As filed with the Securities and Exchange Registration No. 33-76018
Commission on April 14, 1998 Registration No. 811-4536
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 10 TO
REGISTRATION STATEMENT
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
- --------------------------------------------------------------------------------
Variable Life Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06l56
Depositor's Telephone Number, including Area Code: (860) 273-4686
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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)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485
[ ] 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
Form N-8B-2
-----------
Item No. Part I Prospectus
-------- -----------------
1 Cover Page; The Separate Account; The Company
2 Cover Page; The Separate Account; The Company
3 Not Applicable
4 Cover Page; Additional Information - Distribution of the
Policies
5 Cover Page; The Separate Account; The Company
6 The Separate Account; The Company
7 Not Applicable
8 Financial Statements
9 Additional Information - Legal Matters
10 Charges and Fees; Policy Choices; Policy Values; Policy
Rights; Additional Information - Right to Instruct Voting
of Fund Shares
11 Allocation of Premiums; Policy Choices
12 Cover Page; Allocation of Premiums - The Funds
13 Charges and Fees; Additional Information - Distribution of
the Policies
14 Policy Summary; Miscellaneous Policy Provisions
15 Policy Summary; Allocation of Premiums; Policy Choices -
Premium Payments; Policy Values
16 Policy Summary; Allocation of Premiums - The Funds; Policy
Values
17 Policy Rights
18 Policy Choices; Policy Rights - Policy Loans: Preferred and
Nonpreferred
<PAGE>
Form N-8B-2
-----------
Item No. Part I Prospectus
-------- -----------------
19 Additional Information - Reports to Policy Owners; Records
and Accounts
20 Not Applicable
21 Policy Rights - Policy Loans: Preferred and Nonpreferred
22 Not Applicable
23 Directors and Officers
24 Not Applicable
25 The Separate Account; The Company
26 Charges and Fees
27 The Company
28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information - The Registration Statement
36 Not Applicable
37 Not Applicable
38 Additional Information - Distribution of the Policies
39 See Item 25
40 See Item 26
<PAGE>
Form N-8B-2
Item No. Part I Prospectus
-------- -----------------
41 See Item 27
42 See Item 28
43 Financial Statements
44 Policy Values; Financial Statements
45 Not Applicable
46 The Separate Account; Policy Values
47 The Separate Account; Policy Choices; Policy Values
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Cover Page; Policy Choices, and as amended
52 The Separate Accounts; Charges and Fees - Fund Additions,
Deletions or Substitutions
53 Tax Matters
54 Not Applicable
55 Illustrations of Death Benefit, Total Account Values and
Cash Surrender Values
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
<PAGE>
Variable Life Account B
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(800) 334-7586
Prospectus Dated May 1, 1998
The Flexible Premium Variable Life Insurance Policy
The policies offered in connection with this Prospectus are AetnaVest Plus, a
variable universal life insurance policy ("Policy") offered by Aetna Life
Insurance and Annuity Company (the "Company"). This Policy is intended to
provide life insurance benefits, and is designed to allow flexible premium
payments, a choice of underlying funding options, and a choice of two death
benefit options. Your policy's cash value may vary with the investment
performance of the underlying funding options you choose. Although policy values
may vary, the Policy can be guaranteed to stay in force through the Guaranteed
Death Benefit Provision. 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).
You may also choose to select one of the annuity settlement options upon
Maturity of the Policy, or, prior to Maturity of the Policy, you may apply the
value of your Policy (minus any applicable surrender charges and the amount
necessary to repay any loans in full), to one of the annuity settlement options.
Upon death of the Insured, the beneficiary will be paid (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 the
Company's 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 an AetnaVest Plus
Policy.
This Prospectus is intended to describe the variable options used to fund this
Policy through Variable Life Account B (the "Separate Account"). The variable
funding options currently available through the Separate Account are as follows:
<TABLE>
<S> <C>
[bullet] Aetna Ascent VP (formerly Aetna [bullet] Aetna Variable Encore Fund d/b/a
Ascent Variable Portfolio) Aetna Money Market VP
[bullet] Aetna Balanced VP, Inc. (formerly [bullet] Fidelity VIP Equity-Income
Aetna Investment Advisers Portfolio
Fund, Inc.) [bullet] Fidelity VIP II Contrafund
[bullet] Aetna Income Shares d/b/a Aetna Portfolio
Bond VP [bullet] Janus Aspen Aggressive Growth
[bullet] Aetna Crossroads VP (formerly Aetna Portfolio
Crossroads Variable Portfolio) [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Variable Fund d/b/a Aetna [bullet] Janus Aspen Growth Portfolio
Growth and Income VP [bullet] Janus Aspen Worldwide Growth
[bullet] Aetna Index Plus Large Cap VP Portfolio
(formerly Aetna Variable Index [bullet] Oppenheimer Global Securities
Plus Portfolio.) Fund
[bullet] Aetna Legacy VP (formerly Aetna [bullet] Oppenheimer Strategic Bond Fund
Legacy Variable Portfolio) [bullet] Portfolio Partners MFS Emerging
Equities Portfolio
[bullet] Portfolio Partners MFS Research
Growth Portfolio
i
<PAGE>
[bullet] Portfolio Partners MFS [bullet] Portfolio Partners T. Rowe
Value Equity Portfolio Price Growth Equity Portfolio
[bullet] Portfolio Partners Scudder
International Growth Portfolio
</TABLE>
Unless specifically mentioned, this Prospectus only describes the variable
investment options (collectively, the "Funds"). Not all Funds may be available
under all Policies or in all jurisdictions. 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. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS AND OTHER INFORMATION ABOUT VARIABLE LIFE ACCOUNT B REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE FOUND IN THE SEC'S
WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") 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.
ii
<PAGE>
Table of Contents
Definitions ............................................................. v
Policy Summary .......................................................... 1
The Separate Account .................................................... 1
Allocation of Premiums .................................................. 2
The Funds .............................................................. 2
Mixed and Shared Funding ............................................... 5
Fixed Account .......................................................... 5
Charges and Fees ........................................................ 6
Premium Load ........................................................... 6
Charges and Fees Assessed Against the Total Account Value .............. 6
Charges and Fees Associated with the Variable Funding Options .......... 6
Charges Assessed Against the Underlying Funds .......................... 7
Surrender Charge ....................................................... 8
Surrender Charges on Full and Partial Surrenders ....................... 9
Policy Choices .......................................................... 9
Death Benefit .......................................................... 9
Guaranteed Death Benefit Provision ..................................... 9
Premium Payments ....................................................... 10
Transfers and Allocations to the Funding Options ....................... 11
Telephone Transfers .................................................... 12
Automated Transfers (Dollar Cost Averaging) ............................ 12
Policy Values ........................................................... 13
Total Account Value .................................................... 13
Accumulation Unit Value ................................................ 13
Maturity Value ......................................................... 14
Cash Surrender Value ................................................... 14
Policy Rights ........................................................... 14
Partial Surrenders ..................................................... 14
No-Lapse Coverage Provision ............................................ 14
Reinstatement of a Lapsed Policy ....................................... 15
Policy Loans: Preferred and Nonpreferred ............................... 15
Policy Changes ......................................................... 16
Right to Examine the Policy ............................................ 17
Death Benefit ........................................................... 17
Policy Settlement ....................................................... 18
Settlement Options ..................................................... 18
Calculation of Settlement Payments ..................................... 19
Special Plans ........................................................... 20
The Company ............................................................. 21
Directors and Officers .................................................. 22
Additional Information .................................................. 24
Reports to Policy Owners ............................................... 24
Right to Instruct Voting of Fund Shares ................................ 24
Disregard of Voting Instructions ....................................... 24
State Regulation ....................................................... 25
Legal Matters .......................................................... 25
The Registration Statement ............................................. 25
Distribution of the Policies ........................................... 25
Records and Accounts ................................................... 26
iii
<PAGE>
Independent Auditors .................................................... 26
Year 2000 ............................................................... 26
Tax Matters .............................................................. 27
General ................................................................. 27
Federal Tax Status of the Company ....................................... 27
Life Insurance Qualification ............................................ 27
General Rules ........................................................... 28
Modified Endowment Contracts ............................................ 28
Diversification Standards ............................................... 29
Investor Control ........................................................ 29
Other Tax Considerations ................................................ 30
Withholding ............................................................. 30
Miscellaneous Policy Provisions .......................................... 31
The Policy .............................................................. 31
Payment of Benefits ..................................................... 31
Age and Sex ............................................................. 31
Incontestability ........................................................ 31
Suicide ................................................................. 31
Coverage Beyond Maturity ................................................ 31
Protection of Proceeds .................................................. 32
Nonparticipation ........................................................ 32
Illustrations of Death Benefit, Total Account Values and Cash Surrender
Values .................................................................. 32
Financial Statements of the Separate Account ............................. S-1
Financial Statements of the Company ...................................... F-1
iv
<PAGE>
Definitions
Accumulation Unit: A unit used to measure the value of a Policyowner's interest
in each applicable funding option used to calculate the value of the variable
portion of the Policy before election of a Settlement Option.
Additional Premiums: Any premium paid in addition to Planned Premiums.
Amount at Risk: The Death Benefit before subtraction of outstanding loans, if
any, divided by 1.0036748, minus the Total Account Value.
Annuitant: A person who receives annuity payments.
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.
Basic Premium: 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.
Cash Surrender Value: The amount a Policy Owner can receive in cash by
surrendering the Policy. This equals the Total Account Value minus the
applicable surrender charge and the amount necessary to repay any loans in full.
Cost of Insurance: The portion of the Monthly Deduction attributable to the
basic insurance coverage, not including riders, supplemental benefits or monthly
expense charges.
Death Benefit: The amount payable to the beneficiary in accordance with the
Death Benefit Option elected, upon the death of the Insured, after deduction of
the amount necessary to repay any loans in full, and overdue deductions.
Death Benefit Option: Either of two methods for determining the Death Benefit.
Fixed Account: The fixed interest option offered under the Policy that
guarantees principal and a minimum interest rate of 4.5% 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 (mutual fund) 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.
v
<PAGE>
Grace Period: The 61-day period beginning on the Monthly Deduction Day on which
the Policy's Cash Surrender Value is insufficient to cover the current Monthly
Deduction. The Policy will lapse without value at the end of the 61-day period
unless a sufficient payment described in the notification letter is received by
the Company.
Guaranteed Death Benefit Premium: A specified premium that, if paid, will keep
the Policy in force to attained age 80 or 100, even if the cash value is
insufficient to cover current monthly deductions.
Home Office: The Company's principal executive offices, located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Insured: The person on whose life the Policy is issued.
Issue Age: The Insured's age on his/her birthday on or prior to the Policy's
Issue Date.
Issue Date: 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.
Loan Account Value: The sum of all unpaid loans (Preferred and Nonpreferred).
The amount necessary to repay all loans in full is the Loan Account Value plus
any interest accrued since the last Policy anniversary. Such interest is payable
in order to discharge any policy indebtedness.
Maturity Date: The Issue Date anniversary on which the Insured reaches Attained
Age 100 and the Policy is considered matured.
Maturity Value: The Total Account Value on the Maturity Date, less the amount
necessary to repay any loans in full if the Guaranteed Death Benefit Provision
is not in effect. Otherwise, the greater of the Total Account Value and the
Specified Amount on the Maturity Date, less the amount necessary to repay any
loans in full.
Monthly Deduction: The Monthly Deduction from the Total Account Value which
includes the Cost of Insurance, charges for supplemental riders or benefits, and
an administrative expense charge.
Monthly Deduction Day: The day that the Monthly Deduction is actually taken.
Net Premium: The premium paid, less the premium load.
Nonpreferred Loan: 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 Policy Owner chooses to pay the
Company on a scheduled basis. This is the amount for which the Company sends a
bill.
vi
<PAGE>
Policy: The life insurance contract described in this Prospectus, under which
flexible premium payments are permitted and the Death Benefit and contract
values may vary with the investment performance of the funding option(s)
selected.
Policy Owner: The owner of the Policy, referred to as "you."
Policy Year/Policy Anniversary: The first Policy Year is the 12 month period
beginning on the Issue Date of the Policy. Your Policy Anniversary is the
Policy Issue Date plus 1 year, 2 years, etc.
Preferred Loan Amount: A portion of the maximum loan amount available beginning
in the eleventh Policy Year, for a loan, at no net cost to the Policy Owner.
The preferred loan is the amount taken.
Separate Account: Variable Life Account B (and Variable Annuity Account B when
referring to a Settlement Option).
Separate Account Value: The portion of the Total Account Value attributable to
Variable Life Account B.
Settlement Option(s): Several ways in which a beneficiary may receive Annuity
payments due from a Death Benefit, or which the Insured may choose to receive
Annuity payments from the Cash Surrender Value of the Policy.
Settlement Option Units: A measure of the net investment results of the
investment options used to calculate the amount of the Settlement Option
payments.
Specified Amount: The amount (at least $100,000), originally chosen by the
Policy Owner, used in determining the Death Benefit. It is initially equal to
the Death Benefit. The Specified Amount may be increased or decreased as
described in this Prospectus.
Surrender Charge: The amount retained by the Company, upon the full or partial
surrender of the Policy.
Total Account Value: The sum of the Fixed Account Value, Separate Account Value
and the Loan Account Value.
Valuation 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.
Valuation Reserve: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the settlement option period and the
value of a commutation right, if available, under Settlement Option 2 when
elected on a variable basis.
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>
Policy Summary
This is a flexible premium variable universal life insurance policy. This Policy
provides that cash values may be either fixed or variable or a combination of
fixed and variable.
At the time of purchase, you must choose between the two Death Benefit Options
and decide if you want the Guaranteed Death Benefit Provision. The amount
payable under either option will be determined as of the date of the Insured's
death. Under Option 1, the Death Benefit will be the greater of the Specified
Amount, or the applicable percentage of the Total Account Value. Under Option 2,
the Death Benefit will be the greater of the Specified Amount plus the Total
Account Value, or the applicable percentage of the Total Account Value. (See
"Death Benefit.")
The Policy also offers a Guaranteed Death Benefit Provision (not available in
New York) which ensures that the Policy will stay in force even if the cash
value is insufficient to cover the current monthly deductions due to fund
performance. Sufficient premiums must be paid in order to maintain a Guaranteed
Death Benefit to Age 80 or 100. (See "Guaranteed Death Benefit Provision.")
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 in
force. 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. (See "Reinstatement of a Lapsed Policy.")
Finally, you must 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 cash 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 4.5% a year.
Proceeds as described in this Policy will be paid upon surrender, maturity, or
death of the Insured.
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 briefly 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 are delivered with 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
1
<PAGE>
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.
Allocation of Premiums
You may allocate all or a part of your Net Premiums to the Funds currently
available through the Separate Account in connection with this Policy or to the
Fixed Account (part of the Company's General Account). Not all Funds are
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 in compliance with regulatory requirements. We reserve the right to limit
the total number of Funds you may elect to 17 over the lifetime of the Policy.
The investment results of the Funds, whose investment objectives are described
below, are likely to differ significantly. You should consider carefully, and on
a continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the Investment Company Act of 1940.
The Funds
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)
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)
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)
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)
2
<PAGE>
Aetna Generation Portfolios, Inc.--Aetna Ascent VP (formerly Aetna Ascent
Variable Portfolio) seeks to provide capital appreciation. The Portfolio is
designed for investors who have an investment horizon exceeding 15 years and who
have a high level of risk tolerance. (1)
Aetna Generation Portfolios, Inc.--Aetna Crossroads VP (formerly Aetna
Crossroads Variable Portfolio) seeks to provide total return (i.e., income and
capital appreciation, both realized and unrealized). The Portfolio is designed
for investors who have an investment horizon exceeding 10 years and who have a
moderate level of risk tolerance.(1)
Aetna Generation Portfolios, Inc.--Aetna Legacy VP (formerly Aetna Legacy
Variable Portfolio) seeks to provide total return consistent with preservation
of capital. The Portfolio is designed for investors who have an investment
horizon exceeding five years and who have a low level of risk tolerance.(1)
Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP (formerly Aetna
Variable Index Plus Portfolio) seeks to outperform the total return performance
of publicly traded common stocks represented by the S&P 500 Composite Stock
Price Index.(1)
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)
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)
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)
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)
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)
Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio pursues
its investment objective primarily through investments in common stocks of
foreign and domestic issuers.(3)
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 possibiities but which may be considered to be
speculative.(4)
3
<PAGE>
Oppenheimer Strategic Bond Fund seeks a high level of current income principally
derived from interest on debt securities and seeks to enhance such income by
writing covered call options on debt securities. The Fund intends to invest
principally in: (i) foreign government and corporate debt securities, (ii)
securities of the U.S. Government and its agencies and instrumentalities ("U.S.
Government securities"), and (iii) lower-rated high yield domestic debt
securities, commonly known as "junk bonds", which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
These securities may be considered to be speculative. Current income is not an
objective.(4)
Portfolio Partners, Inc.--MFS Emerging Equities Portfolio seeks to provide
long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Portfolio's investment
objective.(5)(a)
Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term growth
of capital and future income.(5)(a)
Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital
appreciation. Dividend income, if any, is a consideration incidental to the
Portfolio's objective of capital appreciation. (5)(a)
Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks long-term
growth of capital primarily through a diversified portfolio of marketable
foreign equity securities.(5)(b)
Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks long-term
growth of capital and, secondarily, to increase dividend income by investing
primarily in common stocks of well established growth companies. (5)(c)
Investment Advisers for each of the Funds:
(1) Aeltus Investment Management, Inc.
(2) Fidelity Management & Research Company
(3) Janus Capital Corporation
(4) OppenheimerFunds, Inc.
(5) Aetna Life Insurance and Annuity Company (Adviser);
(a) Massachusetts Financial Services Company ("MFS")(Subadviser)
(b) Scudder Kemper Investments, Inc. (Subadviser)
(c) T. Rowe Price Associates, Inc. (Subadviser)
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the current
prospectuses of the Funds for a discussion of the risks associated with an
investment in those Funds. More comprehensive information, including a
discussion of potential risks, and more complete information about their
investment policies and restrictions is found in the current prospectus for each
Fund which is distributed with and accompanies this Prospectus. You should read
the Fund prospectuses and consider carefully, and on a continuing basis, which
Fund or combination of Funds is best suited to your long-term investment
objectives. Additional prospectuses and Statements of Additional Information for
each of the Funds can be obtained from the Company's Home Office at the address
and telephone number listed on the cover of this Prospectus.
4
<PAGE>
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 Policy 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.
Fixed Account
Interests in the Fixed Account have not been registered with the SEC in reliance
upon exemptions under the Securities Act of 1933, as amended. However,
disclosure in this Prospectus regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of the statements. Disclosure in this
Prospectus relating to the Fixed Account has not been reviewed by the SEC.
The Fixed Account is a fixed funding option available under the Policy. The
Company guarantees a minimum interest rate on amounts in the Fixed Account and
assumes the risk of investment gain or loss. The investment gain or loss of the
Separate Account or any of the Funds does not affect the Fixed Account Value.
The Fixed Account is secured by the general assets of the Company. The general
assets of the Company include all assets of the Company other than those held in
separate accounts sponsored by the Company or its affiliates. The Company will
invest the assets of the Fixed Account in those assets chosen by the Company, as
allowed by applicable law. Investment income of such Fixed Account assets will
be allocated by the Company between itself and those policies participating in
the Fixed Account.
Amounts held in the Fixed Account are guaranteed and will be credited with
interest at rates of not less than 4.5% per year. 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.
5
<PAGE>
Charges & Fees
Premium Load
A deduction, currently 3.5% of each premium payment (guaranteed to be no higher
than 6%), will be made to cover the premium load. This load represents average
applicable state premium taxes (ranging up to 4%) as well as administrative
expenses and federal income tax liabilities.
Charges and Fees Assessed Against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly Deduction
includes the Cost of Insurance and any charges for supplemental riders or
benefits. The Cost of Insurance depends on the Attained Age, risk class of the
Insured, the Specified Amount of the Policy and in all states except
Massachusetts and Montana, sex of the Insured.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will be charged as of the Issue Date, even if the Issue Date is earlier
than the date the application is signed (see "Premium Payments"). If the
Policy's issuance is delayed due to underwriting requirements, the charges will
not be assessed until the underwriting is complete and the application for the
policy is approved. Cost of Insurance charges will be in amounts based on the
Specified Amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period is for a lesser amount. If we decline an
application, we will refund the full premium payment made.
The Monthly Deduction also includes a monthly administrative expense charge of
$20 during the first Policy Year and $7 during subsequent Policy Years. This
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. The Monthly Deduction is made as of the
same day each month, beginning with the Issue Date.
Charges and Fees Associated with the Variable Funding Options
The Company deducts a daily charge from the assets of Variable Life Account B
for mortality and expense risk assumed by it in connection with the Policy. This
charge is currently equal to an annual rate of 0.70% of the average daily net
assets of the Separate Account. The mortality and expense risk charge is
assessed to compensate the Company for assuming certain mortality and expense
risks under the Policies.
The Company reserves the right to increase the mortality and expense risk charge
if it believes that circumstances have changed so that current charges are no
longer adequate. In no event will the charge exceed 0.90% of average daily net
assets on an annual basis.
The mortality risk assumed is that insureds, as a group, may live for a shorter
period of time than estimated and, therefore, the cost of insurance charges
specified in the Policy will be insufficient to meet actual claims. The expense
risk assumed is that other expenses incurred in issuing and administering the
Policies and operating the Separate Account will be greater than the charges
assessed for such expenses.
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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 Policy. These types of expenses are described above in
connection with the monthly administrative charge. The daily administrative
charge 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
charge is guaranteed not to exceed 0.50% of the average daily net assets of the
Separate Account on an annual basis.
Charges Assessed Against the Underlying Funds
The following table illustrates the investment advisory fees, other expenses and
total expenses paid by each of the Funds as a percentage of average net assets
based on figures for the year ended December 31, 1997 unless otherwise
indicated:
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses Total Fund
(after expense (after expense Annual
reimbursement) reimbursement) Expenses
------------------ ---------------- -----------
<S> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.57% 0.23% 0.80%
Aetna Balanced VP, Inc.(3) 0.50% 0.10% 0.60%
Aetna Bond VP(3) 0.40% 0.10% 0.50%
Aetna Crossroads VP(2)(3) 0.55% 0.25% 0.80%
Aetna Growth and Income VP(3) 0.50% 0.09% 0.59%
Aetna Index Plus Large Cap VP(2)(3) 0.32% 0.23% 0.55%
Aetna Legacy VP(2)(3) 0.49% 0.31% 0.80%
Aetna Money Market VP(3) 0.25% 0.10% 0.35%
Fidelity VIP Equity-Income Portfolio(4) 0.50% 0.08% 0.58%
Fidelity VIP II Contrafund Portfolio(4) 0.60% 0.11% 0.71%
Janus Aspen Aggressive Growth Portfolio(5) 0.73% 0.03% 0.76%
Janus Aspen Balanced Portfolio(5) 0.76% 0.07% 0.83%
Janus Aspen Growth Portfolio(5) 0.65% 0.05% 0.70%
Janus Aspen Worldwide Growth Portfolio(5) 0.66% 0.08% 0.74%
Oppenheimer Global Securities Fund 0.70% 0.06% 0.76%
Oppenheimer Strategic Bond Fund 0.75% 0.08% 0.83%
Portfolio Partners MFS Emerging Equities
Portfolio(6)(7) 0.68% 0.13% 0.81%
Portfolio Partners MFS Research Growth Portfolio(6)(7) 0.70% 0.15% 0.85%
Portfolio Partners MFS Value Equity Portfolio(6) 0.65% 0.25% 0.90%
Portfolio Partners Scudder International Growth
Portfolio(6) 0.80% 0.20% 1.00%
Portfolio Partners T. Rowe Price Growth Equity
Portfolio(6) 0.60% 0.15% 0.75%
</TABLE>
(1) Certain of the Fund advisers reimburse the Company for administrative costs
incurred in connection with administering the Funds as variable funding
options under the Contract. These reimbursements are paid out of the
investment advisory fees and are not charged to investors.
(2) Effective May 1, 1998, the Portfolios' adviser has agreed to waive a portion
of its fee or to reimburse certain expenses so that aggregate expenses do
not exceed the total expenses shown above. These fee waiver/expense
reimbursement arrangements will increase total return and may be modified or
terminated at any time.
Without these fee waiver/expense reimbursement arrangements, Management Fees
and Total Expenses for the Portfolio would be higher. Management Fees and
Total Expenses would be as follows: 0.60% and 0.83% for Ascent VP; 0.60% and
0.85% for Crossroads VP; 0.35% and 0.58% for Index Plus Large Cap VP and
0.60% and 0.91% for Legacy VP, respectively.
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<PAGE>
(3) Prior to May 1, 1998, the investment adviser provided administrative
services to the Fund and assumed the Fund's ordinary recurring direct costs
under an Administrative Services Agreement. Effective May 1, 1998, the
investment adviser will continue to provide administrative services to the
Fund but will no longer assume all of the Fund's ordinary recurring direct
costs under the Administrative Services Agreement. The Administrative Fee is
0.075% on the first $5 billion in assets and 0.050% on all assets over $5
billion. The "Other Expenses" shown are not based on actual figures for the
year ended December 31, 1997, but reflect the fee payable under the new
Administrative Services Agreement and estimates of the Fund's ordinary
recurring direct costs.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses would have been 0.57% for
Equity-Income Portfolio; and 0.68% for Contrafund Portfolio.
(5) Management fees for Aggressive Growth, Balanced, Growth and Worldwide Growth
Portfolios reflect a reduced fee schedule effective July 1, 1997. The
management fees shown above are based on the new rate applied to net assets
as of December 31, 1997. Other expenses are based on gross expenses of the
Shares before expense offset arrangements for the fiscal year ended December
31, 1997. The information for each Portfolio is net of fee waivers or
reductions from Janus Capital. Fee reductions for the Aggressive Growth,
Balanced, Growth and Worldwide Growth Portfolios reduce the management fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio; 0.77%, 0.06%, and
0.83% for Balanced Portfolio; 0.74%, 0.04%, and 0.78% for Growth Portfolio;
and 0.72%, 0.09%, and 0.81% for Worldwide Growth Portfolio, respectively.
Janus Capital may modify or terminate the waivers or reductions at any time
upon at least 90 days' notice to the Trustees.
(6) Each Portfolio's aggregate expenses are contractually limited to the
advisory and administrative fees disclosed above. The investment adviser
will not seek an increase in its advisory or administrative fees at any time
prior to May 1, 1999.
(7) The advisory fee is 0.70% of the first $500 million in assets and 0.65% on
the excess.
For further details on each Fund's expenses, please refer to that Fund's
prospectus.
Surrender Charge
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 Basic 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 age, risk class and in most
states, sex of the Insured (except for group arrangements described under
"Special Plans"). Once determined, the Surrender Charge will remain the same for
five years following the Issue Date. Thereafter, it declines monthly so that
beginning sixteen years after the Issue Date (assuming no increases in the
Specified Amount) the Surrender Charge will be zero.
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, risk class, and in most states,
sex of the Insured. The Surrender Charge applicable to the increase will be 70%
of the Surrender Charge on a new policy whose Specified Amount equals the amount
of the increase, and will cover administrative expenses. The additional
Surrender Charge will also remain constant for five years from the start of the
Policy Year in which the increase occurs, and will decrease to zero by the
beginning of the sixteenth year.
If you decrease the Specified Amount while the Surrender Charge applies, the
Surrender Charge will remain the same.
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
8
<PAGE>
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. A
transaction charge of $25 or 2% of the amount of the net surrender payment,
whichever is less, will be made against the Total Account Value. (See "Partial
Surrenders.")
Note: The surrender charge will vary between 41% and 100% of one year's basic
annual premium, depending on the Insured's age, risk class and in most states,
sex of the Insured.
Policy Choices
When you buy a Policy, you make four important choices:
1) Which one of the two Death Benefit Options you would like;
2) Whether you want the Guaranteed Death Benefit Provision, and to what age;
3) The amount of premium you intend to pay; and
4) The way your premiums will be allocated to the Funds and/or the Fixed
Account.
Each of these choices is described in detail below.
Death Benefit
At the time of purchase, you must choose between the two available Death Benefit
Options. The amount payable under either option will be determined as of the
date of the Insured's death.
Under Option 1, the Death Benefit will be the greater of the Specified Amount (a
minimum of $100,000 on the date of this Prospectus), or the applicable
percentage of the Total Account Value. The percentage is 250% through age 40 and
decreases yearly to 100% at age 100. Option 1 generally provides a level Death
Benefit.
Under Option 2, the Death Benefit will be the greater of the Specified Amount (a
minimum of $100,000 on the date of this Prospectus), plus the Total Account
Value, or the applicable percentage (described above) 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 both Option 1 and Option 2, the Death Benefit may be affected by partial
surrenders. The Death Benefit for both options will be reduced by the amount
necessary to repay any loans in full. Guaranteed Death Benefit Provision The
Guaranteed Death Benefit Provision 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 cash value is insufficient to cover the current Monthly Deductions.
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<PAGE>
The Guaranteed Death Benefit Provision must be selected on the application. It
may not be available to all risk classes and is only available in those states
where it has been approved. (Note: not available in New York.) The Guaranteed
Death Benefit Provision is available to age 80 or to age 100.
We will test annually to determine if the cumulative (or sum of all) premiums
paid to date are sufficient to support the Guaranteed Death Benefit Provision.
In order for the Guaranteed Death Benefit Provision 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 Issue Date.
However, if these premiums are deficient, the Policy Owner will be notified and
given two months (61 days in New Jersey) to pay the amount deficient. If the
Guaranteed Death Benefit Provision to age 100 had been in place, and the amount
deficient is not received within the two-month period: (1) the Guaranteed Death
Benefit Provision to age 80 will be substituted, but only if the cumulative
premium test is satisfied based on the Guaranteed Death Benefit Premium to age
80; and (2) the Guaranteed Death Benefit Provision to age 100 will terminate. If
the Guaranteed Death Benefit Provision to age 80 had been in place and the
amount deficient is not received within the two-month period (61 days in New
Jersey), the Guaranteed Death Benefit Provision will terminate.
If a Guaranteed Death Benefit Provision 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 Provision test has been met.
Premium Payments
During the first five Policy Years, payment of the Basic Premium assures that
the Policy will remain in force, as long as there are no surrenders or loans
taken during that time. The Basic Premium is stated in the Policy. If Basic
Premiums are not paid, or there are surrenders or loans taken during the first
five Policy Years, the Policy will lapse if the Cash Surrender Value is less
than the next Monthly Deduction.
Basic Premiums are current if premiums paid, minus loans and minus partial
surrenders, are greater than or equal to the Basic Premium (expressed as a
monthly amount) multiplied by the number of months the Policy has been in force.
After the first five Policy Years, your Policy will not lapse as long as the
Policy's Cash Surrender Value is sufficient to cover the next Monthly Deduction.
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. Pre-authorized automatic monthly check payments may also be arranged.
Additional Premiums are any premiums you pay in addition to Planned Premiums.
Payment of Basic Premiums, Planned Premiums, or Additional Premiums in any
amount will not, except as noted above, guarantee that your Policy will remain
in force. Conversely, failure to pay Planned Premiums or Additional Premiums
will not necessarily cause your Policy to lapse. Not paying your Planned
Premiums can, however, cause the Guaranteed Death Benefit Provision to
terminate. (See "Guaranteed Death Benefit Provision.")
You may increase your Planned Premium at any time by submitting a written notice
to us or by paying Additional Premiums, except that:
10
<PAGE>
[bullet] We may require evidence of insurability if the Additional Premium or
the New Planned Premium during the current Policy Year would increase
the difference between the Death Benefit and the Total Account Value.
If satisfactory evidence of insurability is requested and not provided,
we will refund the increase in premium without interest and without
participation of such amounts in the underlying funding options.
[bullet] In no event may the total of all premiums paid exceed the then-current
maximum premium limitations established by federal law for a Policy to
qualify as life insurance. (See "Tax Matters.") If, at any time, a
premium is paid which would result in total premiums exceeding such
maximum premium limitation, we will only accept that portion of the
premium which will make total premiums equal the maximum. Any part of
the premium in excess of that amount will be returned or applied as
otherwise agreed and no further premiums will be accepted until allowed
by the then-current maximum premium limitations prescribed by law.
[bullet] If you make a sufficient premium payment when you apply for a Policy,
and have answered favorably certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for
(subject to stated maximum) will be provided.
[bullet] After the first premium payment, all premiums must be sent directly to
our Home Office and will be deemed received when actually received at
the Home Office. Your premium payments will be allocated as you have
directed, and amounts allocated to the Funds will be credited to your
Policy at the Accumulation Unit value as of the next Valuation Period
after each payment is received in the Home Office.
[bullet] 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 an Issue Date earlier than the date the application is signed but no
earlier than six months prior to state approval of the Policy. Backdating may be
desirable, for example, so that you can purchase a particular Policy Specified
Amount for lower cost of insurance rates based on a younger insurance age. For a
backdated Policy, you must pay the minimum premium payable for the period
between the Issue Date and the date the initial premium is 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--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.
Before the Maturity Date, you may transfer Policy values from one Fund to
another at any time, or from Variable Life Account B to the Fixed Account. And,
within the 45 days after each Policy anniversary, you may also transfer a
portion of the Fixed Account Value to one or more Funds before the Maturity
Date. This type of transfer 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 in good order at the Company's Home Office. The amount
of such transfer cannot exceed the greater of (a) 25% of the Fixed Account
Value, or (b) $500. If the Fixed Account Value is less than or equal to $500,
you may transfer all or a portion of the Fixed Account Value. We may increase
this limit from time to time.
11
<PAGE>
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 for the Valuation Period in which a written request is
received by us at our Home Office. (See "Accumulation Unit Value.") You should
carefully consider current market conditions and each Fund's investment policies
and related risks before allocating money to the Funds.
Telephone Transfers
You may request a transfer of Account Values either in writing or by telephone.
In order to make telephone transfers, a written telephone transfer authorization
form must be completed by the Policyowner and returned to the Company at its
Home Office. Once the form is processed, the Policyowner may request a transfer
by telephoning the Company at 800-334-7586. All transfers must be in accordance
with the terms of the Policy.
Transfer instructions are currently accepted for each Valuation Period. Once
instructions have been accepted and processed, they may not be rescinded;
however, new telephone instructions may be given on the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and You will be notified.
We will use reasonable procedures, such as requiring identifying information
from callers, recording telephone instructions, and providing written
confirmation of transactions, in order to confirm that telephone instructions
are genuine. Any telephone instructions which We reasonably believe to be
genuine will be Your responsibility, including losses arising from any errors in
the communication of instructions. As a result of this procedure, the
Policyowner will bear the risk of loss. If the Company does not use reasonable
procedures, as described above, it may be liable for losses due to unauthorized
instructions.
Automated Transfers (Dollar Cost Averaging)
Dollar Cost Averaging describes a system of investing a uniform sum of money at
regular intervals over an extended period of time. Dollar Cost Averaging is
based on the economic fact that buying a security with a constant sum of money
at fixed intervals results in acquiring more of the item when prices are low and
less of it when prices are high.
You may establish automated transfers of Fund Account Values on a monthly or
quarterly basis from the Aetna Money Market VP to any other investment option
through Written Request or other method acceptable to the Company. You must have
a minimum of $5,000 allocated to the Aetna Money Market VP in order to enroll in
the Dollar Cost Averaging program. The minimum automated transfer amount is $50
per month. There is no additional charge for the program. You may start or stop
participation in the Dollar Cost Averaging program at any time, but you must
give the Company at least 30 days notice to change any automated transfer
instructions that are currently in place. The Company reserves the right to
suspend or modify automated transfer privileges at any time.
Before participating in the Dollar Cost Averaging program, You should consider
the risks involved in switching between investments available under the Policy.
Dollar Cost Averaging requires regular investments regardless of fluctuating
price levels, and does not guarantee profits or prevent losses. Therefore, You
should carefully consider market conditions and each Fund's investment policies
and related risks before electing to participate in the Dollar Cost Averaging
program.
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<PAGE>
Policy Values
Total Account Value
Once your Policy has been issued, each Net Premium allocated to a variable
funding option of the Separate Account is credited in the form of Accumulation
Units of the funding option based on that funding option's Accumulation Unit
value. Each Net Premium will be credited to your Policy at the Accumulation Unit
value(s) determined for the Valuation Period in which it is received and
accepted by us at our Home Office following the Issue Date of the Policy. The
number of Accumulation Units credited is determined by dividing the Net Premium
by the value of an Accumulation Unit next computed after we receive the premium.
Shares in the Funds are purchased by the Separate Account at the net asset value
determined by the Fund for the Valuation Period in which the Net Premium is
received by the Company. Since each Fund has a unique Accumulation Unit value, a
Policy Owner who has elected a combination of funding options will have
Accumulation Units credited to each funding option.
The Total Account Value of your Policy is determined by: (a) multiplying the
total number of Accumulation Units credited to the Policy for each applicable
Fund by its appropriate current Accumulation Unit value; (b) if you have elected
a combination of Funds, totaling the resulting values; and (c) adding any values
attributable to the Fixed Account and any values attributable to the Loan
Account Value.
The number of Accumulation Units credited to a Policy will not be changed by any
subsequent change in the value of an Accumulation Unit. The number is increased
by subsequent contributions to or transfers into that funding option, and
decreased by charges and withdrawals from that funding option.
The Fixed Account Value reflects amounts allocated to the General Account
through payment of premiums or transfers from the Separate Account. The Fixed
Account Value is guaranteed; however, there is no assurance that the Separate
Account Value of the Policy will equal or exceed the Net Premiums paid and
allocated to the Separate Account.
You will be advised at least annually as to the number of Accumulation Units
which remain credited to the Policy, the current Accumulation Unit values, 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 charge for mortality and expense risk, and
administrative expenses. (See "Charges and Fees Associated with the Variable
Funding Options.")
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<PAGE>
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.
Cash Surrender Value
The Cash Surrender Value of your Policy is the amount you can receive in cash
by surrendering the Policy. All or part of the Cash Surrender Value may be
applied to one or more of the Settlement Options. (See "Surrender Charge.")
Policy Rights
Partial Surrenders
A partial surrender may be made at any time after the first Policy Year.
The amount of a partial surrender may not exceed the Cash 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"), 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"), a partial surrender will reduce
the Total Account Value and the Death Benefit, but it will not reduce the
Specified Amount.
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 form satisfactory to us. Payment may be postponed
when the New York Stock Exchange has been closed and for such other periods as
the SEC may require. 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 a 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.
If, at the time of a partial surrender, your Total Account Value is attributable
to more than one funding option, the Surrender Charge, transaction charge and
the amount paid to you upon the surrender will be taken proportionately from the
Accumulation Unit values in each funding option.
No-Lapse Coverage Provision
This Policy will not terminate during the five-year period after its Issue Date
or the Issue Date 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 Basic
Premiums for each Policy month from the Issue Date, including the current month;
plus 2) any partial surrenders; plus 3) any increase in Loan Account Value since
the Policy's Issue Date or the Issue Date of any increase.
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<PAGE>
If, on each Monthly Deduction Day within the five-year period, the sum of
premiums paid is less than the sum of the items 1, 2, and 3 above, and the Cash
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 has been elected.
Reinstatement of a Lapsed Policy
A lapse occurs if your Monthly Deduction is greater than the Cash Surrender
Value and no payment to cover the deduction is made within the 61 days of our
notifying you. This may happen after the first five Policy Years, or during the
first five Policy Years if your Basic Premiums are not current.
You can apply for reinstatement within five years after the date of termination
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 Deduction plus two additional Monthly Deductions.
If the Policy is reinstated within five years of this Policy's Issue Date or
while the No-Lapse Coverage Provision (see "No-Lapse Coverage Provision") 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.
If the Policy is reinstated after the No-Lapse Coverage Provision (see "No-Lapse
Coverage Provision") has expired, this 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 Cash 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: Preferred and Nonpreferred
Unless otherwise required by state law, the maximum loan amount is 90% of the
Cash Surrender Value at the time of a loan.
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 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. 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.
If you are using more than one underlying funding option, the amount of the loan
will be withdrawn in proportion to the value of each funding option.
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) 5.5%.
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<PAGE>
Increases or decreases to the current interest rate will occur only when the new
Policy Year's annual interest rate is greater or lower than the prior Policy
Year's annual interest rate by at least 0.5%.
We will notify you of the current interest rate charged for a loan at the time a
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.
An amount equal to what you receive for a loan, together with any accrued but
not paid interest, will be added to the Loan Account Value. We will credit
interest on the Loan Account Value. The Loan Account Value for nonpreferred
loans will be credited interest, during any Policy Year, at an annual rate that
is the interest rate charged on the loan minus 2%. However, in no case will the
credited interest rate be less than 4.5% annually.
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 5.5% annually.
If a policy loan is requested, the amount to be borrowed will be withdrawn by
the Company 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. Repayments on the loan will be allocated among the funding options in
the same proportion the loan was taken from the funding options. The Loan
Account Value will be reduced by the amount of any loan repayment.
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.
Increases: Beginning in the second Policy Year, you may increase the Specified
Amount of your Policy subject to the following conditions:
[bullet] Satisfactory evidence of insurability may be required.
[bullet] The Cash Surrender Value at the time of an increase must be at least
three times the sum of (a) the most recent Monthly Deduction from the
Total Account Value and (b) the amount of the increase, divided by
1000, times the applicable Cost of Insurance Rate.
[bullet] An increase in the Specified Amount will increase the Surrender
Charge.
[bullet] The Basic Monthly Premium will be increased when the Specified Amount
is increased. The Policy will not terminate within five years of the
Issue Date of the increase if the conditions of this provision and the
No-Lapse Coverage Provision are met.
[bullet] Increases through the fifth year are limited to four times the initial
Specified Amount.
[bullet] Increases in the Specified Amount will increase the Guaranteed Death
Benefit Provision amount and will affect the Guaranteed Death Benefit
Premium.
Decreases: Beginning in the sixth Policy Year decreases will be allowed,
however:
[bullet] No decrease may reduce the Specified Amount to less than the minimum
for this type of policy. (See Death Benefit.)
[bullet] Any decrease will cause a decrease in the Guaranteed Death Benefit
Provision.
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<PAGE>
Death Benefit Option Change: A Death Benefit Option change will be allowed,
subject to the following conditions:
[bullet] The change will take effect on the Monthly Deduction Day on or next
following the date on which the Company receives your written request.
[bullet] There will be no change in the Surrender Charge, and evidence of
insurability may be required.
[bullet] We will not allow a change in the Death Benefit Option if the Specified
Amount will be reduced below the minimum Specified Amount.
[bullet] Changes from Option 1 to Option 2 are allowed beginning in the sixth
Policy Year. The new Specified Amount will equal the Specified Amount
less the Total Account Value at the time of the change.*
[bullet] Changes from Option 2 to Option 1 are allowed after the first Policy
Year. The new Specified Amount will equal the Specified Amount plus the
Total Account Value as of the time of the change.*
*Changes in the Death Benefit Option also affect the Guaranteed Death Benefit
Provision amount and the Guaranteed Death Benefit Premium.
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 (state variations may apply) after
you receive the Policy and the written notice of withdrawal right, or within 45
days after you sign the application for the Policy, whichever occurs latest. 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. If state law does not permit such a refund,
then the refund will equal premiums paid, without interest. Refunds will usually
occur within seven days of notice of cancellation, although a refund of premiums
paid by check may be delayed until the check clears your bank.
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. (See "Settlement Options.")
Payment of the Death Benefit may be delayed if the Policy is being contested.
While the Insured is living, you may elect a Settlement Option for the
beneficiary and deem it irrevocable. You may revoke or change a prior election.
The beneficiary may make or change an election within 90 days of the death of
the Insured, unless you have made an irrevocable election. A beneficiary who has
elected Settlement Option 1 may elect another option within two years after the
Insured's death.
All or a part of the Death Benefit may be applied under one or more of the
Settlement Options, or such options as we may choose to make available in the
future.
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<PAGE>
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.
Policy Settlement
Proceeds in the form of Settlement Options are payable by the Company upon
the Insured's death, upon Maturity of the Policy, or upon election of one of the
following Settlement Options or any we make available (after any applicable
Surrender Charges have been deducted).
A written request may be made to elect, change, or revoke a Settlement
Option before payments begin under any Settlement Option. This request must be
in form satisfactory to us, and will take effect upon its filing at our Home
Office. If no Settlement Option has been elected by the Policy Owner when the
Death Benefit becomes payable to the beneficiary, that beneficiary may make the
election.
The first variable Settlement Option payment will be as of the tenth
Valuation Period following our receipt of the properly completed election form.
Settlement Options
Option 1 -- Payment of interest on the sum left with us;
Option 2 -- Payments for a stated number of years, at least three but no more
than thirty;
Option 3 -- Payments for the lifetime of the Annuitant. If also chosen, we will
guarantee payments for 60, 120, 180, or 240 months;
Option 4 -- Payments during the joint lifetimes of two Annuitants. At the death
of either, payments will continue to the survivor. When this option is chosen, a
choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 662/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor;
e) 100% of the payment to continue to the survivor if the survivor is the
Annuitant, and 50% of the payment to continue to the survivor if the survivor
is the Second Annuitant.
In most states, no election may be made that would result in a first payment of
less than $25 or that would result in total yearly payments of less than $120.
If the value of the Policy is insufficient to elect an option for the minimum
amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in the General Account.
Proceeds in the General Account will be used to make payments on a fixed-dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3%. We may add interest daily at any higher rate.
Under Option 1, the Annuitant may later tell the Company to (a) pay to him or
her a portion or all of the sum held by the Company; or (b) apply a portion or
all of the sum held by the Company to another Settlement Option.
Proceeds applied under Options 2, 3 and 4 will be held (a) in the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options, or (c) a mix of (a)
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<PAGE>
and (b). Proceeds held in Variable Annuity Account B will be used to make
payments on a variable basis.
If payments are to be funded on a variable basis (by the Funds), the first and
subsequent payments will vary depending on the Assumed Net Investment Rate. This
rate will be 3% per year, unless a 5% annual rate is chosen. The Assumed Net
Investment Rate is chosen by the payee.
Selection of a 5% rate causes a higher first payment, but subsequent payments
will increase only to the extent the actual net investment rate exceeds 5% on an
annualized basis, and they will decline if the rate is less than 5%. Use of the
3% Assumed Net Investment Rate causes a lower first payment, but subsequent
payments will increase more rapidly or decline more slowly as changes occur in
the actual net investment rate. The investment performance of the underlying
funding option(s) must equal such assumed rate, plus enough to cover the
mortality and expense risk and administrative fee charges, if future payments on
a variable basis are to remain level.
If payments on a variable basis are not to decrease, gross return on the assets
of the underlying funding option must be:
a) 4.75% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 3% is chosen; or
b) 6.25% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time Settlement Option
payments start, if an Assumed Net Investment Rate of 5% is chosen.
Option 2, 3 or 4 may be chosen on a fixed-dollar basis. However, if the
guaranteed payments are less than the payments which would be made from the
purchase of the Company's current single premium immediate annuity, the larger
payment will be made instead.
As to funds held under Option 1, the Annuitant may elect to make a withdrawal or
to change options. Under Option 2, if payments are made on a variable basis, the
current value may be withdrawn at any time. Amounts held in the Fixed Account
may not be withdrawn under Option 2. No withdrawals or changes of option may be
made under Options 3 and 4.
When an Annuitant dies while receiving payments under Option 2, 3 or 4, the
present value of any remaining guaranteed payments will either be paid in one
sum to the Annuitant's beneficiary, or upon election by that beneficiary, any
remaining guaranteed payments will continue to that beneficiary. If no
beneficiary exists, the present value of any remaining guaranteed payments will
be paid in one sum to the Annuitant's estate. If the Annuitant dies while
receiving payments under Option 1, the current value of the Option will be paid
in one sum to the beneficiary, or to the Annuitant's estate.
If the Annuitant's beneficiary dies (and there is no contingent beneficiary),
while receiving payments, the current value of the account (Option 1), or the
present value of any remaining guaranteed payments will be paid in one sum to
the estate of that beneficiary. The interest rate used to determine the first
payment will be used to calculate the present value.
Calculation of Settlement Payments
When you have chosen payment on a variable basis, the first payment is
calculated as follows:
a) the portion of the proceeds applied to make payments on the variable basis;
divided by
b) 1,000; times
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<PAGE>
c) the payment rate per $1000 of proceeds for the option chosen as shown in the
policy. Such amount, or portion, of the variable payment will be divided by the
Settlement Option Unit value (described below), as of the tenth Valuation Period
before the due date of the first payment, to determine the number of Settlement
Option Units. Each future payment is equal to the number of Settlement Option
Units, times the Settlement Option Unit value as of the tenth Valuation Period
prior to the due date of the payment.
For any Valuation Period, the Fund(s) Settlement Option Unit value is equal to:
a) The Settlement Option Unit value for the previous Valuation Period; times
b) The Net Return Factor (as defined below) for the Valuation Period; times
c) A factor to reflect the Assumed Net Investment Rate.
The factor for 3.5% per year is 0.9999058; for 5% per year, it is 0.9998663.
The Net Return Factor equals:
1) The net assets of the applicable fund held in Variable Annuity Account B at
the end of a Valuation Period; minus
2) The net assets of the applicable fund held in Variable Annuity Account B at
the beginning of that Valuation Period; plus or minus
3) Taxes or provision for taxes, if any, attributable to the operations of
Variable Annuity Account B; divided by
4) The value of Settlement Option Units and other accumulation units held in
Variable Annuity Account B at the beginning of the Valuation Period; minus
5) A daily charge at an annual rate of 1.25% for annuity mortality and expense
risk and the then-current daily administrative expense charge.
The number of Settlement Option Units remains fixed. However, the dollar value
of the Settlement Option Unit values and the payment may increase or decrease
due to investment gain or loss.
Payments will not be affected by changes in the mortality or expense results or
administrative expense charges.
Special Plans
Where allowed by law, the Company may reduce or eliminate certain charges for
Policies issued under special circumstances that result in lower expenses to the
Company (i.e., group arrangements with a sponsoring employer). The amount of any
reduction, the charges to be reduced, and the criteria for applying a reduction
will reflect the reduced sales effort, costs and differing mortality experience
appropriate to the circumstances giving rise to the reduction. The charges will
be reduced in accordance with the Company's practice in effect when the Policies
are issued. Reductions will not be unfairly discriminatory against any person,
including the purchasers to whom the reduction applies and all other owners of
the Policies.
The Company offers Policies on a unisex and simplified underwriting basis to
certain group or sponsored arrangements. A "group arrangement" includes a
program under which an employer
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purchases individual Policies covering a group of individuals on a group basis.
A "sponsored arrangement" includes a program under which an employer permits
group solicitation of its employees for the purchase of the Policies on an
individual basis. Under both arrangements, the employer pays all or part of the
premium. The benefits and values of these Policies do not vary based on the sex
of the insured in order to be used by employers in employee benefit plans where
sex discrimination is prohibited by federal or state laws. The Company
recommends that any employer proposing to offer the Policies to employees under
either arrangement consult its attorney before doing so.
The Company
Aetna Life Insurance and Annuity Company (the "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.
21
<PAGE>
Directors & Officers
<TABLE>
<CAPTION>
Name and Address* Position with Company Business Experience During Past 5 Years
- ---------------------- --------------------------- -------------------------------------------
<S> <C> <C>
Thomas J. McInerney Director, President and President (since September 1997), Aetna
Chairman, Executive Life Insurance and Annuity Company;
Committee (Principal President (since September 1997), Aetna
Executive Officer) 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 Management
President Management (since September 1997), Vice
President, Products Group (February 1996 -
September 1997), Senior Vice President,
Strategic Markets and Products (February
1993 - February 1996) and Senior Vice
President, Mutual Funds.
Catherine Hale Smith Director, Chief Financial Chief Financial Officer and Senior Vice
Officer and Senior Vice President, Strategy and Finance (Since
President 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).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address* Position with Company Business Experience During Past 5 Years
- ---------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Kirk P. Wickman Vice President, General Vice President, General Counsel and
Counsel and Corporate Corporate Secretary (since November
Secretary 1996), Aetna Life Insurance and Annuity
Company; Vice President and Counsel
(June 1992 - November 1996), Aetna Life
Insurance Company.
Deborah Koltenuk Vice President and Vice President and Treasurer, Corporate
Treasurer, Corporate Controller (since July 1996), Aetna Life
Controller Insurance and Annuity Company; Vice
President and Treasurer, Corporate
Controller (since July 1996), Aetna
Retirement Holdings, Inc.; Vice President,
Investment Financial Reporting and
Securities Operations (April 1996 - July
1996), Aetna Life Insurance Company; Vice
President, Investment Planning and
Financial Reporting (October 1994 - April
1996), The Aetna Casualty and Surety
Company and The Standard Fire and Insurance
Company; Assistant Vice President, Finance
and Administration (June 1994 - October
1994), Aetna Life Insurance Company;
Controller (September 1993 - June 1994),
Aetna Information Technology; Assistant
Vice President (December 1990 - September
1993), Aetna Life and Casualty Company.
Frederick D. Kelsven Vice President and Chief Vice President, Chief Compliance
Compliance Officer Officer (since February 1997), Aetna Life
Assignment Company; Vice President & Chief
Compliance Officer (since November 1996),
Aetna Investment Services, Inc.; Director
of Compliance (January 1985 - September
1996), Nationwide Life Insurance Company.
</TABLE>
*The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut.
These individuals may also be directors and/or officers of other affiliates of
the Company.
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Aetna Casualty and Surety
Company.
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<PAGE>
Additional Information
Reports to Policy Owners
Within 30 days after each Policy Anniversary and before proceeds are applied to
a Settlement Option, we will send you a report containing the following
information:
1) A statement of changes in the Total Account Value and Cash Surrender Value
since the prior report or since the Issue Date, if there has been no prior
report. This includes a statement of monthly deductions and investment results
and any interest earnings for the report period;
2) Cash Surrender Value, Death Benefit, and any Loan Account Value as of the
Policy Anniversary;
3) A projection of the Total Account Value, Loan Account Value and Cash
Surrender Value as of the succeeding Policy Anniversary. If you have Policy
values funded in either Separate Account you will receive such additional
periodic reports as may be required by the SEC.
Some state laws require additional reports; these requirements vary from state
to state.
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each Separate Account. The votes will be cast at
meetings of the shareholders of the Fund and will be based on instructions
received from Policy Owners. However, if the Investment Company Act of 1940 or
any regulations thereunder should be amended or if the present interpretation
thereof should change, and as a result we determine that we are permitted to
vote the shares of the Fund in our own right, we may elect to do so.
The number of votes each Policy Owner is entitled to direct with respect to a
Fund will be 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 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 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 Policy Owners, will be voted by us in the same
proportion as the voting instructions which are received for all Policies
participating in each Fund through Variable Life Account B. Policy Owners having
a voting interest will receive periodic reports relating to the Fund, proxy
material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a
24
<PAGE>
Fund. In addition, we may disregard voting instructions in favor of changes
initiated by a Policy Owner in the investment policy or the investment adviser
of 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 Policy Owners.
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.
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 for the Company.
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed with
the Securities and Exchange Commission 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.
The Policies are offered for sale in all jurisdictions where we are authorized
to do business except Guam, Puerto Rico, and the Virgin Islands.
Distribution of the Policies
The Company will serve as underwriter of the securities offered hereunder as
defined by the federal securities laws. The Company is registered as a
broker-dealer with the SEC and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The Company will contract with one or more
registered broker-dealers including broker-dealers affiliated with it
("Distributors") to offer and sell the Policies. The Company may also offer and
sell policies directly. All persons selling the Policies will be registered
representatives of the Distributors, and will also be licensed as insurance
agents to sell variable life insurance.
The maximum commission payable by the Company to salespersons and their
supervising broker-dealers for policy distribution is 55% of the Guaranteed
Death Benefit Premium to age 80, or, in the event of an increase in the
Specified Amount, 55% of the Guaranteed Death Benefit Premium to age 80,
attributable to the increase. In lieu of premium-based commission, the Company
may pay equivalent amounts based on Total Account Value. In particular
circumstances, we may also pay
25
<PAGE>
certain of these professionals for their administrative expenses. In addition,
some sales personnel may receive various types of non-cash compensation as
special sales incentives, including trips and educational and/or business
seminars. Supervisory and other management personnel of the Company may receive
compensation that will vary based on the relative profitability to the Company
of the funding options you select. Funding options that invest in Funds advised
by the Company or its affiliates are generally more profitable to the Company.
The Company may also contract with independent third party broker-dealers who
will act as wholesalers by assisting the Company in finding broker-dealers to
offer and sell the Policies. These parties may also provide training, marketing
and other sales related functions for the Company and other broker-dealers and
may provide certain administrative services to the Company in connection with
the Policies. The Company may pay such parties compensation based on premium
payments for the Policies purchased through broker-dealers selected by the
wholesaler.
Records and Accounts
All records and accounts relating to the Separate Accounts and the Funds will be
maintained by the Company. All reports required to be made and information
required to be given will be provided by the Company.
Independent Auditors
KPMG Peat Marwick LLP, City Place II, Hartford Connecticut 06103-4103, 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
process is currently underway and targeted for completion by December 31, 1998.
Testing and certification of these systems and applications are targeted for
completion by mid-1999. The costs of these efforts will not affect the Separate
Account.
The Company, its affiliates and the mutual funds that serve as investment
options for the Separate Account also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, is initiating communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Where
practicable Aetna and the Company will assess and attempt to mitigate their
risks with respect to the failure of these parties to be Year 2000 ready. There
can be no assurance that failure of third parties to complete adequate
preparations in a timely manner, and any resulting systems interruptions or
other consequences, would not have an adverse effect, directly or indirectly, on
the Separate Account, including, without limitation, its operation or the
valuation of its assets and units.
26
<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 the Separate Account form a part of the Company's total operations
and are not taxed separately, although operations of the Separate Account are
treated separately for accounting and financial statement purposes.
Both investment income and realized capital gains of the Separate Account (i.e.,
income, capital gains and dividends distributed to the Separate Account by the
Funds) that are credited to policy reserves are reinvested without tax since the
Code does not impose a tax on the Separate Account for these amounts. The
Company reserves the right, however, to make a deduction for such taxes should
they be imposed with respect to such items in the future.
Life Insurance Qualification
Section 7702 of the Code includes a definition of life insurance for tax
purposes. These rules generally place limits on the amount of premiums payable
under the contract and the level of cash surrender value. In no event may the
total of all premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance. If, at any
time, a premium is paid which would result in total premiums exceeding such
maximum premium limitation, we will only accept that portion of the premium
which will make total premiums equal the maximum. Any part of the premium in
excess of that amount will be returned or applied as otherwise agreed and no
further premiums will be accepted until allowed by the then-current maximum
premium limitations prescribed by law. The Secretary of the Treasury has been
granted authority to prescribe regulations to carry out the purposes of Section
7702, and proposed regulations governing mortality charges were issued in 1991.
The Company believes that the Policy meets the statutory definition of life
insurance. As such, and assuming the diversification standards of Section 817(h)
(discussed below) are satisfied, then except in limited circumstances (a) death
benefits paid under the Policy should generally be excluded from the gross
income of the beneficiary for federal income tax purposes under Section
101(a)(1) of the Code, and (b) a 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.
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.
27
<PAGE>
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 in connection with reductions in Death Benefits may be taxable in limited
circumstances in certain limited instances where the Surrender Value plus any
unpaid Policy debt exceeds the total premiums paid less the untaxed portion of
any prior Partial Surrenders. This result may occur even if the total amount of
any Partial Surrenders does not exceed total premiums paid to that date.
Loans received under the Policy will ordinarily be considered indebtedness of
the Policy Owner, 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 Policy Owner if the Policy is a Modified Endowment Contract.
Each Policy is subject to testing under the 7-pay test during the first seven
Policy Years and at any time a material change takes effect. A material change,
for these purposes, includes the exchange of a life insurance policy for another
life insurance policy or the conversion of a term life insurance policy into a
whole life or universal life insurance policy. In addition, an increase in the
future benefits provided constitutes a material change unless the increase is
attributable to (1) the payment of premiums necessary to fund the lowest Death
Benefit payable in the first seven Policy Years or (2) the crediting of interest
or other earnings with respect to such premiums. A reduction in death benefits
during the first seven Policy Years may also cause a Policy to be considered a
Modified Endowment Contract.
If the Policy is considered to be a Modified Endowment Contract, the proceeds of
any Partial Surrenders, any Policy Loans and most assignments, will be currently
taxable to the extent that the Policy's Total Account Value immediately before
payment exceeds gross premiums paid (increased by the amount of loans previously
taxed and reduced by untaxed amounts previously received). These rules may also
apply to Policy Loans or Partial Surrender proceeds received during the two-year
period prior to the time that a Policy becomes a Modified Endowment Contract. If
the Policy becomes
28
<PAGE>
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 Policy Owner of a Modified Endowment Contract who is not an individual.
The penalty tax will also apply where taxable Policy Loans are received by an
individual who has not reached the age of 59. Taxable policy distributions made
to an individual who has not reached the age of 59 will also be subject to the
penalty tax unless those distributions are attributable to the individual
becoming disabled, or are part of a series of equal periodic payments made not
less frequently than annually for the life or life expectancy of such individual
(i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate accounts
of insurance companies) underlying the Policy must be "adequately diversified"
in accordance with Treasury regulations in order for the Policy to qualify as
life insurance. The Treasury Department has issued regulations prescribing the
diversification requirements in connection with variable contracts. The Separate
Account, through the Funds, intends to comply with these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h) concerning diversification,
that those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., you), rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular Funds without
being treated as owners of the underlying assets." As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from those described by the IRS in pre-Section 817(h) rulings in which
it was determined that Policy Owners were not owners of separate account assets.
For example, a Policy Owner has additional flexibility in allocating premium
payments and account values. While the Company does not believe that these
differences would result in a Policy Owner being treated as the owner of a pro
rata portion of the assets of the Separate Account, there is no regulation or
ruling of the IRS that confirms this conclusion. In addition, the Company does
not know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. The Company
therefore reserves the right to modify the Policy as necessary to attempt to
prevent a Policy Owner from being considered the owner of a pro rata share of
the assets of the Separate Account.
29
<PAGE>
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 Policy Owner's deduction for interest on loans
taken against life insurance covering the lives of officers, employees, or other
financially interested in the Policy Owner'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 Policy
Owner's trade or business.
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 Rates.
Section 264(f) of the Code denies a deduction for a portion of a Policyowner's
otherwise deductible interest that is allocable to unborrowed policy cash
values. The nondeductible interest amount is the amount that bears the same
ratio to such interest as the company's average unborrowed cash value of life
insurance and annuity policies issued after June 8, 1997 bears to the sum of the
average unborrowed cash values of policies plus the average adjusted tax basis
of other assets owned by the company. This provision does not apply to policies
in which the insured is a 20 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 Policy Owner or
beneficiary.
Withholding
Generally, unless you provide us with a written election to the contrary before
we make the distribution, we are required to withhold income tax from any
portion of a distribution we make to you that is includable in your income. If
you do not wish us to withhold tax from the payment, or if enough is not
withheld, you may have to pay later. You may also have to pay penalties if your
withholding and estimated tax payments are insufficient.
30
<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. An application for changes, once approved by
us, will become part of the Policy.
Application forms are completed by the applicant and forwarded to the Company
for acceptance. Upon acceptance, the Policy is prepared, executed by duly
authorized officers of the Company, and forwarded to the Policy Owner.
Payment of Benefits
All benefits are payable at our Home Office. We may require submission of the
Policy before we grant loans, make changes or pay benefits.
Age and Sex
If age or sex is misstated on the application, the amount payable on death will
be that which would have been purchased by the most recent monthly deduction at
the correct age and sex. (If the application is taken in a state or under an
agreement where unisex rates are used, the Insured's sex is inapplicable.)
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
Issue Date. 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 Issue
Date, 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, in the 30 days before the Maturity Date of this
Policy, elect to continue coverage beyond the Maturity Date. At Age 100, the
Separate Account Value will be transferred to the Fixed Account. If coverage
beyond maturity is elected, we will continue to credit interest to the Total
31
<PAGE>
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 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.")
Protection of Proceeds
To the extent provided by law, the proceeds of the Policy are subject neither to
claims by a beneficiary's creditors nor to any legal process against any
beneficiary.
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
Illustrations of Death Benefit, Total Account Values and Cash Surrender Values
The tables on the following pages illustrate how the Death Benefit, Total
Account Values, and Cash 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 Cash 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, annual
rate of 0%, 6%, and 12%, respectively.
Tables I through IV illustrate Policies issued to males, age 45, in the
preferred nonsmoker rate class and Policies issued on a unisex basis according
to the Special Plans section of this Prospectus for both males and females, age
45, in the preferred nonsmoker rate class. Tables V through VIII illustrate
Policies issued on a unisex basis, age 45, in the preferred nonsmoker rate class
for contracts issued in states where unisex rates are required. The Death
Benefit, Total Account Values, and Cash 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 Cash Surrender Values of each Policy
over the designated period. Tables I, II, V and VI assume that the maximum Cost
of Insurance Rates allowable under the Policy are charged in all Policy Years.
These tables also assume that the maximum allowable mortality and expense risk
charge of 0.90% on an annual basis, the maximum allowable administrative expense
charge of 0.50% on an annual basis, and the maximum allowable premium load of 6%
are assessed in each Policy Year. Tables III, IV, VII and VIII assume that the
current scale of Cost of Insurance Rates applies during all Policy Years. These
tables also assume that the current mortality and expense risk charge of 0.70%
on an annual basis, the current administrative expense charge of 0.30% on an
annual basis, and the current premium load of 3.5% are assessed.
The amounts shown for Death Benefit, Cash Surrender Values, and Total Account
Values reflect the fact that the net investment return is lower than the gross
return on the assets held in each Fund as a result of expenses paid by each Fund
and other charges levied by the Separate Account. After deduction of these
amounts, the illustrated gross annual investment rates of return of 0%, 6%, and
12% correspond to approximate net annual rates of -1.63%, 4.37%, and 10.37%,
respectively on a
32
<PAGE>
current basis. On a guaranteed basis, the illustrated gross annual investment
rates of return of 0%, 6%, and 12% correspond to approximate net annual rates of
- -2.03%, 3.97%, and 9.97%, respectively.
The investment advisory fees and other Fund expenses vary by Fund from 0.35% to
1.00%. A weighted average has been used for the illustrations assuming that the
Policyowner has invested in the Funds as follows: 1% in the Aetna Ascent VP; 7%
in Aetna Balanced VP, Inc.; 4% in Aetna Bond VP; 0% in the Aetna Crossroads VP;
52% in Aetna Growth and Income VP; 1% in the Aetna Index Plus Large Cap VP; 0%
in the Aetna Legacy VP; 4% in Aetna Money Market VP; 2% in Fidelity VIP Fund II
- --Contrafund Portfolio; 4% in Fidelity VIP Fund--Equity-Income Portfolio; 3% in
the Janus Aspen Aggressive Growth Fund; 2% in Janus Aspen Balanced Fund; 4% in
Janus Aspen Growth Fund; 6% in Janus Aspen Worldwide Growth Fund; 0% in
Oppenheimer Global Securities Fund; 0% in Oppenheimer Strategic Bond Fund; 4% in
the Portfolio Partners, Inc.-MFS Emerging Equities Portfolio; 2% in the
Portfolio Partners, Inc.-MFS Research Growth Portfolio; 0% in the Portfolio
Partners, Inc.-MFS Value Equity Portfolio; 4% in the Portfolio Partners,
Inc.-Scudder International Growth Portfolio; and 0% in the Portfolio Partners,
Inc.-T. Rowe Price Growth Equity Portfolio.
The 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 Cash Surrender Values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all Net Premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the Policy
Owner has not requested an increase or decrease in the Specified Amount of the
Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, sex of Insured (if necessary), and underwriting classification, the
Specified Amount or premium requested, the proposed frequency of premium
payments and any available riders requested. A fee of $25 is charged for each
such illustration.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
33
<PAGE>
AetnaVest Plus Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,056 500,000 500,000 500,000 4,333 4,652 4,972 661 980 1,300
2 14,465 500,000 500,000 500,000 8,616 9,529 10,482 4,944 5,857 6,810
3 22,244 500,000 500,000 500,000 12,687 14,474 16,417 9,015 10,802 12,745
4 30,412 500,000 500,000 500,000 16,544 19,484 22,813 12,872 15,812 19,141
5 38,989 500,000 500,000 500,000 20,173 24,546 29,703 16,501 20,874 26,031
6 47,994 500,000 500,000 500,000 23,572 29,655 37,135 20,237 26,320 33,800
7 57,450 500,000 500,000 500,000 26,712 34,784 45,136 23,744 31,816 42,168
8 67,379 500,000 500,000 500,000 29,569 39,907 53,742 26,968 37,306 51,141
9 77,803 500,000 500,000 500,000 32,122 45,000 62,999 29,888 42,766 60,765
10 88,750 500,000 500,000 500,000 34,337 50,026 72,945 32,470 48,159 71,078
15 152,258 500,000 500,000 500,000 39,456 73,139 135,414 39,425 73,108 135,383
20 233,313 500,000 500,000 500,000 30,711 88,529 228,407 30,711 88,529 228,407
25 336,762 500,000 500,000 500,000 0 84,468 376,269 0 84,468 376,269
30 468,793 500,000 500,000 674,775 0 35,221 630,631 0 35,221 630,631
20 (Age 65) 233,313 500,000 500,000 500,000 30,711 88,529 228,407 30,711 88,529 228,407
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
34
<PAGE>
AetnaVest Plus Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,284 500,000 500,000 500,000 1,894 2,063 2,234 0 0 0
2 8,782 500,000 500,000 500,000 3,777 4,238 4,722 105 566 1,050
3 13,505 500,000 500,000 500,000 5,488 6,362 7,318 1,816 2,690 3,646
4 18,465 500,000 500,000 500,000 7,020 8,424 10,024 3,348 4,752 6,352
5 23,672 500,000 500,000 500,000 8,358 10,402 12,834 4,686 6,730 9,162
6 29,139 500,000 500,000 500,000 9,496 12,284 15,750 6,161 8,949 12,415
7 34,880 500,000 500,000 500,000 10,404 14,033 18,749 7,436 11,065 15,781
8 40,908 500,000 500,000 500,000 11,052 15,610 21,808 8,451 13,009 19,207
9 47,238 500,000 500,000 500,000 11,417 16,978 24,908 9,183 14,744 22,674
10 53,884 500,000 500,000 500,000 11,459 18,086 28,010 9,592 16,219 26,143
15 92,443 500,000 500,000 500,000 5,765 18,023 42,405 5,734 17,992 42,374
20 141,655 0 500,000 500,000 0 1,420 49,095 0 1,420 49,095
25 204,463 0 0 500,000 0 0 29,511 0 0 29,511
30 284,624 0 0 0 0 0 0 0 0 0
20 (Age 65) 141,655 0 500,000 500,000 0 1,420 49,095 0 1,420 49,095
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
35
<PAGE>
AetnaVest Plus Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
$6,720.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,056 500,000 500,000 500,000 4,911 5,252 5,595 1,239 1,580 1,923
2 14,465 500,000 500,000 500,000 9,825 10,822 11,861 6,153 7,150 8,189
3 22,244 500,000 500,000 500,000 14,582 16,558 18,701 10,910 12,886 15,029
4 30,412 500,000 500,000 500,000 19,159 22,442 26,150 15,487 18,770 22,478
5 38,989 500,000 500,000 500,000 23,530 28,454 34,245 19,858 24,782 30,573
6 47,994 500,000 500,000 500,000 27,672 34,574 43,031 24,337 31,239 39,696
7 57,450 500,000 500,000 500,000 31,600 40,822 52,600 28,632 37,854 49,632
8 67,379 500,000 500,000 500,000 35,327 47,215 63,050 32,726 44,614 60,449
9 77,803 500,000 500,000 500,000 38,866 53,773 74,493 36,632 51,539 72,259
10 88,750 500,000 500,000 500,000 42,208 60,496 87,032 40,341 58,629 85,165
15 152,258 500,000 500,000 500,000 56,322 97,305 171,555 56,291 97,274 171,524
20 233,313 500,000 500,000 500,000 64,173 138,757 309,852 64,173 138,757 309,852
25 336,762 500,000 500,000 628,735 63,047 184,616 542,013 63,047 184,616 542,013
30 468,793 500,000 500,000 986,422 46,279 233,513 921,889 46,279 233,513 921,889
20 (Age 65) 233,313 500,000 500,000 500,000 64,173 138,757 309,852 64,173 138,757 309,852
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
36
<PAGE>
AetnaVest Plus Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
$4,080.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,284 500,000 500,000 500,000 2,398 2,587 2,776 0 0 0
2 8,782 500,000 500,000 500,000 4,834 5,366 5,922 1,162 1,694 2,250
3 13,505 500,000 500,000 500,000 7,145 8,180 9,308 3,473 4,508 5,636
4 18,465 500,000 500,000 500,000 9,306 11,004 12,929 5,634 7,332 9,257
5 23,672 500,000 500,000 500,000 11,290 13,808 16,782 7,618 10,136 13,110
6 29,139 500,000 500,000 500,000 13,070 16,560 20,861 9,735 13,225 17,526
7 34,880 500,000 500,000 500,000 14,660 19,272 25,205 11,692 16,304 22,237
8 40,908 500,000 500,000 500,000 16,070 21,951 29,854 13,469 19,350 27,253
9 47,238 500,000 500,000 500,000 17,313 24,607 34,852 15,079 22,373 32,618
10 53,884 500,000 500,000 500,000 18,378 27,225 40,229 16,511 25,358 38,362
15 92,443 500,000 500,000 500,000 21,332 40,029 74,882 21,301 39,998 74,851
20 141,655 500,000 500,000 500,000 18,044 49,741 126,667 18,044 49,741 126,667
25 204,463 500,000 500,000 500,000 5,119 51,951 206,276 5,119 51,951 206,276
30 284,624 0 500,000 500,000 0 36,444 334,430 0 36,444 334,430
20 (Age 65) 141,655 500,000 500,000 500,000 18,044 49,741 126,667 18,044 49,741 126,667
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
37
<PAGE>
AetnaVest Plus Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$6,360.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,678 500,000 500,000 500,000 4,030 4,329 4,629 520 819 1,119
2 13,690 500,000 500,000 500,000 8,024 8,879 9,773 4,514 5,369 6,263
3 21,052 500,000 500,000 500,000 11,820 13,492 15,311 8,310 9,982 11,801
4 28,783 500,000 500,000 500,000 15,406 18,155 21,269 11,896 14,645 17,759
5 36,900 500,000 500,000 500,000 18,782 22,868 27,688 15,272 19,358 24,178
6 45,423 500,000 500,000 500,000 21,940 27,620 34,607 18,752 24,432 31,419
7 54,372 500,000 500,000 500,000 24,850 32,385 42,049 22,013 29,548 39,212
8 63,769 500,000 500,000 500,000 27,499 37,142 50,052 25,013 34,656 47,566
9 73,635 500,000 500,000 500,000 29,858 41,864 58,652 27,723 39,729 56,517
10 83,995 500,000 500,000 500,000 31,898 46,518 67,885 30,114 44,734 66,101
15 144,102 500,000 500,000 500,000 36,654 67,948 125,827 36,625 67,919 125,798
20 220,814 500,000 500,000 500,000 28,864 82,375 211,752 28,864 82,375 211,752
25 318,722 500,000 500,000 500,000 0 78,791 346,325 0 78,791 346,325
30 443,679 500,000 500,000 619,183 0 34,385 578,676 0 34,385 578,676
20 (Age 65) 220,814 500,000 500,000 500,000 28,864 82,375 211,752 28,864 82,375 211,752
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
38
<PAGE>
AetnaVest Plus Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,095 500,000 500,000 500,000 1,757 1,917 2,078 0 0 0
2 8,395 500,000 500,000 500,000 3,516 3,950 4,405 6 440 895
3 12,909 500,000 500,000 500,000 5,113 5,935 6,833 1,603 2,425 3,323
4 17,650 500,000 500,000 500,000 6,534 7,851 9,354 3,024 4,341 5,844
5 22,627 500,000 500,000 500,000 7,776 9,692 11,974 4,266 6,182 8,464
6 27,854 500,000 500,000 500,000 8,829 11,441 14,689 5,641 8,253 11,501
7 33,342 500,000 500,000 500,000 9,662 13,059 17,475 6,825 10,222 14,638
8 39,104 500,000 500,000 500,000 10,256 14,517 20,318 7,770 12,031 17,832
9 45,154 500,000 500,000 500,000 10,580 15,776 23,191 8,445 13,641 21,056
10 51,506 500,000 500,000 500,000 10,602 16,788 26,061 8,818 15,004 24,277
15 88,364 500,000 500,000 500,000 5,352 16,751 39,448 5,323 16,722 39,419
20 135,405 0 500,000 500,000 0 1,843 46,070 0 1,843 46,070
25 195,442 0 0 500,000 0 0 28,974 0 0 28,974
30 272,067 0 0 0 0 0 0 0 0 0
20 (Age 65) 135,405 0 500,000 500,000 0 1,843 46,070 0 1,843 46,070
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
39
<PAGE>
AetnaVest Plus Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL GUARANTEED DEATH BENEFIT PREMIUM TO AGE 80
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,678 500,000 500,000 500,000 4,598 4,920 5,242 1,088 1,410 1,732
2 13,690 500,000 500,000 500,000 9,205 10,142 11,120 5,695 6,632 7,610
3 21,052 500,000 500,000 500,000 13,672 15,528 17,543 10,162 12,018 14,033
4 28,783 500,000 500,000 500,000 17,974 21,058 24,541 14,464 17,548 21,031
5 36,900 500,000 500,000 500,000 22,095 26,720 32,160 18,585 23,210 28,650
6 45,423 500,000 500,000 500,000 26,009 32,493 40,437 22,821 29,305 37,249
7 54,372 500,000 500,000 500,000 29,733 38,397 49,461 26,896 35,560 46,624
8 63,769 500,000 500,000 500,000 33,272 44,444 59,321 30,786 41,958 56,835
9 73,635 500,000 500,000 500,000 36,645 50,657 70,125 34,510 48,522 67,990
10 83,995 500,000 500,000 500,000 39,842 57,036 81,971 38,058 55,252 80,187
15 144,102 500,000 500,000 500,000 53,421 91,986 161,757 53,392 91,957 161,728
20 220,814 500,000 500,000 500,000 61,210 131,389 291,946 61,210 131,389 291,946
25 318,722 500,000 500,000 591,680 60,334 174,583 510,069 60,334 174,583 510,069
30 443,679 500,000 500,000 929,111 44,689 219,942 868,328 44,689 219,942 868,328
20 (Age 65) 220,814 500,000 500,000 500,000 61,210 131,389 291,946 61,210 131,389 291,946
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
40
<PAGE>
AetnaVest Plus Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
$3,900.00 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 495 500,000 500,000 500,000 2,257 2,436 2,616 0 0 0
2 8,395 500,000 500,000 500,000 4,555 5,059 5,586 1,045 1,549 2,076
3 12,909 500,000 500,000 500,000 6,743 7,723 8,791 3,233 4,213 5,281
4 17,650 500,000 500,000 500,000 8,795 10,402 12,225 5,285 6,892 8,715
5 22,627 500,000 500,000 500,000 10,694 13,077 15,893 7,184 9,567 12,383
6 27,854 500,000 500,000 500,000 12,409 15,715 19,789 9,221 12,527 16,601
7 33,342 500,000 500,000 500,000 13,958 18,330 23,953 11,121 15,493 21,116
8 39,104 500,000 500,000 500,000 15,344 20,924 28,417 12,858 18,438 25,931
9 45,154 500,000 500,000 500,000 16,585 23,511 33,233 14,450 21,376 31,098
10 51,506 500,000 500,000 500,000 17,668 26,078 38,425 15,884 24,294 36,641
15 88,364 500,000 500,000 500,000 20,914 38,788 71,988 20,885 38,759 71,959
20 135,405 500,000 500,000 500,000 18,456 48,941 122,371 18,456 48,941 122,371
25 195,442 500,000 500,000 500,000 6,799 52,148 199,568 6,799 52,148 199,568
30 272,067 0 500,000 500,000 0 39,091 323,150 0 39,091 323,150
20 (Age 65) 135,405 500,000 500,000 500,000 18,456 48,941 122,371 18,456 48,941 122,371
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
Total Account Value and Cash Value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
Policy Years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
41
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
Statement of Assets and Liabilities ......................... S-2
Statements of Operations and Changes in Net Assets .......... S-4
Condensed Financial Information ............................. S-5
Notes to Financial Statements ............................... S-9
Independent Auditors' Report ................................ S-20
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 3,935,729 shares (cost $126,171,024) ............................ $132,379,023
Aetna Income Shares; 1,642,350 shares (cost $21,116,917) ............................. 21,104,804
Aetna Variable Encore Fund; 1,520,490 shares (cost $20,249,343) ...................... 20,320,201
Aetna Investment Advisers Fund, Inc.; 1,517,909 shares (cost $22,364,815) ............ 24,336,071
Aetna Ascent Variable Portfolio; 127,672 shares (cost $1,774,627) .................... 1,802,553
Aetna Crossroads Variable Portfolio; 54,282 shares (cost $705,224) ................... 710,292
Aetna Legacy Variable Portfolio; 53,730 shares (cost $649,521) ....................... 650,139
Aetna Variable Index Plus Portfolio; 139,939 shares (cost $1,985,472) ................ 1,961,545
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 831,279 shares (cost $18,659,751) .......................... 20,183,450
Growth Portfolio; 191,918 shares (cost $6,740,034) .................................. 7,120,144
Overseas Portfolio; 93,214 shares (cost $1,797,983) ................................. 1,789,714
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 140,740 shares (cost $2,253,029) ........................... 2,534,727
Contrafund Portfolio; 1,014,044 shares (cost $18,714,668) ........................... 20,220,028
Janus Aspen Series:
Aggressive Growth Portfolio; 603,521 shares (cost $11,557,498) ...................... 12,402,365
Balanced Portfolio; 469,699 shares (cost $7,320,172) ................................ 8,205,641
Growth Portfolio; 648,268 shares (cost $10,619,569) ................................. 11,980,000
Worldwide Growth Portfolio; 1,039,046 shares (cost $22,485,938) ..................... 24,303,287
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio; 444,333 shares (cost $19,019,357) .............. 19,061,872
PPI MFS Research Growth Portfolio; 736,167 shares (cost $7,234,426) ................. 7,148,181
PPI Scudder International Growth Portfolio; 1,014,972 shares (cost $14,118,551) ..... 14,311,110
------------
NET ASSETS (cost $335,537,919) ........................................................ $352,525,147
============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Variable Fund:
Policyholders' account values ........................................................ $132,379,023
Aetna Income Shares:
Policyholders' account values ........................................................ 21,104,804
Aetna Variable Encore Fund:
Policyholders' account values ........................................................ 20,320,201
Aetna Investment Advisers Fund, Inc.:
Policyholders' account values ........................................................ 24,336,071
Aetna Ascent Variable Portfolio:
Policyholders' account values ........................................................ 1,802,553
Aetna Crossroads Variable Portfolio:
Policyholders' account values ........................................................ 710,292
</TABLE>
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities--December 31, 1997 (continued):
Aetna Legacy Variable Portfolio:
Policyholders' account values ....................... $ 650,139
Aetna Variable Index Plus Portfolio:
Policyholders' account values ....................... 1,961,545
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values ...................... 20,183,450
Growth Portfolio:
Policyholders' account values ...................... 7,120,144
Overseas Portfolio:
Policyholders' account values ...................... 1,789,714
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values ...................... 2,534,727
Contrafund Portfolio:
Policyholders' account values ....................... 20,220,028
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values ...................... 12,402,365
Balanced Portfolio:
Policyholders' account values ...................... 8,205,641
Growth Portfolio:
Policyholders' account values ...................... 11,980,000
Worldwide Growth Portfolio:
Policyholders' account values ...................... 24,303,287
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Policyholders' account values ...................... 19,061,872
PPI MFS Research Growth Portfolio:
Policyholders' account values ...................... 7,148,181
PPI Scudder International Growth Portfolio:
Policyholders' account values ...................... 14,311,110
------------
$352,525,147
============
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends .......................................................... $ 35,222,623 $ 13,813,478
Expenses: (Notes 2 and 5)
Valuation Period Deductions ........................................ (2,713,203) (1,905,137)
------------- -------------
Net investment income ............................................... 32,509,420 11,908,341
------------- -------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................ 260,329,704 29,656,908
Cost of investments sold ........................................... 245,858,726 26,434,292
------------- -------------
Net realized gain ................................................. 14,470,978 3,222,616
Net unrealized gain on investments: (Note 5)
Beginning of year .................................................. 14,132,669 4,391,574
End of year ........................................................ 16,987,228 14,132,669
------------- -------------
Net change in unrealized gain ..................................... 2,854,559 9,741,095
------------- -------------
Net realized and unrealized gain on investments ..................... 17,325,537 12,963,711
------------- -------------
Net increase in net assets resulting from operations ................ 49,834,957 24,872,052
------------- -------------
FROM UNIT TRANSACTIONS:
Variable life premium payments ...................................... 135,098,143 101,416,302
Sales and administrative charges deducted by the Company ............ (4,620,884) (3,032,151)
Premiums allocated to the fixed account ............................. (2,741,149) (3,127,437)
------------- -------------
Net premiums allocated to the variable account ..................... 127,736,110 95,256,714
Transfers to the Company for monthly deductions ..................... (21,545,914) (15,491,673)
Redemptions by contract holders ..................................... (24,062,185) (4,154,465)
Transfers on account of policy loans ................................ (2,875,077) (3,783,533)
Other ............................................................... 263,373 (40,991)
------------- -------------
Net increase in net assets from unit transactions (Note 5) ......... 79,516,307 71,786,052
------------- -------------
Change in net assets ................................................ 129,351,264 96,658,104
NET ASSETS:
Beginning of year ................................................... 223,173,883 126,515,779
------------- -------------
End of year ......................................................... $ 352,525,147 $ 223,173,883
============= =============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Period of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund:
Aetna Vest .......................... $34.932 $44.936 28.64% 1,403,227.0 $63,055,847
Aetna Vest II ....................... 19.507 25.085 28.60% 805,944.5 20,216,852
Aetna Vest Plus ..................... 16.389 21.075 28.58% 1,783,619.4 37,590,494
Aetna Vest Estate Protector ......... 11.675 15.037 28.79% 70,938.6 1,066,670
Corporate Specialty Market .......... 14.805 19.039 28.60% 548,828.8 10,449,160
Aetna Income Shares:
Aetna Vest .......................... 21.850 23.428 7.22% 257,674.2 6,036,890
Aetna Vest II ....................... 14.691 15.752 7.22% 61,987.6 976,413
Aetna Vest Plus ..................... 11.764 12.613 7.22% 187,384.8 2,363,574
Aetna Vest Estate Protector ......... 10.452 11.224 7.38% 18,991.8 213,166
Corporate Specialty Market .......... 11.354 12.175 7.22% 945,807.8 11,514,761
Aetna Variable Encore Fund:
Aetna Vest .......................... 16.577 17.310 4.43% 151,657.5 2,625,230
Aetna Vest II ....................... 12.117 12.653 4.43% 13,650.7 172,723
Aetna Vest Plus ..................... 11.388 11.892 4.43% 566,497.4 6,736,612
Aetna Vest Estate Protector ......... 10.333 10.807 4.58% 36,266.4 391,929
Corporate Specialty Market .......... 10.895 11.377 4.43% 913,597.2 10,393,707
Aetna Investment Advisers Fund, Inc.:
Aetna Vest .......................... 17.547 21.286 21.31% 106,658.2 2,270,280
Aetna Vest II ....................... 17.742 21.515 21.27% 234,300.7 5,041,082
Aetna Vest Plus ..................... 14.880 18.044 21.27% 493,793.3 8,909,876
Aetna Vest Estate Protector ......... 11.340 13.554 19.53%(1) 11,121.3 150,741
Corporate Specialty Market .......... 12.954 15.708 21.27% 506,998.4 7,964,092
Aetna Ascent Variable Portfolio:
Aetna Vest .......................... 11.828 14.055 18.84% 16,408.7 230,615
Aetna Vest II ....................... 11.828 14.040 18.70% 10,217.2 143,453
Aetna Vest Plus ..................... 11.828 14.040 18.70% 96,649.5 1,356,995
Aetna Vest Estate Protector ......... 11.886 14.077 18.43%(1) 5,078.4 71,490
Aetna Crossroads Variable Portfolio:
Aetna Vest .......................... 11.474 13.369 16.52% 5,240.7 70,064
Aetna Vest II ....................... 11.544 13.356 15.69%(1) 5,740.1 76,663
Aetna Vest Plus ..................... 11.474 13.356 16.40% 40,129.7 535,965
Aetna Vest Estate Protector ......... 11.487 13.391 16.58% 2,061.1 27,600
Aetna Legacy Variable Portfolio:
Aetna Vest II ....................... 11.263 12.604 11.91%(2) 894.7 11,277
Aetna Vest Plus ..................... 11.118 12.604 13.37% 48,206.0 607,607
Aetna Vest Estate Protector ......... 11.344 12.638 11.40%(3) 2,473.2 31,255
</TABLE>
S-5
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
----------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Index Plus Portfolio:
Aetna Vest .......................... $12.017 $13.081 8.86%(4) 11,393.3 $ 149,038
Aetna Vest II ....................... 11.345 13.081 15.30%(4) 7,240.3 94,713
Aetna Vest Plus ..................... 11.172 13.081 17.09%(3) 86,063.0 1,125,815
Aetna Vest Estate Protector ......... 12.371 13.102 5.91%(5) 17,901.0 234,541
Corporate Specialty Market .......... 12.785 13.081 2.32%(6) 27,324.3 357,438
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest .......................... 10.871 13.788 26.83% 16,476.3 227,168
Aetna Vest II ....................... 10.871 13.788 26.83% 5,186.7 71,513
Aetna Vest Plus ..................... 10.871 13.788 26.83% 545,391.4 7,519,612
Aetna Vest Estate Protector ......... 10.883 13.824 27.02% 62,365.5 862,136
Corporate Specialty Market .......... 12.512 15.869 26.83% 724,876.8 11,503,021
Fidelity Investments Variable
Insurance Products Fund:
Growth Portfolio:
Corporate Specialty Market .......... 11.255 13.759 22.25% 517,477.9 7,120,144
Overseas Portfolio:
Corporate Specialty Market .......... 11.241 12.415 10.45% 144,152.5 1,789,714
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market .......... 12.022 14.361 19.46% 176,505.1 2,534,727
Contrafund Portfolio:
Aetna Vest .......................... 11.525 14.166 22.91% 34,241.1 485,043
Aetna Vest II ....................... 11.525 14.166 22.91% 7,039.4 99,717
Aetna Vest Plus ..................... 11.525 14.166 22.91% 319,136.2 4,520,728
Aetna Vest Estate Protector ......... 11.538 14.203 23.09% 44,043.2 625,540
Corporate Specialty Market .......... 12.396 15.236 22.91% 950,961.4 14,489,000
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest .......................... 16.153 18.017 11.54% 62,426.4 1,124,758
Aetna Vest II ....................... 16.153 18.017 11.54% 29,971.2 540,002
Aetna Vest Plus ..................... 16.153 18.017 11.54% 340,401.2 6,133,150
Aetna Vest Estate Protector ......... 9.797 10.944 11.71% 65,486.4 716,682
Corporate Specialty Market .......... 12.120 13.519 11.54% 287,588.9 3,887,773
</TABLE>
S-6
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio:
Aetna Vest .......................... $13.966 $16.883 20.89% 7,765.1 $ 131,096
Aetna Vest II ....................... 14.075 17.015 20.89% 10,401.5 176,977
Aetna Vest Plus ..................... 13.960 16.875 20.89% 247,390.9 4,174,751
Aetna Vest Estate Protector ......... 11.101 13.440 21.07% 17,145.8 230,433
Corporate Specialty Market .......... 12.242 14.799 20.89% 235,992.1 3,492,384
Growth Portfolio:
Aetna Vest .......................... 14.898 18.105 21.53% 37,937.8 686,846
Aetna Vest II ....................... 14.884 18.088 21.53% 61,620.8 1,114,603
Aetna Vest Plus ..................... 14.863 18.063 21.53% 431,965.3 7,802,391
Aetna Vest Estate Protector ......... 10.857 13.214 21.71% 44,074.0 582,402
Corporate Specialty Market .......... 12.232 14.865 21.53% 120,672.6 1,793,758
Worldwide Growth Portfolio:
Aetna Vest .......................... 16.364 19.790 20.94% 108,747.3 2,152,075
Aetna Vest II ....................... 16.368 19.795 20.94% 55,876.7 1,106,085
Aetna Vest Plus ..................... 16.348 19.770 20.94% 557,760.6 11,027,190
Aetna Vest Estate Protector ......... 11.811 14.305 21.12% 58,328.9 834,389
Corporate Specialty Market .......... 13.459 16.277 20.94% 564,191.6 9,183,548
Portfolio Partners, Inc.:
PPI MFS Emerging Equities Portfolio:
Aetna Vest .......................... 17.571 17.357 (1.22%)(7) 70,564.4 1,224,807
Aetna Vest II ....................... 17.573 17.359 (1.22%)(7) 34,713.7 602,592
Aetna Vest Plus ..................... 17.563 17.349 (1.22%)(7) 477,392.0 8,282,500
Aetna Vest Estate Protector ......... 10.942 10.810 (1.21%)(7) 66,830.1 722,463
Corporate Specialty Market .......... 14.451 14.275 (1.22%)(7) 576,485.2 8,229,510
PPI MFS Research Growth Portfolio:
Aetna Vest .......................... 12.277 12.042 (1.91%)(7) 64,898.6 781,537
Aetna Vest II ....................... 12.332 12.096 (1.91%)(7) 23,240.4 281,124
Aetna Vest Plus ..................... 12.163 11.931 (1.91%)(7) 352,781.7 4,209,155
Aetna Vest Estate Protector ......... 9.329 9.152 (1.90%)(7) 10,326.6 94,508
Corporate Specialty Market .......... 11.124 10.912 (1.91%)(7) 163,291.1 1,781,857
</TABLE>
S-7
<PAGE>
Variable Life Account B
Condensed Financial Information--Year Ended December 31, 1997 (continued):
<TABLE>
<CAPTION>
Value
Per Unit Increase (Decrease) Units
-------------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Period Unit of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio:
Aetna Vest ............................... $15.495 $15.692 1.27%(7) 131,667.0 $2,066,166
Aetna Vest II ............................ 15.399 15.596 1.27%(7) 44,659.7 696,495
Aetna Vest Plus .......................... 15.314 15.509 1.27%(7) 449,154.4 6,965,802
Aetna Vest Estate Protector .............. 11.627 11.777 1.29%(7) 21,515.0 253,383
Corporate Specialty Market ............... 12.832 12.995 1.27%(7) 333,144.4 4,329,264
</TABLE>
Notes to Condensed Financial Information:
(1)--Reflects less than a full year of performance activity. Funds were first
received in this option during January 1997.
(2)--Reflects less than a full year of performance activity. Funds were first
received in this option during March 1997.
(3)--Reflects less than a full year of performance activity. Funds were first
received in this option during May 1997.
(4)--Reflects less than a full year of performance activity. Funds were first
received in this option during June 1997.
(5)--Reflects less than a full year of performance activity. Funds were first
received in this option during July 1997.
(6)--Reflects less than a full year of performance activity. Funds were first
received in this option during August 1997.
(7)--Reflects less than a full year of performance activity. Funds were first
received in this option during November 1997.
See Notes to Financial Statements
S-8
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997
1. Summary of Significant Accounting Policies
Variable Life Account B (the"Account") is a separate account established by
Aetna Life Insurance and Annuity Company (the "Company) and is registered
under the Investment Company Act of 1940 as a unit investment trust. The
Account is sold exclusively for use with variable life insurance product
contracts as defined under the Internal Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each fund on December 31, 1997:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Aetna Variable Index Plus Portfolio
Fidelity Investments Variable Insurance
Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
Janus Aspen Series:
[bullet] Aggressive Growth Portfolio
[bullet] Balanced Portfolio
[bullet] Growth Portfolio
[bullet] Worldwide Growth Portfolio
Portfolio Partners, Inc.:
[bullet] PPI MFS Emerging Equities Portfolio
[bullet] PPI MFS Research Growth Portfolio
[bullet] PPI Scudder International Growth Portfolio
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the policies and are paid to the Company.
S-9
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
3. Dividend Income
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid
to the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) on investments in the Statements of Operations and Changes in Net
Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1997 and 1996
aggregated $372,355,431 and $260,329,704 and $113,349,117 and $29,656,908,
respectively.
S-10
<PAGE>
[This page intentionally left blank]
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1997
<TABLE>
<CAPTION>
Valuation
Period
Dividends Deductions
------------ ------------
<S> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553)
PolicyHolders' account values
Aetna Income Shares: 1,087,150 (148,230)
PolicyHolders' account values
Aetna Variable Encore Fund: 372,968 (144,720)
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443)
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 112,004 (11,360)
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 45,840 (3,290)
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 38,169 (3,596)
PolicyHolders' account values
Aetna Variable Index Plus Portfolio: 77,848 (4,920)
PolicyHolders' account values
Alger American Small Capitalization
Portfolio:(1) 576,583 (128,523)
PolicyHolders' account values
American Century VP Capital Appreciation
Fund:(2) 132,455 (57,820)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,485,715 (163,582)
PolicyHolders' account values
Growth Portfolio: 192,233 (54,856)
PolicyHolders' account values
Overseas Portfolio: 46,706 (8,253)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257)
PolicyHolders' account values
Contrafund Portfolio: 235,708 (110,146)
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (95,697)
PolicyHolders' account values
Balanced Portfolio: 192,757 (52,872)
PolicyHolders' account values
<CAPTION>
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
-------------- ------------- --------------
<S> <C> <C> <C>
Aetna Variable Fund: $11,219,896 $ 7,857,508 $3,362,388
PolicyHolders' account values
Aetna Income Shares: 2,358,910 2,406,924 (48,014)
PolicyHolders' account values
Aetna Variable Encore Fund: 74,201,538 73,731,940 469,598
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 1,960,106 1,561,449 398,657
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 1,279,898 1,184,906 94,992
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 198,099 193,283 4,816
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 225,894 207,391 18,503
PolicyHolders' account values
Aetna Variable Index Plus Portfolio: 143,972 131,418 12,554
PolicyHolders' account values
Alger American Small Capitalization
Portfolio:(1) 53,957,227 53,285,312 671,915
PolicyHolders' account values
American Century VP Capital Appreciation
Fund:(2) 15,197,338 15,512,673 (315,335)
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 14,420,981 11,843,310 2,577,671
PolicyHolders' account values
Growth Portfolio: 6,814,876 5,870,796 944,080
PolicyHolders' account values
Overseas Portfolio: 359,668 322,274 37,394
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 244,742 220,690 24,052
PolicyHolders' account values
Contrafund Portfolio: 4,519,164 3,602,586 916,578
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 18,445,996 17,632,824 813,172
PolicyHolders' account values
Balanced Portfolio: 1,238,408 1,021,789 216,619
PolicyHolders' account values
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------- ------------- ---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
$7,294,643 $6,207,999 ($1,086,644) $ 11,743,902
$92,871,626 $132,379,023
(190,180) (12,114) 178,066 6,856,045
13,179,787 21,104,804
106,394 70,857 (35,537) 10,565,707
9,092,185 20,320,201
1,383,931 1,971,257 587,326 4,867,703
15,791,541 24,336,071
15,645 27,927 12,282 1,049,257
545,378 1,802,553
(191) 5,069 5,260 533,974
123,692 710,292
20 618 598 582,502
13,963 650,139
0 (23,927) (23,927) 1,899,990
0 1,961,545
172,057 0 (172,057) (14,034,001)
13,086,083 0
(146,911) 0 146,911 (6,388,736)
6,482,525 0
1,096,283 1,523,698 427,415 2,546,018
13,310,213 20,183,450
294,867 380,110 85,243 900,915
5,052,529 7,120,144
37,941 (8,270) (46,211) 1,227,751
532,327 1,789,714
134,978 281,699 146,721 796,072
1,410,186 2,534,727
730,883 1,505,359 774,476 11,491,722
6,911,690 20,220,028
249,074 844,868 595,794 1,426,169
9,662,927 12,402,365
243,163 885,469 642,306 3,632,486
3,574,345 8,205,641
</TABLE>
S-13
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1997 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
-------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio: $ 309,334 ($ 90,076) $ 3,312,122 $ 2,585,617 $ 726,505
PolicyHolders' account values
Short-Term bond Portfolio: (3) 101,542 (32,381) 9,071,413 8,891,967 179,446
PolicyHolders' account values
Worldwide Growth Portfolio: 325,821 (167,065) 7,022,675 5,257,711 1,764,964
PolicyHolders' account values
Portfolio Partners Inc.:
PPI MFS Emerging Equities Portfolio: 0 (17,086) 9,834,242 9,998,952 (164,710)
PolicyHolders' account values
PPI MFS Research Growth Portfolio: 0 (6,128) 1,889,839 1,891,124 (1,285)
PolicyHolders' account values
PPI Scudder International Growth Portfolio: 0 (12,927) 1,858,258 1,827,173 31,085
PolicyHolders' account values
Scudder Variable Life Investment Fund --
International Portfolio: (4) 264,246 (110,422) 20,554,442 18,819,109 1,735,333
PolicyHolders' account values ----------- ---------- ------------ ------------ -----------
Total Variable Life Account B $35,222,623 ($2,713,203) $260,329,704 $245,858,726 $14,470,978
=========== ========== ============ ============ ===========
</TABLE>
(1) Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Emerging Equity Portfolio.
(2) Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Research Growth Portfolio.
(3) Effective November 28, 1997, assets from this fund were transferred into
the Aetna Variable Encore Fund.
(4) Effective November 28, 1997, assets from this fund were transferred into
the PPI Scudder
International Growth Portfolio.
S-14
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -------------- --------------- --------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 566,478 $ 1,360,430 $ 793,952 $ 3,065,638
$ 7,174,647 $ 11,980,000
26,773 0 (26,773) (4,049,682)
3,827,848 0
872,277 1,817,349 945,072 11,519,359
9,915,136 24,303,287
0 42,515 42,515 19,201,153
0 19,061,872
0 (86,245) (86,245) 7,241,839
0 7,148,181
0 192,560 192,560 14,100,392
0 14,311,110
1,244,544 0 (1,244,544) (11,259,868)
10,615,255 0
----------- ----------- ------------ ------------- ------------ ------------
$14,132,669 $16,987,228 $ 2,854,559 $ 79,516,307 $223,173,883 $352,525,147
=========== =========== ============ ============= ============ ============
</TABLE>
S-15
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1996 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $9,712,578 ($ 991,737) $5,373,083 $4,466,494 $906,589
PolicyHolders' account values
Aetna Income Shares: 810,294 (121,325) 1,564,483 1,544,041 20,442
PolicyHolders' account values
Aetna Variable Encore Fund: 477,308 (71,555) 9,490,775 9,560,169 (69,394)
PolicyHolders' account values
Aetna Investment Advisers Fund, Inc.: 1,201,085 (127,990) 1,717,127 1,435,761 281,366
PolicyHolders' account values
Aetna Ascent Variable Portfolio: 18,222 (1,210) 127,981 124,671 3,310
PolicyHolders' account values
Aetna Crossroads Variable Portfolio: 2,462 (91) 1,317 1,263 54
PolicyHolders' account values
Aetna Legacy Variable Portfolio: 671 (36) 503 486 17
PolicyHolders' account values
Alger American Small Capitalization Portfolio: 33,925 (93,143) 2,003,029 1,400,608 602,421
PolicyHolders' account values
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 19,619 (57,181) 625,427 574,716 50,711
PolicyHolders' account values
Growth Portfolio: 85,627 (30,149) 243,345 245,938 (2,593)
PolicyHolders' account values
Overseas Portfolio:
PolicyHolders' account values 14,172 (4,004) 478,644 450,003 28,641
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 62,788 (13,383) 981,022 966,124 14,898
PolicyHolders' account values
Contrafund Portfolio: 10,199 (36,829) 353,531 314,886 38,645
PolicyHolders' account values
Janus Aspen Series:
Aggressive Growth Portfolio: 79,809 (68,571) 1,171,119 858,482 312,637
PolicyHolders' account values
Balanced Portfolio: 70,301 (23,444) 452,062 367,517 84,545
PolicyHolders' account values
Growth Portfolio: 140,964 (46,593) 808,709 590,651 218,058
PolicyHolders' account values
Short-Term Bond Portfolio: 84,482 (17,596) 424,360 415,377 8,983
PolicyHolders' account values
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 65,391 $7,294,643 $7,229,252 $ 5,056,913
$70,958,031 $92,871,626
189,278 (190,180) (379,458) 2,798,667
10,051,167 13,179,787
138,935 106,394 (32,541) 3,268,179
5,520,188 9,092,185
1,031,584 1,383,931 352,347 4,815,033
9,269,700 15,791,541
0 15,645 15,645 509,411
0 545,378
0 (191) (191) 121,458
0 123,692
0 20 20 13,291
0 13,963
595,950 172,057 (423,893) 7,688,994
5,277,779 13,086,083
28,202 1,096,283 1,068,081 11,810,807
418,176 13,310,213
(36,211) 294,867 331,078 3,470,007
1,198,559 5,052,529
21,923 37,941 16,018 (102,302)
579,802 532,327
47,435 134,978 87,543 298,650
959,690 1,410,186
10,253 730,883 720,630 5,090,135
1,088,910 6,911,690
376,606 249,074 (127,532) 5,949,433
3,517,151 9,662,927
60,589 243,163 182,574 2,648,699
611,670 3,574,345
196,848 566,478 369,630 3,974,072
2,518,516 7,174,647
6,078 26,773 20,695 3,383,696
347,588 3,827,848
</TABLE>
S-17
<PAGE>
Variable Life Account B
Notes to Financial Statements--December 31, 1997 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets--Year Ended December 31, 1996 (continued)
<TABLE>
<CAPTION>
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
-------------- ---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Series (continued):
Worldwide Growth Portfolio: $ 105,214 ($ 49,874) $ 1,127,422 $ 777,300 $ 350,122
PolicyHolders' account values
Scudder Variable Life Investment Fund --
International Portfolio: 173,534 (85,922) 1,752,475 1,537,715 214,760
PolicyHolders' account values
TCI Portfolios, Inc.--Growth Fund: 710,224 (64,504) 960,494 802,090 158,404
PolicyHolders' account values ----------- ------------ ------------ ----------- ----------
Total Variable Life Account B $13,813,478 ($1,905,137) $29,656,908 $26,434,292 $3,222,616
=========== ============ ============ =========== ==========
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Net Increase
Net Unrealized Net (Decrease) In
Gain (Loss) Change in Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------- --------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 227,523 $ 872,277 $ 644,754 $ 7,436,957
$ 1,427,963 $ 9,915,136
431,463 1,244,544 813,081 2,808,258
6,691,544 10,615,255
999,727 (146,911) (1,146,638) 745,694
6,079,345 6,482,525
---------- ----------- ------------ ----------- ------------ ------------
$4,391,574 $14,132,669 $ 9,741,095 $71,786,052 $126,515,779 $223,173,883
========== =========== ============ =========== ============ ============
</TABLE>
S-19
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Policyholders of Variable Life Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Life Account B (the "Account") as
of December 31, 1997, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and
condensed financial information for the year ended December 31, 1997. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Life Account B as
of December 31, 1997, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 27, 1998
S-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
------------------------------------------
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial 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)
Years Ended December 31,
--------------------------------
1997 1996 1995
------- ------- -------
Revenue:
Premiums $267.1 $133.6 $212.7
Charges assessed against policyholders 475.0 396.5 318.9
Net investment income 1,080.5 1,045.6 1,004.3
Net realized capital gains 36.0 19.7 41.3
Other income 39.7 45.4 42.0
------- ------- -------
Total revenue 1,898.3 1,640.8 1,619.2
------- ------- -------
Benefits and expenses:
Current and future benefits 1,127.8 968.6 997.2
Operating expenses 347.4 342.2 310.8
Amortization of deferred policy
acquisition costs 128.4 69.8 48.0
Severance and facilities charges -- 61.3 --
------- ------- -------
Total benefits and expenses 1,603.6 1,441.9 1,356.0
------- ------- -------
Income before income taxes 294.7 198.9 263.2
Income taxes 89.4 57.8 87.3
------- ------- -------
Net income $205.3 $141.1 $175.9
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1997 1996
- ------ ---- ----
<S> <C> <C>
Investments:
Debt securities available for sale, at fair value
(amortized cost: $12,912.2 and $12,539.1) $13,463.8 $12,905.5
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $131.7 and $107.6) 147.6 119.0
Investment in affiliated mutual funds (cost: $78.1 and $77.3) 83.0 81.1
Common stock (cost: $0.2 and $0.0) .6 .3
Short-term investments 95.6 34.8
Mortgage loans 12.8 13.0
Policy loans 469.6 399.3
--------- --------
Total investments 14,273.0 13,553.0
Cash and cash equivalents 565.4 459.1
Accrued investment income 163.0 159.0
Premiums due and other receivables 63.7 26.6
Deferred policy acquisition costs 1,654.6 1,515.3
Reinsurance loan to affiliate 397.2 628.3
Other assets 46.8 33.7
Separate accounts assets 22,982.7 15,318.3
--------- --------
Total assets $40,146.4 $31,693.3
========= ========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $3,763.7 $3,617.0
Unpaid claims and claim expenses 38.0 28.9
Policyholders' funds left with the Company 11,143.5 10,663.7
--------- --------
Total insurance reserve liabilities 14,945.2 14,309.6
Other liabilities 312.8 354.7
Income taxes:
Current 12.4 20.7
Deferred 72.0 80.5
Separate accounts liabilities 22,970.0 15,318.3
--------- --------
Total liabilities 38,312.4 30,083.8
--------- --------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 418.0 418.0
Accumulated other comprehensive income 92.9 60.5
Retained earnings 1,320.3 1,128.2
--------- --------
Total shareholder's equity 1,834.0 1,609.5
--------- --------
Total liabilities and shareholder's equity $40,146.4 $31,693.3
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,609.5 $1,583.0 $1,088.5
Comprehensive income
Net income 205.3 141.1 175.9
Other comprehensive income, net of tax
Unrealized gains (losses) on securities ($50.1
million, $(110.8) million and $494.6 million, 32.4 (72.0) 321.5
pretax, respectively)
-------- -------- --------
Total comprehensive income 237.7 69.1 497.4
-------- -------- --------
Capital contributions -- 10.4 0.0
Other changes 4.1 (49.5) 0.0
Common stock dividends (17.3) (3.5) (2.9)
-------- -------- --------
Shareholder's equity, end of year $1,834.0 $1,609.5 $1,583.0
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $205.3 $141.1 $175.9
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
(Increase) decrease in accrued investment income (4.0) 16.5 (33.3)
(Increase) decrease in premiums due and other receivables (33.3) 1.6 25.4
Increase in policy loans (70.3) (60.7) (89.9)
Increase in deferred policy acquisition costs (139.3) (174.0) (177.0)
Decrease in reinsurance loan to affiliate 231.1 27.2 34.8
Net increase in universal life account balances 286.4 243.2 393.4
(Decrease) increase in other insurance reserve liabilities (249.6) (211.5) 79.0
Net (decrease) increase in other liabilities and other assets (41.7) 3.1 13.0
Decrease in income taxes (31.4) (26.7) (4.5)
Net accretion of discount on investments (66.4) (68.0) (66.4)
Net realized capital gains (36.0) (19.7) (41.3)
Other, net -- 1.1 --
-------- -------- --------
Net cash provided by (used for) operating activities 50.8 (126.8) 309.1
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,311.3 5,182.2 4,207.2
Equity securities 103.1 190.5 180.8
Mortgage loans 0.2 8.7 10.7
Limited partnership -- -- 26.6
Investment maturities and collections of:
Debt securities available for sale 1,212.7 885.2 583.9
Short-term investments 89.3 35.0 106.1
Cost of investment purchases in:
Debt securities available for sale (6,732.8) (6,534.3) (6,034.0)
Equity securities (113.3) (118.1) (170.9)
Short-term investments (149.9) (54.7) (24.7)
Mortgage loans -- -- (21.3)
Other, net -- (17.6) --
-------- -------- --------
Net cash used for investing activities (279.4) (423.1) (1,135.6)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,621.2 1,579.5 1,884.5
Withdrawals of investment contracts (1,256.3) (1,146.2) (1,109.6)
Capital contribution to Separate Account (25.0) -- --
Return of capital from Separate Account 12.3 -- --
Capital contribution from HOLDCO -- 10.4 --
Dividends paid to shareholder (17.3) (3.5) (2.9)
-------- -------- --------
Net cash provided by financing activities 334.9 440.2 772.0
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 106.3 (109.7) (54.5)
Cash and cash equivalents, beginning of year 459.1 568.8 623.3
-------- -------- --------
Cash and cash equivalents, end of year $565.4 $459.1 $568.8
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $119.6 $85.5 $92.8
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiary
(collectively, the "Company") are providers of financial services and life
insurance products in the United States. The Company has two business
segments: financial services and individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services and pension plan administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
Basis of Presentation
---------------------
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of
America. Aetna Life Insurance and Annuity Company is a wholly owned
subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a
wholly owned subsidiary of Aetna Retirement Services, Inc., whose ultimate
parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1996 and 1995 financial information to conform to the 1997
presentation.
New Accounting Standard
-----------------------
As of December 31, 1997 the Company adopted Financial Accounting Standard
("FAS") No. 130, Reporting Comprehensive Income. This statement establishes
standards for the reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
encompasses all changes in shareholder's equity (except those arising from
transactions with shareholders) and includes net income and net unrealized
capital gains or losses on available-for-sale securities. As this new
standard only requires additional information in a financial statement, it
does not affect the Company's financial position or results of operations.
Future Application of Accounting Standards
------------------------------------------
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
FAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in June 1996 and provides
accounting and reporting standards for transfers of financial assets and
extinguishments of liabilities.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Future Application of Accounting Standards (Continued)
FAS No. 125 is effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending are not effective until January 1, 1998. Provisions effective in
1997 did not have a material effect on the Company's financial position or
results of operations. The Company does not expect adoption of this
statement for provisions effective in 1998 to have a material effect on its
financial position or results of operations.
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3, Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments, which provides guidance for
determining when an insurance or other enterprise should recognize a
liability for guaranty-fund and other insurance related assessments and
guidance for measuring the liability. This statement is effective for 1999
financial statements with early adoption permitted. The Company does not
expect adoption of this statement to have a material effect on its
financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
Debt and equity securities are classified as available for sale and carried
at fair value. These securities are written down (as realized capital
losses) for other than temporary declines in value. Unrealized capital
gains and losses related to available for sale investments, other than
amounts allocable to experience rated contractholders, are reflected in
shareholder's equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, fair values are measured utilizing quoted
market prices for similar securities or by using discounted cash flow
methods. Cost for mortgage-backed securities is adjusted for unamortized
premiums and discounts, which are amortized using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
The company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Initial collateral, primarily cash, is required at a rate of 102% of the
market value of a loaned domestic security and 105% of the market value of
a loaned foreign security. The collateral is deposited by the borrower with
a lending agent, and retained and invested by the lending agent according
to the Company's guidelines to generate additional income. The market value
of the loaned securities is monitored on a daily basis with additional
collateral obtained or refunded as the market value of the loaned
securities fluctuates. At December 31, 1997 and 1996, the Company loaned
securities (which are reflected as invested assets) with a market value of
approximately $385.1 million and $444.7 million, respectively.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have been seeded by the Company, and is carried
at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
The Company utilizes futures contracts, swap agreements and warrants for
other than trading purposes in order to manage investment returns and price
risk and to align maturities, interest rates, and funds availability with
its obligations. (Refer to Note 3.)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Interest rate swap agreements which are designated as interest rate risk
management instruments at inception are accounted for using the accrual
method. Accordingly, the difference between amounts
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (Continued)
paid and received on such agreements is reported in net investment income.
There is no recognition in the Consolidated Balance Sheets for changes in
the fair value of the agreement.
Warrants represent the right to purchase specific securities and are
accounted for as hedges. Upon exercise, the cost of the warrants are added
to the basis of the securities purchased.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For
fixed ordinary life contracts, such costs are amortized over expected
premium-paying periods (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years). Deferred policy acquisition costs are
written off to the extent that it is determined that future policy premiums
and investment income or gross profits are not adequate to cover related
losses and expenses.
Insurance Reserve Liabilities
Future policy benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00% for all
years presented. Investment yield is based on the Company's experience.
Mortality and withdrawal rate assumptions are based on relevant Aetna
experience and are periodically reviewed against both industry standards
and experience.
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 3.50% to 9.50% for all years presented) net of adjustments for
investment experience that the Company is entitled to reflect in future
credited interest. Reserves on contracts subject to experience rating
reflect the rights of contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments with life contingencies begin under
contracts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity and reflected as an offsetting amount in both premiums and current
and future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts
are segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of mutual funds
which are managed by the Company, or other selected mutual funds not
managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $658.6 million for 1997 (fair value $668.7 million)
and $515.6 million for 1996 (fair value $523.0 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in both 1997 and in
1996.
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $1,219.7 $74.0 $0.1 $1,293.6
States, municipalities and political
subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Financial 2,370.7 84.6 1.3 2,454.0
Food & fiber 195.4 9.3 -- 204.7
Healthcare & consumer products 728.5 27.0 2.6 752.9
Media & broadcast 252.9 14.7 0.1 267.5
Natural resources 143.5 5.5 - 149.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Utilities 521.3 23.5 0.9 543.9
Other corporate securities 96.9 3.2 - 100.1
---------- -------- -------- -----------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
Foreign Securities:
Government 612.5 36.7 23.6 625.6
Utilities 177.5 28.7 -- 206.2
Other 857.9 27.7 42.8 842.8
---------- -------- -------- -----------
Total foreign securities 1,647.9 93.1 66.4 1,674.6
Residential mortgage-backed securities:
Pass-throughs 784.4 71.3 2.0 853.7
Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9
---------- -------- -------- -----------
Total residential mortgage-
backed securities 3,064.9 208.7 4.0 3,269.6
Commercial/Multifamily mortgage-
backed securities 1,127.8 34.0 0.4 1,161.4
Other asset-backed securities 1,014.2 17.1 0.4 1,030.9
---------- -------- -------- -----------
Total Debt Securities $12,912.2 $627.9 $76.3 $13,463.8
========== ======== ======== ===========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $1,072.4 $20.5 $4.5 $1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other corporate securities 141.5 3.0 -- 144.5
--------- --------- -------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- -------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- -------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- -------- --------- --------
Total Debt Securities $12,539.1 $432.6 $66.2 $12,905.5
========= ======== ========= ========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1997 and 1996, net unrealized appreciation of $551.6
million and $366.4 million, respectively, on available-for-sale debt
securities included $429.3 million and $288.5 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in future policy benefits and policyholders' funds
left with the Company.
The carrying and fair value of debt securities for the year ended December
31, 1997 are shown below by contractual maturity. Actual maturities may
differ from contractual maturities because securities may be restructured,
called, or prepaid.
Amortized Fair
Cost Value
--------- ------
(millions)
Due to mature:
One year or less $367.3 $367.6
After one year through five years 2,165.1 2,195.4
After five years through ten years 2,367.3 2,407.0
After ten years 2,805.6 3,031.9
Mortgage-backed securities 4,192.7 4,431.0
Other asset-backed securities 1,014.2 1,030.9
--------- ---------
Total $12,912.2 $13,463.8
========= =========
At December 31, 1997 and 1996, debt securities carried at $8.2 million and
$7.6 million, respectively, were on deposit as required by regulatory
authorities.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1997.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
-------- -------- -------- --------
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs(1) $2,415.9 $2,280.5 $2,309.0 $2,227.8
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 81.6% 84.2%
Supporting remaining products 18.4% 15.8%
----- -----
100.0% 100.0%
===== =====
</TABLE>
(1) At December 31, 1997 and 1996, approximately 73% and 71%,
respectively, of the Company's residential CMO holdings were
backed by government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated. At December 31, 1997
and 1996, approximately 4% and 3%, respectively, of the Company's CMO
holdings were invested in types of CMOs which are subject to more
prepayment and extension risk than traditional CMOs (such as interest- or
principal-only strips).
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in equity securities available for sale were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(millions)
1997
Equity Securities $210.0 $21.3 $0.1 $231.2
====== ===== ==== ======
1996
Equity Securities $184.9 $16.3 $0.8 $200.4
====== ===== ==== ======
3. Financial Instruments
Estimated Fair Value
--------------------
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1997 and 1996 were as follows:
1997 1996
-------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- ------ -------- -----
(millions)
Assets:
Mortgage loans $ 12.8 $ 12.4 $ 13.0 $ 13.2
Liabilities:
Investment contract
liabilities:
With a fixed maturity $ 1,030.3 $1,005.4 $1,014.1 $1,028.8
Without a fixed
maturity 10,113.2 9,587.5 9,649.6 9,427.6
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Estimated Fair Value (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in policyholders' funds left with
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1997 and 1996,
Treasury futures contracts were used to manage interest rate risk in the
Company's bond portfolio; and, in 1996, stock index futures contracts were
used to manage price risk in the Company's equity portfolio. In 1996 and
1995, interest rate swaps and forward commitments to enter into interest
rate swaps, respectively, were also used to manage interest rate risk in
the Company's bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
securities at a specified future date and at a specified price or yield.
Futures contracts trade on organized exchanges and, therefore, have minimal
credit risk. Cash settlements are made daily based on changes in the prices
of the underlying assets. There were no futures contracts open as of
December 31, 1997 and 1996.
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Off-Balance-Sheet and Other Financial Instruments (Including Derivative
Instruments) (Continued)
exposed to credit-related losses in the event of nonperformance by
counterparties to financial instruments, however, the Company controls its
exposure to credit risk through credit approvals, credit limits and regular
monitoring procedures. The credit exposure of interest rate swaps is
represented by the fair value (market value) of contracts with a positive
fair value (market value) at the reporting date. There were no interest
rate swap agreements open as of December 31, 1997 and 1996.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1997
and 1996.
Warrants:
Warrants are instruments giving the Company the right, but not the
obligation to buy a security at a given price during a specified period. As
of December 31, 1997 and 1996, the Company had open warrants to purchase
equity securities with a fair value of $0.6 million and $0.3 million,
respectively.
Debt Instruments with Derivative Characteristics:
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1997 was as follows:
Amortized Fair
Cost Value
--------- ----
(millions)
Residential collateralized mortgage
obligations $2,280.5 $2,415.9
Principal-only strips (included above) 59.0 67.0
Interest-only strips (included above) 12.8 24.3
Other structured securities with derivative
characteristics (1) 107.4 105.2
(1) Represents non-leveraged instruments whose fair values and credit
risk are based on underlying securities, including fixed income
securities and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $962.8 $945.3 $891.5
Nonredeemable preferred stock 13.7 5.9 4.2
Investment in affiliated
mutual funds 4.9 14.3 14.9
Mortgage loans 1.3 2.2 1.4
Policy loans 19.9 18.4 13.7
Reinsurance loan to affiliate 37.5 44.1 46.5
Cash equivalents 44.2 29.4 38.9
Other 10.0 2.1 8.4
-------- -------- --------
Gross investment income 1,094.3 1,061.7 1,019.5
Less investment expenses (13.8) (16.1) (15.2)
-------- -------- --------
Net investment income $1,080.5 $1,045.6 $1,004.3
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $823.1 million, $787.6 million and $744.2 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest
credited to contractholders is included in current and future benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively.
The amount of dividends that may be paid to the shareholder in 1998 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$77.6 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those
amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$80.5 million, $57.8 million and $70.0 million for the years ended December
31, 1997, 1996 and 1995, respectively. Statutory capital and surplus was
$778.7 million and $713.6 million as of December 31, 1997 and 1996,
respectively.
As of December 31, 1997 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $22.5 $11.1 $32.8
Equity securities 9.9 8.6 8.3
Other 3.6 -- 0.2
------ -------- ------
Pretax realized capital gains $36.0 $19.7 $41.3
====== ======== ======
After tax realized capital gains $23.2 $13.0 $25.8
====== ======== ======
Net realized capital gains of $96.1 million, $53.1 million and $61.1
million for 1997, 1996 and 1995, respectively, allocable to experience
rated contracts, were deducted from net realized capital gains and an
offsetting amount was reflected in policyholders' funds left with the
Company. Net unamortized gains were $138.1 million and $53.3 million at
December 31, 1997 and 1996, respectively.
Proceeds from the sale of available-for-sale debt securities and the
related gross gains and losses were as follows:
1997 1996 1995
----- ----- ----
(millions)
Proceeds on Sales $5,311.3 $5,182.2 $4,207.2
Gross Gains 25.8 24.3 44.6
Gross Losses 3.3 13.2 11.8
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities)
(excluding those related to experience rated contractholders) were as
follows:
1997 1996 1995
---- ---- ----
(millions)
Debt securities $44.3 $(100.1) $255.9
Equity securities 5.6 (10.5) 27.3
Limited partnership -- -- 1.8
----- ------- ------
49.9 (110.6) 285.0
Increase (decrease) in deferred
income taxes (See Note 8) 17.5 (38.6) (36.5)
----- ------- ------
Net changes in accumulated other
comprehensive income $32.4 $(72.0) $321.5
===== ======= ======
Net unrealized capital gains allocable to experience rated contracts of
$356.7 million and $72.6 million at December 31, 1997 and $245.2 million
and $43.3 million at December 31, 1996 are reflected on the Consolidated
Balance Sheets in policyholders' funds left with the Company and future
policy benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following accumulated other comprehensive
income, which are net of amounts allocable to experience rated
contractholders, at December 31:
1997 1996 1995
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $140.6 $101.7 $179.3
Gross unrealized capital losses (18.4) (23.8) (1.3)
----- ----- -----
122.2 77.9 178.0
Equity securities
Gross unrealized capital gains 21.2 16.3 27.2
Gross unrealized capital losses (0.1) (0.8) (1.2)
---- ---- -----
21.1 15.5 26.0
Deferred income taxes (See Note 8) 50.4 32.9 71.5
---- ---- -----
Net accumulated other
comprehensive income $92.9 $60.5 $132.5
==== ==== =====
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience rated contractholders) were as follows:
1997 1996 1995
---- ---- ----
(millions)
Unrealized holding gains (losses)
arising during the period (1) $98.8 $(14.8) $390.5
Less: reclassification adjustment
for gains and other items included
in net income (2) 66.4 57.2 69.0
----- ------ ------
Net unrealized gains (losses)
on securities $32.4 $(72.0) $321.5
===== ====== ======
(1) Pretax unrealized holding gains (losses) arising during the
period were $152.0 million, ($22.8) million and $600.8 million
for 1997, 1996 and 1995, respectively.
(2) Pretax reclassification adjustments for gains and other items
included in net income were $102.4 million, $87.7 million and
$107.5 million for 1997, 1996 and 1995, respectively.
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-off Property Other Allocation Total
-------------------------- --------- --------- --------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $29.1 $1.0 $1.3 $1.7 $ -- $33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
--------- --------- --------- ----- ---------- ---------
Total Company $41.6 $1.4 $1.8 $2.5 $14.0 $61.3
-------------------------- --------- --------- --------- ----- ---------- ---------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on
a plan to consolidate sales/service field offices.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges (Continued)
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions
taken or expected to be taken to reduce the level of corporate expenses and
other costs previously absorbed by Aetna's property-casualty operations,
which were sold in April 1996. The cost allocated to the Company associated
with this charge was $9.1 million after tax ($14.0 million pretax).
Activity for 1997 and 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
(Millions) Reserve Positions
----------------------------------- ---------- ---------
Balance at December 31, 1995 $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
---------- ---------
Balance at December 31, 1996 47.9 524
Actions taken (1) (27.1) (163)
---------- ---------
Balance at December 31, 1997 $20.8 361
========== =========
(1) Includes $15.9 million and $8.0 million in 1997 and 1996,
respectively, of severance-related actions and $7.9 million and $4.1
million in 1997 and 1996, respectively, of corporate
allocation-related actions.
The Company's severance actions are expected to be substantially completed
by September 30, 1998. The corporate allocation actions were substantially
completed in 1997.
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return, the
Illinois Unitary return and the Connecticut and the New York combined state
income tax returns of Aetna. Aetna allocates to each member an amount
approximating the tax it would have incurred were it not a member of the
consolidated group, and credits the member for the use of its tax saving
attributes used in the consolidated federal income tax return.
Income taxes for the years ended December 31, consist of:
1997 1996 1995
---- ---- ----
(millions)
Current taxes:
Income Taxes:
Federal income tax $64.5 $50.9 $82.9
State income tax 3.7 3.7 3.2
Net realized capital gains 45.6 25.3 28.5
----- ---- ----
113.8 79.9 114.6
----- ---- -----
Deferred taxes (benefits):
Income taxes:
Federal 8.4 (3.5) (14.4)
Net realized capital gains (losses) (32.8) (18.6) (12.9)
----- ----- -----
(24.4) (22.1) (27.3)
----- ----- -----
Total $89.4 $57.8 $87.3
===== ===== =====
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1997 1996 1995
---- ---- ----
(millions)
Income before income taxes $294.7 $198.9 $263.2
Tax rate 35% 35% 35%
------- ------- -------
Application of the tax rate 103.1 69.6 92.1
------- ------- -------
Tax effect of:
State income tax, net of
federal benefit 2.4 2.4 2.1
Excludable dividends (15.9) (8.7) (9.3)
Other, net (0.2) (5.5) 2.4
------- ------- --------
Income taxes $89.4 $57.8 $87.3
======= ======= ========
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1997 1996
---- ----
(millions)
Deferred tax assets:
Insurance reserves $415.8 $344.6
Unrealized gains allocable to
experience rated contracts 150.1 100.8
Investment losses 6.6 7.5
Postretirement benefits other
than pensions 26.3 27.0
Deferred compensation 31.2 25.0
Pension (3.6) 7.6
Restructuring charge 9.5 17.6
Depreciation 3.9 2.6
Other 8.8 9.1
--------- --------
Total gross assets 648.6 541.8
Deferred tax liabilities:
Deferred policy acquisition costs 515.6 482.1
Market discount 5.1 6.8
Net unrealized capital gains 200.5 133.7
Other (0.6) (0.3)
--------- ---------
Total gross liabilities 720.6 622.3
--------- ---------
Net deferred tax liability $72.0 $80.5
========= =========
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. As of December 31, 1997 and 1996, no
valuation allowances were required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 1997. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to amounts that are tax-deductible. As of
December 31, 1997, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $2.7 million, $4.3
million and $6.1 million for the years ended December 31, 1997, 1996 and
1995, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides certain health care and life insurance
benefits for retired employees. A comprehensive medical and dental plan is
offered to all full-time employees retiring at age 50 with 15 years of
service or at age 65 with 10 years of service. There is a cap on the
portion of the cost paid by the Company relating to medical and dental
benefits. Retirees are generally required to contribute to the plans based
on their years of service with Aetna. The costs to the Company associated
with the Aetna postretirement plans for 1997, 1996 and 1995 were $2.7
million, $1.8 million and $1.4 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings. In 1997,
other changes in shareholder's equity includes an additional $0.8 million
reduction reflecting revisions to the allocation of these accrued
liabilities.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1997, 1996 and 1995 were $0.6 million,
$0.7 million and $0.8 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $4.4 million, $5.4 million and $4.9
million in 1997, 1996 and 1995, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1997, 1996
and 1995, were $2.9 million, $8.1 million and $6.3 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings. In 1997, other changes in
shareholder's equity include an additional increase of $2.3 million
reflecting revisions to the allocation of the deferred tax benefit.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts. Under
the insurance contracts, the Separate Accounts pay the Company a daily fee
which, on an annual basis, ranges, depending on the product, from 0.10% to
1.90% of their average daily net assets. The Company also receives fees
from Aetna managed mutual funds for serving as investment adviser. Under
the advisory agreements, these funds pay the Company a daily fee which, on
an annual basis, ranges, depending on the fund, from 0.25% to 0.85% of
their average daily net assets. The Company also receives fees (expressed
as a percentage of the average daily net assets) from some of its funds for
providing administration services, and from The Aetna Series Fund for
providing shareholder services and promoting sales. The amount of
compensation and fees received from the Separate Accounts and mutual funds,
included in charges assessed against policyholders, amounted to $271.2
million, $186.8 million and $128.1 million in 1997, 1996 and 1995,
respectively. The Company may waive advisory fees at its discretion.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor for affiliated mutual funds and adviser for most of the
General Account assets. Fees paid by the Company to Aeltus, included in
both charges assessed against policyholders and net investment income, on
an annual basis, range from 0.06% to 0.55% of the average daily net assets
under management. For the years ended December 31, 1997 and 1996, the
Company paid $45.5 million and $16.0 million in such fees.
The Company may, from time to time, make reimbursements to an Aetna managed
mutual fund for some or all of its operating expenses. Reimbursement
arrangements may be terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $6.1 million and a $108.0
million commission, paid by the Company to Aetna Life in 1996 and 1988,
respectively, was capitalized as deferred policy acquisition costs. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance
reserves. Effective January 1, 1997, this agreement has been amended to
transition (based on underlying investment rollover in Aetna Life) from a
modified coinsurance to a coinsurance arrangement. As a result of this
change, reserves will be ceded to the Company from Aetna Life as investment
rollover occurs and the loan previously established will be reduced. The
Company maintained insurance reserves of $574.5 million ($397.2 million
relating to the modified coinsurance agreement and $177.3 million relating
to the coinsurance agreement) and $628.3 million as of December 31, 1997
and 1996, respectively, relating to the business assumed. The fair value of
the loan relating to assets held by Aetna Life was $412.3 million and
$625.3 million as of December 31, 1997 and 1996, respectively, and is based
upon the fair value of the underlying assets. Premiums of $176.7 million,
$25.3 million and $28.0 million and current and future benefits of $183.9
million, $39.5 million and $43.0 million were assumed in 1997, 1996 and
1995, respectively.
Investment income of $37.5 million, $44.1 million and $46.5 million was
generated from the reinsurance loan to affiliate in 1997, 1996 and 1995,
respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company
also is responsible for administering fixed annuity payments that are made
to annuitants receiving variable payments. Reserves of $32.5 million and
$28.9 million were maintained for this contract as of December 31, 1997 and
1996, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement
with Aetna Life to reinsure amounts in excess of this
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
limit, up to a maximum of $8.0 million on any new individual life business,
on a yearly renewable term basis. Premium amounts related to this agreement
were $5.9 million, $5.2 million and $3.2 million for 1997, 1996 and 1995,
respectively.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of
its participating life insurance, on a yearly renewable term basis. Premium
amounts related to this agreement were $0.7 million in 1997.
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1997 or
1995.
The Company paid $17.3 million and $3.5 million in cash dividends to HOLDCO
in 1997 and 1996, respectively. In 1995, the Company dividended $2.9
million in the form of two of its subsidiaries, Systematized Benefits
Administrators, Inc. and Aetna Investment Services, Inc., to Aetna
Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $37.0 million and $2.8 million
due from affiliates in 1997 and 1996, respectively. Other liabilities
include $1.2 million and $10.7 million due to affiliates for 1997 and 1996,
respectively.
As of December 31, 1997, Aetna transferred to the Company $2.5 million
based on its decision not to settle state tax liabilities for the years
1996 and 1997. This amount has been reported as an other increase in
retained earnings.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures
appropriate for the type and nature of service provided.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
(millions)
------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
1997
----
Premiums:
Life Insurance $ 35.7 $15.1 $177.4 $198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
------- ------------- ----------- ---------
Total earned premiums $109.2 $20.7 $178.6 $267.1
======= ============= =========== =========
1996
----
Premiums:
Life Insurance $ 34.6 $11.2 $25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
------- ------------- ----------- ---------
Total earned premiums $125.2 $17.5 $25.9 $133.6
======= ============= =========== =========
1995
----
Premiums:
Life Insurance $ 28.8 $ 8.6 $28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
------- ------------- ----------- ---------
Total earned premiums $200.3 $16.1 $28.5 $212.7
======= ============= =========== =========
</TABLE>
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value
of the securities underlying the commitments. At December 31, 1997, the
Company had commitments to purchase investments of $38.7 million. The fair
value of the investments at December 31, 1997 approximated $39.0 million.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna
Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance. Summarized financial
information for the Company's principal operations was as follows:
1997 1996 1995
--------- --------- ---------
(millions)
Revenue:
Financial Services $1,277.9 $1,195.1 $1,211.3
Individual Life Insurance 620.4 445.7 407.9
--------- --------- ---------
Total revenue $1,898.3 $1,640.8 $1,619.2
========= ========= =========
Income before income taxes: (2)
Financial Services $188.2 $129.9 $160.1
Individual Life Insurance 106.5 83.0 103.1
--------- --------- ---------
Total income before
income taxes $294.7 $212.9 $263.2
========= ========= =========
Net income: (2)
Financial Services $137.5 $94.3 $113.8
Individual Life Insurance 67.8 55.9 62.1
--------- --------- ---------
Net income $205.3 $150.2 $175.9
========= ========= =========
Assets under management: (3)
Financial Services (4) $37,609.3 $27,268.1 $22,534.4
Individual Life Insurance 3,096.1 2,830.5 2,590.9
--------- --------- ---------
Total assets under management 40,705.4 $30,098.6 $25,125.3
========= ========= =========
(1) The 1996 results include severance and facilities charges of
$30.7 million, after tax. Of this charge $21.5 million related to
the Financial Services segment and $9.2 million related to the
Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance
charge recorded in 1996 which is not directly allocable to the
Financial Services and Individual Life Insurance segments. (Refer
to Note 7).
(3) Excludes net unrealized capital gains (losses) of $551.5 million,
$366.4 million and $797.1 million at December 31, 1997, 1996 and
1995, respectively.
(4) The December 31, 1997 balance includes the transfer of $4,078.5
million of assets under management that were previously reported
by an affiliate.
F-31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF
THE INVESTMENT COMPANY ACT OF 1940
Aetna Life Insurance and Annuity Company represents that the fees and charges
deducted under the policies covered by this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the insurance company.
CONTENTS OF POST-EFFECTIVE AMENDMENT NO. 10 TO
THE REGISTRATION STATEMENT
This Post-Effective Amendment No. 10 to Registration Statement No. 33-76018 is
comprised of the following papers and documents:
[bullet] The facing sheet.
[bullet] One Prospectus for the AetnaVest Plus Variable Life Insurance Policy
consisting of 92 pages
[bullet] The undertaking to file reports
<PAGE>
[bullet] The undertaking pursuant to Rule 484
[bullet] Representation pursuant to Section 26(e)(2)(A) of the Investment
Company Act of 1940
[bullet] The signatures
[bullet] Written consents of the following persons:
A. Consent of Counsel (included as part of Exhibit No. 2 below)
B. Actuarial Consent (included as part of Exhibit No. 6 below)
C. Consent of Independent Auditors (included as Exhibit No. 7 below)
The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for
Form N-8B-2:
(1) Resolution establishing Variable Life Account B(1)
(2) Not applicable
(3)(i) Master General Agent Agreement(1)
(3)(ii) Life Insurance General Agent Agreement(1)
(3)(iii) Broker Agreement(1)
(3)(iv) Life Insurance Broker-Dealer Agreement(1)
(4) Not applicable
(5)(i) AetnaVest Plus Policy (38899-93)(2)
(5)(ii) Disability Benefit Rider (70174-93) to AetnaVest Plus
Policy 38899-93(2)
(5)(iii) Unisex Amendment rider (70211-95US) for use with
AetnaVest Plus Policy 38899-93(2)
(6)(i) Certificate of Incorporation of Aetna Life Insurance
and Annuity Company, Depositor(3)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(4)
(6)(iii) By-Laws as amended September 17, 1997 of Aetna Life
Insurance and Annuity Company(5)
(7) Not applicable
(8)(i) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996
and March 1, 1996(4)
(8)(ii) Fifth Amendment dated as of May 1, 1997 to the Fund
Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund
and Fidelity Distributors Corporation dated February 1,
1994 and amended on December 15, 1994, February 1,
1995, May 1, 1995, January 1, 1996 and March 1, 1996(6)
<PAGE>
(8)(iii) Sixth Amendment dated November 6, 1997 to the Fund
Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund
and Fidelity Distributors Corporation dated February 1,
1994 and amended on December 15, 1994, February 1,
1995, May 1, 1995, January 1, 1996, March 1, 1996 and
May 1, 1997(7)
(8)(iv) Form of Seventh Amendment dated as of May 1, 1998 to
the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996,
March 1, 1996, May 1, 1997 and November 6, 1997(8)
(8)(v) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996
and March 1,1996(4)
(8)(vi) Fifth Amendment, dated as of May 1, 1997 to the Fund
Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund
II and Fidelity Distributors Corporation dated February
1, 1994 and amended on December 15, 1994, February 1,
1995, May 1, 1995, January 1, 1996, and March 1,
1996(6)
(8)(vii) Sixth Amendment dated as of January 20, 1998 to the
Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996,
March 1, 1996 and May 1, 1997(9)
(8)(viii) Form of Seventh Amendment dated as of May 1, 1998 to
the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1, 1996,
March 1, 1996, May 1, 1997 and January 20, 1998(8)
(8)(ix) Service Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995(10)
(8)(x) Amendment dated January 1, 1997 to Service Agreement
between Aetna Life Insurance and Annuity Company and
Fidelity Investments Institutional Operations Company
dated as of November 1, 1995(6)
(8)(xi) Fund Participation Agreement among Janus Aspen Series
and Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997(11)
(8)(xii) Service Agreement between Janus Capital Corporation and
Aetna Life Insurance and Annuity Company dated December
8, 1997(11)
(8)(xiii) Fund Participation Agreement between Aetna Life
Insurance and Annuity Company and Oppenheimer Variable
Annuity Account Funds and Oppenheimer Funds, Inc.(12)
(8)(xiv) Service Agreement between Oppenheimer Funds, Inc. and
Aetna Life Insurance and Annuity Company(12)
(9) Not applicable
(10)(i) Application (70059-96)(13)
(10)(ii) Application (70059-96ZNY)(13)
(10)(iii) Application Supplement (70268-97(3/98))(13)
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
<PAGE>
5. Not Applicable
6. Actuarial Opinion and Consent
7. Consent of Independent Auditors
8. Copy of Power of Attorney(8)
1. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form S-6 (File No. 33-76004), as filed electronically on
February 16, 1996 (Accession No. 0000912057-96-0027723).
2. Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-76018), as filed electronically on April
22, 1997 (Accession No. 0000950146-97-000628).
3. 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. 0000950146-97-000534).
4. 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).
5. 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).
6. 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).
7. 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).
8. Incorporated by reference to Post-Effective Amendment No. 9 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
April 7, 1998 (Accession No. 0000950146-98-000564). In addition, a
certified copy of the resolution adopted by the Depositor's Board of
Directors authorizing filings pursuant to a power of attorney as required
by Rule 478 under the Securities Act of 1933 is incorporated by reference
to Post-Effective Amendment No. 5 to Registration Statement on Form N-4
(File No. 33-75986), as filed electronically on April 12, 1996 (Accession
No. 0000912057-96-006383).
9. 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).
10. 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).
11. 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).
12. 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).
13. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-6 (File No. 33-64277), as filed electronically on
February 25, 1998 (Accession No. 0000950146-98-000271).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Variable Life Account B of Aetna Life Insurance and Annuity Company, 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. 33-76018) and has duly caused this Post-Effective Amendment No. 10 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 14th
day of April, 1998.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE
AND ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Karen A. Peddle
- -------------------------------------
Karen A. Peddle
Assistant Corporate Secretary
By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
By: Thomas J. McInerney*
---------------------------
Thomas J. McInerney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 10 to the Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
Signature Title Date
- --------- ----- ----
Thomas J. McInerney* Director and President )
- ------------------------ (Principal Executive Officer) )
Thomas J. McInerney ) April
) 14, 1998
)
Catherine H. Smith* Director and )
- ------------------------ Chief Financial Officer )
Catherine H. Smith )
<PAGE>
Signature Title Date
- --------- ----- ----
)
Shaun P. Mathews* Director )
- ------------------------ )
Shaun P. Mathews )
)
)
Deborah Koltenuk* Vice President and Treasurer, )
- ------------------------ Corporate Controller )
Deborah Koltenuk )
By: /s/ Mary Katherine Johnson
--------------------------
Mary Katherine Johnson
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- ------- ----
99-1.1 Resolution establishing Variable Life Account B *
99-1.3(i) Master General Agent Agreement *
99-1.3(ii) Life Insurance General Agent Agreement *
99-1.3(iii) Broker Agreement *
99-1.3(iv) Life Insurance Broker-Dealer Agreement *
99-1.5(i) AetnaVest Plus Policy (38899-93) *
99-1.5(ii) Term Rider to AetnaVest Plus Policy 38899-93 *
99-1.5(iii) Unisex Amendment Rider (70211-95US) for use with *
AetnaVest Plus Policy 38899-93
99-1.6(i) Certificate of Incorporation of Aetna Life Insurance and *
Annuity Company, Depositor
99-1.6(ii) Amendment of Certificate of Incorporation of Aetna Life *
Insurance and Annuity Company
99-1.6(iii) By-Laws as amended September 17, 1997 of Aetna Life *
Insurance and Annuity Company
99-1.8(i) Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996 and March 1, 1996
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-1.8(ii) Fifth Amendment dated as of May 1, 1997 to the Fund *
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996 and March 1, 1996
99-1.8(iii) Sixth Amendment dated November 6, 1997 to the Fund *
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997
99-1.8(iv) Form of Seventh Amendment dated as of May 1, 1998 to the *
Fund Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996, May 1, 1997 and
November 6, 1997
99-1.8(v) Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company, Variable Insurance Products Fund
II and Fidelity Distributors Corporation dated February
1, 1994 and amended on December 15, 1994, February 1,
1995, May 1, 1995, January 1, 1996 and March 1,1996
99-1.8(vi) Fifth Amendment, dated as of May 1, 1997 to the Fund *
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, and March 1, 1996
99-1.8(vii) Sixth Amendment dated as of January 20, 1998 to the Fund *
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994
and amended on December 15, 1994, February 1, 1995, May
1, 1995, January 1, 1996, March 1, 1996 and May 1, 1997
99-1.8(viii) Form of Seventh Amendment dated as of May 1, 1998 to the *
Fund Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund II
and Fidelity Distributors Corporation dated February 1,
1994 and amended on December 15, 1994, February 1, 1995,
May 1, 1995, January 1, 1996, March 1, 1996, May 1, 1997
and January 20, 1998
99-1.8(ix) Service Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-1.8(x) Amendment dated January 1, 1997 to Service Agreement *
between Aetna Life Insurance and Annuity Company and
Fidelity Investments Institutional Operations Company
dated as of November 1, 1995
99-1.8(xi) Fund Participation Agreement among Janus Aspen Series and *
Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997
99-1.8(xii) Service Agreement between Janus Capital Corporation and *
Aetna Life Insurance and Annuity Company dated December
8, 1997
99-1.8(xiii) Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Oppenheimer Variable Annuity
Account Funds and Oppenheimer Funds, Inc
99-1.8(xiv) Service Agreement between Oppenheimer Funds, Inc. and *
Aetna Life Insurance and Annuity Company
99-1.10(i) Application 70059-96 *
99-1.10(ii) Application 70059-96ZNY *
99-1.10(iii) Application Supplement (70268-97(3/98)) *
99-2 Opinion and Consent of Counsel _______
99-6 Actuarial Opinion and Consent _______
99-7 Consent of Independent Auditors _______
99-8 Copy of Power of Attorney *
*Incorporated by reference
[Aetna letterhead]
[Aetna logo]
151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
Investments & Financial Services
April 14, 1998 (860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Life Account B
Post-Effective Amendment No. 10 to Registration Statement on Form S-6
Prospectus Title: AetnaVest Plus
File Nos.: 33-76018 and 811-4536
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I have reviewed the S-6 Registration Statement,
as amended to the date hereof, and this Post-Effective Amendment No. 10. 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
<PAGE>
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances. Based upon the foregoing, I am of the opinion that the Securities
have been legally authorized and, assuming that the Securities have been issued
and sold in accordance with the provisions of the prospectus being registered,
will be legally issued.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
-----------------
Julie E. Rockmore
[Aetna Letterhead]
[Aetna Retirement Services logo]
151 Farmington Avenue
Hartford, CT 06156
Mark S. Reilly, FSA, MAAA
Pricing Actuary
Product & Brand Management
Retail Markets, TN41
Office: (860)273-8129
Fax: (860)273-4438
March 29, 1998
Re: AetnaVest Plus (File No. 33-76018)
Dear Sir or Madam:
In my capacity as Actuary of Aetna Life Insurance and Annuity Company
(ALIAC), I have provided actuarial advice concerning ALIAC's AetnaVest Plus
Flexible Premium Variable Life Insurance Policy (the "Policy"). I also
provided actuarial advice concerning the preparation of Post-Effective
Amendment No. 10 to Registration Statement on Form S-6, File No. 33-76018
(the "Registration Statement") for filing with the Securities and Exchange
Commission under the Securities Act of 1933 in connection with the Policy.
In my opinion the illustrations of benefits under the Policy included in
the prospectus under the caption "Illustrations of Death Benefit, Total
Account Values and Surrender Values" are, based on the assumptions stated
in the illustrations, consistent with the provisions of the Policy. Also,
in my opinion the age selected in the illustrations is representative of
the manner in which the Policy operates.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Mark S. Reilly
Mark S. Reilly
Pricing Actuary
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company and
Policyholders of Aetna Variable Life Account B:
We consent to the use of our reports dated February 3, 1998 and February 27,
1998 included in this Post-Effective Amendment No. 10 to Registration Statement
(No. 33-76018) on Form S-6 and to the reference to our firm under the heading
"Independent Auditors" in the prospectus.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 14, 1998
