As filed with the Securities and Exchange Registration No. 33-75248
Commission on December 16, 1998 Registration No. 811-4536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
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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
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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)
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It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on December 18, 1998 pursuant to paragraph (b) of Rule 485
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-8B-2 Part I - Prospectus Dated May 1, 1998 as Supplemented December 18, 1998
----------- -------------------------------------------------------------------------------------------
Item No.
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<S> <C>
1 Cover Page; The Separate Account, and as amended; The Company
2 Cover Page; The Separate Account, and as amended; The Company
3 Not Applicable
4 Cover Page; The Company; Additional Information - Distribution of the Policies
5 The Separate Account, and as amended; The Company
6 The Separate Account, and as amended; The Company
7 Not Applicable
8 Financial Statements, and as amended
9 Additional Information - Legal Matters
10 The Separate Account, and as amended; Charges & Fees, and as amended; Policy Choices;
Policy Values; Policy Rights; Additional Information, and as amended; Miscellaneous Policy
Provisions
11 Allocation of Premiums; Policy Choices
12 Cover Page; Allocation of Premiums
13 Charges & Fees, and as amended; Policy Choices; Term Insurance Rider; Additional
Information - Distribution of Policies
14 Policy Values; Miscellaneous Policy Provisions
15 Policy Summary; Allocation of Premiums - The Funds; Policy Choices; Policy Values
16 Policy Summary; Allocation of Premiums - The Funds; Policy Values
17 Policy Rights
18 Allocation of Premiums; Policy Choices; Policy Rights
19 Additional Information, and as amended
20 Not Applicable
21 Policy Rights - Policy Loans
22 Not Applicable
23 Directors and Officers
24 Miscellaneous Policy Provisions
25 The Company
26 Charges and Fees, and as amended
27 The Company
<PAGE>
Form N-8B-2 Part I - Prospectus dated May 1, 1998, as Supplemented December 18, 1998
----------- -------------------------------------------------------------------------------------------
Item No.
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28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Company; Additional Information, and as amended
36 Not Applicable
37 Not Applicable
38 Additional Information, and as amended
39 See Item 25
40 See Item 26
41 See Item 27
42 See Item 28
43 Financial Statements, and as amended
44 Policy Values - Accumulation Unit Value; Financial Statements, and as amended
45 Not Applicable
46 The Separate Accounts, and as amended; Policy Values
47 The Separate Accounts, and as amended; Allocation of Premiums; Policy Choices; Policy
Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Cover Page; Policy Choices; Policy Values
52 The Separate Account, and as amended; Allocation of Premiums
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements, and as amended
</TABLE>
<PAGE>
Variable Life Account B
Underwritten By:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(800) 334-7586
Prospectus Dated May 1, 1998, as Supplemented December 18, 1998
The Flexible Premium Variable Universal Life Insurance Policy
The Policies offered in connection with this prospectus are Corporate VUL and
Corporate VUL II*, two flexible premium variable universal life insurance
policies ("Policies") offered by Aetna Life Insurance and Annuity Company
(ALIAC, the Company, we, us or our)*. The Policies are intended to provide life
insurance benefits. The Policies are designed to allow flexible premium
payments, a choice of underlying funding options, and a choice from three Death
Benefit Options. Your Policy's cash value may vary with the investment
performance of the underlying funding options You choose. Policy cash value may
be used to continue Your Policy in force, may be borrowed within certain limits,
and may be fully or partially surrendered (subject to a surrender charge for
Corporate VUL). Corporate VUL offers a Guaranteed Death Benefit provision
through which the Policy can be guaranteed to stay in force by paying certain
premiums.
You may also choose to select one of the annuity settlement options upon
maturity of the Policy. Prior to maturity of the Policy, You may apply the value
of Your Policy minus the amount necessary to repay any loans in full and, for
Corporate VUL, minus any applicable surrender charges to one of the annuity
settlement options. Upon death of the Insured, the beneficiary will be paid (a)
the value of the Death Benefit Option in one lump sum, or (b) under one of the
annuity settlement options.
The Policy has a Free-Look Period during which You may return it to our Home
Office for a refund. The refund may be more or less than the premiums paid. (See
"Right to Examine the Policy.")
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with a Corporate VUL or
Corporate VUL II Policy.
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. The Policyowner
will have all rights and privileges under the Policy. The Policies may be used
for such purposes as funding non-qualified executive deferred compensation or
salary continuation plans. These Policies may be used by large corporations as a
means of funding death benefit liabilities incurred under executive retirement
plans or as a source for funding cash flow obligations under such plans. The
Policies are not designed to be used in an employer's pension or profit sharing
plan.
* The availability of Corporate VUL II is subject to state regulatory approval.
Once Corporate VUL II is available, Corporate VUL will no longer be sold.
i
<PAGE>
Variable Life Account B
This prospectus is intended to describe the variable options used to fund the
Policies through the Separate Account. The variable funding options
(collectively, the "Funds") currently available through the Separate Account are
as follows:
o Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers Fund, Inc.)
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio)
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Small Company VP (formerly Aetna Variable Small Company Portfolio)
o Aetna Value Opportunity VP (formerly Aetna Variable Capital Appreciation
Portfolio)
o Fidelity VIP Equity-Income Portfolio
o Fidelity VIP Growth Portfolio
o Fidelity VIP High Income Portfolio
o Fidelity VIP Overseas Portfolio
o Fidelity VIP II Asset Manager Portfolio
o Fidelity VIP II Contrafund Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Flexible Income Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Total Return Series
o MFS World Governments Series
o Oppenheimer Aggressive Growth Fund (formerly Oppenheimer Capital Appreciation
Fund)
o Oppenheimer Global Securities Fund
o Oppenheimer Growth & Income Fund
o Oppenheimer Strategic Bond Fund
o Portfolio Partners MFS Emerging Equities Portfolio
o Portfolio Partners MFS Research Growth Portfolio
o Portfolio Partners MFS Value Equity Portfolio
o Portfolio Partners Scudder International Growth Portfolio
o Portfolio Partners T. Rowe Price Growth Equity Portfolio
The availability of the above Funds is subject to applicable regulatory
approvals. Not all Funds are available in all jurisdictions or under all
Policies. The Statement of Additional Information ("SAI") for any of the Funds
may be obtained by calling 800-334-7586.
Please read this prospectus carefully and retain it for future reference.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS.
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>
<S> <C>
Policy Definitions ..................................................... v
Policy Summary ......................................................... 1
The Separate Account ................................................... 2
Allocation of Premiums ................................................. 3
Fixed Account ......................................................... 3
Separate Account ...................................................... 3
Mixed and Shared Funding .............................................. 7
Charges & Fees ......................................................... 8
Premium Load .......................................................... 8
Premium Load Refund ................................................... 9
Premium Tax Charge .................................................... 9
Charges and Fees Assessed Against the Total Account Value .............. 9
Charges and Fees Associated with the Variable Funding Options ......... 10
Administrative Charge - Corporate VUL only ............................ 10
Surrender Charge - Corporate VUL only ................................. 11
Surrender Charges on Full and Partial Surrenders ...................... 11
Charges Assessed Against the Underlying Funds .......................... 12
Reduction of Charges .................................................. 13
Policy Choices ......................................................... 14
Premium Payments ...................................................... 14
Guaranteed Death Benefit - Corporate VUL only ......................... 15
Life Insurance Qualification .......................................... 16
Death Benefit Options ................................................. 17
Transfers and Allocations to Funding Options .......................... 18
Policy Values .......................................................... 19
Total Account Value ................................................... 19
Accumulation Unit Value ............................................... 19
Maturity Value ........................................................ 20
Surrender Value ....................................................... 20
Policy Rights .......................................................... 21
Partial Surrenders .................................................... 21
No Lapse Coverage - Corporate VUL only ................................ 21
Reinstatement of a Lapsed Policy ...................................... 22
Policy Loans .......................................................... 22
Policy Changes ........................................................ 23
Right to Examine the Policy ........................................... 25
Death Benefit .......................................................... 26
Policy Settlement ...................................................... 27
Settlement Options .................................................... 27
Calculation of Variable Payment Settlement Options Values ............. 29
Term Insurance Rider ................................................... 31
The Company ............................................................ 32
Directors & Officers ................................................... 33
Additional Information ................................................. 36
Reports to Policyowners ............................................... 36
Right to Instruct Voting of Fund Shares ............................... 36
Disregard of Voting Instructions ...................................... 37
State Regulation ...................................................... 37
Legal Matters ......................................................... 37
The Registration Statement ............................................ 37
Distribution of the Policies .......................................... 37
Records and Accounts .................................................. 38
Independent Auditors .................................................. 39
Year 2000 ............................................................. 39
Tax Matters ............................................................ 40
General ............................................................... 40
Federal Tax Status of the Company ..................................... 40
Life Insurance Qualification .......................................... 40
General Rules ......................................................... 41
Modified Endowment Contracts .......................................... 41
Diversification Standards ............................................. 42
</TABLE>
iii
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Investor Control ......................................................... 42
Other Tax Considerations ................................................. 43
Misc. Policy Provisions ................................................... 44
The Policy ............................................................... 44
Payment of Benefits ...................................................... 44
Age ...................................................................... 44
Incontestability ......................................................... 44
Suicide .................................................................. 44
Coverage Beyond Maturity ................................................. 44
Nonparticipation ......................................................... 45
Appendix A -
Illustrations of Death Benefits, Total Account Values and Surrender Values,
Corporate VUL ............................................................. 46
Appendix B -
Illustrations of Death Benefits, Total Account Values and Surrender Values,
Corporate VUL II .......................................................... 56
Financial Statements of the Separate Account .............................. S-1
Financial Statements of the Company ....................................... F-1
</TABLE>
iv
<PAGE>
Policy Definitions
Accumulated Premium: The sum of all premiums paid from the Date of Issue
accumulated at the Premium Accumulation Rate. The Accumulated Premium is used
with Death Benefit Option 3.
Accumulation Unit: A unit used to measure the value of a Policyowner's interest
in each applicable funding option used to calculate the value of the variable
portion of the Total Account Value before election of a Settlement Option.
Additional Premiums: Any premium paid in addition to Planned Premiums.
Amount at Risk: The Death Benefit before subtraction of outstanding loans, if
any, divided by 1.0032737, minus the Total Account Value.
Annuity: A series of payments for life or for a definite period.
Attained Age: The Issue Age of the Insured increased by the number of Policy
Years elapsed.
Cost of Insurance: The portion of the Monthly Deduction attributable to the
basic insurance coverage, not including riders, supplemental benefits or monthly
expense charges.
Date of Issue: The effective date of initial coverage. The Date of Issue and the
effective date for any change in coverage will be the Date of Coverage Change
shown in Supplemental Policy Specifications which will be sent to You. Coverage
is conditional on payment of the first premium, if required, and issue of the
Policy as provided in the application.
Death Benefit: The amount payable in accordance with the Death Benefit Option
chosen to the beneficiary upon the death of the Insured, after deduction of the
Loan Account Value plus any accrued interest and any overdue deductions.
Death Benefit Option: Any of three methods for determining the Death Benefit.
Fixed Account: The fixed interest option offered under the Policy that
guarantees a minimum interest rate of 4.0% per year.
Fixed Account Value: The non-loaned portion of this Policy's Total Account Value
attributable to the non-variable portion of the Policy. The Fixed Account Value
is held in the General Account.
Fund(s): One or more of the underlying funding options available under the
Policy (as described in this Prospectus). Each of the Funds is an open-end
management investment company whose shares are available to fund the benefits
provided by the Policy.
General Account: The Company's general asset account, in which assets
attributable to the non-variable portion of Policies are held, i.e., the Loan
Account Value and the Fixed Account Value.
Grace Period: The 61-day period beginning on the Monthly Deduction Day on which
the Policy's Surrender Value is insufficient to cover the current Monthly
Deduction.
v
<PAGE>
The Policy will terminate without value at the end of the 61-day period unless a
sufficient payment described in the notification letter is received by the
Company.
Guaranteed Death Benefit Premium: Corporate VUL only - A specified premium that,
if paid, will keep the Policy in force to attained age 80 or 100, even if the
Surrender Value is insufficient to cover current monthly deductions.
Home Office: The principal executive office of the Company, located at 151
Farmington Avenue, Hartford, Connecticut.
Insured: The person on whose life the Policy is issued.
Issue Age: Corporate VUL - The Insured's age on his/her birthday on or prior to
the Policy's Date of Issue. Corporate VUL II - The Insurer's age on his/her
birthday closest to the Policy's Date of Issue.
Loan Account Value: An amount equal to the sum of all unpaid loans. The Loan
Account Value does not include interest accrued since the last Policy
anniversary. Such interest is payable in order to discharge any policy
indebtedness.
Maturity Date: The Policy anniversary on which the Insured reaches Attained Age
100.
Maturity Value: The Total Account Value on the Maturity Date, less Loan Account
Value plus any accrued interest.
Minimum Monthly Premium: Corporate VUL only - The amount of premium which must
be paid to assure that the Policy remains in force for at least five years after
issue, assuming there have been no loans or surrenders.
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. The Monthly Deduction Day is the day that the
deduction is actually taken.
Net Premium: Corporate VUL - The premium paid, less the premium load. Corporate
VUL II - The premium paid, less the premium load, less a Premium Tax Charge.
Nonpreferred Loan: Corporate VUL only - Loans taken in the first ten Policy
Years, and beginning in the eleventh Policy Year, loans taken in excess of the
Preferred Loan Amount.
Planned Premium: The amount of premium the Policyowner chooses to pay the
Company on a scheduled basis. This is the amount for which the Company sends a
bill.
Policy(ies): The life insurance contracts described in this prospectus.
Policyowner: The owner of the Policy, referred to as "You."
Policy Year: Each twelve-month period, beginning on the Date of Issue, during
which the Policy is in effect.
Preferred Loan Amount: Corporate VUL only - A portion of the maximum loan amount
available beginning in the eleventh Policy Year at zero net cost to the
Policyowner. The preferred loan is the amount taken.
vi
<PAGE>
Premium Accumulation Rate: The annual rate at which premiums paid will be
accumulated to determine the Death Benefit if Death Benefit Option 3 is
selected. This rate is chosen by You at issue. Any amount requested in excess of
10% may be subject to additional underwriting.
Premium Tax Charge: A charge equal to the state and municipal taxes associated
with premiums received.
Separate Account(s): Variable Life Account B (and Variable Annuity Account B
when referring to a Settlement Option).
Separate Account Value: The portion of the Policy's Total Account Value
attributable to the variable portion of the Policy. The Separate Account Value
is held in Variable Life Account B.
Settlement Option(s): The manner in which a beneficiary may receive Annuity
payments due from a Death Benefit, if elected upon Maturity, or which the
insured may choose to receive Annuity payments from the Surrender Value of the
Policy.
Specified Amount: The amount, originally chosen by the Policyowner, 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: Corporate VUL only - The amount retained by the Company, upon
the full or partial surrender of the Policy.
Surrender Value: The amount a Policyowner can receive in cash by surrendering
the Policy. This equals the Total Account Value (minus the applicable surrender
charge for Corporate VUL) the Loan Account Value and any accrued interest, plus
any credit for premium loads paid.
Target Face Amount: Generally, the Policy's Death Benefit. If a Term Insurance
Rider is attached to the Policy, the Target Face Amount is the Term Insurance
Rider's Benefit Amount plus the Policy's Death Benefit which is dependent upon
the Death Benefit Option in effect.
Target Premium: A premium amount set by the Company to determine the amount of
compensation it pays for Policy distribution.
Total Account Value: The sum of the Fixed Account Value, Separate Account Value
and the Loan Account Value.
Valuation Period: The period of time from when the Company determines the
Accumulation Unit Value and Settlement Option Unit Value of a variable
investment option until the next time it determines such unit value. Currently,
the 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.
Variable Life Account B: A Separate Account of the Company established for the
purpose of segregating assets attributable to the variable portion of life
insurance contracts from other assets of the Company. It is organized as a unit
investment trust.
vii
<PAGE>
[This page intentionally left blank]
<PAGE>
Policy Summary
The Policies offered in connection with this Prospectus are known as Corporate
VUL and Corporate VUL II, flexible premium variable universal life insurance
Policies. The availability of Corporate VUL II is subject to state regulatory
approval. Proceeds as described in the Policies will be paid upon surrender,
maturity, or death of the Insured.
At the time of purchase, You must choose from three Death Benefit Options. The
amount payable under the option chosen will be determined as of the date of the
Insured's death. (See "Death Benefit Options.")
Also at the time of purchase, You must choose which life insurance qualification
method best suits Your needs--Cash Value Accumulation or Guideline Premium. Both
methods require a Policy to provide minimum ratios of life insurance coverage to
Total Account Value. (See "Life Insurance Qualification.")
The Corporate VUL Policy also offers a Guaranteed Death Benefit provision (may
not be available in all states) which ensures that the Policy will stay in force
even if the Surrender Value is insufficient to cover the current monthly
deductions due to fund performance. For Corporate VUL, sufficient premiums must
be paid in order to maintain a Guaranteed Death Benefit to Age 80 or 100. (See
"Guaranteed Death Benefit.")
At the time of purchase, You must also choose the amount of premium You intend
to pay. You may vary premium payments to some extent and still keep Your Policy
in force. However, sufficient premiums must be paid to continue the Policy and
premium reminder notices will be sent for planned premiums and for premiums
required to continue this Policy in force. If this Policy lapses it may be
reinstated as discussed in Reinstatement of a Lapsed Policy.
You must also choose how to allocate Net Premiums. Net Premiums allocated to the
Separate Account must be allocated to one or more Funds, and allocations must be
in whole percentages. The variable portion of this Policy is supported by the
Funds You choose. The Fund value in each Fund is not guaranteed and will vary
with the investment performance of that Fund.
If the Fixed Account is selected, the Fixed Account Value will accumulate at
rates of interest we determine. Such rates will not be less than 4.0% a year.
1
<PAGE>
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 which accompany this Prospectus.
Variable Life Account B was established pursuant to a June 18, 1986, resolution
of the Board of Directors of the Company. Under Connecticut insurance law, the
income, gains or losses of the Separate Account are credited without regard to
the other income, gains or losses of the Company. These assets are held for the
Company's variable life insurance policies. Any and all distributions made by
the Funds with respect to shares held by the Separate Account will be reinvested
in additional shares at net asset value. The assets maintained in the Separate
Account will not be charged with any liabilities arising out of any other
business conducted by the Company. The Company is, however, responsible for
meeting the obligations of the Policy to the Policyowner.
No stock certificates are issued to the Separate Account for shares of the Funds
held in the Separate Account. Ownership of Fund shares is documented on the
books and records of the Funds and of the Company for the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust under the Investment Company Act of 1940 and
meets the definition of separate account under the federal securities laws. Such
registration does not involve any approval or disapproval by the SEC of the
Separate Account or the Company's management or investment practices or
policies. The Company does not guarantee the Separate Account's investment
performance.
2
<PAGE>
Allocation of Premiums
You may allocate all or a part of Your Net Premiums to the Fixed Account (part
of the Company's General Account) or to the Funds currently available through
the Separate Account in connection with the Policy. 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 indicated, all of the
Funds are diversified, as defined in the Investment Company Act of 1940, as
amended.
In states which require a full refund of premiums during the Right of Policy
Examination period (see "Right to Examine the Policy"), the first Net Premium
will be allocated in its entirety to Aetna Money Market VP, regardless of the
policy owner's premium allocation percentages until the day following the
expiration of the Right of Policy Examination period. Any other Net Premium
received prior to that day will also be allocated to Aetna Money Market VP. On
the day following the expiration of the Right of Policy Examination, the policy
value and future Net Premiums will be allocated in accordance with the policy
owner's selected premium allocation percentages.
If the policy is issued, any monies received prior to policy issue will be
credited with the return attributable to Aetna Money Market VP from the date of
receipt until the day the policy is issued or, for states which require the full
premium refund, until the day following the Right of Policy Examination period
on the issued policy.
Fixed Account
Amounts held in the Fixed Account will be credited with interest at rates of not
less than 4.0% per year. Additional excess interest of up to 0.5% may be
credited to the Fixed Account Value beginning in Policy Year 11. Credited
interest rates reflect the Company's return on Fixed Account invested assets and
the amortization of any realized gains and/or losses which the Company may incur
on these assets.
Separate Account
o 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)
o 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)
o 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)
3
<PAGE>
o 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)
o Aetna Variable Portfolios, Inc. - Aetna Growth VP (formerly Aetna Variable
Growth Portfolio) seeks growth of capital through investment in a diversified
portfolio of common stocks and securities convertible into common stocks
believed to offer growth potential. (1)
o 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 in the S&P 500
Composite Stock Price Index. (1)
o Aetna Variable Portfolios, Inc. - Aetna Small Company VP (formerly Aetna
Variable Small Company Portfolio) seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stocks of companies with smaller market
capitalizations. (1)
o Aetna Variable Portfolios, Inc. - Aetna Value Opportunity VP (formerly Aetna
Variable Capital Appreciation Portfolio) seeks growth of capital primarily
through investment in a diversified portfolio of common stocks and securities
convertible into common stock. (1)(a)
o 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)
o Fidelity Investments Variable Insurance Products Fund - Growth Portfolio seeks
capital appreciation by investing mainly in common stocks, although its
investments are not restricted to any one type of security. (2)
o Fidelity Investments Variable Insurance Products Fund - High Income Portfolio
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated, fixed income securities, while also considering
growth of capital. Lower-rated corporate debt obligations are commonly known
as "junk bonds" or "high yield, high risk bonds" and involve significant
degree of risk (see the Fund's prospectus for a discussion of the risk factors
involved in investing in lower-rated corporate debt obligations). (2)
o Fidelity Investments Variable Insurance Products Fund - Overseas Portfolio
seeks long-term growth by investing mainly in foreign securities (at least 65%
of the Fund's total assets in securities of foreign issuers). Foreign
investments involve greater risks than U.S. investments, including political
and economic risks and the risk of currency fluctuation. (2)
o Fidelity Investments Variable Insurance Products Fund II - Asset Manager
Portfolio seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments. (2)
o 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)
4
<PAGE>
o 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)
o 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)
o Janus Aspen Series - Flexible Income Portfolio seeks to obtain maximum total
return, consistent with preservation of capital. The Portfolio pursues its
investment objective primarily through investments in income-producing
securities. Total return is expected to result from a combination of current
income and capital appreciation. The Portfolio invests in all types of
income-producing securities and may have substantial holdings of debt
securities rated below investment grade (e.g., junk bonds). (3)
o 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)
o Janus Aspen Series - Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with preservation of capital. The Portfolio
pursues its investment objective primarily through investments in common
stocks of foreign and domestic issuers. (3)
o MFS Total Return Series seeks to provide above average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. Its secondary objective is to provide a reasonable
opportunity for growth of capital and income. Under normal market conditions,
at least 25% of the Total Return Series' assets will be invested in
fixed-income securities, and at least 40% and no more than 75% of the Series'
assets will be invested in equity securities. (4)
o MFS World Governments Series seeks not only preservation but also growth of
capital, together with moderate current income. The Series seeks to achieve
its objective through a professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a lesser extent
equity securities. Consistent with its investment objective and policies, the
Series may invest up to 100% (and generally expects to invest not more than
80%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange. (4)
o Oppenheimer Aggressive Growth Fund (formerly Oppenheimer Capital Appreciation
Fund) seeks to achieve capital appreciation by investing in "growth-type"
companies. (5)
5
<PAGE>
o 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. (5)
o Oppenheimer Growth & Income Fund seeks a high total return (which includes
growth in the value of its shares as well as current income) from equity and
debt securities. From time to time the Fund may focus on small to medium
capitalization common stocks, bonds and convertible securities. (5)
o 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. (5)
o 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.
(6)(a)
o Portfolio Partners, Inc. MFS Research Growth Portfolio seeks long-term growth
of capital and future income. (6)(a)
o 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. (6)(a)
o Portfolio Partners, Inc. Scudder International Growth Portfolio seeks long-
term growth of capital primarily through a diversified portfolio of marketable
foreign equity securities. (6)(b)
o 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.
(6)(c)
Investment Advisers of the Funds:
(1) Aeltus Investment Management, Inc. (Adviser)
(a) Bradley, Foster & Sargent, Inc. (Subadviser, effective
October 1, 1998)
(2) Fidelity Management & Research Company
(3) Janus Capital Corporation
(4) Massachusetts Financial Services Company ("MFS")
(5) OppenheimerFunds, Inc.
(6) 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)
The availability of the Funds listed above is subject to applicable regulatory
approvals. Not all Funds are available in all jurisdictions or under all
Policies.
There is no assurance that the Funds will achieve their investment objectives.
Policyowners bear the full investment risk of investments in the Funds selected.
6
<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
prospectus for the Funds for a discussion of the risks associated with an
investment in those funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the 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 Policyowners or
contractholders may differ. Although neither the Company nor the Funds currently
foresees any such disadvantages either to variable life insurance or to variable
annuity Policyholders, each Fund's Board of Trustees/Directors has agreed to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate accounts
might withdraw its investment in a Fund. This might force that Fund to sell
portfolio securities at disadvantageous prices.
7
<PAGE>
Charges & Fees
Premium Load
The premium load is deducted from your premium payments. This load represents
administrative expenses associated with the startup and maintenance of a Policy,
and, for Corporate VUL, includes average applicable state premium taxes. The
Company is responsible for payment of premium taxes and other amounts payable
with respect to Your premium payments to the extent they exceed the premium
load. DAC taxes are paid by the Company.
Corporate VUL
1. Guaranteed Premium Load
The premium load is guaranteed to be no higher than the amounts shown in the
following table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 10% 5%
2 and after 5% 5%
</TABLE>
2. Current Premium Load
The premium load is currently set at the amounts shown in the following table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 7% 2%
2 and after 2% 2%
</TABLE>
Corporate VUL II (availability subject to state regulatory approval)
1. Guaranteed Premium Load
The premium load is guaranteed to be no higher than the amounts shown in the
following table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Target Premium - Target Premium -
load is this percentage of load is this percentage of
Policy Year(s) premium premium
- ---------------- ---------------------------- ---------------------------
<S> <C> <C>
1 15% 6%
2-5 10% 6%
6 and after 6% 6%
</TABLE>
2. Current Premium Load
The premium load charge is currently set at the amounts shown in the following
table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Target Premium - Target Premium -
load is this percentage of load is this percentage of
Policy Year(s) premium premium
- ---------------- ---------------------------- ---------------------------
<S> <C> <C>
1 10.5% 2.5%
2-5 7.5% 1.5%
6-7 3.5% 1.5%
8 and after 1.5% 1.5%
</TABLE>
8
<PAGE>
Premium Load Refund
Upon a full surrender of Your Policy within the first 36 months of the Policy
for Corporate VUL and first 24 months for Corporate VUL II if Your Policy is not
in default you may be entitled to a credit for some or all of the premium loads
which have been deducted from your premium payments although a Surrender Charge
will also apply for Corporate VUL. To determine the Surrender Value during the
premium load refund period the Total Account Value will be reduced by the
applicable Surrender Charge (Corporate VUL only) and the amount of any Loan
Account Value, including accrued interest. That amount would be increased by the
applicable credit for the premium load. For Corporate VUL II, a decrease in the
specified amount in Policy Years 1 or 2 will proportionately decrease the amount
of the premium load refund.
Calculation of the Premium Load Refund Amount
Corporate VUL
For Policies which are surrendered during the first twelve months after the Date
of Issue, the credit will be the sum of all premium loads deducted. For Policy
Months 13 through 36, the credit will be equal to the sum of all premium loads
deducted since the Date of Issue multiplied by twelve and then divided by the
number of Policy Months since the Date of Issue of the Policy. For example,
during Policy Month 24, the credit would be equal to the total of all premium
loads deducted since the Date of Issue multiplied by 12/24, or half of all
premium loads paid. No credits apply if a Policy is in default.
Corporate VUL II
For Policies surrendered during the first twelve months after the Date of Issue,
the refund is 7% of premium paid in the first Policy Year up to the Target
Premium and 3% of premium paid in the first Policy Year above Target Premium.
For months 13 through 24, the refund is 75% of the First Policy Year refund
amount.
Premium Tax Charge
For Corporate VUL II, except as noted below, an amount equal to the state and
municipal taxes associated with premiums received is deducted from premium
payments. However, for Policies issued or delivered in New York, this charge is
currently 1.75% and is guaranteed not to exceed 5% of premium received.
Charges and Fees Assessed Against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly Deduction
is made as of the same day each month, beginning with the Date of Issue. The
Monthly Deduction includes the Cost of Insurance and any charges for
supplemental riders or benefits. The Cost of Insurance for Corporate VUL depends
on the Attained Age, risk class of the Insured and Specified Amount of the
Policy and number of Policy Years elapsed. For Corporate VUL II, the Cost of
Insurance depends on the Issue Age, risk class of the Insured and the number of
Policy Years elapsed and Specified Amount of the Policy.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will begin as of the Date of Issue, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
Specified Amount of
9
<PAGE>
the Policy issued, even if the temporary insurance coverage received during the
underwriting period was for a lesser amount.
The Monthly Deduction also includes a monthly administrative expense charge
during all Policy Years as follows:
Corporate VUL - $7
Corporate VUL II - $6 currently, guaranteed not to exceed $10.
The monthly administrative expense charge is for items such as premium billing
and collection, Policy value calculation, confirmations and periodic reports and
will not exceed our costs. The Monthly Deduction is deducted proportionately
from each funding option, if more than one is used. This is accomplished by
liquidating Accumulation Units and withdrawing the value of the liquidated
Accumulation Units from each funding option in the same proportion as their
respective values have to Your Fixed Account and Separate Account Values.
Charges and Fees Associated with the Variable Funding Options
Mortality and Expense Risks Charge
The Company deducts a daily charge from the assets of Variable Life Account B
for mortality and expense risks assumed by it in connection with the Policy.
The amount of this charge is a percentage of the average daily net assets of the
Separate Account based on Policy Years as follows.
1. Corporate VUL
<TABLE>
<S> <C>
Policy Years Percentage of Separate Account
Average Daily Net Assets
1-10 0.70%
11 and later 0.20%
</TABLE>
2. Corporate VUL II
<TABLE>
<S> <C>
Policy Years Percentage of Separate Account
Average Daily Net Assets
1-10 0.70%
11 and later 0.35%
</TABLE>
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 the current charges are no
longer adequate. In no event will the charge exceed 0.90% of average daily net
assets on an annual basis (except for Corporate VUL II Contracts issued in New
York where the maximum mortality and expense risk charge is 1.25% during Policy
Years 1-10 and 0.90% thereafter.
Administrative Charge - Corporate VUL only
The Company also deducts a daily administrative charge equivalent on an annual
basis to 0.30% of the average daily net assets of Variable Life Account B to
compensate the Company for expenses associated with the administration and
maintenance of the Policies. These types of expenses are described above in
connection with the monthly administrative charge. The daily administrative
charge
10
<PAGE>
and the monthly administrative charge work together to cover the Company's
administrative expenses. In later years of the Policy, the revenue collected
from the daily asset-based charge grows with the Total Account Value to cover
increased expenses from Account-based transactional expenses. The daily
administrative charge is guaranteed not to exceed 0.50% of the average daily net
assets of the Separate Account on an annual basis.
Surrender Charge - Corporate VUL only
If You surrender Your Policy (in whole or in part) a surrender charge may apply,
as described below.
This charge is imposed in part as a deferred sales charge and in part to enable
the Company to recover certain first year administrative costs. The maximum
portion of the Surrender Charge applied to reimburse the Company for sales and
promotional expense is 30% of the first year's Minimum Monthly Premium. (Any
surrenders may result in tax implications; see "Tax Matters.")
The initial Surrender Charge, as specified in Your Policy, is based on the
Specified Amount. It also depends on the Insured's Attained Age and risk class.
Once determined, the Surrender Charge will decrease annually until it reaches
zero after nine years.
If You increase the Specified Amount, a new Surrender Charge will be applicable,
in addition to the then existing Surrender Charge. This charge will be
determined based on the Insured's Attained Age and risk class. The Surrender
Charge applicable to the increase will be equal to 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 decrease
annually until it reaches zero after nine years.
If You decrease the Specified Amount while the Surrender Charge applies, the
Surrender Charge will remain the same as it was before the decrease.
Based on its actuarial determination, the Company does not anticipate that the
Surrender Charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution expenses, would be charged
to and paid by the Company.
Surrender Charges on Full and Partial Surrenders
Full Surrender: All applicable Surrender Charges are imposed.
Partial Surrender: A proportional percentage of all Surrender Charges is
imposed. The proportional percentage is the amount of the net partial surrender
divided by the sum of the Fixed Account Value and the Separate Account Value
less full Surrender Charges. When a partial surrender is made, any applicable
remaining Surrender Charges will be reduced in the same proportion.
No surrender charge applies to Corporate VUL II.
11
<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 Balanced VP, Inc.(3) 0.50% 0.10% 0.60%
Aetna Bond VP(3) 0.40% 0.10% 0.50%
Aetna Growth VP(2)(3) 0.16% 0.64% 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 Money Market VP(3) 0.25% 0.10% 0.35%
Aetna Small Company VP(2)(3) 0.35% 0.60% 0.95%
Aetna Value Opportunity VP(2)(3) 0.20% 0.60% 0.80%
Fidelity VIP Equity-Income Portfolio(4) 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio(4) 0.60% 0.09% 0.69%
Fidelity VIP High Income Portfolio(4) 0.59% 0.12% 0.71%
Fidelity VIP Overseas Portfolio(4) 0.75% 0.17% 0.92%
Fidelity VIP II Asset Manager Portfolio(4) 0.55% 0.10% 0.65%
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 Flexible Income Portfolio 0.65% 0.10% 0.75%
Janus Aspen Growth Portfolio(5) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(5) 0.66% 0.08% 0.74%
MFS Total Return Series(6) 0.75% 0.25% 1.00%
MFS World Governments Series(6) 0.75% 0.25% 1.00%
Oppenheimer Aggressive Growth Fund 0.71% 0.02% 0.73%
Oppenheimer Global Securities Fund 0.70% 0.06% 0.76%
Oppenheimer Growth and Income Fund 0.75% 0.08% 0.83%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Portfolio Partners MFS Emerging Equities
Portfolio(7)(8) 0.68% 0.13% 0.81%
Portfolio Partners MFS Research Growth
Portfolio(7)(8) 0.70% 0.15% 0.85%
Portfolio Partners MFS Value Equity
Portfolio(7) 0.65% 0.25% 0.90%
Portfolio Partners Scudder International
Growth Portfolio(7) 0.80% 0.20% 1.00%
Portfolio Partners T. Rowe Price Growth
Equity Portfolio(7) 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 1.24% for Growth VP; 0.35% and
0.58% for Index Plus Large Cap VP; 0.75% and 1.35% for Small Company VP; and
0.60% and 1.20% for Value Opportunity 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
12
<PAGE>
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 of the
Fund's average daily net assets and 0.050% on all remaining net 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.
(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; 0.67% for Growth Portfolio; 0.71% for High Income
Portfolio; 0.90% for Overseas Portfolio, 0.64% for Asset Manager 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) The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the MFS Total Return
Series and MFS World Governments Series would be 0.27% and 0.40%,
respectively, and "Total Fund Annual Expenses" would be 1.02% and 1.15%,
respectively, for these Series. Each Series has an expense offset
arrangement which reduces the Series' custodian fee based upon the amount of
cash maintained by the Series with its custodian and dividend disbursing
agent, and may enter into other such arrangements and directed brokerage
arrangements (which also have the effect of reducing the Series' expenses).
Any such fee reductions are not reflected under "Other Expenses."
(7) 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.
(8) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
Reduction of Charges
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. We reserve the
right to reduce premium loads or any other charges on certain multiple life
sales ("cases") where it is expected that the amount or nature of such cases
will result in savings of sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the Policyowner,
the nature of the relationship among the insured individuals, the purpose for
which the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which We believe to be relevant to the
expected reduction of our expenses. Some of these reductions may be guaranteed
and others may be subject to withdrawal or modification by us on a uniform case
basis. Reductions in charges will not be unfairly discriminatory to any
Policyowners.
13
<PAGE>
Policy Choices
When You buy a Policy, You make several important choices:
o Which Life Insurance Qualification method best suits Your needs - Cash Value
Accumulation or Guideline Premium;
o Which one of the three Death Benefit Options You would like;
o The Premium Accumulation Rate You would like if You choose Death Benefit
Option 3;
o The way Your premiums will be allocated to the Funds and/or the Fixed Account;
o The amount of premium You intend to pay. For Corporate VUL only, you must
decide whether You want to pay the amount necessary to guarantee Your Death
Benefit to age 80 or 100.
Each of these choices is described in detail below:
Premium Payments
Planned Premiums are those premiums You choose to pay on a scheduled basis. We
will bill You annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Additional Premiums are any premiums You pay in addition to Planned
Premiums.
Corporate VUL only
During the first five Policy years, payment of the Minimum Monthly Premium
assures that the Policy will remain in force, as long as there are no partial
surrenders or loans taken during that time. The Minimum Monthly Premium is
stated in the Policy. If Minimum Monthly Premiums are not paid, or there are
partial surrenders or loans taken during the first five Policy Years, the Policy
will lapse if the Surrender Value is less than the next Monthly Deduction.
Minimum Monthly Premiums are current if premiums paid, minus loans and partial
surrenders, are greater than or equal to the Minimum Monthly Premium multiplied
by the number of months the Policy has been in force.
Corporate VUL and Corporate VUL II
Payment of Minimum Monthly 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. For Corporate VUL, not
paying Your Planned Premiums can, however, cause the Guaranteed Death Benefit
provision to terminate. (See "Guaranteed Death Benefit.") The Policy's surrender
value must be sufficient to cover the next Monthly Deduction or, for Corporate
VUL only, the No Lapse Coverage must be in effect to keep the policy in force.
At any time, You may increase Your Planned Premium by written notice to us, or
pay Additional Premiums, except that:
14
<PAGE>
o We may require evidence of insurability if the Additional Premium or the new
Planned Premium during the current Policy Year increases 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 investing such amounts in the
underlying funding options.
o If You have chosen the Guideline Premium method for Life Insurance
Qualification in no event may the total of all premiums paid exceed the
then-current maximum premium limitations established by federal income tax law
for a Policy to qualify as life insurance. (See "Tax Considerations for
Policyowners.")
o If, at any time, a premium is paid which would result in total premiums
exceeding such maximum premium limitations, we will only accept that portion
of the premium which will make total premiums equal to 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.
o If You make a sufficient premium payment when You apply for a Policy, and have
answered favorably to certain questions relating to the Insured's health, a
"temporary insurance agreement" in the amount applied for (subject to stated
maximums) will be provided.
o 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 received during a Valuation Period at the Home
Office will be allocated as You have directed and amounts allocated to the
Funds will be credited at the Accumulation Unit value determined at the end of
the Valuation Period after each payment is received in the Home Office.
You may reallocate Your future premium payments at any time free of charge. Any
reallocation will apply to premium payments made after You have received written
verification from us.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Date of Issue 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 Date of Issue and the date the initial premium is invested in
the Separate Account. Backdating of your Policy will not affect the date on
which your premium payments are credited to the Separate Account and you are
credited with Accumulation Units. You cannot be credited with Accumulation Units
until your Net Premium is actually deposited in the Separate Account. (See
"Policy Values.")
If we decline an application for a policy we will refund all premium payments
made.
Guaranteed Death Benefit - Corporate VUL only
The Guaranteed Death Benefit assures that as long as the Guaranteed Death
Benefit Premium test, as described below, is met, the Policy will stay in force
even if the Surrender Value is insufficient to cover monthly deductions.
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By paying the required Guaranteed Death Benefit Premium, You can choose which
Guaranteed Death Benefit will be in effect. This benefit may not be available to
all risk classes and is only available in those states where it has been
approved, (e.g., not available in New York). The Guaranteed Death Benefit is
available to age 80 or to age 100.
We will test annually to determine if the sum of all premiums paid to date are
sufficient to support the Guaranteed Death Benefit then in effect. In order for
the Guaranteed Death Benefit to be in effect, the cumulative premiums paid less
partial surrenders must be greater than or equal to the required monthly
Guaranteed Death Benefit Premium times the number of months elapsed since the
Policy's Date of Issue.
If these premiums are deficient, the Policyowner will be notified and given 61
days to pay the amount deficient. If the Guaranteed Death Benefit to age 100 had
been in place, and the amount deficient is not received within the 61-day
period, the Guaranteed Death Benefit to age 80 will be substituted. If the
cumulative premium test is satisfied based on the Guaranteed Death Benefit
Premium to age 80, the Guaranteed Death Benefit to age 80 will then be in
effect. Otherwise the Guaranteed Death Benefit will terminate. If the Guaranteed
Death Benefit to age 80 had been in effect and the amount deficient is not
received within the 61-day period, the Guaranteed Death Benefit will terminate.
If the Guaranteed Death Benefit is terminated it may not be reinstated.
Increases, decreases, partial surrenders, and option changes may affect the
Guaranteed Death Benefit Premium. These events and loans may also affect the
Policy's ability to remain in force even if the cumulative annual Guaranteed
Death Benefit test has been met.
Life Insurance Qualification
A Policy must satisfy either of two testing methods to qualify as a life
insurance contract for tax purposes under Section 7702 of the Internal Revenue
Code of 1986, as amended. At the time of purchase, You may choose a Policy which
uses either the Guideline Premium test or the Cash Value Accumulation test. Both
methods require a life insurance policy to meet minimum ratios of life insurance
coverage to Total Account Value. We refer to the ratios as Applicable
Percentages. We refer to required life insurance coverage in excess of the Total
Account Value as the Death Benefit corridor.
The Applicable Percentages for the Guideline Premium test are 250% through
Attained Age 40, decreasing over time to 100% at Attained Age 95 and above. The
Guideline Premium test also restricts the maximum premiums that may be paid into
a life insurance policy for a specified Death Benefit. The Cash Value
Accumulation test does not limit premiums which may be paid but has higher
required Applicable Percentages. For example, Applicable Percentages for
Corporate VUL Non-Smokers range from 716% at Attained Age 20, 372% at Attained
Age 40 to 100% at Attained Age 100. Applicable Percentages for Corporate VUL II
Non-Smokers range from 730% at Attained Age 20, 380% at Attained Age 40 to 100%
at Attained Age 100.
If Your primary objective were to pay as much premium as possible into the
Policy to target a cash value funding objective, generally a Cash Value
Accumulation method
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policy would best meet Your needs, since it generally permits higher premium
payments. The choice, however, might result in higher eventual Cost of Insurance
charges because of the higher Death Benefit corridor. In addition, the payment
of higher premiums which would be associated with choosing the Cash Value
Accumulation method, increases the possibility that the amount paid into the
Policy will exceed the amount that would have been paid had the Policy provided
for seven level annual premiums (the "7-pay test"). If premiums paid exceed such
limit during any 7-pay testing period, any partial surrender or Policy loan may
be subject to federal income taxation. (See "Tax Considerations for
Policyowners.")
If Your primary objective were to maximize the potential for growth in Total
Account Value, or to conserve Total Account Value, generally a Guideline Premium
Policy would best meet Your needs. This is because the Applicable Percentages
are lower, resulting in lower Cost of Insurance charges for the smaller required
Death Benefit corridor coverage.
If Your primary objective were to provide a specified Death Benefit at low cost,
then generally there is no difference between the testing methods because the
planned premium will be less than the maximum premium limit under the Guideline
Premium test and additional Death Benefit insurance coverage may not be
necessary under either testing method to comply with the Death Benefit corridor
requirements.
Death Benefit Options
At the time of purchase, You must choose from three available Death Benefit
Options. The amount payable under the option chosen will be determined as of the
date of the Insured's death. The Death Benefit may be affected by partial
surrenders. The Death Benefit for all three options will be reduced by the Loan
Account Value plus any accrued interest.
Under Option 1, the Death Benefit will be the greater of the Specified Amount or
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account
Value. Option 1 generally provides a level Death Benefit.
Under Option 2, the Death Benefit will be the greater of the Specified Amount,
plus the Total Account Value or the Target Face Amount if a Term Insurance Rider
is attached to the Policy (see "Term Insurance Rider"), or the Applicable
Percentage of the Total Account Value. Option 2 provides a varying Death Benefit
which increases or decreases over time, depending on the amount of premium paid
and the investment performance of the underlying funding options You choose.
Under Option 3, the Death Benefit will be the greater of the Specified Amount
plus the Accumulated Premium(s) accumulated at the Premium Accumulation Rate or
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account Value
but will not exceed the total Death Benefit paid under Option 2. This option may
only be selected at issue.
The choice of Death Benefit Option should be based upon the pattern of Death
Benefits which best matches the intended use of the Policy. For example, an
Option 1 Policy should be chosen for a simple, fixed, level total Death Benefit
need. Option 2 would be chosen to provide a level death benefit in addition to
the Policy Total
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Account Value, and Option 3 would provide a level death benefit for the
Specified Amount plus a return of Accumulated Premiums.
Choosing the option which provides the lowest pattern of Death Benefits which
meets the desired need will be the most efficient for accumulating potential
cash value, since the lower Cost of Insurance charges will improve the growth or
preservation of the Total Account Value. Other than providing the appropriate
pattern of desired Death Benefits, there is no economic advantage of one option
over another, since the Cost of Insurance charges for all three Options is based
upon the amount at risk, the difference between the Death Benefit and the Total
Account Value each month.
The same is true for the choice of a Premium Accumulation Rate under Option 3.
Choice of a higher Premium Accumulation Rate will cause the death benefit to
increase more rapidly, but this will also generate higher Cost of Insurance
charges and lower the potential growth in Total Account Value.
Transfers and Allocations to Funding Options
At purchase, You must decide how to allocate Your Net Premiums among the Funds
and/or the Fixed Account. Net Premiums must be allocated in whole percentages.
You should carefully consider current market conditions and each Fund's
investment policies and related risks before allocating money to or transferring
values among the Funds.
Before the Maturity Date, You may transfer Policy values from one Fund to
another at any time, or to the Fixed Account. For Corporate VUL II, the Company
reserves the right to charge $25 for each transfer after the twelfth transfer
per year. Within 45 days after each Policy anniversary, and before the Maturity
Date, You may also transfer a portion of the Fixed Account Value to one or more
Funds. A transfer from the Fixed Account is allowed only once in the 45-day
period after the Policy anniversary and will be effective as of the next
Valuation Period after Your request is received at the Company's Home Office.
The amount of such transfer cannot exceed the greater of 20% of the greatest
amount held in the Fixed Account Value during the prior 5 years or $1000.
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 determined at the end of the Valuation Period after Your request is
received by us at our Home Office. (See "Accumulation Unit Value.")
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Policy Values
Total Account Value
Once Your Policy has been issued, each Net Premium allocated to a funding option
through the Separate Account is credited in the form of Accumulation Units for
the funding option based on that funding option's Accumulation Unit value (see
below). Each Net Premium received after the Date of Issue will be credited to
Your Policy at the Accumulation Unit value(s) determined for the Valuation
Period in which it is received by us at our Home Office following the Date of
Issue of the Policy. (See "Premium Payments.") The number of Accumulation Units
credited is determined by dividing the Net Premium by the value of an
Accumulation Unit computed at the end of the Valuation Period during which we
receive the premium. Shares in each Fund elected by You will be purchased by the
Separate Account at the net asset value next determined by the Fund following
receipt of the Net Premium by the Company. Since each Fund has its own
Accumulation Unit value, a Policyowner who has elected a combination of funding
options will have Accumulation Units credited for each funding option.
The Total Account Value of Your Policy is determined by: (a) multiplying the
total number of Accumulation Units credited to the Policy for each applicable
funding option by its appropriate current Accumulation Unit value; (b) if You
have elected a combination of funding options, totaling the resulting values;
(c) adding any values attributable to the Fixed Account; and (d) any values
attributable to the Loan Account Value.
The number of Accumulation Units credited to a Policy for each funding option
will not be changed by any subsequent change in the value of an Accumulation
Unit. The number is increased by subsequent contributions or transfers into that
funding option, and decreased by charges and withdrawals from that funding
option.
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 for each Fund, the current Accumulation Unit
values, the Separate Account Value, the Fixed Account Value, and the Total
Account Value.
Accumulation Unit Value
The value of an Accumulation Unit for any Valuation Period is determined by
multiplying the value of an Accumulation Unit for the immediately preceding
Valuation Period by the net investment factor for the current period for the
appropriate Fund. The net investment factor equals the net investment rate plus
1.0000000. The net investment rate is determined separately for each Fund as
follows:
The net investment rate equals (a) the net assets of the Fund held in Variable
Life Account B at the end of a Valuation Period, minus (b) the net assets of the
Fund held in Variable Life Account B at the beginning of that Valuation Period,
plus or minus (c) taxes or provisions for taxes, if any, attributable to the
operation of Variable Life Account B, divided by (d) the value of the
Accumulation Units held by Variable Life Account B at the beginning of the
Valuation Period, minus (e) a daily
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charge for mortality and expense risk and for administrative expenses in
connection with these Policies. (See "Charges and Fees Associated with the
Variable Funding Options.")
Maturity Value
The Maturity Value of the Policy is the Total Account Value on the Maturity
Date, less the Loan Account Value and any unpaid accrued interest.
Surrender Value
The Surrender Value of Your Policy is the amount You can receive in cash by
surrendering the Policy. All or part of the Surrender Value may be applied to
one or more of the Settlement Options. (See "Surrender Charge.")
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Policy Rights
Partial Surrenders
A partial surrender may be made at any time after the first Policy Year. If, at
the time of a partial surrender Your Total Account Value is attributable to more
than one funding option, the Surrender Charge (Corporate VUL only), transaction
charge and the amount paid to You upon the surrender will be taken
proportionately from the Accumulation Unit values in each funding option.
The amount of a partial surrender may not exceed the Surrender Value on the date
the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a Settlement Option.
For an Option 1 Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account Value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
For an Option 2 Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value and the Death Benefit,
but it will not reduce the Specified Amount.
For an Option 3 Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account Value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
Payment of any amount due from the Separate Account Values on a full or partial
surrender will be made within seven calendar days after we receive Your written
request at our Home Office in a form satisfactory to us. Payment may be
postponed when the New York Stock Exchange has been closed and for such other
periods as the Commission may require. Additionally, for Corporate VUL II,
payment may be postponed when trading on the New York Stock Exchange is
restricted, when an emergency exists so that disposal of the securities held in
the Funds is not reasonably practicable or it is not reasonably practicable to
determine the value of the Funds' net assets; or during any other period when
the SEC, by order, so permits for the protection of securityholders. Payment
from the Fixed Account Values may be deferred up to 6 months, except when used
to pay premiums to the Company.
The Specified Amount remaining in force after a partial surrender may not be
less than $100,000. Any request for partial surrender that would reduce the
Specified Amount below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding decrease in the Specified
Amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited to the extent necessary
to meet the federal tax law requirements.
No Lapse Coverage - Corporate VUL only
A Corporate VUL Policy will not terminate during the five-year period after its
Date of Issue or the Date of Issue of any increase if, on each Monthly Deduction
Day within that period, the sum of premiums paid equals or exceeds: 1) the sum
of the Minimum
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Monthly Premiums for each Policy month from the Date of Issue, including the
current month; plus, 2) any partial surrenders; plus 3) any increase in Loan
Account Value since the Policy's Date of Issue or the effective date of any
increase.
If, on each Monthly Deduction Day within the five-year period, the sum of
premiums paid is less than the sum of items 1, 2, and 3 above, and the Surrender
Value is insufficient to cover the current Monthly Deduction, the Grace Period
provision will apply. (See "Grace Period.")
After the five-year period expires, and depending on the investment performance
of the Funds, the Total Account Value may be insufficient to keep this Policy in
force, and payment of an additional premium may be necessary, unless the
Guaranteed Death Benefit provision is in effect.
Reinstatement of a Lapsed Policy
A lapse occurs if Your Monthly Deduction is greater than the Policy's Surrender
Value and no payment to cover the deduction is made within the 61 days of our
notifying You.
You can apply for reinstatement within five years after the date of lapse and
before the Maturity Date. To reinstate Your Policy we will require satisfactory
evidence of insurability and an amount sufficient to pay for the current Monthly
Deductions, plus two additional Monthly Deductions.
For Corporate VUL only, if the Policy is reinstated within five years of the
Policy's Date of Issue, or while the No Lapse Coverage provision (see "No Lapse
Coverage") would be in effect if this Policy had not lapsed, all values,
including the Loan Account Value, will be reinstated to the point they were on
the date of lapse. However, the Guaranteed Death Benefit provision will not be
reinstated.
For Corporate VUL II, and Corporate VUL when the No Lapse Coverage provision
(see "No Lapse Coverage") has expired, the Policy will be reinstated on the
Monthly Deduction Day following our approval. This Policy's Total Account Value
at reinstatement will be the Net Premium paid less the Monthly Deduction due
that day. Any Loan Account Value will not be reinstated, and the Guaranteed
Death Benefit will not be reinstated.
If the Policy's Surrender Value less any Loan Account Value plus accrued
interest is not sufficient to cover the full Surrender Charge at the time of
lapse, the remaining portion of the Surrender Charge will also be reinstated at
the time of Policy reinstatement.
Policy Loans
Unless otherwise required by state law, the maximum loan amount is 90% of the
sum of the Fixed Account Value and the Separate Account Value less the surrender
charge applicable at the time of the loan.
An amount equal to what You receive for a loan, together with any interest added
to the loan for due and unpaid interest, as described below, will be added to
the Loan Account Value.
Corporate VUL only
Loans taken during the first ten Policy Years are considered Nonpreferred loans.
Beginning in the eleventh Policy Year, up to 10% of the maximum loan amount
available at the beginning of a Policy Year can be taken as a Preferred loan
during
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that Policy Year. Amounts borrowed that are in excess of the maximum loan amount
available for a Preferred loan will be considered a nonpreferred loan.
Corporate VUL and Corporate VUL II
If a policy loan is requested, the amount to be borrowed will be withdrawn by Us
from the funding options and Fixed Account Value in proportion to the value of
the Policy attributable to each funding option and the Fixed Account. For
Corporate VUL II and, subject to state approval for Corporate VUL, repayments on
the loan will be allocated in proportion to the value withdrawn from the Fixed
Account, if any, and to the variable funding options according to the
Policyowner's then current premium allocations. If state approval has not been
received for Corporate VUL, repayments on the loan will be allocated among the
funding options in the same proportion as the loan was taken from the funding
options. The Loan Account Value will be reduced by the amount of any loan
repayment.
Interest on loans will accrue at an annual rate which will be the greater of:
1) The monthly average (i.e., the Composite Yield on Corporate Bonds as
published by Moody's Investors Service, Inc.) for the calendar month which ends
two months before the month in which the Policy Anniversary occurs, or
2) 5.0%.
Increases to the current interest rate may occur only when the maximum interest
rate is at least .5% higher than the interest rate in effect for the prior
Policy Year.
Decreases to the current interest rate will occur only when the maximum interest
rate is at least .5% lower than the interest rate in effect for the prior Policy
Year.
We will notify You of the current interest rate charged for a loan at the time
the loan is made. If Your Policy has a loan outstanding, we will notify You of
any change in the interest rate before the new rate becomes effective.
Interest is payable once a year on each anniversary of the loan, or earlier upon
surrender, payment of proceeds, or maturity of a Policy. Any interest not paid
when due becomes part of the loan and bears interest.
We will credit interest on the Loan Account Value. The Loan Account Value
Nonpreferred loans under Corporate VUL, and all loans under Corporate VUL II
will be credited interest, during any Policy Year, at an annual rate that is the
interest rate charged on the loan minus 1% for Corporate VUL, and minus a rate
not to exceed .90% for Corporate VUL II. However, in no case will the credited
interest rate be less than 4.0% annually.
For Corporate VUL only, the Loan Account Value on Preferred loans will be
credited interest at a rate equal to the interest rate charged. In no case will
the credited interest rate be less than 5.0% annually.
Policy Changes
You may make changes to Your Policy as described below by submitting a written
request to our Home Office in a form satisfactory to us.
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Increases: You may increase the Specified Amount of Your Policy any time subject
to the following conditions:
o Satisfactory evidence of insurability may be required.
For Corporate VUL,
o An increase in the Specified Amount will increase the Surrender Charge.
o The Minimum Monthly Premium will be increased when the Specified Amount is
increased.
o An Increase in the Specified Amount will increase the Guaranteed Death Benefit
amount and will increase the Guaranteed Death Benefit Premium.
o The 5 year period as described in the No Lapse Coverage provision will restart
on the Date of Issue of an increase.
Decreases: Generally, You may decrease the Specified Amount of Your Policy;
however, no decrease may reduce the Specified Amount below the minimum for the
type of Policy (see "Death Benefit Options"), and the availability of decreases
before the sixth Policy Year for Corporate VUL and before the eighth Policy Year
for Corporate VUL II is subject to approval of this feature by state regulatory
agencies and to the Company's satisfaction that the decrease is intended to meet
a legitimate, non-insurance related business need of the Contractowner.
The following additional rules apply to Corporate VUL policies only:
o Any decrease in the Specified Amount will cause a decrease in the Guaranteed
Death Benefit Premium. The Guaranteed Death Benefit Premium will be based on
the new Specified Amount.
o Subject to state regulatory approval, at the time of a decrease, we will
deduct a Surrender Charge from the Total Account Value. For this purpose, the
Surrender Charge will be prorated according to the percentage the decrease
amount bears to the Specified Amount before the decrease.
o Death Benefit Option Change
A Death Benefit Option change will be allowed, subject to the following
conditions:
o The change will take effect on the Monthly Deduction Day on or next following
the date on which the Company receives Your written request.
o Evidence of insurability may be required.
o For Corporate VUL only, the change in Death Benefit Option will not change the
Surrender Charge, but will affect the Guaranteed Death Benefit amount and the
Guaranteed Death Benefit Premium.
We will not allow a change in the Death Benefit Option if the Specified Amount
will be reduced below the minimum.
o Changes from Option 1 to Option 2 are allowed at any time for Corporate VUL II
and, subject to state regulatory approval, for Corporate VUL. If state
regulatory approval has not been received, such changes are allowed for
Corporate VUL only after the fifth Policy Year. The new Specified Amount will
equal the Specified Amount less the Total Account Value at the time of the
change.
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o Changes from Option 2 to Option 1 are allowed at anytime. The new Specified
Amount will equal the Specified Amount plus the Total Account Value as of the
time of the change.
o Changes from Option 3 to 1 are allowed at anytime. The Specified Amount will
be increased to equal the Specified Amount prior to the change plus the lesser
of the Accumulated Premiums or the Total Account Value at the time of the
change.
o Changes from Option 3 to 2 are allowed at any time for Corporate VUL II and,
subject to state regulatory approval, for Corporate VUL. If state regulatory
approval has not been received, such changes are allowed for Corporate VUL
only after the fifth Policy Year. The Specified Amount will be reduced to
equal the Specified Amount prior to the change minus the difference between
the Total Account Value and the sum of the Accumulated Premiums at the time of
the change.
o Changes from Options 1 or 2 to Option 3 are not allowed.
Right to Examine the Policy
The Policy has a Free-Look period during which You may examine the Policy. If
for any reason You are dissatisfied, it may be returned to our Home Office for a
refund. It must be returned within ten days after You receive the Policy and any
written notice of withdrawal right, or within 45 days after You sign the
application for the Policy, whichever occurs later. Some states provide a longer
period of time to exercise these rights. Your Policy will indicate if you have
more than 10 days to review the Policy. If You return (cancel) the Policy, we
will pay a refund of (1) the difference between payments made and amounts
allocated to the Separate Account, plus (2) the value of the amount allocated to
the Separate Account as of the date the returned Policy is received by us, plus
(3) any fees imposed on the amounts allocated to the Separate Account. Some
state laws require the refund equal all 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.
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Death Benefit
The Death Benefit under the Policy will be paid in a lump sum within seven days
after we receive due proof of the Insured's death (a certified copy of the death
certificate), unless You or the beneficiary have elected that it be paid under
one or more of the Settlement Options or such options as we may choose to make
available in the future. Payment of the Death Benefit may be delayed if the
Policy is being contested. (See "Settlement Options.")
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.
If the Policy is assigned as collateral security, we will pay any amount due the
assignee in one lump sum. Any excess Death Benefit due will be paid as elected.
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Policy Settlement
Settlement Options
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
Settlement Options (after any applicable Surrender Charges have been deducted).
A written request may be made to elect, change, or revoke a Settlement Option
before payments begin under any Settlement Option. This request must be in a
form satisfactory to us, and will take effect upon its filing at our Home
Office. If no Settlement Option has been elected by the Policyowner when the
Death Benefit becomes payable to the beneficiary, that beneficiary may make the
election. If the Policy has been assigned, we must consent to the election of
any Settlement Option. We may refuse to permit a Settlement Option if the payee
is not a natural person. Also, the Annuitant's age plus the number of years for
which payments are guaranteed under a Settlement Option may not exceed 95.
The amount of the first payment for Settlement Options other than payment of
interest on a sum left with us (whether on a fixed or variable basis) is
determined, based on the option chosen, using the annuity rates specified in the
Policy. This rate is the same regardless of whether an Annuitant is male or
female.
There may be different tax consequences associated with the various Settlement
Options.
The following are the currently available Settlement Options (others may become
available):
Settlement Options For Corporate VUL
Option 1 - Payment of interest on the sum left with us;
Option 2 - Payments for a stated number of years, at least three but no more
than thirty. If variable payments are selected for this option, you may withdraw
all or a portion of the remaining payments at any time.
Option 3 - Payments for the lifetime of the payee. If also chosen, we will
guarantee payments for 60, 120, 180 or 240 months; or
Option 4 - Payments during the joint lifetimes of two payees. At the death of
either, payments will continue to the survivor. When this option is chosen, a
choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 66-2/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to continue to
the survivor; or
e) 100% of the payment to continue to the survivor if the survivor is the payee,
and 50% of the payment to continue to the survivor if the survivor is the
second payee.
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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
3.0%. We may add interest daily at any higher rate.
Under Option 1, the payee may later tell the Company to (a) pay to him or her a
portion of all of the sum held by the Company; or (b) apply a portion of all of
the sum held by the Company to another Settlement Option.
Proceeds applied under Settlement Options 2, 3 and 4 will be held at the
election of You or Your beneficiary: (a) in a fixed annuity using the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options; or (c) a mix of (a) and (b). Proceeds held in
Variable Annuity Account B will be used to make payments on a variable basis.
Settlement Options For Corporate VUL II
Options 1, 2 and 3 described below are available on either a fixed payment or a
variable payment basis.
For a fixed Settlement Option, the amount of the first and each subsequent
payment is the same. That amount will be based on an interest rate of at least
3%.
If our then current settlement option rate would provide higher payments on a
comparable fixed payment annuity at the time payments commence, we also will use
the higher rate for fixed Settlement Options under a Policy.
Except to the extent noted below for Option 1, no withdrawals from or changes of
a Settlement Option may be made under Options 1, 2 and 3 once payments begin.
Option 1 - Payments for a stated number of years, but no more than thirty. The
period must be for at least five years, but if variable payments are selected,
you may withdraw all or a portion of the remaining payments at any time.
Option 2 - Payments for the lifetime of the Annuitant. If also chosen, we will
guarantee payments for a number of years from 5 to 30 or a "cash refund" upon
the Annuitant's death. The cash refund election is available only if all amounts
allocated to this Option 2 are on a fixed basis and are subject to that
election. The amount of the cash refund is the difference between the amount
applied to this annuity option at the time of settlement and the total amount of
payments received under the option prior to the Annuitant's death.
Option 3 - Life Income Based Upon the Lives of Two Annuitants - payments during
the joint lifetimes of two Annuitants. Payments will continue until both
Annuitants have died. When this option is chosen, a choice must be made of (a)
100%, 662/3% or 50% of the payment to continue after the first death; (b)
payments for a minimum of 5 to 30 years, with 100% of the payment to continue
after the first death; (c) 100% of the payment to continue to the surviving
Annuitant if the survivor is the
28
<PAGE>
original payee, and 50% of the payment to continue to the survivor if the
surviving Annuitant is the second payee; or (d) 100% of the payment to continue
after the first death, with a "cash refund" feature comparable to that described
for Option 2 above.
Option 4 - Payment of interest on the sum left with us at 3% or such higher rate
as we may, in our sole discretion, declare. After commencement of this option,
the payee may make a Written Request to receive all or a portion of the amount
held under this option as a lump sum or have it applied to one or more of the
other available Settlement Options.
Upon the death of the Annuitant(s), any remaining guaranteed payments will
continue to the Beneficiary unless the Beneficiary elects to receive the present
value of any remaining guaranteed payments in a lump sum. Such payments will be
paid at least as rapidly as under the method of distribution then in effect. If
the Beneficiary dies while receiving payments, the present value of any
remaining guaranteed payments will be paid in one sum to the Beneficiary's
estate.
Although the foregoing discussion of Settlement Options is in terms of monthly
payments, you may elect to receive quarterly, semi-annual or annual payments
instead.
No fixed or variable Settlement Option may be elected that would result in a
first payment of less than $50 or that would result in total yearly payments of
less than $250. If the proceeds payable are insufficient to elect an option for
these minimum amounts, a lump-sum payment must be elected.
Calculation of Variable Payment Settlement Options Values
Variable Settlement Options will be supported by the then available Funds of the
Company's Variable Annuity Account B (Account B), a separate account very
similar to the Separate Account, except that Account B supports variable annuity
benefits, rather than variable life insurance benefits. We reserve the right to
impose a maximum limit of four Funds that can be used at any one time for a
Settlement Option. We will provide an Account B prospectus in connection with
selection of a Settlement Option. That prospectus will describe the available
Funds, the cost and expenses of such Funds and the charges imposed on Account B.
The available Funds may be, and the charges imposed on Account B are expected to
be, different from those that relate to the Separate Account prior to
commencement of a Settlement Option. Accordingly, you should review the Account
B prospectus, as well as the prospectuses for Account B's underlying Funds,
prior to selecting any variable payment Settlement Option.
You make transfers among Funds under our administrative procedures in effect at
the time. Currently, we limit the number of transfers to four per calendar year,
but we can change this limit in the future.
For a variable Settlement Option, the first payment is determined using an
assumed interest rate of 3.5% or 5% as selected by the Policyowner or payee, as
the case may be. Subsequent payments will vary based on Fund performance as
discussed below. The initial payment will be higher if 5% is elected as the
assumed interest rate; but subsequent payments will increase less with favorable
fund performance (and decrease more with unfavorable Fund performance) than if
3.5% is elected.
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<PAGE>
The amount of each variable annuity payment after the first is determined
pursuant to a formula described in the Policies that is generally used by
actuaries for making such calculations. Generally speaking, if the total return
of the Fund for any month, less a deduction currently equivalent to an annual
rate of 1.25% for mortality and expense risks which we expect to result in a
profit to us, exceeds the Settlement Option's assumed interest rate (3.5% or 5%,
as discussed above), the next variable payment will be larger than the previous
one. On the other hand, if the Fund's total return for any month, as so
adjusted, is less than the assumed rate, the next variable payment will be
smaller than the previous one.
30
<PAGE>
Term Insurance Rider
The Policy can be issued with a Term Insurance Rider as a portion of the total
Death Benefit. The Rider provides term life insurance on the life of the
Insured, which is annually renewable to Attained Age 100 (up to 80 in New York
for Corporate VUL II when the employer pays all premium). This rider will
continue in effect unless explicitly canceled by the Policyowner. The Rider
provides a vehicle for short-term insurance protection for Policyowners who
desire lower required premiums under the Policy, in anticipation of growth in
Total Account Value to fund life insurance coverage in later Policy Years. The
amount of coverage provided under the Rider's Benefit Amount, varies from month
to month.
Corporate VUL
The Benefit Amount is the greater of (a) or (b), where (a) is the Target Face
Amount, which is an amount selected by You, or a percentage of the Total Account
Value as described in the Policy if that percentage is greater than the Target
Face Amount; less (i) the greater of the Policy's Specified Amount and Total
Account Value, if Death Benefit Option 1 is in effect; or (ii) the Policy's
Specified Amount plus the Total Account Value, if Death Benefit Option 2 is in
effect; or (iii) the Policy's Specified Amount plus the Accumulated Premiums, if
Death Benefit Option 3 is in effect; (b) is zero. The result of Death Benefit
Option 3 will never be greater than the result of Death Benefit Option 2. We may
limit the Target Face Amount selected.
Corporate VUL II
The Benefit Amount is the Target Face Amount minus the Specified Amount.
However, if the Death Benefit of the Policy is defined as a percentage of the
Total Account Value, the Benefit Amount is zero.
The cost of the Rider is added to the Monthly Deductions, and is based on the
Insured's premium class and Attained Age for Corporate VUL, or the Insured's
premium class, Issue Age and the number of Policy Years elapsed for Corporate
VUL II. We may adjust the monthly rider rate from time to time, but the rate
will never exceed the guaranteed cost of insurance rates for the Rider for that
Policy Year. For Corporate VUL only, the cost for this Rider is added to our
calculation of the Minimum Monthly Premium for no lapse protection and to our
calculation of the Guaranteed Death Benefit Premium.
If the Policy's Death Benefit increases as a result of an increase in Total
Account Value (see "Life Insurance Qualification"), the Rider's Target Death
Benefit will be reduced by an equivalent amount to maintain the total desired
Death Benefit.
The Rider's Death Benefit is included in the total Death Benefit paid under the
Policy. (See "Death Benefit Options.")
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<PAGE>
The Company
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.
32
<PAGE>
Directors & Officers
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
<S> <C> <C>
Thomas J. Director, President and President (since September 1997),
McInerney Chairman, Executive Aetna Life Insurance and Annuity
Committee (Principal Company; President (since
Executive Officer) September 1997), Aetna Insurance
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
President Management (since September
1997); Vice President, Products
Group (February 1996 -
September 1997); Senior Vice
President, Strategic Markets and
Products (February 1993 - February
1996); Senior Vice President,
Mutual Funds.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
<S> <C> <C>
Catherine Hale Director, Chief Financial Chief Financial Officer and Senior
Smith Officer and Senior Vice Vice President, Strategy and
President Finance (Since February 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).
Kirk P. Wickman Vice President, General Vice President, General Counsel and
Counsel and Corporate Corporate Secretary (since Secretary
Secretary November 1996), Aetna Life
Insurance and Annuity Company;
Vice President and Counsel (June
1992 - November 1996), Aetna Life
Insurance Company.
Deborah Koltenuk Vice President and Vice President and Treasurer,
Treasurer, Corporate Corporate Controller (since July
Controller 1996), Aetna Life 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.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Business Experience
Name and Address* Position with Company During Past 5 Years
<S> <C> <C>
Therese A. Squillacote Vice President and Chief Vice President and Chief
Compliance Officer Compliance Officer (since December
1998), Aetna Life Insurance and
Annuity Company; Vice President,
Compliance (since March 1998),
Aetna Financial Services, Inc.;
Compliance Manager (May 1997 to
December 1998), Aetna Life
Insurance and Annuity Company;
Registered Principal (since July
1997), Aetna Investment Services,
Inc.; Director, Compliance
(December 1995 to May 1997),
Connecticut General Life Insurance
Company; Registered Principal
(December 1995 to May 1997),
CIGNA Financial Advisors, Inc.;
Chief Compliance Officer
(September 1998 to December
1995), G.R. Phelps & Co., Inc., Chief
Compliance Officer (December 1992
to December 1995), Connecticut
Mutual Financial Services, Inc.
</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.
35
<PAGE>
Additional Information
Reports to Policyowners
Within 30 days after each Policy Anniversary and before proceeds are applied to
a Settlement Option, we will send You a report containing the following
information:
1) A statement of changes in the Total Account Value and Surrender Value since
the prior report or since the Date of Issue, 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) Surrender Value, Death Benefit, and any Loan Account Value as of the Policy
Anniversary;
3) A projection of the Total Account Value, Loan Account Value and Surrender
Value as of the succeeding Policy Anniversary.
If You have Policy values funded in a Separate Account You will receive, in
addition, such periodic reports as may be required by the SEC.
Some state laws require additional reports; these requirements vary from state
to state.
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each Separate Account. The votes will be cast at
meetings of the shareholders of the Fund and will be based on instructions
received from Policyowners. However, if the Investment Company Act of 1940 or
any regulations thereunder should be amended or if the present interpretation
thereof should change, and as a result we determine that we are permitted to
vote the shares of the Fund in our own right, we may elect to do so.
The number of Fund shares which each Policyowner is entitled to direct a vote is
determined by dividing the portion of Total Account Value attributable to a
Fund, if any, by the net asset value of one share in the Fund. During the
Settlement Option period, the number of votes is determined by dividing the
Valuation Reserve (as defined below) attributable in the Fund, if any, by the
net asset value of one share of the Fund. Fractional votes will be counted.
Where the value of the Total Account Value or the Valuation Reserve relates to
more than one Fund, the calculation of votes will be performed separately for
each Fund. The Valuation Reserve is established pursuant to the insurance laws
of Connecticut to measure voting rights during the Settlement Option period and
the value of a commutation right, if available, under Settlement Option 2 when
elected on a variable basis.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by us, but not more than 90 days before the meeting of the
Fund. Voting instructions will be solicited by written communication at least 14
days before such meeting.
Fund shares for which no timely instructions are received, and Fund shares which
are not otherwise attributable to Policyowners, will be voted by us in the same
proportion as the voting instructions which are received for all Policies
participating in each Fund through Variable Life Account B.
36
<PAGE>
Policyowners 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 Policyowner in the investment policy or the investment adviser of the Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we determined that the
change would have an adverse effect on the Separate Accounts in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Policyowners.
State Regulation
We are subject to regulation and supervision by the Insurance Department of the
state of Connecticut, which periodically examines our affairs. We are also
subject to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. The Policies have been approved by the Insurance
Department of the state of Connecticut and in other jurisdictions where they are
offered.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and compliance
with local insurance laws and regulations.
Legal Matters
The Company knows of no material legal proceedings pending to which the Separate
Account is a party or which would materially affect the Separate Account.
The legal validity of the securities described in the Prospectus has been passed
on by Counsel of the Company.
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
We offer the Policies through life insurance salespersons and certain Home
Office sales employees. Such persons are registered representatives of Aetna
Investment Services, Inc., a wholly owned subsidiary of the Company, (which is a
registered broker-dealer), or of other registered broker-dealers which have
entered into
37
<PAGE>
distribution agreements with the Company. For Corporate VUL, the maximum
commission payable by the Company to salespersons and their supervising broker-
dealers for Policy distribution is 50% of the Guaranteed Death Benefit Premium
to age 80, or, in the event of an increase in the Specified Amount, 50% of the
Guaranteed Death Benefit Premium to age 80, attributable to the increase.
For Corporate VUL II, maximum commission will equal 15% of the sum of first-year
premiums up to Target Premium. In Policy Years two through five, maximum
commission will equal 10% of the sum of premiums paid for each Policy Year up to
the Target Premium. During Policy Years one through five, we will also pay a
maximum of 3% of the sum of premiums paid each year in excess of the Target
Premium. For each of Policy Years six and seven, maximum commission will equal
3% of the premiums paid, and an amount equal to .10% of the Total Account Value
less any Loan Account Value as of the end of each month. For Policy Year eight
and each year thereafter, maximum commission will equal .20% of Total Account
Value less any Loan Account Value as of the end of each month.
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 of 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.
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 Policyowner.
Corporate VUL Policies are offered for sale in all jurisdictions where we are
authorized to do business except Guam, Puerto Rico, and the Virgin Islands.
We expect to offer Corporate VUL II Policies for sale in all jurisdictions where
we are authorized to do business and the Policies are approved by state
regulators except Guam, Puerto Rico and the Virgin Islands.
Records and Accounts
Andesa, TPA, Inc., Suite 102, 1621 N. Cedar Crest Boulevard, Allentown,
Pennsylvania, will act as a Transfer Agent on behalf of Aetna Life Insurance and
Annuity Company as it relates to the policies described in this Prospectus. In
the role of a Transfer Agent, Andesa will perform administrative functions, such
as decreases, increases, surrenders and partial surrenders, fund allocation
changes and transfers on behalf of the Company.
All records and accounts relating to the Separate Accounts and the Funds will be
maintained by the Company. All financial transactions will be handled by the
38
<PAGE>
Company. All reports required to be made and information required to be given
will be provided by Andesa on behalf of 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 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 of
mission-critical systems is currently underway and targeted for completion by
December 31, 1998. Testing and certification of all 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.
39
<PAGE>
Tax Matters
General
The following is a discussion of the federal income tax considerations relating
to the Policy. This discussion is based on the Company's understanding of
federal income tax laws as they now exist and are currently interpreted by the
Internal Revenue Service ("IRS"). These laws are complex, and tax results may
vary among individuals. A person or persons contemplating the purchase of or the
exercise of elections under the Policy described in this Prospectus should seek
competent tax advice.
Federal Tax Status of the Company
The Company is taxed as a life insurance company in accordance with the Internal
Revenue Code of 1986, as amended ("Code"). For federal income tax purposes, the
operations of 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.
Under existing federal income tax law, the Company believes that the Separate
Account investment income and realized net capital gains will not be taxed to
the extent that such income and gains are applied to increase the reserves under
the contracts. Accordingly, the Company does not anticipate that it will incur
any federal income tax liability attributable to the Separate Account.
Therefore, the Company does not intend to make provisions for any such taxes.
However, the Company reserves the right to make a deduction for such taxes
should they be imposed with respect to such items in the future.
Life Insurance Qualification
As described more fully on page 18, 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
Policyowner should not generally be taxed on the cash value under a Policy,
including increments thereof, prior to actual receipt. The principal exceptions
to these rules are corporations that are subject to the alternative minimum tax,
and thus may be subject to tax on increments in the Policy's Total Account
Value, and Policyowners who acquire a Policy in a "transfer for value" and thus
can become subject to tax on the portion of the Death Benefit which exceeds the
total of their cost of acquisition and subsequent premium payments.
40
<PAGE>
The Company intends to comply with any future final regulations issued under
Sections 7702 and 817(h) of the Code, and therefore reserves the right to make
such changes as it deems necessary to ensure such compliance. Any such changes
will apply uniformly to affected Policyowners and will be made only after
advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
Modified Endowment Contract, the Policyowner will be taxed on the Surrender
Value only to the extent that it exceeds the gross premiums paid less prior
untaxed withdrawals. The amount of any unpaid Policy Loans will, upon surrender,
be added to the Surrender Value and will be treated for this purpose as if it
had been received.
Assuming the Policy is not a Modified Endowment Contract, the proceeds of any
Partial Surrenders are generally not taxable unless the total amount received
due to such surrenders exceeds total premiums paid less prior untaxed Partial
Surrender amounts. However, Partial Surrenders made within the first 15 Policy
Years may be taxable in certain limited instances where the Surrender Value plus
any unpaid Policy debt exceeds the total premiums paid less the untaxed portion
of any prior Partial Surrenders. This result may occur even if the total amount
of any Partial Surrenders does not exceed total premiums paid to that date.
Loans received under the Policy will ordinarily be considered indebtedness of
the Policyowner, and assuming the Policy is not considered a Modified Endowment
Contract, Policy Loans will not be treated as current distributions subject to
tax. Generally, amounts of loan interest paid by individuals will be considered
nondeductible "personal interest."
Modified Endowment Contracts
A class of contracts known as "Modified Endowment Contracts" has been created
under Section 7702A of the Code. The tax rules applicable to loan proceeds and
proceeds of a Partial Surrender of any Policy that is considered to be a
Modified Endowment Contract will differ from the general rules noted above.
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.
In addition, each Policy is subject to the 7-pay test during the first 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.
41
<PAGE>
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 59-1/2 will also be subject to the penalty tax unless those distributions are
attributable to the individual becoming disabled, or are part of a series of
equal periodic payments made not less frequently than annually for the life or
life expectancy of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Funds, intends to comply with these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h) concerning diversification,
that those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., You), rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which Policyowners 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
42
<PAGE>
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 or to limit the number of
variable options available 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 contracts will be capped based
on applicable Moody's Corporate Bond Rate. Section 264 (f) 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 values 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 percent 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 transaction.
43
<PAGE>
Misc. Policy Provisions
The Policy
The Policy which You receive and the application You make when You purchase the
Policy are the whole contract. A copy of the application is attached to the
Policy when it is issued to You. Any application for changes, once approved by
us, will become part of the Policy.
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
If age 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
current age.
Incontestability
We will not contest coverage under the Policy after the Policy has been in force
during the lifetime of the insured for a period of two years from the Policy's
Date of Issue. Our right to contest coverage is not affected by the Guaranteed
Death Benefit provision.
For coverage which takes effect on a later date (e.g., an increase in coverage),
we will not contest such coverage after it has been in force during the lifetime
of the Insured more than two years from its effective date.
Suicide
In most states, if the Insured commits suicide within two years from the Date of
Issue, the only benefit paid will be the sum of:
a) premiums paid less amounts allocated to the Separate Account; and
b) the Separate Account Value on the date of suicide, plus the portion of the
Monthly Deduction from the Separate Account Value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the Loan Account Value transferred to the Separate Account Value, and any
surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the Monthly Deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
You may, by written request at any time 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
44
<PAGE>
is elected, we will continue to credit interest to the Total Account Value of
this Policy. Monthly Deductions will be calculated with a Cost of Insurance rate
equal to zero. (This provision is not available in certain states including New
York.)
At this time, uncertainties exist regarding the tax treatment of the Policy
should it continue beyond the Maturity Date. You should therefore consult with
Your tax advisor prior to making this election. (See "Tax Matters.")
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
45
<PAGE>
Appendix A
Illustrations of Death Benefit, Total Account Values and Surrender Values,
Corporate VUL
The following tables illustrate how the Death Benefit, Total Account Values and
Surrender Values of a Policy change with the investment experience of the
variable funding options. The tables show how the Death Benefit, Total Account
Values, and Surrender Values of a Policy issued to an insured of a given age and
a given premium would vary over time if the investment return on the assets held
in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and 12%,
respectively.
Tables I, II, V and VI illustrate Policies issued on a unisex basis, age 45, in
the nonsmoker rate class for simplified issue underwriting. Tables III, IV, VII
and VIII illustrate Policies issued on a unisex basis, age 45 in the nonsmoker
rate class for guaranteed issue underwriting. Tables I through IV show values
under the Guideline Premium Test for the definition of life insurance, and
Tables V through VIII show values under the Cash Value Accumulation Test for the
definition of life insurance. The Death Benefit, Total Account Values, and
Surrender Values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a period
of years, but fluctuated above and below those averages for individual Policy
Years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through the eleventh columns illustrate the Surrender Values of each Policy over
the designated period. Tables I, III, V and VII assume that the maximum Cost of
Insurance allowable under the Policy are charged in all Policy Years. These
tables also assume that the maximum allowable mortality and expense risk charge
of 0.90% on an annual basis, the maximum allowable administrative expense charge
of 0.50% on an annual basis, and the maximum allowable premium load of 10% up to
the first year's Guaranteed Death Benefit Premium to age 80 and 5% over the
Guaranteed Death Benefit Premium to age 80, are assessed in the first Policy
Year and 5% on all premium in all Policy Years thereafter. Tables II, IV, VI and
VIII assume that the current scale of Cost of Insurance Rates applies during all
Policy Years. These tables also assume the current mortality and expense risk
charge of 0.70% on an annual basis for the first 10 Policy Years and 0.20% for
Policy Years 11 and thereafter, the current administrative expense charge of
0.30% on an annual basis, and the current premium load of 7% up to the first
year's Guaranteed Death Benefit Premium to age 80 and 2% over the Guaranteed
Death Benefit Premium to age 80 are assessed in the first Policy Year and 2% on
all premium in all Policy Years thereafter.
The amounts shown for Death Benefit, Surrender Values, and Total Account Values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
In addition, these values reflect the application of the mortality and expense
risk charge, premium load and administrative expense charge described above.
After
46
<PAGE>
deduction of these amounts, the illustrated net annual return is -2.05%, 3.95%
and 9.95% on the maximum charge basis for all years. The illustrated net annual
return on a current charge basis is -1.65%, 4.35% and 10.35% for Policy Years
1-10 and -1.15%, 4.85% and 10.85% for Policy Years 11 and thereafter.
A weighted average has been used for the illustrations assuming that the
Policyowner has invested in the Funds as follows: 7% in Aetna Balanced VP, Inc.;
10% in Aetna Bond VP; 10% in Aetna Growth and Income VP; 0% in the Aetna Index
Plus Large Cap VP; 0% in the Aetna Value Opportunity VP; 0% in Aetna Growth VP;
0% in Aetna Small Company VP; 9% in Aetna Money Market VP; 13% in Fidelity VIP
Fund II--Contrafund Portfolio; 2% in Fidelity VIP Fund II--Asset Manager
Portfolio; 7% in Fidelity VIP Fund--Growth Portfolio; 0% in Fidelity VIP
Fund--High Income Portfolio; 2% in Fidelity VIP Fund--Overseas Portfolio; 10% in
Fidelity VIP Fund--Equity-Income Portfolio; 4% in the Janus Aspen Aggressive
Growth Portfolio; 3% in Janus Aspen Balanced Portfolio; 2% in Janus Aspen Growth
Portfolio; 8% in Janus Aspen Worldwide Growth Portfolio; 0% in Janus Aspen
Flexible Income Portfolio; 0% in Oppenheimer Aggressive Growth Fund; 0% in
Oppenheimer Growth and Income Fund; 0% in Oppenheimer Global Securities Fund; 0%
in Oppenheimer Strategic Bond Fund; 7% in the Portfolio Partners MFS Emerging
Equities Portfolio; 2% in the Portfolio Partners MFS Research Growth Portfolio;
0% in the Portfolio Partners MFS Value Equity Portfolio; 4% in the Portfolio
Partners Scudder International Growth Portfolio; and 0% in the Portfolio
Partners T. Rowe Price Growth Equity Portfolio.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit, Total Account Values, and 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 were allocated to Variable Life Account B, and if no Policy
loans have been made. The tables are also based on the assumptions that the
Policyowner has not requested an increase or decrease in the Specified Amount of
the Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the Specified Amount or premium requested,
the proposed frequency of premium payments and any available riders requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
47
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,073 500,000 500,000 500,000 3,364 3,620 3,877 3,088 3,344 3,601
2 12,146 500,000 500,000 500,000 6,829 7,568 8,339 6,493 7,232 8,004
3 18,220 500,000 500,000 500,000 10,094 11,541 13,115 9,796 11,243 12,817
4 24,293 500,000 500,000 500,000 13,153 15,531 18,225 12,554 14,933 17,626
5 30,366 500,000 500,000 500,000 16,003 19,534 23,701 15,490 19,021 23,188
6 36,439 500,000 500,000 500,000 18,623 23,525 29,557 18,196 23,097 29,129
7 42,512 500,000 500,000 500,000 20,995 27,482 35,812 20,653 27,140 35,470
8 48,586 500,000 500,000 500,000 23,091 31,375 42,481 22,834 31,118 42,224
9 54,659 500,000 500,000 500,000 24,885 35,170 49,581 24,714 34,999 49,410
10 60,732 500,000 500,000 500,000 26,355 38,840 57,139 26,355 38,840 57,139
15 91,098 500,000 500,000 500,000 28,065 54,241 103,135 28,065 54,241 103,135
20 121,464 500,000 500,000 500,000 16,306 59,617 167,098 16,306 59,617 167,098
25 151,830 0 500,000 500,000 0 41,453 259,174 0 41,453 259,174
30 182,196 0 0 500,000 0 0 408,050 0 0 408,050
20 (Age 65) 121,464 500,000 500,000 500,000 16,306 59,617 167,098 16,306 59,617 167,098
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND
CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,073 500,000 500,000 500,000 3,553 3,819 4,087 3,103 3,369 3,637
2 12,146 500,000 500,000 500,000 7,217 7,990 8,797 6,708 7,481 8,288
3 18,220 500,000 500,000 500,000 10,694 12,214 13,866 10,222 11,742 13,394
4 24,293 500,000 500,000 500,000 13,974 16,481 19,319 13,376 15,883 18,720
5 30,366 500,000 500,000 500,000 17,105 20,841 25,248 16,592 20,328 24,735
6 36,439 500,000 500,000 500,000 20,059 25,269 31,675 19,631 24,842 31,247
7 42,512 500,000 500,000 500,000 22,847 29,779 38,665 22,505 29,437 38,323
8 48,586 500,000 500,000 500,000 25,405 34,307 46,216 25,149 34,050 45,959
9 54,659 500,000 500,000 500,000 27,829 38,952 54,487 27,658 38,781 54,316
10 60,732 500,000 500,000 500,000 30,005 43,602 63,445 30,005 43,602 63,445
15 91,098 500,000 500,000 500,000 37,893 68,389 124,346 37,893 68,389 124,346
20 121,464 500,000 500,000 500,000 38,322 93,303 223,148 38,322 93,303 223,148
25 151,830 500,000 500,000 500,000 30,292 118,417 393,025 30,292 118,417 393,025
30 182,196 500,000 500,000 736,059 4,359 136,822 687,906 4,359 136,822 687,906
20 (Age 65) 121,464 500,000 500,000 500,000 38,322 93,303 223,148 38,322 93,303 223,148
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.20% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.15%, 4.85%, and 10.85%.
These 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>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND
MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,766 500,000 500,000 500,000 3,948 4,240 4,533 3,639 3,930 4,223
2 13,532 500,000 500,000 500,000 8,019 8,868 9,755 7,644 8,493 9,379
3 20,299 500,000 500,000 500,000 11,881 13,553 15,369 11,548 13,219 15,036
4 27,065 500,000 500,000 500,000 15,527 18,285 21,406 14,860 17,618 20,738
5 33,831 500,000 500,000 500,000 18,957 23,065 27,907 18,384 22,493 27,335
6 40,597 500,000 500,000 500,000 22,148 27,869 34,898 21,671 27,392 34,421
7 47,363 500,000 500,000 500,000 25,083 32,677 42,409 24,702 32,296 42,027
8 54,130 500,000 500,000 500,000 27,737 37,463 50,471 27,451 37,177 50,185
9 60,896 500,000 500,000 500,000 30,084 42,196 59,118 29,893 42,005 58,927
10 67,662 500,000 500,000 500,000 32,102 46,852 68,394 32,102 46,852 68,394
15 101,493 500,000 500,000 500,000 36,535 68,076 126,439 36,535 68,076 126,439
20 135,324 500,000 500,000 500,000 27,644 81,451 211,948 27,644 81,451 211,948
25 169,155 0 500,000 500,000 0 75,352 345,520 0 75,352 345,520
30 202,986 0 500,000 617,032 0 24,279 576,666 0 24,279 576,666
20 (Age 65) 135,324 500,000 500,000 500,000 27,644 81,451 211,948 27,644 81,451 211,948
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND
CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,766 500,000 500,000 500,000 4,158 4,462 4,766 3,656 3,959 4,263
2 13,532 500,000 500,000 500,000 8,454 9,341 10,266 7,885 8,772 9,698
3 20,299 500,000 500,000 500,000 12,554 14,306 16,209 12,027 13,779 15,683
4 27,065 500,000 500,000 500,000 16,450 19,352 22,633 15,782 18,684 21,965
5 33,831 500,000 500,000 500,000 20,189 24,528 29,638 19,617 23,956 29,066
6 40,597 500,000 500,000 500,000 23,746 29,813 37,260 23,269 29,336 36,783
7 47,363 500,000 500,000 500,000 27,131 35,222 45,577 26,749 34,841 45,196
8 54,130 500,000 500,000 500,000 30,281 40,697 54,603 29,995 40,411 54,317
9 60,896 500,000 500,000 500,000 33,292 46,337 64,513 33,101 46,146 64,322
10 67,662 500,000 500,000 500,000 36,051 52,035 75,295 36,051 52,035 75,295
15 101,493 500,000 500,000 500,000 47,026 83,331 149,535 47,026 83,331 149,535
20 135,324 500,000 500,000 500,000 49,625 116,187 271,560 49,625 116,187 271,560
25 169,155 500,000 500,000 559,804 40,301 149,213 482,590 40,301 149,213 482,590
30 202,986 500,000 500,000 898,008 7,614 175,689 839,260 7,614 175,689 839,260
20 (Age 65) 135,324 500,000 500,000 500,000 49,625 116,187 271,560 49,625 116,187 271,560
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.20% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.15%, 4.85%, and 10.85%.
These 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>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS
AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,073 500,000 500,000 500,000 3,364 3,620 3,877 3,364 3,344 3,601
2 12,146 500,000 500,000 500,000 6,829 7,568 8,339 6,829 7,232 8,004
3 18,220 500,000 500,000 500,000 10,094 11,541 13,115 10,094 11,243 12,817
4 24,293 500,000 500,000 500,000 13,153 15,531 18,225 13,153 14,933 17,626
5 30,366 500,000 500,000 500,000 16,003 19,534 23,701 16,003 19,021 23,188
6 36,439 500,000 500,000 500,000 18,623 23,525 29,557 18,623 23,097 29,129
7 42,512 500,000 500,000 500,000 20,995 27,482 35,812 20,995 27,140 35,470
8 48,586 500,000 500,000 500,000 23,091 31,375 42,481 23,091 31,118 42,224
9 54,659 500,000 500,000 500,000 24,885 35,170 49,581 24,885 34,999 49,410
10 60,732 500,000 500,000 500,000 26,355 38,840 57,139 26,355 38,840 57,139
15 91,098 500,000 500,000 500,000 28,065 54,241 103,135 28,065 54,241 103,135
20 121,464 500,000 500,000 500,000 16,306 59,617 167,098 16,306 59,617 167,098
25 151,830 0 500,000 500,000 0 41,453 259,174 0 41,453 259,174
30 182,196 0 0 581,380 0 0 403,736 0 0 403,736
20 (Age 65) 121,464 500,000 500,000 500,000 16,306 59,617 167,098 16,306 59,617 167,098
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND
CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,073 500,000 500,000 500,000 3,553 3,819 4,087 3,103 3,369 3,637
2 12,146 500,000 500,000 500,000 7,217 7,990 8,797 6,708 7,481 8,288
3 18,220 500,000 500,000 500,000 10,694 12,214 13,866 10,222 11,742 13,394
4 24,293 500,000 500,000 500,000 13,974 16,481 19,319 13,376 15,883 18,720
5 30,366 500,000 500,000 500,000 17,105 20,841 25,248 16,592 20,328 24,735
6 36,439 500,000 500,000 500,000 20,059 25,269 31,675 19,631 24,842 31,247
7 42,512 500,000 500,000 500,000 22,847 29,779 38,665 22,505 29,437 38,323
8 48,586 500,000 500,000 500,000 25,405 34,307 46,216 25,149 34,050 45,959
9 54,659 500,000 500,000 500,000 27,829 38,952 54,487 27,658 38,781 54,316
10 60,732 500,000 500,000 500,000 30,005 43,602 63,445 30,005 43,602 63,445
15 91,098 500,000 500,000 500,000 37,893 68,389 124,346 37,893 68,389 124,346
20 121,464 500,000 500,000 500,000 38,322 93,303 223,148 38,322 93,303 223,148
25 151,830 500,000 500,000 624,734 30,292 118,417 390,458 30,292 118,417 390,458
30 182,196 500,000 500,000 945,312 4,359 136,822 656,466 4,359 136,822 656,466
20 (Age 65) 121,464 500,000 500,000 500,000 38,322 93,303 223,148 38,322 93,303 223,148
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.20% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.15%, 4.85%, and 10.85%.
These 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>
Table VII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND
MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,766 500,000 500,000 500,000 3,948 4,240 4,533 3,639 3,930 4,223
2 13,532 500,000 500,000 500,000 8,019 8,868 9,755 7,644 8,493 9,379
3 20,299 500,000 500,000 500,000 11,881 13,553 15,369 11,548 13,219 15,036
4 27,065 500,000 500,000 500,000 15,527 18,285 21,406 14,860 17,618 20,738
5 33,831 500,000 500,000 500,000 18,957 23,065 27,907 18,384 22,493 27,335
6 40,597 500,000 500,000 500,000 22,148 27,869 34,898 21,671 27,392 34,421
7 47,363 500,000 500,000 500,000 25,083 32,677 42,409 24,702 32,296 42,027
8 54,130 500,000 500,000 500,000 27,737 37,463 50,471 27,451 37,177 50,185
9 60,896 500,000 500,000 500,000 30,084 42,196 59,118 29,893 42,005 58,927
10 67,662 500,000 500,000 500,000 32,102 46,852 68,394 32,102 46,852 68,394
15 101,493 500,000 500,000 500,000 36,535 68,076 126,439 36,535 68,076 126,439
20 135,324 500,000 500,000 500,000 27,644 81,451 211,948 27,644 81,451 211,948
25 169,155 0 500,000 551,307 0 75,352 344,567 0 75,352 344,567
30 202,986 0 500,000 774,850 0 24,279 538,091 0 24,279 538,091
20 (Age 65) 135,324 500,000 500,000 500,000 27,644 81,451 211,948 27,644 81,451 211,948
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
54
<PAGE>
Table VIII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND
CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns 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 6,766 500,000 500,000 500,000 4,158 4,462 4,766 3,656 3,959 4,263
2 13,532 500,000 500,000 500,000 8,454 9,341 10,266 7,885 8,772 9,698
3 20,299 500,000 500,000 500,000 12,554 14,306 16,209 12,027 13,779 15,683
4 27,065 500,000 500,000 500,000 16,450 19,352 22,633 15,782 18,684 21,965
5 33,831 500,000 500,000 500,000 20,189 24,528 29,638 19,617 23,956 29,066
6 40,597 500,000 500,000 500,000 23,746 29,813 37,260 23,269 29,336 36,783
7 47,363 500,000 500,000 500,000 27,131 35,222 45,577 26,749 34,841 45,196
8 54,130 500,000 500,000 500,000 30,281 40,697 54,603 29,995 40,411 54,317
9 60,896 500,000 500,000 500,000 33,292 46,337 64,513 33,101 46,146 64,322
10 67,662 500,000 500,000 500,000 36,051 52,035 75,295 36,051 52,035 75,295
15 101,493 500,000 500,000 500,000 47,026 83,331 149,535 47,026 83,331 149,535
20 135,324 500,000 500,000 500,000 49,625 116,187 271,560 49,625 116,187 271,560
25 169,155 500,000 500,000 754,114 40,301 149,213 471,321 40,301 149,213 471,321
30 202,986 500,000 500,000 1,124,268 7,614 175,689 780,742 7,614 175,689 780,742
20 (Age 65) 135,324 500,000 500,000 500,000 49,625 116,187 271,560 49,625 116,187 271,560
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.20% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.15%, 4.85%, and 10.85%.
These 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.
55
<PAGE>
Appendix B
ILLUSTRATION OF DEATH BENEFIT, TOTAL ACCOUNT VALUES, AND SURRENDER VALUES,
Corporate VUL II.
The following tables illustrate how the Death Benefit, Total Account Values and
Surrender Values of a Policy change with the investment experience of the
variable funding options. The tables show how the Death Benefit, Total Account
Values, and Surrender Values of a Policy issued to an insured of a given age and
a given premium would vary over time if the investment return on the assets held
in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and 12%,
respectively.
Tables I, II, VII, VIII, XIII and XIV illustrate Policies issued on a unisex
basis, age 45, in the preferred nonsmoker rate class for fully underwriting
issue. Tables III, IV, IX, X, XV and XVI illustrate Policies issued on a unisex
basis, age 45 in the nonsmoker rate class for guaranteed issue underwriting.
Tables V, VI, XI, XII, XVII and XVIII illustrate Policies issued on a unisex
basis, age 45 in the nonsmoker rate class for simplified issue underwriting.
Tables I through VI show values under the Guideline Premium Test for the
definition of life insurance, and Tables VII through XII and XIII through XVIII
show values under the Cash Value Accumulation Test for the definition of life
insurance. The Death Benefit, Total Account Values, and Surrender Values would
be different from those shown if the gross annual investment rates of return
averaged 0%, 6%, and 12%, respectively, over a period of years, but fluctuated
above and below those averages for individual Policy Years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the Death Benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the Total Account Values, while the ninth
through the eleventh columns illustrate the Surrender Values of each Policy over
the designated period. Tables I, III, V, VII, IX and XI relate to Policies
issued outside of the state of New York and assume that the maximum Cost of
Insurance allowable under the Policy are charged in all Policy Years. These
tables also assume that the maximum allowable mortality and expense risk charge
of 0.90% on an annual basis, the maximum allowable premium load of 15% up to the
first year's Target Premium and 6% over the Target Premium, are assessed in the
first Policy Year; the maximum allowable premium load of 10% up to the second
year's Target Premium and 6% over the Target Premium, are assessed in the second
through fifth Policy Year and 6% on all premium in all Policy Years thereafter,
and an assumed Premium Tax charge of 1.75% on all premium in all Policy Years.
Tables XIII, XV, and XVII, relate to Policies issued in the state of New York
and assume that the maximum Cost of Insurance allowable under the Policy is
charged in all Policy Years. These tables also assume that the maximum allowable
mortality and expense risk charge of 1.25% on an annual basis for the first ten
Policy Years and 0.90% for Policy Years 11 and thereafter; the maximum allowable
premium load of 15% up to the first year's Target Premium and 6% over the Target
Premium are assessed in the first Policy Year, the maximum allowable premium
load of 10% up to the second year's Target Premium and 6% over the Target
Premium are assessed in the second through fifth Policy Year, and 6% on all
premium in all Policy Years thereafter; and a maximum Premium Tax charge of
5.00% on all premium in all Policy Years.
56
<PAGE>
Tables II, IV, VI, VIII, X, XII (for non-New York Policies), and XIV, XVI and
XVIII (for New York Policies) assume that the current scale of Cost of Insurance
Rates applies during all Policy Years. These tables also assume the current
mortality and expense risk charge of 0.70% on an annual basis for the first 10
Policy Years and 0.35% for Policy Years 11 and thereafter, the current premium
load of 10.5% up to the first year's Target Premium and 2.5% over the Target
Premium are assumed in the first Policy Year, the current premium load of 7.5%
up to the second through the fifth years' Target Premiums and 1.5% over the
Target Premiums are assumed in the second through the fifth Policy Years, the
current premium load of 3.5% up to the sixth and the seventh years' Target
Premiums and 1.5% over the Target Premiums are assumed in the sixth and the
seventh policy years, 1.5% on all premium in all Policy Years thereafter, and an
assumed Premium Tax charge of 1.75% on all premium in all Policy Years.
The amounts shown for Death Benefit, Surrender Values, and Total Account Values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
In addition, these values reflect application of the mortality and expense risk
charge, premium load and assumed premium tax charge described above. After
deduction of these amounts, the illustrated net annual return is -1.55%, 4.45%
and 10.45% on a maximum charge basis for non-New York Policies for all years.
For New York Policies, the illustrated net annual return on a maximum charge
basis is -1.90%, 4.10% and 10.10% for Policy Years 1-10 and -1.55%, 4.45%, and
10.45% for Policy Years 11 and thereafter. The illustrated net annual return on
a current charge basis for both non-New York and New York Policies is -1.35%,
4.65% and 10.65% for Policy Years 1-10 and -1.00%, 5.00% and 11.00% for Policy
Years 11 and thereafter.
A weighted average has been used for the illustrations assuming that the
Policyowner has invested in the Funds as follows: 7% in Aetna Balanced VP, Inc.
10% in Aetna Bond VP; 10% in Aetna Growth and
Income VP; 0% in the Aetna Index Plus Large Cap VP; 0% in Aetna Value
Opportunity VP; 0% in Aetna Growth VP; 0% in Aetna Small Company VP; 9% in Aetna
Money Market VP; 13% in Fidelity's Variable Insurance Products Fund II--
Contrafund Portfolio; 2% in Fidelity's Variable Insurance Products Fund
II--Asset Manager Portfolio; 7% in Fidelity's Variable Insurance Products
Fund--Growth Portfolio; 0% in Fidelity's Variable Insurance Products Fund--High
Income Portfolio; 2% in Fidelity's Variable Insurance Products Fund--Overseas
Portfolio; 10% in Fidelity's Variable Insurance Products Fund--Equity-Income
Portfolio; 4% in the Janus Aspen Aggressive Growth Portfolio; 3% in Janus Aspen
Balanced Portfolio; 2% in Janus Aspen Growth Portfolio; 8% in Janus Aspen
Worldwide Growth Portfolio; X% in Janus Aspen Flexible Income Portfolio; 0% in
Oppenheimer Capital Appreciation Fund; 0% in Oppenheimer Growth and Income Fund;
0% in Oppenheimer Global Securities Fund; 0% in Oppenheimer Strategic Bond Fund;
7% 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
57
<PAGE>
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 hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit, Total Account Values, and 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 were allocated to Variable Life Account B, and if no Policy
loans have been made. The tables are also based on the assumptions that the
Policyowner has not requested an increase or decrease in the Specified Amount of
the Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the Specified Amount or premium requested,
the proposed frequency of premium payments and any available riders requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
58
<PAGE>
Table I
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 50,000 5,583 5,972 6,363 6,206 6,595 6,985
2 19,151 500,000 500,000 500,000 11,416 12,573 13,778 11,884 13,040 14,245
3 29,450 500,000 500,000 500,000 17,051 19,359 21,861 1,051 19,359 21,861
4 40,265 500,000 500,000 500,000 22,473 26,323 30,669 22,473 26,323 30,669
5 51,620 500,000 500,000 500,000 27,683 33,475 40,282 27,683 33,475 40,282
6 63,542 500,000 500,000 500,000 33,026 41,188 51,175 33,026 41,188 51,175
7 76,061 500,000 500,000 500,000 38,120 49,088 63,069 38,120 49,088 63,069
8 89,206 500,000 500,000 500,000 42,949 57,170 76,064 42,949 57,170 76,064
9 103,009 500,000 500,000 500,000 47,490 65,420 90,262 47,490 65,420 90,262
10 117,501 500,000 500,000 500,000 51,713 73,820 105,780 51,713 73,820 105,780
15 201,584 500,000 500,000 500,000 67,516 117,949 209,163 67,516 117,949 209,163
20 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
25 445,859 500,000 500,000 771,238 54,942 209,865 664,860 54,942 209,865 664,860
30 620,662 500,000 500,000 1,204,116 885 249,400 1,125,342 885 249,400 1,125,342
20 (Age 65) 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
59
<PAGE>
Table II
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 500,000 6,811 7,250 7,691 7,433 7,873 8,313
2 19,151 500,000 500,000 500,000 13,602 14,921 16,295 14,069 15,389 16,762
3 29,450 500,000 500,000 500,000 20,122 22,768 25,633 20,122 22,768 25,633
4 40,265 500,000 500,000 500,000 26,398 30,823 35,810 26,398 30,823 35,810
5 51,620 500,000 500,000 500,000 32,459 39,125 46,949 32,459 39,125 46,949
6 63,542 500,000 500,000 500,000 38,683 48,086 59,580 38,683 48,086 59,580
7 76,061 500,000 500,000 500,000 44,734 57,387 73,494 44,734 57,387 73,494
8 89,206 500,000 500,000 500,000 50,796 67,236 89,040 50,796 67,236 89,040
9 103,009 500,000 500,000 500,000 56,682 77,468 106,197 56,682 77,468 106,197
10 117,501 500,000 500,000 500,000 62,371 88,082 125,129 62,371 88,082 125,129
15 201,584 500,000 500,000 500,000 88,157 148,939 257,563 88,157 148,939 257,563
20 308,897 500,000 500,000 590,178 107,117 223,199 483,752 107,117 223,199 483,752
25 445,859 500,000 500,000 1,004,096 121,947 319,739 865,600 121,947 319,739 865,600
30 620,662 500,000 500,000 1,609,731 126,347 446,680 1,504,421 126,347 446,680 1,504,421
20 (Age 65) 308,897 500,000 500,000 590,178 107,117 223,199 483,752 107,117 223,199 483,752
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
60
<PAGE>
Table III
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 500,000 5583 5,972 6,363 6,206 6,595 6,985
2 19,151 500,000 500,000 500,000 11,416 12,573 13,778 11,884 13,040 14,245
3 29,450 500,000 500,000 500,000 17,051 19,359 21,861 17,051 19,359 21,861
4 40,265 500,000 500,000 500,000 22,473 26,323 30,669 22,473 26,323 30,669
5 51,620 500,000 500,000 500,000 27,683 33,475 40,282 27,683 33,475 40,282
6 63,542 500,000 500,000 500,000 33,026 41,188 51,175 33,026 41,188 51,175
7 76,061 500,000 500,000 500,000 38,120 49,088 63,069 38,120 49,088 63,069
8 89,206 500,000 500,000 500,000 42,949 57,170 76,064 42,949 57,170 76,064
9 103,009 500,000 500,000 500,000 47,490 65,420 90,262 47,490 65,420 90,262
10 117,501 500,000 500,000 500,000 51,713 73,820 105,780 51,713 73,820 105,780
15 201,584 500,000 500,000 500,000 67,516 117,949 209,163 67,516 117,949 209,163
20 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
25 445,859 500,000 500,000 771,238 54,942 209,865 664,860 54,942 209,865 664,860
30 620,662 500,000 500,000 1,204,116 885 249,400 1,125,342 885 249,400 1,125,342
20 (Age 65) 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
61
<PAGE>
Table IV
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 500,000 6,487 6,917 7,347 7,110 7,540 7,970
2 19,151 500,000 500,000 500,000 13,053 14,336 15,671 13,520 14,803 16,138
3 29,450 500,000 500,000 500,000 19,438 22,007 24,791 19,438 22,007 24,791
4 40,265 500,000 500,000 500,000 25,648 29,950 34,799 25,648 29,950 34,799
5 51,620 500,000 500,000 500,000 31,690 38,181 45,800 31,690 38,181 45,800
6 63,542 500,000 500,000 500,000 37,918 47,091 58,299 37,918 47,091 58,299
7 76,061 500,000 500,000 500,000 43,970 56,335 72,065 43,970 56,335 72,065
8 89,206 500,000 500,000 500,000 50,013 66,105 87,426 50,013 66,105 87,426
9 103,009 500,000 500,000 500,000 55,851 76,225 104,351 55,851 76,225 104,351
10 117,501 500,000 500,000 500,000 61,463 86,692 122,998 61,463 86,692 122,998
15 201,584 500,000 500,000 500,000 86,655 146,470 253,247 86,655 146,470 253,247
20 308,897 500,000 500,000 580,276 104,252 218,689 475,636 104,252 218,689 475,636
25 445,859 500,000 500,000 987,072 116,042 311,559 850,924 116,042 311,559 850,924
30 620,662 500,000 500,000 1,581,444 115,284 433,421 1,477,985 115,284 433,421 1,477,985
20 (Age 65) 308,897 500,000 500,000 580,276 104,252 218,689 475,636 104,252 218,689 475,636
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
62
<PAGE>
Table V
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 500,000 5,583 5,972 6,363 6,206 6,595 6,985
2 19,151 500,000 500,000 500,000 11,416 12,573 13,778 11,884 13,040 14,245
3 29,450 500,000 500,000 500,000 17,051 19,359 21,861 17,051 19,359 21,861
4 40,265 500,000 500,000 500,000 22,473 26,323 30,669 22,473 26,323 30,669
5 51,620 500,000 500,000 500,000 27,683 33,475 40,282 27,683 33,475 40,282
6 63,542 500,000 500,000 500,000 33,026 41,188 51,175 33,026 41,188 51,175
7 76,061 500,000 500,000 500,000 38,120 49,088 63,069 38,120 49,088 63,069
8 89,206 500,000 500,000 500,000 42,949 57,170 76,064 42,949 57,170 76,064
9 103,009 500,000 500,000 500,000 47,490 65,420 90,262 47,490 65,420 90,262
10 117,501 500,000 500,000 500,000 51,713 73,820 105,780 51,713 73,820 105,780
15 201,584 500,000 500,000 500,000 67,516 117,949 209,163 67,516 117,949 209,163
20 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
25 445,859 500,000 500,000 771,238 54,942 209,865 664,860 54,942 209,865 664,860
30 620,662 500,000 500,000 1,204,116 885 249,400 1,125,342 885 249,400 1,125,342
20 (Age 65) 308,897 500,000 500,000 500,000 71,440 164,476 379,584 71,440 164,476 379,584
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
63
<PAGE>
Table VI
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$8,897.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 9,342 500,000 500,000 500,000 6,670 7,105 7,541 7,293 7,728 8,164
2 19,151 500,000 500,000 500,000 13,413 14,718 16,077 13,880 15,185 16,544
3 29,450 500,000 500,000 500,000 19,969 22,589 25,426 19,969 22,589 25,426
4 40,265 500,000 500,000 500,000 26,344 30,734 35,682 26,344 30,734 35,682
5 51,620 500,000 500,000 500,000 32,539 39,169 46,946 32,539 39,169 46,946
6 63,542 500,000 500,000 500,000 38,905 48,278 59,723 38,905 48,278 59,723
7 76,061 500,000 500,000 500,000 45,078 57,712 73,778 45,078 57,712 73,778
8 89,206 500,000 500,000 500,000 51,220 67,662 89,437 51,220 67,662 89,437
9 103,009 500,000 500,000 500,000 57,131 77,944 106,666 57,131 77,944 106,666
10 117,501 500,000 500,000 500,000 62,785 88,552 125,622 62,785 88,552 125,622
15 201,584 500,000 500,000 500,000 87,599 148,587 257,536 87,599 148,587 257,536
20 308,897 500,000 500,000 588,737 104,219 220,628 482,571 104,219 220,628 482,571
25 445,859 500,000 500,000 1,000,374 115,793 314,024 862,391 115,793 314,024 862,391
30 620,662 500,000 500,000 1,601,923 115,050 436,907 1,497,124 115,050 436,907 1,497,124
20 (Age 65) 308,897 500,000 500,000 588,737 104,219 220,628 482,571 104,219 220,628 482,571
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
64
<PAGE>
Table VII
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,893 20,094 21,295 20,649 21,850 23,051
2 53,993 500,000 500,000 500,000 38,679 42,348 46,162 39,996 43,664 47,479
3 83,031 500,000 500,000 500,000 58,110 65,553 73,603 58,110 65,553 73,603
4 113,521 500,000 500,000 500,000 77,182 89,753 103,894 77,182 89,753 103,894
5 145,535 500,000 500,000 500,000 95,909 115,007 137,364 95,909 115,007 137,364
6 179,150 500,000 500,000 500,000 115,286 142,426 175,485 115,286 142,426 175,485
7 214,446 500,000 500,000 578,836 134,303 171,058 217,383 134,303 171,058 217,383
8 225,168 500,000 500,000 613,950 130,051 176,669 237,849 130,051 176,669 237,849
9 236,427 500,000 500,000 651,177 125,643 182,385 260,157 125,643 182,385 260,157
10 248,248 500,000 500,000 690,639 121,046 188,193 284,451 121,046 188,193 284,451
15 316,834 500,000 500,000 926,929 94,304 218,461 441,961 94,304 218,461 441,961
20 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
25 516,090 0 500,000 1,663,809 0 278,592 1,026,914 0 278,592 1,026,914
30 658,676 0 500,000 2,221,907 0 300,077 1,526,077 0 300,077 1,526,077
20 (Age 65) 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
65
<PAGE>
Table VIII
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,847 22,600 23,920 22,602 24,356 25,676
2 53,993 500,000 500,000 500,000 41,999 46,884 51,067 43,316 48,201 52,384
3 83,031 500,000 500,000 500,000 62,735 72,173 80,986 62,735 72,173 80,986
4 113,521 500,000 500,000 500,000 83,090 98,552 114,023 83,090 98,552 114,023
5 145,535 500,000 500,000 500,000 103,102 126,113 150,563 103,102 126,113 150,563
6 179,150 500,000 500,000 52,861 123,798 156,005 192,121 123,798 156,005 192,121
7 214,446 500,000 500,000 633,257 144,200 187,315 237,821 144,200 187,315 237,821
8 225,168 500,000 502,576 674,841 140,783 194,702 261,438 140,783 194,702 261,438
9 236,427 500,000 506,552 719,321 137,302 202,377 287,382 137,302 202,377 287,382
10 248,248 500,000 510,688 766,898 133,736 210,336 315,860 133,736 210,336 315,860
15 316,834 500,000 541,634 1,074,590 115,555 258,252 512,365 115,555 258,252 512,365
20 404,370 500,000 576,976 1,512,413 91,427 315,245 826,343 91,427 315,245 826,343
25 516,090 500,000 625,747 2,167,105 62,849 386,215 1,337,551 62,849 386,215 1,337,551
30 658,676 500,000 686,331 3,140,204 20,967 471,394 2,156,793 20,967 471,394 2,156,793
20 (Age 65) 404,370 500,000 576,976 1,512,413 91,427 315,245 826,343 91,427 315,245 826,343
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
66
<PAGE>
Table IX
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,893 20,094 21,295 20,649 21,850 23,051
2 53,993 500,000 500,000 500,000 38,679 42,348 46,162 39,996 43,664 47,479
3 83,031 500,000 500,000 500,000 58,110 65,553 73,603 58,110 65,553 73,603
4 113,521 500,000 500,000 500,000 77,182 89,753 103,894 77,182 89,753 103,894
5 145,535 500,000 500,000 500,000 95,909 115,007 137,364 95,909 115,007 137,364
6 179,150 500,000 500,000 500,000 115,286 142,426 175,485 115,286 142,426 175,485
7 214,446 500,000 500,000 578,836 134,303 171,058 217,383 134,303 171,058 217,383
8 225,168 500,000 500,000 613,950 130,051 176,669 237,849 130,051 176,669 237,849
9 236,427 500,000 500,000 651,177 125,643 182,385 260,157 125,643 182,385 260,157
10 248,248 500,000 500,000 690,639 121,046 188,193 284,451 121,046 188,193 284,451
15 316,834 500,000 500,000 926,929 94,304 218,461 441,961 94,304 218,461 441,961
20 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
25 516,090 0 500,000 1,663,809 0 278,592 1,026,914 0 278,592 1,026,914
30 658,676 0 500,000 2,221,907 0 300,077 1526,077 0 300,077 1,526,077
20 (Age 65) 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
67
<PAGE>
Table X
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,533 21,816 23,101 22,289 23,572 24,856
2 53,993 500,000 500,000 500,000 41,473 45,381 49,444 42,790 46,698 50,761
3 83,031 500,000 500,000 500,000 62,085 70,003 78,565 62,085 70,003 78,565
4 113,521 500,000 500,000 500,000 82,383 95,750 110,785 82,383 95,750 110,785
5 145,535 500,000 500,000 500,000 102,381 122,689 146,459 102,381 122,689 146,459
6 179,150 500,000 500,000 514,046 123,080 151,943 187,093 123,080 151,943 187,093
7 214,446 500,000 500,000 617,232 143,484 182,584 231,803 143,484 182,584 231,803
8 225,168 500,000 500,000 657,698 140,053 189,712 254,797 140,053 189,712 254,797
9 236,427 500,000 500,000 700,913 136,535 197,097 280,027 136,535 197,097 280,027
10 248,248 500,000 500,000 747,060 132,904 204,736 307,689 132,904 204,736 307,689
15 316,834 500,000 526,071 1,044,900 114,191 250,831 498,209 114,191 250,831 498,209
20 404,370 500,000 558,628 1,466,015 88,692 305,220 800,993 88,692 305,220 800,993
25 516,090 500,000 602,570 2,089,305 56,732 371,910 1,289,533 56,732 371,910 1,289,533
30 658,676 500,000 656,580 3,007,716 8,524 450,960 2,065,796 8,524 450,960 2,065,796
20 (Age 65) 404,370 500,000 558,628 1,466,015 88,692 305,220 800,993 88,692 305,220 800,993
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
68
<PAGE>
Table XI
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS ANS MAXIMUM CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,893 20,094 21,295 20,649 21,850 23,051
2 53,993 500,000 500,000 500,000 38,679 42,348 46,162 39,996 43,664 47,479
3 83,031 500,000 500,000 500,000 58,110 65,553 73,603 58,110 65,553 73,603
4 113,521 500,000 500,000 500,000 77,182 89,753 103,894 77,182 89,753 103,894
5 145,535 500,000 500,000 500,000 95,909 115,007 137,364 95,909 115,007 137,364
6 179,150 500,000 500,000 500,000 115,286 142,426 175,485 115,286 142,426 175,485
7 214,446 500,000 500,000 578,836 134,303 171,058 217,383 134,303 171,058 217,383
8 225,168 500,000 500,000 613,950 130,051 176,669 237,849 130,051 176,669 237,849
9 236,427 500,000 500,000 651,177 125,643 182,385 260,157 125,643 182,385 260,157
10 248,248 500,000 500,000 690,639 121,046 188,193 284,451 121,046 188,193 284,451
15 316,834 500,000 500,000 926,929 94,304 218,461 441,961 94,304 218,461 441,961
20 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
25 516,090 0 500,000 1,663,809 0 278,592 1,026,914 0 278,592 1,026,914
30 658,676 0 500,000 2,221,907 0 300,077 1,526,077 0 300,077 1,526,077
20 (Age 65) 404,370 500,000 500,000 1,242,742 57,059 249,684 679,002 57,059 249,684 679,002
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
69
<PAGE>
Table XII
NON-NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,710 21,999 23,289 22,466 23,755 25,045
2 53,993 500,000 500,000 500,000 41,818 45,746 49,831 43,135 47,063 51,148
3 83,031 500,000 500,000 500,000 62,586 70,549 79,160 62,586 70,549 79,160
4 113,521 500,000 500,000 500,000 83,027 96,473 111,595 83,027 96,473 111,595
5 145,535 500,000 500,000 500,000 103,154 123,582 147,490 103,154 123,582 147,490
6 179,150 500,000 500,000 517,484 123,965 152,997 188,344 123,965 152,997 188,344
7 214,446 500,000 500,000 621,194 144,462 183,786 233,291 144,462 183,786 233,291
8 225,168 500,000 500,000 662,179 141,109 191,054 256,533 141,109 191,054 256,533
9 236,427 500,000 500,000 705,892 137,649 198,567 282,017 137,649 198,567 282,017
10 248,248 500,000 500,938 752,500 134,054 206,320 309,930 134,054 206,320 309,930
15 316,834 500,000 529,715 1,051,486 114,996 252,569 501,350 114,996 252,569 501,350
20 404,370 500,000 561,218 1,471,894 88,524 306,635 804,205 88,524 306,635 804,205
25 516,090 500,000 605,117 2,096,819 56,328 373,482 1,294,171 56,328 373,482 1,294,171
30 658,676 500,000 659,383 3,018,652 8,136 452,885 2,073,307 8,136 452,885 2,073,307
20 (Age 65) 404,370 500,000 561,218 1,471,894 88,524 306,635 804,205 88,524 306,635 804,205
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
70
<PAGE>
Table XIII
NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,021 19,172 20,325 19,777 20,928 22,080
2 53,993 500,000 500,000 500,000 36,878 40,388 44,040 38,194 41,705 45,357
3 83,031 500,000 500,000 500,000 55,323 62,432 70,120 55,323 62,432 70,120
4 113,521 500,000 500,000 500,000 73,356 85,334 98,811 73,356 85,334 98,811
5 145,535 500,000 500,000 500,000 90,990 109,145 130,402 90,990 109,145 130,402
6 179,150 500,000 500,000 500,000 109,220 134,960 166,322 109,220 134,960 166,322
7 214,446 500,000 500,000 547,997 127,036 161,816 205,802 127,036 161,816 205,802
8 225,168 500,000 500,000 579,381 122,415 166,396 224,456 122,415 166,396 224,456
9 236,427 500,000 500,000 612,547 117,654 171,008 244,724 117,654 171,008 244,724
10 248,248 500,000 500,000 647,591 112,718 175,633 266,721 112,718 175,633 266,721
15 316,834 500,000 500,000 869,054 86,246 202,124 414,366 86,246 202,124 414,366
20 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 49,046 227,846 636,561
25 516,090 0 500,000 1,559,736 0 247,982 962,680 0 247,982 962,680
30 658,676 0 500,000 2,082,859 0 253,710 1,430,574 0 253,710 1,430,574
20 (Age 65) 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 49,046 227,846 636,561
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
71
<PAGE>
Table XIV
NEW YORK POLICY FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II
INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,847 22,600 23,920 22,602 24,356 25,676
2 53,993 500,000 500,000 500,000 41,999 46,884 51,067 43,316 48,201 52,384
3 83,031 500,000 500,000 500,000 62,735 72,173 80,986 62,735 72,173 80,986
4 113,521 500,000 500,000 500,000 83,090 98,552 114,023 83,090 98,552 114,023
5 145,535 500,000 500,000 500,000 103,102 126,113 150,563 103,102 126,113 150,563
6 179,150 500,000 500,000 527,861 123,798 156,005 192,121 123,798 156,005 192,121
7 214,446 500,000 500,000 633,257 144,200 187,315 237,821 144,200 187,315 237,821
8 225,168 500,000 502,576 674,841 140,783 194,702 261,438 140,783 194,702 261,438
9 236,427 500,000 506,552 719,321 137,302 202,377 287,382 137,302 202,377 287,382
10 248,248 500,000 510,688 766,898 133,736 210,336 315,860 133,736 210,336 315,860
15 316,834 500,000 541,634 1,074,590 115,555 258,252 512,365 115,555 258,252 512,365
20 404,370 500,000 576,976 1,512,413 91,427 315,245 826,343 91,427 315,245 826,343
25 516,090 500,000 625,747 2,167,105 62,849 386,215 1,337,551 62,849 386,215 1,337,551
30 658,676 500,000 686,331 3,140,204 20,967 471,394 2,156,793 20,967 471,394 2,156,793
20 (Age 65) 404,370 500,000 576,976 1,512,413 91,427 315,245 826,343 91,427 315,245 826,343
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
72
<PAGE>
Table XV
NEW YORK POLICY FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II
INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,021 19,172 20,325 19,777 20,928 22,080
2 53,993 500,000 500,000 500,000 36,878 40,388 44,040 38,194 41,705 45,357
3 83,031 500,000 500,000 500,000 55,323 62,432 70,120 55,323 62,432 70,120
4 113,521 500,000 500,000 500,000 73,356 85,334 98,811 73,356 85,334 98,811
5 145,535 500,000 500,000 500,000 90,990 109,145 130,402 90,990 109,145 130,402
6 179,150 500,000 500,000 500,000 109,220 134,960 166,322 109,220 134,960 166,322
7 214,446 500,000 500,000 547,997 127,036 161,816 205,802 127,036 161,816 205,802
8 225,168 500,000 500,000 579,381 122,415 166,396 224,456 122,415 166,396 224,456
9 236,427 500,000 500,000 612,547 117,654 171,008 244,724 117,654 171,008 244,724
10 248,248 500,000 500,000 647,591 112,718 175,633 266,721 112,718 175,633 266,721
15 316,834 500,000 500,000 869,054 86,246 202,124 414,366 86,246 202,124 414,366
20 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 49,046 227,846 636,561
25 516,090 0 500,000 1,559,736 0 247,982 962,680 0 247,982 962,680
30 658,676 0 500,000 2,082,859 0 253,710 1,430,574 0 253,710 1,430,574
20 (Age 65) 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 49,046 227,846 636,561
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
73
<PAGE>
Table XVI
NEW YORK POLICY FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II
INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,533 21,816 23,101 22,289 23,572 24,856
2 53,993 500,000 500,000 500,000 41,473 45,381 49,444 42,790 46,698 50,761
3 83,031 500,000 500,000 500,000 62,085 70,003 78,565 62,085 70,003 78,565
4 113,521 500,000 500,000 500,000 82,383 95,750 110,785 82,383 95,750 110,785
5 145,535 500,000 500,000 500,000 102,381 122,689 146,459 102,381 122,689 146,459
6 179,150 500,000 500,000 514,046 123,080 151,943 187,093 123,080 151,943 187,093
7 214,446 500,000 500,000 617,232 143,484 182,584 231,803 143,484 182,584 231,803
8 225,168 500,000 500,000 657,698 140,053 189,712 254,797 140,053 189,712 254,797
9 236,427 500,000 500,000 700,913 136,535 197,097 280,027 136,535 197,097 280,027
10 248,248 500,000 500,000 747,060 132,904 204,736 307,689 132,904 204,736 307,689
15 316,834 500,000 526,071 1,044,900 114,191 250,831 498,209 114,191 250,831 498,209
20 404,370 500,000 558,628 1,466,015 88,692 305,220 800,993 88,692 305,220 800,993
25 516,090 500,000 602,570 2,089,305 56,732 371,910 1,289,533 56,732 371,910 1,289,533
30 658,676 500,000 656,580 3,007,716 8,524 450,960 2,065,796 8,524 450,960 2,065,796
20 (Age 65) 404,370 500,000 558,628 1,466,015 88,692 305,220 800,993 88,692 305,220 800,993
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
74
<PAGE>
Table XVII
NEW YORK POLICY FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II
INSURANCE POLICY
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 18,021 19,172 20,325 19,777 20,928 22,080
2 53,993 500,000 500,000 500,000 36,878 40,388 44,040 38,194 41,705 45,357
3 83,031 500,000 500,000 500,000 55,323 62,432 70,120 55,323 62,432 70,120
4 113,521 500,000 500,000 500,000 73,356 85,334 98,811 73,356 85,334 98,811
5 145,535 500,000 500,000 500,000 90,990 109,145 130,402 90,990 109,145 130,402
6 179,150 500,000 500,000 500,000 109,220 134,960 166,322 109,220 134,960 166,322
7 214,446 500,000 500,000 547,997 127,036 161,816 205,802 127,036 161,816 205,802
8 225,168 500,000 500,000 579,381 122,415 166,396 224,456 122,415 166,396 224,456
9 236,427 500,000 500,000 612,547 117,654 171,008 244,724 117,654 171,008 244,724
10 248,248 500,000 500,000 647,591 112,718 175,633 266,721 112,718 175,633 266,721
15 316,834 500,000 500,000 869,054 86,246 202,124 414,366 86,246 202,124 414,366
20 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 49,046 227,846 636,561
25 516,090 0 500,000 1,559,736 0 247,982 962,680 0 247,982 962,680
30 658,676 0 500,000 2,082,859 0 253,710 1,430,574 0 253,710 1,430,574
20 (Age 65) 404,370 500,000 500,000 1,165,063 49,046 227,846 636,561 9,046 227,846 636,561
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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.
These 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.
75
<PAGE>
Table XVIII
NEW YORK POLICY
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,084.02 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed 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 26,338 500,000 500,000 500,000 20,710 21,999 23,289 22,466 23,755 25,045
2 53,993 500,000 500,000 500,000 41,818 45,746 49,831 43,135 47,063 51,148
3 83,031 500,000 500,000 500,000 62,586 70,549 79,160 62,586 70,549 79,160
4 113,521 500,000 500,000 500,000 83,027 96,473 111,595 83,027 96,473 111,595
5 145,535 500,000 500,000 500,000 103,154 123,582 147,490 103,154 123,582 147,490
6 179,150 500,000 500,000 517,484 123,965 152,997 188,344 123,965 152,997 188,344
7 214,446 500,000 500,000 621,194 144,462 183,786 233,291 144,462 183,786 233,291
8 225,168 500,000 500,000 662,179 141,109 191,054 256,533 141,109 191,054 256,533
9 236,427 500,000 500,000 705,892 137,649 198,567 282,017 137,649 198,567 282,017
10 248,248 500,000 500,938 752,500 134,054 206,320 309,930 134,054 206,320 309,930
15 316,834 500,000 529,715 1,051,486 114,996 252,569 501,350 114,996 252,569 501,350
20 404,370 500,000 561,218 1,471,894 88,524 306,635 804,205 88,524 306,635 804,205
25 516,090 500,000 605,117 2,096,819 56,328 373,482 1,294,171 56,328 373,482 1,294,171
30 658,676 500,000 659,383 3,018,652 8,136 452,885 2,073,307 8,136 452,885 2,073,307
20 (Age 65) 404,370 500,000 561,218 1,471,894 88,524 306,635 804,205 88,524 306,635 804,205
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
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. The current mortality and expense risk charges may be reduced from
0.70% to 0.35% in Policy Years 11 and thereafter. Beginning in Policy Years 11
and thereafter, the illustrated net annual return is -1.00%, 5.00%, and 11.00%.
These 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.
76
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<S> <C>
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
Nine Months (Unaudited) Financial Statements--1998
Statement of Assets and Liabilities ......................... S-21
Statements of Operations and Changes in Net Assets .......... S-24
Condensed Financial Information ............................. S-25
Notes to Financial Statements ............................... S-32
</TABLE>
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):
<TABLE>
<S> <C>
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
============
</TABLE>
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
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:
o Equity-Income Portfolio
o Growth Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Portfolio Partners, Inc.:
o PPI MFS Emerging Equities Portfolio
o PPI MFS Research Growth Portfolio
o 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.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 27, 1998
S-20
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C> <C>
ASSETS:
Investments, at net asset value: (Note 1) Shares Cost Assets
Aetna Ascent VP: ........................................ 177,057 $ 2,540,778 $ 2,349,551
Aetna Balanced VP, Inc.: ................................ 1,998,767 31,644,728 28,502,415
Aetna Bond VP: .......................................... 2,088,391 27,181,160 28,067,981
Aetna Crossroads VP: .................................... 135,416 1,825,780 1,731,972
Aetna Growth and Income VP: ............................. 4,122,171 135,193,038 129,683,503
Aetna Index Plus Large Cap VP: .......................... 583,013 9,072,663 8,704,388
Aetna Legacy VP: ........................................ 83,176 1,034,444 1,012,247
Aetna Money Market VP: .................................. 2,547,085 33,484,117 33,658,701
Aetna Small Company VP: ................................. 71,526 942,622 786,071
Aetna Value Opportunity VP: ............................. 3,920 43,804 43,432
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: ............................... 1,281,186 30,710,347 28,211,711
Growth Portfolio: ...................................... 385,567 13,709,809 13,918,957
High Income Portfolio: ................................. 21,704 274,335 239,175
Overseas Portfolio: .................................... 117,735 2,272,038 1,999,148
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: ............................... 166,924 2,766,056 2,687,483
Contrafund Portfolio: .................................. 1,477,962 30,408,206 29,234,095
Janus Aspen Series:
Aggressive Growth Portfolio: ........................... 660,203 14,093,872 13,527,565
Balanced Portfolio: .................................... 879,969 16,221,725 16,640,214
Growth Portfolio: ...................................... 911,116 17,423,434 16,800,979
Worldwide Growth Portfolio: ............................ 1,389,480 34,048,817 33,486,457
Oppenheimer Global Securities Fund: ..................... 10,027 209,115 183,602
Oppenheimer Growth & Income Fund: ....................... 3,729 65,146 64,027
Oppenheimer Strategic Bond Fund: ........................ 97,965 489,826 492,763
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: ................... 508,847 25,256,028 21,895,685
PPI MFS Research Growth Portfolio: ..................... 849,579 9,618,679 8,266,407
PPI MFS Value Equity Portfolio: ........................ 11,880 399,475 360,679
PPI Scudder International Growth Portfolio: ............ 976,110 14,849,755 14,202,395
PPI T. Rowe Price Growth Equity Portfolio: ............. 16,814 822,266 755,614
------------ ------------
NET ASSETS: .............................................. $456,602,063 $437,507,217
============ ============
</TABLE>
S-21
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1998 (Unaudited &
continued):
<TABLE>
<S> <C>
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Ascent VP:
Policyholders' account values .......................... $ 2,349,551
Aetna Balanced VP, Inc.:
Policyholders' account values .......................... 28,502,415
Aetna Bond VP:
Policyholders' account values .......................... 28,067,981
Aetna Crossroads VP:
Policyholders' account values .......................... 1,731,972
Aetna Growth and Income VP:
Policyholders' account values .......................... 129,683,503
Aetna Index Plus Large Cap VP:
Policyholders' account values .......................... 8,704,388
Aetna Legacy VP:
Policyholders' account values .......................... 1,012,247
Aetna Money Market VP:
Policyholders' account values .......................... 33,658,701
Aetna Small Company VP:
Policyholders' account values .......................... 786,071
Aetna Value Opportunity VP:
Policyholders' account values .......................... 43,432
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values ......................... 28,211,711
Growth Portfolio:
Policyholders' account values ......................... 13,918,957
High Income Portfolio:
Policyholders' account values ......................... 239,175
Overseas Portfolio:
Policyholders' account values ......................... 1,999,148
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values ......................... 2,687,483
Contrafund Portfolio:
Policyholders' account values ......................... 29,234,095
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values ......................... 13,527,565
Balanced Portfolio:
Policyholders' account values ......................... 16,640,214
Growth Portfolio:
Policyholders' account values ......................... 16,800,979
</TABLE>
S-22
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--September 30, 1998 (Unaudited &
continued):
<TABLE>
<S> <C>
Worldwide Growth Portfolio:
Policyholders' account values ............ $ 33,486,457
Oppenheimer Global Securities Fund:
Policyholders' account values ............. 183,602
Oppenheimer Growth & Income Fund:
Policyholders' account values ............. 64,027
Oppenheimer Strategic Bond Fund:
Policyholders' account values ............. 492,763
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Policyholders' account values ............ 21,895,685
PPI MFS Research Growth Portfolio:
Policyholders' account values ............ 8,266,407
PPI MFS Value Equity Portfolio:
Policyholders' account values ............ 360,679
PPI Scudder International Growth Portfolio:
Policyholders' account values ............ 14,202,395
PPI T. Rowe Price Equity Portfolio:
Policyholders' account values ............ 755,614
------------
$437,507,217
============
</TABLE>
See Notes to Financial Statements
S-23
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
(Unaudited) (Unaudited)
-------------------- -------------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ............................................................ $ 15,792,770 $ 11,181,934
Expenses: (Notes 2 and 5)
Valuation period deductions .......................................... (3,192,602) (1,872,259)
------------ ------------
Net investment income ................................................. 12,600,168 9,309,675
------------ ------------
NET REALIZED AND UNREALIZED LOSS/GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales .................................................. 348,068,839 139,757,147
Cost of investments sold ............................................. 327,008,105 128,709,226
------------ ------------
Net realized gain ................................................... 21,060,734 11,047,921
Net unrealized loss/gain on investments: (Note 5)
Beginning of period .................................................. 16,987,228 14,132,669
End of period ........................................................ (19,094,846) 49,099,079
------------ ------------
Net change in unrealized loss/gain .................................. (36,082,074) 34,966,410
------------ ------------
Net realized and unrealized loss/gain on investments .................. (15,021,340) 46,014,331
------------ ------------
Net decrease/increase in net assets resulting from operations ......... (2,421,172) 55,324,006
------------ ------------
FROM UNIT TRANSACTIONS:
Net premiums allocated to the variable account ....................... 125,036,101 79,915,624
Transfers to the Company for monthly deductions ....................... (21,728,349) (15,533,434)
Redemptions by contract holders ....................................... (12,224,946) (20,908,061)
Transfers on account of policy loans .................................. (3,414,227) (2,096,102)
Other ................................................................. (265,337) 75,383
------------ ------------
Net increase in net assets from unit transactions (Note 5) ........... 87,403,242 41,453,410
------------ ------------
Change in net assets .................................................. 84,982,070 96,777,416
NET ASSETS:
Beginning of period ................................................... 352,525,147 223,173,883
------------ ------------
End of period ......................................................... $437,507,217 $319,951,299
============ ============
</TABLE>
See Notes to Financial Statements
S-24
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Month Period Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP
Aetna Vest ............................. $14.055 $13.234 -5.84% 15,673.5 $ 207,424.2
Aetna Vest Estate Protector ............ 14.077 13.256 -5.84% 17,698.5 234,604.7
Aetna Vest Estate Protector II ......... 10.441 9.135 -12.51%(3) 1,891.7 17,280.2
Aetna Vest II .......................... 14.040 13.206 -5.94% 9,995.0 131,993.3
Aetna Vest Plus ........................ 14.040 13.206 -5.94% 133,140.6 1,758,248.3
Aetna Balanced VP, Inc.
Aetna Vest ............................. 21.286 21.860 2.70% 108,066.4 2,362,382.3
Aetna Vest Estate Protector ............ 13.554 13.931 2.78% 32,648.0 454,809.4
Aetna Vest Estate Protector II ......... 10.434 9.952 -4.62%(1) 22,702.9 225,940.8
Aetna Vest II .......................... 21.515 22.088 2.66% 224,676.6 4,962,722.5
Aetna Vest Plus ........................ 18.044 18.524 2.66% 517,277.4 9,582,131.0
Corporate Specialty Market ............. 15.708 16.127 2.66% 676,793.1 10,914,345.9
NYSUT Individual Life .................. 12.865 11.981 -6.87%(4) 6.9 83.2
Aetna Bond VP
Aetna Vest ............................. 23.428 24.840 6.03% 260,568.7 6,472,579.1
Aetna Vest Estate Protector ............ 11.224 11.914 6.15% 21,908.6 261,016.5
Aetna Vest Estate Protector II ......... 10.069 10.502 4.29%(2) 27,498.2 288,779.9
Aetna Vest II .......................... 15.752 16.701 6.03% 72,711.2 1,214,345.2
Aetna Vest Plus ........................ 12.613 13.374 6.03% 247,522.5 3,310,261.3
Corporate Specialty Market ............. 12.175 12.908 6.03% 1,279,860.2 16,520,660.3
NYSUT Individual Life .................. 11.028 11.326 2.70%(4) 29.9 338.3
Aetna Crossroads VP
Aetna Vest ............................. 13.369 13.038 -2.48% 6,219.8 81,092.8
Aetna Vest Estate Protector ............ 13.391 13.059 -2.48% 292.3 3,817.2
Aetna Vest Estate Protector II ......... 10.470 9.508 -9.19%(2) 5,045.0 47,968.2
Aetna Vest II .......................... 13.356 13.010 -2.59% 6,802.9 88,506.4
Aetna Vest Plus ........................ 13.356 13.010 -2.59% 116,108.3 1,510,587.7
Aetna Growth and Income VP
Aetna Vest ............................. 44.936 42.543 -5.33% 1,325,459.6 56,388,675.0
Aetna Vest Estate Protector ............ 15.037 14.246 -5.26% 96,100.6 1,369,071.9
Aetna Vest Estate Protector II ......... 10.767 9.147 -15.04%(1) 61,900.8 566,237.1
Aetna Vest II .......................... 25.085 23.740 -5.36% 795,008.8 18,873,213.2
Aetna Vest Plus ........................ 21.075 19.945 -5.36% 2,052,326.7 40,934,350.5
Corporate Specialty Market ............. 19.039 18.018 -5.36% 640,973.5 11,549,150.2
NYSUT Individual Life .................. 13.251 11.369 -14.20%(4) 246.7 2,805.3
</TABLE>
S-25
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Month Period Ended September 30, 1998
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Index Plus Large Cap VP
Aetna Vest ......................... $13.081 $13.911 6.34% 30,737.3 $ 427,593.8
Aetna Vest Estate Protector ........ 13.102 13.949 6.46% 59,140.5 824,952.1
Aetna Vest Estate Protector II ..... 10.794 10.110 -6.34%(1) 32,059.3 324,111.3
Aetna Vest II ...................... 13.081 13.911 6.34% 13,015.6 181,063.4
Aetna Vest Plus .................... 13.081 13.911 6.34% 258,785.8 3,600,034.1
Corporate Specialty Market ......... 13.081 13.911 6.34% 238,526.3 3,318,198.4
NYSUT Individual Life .............. 14.077 12.932 -8.14%(4) 2,198.8 28,434.8
Aetna Legacy VP
Aetna Vest Estate Protector ........ 12.638 12.677 .31% 2,928.2 37,120.9
Aetna Vest Estate Protector II ..... 10.310 9.814 -4.81%(2) 13,155.1 129,107.9
Aetna Vest II ...................... 12.604 12.630 .20% 918.2 11,597.1
Aetna Vest Plus .................... 12.604 12.630 .20% 66,068.4 834,421.0
Aetna Money Market VP
Aetna Vest ......................... 17.310 17.885 3.32% 145,130.5 2,595,729.1
Aetna Vest Estate Protector ........ 10.807 11.179 3.44% 135,150.1 1,510,793.0
Aetna Vest Estate Protector II ..... 10.045 10.295 2.49%(1) 257,244.9 2,648,451.2
Aetna Vest II ...................... 12.653 13.074 3.32% 38,164.4 498,944.4
Aetna Vest Plus .................... 11.892 12.287 3.32% 905,951.2 11,131,296.6
Corporate Specialty Market ......... 11.377 11.755 3.32% 1,299,110.9 15,270,712.5
NYSUT Individual Life .............. 10.603 10.732 1.22%(4) 258.5 2,774.5
Aetna Small Company VP
Corporate Specialty Market ......... 11.484 8.637 -24.79%(2) 91,009.6 786,071.4
Aetna Value Opportunity VP
Corporate Specialty Market ......... 9.567 9.404 -1.70%(6) 4,618.3 43,431.7
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio
Aetna Vest ......................... 13.788 $13.233 -4.02% 17,707.1 234,314.3
Aetna Vest Estate Protector ........ 13.824 13.283 -3.92% 81,567.9 1,083,431.2
Aetna Vest Estate Protector II ..... 10.851 9.312 -14.18%(2) 29,706.9 276,638.0
Aetna Vest II ...................... 13.788 13.233 -4.02% 14,686.5 194,342.2
Aetna Vest Plus .................... 13.788 13.233 -4.02% 624,914.0 8,269,335.8
Corporate Specialty Market ......... 15.869 15.230 -4.02% 1,191,831.9 18,152,060.3
NYSUT Individual Life .............. 12.924 11.312 -12.47%(4) 140.4 1,588.8
Growth Portfolio
Corporate Specialty Market ......... 13.760 15.327 11.39% 908,162.8 13,918,956.8
High Income Portfolio
Corporate Specialty Market ......... 10.575 9.187 -13.12%(3) 26,033.0 239,175.4
</TABLE>
S-26
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Month Period Ended September 30, 1998
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Overseas Portfolio
Corporate Specialty Market ............ $12.415 $11.767 -5.23% 169,899.6 $ 1,999,148.4
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio
Corporate Specialty Market ............ 14.361 14.539 1.24% 184,850.6 2,687,482.5
Contrafund Portfolio
Aetna Vest ............................ 14.166 14.790 4.41% 43,467.9 642,910.6
Aetna Vest Estate Protector ........... 14.203 14.846 4.53% 72,534.0 1,076,849.3
Aetna Vest Estate Protector II ........ 10.825 10.066 -7.01%(1) 15,589.0 156,921.9
Aetna Vest II ......................... 14.166 14.790 4.41% 16,991.4 251,311.6
Aetna Vest Plus ....................... 14.166 14.790 4.41% 522,186.1 7,723,385.3
Corporate Specialty Market ............ 15.236 15.908 4.41% 1,218,188.5 19,379,378.9
NYSUT Individual Life ................. 13.745 12.454 -9.39%(4) 268.0 3,337.2
Janus Aspen Series:
Aggressive Growth Portfolio
Aetna Vest ............................ 18.017 17.831 -1.04% 49,056.7 874,721.3
Aetna Vest Estate Protector ........... 10.944 10.843 -.92% 78,060.8 846,402.1
Aetna Vest Estate Protector II ........ 10.705 9.563 -10.67%(3) 10,606.9 101,428.9
Aetna Vest II ......................... 18.017 17.831 -1.04% 23,006.4 410,222.9
Aetna Vest Plus ....................... 18.017 17.831 -1.04% 387,606.6 6,911,371.4
Corporate Specialty Market ............ 13.519 13.379 -1.04% 327,644.7 4,383,418.0
Balanced Portfolio
Aetna Vest ............................ 16.883 18.702 10.78% 11,655.5 217,982.0
Aetna Vest Estate Protector ........... 13.440 14.905 10.90% 33,661.8 501,718.6
Aetna Vest Estate Protector II ........ 10.519 10.508 -.11%(2) 19,653.4 206,515.6
Aetna Vest II ......................... 17.015 18.848 10.78% 19,593.9 369,308.5
Aetna Vest Plus ....................... 16.875 18.694 10.78% 377,296.6 7,053,068.2
Corporate Specialty Market ............ 14.799 16.394 10.78% 505,780.7 8,291,535.9
NYSUT Individual Life ................. 13.283 12.659 -4.70%(4) 6.7 85.2
Growth Portfolio
Aetna Vest ............................ 18.105 19.088 5.43% 35,292.5 673,654.8
Aetna Vest Estate Protector ........... 13.214 13.947 5.55% 54,910.6 765,860.8
Aetna Vest Estate Protector II ........ 10.474 9.854 -5.92%(3) 15,734.7 155,046.3
Aetna Vest II ......................... 18.088 19.070 5.43% 60,825.6 1,159,968.0
Aetna Vest Plus ....................... 18.063 19.043 5.43% 539,769.4 10,279,076.1
Corporate Specialty Market ............ 14.865 15.672 5.43% 240,390.2 3,767,373.1
</TABLE>
S-27
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Month Period Ended September 30, 1998
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Portfolio
Aetna Vest ............................. $19.790 $20.950 5.87% 110,082.5 $ 2,306,272.2
Aetna Vest Estate Protector ............ 14.305 15.161 5.98% 87,466.1 1,326,065.2
Aetna Vest Estate Protector II ......... 11.034 9.958 -9.75%(1) 18,911.0 188,323.3
Aetna Vest II .......................... 19.795 20.956 5.87% 48,396.7 1,014,206.3
Aetna Vest Plus ........................ 19.770 20.930 5.87% 734,711.4 15,377,551.9
Corporate Specialty Market ............. 16.277 17.232 5.87% 770,133.7 13,270,990.8
NYSUT Individual Life .................. 14.268 11.993 -15.95%(4) 254.1 3,047.6
Oppenheimer Global Securities Fund
Aetna Vest ............................. 10.531 9.006 -14.48%(2) 731.2 6,585.2
Aetna Vest Estate Protector ............ 10.759 9.014 -16.22%(3) 1,657.5 14,941.0
Aetna Vest Estate Protector II ......... 10.892 9.209 -15.45%(2) 999.0 9,199.8
Aetna Vest Plus ........................ 10.718 9.006 -15.97%(2) 16,974.9 152,876.3
Oppenheimer Growth & Income Fund
Corporate Specialty Market ............. 9.178 8.867 -3.39%(6) 7,220.8 64,027.2
Oppenheimer Strategic Bond Fund
Aetna Vest ............................. 10.117 9.876 -2.39%(4) 1,061.2 10,480.3
Aetna Vest Estate Protector II ......... 10.083 9.876 -2.05%(2) 18,474.7 182,449.2
Aetna Vest Plus ........................ 10.071 9.876 -1.94%(1) 30,361.3 299,833.3
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio
Aetna Vest ............................. 17.357 17.338 -.11% 66,525.5 1,153,435.9
Aetna Vest Estate Protector ............ 10.810 10.811 .00% 89,835.9 971,188.7
Aetna Vest Estate Protector II ......... 10.616 8.999 -15.23%(3) 10,877.3 97,888.7
Aetna Vest II .......................... 17.359 17.340 -.11% 25,598.3 443,870.3
Aetna Vest Plus ........................ 17.349 17.330 -.11% 576,597.0 9,992,673.8
Corporate Specialty Market ............. 14.275 14.260 -.11% 647,745.5 9,236,627.9
PPI MFS Research Growth Portfolio
Aetna Vest ............................. 12.042 11.981 -.51% 59,767.1 716,040.0
Aetna Vest Estate Protector ............ 9.152 9.115 -.40% 16,205.5 147,712.7
Aetna Vest Estate Protector II ......... 10.650 9.402 -11.72%(3) 5,825.5 54,768.2
Aetna Vest II .......................... 12.096 12.034 -.51% 21,451.4 258,149.3
Aetna Vest Plus ........................ 11.931 11.870 -.51% 434,142.6 5,153,263.4
Corporate Specialty Market ............. 10.912 10.856 -.51% 178,374.0 1,936,435.4
NYSUT Individual Life .................. 11.944 10.122 -15.26%(4) 3.7 37.9
</TABLE>
S-28
<PAGE>
Variable Life Account B
Condensed Financial Information--Nine Month Period Ended September 30, 1998
(Unaudited & continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PPI MFS Value Equity Portfolio
Aetna Vest ............................. $10.779 $ 9.173 -14.89%(2) 73.9 $ 678.0
Aetna Vest Estate Protector ............ 10.562 9.181 -13.07%(2) 1,486.7 13,649.7
Aetna Vest Estate Protector II ......... 11.017 9.399 -14.68%(2) 6,242.2 58,672.5
Aetna Vest II .......................... 10.910 9.173 -15.92%(2) 84.7 776.9
Aetna Vest Plus ........................ 10.757 9.173 -14.72%(2) 31,267.5 286,828.1
NYSUT Individual Life .................. 10.870 9.181 -15.53%(5) 8.1 74.2
PPI Scudder International Growth Portfolio
Aetna Vest ............................. 15.692 16.103 2.62% 112,371.9 1,809,570.9
Aetna Vest Estate Protector ............ 11.777 12.099 2.73% 32,167.9 389,202.2
Aetna Vest Estate Protector II ......... 11.304 9.737 -13.86%(3) 6,236.2 60,725.4
Aetna Vest II .......................... 15.596 16.004 2.62% 33,127.0 530,168.4
Aetna Vest Plus ........................ 15.509 15.915 2.62% 487,627.0 7,760,556.4
Corporate Specialty Market ............. 12.995 13.336 2.62% 273,867.4 3,652,171.9
PPI T. Rowe Price Equity Portfolio
Aetna Vest ............................. 10.689 9.399 -12.07%(2) 2,939.5 27,628.8
Aetna Vest Estate Protector ............ 10.452 9.407 -10.00%(3) 15,320.1 144,123.0
Aetna Vest Estate Protector II ......... 10.805 9.635 -10.83%(2) 11,117.2 107,111.9
Aetna Vest II .......................... 11.000 9.399 -14.55%(5) 37.2 349.6
Aetna Vest Plus ........................ 10.422 9.399 -9.82%(1) 50,685.9 476,400.5
</TABLE>
Notes to Condensed Financial Information:
(1)--Reflects less than a full year of performance activity. Funds were first
received in this option during March 1998.
(2)--Reflects less than a full year of performance activity. Funds were first
received in this option during April 1998.
(3)--Reflects less than a full year of performance activity. Funds were first
received in this option during May 1998.
(4)--Reflects less than a full year of performance activity. Funds were first
received in this option during June 1998.
(5)--Reflects less than a full year of performance activity. Funds were first
received in this option during July 1998.
(6)--Reflects less than a full year of performance activity. Funds were first
received in this option during September 1998.
S-29
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1998 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Period Ended September 30, 1998
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
--------- ---------- ----- ---- -----------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: ........................ $ 20,464 ($ 16,393) $ 272,010 $ 241,469 30,541
PolicyHolders' account values ..........
Aetna Balanced VP, Inc.: ................ 4,253,335 (211,503) 8,004,991 6,413,766 1,591,225
PolicyHolders' account values ..........
Aetna Bond Fund VP: ..................... 550,573 (185,723) 5,396,160 5,168,966 227,194
PolicyHolders' account values ..........
Aetna Crossroads VP: .................... 6,047 (9,976) 382,423 357,548 24,875
PolicyHolders' account values ..........
Aetna Growth and Income VP: ............. 2,857,041 (1,046,568) 26,349,802 23,806,472 2,543,330
PolicyHolders' account values ..........
Aetna Index Plus Large Cap VP: 47,679 (47,359) 2,117,907 1,870,873 247,034
PolicyHolders' account values ..........
Aetna Legacy VP: ........................ 3,447 (6,113) 184,779 173,048 11,731
PolicyHolders' account values ..........
Aetna Money Market VP: .................. 940,509 (201,129) 98,092,731 98,046,738 45,993
PolicyHolders' account values ..........
Aetna Small Company VP: ................. 3,120 (2,927) 355,502 386,852 (31,350)
PolicyHolders' account values ..........
Aetna Value Opportunity VP: ............. 0 (7) 43,439 43,811 (372)
PolicyHolders' account values ..........
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: ............... 1,381,671 (199,903) 7,955,942 6,693,161 1,262,781
PolicyHolders' account values .........
Growth Portfolio: ...................... 1,011,595 (86,748) 2,540,527 2,299,318 241,209
PolicyHolders' account values .........
High Income Portfolio: ................. 0 (948) 18,331 19,001 (670)
PolicyHolders' account values .........
Overseas Portfolio: .................... 141,761 (15,826) 508,150 475,755 32,395
PolicyHolders' account values .........
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: ............... 329,918 (22,593) 2,423,201 2,312,344 110,857
PolicyHolders' account values .........
Contrafund Portfolio: .................. 1,313,979 (203,742) 11,151,071 8,905,381 2,245,690
PolicyHolders' account values ...........
Janus Aspen Series: .....................
Aggressive Growth Portfolio: ........... 0 (101,830) 9,464,637 8,108,566 1,356,071
PolicyHolders' account values .........
</TABLE>
S-30
<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 Period Gain (Loss) Transactions of Period of Period
------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
$ 27,927 ($ 191,227) (219,154) $ 731,540
$ 1,802,553 $ 2,349,551
1,971,257 (3,142,312) (5,113,569) 3,646,855
24,336,071 28,502,415
(12,114) 886,820 898,934 5,472,199
21,104,804 28,067,981
5,069 (93,808) (98,877) 1,099,611
710,292 1,731,972
6,207,999 (5,509,535) (11,717,534) 4,668,211
132,379,023 129,683,503
(23,927) (368,275) (344,348) 6,839,837
1,961,545 8,704,388
618 (22,197) (22,815) 375,858
650,139 1,012,247
70,857 174,585 103,728 12,449,399
20,320,201 33,658,701
0 (156,550) (156,550) 973,778
0 786,071
0 (372) (372) 44,183
0 43,432
1,523,698 (2,498,637) (4,022,335) 9,606,047
20,183,450 28,211,711
380,110 209,148 (170,962) 5,803,719
7,120,144 13,918,957
0 (35,160) (35,160) 275,953
0 239,175
(8,270) (272,889) (264,619) 315,723
1,789,714 1,999,148
281,699 (78,574) (360,273) 94,847
2,534,727 2,687,483
1,505,359 (1,174,111) (2,679,470) 8,337,610
20,220,028 29,234,095
844,868 (566,308) (1,411,176) 1,282,135
12,402,365 13,527,565
</TABLE>
S-31
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1998 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Period Ended September 30, 1998 (continued):
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
--------- ---------- ----- ---- -----------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio: ........................... $ 476,510 ($ 100,984) $ 4,205,517 $ 3,082,152 1,123,365
PolicyHolders' account values ................
Growth Portfolio: ............................. 1,052,263 (116,609) 6,371,071 4,812,748 1,558,323
PolicyHolders' account values ................
Worldwide Growth Portfolio: ................... 1,300,477 (251,983) 8,268,827 5,980,664 2,288,163
PolicyHolders' account values ................
Oppenhiemer Global Securities Fund: ........... 0 (502) 5,055 5,532 (477)
PolicyHolders' account values ................
Oppenhiemer Growth & Income Fund: ............. 0 (11) 64,038 65,157 (1,119)
PolicyHolders' account values ................
Oppenhiemer Strategic Bond Fund: .............. 104 (938) 172,873 177,117 (4,244)
PolicyHolders' account values ................
Portfolio Partners Inc.: ......................
PPI MFS Emerging Equities Portfolio ........... 68,284 (176,366) 74,129,931 70,976,755 3,153,176
PolicyHolders' account values ................
PPI MFS Research Growth Portfolio ............. 2,113 (64,244) 19,948,723 18,675,582 1,273,141
PolicyHolders' account values ................
PPI MFS Value Equity .......................... 628 (1,102) 163,378 189,653 (26,275)
PolicyHolders' account values ................
PPI Scudder International Growth Portfolio..... 27,896 (118,590) 59,395,931 57,633,192 1,762,739
PolicyHolders' account values ................
PPI T. Rowe Price Growth Equity Portfolio...... 3,356 (1,985) 81,892 86,484 (4,592)
PolicyHolders' account values ................
----------- ----------- ------------ ------------ -----------
Total Variable Life Account B ................. $15,792,770 $(3,192,602) $348,068,839 $327,008,105 $21,060,734
=========== =========== ============ ============ ===========
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Period of Period Gain (Loss) Transactions of Period of Period
--------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
$ 885,469 $ 418,489 (466,980) $ 7,402,662
$ 8,205,641 $ 16,640,214
1,360,430 (622,455) (1,982,885) 4,309,887
11,980,000 16,800,979
1,817,349 (562,360) (2,379,709) 8,226,222
24,303,287 33,486,457
0 (25,513) (25,513) 210,094
0 183,602
0 (1,119) (1,119) 66,276
0 64,027
0 2,937 2,937 494,904
0 492,763
42,515 (3,360,343) (3,402,858) 3,191,577
19,061,872 21,895,685
(86,245) (1,352,272) (1,266,027) 1,173,243
7,148,181 8,266,407
0 (38,796) (38,796) 426,224
0 360,679
192,560 (647,360) (839,920) (940,840)
14,311,110 14,202,395
0 (66,652) (66,652) 825,488
0 755,614
----------- ----------- ----------- ----------- ------------ ------------
$16,987,228 ($19,094,846) ($36,082,074) $87,403,242 $352,525,147 $437,507,217
=========== ============ ============ =========== ============ ============
</TABLE>
S-33
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Period Ended September 30, 1997
<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: ....................... $4,806,166 ($ 759,765) $ 7,628,880 $ 5,575,341 $2,053,539
PolicyHolders' account values .............
Aetna Income Shares: ....................... 371,054 (97,068) 1,779,972 1,823,228 (43,256)
PolicyHolders' account values .............
Aetna Variable Encore Fund: ................ 372,968 (100,707) 43,104,359 42,850,706 253,653
PolicyHolders' account values .............
Aetna Investment Advisers Fund, Inc.: ...... 1,720,435 (127,224) 1,636,280 1,316,961 319,319
PolicyHolders' account values .............
Aetna Ascent Variable Portfolio: ........... 13,550 (7,125) 779,440 770,289 9,151
PolicyHolders' account values .............
Aetna Crossroads Variable Portfolio: ....... 4,060 (1,903) 181,294 178,792 2,502
PolicyHolders' account values .............
Aetna Legacy Variable Portfolio: ........... 7,636 (2,023) 216,181 198,502 17,679
PolicyHolders' account values .............
Aetna Variable Index Plus Portfolio: ....... 0 (1,350) 2,893 2,642 251
PolicyHolders' account values .............
Alger American Small Capitalization
Portfolio: ................................ 576,583 (97,515) 27,120,190 25,868,551 1,251,639
PolicyHolders' account values .............
American Century VP Capital Appreciation
Fund: ..................................... 132,455 (45,867) 3,235,827 3,442,376 (206,549)
PolicyHolders' account values .............
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: ................... 1,485,715 (123,125) 11,734,663 9,571,434 2,163,229
PolicyHolders' account values .............
Growth Portfolio: .......................... 192,233 (39,162) 6,082,672 5,284,973 797,699
PolicyHolders' account values .............
Overseas Portfolio: ........................ 46,706 (4,712) 46,070 41,030 5,040
PolicyHolders' account values .............
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: ................... 175,953 (12,238) 96,650 91,251 5,399
PolicyHolders' account values .............
Contrafund Portfolio: ...................... 235,708 (63,309) 4,141,445 3,321,787 819,658
PolicyHolders' account values .............
Janus Aspen Series: ........................
Aggressive Growth Portfolio: ............... 0 (67,528) 15,604,169 15,153,080 451,089
PolicyHolders' account values .............
Balanced Portfolio: ........................ 123,266 (34,252) 982,085 824,394 157,691
PolicyHolders' account values .............
</TABLE>
S-34
<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 Period Gain (Loss) Transactions of Year of Period
------- --------- ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
$7,294,643 $31,518,299 $24,223,656 $ 7,831,916
$92,871,626 $131,027,138
(190,180) 350,595 540,775 4,905,304
13,179,787 18,856,596
106,394 51,381 (55,013) 5,490,419
9,092,185 15,053,505
1,383,931 2,748,202 1,364,271 1,873,923
15,791,541 20,942,265
15,645 220,169 204,524 832,228
545,378 1,597,706
(191) 48,987 49,178 283,818
123,692 461,347
20 28,909 28,889 537,581
13,963 603,725
0 22,952 22,952 853,351
0 875,204
172,057 799,979 627,922 5,253,086
13,086,083 20,697,798
(146,911) 619,963 766,874 91,398
6,482,525 7,220,836
1,096,283 1,561,726 465,443 (4,155,358)
13,310,213 13,146,117
294,867 568,043 273,176 (1,242,727)
5,052,529 5,033,748
37,941 104,008 66,067 307,575
532,327 953,003
134,978 252,377 117,399 410,462
1,410,186 2,107,161
730,883 1,835,606 1,104,723 8,625,629
6,911,690 17,634,099
249,074 976,934 727,860 (670,440)
9,662,927 10,103,908
243,163 851,665 608,502 2,005,240
3,574,345 6,434,792
</TABLE>
S-35
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1997 (Unaudited & continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Period Ended September 30, 1997
<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: ...................... 277,232 (61,963) 3,109,251 2,424,122 685,129
PolicyHolders' account values .........
Short-Term Bond Portfolio: ............. $ 101,542 ($ 28,323) $ 3,489,096 $ 3,386,095 $ 103,001
PolicyHolders' account values .........
Worldwide Growth Portfolio: ............ 274,427 (109,951) 5,994,187 4,447,419 1,546,768
PolicyHolders' account values .........
Scudder Variable Life Investment Fund --
International Portfolio: ............. 264,245 (87,149) 2,791,543 2,136,253 655,290
PolicyHolders' account values .........
----------- ---------- ------------ ------------ -----------
Total Variable Life Account B .......... $11,181,934 ($1,872,259) $139,757,147 $128,709,226 $11,047,921
=========== ========== ============ ============ ===========
</TABLE>
S-36
<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 Period Gain (Loss) Transactions of Year of Period
------- --------- ----------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
566,478 1,545,448 978,970 1,171,142
7,174,647 10,225,157
$ 26,773 $ 22,780 ($ 3,993) ($ 2,462,833)
$ 3,827,848 $ 1,537,242
872,277 2,871,957 1,999,680 7,693,049
9,915,136 21,319,109
1,244,544 2,099,099 854,555 1,818,647
10,615,255 14,120,843
----------- ----------- ----------- ----------- ------------ ------------
$14,132,669 $49,099,079 $34,966,410 $41,453,410 $223,173,883 $319,951,299
=========== =========== =========== =========== ============ ============
</TABLE>
S-37
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1998 (Unaudited)
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 September 30, 1998:
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Bond VP
Aetna Crossroads VP
Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna Legacy VP
Aetna Money Market VP
Aetna Small Company VP
Aetna Value Opportunity VP
Fidelity Investments Variable Insurance
Products Fund:
o Equity-Income Portfolio
o Growth Portfolio
o High Income Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners, Inc. (PPI):
o PPI MFS Emerging Equities Portfolio
o PPI MFS Research Growth Portfolio
o PPI MFS Value Equity Portfolio
o PPI Scudder International Growth Portfolio
o PPI T. Rowe Price Growth Equity 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.
S-38
<PAGE>
Variable Life Account B
Notes to Financial Statements--September 30, 1998 (Unaudited and continued):
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the policies and are paid to the Company.
3. Dividend 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 six month periods ended September 30, 1998 and
1997 aggregated $448,072,250 and $348,068,839 and $190,520,232 and
$139,757,147, respectively.
S-39
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
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-8
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998
and 1997 .............................................................................. F-32
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997 ............... F-33
Consolidated Statements of Changes in Shareholder's Equity for the Nine Months Ended
September 30, 1998 and 1997 ........................................................... F-34
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and
1997 .................................................................................. F-35
Condensed Notes to Consolidated Financial Statements ..................................... F-36
</TABLE>
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 statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and 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)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Condensed 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,
-------------------------------
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 Condensed 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, pretax, respectively) 32.4 (72.0) 321.5
-------- -------- --------
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 Condensed 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)
--------- --------- ---------
</TABLE>
See Condensed 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.)
Consolidated Statements of Cash Flows (Continued)
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
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 Condensed Notes to Consolidated Financial Statements.
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
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-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)
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.
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
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)
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 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.
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)
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.
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
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)
1. Summary of Significant Accounting Policies (Continued)
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-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
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-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)
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>
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.
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)
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.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------- -------------
(millions)
<S> <C> <C>
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
========= =========
</TABLE>
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.
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
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)
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).
Investments in equity securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ -----------
(millions)
<S> <C> <C> <C> <C>
1997
- ----
Equity Securities $210.0 $21.3 $0.1 $231.2
------ ----- ---- ------
1996
- ----
Equity Securities $184.9 $16.3 $0.8 $200.4
------ ----- ---- ------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
(millions)
<S> <C> <C> <C> <C>
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
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's
management of interest rate, price and liquidity risks, the fair values of
all assets and liabilities should be taken into consideration, not only those
presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in policyholders' funds left with
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in
paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
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 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.
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)
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:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------- -------------
(millions)
<S> <C> <C>
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
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities and
interest rate swap agreements.
4. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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 (Continued)
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.
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(millions)
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
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.
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 (Continued)
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(millions)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------------ -----------
(millions)
<S> <C> <C> <C>
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
===== ======= ======
</TABLE>
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.
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)
Shareholder's equity included the following accumulated other comprehensive
income, which are net of amounts allocable to experience rated
contractholders, at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
(millions)
<S> <C> <C> <C>
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
===== ====== ======
</TABLE>
(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.
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)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $29.1 $1.0 $1.3 $1.7 $ -- $33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
--------------------------------------------------------------------------
Total Company $41.6 $1.4 $1.8 $2.5 $14.0 $61.3
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after tax
($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on a
plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions taken
or expected to be taken to reduce the level of corporate expenses and other
costs previously absorbed by Aetna's property-casualty operations, 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:
<TABLE>
<CAPTION>
(Millions) Reserve Positions
- -----------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------
</TABLE>
(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-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)
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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 (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(millions)
<S> <C> <C>
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
====== ======
</TABLE>
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.
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
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)
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.
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.
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)
9. Benefits Plans (Continued)
Incentive Savings Plan--Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $4.4 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.
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
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)
10. Related Party Transactions (Continued)
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 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.
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)
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-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)
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-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)
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:
<TABLE>
<CAPTION>
(millions) 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ------------------------------------------------------------------------------------
</TABLE>
(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.
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)
13. Segment Information (1) (Continued)
(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>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Premiums $ 20.1 $ 19.2 $ 54.5 $ 53.4
Charges assessed against policyholders 81.3 70.6 243.3 188.5
Net investment income 217.2 218.7 645.4 654.3
Net realized capital gains 2.7 6.6 9.3 14.7
Other income 8.2 11.3 22.2 28.2
------ ------ ------ ------
Total revenue 329.5 326.4 974.7 939.1
Benefits and expenses:
Current and future benefits 181.7 189.3 529.7 545.6
Operating expenses 76.5 69.8 227.0 204.3
Amortization of deferred policy acquisition costs 28.6 24.5 79.4 57.3
------ ------ ------ ------
Total benefits and expenses 286.8 283.6 836.1 807.2
------ ------ ------ ------
Income from continuing operations before
income taxes 42.7 42.8 138.6 131.9
Income taxes 9.5 10.6 37.7 36.0
------ ------ ------ ------
Income from continuing operations 33.2 32.2 100.9 95.9
Income from discontinued operations, net of tax 24.5 19.2 61.8 49.0
------ ------ ------ ------
Net income $ 57.7 $ 51.4 $162.7 $144.9
====== ====== ====== ======
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-32
<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)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- -------------
Assets
- ------
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value (amortized cost:
$11,655.7 and $12,912.2) $12,207.9 $13,463.8
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $71.4 and $131.7) 73.9 147.6
Investment in affiliated mutual funds (cost: $119.9 and $78.1) 116.3 83.0
Common stock (cost: $0.3 and $0.2) 1.4 0.6
Short-term investments 23.1 95.6
Mortgage loans 12.7 12.8
Policy loans 521.5 469.6
--------- ---------
Total investments 12,956.8 14,273.0
Cash and cash equivalents 2,212.3 565.4
Short-term investments under securities loan agreement 652.9 --
Accrued investment income 165.3 163.0
Income taxes receivable 10.0 --
Premiums due and other receivables 68.8 63.7
Deferred policy acquisition costs 1,734.3 1,654.6
Reinsurance loan to affiliate 261.5 397.2
Other assets 50.9 46.8
Separate Accounts assets 24,773.6 22,982.7
--------- ---------
Total assets $42,886.4 $40,146.4
========= =========
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits $ 3,767.6 $ 3,785.7
Unpaid claims and claim expenses 34.0 38.0
Policyholders' funds left with the Company 11,230.1 11,121.5
--------- ---------
Total insurance reserve liabilities 15,031.7 14,945.2
Payables under securities loan agreement 652.9 --
Other liabilities 352.4 312.8
Income taxes:
Current -- 12.4
Deferred 100.9 72.0
Separate Accounts liabilities 24,760.8 22,970.0
--------- ---------
Total liabilities 40,898.7 38,312.4
--------- ---------
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 86.1 92.9
Retained earnings 1,480.8 1,320.3
--------- ---------
Total shareholder's equity 1,987.7 1,834.0
--------- ---------
Total liabilities and shareholder's equity $42,886.4 $40,146.4
========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-33
<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)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September
30,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Shareholder's equity, beginning of period $1,834.0 $1,609.5
Comprehensive income
Net income 162.7 144.9
Other comprehensive income, net of tax
Unrealized (losses) gains on securities ($(10.5),
$55.7, pretax, respectively) (6.8) 36.2
-------- --------
Total comprehensive income 155.9 181.1
-------- --------
Other changes 0.8 3.7
Common stock dividends (3.0) (8.3)
-------- --------
Shareholder's equity, end of period $1,987.7 $1,786.0
======== ========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-34
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September
30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 162.7 $ 144.9
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Increase in accrued investment income (2.3) (24.0)
Decrease (increase) in premiums due and other receivables 23.8 (8.8)
Increase in policy loans (51.9) (54.4)
Increase in deferred policy acquisition costs (79.7) (105.3)
Decrease in reinsurance loan to affiliate 135.7 153.9
Net increase in universal life account balances 176.9 224.1
Decrease in other insurance reserve liabilities (148.7) (165.5)
Net decrease in other liabilities and other assets (96.3) (122.4)
Increase (decrease) in income taxes 14.9 (3.9)
Net accretion of discount on investments (24.3) (51.9)
Net realized capital gains (10.0) (17.9)
--------- ---------
Net cash provided by (used for) operating activities 100.8 (31.2)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,680.9 3,828.5
Equity securities 120.7 61.3
Mortgage loans 0.2 0.1
Investment maturities and repayments of:
Debt securities available for sale 1,100.3 966.8
Short-term investments 166.1 43.2
Cost of investment purchases in:
Debt securities available for sale (5,416.9) (4,811.0)
Equity securities (93.7) (53.6)
Short-term investments (93.4) (120.1)
--------- ---------
Net cash provided by (used for) investing activities 1,464.2 (84.8)
--------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,144.6 1,230.2
Withdrawals of investment contracts (1,061.0) (925.8)
Capital contribution to Separate Account -- (25.0)
Return of capital from Separate Account 1.3 --
Dividends paid to shareholder (3.0) (8.3)
--------- ---------
Net cash provided by financing activities 81.9 271.1
--------- ---------
Net increase in cash and cash equivalents 1,646.9 155.1
Cash and cash equivalents, beginning of period 565.4 459.1
--------- ---------
Cash and cash equivalents, end of period $ 2,212.3 $ 614.2
========= =========
Supplemental cash flow information:
Income taxes paid, net $ 59.2 $ 68.7
========= =========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-35
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of
America (collectively, the "Company"). On October 1, 1998, the Company sold
its individual life insurance operations to Lincoln National Corporation
("Lincoln") and accordingly, they are classified as Discontinued Operations.
(Please refer to Note 2 below). Aetna Life Insurance and Annuity Company is a
wholly owned subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO
is a wholly owned subsidiary of Aetna Retirement Services, Inc., whose
ultimate parent is Aetna Inc. ("Aetna").
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1997 financial information to conform to
the 1998 presentation. These interim statements necessarily rely heavily on
estimates, including assumptions as to annualized tax rates. In the opinion
of management, all adjustments necessary for a fair statement of results for
the interim periods have been made. All such adjustments are of a normal,
recurring nature. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes as presented in the Company's 1997 Annual Report
on Form 10-K. Certain financial information that is normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles, but that is not required for interim reporting
purposes, has been condensed or omitted.
2. Discontinued Operations--Individual Life Insurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash, subject to adjustment as provided
by the related agreements. The transaction is generally in the form of an
indemnity reinsurance arrangement, under which Lincoln contractually assumed
from the Company certain policyholder liabilities and obligations, although
the Company remains directly obligated to policyholders. Future policy
benefit insurance reserves were approximately $3 billion. Deferred policy
acquisition costs related to the life policies of $893 million were written
off against the gain on the sale. Certain invested assets related to and
supporting the life policies were sold to consummate the life sale and the
Company recorded a reinsurance receivable from Lincoln. The transaction will
result in an after-tax gain on the sale of approximately $95 million, the
majority of which will be deferred and amortized over approximately 15 years.
The operating results of the individual life business are presented as
Discontinued Operations. All prior year income statement data has been
restated to reflect the presentation as Discontinued Operations. Revenues for
the individual life segment were $160.5 million and $159.2 million for the
third quarters of 1998 and 1997, respectively, and $441.2 million and $462.8
million for the nine months ended September 30, 1998 and 1997, respectively.
Net income was $24.5 million and $19.2 million for the third quarters of 1998
and 1997, respectively, and $61.8 million and $49.0 million for the nine
months ended September 30, 1998 and 1997, respectively.
F-36
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
3. New Accounting Standards
On January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, issued by the American Institute of Certified Public
Accountants ("AICPA"). This statement requires that certain costs incurred in
developing internal-use computer software be capitalized, and provides
guidance for determining whether computer software is considered to be for
internal use. The Company will amortize these costs over a period of 3 to 5
years. Previously, the Company expensed the cost of internal-use computer
software as incurred. The adoption of this statement resulted in an increase
to net income of $.7 million and $4.1 million for the three and nine months
ended September 30, 1998, respectively.
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued
in September 1996 and provides accounting and reporting standards for
transfers of financial assets and extinguishments of liabilities. FAS No. 125
was effective for 1997 financial statements, however, certain provisions
relating to accounting for repurchase agreements and securities lending were
not effective until January 1, 1998. The adoption of those provisions
effective in 1998 did not have a material effect on the Company's financial
position or results of operations.
4. Future Application of Accounting Standards
In October 1998, the AICPA issued SOP 98-7, Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not Transfer
Insurance Risk, which provides guidance on how to account for all insurance
and reinsurance contracts that do not transfer insurance risk, except for
long-duration life and health insurance contracts. This statement is
effective for the Company's financial statements beginning January 1, 2000,
with early adoption permitted. The Company is currently evaluating the impact
of the adoption of this statement and the potential effect on its financial
position and results of operations.
In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This standard
requires companies to record all derivatives on the balance sheet as either
assets or liabilities and measure those instruments at fair value. The manner
in which companies are to record gains or losses resulting from changes in
the values of those derivatives depends on the use of the derivative and
whether it qualifies for hedge accounting. This standard is effective for the
Company's financial statements beginning January 1, 2000, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of
this statement and the potential effect on its financial position or results
of operations.
In December 1997, the AICPA issued SOP 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.
F-37
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
5. Financial Instruments
The Company engages in hedging activities to manage interest rate risk. Such
hedging activities have principally consisted of using off-balance-sheet
instruments such as treasury futures. (See General Account Investments of the
Management's Analysis of the Results of Operations and Note 3 of the Notes to
the Financial Statements in the Company's 1997 Annual Report on Form 10-K for
a description of the Company's hedging activities). The notional amounts,
carrying values and estimated fair values of the Company's open treasury
futures as of September 30, 1998 are $786.2 million, ($6.3) million, and
($6.3) million, respectively. These open treasury futures were related to
hedging the interest rate risk on the assets supporting the individual life
business that was sold to Lincoln on October 1, 1998. (See Note 2 above for
further discussion on the sale of the individual life business).
6. Additional Information--Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income related to changes in
unrealized gains on securities (excluding those related to experience rated
contractholders) were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
(Millions) 1998 1997
----- -----
<S> <C> <C>
Unrealized holding gains arising during the period (1) .............. $15.5 $81.6
Less: reclassification adjustments for amortization of net investment
discounts and gains included in net income (2) ..................... 22.3 45.4
----- -----
Net unrealized (loss)/gain on securities ............................ $(6.8) $36.2
===== =====
</TABLE>
(1) Pretax unrealized holding gains arising during the period were $23.8
million and $125.5 million for 1998 and 1997, respectively.
(2) Pretax reclassification adjustments for amortization of net investment
discounts and gains included in net income were $34.3 million and $69.8
million for 1998 and 1997, respectively.
F-38
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements (continued)
7. Severance and Facilities Charges
During 1996, the Company was allocated severance and facilities reserves from
Aetna to reflect actions taken or to be taken to reduce the level of
corporate expenses and other costs previously absorbed by Aetna's
property-casualty operations.
Also during 1996, the Company established severance and facilities reserves
in the Financial Services and Individual Life Insurance segments to reflect
actions taken or to be taken in order to make its businesses more
competitive.
Activity for the nine months ended September 30, 1998 within the severance
and facilities reserves (pretax, in millions) was as follows:
<TABLE>
<CAPTION>
Reserve
-------
<S> <C>
Balance at December 31, 1997 .......... $ 20.8
Actions taken (1) ..................... (11.8)
------
Balance at September 30, 1998 ......... $ 9.0
</TABLE>
(1) Includes $7.4 million of severance-related actions and $1.6 million of
corporate allocation-related actions.
The Company's severance actions were substantially completed by September 30,
1998; and, an evaluation of any remaining reserves will take place in the
fourth quarter. The corporate allocation actions were substantially completed
in 1997.
8. 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.
9. Dividends
On January 30, 1998, the Company paid a $3.0 million dividend to HOLDCO. On
October 5, 1998, with prior approval from the Insurance Commissioner of the
State of Connecticut, the Company paid a dividend of $200 million to HOLDCO.
Additional dividends by the Company through December 31, 1998 will require
the approval of the Insurance Commissioner of the State of Connecticut.
F-39
<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. 33-75248 is
comprised of the following papers and documents:
o The facing sheet.
o One Prospectus dated May 1, 1998, as supplemented December 18, 1998,
consisting of 136 pages for Corporate Variable Universal Life (Corporate
VUL).
<PAGE>
o The undertaking to file reports
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 of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Life Account B(1)
(2) Not Applicable
(3)(i) Specialty Broker Agreement(2)
(3)(ii) Life Insurance Broker-Dealer Agreements(1)
(3)(iii) Restated and Amended Third Party Administration and Transfer
Agent Agreement(3)
(4) Not Applicable
(5)(i) Corporate VUL Policy (Containing information about Cash Value
Accumulation Method of Death Benefit Options (70180-93US)(4)
(5)(ii) Corporate VUL Policy (Containing Tables of percentages for
the Guideline Premium Method for Death Benefit Options
(70182-93US)(4)
(5)(iii) Term Rider (70181-94US) to Corporate VUL Policy 70182-93US(4)
(5)(iv) Amendment Rider(70284-1998) to Corporate Variable Universal
Life Policies 70180-93US and 70182-93US(2)
(5)(v) Corporate VUL II Policy (Cash Value Policy) (70180-1998US)(2)
(5)(vi) Corporate VUL II Policy (Guideline Premium Policy)
(70182-1998US)(2)
(5)(vii) Term Insurance Rider (70181-1998US) to policies 70180-1998US
and 70182-1998US(2)
(6)(i) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company(5)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(6)
(6)(iii) By-Laws as amended September 17, 1997 of Aetna Life Insurance
and Annuity Company(7) (7) Not Applicable
(8)(i) Fund Participation Agreement by and among Aetna Life
Insurance and Annuity Company and Aetna Variable Fund, Aetna
Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP,
Inc., Aetna GET Fund on behalf of each of its series, Aetna
Generation Portfolios, Inc. on behalf of
<PAGE>
each of its series, Aetna Variable Portfolios, Inc. on behalf
of each of its series, and Aeltus Investment Management, Inc.
dated as of May 1, 1998(8)
(8)(ii) Amendment dated November 9, 1998 to Fund Participation
Agreement by and among Aetna Life Insurance and Annuity
Company and Aetna Variable Fund, Aetna Variable Encore Fund,
Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund
on behalf of each of its series, Aetna Generation Portfolios,
Inc. on behalf of each of its series, Aetna Variable
Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998
(8)(iii) Service Agreement between Aeltus Investment Management, Inc.
and Aetna Life Insurance and Annuity Company in connection
with the sale of shares of Aetna Variable Fund, Aetna
Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP,
Inc., Aetna GET Fund on behalf of each of its series, Aetna
Generation Portfolios, Inc. on behalf of each of its series,
and Aetna Variable Portfolios, Inc. on behalf of each of its
series dated as of May 1, 1998(8)
(8)(iv) Amendment dated November 4, 1998 to Service Agreement between
Aeltus Investment Management, Inc. and Aetna Life Insurance
and Annuity Company in connection with the sale of shares of
Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income
Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of
each of its series, Aetna Generation Portfolios, Inc. on
behalf of each of its series, and Aetna Variable Portfolios,
Inc. on behalf of each of its series dated as of May 1, 1998
(8)(v) 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(6)
(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 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(9)
(8)(vii) 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(10)
(8)(viii) 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(8)
<PAGE>
(8)(ix) 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(6)
(8)(x) 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(9)
(8)(xi) 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(2)
(8)(xii) Seventh Amendment dated as of May 1, 1998 to 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, 1998 and January 20,
1998(9)
(8)(xiii) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investment Institutional Operations
Company dated November 1, 1995(11)
(8)(xiv) 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(9)
(8)(xv) Fund Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(12)
(8)(xvi) Amendment dated October 12, 1998 to Fund Participation
Agreement among Janus Aspen Series and Aetna Life Insurance
and Annuity Company and Janus Capital Corporation dated
December 8, 1997
(8)(xvii) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(12)
(8)(xviii) Fund Participation Agreement among MFS Variable Insurance
Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company dated April 30,
1996, and amended on September 3, 1996, March 14, 1997 and
November 28, 1997(9)
(8)(xix) Fourth Amendment dated May 1, 1998 to the Fund Participation
Agreement by and among MFS Variable Insurance Trust, Aetna
Life Insurance and Annuity Company and Massachusetts
Financial Services Company dated April 30, 1996, and amended
on September 3, 1996, March 14, 1997 and November 28,
1997(13)
<PAGE>
(8)(xx) Fund Participation Agreement dated March 11, 1997 between
Aetna Life Insurance and Annuity Company and Oppenheimer
Variable Annuity Account Funds and Oppenheimer Funds,
Inc.(14)
(8)(xxi) Service Agreement effective as of March 11, 1997 between
Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
Company(15)
(9) Not Applicable
(10)(i) Application (70158-93)(2)
(10)(ii) Application (70159-93)(2)
(10)(iii) Application Supplement (70276-97(3/98))(2)
(10)(iv) Application Supplement (70277-97(3/98))(2)
(10)(v) Application Supplement (70183-93)(2)
(10)(vi) Premium Allocation Supplement (APP Funds)(2)
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Actuarial Opinion and Consent(15)
7. Consent of Independent Auditors
8. Copy of Power of Attorney(16)
1. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on
February 16, 1996 (Accession No. 0000912057-96-002723).
2. 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).
3. Incorporated byreference to Post-Effective Amendment No. 6 to Registration
Statement on Form S-6 (File No. 33-75248), as filed electronically on
November 26, 1997 (Accession No. 0000950146-97-001792).
4. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form S-6 (File No. 33-75248), as filed electronically on April
22, 1997 (Accession No. 0000950146-97-000629).
5. 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).
6. 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).
7. 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).
8. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed electronically on June 8, 1998 (Accession No.
0000950146-98-000983)
<PAGE>
9. Incorporated by reference to Post-Effective Amendment No. 30 to Registration
Statement on Form N-4 (File No. 33-34370), as filed electronically on
September 29, 1997 (Accession No. 0000950146-97-001485).
10. 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).
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 Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
August 4, 1998 (Accession No. 0000950146-98-001283).
14. 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).
15. Incorporated by reference to Post-Effective Amendment No. 9 to Registration
Statement on Form S-6 (File No. 33-75248), as filed electronically on
September 30, 1998 (Accession No. 0000950146-98-001670).
16. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
August 4, 1998 (Accession No. 0000950146-98-001283). In addition, a
certified copy of the resolution adopted by the Depositor's Board of
Directors authorizing filings pursuant to a power of attorney as required by
Rule 478 under the Securities Act of 1933 is incorporated by reference to
Post-Effective Amendment No. 5 to Registration Statement on Form N-4 (File
No. 33-75986), as filed electronically on April 12, 1996 (Accession No.
0000912057-96-006383).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Variable Life Account B of Aetna Life Insurance and Annuity Company, certifies
that it meets the requirements of Securities Act Rule 485(b) for effectiveness
of this Post-Effective Amendment to its Registration Statement on Form S-6 (File
No. 33-75248) and 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 16th
day of December, 1998.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Rose-Marie Derensis
--------------------
Rose-Marie Derensis
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ------------------------ )
Thomas J. McInerney (Principal Executive Officer) )
)
) December
Catherine H. Smith* Director and Chief Financial ) 16th, 1998
- ------------------------ Officer )
Catherine H. Smith )
<PAGE>
Signature Title Date
Shaun P. Mathews* Director )
- ------------------------ )
Shaun P. Mathews )
) December
) 16th, 1998
Deborah Koltenuk* Vice President, Treasurer )
- ------------------------ and Corporate Controller )
Deborah Koltenuk )
</TABLE>
By: /s/ Julie E. Rockmore
-----------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company *
establishing Variable Life Account B
99-1.3(i) Specialty Broker Agreement *
99-1.3(ii) Life Insurance Broker-Dealer Agreements *
99-1.3(iii) Restated and Amended Third Party Administration and Transfer Agent Agreement *
99-1.5(i) Corporate VUL Policy (Containing information about Cash Value Accumulation Method of *
Death Benefit Options) (70180-93US)
99-1.5(ii) Corporate VUL Policy (Containing Tables of percentages for the Guideline Premium *
Method for Death Benefit Options) (70182-93US)
99-1.5(iii) Term Rider (70181-94US) to Corporate VUL Policy 70182-93US *
99-1.5(iv) Amendment Rider (70284-1998) to Corporate Variable Universal Life Policies 70180-93US *
and 70182-93US
99-1.5(v) Corporate VUL II Policy (Cash Value Policy) (70180-1998US) *
99-1.5(vi) Corporate VUL II Policy (Guideline Premium Policy) (70182-1998US) *
99-1.5(vii) Term Insurance Rider (70181-1998US) to policies 70180-1998US and 70182-1998US *
99-1.6(i) Certificate of Incorporation of Aetna Life Insurance and Annuity Company *
99-1.6(ii) Amendment of the Certificate of Incorporation of Aetna Life Insurance and Annuity *
Company
99-1.6(iii) By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity Company *
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.8(i) Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company *
and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna
Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on
behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May
1, 1998
99-1.8(ii) Amendment dated November 9, 1998 to Fund Participation Agreement by and among Aetna
Life Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each
of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series,
Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998 ________
99-1.8(iii) Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance *
and Annuity Company in connection with the sale of shares of Aetna Variable Fund,
Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET
Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of
each of its series, and Aetna Variable Portfolios, Inc. on behalf of each of its
series dated as of May 1, 1998
99-1.8(iv) Amendment dated November 4, 1998 to Service Agreement between Aeltus Investment
Management, Inc. and Aetna Life Insurance and Annuity Company in connection with the
sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income
Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna
Generation Portfolios, Inc. on behalf of each of its series, and Aetna Variable
Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998 ________
99-1.8(v) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, *
Variable Insurance Products Fund and Fidelity Distributors Corporation dated
February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996 and March 1, 1996
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.8(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 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 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(viii) 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(ix) 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(x) 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(xi) 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
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.8(xii) Seventh Amendment dated as of May 1, 1998 to 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, 1998 and
January 20, 1998
99-1.8(xiii) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity *
Investment Institutional Operations Company dated November 1, 1995
99-1.8(xiv) 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(xv) 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(xvi) Amendment dated October 12, 1998 to 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(xvii) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and *
Annuity Company dated December 8, 1997
99-1.8(xviii) Fund Participation Agreement among MFS Variable Insurance Trust, Aetna Life *
Insurance and Annuity Company and Massachusetts Financial Services Company dated
April 30, 1996, and amended on September 3, 1996, March 14, 1997 and November 28,
1997
99-1.8(xix) Fourth Amendment dated May 1, 1998 to the Fund Participation Agreement by and among *
MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company dated April 30, 1996, and amended on
September 3, 1996, March 14, 1997 and November 28, 1997
99-1.8(xx) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and *
Annuity Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds,
Inc.
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-1.8(xxi) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and *
Aetna Life Insurance and Annuity Company
99-1.10(i) Application (70158-93) *
99-1.10(ii) Application (70159-93) *
99-1.10(iii) Application Supplement (70276-97(3/98)) *
99-1.10(iv) Application Supplement (70277-97(3/98)) *
99-1.10(v) Application Supplement (70183-93) *
99-1.10(vi) Premium Allocation Supplement (APP Funds) *
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 *
</TABLE>
*Incorporated by reference
EX-99-1.8(ii)
Amendment
to
Fund Participation Agreement
WITNESSETH:
WHEREAS, Aetna Life Insurance and Annuity Company ("ALIAC"), Aeltus
Investment Management, Inc. ("Aeltus"), and Aetna Variable Fund, Aetna Variable
Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund, on
behalf of each of its series, Aetna Generation Portfolios, Inc., on behalf of
each of its series, and Aetna Variable Portfolios, Inc., on behalf of each of
its series ("Funds") have entered into a Fund Participation Agreement dated May
1, 1998; and
WHEREAS, ALIAC, Aeltus and the Funds desire to include Aetna GET Fund,
Series D, in Schedule B;
NOW, THEREFORE, it is agreed among ALIAC, Aeltus and the Funds that
Schedule B is hereby amended to include Aetna GET Fund, Series D, effective
October 15, 1998.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of 9th day of November, 1998.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By /s/ Debeora Koltenuk
----------------------
Name Deborah Koltenuk
Title Vice President and Treasurer
Corporate Controller
AELTUS INVESTMENT MANAGEMENT, INC.
By /s/ J. Scott Fox
-----------------
Name J. Scott Fox
Title Managing Director & COO
<PAGE>
AETNA VARIABLE FUND
AETNA VARIABLE ENCORE FUND
AETNA INCOME SHARES
AETNA BALANCED VP, INC.
AETNA GET FUND
AETNA GENERATION PORTFOLIOS, INC.
AETNA VARIABLE PORTFOLIOS, INC.
By /s/ Frank Litwi
---------------
Name Frank Litwin
Title Managing Director
2
EX-99-1.8(iv)
Amendment
to
Service Agreement with Investment Adviser
WITNESSETH:
WHEREAS, in consideration of the agreement, effective as of May 1, 1998, between
Aeltus Investment Management, Inc. (the "Adviser") and Aetna Life Insurance and
Annuity Company (the "Company"), for the provision of administrative services by
the Company in connection with the sale of shares of Aetna GET Fund, on behalf
of each of its series, the Adviser and the Company desire to amend Schedule A to
include Aetna GET Fund, Series D;
NOW THEREFORE, the Adviser and the Company hereby agree to amend Schedule A to
include Aetna GET Fund, Series D, effective October 15, 1998.
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their authorized officers as of the 4th day of November, 1998.
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/ J. Scott Fox
----------------
J. Scott Fox
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Deborah Koltenuk
--------------------
Deborah Koltenuk
EX-99-1.8(xvi)
AMENDMENT TO FUND PARTICIPATION AGREEMENT
This Amendment is made as of October 12, 1998, by and among JANUS ASPEN
SERIES (the "Fund"), AETNA LIFE INSURANCE AND ANNUITY COMPANY (the "Company")
and JANUS CAPITAL CORPORATION (the "Adviser").
BACKGROUND
A. The Fund, the Company and the Adviser are parties to a Fund
Participation Agreement dated December 8, 1997 (the "Agreement").
B. The parties wish to amend the Agreement as follows:
AMENDMENT
For good and valuable consideration, the receipt of which is
acknowledged, the parties agree:
1. That the first paragraph of 1. (a) Establishment of Accounts;
--------------------------
Availability of Fund. shall be deleted in its entirety and replaced with the
- --------------------
following:
The Company represents that it has established Variable
Annuity Accounts B, C and D and Variable Life Account B and may
establish such other accounts as may be set forth in Schedule A
attached hereto and as may be amended from time to time with the
mutual consent of the parties hereto (the "Accounts"), each of
which is a separate account under Connecticut Insurance law, and
(1) has been registered or, will be registered as a unit
investment trust in accordance with the provisions of the
Investment Company Act of 1940 (the "1940 Act") or, alternatively
(2) has not been registered in proper reliance upon the exclusion
from registration under Section 3(c)(11) of the 1940 Act, to serve
as an investment vehicle for the Contracts. Each Contract provides
for the allocation of net amounts received by the Company to an
Account for investment in the shares of one or more specified
open-end management investment companies available through that
Account as underlying investment media. Selection of a particular
investment management company and changes therein from time to
time are made by the participant or Contract owner (hereinafter
"Participant" or "Contract Owner"), as available under a
particular Contract.
<PAGE>
2. The Agreement, as modified by this Amendment, is ratified and confirmed.
AETNA LIFE INSURANCE AND JANUS ASPEN SERIES
ANNUITY COMPANY
By: /s/ Laurie M. LeBlanc By: /s/ Bonnie Howe
------------------------ --------------------
Name: Laurie M. LeBlanc Bonnie M. Howe
Title: Vice President Assistant Vice President
JANUS CAPITAL CORPORATION
By: /s/ Bonnie Howe
--------------------
Bonnie M. Howe
Assistant Vice President
EX-99-2
[Aetna letterhead]
[Aetna logo] 151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
December 16, 1998 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Filing Desk
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: Corporate Variable Universal Life
File Nos.: 33-75248 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, or those for whom I have supervisory
responsibility, 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.
<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
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, 1998 and February 27,
1998 included herein this Post-Effective Amendment No. 11 to Registration
Statement (File No. 33-75248) on Form S-6.
KPMG Peat Marwick LLP
Hartford, Connecticut
December 16, 1998
