
(5) Aetna Life Insurance and Annuity Company (Adviser);
(a) Massachusetts Financial Services Company ("MFS")(Subadviser)
(b) Scudder Kemper Investments, Inc. (Subadviser)
(c) T. Rowe Price Associates, Inc. (Subadviser)
11
<PAGE>
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the current
prospectuses for the Funds for a discussion of the risks associated with an
investment in those Funds. More comprehensive information, including a
discussion of potential risks, and more complete information about their
investment policies and restrictions are found in the current prospectus for
each Fund which is distributed with and accompanies this Prospectus. You should
read the Fund prospectuses and consider carefully, and on a continuing basis,
which Fund or combination of Funds is best suited to your long-term investment
objectives. Additional prospectuses and Statements of Additional Information for
each of the Funds can be obtained from the Company's Home Office at the address
and telephone number listed on the cover of this Prospectus.
MIXED AND SHARED FUNDING
Shares of the Funds are available to insurance company separate accounts
which fund variable annuity contracts and variable life insurance policies,
including the Policies described in this Prospectus. Because Fund shares are
offered to separate accounts of both affiliated and unaffiliated insurance
companies, it is conceivable that, in the future, it may not be advantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in these Funds simultaneously, since the interests of such Policy
Owners or contractholders may differ. Although neither the Company nor the Funds
currently foresees any such disadvantages either to variable life insurance or
to variable annuity Policyholders, each Fund's Board of Trustees/Directors has
agreed to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in a Fund. This might force that
Fund to sell portfolio securities at disadvantageous prices.
WHAT HAPPENS WHEN YOUR PREMIUM PAYMENT IS MADE?
If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably certain questions relating to the Insured's health, a
"temporary insurance agreement" in the amount applied for (subject to stated
maximums) will be provided.
After the first premium payment, all premiums must be sent directly to our
Home Office and will be deemed received when actually received at the Home
Office. Your premium payments will be allocated, as you have directed, as of the
Valuation Date on which each payment is received in the Home Office.
You may reallocate your future premium payments at any time, up to four
times per year, free of charge. After four times, a $10 charge is imposed on
each subsequent change in order to reimburse us for costs associated with
allocation changes. Any reallocation will apply to premium payments made after
you have received written verification from us.
HOW IS THE VALUE OF YOUR POLICY COMPUTED?
Once your Policy has been issued, each premium payment allocated to a
variable funding option of the Separate Account will be credited to your Policy
in the form of Accumulation Units of the funding option based on that funding
option's Accumulation Unit Value (AUV). Initial premium will be credited to your
Account at the AUV computed on the next Valuation Date following our acceptance
of the Application. Each subsequent premium received by the Company by the close
of business of the New York Stock Exchange will be credited to your Account at
the AUV computed on the next Valuation Date following our receipt of your
premium. The value of an Accumulation Unit may increase or decrease. The number
of Accumulation Units credited is determined by dividing the net premium (the
premium less the Premium Load) by the value of an Accumulation Unit next
computed after we receive the premium. Shares of the Funds are purchased by the
Separate Account at the net asset value next determined by the Fund following
receipt of the Net Premium Payment by the Company. Since each Fund has a unique
Accumulation Unit Value, a Policy Owner who has elected a combination of funding
options will have Accumulation Units credited to each funding option.
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<PAGE>
The value of your Policy is determined by: (a) multiplying the total number
of Accumulation Units credited to the Policy for each funding option,
respectively, by the appropriate current Accumulation Unit Value; and (b) if you
have elected a combination of funding options, totaling the resulting values for
each portion of the Policy; and (c) adding any Fixed Account or Loan Account
Value.
The number of Accumulation Units credited to a Policy will not be impacted
by any subsequent change in the value of an Accumulation Unit. The number of
units is increased by subsequent contributions to or transfers into that funding
option, and decreased by charges and withdrawals from that funding option.
Fixed Account Values will reflect amounts allocated to the General Account
through either payment of premiums or transfers from the Separate Account. There
is no assurance that the Separate Account Value of the Policy will equal or
exceed the premiums paid and allocated to the Separate Account. You will be
advised at least annually as to the number of Accumulation Units which remain
credited to the Policy, the current Accumulation Unit Values, and your Total
Account Value.
WHAT IS AN ACCUMULATION UNIT, AND HOW IS IT CALCULATED?
An Accumulation Unit is the measure of the net investment result of each
variable funding option. The Accumulation Units are used to calculate the value
of the variable portion of your Policy (prior to the election of a Settlement
Option). Accumulation Units are valued at the end of each normal business day
Monday through Friday that the New York Stock Exchange is open (Valuation Date).
A Valuation Period is the period of time from one Valuation Date to the next
Valuation Date. The value of an Accumulation Unit for any Valuation Period is
determined by multiplying the value of an Accumulation Unit for the immediately
preceding Valuation Period by the net investment factor for the current period
for the appropriate Fund. The net investment factor equals the net investment
rate plus 1.0000000. The net investment rate is determined separately for each
Fund as follows:
The net investment rate equals (a) the net assets of the Fund held in the
Separate Account at the end of a Valuation Period, minus (b) the net assets of
the Fund held in the Separate Account at the beginning of that Valuation Period,
plus or minus (c) taxes or provisions for taxes, if any, attributable to the
operation of the Separate Account divided by (d) the value of the Accumulation
Units held by the Separate Account at the beginning of the Valuation Period,
minus (e) a daily charge at an annual rate not to exceed 0.90% of the value of
the Fund shares held in the Separate Account for mortality and expense risks and
no more than 0.50% (0.30% for AetnaVest) of the value of the Fund shares held in
the Separate Account for the Company's administrative expenses attributable to
Policies funded through the Separate Account.
The current charge for mortality and expense risk under AetnaVest Policies
is equal to annual rates as follows applied to the average daily net assets of
the Funds:
<TABLE>
<S> <C>
Aetna Ascent VP, Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under the AetnaVest ................ 0.70%
</TABLE>
The current charge for mortality and expense risk under AetnaVest II
Policies is equal to an annual rate of 0.70% of the Funds' average daily net
assets.
A daily deduction at a rate not to exceed 0.30% per year for AetnaVest, or
0.50% per year for AetnaVest II (currently 0.30% for both Policies), is also
taken from the Separate Account Value to pay for administrative expenses.
CAN YOU MAKE TRANSFERS AMONG THE FUNDING OPTIONS?
You may elect to transfer your accumulated Separate Account Value among any
of the Funds, or from any of the Funds to the Fixed Account. Within the 45 days
after your Policy's anniversary, you may also transfer a portion of the Fixed
Account Value to one or more Funds. This type of transfer is allowed only
13
<PAGE>
once in the 45-day period and will be effective on the Valuation Date that your
request is received in good order at our Home Office. The amount of such
transfer cannot exceed the greater of (1) 25% of the Fixed Account Value, or (2)
$500. If the Fixed Account Value is less than or equal to $500, you may transfer
all or a portion of the Fixed Account Value. We may increase this limit from
time to time. The first four transfers in any one Policy Year are made free of
charge. Each additional transfer will be subject to a $10 charge.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of Accumulation Units based on the Accumulation Unit
values next determined after a written request is received by us at our Home
Office, provided the request is received by the close of business of the New
York Stock Exchange. We reserve the right to limit the total number of Funds you
may elect to 17 over the lifetime of the Policy.
For AetnaVest II Policies, we will waive the $10 charge if you are changing
your allocation so that 100% of the existing Separate Account Value and all
future allocations are credited to the Fixed Account.
If you contemplate the transfer of assets, you should consider the risks
inherent in a shift from one funding option to another. In general, frequent
transfers based on short-term expectations will tend to accentuate the danger
that a transfer will be made at an inopportune time.
Telephone Transfers
You may request a transfer of Account Values either in writing or by
telephone. In order to make telephone transfers, a written telephone transfer
authorization form must be completed by the Policyowner and returned to the
Company at its Home Office. Once the form is processed, the Policyowner may
request a transfer by telephoning the Company at 800-334-7586. All transfers
must be in accordance with the terms of the Policy.
Transfer instructions are currently accepted on each Valuation Date. Once
instructions have been accepted and processed, they may not be rescinded;
however, new telephone instructions may be given on the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and You will be notified.
We will use reasonable procedures, such as requiring identifying
information from callers, recording telephone instructions, and providing
written confirmation of transactions, in order to confirm that telephone
instructions are genuine. Any telephone instructions which We reasonably believe
to be genuine will be Your responsibility, including losses arising from any
errors in the communication of instructions. As a result of this procedure, the
Policyowner will bear the risk of loss. If the Company does not use reasonable
procedures, as described above, it may be liable for losses due to unauthorized
instructions.
Automated Transfers (Dollar Cost Averaging)
Dollar Cost Averaging describes a system of investing a uniform sum of
money at regular intervals over an extended period of time. Dollar Cost
Averaging is based on the economic fact that buying a security with a constant
sum of money at fixed intervals results in acquiring more of the item when
prices are low and less of it when prices are high.
You may establish automated transfers of Account Values from the Funds on a
monthly or quarterly basis from the Aetna Money Market VP to any other
investment option through written request or other method acceptable to the
Company. You must have a minimum of $5,000 allocated to the Aetna Money Market
VP in order to enroll in the Dollar Cost Averaging program. The minimum
automated transfer amount is $50 per month. There is currently no charge for the
Dollar Cost Averaging Program. You may start or stop participation in the Dollar
Cost Averaging Program at any time, but you must give the Company at least 30
days notice to change any automated transfer instructions that are currently in
place. The Company reserves the right to suspend or modify automated transfer
privileges at any time.
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<PAGE>
Before participating in the Dollar Cost Averaging program, you should
consider the risks involved in switching between investments available under the
Policy. Dollar Cost Averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses.
Therefore, you should carefully consider market conditions and each Fund's
investment policies and related risks before electing to participate in the
Dollar Cost Averaging Program.
WHAT IS THE MATURITY VALUE OF YOUR POLICY?
The Maturity Value of the Policy is the Total Account Value on the Maturity
Date, less the amount necessary to repay any loans in full.
WHAT IS THE CASH SURRENDER VALUE OF YOUR POLICY?
The Cash Surrender Value of your Policy is the amount you can receive in
cash by surrendering the policy. The Cash Surrender Value equals the Total
Account Value minus the applicable Surrender Charge, less the amount necessary
to repay any loans in full. As discussed earlier, your Policy's Total Account
Value is equal to the sum of the Fixed Account Value; Separate Account Value;
and Loan Account Value.
The Cash Surrender Value will never be less than zero. All or a part of the
Cash Surrender Value may be applied to one or more of the Settlement Options.
WHAT CHARGES OR DEDUCTIONS ARE MADE UNDER THE POLICY?
Premium Load
This load represents average applicable state premium taxes (ranging up to
4%) as well as administrative expenses and federal income tax liabilities. For
AetnaVest Policies, a deduction of 2.50% of premiums paid (2.35% for California
issues) will be made. For AetnaVest II Policies, a deduction of 3.5% (guaranteed
to be no higher than 6%) will be made to cover such taxes and other expenses.
Insurance and Administrative Charges
Deductions are made from your Total Account Value on a periodic basis for
insurance and administrative costs. These insurance and administrative charges
and surrender charges are discussed below.
The charges for insurance and administrative costs will vary from Policy to
Policy. They are broken down as follows:
(a) A Monthly Deduction is made from the Total Account Value. This deduction
includes charges for the Cost of Insurance, for any supplemental riders or
benefits, and for administrative expenses.
The Cost of Insurance is equal to the Amount at Risk (the Death Benefit
before deductions for loans, divided by 1.0036748, minus the Total Account
Value), multiplied by the Cost of Insurance Rate which will not exceed the rate
shown in the Policy. (Such rate varies according to the attained age, premium
class and, in most states, sex of the Insured, and is based on the
Commissioner's 1980 Standard Ordinary Mortality Tables (the "1980 CSO Tables"),
nonsmoker and smoker versions.)
Charges for any supplemental riders or benefits are described in the
applicable rider or benefit policy form.
A monthly administrative charge and a daily asset-based charge (see (c)
following) are also charged. These charges are designed to recover acquisition
and maintenance costs under the Policy such as policy underwriting and issue,
policyholder reports and transaction handling. For AetnaVest Policies, the
monthly charge decreases by attained age. At younger ages, the Account Value
builds slowly so the daily asset-based charge is small. In those years, the
monthly charge must be larger to cover the Company's expenses. As the Total
Account Value grows, the
15
<PAGE>
asset-based daily charge can cover the Company's expenses without as high a
monthly expense charge. The monthly charge varies for AetnaVest Policies
according to the table below:
AETNAVEST
ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Specified Amount
-------------------------
Attained $100,000- $1,000,000
Age 999,999 & Over
- ------------- ----------- -----------
<S> <C> <C>
Up to 29 $5.00 $3.00
30-39 4.00 2.00
40-49 3.00 1.00
50-59 2.00 0.00
60-69 1.00 0.00
70 & Over 0.00 0.00
</TABLE>
For AetnaVest II Policies, the monthly charge for administrative expenses
in the first Policy Year is $20 and in all subsequent Policy Years, the monthly
charge is $5. The monthly administrative charge and the asset-based
administrative charge work together to cover the Company's acquisition and
maintenance costs. In later years of the Policy, revenue collected from the
daily asset-based charge grows with the Total Account Value to cover increased
expenses from Account-based transactional expenses. The administrative charges
will not exceed our costs.
The Monthly Deduction is deducted proportionately from each funding option,
if more than one is used. This is accomplished by canceling Accumulation Units
and withdrawing the value of the canceled Accumulation Units from each funding
option in the same proportion as their respective values have to your Fixed
Account and Separate Account Values. The Monthly Deduction is made at the same
time each month, beginning with the Issue Date.
(b) A daily deduction at a rate not to exceed 0.90% per year is taken only from
the Separate Account Value for mortality and expense risks. This deduction
is currently set at the following amounts:
1) AetnaVest Policies:
Aetna Ascent VP, Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under the AetnaVest ................ 0.70%
2) For all Funds available under AetnaVest II .................... 0.70%
This charge may be increased or decreased to reflect our expectations of future
mortality and expense experience.
(c) A daily deduction at a rate not to exceed 0.30% per year for AetnaVest, or
0.50% per year for AetnaVest II (currently 0.30% for both Policies), is also
taken from the Separate Account Value to pay for administrative expenses as
described under (a) above.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will be taken from your Policy Values as of the Issue Date, even if the
Issue Date is earlier than the date the application is signed (see "Premiums").
If the Policy's issuance is delayed due to underwriting requirements, the
charges will not be assessed until the underwriting is complete and the
application for the policy is approved. Cost of Insurance charges will be in
amounts based on the Specified Amount of the Policy issued, even if the
temporary insurance coverage received during the underwriting period is for a
lesser amount. If we decline an application, we will refund the full premium
payment made.
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<PAGE>
Charges Assessed Against the Underlying Funds
The following table illustrates the investment advisory fees, other
expenses and total expenses paid by each of the Funds as a percentage of average
net assets based on figures for the year ended December 31, 1997 unless
otherwise indicated:
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses Total Fund
(after expense (after expense Annual
reimbursement) reimbursement) Expenses
------------------ ---------------- -----------
<S> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.57% 0.23% 0.80%
Aetna Balanced VP, Inc.(3) 0.50% 0.10% 0.60%
Aetna Bond VP(3) 0.40% 0.10% 0.50%
Aetna Crossroads VP(2)(3) 0.55% 0.25% 0.80%
Aetna Growth and Income VP(3) 0.50% 0.09% 0.59%
Aetna Index Plus Large Cap VP(2)(3) 0.32% 0.23% 0.55%
Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80%
Aetna Money Market VP(3) 0.25% 0.10% 0.35%
Fidelity VIP Equity-Income Portfolio(4) 0.50% 0.08% 0.58%
Fidelity VIP II Contrafund Portfolio(4) 0.60% 0.11% 0.71%
Janus Aspen Aggressive Growth Portfolio(5) 0.73% 0.03% 0.76%
Janus Aspen Balanced Portfolio(5) 0.76% 0.07% 0.83%
Janus Aspen Growth Portfolio(5) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(5) 0.66% 0.08% 0.74%
Oppenheimer Global Securities Fund 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Portfolio Partners, Inc. MFS Emerging Equities
Portfolio(6)(7) 0.68% 0.13% 0.81%
Portfolio Partners MFS Research Growth Portfolio(6)(7) 0.70% 0.15% 0.85%
Portfolio Partners MFS Value Equity Portfolio(6) 0.65% 0.25% 0.90%
Portfolio Partners Scudder International Growth
Portfolio(6) 0.80% 0.20% 1.00%
Portfolio Partners T. Rowe Price Growth Equity
Portfolio(6) 0.60% 0.15% 0.75%
</TABLE>
(1) Certain of the Fund advisers reimburse the Company for administrative costs
incurred in connection with administering the Funds as variable funding
options under the Contract. These reimbursements are paid out of the
investment advisory fees and are not charged to investors.
(2) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a portion
of its fee or to reimburse certain expenses so that aggregate expenses do
not exceed the total expenses shown above. These fee waiver/expense
reimbursement arrangements will increase total return and may be modified or
terminated at any time.
Without these fee waiver/expense reimbursement arrangements Management Fees
and Total Expenses for the Portfolio would be higher. Management Fees and
Total Expenses would be as follows: 0.60% and 0.83% for Ascent VP; 0.60% and
0.85% for Crossroads VP; 0.35% and 0.58% for Index Plus Large Cap VP; and
0.60% and 0.91% for Legacy VP, respectively.
(3) Prior to May 1, 1998, the investment adviser provided administrative
services to the Fund and assumed the Fund's ordinary recurring direct costs
under an Administrative Services Agreement. Effective May 1, 1998, the
investment adviser will continue to provide administrative services to the
Fund but will no longer assume all of the Fund's ordinary recurring direct
costs under the Administrative Services Agreement. The Administrative Fee is
0.075% on the first $5 billion in assets and 0.050% on all assets over $5
billion. The "Other Expenses" shown are not based on actual figures for the
year ended December 31, 1997, but reflect the fee payable under the new
Administrative Services Agreement and estimates of the Fund's ordinary
recurring direct costs.
17
<PAGE>
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses would have been 0.57% for
Equity-Income Portfolio; and 0.68% for Contrafund Portfolio.
(5) Management fees for Aggressive Growth, Balanced, Growth and Worldwide Growth
Portfolios reflect a reduced fee schedule effective July 1, 1997. The
management fees shown above are based on the new rate applied to net assets
as of December 31, 1997. Other expenses are based on gross expenses of the
Shares before expense offset arrangements for the fiscal year ended December
31, 1997. The information for each Portfolio is net of fee waivers or
reductions from Janus Capital. Fee reductions for the Aggressive Growth,
Balanced, Growth and Worldwide Growth Portfolios reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio; 0.77%, 0.06%, and
0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for Growth Portfolio;
and 0.72%, 0.09%, and 0.81% for Worldwide Growth Portfolio, respectively.
Janus Capital may modify or terminate the waivers or reductions at any time
upon at least 90 days' notice to the Trustees.
(6) Each Portfolio's aggregate expenses are contractually limited to the
advisory and administrative fees disclosed above. The investment adviser
will not seek an increase in its advisory or administrative fees at any time
prior to May 1, 1999.
(7) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
For further details on each Fund's expenses please refer to that Fund's
prospectus.
Surrender Charge
There will also be a surrender charge if you surrender your Policy (in
whole or in part) before the end of ten years for AetnaVest Policies and fifteen
years for AetnaVest II Policies, from either the Policy Issue Date or from the
effective date of an increase in the Specified Amount under the Policy. The
Surrender Charge is imposed partially as a deferred sales charge, and also to
enable the Company to recover certain administrative costs.
The initial Surrender Charge is based on the Specified Amount. It also
depends on the Insured's Issue Age and, in most states, sex.
The dollar amount of the Surrender Charge will remain the same for five
years following the Issue Date. Thereafter, the charge will decline monthly for
the next five years so that, ten years after the Issue Date for AetnaVest
Policies and fifteen years after the Issue Date for AetnaVest II Policies
(assuming no increases in the Specified Amount), the Surrender Charge will be
zero.
If you decrease the Specified Amount while the Surrender Charge applies,
the Surrender Charge will remain the same.
If you increase the Specified Amount (which you can do at any time after
the first Policy Year subject to satisfactory evidence of the Insured's
insurability), a new Surrender Charge will be applicable, in addition to the
then-existing Surrender Charge. This charge will be determined based on the
Insured's attained age, sex, and underwriting status at the Issue Date (except
for AetnaVest II Policies issued in Massachusetts and Montana where this charge
will not be determined based on sex). The Surrender Charge applicable to the
increase will be 70% of the Surrender Charge on a new policy whose Specified
Amount equals the amount of the increase, and will cover administrative
expenses. The additional Surrender Charge will also remain constant for five
years from the start of the Policy Year in which the increase occurs, and will
decrease to zero
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<PAGE>
at the end of ten years for AetnaVest Policies and fifteen years for AetnaVest
II Policies. See the example in the box below.
The maximum portion of the Surrender Charge which is to be applied to
reimburse the Company for sales and promotional expenses will be 30% of the
first year's Basic Premium (if you surrender in full during that year). Full
surrenders after the first year will result in the imposition of the same dollar
Surrender Charge for the initial five years and, therefore, the sales expense
portion of the Surrender Charge (expressed as a percentage of Basic Premiums
paid) will decline after the first Policy Year.
AETNAVEST POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This Example assumes that you bought a Policy with an initial Stated Amount
of $100,000 that had a Surrender Charge at the time of issue equal to $890. The
Example is intended to illustrate the impact of an increase in your Specified
Amount by $50,000 at the beginning of the third Policy Year. For any given year,
your Surrender Charge will be less than it would have been for someone who
simply purchased a brand new Policy with a Specified Amount of $150,000.
As noted above, for original Specified Amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the tenth Policy Year. For any increase in Specified Amount,
the increase in Surrender Charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the tenth
year following increase.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 712.00 489.50 1,201.50
8 534.00 489.50 1,023.50
9 356.00 391.60 747.60
10 178.00 293.70 471.70
11 0 195.80 195.80
12 0 97.90 97.90
13 0 0 0
- --------------------------------------------------------------------------------
</TABLE>
AETNAVEST II POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This Example assumes that you bought a Policy with an initial Stated Amount
of $100,000 that had a Surrender Charge at the time of issue equal to $890. The
Example is intended to illustrate the impact of an increase in your Specified
Amount by $50,000 at the beginning of the third Policy Year. For any given year,
your Surrender Charge will be less than it would have been for someone who
simply purchased a brand new Policy with a Specified Amount of $150,000.
As noted above, for original Specified Amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the tenth Policy Year. For any increase in Specified Amount,
the increase in Surrender Charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the tenth
year following increase.
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<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 801.00 489.50 1,290.50
8 712.00 489.50 1,201.50
9 623.00 440.55 1,063.55
10 534.00 391.60 925.60
11 445.00 342.65 787.65
12 356.00 293.70 649.70
13 267.00 244.75 511.75
14 178.00 195.80 373.80
15 89.00 146.85 235.85
16 0 97.90 97.90
17 0 48.95 48.95
18 0 0 0
- --------------------------------------------------------------------------------
</TABLE>
The Company may offer the Policy in a group arrangement in connection with
a multiple employer trust plan under which a trustee, employer or employers, or
other similar entity purchases a Policy which covers a group of individuals on a
group basis. Certificates replicating all the provisions of a Policy are issued
to individual employees. In such arrangements, an employer may permit group
solicitation of its employees for the purchase of Policies on either a group or
individual basis.
The Company may reduce the Surrender Charge, the Monthly Deduction, or
both, in connection with Policies issued under such arrangements. Generally,
sales and administrative costs per Policy vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which Policies are
purchased, and other factors. The amount of reductions will be considered on a
case-by-case basis and will reflect the reduced sales effort and administrative
costs expected as a result of sales to a particular group or sponsored
arrangement.
Based on its actuarial determination, the Company does not anticipate that
the Surrender Charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to, payment of sales and distribution expenses, would be charged
to and paid by the Company.
WHEN DOES THE SURRENDER CHARGE APPLY?
A Surrender Charge applies when you make a full or partial surrender of the
Cash Surrender Value of the Policy, as described below.
Full Surrenders
When you surrender your Policy for the full Cash Surrender Value, all
applicable Surrender Charges are imposed.
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<PAGE>
Partial Surrenders
When you surrender part of your Policy, we will apply the same proportion
of the total applicable Surrender Charges as the amount to be paid bears to the
total Cash Surrender Value. Once you have made a partial surrender, or
surrenders, future applicable Surrender Charges will be reduced proportionately.
In addition, under Option 1, the Specified Amount will be reduced by the amount
surrendered.
Other rules apply to partial surrenders:
1. No partial surrender can be made until one year after the Issue Date;
2. The amount paid to you on a partial surrender must be at least $500;
3. If a partial surrender is made, there will be a transaction charge of $25 or
2% of the amount of the net surrender payment, whichever is less. The
charge will be made against the Total Account Value;
4. If, at the time of a partial surrender, your Total Account Value is
attributable to more than one funding option, both the Surrender Charge and
the amount paid to you upon the surrender will be taken proportionately from
the values accumulated in each funding option. You cannot select the funding
option to be used in the surrender;
5. A partial surrender will not be allowed if it would cause the Specified
Amount to drop below the minimum allowable Specified Amount; and
6. Partial surrenders may only be made prior to election of a settlement
option.
As mentioned previously, a partial surrender will also reduce the Death
Benefit (and the Specified Amount, if Option 1 is in effect), by the amount of
the reduction in your Total Account Value resulting from the surrender. If the
Specified Amount is reduced, the most recent increase in coverage is reduced
first, then the next most recent coverage, and so forth.
If the Death Benefit on an Option 1 Policy is calculated as a percentage of
the Total Account Value rather than as the Specified Amount, a partial surrender
will reduce the Specified Amount only if the partial surrender decreases the
difference between the Death Benefit and the Total Account Value. A partial
surrender will not reduce the Specified Amount of an Option 2 Policy.
Payment of any amount due from Separate Account Values on a full or partial
surrender will be made within seven calendar days after your written surrender
request is received at our Home Office, except that payment may be postponed
when the New York Stock Exchange has been closed and for such other periods as
the Securities and Exchange Commission may require. Payment of values from the
Fixed Account Value may be deferred for up to six months, except when used to
pay premiums to the Company.
If you surrender your Policy, in whole or in part, there may be tax
implications. Refer to "Tax Matters."
HOW MIGHT YOUR POLICY LAPSE? WHAT EFFECT DOES A LAPSE HAVE?
A lapse occurs if your Monthly Deduction is greater than the Cash Surrender
Value and no payment to cover the deduction is made within 61 days of our
notifying you. This may happen after the first two Policy Years, or during the
first two Policy Years if your Basic Premiums are not current.
If the Cash Surrender Value of the Policy is insufficient to cover the
Monthly Deduction on the appropriate date, your insurance coverage will
terminate at the end of a 61-day Grace Period. The Grace Period begins with the
mailing of a notice to you, once we discover the insufficiency. We will require
the payment of the amount necessary to keep this Policy in force for the current
month, plus two additional
21
<PAGE>
months. During the Grace Period, a Policy has no Cash Surrender Value, so that
if the Policy is terminated at the end of the Grace Period, no money will be
paid to you.
If your Policy's Cash Surrender Value is insufficient to cover the Monthly
Deduction on the appropriate date, an amount equal to the Monthly Deduction will
be removed from the Total Account Value and will not participate in investment
performance. If a premium payment is subsequently made and the Cash Surrender
Value exceeds the amount of the Monthly Deduction, or, within the first two
years the Basic Premiums are paid, the amount removed will be returned to the
Total Account Value and will resume participation in investment performance.
IF THE POLICY HAS LAPSED, CAN YOU REINSTATE THE POLICY?
We will consider reinstatement within five years after the date of
termination (provided it is before the Maturity Date). We will require
satisfactory evidence of insurability. Regardless of when the Policy lapses, the
original and any additional tables of Surrender Charges that were issued on this
Policy will apply upon reinstatement. The Loan Account Value will be reinstated.
All values will be reinstated as of the date of the Policy's termination.
Under AetnaVest II Policies issued in most states, if the Policy lapses
during the first two Policy Years, the payment required at reinstatement will
equal the sum of Basic Premiums for each Monthly Deduction day to date, less
premiums previously paid. If the Policy lapses after the first two Policy Years,
you must make a premium payment that will cause the surrender value upon
reinstatement to equal three times the next monthly deduction.
For AetnaVest Policies, upon reinstatement, no Surrender Charge deduction
will apply to coverage which was in force for two or more years (one or more
years for multiple employer trust policies) prior to the date of termination.
For terminated coverage which was in force less than two years, future Surrender
Charges will not be reduced from the original schedule. If you request
reinstatement during the first two Policy Years, the premium required at
reinstatement will be the lesser of (a) a premium sufficient to pay for three
Monthly Deductions plus any applicable Surrender Charge; or (b) overdue Basic
Premiums.
CAN YOU BORROW ON YOUR POLICY?
If you purchase an AetnaVest Policy you may borrow against your Policy
after the end of the second Policy Year (in California and Texas, after the end
of the first Policy Year). AetnaVest II Policy Owners may borrow against their
Policy beginning in the first Policy Year. For all Policies, loans must be taken
before the election of a settlement option.
The most you can borrow is 90% (100% for AetnaVest II policies issued in
Texas) of the Fixed Account and Separate Account Values less the Surrender
Charge applicable at the time of the loan. Interest on the loan, including
preferred loans (as described below), will accrue at 8% per year, payable once a
year at each anniversary of the loan. Any interest not paid when due becomes
part of the loan and bears interest.
The Loan Account Value is credited with the amount of any loans you make on
your Policy, as collateral. The Loan Account Value is credited with interest at
a rate of at least 4.5% per year (6% in New York). Such credited interest is
transferred out of the Loan Account Value monthly and reallocated
proportionately to the applicable funding options.
Beginning in the eleventh Policy Year, up to 10% of the maximum loan amount
available, at the beginning of a Policy Year, can be taken as a preferred loan
during that Policy Year. Amounts borrowed in excess of the maximum loan amount
available for a preferred loan will not be considered a preferred loan. The
portion of the Loan Account Value equal to the preferred loan will be credited
at the policy loan interest rate of 8% per year. The portion of the Loan Account
Value not considered a preferred loan will be credited interest as described in
"What Is the Cash Surrender Value of Your Policy?" The preferred loan feature is
only available in approving states as stated in your Policy.
22
<PAGE>
If you are using more than one underlying funding option, the amount of the
loan will be withdrawn in proportion to the value held in each funding option.
You cannot select the funding option to be used for the loan.
The amount you receive as a result of the loan will, together with any
accrued but not paid interest, constitute the Loan Account Value. Repayments on
the loan will be allocated among the funding options in the same proportion the
loan was taken from the funding options. The Loan Account Value will be reduced
by the amount of any loan repayment.
CAN YOU CHANGE THE AMOUNT OF YOUR INSURANCE COVERAGE?
Beginning one year after the Issue Date, you may increase or decrease the
Specified Amount of your Policy as follows:
1. For an increase, we will require satisfactory evidence of insurability
unless there is no increase in the Amount at Risk;
2. The Cash Surrender Value at the time of an increase must be at least three
times the sum of (a) the most recent Monthly Deduction from Total Account
Value and (b) the amount of the increase, divided by 1000, times the
applicable Cost of Insurance Rate;
3. An increase in the Specified Amount will increase the Surrender Charge
unless there is no increase in the Amount at Risk;
4. Increases are limited to four times the original Specified Amount;
5. Decreases in the Specified Amount will not decrease the Surrender Charge or
your Basic Premium. Decreases during the second year after the Issue Date
will usually not enable you to reduce your Planned Premium below the Basic
Premium without lapsing the Policy;
6. No decrease may reduce the Specified Amount to less than the then-current
minimum for this type of Policy;
7. The decrease will be applied first to the most recent coverage under the
Policy, then to the next most recent, and so forth.
You can also change from one Death Benefit Option to the other.
The Specified Amount will be changed when a change in Death Benefit Option
is made. If the change is from Option 1 to Option 2, the new Specified Amount
will equal the Amount at Risk as of the date of the change. If the change is
from Option 2 to Option 1, the new Specified Amount will equal the Death Benefit
as of the date of the change.
A change in Death Benefit Option will not be allowed if the new Specified
Amount would be less than the then-current minimum. We may require satisfactory
evidence of insurability before allowing the change. There will be no change in
the Surrender Charge (either increase or decrease) at the time of a change in
Death Benefit Option.
WHAT IS THE "FREE-LOOK PERIOD"?
The Policy has a "Free-Look Period" during which it may be returned to our
Home Office for a refund. You may return it to our Home Office within ten days
after you receive the Policy and the written notice of withdrawal right, or
within 45 days after you sign the application for the Policy, whichever occurs
latest.
The refund will be the sum of (1) the difference between payments made and
amounts allocated to the Separate Account, (2) the value of the amount allocated
to the Separate Account as of the date the returned
23
<PAGE>
Policy is received by us, and (3) any fees imposed on the amounts allocated to
the Separate Account. If state law does not permit such a refund, then the
refund will equal premiums paid, without interest. Refunds will usually occur
within seven days of notice of cancellation, although a refund of premiums paid
by check may be delayed until the check clears your bank.
CAN YOU EXCHANGE YOUR POLICY?
You may exchange the AetnaVest Policy for a period of two years after the
Issue Date, for a new adjustable premium policy issued by the Company, under
which policy values and benefits do not vary with the investment performance of
a Separate Account. The new policy will have the same Issue Date as the old
Policy, and no evidence of insurability will be required. Since your Total
Account Value will be transferred from the old Policy to the new policy in its
entirety, the Cash Surrender Value under the new policy cannot exceed the Cash
Surrender Value under the old Policy at the time of exchange. We have the right
to adjust the Cash Surrender Value under the new policy to make sure this is the
case. You have the right to select whether the new policy has the same Death
Benefit or net amount at risk as the old Policy. There may be a charge due to
the Company, or a refund due to the Policy Owner, equal to the difference in
cash value between the old Policy and the new policy.
For AetnaVest II Policies you may simply transfer the entire Separate
Account Value of your Policy to the Fixed Account. No charge will be made for
any such transfer.
HOW WILL THE DEATH BENEFIT BE PAID?
The Death Benefit under the Policy will be paid in a lump sum within seven
days after we receive due proof of death (a certified copy of the death
certificate), unless you or the beneficiary have elected that it be paid under
one or more of the Settlement Options described below.
Payment of the Death Benefit may be delayed if the Policy is being
contested. While the Insured is living, you may elect a Settlement Option for
the beneficiary and deem it irrevocable. You may revoke or change a prior
election. The beneficiary may make or change an election within 90 days of the
death of the Insured, unless you have made an irrevocable election. A
beneficiary who has elected Settlement Option 1 may elect another option within
two years after the Insured's death.
All or a part of the proceeds of the Death Benefit may be applied under one
or more of the following Settlement Options, or such options as we may choose to
make available in the future.
If the Policy is assigned as collateral security, we will pay any amount
due the assignee in one lump sum. Any excess Death Benefit proceeds due will be
paid as elected.
SETTLEMENT OPTIONS
WHEN DO PAYMENTS UNDER A SETTLEMENT OPTION OCCUR?
Proceeds in the form of Settlement Options are payable by the Company upon
the Insured's death; upon Maturity of the Policy; or upon election of one of the
following Settlement Options or any we make available (after any applicable
surrender charges have been deducted).
A written request is required to elect, change, or revoke a Settlement
Option. This request will take effect upon receipt or recording of the written
request, in good order, at our Home Office.
The first variable Settlement Option payment will be as of the tenth
Valuation Period following the receipt of the properly completed election form.
WHAT ARE THE SETTLEMENT OPTIONS?
The Settlement Options are as follows:
Option 1--Payment of interest on the sum left with us;
24
<PAGE>
Option 2--Payments for a stated number of years, at least three but no
more than thirty;
Option 3--Payments for the lifetime of the Annuitant. If also chosen, we
will guarantee payments for 60, 120, 180 or 240 months;
Option 4--Payments during the joint lifetimes of two Annuitants. At the
death of either, payments will continue to the survivor. When this option is
chosen, a choice must be made of:
(a) 100% of the payment to continue to the survivor;
(b) 66% of the payment to continue to the survivor;
(c) 50% of the payment to continue to the survivor;
(d) Payments for a minimum of 120 months, with 100% of the payment to
continue to the survivor;
(e) 100% of the payment to continue to the survivor if the survivor is the
Annuitant, and 50% of the payment to continue to the survivor if the survivor
is the Second Annuitant.
In most states, no election may be made that would result in a first
payment of less than $25 or that would result in total yearly payments of less
than $120. If the value of the Policy is insufficient to elect an option for the
minimum amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in the General Account.
Proceeds in the General Account will be used to make payments on a fixed dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3.5%. We may add interest daily at any higher rate.
Under Option 1, the Annuitant may later tell the Company to (a) pay to him
or her a portion or all of the sum held by the Company; or (b) apply a portion
or all of the sum held by the Company to another settlement option.
Proceeds applied under Options 2, 3 and 4 will be held (a) in the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options; or (c) a mix of (a) and (b). Proceeds in Variable
Annuity Account B will be used to make payments on a variable basis.
If payments are to be funded on a variable basis, the first and subsequent
payments will vary depending on the Assumed Net Investment Rate. This rate will
be 3.5% per annum, unless a 5% annual rate is chosen. The Assumed Net Investment
Rate is chosen by the payee.
Selection of a 5% rate causes a higher first payment, but subsequent
payments will increase only to the extent the actual net investment rate exceeds
5% on an annualized basis, and they will decline if the rate is less than 5%.
Use of the 3.5% Assumed Net Investment Rate causes a lower first payment, but
subsequent payments will increase more rapidly or decline more slowly as changes
occur in the actual net investment rate. The investment performance of the
underlying funding option(s) must equal such assumed rate, plus enough to cover
the mortality and expense risk and administrative fee charges, if future
payments on a variable basis are to remain level.
If payments on a variable basis are not to decrease, gross return on the
assets of the underlying funding option must be:
(a) 4.75% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 3.5% is chosen; or
25
<PAGE>
(b) 6.25% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 5% is chosen.
Option 2, 3, or 4 may be chosen on a fixed dollar basis. However, if the
guaranteed payments are less than the payments which would be made from the
purchase of the Company's current single premium immediate annuity, the larger
payment will be made instead.
As to funds held under Option 1, the Annuitant may elect to make a
withdrawal or to change options. Under Option 2, if payments are made on a
variable basis, the current value may be withdrawn at any time. Amounts held in
the Fixed Account may not be withdrawn under Option 2. No withdrawals or changes
of option may be made under Options 3 and 4.
When an Annuitant dies while receiving payments under Option 2, 3 or 4, the
present value of any remaining guaranteed payments will either be paid in one
sum to the beneficiary, or upon election by the beneficiary, any remaining
guaranteed payments will continue to the beneficiary. If no beneficiary exists,
the present value of any remaining guaranteed payments will be paid in one sum
to the Annuitant's estate. If the Annuitant dies while receiving payments under
Option 1, the current value of the Option will be paid in one sum to the
beneficiary, or to the Annuitant's estate.
If a beneficiary dies (and there is no contingent beneficiary), while
receiving payments, the current value of the account (Option 1), or the present
value of any remaining guaranteed payments will be paid in one sum to the estate
of the beneficiary. The interest rate used to determine the first payment will
be used to calculate the present value.
Payments will be made upon receipt of a written request filed with us. If
no settlement election has been made by the Policy Owner when the beneficiary
becomes entitled to proceeds, the beneficiary may make the election.
HOW WILL YOUR VARIABLE SETTLEMENT OPTION PAYMENTS BE CALCULATED?
When you have chosen payment on a variable basis, the first payment is
calculated as follows:
(a) the portion of the proceeds applied to make payments on the variable
basis; divided by
(b) 1000; times
(c) the payment rate for the Option chosen.
Such amount, or portion, of the variable payment will be divided by the
Settlement Option Unit Value (described below), as of the tenth Valuation Period
(the period of time between one Valuation Date and the next Valuation Date)
before the due date of the first payment, to determine the number of Settlement
Option Units. Each future payment is equal to the number of Settlement Option
Units, times the Settlement Option Unit Value as of the tenth Valuation Period
prior to the due date of the payment.
For any Valuation Period, the Settlement Option Unit Value is equal to:
(a) The Settlement Option Unit value for the previous Valuation Period;
times
(b) The Net Return Factor (as defined below) for the Valuation Period;
times
(c) A factor to reflect the Assumed Net Investment Rate. The factor for 3.5%
per year is .9999058; for 5% per year, it is .9998663.
The Net Return Factor equals:
26
<PAGE>
(i) The net assets of the applicable fund held in Variable Annuity Account
B at the end of a Valuation Period, minus
(ii) The net assets of the applicable fund held in Variable Annuity Account
B at the beginning of that Valuation Period, plus or minus
(iii) Taxes or provision for taxes, if any, attributable to the operations
of Variable Annuity Account B, divided by
(iv) The value of Settlement Option Units and other accumulation units held
in Variable Annuity Account B at the beginning of the Valuation Period,
minus
(v) A daily charge at an annual rate of 1.25% for annuity mortality and
expense risk and a daily administrative expense charge that will not exceed
.25% on an annual basis.
The number of Settlement Option Units remains fixed. However, the dollar
value of the Settlement Option Unit Values and the payment may increase or
decrease due to investment gain or loss.
Payments will not be affected by changes in the mortality or expense
results or administrative charges.
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
The Company
The Aetna Life Insurance and Annuity Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company
organized in 1954). The Company is engaged in the business of issuing life
insurance policies and annuity contracts in all states of the United States. The
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which
is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an
indirect wholly owned subsidiary of Aetna Inc.
The Company is registered as an investment adviser under the Investment
Advisers Act of 1940. It is also registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.
The Separate Account
The Separate Account established for the purpose of providing Variable
Options to fund the Policy is Variable Life Account B. Amounts allocated to the
Separate Account are invested in the Funds. Each of the Funds is an open-end
management investment company whose shares are purchased by the Separate Account
to fund the benefits provided by the Policy. The Funds currently available under
the Separate Account, including their investment objectives and their investment
advisers, are described in this Prospectus. Complete descriptions of the Funds'
investment objectives and restrictions and other material information relating
to an investment in the Funds are contained in the prospectuses for each of the
Funds.
Variable Life Account B was established pursuant to a June 18, 1986,
resolution of the Board of Directors of the Company. Under Connecticut Insurance
Law, the income, gains or losses of the Separate Account are credited without
regard to the other income, gains or losses of the Company. These assets are
held for the Company's variable life insurance policies. Any and all
distributions made by the Funds with respect to shares held by the Separate
Account will be reinvested in additional shares at net asset value. The assets
maintained in the Separate Account will not be charged with any liabilities
arising out of any other business conducted by the Company. The Company is,
however, responsible for meeting the obligations of the Policy to the Policy
Owner.
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<PAGE>
No stock certificates are issued to the Separate Account for shares the
Funds held in the Separate Account. Ownership of Fund shares is documented on
the books and records of the Funds and of the Company for the Separate Account.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 and meets the definition of separate
account under the federal securities laws. Such registration does not involve
any approval or disapproval by the Commission of the Separate Account or the
Company's management or investment practices or policies. The Company does not
guarantee the Separate Account's investment performance.
DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Name and Address* Positions with Company Business Experience During Past 5 Years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas J. McInerney Director, President and President (since September 1997), Aetna Life
Chairman, Executive Insurance and Annuity Company; President
Committee (Principal (since September 1997), Aetna Insurance
Executive Officer) Company of America; Director and President
(since September 1997), Aetna Retirement
Holdings, Inc.; President (since August 1997),
Aetna Retirement Services, Inc.; Executive
Vice President (since August 1997), Aetna Inc.,
Aetna Services, Inc. and Aetna Life Insurance
Company; Vice President, Strategy (March
1997--August 1997) Aetna Inc., Aetna Services,
Inc. and Aetna Life Insurance Company, Vice
President, Sales (December 1996--March
1997) and Vice President National Accounts
(April 1996- March 1997), Aetna
US Healthcare Inc.; Vice President, Strategy,
Finance, & Administration (July 1995--April
1996), Aetna Inc.; Vice President, Guaranteed
Products (November 1992--July 1995), Aetna
Life Insurance Company.
Shaun P. Mathews Director and Senior Vice Senior Vice President, Product Management
President (September 1997), Vice President, Products
Group (February 1996--September 1997),
Senior Vice President, Strategic Markets and
Products (February 1993--February 1996) and
Senior Vice President, Mutual Funds.
Catherine Hale Smith Director, Chief Financial Chief Financial Officer and Senior Vice
Officer and Senior Vice President, Strategy and Finance (Since February
President 1998), Aetna Life Insurance and Annuity
Company; Chief Financial Officer (since February
1998), Aetna Retirement Services, Inc.; Vice
President, Strategy, Finance and
Administration, Financial Relations (September
1996--February 1998), Aetna Inc.; Chief of
Staff, Health/Group Life, Strategy and
Communication (April 1993--September 1996).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address* Positions with Company Business Experience During Past 5 Years
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kirk P. Wickman Vice President, General Vice President, General Counsel and Corporate
Counsel and Corporate Secretary (since November 1996), Aetna Life
Secretary Insurance and Annuity Company; Vice President
and Counsel (June 1992--November 1996),
Aetna Life Insurance Company.
Deborah Koltenuk Vice President and Vice President and Treasurer, Corporate
Treasurer, Corporate Controller (since July 1996), Aetna Life
Controller Insurance and Annuity Company; Vice President
and Treasurer, Corporate Controller (since July
1996), Aetna Retirement Holdings, Inc.; Vice
President, Investment Financial Reporting and
Securities Operations (April 1996--July 1996),
Aetna Life Insurance Company; Vice President,
Investment Planning and Financial Reporting
(October 1994--April 1996), The Aetna Casualty
and Surety Company and The Standard Fire and
Insurance Company; Assistant Vice President,
Finance and Administration (June 1994--October
1994), Aetna Life Insurance Company; Controller
(September 1993--June 1994), Aetna Information
Technology; Assistant Vice President (December
1990--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--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.
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Aetna Casualty and Surety
Company.
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<PAGE>
REPORTS TO POLICY OWNERS
Within 30 days after each Policy Anniversary and before proceeds are
applied to a settlement option, we will send you a report containing the
following information:
1. A statement of changes in Total Account Value and Cash Surrender Value
since the prior report or since the Issue Date, if there has been no prior
report. This includes a statement of monthly deductions and investment
results and any interest earnings for the report period;
2. Cash Surrender Value, Death Benefit, and any Loan Account Value, as of
the Policy Anniversary;
3. A projection of Total Account Value, Loan Account Value and Cash
Surrender Value as of the succeeding Policy Anniversary.
If you have Policy values funded in either Separate Account you will
receive such additional periodic reports as may be required by the SEC.
Some state laws require additional reports; these requirements vary from
state to state.
RIGHT TO INSTRUCT VOTING OF FUND SHARES
In accordance with our view of present applicable law, We will vote the
shares of each of the Funds held in the Separate Account in accordance with
instructions received from Policy Owners having a voting interest in the Funds.
Policy Owners having such an interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions. The number
of shares which You have a right to vote will be determined as of a record date
established by the Fund. The number of votes that You are entitled to direct
with respect to a Fund will be determined by dividing the portion of Your Total
Account Value attributable to that Fund by the net asset value of one share in
the Fund. Voting instructions will be solicited by written communication at
least 14 days before such meeting.
The votes will be cast at meetings of the shareholders of the Fund and will
be based on instructions received from Policy Owners. However, if the Investment
Company Act of 1940 or any regulations thereunder should be amended or if the
present interpretation thereof should change, and as a result we determine that
we are permitted to vote the shares of the Fund in our own right, we may elect
to do so.
Fund shares for which no timely instructions are received, and Fund shares
which are not otherwise attributable to Policy Owners, will be voted by us in
the same proportion as the voting instructions which are received for all
Policies participating in each Fund through the Separate Account.
Policy Owners having a voting interest will receive periodic reports
relating to the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund. In
addition, we may disregard voting instructions in favor of changes initiated by
a Policy Owner in the investment policy or the investment adviser of a Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities or we determined that
the change would have an adverse effect on the Separate Accounts in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Policy Owners.
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<PAGE>
STATE REGULATION
The Company is subject to regulation and supervision by the Insurance
Department of the State of Connecticut, which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where we are authorized to do business. The Policies have been approved by the
Insurance Department of the State of Connecticut and in other jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and compliance
with local insurance laws and regulations.
The Policies are offered for sale in all jurisdictions where we are
authorized to do business except the District of Columbia, Guam, Puerto Rico,
and the Virgin Islands.
LEGAL MATTERS
The Company knows of no material legal proceedings pending to which either
Separate Account is a party or which would materially affect either Separate
Account.
The legal validity of the securities described in the Prospectus has been
passed on by Counsel for the Company.
ADDITIONAL INFORMATION
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed
with the SEC relating to the offering described in this Prospectus. This
Prospectus does not include all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The omitted information may be obtained at the SEC's
principal office in Washington, DC, upon payment of the SEC's prescribed fees.
Distribution of the Policies
The Company will serve as underwriter of the securities offered hereunder
as defined by the federal securities laws. The Company is registered as a
broker-dealer with the SEC and is a member of the National Association of
Securities Dealers, Inc. The Company will contract with one or more registered
broker-dealers including broker-dealers affiliated with it ("Distributors") to
offer and sell the Policies. The Company may also offer and sell policies
directly. All persons selling the Policies will be registered representatives of
the Distributors, and will also be licensed as insurance agents to sell variable
life insurance.
The maximum commission payable by the Company to salespersons and their
supervising broker-dealers for policy distribution is 55% of the initial Basic
Premium or, in the event of an increase in the Specified Amount, 55% of the
Basic Premium attributable to the increase. In lieu of premium-based commission,
the Company may pay equivalent amounts based on Total Account Value. In
particular circumstances, we may also pay certain of these professionals for
their administrative expenses. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. Supervisory and other management
personnel of the Company may receive compensation that will vary based on the
relative profitability to the Company of the funding options you select. Funding
options that invest in Funds advised by the Company or its affiliates are
generally more profitable to the Company. The Company may be deemed to be an
underwriter for purposes of the federal securities laws.
The registered representative may be required to return all or part of any
commission if the Policy is not continued for a certain period.
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<PAGE>
The Company may also contract with independent third party broker-dealers
who will act as wholesalers by assisting the Company in finding broker-dealers
to offer and sell the Policies. These parties may also provide training,
marketing and other sales related functions for the Company and other
broker-dealers and may provide certain administrative services to the Company in
connection with the Policies. The Company may pay such parties compensation
based on premium payments for the Policies purchased through broker-dealers
selected by the wholesaler.
Records and Accounts
All records and accounts relating to the Separate Accounts and the Funds
will be maintained by the Company. All reports required to be made and
information required to be given will be provided by the Company.
Independent Auditors
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
Year 2000
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as Aetna), is dependent on
computer systems and applications to conduct its business. Aetna has developed
and is currently executing a comprehensive risk-based plan designed to make its
computer systems, applications and facilities Year 2000 ready. The plan covers
four stages including (i) inventory, (ii) assessment, (iii) remediation and (iv)
testing and certification. At year end 1997, Aetna, including the Company, had
substantially completed the inventory and assessment stages. The remediation
process is currently underway and targeted for completion by December 31, 1998.
Testing and certification of these systems and applications are 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, including the Company, is initiating communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Where
practicable Aetna and the Company will assess and attempt to mitigate their
risks with respect to the failure of these parties to be Year 2000 ready. 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.
TAX MATTERS
General
The following is a discussion of the federal income tax considerations
relating to the Policies. This discussion is based on the Company's
understanding of federal income tax laws as they now exist and are currently
interpreted by the Internal Revenue Service ("IRS"). These laws are complex, and
tax results may vary among individuals. A person or persons contemplating the
purchase of or the exercise of elections under the Policy described in this
Prospectus should seek competent tax advice.
Federal Tax Status of the Company
The Company is taxed as a life insurance company in accordance with the
Internal Revenue Code of 1986, as amended ("Code"). For federal income tax
purposes, the operations of each Separate Account form a part of the Company's
total operations and are not taxed separately, although operations of each
Separate Account are treated separately for accounting and financial statement
purposes.
32
<PAGE>
Both investment income and realized capital gains of the Separate Account
(i.e., income, capital gains and dividends distributed to the Separate Account
by the Funds) that are credited to policy reserves are reinvested without tax
since the Code does not impose a tax on the Separate Account for these amounts.
The Company reserves the right, however, to make a deduction for such taxes
should they be imposed with respect to such items in the future.
Life Insurance Qualification
Section 7702 of the Code includes a definition of life insurance for tax
purposes. These rules generally place limits on the amount of premiums payable
under the contract and the level of cash surrender value. In no event may the
total of all premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance. If, at any
time, a premium is paid which would result in total premiums exceeding such
maximum premium limitation, we will only accept that portion of the premium
which will make total premiums equal the maximum. Any part of the premium in
excess of that amount will be returned or applied as otherwise agreed and no
further premiums will be accepted until allowed by the then-current maximum
premium limitations prescribed by law. The Secretary of the Treasury has been
granted authority to prescribe regulations to carry out the purposes of Section
7702, and proposed regulations governing mortality charges were issued in 1991.
The Company believes that the Policy meets the statutory definition of life
insurance. As such, and assuming the diversification standards of Section 817(h)
(discussed below) are satisfied, then except in limited circumstances (a) death
benefits paid under the Policy should generally be excluded from the gross
income of the beneficiary for federal income tax purposes under Section
101(a)(1) of the Code, and (b) a Policy Owner should not generally be taxed on
the cash value under a Policy, including increments thereof, prior to actual
receipt. The principal exceptions to these rules are corporations that are
subject to the alternative minimum tax, and thus may be subject to tax on
increments in the Policy's Total Account Value, and Policy Owners who acquire a
Policy in a "transfer for value" and thus can become subject to tax on the
portion of the Death Benefit which exceeds the total of their cost of
acquisition and subsequent premium payments.
The Company intends to comply with any future final regulations issued
under Sections 7702 and 817(h) of the Code, and therefore reserves the right to
make such changes as it deems necessary to ensure such compliance. Any such
changes will apply uniformly to affected Policy Owners and will be made only
after advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
Modified Endowment Contract, the Policy Owner will be taxed on the Surrender
Value only to the extent that it exceeds the gross premiums paid less prior
untaxed withdrawals. The amount of any unpaid Policy Loans will, upon surrender,
be added to the Surrender Value and will be treated for this purpose as if it
had been received.
Assuming the Policy is not a Modified Endowment Contract, the proceeds of
any partial surrenders are generally not taxable unless the total amount
received due to such surrenders exceeds total premiums paid less prior untaxed
partial surrender amounts. However, partial surrenders made within the first 15
Policy Years in connection with reductions of Death Benefits may be taxable in
limited circumstances in certain limited instances where the Surrender Value
plus any unpaid Policy debt exceeds the total premiums paid less the untaxed
portion of any prior partial surrenders. This result may occur even if the total
amount of any partial surrenders does not exceed total premiums paid to that
date.
Loans received under the Policy will ordinarily be considered indebtedness
of the Policyowner, and assuming the Policy is not considered a Modified
Endowment Contract, Policy Loans will not be treated as current distributions
subject to tax. Generally, amounts of loan interest paid by individuals will be
considered nondeductible "personal interest."
33
<PAGE>
Modified Endowment Contracts
A class of contracts known as "Modified Endowment Contracts" has been
created under Section 7702A of the Code. The tax rules applicable to loan
proceeds and proceeds of a partial surrender of any Policy that is considered to
be a Modified Endowment Contract will differ from the general rules noted above.
A contract will be considered a Modified Endowment Contract if it fails the
"7-pay test." A Policy fails the 7-pay test if, at any time in the first seven
Policy Years, the amount paid into the Policy exceeds the amount that would have
been paid had the Policy provided for the payment of seven (7) level annual
premiums. In the event of a distribution under the Policy, the Company will
notify the Policyowner if the Policy is a Modified Endowment Contract.
Each Policy is subject to testing under the 7-pay test during the first
seven Policy Years and for the seven Policy Years following the time a material
change takes effect. A material change, for these purposes, includes the
exchange of a life insurance policy for another life insurance policy or the
conversion of a term life insurance policy into a whole life or universal life
insurance policy. In addition, an increase in the future benefits provided
constitutes a material change unless the increase is attributable to (1) the
payment of premiums necessary to fund the lowest Death Benefit payable in the
first seven Policy Years or (2) the crediting of interest or other earnings with
respect to such premiums. A reduction in death benefits during the first seven
Policy Years, may also cause a Policy to be considered a Modified Endowment
Contract.
If the Policy is considered to be a Modified Endowment Contract, the
proceeds of any Partial Surrenders, any Policy Loans and most assignments will
be currently taxable to the extent that the Policy's Total Account Value
immediately before payment exceeds gross premiums paid (increased by the amount
of loans previously taxed and reduced by untaxed amounts previously received).
These rules may also apply to Policy Loans or partial surrender proceeds
received during the two-year period prior to the time that a Policy becomes a
Modified Endowment Contract. If the Policy becomes a Modified Endowment
Contract, it may be aggregated with other Modified Endowment Contracts purchased
by you from the Company (and its affiliates) during any one calendar year for
purposes of determining the taxable portion of withdrawals from the Policy.
A penalty tax equal to 10% of the amount includable in income will apply to
the taxable portion of the proceeds of any policy surrender or Policy Loan
received by any Policyowner of a Modified Endowment Contract who is not an
individual. Taxable policy distributions made to an individual who has not
reached the age of 59 will also be subject to the penalty tax unless those
distributions are attributable to the individual becoming disabled, or are part
of a series of equal periodic payments made not less frequently than annually
for the life or life expectancy of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or
the investments of a mutual fund, the shares of which are owned by separate
accounts of insurance companies) underlying the Policy must be "adequately
diversified" in accordance with Treasury regulations in order for the Policy to
qualify as life insurance. The Treasury Department has issued regulations
prescribing the diversification requirements in connection with variable
contracts. The Separate Account, through the Funds, intends to comply with these
requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered
the owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h)
34
<PAGE>
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., you), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular Funds without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in
certain respects from those described by the IRS in pre-Section 817(h) rulings
in which it was determined that Policyowners were not owners of separate account
assets. For example, a Policyowner has additional flexibility in allocating
premium payments and account values. While the Company does not believe that
these differences would result in a Policyowner being treated as the owner of a
pro rata portion of the assets of the Separate Account, there is no regulation
or ruling of the IRS that confirms this conclusion. In addition, the Company
does not know what standards will be set forth, if any, in the regulations or
rulings which the Treasury Department has stated it expects to issue. The
Company therefore reserves the right to modify the Policy as necessary to
attempt to prevent a Policyowner from being considered the owner of a pro rata
share of the assets of the Separate Account.
Other Tax Considerations
Business-owned life insurance may be subject to certain additional rules.
Section 264(a)(1) of the Code generally prohibits employers from deducting
premiums on policies covering officers, employees or other financially
interested parties where the employer is a beneficiary under the Policy.
Additions to the Policy's Total Account Value may also be subject to tax under
the corporation alternative minimum tax provisions. In addition, Section
264(a)(4) of the Code limits the Policyowner's deduction for interest on loans
taken against life insurance covering the lives of officers, employees, or
others financially interested in the Policyowner's trade or business. Under
current tax law, interest may generally be deducted on an aggregate total of
$50,000 of loans per covered life only with respect to life insurance policies
covering each officer, employee or others who may have a financial interest in
the Policyowner's trade or business and are considered key persons. Generally, a
key person means an officer or a 20 percent owner. However, the number of key
persons will be limited to the greater of (a) 5 individuals, or (b) the lesser
of 5 percent of the total officers and employees of the taxpayer or 20
individuals. Deductible interest for these policies will be capped based on the
applicable Moody's Corporate Bond Rate.
Section 264(f) of the Code denies a deduction for a portion of a
Policyowner's otherwise deductible interest that is allocable to unborrowed
policy cash values. The nondeductible interest amount is the amount that bears
the same ratio to such interest as the company's average unborrowed cash value
of life insurance and annuity policies issued after June 8, 1997 bears to the
sum of the average unborrowed cash values of policies plus the average adjusted
tax basis of other assets owned by the company. This provision does not apply to
policies in which the insured is a 20% owner, officer, director or employee of
the business, including policies jointly covering such individual and his or her
spouse. The rule also will not apply where the Policyowner is a natural person,
unless a trade or business is directly or indirectly the beneficiary of the
policy.
Depending on the circumstances, the exchange of a policy, a change in the
Policy's Death Benefit Option, a Policy Loan, a full or partial surrender, a
change in Ownership or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, estate,
inheritance and other tax consequences of policy ownership, premium payments and
receipt of policy proceeds depend on the circumstances of each Policyowner or
beneficiary. Any person concerned about these tax implications should consult a
competent tax advisor before initiating any transactions.
35
<PAGE>
Withholding
Generally, unless you provide us with a written election to the contrary
before we make the distribution, we are required to withhold income tax from any
portion of a distribution we make to you that is includable in your income. If
you do not wish us to withhold tax from the payment, or if enough is not
withheld, you may have to pay later. You may also have to pay penalties if your
withholding and estimated tax payments are insufficient.
MISCELLANEOUS CONTRACT PROVISIONS
The Contract
The Policy which you receive and the application you make when you purchase
the Policy are the whole contract. A copy of the application is attached to the
Policy when it is issued to you. Any application for changes, once approved by
us, will become part of the Policy.
Application forms are completed by the applicant and forwarded to the
Company for acceptance. Upon acceptance, the Policy is prepared, executed by
duly authorized officers of the Company, and forwarded to the Policy Owner.
Payment of Benefits
All benefits are payable at our Home Office. We may require submission of
the Policy before we grant loans, make changes or pay benefits.
Age and Sex
If age or sex is misstated on the application, the amount payable on death
will be that which would have been purchased by the most recent monthly
deduction at the correct age and sex. (If the application is taken in a state
where unisex rates are used, the Insured's sex is inapplicable.)
Incontestability
We will not contest coverage under the Policy (other than any waiver of
premium rider) after it has been in force during the lifetime of the Insured
more than two years from the Issue Date.
For coverage which takes effect on a later date (i.e., an increase or
reinstatement of insurance), we will not contest such coverage after it has been
in force during the lifetime of the Insured more than two years from its
effective date. Any contest of such later coverage will be based on the
supplemental application.
Suicide
In most states, if the Insured commits suicide within two years from the
Issue Date, the only benefit paid will be the sum of (a) plus (b) minus (c),
where:
(a) equals premiums paid less amounts allocated to the Separate Account; and
(b) equals the Separate Account Value on the date of suicide, plus the portion
of the Monthly Deductions deducted from the Separate Account Value; and
(c) equals the amount necessary to repay any loans in full and any interest
earned on the Loan Account Value transferred to the Separate Account Value,
and any surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of
any increase in coverage, we will pay as a benefit only the Monthly Deductions
for the increase, in lieu of the face amount of the increase.
All amounts will be calculated as of the date of death.
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<PAGE>
Protection of Proceeds
To the extent provided by law, the proceeds of the Policy are subject
neither to claims by a beneficiary's creditors nor to any legal process against
any beneficiary.
Non-Participation
Neither Policy is entitled to share in the divisible surplus of the
Company. No dividends are payable.
Coverage Beyond Maturity (AetnaVest II only)
As an AetnaVest II Policy Owner, you may, by written request in the 30 days
before the Maturity Date of this Policy, elect to continue coverage beyond the
Maturity Date. At Age 100, the Separate Account Value will be transferred to the
Fixed Account. If coverage beyond maturity is elected, we will continue to
credit interest to the Total Account Value of this Policy. Monthly Deductions
will be calculated with a Cost of Insurance rate equal to zero.
At this time, uncertainties exist regarding the tax treatment of the Policy
should the Policy continue beyond the Maturity Date. You should therefore
consult with your tax advisor prior to making this election. (See Tax Matters.)
The coverage beyond maturity provision is only available in approving states.
(This provision is not available in New York.)
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<PAGE>
APPENDIX A
AETNAVEST
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES
The following tables illustrate how the Total Account Values, Cash
Surrender Values, and Death Benefits of a Policy change with the investment
experience of the variable funding options. The tables show how the Total
Account Values, Cash Surrender Values, and Death Benefits of a Policy issued to
an insured of a given age and a given premium would vary over time if the
investment return on the assets held in each Fund were a uniform, gross, annual
rate of 0%, 6%, 12%, respectively.
Tables I through IV illustrate Policies issued to males, ages 25 and 40, in
the nonsmoker rate class. The Total Account Values, Cash Surrender Values, and
Death Benefits would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12% respectively, over a period
of years, but fluctuated above and below those averages for individual Policy
Years.
The second column of each table shows the accumulated values of the
premiums paid at the stated interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through eleventh columns illustrate the Cash Surrender Values of each Policy
over the designated period. Tables II and IV assume that the maximum Cost of
Insurance Rates allowable under the Policy are charged in all Policy Years.
These tables also assume that the maximum allowable mortality and expense risk
charge of 0.90% on an annual basis is assessed in each Policy Year. Tables I and
III assume that the current scale of Cost of Insurance Rates applies during all
Policy Years. These tables also assume the current level of mortality and
expense risk charge assessed on an annual basis: 0.65% for Aetna Balanced VP,
Inc., 0.65% for Aetna Growth and Income VP; 0.55% for Aetna Ascent VP; 0.55% for
Aetna Crossroads VP; 0.55% for Aetna Legacy VP and 0.70% for all other Funds
available under the AetnaVest Policies. A weighted average has been used for the
illustrations assuming that the Policyowner has invested in the Funds as
follows: 1% in the Aetna Ascent VP; 7% in Aetna Balanced VP, Inc. 4% in Aetna
Bond VP; 0% in the Aetna Crossroads VP; 52% in Aetna Growth and Income VP; 1% in
the Aetna Index Plus Large Cap VP; 0% in the Aetna Legacy VP; 4% in Aetna Money
Market VP; 2% in Fidelity's Variable Insurance Products Fund II-- Contrafund
Portfolio; 4% in Fidelity's Variable Insurance Products Fund--Equity-Income
Portfolio; 3% in the Janus Aspen Aggressive Growth Fund; 2% in Janus Aspen
Balanced Fund; 4% in Janus Aspen Growth Fund; 6% in Janus Aspen Worldwide Growth
Fund; 0% in Oppenheimer Global Securities Fund; 0% in Oppenheimer Strategic Bond
Fund; 4% in the Portfolio Partners, Inc. MFS Emerging Equities Portfolio; 2% in
the Portfolio Partners, Inc. MFS Research Growth Portfolio; 0% in the Portfolio
Partners, Inc. MFS Value Equity Portfolio; 4% in the Portfolio Partners, Inc.
Scudder International Growth Portfolio; and 0% in the Portfolio Partners, Inc.
T. Rowe Price Growth Equity Portfolio.
The amounts shown for the Death Benefits, Cash Surrender Values, and Total
Account Values reflect the fact that the net investment return is lower than the
gross, return on the assets held in each Fund as a result of expenses paid by
the Fund and other charges levied by the Separate Account. 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 -1.60%, 4.40%, and
10.40%, respectively 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 -1.83%, 4.17%, and 10.17%, respectively.
The hypothetical values shown in the tables do not reflect any Separate
Account charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefits, Total Account Values, and Cash Surrender Values illustrated.
38
<PAGE>
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the Policy
Owner has not requested an increase or decrease in the Specified Amount of the
Policy, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex, and underwriting classification, the specified amount or
premium requested, the proposed frequency of premium payments and any available
riders requested. A fee of $25 is charged for each such illustration.
The hypothetical gross annual investment return assumed in such an
illustration will not exceed 12%.
39
<PAGE>
AetnaVest Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 428 100,000 100,000 100,000 182 199 216 0 0 0
2 878 100,000 100,000 100,000 366 412 460 18 64 112
3 1,351 100,000 100,000 100,000 549 636 731 201 288 383
4 1,846 100,000 100,000 100,000 731 872 1,034 383 524 686
5 2,367 100,000 100,000 100,000 910 1,119 1,368 562 771 1,020
6 2,914 100,000 100,000 100,000 1,099 1,390 1,750 815 1,106 1,466
7 3,488 100,000 100,000 100,000 1,282 1,670 2,169 1,067 1,455 1,954
8 4,091 100,000 100,000 100,000 1,460 1,960 2,629 1,315 1,815 2,484
9 4,724 100,000 100,000 100,000 1,630 2,258 3,133 1,555 2,183 3,058
10 5,388 100,000 100,000 100,000 1,792 2,563 3,684 1,786 2,557 3,678
15 9,244 100,000 100,000 100,000 2,452 4,189 7,311 2,452 4,189 7,311
20 14,165 100,000 100,000 100,000 2,771 5,894 12,962 2,771 5,894 12,962
25 20,446 100,000 100,000 100,000 2,552 7,466 21,768 2,552 7,466 21,768
30 28,462 100,000 100,000 100,000 1,507 8,553 35,692 1,507 8,553 35,692
40 (Age 65) 51,751 0 100,000 116,131 0 5,041 95,190 0 5,041 95,190
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
40
<PAGE>
AetnaVest Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 428 100,000 100,000 100,000 182 199 216 0 0 0
2 878 100,000 100,000 100,000 364 410 458 16 62 110
3 1,351 100,000 100,000 100,000 545 632 728 197 284 380
4 1,846 100,000 100,000 100,000 726 867 1,027 378 519 679
5 2,367 100,000 100,000 100,000 903 1,111 1,357 555 763 1,009
6 2,914 100,000 100,000 100,000 1,089 1,378 1,734 805 1,094 1,450
7 3,488 100,000 100,000 100,000 1,269 1,653 2,147 1,054 1,438 1,932
8 4,091 100,000 100,000 100,000 1,443 1,938 2,600 1,298 1,793 2,455
9 4,724 100,000 100,000 100,000 1,610 2,230 3,094 1,535 2,155 3,019
10 5,388 100,000 100,000 100,000 1,767 2,528 3,633 1,761 2,522 3,627
15 9,244 100,000 100,000 100,000 2,382 4,079 7,130 2,382 4,079 7,130
20 14,165 100,000 100,000 100,000 2,646 5,661 12,497 2,646 5,661 12,497
25 20,446 100,000 100,000 100,000 2,312 6,990 20,666 2,312 6,990 20,666
30 28,462 100,000 100,000 100,000 1,102 7,684 33,322 1,102 7,684 33,322
40 (Age 65) 51,751 0 100,000 104,608 0 2,336 85,744 0 2,336 85,744
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
41
<PAGE>
AetnaVest Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 781 100,000 100,000 100,000 455 490 526 0 0 0
2 1,601 100,000 100,000 100,000 889 987 1091 216 314 418
3 2,463 100,000 100,000 100,000 1,299 1,490 1,698 626 817 1,025
4 3,367 100,000 100,000 100,000 1,688 2,000 2,353 1,015 1,327 1,680
5 4,317 100,000 100,000 100,000 2,054 2,514 3,059 1,381 1,841 2,386
6 5,314 100,000 100,000 100,000 2,396 3,034 3,822 1,847 2,485 3,273
7 6,361 100,000 100,000 100,000 2,709 3,553 4,640 2,294 3,138 4,225
8 7,460 100,000 100,000 100,000 2,990 4,068 5,517 2,710 3,788 5,237
9 8,614 100,000 100,000 100,000 3,240 4,580 6,461 3,094 4,434 6,315
10 9,826 100,000 100,000 100,000 3,456 5,086 7,476 3,445 5,075 7,465
15 16,857 100,000 100,000 100,000 3,954 7,419 13,855 3,954 7,419 13,855
20 25,831 100,000 100,000 100,000 2,783 8,598 22,774 2,783 8,598 22,774
25 37,284 0 100,000 100,000 0 7,597 35,808 0 7,597 35,808
30 51,902 0 100,000 100,000 0 2,520 56,263 0 2,520 56,263
25 (Age 65) 37,284 0 100,000 100,000 0 7,597 35,808 0 7,597 35,808
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
42
<PAGE>
AetnaVest Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 781 100,000 100,000 100,000 452 487 522 0 0 0
2 1,601 100,000 100,000 100,000 879 977 1,080 206 304 407
3 2,463 100,000 100,000 100,000 1,282 1,471 1,677 609 798 1,004
4 3,367 100,000 100,000 100,000 1,658 1,966 2,316 985 1,293 1,643
5 4,317 100,000 100,000 100,000 2,008 2,462 3,000 1,335 1,789 2,327
6 5,314 100,000 100,000 100,000 2,328 2,956 3,730 1,779 2,407 3,181
7 6,361 100,000 100,000 100,000 2,618 3,445 4,511 2,203 3,030 4,096
8 7,460 100,000 100,000 100,000 2,876 3,928 5,345 2,596 3,648 5,065
9 8,614 100,000 100,000 100,000 3,100 4,403 6,236 2,954 4,257 6,090
10 9,826 100,000 100,000 100,000 3,288 4,866 7,188 3,277 4,855 7,177
15 16,857 100,000 100,000 100,000 3,598 6,892 13,046 3,598 6,892 13,046
20 25,831 100,000 100,000 100,000 2,187 7,579 20,904 2,187 7,579 20,904
25 37,284 0 100,000 100,000 0 5,473 31,573 0 5,473 31,573
30 51,902 0 0 100,000 0 0 45,968 0 0 45,968
25 (Age 65) 37,284 0 100,000 100,000 0 5,473 31,573 0 5,473 31,573
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
43
<PAGE>
APPENDIX B
AETNAVEST II
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES
The following tables illustrate how the Total Account Values, Cash
Surrender Values, and Death Benefits of a Policy change with the investment
experience of the variable funding options. The tables show how the Total
Account Values, Cash Surrender Values, and Death Benefits of a Policy issued to
an insured of a given age and a given premium would vary over time if the
investment return on the assets held in each Fund were a uniform, gross, annual
rate of 0%, 6%, 12%, respectively.
Tables V through VIII illustrate Policies issued to males, ages 35 and 55,
in the nonsmoker rate class. Tables IX through XII illustrate Policies issued on
a unisex basis, ages 35 and 55, in the nonsmoker rate class. These tables are
provided for use in those states where unisex rates are required. The Total
Account Values, Cash Surrender Values, and Death Benefits would be different
from those shown if the gross annual investment rates of return averaged 0%, 6%,
and 12%, respectively, over a period of years, but fluctuated above and below
those averages for individual Policy Years.
The second column of each table shows the accumulated values of the
premiums paid at the stated interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through eleventh columns illustrate the Cash Surrender Values of each Policy
over the designated period. Tables VI, VIII, X and XII assume that the maximum
Cost of Insurance Rates allowable under the Policy are charged in all Policy
Years. These tables also assume that the maximum allowable mortality and expense
risk charge of .90% on an annual basis, the maximum allowable administrative
charge of .50% and the maximum allowable premium load of 6% are assessed in each
Policy Year. Tables V, VII, IX and XI assume that the current scale of Cost of
Insurance Rates applies during all Policy Years. These tables also assume the
current level of mortality and expense risk charges of 0.70% on an annual basis.
A weighted average has been used for the illustrations assuming that the
Policyowner has invested in the Funds as follows: 1% in the Aetna Ascent VP; 7%
in Aetna Balanced VP, Inc. 4% in Aetna Bond VP; 0% in the Aetna Crossroads VP;
52% in Aetna Growth and Income VP; 1% in the Aetna Index Plus Large Cap VP; 0%
in the Aetna Legacy VP; 4% in Aetna Money Market VP; 2% in Fidelity's Variable
Insurance Products Fund II--Contrafund Portfolio; 4% in Fidelity's Variable
Insurance Products Fund--Equity-Income Portfolio; 3% in the Janus Aspen
Aggressive Growth Fund; 2% in Janus Aspen Balanced Fund; 4% in Janus Aspen
Growth Fund; 6% in Janus Aspen Worldwide Growth Fund; 0% in Oppenheimer Global
Securities Fund; 0% in Oppenheimer Strategic Bond Fund; 4% in the Portfolio
Partners, Inc. MFS Emerging Equities Portfolio; 2% in the Portfolio Partners,
Inc. MFS Research Growth Portfolio; 0% in the Portfolio Partners, Inc. MFS Value
Equity Portfolio; 4% in the Portfolio Partners, Inc. Scudder International
Growth Portfolio; and 0% in the Portfolio Partners, Inc. T. Rowe Price Growth
Equity Portfolio.
The amounts shown for the Death Benefits, Cash Surrender Values, and Total
Account Values reflect the fact that the net investment return is lower than the
gross return on the assets held in each Fund as a result of expenses paid by
each Fund and other charges levied by the Separate Account. 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 -1.63%, 4.37%, and
10.37%, respectively 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 -2.03%, 3.97%, and 9.97%, respectively.
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%,
44
<PAGE>
6%, or 12% by an amount sufficient to cover the tax charges in order to produce
the Death Benefits, Total Account Values, and Cash Surrender Values
illustrated.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the Policy
Owner has not requested an increase or decrease in the Specified Amount of the
Policy, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex (if necessary), and underwriting classification, the
specified amount or premium requested, the proposed frequency of premium
payments and any available riders requested. A fee of $25 is charged for each
such illustration.
The hypothetical gross annual investment return assumed in such an
illustration will not exceed 12%.
45
<PAGE>
AetnaVest II Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1,410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,480 250,000 250,000 250,000 685 746 806 0 0 0
2 3,035 250,000 250,000 250,000 1,519 1,689 1,867 169 339 517
3 4,667 250,000 250,000 250,000 2,314 2,648 3,011 964 1,298 1,661
4 6,381 250,000 250,000 250,000 3,068 3,620 4,245 1,718 2,270 2,895
5 8,181 250,000 250,000 250,000 3,778 4,602 5,573 2,428 3,252 4,223
6 10,070 250,000 250,000 250,000 4,441 5,592 7,005 3,215 4,366 5,779
7 12,054 250,000 250,000 250,000 5,061 6,592 8,553 3,970 5,501 7,462
8 14,137 250,000 250,000 250,000 5,631 7,596 10,222 4,675 6,640 9,266
9 16,325 250,000 250,000 250,000 6,152 8,606 12,027 5,331 7,785 11,206
10 18,622 250,000 250,000 250,000 6,621 9,616 13,977 5,935 8,930 13,291
15 31,947 250,000 250,000 250,000 7,989 14,458 26,309 7,978 14,447 26,298
20 48,954 250,000 250,000 250,000 7,243 18,300 44,465 7,243 18,300 44,465
25 70,660 250,000 250,000 250,000 3,750 20,153 72,087 3,750 20,153 72,087
30 98,363 0 250,000 250,000 0 18,356 115,816 0 18,356 115,816
30 (Age 65) 98,363 0 250,000 250,000 0 18,356 115,816 0 18,356 115,816
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
46
<PAGE>
AetnaVest II Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1,410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,480 250,000 250,000 250,000 646 705 763 0 0 0
2 3,035 250,000 250,000 250,000 1,439 1,602 1,773 89 252 423
3 4,667 250,000 250,000 250,000 2,191 2,509 2,856 841 1,159 1,506
4 6,381 250,000 250,000 250,000 2,899 3,424 4,020 1,549 2,074 2,670
5 8,181 250,000 250,000 250,000 3,560 4,342 5,265 2,210 2,992 3,915
6 10,070 250,000 250,000 250,000 4,173 5,261 6,599 2,947 4,035 5,373
7 12,054 250,000 250,000 250,000 4,731 6,175 8,024 3,640 5,084 6,933
8 14,137 250,000 250,000 250,000 5,236 7,082 9,549 4,280 6,126 8,593
9 16,325 250,000 250,000 250,000 5,682 7,976 11,178 4,861 7,155 10,357
10 18,622 250,000 250,000 250,000 6,069 8,857 12,923 5,383 8,171 12,237
15 31,947 250,000 250,000 250,000 6,931 12,792 23,590 6,920 12,781 23,579
20 48,954 250,000 250,000 250,000 5,363 15,044 38,284 5,363 15,044 38,284
25 70,660 0 250,000 250,000 0 13,118 57,942 0 13,118 57,942
30 98,363 0 250,000 250,000 0 2,491 84,129 0 2,491 84,129
30 (Age 65) 98,363 0 250,000 250,000 0 2,491 84,129 0 2,491 84,129
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
47
<PAGE>
AetnaVest II Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
$4,380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,599 250,000 250,000 250,000 2,272 2,465 2,659 0 0 0
2 9,428 250,000 250,000 250,000 4,579 5,114 5,674 1,123 1,658 2,218
3 14,498 250,000 250,000 250,000 6,742 7,772 8,896 3,286 4,316 5,440
4 19,822 250,000 250,000 250,000 8,758 10,436 12,344 5,302 6,980 8,888
5 25,412 250,000 250,000 250,000 10,620 13,099 16,039 7,164 9,643 12,583
6 31,282 250,000 250,000 250,000 12,321 15,753 20,001 9,182 12,614 16,862
7 37,445 250,000 250,000 250,000 13,855 18,392 24,256 11,061 15,598 21,462
8 43,916 250,000 250,000 250,000 15,207 21,001 28,827 12,759 18,553 26,379
9 50,711 250,000 250,000 250,000 16,364 23,565 33,741 14,262 21,463 31,639
10 57,846 250,000 250,000 250,000 17,283 26,040 39,000 15,526 24,283 37,243
15 99,240 250,000 250,000 250,000 17,206 35,829 71,326 17,177 35,800 71,297
20 152,070 250,000 250,000 250,000 6,827 38,497 120,106 6,827 38,497 120,106
25 219,497 0 250,000 250,000 0 23,493 201,591 0 23,493 201,591
30 305,552 0 0 369,275 0 0 351,690 0 0 351,690
10 (Age 65) 57,846 250,000 250,000 250,000 17,283 26,040 39,000 15,526 24,283 37,243
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
48
<PAGE>
AetnaVest II Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
$4,380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,599 250,000 250,000 250,000 1,892 2,070 2,249 0 0 0
2 9,428 250,000 250,000 250,000 3,743 4,221 4,723 287 765 1,267
3 14,498 250,000 250,000 250,000 5,365 6,264 7,248 1,909 2,808 3,792
4 19,822 250,000 250,000 250,000 6,746 8,178 9,817 3,290 4,722 6,361
5 25,412 250,000 250,000 250,000 7,863 9,933 12,408 4,407 6,477 8,952
6 31,282 250,000 250,000 250,000 8,691 11,494 15,002 5,552 8,355 11,863
7 37,445 250,000 250,000 250,000 9,205 12,824 17,572 6,411 10,030 14,778
8 43,916 250,000 250,000 250,000 9,365 13,870 20,079 6,917 11,422 17,631
9 50,711 250,000 250,000 250,000 9,122 14,568 22,473 7,020 12,466 20,371
10 57,846 250,000 250,000 250,000 8,426 14,849 24,697 6,669 13,092 22,940
15 99,240 0 250,000 250,000 0 7,292 31,031 0 7,263 31,002
20 152,070 0 0 250,000 0 0 16,952 0 0 16,952
25 219,497 0 0 0 0 0 0 0 0 0
30 305,552 0 0 0 0 0 0 0 0 0
10 (Age 65) 57,846 250,000 250,000 250,000 8,426 14,849 24,697 6,669 13,092 22,940
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
49
<PAGE>
AetnaVest II Policy
Table IX
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1,410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,417 250,000 250,000 250,000 640 698 755 0 0 0
2 2,906 250,000 250,000 250,000 1,428 1,589 1,757 138 299 467
3 4,469 250,000 250,000 250,000 2,180 2,495 2,839 890 1,205 1,549
4 6,110 250,000 250,000 250,000 2,889 3,410 4,001 1,599 2,120 2,711
5 7,833 250,000 250,000 250,000 3,554 4,333 5,251 2,264 3,043 3,961
6 9,642 250,000 250,000 250,000 4,173 5,260 6,595 3,001 4,088 5,423
7 11,541 250,000 250,000 250,000 4,748 6,193 8,043 3,705 5,150 7,000
8 13,536 250,000 250,000 250,000 5,273 7,126 9,603 4,359 6,212 8,689
9 15,630 250,000 250,000 250,000 5,750 8,061 11,285 4,965 7,276 10,500
10 17,829 250,000 250,000 250,000 6,175 8,993 13,100 5,519 8,337 12,444
15 30,588 250,000 250,000 250,000 7,458 13,521 24,647 7,447 13,510 24,636
20 46,871 250,000 250,000 250,000 6,945 17,309 41,837 6,945 17,309 41,837
25 67,653 250,000 250,000 250,000 3,986 19,421 68,075 3,986 19,421 68,075
30 94,177 0 250,000 250,000 0 18,147 109,359 0 18,147 109,359
30 (Age 65) 94,177 0 250,000 250,000 0 18,147 109,359 0 18,147 109,359
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
50
<PAGE>
AetnaVest II Policy
Table X
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
$1,350.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,417 250,000 250,000 250,000 603 659 714 0 0 0
2 2,906 250,000 250,000 250,000 1,351 1,506 1,667 61 216 377
3 4,469 250,000 250,000 250,000 2,061 2,363 2,691 771 1,073 1,401
4 6,110 250,000 250,000 250,000 2,726 3,223 3,785 1,436 1,933 2,495
5 7,833 250,000 250,000 250,000 3,345 4,084 4,955 2,055 2,794 3,665
6 9,642 250,000 250,000 250,000 3,917 4,943 6,206 2,745 3,771 5,034
7 11,541 250,000 250,000 250,000 4,434 5,794 7,539 3,391 4,751 6,496
8 13,536 250,000 250,000 250,000 4,901 6,639 8,965 3,987 5,725 8,051
9 15,630 250,000 250,000 250,000 5,309 7,468 10,484 4,524 6,683 9,699
10 17,829 250,000 250,000 250,000 5,662 8,283 12,109 5,006 7,627 11,453
15 30,588 250,000 250,000 250,000 6,398 11,883 22,010 6,387 11,872 21,999
20 46,871 250,000 250,000 250,000 4,844 13,857 35,573 4,844 13,857 35,573
25 67,653 0 250,000 250,000 0 11,948 53,639 0 11,948 53,639
30 94,177 0 250,000 250,000 0 2,155 77,591 0 2,155 77,591
30 (Age 65) 94,177 0 250,000 250,000 0 2,155 77,591 0 2,155 77,591
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
51
<PAGE>
AetnaVest II Policy
Table XI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 250,000 250,000 250,000 2,253 2,440 2,629 0 0 0
2 9,041 250,000 250,000 250,000 4,541 5,062 5,609 1,229 1,750 2,297
3 13,903 250,000 250,000 250,000 6,697 7,706 8,806 3,385 4,394 5,494
4 19,008 250,000 250,000 250,000 8,710 10,357 12,229 5,398 7,045 8,917
5 24,368 250,000 250,000 250,000 10,572 13,009 15,896 7,260 9,697 12,584
6 29,996 250,000 250,000 250,000 12,276 15,654 19,829 9,268 12,646 16,821
7 35,906 250,000 250,000 250,000 13,819 18,288 24,057 11,142 15,611 21,380
8 42,112 250,000 250,000 250,000 15,187 20,898 28,601 12,841 18,552 26,255
9 48,627 250,000 250,000 250,000 16,371 23,474 33,494 14,356 21,459 31,479
10 55,469 250,000 250,000 250,000 17,335 25,978 38,743 15,651 24,294 37,059
15 95,161 250,000 250,000 250,000 17,825 36,280 71,278 17,797 36,252 71,250
20 145,821 250,000 250,000 250,000 8,519 40,053 120,426 8,519 40,053 120,426
25 210,477 0 250,000 250,000 0 28,329 202,666 0 28,329 202,666
30 292,995 0 0 370,462 0 0 352,821 0 0 352,821
10 (Age 65) 55,469 250,000 250,000 250,000 17,335 25,978 38,743 15,651 24,294 37,059
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
52
<PAGE>
AetnaVest II Policy
Table XII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 55
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 250,000 250,000 250,000 1,809 1,979 2,150 0 0 0
2 9,041 250,000 250,000 250,000 3,595 4,053 4,534 283 741 1,222
3 13,903 250,000 250,000 250,000 5,169 6,032 6,976 1,857 2,720 3,664
4 19,008 250,000 250,000 250,000 6,524 7,900 9,473 3,212 4,588 6,161
5 24,368 250,000 250,000 250,000 7,647 9,639 12,018 4,335 6,327 8,706
6 29,996 250,000 250,000 250,000 8,510 11,211 14,587 5,502 8,203 11,579
7 35,906 250,000 250,000 250,000 9,089 12,584 17,161 6,412 9,907 14,484
8 42,112 250,000 250,000 250,000 9,347 13,708 19,704 7,001 11,362 17,358
9 48,627 250,000 250,000 250,000 9,233 14,519 22,165 7,218 12,504 20,150
10 55,469 250,000 250,000 250,000 8,701 14,953 24,496 7,017 13,269 22,812
15 95,161 0 250,000 250,000 0 9,185 32,410 0 9,157 32,382
20 145,821 0 0 250,000 0 0 24,109 0 0 24,109
25 210,477 0 0 0 0 0 0 0 0 0
30 292,995 0 0 0 0 0 0 0 0 0
10 (Age 65) 55,469 250,000 250,000 250,000 8,701 14,953 24,496 7,017 13,269 22,812
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
53
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
Statement of Assets and Liabilities ......................... S-2
Statements of Operations and Changes in Net Assets .......... S-4
Condensed Financial Information ............................. S-5
Notes to Financial Statements ............................... S-9
Independent Auditors' Report ................................ S-20
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 3,935,729 shares (cost $126,171,024) ............................ $132,379,023
Aetna Income Shares; 1,642,350 shares (cost $21,116,917) ............................. 21,104,804
Aetna Variable Encore Fund; 1,520,490 shares (cost $20,249,343) ...................... 20,320,201
Aetna Investment Advisers Fund, Inc.; 1,517,909 shares (cost $22,364,815) ............ 24,336,071
Aetna Ascent Variable Portfolio; 127,672 shares (cost $1,774,627) .................... 1,802,553
Aetna Crossroads Variable Portfolio; 54,282 shares (cost $705,224) ................... 710,292
Aetna Legacy Variable Portfolio; 53,730 shares (cost $649,521) ....................... 650,139
Aetna Variable Index Plus Portfolio; 139,939 shares (cost $1,985,472) ................ 1,961,545
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 831,279 shares (cost $18,659,751) .......................... 20,183,450
Growth Portfolio; 191,918 shares (cost $6,740,034) .................................. 7,120,144
Overseas Portfolio; 93,214 shares (cost $1,797,983) ................................. 1,789,714
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 140,740 shares (cost $2,253,029) ........................... 2,534,727
Contrafund Portfolio; 1,014,044 shares (cost $18,714,668) ........................... 20,220,028
Janus Aspen Series:
Aggressive Growth Portfolio; 603,521 shares (cost $11,557,498) ...................... 12,402,365
Balanced Portfolio; 469,699 shares (cost $7,320,172) ................................ 8,205,641
Growth Portfolio; 648,268 shares (cost $10,619,569) ................................. 11,980,000
Worldwide Growth Portfolio; 1,039,046 shares (cost $22,485,938) ..................... 24,303,287
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio; 444,333 shares (cost $19,019,357) .............. 19,061,872
PPI MFS Research Growth Portfolio; 736,167 shares (cost $7,234,426) ................. 7,148,181
PPI Scudder International Growth Portfolio; 1,014,972 shares (cost $14,118,551) ..... 14,311,110
------------
NET ASSETS (cost $335,537,919) ........................................................ $352,525,147
============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Variable Fund:
Policyholders' account values ........................................................ $132,379,023
Aetna Income Shares:
Policyholders' account values ........................................................ 21,104,804
Aetna Variable Encore Fund:
Policyholders' account values ........................................................ 20,320,201
Aetna Investment Advisers Fund, Inc.:
Policyholders' account values ........................................................ 24,336,071
Aetna Ascent Variable Portfolio:
Policyholders' account values ........................................................ 1,802,553
Aetna Crossroads Variable Portfolio:
Policyholders' account values ........................................................ 710,292
</TABLE>
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1997 (continued):
Aetna Legacy Variable Portfolio:
Policyholders' account values ....................... $ 650,139
Aetna Variable Index Plus Portfolio:
Policyholders' account values ....................... 1,961,545
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values ...................... 20,183,450
Growth Portfolio:
Policyholders' account values ...................... 7,120,144
Overseas Portfolio:
Policyholders' account values ...................... 1,789,714
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values ...................... 2,534,727
Contrafund Portfolio:
Policyholders' account values ....................... 20,220,028
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values ...................... 12,402,365
Balanced Portfolio:
Policyholders' account values ...................... 8,205,641
Growth Portfolio:
Policyholders' account values ...................... 11,980,000
Worldwide Growth Portfolio:
Policyholders' account values ...................... 24,303,287
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Policyholders' account values ...................... 19,061,872
PPI MFS Research Growth Portfolio:
Policyholders' account values ...................... 7,148,181
PPI Scudder International Growth Portfolio:
Policyholders' account values ...................... 14,311,110
------------
$352,525,147
============
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends .......................................................... $ 35,222,623 $ 13,813,478
Expenses: (Notes 2 and 5)
Valuation Period Deductions ........................................ (2,713,203) (1,905,137)
------------- -------------
Net investment income ............................................... 32,509,420 11,908,341
------------- -------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................ 260,329,704 29,656,908
Cost of investments sold ........................................... 245,858,726 26,434,292
------------- -------------
Net realized gain ................................................. 14,470,978 3,222,616
Net unrealized gain on investments: (Note 5)
Beginning of year .................................................. 14,132,669 4,391,574
End of year ........................................................ 16,987,228 14,132,669
------------- -------------
Net change in unrealized gain ..................................... 2,854,559 9,741,095
------------- -------------
Net realized and unrealized gain on investments ..................... 17,325,537 12,963,711
------------- -------------
Net increase in net assets resulting from operations ................ 49,834,957 24,872,052
------------- -------------
FROM UNIT TRANSACTIONS:
Variable life premium payments ...................................... 135,098,143 101,416,302
Sales and administrative charges deducted by the Company ............ (4,620,884) (3,032,151)
Premiums allocated to the fixed account ............................. (2,741,149) (3,127,437)
------------- -------------
Net premiums allocated to the variable account ..................... 127,736,110 95,256,714
Transfers to the Company for monthly deductions ..................... (21,545,914) (15,491,673)
Redemptions by contract holders ..................................... (24,062,185) (4,154,465)
Transfers on account of policy loans ................................ (2,875,077) (3,783,533)
Other ............................................................... 263,373 (40,991)
------------- -------------
Net increase in net assets from unit transactions (Note 5) ......... 79,516,307 71,786,052
------------- -------------
Change in net assets ................................................ 129,351,264 96,658,104
NET ASSETS:
Beginning of year ................................................... 223,173,883 126,515,779
------------- -------------
End of year ......................................................... $ 352,525,147 $ 223,173,883
============= =============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997
<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 Period of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund:
Aetna Vest .......................... $34.932 $44.936 28.64% 1,403,227.0 $63,055,847
Aetna Vest II ....................... 19.507 25.085 28.60% 805,944.5 20,216,852
Aetna Vest Plus ..................... 16.389 21.075 28.58% 1,783,619.4 37,590,494
Aetna Vest Estate Protector ......... 11.675 15.037 28.79% 70,938.6 1,066,670
Corporate Specialty Market .......... 14.805 19.039 28.60% 548,828.8 10,449,160
Aetna Income Shares:
Aetna Vest .......................... 21.850 23.428 7.22% 257,674.2 6,036,890
Aetna Vest II ....................... 14.691 15.752 7.22% 61,987.6 976,413
Aetna Vest Plus ..................... 11.764 12.613 7.22% 187,384.8 2,363,574
Aetna Vest Estate Protector ......... 10.452 11.224 7.38% 18,991.8 213,166
Corporate Specialty Market .......... 11.354 12.175 7.22% 945,807.8 11,514,761
Aetna Variable Encore Fund:
Aetna Vest .......................... 16.577 17.310 4.43% 151,657.5 2,625,230
Aetna Vest II ....................... 12.117 12.653 4.43% 13,650.7 172,723
Aetna Vest Plus ..................... 11.388 11.892 4.43% 566,497.4 6,736,612
Aetna Vest Estate Protector ......... 10.333 10.807 4.58% 36,266.4 391,929
Corporate Specialty Market .......... 10.895 11.377 4.43% 913,597.2 10,393,707
Aetna Investment Advisers Fund, Inc.:
Aetna Vest .......................... 17.547 21.286 21.31% 106,658.2 2,270,280
Aetna Vest II ....................... 17.742 21.515 21.27% 234,300.7 5,041,082
Aetna Vest Plus ..................... 14.880 18.044 21.27% 493,793.3 8,909,876
Aetna Vest Estate Protector ......... 11.340 13.554 19.53%(1) 11,121.3 150,741
Corporate Specialty Market .......... 12.954 15.708 21.27% 506,998.4 7,964,092
Aetna Ascent Variable Portfolio:
Aetna Vest .......................... 11.828 14.055 18.84% 16,408.7 230,615
Aetna Vest II ....................... 11.828 14.040 18.70% 10,217.2 143,453
Aetna Vest Plus ..................... 11.828 14.040 18.70% 96,649.5 1,356,995
Aetna Vest Estate Protector ......... 11.886 14.077 18.43%(1) 5,078.4 71,490
Aetna Crossroads Variable Portfolio:
Aetna Vest .......................... 11.474 13.369 16.52% 5,240.7 70,064
Aetna Vest II ....................... 11.544 13.356 15.69%(1) 5,740.1 76,663
Aetna Vest Plus ..................... 11.474 13.356 16.40% 40,129.7 535,965
Aetna Vest Estate Protector ......... 11.487 13.391 16.58% 2,061.1 27,600
Aetna Legacy Variable Portfolio:
Aetna Vest II ....................... 11.263 12.604 11.91%(2) 894.7 11,277
Aetna Vest Plus ..................... 11.118 12.604 13.37% 48,206.0 607,607
Aetna Vest Estate Protector ......... 11.344 12.638 11.40%(3) 2,473.2 31,255
</TABLE>
S-5
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
----------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Index Plus Portfolio:
Aetna Vest .......................... $12.017 $13.081 8.86%(4) 11,393.3 $ 149,038
Aetna Vest II ....................... 11.345 13.081 15.30%(4) 7,240.3 94,713
Aetna Vest Plus ..................... 11.172 13.081 17.09%(3) 86,063.0 1,125,815
Aetna Vest Estate Protector ......... 12.371 13.102 5.91%(5) 17,901.0 234,541
Corporate Specialty Market .......... 12.785 13.081 2.32%(6) 27,324.3 357,438
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest .......................... 10.871 13.788 26.83% 16,476.3 227,168
Aetna Vest II ....................... 10.871 13.788 26.83% 5,186.7 71,513
Aetna Vest Plus ..................... 10.871 13.788 26.83% 545,391.4 7,519,612
Aetna Vest Estate Protector ......... 10.883 13.824 27.02% 62,365.5 862,136
Corporate Specialty Market .......... 12.512 15.869 26.83% 724,876.8 11,503,021
Fidelity Investments Variable
Insurance Products Fund:
Growth Portfolio:
Corporate Specialty Market .......... 11.255 13.759 22.25% 517,477.9 7,120,144
Overseas Portfolio:
Corporate Specialty Market .......... 11.241 12.415 10.45% 144,152.5 1,789,714
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market .......... 12.022 14.361 19.46% 176,505.1 2,534,727
Contrafund Portfolio:
Aetna Vest .......................... 11.525 14.166 22.91% 34,241.1 485,043
Aetna Vest II ....................... 11.525 14.166 22.91% 7,039.4 99,717
Aetna Vest Plus ..................... 11.525 14.166 22.91% 319,136.2 4,520,728
Aetna Vest Estate Protector ......... 11.538 14.203 23.09% 44,043.2 625,540
Corporate Specialty Market .......... 12.396 15.236 22.91% 950,961.4 14,489,000
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest .......................... 16.153 18.017 11.54% 62,426.4 1,124,758
Aetna Vest II ....................... 16.153 18.017 11.54% 29,971.2 540,002
Aetna Vest Plus ..................... 16.153 18.017 11.54% 340,401.2 6,133,150
Aetna Vest Estate Protector ......... 9.797 10.944 11.71% 65,486.4 716,682
Corporate Specialty Market .......... 12.120 13.519 11.54% 287,588.9 3,887,773
</TABLE>
S-6
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio:
Aetna Vest .......................... $13.966 $16.883 20.89% 7,765.1 $ 131,096
Aetna Vest II ....................... 14.075 17.015 20.89% 10,401.5 176,977
Aetna Vest Plus ..................... 13.960 16.875 20.89% 247,390.9 4,174,751
Aetna Vest Estate Protector ......... 11.101 13.440 21.07% 17,145.8 230,433
Corporate Specialty Market .......... 12.242 14.799 20.89% 235,992.1 3,492,384
Growth Portfolio:
Aetna Vest .......................... 14.898 18.105 21.53% 37,937.8 686,846
Aetna Vest II ....................... 14.884 18.088 21.53% 61,620.8 1,114,603
Aetna Vest Plus ..................... 14.863 18.063 21.53% 431,965.3 7,802,391
Aetna Vest Estate Protector ......... 10.857 13.214 21.71% 44,074.0 582,402
Corporate Specialty Market .......... 12.232 14.865 21.53% 120,672.6 1,793,758
Worldwide Growth Portfolio:
Aetna Vest .......................... 16.364 19.790 20.94% 108,747.3 2,152,075
Aetna Vest II ....................... 16.368 19.795 20.94% 55,876.7 1,106,085
Aetna Vest Plus ..................... 16.348 19.770 20.94% 557,760.6 11,027,190
Aetna Vest Estate Protector ......... 11.811 14.305 21.12% 58,328.9 834,389
Corporate Specialty Market .......... 13.459 16.277 20.94% 564,191.6 9,183,548
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Aetna Vest .......................... 17.571 17.357 (1.22%)(7) 70,564.4 1,224,807
Aetna Vest II ....................... 17.573 17.359 (1.22%)(7) 34,713.7 602,592
Aetna Vest Plus ..................... 17.563 17.349 (1.22%)(7) 477,392.0 8,282,500
Aetna Vest Estate Protector ......... 10.942 10.810 (1.21%)(7) 66,830.1 722,463
Corporate Specialty Market .......... 14.451 14.275 (1.22%)(7) 576,485.2 8,229,510
PPI MFS Research Growth Portfolio:
Aetna Vest .......................... 12.277 12.042 (1.91%)(7) 64,898.6 781,537
Aetna Vest II ....................... 12.332 12.096 (1.91%)(7) 23,240.4 281,124
Aetna Vest Plus ..................... 12.163 11.931 (1.91%)(7) 352,781.7 4,209,155
Aetna Vest Estate Protector ......... 9.329 9.152 (1.90%)(7) 10,326.6 94,508
Corporate Specialty Market .......... 11.124 10.912 (1.91%)(7) 163,291.1 1,781,857
</TABLE>
S-7
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio:
Aetna Vest ............................... $15.495 $15.692 1.27%(7) 131,667.0 $2,066,166
Aetna Vest II ............................ 15.399 15.596 1.27%(7) 44,659.7 696,495
Aetna Vest Plus .......................... 15.314 15.509 1.27%(7) 449,154.4 6,965,802
Aetna Vest Estate Protector .............. 11.627 11.777 1.29%(7) 21,515.0 253,383
Corporate Specialty Market ............... 12.832 12.995 1.27%(7) 333,144.4 4,329,264
</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 March 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.
(7)--Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
See Notes to Financial Statements
S-8
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997
1. Summary of Significant Accounting Policies
Variable Life Account B (the"Account") is a separate account established by
Aetna Life Insurance and Annuity Company (the "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, 1997:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Aetna Variable Index Plus Portfolio
Fidelity Investments Variable Insurance
Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
Janus Aspen Series:
[bullet] Aggressive Growth Portfolio
[bullet] Balanced Portfolio
[bullet] Growth Portfolio
[bullet] Worldwide Growth Portfolio
Portfolio Partners, Inc.:
[bullet] PPI MFS Emerging Equities Portfolio
[bullet] PPI MFS Research Growth Portfolio
[bullet] PPI Scudder International Growth 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 the 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-9
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (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, 1997 and 1996
aggregated $372,355,431 and $260,329,704 and $113,349,117 and $29,656,908,
respectively.
S-10
<PAGE>
[This page intentionally left blank]
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1997
<TABLE>
<CAPTION>
Valuation
Period
Dividends Deductions
------------ ------------
<S> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553)
PolicyHolders' account values
Aetna Income Shares: 1,087,150 (148,230)
PolicyHolders' account values
Aetna Variable Encore Fund: 372,968 (144,720)
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443)
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 112,004 (11,360)
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 45,840 (3,290)
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 38,169 (3,596)
PolicyHolders' account values
Aetna Variable Index Plus Portfolio: 77,848 (4,920)
PolicyHolders' account values
Alger American Small Capitalization
Portfolio:(1) 576,583 (128,523)
PolicyHolders' account values
American Century VP Capital Appreciation
Fund:(2) 132,455 (57,820)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,485,715 (163,582)
PolicyHolders' account values
Growth Portfolio: 192,233 (54,856)
PolicyHolders' account values
Overseas Portfolio: 46,706 (8,253)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257)
PolicyHolders' account values
Contrafund Portfolio: 235,708 (110,146)
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (95,697)
PolicyHolders' account values
Balanced Portfolio: 192,757 (52,872)
PolicyHolders' account values
<CAPTION>
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
-------------- ------------- --------------
<S> <C> <C> <C>
Aetna Variable Fund: $11,219,896 $ 7,857,508 $3,362,388
PolicyHolders' account values
Aetna Income Shares: 2,358,910 2,406,924 (48,014)
PolicyHolders' account values
Aetna Variable Encore Fund: 74,201,538 73,731,940 469,598
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 1,960,106 1,561,449 398,657
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 1,279,898 1,184,906 94,992
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 198,099 193,283 4,816
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 225,894 207,391 18,503
PolicyHolders' account values
Aetna Variable Index Plus Portfolio: 143,972 131,418 12,554
PolicyHolders' account values
Alger American Small Capitalization
Portfolio:(1) 53,957,227 53,285,312 671,915
PolicyHolders' account values
American Century VP Capital Appreciation
Fund:(2) 15,197,338 15,512,673 (315,335)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 14,420,981 11,843,310 2,577,671
PolicyHolders' account values
Growth Portfolio: 6,814,876 5,870,796 944,080
PolicyHolders' account values
Overseas Portfolio: 359,668 322,274 37,394
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 244,742 220,690 24,052
PolicyHolders' account values
Contrafund Portfolio: 4,519,164 3,602,586 916,578
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 18,445,996 17,632,824 813,172
PolicyHolders' account values
Balanced Portfolio: 1,238,408 1,021,789 216,619
PolicyHolders' account values
</TABLE>
S-12
<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>
$7,294,643 $6,207,999 ($1,086,644) $ 11,743,902
$92,871,626 $132,379,023
(190,180) (12,114) 178,066 6,856,045
13,179,787 21,104,804
106,394 70,857 (35,537) 10,565,707
9,092,185 20,320,201
1,383,931 1,971,257 587,326 4,867,703
15,791,541 24,336,071
15,645 27,927 12,282 1,049,257
545,378 1,802,553
(191) 5,069 5,260 533,974
123,692 710,292
20 618 598 582,502
13,963 650,139
0 (23,927) (23,927) 1,899,990
0 1,961,545
172,057 0 (172,057) (14,034,001)
13,086,083 0
(146,911) 0 146,911 (6,388,736)
6,482,525 0
1,096,283 1,523,698 427,415 2,546,018
13,310,213 20,183,450
294,867 380,110 85,243 900,915
5,052,529 7,120,144
37,941 (8,270) (46,211) 1,227,751
532,327 1,789,714
134,978 281,699 146,721 796,072
1,410,186 2,534,727
730,883 1,505,359 774,476 11,491,722
6,911,690 20,220,028
249,074 844,868 595,794 1,426,169
9,662,927 12,402,365
243,163 885,469 642,306 3,632,486
3,574,345 8,205,641
</TABLE>
S-13
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1997 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
-------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio: $ 309,334 ($ 90,076) $ 3,312,122 $ 2,585,617 $ 726,505
PolicyHolders' account values
Short-Term bond Portfolio: (3) 101,542 (32,381) 9,071,413 8,891,967 179,446
PolicyHolders' account values
Worldwide Growth Portfolio: 325,821 (167,065) 7,022,675 5,257,711 1,764,964
PolicyHolders' account values
Portfolio Partners Inc.:
PPI MFS Emerging Equities Portfolio: 0 (17,086) 9,834,242 9,998,952 (164,710)
PolicyHolders' account values
PPI MFS Research Growth Portfolio: 0 (6,128) 1,889,839 1,891,124 (1,285)
PolicyHolders' account values
PPI Scudder International Growth Portfolio: 0 (12,927) 1,858,258 1,827,173 31,085
PolicyHolders' account values
Scudder Variable Life Investment Fund --
International Portfolio: (4) 264,246 (110,422) 20,554,442 18,819,109 1,735,333
PolicyHolders' account values ----------- ---------- ------------ ------------ -----------
Total Variable Life Account B $35,222,623 ($2,713,203) $260,329,704 $245,858,726 $14,470,978
=========== ========== ============ ============ ===========
</TABLE>
(1) Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Emerging Equity Portfolio.
(2) Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Research Growth Portfolio.
(3) Effective November 28, 1997, assets from this fund were transferred into
the Aetna Variable Encore Fund.
(4) Effective November 28, 1997, assets from this fund were transferred into
the PPI Scudder International Growth Portfolio.
S-14
<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>
$ 566,478 $ 1,360,430 $ 793,952 $ 3,065,638
$ 7,174,647 $ 11,980,000
26,773 0 (26,773) (4,049,682)
3,827,848 0
872,277 1,817,349 945,072 11,519,359
9,915,136 24,303,287
0 42,515 42,515 19,201,153
0 19,061,872
0 (86,245) (86,245) 7,241,839
0 7,148,181
0 192,560 192,560 14,100,392
0 14,311,110
1,244,544 0 (1,244,544) (11,259,868)
10,615,255 0
----------- ----------- ------------ ------------- ------------ ------------
$14,132,669 $16,987,228 $ 2,854,559 $ 79,516,307 $223,173,883 $352,525,147
=========== =========== ============ ============= ============ ============
</TABLE>
S-15
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1996 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $9,712,578 ($ 991,737) $5,373,083 $4,466,494 $906,589
PolicyHolders' account values
Aetna Income Shares: 810,294 (121,325) 1,564,483 1,544,041 20,442
PolicyHolders' account values
Aetna Variable Encore Fund: 477,308 (71,555) 9,490,775 9,560,169 (69,394)
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 1,201,085 (127,990) 1,717,127 1,435,761 281,366
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 18,222 (1,210) 127,981 124,671 3,310
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 2,462 (91) 1,317 1,263 54
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 671 (36) 503 486 17
PolicyHolders' account values
Alger American Small Capitalization Portfolio: 33,925 (93,143) 2,003,029 1,400,608 602,421
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 19,619 (57,181) 625,427 574,716 50,711
PolicyHolders' account values
Growth Portfolio: 85,627 (30,149) 243,345 245,938 (2,593)
PolicyHolders' account values
Overseas Portfolio:
PolicyHolders' account values 14,172 (4,004) 478,644 450,003 28,641
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 62,788 (13,383) 981,022 966,124 14,898
PolicyHolders' account values
Contrafund Portfolio: 10,199 (36,829) 353,531 314,886 38,645
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 79,809 (68,571) 1,171,119 858,482 312,637
PolicyHolders' account values
Balanced Portfolio: 70,301 (23,444) 452,062 367,517 84,545
PolicyHolders' account values
Growth Portfolio: 140,964 (46,593) 808,709 590,651 218,058
PolicyHolders' account values
Short-Term Bond Portfolio: 84,482 (17,596) 424,360 415,377 8,983
PolicyHolders' account values
</TABLE>
S-16
<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
</TABLE>
S-17
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1996 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
-------------- ---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Series (continued):
Worldwide Growth Portfolio: $ 105,214 ($ 49,874) $ 1,127,422 $ 777,300 $ 350,122
PolicyHolders' account values
Scudder Variable Life Investment Fund --
International Portfolio: 173,534 (85,922) 1,752,475 1,537,715 214,760
PolicyHolders' account values
TCI Portfolios, Inc.--Growth Fund: 710,224 (64,504) 960,494 802,090 158,404
PolicyHolders' account values ----------- ------------ ------------ ----------- ----------
Total Variable Life Account B $13,813,478 ($1,905,137) $29,656,908 $26,434,292 $3,222,616
=========== ============ ============ =========== ==========
</TABLE>
S-18
<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>
$ 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-19
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Policyholders of Variable Life Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Life Account B (the "Account") as
of December 31, 1997, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and
condensed financial information for the year ended December 31, 1997. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Life Account B as
of December 31, 1997, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 27, 1998
S-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
------------------------------------------
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiary as of December 31, 1997 and 1996,
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, 1997. 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 statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements 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 Subsidiary at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 3, 1998
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1997 1996 1995
------- ------- -------
Revenue:
Premiums $267.1 $133.6 $212.7
Charges assessed against policyholders 475.0 396.5 318.9
Net investment income 1,080.5 1,045.6 1,004.3
Net realized capital gains 36.0 19.7 41.3
Other income 39.7 45.4 42.0
------- ------- -------
Total revenue 1,898.3 1,640.8 1,619.2
------- ------- -------
Benefits and expenses:
Current and future benefits 1,127.8 968.6 997.2
Operating expenses 347.4 342.2 310.8
Amortization of deferred policy
acquisition costs 128.4 69.8 48.0
Severance and facilities charges -- 61.3 --
------- ------- -------
Total benefits and expenses 1,603.6 1,441.9 1,356.0
------- ------- -------
Income before income taxes 294.7 198.9 263.2
Income taxes 89.4 57.8 87.3
------- ------- -------
Net income $205.3 $141.1 $175.9
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1997 1996
- ------ ---- ----
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(amortized cost: $12,912.2 and $12,539.1) $13,463.8 $12,905.5
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $131.7 and $107.6) 147.6 119.0
Investment in affiliated mutual funds (cost: $78.1 and $77.3) 83.0 81.1
Common stock (cost: $0.2 and $0.0) .6 .3
Short-term investments 95.6 34.8
Mortgage loans 12.8 13.0
Policy loans 469.6 399.3
--------- --------
Total investments 14,273.0 13,553.0
Cash and cash equivalents 565.4 459.1
Accrued investment income 163.0 159.0
Premiums due and other receivables 63.7 26.6
Deferred policy acquisition costs 1,654.6 1,515.3
Reinsurance loan to affiliate 397.2 628.3
Other assets 46.8 33.7
Separate accounts assets 22,982.7 15,318.3
--------- --------
Total assets $40,146.4 $31,693.3
========= ========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $3,763.7 $3,617.0
Unpaid claims and claim expenses 38.0 28.9
Policyholders' funds left with the Company 11,143.5 10,663.7
--------- --------
Total insurance reserve liabilities 14,945.2 14,309.6
Other liabilities 312.8 354.7
Income taxes:
Current 12.4 20.7
Deferred 72.0 80.5
Separate accounts liabilities 22,970.0 15,318.3
--------- --------
Total liabilities 38,312.4 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
Accumulated other comprehensive income 92.9 60.5
Retained earnings 1,320.3 1,128.2
--------- --------
Total shareholder's equity 1,834.0 1,609.5
--------- --------
Total liabilities and shareholder's equity $40,146.4 $31,693.3
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,609.5 $1,583.0 $1,088.5
Comprehensive income
Net income 205.3 141.1 175.9
Other comprehensive income, net of tax
Unrealized gains (losses) on securities ($50.1
million, $(110.8) million and $494.6 million, 32.4 (72.0) 321.5
pretax, respectively)
-------- -------- --------
Total comprehensive income 237.7 69.1 497.4
-------- -------- --------
Capital contributions -- 10.4 0.0
Other changes 4.1 (49.5) 0.0
Common stock dividends (17.3) (3.5) (2.9)
-------- -------- --------
Shareholder's equity, end of year $1,834.0 $1,609.5 $1,583.0
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $205.3 $141.1 $175.9
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
(Increase) decrease in accrued investment income (4.0) 16.5 (33.3)
(Increase) decrease in premiums due and other receivables (33.3) 1.6 25.4
Increase in policy loans (70.3) (60.7) (89.9)
Increase in deferred policy acquisition costs (139.3) (174.0) (177.0)
Decrease in reinsurance loan to affiliate 231.1 27.2 34.8
Net increase in universal life account balances 286.4 243.2 393.4
(Decrease) increase in other insurance reserve liabilities (249.6) (211.5) 79.0
Net (decrease) increase in other liabilities and other assets (41.7) 3.1 13.0
Decrease in income taxes (31.4) (26.7) (4.5)
Net accretion of discount on investments (66.4) (68.0) (66.4)
Net realized capital gains (36.0) (19.7) (41.3)
Other, net -- 1.1 --
-------- -------- --------
Net cash provided by (used for) operating activities 50.8 (126.8) 309.1
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,311.3 5,182.2 4,207.2
Equity securities 103.1 190.5 180.8
Mortgage loans 0.2 8.7 10.7
Limited partnership -- -- 26.6
Investment maturities and collections of:
Debt securities available for sale 1,212.7 885.2 583.9
Short-term investments 89.3 35.0 106.1
Cost of investment purchases in:
Debt securities available for sale (6,732.8) (6,534.3) (6,034.0)
Equity securities (113.3) (118.1) (170.9)
Short-term investments (149.9) (54.7) (24.7)
Mortgage loans -- -- (21.3)
Other, net -- (17.6) --
-------- -------- --------
Net cash used for investing activities (279.4) (423.1) (1,135.6)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,621.2 1,579.5 1,884.5
Withdrawals of investment contracts (1,256.3) (1,146.2) (1,109.6)
Capital contribution to Separate Account (25.0) -- --
Return of capital from Separate Account 12.3 -- --
Capital contribution from HOLDCO -- 10.4 --
Dividends paid to shareholder (17.3) (3.5) (2.9)
-------- -------- --------
Net cash provided by financing activities 334.9 440.2 772.0
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 106.3 (109.7) (54.5)
Cash and cash equivalents, beginning of year 459.1 568.8 623.3
-------- -------- --------
Cash and cash equivalents, end of year $565.4 $459.1 $568.8
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $119.6 $85.5 $92.8
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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 subsidiary
(collectively, the "Company") are providers 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 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 subsidiary, Aetna Insurance Company of
America. 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 1996 and 1995 financial information to conform to the 1997
presentation.
New Accounting Standard
-----------------------
As of December 31, 1997 the Company adopted Financial Accounting Standard
("FAS") No. 130, Reporting Comprehensive Income. This statement 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 shareholders) and includes net income and net unrealized
capital gains or losses on available-for-sale securities. As this new
standard only requires additional information in a financial statement, it
does not affect the Company's financial position or results of operations.
Future Application of Accounting Standards
------------------------------------------
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
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.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Future Application of Accounting Standards (Continued)
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.
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments, which provides guidance for
determining when an insurance or other enterprise should recognize a
liability for guaranty-fund and other insurance related assessments and
guidance for measuring the liability. This statement is effective for 1999
financial statements with early adoption 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.
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
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.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
The company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Initial collateral, primarily cash, is required at a rate of 102% of the
market value of a loaned domestic security and 105% of the market value of
a loaned foreign security. The collateral is deposited by the borrower with
a lending agent, and retained and invested by the lending agent according
to the Company's guidelines to generate additional income. The market value
of the loaned securities is monitored on a daily basis with additional
collateral obtained or refunded as the market value of the loaned
securities fluctuates. At December 31, 1997 and 1996, the Company loaned
securities (which are reflected as invested assets) with a market value of
approximately $385.1 million and $444.7 million, respectively.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have 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.
The Company utilizes futures contracts, swap agreements and warrants for
other than trading purposes in order to manage investment returns and price
risk and to align maturities, interest rates, and funds availability with
its obligations. (Refer to Note 3.)
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.
Interest rate 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
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
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.
Warrants represent the right to purchase specific securities and are
accounted for as hedges. Upon exercise, the cost of the warrants are added
to the basis of the securities purchased.
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% for all
years presented. 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 3.50% to 9.50% for all years presented) 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.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments with life contingencies begin under
contracts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity and 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 mutual 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 $658.6 million for 1997 (fair value $668.7 million)
and $515.6 million for 1996 (fair value $523.0 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 both 1997 and in
1996.
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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, 1997 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 $1,219.7 $74.0 $0.1 $1,293.6
States, municipalities and political
subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Financial 2,370.7 84.6 1.3 2,454.0
Food & fiber 195.4 9.3 -- 204.7
Healthcare & consumer products 728.5 27.0 2.6 752.9
Media & broadcast 252.9 14.7 0.1 267.5
Natural resources 143.5 5.5 - 149.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Utilities 521.3 23.5 0.9 543.9
Other corporate securities 96.9 3.2 - 100.1
---------- -------- -------- -----------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
Foreign Securities:
Government 612.5 36.7 23.6 625.6
Utilities 177.5 28.7 -- 206.2
Other 857.9 27.7 42.8 842.8
---------- -------- -------- -----------
Total foreign securities 1,647.9 93.1 66.4 1,674.6
Residential mortgage-backed securities:
Pass-throughs 784.4 71.3 2.0 853.7
Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9
---------- -------- -------- -----------
Total residential mortgage-
backed securities 3,064.9 208.7 4.0 3,269.6
Commercial/Multifamily mortgage-
backed securities 1,127.8 34.0 0.4 1,161.4
Other asset-backed securities 1,014.2 17.1 0.4 1,030.9
---------- -------- -------- -----------
Total Debt Securities $12,912.2 $627.9 $76.3 $13,463.8
========== ======== ======== ===========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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, 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 corporate securities 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-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1997 and 1996, net unrealized appreciation of $551.6
million and $366.4 million, respectively, on available-for-sale debt
securities included $429.3 million and $288.5 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in future policy benefits and policyholders' funds
left with the Company.
The carrying and fair value of debt securities for the year ended December
31, 1997 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 $367.3 $367.6
After one year through five years 2,165.1 2,195.4
After five years through ten years 2,367.3 2,407.0
After ten years 2,805.6 3,031.9
Mortgage-backed securities 4,192.7 4,431.0
Other asset-backed securities 1,014.2 1,030.9
--------- ---------
Total $12,912.2 $13,463.8
========= =========
At December 31, 1997 and 1996, debt securities carried at $8.2 million and
$7.6 million, respectively, were on deposit as required by regulatory
authorities.
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, 1997.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs(1) $2,415.9 $2,280.5 $2,309.0 $2,227.8
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 81.6% 84.2%
Supporting remaining products 18.4% 15.8%
----- -----
100.0% 100.0%
===== =====
</TABLE>
(1) At December 31, 1997 and 1996, approximately 73% and 71%,
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, 1997
and 1996, approximately 4% and 3%, respectively, of the Company's CMO
holdings were invested in types of CMOs which are subject to more
prepayment and extension risk than traditional CMOs (such as interest- or
principal-only strips).
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in equity securities available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(millions)
1997
Equity Securities $210.0 $21.3 $0.1 $231.2
====== ===== ==== ======
1996
Equity Securities $184.9 $16.3 $0.8 $200.4
====== ===== ==== ======
3. Financial Instruments
Estimated Fair Value
--------------------
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1997 and 1996 were as follows:
1997 1996
-------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- ------ -------- -----
(millions)
Assets:
Mortgage loans $ 12.8 $ 12.4 $ 13.0 $ 13.2
Liabilities:
Investment contract
liabilities:
With a fixed maturity $ 1,030.3 $1,005.4 $1,014.1 $1,028.8
Without a fixed
maturity 10,113.2 9,587.5 9,649.6 9,427.6
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Estimated Fair Value (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in policyholders' funds left with
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
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 1997 and 1996,
Treasury futures contracts were used to manage interest rate risk in the
Company's bond portfolio; and, in 1996, 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
securities at a specified future date and at a specified price or yield.
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, 1997 and 1996.
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
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Off-Balance-Sheet and Other Financial Instruments (Including Derivative
Instruments) (Continued)
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, 1997 and 1996.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1997
and 1996.
Warrants:
Warrants are instruments giving the Company the right, but not the
obligation to buy a security at a given price during a specified period. As
of December 31, 1997 and 1996, the Company had open warrants to purchase
equity securities with a fair value of $0.6 million and $0.3 million,
respectively.
Debt Instruments with Derivative Characteristics:
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, 1997 was as follows:
Amortized Fair
Cost Value
--------- ----
(millions)
Residential collateralized mortgage
obligations $2,280.5 $2,415.9
Principal-only strips (included above) 59.0 67.0
Interest-only strips (included above) 12.8 24.3
Other structured securities with derivative
characteristics (1) 107.4 105.2
(1) Represents non-leveraged instruments whose fair values and credit
risk are based on underlying securities, including fixed income
securities and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $962.8 $945.3 $891.5
Nonredeemable preferred stock 13.7 5.9 4.2
Investment in affiliated
mutual funds 4.9 14.3 14.9
Mortgage loans 1.3 2.2 1.4
Policy loans 19.9 18.4 13.7
Reinsurance loan to affiliate 37.5 44.1 46.5
Cash equivalents 44.2 29.4 38.9
Other 10.0 2.1 8.4
-------- -------- --------
Gross investment income 1,094.3 1,061.7 1,019.5
Less investment expenses (13.8) (16.1) (15.2)
-------- -------- --------
Net investment income $1,080.5 $1,045.6 $1,004.3
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $823.1 million, $787.6 million and $744.2 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest
credited to contractholders is included in current and future benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively.
The amount of dividends that may be paid to the shareholder in 1998 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$77.6 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
$80.5 million, $57.8 million and $70.0 million for the years ended December
31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was
$778.7 million and $713.6 million as of December 31, 1997 and 1996,
respectively.
As of December 31, 1997 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $22.5 $11.1 $32.8
Equity securities 9.9 8.6 8.3
Other 3.6 -- 0.2
------ -------- ------
Pretax realized capital gains $36.0 $19.7 $41.3
====== ======== ======
After tax realized capital gains $23.2 $13.0 $25.8
====== ======== ======
Net realized capital gains of $96.1 million, $53.1 million and $61.1
million for 1997, 1996 and 1995, respectively, allocable to experience
rated contracts, were deducted from net realized capital gains and an
offsetting amount was reflected in policyholders' funds left with the
Company. Net unamortized gains were $138.1 million and $53.3 million at
December 31, 1997 and 1996, respectively.
Proceeds from the sale of available-for-sale debt securities and the
related gross gains and losses were as follows:
1997 1996 1995
----- ----- ----
(millions)
Proceeds on Sales $5,311.3 $5,182.2 $4,207.2
Gross Gains 25.8 24.3 44.6
Gross Losses 3.3 13.2 11.8
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities)
(excluding those related to experience rated contractholders) were as
follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $44.3 $(100.1) $255.9
Equity securities 5.6 (10.5) 27.3
Limited partnership -- -- 1.8
----- ------- ------
49.9 (110.6) 285.0
Increase (decrease) in deferred
income taxes (See Note 8) 17.5 (38.6) (36.5)
----- ------- ------
Net changes in accumulated other
comprehensive income $32.4 $(72.0) $321.5
===== ======= ======
Net unrealized capital gains allocable to experience rated contracts of
$356.7 million and $72.6 million at December 31, 1997 and $245.2 million
and $43.3 million at December 31, 1996 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 accumulated other comprehensive
income, which are net of amounts allocable to experience rated
contractholders, at December 31:
1997 1996 1995
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $140.6 $101.7 $179.3
Gross unrealized capital losses (18.4) (23.8) (1.3)
----- ----- -----
122.2 77.9 178.0
Equity securities
Gross unrealized capital gains 21.2 16.3 27.2
Gross unrealized capital losses (0.1) (0.8) (1.2)
---- ---- -----
21.1 15.5 26.0
Deferred income taxes (See Note 8) 50.4 32.9 71.5
---- ---- -----
Net accumulated other
comprehensive income $92.9 $60.5 $132.5
==== ==== =====
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience rated contractholders) were as follows:
1997 1996 1995
---- ---- ----
(millions)
Unrealized holding gains (losses)
arising during the period (1) $98.8 $(14.8) $390.5
Less: reclassification adjustment
for gains and other items included
in net income (2) 66.4 57.2 69.0
----- ------ ------
Net unrealized gains (losses)
on securities $32.4 $(72.0) $321.5
===== ====== ======
(1) Pretax unrealized holding gains (losses) arising during the
period were $152.0 million, ($22.8) million and $600.8 million
for 1997, 1996 and 1995, respectively.
(2) Pretax reclassification adjustments for gains and other items
included in net income were $102.4 million, $87.7 million and
$107.5 million for 1997, 1996 and 1995, respectively.
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.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges (Continued)
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,
which were sold in April 1996. The cost allocated to the Company associated
with this charge was $9.1 million after tax ($14.0 million pretax).
Activity for 1997 and 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
(Millions) Reserve Positions
----------------------------------- ---------- ---------
Balance at December 31, 1995 $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
---------- ---------
Balance at December 31, 1996 47.9 524
Actions taken (1) (27.1) (163)
---------- ---------
Balance at December 31, 1997 $20.8 361
========== =========
(1) Includes $15.9 million and $8.0 million in 1997 and 1996,
respectively, of severance-related actions and $7.9 million and $4.1
million in 1997 and 1996, respectively, of corporate
allocation-related actions.
The Company's severance actions are expected to be substantially completed
by September 30, 1998. The corporate allocation actions were substantially
completed in 1997.
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return, the
Illinois Unitary return and the Connecticut and the New York combined state
income tax returns of Aetna. Aetna allocates to each member an amount
approximating the tax it would have incurred were it not a member of the
consolidated group, and credits the member for the use of its tax saving
attributes used in the consolidated federal income tax return.
Income taxes for the years ended December 31, consist of:
1997 1996 1995
---- ---- ----
(millions)
Current taxes:
Income Taxes:
Federal income tax $64.5 $50.9 $82.9
State income tax 3.7 3.7 3.2
Net realized capital gains 45.6 25.3 28.5
----- ---- ----
113.8 79.9 114.6
----- ---- -----
Deferred taxes (benefits):
Income taxes:
Federal 8.4 (3.5) (14.4)
Net realized capital gains (losses) (32.8) (18.6) (12.9)
----- ----- -----
(24.4) (22.1) (27.3)
----- ----- -----
Total $89.4 $57.8 $87.3
===== ===== =====
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1997 1996 1995
---- ---- ----
(millions)
Income before income taxes $294.7 $198.9 $263.2
Tax rate 35% 35% 35%
------- ------- -------
Application of the tax rate 103.1 69.6 92.1
------- ------- -------
Tax effect of:
State income tax, net of
federal benefit 2.4 2.4 2.1
Excludable dividends (15.9) (8.7) (9.3)
Other, net (0.2) (5.5) 2.4
------- ------- --------
Income taxes $89.4 $57.8 $87.3
======= ======= ========
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(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:
1997 1996
---- ----
(millions)
Deferred tax assets:
Insurance reserves $415.8 $344.6
Unrealized gains allocable to
experience rated contracts 150.1 100.8
Investment losses 6.6 7.5
Postretirement benefits other
than pensions 26.3 27.0
Deferred compensation 31.2 25.0
Pension (3.6) 7.6
Restructuring charge 9.5 17.6
Depreciation 3.9 2.6
Other 8.8 9.1
--------- --------
Total gross assets 648.6 541.8
Deferred tax liabilities:
Deferred policy acquisition costs 515.6 482.1
Market discount 5.1 6.8
Net unrealized capital gains 200.5 133.7
Other (0.6) (0.3)
--------- ---------
Total gross liabilities 720.6 622.3
--------- ---------
Net deferred tax liability $72.0 $80.5
========= =========
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. As of December 31, 1997 and 1996, 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, 1997. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to amounts that are tax-deductible. As of
December 31, 1997, 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 $2.7 million, $4.3
million and $6.1 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides certain health care and life insurance
benefits 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. There is a cap on the
portion of the cost paid by the Company relating to medical and dental
benefits. 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 1997, 1996 and 1995 were $2.7
million, $1.8 million and $1.4 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. In 1997,
other changes in shareholder's equity includes an additional $0.8 million
reduction reflecting revisions to the allocation of these accrued
liabilities.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1997, 1996 and 1995 were $0.6 million,
$0.7 million and $0.8 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 $4.4 million, $5.4 million and $4.9
million in 1997, 1996 and 1995, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1997, 1996
and 1995, were $2.9 million, $8.1 million and $6.3 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. In 1997, other changes in
shareholder's equity include an additional increase of $2.3 million
reflecting revisions to the allocation of the deferred tax benefit.
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 0.10% to
1.90% of their average daily net assets. The Company also receives fees
from Aetna managed mutual funds for serving as investment adviser. Under
the advisory agreements, these funds pay the Company a daily fee which, on
an annual basis, ranges, depending on the fund, from 0.25% to 0.85% of
their average daily net assets. The Company also receives fees (expressed
as a percentage of the average daily net assets) from some of its funds 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 mutual funds,
included in charges assessed against policyholders, amounted to $271.2
million, $186.8 million and $128.1 million in 1997, 1996 and 1995,
respectively. The Company may waive advisory fees at its discretion.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor for affiliated mutual funds and adviser for 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 0.06% to 0.55% of the average daily net assets
under management. For the years ended December 31, 1997 and 1996, the
Company paid $45.5 million and $16.0 million in such fees.
The Company may, from time to time, make reimbursements to an Aetna managed
mutual fund for some or all of its operating expenses. Reimbursement
arrangements may be terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $6.1 million and a $108.0
million commission, paid by the Company to Aetna Life in 1996 and 1988,
respectively, was capitalized as deferred policy acquisition costs. 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. 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. The
Company maintained insurance reserves of $574.5 million ($397.2 million
relating to the modified coinsurance agreement and $177.3 million relating
to the coinsurance agreement) and $628.3 million as of December 31, 1997
and 1996, respectively, relating to the business assumed. The fair value of
the loan relating to assets held by Aetna Life was $412.3 million and
$625.3 million as of December 31, 1997 and 1996, respectively, and is based
upon the fair value of the underlying assets. Premiums of $176.7 million,
$25.3 million and $28.0 million and current and future benefits of $183.9
million, $39.5 million and $43.0 million were assumed in 1997, 1996 and
1995, respectively.
Investment income of $37.5 million, $44.1 million and $46.5 million was
generated from the reinsurance loan to affiliate in 1997, 1996 and 1995,
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 $32.5 million and
$28.9 million were maintained for this contract as of December 31, 1997 and
1996, 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
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
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 $5.9 million, $5.2 million and $3.2 million for 1997, 1996 and 1995,
respectively.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of
its participating life insurance, on a yearly renewable term basis. Premium
amounts related to this agreement were $0.7 million in 1997.
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1997 or
1995.
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively. 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 $37.0 million and $2.8 million
due from affiliates in 1997 and 1996, respectively. Other liabilities
include $1.2 million and $10.7 million due to affiliates for 1997 and 1996,
respectively.
As of December 31, 1997, Aetna transferred to the Company $2.5 million
based on its decision not to settle state tax liabilities for the years
1996 and 1997. This amount has been reported as an other increase in
retained earnings.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures
appropriate for the type and nature of service provided.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
(millions)
------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
1997
----
Premiums:
Life Insurance $ 35.7 $15.1 $177.4 $198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
------- ------------- ----------- ---------
Total earned premiums $109.2 $20.7 $178.6 $267.1
======= ============= =========== =========
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
======= ============= =========== =========
</TABLE>
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, 1997, the
Company had commitments to purchase investments of $38.7 million. The fair
value of the investments at December 31, 1997 approximated $39.0 million.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
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:
1997 1996 1995
--------- --------- ---------
(millions)
Revenue:
Financial Services $1,277.9 $1,195.1 $1,211.3
Individual Life Insurance 620.4 445.7 407.9
--------- --------- ---------
Total revenue $1,898.3 $1,640.8 $1,619.2
========= ========= =========
Income before income taxes: (2)
Financial Services $188.2 $129.9 $160.1
Individual Life Insurance 106.5 83.0 103.1
--------- --------- ---------
Total income before
income taxes $294.7 $212.9 $263.2
========= ========= =========
Net income: (2)
Financial Services $137.5 $94.3 $113.8
Individual Life Insurance 67.8 55.9 62.1
--------- --------- ---------
Net income $205.3 $150.2 $175.9
========= ========= =========
Assets under management: (3)
Financial Services (4) $37,609.3 $27,268.1 $22,534.4
Individual Life Insurance 3,096.1 2,830.5 2,590.9
--------- --------- ---------
Total assets under management 40,705.4 $30,098.6 $25,125.3
========= ========= =========
(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 $551.5 million,
$366.4 million and $797.1 million at December 31, 1997, 1996 and
1995, respectively.
(4) The December 31, 1997 balance includes the transfer of $4,078.5
million of assets under management that were previously reported
by an affiliate.
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF
THE INVESTMENT COMPANY ACT OF 1940
Aetna Life Insurance and Annuity Company represents that the fees and charges
deducted under the policies covered by this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the insurance company.
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 11 TO
THE REGISTRATION STATEMENT
This Post-Effective Amendment No. 11 to Registration Statement No. 33-76004 is
comprised of the following papers and documents:
o The facing sheet.
o One Prospectus for the AetnaVest and AetnaVest II Flexible Premium
Variable Life Insurance Policy consisting of 104 pages
o The undertaking to file reports
<PAGE>
o The undertaking pursuant to Rule 484
o Representation pursuant to Section 26(e)(2)(A) of the Investment Company
Act of 1940
o The signatures
o Written consents of the following persons:
A. Consent of Counsel (included as part of Exhibit No. 2 below)
B. Actuarial Consent (included as part of Exhibit No. 6 below)
C. Consent of Independent Auditors (included as Exhibit No. 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)
(4) Not Applicable
(5)(i) AetnaVest I Policy (Policy No. 38899)(2)
(5)(ii) Endorsement (70279-97) to Policy No. 38899(3)
(5)(iii) AetnaVest II Policy, including Term Rider (Policy No.
38899-90)(2)
(5)(iv) Amendment Rider (70194-94) to AetnaVest I Policy
(Policy No. 38899)(2)
(5)(v) Amendment Rider (70195-94) to AetnaVest II Policy
(Policy No. 38899-90)(2)
(6)(i) Certificate of Incorporation of Aetna Life Insurance
and Annuity Company(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
(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) Sixth Amendment dated November 6, 1997 to the Fund
Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable
<PAGE>
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, March 1, 1996 and May 1, 1997(8)
(8)(iv) Form of Seventh Amendment dated as of May 1, 1998 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,
March 1, 1996, May 1, 1997 and November 6, 1997(9)
(8)(v) 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)(vi) 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)(vii) Sixth Amendment dated as of January 20, 1998 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,
March 1, 1996 and May 1, 1997(10)
(8)(viii) Form of Seventh Amendment dated as of May 1, 1998 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,
March 1, 1996, May 1, 1997 and January 20, 1998(9)
(8)(ix) Service Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995(11)
(8)(x) 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)(xi) Fund Participation Agreement among Janus Aspen Series
and Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997(12)
(8)(xii) Service Agreement between Janus Capital Corporation and
Aetna Life Insurance and Annuity Company dated December
8, 1997(12)
(8)(xiii) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company and Oppenheimer Variable
Annuity Account Funds and Oppenheimer Funds, Inc.(13)
(8)(xiv) Service Agreement between Oppenheimer Funds, Inc. and
Aetna Life Insurance and Annuity Company(13)
(9) Not Applicable
(10)(i) Application (70059-96)(14)
(10)(ii) Application (70059-96ZNY) (14)
(10)(iii) Application Supplement (70268-97 (3/98))(14)
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Actuarial Opinion and Consent
<PAGE>
7. Consent of Independent Auditors
8. Copy of Power of Attorney(9)
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. 0000950146-97-0027723).
2. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on April
22, 1997 (Accession No. 0000950146-97-000627).
3. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on July
14, 1997 (Accession No. 0000950146-97-001058).
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. 16 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 9, 1998 (Accession No. 0000950146-98-000179).
9. Incorporated by reference to Post-Effective Amendment No. 9 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
April 7, 1998 (Accession No. 0000950146-98-000564). 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).
10. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-75248), as filed electronically on
February 24, 1998 (Accession No. 0000950146-98-000267).
11. 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).
12. Incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (File No. 33-75992), as filed
electronically on December 31, 1997 (Accession No. 0000950146-97-001982).
13. Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on April 16, 1997 (Accession No. 0000950146-97-000617).
14. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-6 (File No. 33-64277), as filed electronically on
February 25, 1998 (Accession No. 0000950146-98-000271).
<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, has duly
caused this Post-Effective Amendment No.11 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, and the seal
of the Depositor to be hereunto affixed and attested, all in the City of
Hartford, and State of Connecticut, on this 13th day of April, 1998.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Karen A. Peddle
-----------------------
Karen A. Peddle
Assistant Corporate Secretary
By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
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. 11 to the Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
Signature Title Date
- --------- ----- ----
Thomas J. McInerney* Director and President )
- -------------------------- (Principal Executive Officer) )
Thomas J. McInerney )
)
) April
Catherine H. Smith* Director ) 13, 1998
- -------------------------- )
Catherine H. Smith )
)
)
Shaun P. Mathews* Director )
- -------------------------- )
Shaun P. Mathews )
<PAGE>
Deborah Koltenuk* Vice President and Treasurer, )
- -------------------------- Corporate Controller )
Deborah Koltenuk )
)
By: /s/ Mary Katherine Johnson
--------------------------
Mary Katherine Johnson
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- ------- ----
99-1.1 Resolution of the Board of Directors of Aetna Life *
Insurance and Annuity Company establishing Variable Life
Account B
99-1.3(i) Master General Agent Agreement *
99-1.3(ii) Life Insurance General Agent Agreement *
99-1.3(iii) Broker-Dealer Agreement *
99-1.3(iv) Life Insurance Broker-Dealer Agreement *
99-1.5(i) AetnaVest I Policy (Policy No. 38899) *
99-1.5(ii) Endorsement (70279-97) to Policy No. 38899 *
99-1.5(iii) AetnaVest II Policy, including Term Rider (Policy No. *
38899-90)
99-1.5(iv) Amendment Rider (70194-94) to AetnaVest I Policy (Policy *
No. 38899)
99-1.5(v) Amendment Rider (70195-94) to AetnaVest II Policy (Policy *
No. 38899-90)
99-1.6(i) Certificate 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
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
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) Sixth Amendment dated November 6, 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, March 1, 1996 and May 1, 1997
99-1.8(iv) Form of Seventh Amendment dated as of May 1, 1998 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, March 1, 1996, May 1, 1997 and
November 6, 1997
99-1.8(v) 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(vi) 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(vii) Sixth Amendment dated as of January 20, 1998 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, March 1, 1996 and May 1, 1997
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-1.8(viii) Form of Seventh Amendment dated as of May 1, 1998 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, March 1, 1996, May 1, 1997
and January 20, 1998
99-1.8(ix) Service Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995
99-1.8(x) 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(xi) Fund Participation Agreement among Janus Aspen Series and *
Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997
99-1.8(xii) Service Agreement between Janus Capital Corporation and *
Aetna Life Insurance and Annuity Company dated December
8, 1997
99-1.8(xiii) Fund Participation Agreement between Aetna Life Insurance *
and Annuity Companyand Oppenheimer Variable Annuity
Account Funds and Oppenheimer Funds, Inc.
99-1.8(xiv) Service Agreement between Oppenheimer Funds, Inc. and *
Aetna Life Insurance and Annuity Company
99-1.10(i) Application (70059-96) *
99-1.10(ii) Application (70059-96ZNY) *
99-1.10(iii) Supplement (70268-97 (3/98)) to Application No. 70059-96 *
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 *
*Incorporated by reference
[AETNA LETTERHEAD]
[AETNA LOGO] 151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
April 13, 1998 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its
Variable Life Account B
Post-Effective Amendment No. 11 to Registration
Statement on Form S-6
Prospectus Title: AetnaVest & AetnaVest II
File Nos. 33-76004* and 811-4536
Dear Sir or Madam:
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") as
provided in 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. 11. 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 rendering 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.
- ------------------
* Pursuant to Rule 429(a) under the Securities Act of 1933, the Registrant
has included a combined prospectus under this Registration Statement which
includes all the information which would currently be required in a
prospectus relating to the securities covered by Registration Statement No.
33-02339.
<PAGE>
Based upon the foregoing, I am of the opinion that the Securities have been
legally authorized and, assuming that the Securities have been 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
[Aetna Letterhead]
[Aetna Retirement Services Logo]
151 Farmington Avenue
Hartford, CT 06156
Mark S. Reilly, FSA, MAAA
Pricing Actuary
Product & Brand Management
Retail Markets, TN41
Office: (860)273-8129
Fax: (860)273-4438
March 29, 1998
Re: AetnaVest and AetnaVest II (File No. 33-76004)
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 AetnaVest and
AetnaVest II Flexible Premium Variable Life Insurance Policy (the
"Policy"). I also provided actuarial advice concerning the preparation of
Post-Effective Amendment No. 11 to Registration Statement on Form S-6, File
No. 33-76004 (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, Total
Account Values and Surrender 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/ Mark S. Reilly
Mark S. Reilly
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 3, 1988 and February 27,
1998 included in this Post-Effective Amendment No. 11 to Registration Statement
(No. 33-76004) on Form S-6 and to the reference to our firm under the heading
"Independent Auditors" in the prospectus.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 13, 1998
