As filed with the Securities and Exchange Commission on April 27, 1999
Registration No. 33-76018
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 12 TO
REGISTRATION STATEMENT
FOR REGISTRATION
Under the
SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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Variable Life Account B of Aetna Life Insurance
and Annuity Company
(Exact Name of Registrant)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Address of Depositor's Principal Executive Offices)
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 06156
(Name and Complete Address of Agent for Service)
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Copy to:
George N. Gingold, Esq.
197 King Philip Drive
West Hartford, CT 06117-1409
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It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 1999 pursuant to paragraph (b) of Rule 485
[ ] on , , pursuant to paragraph (a) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
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Form N-8B-2 Part I
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Item No.
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1 Cover Page; The Separate Account; The Company
2 Cover Page; The Separate Account; The Company
3 Not Applicable
4 Cover Page; The Company; Additional Information--Distribution of the Policies
5 The Separate Account; The Company
6 The Separate Account; The Company
7 Not Applicable
8 Financial Statements
9 Additional Information--Legal Matters
10 The Separate Account; Charges & Fees; Policy Choices; Policy Values; Policy Rights; Additional
Information; Miscellaneous Policy Provisions
11 Allocation of Premiums; Policy Choices
12 Cover Page; Allocation of Premiums
13 Charges and Fees; Policy Choices; Term Insurance Rider; Additional Information--Distribution of
Policies
14 Policy Values; Miscellaneous Policy Provisions
15 Policy Summary; Allocation of Premiums--The Funds; Policy Choices; Policy Values
16 Policy Summary; Allocation of Premiums--The Funds; Policy Values
17 Policy Rights
18 Allocation of Premiums; Policy Choices; Policy Rights
19 Additional Information
20 Not Applicable
21 Policy Rights--Policy Loans
22 Not Applicable
23 Directors and Officers
24 Miscellaneous Policy Provisions
25 The Company
26 Charges and Fees
27 The Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2 Part I
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Item No.
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28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Company; Additional Information
36 Not Applicable
37 Not Applicable
38 Additional Information
39 See Item 25
40 See Item 26
41 See Item 27
42 See Item 28
43 Financial Statements
44 Policy Values--Accumulation Unit Value; Financial Statements
45 Not Applicable
46 The Separate Accounts; Policy Values
47 The Separate Accounts; Allocation of Premiums; Policy Choices; Policy Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Cover Page; Policy Choices; Policy Values
52 The Separate Account; Allocation of Premiums
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
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[Aetna Logo] AetnaVest Plus
Aetna Life Insurance and Administrative Office: Variable Life Account B
Annuity Company Variable Life Account B Prospectus
Home Office: Personal Service Center, MVLI Dated: May 1, 1999
151 Farmington Avenue 350 Church Street
Hartford, Connecticut 06156 Hartford, CT 06103-1106
Telephone: (800) 334-7586 Telephone: (800) 334-7586
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Flexible Premium Variable Life Insurance Policies
- --------------------------------------------------------------------------------
This Prospectus describes AetnaVest Plus, a flexible premium variable life
insurance contract (the "Policy"), offered by Aetna Life Insurance and Annuity
Company (the "Company", "we", "us").
In October 1998, the Company and life insurance affiliates of Lincoln
Financial Group ("Lincoln") entered into a transaction whereby nearly all of
the Company's variable life insurance business was reinsured by the Lincoln
affiliates.
The Policies feature: - flexible premium payments;
- a choice of one of two death benefit options; and
- a choice of underlying investment options.
Each fund has its own investment objective. Not all funds may be available
under all Policies or in all jurisdictions. You should review each fund's
Prospectus before making your decision. The mutual funds ("Funds" or
"sub-accounts") that make up the Separate Account are:
<TABLE>
<S> <C>
o Aetna Ascent VP o Janus Aspen Balanced Portfolio
o Aetna Balanced VP, Inc. o Janus Aspen Growth Portfolio
o Aetna Income Shares d/b/a Aetna Bond VP o Janus Aspen Worldwide Growth Portfolio
o Aetna Crossroads VP o Oppenheimer Global Securities Fund/VA
o Aetna Variable Fund d/b/a Aetna Growth and Income VP o Oppenheimer Strategic Bond Fund/VA
o Aetna Index Plus Large Cap VP o Portfolio Partners MFS Emerging
o Aetna Legacy VP Equities Portfolio
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP o Portfolio Partners MFS Research Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) o Portfolio Partners MFS Value Equity Portfolio
Equity-Income Portfolio o Portfolio Partners Scudder International
o Fidelity Variable Insurance Products Fund II (VIP II) Growth Portfolio
Contrafund Portfolio o Portfolio Partners T. Rowe Price Growth
o Janus Aspen Aggressive Growth Portfolio Equity Portfolio
</TABLE>
Net premiums allocated to the Fixed Account earn fixed rates of interest. We
determine the rates periodically, but we guarantee that they will never be less
than 4.5% a year.
This Prospectus and other information about Variable Life Account B filed with
the Securities and Exchange Commission ("Commission") can be found in the SEC'S
web site at http://www.sec.gov. You can get copies of this information by
visiting the Commission's Public Reference Room or writing the Commission's
Public Reference Section, Washington, D.C. 20549-6009 and paying a duplicating
fee. You can get information on the operation of the Public Reference Room by
calling 1-800-SEC-0330.
The Commission has not approved or disapproved these securities or determined
if this Prospectus is accurate or complete. It is a criminal offense to state
otherwise.
To be valid, this Prospectus must have the current mutual funds' Prospectuses
with it. You should read the Prospectus and the attached prospectus for any
available Fund if you are considering buying a Certificate or exercising
elections under a Certificate. You should also keep them for future reference.
You can obtain any fund's Statement of Additional Information (SAI), which
provides more information about a fund, by calling (800) 334-7586.
i
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Policy Summary ................................. 1
Initial Choices to be Made .................... 1
Level or Varying Death Benefit ................ 1
Amount of Premium Payment ..................... 2
Selection of Funding Vehicles ................. 2
Guaranteed Death Benefit Provision ............ 2
No-Lapse Coverage Provision ................... 3
Charges and Fees .............................. 3
Policy Loans .................................. 4
Changes in Specified Amount ................... 4
The Company .................................... 4
The Separate Account ........................... 5
Allocation of Premiums ......................... 5
The Funds ..................................... 6
Mixed and Shared Funding ...................... 8
Fixed Account ................................. 9
Charges and Fees ............................... 10
Premium Charge ................................ 10
Charges and Fees Assessed Against the
Total Account Value .......................... 10
Charges and Fees Assessed Against the
Separate Account ............................. 11
Charges Assessed Against the Underlying
Funds ........................................ 12
Surrender Charge .............................. 13
Surrender Charges on Full and
Partial Surrenders ........................... 14
Policy Choices ................................. 14
Death Benefit ................................. 14
Guaranteed Death Benefit Provision ............ 15
Premium Payments .............................. 15
Transfers and Allocations to the
Funding Options .............................. 17
Limits on Frequent Transfers .................. 17
Telephone Transfers ........................... 17
Automated Transfers (Dollar Cost
Averaging) ................................... 18
Policy Values .................................. 18
Total Account Value ........................... 18
Accumulation Unit Value ....................... 19
Maturity Value ................................ 20
Cash Surrender Value .......................... 20
Policy Rights .................................. 20
Partial Surrenders ............................ 20
No-Lapse Coverage Provision ................... 21
Reinstatement of a Lapsed Policy .............. 21
</TABLE>
<TABLE>
<S> <C>
Policy Loans: Preferred and Nonpreferred ...... 21
Policy Changes
Increases .................................... 22
Decreases .................................... 23
Death Benefit Option Change ................... 23
Right to Examine the Policy ................... 23
Death Benefit .................................. 24
Policy Settlement .............................. 24
Settlement Options ............................ 24
Calculation of Settlement Payments ............ 26
Special Plans .................................. 27
Directors and Officers ......................... 28
Additional Information ......................... 30
Reports to Policy Owners ...................... 30
Right to Instruct Voting of Fund Shares ....... 30
Disregard of Voting Instructions .............. 30
State Regulation .............................. 31
Legal Matters ................................. 31
The Registration Statement .................... 31
Distribution of the Policies .................. 31
Records and Accounts .......................... 32
Independent Auditors .......................... 32
Year 2000 ..................................... 32
Tax Matters .................................... 33
General ....................................... 33
Federal Tax Status of the Company ............. 33
Life Insurance Qualification .................. 33
General Rules ................................. 34
Modified Endowment Contracts .................. 34
Diversification Standards ..................... 35
Investor Control .............................. 35
Other Tax Considerations ...................... 36
Withholding ................................... 36
Miscellaneous Policy Provisions ................ 37
The Policy .................................... 37
Payment of Benefits ........................... 37
Age and Sex ................................... 37
Incontestability .............................. 37
Suicide ....................................... 37
Coverage Beyond Maturity ...................... 38
Protection of Proceeds ........................ 38
Nonparticipation .............................. 38
Illustrations of Death Benefit, Total Account
Values and Cash Surrender Values .............. 39
Financial Statements of the Separate Account S-1
Financial Statements of the Company ............ F-1
</TABLE>
ii
<PAGE>
This Prospectus does not constitute an offer in any jurisdiction where
prohibited. No dealer, salesman or other person is authorized to give any
information or make any representation in connection with this offering other
than those contained in this Prospectus, or other sales material authorized by
the Company and if given or made, such other information or representations
must not be relied upon.
The purpose of the policy is to provide insurance protection. Life insurance is
a long-term investment. Owners should consider their need for insurance
coverage and the policy's long-term investment potential. We do not claim that
the policy is in any way similar or comparable to an investment in a mutual
fund.
iii
<PAGE>
Policy Summary
This section is an overview of key Policy features for AetnaVest Plus.
(Regulations in your state may vary the provisions of your own Policy.) Your
Policy is a flexible premium variable life insurance policy, under which
flexible premium payments are permitted and the death benefit and policy values
may vary with the investment performance of the funding option(s) selected. Its
value may change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable basis.
Review your personal financial objectives and discuss them with a qualified
financial counselor before you buy a variable life insurance policy. This
Policy may, or may not, be appropriate for your individual financial goals. The
value of the Policy and, under one option, the death benefit amount depend on
the investment results of the funding options you select.
At all times, your Policy must qualify as life insurance under the Internal
Revenue Code of 1986 (the "Code") to receive favorable tax treatment under
Federal law. If these requirements are met, you may benefit from favorable
federal tax treatment. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
Initial Choices to be Made
The Policy Owner (the "Owner" or "you") is the person named in the "policy
specifications" who has all of the Policy ownership rights. If no Owner is
named, the Insured (the person whose life is insured under the Policy) will be
the Owner of the Policy. You, as the Owner, have four important choices to make
when the Policy is first purchased. You need to choose:
1) either the level or varying death benefit option;
2) the amount of premium you want to pay;
3) the amount of your net premium payment to be placed in each of the funding
options you select. The net premium payment is the balance of your
premium payment that remains after certain charges are deducted from it;
4) if you want the guaranteed death benefit provision, and to what age
(described on page 15).
Level or Varying Death Benefit
The death benefit is the amount the Company pays to the beneficiary(ies) when
the Insured dies. Before we pay the beneficiary(ies), any outstanding loan
account balances or outstanding amounts due are subtracted from the death
benefit. We calculate the death benefit payable, as of the date the Insured
died.
If you choose the level death benefit option, the death benefit will be the
greater of:
1) the "specified amount" in effect for the Policy at the time of the Insured's
death (The initial specified amount may be found on the Policy's
specification page); or
2) the applicable percentage of the "total account value" (The total account
value is the total of the balances in the Fixed Account and the separate
account minus any outstanding Loan Account amounts).
1
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If you choose the varying death benefit option, the death benefit will be the
greater of:
1) the specified amount plus the total account value; or
2) the applicable percentage of the total account value.
See pages 14-15 for more details.
If you have borrowed against your Policy or surrendered a portion of your
Policy, the Loan Account balance and any surrendered amount will reduce your
initial death benefit. See pages 14-15.
You may borrow within described limits against the Policy. You may surrender
the Policy in full or withdraw part of its value. A surrender charge is applied
if the Policy is surrendered totally.
Amount of Premium Payment
When you first buy your Policy, you must decide how much premium to pay.
Premium payments may be changed within the limits described on pages 15-16. If
your Policy lapses because your monthly deduction is larger than the "cash
surrender value"(total account value minus the surrender charge and the amount
necessary to repay any loans), you may reinstate your Policy. See page 21.
You may use the value of the Policy to pay the premiums due and continue the
Policy in force if sufficient values are available for premium payments. Be
careful; if the investment options you choose do not do as well as you expect,
there may not be enough value to continue the Policy in force without more
premium payments. Charges against Policy values for the cost of insurance (see
pages 10-11) increase as the Insured gets older.
When you first receive your Policy you will have 10 days to look it over (more
in some states). This is called the right-to-examine time period. Use this time
to review your Policy and make sure it meets your needs. During this time
period, your initial premium payment will be allocated to the funding options
you initially select. If you then decide you do not want your Policy, you will
receive a refund. See page 23.
Selection of Funding Vehicles
This Prospectus focuses on the Separate Account investment information that
makes up the variable part of the Policy. If you put money into the variable
funding options, you take all the investment risk on that money. This means
that if the mutual fund(s) you select go up in value, the value of your Policy,
net of charges and expenses, also goes up. If those Funds lose value, so does
your Policy. See pages 6-9.
You must choose the Fund(s) sub-accounts in which you want to place each net
premium payment. Each sub-account invests in shares of a certain Fund. A
sub-account is not guaranteed and will increase or decrease in value according
to the particular Fund's investment performance.
You may also choose to place your net premium payment or part of it into the
Fixed Account. Net premium payments put into the Fixed Account become part of
the Company's General Account, do not share the investment experience of the
Separate Account and have a guaranteed minimum interest rate of 4.5% per year.
For additional information on the Fixed Account, see page 9.
Guaranteed Death Benefit Provision
You may elect to have a guaranteed death benefit provision to age 80 or age
100. This means that your Policy will remain in force even though the cash
value is not enough to pay the current monthly deductions as long as the
guaranteed death benefit premium test is met. Each year the
2
<PAGE>
Company will determine that the sum of premiums to that point in time is
sufficient to support the guaranteed death benefit provision. Your total
premiums paid to date minus the partial surrenders must be equal to the
required monthly guaranteed death benefit premium times the number of months
that have passed since the original policy issue date. See page 15.
No Lapse Coverage Provision
Your Policy will not terminate during the first five years after the initial
issue date or the issue date of any increase in the specified amount if:
1) the sum of the basic premiums for each Policy month from the issue date,
along with that month's basic premium; plus
2) any partial surrenders; plus
3) any increase in the loan account value within that same five years,
equals or is more than the sum of premiums paid.
Charges and Fees
A deduction, currently 3.5%, of each premium payment will be made. Monthly
deductions are made for administrative expenses ($20 per month for the first
Policy Year and $7 per month afterwards) and the cost of insurance along with
any riders that are placed on your Policy. Daily deductions are subtracted from
the separate account for mortality and expense risk. At this time the charge is
at an annual rate of .70%. We reserve the right to change this charge but it
will never exceed .90% annually. Currently, we deduct from the separate account
a daily administrative charge for the administration and maintenance of the
Policy. This charge is at an annual rate of .30%. It will never exceed .50%
annually.
Each Fund has its own management fee charge also deducted daily. Investment
results for the Funds you choose will be affected by the fund management
charges and other expenses. The table on page 12 shows you the charges and
other expenses currently in effect for each Fund.
At any time, you may make transfers between funding options without charge.
Within 45 days after each policy anniversary, you may also transfer to the
separate account $500 or, if greater, 25% of the Fixed Account value. The
Company may increase this limit in the future.
If you surrender your Policy, in full or in part, within the first 15 policy
years, a surrender charge will be deducted from the amount paid to you. The
initial surrender charge is based on the specified amount and depends on the
Insured's age, risk class and, in most states, the sex of the Insured. This
surrender charge will remain the same for policy years 1-5. For policy years 6
through 15 this charge reduces on a monthly basis to zero.
For partial surrenders, the surrender charge is imposed in proportion to the
total of the account value less full surrender charges. A charge of the lesser
of $25 or 2% of the net surrender payment will be made against the total
account value.
If you surrender your Policy within the first 15 years after an increase in the
specified amount, a surrender charge will also be imposed which will be 70% of
what the surrender charge would be on a new policy with that specified amount.
This charge will also apply for the same time frame as stated previously. If
the specified amount is decreased within the first 15 policy years, the
surrender charge will remain the same. See page 14.
3
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Policy Loans
If you decide to borrow against your Policy, interest will be charged to the
Loan Account. Currently, the interest rate on loans accrues at an annual rate
of 5.5%, or, if greater, the monthly average of the composite yield on
corporate bonds as published by Moody's Investors Service, Inc. for the
calendar month ending two months before the Policy Anniversary month. See page
21.
There are two types of policy loans: nonpreferred (those taken within the first
ten policy years); and preferred (those taken in the eleventh policy year and
beyond).
Annual interest is credited on the loan account value at the same rate interest
is charged, for preferred loans, and at 2% per year less for nonpreferred
loans. See pages 20-21.
Changes in Specified Amount
Within certain limits, you may decrease or, with satisfactory evidence of
insurability, increase the specified amount. A request to increase the
specified amount may be made beginning with the second Policy Year. A request
to decrease the specified amount may be made beginning with the sixth Policy
Year. Currently, the minimum specified amount is $100,000. Such changes will
affect other aspects of your Policy. See page 19.
The Company
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized under Connecticut insurance laws 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
variable annuity contracts. The Company is an indirect wholly-owned subsidiary
of Aetna Inc., a publicly traded healthcare and financial services company,
whose principal offices are at the same location as the Company's Home Office.
The Company serves as the principal underwriter for the securities offered
hereunder and also acts as the principal underwriter for Variable Annuity
Accounts B, C and G (separate accounts of the Company registered as unit
investment trusts), and Variable Annuity Account I (a separate account of Aetna
Insurance Company of America, registered as a unit investment trust).
Additionally, the Company is registered as an investment adviser under the
Investment Advisers Act of 1940, and as such, is the investment adviser for
Portfolio Partners, Inc. The Company is also the depositor of Variable Annuity
Accounts B, C and G.
The Lincoln National Life Insurance Company ("Lincoln") and its affiliates
perform certain administrative functions relating to the Policies, and
maintains books and records necessary to operate and administer the Policies.
4
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The Separate Account
Variable Life Account B is the separate account providing variable options to
fund the Policy. Amounts allocated to the separate account are invested in the
Funds. Each of the Funds is an open-end management investment company (mutual
fund) 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 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 Commission as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act") 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 your net premiums to one or more of 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 Policy
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 are likely to differ significantly and there
is no assurance that any of the Funds will achieve their respective investment
objectives. Shares of the Funds will rise and fall in value and you could lose
money by investing in the Funds. Shares of the Funds are not bank deposits and
are not guaranteed, endorsed or insured by any financial institutions, the
Federal Deposit Insurance Corporation, or any other government agency. Unless
otherwise noted, all Funds are diversified, as defined under the 1940 Act. Refer
to the Funds' prospectuses for additional
5
<PAGE>
information. Fund prospectuses may be obtained, free of charge, from our
Administrative Office at the address and phone number listed on the cover of
this Prospectus, or by contacting the SEC Public Reference Room. Orders for the
purchase of Fund shares may be subject to acceptance by the Fund. We reserve the
right to reject, without prior notice, any allocation to a sub-account if the
sub-account's investment in the corresponding Fund is not accepted by the Fund
for any reason.
The Funds
o Aetna Balanced VP, Inc. seeks to maximize investment return, consistent with
reasonable safety of principal by investing in a diversified portfolio of
one or more of the following asset classes: stocks, bonds, and cash
equivalents, based on the investment adviser's judgment of which of those
sectors or mix thereof offers the best investment prospects.(1)
o Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return,
consistent with reasonable risk, through investments in a diversified
portfolio consisting primarily of debt securities. It is anticipated that
capital appreciation and investment income will both be major factors in
achieving total return.(1)
o Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total
return through investments in a diversified portfolio of common stocks and
securities convertible into common stock. It is anticipated that capital
appreciation and investment income will both be major factors in achieving
total return.(1)
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high
current return, consistent with preservation of capital and liquidity,
through investment in high-quality money market instruments. An investment
in the fund is neither insured nor guaranteed by the U.S. Government.(1)
o Aetna Generation Portfolios, Inc.--Aetna Ascent VP seeks to provide capital
appreciation. The Portfolio is designed for investors who generally have an
investment horizon exceeding 15 years and who have a high level of risk
tolerance.(1)
o Aetna Generation Portfolios, Inc.--Aetna Crossroads VP seeks to provide total
return (i.e., income and capital appreciation, both realized and
unrealized). The Portfolio is designed for investors who generally have an
investment horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
o Aetna Generation Portfolios, Inc.--Aetna Legacy VP seeks to provide total
return consistent with preservation of capital. The Portfolio is designed
for investors who generally have an investment horizon exceeding five years
and who have a low level of risk tolerance.(1)
o Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP seeks to
outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.(1)
o Fidelity Variable Insurance Products Fund Equity-Income Portfolio seeks
reasonable income. The fund will also consider the potential for capital
appreciation. The fund seeks a yield which exceeds the composite yield on
the securities comprising the S&P 500.(2)
6
<PAGE>
o Fidelity Variable Insurance Products Fund II--Contrafund Portfolio seeks long
term capital appreciation by investing primarily in common stocks of
companies whose value the investment adviser believes is not fully
recognized by the public.(2)
o Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified portfolio
that seeks long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in common stocks selected for their growth
potential, and normally invests at least 50% of its equity assets in
medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies
in the S&P MidCap 400 Index. Market capitalization is a commonly used measure
of the size and value of a company. The market capitalizations within the
Index will vary, but as of December 31, 1998, they ranged from approximately
$142 million to $73 billion.(3)
o Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by normally 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. This Portfolio normally invests at least 25% of its assets in
fixed-income securities.(3)
o Janus Aspen Series--Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues
its investment objective by investing primarily in common stocks selected
for their growth potential. Although the Portfolio can invest in companies
of any size, it generally invests in larger, more established issuers.(3)
o Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital. The
Portfolio pursues its investment objective by investing primarily in common
stocks of companies of any size throughout the world. The Portfolio normally
invests in issuers from at least five different countries, including the
United States. The Portfolio may at times invest in fewer than five
countries or even a single country.(3)
o Oppenheimer Global Securities Fund/VA seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign
issuers, "growth-type" companies, cyclical industries and special situations
which are considered to have appreciation possibilities but which may be
considered to be speculative.(4)
o Oppenheimer Strategic Bond Fund/VA 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)
o Portfolio Partners, Inc.--MFS Emerging Equities Portfolio seeks to provide
long-term growth of capital.(5)(a)
o Portfolio Partners, Inc.--MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(5)(a)
o Portfolio Partners, Inc.--MFS Value Equity Portfolio seeks capital
appreciation.(5)(a)
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o Portfolio Partners, Inc.--Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities with high growth potential.(5)(b)
o Portfolio Partners, Inc.--T. Rowe Price Growth Equity Portfolio seeks
long-term capital growth and, secondarily, increasing dividend income.(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 (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 Administrative Office at the address and telephone number
listed on the cover of this Prospectus.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund both 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. If such a conflict
occurs, one of the separate accounts might withdraw its investment in a Fund.
This might force that Fund to sell portfolio securities at disadvantageous
prices.
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<PAGE>
Fixed Account
The Fixed Account is a fixed funding option available under the Policy that
guarantees principal and a minimum interest rate of 4.5% per year. The Company
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, which
include all assets 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.
Interests in the Fixed Account have not been registered with the Commission 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
Commission.
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Charges & Fees
Premium Charge
A deduction, called the premium charge, currently 3.5% of each premium payment
and guaranteed to be no higher than 6%, will be made to cover 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 attributable to the basic insurance coverage 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 most states, sex of the Insured. The attained age is the issue
age of the Insured increased by the number of elapsed policy years.
Once a Policy is issued, the monthly deductions 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"). The issue date is the effective date of initial
coverage. Coverage is conditional on payment of the first premium, if required,
and issue of the Policy as provided in the application. The date of issue and
the effective date for any change in coverage will be the date of coverage
change that is found in your supplemental policy specifications. 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. This day is
called the monthly deduction day.
If the Policy's cash surrender value is not sufficient to cover the current
monthly deduction, you will be notified by the Company, and a 61-day period
called the grace period will begin. 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.
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<PAGE>
Charges and Fees Assessed Against the Separate Account
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 attributable to the Policies. 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.
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
attributable to the Policies 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 attributable to the Policies on an annual basis.
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<PAGE>
Charges Assessed Against the Underlying Funds
The following table illustrates the investment advisory fees, other expenses
and total expenses of the Funds as a percentage of average net assets based on
figures for the year ended December 31, 1998 unless otherwise indicated.
Expenses of the Funds are not fixed or specified under the terms of the
Policies, and actual expenses may vary.
<TABLE>
<CAPTION>
Net Fund
Total Fund Annual
Annual Operating Expenses
Investment Expenses Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- -------------------------------------------------- ------------ ---------- ------------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75%
Aetna Balanced VP, Inc.(3) 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP(3) 0.40% 0.10% 0.50% -- 0.50%
Aetna Crossroads VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75%
Aetna Growth and Income VP(3) 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2)(3)) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna Legacy VP(2)(3) 0.60% 0.16% 0.76% 0.00% 0.76%
Aetna Money Market VP(3) 0.25% 0.09% 0.34% -- 0.34%
Fidelity VIP Equity-Income Portfolio(4) 0.49% 0.09% 0.58% 0.01% 0.57%
Fidelity VIP II Contrafund Portfolio(4) 0.59% 0.11% 0.70% 0.04% 0.66%
Janus Aspen Aggressive Growth Portfolio(5) 0.72% 0.03% 0.75% 0.00% 0.75%
Janus Aspen Balanced Portfolio(5) 0.72% 0.02% 0.74% 0.00% 0.74%
Janus Aspen Growth Portfolio(5) 0.72% 0.03% 0.75% 0.07% 0.68%
Janus Aspen Worldwide Growth Portfolio(5) 0.67% 0.07% 0.74% 0.02% 0.72%
Oppenheimer Global Securities Fund/VA(6) 0.68% 0.06% 0.74% -- 0.74%
Oppenheimer Strategic Bond Fund/VA(6) 0.74% 0.06% 0.80% -- 0.80%
Portfolio Partners, Inc. MFS Emerging
Equities Portfolio(7) 0.68% 0.13% 0.81% 0.00% 0.83%
Portfolio Partners MFS Research
Growth Portfolio(7) 0.70% 0.15% 0.85% -- 0.85%
Portfolio Partners MFS Value Equity Portfolio(7) 0.65% 0.25% 0.90% -- 0.90%
Portfolio Partners Scudder International
Growth Portfolio(7) 0.80% 0.20% 1.00% -- 1.00%
Portfolio Partners T. Rowe Price Growth
Equity Portfolio(7) 0.60% 0.15% 0.75% -- 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 generally paid out of
the management fees and are not charged to investors.
(2) The investment adviser is contractually obligated through December 31, 1999
to waive all or a portion of its investment advisory fee and/or its
administrative services fee and/or to reimburse a portion of other
expenses in order to ensure that the portfolio's Total Fund Annual
Expenses do not exceed the percentage reflected under Net Fund Annual
Expenses After Waivers or Reductions.
(3) Prior to May 1, 1998, the portfolio's investment adviser provided
administrative services to the portfolio and assumed the portfolio's
ordinary recurring direct costs under an administrative services
agreement. After that date, the portfolio's investment adviser provided
administrative services but no longer assumed all of the portfolio's
ordinary recurring direct costs under an
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<PAGE>
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, 1998, but reflect the fee payable under the new administrative
services agreement and estimates the portfolio'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, or the investment adviser
on behalf of 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. These credits are included under
Total Waivers and Reductions.
(5) All expenses are stated both with and without contractual waivers and fee
reductions by 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. Janus Capital has agreed to continue the other waivers and
fee reduction until at least the next annual renewal of the advisory
agreement.
(6) Fee waiver/expense reimbursement obligations do not apply to these
portfolios.
(7) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2000, the
aggregate of each portfolio's expenses will not exceed the combined
investment advisory fees and other expenses shown under the Net Fund
Annual Expenses After Waivers or Reductions column above. For the
Portfolio Partners MFS Emerging Equities Portfolio, the Total Fund Annual
Expenses Without Waivers or Reductions for 1998 were less than the
percentage reflected under the Net Fund Annual Expenses After Waivers or
Reductions column. Nevertheless, the investment adviser will waive fees
and/or reimburse expenses if that portfolio's Total Fund Annual Expenses
Without Waivers or Reductions for 1999 exceed the percentage reflected
under the Net Fund Annual Expenses After Waivers or Reductions column.
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 retained by the Company and 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
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<PAGE>
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 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
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<PAGE>
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. The guaranteed death benefit premium is a specified amount of
premium required to keep the Policy in force to either age 80 or age 100.
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 sum of all premiums paid to date is
sufficient to support the guaranteed death benefit provision. In order for the
guaranteed death benefit provision to be in effect, the sum of all 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 not sufficient, the policy owner will be
notified and given two months (61 days in New Jersey) to pay the amount needed.
If the guaranteed death benefit provision to age 100 had been in place, and the
amount needed is not received within the two-month period; the guaranteed death
benefit provision to age 80 will be substituted, if there is enough premium; if
not 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
needed 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.
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<PAGE>
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. 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:
o 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.
o 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.
o 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.
o After the first premium payment, all premiums must be sent directly to our
Administrative Office and will be deemed received when actually received at
the Administrative 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 Administrative Office.
o 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.
We may backdate a Policy, upon request and under limited circumstances, 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.")
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<PAGE>
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.
Up until 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 Administrative 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.
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 at our Administrative 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.
Order for the purchase of Fund shares may be subject to acceptance by the Fund.
We reserve the right to reject, without prior notice, any transfer request to a
subaccount if the subaccount's investment in the corresponding Fund is not
accepted by the Fund for any reason.
Limits on Frequent Transfers
The Policy is not designed to serve as a vehicle for frequent trading in
response to short-term fluctuations in the market. Such frequent trading can
disrupt management of a Fund and raise its expenses. This in turn can have an
adverse effect on Fund performance. Accordingly, organizations and individuals
who use market-timing investment strategies and make frequent transfers should
not purchase the Policy.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
policy owners. Such restrictions could include:
(1) Not accepting transfer instructions from an agent acting on behalf of more
than one policy owner; and
(2) Not accepting preauthorized transfer forms from market-timers or other
entities acting on behalf of more than one policy owner at a time.
We further reserve the right to impose, without prior notice, restrictions on
any transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other policy owners.
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
Administrative Office. Once the form is processed, the policy
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<PAGE>
owner may request a transfer by telephoning the Administrative Office. 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 policy
owner 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 program 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.
Policy Values
Total Account Value
The total account value is the sum of the fixed account value, the separate
account value and the loan account value.
Once your Policy has been issued, each net premium (the premium paid less the
premium load) 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 (AUV). Each net premium will be
credited to your Policy at the AUV determined for the valuation
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<PAGE>
period in which it is received and accepted by us at our Administrative 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 AUV, 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 AUV;
(b) if you have elected a combination of Funds, totaling the resulting values;
and
(c) adding any fixed account or loan account values.
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.
The loan account value is the sum of all unpaid loans, preferred and
nonpreferred.
You will be advised at least annually as to the number of accumulation units
which remain credited to the Policy, the current AUV, 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 (with any federal tax liability offset by foreign tax
credits to the extent allowed), 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 Assessed against the Separate Account.")
19
<PAGE>
Maturity Value
The maturity value of your Policy depends on whether or not the guaranteed
death benefit provision is in effect. If it is, the maturity value is the
greater of the total account value and the specified amount on the maturity
date, less the amount necessary to repay all loans in full. If it is not, the
maturity value is the total account value on the maturity date, less the amount
necessary to repay all loans in full.
Cash Surrender Value
The cash surrender value of your Policy is the amount you 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. 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 Administrative 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 Commission 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.
20
<PAGE>
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.
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
21
<PAGE>
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%.
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 by you once a year on each anniversary of the loan, or
earlier upon surrender, payment of proceeds, or maturity of a Policy. Any
interest you do not pay when due becomes part of the loan and bears interest.
An amount equal to what you receive for a loan, together with any interest
accrued but not paid, 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.
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.
Policy Changes
You may make changes to your Policy, as described below, by submitting a
written request to our Administrative 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:
o Satisfactory evidence of insurability may be required.
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<PAGE>
o 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.
o An increase in the specified amount will increase the surrender charge.
o 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.
o Increases through the fifth year are limited to four times the initial
specified amount.
o 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:
o No decrease may reduce the specified amount to less than the minimum for this
type of policy. (See Death Benefit.)
o Any decrease will cause a decrease in the guaranteed death benefit provision.
Death Benefit Option Change: A death benefit option change will be allowed,
subject to the following conditions:
o The change will take effect on the monthly deduction day on or next following
the date on which the Administrative Office receives your written request.
o There will be no change in the surrender charge, and evidence of insurability
may be required.
o We will not allow a change in the death benefit option if the specified
amount will be reduced below the minimum specified amount.
o 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.*
o 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 period during which you may examine the Policy. If for any
reason you are dissatisfied, it may be returned to our Administrative 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.
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<PAGE>
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 is the amount payable to the beneficiary upon the death of
the Insured. Any outstanding loan amounts or overdue deductions are withheld
from the death benefit prior to payment.
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) at our Administrative Office, 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.
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
There are several ways in which a beneficiary may receive annuity payments from
a death benefit. These are called settlement options. If the Owner surrenders
the Policy, settlement options are available for the amount of the policy cash
surrender value.
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 Administrative
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
Options 2, 3 and 4 are in the form of an annuity, which is a series of payments
for life or a definite period of time. The person receiving the payments is
called the annuitant.
Option 1 -- Payment of interest on the sum left with us;
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<PAGE>
Option 2 -- Payments for a stated number of years, at least three but no more
than thirty;
Option 3 -- Payments for the lifetime of the annuitant. If also chosen, we will
guarantee payments for 60, 120, 180, or 240 months;
Option 4 -- Payments during the joint lifetimes of two annuitants. At the death
of either, payments will continue to the survivor. When this option is chosen,
a choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 66 2/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor;
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) 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 31/2% 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 31/2% 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:
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<PAGE>
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 31/2% 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
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:
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<PAGE>
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 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.
27
<PAGE>
Directors & Officers
<TABLE>
<CAPTION>
Name and Address*
- -----------------
Position with Company Business Experience During Past 5 Years
- --------------------- ---------------------------------------
<S> <C>
Thomas J. McInerney President (since October 1998) Aetna Investment Advisor Holding
Director, President and Company, Inc., Aetna Retail Holding Company, Inc., Aetna Services
Chairman, Executive Holding Company, Inc.; President (since September 1997) Aetna Life
Committee (Principal Insurance and Annuity Company; President (since September 1997) Aetna
Executive Officer) Insurance Company of America; President (since September 1997) Aetna
Retirement Holdings, Inc.; President (since August 1997) Aetna
Retirement Services, Inc.; Executive Vice President (since August 1997)
Aetna Inc., 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 President (December 1998 - February 1999) Aetna Investment Services,
Director and Senior Vice Inc.; Senior Vice President (since October 1998) Aetna Investment
President Advisor Holding Company, Inc., Aetna Retail Holding Company, Inc.,
Aetna Services Holding Company, Inc.; Senior Vice President, Product
and Brand Management (since September 1998), Senior Vice President,
Product Management (September 1997 - September 1998),
Vice President, Products Group (February 1996 - September 1997),
Senior Vice President, Strategic Markets and Products (February 1993 -
February 1996) Aetna Life Insurance and Annuity Company.
Catherine Hale Smith Senior Vice President (since October 1998) Aetna Investment Advisor
Director, Chief Financial Holding Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Officer and Senior Vice Services Holding Company, Inc.; Chief Financial Officer and Senior Vice
President President, Business Strategy and Finance (Since February 1998) Aetna
Life Insurance and Annuity Company; Director and Senior Vice President
(since March 1999), 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) Aetna Life Insurance Company.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
- -----------------
Position with Company Business Experience During Past 5 Years
- --------------------- ---------------------------------------
<S> <C>
Kirk P. Wickman Vice President, General Counsel and Corporate Secretary (since October
Senior Vice President, 1998) Aetna Investment Advisor Holding Company, Inc., Aetna Retail
General Counsel and Holding Company, Inc., Aetna Services Holding Company, Inc.; Vice
Corporate Secretary President, General Counsel and Assistant Secretary (since April 1997)
Aetna Retirement Services, Inc.; Senior Vice President (since March
1999), Vice President (November 1996 - March 1999), General Counsel
and Corporate Secretary (since November 1996) Aetna Life Insurance and
Annuity Company; Vice President and Counsel (June 1992 - November
1996) Aetna Life Insurance Company.
Deborah Koltenuk Vice President, Treasurer and Corporate Controller (since October 1998)
Vice President and Aetna Investment Advisor Holding Company, Inc., Aetna Retail Holding
Treasurer, Corporate Company, Inc., Aetna Services Holding Company, Inc.; Vice President,
Controller Treasurer and Corporate Controller (since July 1996), Aetna Life
Insurance and Annuity Company and 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.
Therese A. Squillacote Vice President and Chief Compliance Officer (since February 1999) Aetna
Vice President and Chief Insurance Company of America; Vice President and Chief Compliance
Compliance Officer Officer (since December 1998) Aetna Life Insurance and Annuity
Company; Vice President and Chief Compliance Officer (since December
1998) Aetna Investment Services, Inc.; Chief Compliance Officer (since
December 1998) Systematized Benefits Administrators, Inc.; Vice
President, Compliance (since March 1998) Aetna Financial Services, Inc.;
Compliance Manager (May 1997 to December 1998) Aetna Life Insurance
and Annuity Company; Registered Principal (since July 1997) Aetna
Investment Services, Inc.; Director, Compliance (December 1995 to May
1997) Connecticut General Life Insurance Company; Registered Principal
(December 1995 to May 1997) CIGNA Financial Advisors, Inc.; Chief
Compliance Officer (September 1989 - December 1995) G.R. Phelps &
Co., Inc.; Chief Compliance Officer (December 1992 - December 1995)
Connecticut Mutual Financial Services, Inc.
</TABLE>
*The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut.
These individuals may also be directors and/or officers of other affiliates of
the Company.
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Aetna Casualty and Surety
Company.
29
<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 Commission.
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 1940 Act or any regulations
thereunder should be amended or if the present interpretation 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
30
<PAGE>
a Fund. In addition, we may disregard voting instructions in favor of changes
initiated by a policy owner in the investment policy or the investment adviser
of 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 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 Commission. The omitted information may be obtained at
the Commission's principal office in Washington, DC, upon payment of the
Commission'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 Commission 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
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<PAGE>
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 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. However, all such compensation will be
paid in accordance with NASD rules.
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 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 Commission.
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
mission-critical information technology ("IT") systems and embedded systems
Year 2000 ready. The plan for IT systems covers five stages including (i)
assessment, (ii) remediation, (iii) testing, (iv) implementation and (v) Year
2000 approval. At year end 1997, Aetna, including the Company, had
substantially completed the assessment stage. The remediation of
mission-critical IT systems was completed year end 1998. Testing of all
mission-critical IT systems is underway with Year 2000 approval 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, brokers, dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Company, has initiated communications 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.
Aetna and the Company have assessed and are prioritizing responses in an
attempt to mitigate 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.
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<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 under the Code. The separate
account is a not a separate entity from the Company. Therefore, the separate
account is not taxed separately as a "regulated investment company", but is
taxed as part of the Company. Investment income and realized capital gains
attributable to the separate account are automatically applied to increase
reserves under the policy. Because of this, under existing federal income tax
law we believe that any such income and gains will not be taxed to the extent
that such income and gains are applied to increase reserves under the policy.
In addition, any foreign tax credits attributable to the separate account will
first be used to reduce any income taxes imposed on the separate account before
being used by the Company.
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make
provisions for any such taxes. However, if changes in the federal tax laws or
their interpretation result in our being taxed on income or gains attributable
to the separate account, then we may impose a charge against the separate
account (with respect to the policy) to set aside provisions to pay such taxes.
Life Insurance Qualification
Section 7702 of the Code includes a definition of life insurance for tax
purposes. These rules generally place limits on the amount of premiums payable
under the contract and the level of cash surrender value. In no event may the
total of all premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance. If, at
any time, a premium is paid which would result in total premiums exceeding such
maximum premium limitation, we will only accept that portion of the premium
which will make total premiums equal the maximum. Any part of the premium in
excess of that amount will be returned or applied as otherwise agreed and no
further premiums will be accepted until allowed by the then-current maximum
premium limitations prescribed by law. The Secretary of the Treasury has been
granted authority to prescribe regulations to carry out the purposes of Section
7702, and proposed regulations governing mortality charges were issued in 1991.
The Company believes that the Policy meets the statutory definition of life
insurance. As such, and assuming the diversification standards of Section
817(h) (discussed below) are satisfied, then except in limited circumstances
(a) death benefits paid under the Policy should generally be excluded from the
gross income of the beneficiary for federal income tax purposes under Section
101(a)(1) of the Code, and (b) a policy owner should not generally be taxed on
the cash value under a Policy, including increments thereof, prior to actual
receipt. The principal exceptions to these rules are corporations that are
subject to the alternative minimum tax, and thus may be subject to tax on
increments in the Policy's
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<PAGE>
total account value, and policy owners who acquire a Policy in a "transfer for
value" and thus can become subject to tax on the portion of the death benefit
which exceeds the total of their cost of acquisition and subsequent premium
payments.
The Company intends to comply with any future final regulations issued under
Sections 7702 and 817(h) of the Code, and therefore reserves the right to make
such changes as it deems necessary to ensure such compliance. Any such changes
will apply uniformly to affected policy owners and will be made only after
advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
modified endowment contract (see "Modified Endowment Contracts" below), the
policy owner will be taxed on the surrender value only to the extent that it
exceeds the gross premiums paid less prior untaxed withdrawals. The amount of
any unpaid policy loans will, upon surrender, be added to the surrender value
and will be treated for this purpose as if it had been received.
Assuming the Policy is not a modified endowment contract, the proceeds of any
partial surrenders are generally not taxable unless the total amount received
due to such surrenders exceeds total premiums paid less prior untaxed partial
surrender amounts. However, partial surrenders made within the first 15 policy
years in connection with reductions 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
34
<PAGE>
in death benefits during the first seven policy years may also cause a Policy
to be considered a modified endowment contract.
If the Policy is considered to be a modified endowment contract, the proceeds
of any partial surrenders, any policy loans and most assignments, will be
currently taxable to the extent that the Policy's total account value
immediately before payment exceeds gross premiums paid (increased by the amount
of loans previously taxed and reduced by untaxed amounts previously received).
These rules may also apply to policy loans or partial surrender proceeds
received during the two-year period prior to the time that a Policy becomes a
modified endowment contract. If the Policy becomes a modified endowment
contract, it may be aggregated with other modified endowment contracts
purchased by you from the Company (and its affiliates) during any one calendar
year for purposes of determining the taxable portion of withdrawals from the
Policy.
A penalty tax equal to 10% of the amount includable in income will apply to the
taxable portion of the proceeds of any policy surrender or policy loan received
by any 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 591/2. Taxable policy distributions
made to an individual who has not reached the age of 591/2 will also be subject
to the penalty tax unless those distributions are attributable to the
individual becoming disabled, or are part of a series of equal periodic
payments made not less frequently than annually for the life or life expectancy
of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate
accounts of insurance companies) underlying the Policy must be "adequately
diversified" in accordance with Treasury regulations in order for the Policy to
qualify as life insurance. The Treasury Department has issued regulations
prescribing the diversification requirements in connection with variable
contracts. The separate account, through the Funds, intends to comply with
these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h) concerning diversification,
that those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., you), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which 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
35
<PAGE>
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.
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 policy owner'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 policy owner 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.
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<PAGE>
Miscellaneous 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 Administrative 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.
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<PAGE>
Coverage Beyond Maturity
The Policy is considered matured on the issue date anniversary on which the
Insured reaches attained age 100. This is the maturity date.
You may, by written request, in the 30 days before the maturity date of this
Policy, elect to continue coverage beyond the maturity date. At Age 100, the
separate account value will be transferred to the Fixed Account. If coverage
beyond maturity is elected, we will continue to credit interest to the total
account value of this Policy. Monthly deductions will be calculated with a cost
of insurance rate equal to zero (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.
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<PAGE>
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 -1.71%, 4.29%, and 10.29%,
respectively on a current basis. On a guaranteed basis, the illustrated gross
annual investment rates of return of 0%, 6%, and 12% correspond to approximate
net annual rates of -2.11%, 3.89%, and 9.89%, respectively.
The investment advisory fees and other Fund expenses vary by Fund from .34% to
1.00%. An arithmetic average of .71% has been used for the illustrations.
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<PAGE>
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%.
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AetnaVest Plus Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$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 4,329 4,648 4,967 657 976 1,295
2 14,465 500,000 500,000 500,000 8,604 9,516 10,469 4,932 5,844 6,797
3 22,244 500,000 500,000 500,000 12,665 14,450 16,390 8,993 10,778 12,718
4 30,412 500,000 500,000 500,000 16,508 19,443 22,766 12,836 15,771 19,094
5 38,989 500,000 500,000 500,000 20,120 24,483 29,629 16,448 20,811 25,957
6 47,994 500,000 500,000 500,000 23,499 29,565 37,025 20,164 26,230 33,690
7 57,450 500,000 500,000 500,000 26,618 34,663 44,981 23,650 31,695 42,013
8 67,379 500,000 500,000 500,000 29,451 39,748 53,530 26,850 37,147 50,929
9 77,803 500,000 500,000 500,000 31,978 44,798 62,717 29,744 42,564 60,483
10 88,750 500,000 500,000 500,000 34,165 49,775 72,579 32,298 47,908 70,712
15 152,258 500,000 500,000 500,000 39,133 72,540 134,309 39,102 72,509 134,278
20 233,313 500,000 500,000 500,000 30,237 87,371 225,629 30,237 87,371 225,629
25 336,762 500,000 500,000 500,000 0 82,454 369,735 0 82,454 369,735
30 468,793 500,000 500,000 660,621 0 31,861 617,403 0 31,861 617,403
20 (Age 65) 233,313 500,000 500,000 500,000 30,237 87,371 225,629 30,237 87,371 225,629
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative
charges, and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
41
<PAGE>
AetnaVest Plus Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$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 1,891 2,061 2,231 0 0 0
2 8,782 500,000 500,000 500,000 3,771 4,232 4,715 99 560 1,043
3 13,505 500,000 500,000 500,000 5,477 6,350 7,305 1,805 2,678 3,633
4 18,465 500,000 500,000 500,000 7,003 8,404 10,002 3,331 4,732 6,330
5 23,672 500,000 500,000 500,000 8,333 10,372 12,799 4,661 6,700 9,127
6 29,139 500,000 500,000 500,000 9,463 12,243 15,698 6,128 8,908 12,363
7 34,880 500,000 500,000 500,000 10,362 13,978 18,678 7,394 11,010 15,710
8 40,908 500,000 500,000 500,000 11,001 15,539 21,713 8,400 12,938 19,112
9 47,238 500,000 500,000 500,000 11,356 16,890 24,783 9,122 14,656 22,549
10 53,884 500,000 500,000 500,000 11,388 17,979 27,850 9,521 16,112 25,983
15 92,443 500,000 500,000 500,000 5,654 17,797 41,961 5,623 17,766 41,930
20 141,655 0 500,000 500,000 0 1,063 48,091 0 1,063 48,091
25 204,463 0 0 500,000 0 0 27,453 0 0 27,453
30 284,624 0 0 0 0 0 0 0 0 0
20 (Age 65) 141,655 0 500,000 500,000 0 1,063 48,091 0 1,063 48,091
</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.
42
<PAGE>
AetnaVest Plus Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$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 4,906 5,248 5,590 1,234 1,576 1,918
2 14,465 500,000 500,000 500,000 9,812 10,808 11,847 6,140 7,136 8,175
3 22,244 500,000 500,000 500,000 14,557 16,530 18,672 10,885 12,858 15,000
4 30,412 500,000 500,000 500,000 19,118 22,395 26,097 15,446 18,723 22,425
5 38,989 500,000 500,000 500,000 23,470 28,383 34,162 19,798 24,711 30,490
6 47,994 500,000 500,000 500,000 27,589 34,473 42,907 24,254 31,138 39,572
7 57,450 500,000 500,000 500,000 31,492 40,683 52,423 28,524 37,715 49,455
8 67,379 500,000 500,000 500,000 35,191 47,033 62,808 32,590 44,432 60,207
9 77,803 500,000 500,000 500,000 38,698 53,540 74,170 36,464 51,306 71,936
10 88,750 500,000 500,000 500,000 42,007 60,205 86,610 40,140 58,338 84,743
15 152,258 500,000 500,000 500,000 55,923 96,583 170,247 55,892 96,552 170,216
20 233,313 500,000 500,000 500,000 63,535 137,303 306,510 63,535 137,303 306,510
25 336,762 500,000 500,000 619,990 62,152 181,981 534,474 62,152 181,981 534,474
30 468,793 500,000 500,000 969,883 45,128 228,970 906,432 45,128 228,970 906,432
20 (Age 65) 233,313 500,000 500,000 500,000 63,535 137,303 306,510 63,535 137,303 305,510
</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.
43
<PAGE>
AetnaVest Plus Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 45 - UNISEX FOR SPECIAL PLAN POLICIES
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$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 2,396 2,584 2,773 0 0 0
2 8,782 500,000 500,000 500,000 4,827 5,359 5,915 1,155 1,687 2,243
3 13,505 500,000 500,000 500,000 7,132 8,166 9,292 3,460 4,494 5,620
4 18,465 500,000 500,000 500,000 9,285 10,980 12,902 5,613 7,308 9,230
5 23,672 500,000 500,000 500,000 11,260 13,771 16,739 7,588 10,099 13,067
6 29,139 500,000 500,000 500,000 13,028 16,508 20,797 9,693 13,173 17,462
7 34,880 500,000 500,000 500,000 14,606 19,203 25,116 11,638 16,235 22,148
8 40,908 500,000 500,000 500,000 16,003 21,861 29,733 13,402 19,260 27,132
9 47,238 500,000 500,000 500,000 17,232 24,492 34,692 14,998 22,258 32,458
10 53,884 500,000 500,000 500,000 18,282 27,084 40,021 16,415 25,217 38,154
15 92,443 500,000 500,000 500,000 21,154 39,696 74,262 21,123 39,665 74,231
20 141,655 500,000 500,000 500,000 17,785 49,105 125,137 17,785 49,105 125,137
25 204,463 500,000 500,000 500,000 4,808 50,880 202,829 4,808 50,880 202,289
30 284,624 0 500,000 500,000 0 34,764 326,922 0 34,764 326,922
20 (Age 65) 141,655 500,000 500,000 500,000 17,785 49,105 125,137 17,785 49,105 125,137
</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.
44
<PAGE>
AetnaVest Plus Policy
Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$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 4,026 4,325 4,625 516 815 1,115
2 13,690 500,000 500,000 500,000 8,012 8,867 9,760 4,502 5,357 6,250
3 21,052 500,000 500,000 500,000 11,799 13,469 15,286 8,289 9,959 11,776
4 28,783 500,000 500,000 500,000 15,372 18,116 21,224 11,862 14,606 17,714
5 36,900 500,000 500,000 500,000 18,732 22,809 27,618 15,222 19,299 24,108
6 45,423 500,000 500,000 500,000 21,872 27,536 34,504 18,684 24,348 31,316
7 54,372 500,000 500,000 500,000 24,762 32,271 41,904 21,925 29,434 39,067
8 63,769 500,000 500,000 500,000 27,388 36,994 49,855 24,902 34,508 47,369
9 73,635 500,000 500,000 500,000 29,724 41,676 58,390 27,589 39,541 56,255
10 83,995 500,000 500,000 500,000 31,738 46,284 67,544 29,954 44,500 65,760
15 144,102 500,000 500,000 500,000 36,354 67,391 124,799 36,325 67,362 124,770
20 220,814 500,000 500,000 500,000 28,426 81,304 209,183 28,426 81,304 209,183
25 318,722 500,000 500,000 500,000 0 76,943 340,338 0 76,943 340,338
30 443,679 500,000 500,000 605,743 0 31,348 566,115 0 31,348 566,115
20 (Age 65) 220,814 500,000 500,000 500,000 28,426 81,304 209,183 28,426 81,304 209,183
</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.
45
<PAGE>
AetnaVest Plus Policy
Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$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 1,755 1,915 2,076 0 0 0
2 8,395 500,000 500,000 500,000 3,510 3,944 4,399 0 434 889
3 12,909 500,000 500,000 500,000 5,103 5,923 6,821 1,593 2,413 3,311
4 17,650 500,000 500,000 500,000 6,517 7,833 9,333 3,007 4,323 5,823
5 22,627 500,000 500,000 500,000 7,752 9,665 11,941 4,242 6,155 8,431
6 27,854 500,000 500,000 500,000 8,798 11,402 14,641 5,610 8,214 11,453
7 33,342 500,000 500,000 500,000 9,622 13,007 17,408 6,785 10,170 14,571
8 39,104 500,000 500,000 500,000 10,207 14,451 20,228 7,721 11,965 17,742
9 45,154 500,000 500,000 500,000 10,523 15,694 23,074 8,388 13,559 20,939
10 51,506 500,000 500,000 500,000 10,535 16,688 25,912 8,751 14,904 24,128
15 88,364 500,000 500,000 500,000 5,248 16,540 39,034 5,219 16,511 39,005
20 135,405 0 500,000 500,000 0 1,512 45,139 0 1,512 45,139
25 195,442 0 0 500,000 0 0 27,080 0 0 27,080
30 272,067 0 0 0 0 0 0 0 0 0
20 (Age 65) 135,405 0 500,000 500,000 0 1,512 45,139 0 1,512 45,139
</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.
46
<PAGE>
AetnaVest Plus Policy
Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$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 4,594 4,915 5,238 1,084 1,405 1,728
2 13,690 500,000 500,000 500,000 9,193 10,130 11,107 5,683 6,620 7,597
3 21,052 500,000 500,000 500,000 13,648 15,502 17,515 10,138 11,992 14,005
4 28,783 500,000 500,000 500,000 17,935 21,014 24,492 14,425 17,504 20,982
5 36,900 500,000 500,000 500,000 22,039 26,654 32,082 18,529 23,144 28,572
6 45,423 500,000 500,000 500,000 25,931 32,397 40,320 22,743 29,209 37,132
7 54,372 500,000 500,000 500,000 29,631 38,267 49,296 26,794 35,430 46,459
8 63,769 500,000 500,000 500,000 33,144 44,272 59,093 30,658 41,786 56,607
9 73,635 500,000 500,000 500,000 36,488 50,438 69,822 34,353 48,303 67,687
10 83,995 500,000 500,000 500,000 39,653 56,762 81,574 37,869 54,978 79,790
15 144,102 500,000 500,000 500,000 53,046 91,307 160,529 53,017 91,278 160,500
20 220,814 500,000 500,000 500,000 60,609 130,022 288,813 60,609 130,022 288,813
25 318,722 500,000 500,000 583,424 59,489 172,112 502,952 59,489 172,112 502,952
30 443,679 500,000 500,000 913,497 43,606 215,701 853,735 43,606 215,701 853,735
20 (Age 65) 220,814 500,000 500,000 500,000 60,609 130,022 288,813 60,609 130,022 288,813
</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.
47
<PAGE>
AetnaVest Plus Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$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 2,255 2,434 2,613 0 0 0
2 8,395 500,000 500,000 500,000 4,548 5,052 5,579 1,038 1,542 2,069
3 12,909 500,000 500,000 500,000 6,730 7,710 8,776 3,220 4,200 5,266
4 17,650 500,000 500,000 500,000 8,775 10,379 12,199 5,265 6,869 8,689
5 22,627 500,000 500,000 500,000 10,665 13,043 15,853 7,155 9,533 12,343
6 27,854 500,000 500,000 500,000 12,369 15,666 19,729 9,181 12,478 16,541
7 33,342 500,000 500,000 500,000 13,907 18,264 23,868 11,070 15,427 21,031
8 39,104 500,000 500,000 500,000 15,280 20,838 28,303 12,794 18,352 25,817
9 45,154 500,000 500,000 500,000 16,507 23,402 33,081 14,372 21,267 30,946
10 51,506 500,000 500,000 500,000 17,576 25,943 38,228 15,792 24,159 36,444
15 88,364 500,000 500,000 500,000 20,743 38,470 71,398 20,714 38,441 71,369
20 135,405 500,000 500,000 500,000 18,205 48,333 120,914 18,205 48,333 120,914
25 195,442 500,000 500,000 500,000 6,494 51,117 196,287 6,494 51,117 196,287
30 272,067 0 500,000 500,000 0 37,472 316,028 0 37,472 316,028
20 (Age 65) 135,405 500,000 500,000 500,000 18,205 48,333 120,914 18,205 48,333 120,914
</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 opwner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
48
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Statement of Assets and Liabilities ......................... S-2
Statements of Operations and Changes in Net Assets .......... S-4
Condensed Financial Information ............................. S-5
Notes to Financial Statements ............................... S-9
Independent Auditors' Report ................................ S-19
</TABLE>
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments, at net asset value: (Note 1)
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 198,115 $ 2,831,006 $ 2,777,568
Aetna Balanced VP: 2,167,178 34,177,879 34,089,711
Aetna Bond VP: 2,295,254 29,997,078 29,976,022
Aetna Crossroads VP: 154,345 2,069,533 2,055,869
Aetna Growth and Income VP: 4,919,365 162,790,910 156,730,966
Aetna Index Plus Large Cap VP: 758,705 12,317,717 13,345,627
Aetna Legacy VP: 81,480 1,017,019 1,007,913
Aetna Money Market VP: 2,738,801 36,398,167 36,665,421
Aetna Small Company VP: 77,201 1,010,893 987,401
Aetna Value Opportunity VP: 3,879 43,415 55,900
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,443,313 34,623,612 36,730,553
Growth Portfolio: 429,501 15,334,389 19,271,725
High Income Portfolio: 20,499 259,107 236,353
Overseas Portfolio: 155,353 2,924,055 3,114,830
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 172,391 2,863,661 3,130,614
Contrafund Portfolio: 1,569,966 32,468,622 38,429,965
Janus Aspen Series:
Aggressive Growth Portfolio: 849,184 19,610,984 23,428,999
Balanced Portfolio: 952,003 17,985,644 21,420,076
Growth Portfolio: 994,148 19,672,123 23,402,244
Worldwide Growth Portfolio: 1,497,256 38,062,628 43,555,170
Oppenheimer Funds:
Global Securities Fund: 14,366 297,779 317,052
Growth & Income Fund: 3,670 64,123 75,171
Strategic Bond Fund: 138,959 694,732 711,472
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 554,349 27,030,853 30,733,122
PPI MFS Research Growth Portfolio: 982,828 10,760,071 11,734,970
PPI MFS Value Equity Portfolio: 21,279 722,801 805,423
PPI Scudder International Growth Portfolio: 994,201 15,964,583 16,662,810
PPI T. Rowe Price Growth Equity Portfolio: 24,523 1,206,669 1,356,360
------------ ------------
NET ASSETS $523,200,053 $552,809,307
============ ============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Ascent VP:
Policyholders' account values ......................................................... $ 2,777,568
Aetna Balanced VP:
Policyholders' account values ......................................................... 34,089,711
Aetna Bond VP:
Policyholders' account values ......................................................... 29,976,022
Aetna Crossroads VP:
Policyholders' account values ......................................................... 2,055,869
Aetna Growth and Income VP:
Policyholders' account values ......................................................... 156,730,966
</TABLE>
S-2
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1998 (continued):
<TABLE>
<S> <C>
Aetna Index Plus Large Cap VP:
Policyholders' account values ........................ $ 13,345,627
Aetna Legacy VP:
Policyholders' account values ........................ 1,007,913
Aetna Money Market VP:
Policyholders' account values ........................ 36,665,421
Aetna Small Company VP:
Policyholders' account values ........................ 987,401
Aetna Value Opportunity VP:
Policyholders' account values ........................ 55,900
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Policyholders' account values ....................... 36,730,553
Growth Portfolio:
Policyholders' account values ....................... 19,271,725
High Income Portfolio:
Policyholders' account values ....................... 236,353
Overseas Portfolio:
Policyholders' account values ....................... 3,114,830
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Policyholders' account values ....................... 3,130,614
Contrafund Portfolio:
Policyholders' account values ....................... 38,429,965
Janus Aspen Series:
Aggressive Growth Portfolio:
Policyholders' account values ....................... 23,428,999
Balanced Portfolio:
Policyholders' account values ....................... 21,420,076
Growth Portfolio:
Policyholders' account values ....................... 23,402,244
Worldwide Growth Portfolio:
Policyholders' account values ....................... 43,555,170
Oppenheimer Funds:
Global Securities Fund:
Policyholders' account values ....................... 317,052
Growth & Income Fund:
Policyholders' account values ....................... 75,171
Strategic Bond Fund:
Policyholders' account values ....................... 711,472
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Policyholders' account values ....................... 30,733,122
PPI MFS Research Growth Portfolio:
Policyholders' account values ....................... 11,734,970
PPI MFS Value Equity Portfolio:
Policyholders' account values ....................... 805,423
PPI Scudder International Growth Portfolio:
Policyholders' account values ....................... 16,662,810
PPI T. Rowe Price Growth Equity Portfolio:
Policyholders' account values ....................... 1,356,360
------------
$552,809,307
============
</TABLE>
See Notes to Financial Statements
S-3
<PAGE>
Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends .......................................................... $ 43,340,466 $ 35,222,623
Expenses: (Notes 2 and 5)
Valuation period deductions ........................................ (4,390,578) (2,713,203)
------------- -------------
Net investment income ............................................... 38,949,888 32,509,420
------------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................ 481,590,756 260,329,704
Cost of investments sold ........................................... 454,360,016 245,858,726
------------- -------------
Net realized gain ................................................. 27,230,740 14,470,978
Net unrealized gain on investments: (Note 5)
Beginning of year .................................................. 16,987,228 14,132,669
End of year ........................................................ 29,609,254 16,987,228
------------- -------------
Net change in unrealized gain ..................................... 12,622,026 2,854,559
------------- -------------
Net realized and unrealized gain on investments ..................... 39,852,766 17,325,537
------------- -------------
Net increase in net assets resulting from operations ................ 78,802,654 49,834,957
------------- -------------
FROM UNIT TRANSACTIONS:
Variable life premium payments ...................................... 171,088,399 127,736,110
Transfers to the Company for monthly deductions ..................... (29,899,398) (21,545,914)
Redemptions by contract holders ..................................... (15,359,273) (24,062,185)
Transfers on account of policy loans ................................ (4,006,080) (2,875,077)
Other ............................................................... (342,142) 263,373
------------- -------------
Net increase in net assets from unit transactions (Note 5) ......... 121,481,506 79,516,307
------------- -------------
Change in net assets ................................................ 200,284,160 129,351,264
NET ASSETS:
Beginning of year ................................................... 352,525,147 223,173,883
------------- -------------
End of year ......................................................... $ 552,809,307 $ 352,525,147
============= =============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Life Account B
Condensed Financial Information -- Year Ended December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Aetna Vest $14.055 $14.535 3.42% 16,652.7 $ 242,052
Aetna Vest II 14.040 14.499 3.27% 9,886.9 143,349
Aetna Vest Plus 14.040 14.499 3.27% 144,736.7 2,098,518
Aetna Vest Estate Protector 14.077 14.559 3.42% 18,230.2 265,412
Aetna Vest Estate Protector II 10.441 10.038 (3.86%) (3) 2,813.1 28,237
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP:
Aetna Vest 21.286 24.655 15.83% 107,033.9 2,638,924
Aetna Vest II 21.515 24.909 15.78% 225,846.4 5,625,574
Aetna Vest Plus 18.044 20.890 15.77% 510,123.9 10,656,282
Aetna Vest Estate Protector 13.554 15.716 15.95% 23,850.0 374,815
Aetna Vest Estate Protector II 10.434 11.233 7.66% (3) 40,381.8 453,600
Corporate Specialty Market 15.708 18.186 15.78% 788,514.1 14,339,789
NYSUT Individual Life 12.865 13.516 5.06% (4) 53.8 727
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Aetna Vest 23.428 25.084 7.07% 256,292.6 6,428,790
Aetna Vest II 15.752 16.865 7.07% 73,422.3 1,238,247
Aetna Vest Plus 12.613 13.505 7.07% 300,416.1 4,057,035
Aetna Vest Estate Protector 11.224 12.035 7.23% 24,203.4 291,294
Aetna Vest Estate Protector II 10.069 10.614 5.41% (2) 41,583.2 441,368
Corporate Specialty Market 12.175 13.035 7.06% 1,343,974.6 17,518,380
NYSUT Individual Life 11.028 11.441 3.75% (4) 79.4 908
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Aetna Vest 13.369 14.040 5.02% 6,371.5 89,454
Aetna Vest II 13.356 14.005 4.86% 3,504.8 49,083
Aetna Vest Plus 13.356 14.005 4.86% 132,933.4 1,861,676
Aetna Vest Estate Protector 13.391 14.063 5.02% 290.5 4,085
Aetna Vest Estate Protector II 10.470 10.244 (2.16%) (2) 5,034.4 51,571
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Aetna Vest 44.936 50.962 13.41% 1,299,467.8 66,222,877
Aetna Vest II 25.085 28.434 13.35% 793,662.0 22,566,909
Aetna Vest Plus 21.075 23.889 13.35% 2,078,634.2 49,657,181
Aetna Vest Estate Protector 15.037 17.070 13.52% 114,615.8 1,956,460
Aetna Vest Estate Protector II 10.767 10.966 1.85% (1) 75,394.9 826,779
Corporate Specialty Market 19.039 21.581 13.35% 717,978.2 15,494,720
NYSUT Individual Life 13.251 13.623 2.81% (4) 443.4 6,040
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Aetna Vest 13.081 17.044 30.30% 59,247.4 1,009,797
Aetna Vest II 13.081 17.044 30.30% 16,362.9 278,884
Aetna Vest Plus 13.081 17.044 30.30% 322,679.7 5,499,673
Aetna Vest Estate Protector 13.102 17.096 30.48% 69,615.6 1,190,179
Aetna Vest Estate Protector II 10.794 12.397 14.85% (1) 78,843.7 977,436
Corporate Specialty Market 13.081 17.044 30.30% 255,439.6 4,353,649
NYSUT Individual Life 14.077 15.850 12.60% (4) 2,271.9 36,009
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Aetna Vest 12.479 13.378 7.20% (7) 556.2 7,442
Aetna Vest II 12.604 13.345 5.88% 925.7 12,353
Aetna Vest Plus 12.604 13.345 5.88% 61,022.7 814,343
Aetna Vest Estate Protector 12.638 13.400 6.03% 2,909.9 38,994
Aetna Vest Estate Protector II 10.310 10.379 0.67% (2) 12,964.6 134,563
NYSUT Individual Life 10.310 11.902 15.44% (2) 18.3 218
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-5
<PAGE>
Variable Life Account B
Condensed Financial Information -- Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Per Unit
---------------------
Beginning End of
of Year Year
----------- ---------
<S> <C> <C>
Aetna Money Market VP:
Aetna Vest $17.310 $18.074
Aetna Vest II 12.653 13.211
Aetna Vest Plus 11.892 12.416
Aetna Vest Estate Protector 10.807 11.301
Aetna Vest Estate Protector II 10.045 10.413
Corporate Specialty Market 11.377 11.878
NYSUT Individual Life 10.603 10.849
- --------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market 11.484 10.085
- --------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 9.567 12.266
- --------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 13.788 15.238
Aetna Vest II 13.788 15.238
Aetna Vest Plus 13.788 15.238
Aetna Vest Estate Protector 13.824 15.301
Aetna Vest Estate Protector II 10.851 10.733
Corporate Specialty Market 15.869 17.538
NYSUT Individual Life 12.924 13.031
- --------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 13.759 19.002
- --------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market 10.575 9.588
- --------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 12.415 13.859
- --------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 14.361 16.358
- --------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 14.166 18.229
Aetna Vest II 14.166 18.229
Aetna Vest Plus 14.166 18.229
Aetna Vest Estate Protector 14.203 18.305
Aetna Vest Estate Protector II 10.825 12.417
Corporate Specialty Market 15.236 19.607
NYSUT Individual Life 13.744 15.355
- --------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest 18.017 23.949
Aetna Vest II 18.017 23.949
Aetna Vest Plus 18.017 23.949
Aetna Vest Estate Protector 10.944 14.569
Aetna Vest Estate Protector II 10.705 12.855
Corporate Specialty Market 13.519 17.969
NYSUT Individual Life 10.705 15.506
- --------------------------------------------------------------------------------
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Money Market VP:
Aetna Vest 4.41% 118,796.8 $ 2,147,105
Aetna Vest II 4.41% 42,027.0 555,225
Aetna Vest Plus 4.41% 1,069,947.5 13,284,681
Aetna Vest Estate Protector 4.57% 57,290.6 647,417
Aetna Vest Estate Protector II 3.66% (1) 276,653.4 2,880,793
Corporate Specialty Market 4.40% 1,436,476.9 17,063,155
NYSUT Individual Life 2.32% (4) 8,023.2 87,045
- ----------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market (12.18%) (2) 97,904.2 987,401
- ----------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 28.21% (6) 4,557.2 55,900
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 10.52% 16,969.9 258,580
Aetna Vest II 10.52% 14,601.3 222,487
Aetna Vest Plus 10.52% 670,325.9 10,214,130
Aetna Vest Estate Protector 10.68% 106,752.9 1,633,394
Aetna Vest Estate Protector II (1.09%) (2) 43,643.7 468,407
Corporate Specialty Market 10.52% 1,364,494.0 23,930,267
NYSUT Individual Life 0.83% (4) 252.3 3,288
- ----------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 38.11% 1,014,192.3 19,271,725
- ----------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market (9.33%) (3) 24,649.9 236,353
- ----------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 11.63% 224,748.4 3,114,830
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 13.91% 191,384.9 3,130,614
- ----------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 28.68% 45,254.8 824,956
Aetna Vest II 28.68% 17,282.1 315,037
Aetna Vest Plus 28.68% 582,925.1 10,626,213
Aetna Vest Estate Protector 28.88% 73,829.1 1,351,411
Aetna Vest Estate Protector II 14.71% (1) 55,697.8 691,620
Corporate Specialty Market 28.69% 1,255,443.5 24,615,341
NYSUT Individual Life 11.72% (4) 350.9 5,387
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest 32.92% 49,127.2 1,176,559
Aetna Vest II 32.92% 35,013.7 838,551
Aetna Vest Plus 32.92% 525,450.3 12,584,179
Aetna Vest Estate Protector 33.12% 77,832.2 1,133,931
Aetna Vest Estate Protector II 20.08% (3) 29,088.0 373,931
Corporate Specialty Market 32.92% 407,461.9 7,321,785
NYSUT Individual Life 44.85% (3) 4.0 63
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-6
<PAGE>
Variable Life Account B
Condensed Financial Information -- Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
---------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Portfolio:
Aetna Vest $16.883 $22.446 32.95% 12,438.1 $ 279,181
Aetna Vest II 17.015 22.621 32.95% 6,532.6 147,773
Aetna Vest Plus 16.875 22.435 32.95% 385,905.8 8,657,958
Aetna Vest Estate Protector 13.440 17.895 33.15% 35,860.6 641,715
Aetna Vest Estate Protector II 10.519 12.622 19.99% (2) 51,710.9 652,707
Corporate Specialty Market 14.799 19.675 32.95% 561,147.2 11,040,492
NYSUT Individual Life 13.283 15.198 14.42% (4) 16.5 250
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Aetna Vest 18.105 24.316 34.31% 35,825.5 871,140
Aetna Vest II 18.088 24.294 34.31% 60,612.1 1,472,515
Aetna Vest Plus 18.063 24.260 34.31% 556,030.4 13,489,166
Aetna Vest Estate Protector 13.214 17.775 34.52% 72,533.7 1,289,254
Aetna Vest Estate Protector II 10.474 12.564 19.95% (3) 51,852.8 651,475
Corporate Specialty Market 14.865 19.965 34.31% 281,900.4 5,628,055
NYSUT Individual Life 10.474 15.384 46.88% (3) 41.5 639
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Aetna Vest 19.790 25.260 27.64% 111,720.0 2,822,005
Aetna Vest II 19.795 25.267 27.64% 49,640.2 1,254,234
Aetna Vest Plus 19.770 25.235 27.64% 772,265.6 19,488,204
Aetna Vest Estate Protector 14.305 18.286 27.83% 92,116.0 1,684,451
Aetna Vest Estate Protector II 11.034 12.017 8.91% (1) 56,926.9 684,105
Corporate Specialty Market 16.277 20.776 27.64% 847,989.7 17,618,234
NYSUT Individual Life 14.268 14.465 1.38% (4) 272.2 3,937
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Global Securities Fund:
Aetna Vest 10.531 10.828 2.82% (2) 724.6 7,846
Aetna Vest Plus 10.717 10.828 1.04% (2) 21,426.9 232,014
Aetna Vest Estate Protector 10.759 10.842 0.77% (3) 1,644.5 17,830
Aetna Vest Estate Protector II 10.892 11.082 1.74% (2) 5,356.6 59,362
Corporate Specialty Market 9.178 10.550 14.95% (6) 7,125.3 75,171
- ------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Aetna Vest 10.117 10.027 (0.89%) (4) 1,044.9 10,477
Aetna Vest Plus 10.071 10.027 (0.44%) (1) 45,400.4 455,225
Aetna Vest Estate Protector 10.112 10.040 (0.71%) (3) 310.5 3,118
Aetna Vest Estate Protector II 10.083 10.036 (0.47%) (2) 24,167.5 242,542
NYSUT Individual Life 10.083 10.040 (0.43%) (2) 10.9 110
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Aetna Vest 17.357 22.283 28.38% 66,915.3 1,491,046
Aetna Vest II 17.359 22.285 28.38% 25,989.8 579,174
Aetna Vest Plus 17.349 22.273 28.38% 630,942.7 14,052,694
Aetna Vest Estate Protector 10.810 13.899 28.58% 121,028.5 1,682,153
Aetna Vest Estate Protector II 10.616 11.576 9.04% (3) 22,597.4 261,585
Corporate Specialty Market 14.275 18.326 28.38% 691,165.5 12,666,345
NYSUT Individual Life 10.616 14.396 35.61% (3) 8.7 125
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Aetna Vest 12.042 14.665 21.78% 60,057.0 880,720
Aetna Vest II 12.096 14.730 21.78% 22,158.9 326,410
Aetna Vest Plus 11.931 14.529 21.78% 461,604.4 6,706,855
Aetna Vest Estate Protector 9.152 11.161 21.95% 32,093.6 358,210
Aetna Vest Estate Protector II 10.650 11.518 8.15% (3) 30,342.2 349,483
Corporate Specialty Market 10.912 13.288 21.77% 234,278.4 3,113,170
NYSUT Individual Life 11.944 12.394 3.77% (4) 9.8 122
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-7
<PAGE>
Variable Life Account B
Condensed Financial Information -- Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
---------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PPI MFS Value Equity Portfolio:
Aetna Vest $10.779 $11.408 5.84% (2) 89.2 $ 1,018
Aetna Vest II 10.910 11.408 4.56% (2) 82.4 940
Aetna Vest Plus 10.757 11.408 6.05% (2) 45,259.8 516,312
Aetna Vest Estate Protector 10.562 11.422 8.14% (2) 1,479.4 16,898
Aetna Vest Estate Protector II 11.017 11.699 6.19% (2) 23,082.2 270,039
NYSUT Individual Life 10.870 11.422 5.08% (5) 18.9 216
- -------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Aetna Vest 15.692 18.503 17.91% 112,140.9 2,074,918
Aetna Vest II 15.596 18.389 17.91% 33,578.6 617,467
Aetna Vest Plus 15.509 18.286 17.91% 492,196.5 9,000,421
Aetna Vest Estate Protector 11.777 13.907 18.09% 33,167.3 461,260
Aetna Vest Estate Protector II 11.304 11.198 (0.94%) (3) 6,453.1 72,263
Corporate Specialty Market 12.995 15.323 17.91% 289,540.0 4,436,481
- -------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Aetna Vest 10.689 11.539 7.95% (2) 9,432.4 108,839
Aetna Vest II 11.000 11.539 4.90% (5) 56.9 656
Aetna Vest Plus 10.422 11.539 10.72% (1) 72,473.9 836,267
Aetna Vest Estate Protector 10.452 11.553 10.53% (3) 15,572.9 179,921
Aetna Vest Estate Protector II 10.805 11.839 9.57% (2) 19,467.9 230,474
NYSUT Individual Life 10.805 11.553 6.92% (2) 17.6 203
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Condensed Financial Information:
(1) - Reflects less than a full year of performance activity. Funds were first
received in this option during March 1998.
(2) - Reflects less than a full year of performance activity. Funds were first
received in this option during April 1998.
(3) - Reflects less than a full year of performance activity. Funds were first
received in this option during May 1998.
(4) - Reflects less than a full year of performance activity. Funds were first
received in this option during June 1998.
(5) - Reflects less than a full year of performance activity. Funds were first
received in this option during July 1998.
(6) - Reflects less than a full year of performance activity. Funds were first
received in this option during September 1998.
(7) - Reflects less than a full year of performance activity. Funds were first
received in this option during October 1998.
See Notes to Financial Statements
S-8
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998
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, 1998:
Aetna Ascent VP
Aetna Balanced VP
Aetna Bond VP
Aetna Crossroads VP
Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna Legacy VP
Aetna Money Market VP
Aetna Small Company VP
Aetna Value Opportunity VP
Fidelity Investments Variable Insurance
Products Fund:
o Equity-Income Portfolio
o Growth Portfolio
o High Income Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Oppenheimer Funds:
o Global Securities Fund
o Growth & Income Fund
o Strategic Bond Fund
Portfolio Partners, Inc. (PPI):
o PPI MFS Emerging Equities Portfolio
o PPI MFS Research Growth Portfolio
o PPI MFS Value Equity Portfolio
o PPI Scudder International Growth Portfolio
o PPI T. Rowe Price Growth Equity Portfolio
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the policies and are paid to the Company.
3. Dividend Income
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid
to the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment
S-9
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
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, 1998 and 1997
aggregated $642,022,151 and $481,590,756 and $372,355,431 and $260,329,704,
respectively.
S-10
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Valuation
Period
Dividends Deductions
-------------- ---------------
<S> <C> <C>
Aetna Ascent VP: (1) $ 129,523 ($ 22,620)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 5,079,318 (289,232)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,751,860 (257,828)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 77,190 (14,622)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 27,303,998 (1,392,329)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 591,905 (73,086)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 44,001 (8,540)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 940,509 (288,392)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 8,723 (5,056)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 298 (130)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,381,671 (281,139)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Growth Portfolio: 1,011,596 (128,591)
Policyholders' account values
- --------------------------------------------------------------------------------------------
High Income Portfolio: 0 (1,531)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Overseas Portfolio: 141,761 (22,734)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 329,918 (29,778)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,313,979 (283,258)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (142,378)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Balanced Portfolio: 709,668 (145,407)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Growth Portfolio: 1,062,152 (162,916)
Policyholders' account values
- --------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1998
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
--------------- --------------- -------------
<S> <C> <C> <C>
Aetna Ascent VP: (1) $ 393,522 $ 353,120 $ 40,402
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 8,936,646 7,346,946 1,589,700
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 6,762,101 6,468,168 293,933
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 473,877 453,989 19,888
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 39,271,149 34,639,034 4,632,115
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 3,515,589 3,029,008 486,581
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 377,983 360,207 17,776
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 130,650,119 130,229,304 420,815
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 362,699 395,417 (32,718)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 44,207 44,499 (292)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 8,873,609 7,588,754 1,284,855
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,784,250 2,517,613 266,637
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
High Income Portfolio: 31,686 34,229 (2,543)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Overseas Portfolio: 562,478 539,506 22,972
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,518,344 2,406,138 112,206
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 12,306,538 10,124,110 2,182,428
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 19,717,643 17,285,188 2,432,455
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Balanced Portfolio: 5,250,108 3,955,227 1,294,881
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio: 8,751,672 6,729,863 2,021,809
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- ------------------------------- Change in In 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>
$27,927 ($53,438) ($81,365) $909,075
$ 1,802,553 $ 2,777,568
- ----------------------------------------------------------------------------------------------------------
1,971,257 (88,169) (2,059,426) 5,433,280
24,336,071 34,089,711
- ----------------------------------------------------------------------------------------------------------
(12,114) (21,056) (8,942) 7,092,195
21,104,804 29,976,022
- ----------------------------------------------------------------------------------------------------------
5,069 (13,664) (18,733) 1,281,854
710,292 2,055,869
- ----------------------------------------------------------------------------------------------------------
6,207,999 (6,059,944) (12,267,943) 6,076,102
132,379,023 156,730,966
- ----------------------------------------------------------------------------------------------------------
(23,927) 1,027,911 1,051,838 9,326,844
1,961,545 13,345,627
- ----------------------------------------------------------------------------------------------------------
618 (9,107) (9,725) 314,262
650,139 1,007,913
- ----------------------------------------------------------------------------------------------------------
70,857 267,256 196,399 15,075,889
20,320,201 36,665,421
- ----------------------------------------------------------------------------------------------------------
0 (23,492) (23,492) 1,039,944
0 987,401
- ----------------------------------------------------------------------------------------------------------
0 12,485 12,485 43,539
0 55,900
- ----------------------------------------------------------------------------------------------------------
1,523,698 2,106,941 583,243 13,578,473
20,183,450 36,730,553
- ----------------------------------------------------------------------------------------------------------
380,110 3,937,336 3,557,226 7,444,713
7,120,144 19,271,725
- ----------------------------------------------------------------------------------------------------------
0 (22,754) (22,754) 263,181
0 236,353
- ----------------------------------------------------------------------------------------------------------
(8,270) 190,775 199,045 984,072
1,789,714 3,114,830
- ----------------------------------------------------------------------------------------------------------
281,699 266,952 (14,747) 198,288
2,534,727 3,130,614
- ----------------------------------------------------------------------------------------------------------
1,505,359 5,961,343 4,455,984 10,540,804
20,220,028 38,429,965
- ----------------------------------------------------------------------------------------------------------
844,868 3,818,015 2,973,147 5,763,410
12,402,365 23,428,999
- ----------------------------------------------------------------------------------------------------------
885,469 3,434,432 2,548,963 8,806,330
8,205,641 21,420,076
- ----------------------------------------------------------------------------------------------------------
1,360,430 3,730,121 2,369,691 6,131,508
11,980,000 23,402,244
- ----------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Portfolio: $ 1,360,015 ($ 344,460) $ 13,676,121 $ 10,222,511 $ 3,453,610
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Global Securities Fund: 0 (1,051) 10,993 12,018 (1,025)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 0 (183) 65,110 66,180 (1,070)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 104 (2,331) 315,681 319,744 (4,063)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 68,284 (239,521) 100,307,103 97,276,639 3,030,464
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 2,113 (88,033) 22,358,392 21,336,998 1,021,394
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 628 (2,334) 188,157 215,959 (27,802)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 27,896 (158,883) 92,935,246 90,246,159 2,689,087
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 3,356 (4,215) 149,733 163,488 (13,755)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $43,340,466 ($ 4,390,578) $481,590,756 $454,360,016 $27,230,740
============================================================================================================================
</TABLE>
(1) Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to
Aetna Ascent VP.
(2) Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced Fund VP.
(3) Effective May 1, 1998, Aetna Income Shares' name changed to Aetna Bond Fund
VP.
(4) Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name changed
to Aetna Crossroads VP.
(5) Effective May 1, 1998, Aetna Variable Fund's name changed to Aetna Growth
and Income VP.
(6) Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name changed
to Aetna Index Plus Large Cap VP.
(7) Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(8) Effective May 1, 1998, Aetna Variable Encore Fund's name changed to Aetna
Money Market VP.
(9) Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(10) Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-13
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- -------------------------------- Change in In 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>
$1,817,349 $5,492,542 $3,675,193 $11,107,525
$ 24,303,287 $ 43,555,170
- ----------------------------------------------------------------------------------------------------------
0 19,272 19,272 299,856
0 317,052
- ----------------------------------------------------------------------------------------------------------
0 11,048 11,048 65,376
0 75,171
- ----------------------------------------------------------------------------------------------------------
0 16,740 16,740 701,022
0 711,472
- ----------------------------------------------------------------------------------------------------------
42,515 3,702,269 3,659,754 5,152,269
19,061,872 30,733,122
- ----------------------------------------------------------------------------------------------------------
(86,245) 974,898 1,061,143 2,590,172
7,148,181 11,734,970
- ----------------------------------------------------------------------------------------------------------
0 82,622 82,622 752,309
0 805,423
- ----------------------------------------------------------------------------------------------------------
192,560 698,227 505,667 (712,067)
14,311,110 16,662,810
- ----------------------------------------------------------------------------------------------------------
0 149,693 149,693 1,221,281
0 1,356,360
- ----------------------------------------------------------------------------------------------------------
$16,987,228 $29,609,254 $12,622,026 $121,481,506 $352,525,147 $552,809,307
=========================================================================================================
</TABLE>
S-14
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
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>
Year Ended December 31, 1997
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 3,602,586 916,577
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-15
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- ------------------------------- Change in In 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-16
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
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 Scuddder International Growth Portfolio.
S-17
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
- -------------------------------- Change in In Net Assets --------------------------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------
$566,478 $1,360,430 $793,952 $3,065,638
<S> <C> <C> <C> <C> <C>
$ 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-18
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners 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, 1998, 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, 1998. 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, 1998, 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, 1998, 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, 1998, in conformity with
generally accepted accounting principles.
KPMG LLP
Hartford, Connecticut
February 26, 1999
S-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Page
---
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996 F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholder's Equity For the Years
Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiary as of December 31, 1998 and 1997,
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, 1998. 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
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiary at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 3, 1999
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Premiums $ 79.4 $ 69.1 $ 84.9
Charges assessed against policyholders 324.3 262.0 197.0
Net investment income 877.6 878.8 852.6
Net realized capital gains 10.4 29.7 17.0
Other income 29.6 38.3 43.6
------- ------- -------
Total revenue 1,321.3 1,277.9 1,195.1
------- ------- -------
Benefits and expenses:
Current and future benefits 714.4 720.4 728.3
Operating expenses 313.2 286.5 275.8
Amortization of deferred policy acquisition costs 106.7 82.8 28.0
Severance and facilities charges -- -- 47.1
------- ------- -------
Total benefits and expenses 1,134.3 1,089.7 1,079.2
------- ------- -------
Income from continuing operations before
income taxes 187.0 188.2 115.9
Income taxes 47.4 50.7 30.7
------- ------- -------
Income from continuing operations 139.6 137.5 85.2
Discontinued Operations, net of tax
Income from operations 61.8 67.8 55.9
Gain on sale 59.0 -- --
------- ------- -------
Net income $ 260.4 $ 205.3 $ 141.1
======= ======= =======
</TABLE>
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,
1998 1997
------------- --------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value,
(amortized cost: $11,570.3 and $12,912.2) $12,067.2 $13,463.8
Equity securities, at fair value,
Nonredeemable preferred stock (cost: $202.6 and $131.7) 203.3 147.6
Investment in affiliated mutual funds (cost: $96.8 and$78.1) 100.1 83.0
Common stock (cost: $1.0 and $0.2) 2.0 .6
Short-term investments 47.9 95.6
Mortgage loans 12.7 12.8
Policy loans 292.2 469.6
--------- ---------
Total investments 12,725.4 14,273.0
Cash and cash equivalents 608.4 565.4
Short-term investments under securities loan agreement 277.3 --
Accrued investment income 151.6 163.0
Premiums due and other receivables 46.7 51.9
Reinsurance recoverable 2,959.8 11.8
Deferred policy acquisition costs 864.0 1,654.6
Reinsurance loan to affiliate -- 397.2
Deferred tax asset 120.6 --
Other assets 66.6 46.8
Separate accounts assets 29,458.4 22,982.7
--------- ---------
Total assets $47,278.8 $40,146.4
========= =========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,815.9 $ 3,763.7
Unpaid claims and claim expenses 18.8 38.0
Policyholders' funds left with the Company 11,305.6 11,143.5
--------- ---------
Total insurance reserve liabilities 15,140.3 14,945.2
Payables under securities loan agreement 277.3 --
Other liabilities 793.2 312.8
Income taxes:
Current 279.8 12.4
Deferred -- 72.0
Separate accounts liabilities 29,430.2 22,970.0
--------- ---------
Total liabilities 45,920.8 38,312.4
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized;
55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 427.3 418.0
Accumulated other comprehensive income 104.8 92.9
Retained earnings 823.1 1,320.3
--------- ---------
Total shareholder's equity 1,358.0 1,834.0
--------- ---------
Total liabilities and shareholder's equity $47,278.8 $40,146.4
========= =========
</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,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,834.0 $1,609.5 $1,583.0
Comprehensive income
Net income 260.4 205.3 141.1
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
($18.2 million, $49.9 million and
$(110.6) million, pretax, respectively) 11.9 32.4 (72.0)
-------- -------- --------
Total comprehensive income 272.3 237.7 69.1
-------- -------- --------
Capital contributions 9.3 -- 10.4
Other changes 1.4 4.1 (49.5)
Common stock dividends (759.0) (17.3) (3.5)
-------- -------- --------
Shareholder's equity, end of year $1,358.0 $1,834.0 $1,609.5
======== ======== ========
</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,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 260.4 $ 205.3 $ 141.1
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net accretion of discount on investments (29.5) (66.4) (68.0)
Gain on sale of discontinued operations (88.3) -- --
---------- ---------- ----------
Cash flows provided by operating activities and net realized capital
gains before changes in assets and liabilities 142.6 138.9 73.1
Net realized capital gains (11.1) (36.0) (19.7)
---------- ---------- ----------
Cash flows provided by operating activities before changes in assets
and liabilities 131.5 102.9 53.4
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 11.4 (4.0) 16.5
(Increase) decrease in premiums due and other receivables (16.3) (33.3) 1.6
Decrease (increase) in policy loans 177.4 (70.3) (60.7)
Increase in deferred policy acquisition costs (117.3) (139.3) (174.0)
Decrease in reinsurance loan to affiliate 397.2 231.1 27.2
Net increase in universal life account balances 122.9 157.1 146.6
Decrease in other insurance reserve liabilities (41.8) (120.3) (114.9)
Net (decrease) increase in other liabilities and other assets (50.8) (41.7) 3.1
Increase (decrease) in income taxes 100.4 (31.4) (26.7)
Other, net -- -- 1.1
---------- ---------- ----------
Net cash provided by (used for) operating activities 714.6 50.8 (126.8)
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 6,790.2 5,311.3 5,182.2
Equity securities 150.1 103.1 190.5
Mortgage loans 0.3 0.2 8.7
Life business 966.5 -- --
Investment maturities and collections of:
Debt securities available for sale 1,290.3 1,212.7 885.2
Short-term investments 129.9 89.3 35.0
Cost of investment purchases in:
Debt securities available for sale (6,701.4) (6,732.8) (6,534.3)
Equity securities (125.7) (113.3) (118.1)
Other investments (2,725.9) -- --
Short-term investments (81.9) (149.9) (54.7)
Other, net -- -- (17.6)
---------- ---------- ----------
Net cash used for investing activities (307.6) (279.4) (423.1)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,571.1 1,621.2 1,579.5
Withdrawals of investment contracts (1,393.1) (1,256.3) (1,146.2)
Capital contribution to Separate Account -- (25.0) --
Return of capital from Separate Account 1.7 12.3 --
Capital contribution from HOLDCO 9.3 -- 10.4
Dividends paid to shareholder (553.0) (17.3) (3.5)
---------- ---------- ----------
Net cash (used for) provided by financing activities (364.0) 334.9 440.2
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 43.0 106.3 (109.7)
Cash and cash equivalents, beginning of year 565.4 459.1 568.8
---------- ---------- ----------
Cash and cash equivalents, end of year $ 608.4 $ 565.4 $ 459.1
========== ========== ==========
Supplemental cash flow information:
Income taxes paid, net $ 48.4 $ 119.6 $ 85.5
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
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 in the United
States. Prior to the sale of the domestic individual life insurance business on
October 1, 1998, the Company had two business segments: financial services and
individual life insurance. On October 1, 1998, the Company sold its domestic
individual life insurance operations to Lincoln National Corporation
("Lincoln") and accordingly they are now classified as Discontinued Operations.
(Refer to note 2)
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.
Discontinued Operations 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. ("ARS"), 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 1997 and 1996 financial information to conform to the 1998
presentation.
New Accounting Standards
Disclosures about Segments of an Enterprise and Related Information
As of December 31, 1998, the Company adopted Financial Accounting Standard
("FAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the reporting of
information relating to operating segments. This statement supersedes FAS No.
14, Financial Reporting for Segments of a Business Enterprise, which requires
reporting segment information by industry and geographic area (industry
approach). Under FAS No. 131, operating segments are defined as components of a
company for which separate financial information is available and is used by
management to allocate resources and assess performance (management approach).
The adoption of this statement did not change the composition or the results of
operations of any of the operating segments of the Company, which are
consistent with the management approach.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting for the Costs of Computer Software Developed and Obtained for
Internal Use
On January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, issued by the American Institute of Certified Public Accountants
("AICPA"). This statement requires that certain costs incurred in developing
internal use computer software (in process at, and subsequent to the adoption
date) be capitalized, and provides guidance for determining whether computer
software is considered to be for internal use. The Company amortizes these
costs over a period of 3 to 5 years. Previously, the Company expensed the cost
of internal-use computer software as incurred. The adoption of this statement
resulted in a net after-tax increase to the results of operations of $6.5
million for the year ended December 31, 1998.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued FAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, that provides accounting and reporting
standards for transfers of financial assets and extinguishments of liabilities.
FAS No. 125 was effective for 1997 financial statements; however, certain
provisions relating to accounting for repurchase agreements and securities
lending were not effective until January 1, 1998. The adoption of those
provisions effective in 1998 did not have a material effect on the Company's
financial position or results of operations.
Future Application of Accounting Standards
Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk
In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which
provides guidance on how to account for all insurance and reinsurance contracts
that do not transfer insurance risk, except for long-duration life and health
insurance contracts. This statement is effective for the Company's financial
statements beginning January 1, 2000, with early adoption permitted. The
Company is currently evaluating the impact of the adoption of this statement
and the potential effect on its financial position and results of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to record
all derivatives on the balance sheet as either assets or liabilities and
measure those instruments at fair value. The manner in which companies are to
record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. This standard is effective for the Company's financial
statements beginning January 1, 2000, with early adoption permitted. The
Company is currently evaluating the impact of adoption of this statement and
the potential effect on its financial position and results of operations.
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting by Insurance and Other Enterprises for Insurance-Related Assessments
In December 1997, the AICPA issued SOP 97-3, Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments, which provides guidance for
determining when an insurance or other enterprise should recognize a liability
for guaranty-fund and other insurance-related assessments and guidance for
measuring the liability. This statement is effective for 1999 financial
statements with early adoption permitted. The Company does not expect adoption
of this statement to have a material effect on its financial position or
results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from reported results using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
Debt and equity securities are classified as available for sale and carried at
fair value. These securities are written down (as realized capital losses) for
other than temporary declines in value. Unrealized capital gains and losses
related to available-for-sale investments, other than amounts allocable to
experience-rated contractholders, are reflected in shareholder's equity, net of
related taxes.
Fair values for debt and equity securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for similar
securities or by using discounted cash flow methods. Cost for mortgage-backed
securities is adjusted for unamortized premiums and discounts, which are
amortized using the interest method over the estimated remaining term of the
securities, adjusted for anticipated prepayments. The Company does not accrue
interest on problem debt securities when management believes the collection of
interest is unlikely.
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.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
At December 31, 1998 and 1997, the Company loaned securities (which are
reflected as invested assets) with a fair value of approximately $277.3 million
and $385.1 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 an original 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 for other than trading purposes in order
to hedge interest rate risk (i.e. market risk, refer to Note 4.)
Futures contracts are carried at fair value and require daily cash settlement.
Changes in the fair value of futures contracts allocable to experience rated
contracts are deducted from capital gains and losses with an offsetting amount
reported in future policy benefits. Changes in the fair value of futures
contracts allocable to non-experienced-rated 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 or losses on the hedging instrument are reflected in
net realized capital gains or losses.
Included in common stock are warrants which represent the right to purchase
specific securities. Upon exercise, the cost of the warrants is 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 (prior to the sale of the domestic individual life insurance business
to Lincoln on October 1, 1998, refer to Note 2), such costs are amortized over
expected premium-paying periods (up to 20 years). For universal life (prior to
the sale of the domestic individual life insurance business to Lincoln on
October 1, 1998, refer to Note 2), and certain annuity contracts,
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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 50 years
for universal life and up to 20 years for certain annuity contracts). 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. Prior to
the sale of the domestic individual life insurance business on October 1, 1998,
(refer to note 2), reserves for universal life products were equal to
cumulative deposits less withdrawals and charges plus credited interest
thereon, plus (less) net realized capital gains (losses) (which were reflected
through credited interest rates). These reserves also included unrealized
capital gains (losses) related to FAS No. 115. As a result of the sale and
transfer of assets supporting the business, reserves for universal life
products will no longer include net realized capital gains (losses) and
unrealized gains (losses) related to FAS No. 115 for the years ended December
31, 1998 and beyond.
Reserves for immediate annuities with life contingent payouts and traditional
life insurance contracts are 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 1.50% to 11.25% 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.
Because the sale of the domestic individual life insurance business was
substantially in the form of an indemnity reinsurance agreement, the Company
reported an addition to its reinsurance recoverable approximating the Company's
total individual life reserves at the sale date.
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 3.00%
to 8.10% for all years presented) net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest. These
reserves also include unrealized gains/losses related to FAS No. 115. 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-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life (prior to the sale of the domestic individual life insurance
business to Lincoln on October 1, 1998, refer to Note 2) 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 (prior to the sale
of the domestic individual life insurance business to Lincoln on October 1,
1998, refer to Note 2) 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 (who bears the investment risk
subject, in some cases, to minimum guaranteed rates) in shares of mutual funds
which are managed by an affiliate of the Company, or other selected mutual
funds not managed by the Company.
As of December 31, 1998, Separate Accounts assets are carried at fair value. At
December 31, 1998, unrealized gains of $10.0 million, after taxes, on assets
supporting a guaranteed interest option are reflected in shareholder's equity.
At December 31, 1997, Separate Account assets supporting the guaranteed
interest option were carried at an amortized cost of $658.6 million (fair value
$668.7 million). Separate Accounts liabilities are carried at fair value,
except for those relating to the guaranteed interest option. Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 3.00% to 8.10% in 1998 and 4.10% to
8.10% in 1997.
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 Financial Statements (with the exception of realized and
unrealized capital gains and losses on the assets supporting the guaranteed
interest option). The Consolidated Statements of Cash Flows do not reflect
investment activity of the Separate Accounts.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverables deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets. The majority of the reinsurance
recoverable on the Consolidated Balance Sheets at December 31, 1998 is related
to the reinsurance recoverable from Lincoln arising from the sale of the
domestic life insurance business. (Refer to Note 2)
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.
2. Discontinued Operations-Individual Life Insurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction was generally in
the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to policyholders.
Insurance reserves ceded as of December 31, 1998 were $2.9 billion. Deferred
policy acquisition costs related to the life policies of $907.9 million were
written off against the gain on the sale. Certain invested assets related to
and supporting the life policies were sold to consummate the life sale, and the
Company recorded a reinsurance recoverable from Lincoln. The transaction
resulted in an after-tax gain on the sale of approximately $117 million, of
which $58 million will be deferred and amortized over approximately 15 years
(as profits in the book of business sold emerge). The remaining portion of the
gain was recognized immediately in net income and was largely attributed to the
sale of the domestic life insurance business for access to the agency sales
force and brokerage distribution channel. The unamortized portion of the gain
is presented in other liabilities on the Consolidated Balance Sheets.
The operating results of the domestic individual life insurance business are
presented as Discontinued Operations. All prior year income statement data has
been restated to reflect the presentation as Discontinued Operations. Revenues
for the individual life segment were $652.2 million, $620.4 million and $445.7
million for 1998, 1997 and 1996, respectively. Premiums ceded and reinsurance
recoveries made in 1998 totaled $153.4 million and $57.7 million, respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments
Debt securities available for sale as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (Millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 615.2 29.8 4.1 640.9
Financial 2,259.2 94.6 5.6 2,348.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Health care/consumer products 1,328.2 69.8 4.8 1,393.2
Natural resources 254.5 6.9 2.3 259.1
Other corporate securities 261.7 5.8 7.4 260.1
- -------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 5,299.6 239.9 25.3 5,514.2
- -------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 507.6 30.4 32.9 505.1
Utilities 147.0 32.4 -- 179.4
Other 511.2 14.9 1.8 524.3
- -------------------------------------------------------------------------------------------------------------
Total foreign securities 1,165.8 77.7 34.7 1,208.8
- -------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 671.9 38.4 2.9 707.4
Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9
- -------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3
- -------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,114.9 30.9 9.8 1,136.0
Other asset-backed securities 719.3 13.8 0.6 732.5
- -------------------------------------------------------------------------------------------------------------
Total debt securities $11,570.3 $580.8 $83.9 $12,067.2
=============================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Debt securities available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 (Millions) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------
<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:
Utilities 521.3 23.5 0.9 543.9
Financial 2,370.7 84.6 1.3 2,454.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Healthcare & consumer products 728.5 27.0 2.6 752.9
Natural resources 143.5 5.5 -- 149.0
Other corporate securities 545.2 27.2 0.1 572.3
- -------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
- -------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 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-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
At December 31, 1998 and 1997, net unrealized appreciation of $496.9 million
and $551.6 million, respectively, on available-for-sale debt securities
included $355.8 million and $429.3 million, respectively, related to
experience-rated contracts, which were not reflected in shareholder's equity
but in insurance reserves.
The amortized cost and fair value of debt securities for the year ended
December 31, 1998 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be restructured,
called, or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- -------------------------------------------------------------------------
<S> <C> <C>
Due to mature:
One year or less $ 553.5 $ 554.6
After one year through five years 2,619.7 2,692.4
After five years through ten years 1,754.0 1,801.7
After ten years 2,257.4 2,453.7
Mortgage-backed securities 3,666.4 3,832.3
Other asset-backed securities 719.3 732.5
- -------------------------------------------------------------------------
Total $11,570.3 $12,067.2
=========================================================================
</TABLE>
At December 31, 1998 and 1997, debt securities carried at $8.8 million and $8.2
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, 1998.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
Fair Amortized Fair Amortized
(Millions) Value Cost Value Cost
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,988.9 $1,879.6 $ 2,415.9 $2,280.5
====================================================================================================
Percentage of total:
Supporting experience rated products 81.7% 81.6%
Supporting remaining products 18.3% 18.4%
- ----------------------------------------------------------------------------------------------------
100.0% 100.0%
====================================================================================================
</TABLE>
(1) At December 31, 1998 and 1997, approximately 66% and 73%, respectively, of
the Company's residential CMO holdings were backed by government agencies
such as GNMA, FNMA, FHLMC.
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
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, 1998 and 1997, approximately 2%
and 4%, respectively, of the Company's CMO holdings were invested in types of
CMOs which are subject to more prepayment and extension risk than traditional
CMOs (such as interest- or principal-only strips).
Investments in equity securities available for sale as of December 31 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997
- --------------------------------------------------------
<S> <C> <C>
Amortized Cost $300.4 $210.0
Gross unrealized gains 13.1 21.3
Gross unrealized losses 8.1 .1
- --------------------------------------------------------
Fair Value $305.4 $231.2
========================================================
</TABLE>
4. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 12.7 $ 12.3 $ 12.8 $ 12.4
Liabilities:
Investment contract liabilities:
With a fixed maturity $1,063.9 $ 984.3 $1,030.3 $1,005.4
Without a fixed maturity 10,241.7 9,686.2 10,113.2 9,587.5
- ------------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Financial Instruments (continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' funds left with the
Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments
Futures Contracts:
Futures contracts are used to manage interest rate risk in the Company's bond
portfolio. 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. The notional amounts, carrying values and estimated fair
values of the Company's open treasury futures as of December 31, 1998 were
$250.9 million, $.1 million, and $.1 million, respectively.
Warrants:
Included in common stocks are warrants which are instruments giving the Company
the right, but not the obligation to buy a security at a given price during a
specified period. The carrying values and estimated fair values of the
Company's warrants to purchase equity securities as of December 31, 1998 were
$1.5 million, respectively. The carrying values and estimated fair values as of
December 31, 1997 were $.6 million, respectively.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Financial Instruments (continued)
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,
1998 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $1,879.6 $1,988.9
Principal-only strips (included above) 20.2 24.0
Interest-only strips (included above) 17.3 18.0
Other structured securities with derivative
characteristics (1) 87.3 80.6
- ---------------------------------------------------------------------------
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
5. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 798.8 $ 814.6 $ 805.3
Nonredeemable preferred stock 18.4 12.9 5.8
Investment in affiliated mutual funds 6.6 3.8 10.8
Mortgage loans 0.6 0.3 0.6
Policy loans 7.2 5.7 6.4
Reinsurance loan to affiliate 2.3 5.5 9.3
Cash equivalents 44.6 38.8 27.1
Other 16.7 9.5 1.8
- ---------------------------------------------------------------------------
Gross investment income 895.2 891.1 867.1
Less: investment expenses (17.6) (12.3) (14.5)
- ---------------------------------------------------------------------------
Net investment income $ 877.6 $ 878.8 $ 852.6
===========================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $655.6 million, $673.8 million and $649.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
6. Dividend Restrictions and Shareholder's Equity
The Company paid $553.0 million and $17.3 million in cash dividends to HOLDCO
in 1998 and 1997, respectively. Additionally, at December 31, 1998, the Company
accrued $206.0 million in dividends. Of the $759.0 million dividends paid and
accrued in 1998, $756.0 million (all of which was approved by the Insurance
Commissioner of the State of Connecticut) was attributable to proceeds from the
sale of the domestic individual life insurance business.
In January 1999, the accrued dividends of $206.0 million were paid by the
Company to HOLDCO. Further dividends to be paid by the Company to HOLDCO during
1999 will need to be approved by the Insurance Department of the State of
Connecticut (the "Department") prior to payment.
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 $148.1
million, $80.5 million and $57.8 million for the years ended December 31, 1998,
1997 and 1996, respectively. Statutory capital and surplus was $773.0 million
and $778.7 million as of December 31, 1998 and 1997, respectively.
As of December 31, 1998, 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.
7. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 7.4 $21.1 $ 9.5
Equity securities 3.0 8.6 7.5
- -------------------------------------------------------------------
Pretax realized capital gains $10.4 $29.7 $17.0
===================================================================
After-tax realized capital gains $ 7.3 $19.2 $11.1
===================================================================
</TABLE>
Net realized capital gains of $15.0 million, $83.7 million and $52.5 million
for 1998, 1997 and 1996, 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 $118.6 million and $120.1 million at December 31, 1998 and 1997,
respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Capital Gains and Losses on Investment Operations (continued)
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $6,790.2 $5,311.3 $5,182.2
Gross gains 98.8 23.8 22.1
Gross losses 91.4 2.7 12.6
- --------------------------------------------------------------
</TABLE>
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities,
excluding those related to experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 18.9 $44.3 $ (100.1)
Equity securities (16.1) 5.6 (10.5)
Other 15.4 -- --
- -------------------------------------------------------------------------------------
Subtotal 18.2 49.9 (110.6)
Increase (decrease) in deferred income taxes
(Refer to note 8) 6.3 17.5 (38.6)
- -------------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive income $ 11.9 $32.4 $ (72.0)
=====================================================================================
</TABLE>
Net unrealized capital gains allocable to experience-rated contracts of $355.8
million at December 31, 1998 are reflected on the Consolidated Balance Sheets
in Policyholders' funds left with the Company and are not included in
shareholder's equity. At December 31, 1997, net unrealized capital gains of
$356.7 million and $72.6 million at December 31, 1997 are reflected on the
Consolidated Balance Sheets in policyholders' funds left with the Company and
future policy benefits, respectively, and are not included in shareholder's
equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
income, which are net of amounts allocable to experience-rated contractholders,
at December 31:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $ 157.3 $ 140.6 $ 101.7
Gross unrealized capital losses (16.2) (18.4) (23.8)
- ---------------------------------------------------------------------------------
141.1 122.2 77.9
- ---------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 13.1 21.2 16.3
Gross unrealized capital losses (8.1) (0.1) (0.8)
- ---------------------------------------------------------------------------------
5.0 21.1 15.5
- ---------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 17.1 -- --
Gross unrealized capital losses (1.7) -- --
- ---------------------------------------------------------------------------------
15.4 -- --
- ---------------------------------------------------------------------------------
Deferred income taxes (Refer to note 8) 56.7 50.4 32.9
- ---------------------------------------------------------------------------------
Net accumulated other comprehensive income $ 104.8 $ 92.9 $ 60.5
=================================================================================
</TABLE>
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the year (1) $38.3 $98.8 $ (14.8)
Less: reclassification adjustment for gains and
other items included in net income (2) 26.4 66.4 57.2
- -------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $11.9 $32.4 $ (72.0)
=====================================================================================
</TABLE>
(1) Pretax unrealized holding gains (losses) arising during the year were
$58.8 million, $152.3 million and ($22.9) million for 1998, 1997 and 1996,
respectively.
(2) Pretax reclassification adjustments for gains and other items included in
net income were $40.6 million, $102.4 million and $87.7 million for 1998,
1997 and 1996, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined returns of Connecticut and New York, and the Illinois unitary 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 in the consolidated federal income tax return.
Income taxes from continuing operations consist of the following:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 246.4 $ 28.7 $ 30.0
State 1.3 2.0 2.3
Net realized capital gains 16.8 39.1 24.4
- -------------------------------------------------------------------------
264.5 69.8 56.7
- -------------------------------------------------------------------------
Deferred taxes (benefits):
Federal (203.2) 9.4 (7.6)
Net realized capital (losses) (13.9) (28.5) (18.4)
- -------------------------------------------------------------------------
(217.1) (19.1) (26.0)
- -------------------------------------------------------------------------
Total $ 47.4 $ 50.7 $ 30.7
=========================================================================
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income from continuing operations before income taxes for
the following reasons:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $ 187.0 $ 188.2 $ 115.9
Tax rate 35% 35% 35%
- --------------------------------------------------------------------------------------
Application of the tax rate 65.5 65.9 40.6
Tax effect of:
State income tax, net of federal benefit 0.9 1.3 1.5
Excludable dividends (17.1) (15.6) (10.8)
Other, net (1.9) (0.9) (0.6)
- --------------------------------------------------------------------------------------
Income taxes $ 47.4 $ 50.7 $ 30.7
======================================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 324.1 $415.8
Unrealized gains allocable to experience
rated contracts 124.5 150.1
Investment (gains) losses (0.3) 6.6
Postretirement benefits other than pensions 26.0 26.3
Deferred compensation 38.6 31.2
Restructuring charge 2.9 9.5
Depreciation 1.7 3.9
Sale of individual life 48.9 -
Other 16.0 8.8
- --------------------------------------------------------------------------
Total gross assets 582.4 652.2
- --------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 272.7 515.6
Market discount 4.5 5.1
Net unrealized capital gains 181.2 200.5
Pension 3.9 3.6
Other (0.5) (0.6)
- --------------------------------------------------------------------------
Total gross liabilities 461.8 724.2
- --------------------------------------------------------------------------
Net deferred tax (asset) liability $ (120.6) $ 72.0
==========================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. As of December 31, 1998 and 1997, no valuation
allowances were required for unrealized capital gains and losses.
Management believes that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset. The Company expects
sufficient taxable income in the future to realize the net deferred tax asset
because of the Company's long-term history of having taxable income, which is
projected to continue.
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, 1998. This amount would be taxed
only under certain conditions.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
No income taxes have been provided on this amount since management believes
under current tax law the conditions under which such taxes would become
payable are remote.
The Internal Revenue Service (the "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
Aetna has noncontributory defined benefit pension plans covering substantially
all employees. 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 $0.8 million, $2.7 million and $4.3 million for
the years ended December 31, 1998, 1997 and 1996, respectively.
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 1998, 1997 and 1996 were $0.9 million,
$2.7 million and $1.8 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.
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.
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 1998, 1997 and
1996 were $1.4 million, $0.6 million and $0.7 million, respectively.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed the
formula for providing pension benefits from the existing final average pay
formula to a cash balance formula,
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Benefit Plans (continued)
which will credit employees annually with an amount equal to a percentage of
eligible pay based on age and years of service as well as an interest credit
based on individual account balances. The formula also provides for a
transition period until December 1, 2006, which allows certain employees to
receive vested benefits at the higher of the final average pay or cash balance
formula. The changing of this formula will not have a material effect on the
Company's results of operations, liquidity or financial condition.
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 $4.7 million, $4.4 million and $5.4 million in 1998, 1997 and 1996,
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 1998, 1997 and 1996, were $4.1 million, $2.9 million and $8.1
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 1998,
other changes in shareholder's equity include an additional increase of $0.7
million reflecting revisions to the allocation of the deferred tax benefit.
10. Related Party Transactions
Investment Advisory and Other Fees
In February 1998 and May 1998, Aeltus Investment Management Inc. ("Aeltus"), an
affiliate of the Company, assumed investment advisory services for Aetna
managed mutual funds and variable funds (collectively, the Funds),
respectively. In connection with that assumption of duties, Aeltus entered into
participation agreements with the Company. Participation fees paid to the
Company, from Aeltus, included in charges assessed against policyholders
amounted to $26.9 million for 1998. Prior to assuming investment advisory
services, Aeltus served as subadvisor to the Funds. Since August 1996, Aeltus
has served as advisor for most of the Company's 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, 1998, 1997 and 1996, the Company paid $21.7 million, $45.5 million
and $16.0 million, respectively, in such fees.
Prior to February 1998 and May 1998, the Company served as investment advisor
to the Funds. Under the advisory agreements, the funds paid the Company a daily
fee which, on an annual basis, ranged,
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
depending on the fund, from 0.25% to 0.85% of their average daily net assets.
The Company is also compensated by the Separate Accounts (variable funds) for
bearing mortality and expense risks pertaining to variable life and annuity
contracts. Under the insurance and annuity contracts, the Separate Accounts pay
the Company a daily fee which, on an annual basis is, depending on the product,
up to 2.15% of their average daily net assets. The amount of compensation and
fees received from the Funds and Separate Accounts, included in charges
assessed against policyholders, amounted to $287.0 million, $271.2 million and
$186.6 million in 1998, 1997 and 1996, respectively.
Reinsurance Transactions
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 was 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 were ceded to the Company
from Aetna Life as investment rollover occurred and the loan previously
established was 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) as of December 31, 1997
relating to the business assumed. The fair value of the loan relating to assets
held by Aetna Life was $412.3 million as of December 31, 1997 and was based
upon the fair value of the underlying assets.
Effective October 1, 1998, this agreement was fully transitioned to a
coinsurance arrangement and this business along with the Company's direct
domestic individual non-participating life insurance business was sold to
Lincoln. (Refer to note 2).
The operating results of the domestic individual life business are presented as
Discontinued Operations. Premiums of $336.3 million, $176.7 million and $25.3
million and current and future benefits of $341.1 million, $183.9 million and
$39.5 million, were assumed in 1998, 1997 and 1996, respectively. Investment
income of $17.0 million, $37.5 million and $44.1 million was generated from the
reinsurance loan to affiliate for the years ended December 31, 1998, 1997 and
1996, respectively.
Prior to the sale of the domestic individual life insurance business to Lincoln
on October 1, 1998, the Company's retention limit per individual life was $2.0
million and amounts in excess of this limit, up to a maximum of $8.0 million on
any new individual life business was reinsured with Aetna Life on a yearly
renewable term basis. Premium amounts related to this agreement were $2.0
million, $5.9 million and $5.2 million for 1998, 1997 and 1996, respectively.
This agreement was terminated effective October 1, 1998.
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
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
renewable term basis. Premium amounts related to this agreement were $4.4
million and $0.7 million in 1998 and 1997, respectively. The business assumed
under this agreement was retroceded to Lincoln effective October 1, 1998.
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 is also
responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $87.8 million and $32.5
million were maintained for this contract as of December 31, 1998 and 1997,
respectively.
Capital Transactions
The Company received a capital contribution of $9.3 million and $10.4 million
in cash from HOLDCO in 1998 and 1996, respectively. The Company received no
capital contributions in 1997.
The Company paid $553.0 million, $17.3 million and 3.5 million in cash
dividends to HOLDCO in 1998, 1997 and 1996, respectively. Additionally, in
1998, the Company accrued $206.0 million in dividends. (Refer to Note 6)
Other
Premiums due and other receivables include $1.6 million and $37.0 million due
from affiliates in 1998 and 1997, respectively. Other liabilities include $2.2
million and $1.2 million due to affiliates for 1998 and 1997, respectively.
As of December 31, 1998, Aetna transferred to the Company $0.7 million based on
its decision not to settle state tax liabilities for the years 1998 and 1997.
The amount transferred as of December 31, 1997 was $2.5 million. This amount
has been reported as an other change 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
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction is generally in the
form of an indemnity reinsurance arrangement, under which Lincoln contractually
assumed from the Company certain policyholder liabilities and obligations,
although the Company remains directly obligated to policyholders. (Refer to
note 2)
Effective January 1, 1998, 90% of the mortality risk on substantially all
individual universal life product business written from June 1, 1991 through
October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90% of
new business written on these products was reinsured externally. Effective
October 1, 1998 this agreement was assigned from the third party reinsurer to
Lincoln.
F-28
<PAGE>
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
(Millions) Amount Companies Companies Amount
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
- ----------
Premiums:
Discontinued Operations $166.8 $165.4 $340.6 $342.0
Accident and Health Insurance 16.3 16.3 -- --
Annuities 80.8 2.9 1.5 79.4
- -------------------------------------------------------------------------------------
Total earned premiums $263.9 $184.6 $342.1 $421.4
=====================================================================================
1997
- ----------
Premiums:
Discontinued Operations $ 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:
Discontinued Operations $ 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
=====================================================================================
</TABLE>
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information
Prior to October 1, 1998, the Company's operations were reported through two
major business segments: Financial Services and Individual Life Insurance (now
Discontinued Operations). Summarized financial information for the Company's
principal operations was as follows:
<TABLE>
<CAPTION>
(4) (4)
Financial Discontinued
1998 (Millions) Services Operations Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 433.3 -- -- $ 433.3
Net investment income 877.6 -- -- 877.6
- -----------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,310.9 -- -- $ 1,310.9
=====================================================================================================
Amortization of deferred policy
acquisition costs $ 106.7 -- -- $ 106.7
- -----------------------------------------------------------------------------------------------------
Income taxes $ 57.7 $ (10.3) $ 47.4
- -----------------------------------------------------------------------------------------------------
Operating earnings (1) $ 151.5 -- -- $ 151.5
Unusual items (2) -- -- $ (19.2) (19.2)
Realized capital gains, net of tax 7.3 -- -- 7.3
- -----------------------------------------------------------------------------------------------------
Income from continuing operations $ 158.8 -- $ (19.2) $ 139.6
Discontinued operations, net of tax:
Income from operations -- $ 61.8 -- 61.8
Gain on sale -- 59.0 -- 59.0
- -----------------------------------------------------------------------------------------------------
Net income $ 158.8 $ 120.8 $ (19.2) $ 260.4
=====================================================================================================
Segment assets $43,458.6 $3,820.2 -- $47,278.8
- -----------------------------------------------------------------------------------------------------
Expenditures for long-lived assets (3) -- -- $ 5.3 $ 5.3
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings include an after-tax
severance benefit of $1.6 million and after-tax Year 2000 costs of $20.8
million.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
(4) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1997 (Millions) Services Operations Other Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 369.4 -- -- $ 369.4
Net investment income 878.8 -- -- 878.8
- ---------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,248.2 -- -- $ 1,248.2
=============================================================================================
Amortization of deferred policy
acquisition costs $ 82.8 -- -- $ 82.8
- ---------------------------------------------------------------------------------------------
Income taxes $ 50.7 -- -- $ 50.7
- ---------------------------------------------------------------------------------------------
Operating earnings (1) $ 118.3 -- -- $ 118.3
Realized capital gains, net of tax 19.2 -- -- 19.2
- ---------------------------------------------------------------------------------------------
Income from continuing operations $ 137.5 -- -- $ 137.5
Discontinued Operations, net of tax:
Income from operations - $ 67.8 -- 67.8
- ---------------------------------------------------------------------------------------------
Net Income $ 137.5 $ 67.8 -- $ 205.3
=============================================================================================
Segment assets $36,638.8 $3,507.6 -- $40,146.4
- ---------------------------------------------------------------------------------------------
Expenditures for long-lived assets (2) -- -- $9.6 $ 9.6
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Expenditures for long-lived assets represents additions to property and
equipment not allocable to business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1996 (Millions) Services Operations Other Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 325.5 -- -- $ 325.5
Net investment income 852.6 -- -- 852.6
- ------------------------------------------------------------------------------------------------------
Total revenue excluding realized capital
gains $1,178.1 -- -- $1,178.1
======================================================================================================
Amortization of deferred policy acquisition
costs $ 28.0 -- -- $ 28.0
- ------------------------------------------------------------------------------------------------------
Income taxes $ 35.6 -- $ (4.9) $ 30.7
- ------------------------------------------------------------------------------------------------------
Operating earnings (losses) (1) $ 83.2 -- -- $ 83.2
Unusual items (2) -- -- (9.1) (9.1)
Realized capital gains, net of tax: 11.1 -- -- 11.1
- ------------------------------------------------------------------------------------------------------
Income from continuing operations $ 94.3 $ (9.1) $ 85.2
Discontinued operations, net of tax
Income from operations -- $55.9 -- 55.9
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ 94.3 $55.9 $ (9.1) $ 141.1
======================================================================================================
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings represent $9.1 million
after-tax corporate facilities and severance charges not directly
allocable to the business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
13. 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, 1998 and 1997, the Company had
commitments to purchase investments of $68.7 million and $38.7 million,
respectively. The fair value of the investments at December 31, 1998 and 1997
approximated $68.9 million and $39.0 million, respectively.
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.
F-32
<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. 12 TO THE REGISTRATION STATEMENT
This Post-Effective Amendment No. 12 to Registration Statement No.
33-76018 is comprised of the following papers and documents:
o The facing sheet.
o One Prospectus for the AetnaVest Plus Variable Life Insurance Policy
consisting of 101 pages
o The undertaking to file reports
o The undertaking pursuant to Rule 484
o Representation pursuant to Section 26(e)(2)(A) of the Investment Company
Act of 1940
o The signatures
o Written consents of the following persons:
A. Consent of Counsel
B. Actuarial Consent
C. Consent of Independent Auditors
1
<PAGE>
The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for Form
N-8B-2:
<TABLE>
<S> <C>
(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 by and among Aetna Life Insurance and Annuity Company and Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna
GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its
series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment
Management, Inc. dated as of May 1, 1998(6)
(8)(ii) Amendment dated November 9, 1998 to Fund Participation Agreement by and among Aetna Life
Insurance and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna
Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna
Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of
each of its series, and Aeltus Investment Management, Inc. dated as of May 1, 1998(7)
(8)(iii) Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and
Annuity Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable
Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of
its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna Variable Portfolios,
Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as of May 1,
1998(6)
(8)(iv) 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)(v) 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(8)
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(8)(vi) 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(9)
(8)(vii) 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(6)
(8)(viii) 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)(ix) 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(8)
(8)(x) Sixth Amendment dated as of January 20, 1998 to the Fund Participation Agreement between Aetna
Life Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1,
1995, January 1, 1996, March 1, 1996 and May 1, 1997(10)
(8)(xi) 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(6)
(8)(xii) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investments
Institutional Operations Company dated as of November 1, 1995(11)
(8)(xiii) 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(8)
(8)(xiv) Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity
Company and Janus Capital Corporation dated December 8, 1997(12)
(8)(xv) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity
Company dated December 8, 1997(12)
(8)(xvi) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity
Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(12)
(8)(xvii) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life
Insurance and Annuity Company(13)
(9) Not applicable
(10)(i) Application (70059-96)(14)
(10)(ii) Application (70059-96ZNY)(14)
(10)(iii) Application Supplement (70268-97(3/98))(14)
</TABLE>
3
<PAGE>
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Actuarial Opinion and Consent
7. Consent of Independent Auditors
8. Copy of Power of Attorney(15)
1. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form S-6 (File No. 33-76004), as filed on February 16, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-76018), as filed on April 22, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed on April 15, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 11, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-91846), as filed on
October 30, 1997.
6. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed on June 8, 1998.
7. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on December 14, 1998.
8. Incorporated by Reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
September 29, 1997.
9. Incorporated by Reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 9, 1998.
10. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-75248), as filed on February 24, 1998.
11. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-88720), as filed on June 28, 1996.
12. Incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (File No. 33-75992), as filed on
December 31, 1997.
13. Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on April
16, 1997.
14. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-6 (File No. 33-64277), as filed on February 25, 1998.
15. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 333-56297), as filed on February 25, 1999.
4
<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. 12 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 27
day of April, 1999.
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. 12 to the Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ----------------------
Thomas J. McInerney (Principal Executive Officer) )
) April
Catherine H. Smith* Director and Chief Financial Officer ) 27, 1999
- ----------------------
Catherine H. Smith )
)
Shaun P. Mathews* Director )
- ----------------------
Shaun P. Mathews )
)
Deborah Koltenuk* Vice President, Treasurer and Corporate Controller )
- ----------------------
Deborah Koltenuk )
</TABLE>
By: /s/ J. Neil McMurdie
---------------------
J. Neil McMurdie
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
99-2 Opinion and Consent of Counsel ------------
99-6 Actuarial Opinion and Consent ------------
99-7 Consent of Independent Auditors ------------
</TABLE>
151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
April 27, 1999 Investments & Financial Services
(860) 273-4686
Fax: (860) 273-8340
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Filing Desk
Re: Aetna Life Insurance and Annuity Company and its Variable Life Account B
Post-Effective Amendment No. 12 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, or those for whom I have supervisory
responsibility, have reviewed the S-6 Registration Statement as amended to the
date hereof, and this Post-Effective Amendment No. 12. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, I am of the opinion that the Securities have been
legally authorized and, assuming that the Securities have been issued and sold
in accordance with the provisions of the prospectus being registered, will be
legally issued.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
[letterhead]
[logo] Lincoln
(R) -------
Financial Group
Lincoln Life
Lincoln National Life Insurance Co.
350 Church Street
Hartford, CT 06103-1106
April 20, 1999
Re: AetnaVest Plus (File No. 33-76018)
Dear Sir or Madam:
In my capacity as Actuary of The Lincoln National Life Insurance Company,
administrator for the above referenced Aetna Life Insurance and Annuity Company
(ALIAC) policies, I have provided actuarial advice concerning ALIAC's AetnaVest
Plus Flexible Premium Variable Life Insurance Policy (the "Policies"). I also
provided actuarial advice concerning the preparation of Post-Effective Amendment
No. 12 to Registration Statement on Form S-6, File No. 33-76004 (the
"Registration Statement") for filing with the Securities and Exchange Commission
under the Securities Act of 1933 in connection with the Policy.
In my opinion the illustrations of benefits under the Policies 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 Policies. Also, in my
opinion the ages selected in the illustrations are representative of the manner
in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Ronald D. Franzluebbers
Ronald D. Franzluebbers
Assistant Vice President & Actuary
Consent of Independent Auditors
To the Board of Directors of Aetna Life Insurance and Annuity Company and
Policyholders of Variable Life Account B:
We consent to the use of our reports dated February 3, 1999 and February 26,
1999 included in this Post-Effective Amendment No. 12 to Registration Statement
(File No. 33-76018) on Form S-6 and to the reference to our firm under the
heading "Independent Auditors" in the prospectus.
/s/ KPMG LLP
Hartford, Connecticut
April 27, 1999
