As filed with the Securities and Exchange Commission on April 29, 1999
Registration No. 33-75248
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
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
-------------
Variable Life Account B of Aetna Life Insurance
and Annuity Company
-------------
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A,
Hartford, Connecticut 06l56
Depositor's Telephone Number,
including Area Code: (860) 273-4686
-------------
Julie E. Rockmore, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A,
Hartford, Connecticut 06l56
(Name and Complete Address of Agent for Service)
-------------
Copy to:
George N. Gingold, Esq.
197 King Philip Drive
West Hartford, CT 06117-1409
-------------
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
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
================================================================================
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-8B-2
- ------------
Item No.
- ------------
<S> <C>
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 & 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
28 Directors and Officers
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-8B-2
- ------------
Item No.
- ------------
<S> <C>
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>
<PAGE>
Variable Life Account B--CVUL and CVUL II
Underwritten By:
Aetna Life Insurance and Annuity Company
Home Office:
151 Farmington Avenue
Hartford, Connecticut 06156
(800) 334-7586
Administrative Office:
Lincoln Corporate Specialty Markets
350 Church Street--MSM1
Hartford, CT 06103-1106
(860) 466-1561
Prospectus Dated May 1, 1999
The Flexible Premium Variable Universal Life Insurance Policy
This Prospectus describes Corporate VUL ("CVUL") and Corporate VUL II ("CVUL
II"), two flexible premium variable life insurance contracts (the "Policies")
offered by Aetna Life Insurance and Annuity Company (the "Company", "we", "us",
"our"). The Policies can be purchased by corporations or other groups where
individuals share a common employer or affiliation with the group or sponsoring
organization. The Policy features: flexible premium payments; a choice of one of
three death benefit options; a choice of life insurance qualification methods;
and a choice of underlying investment options.
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.
Each fund has its own investment objective. The mutual funds ("Funds") through
the Separate Account are:
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Small Company VP
o Aetna Value Opportunity VP
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Asset Manager Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Flexible Income Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Total Return Series
o MFS Global Governments Series (formerly World Governments)
o Oppenheimer Aggressive Growth Fund/VA (formerly Oppenheimer Capital
Appreciation Fund)
o Oppenheimer Global Securities Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners MFS Emerging Equities Portfolio
o Portfolio Partners MFS Research Growth Portfolio
o Portfolio Partners MFS Value Equity Portfolio
o Portfolio Partners Scudder International Growth Portfolio
o Portfolio Partners T. Rowe Price Growth Equity Portfolio
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 4.0% a year.
This prospectus and other information about Variable Life Account B filed with
the Securities and Exchange Commission can be found in the Commission's
web site at http://www.sec.gov. You can get copies of this information by
visiting the Commission's Public Reference Room (call 1-800-SEC-0330) or
writing the Commission's Public Reference Section, Washington, DC 20549-6009
and paying a duplication fee.
The Commission has not approved or disapproved these securities or determined
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 Policy or exercising elections under a
Policy. 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.
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Policy Summary .................................... 1
The Company ....................................... 5
The Separate Account .............................. 5
The General Account ............................... 6
Allocation of Premiums ............................ 6
Fixed Account .................................... 6
Separate Account ................................. 6
Mixed and Shared Funding ......................... 9
Charges & Fees .................................... 10
Premium Charge ................................... 10
Premium Charge Refund ............................ 11
Premium Tax Charge ............................... 11
Charges and Fees Assessed Against the Total
Account Value .................................... 11
Charges and Fees Associated with the
Variable Funding Options ......................... 12
Mortality and Expense Risk Charge ................ 12
Administrative Charge - Corporate VUL only ....... 13
Surrender Charge - Corporate VUL only ............ 13
Surrender Charges on Full and Partial
Surrenders ...................................... 13
Charges Assessed Against the Underlying
Funds ............................................ 14
Reduction of Charges ............................. 15
Policy Choices .................................... 16
Premium Payments ................................. 16
Guaranteed Death Benefit -
Corporate VUL only .............................. 17
Life Insurance Qualification ..................... 18
Death Benefit Options ............................ 19
Transfers and Allocations to Funding Options 20
Limits on Frequent Transfers ..................... 20
Policy Values ..................................... 20
Total Account Value .............................. 20
Accumulation Unit Value .......................... 21
Maturity Value ................................... 22
Surrender Value .................................. 22
Policy Rights ..................................... 22
Partial Surrenders ............................... 22
No Lapse Coverage - Corporate VUL only ........... 23
Reinstatement of a Lapsed Policy ................. 23
Policy Loans ..................................... 24
Policy Changes ................................... 25
Right to Examine the Policy ...................... 26
Death Benefit ..................................... 27
Policy Settlement ................................. 27
Settlement Options ............................... 27
Calculation of Variable Payment Settlement
Options Values .................................. 29
Term Insurance Rider .............................. 30
Directors & Officers .............................. 31
Additional Information ............................ 34
Reports to Policyowners .......................... 34
Right to Instruct Voting of Fund Shares .......... 34
Disregard of Voting Instructions ................. 34
State Regulation ................................. 35
Legal Matters .................................... 35
The Registration Statement ....................... 35
Distribution of the Policies ..................... 35
Records and Accounts ............................. 36
Independent Auditors ............................. 36
Year 2000 ........................................ 36
Tax Matters ....................................... 37
General .......................................... 37
Federal Tax Status of the Company ................ 37
Life Insurance Qualification ..................... 37
General Rules .................................... 38
Modified Endowment Contracts ..................... 38
Diversification Standards ........................ 39
Investor Control ................................. 39
Other Tax Considerations ......................... 40
Miscellaneous Policy Provisions ................... 41
The Policy ....................................... 41
Payment of Benefits .............................. 41
Age .............................................. 41
Incontestability ................................. 41
Suicide .......................................... 41
Coverage Beyond Maturity ......................... 42
Nonparticipation ................................. 42
Appendix A -
Illustrations of Death Benefits, Total Account
Values and Surrender Values, Corporate VUL ....... 43
Appendix B -
Illustrations of Death Benefits, Total Account
Values and Surrender Values, Corporate
VUL II ........................................... 53
Financial Statements of the Separate Account ...... S-1
Financial Statements of the Company ............... F-1
</TABLE>
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.
ii
<PAGE>
Policy Summary
This section is an overview of key Policy features of the Corporate VUL and
Corporate VUL II Policies. These Policies are administered by The Lincoln
National Life Insurance Company.
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. The Policy owner
will have all rights and privileges under the Policy. The Policies may be used
for such purposes as funding non-qualified executive deferred compensation or
salary continuation plans. These Policies may be used by corporations and other
businesses as a means of funding death benefit liabilities incurred under
executive retirement plans or as a source for funding cash flow obligations
under such plans. The Policies are not designed to be used in an employer's
pension or profit sharing plan. (Regulations in your state may vary the
provisions of your own Policy.) It may not be advantageous to replace existing
insurance or supplement an existing flexible premium variable life insurance
policy with a corporate VUL or Corporate VUL II policy.
Your Policy is a flexible premium variable life insurance policy. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
The value of the Policy and, under one option, the death benefit amount is not
guaranteed and depends on the investment results of the funding options you
select.
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 several important choices to
make when the Policy is first purchased. You need to choose:
1) one of three death benefit options (see page 19);
2) the life insurance qualification method;
3) the amount of premium you want to pay;
4) 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;
5) (Corporate VUL only) if you want the guaranteed death benefit provision,
and to what age (described on pages 17-18).
Death Benefit Options
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.
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
1
<PAGE>
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.
If you have surrendered a portion of your Policy, any surrendered amount will
reduce your initial death benefit.
Life Insurance Qualification Method
At the time of purchase you must choose which life insurance qualification
method best suits your needs--Cash Accumulation or Guideline Premium. Both
methods require a Policy to provide minimum ratios of life insurance coverage
to total account value. The guideline premium method may also restrict premiums
payable under the Policy. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
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 18-19. If
your Policy lapses because your monthly deduction is larger than the net
accumulation value, you may reinstate your Policy. See page 23.
You may use the value of the Policy to pay the monthly deductions due and
continue the Policy in force if sufficient values are available. 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 page 12) 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 unless your state requires a full refund of premiums. If
you then decide you do not want your Policy, you will receive a refund. See
page 26.
Selection of Funding Vehicles
This Prospectus focuses on the Separate Account investment information that
makes up the "variable" part of the contract. 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
variable 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 4.0% per year.
For additional information on the Fixed Account, see page 6.
Guaranteed Death Benefit Provision (CVUL only)
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 pages 17-18.
No-Lapse Coverage Provision (CVUL only)
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 the sum
of premiums paid equals or exceeds:
1) the sum of the minimum monthly premiums for each Policy month from the
issue date, including the current month; 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 Premium Charge deduction will be made from each premium payment. That
deduction is, in the first policy year, 7% for Corporate VUL, guaranteed not to
exceed 10%, and 10.5% for Corporate VUL II, guaranteed not to exceed 15%; it
declines thereafter. This charge represents the expense associated with the
startup and maintenance of a Policy. For Corporate VUL, this includes average
applicable premium taxes, although the Company is responsible for payment of
premium taxes and any other amounts payable with respect to your premium
payments to the extent they exceed the premium charge. See pages 10-11 for
details for the schedule of premium charge percentages.
For Corporate VUL II, except as noted below, an explicit Premium Tax Charge
equal to the state and municipal taxes associated with premiums received is
also deducted from premium payments.
Upon a full surrender of your Policy within the first 36 months for Corporate
VUL and first 24 months for Corporate VUL II if your Policy is not in default,
you may be entitled to a credit for some or all of the premium charges which
have been deducted from your premium payments. See page 11.
A monthly deduction is made from the total account value on the same day of
each month beginning with the date of issue. The monthly deduction includes the
Cost of Insurance and any charges for supplemental riders or benefits. Once a
policy is issued, monthly deductions will begin as of the date of issue, even
if the Policy's issuance was delayed due to underwriting requirements or other
reasons. The monthly deduction also includes a monthly administrative expense
charge during all policy years. For Corporate VUL, this charge is $7. For
Corporate VUL II the current monthly charge is $6, guaranteed not to exceed
$10. See pages 11 and 12.
A daily charge is deducted from the assets of Variable Life Account B for
mortality and expense risks assumed by the company. The daily deductions from
net assets of the Separate Account for Corporate VUL are at the annual rates of
.70% during policy years 1 through 10 and .20% thereafter. For Corporate VUL
II, these percentages are .70% during policy years 1 through 10 and .35%
thereafter. The Company reserves the right to increase the mortality and
expense risk charge if it believes that circumstances have changed so that the
current charges are no longer adequate. The maximum mortality and expense risk
charge is .90% per year.
3
<PAGE>
For Corporate VUL only, a daily administrative charge is deducted equivalent on
an annual basis to .30% of the average daily net assets of Variable Life Account
B to compensate the Company for expenses associated with the administration and
maintenance of the policies. The daily administrative charge is guaranteed to
never exceed .50% on an annual basis of the average daily net assets of Variable
Life Account B.
Each Fund has its own management fee charge also deducted daily. Investment
results for the Funds you chose will be affected by the management charges and
other expenses. The table on page 14 shows you the charges and other expenses
currently in effect for each Fund.
For Corporate VUL only, if you surrender your Policy (in whole or in part) a
surrender charge may apply. The maximum initial surrender charge is 30% of the
first year's minimum monthly premium for the initial specified amount. Once
determined, the surrender charge will decrease annually until it reaches zero
after nine years. If you increase the specified amount, a new surrender charge
applies, in addition to the then existing surrender charge. See page 13.
Policy Loans
If you borrow against your Policy, interest will be charged to the Loan
Account. Currently, the interest rate on loans accrues at an annual rate equal
to the greater of 1) 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, or 2) 5%.
For Corporate VUL, there are two types of loans, preferred (those taken during
policy years 11 and beyond up to 10% of each year's total loan value), and
non-preferred (all others). Annual interest is credited on the loan account
value at the same rate interest is charged for preferred loans. For
non-preferred loans, the rate credited is 1% less than the loan interest rate.
For Corporate VUL II, there are no preferred loans. Annual interest is credited
on the loan account value not to exceed .9% less than the loan interest rate.
However, in no case will the credited interest rate be less than 4.0% annually.
See pages 24-25.
Changes in Specified Amount
Within certain limits, you may increase or decrease the specified amount
beginning with the second policy year. Increases will require satisfactory
evidence of insurability. Decreases in the first five years are subject to
approval of the Company. Currently the minimum specified amount is $100,000.
Such changes will affect other aspects of your Policy. See page 25.
4
<PAGE>
The Company
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized under the insurance laws of the State of Connecticut in 1976. Through
a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance
Company (formerly Participating Annuity Life Insurance Company organized in
1954). The Company is engaged in the business of issuing life insurance
policies and 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 Separate Account
Variable Life Account B is the separate account that supports the variable
options. If you allocate any of your total account value to the variable
options, that value is invested in the separate account. The separate account
purchases shares of the Funds to fund the benefits provided by the Policies. We
describe the currently available Funds, their investment objectives, and their
investment advisers in this Prospectus. Each Fund also has a prospectus, which
contains complete descriptions of the Fund's investment objectives, investment
restrictions and other material information relating to an investment in the
Fund. Any and all Fund distributions for Fund shares held by the separate
account will be reinvested in additional Fund shares at net asset value.
We created Variable Life Account B in 1986 under Connecticut law. We hold the
separate account assets to satisfy the claims of the Policy Owners to the extent
that they have allocated amounts to the Separate Account. Our other creditors
could reach only those separate account assets (if any) that are in excess of
the amount of our reserves and liabilities under the Policies with respect to
the separate account. The Company is responsible for meeting all obligations to
Owners under the Policies.
The separate account is registered with the Commission as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act") and meets the
definition of separate account under the federal securities laws. The
registration of the separate account involves no approval or disapproval by the
Commission of the separate account or the Company's management or investment
practices or policies. The Company does not guarantee the separate account's
investment performance.
5
<PAGE>
The General Account
This is the Company's general asset account, in which assets attributable to
the non-variable portion of the Policies are held. These are the fixed account
value and the loan account value. The fixed account value is the non-loaned
portion, the loan account value is equal to the sum of all unpaid loans.
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.
Allocation of Premiums
You may allocate all or a part of your net premiums to the Fixed Account (part
of the Company's General Account) or to the Funds currently available through
the Separate Account in connection with the Policy. Not all funds may be
available under all Policies or in all jurisdictions. In addition, the Company
may add, withdraw or substitute Funds, subject to the conditions in the Policy
and to compliance with regulatory requirements.
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 Investment
Company Act of 1940. Refer to the Fund prospectuses for additional 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.
Fixed Account
Amounts held in the Fixed Account will be credited with interest at rates of
not less than 4.0% per year. Additional excess interest of up to 0.5% per year
may be credited to the fixed account value beginning in policy year 11.
Credited interest rates reflect the Company's return on Fixed Account invested
assets and the amortization of any realized gains and/or losses which the
Company may incur on these assets.
Separate Account
o Aetna Balanced VP, Inc. 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
6
<PAGE>
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 Variable Portfolios, Inc. - Aetna Growth VP seeks growth of capital
through investment in a diversified portfolio of common stocks and
securities convertible into common stocks believed to offer growth
potential. (1)
o Aetna Variable Portfolios, Inc. - Aetna Index Plus Large Cap VP 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 Aetna Variable Portfolios, Inc. - Aetna Small Company VP seeks growth of
capital primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stocks of companies with
smaller market capitalizations. (1)
o Aetna Variable Portfolios, Inc. - Aetna Value Opportunity VP seeks growth of
capital primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stocks. (1)(a)
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)
o Fidelity Variable Insurance Products Fund - Growth Portfolio seeks capital
appreciation by investing primarily in common stocks of companies the
investment adviser believes have above-average growth potential. (2)
o Fidelity Variable Insurance Products Fund - High Income Portfolio seeks a
high level of current income while also considering growth of capital. (2)
o Fidelity Variable Insurance Products Fund - Overseas Portfolio seeks
long-term growth of capital by investing in foreign securities, primarily in
common stocks. (2)
o Fidelity Variable Insurance Products Fund II - Asset Manager Portfolio seeks
high total return with reduced risk over the long term by allocating its
assets among stocks, bonds and short-term instruments. (2)
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
7
<PAGE>
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 - Flexible Income Portfolio seeks to obtain maximum total
return, consistent with preservation of capital. The Portfolio pursues its
investment objective by primarily investiing in a wide variety of
income-producing securities such as corporate bonds and notes, government
securities and preferred stock. As a fundamental policy, the Portfolio will
invest at least 80% of its assets in income-producing securities. The
Portfolio may own an unlimited amount of high-yield/ high-risk securities,
and these may be a big part of the portfolio. This Portfolio generates total
return from a combination of current income and capital appreciation, but
income is usually the dominant portion. (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 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 MFS Total Return Series primarily seeks to provide above average income
(compared to a portfolio invested entirely in equity securities) consistent
with the prudent employment of capital. Its secondary objective is to take
advantage of opportunities for growth of capital and income. The series is a
"balanced fund." Under normal market conditions, the series invests (i) at
least 40%, but not more than 75%, of its net assets in equity securities;
and (ii) at least 25% of its net assets in non-convertible fixed income
securities. (4)
o MFS Global Governments Series (formerly MFS World Governments Series) is a
non-diversified series that seeks to provide income and capital appreciation.
Under normal market conditions, the series invests at least 65% of its total
assets in debt obligations that are issued or guaranteed as to principal and
interest by either (i) the U.S. Government, its agencies, authorities or
instrumentalities or (ii) the governments of foreign countries (including
emerging markets). (4)
o Oppenheimer Aggressive Growth Fund/VA (formerly Oppenheimer Capital
Appreciation Fund) seeks to achieve long-term capital appreciation by
investing in "growth-type" companies. (5)
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. (5)
8
<PAGE>
o Oppenheimer Main Street Growth & Income Fund/VA seeks a high total return
(which includes growth in the value of its shares as well as current income)
from equity and debt securities. (5)
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. (5)
o Portfolio Partners, Inc. MFS Emerging Equities Portfolio seeks to provide
long-term growth of capital. (6)(a)
o Portfolio Partners, Inc. MFS Research Growth Portfolio seeks long-term growth
of capital and future income. (6)(a)
o Portfolio Partners, Inc. MFS Value Equity Portfolio seeks capital
appreciation. (6)(a)
o Portfolio Partners, Inc. Scudder International Growth Portfolio seeks
long-term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities with high growth potential. (6)(b)
o Portfolio Partners, Inc. T. Rowe Price Growth Equity Portfolio seeks
long-term growth of capital and, secondarily, increasing dividend income.
(6)(c)
Investment Advisers of the Funds:
(1) Aeltus Investment Management, Inc. (Advisers)
(a) Bradley, Foster & Sargent, Inc. (Subadviser, effective October 1,
1998)
(2) Fidelity Management & Research Company
(3) Janus Capital Corporation
(4) Massachusetts Financial Services Company ("MFS")
(5) OppenheimerFunds, Inc.
(6) Aetna Life Insurance and Annuity Company (adviser);
(a) Massachusetts Financial Services Company (subadviser)
(b) Scudder Kemper Investments, Inc. (subadviser)
(c) T. Rowe Price Associates, Inc. (subadviser)
The availability of the Funds listed above is subject to applicable regulatory
approvals. Not all Funds are available in all jurisdictions or under all
Policies.
There is no assurance that the Funds will achieve their investment objectives.
Policy owners bear the full investment risk of investments in the Funds
selected.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of
leverage in connection with derivatives can also increase risk of losses. See
the prospectus for the Funds for a discussion of the risks associated with an
investment in those funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the Policies described in this
9
<PAGE>
Prospectus. Because Fund shares are offered to separate accounts of both
affiliated and unaffiliated insurance companies, it is conceivable that, in the
future, it may not be advantageous for variable life insurance separate accounts
and variable annuity separate accounts to invest in these Funds simultaneously,
since the interests of such Policy owners or contractholders may differ.
Although neither the Company nor the Funds currently foresees any such
disadvantages either to variable life insurance or to variable annuity
policyholders, each Fund's Board of Trustees/Directors has agreed to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in response
thereto. If such a conflict were to occur, one of the separate accounts might
withdraw its investment in a Fund. This might force that Fund to sell portfolio
securities at disadvantageous prices.
Charges & Fees
Premium Charge
A deduction, called the premium charge, will be made from each premium payment.
This charge represents administrative expenses associated with the startup and
maintenance of a Policy, and, for Corporate VUL, includes average applicable
state premium taxes. For Corporate VUL, the Company is responsible for payment
of actual premium taxes and other amounts payable with respect to your premium
payments to the extent they exceed the premium charge. DAC taxes are paid by
the Company.
For Corporate VUL II, an amount equal to the state and municipal taxes
associated with premiums received is deducted from premium payments.
Corporate VUL
1. Guaranteed Premium Charge
The premium charge is guaranteed to be no higher than the percentages shown in
the following table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 10% 5%
2 and after 5% 5%
</TABLE>
2. Current Premium Charge
The premium charge is currently set at the percentages shown in the following
table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 7% 2%
2 and after 2% 2%
</TABLE>
Corporate VUL II
1. Guaranteed Premium Charge
The premium charge is guaranteed to be no higher than the percentages shown in
the following table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Policy Year(s) Target Premium Target Premium
- ---------------- --------------------- ---------------------------
<S> <C> <C>
1 15% 6%
2-5 10% 6%
6 and after 6% 6%
</TABLE>
10
<PAGE>
2. Current Premium Charge
The premium charge is currently set at the amounts shown in the following
table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Policy Year(s) Target Premium Target Premium
- ---------------- --------------------- ---------------------------
<S> <C> <C>
1 10.5% 2.5%
2-5 7.5% 1.5%
6-7 3.5% 1.5%
8 and after 1.5% 1.5%
</TABLE>
Premium Charge Refund
Upon a full surrender of your Policy within the first 36 months of the Policy
for Corporate VUL and first 24 months for Corporate VUL II if your Policy is
not in default you may be entitled to a credit for some or all of the premium
charges which have been deducted from your premium payments although a
surrender charge will also apply for Corporate VUL. To determine the surrender
value during the premium charge refund period the total account value will be
reduced by the applicable surrender charge (Corporate VUL only) and the amount
of any loan account value, including accrued interest. That amount would be
increased by the applicable credit for the premium charge. For Corporate VUL
II, a decrease in the specified amount in policy years 1 or 2 will
proportionately decrease the amount of the premium charge refund.
Calculation of the Premium Charge Refund Amount
Corporate VUL
For Policies which are surrendered during the first twelve months after the
date of issue, the credit will be the sum of all premium charges deducted. For
policy months 13 through 36, the credit will be equal to the sum of all premium
charges deducted since the date of issue multiplied by twelve and then divided
by the number of policy months since the date of issue of the Policy. For
example, during policy month 24, the credit would be equal to the total of all
premium charges deducted since the date of issue multiplied by 12/24, or half
of all premium charges paid. No credits apply if a Policy is in default.
Corporate VUL II
For Policies surrendered during the first twelve months after the date of
issue, the refund is 7% of premium paid in the first policy year up to the
target premium and 3% of premium paid in the first policy year above target
premium. For months 13 through 24, the refund is 75% of the first policy year
refund amount.
Charges and Fees Assessed Against the
Total Account Value
The total account value is the sum of the separate account value, the fixed
account value and the loan account value.
A monthly deduction is made from the total account value. The monthly deduction
is made as of the same day each month, beginning with the date of issue. This
day is called the monthly deduction day. The monthly deduction includes the
Cost of Insurance attributable to the basic insurance coverage, and
11
<PAGE>
any charges for supplemental riders or benefits. The Cost of Insurance for
Corporate VUL depends on the attained age, risk class of the Insured and
specified amount of the Policy and number of policy years elapsed. Attained age
is the issue age of the Insured increased by the number of policy years
elapsed. For Corporate VUL II, the Cost of Insurance depends on the issue age,
risk class of the Insured and the number of policy years elapsed and specified
amount of the Policy.
Once a Policy is issued, the monthly deductions, including Cost of Insurance
charges, will begin as of the date of issue, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
specified amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount.
The monthly deduction also includes a monthly administrative expense charge
during all policy years as follows:
Corporate VUL - $7
Corporate VUL II - $6 currently, guaranteed not to exceed $10.
The monthly administrative expense charge is for items such as premium billing
and collection, policy value calculation, confirmations and periodic reports
and will not exceed our costs. The monthly deduction is deducted
proportionately from each funding option, if more than one is used. This is
accomplished by liquidating accumulation units and withdrawing the value of the
liquidated accumulation units from each funding option in the same proportion
as their respective values have to your fixed account and separate account
values.
Charges and Fees Associated with the
Variable Funding Options
Mortality and Expense Risk Charge
The Company deducts a daily charge from the assets of Variable Life Account B
for mortality and expense risks assumed by it in connection with the Policy.
The amount of this charge is a percentage of the average daily net assets of
the Separate Account based on policy years as follows.
1. Corporate VUL
<TABLE>
Percentage of Separate Account
Policy Years Average Daily Net Assets
<S> <C>
1-10 0.70%
11 and later 0.20%
</TABLE>
2. Corporate VUL II
<TABLE>
Percentage of Separate Account
Policy Years Average Daily Net Assets
<S> <C>
1-10 0.70%
11 and later 0.35%
</TABLE>
The mortality and expense risk charge is assessed to compensate the Company for
assuming certain mortality and expense risks under the Policies. The Company
reserves the right to increase the mortality and expense risk charge if it
believes that circumstances have changed so that the
12
<PAGE>
current charges are no longer adequate. In no event will the charge exceed
0.90% of average daily net assets on an annual basis.
Administrative Charge - Corporate VUL only
The Company also deducts a daily administrative charge equivalent on an annual
basis to 0.30% of the average daily net assets of Variable Life Account B to
compensate the Company for expenses associated with the administration and
maintenance of the Policies. These types of expenses are described above in
connection with the monthly administrative charge. The daily administrative
charge and the monthly administrative charge work together to cover the
Company's administrative expenses. In later years of the Policy, the revenue
collected from the daily asset-based charge grows with the total account value
to cover increased expenses from account-based transactional expenses. The
daily administrative charge is guaranteed not to exceed 0.50% of the average
daily net assets of the Separate Account on an annual basis.
Surrender Charge - Corporate VUL only
If you surrender your Policy (in whole or in part) a surrender charge may
apply, as described below.
This charge is 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 minimum monthly premium. (Any surrenders may result in tax implications;
see "Tax Matters.")
The initial surrender charge, as specified in your Policy, is based on the
specified amount. It also depends on the Insured's attained age and risk class.
Once determined, the surrender charge will decrease annually until it reaches
zero after nine years.
If you increase the specified amount, a new surrender charge will be
applicable, in addition to the then existing surrender charge. This charge will
be determined based on the Insured's attained age and risk class. The surrender
charge applicable to the increase will be equal to the surrender charge on a
new Policy whose specified amount equals the amount of the increase, and will
cover administrative expenses. The additional surrender charge will also
decrease annually until it reaches zero after nine years.
If you decrease the specified amount while the surrender charge applies, the
surrender charge will remain the same as it was before the decrease.
Based on its actuarial determination, the Company does not anticipate that the
surrender charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution expenses, would be charged
to and paid by the Company.
Surrender Charges on Full and Partial Surrenders - Corporate VUL only
Full Surrender: All applicable surrender charges are imposed.
Partial Surrender: A proportional percentage of all surrender charges is
imposed. The proportional percentage is the amount of the net partial surrender
divided by the sum of the fixed account Value and the separate account value
less full surrender charges. When a partial surrender is made, any applicable
remaining surrender charges will be reduced in the same proportion.
No surrender charge applies to Corporate VUL II.
13
<PAGE>
Charges Assessed Against the Underlying
Funds
The following table illustrates the investment advisory fees, other expenses
and total expenses paid by each of the Funds as a percentage of average net
assets based on figures for the year ended December 31, 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>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment 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 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 Growth 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 Money Market VP(3) 0.25% 0.09% 0.34% -- 0.34%
Aetna Small Company VP(2)(3) 0.75% 0.14% 0.89% 0.00% 0.89%
Aetna Value Opportunity VP(2)(3) 0.60% 0.14% 0.74% 0.00% 0.74%
Fidelity VIP Equity-Income Portfolio(4) 0.49% 0.09% 0.58% 0.01% 0.57%
Fidelity VIP Growth Portfolio(4) 0.59% 0.09% 0.68% 0.02% 0.66%
Fidelity VIP High Income Portfolio(4) 0.58% 0.12% 0.70% 0.00% 0.70%
Fidelity VIP Overseas Portfolio(4) 0.74% 0.17% 0.91% 0.02% 0.89%
Fidelity VIP II Asset Manager Portfolio(4) 0.54% 0.10% 0.64% 0.01% 0.63%
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 Flexible Income Portfolio(5) 0.65% 0.08% 0.73% 0.00% 0.73%
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%
MFS Total Return Series(6) 0.75% 0.16% 0.91% 0.00% 0.91%
MFS Global Governments Series(6)(7) 0.75% 0.36% 1.11% 0.10% 1.01%
Oppenheimer Aggressive Growth Fund/VA(8) 0.69% 0.02% 0.71% -- 0.71%
Oppenheimer Global Securities Fund/VA(8) 0.68% 0.06% 0.74% -- 0.74%
Oppenheimer Main Street Growth and Income Fund/VA(8) 0.74% 0.05% 0.79% -- 0.79%
Oppenheimer Strategic Bond Fund/VA(8) 0.74% 0.06% 0.80% -- 0.80%
Portfolio Partners MFS Emerging Equities Portfolio(9) 0.68% 0.13% 0.81% 0.00% 0.83%
Portfolio Partners MFS Research Growth Portfolio(9) 0.70% 0.15% 0.85% -- 0.85%
Portfolio Partners MFS Value Equity Portfolio(9) 0.65% 0.25% 0.90% -- 0.90%
Portfolio Partners Scudder International Growth Portfolio(9) 0.80% 0.20% 1.00% -- 1.00%
Portfolio Partners T. Rowe Price Growth Equity Portfolio(9) 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.
14
<PAGE>
(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 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) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. Expenses do not
take into account these expense reductions, and are therefore higher than
the actual expenses of the series.
(7) MFS has agreed to bear expenses for this series, subject to reimbursement
by the series, such that the series' "Other Expenses" shall not exceed
0.25% of the average daily net assets of the series during the current
fiscal year. The payments made by MFS on behalf of the series under this
arrangement are subject to reimbursement by the series to MFS, which will
be accomplished by the payment of an expense reimbursement fee by the
series to MFS computed and paid monthly at a percentage of the series'
average daily net assets for its then current fiscal year, with a
limitation that immediately after such payment the series' "Other
Expenses" will not exceed the percentage set forth above. The obligation
of MFS to bear a series' "Other Expenses" pursuant to this arrangement,
and the series' obligation to pay the reimbursement fee to MFS, terminates
on the earlier of the date on which payments made by the series' equal the
prior payment of such reimbursable expenses by MFS, or December 31, 2004.
MFS may, in its discretion, terminate this arrangement at an earlier date,
provided that the arrangement will continue until at least May 1, 2000,
unless terminated with the consent of the board of trustees which oversees
the series.
(8) Fee waiver/expense reimbursement obligations do not apply to these
portfolios.
(9) 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.
Reduction of Charges
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. We reserve the
right to reduce premium loads or any other charges on certain multiple life
sales ("cases") where it is expected that the amount or nature of such cases
will result in savings of sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the Policy
owner, the nature of the relationship among the insured individuals, the purpose
for which the policies are being purchased, expected persistency of the
individual policies, and any other circumstances which we believe to be relevant
to the expected reduction of our expenses. Some of these reductions may be
guaranteed and
15
<PAGE>
others may be subject to withdrawal or modification by us on a uniform case
basis. Reductions in charges will not be unfairly discriminatory to any Policy
owners.
Policy Choices
When you buy a Policy, you make several important choices:
o Which life insurance qualification method best suits your needs - cash value
accumulation or guideline premium;
o Which one of the three death benefit options you would like;
o The premium accumulation rate you would like if you choose death benefit
Option 3;
o The way your premiums will be allocated to the Funds and/or the Fixed
Account;
o The amount of premium you intend to pay. For Corporate VUL only, you must
decide whether you want to pay the amount necessary to guarantee your death
benefit to age 80 or 100.
Each of these choices is described in detail below:
Premium Payments
Planned premiums are those premiums you choose to pay on a scheduled basis. We
will bill you annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Additional premiums are any premiums you pay in addition to planned
premiums.
Corporate VUL only
During the first five policy years, payment of the minimum monthly premium
assures that the Policy will remain in force, as long as there are no partial
surrenders or loans taken during that time. The minimum monthly premium is
stated in the Policy. If minimum monthly premiums are not paid, or there are
partial surrenders or loans taken during the first five policy years, the
Policy will lapse if the surrender value is less than the next monthly
deduction.
Minimum monthly premiums are current if premiums paid, minus loans and partial
surrenders, are greater than or equal to the minimum monthly premium multiplied
by the number of months the Policy has been in force.
Corporate VUL and Corporate VUL II
Payment of minimum monthly premiums, planned premiums, or additional premiums
in any amount will not, except as noted above, guarantee that your Policy will
remain in force. Conversely, failure to pay planned premiums or additional
premiums will not necessarily cause your Policy to lapse. For Corporate VUL,
not paying your planned premiums can, however, cause the guaranteed death
benefit provision to terminate. (See "Guaranteed Death Benefit.") The Policy's
surrender value must be sufficient to cover the next monthly deduction or, for
Corporate VUL only, the no lapse coverage must be in effect to keep the policy
in force.
At any time, you may increase your planned premium by written notice to us, or
pay additional premiums, except that:
o We may require evidence of insurability if the additional premium or the new
planned premium during the current policy year increases the difference
between the death benefit and the total
16
<PAGE>
account value. If satisfactory evidence of insurability is requested and not
provided, we will refund the increase in premium without interest and without
investing such amounts in the underlying funding options.
o If you have chosen the guideline premium method for life insurance
qualification in no event may the total of all premiums paid exceed the
then-current maximum premium limitations established by federal income tax
law for a Policy to qualify as life insurance. (See "Tax Considerations for
Policy Owners.")
o If, at any time, a premium is paid which would result in total premiums
exceeding such maximum premium limitations, we will only accept that portion
of the premium which will make total premiums equal to the maximum. Any part
of the premium in excess of that amount will be returned or applied as
otherwise agreed and no further premiums will be accepted until allowed by
the then-current maximum premium limitations prescribed by law.
o If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably to certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for (subject
to stated maximums) will be provided.
o After the first premium payment, all premiums must be sent directly to our
Administrative Office and will be deemed received when actually received at
the Administrative Office. Your premium payments received during a valuation
period at the Administrative Office will be allocated as you have directed
and amounts allocated to the Funds will be credited at the accumulation unit
value determined at the end of the valuation period after each payment is
received in the Administrative Office.
You may reallocate your future premium payments at any time free of charge. Any
reallocation will apply to premium payments made after you have received
written verification from us.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a date of issue earlier than the date the application is signed, but
no earlier than six months prior to state approval of the Policy. Backdating
may be desirable, for example, so that you can purchase a particular policy
specified amount for lower cost of insurance rates, based on a younger
insurance age. For a backdated Policy, you must pay the minimum premium payable
for the period between the date of issue and the date the initial premium is
invested in the Separate Account. Backdating of your Policy will not affect the
date on which your premium payments are credited to the Separate Account and
you are credited with accumulation units. You cannot be credited with
accumulation units until your net premium is actually deposited in the Separate
Account. (See "Policy Values.")
If we decline an application for a policy we will refund all premium payments
made.
Guaranteed Death Benefit - Corporate VUL only
The guaranteed death benefit assures that as long as the guaranteed death
benefit premium test, as described below, is met, the Policy will stay in force
even if the Surrender Value is insufficient to cover current monthly
deductions. The guaranteed death benefit premium is a specified amount of
premium required to keep the Policy inforce to either age 80 or age 100 of the
Insured.
By paying the specified guaranteed death benefit premium, you can choose which
guaranteed Death Benefit will be in effect. This benefit may not be available
to all risk classes
We will test annually to determine if the sum of all premiums paid to date is
sufficient to support the guaranteed death benefit then in effect. In order for
the guaranteed death benefit to be in
17
<PAGE>
effect, the cumulative premiums paid less partial surrenders must be greater
than or equal to the required monthly guaranteed death benefit premium times the
number of months elapsed since the Policy's date of issue.
If these premiums are deficient, the Policy owner will be notified and given 61
days to pay the amount deficient. If the guaranteed death benefit to age 100
had been in place, and the amount deficient is not received within the 61-day
period, the guaranteed death benefit to age 80 will be substituted. If the
cumulative premium test is satisfied based on the guaranteed death benefit
premium to age 80, the guaranteed death benefit to age 80 will then be in
effect. Otherwise the guaranteed death benefit will terminate. If the
guaranteed death benefit to age 80 had been in effect and the amount deficient
is not received within the 61-day period, the guaranteed death benefit will
terminate.
If the guaranteed death benefit is terminated it may not be reinstated.
Increases, decreases, partial surrenders, and death benefit option changes may
affect the guaranteed death benefit premium. These events and loans may also
affect the Policy's ability to remain in force even if the cumulative annual
guaranteed death benefit test has been met.
Life Insurance Qualification
A Policy must satisfy either of two testing methods to qualify as a life
insurance contract for tax purposes under Section 7702 of the Code. At the time
of purchase, you may choose a Policy which uses either the guideline premium
test or the cash value accumulation test. Both methods require a life insurance
policy to meet minimum ratios of life insurance coverage to total account
value. We refer to the ratios as applicable percentages. We refer to required
life insurance coverage in excess of the total account value as the death
benefit corridor.
The applicable percentages for the guideline premium test are 250% through
attained age 40, decreasing over time to 100% at attained age 95 and above. The
guideline premium test also restricts the maximum premiums that may be paid
into a life insurance policy for a specified death benefit. The cash value
accumulation test does not limit premiums which may be paid but has higher
required applicable percentages. For example, applicable percentages for
Corporate VUL non-smokers range from 716% at attained age 20, 372% at attained
age 40 to 100% at attained age 100. Applicable percentages for Corporate VUL II
non-smokers range from 730% at attained age 20, 380% at attained age 40 to 100%
at attained age 100.
If your primary objective were to pay as much premium as possible into the
Policy to target a cash value funding objective, generally a cash value
accumulation method policy would best meet your needs, since it generally
permits higher premium payments. The choice, however, might result in higher
eventual Cost of Insurance charges because of the higher death benefit corridor.
In addition, the payment of higher premiums which would be associated with
choosing the cash value accumulation method, increases the possibility that the
amount paid into the Policy will exceed the amount that would have been paid had
the Policy provided for seven level annual premiums (the "7-pay test"). If
premiums paid exceed such limit during any 7-pay testing period, any partial
surrender or Policy loan may be subject to federal income taxation. (See "Tax
Considerations for Policyowners.")
If your primary objective were to maximize the potential for growth in total
account value, or to conserve total account value, generally a guideline
premium Policy would best meet your needs. This is because the applicable
percentages are lower, resulting in lower Cost of Insurance charges for the
smaller required death benefit corridor coverage.
18
<PAGE>
If your primary objective were to provide a specified death benefit at low
cost, then generally there is no difference between the testing methods because
the planned premium will be less than the maximum premium limit under the
guideline premium test and additional death benefit insurance coverage may not
be necessary under either testing method to comply with the death benefit
corridor requirements.
Death Benefit Options
At the time of purchase, you must choose from three available death benefit
Options. The amount payable under the option chosen will be determined as of
the date of the Insured's death. The death benefit may be affected by partial
surrenders. The death benefit for all three options will be reduced by the loan
account value plus any accrued interest.
Under Option 1, the death benefit will be the greater of the specified amount
or target face amount if a term insurance rider is attached to the Policy (see
"Term Insurance Rider"), or the applicable percentage of the total account
value. Option 1 generally provides a level death benefit.
Under Option 2, the death benefit will be the greater of the specified amount,
plus the total account value or the target face amount if a term insurance
rider is attached to the Policy (see "Term Insurance Rider"), or the applicable
percentage of the total account value. Option 2 provides a varying death
benefit which increases or decreases over time, depending on the amount of
premium paid and the investment performance of the underlying funding options
you choose.
Under Option 3, the death benefit will be the greater of the specified amount
plus the accumulated premium(s) accumulated at the premium accumulation rate or
target face amount if a term insurance rider is attached to the Policy (see
"Term Insurance Rider"), or the applicable percentage of the total account
value but will not exceed the total death benefit paid under Option 2. This
option may only be selected at issue.
The choice of death benefit option should be based upon the pattern of death
benefits which best matches the intended use of the Policy. For example, an
Option 1 Policy should be chosen for a simple, fixed, level total death benefit
need. Option 2 would be chosen to provide a level death benefit in addition to
the policy total account value, and Option 3 would provide a level death
benefit for the specified amount plus a return of accumulated premiums.
Choosing the option which provides the lowest pattern of death benefits which
meets the desired need will be the most efficient for accumulating potential
cash value, since the lower Cost of Insurance charges will improve the growth
or preservation of the total account value. Other than providing the
appropriate pattern of desired death benefits, there is no economic advantage
of one option over another, since the Cost of Insurance charges for all three
Options is based upon the amount at risk, the difference between the death
benefit and the total account value each month.
The same is true for the choice of a premium accumulation rate under Option 3.
Choice of a higher premium accumulation rate will cause the death benefit to
increase more rapidly, but this will also generate higher Cost of Insurance
charges and lower the potential growth in total account value.
Transfers and Allocations to Funding Options
At purchase, you must decide how to allocate your net premiums among the Funds
and/or the Fixed Account. Net premiums must be allocated in whole percentages.
You should carefully consider current market conditions and each Fund's
investment policies and related risks before allocating money to or
transferring values among the Funds.
19
<PAGE>
Before the maturity date, you may transfer Policy values from one Fund to
another at any time, or to the Fixed Account. For Corporate VUL II, the Company
reserves the right to charge $25 for each transfer after the twelfth transfer
per year. Within 45 days after each policy anniversary, and before the maturity
date, you may also transfer a portion of the Fixed Account Value to one or more
Funds. A transfer from the Fixed Account is allowed only once in the 45-day
period after the Policy anniversary and will be effective as of the next
valuation period after your request is received at our Administrative Office.
The amount of such transfer cannot exceed the greater of 20% of the greatest
amount held in the fixed account value during the prior 5 years or $1000.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of accumulation units based on the accumulation unit
values determined at the end of the valuation period after your request is
received by us at our Administrative Office. (See "Accumulation Unit Value.")
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 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, corporations 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 or
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other Policy owners.
Policy Values
Total Account Value
The net premium is the premium paid, less the premium charge (Corporate VUL) or
the premium paid, less the premium charge, less a premium tax charge (Corporate
VUL II).
Once your Policy has been issued, each net premium allocated to a funding option
through the Separate Account is credited in the form of accumulation units for
the funding option based on that funding option's accumulation unit value (see
below). Each net premium received after the date of issue will be credited to
your Policy at the accumulation unit value(s) determined for the valuation
20
<PAGE>
period in which it is received by us at our Administrative Office following the
date of issue of the Policy. (See "Premium Payments.") The number of
accumulation units credited is determined by dividing the net premium by the
value of an accumulation unit computed at the end of the valuation period during
which we receive the premium. Shares in each Fund elected by you will be
purchased by the Separate Account at the net asset value next determined by the
Fund following receipt of the net premium by the Company. Since each Fund has
its own accumulation unit value, a Policy owner who has elected a combination of
funding options will have accumulation units credited for each funding option.
The total account value of your Policy is the sum of the fixed account value,
separate account value and loan account value. It is determined by:
(a) multiplying the total number of accumulation units credited to the Policy
for each applicable funding option by its appropriate current accumulation
unit value;
(b) if you have elected a combination of funding options, totaling the
resulting values;
(c) adding any values attributable to the Fixed Account; and
(d) any values attributable to the Loan Account.
The number of accumulation units credited to a Policy for each funding option
will not be changed by any subsequent change in the value of an accumulation
unit. The number is increased by subsequent contributions or transfers into
that funding option, and decreased by charges and withdrawals from that funding
option.
There is no assurance that the separate account value of the Policy will equal
or exceed the premiums paid and allocated to the Separate Account.
You will be advised at least annually as to the number of accumulation units
which remain credited to the Policy for each Fund, the current accumulation
unit values, the separate account value, the fixed account value, and the total
account value.
Accumulation Unit Value
The value of an accumulation unit for any valuation period is determined by
multiplying the value of an accumulation unit for the immediately preceding
valuation period by the net investment factor for the current period for the
appropriate Fund. The net investment factor equals the net investment rate plus
1.0000000. The net investment rate is determined separately for each Fund as
follows:
The net investment rate equals
(a) the net assets of the Fund held in Variable Life Account B at the end of a
valuation period, minus
(b) the net assets of the Fund held in Variable Life Account B at the
beginning of that valuation period, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of
Variable Life Account B, divided by
(d) the value of the accumulation units held by Variable Life Account B at the
beginning of the valuation period, minus
(e) a daily charge for mortality and expense risk and for administrative
expenses in connection with these Policies.
21
<PAGE>
(See "Charges and Fees Associated with the Variable Funding Options.")
Maturity Value
The maturity value of the Policy is the total account value on the maturity
date, less the loan account value and any unpaid accrued interest. The maturity
date is the policy anniversary on which the Insured reaches attained age 100.
Surrender Value
The 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 for Corporate VUL), the loan account value and any
accrued interest, plus any credit for premium charges paid. All or part of the
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. If, at
the time of a partial surrender your total account value is attributable to
more than one funding option, the surrender charge (Corporate VUL only),
transaction charge and the amount paid to you upon the surrender will be taken
proportionately from the accumulation unit values in each funding option.
The amount of a partial surrender may not exceed the surrender value on the
date the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a settlement option.
For an Option 1 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value, death benefit, and
specified amount. The specified amount and total account value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
For an Option 2 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value and the death benefit,
but it will not reduce the specified amount.
For an Option 3 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value, death benefit, and
specified amount. The specified amount and total account value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
Payment of any amount due from the separate account values on a full or partial
surrender will be made within seven calendar days after we receive your written
request at our Administrative Office in a form satisfactory to us. Payment may
be postponed when the New York Stock Exchange has been closed and for such other
periods as the Commission may require. Additionally, for Corporate VUL II,
payment may be postponed when trading on the New York Stock Exchange is
restricted, when an emergency exists so that disposal of the securities held in
the Funds is not reasonably practicable or it is not reasonably practicable to
determine the value of the Funds' net assets; or
22
<PAGE>
during any other period when the Commission, by order, so permits for the
protection of securityholders. Payment from the fixed account values may be
deferred up to 6 months, except when used to pay premiums to the Company.
The specified amount remaining in force after a partial surrender may not be
less than $100,000. Any request for partial surrender that would reduce the
specified amount below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding decrease in the specified
amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
No Lapse Coverage - Corporate VUL only
A Corporate VUL Policy will not terminate during the five-year period after its
date of issue or the date of issue of any increase if, on each monthly
deduction day within that period, the sum of premiums paid equals or exceeds:
1) the sum of the minimum monthly premiums for each Policy month from the date
of issue, including the current month; plus, 2) any partial surrenders; plus 3)
any increase in loan account value since the Policy's date of issue or the
effective date of any increase.
If, on each monthly deduction day within the five-year period, the sum of
premiums paid is less than the sum of items 1, 2, and 3 above, and the
surrender value is insufficient to cover the current monthly deduction, the
grace period provision will apply. The 61-day grace period begins on the
monthly deduction day on which the surrender value is insufficient to cover the
current monthly deduction. The Policy will terminate without value at the end
of the 61-day period unless sufficient payment described in the notification
letter is received by the Company.
After the five-year period expires, and depending on the investment performance
of the Funds, the total account value may be insufficient to keep this Policy
in force, and payment of an additional premium may be necessary, unless the
guaranteed death benefit provision is in effect.
Reinstatement of a Lapsed Policy
A lapse occurs if your monthly deduction is greater than the Policy's surrender
value and no payment to cover the deduction is made within the 61 days of our
notifying you.
You can apply for reinstatement within five years after the date of lapse and
before the maturity date. To reinstate your Policy we will require satisfactory
evidence of insurability and an amount sufficient to pay for the current
monthly deductions, plus two additional monthly deductions.
For Corporate VUL only, if the Policy is reinstated within five years of the
Policy's date of issue, or while the no lapse coverage provision (see "No Lapse
Coverage") would be in effect if this Policy had not lapsed, all values,
including the loan account value, will be reinstated to the point they were on
the date of lapse. However, the guaranteed death benefit provision will not be
reinstated.
For Corporate VUL II, and Corporate VUL when the no lapse coverage provision
(see "No Lapse Coverage") has expired, the Policy will be reinstated on the
monthly deduction day following our approval. The Policy's total account value
at reinstatement will be the net premium paid less the monthly deduction due
that day. Any loan account value will not be reinstated, and the guaranteed
death benefit will not be reinstated.
If the Policy's surrender value less any loan account value plus accrued
interest is not sufficient to cover the full surrender charge at the time of
lapse, the remaining portion of the surrender charge will also be reinstated at
the time of Policy reinstatement.
23
<PAGE>
Policy Loans
Unless otherwise required by state law, the maximum loan amount is 90% of the
sum of the fixed account value and the separate account value less the
surrender charge applicable at the time of the loan.
An amount equal to what you receive for a loan, together with any interest
added to the loan for due and unpaid interest, as described below, will be
added to the loan account value.
Corporate VUL only
Loans taken during the first ten policy years are considered nonpreferred
loans. Beginning in the eleventh policy year, up to 10% of the maximum loan
amount available at the beginning of a policy year can be taken as a preferred
loan during that policy year at zero net cost to the Policy owner. Amounts
borrowed that are in excess of the maximum loan amount available for a
preferred loan will be considered a nonpreferred loan.
Corporate VUL and Corporate VUL II
If a policy loan is requested, the amount to be borrowed will be withdrawn by
us from the funding options and fixed account value in proportion to the value
of the Policy attributable to each funding option and the Fixed Account. For
Corporate VUL II and, subject to state approval for Corporate VUL, repayments
on the loan will be allocated in proportion to the value withdrawn from the
Fixed Account, if any, and to the variable funding options according to the
Policy owner's then current premium allocations. If state approval has not been
received for Corporate VUL, repayments on the loan will be allocated among the
funding options in the same proportion as the loan was taken from the funding
options. The loan account value will be reduced by the amount of any loan
repayment.
Interest on loans will accrue at an annual rate which will be the greater of:
1) The monthly average (i.e., the Composite Yield on Corporate Bonds as
published by Moody's Investors Service, Inc.) for the calendar month which ends
two months before the month in which the policy anniversary occurs, or
2) 5.0%.
Increases to the current interest rate may occur only when the maximum annual
interest rate is at least .5% higher than the interest rate in effect for the
prior policy year.
Decreases to the current interest rate will occur only when the maximum annual
interest rate is at least .5% lower than the interest rate in effect for the
prior policy year.
We will notify you of the current interest rate charged for a loan at the time
the loan is made. If your Policy has a loan outstanding, we will notify you of
any change in the interest rate before the new rate becomes effective.
Interest is payable once a year on each anniversary of the loan, or earlier
upon surrender, payment of proceeds, or maturity of a Policy. Any interest not
paid when due becomes part of the loan and bears interest.
We will credit interest on the loan account value. The loan account value for
nonpreferred loans under Corporate VUL, and all loans under Corporate VUL II
will be credited interest, during any policy year, at an annual rate that is
the interest rate charged on the loan minus 1% for Corporate VUL, and minus a
rate not to exceed .90% for Corporate VUL II. However, in no case will the
credited interest rate be less than 4.0% annually.
24
<PAGE>
For Corporate VUL only, the loan account value on preferred loans will be
credited interest at a rate equal to the interest rate charged. In no case will
the credited interest rate be less than 5.0% annually.
Policy Changes
You may make changes to your Policy as described below by submitting a written
request to our Administrative Office in a form satisfactory to us.
Increases: You may increase the specified amount of your Policy any time
subject to the following conditions:
o Satisfactory evidence of insurability may be required.
For Corporate VUL,
o An increase in the specified amount will increase the surrender charge.
o The minimum monthly premium will be increased when the specified amount is
increased.
o An Increase in the specified amount will increase the guaranteed death
benefit amount and will increase the guaranteed death benefit premium.
o The 5 year period as described in the no lapse coverage provision will
restart on the date of issue of an increase.
Decreases: Generally, you may decrease the specified amount of your Policy;
however, no decrease may reduce the specified amount below the minimum for the
type of Policy (see "Death Benefit Options"), and the availability of decreases
before the sixth policy year for Corporate VUL and before the eighth policy
year for Corporate VUL II is subject to approval of this feature by state
regulatory agencies and to the Company's satisfaction that the decrease is
intended to meet a legitimate, non-insurance related business need of the
policy owner.
The following additional rules apply to Corporate VUL policies only:
o Any decrease in the specified amount will cause a decrease in the guaranteed
death benefit premium. The guaranteed death benefit premium will be based on
the new specified amount.
o Subject to state regulatory approval, at the time of a decrease, we will
deduct a surrender charge from the total account value. For this purpose,
the surrender charge will be prorated according to the percentage the
decrease amount bears to the specified amount before the decrease.
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 our Administrative Office receives your written request.
o Evidence of insurability may be required.
o For Corporate VUL only, the change in death benefit option will not change
the surrender charge, but will affect the guaranteed death benefit amount
and the guaranteed death benefit premium.
We will not allow a change in the death benefit option if the specified amount
will be reduced below the minimum.
25
<PAGE>
o Changes from Option 1 to Option 2 are allowed at any time for Corporate VUL
II and, subject to state regulatory approval, for Corporate VUL. If state
regulatory approval has not been received, such changes are allowed for
Corporate VUL only after the fifth policy year. The new specified amount
will equal the specified amount less the total account value at the time of
the change.
o Changes from Option 2 to Option 1 are allowed at any time. The new specified
amount will equal the specified amount plus the total account value as of
the time of the change.
o Changes from Option 3 to 1 are allowed at any time. The specified amount will
be increased to equal the specified amount prior to the change plus the
lesser of the accumulated premiums or the total account value at the time of
the change.
o Changes from Option 3 to 2 are allowed at any time for Corporate VUL II and,
subject to state regulatory approval, for Corporate VUL. If state regulatory
approval has not been received, such changes are allowed for Corporate VUL
only after the fifth policy year. The specified amount will be reduced to
equal the specified amount prior to the change minus the difference between
the total account value and the sum of the accumulated premiums at the time
of the change.
o Changes from Options 1 or 2 to Option 3 are not allowed.
Right to Examine the Policy
The Policy has a 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 after you receive the Policy
and any written notice of withdrawal right, or within 45 days after you sign
the application for the Policy, whichever occurs later. Some states provide a
longer period of time to exercise these rights. Your Policy will indicate if
you have more than 10 days to review the Policy. If you return (cancel) the
Policy, we will pay a refund of
(1) the difference between payments made and amounts allocated to the Separate
Account, plus
(2) the value of the amount allocated to the Separate Account as of the date
the returned Policy is received by us, plus
(3) any fees imposed on the amounts allocated to the Separate Account.
Some state laws require a refund equal to all premiums paid, without interest.
In states which require a full refund of premiums during the right-to-examine
period, the first net premium will be allocated in its entirety to Aetna Money
Market VP, regardless of the policy owner's premium allocation percentages
until the day following the expiration of the right-to-examine period. Any
other net premium received prior to that day will also be allocated to Aetna
Money Market VP. On the day following the expiration of the right-to-examine
period, the policy value and future net premiums will be allocated in
accordance with the policy owner's selected premium allocation percentages.
If the policy is issued, any monies received prior to policy issue will be
credited with the return attributable to Aetna Money Market VP from the date of
receipt until the day the policy is issued or, for states which require the
full premium refund, until the day following the right-to-examine period on the
issued policy.
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.
26
<PAGE>
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 payable.
The death benefit under the Policy will be paid in a lump sum within seven days
after we receive due proof of the Insured's death (a certified copy of the
death certificate), unless you or the beneficiary have elected that it be paid
under one or more of the settlement options or such options as we may choose to
make available in the future. Payment of the death benefit may be delayed if
the Policy is being contested. (See "Settlement Options.")
While the Insured is living, you may elect a settlement option for the
beneficiary and deem it irrevocable. You may revoke or change a prior election.
The beneficiary may make or change an election within 90 days of the death of
the Insured, unless you have made an irrevocable election. A beneficiary who
has elected settlement option 1 may elect another option within two years after
the Insured's death.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any excess death benefit due will be paid as
elected.
Policy Settlement
Settlement Options
There are several ways in which a beneficiary may receive annuity payments due
from a death benefit, if elected upon maturity, or which the insured may choose
to receive annuity payments from the surrender value of the Policy.
Proceeds in the form of settlement options are payable by the Company upon the
Insured's death, upon maturity of the Policy, or upon election of one of the
settlement options (after any applicable surrender charges have been deducted).
A written request may be made to elect, change, or revoke a settlement option
before payments begin under any settlement option. This request must be in a
form satisfactory to us, and will take effect upon its filing at the
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. If the Policy has been assigned, we must
consent to the election of any settlement option. We may refuse to permit a
settlement option if the payee is not a natural person. Also, the annuitant's
age plus the number of years for which payments are guaranteed under a
settlement option may not exceed 95.
The amount of the first payment for settlement options other than payment of
interest on a sum left with us (whether on a fixed or variable basis) is
determined, based on the option chosen, using the annuity rates specified in
the Policy. This rate is the same regardless of whether an annuitant is male or
female.
There may be different tax consequences associated with the various settlement
options.
The following are the currently available settlement options (others may become
available). 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.
27
<PAGE>
Settlement Options For Corporate VUL
Option 1 - Payment of interest on the sum left with us;
Option 2 - Payments for a stated number of years, at least three but no more
than thirty. If variable payments are selected for this option, you may
withdraw all or a portion of the remaining payments at any time.
Option 3 - Payments for the lifetime of the payee. If also chosen, we will
guarantee payments for 60, 120, 180 or 240 months; or
Option 4 - Payments during the joint lifetimes of two payees. At the death of
either, payments will continue to the survivor. When this option is chosen, a
choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 66-2/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor; or
e) 100% of the payment to continue to the survivor if the survivor is the
payee, and 50% of the payment to continue to the survivor if the survivor
is the second payee.
In most states, no election may be made that would result in a first payment of
less than $25 or that would result in total yearly payments of less than $120.
If the value of the Policy is insufficient to elect an option for the minimum
amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in the General Account.
Proceeds in the General Account will be used to make payments on a fixed-dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3.0%. We may add interest daily at any higher rate.
Under Option 1, the payee may later tell the Company to (a) pay to him or her a
portion of all of the sum held by the Company; or (b) apply a portion of all of
the sum held by the Company to another Settlement Option.
Proceeds applied under settlement options 2, 3 and 4 will be held at the
election of you or your beneficiary: (a) in a fixed annuity using the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options; or (c) a mix of (a) and (b). Proceeds held in
Variable Annuity Account B will be used to make payments on a variable basis.
Settlement Options For Corporate VUL II
Options 1, 2 and 3 described below are available on either a fixed payment or a
variable payment basis.
For a fixed settlement option, the amount of the first and each subsequent
payment is the same. That amount will be based on an interest rate of at least
3%.
If our then current settlement option rate would provide higher payments on a
comparable fixed payment annuity at the time payments commence, we also will
use the higher rate for fixed settlement options under a Policy.
28
<PAGE>
Except to the extent noted below for Option 1, no withdrawals from or changes
of a settlement option may be made under Options 1, 2 and 3 once payments
begin.
Option 1 - Payments for a stated number of years, but no more than thirty. The
period must be for at least five years, but if variable payments are selected,
you may withdraw all or a portion of the remaining payments at any time.
Option 2 - Payments for the lifetime of the annuitant. If also chosen, we will
guarantee payments for a number of years from 5 to 30 or a "cash refund" upon
the annuitant's death. The cash refund election is available only if all
amounts allocated to this Option 2 are on a fixed basis and are subject to that
election. The amount of the cash refund is the difference between the amount
applied to this annuity option at the time of settlement and the total amount
of payments received under the option prior to the annuitant's death.
Option 3 - Life income based upon the lives of two annuitants - payments during
the joint lifetimes of two annuitants. Payments will continue until both
annuitants have died. When this option is chosen, a choice must be made of (a)
100%, 66-2/3% or 50% of the payment to continue after the first death; (b)
payments for a minimum of 5 to 30 years, with 100% of the payment to continue
after the first death; (c) 100% of the payment to continue to the surviving
annuitant if the survivor is the original payee, and 50% of the payment to
continue to the survivor if the surviving annuitant is the second payee; or (d)
100% of the payment to continue after the first death, with a "cash refund"
feature comparable to that described for Option 2 above.
Option 4 - Payment of interest on the sum left with us at 3% or such higher
rate as we may, in our sole discretion, declare. After commencement of this
option, the payee may make a written request to receive all or a portion of the
amount held under this option as a lump sum or have it applied to one or more
of the other available settlement options.
Upon the death of the annuitant(s), any remaining guaranteed payments will
continue to the Beneficiary unless the beneficiary elects to receive the
present value of any remaining guaranteed payments in a lump sum. Such payments
will be paid at least as rapidly as under the method of distribution then in
effect. If the beneficiary dies while receiving payments, the present value of
any remaining guaranteed payments will be paid in one sum to the beneficiary's
estate.
Although the foregoing discussion of settlement options is in terms of monthly
payments, you or your beneficiary may elect to receive quarterly, semi-annual
or annual payments instead.
No fixed or variable settlement option may be elected that would result in a
first payment of less than $50 or that would result in total yearly payments of
less than $250. If the proceeds payable are insufficient to elect an option for
these minimum amounts, a lump-sum payment must be elected.
Calculation of Variable Payment Settlement Options Values
Variable settlement options will be supported by the then available Funds of
the Company's Variable Annuity Account B (Account B), a separate account very
similar to the Separate Account, except that Account B supports variable
annuity benefits, rather than variable life insurance benefits. We reserve the
right to impose a maximum limit of four Funds that can be used at any one time
for a Settlement Option. We will provide an Account B prospectus in connection
with selection of a Settlement Option. That prospectus will describe the
available Funds, the cost and expenses of such Funds and the charges imposed on
Account B. The available Funds may be, and the charges imposed on Account B are
expected to be, different from those that relate to the Separate Account prior
to commencement of a settlement option. Accordingly, you should review the
Account B
29
<PAGE>
prospectus, as well as the prospectuses for Account B's underlying Funds, prior
to selecting any variable payment settlement option.
You make transfers among Funds under our administrative procedures in effect at
the time. Currently, we limit the number of transfers to four per calendar
year, but we can change this limit in the future.
For a variable settlement option, the first payment is determined using an
assumed interest rate of 3.5% or 5% as selected by the Policy owner or payee,
as the case may be. Subsequent payments will vary based on Fund performance as
discussed below. The initial payment will be higher if 5% is elected as the
assumed interest rate; but subsequent payments will increase less with
favorable fund performance (and decrease more with unfavorable Fund
performance) than if 3.5% is elected.
The amount of each variable annuity payment after the first is determined
pursuant to a formula described in the Policies that is generally used by
actuaries for making such calculations. Generally speaking, if the total return
of the Fund for any month, less a deduction currently equivalent to an annual
rate of 1.25% for mortality and expense risks which we expect to result in a
profit to us, exceeds the settlement option's assumed interest rate (3.5% or
5%, as discussed above), the next variable payment will be larger than the
previous one. On the other hand, if the Fund's total return for any month, as
so adjusted, is less than the assumed rate, the next variable payment will be
smaller than the previous one.
Term Insurance Rider
The Policy can be issued with a term insurance rider as a portion of the total
death benefit. The rider provides term life insurance on the life of the
Insured, which is annually renewable to attained age 100. This rider will
continue in effect unless explicitly canceled by the Policy owner. The rider
provides a vehicle for short-term insurance protection for Policy owners who
desire lower required premiums under the Policy, in anticipation of growth in
total account value to fund life insurance coverage in later policy years. The
amount of coverage provided under the rider's benefit amount, varies from month
to month.
Corporate VUL
The benefit amount is the greater of (a) or (b), where (a) is the target face
amount, which is an amount selected by you, or a percentage of the total
account value as described in the Policy if that percentage is greater than the
target face amount; less (i) the greater of the Policy's specified amount and
total account value, if death benefit option 1 is in effect; or (ii) the
Policy's specified amount plus the total account value, if death benefit option
2 is in effect; or (iii) the Policy's specified amount plus the accumulated
premiums, if death benefit option 3 is in effect; (b) is zero. The result of
death benefit option 3 will never be greater than the result of death benefit
option 2. We may limit the target face amount selected.
Corporate VUL II
The benefit amount is the target face amount minus the specified amount.
However, if the death benefit of the Policy is defined as a percentage of the
total account value, the benefit amount is zero.
The cost of the rider is added to the monthly deductions, and is based on the
Insured's premium class and attained age for Corporate VUL, or the Insured's
premium class, issue age and the number of policy
30
<PAGE>
years elapsed for Corporate VUL II. We may adjust the monthly rider rate from
time to time, but the rate will never exceed the guaranteed cost of insurance
rates for the rider for that policy year. For Corporate VUL only, the cost for
this rider is added to our calculation of the minimum monthly premium for no
lapse protection and to our calculation of the guaranteed death benefit
premium.
If the Policy's death benefit increases as a result of an increase in total
account value (see "Life Insurance Qualification"), the rider's target death
benefit will be reduced by an equivalent amount to maintain the total desired
death benefit.
The rider's death benefit is included in the total death benefit paid under the
Policy. (See "Death Benefit Options.")
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),
Executive Officer) Aetna Insurance Company of America; President (since September
1997), Aetna Retirement Holdings, Inc.; President (since August 1997),
Aetna Retirement Services, Inc.; Executive Vice President (since August
1997), Aetna Inc., 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.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
- -----------------
Position with Company Business Experience During Past 5 Years
- --------------------- ---------------------------------------
<S> <C>
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.
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 Holdings 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.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
- -----------------
Position with Company Business Experience During Past 5 Years
- --------------------- ---------------------------------------
<S> <C>
Therese A. Squillacote Vice President and Chief Compliance Officer (since February 1999)
Vice President and Chief Aetna Insurance Company of America; Vice President and Chief
Compliance Officer Compliance 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 - May 1997) Connecticut General Life Insurance
Company; Registered Principal (December 1995 to May 1997) CIGNA
Financial Advisors, Inc.; Chief Compliance Officer (September 1989 to
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.
33
<PAGE>
Additional Information
Reports to Policyowners
Within 30 days after each policy anniversary and before proceeds are applied to
a settlement option, we will send you a report containing the following
information:
1) A statement of changes in the total account value and surrender value since
the prior report or since the date of issue, if there has been no prior report.
This includes a statement of monthly deductions and investment results and any
interest earnings for the report period;
2) surrender value, death benefit, and any loan account value as of the policy
anniversary;
3) A projection of the total account value, loan account value and surrender
value as of the succeeding policy anniversary.
If you have Policy values funded in a Separate Account you will receive, in
addition, such periodic reports as may be required by the 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 thereof should
change, and as a result we determine that we are permitted to vote the shares
of the Fund in our own right, we may elect to do so.
The number of Fund shares which each Policy owner is entitled to direct a vote
is determined by dividing the portion of total account value attributable to a
Fund, if any, by the net asset value of one share in the Fund. During the
settlement option period, the number of votes is determined by dividing the
valuation reserve (as defined below) attributable in the Fund, if any, by the
net asset value of one share of the Fund. Fractional votes will be counted.
Where the value of the total account value or the valuation reserve relates to
more than one Fund, the calculation of votes will be performed separately for
each Fund. The valuation reserve is established pursuant to the insurance laws
of Connecticut to measure voting rights during the settlement option period and
the value of a commutation right, if available, under settlement option 2 when
elected on a variable basis.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by us, but not more than 90 days before the meeting of
the Fund. Voting instructions will be solicited by written communication at
least 14 days before such meeting.
Fund shares for which no timely instructions are received, and Fund shares
which are not otherwise attributable to 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.
Policyowners having a voting interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund.
34
<PAGE>
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 where they
are offered.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and
compliance with local insurance laws and regulations.
Legal Matters
The Company knows of no material legal proceedings pending to which the
separate account is a party or which would materially affect the separate
account.
The legal validity of the securities described in the Prospectus has been
passed on by Counsel of the Company.
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed with
the 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.
Distribution of the Policies
We offer the Policies through life insurance salespersons and certain home
office sales employees. Such persons are registered representatives of Aetna
Investment Services, Inc., a wholly owned subsidiary of the Company, (which is
a registered broker-dealer), or of other registered broker-dealers which have
entered into distribution agreements with the Company. For Corporate VUL, the
maximum commission payable by the Company to salespersons and their supervising
broker- dealers for Policy distribution is 50% of the guaranteed death benefit
premium to age 80, or, in the event of an increase in the specified amount, 50%
of the guaranteed death benefit premium to age 80, attributable to the
increase.
For Corporate VUL II, maximum commission will equal 15% of the sum of
first-year premiums up to target premium. In policy years two through five,
maximum commission will equal 10% of the sum of premiums paid for each policy
year up to the target premium. During policy years one through five, we will
also pay a maximum of 3% of the sum of premiums paid each year in excess of the
35
<PAGE>
target premium. For each of policy years six and seven, maximum commission will
equal 3% of the premiums paid, and an amount equal to .10% of the total account
value less any loan account value as of the end of each month. For policy year
eight and each year thereafter, maximum commission will equal .20% of total
account value less any loan account value as of the end of each month.
In particular circumstances, we may also pay certain of these professionals for
their administrative expenses. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. However, all such compensation
will be in accordance with NASD rules. Supervisory and other management
personnel of the Company may receive compensation that will vary based on the
relative profitability of the Company of the funding options you select. Funding
options that invest in Funds advised by the Company or its affiliates are
generally more profitable to the Company. The Company may be deemed to be an
underwriter for purposes of the federal securities laws.
The registered representative may be required to return all or part of any
commission if the Policy is not continued for a certain period.
Application forms are completed by the applicant and forwarded to the Company
for acceptance. Upon acceptance, the Policy is prepared, executed by duly
authorized officers of the Company, and forwarded to the Policy owner.
Corporate VUL Policies are offered for sale in all jurisdictions where we are
authorized to do business except Guam, Puerto Rico, and the Virgin Islands.
We expect to offer Corporate VUL II Policies for sale in all jurisdictions
where we are authorized to do business except New York, and where the Policies
are approved by state regulators except Guam, Puerto Rico and the Virgin
Islands.
Records and Accounts
Andesa, TPA, Inc., Suite 502, 1605 N. Cedar Crest Boulevard, Allentown,
Pennsylvania, will act as a transfer agent on behalf of the Company as it
relates to the policies described in this Prospectus. In the role of a transfer
agent, Andesa will perform administrative functions, such as decreases,
increases, surrenders and partial surrenders, fund allocation changes and
transfers on behalf of the Company.
All records and accounts relating to the separate account and the Funds will be
maintained by the Company. All financial transactions will be handled by the
Company. All reports required to be made and information required to be given
will be provided by Andesa on behalf of the Company.
Independent Auditors
KPMG LLP, CityPlace II, Hartford, Connecticut, are the independent auditors for
the Separate Account and for the Company. The services provided to the Separate
Account include primarily the examination of the Separate Account's financial
statements and review of filings made with the 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,
36
<PAGE>
(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.
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 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
As described more fully on page 18, Section 7702 of the Code includes a
definition of life insurance for tax purposes. These rules generally place
limits on the amount of premiums payable under the contract and the level of
cash surrender value. In no event may the total of all premiums paid exceed the
then-
37
<PAGE>
current maximum premium limitations established by federal law for a Policy to
qualify as life insurance. If, at any time, a premium is paid which would
result in total premiums exceeding such maximum premium limitation, we will
only accept that portion of the premium which will make total premiums equal
the maximum. Any part of the premium in excess of that amount will be returned
or applied as otherwise agreed and no further premiums will be accepted until
allowed by the then-current maximum premium limitations prescribed by law. The
Secretary of the Treasury has been granted authority to prescribe regulations
to carry out the purposes of Section 7702, and proposed regulations governing
mortality charges were issued in 1991. The Company believes that the Policy
meets the statutory definition of life insurance. As such, and assuming the
diversification standards of Section 817(h) (discussed below) are satisfied,
then except in limited circumstances (a) death benefits paid under the Policy
should generally be excluded from the gross income of the beneficiary for
federal income tax purposes under Section 101(a)(1) of the Code, and (b) a
Policy owner should not generally be taxed on the cash value under a Policy,
including increments thereof, prior to actual receipt. The principal exceptions
to these rules are corporations that are subject to the alternative minimum
tax, and thus may be subject to tax on increments in the Policy's total account
value, and Policy owners who acquire a Policy in a "transfer for value" and
thus can become subject to tax on the portion of the death benefit which
exceeds the total of their cost of acquisition and subsequent premium payments.
The Company intends to comply with any future final regulations issued under
Sections 7702 and 817(h) of the Code, and therefore reserves the right to make
such changes as it deems necessary to ensure such compliance. Any such changes
will apply uniformly to affected policy owners and will be made only after
advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
modified endowment contract, the Policy owner will be taxed on the surrender
value only to the extent that it exceeds the gross premiums paid less prior
untaxed withdrawals. The amount of any unpaid policy loans will, upon
surrender, be added to the surrender value and will be treated for this purpose
as if it had been received.
Assuming the Policy is not a modified endowment contract, the proceeds of any
partial surrenders are generally not taxable unless the total amount received
due to such surrenders exceeds total premiums paid less prior untaxed partial
surrender amounts. However, partial surrenders made within the first 15 policy
years may be taxable in certain limited instances where the surrender value
plus any unpaid Policy debt exceeds the total premiums paid less the untaxed
portion of any prior partial surrenders. This result may occur even if the
total amount of any partial surrenders does not exceed total premiums paid to
that date.
Loans received under the Policy will ordinarily be considered indebtedness of
the 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
38
<PAGE>
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.
In addition, each Policy is subject to the 7-pay test during the first seven
policy years following the time a material change takes effect. A material
change, for these purposes, includes the exchange of a life insurance policy
for another life insurance policy or the conversion of a term life insurance
policy into a whole life or universal life insurance policy. In addition, an
increase in the future benefits provided constitutes a material change unless
the increase is attributable to (1) the payment of premiums necessary to fund
the lowest death benefit payable in the first seven policy years or (2) the
crediting of interest or other earnings with respect to such premiums. A
reduction in death benefits during the first seven policy years may also cause
a Policy to be considered a modified endowment contract.
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.
Taxable policy distributions made to an individual who has not reached the age
of 59 1/2 will also be subject to the penalty tax unless those distributions
are attributable to the individual becoming disabled, or are part of a series
of equal periodic payments made not less frequently than annually for the life
or life expectancy of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate
accounts of insurance companies) underlying the Policy must be "adequately
diversified" in accordance with Treasury regulations in order for the Policy to
qualify as life insurance. The Treasury Department has issued regulations
prescribing the diversification requirements in connection with variable
contracts. The Separate Account, through the Funds, intends to comply with
these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable policy owner's gross
income. In several rulings published prior to the enactment of Section 817(h),
the IRS stated that a variable policy owner will be considered the owner of
separate account assets if the policy owner 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
39
<PAGE>
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 Policy
owners may direct their investments to particular Funds without being treated as
owners of the underlying assets." As of the date of this Prospectus, no such
guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from those described by the IRS in pre-Section 817(h) rulings in which
it was determined that Policy owners were not owners of separate account
assets. For example, a policy owner has additional flexibility in allocating
premium payments and account values. While the Company does not believe that
these differences would result in a policy owner being treated as the owner of
a pro rata portion of the assets of the separate account, there is no
regulation or ruling of the IRS that confirms this conclusion. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary or to limit the number of variable options available 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
others 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 and are considered key persons.
Generally, a key person means an officer or a 20 percent owner. However, the
number of key persons will be limited to the greater of (a) 5 individuals, or
(b) the lesser of 5 percent of the total officers and employees of the taxpayer
or 20 individuals. Deductible interest for these contracts will be capped based
on applicable Moody's Corporate Bond Rate. Section 264(f) denies a deduction
for a portion of a 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 values of life insurance and annuity policies issued
after June 8, 1997 bears to the sum of the average unborrowed cash values of
policies plus the average adjusted tax basis of other assets owned by the
company. This provision does not apply to policies in which the insured is a 20
percent owner, officer, director or employee of the business, including
policies jointly covering such individual and his or her spouse. The rule also
will not apply where the 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
40
<PAGE>
of policy proceeds depend on the circumstances of each Policy owner or
beneficiary. Any person concerned about these tax implications should consult a
competent tax advisor before initiating any transaction.
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. Any application for changes, once approved by
us, will become part of the Policy.
Payment of Benefits
All benefits are payable at the Administrative Office. We may require
submission of the Policy before we grant loans, make changes or pay benefits.
Age
If age is misstated on the application, the amount payable on death will be
that which would have been purchased by the most recent monthly deduction at
the current age.
Incontestability
We will not contest coverage under the Policy after the Policy has been in
force during the lifetime of the insured for a period of two years from the
Policy's date of issue. Our right to contest coverage is not affected by the
guaranteed death benefit provision.
For coverage which takes effect on a later date (e.g., an increase in
coverage), we will not contest such coverage after it has been in force during
the lifetime of the Insured more than two years from its effective date.
Suicide
In most states, if the Insured commits suicide within two years from the date
of issue, the only benefit paid will be the sum of:
a) premiums paid less amounts allocated to the separate account; and
b) the separate account value on the date of suicide, plus the portion of the
monthly deduction from the separate account value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the loan account value transferred to the separate account value, and any
surrenders from the fixed account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the monthly deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
You may, by written request at any time before the maturity date of this
Policy, elect to continue coverage beyond the maturity date. At Age 100, the
separate account value will be transferred to the Fixed Account. If coverage
beyond maturity is elected, we will continue to credit interest to the
41
<PAGE>
total account value of this Policy. Monthly deductions will be calculated with a
Cost of Insurance rate equal to zero.
At this time, uncertainties exist regarding the tax treatment of the Policy
should it continue beyond the maturity date. You should therefore consult with
your tax advisor prior to making this election. (See "Tax Matters.")
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
42
<PAGE>
Appendix A
Illustrations of Death Benefit, Total Account Values and Surrender Values,
Corporate VUL
The following tables illustrate how the death benefit, total account values and
surrender values of a Policy change with the investment experience of the
variable funding options. The tables show how the death benefit, total account
values, and surrender values of a Policy issued to an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I, II, V and VI illustrate Policies issued on a unisex basis, age 45, in
the nonsmoker rate class for simplified issue underwriting. Tables III, IV, VII
and VIII illustrate Policies issued on a unisex basis, age 45 in the nonsmoker
rate class for guaranteed issue underwriting. Tables I through IV show values
under the guideline premium test for the definition of life insurance, and
Tables V through VIII show values under the cash value accumulation test for
the definition of life insurance. The death benefit, total account values, and
surrender values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a
period of years, but fluctuated above and below those averages for individual
policy years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through the eleventh columns illustrate the surrender values of each Policy
over the designated period. Tables I, III, V and VII assume that the maximum
Cost of Insurance allowable under the Policy are charged in all policy years.
These tables also assume that the maximum allowable mortality and expense risk
charge of 0.90% on an annual basis, the maximum allowable administrative
expense charge of 0.50% on an annual basis, and the maximum allowable premium
load of 10% up to the first year's guaranteed death benefit premium to age 80
and 5% over the guaranteed death benefit premium to age 80, are assessed in the
first policy year and 5% on all premium in all policy years thereafter. Tables
II, IV, VI and VIII assume that the current scale of Cost of Insurance rates
applies during all policy years. These tables also assume the current mortality
and expense risk charge of 0.70% on an annual basis for the first 10 policy
years and 0.20% for policy years 11 and thereafter, the current administrative
expense charge of 0.30% on an annual basis, and the current premium load of 7%
up to the first year's guaranteed death benefit premium to age 80 and 2% over
the guaranteed death benefit premium to age 80 are assessed in the first policy
year and 2% on all premium in all policy years thereafter.
The amounts shown for death benefit, surrender values, and total account values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
The investment advisory fees and other Fund expenses vary by Fund from 0.34% to
1.01%. A simple average of 0.73% has been used for the illustrations.
In addition, these values reflect the application of the mortality and expense
risk charge, premium load and administrative expense charge described above.
After deduction of these amounts, the illustrated net annual return is -2.13%,
3.87% and 9.87% on the maximum charge basis for all years.
43
<PAGE>
The illustrated net annual return on a current charge basis is -1.73%, 4.27%
and 10.27% for policy years 1-10 and -1.23%, 4.77% and 10.77% for policy years
11 and thereafter.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event,
the gross annual investment rate of return would have to exceed 0%, 6%, or 12%
by an amount sufficient to cover the tax charges in order to produce the death
benefit, total account values, and surrender values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums were allocated to Variable Life Account B, and if no policy
loans have been made. The tables are also based on the assumptions that the
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, and underwriting classification, the specified amount or premium
requested, the proposed frequency of premium payments and any available riders
requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
44
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,361 3,617 3,874 3,084 3,340 3,597
2 12,146 500,000 500,000 500,000 6,819 7,558 8,329 6,483 7,222 7,993
3 18,220 500,000 500,000 500,000 10,076 11,521 13,093 9,778 11,223 12,795
4 24,293 500,000 500,000 500,000 13,123 15,497 18,187 12,524 14,899 17,588
5 30,366 500,000 500,000 500,000 15,960 19,483 23,641 15,447 18,970 23,128
6 36,439 500,000 500,000 500,000 18,565 23,452 29,468 18,137 23,025 29,040
7 42,512 500,000 500,000 500,000 20,919 27,384 35,687 20,577 27,042 35,345
8 48,586 500,000 500,000 500,000 22,996 31,247 42,311 22,740 30,991 42,054
9 54,659 500,000 500,000 500,000 24,770 35,009 49,356 24,599 34,838 49,185
10 60,732 500,000 500,000 500,000 26,218 38,640 56,847 26,218 38,640 56,847
15 91,098 500,000 500,000 500,000 27,815 53,774 102,264 27,815 53,774 102,264
20 121,464 500,000 500,000 500,000 15,959 58,739 164,948 15,959 58,739 164,948
25 151,830 0 500,000 500,000 0 39,995 254,230 0 39,995 254,230
30 182,196 0 0 500,000 0 0 396,610 0 0 396,610
20 (Age 65) 121,464 500,000 500,000 500,000 15,959 58,739 164,948 15,959 58,739 164,948
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
45
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,549 3,816 4,083 3,099 3,365 3,633
2 12,146 500,000 500,000 500,000 7,207 7,980 8,786 6,698 7,470 8,277
3 18,220 500,000 500,000 500,000 10,675 12,193 13,843 10,203 11,721 13,371
4 24,293 500,000 500,000 500,000 13,943 16,446 19,279 13,345 15,847 18,680
5 30,366 500,000 500,000 500,000 17,059 20,787 25,184 16,546 20,274 24,671
6 36,439 500,000 500,000 500,000 19,997 25,192 31,580 19,569 24,765 31,153
7 42,512 500,000 500,000 500,000 22,766 29,674 38,532 22,424 29,332 38,190
8 48,586 500,000 500,000 500,000 25,303 34,170 46,034 25,047 33,914 45,777
9 54,659 500,000 500,000 500,000 27,705 38,777 54,244 27,534 38,606 54,073
10 60,732 500,000 500,000 500,000 29,856 43,385 63,128 29,856 43,385 63,128
15 91,098 500,000 500,000 500,000 37,598 67,849 123,357 37,598 67,849 123,357
20 121,464 500,000 500,000 500,000 37,863 92,216 220,589 37,863 92,216 220,589
25 151,830 500,000 500,000 500,000 29,673 116,457 386,983 29,673 116,457 386,983
30 182,196 500,000 500,000 722,554 3,621 133,467 675,284 3,621 133,467 675,284
20 (Age 65) 121,464 500,000 500,000 500,000 37,863 92,216 220,589 37,863 92,216 220,589
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.20% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.23%, 4.77%,
and 10.77%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
46
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 3,944 4,236 4,529 3,635 3,926 4,219
2 13,532 500,000 500,000 500,000 8,008 8,857 9,743 7,633 8,481 9,367
3 20,299 500,000 500,000 500,000 11,860 13,530 15,344 11,527 13,196 15,010
4 27,065 500,000 500,000 500,000 15,493 18,246 21,362 14,825 17,579 20,694
5 33,831 500,000 500,000 500,000 18,907 23,006 27,838 18,334 22,433 27,265
6 40,597 500,000 500,000 500,000 22,079 27,784 34,794 21,602 27,307 34,317
7 47,363 500,000 500,000 500,000 24,994 32,563 42,263 24,613 32,182 41,881
8 54,130 500,000 500,000 500,000 27,626 37,314 50,272 27,340 37,027 49,986
9 60,896 500,000 500,000 500,000 29,948 42,006 58,853 29,757 41,815 58,662
10 67,662 500,000 500,000 500,000 31,941 46,616 68,051 31,941 46,616 68,051
15 101,493 500,000 500,000 500,000 36,233 67,515 125,404 36,233 67,515 125,404
20 135,324 500,000 500,000 500,000 27,204 80,373 209,356 27,204 60,373 209,356
25 169,155 0 500,000 500,000 0 73,495 339,466 0 73,495 339,466
30 202,986 0 500,000 603,409 0 21,228 563,934 0 21,228 563,934
20 (Age 65) 135,324 500,000 500,000 500,000 27,204 80,373 209,356 27,204 80,373 209,356
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
47
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 4,154 4,458 4,762 3,651 3,955 4,259
2 13,532 500,000 500,000 500,000 8,442 9,329 10,254 7,874 8,760 9,685
3 20,299 500,000 500,000 500,000 12,531 14,282 16,183 12,005 13,755 15,656
4 27,065 500,000 500,000 500,000 16,414 19,311 22,587 15,746 18,643 21,919
5 33,831 500,000 500,000 500,000 20,136 24,465 29,565 19,564 23,893 28,992
6 40,597 500,000 500,000 500,000 23,673 29,724 37,151 23,196 29,247 36,674
7 47,363 500,000 500,000 500,000 27,036 35,100 45,422 26,655 34,719 45,041
8 54,130 500,000 500,000 500,000 30,162 40,537 54,391 29,876 40,251 54,104
9 60,896 500,000 500,000 500,000 33,146 46,132 64,230 32,955 45,942 64,039
10 67,662 500,000 500,000 500,000 35,876 51,780 74,925 35,876 51,780 74,925
15 101,493 500,000 500,000 500,000 46,674 82,689 148,367 46,674 82,689 148,367
20 135,324 500,000 500,000 500,000 49,065 114,878 268,510 49,065 114,878 268,510
25 169,155 500,000 500,000 551,510 39,527 146,810 475,440 39,527 146,810 475,440
30 202,986 500,000 500,000 882,247 6,662 171,465 824,530 6,662 171,465 824,530
20 (Age 65) 135,324 500,000 500,000 500,000 49,065 114,878 268,510 49,065 114,878 268,510
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.20% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.23%, 4.77%,
and 10.77%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
48
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,361 3,617 3,874 3,084 3,340 3,597
2 12,146 500,000 500,000 500,000 6,819 7,558 8,329 6,483 7,222 7,993
3 18,220 500,000 500,000 500,000 10,076 11,521 13,093 9,778 11,223 12,795
4 24,293 500,000 500,000 500,000 13,123 15,497 18,187 12,524 14,899 17,588
5 30,366 500,000 500,000 500,000 15,960 19,483 23,641 15,447 18,970 23,128
6 36,439 500,000 500,000 500,000 18,565 23,452 29,468 18,137 23,025 29,040
7 42,512 500,000 500,000 500,000 20,919 27,384 35,687 20,577 27,042 35,345
8 48,586 500,000 500,000 500,000 22,996 31,247 42,311 22,740 30,991 42,054
9 54,659 500,000 500,000 500,000 24,770 35,009 49,356 24,599 34,838 49,185
10 60,732 500,000 500,000 500,000 26,218 38,640 56,847 26,218 38,640 56,847
15 91,098 500,000 500,000 500,000 27,815 53,774 102,264 27,815 53,774 102,264
20 121,464 500,000 500,000 500,000 15,959 58,739 164,948 15,959 58,739 164,948
25 151,830 0 500,000 500,000 0 39,995 254,230 0 39,995 254,230
30 182,196 0 0 566,875 0 0 393,663 0 0 393,663
20 (Age 65) 121,464 500,000 500,000 500,000 15,959 58,739 164,948 15,959 58,739 164,948
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
49
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,549 3,816 4,083 3,099 3,365 3,633
2 12,146 500,000 500,000 500,000 7,207 7,980 8,786 6,698 7,470 8,277
3 18,220 500,000 500,000 500,000 10,675 12,193 13,843 10,203 11,721 13,371
4 24,293 500,000 500,000 500,000 13,943 16,446 19,279 13,345 15,847 18,680
5 30,366 500,000 500,000 500,000 17,059 20,787 25,184 16,546 20,274 24,671
6 36,439 500,000 500,000 500,000 19,997 25,192 31,580 19,569 24,765 31,153
7 42,512 500,000 500,000 500,000 22,766 29,674 38,532 22,424 29,332 38,190
8 48,586 500,000 500,000 500,000 25,303 34,170 46,034 25,047 33,914 45,777
9 54,659 500,000 500,000 500,000 27,705 38,777 54,244 27,534 38,606 54,073
10 60,732 500,000 500,000 500,000 29,856 43,385 63,128 29,856 43,385 63,128
15 91,098 500,000 500,000 500,000 37,598 67,849 123,357 37,598 67,849 123,357
20 121,464 500,000 500,000 500,000 37,863 92,216 220,589 37,863 92,216 220,589
25 151,830 500,000 500,000 500,000 29,673 116,457 384,757 29,673 116,457 384,757
30 182,196 500,000 500,000 928,999 3,621 133,467 645,138 3,621 133,467 645,138
20 (Age 65) 121,464 500,000 500,000 500,000 37,863 92,216 220,589 37,863 92,216 220,589
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.20% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.23%, 4.77%,
and 10.77%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
50
<PAGE>
Table VII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 3,944 4,236 4,529 3,635 3,926 4,219
2 13,532 500,000 500,000 500,000 8,008 8,857 9,743 7,633 8,481 9,367
3 20,299 500,000 500,000 500,000 11,860 13,530 15,344 11,527 13,196 15,010
4 27,065 500,000 500,000 500,000 15,493 18,246 21,362 14,825 17,579 20,694
5 33,831 500,000 500,000 500,000 18,907 23,006 27,838 18,334 22,433 27,265
6 40,597 500,000 500,000 500,000 22,079 27,784 34,794 21,602 27,307 34,317
7 47,363 500,000 500,000 500,000 24,994 32,563 42,263 24,613 32,182 41,881
8 54,130 500,000 500,000 500,000 27,626 37,314 50,272 27,340 37,027 49,986
9 60,896 500,000 500,000 500,000 29,948 42,006 58,853 29,757 41,815 58,662
10 67,662 500,000 500,000 500,000 31,941 46,616 68,051 31,941 46,616 68,051
15 101,493 500,000 500,000 500,000 36,233 67,515 125,404 36,233 67,515 125,404
20 135,324 500,000 500,000 500,000 27,204 80,373 209,356 27,204 80,373 209,356
25 169,155 0 500,000 542,112 0 73,495 338,820 0 73,495 338,820
30 202,986 0 500,000 760,141 0 21,228 527,876 0 21,228 527,876
20 (Age 65) 135,324 500,000 500,000 500,000 27,204 80,373 209,356 27,204 80,373 209,356
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
51
<PAGE>
Table VIII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 4,154 4,458 4,762 3,651 3,955 4,259
2 13,532 500,000 500,000 500,000 8,442 9,329 10,254 7,874 8,760 9,685
3 20,299 500,000 500,000 500,000 12,531 14,282 16,183 12,005 13,755 15,656
4 27,065 500,000 500,000 500,000 16,414 19,311 22,587 15,746 18,643 21,919
5 33,831 500,000 500,000 500,000 20,136 24,465 29,565 19,564 23,893 28,992
6 40,597 500,000 500,000 500,000 23,673 29,724 37,151 23,196 29,247 36,674
7 47,363 500,000 500,000 500,000 27,036 35,100 45,422 26,655 34,719 45,041
8 54,130 500,000 500,000 500,000 30,162 40,537 54,391 29,876 40,251 54,104
9 60,896 500,000 500,000 500,000 33,146 46,132 64,230 32,955 45,942 64,039
10 67,662 500,000 500,000 500,000 35,876 51,780 74,925 35,876 51,780 74,925
15 101,493 500,000 500,000 500,000 46,674 82,689 148,367 46,674 82,689 148,367
20 135,324 500,000 500,000 500,000 49,065 114,878 268,510 49,065 114,878 268,510
25 169,155 500,000 500,000 743,715 39,527 146,810 464,822 39,527 146,810 464,822
30 202,986 500,000 500,000 1,105,660 6,662 171,465 767,820 6,662 171,465 767,820
20 (Age 65) 135,324 500,000 500,000 500,000 49,065 114,878 268,510 49,065 114,878 268,510
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.20% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.23%, 4.77%,
and 10.77%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
52
<PAGE>
Appendix B
ILLUSTRATION OF DEATH BENEFIT, TOTAL ACCOUNT VALUES, AND SURRENDER VALUES,
Corporate VUL II.
The following tables illustrate how the death benefit, total account values and
surrender values of a Policy change with the investment experience of the
variable funding options. The tables show how the death benefit, total account
values, and surrender values of a Policy issued to an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I, II, VII and VIII illustrate Policies issued on a unisex basis, age
45, in the preferred nonsmoker rate class for fully underwriting issue. Tables
III, IV, IX and X illustrate Policies issued on a unisex basis, age 45 in the
nonsmoker rate class for guaranteed issue underwriting. Tables V, VI, XI and
XII illustrate Policies issued on a unisex basis, age 45 in the nonsmoker rate
class for simplified issue underwriting. Tables I through VI show values under
the guideline premium test for the definition of life insurance, and Tables VII
through XII show values under the cash value accumulation test for the
definition of life insurance. The death benefit, total account values, and
surrender values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a
period of years, but fluctuated above and below those averages for individual
policy years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through the eleventh columns illustrate the surrender values of each Policy
over the designated period. Tables I, III, V, VII, IX and XI assume that the
maximum Cost of Insurance allowable under the Policy are charged in all policy
years. These tables also assume that the maximum allowable mortality and
expense risk charge of 0.90% on an annual basis, the maximum allowable premium
load of 15% up to the first year's target premium and 6% over the target
premium, are assessed in the first policy year; the maximum allowable premium
load of 10% up to the second year's target premium and 6% over the target
premium, are assessed in the second through fifth policy year and 6% on all
premium in all policy years thereafter, and an assumed premium tax charge of
2.05% on all premium in all policy years.
Tables II, IV, VI, VIII, X and XII assume that the current scale of Cost of
Insurance rates applies during all policy years. These tables also assume the
current mortality and expense risk charge of 0.70% on an annual basis for the
first 10 policy years and 0.35% for policy years 11 and thereafter, the current
premium load of 10.5% up to the first year's target premium and 2.5% over the
target premium are assumed in the first policy year, the current premium load
of 7.5% up to the second through the fifth years' target premiums and 1.5% over
the target premiums are assumed in the second through the fifth policy years,
the current premium load of 3.5% up to the sixth and the seventh years' target
premiums and 1.5% over the target premiums are assumed in the sixth and the
seventh policy years, 1.5% on all premium in all policy years thereafter, and
an assumed premium tax charge of 2.05% on all premium in all policy years.
The amounts shown for death benefit, surrender values, and total account values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
53
<PAGE>
In addition, these values reflect application of the mortality and expense risk
charge, premium load and assumed premium tax charge described above. After
deduction of these amounts, the illustrated net annual return is -1.63%, 4.37%
and 10.37% on a maximum charge basis for all years. The illustrated net annual
return on a current charge basis is -1.43%, 4.57% and 10.57% for policy years
1-10 and -1.08%, 4.92% and 10.92% for policy years 11 and thereafter.
The investment advisory fees and other Fund expenses vary by Fund from 0.34% to
1.01%. A simple average of 0.73% has been used for the illustrations.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event,
the gross annual investment rate of return would have to exceed 0%, 6%, or 12%
by an amount sufficient to cover the tax charges in order to produce the death
benefit, total account values, and surrender values illustrated.
The tables illustrate the policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums were allocated to Variable Life Account B, and if no Policy
loans have been made. The tables are also based on the assumptions that the
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, and underwriting classification, the specified amount or premium
requested, the proposed frequency of premium payments and any available riders
requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
54
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $853,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 853,000 853,000 853,000 5,025 5,413 5,802 5,725 6,113 6,502
2 21,525 853,000 853,000 853,000 10,269 11,389 12,559 10,794 11,914 13,084
3 33,101 853,000 853,000 853,000 15,223 17,419 19,807 15,223 17,419 19,807
4 45,256 853,000 853,000 853,000 19,860 23,473 27,566 19,860 23,473 27,566
5 58,019 853,000 853,000 853,000 24,178 29,549 35,890 24,178 29,549 35,890
6 71,420 853,000 853,000 853,000 28,555 36,047 45,263 28,555 36,047 45,263
7 85,491 853,000 853,000 853,000 32,541 42,513 55,304 32,541 42,513 55,304
8 100,266 853,000 853,000 853,000 36,103 48,911 66,054 36,103 48,911 66,054
9 115,779 853,000 853,000 853,000 39,194 55,186 77,543 39,194 55,186 77,543
10 132,068 853,000 853,000 853,000 41,758 61,276 89,802 41,758 61,276 89,802
15 226,575 853,000 853,000 853,000 45,386 87,253 165,081 45,386 87,253 165,081
20 347,193 853,000 853,000 853,000 27,222 97,765 271,746 27,222 97,765 271,746
25 501,136 0 853,000 853,000 0 70,314 427,778 0 70,314 427,778
30 697,610 0 0 853,000 0 0 683,840 0 0 683,840
20 (Age 65) 347,193 853,000 853,000 853,000 27,222 97,765 271,746 27,222 97,765 271,746
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
55
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $853,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 853,000 853,000 853,000 7,143 7,620 8,098 7,843 8,320 8,798
2 21,525 853,000 853,000 853,000 14,143 15,556 17,028 14,668 16,081 17,553
3 33,101 853,000 853,000 853,000 20,723 23,527 26,569 20,723 23,527 26,569
4 45,256 853,000 853,000 853,000 26,923 31,574 36,826 26,923 31,574 36,826
5 58,019 853,000 853,000 853,000 32,792 39,745 47,927 32,792 39,745 47,927
6 71,420 853,000 853,000 853,000 38,769 48,510 60,454 38,769 48,510 60,454
7 85,491 853,000 853,000 853,000 44,486 57,509 74,151 44,486 57,509 74,151
8 100,266 853,000 853,000 853,000 50,149 66,970 89,380 50,149 66,970 89,380
9 115,779 853,000 853,000 853,000 55,541 76,690 106,073 55,541 76,690 106,073
10 132,068 853,000 853,000 853,000 60,622 86,639 124,355 60,622 86,639 124,355
15 226,575 853,000 853,000 853,000 80,499 140,274 248,421 80,499 140,274 248,421
20 347,193 853,000 853,000 853,000 87,790 197,930 451,986 87,790 197,930 451,986
25 501,136 853,000 853,000 935,281 86,909 267,145 806,276 86,909 267,145 806,276
30 697,610 853,000 853,000 1,505,998 64,066 342,786 1,407,475 64,066 342,786 1,407,475
20 (Age 65) 347,193 853,000 853,000 853,000 87,790 197,930 451,986 87,790 197,930 451,986
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
56
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $804,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 804,000 804,000 804,000 5,183 5,576 5,970 5,883 6,276 6,670
2 21,525 804,000 804,000 804,000 10,596 11,736 12,927 11,121 12,261 13,452
3 33,101 804,000 804,000 804,000 15,729 17,971 20,409 15,729 17,971 20,409
4 45,256 804,000 804,000 804,000 20,558 24,257 28,445 20,558 24,257 28,445
5 58,019 804,000 804,000 804,000 25,081 30,592 37,092 25,081 30,592 37,092
6 71,420 804,000 804,000 804,000 29,678 37,378 46,842 29,678 37,378 46,842
7 85,491 804,000 804,000 804,000 33,903 44,170 57,324 33,903 44,170 57,324
8 100,266 804,000 804,000 804,000 37,725 50,933 68,587 37,725 50,933 68,587
9 115,779 804,000 804,000 804,000 41,100 57,620 80,676 41,100 57,620 80,676
10 132,068 804,000 804,000 804,000 43,976 64,175 93,636 43,976 64,175 93,636
15 226,575 804,000 804,000 804,000 49,699 93,518 174,540 49,699 93,518 174,540
20 347,193 804,000 804,000 804,000 35,026 110,179 293,090 35,026 110,179 293,090
25 501,136 0 804,000 804,000 0 94,562 475,162 0 94,562 475,162
30 697,610 0 804,000 846,991 0 5,266 791,580 0 5,266 791,580
20 (Age 65) 347,193 804,000 804,000 804,000 35,026 110,179 293,090 35,026 110,179 293,090
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
57
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $804,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 804,000 804,000 804,000 6,703 7,166 7,629 7,403 7,866 8,329
2 21,525 804,000 804,000 804,000 13,438 14,801 16,223 13,963 15,326 16,748
3 33,101 804,000 804,000 804,000 19,916 22,623 25,560 19,916 22,623 25,560
4 45,256 804,000 804,000 804,000 26,147 30,648 35,731 26,147 30,648 35,731
5 58,019 804,000 804,000 804,000 32,137 38,890 46,833 32,137 38,890 46,833
6 71,420 804,000 804,000 804,000 38,282 47,779 59,411 38,282 47,779 59,411
7 85,491 804,000 804,000 804,000 44,173 56,917 73,175 44,173 56,917 73,175
8 100,266 804,000 804,000 804,000 49,988 66,503 88,457 49,988 66,503 88,457
9 115,779 804,000 804,000 804,000 55,495 76,318 105,174 55,495 76,318 105,174
10 132,068 804,000 804,000 804,000 60,654 86,334 123,450 60,654 86,334 123,450
15 226,575 804,000 804,000 804,000 80,966 140,439 247,624 80,966 140,439 247,624
20 347,193 804,000 804,000 804,000 88,094 198,357 451,656 88,094 198,357 451,656
25 501,136 804,000 804,000 935,632 84,458 265,887 806,579 84,458 265,887 806,579
30 697,610 804,000 804,000 1,504,582 56,346 338,525 1,406,152 56,346 338,525 1,406,152
20 (Age 65) 347,193 804,000 804,000 804,000 88,094 198,357 451,656 88,094 198,357 451,656
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
58
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $808,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 808,000 808,000 808,000 5,170 5,563 5,957 5,870 6,263 6,657
2 21,525 808,000 808,000 808,000 10,569 11,708 12,897 11,094 12,233 13,422
3 33,101 808,000 808,000 808,000 15,687 17,926 20,360 15,687 17,926 20,360
4 45,256 808,000 808,000 808,000 20,501 24,193 28,373 20,501 24,193 28,373
5 58,019 808,000 808,000 808,000 25,007 30,507 36,994 25,007 30,507 36,994
6 71,420 808,000 808,000 808,000 29,587 37,270 46,714 29,587 37,270 46,714
7 85,491 808,000 808,000 808,000 33,792 44,034 57,159 33,792 44,034 57,159
8 100,266 808,000 808,000 808,000 37,593 50,768 68,381 37,593 50,768 68,381
9 115,779 808,000 808,000 808,000 40,945 57,422 80,421 40,945 57,422 80,421
10 132,068 808,000 808,000 808,000 43,795 63,938 93,323 43,795 63,938 93,323
15 226,575 808,000 808,000 808,000 49,347 93,007 173,768 49,347 93,007 173,768
20 347,193 808,000 808,000 808,000 34,389 109,166 291,348 34,389 109,166 291,348
25 501,136 0 808,000 808,000 0 92,583 471,295 0 92,583 471,295
30 697,610 0 808,000 837,831 0 1,312 783,020 0 1,312 783,020
20 (Age 65) 347,193 808,000 808,000 808,000 34,389 109,166 291,348 34,389 109,166 291,348
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
59
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $808,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 808,000 808,000 808,000 6,990 7,462 7,935 7,690 8,162 8,635
2 21,525 808,000 808,000 808,000 14,005 15,403 16,861 14,530 15,928 17,386
3 33,101 808,000 808,000 808,000 20,753 23,540 26,561 20,753 23,540 26,561
4 45,256 808,000 808,000 808,000 27,241 31,883 37,123 27,241 31,883 37,123
5 58,019 808,000 808,000 808,000 33,471 40,445 48,641 33,471 40,445 48,641
6 71,420 808,000 808,000 808,000 39,833 49,647 61,658 39,833 49,647 61,658
7 85,491 808,000 808,000 808,000 45,912 59,084 75,877 45,912 59,084 75,877
8 100,266 808,000 808,000 808,000 51,877 68,949 91,627 51,877 68,949 91,627
9 115,779 808,000 808,000 808,000 57,491 79,012 108,819 57,491 79,012 108,819
10 132,068 808,000 808,000 808,000 62,702 89,236 127,569 62,702 89,236 127,569
15 226,575 808,000 808,000 808,000 82,223 143,482 254,014 82,223 143,482 254,014
20 347,193 808,000 808,000 808,000 87,392 200,382 461,115 87,392 200,382 461,115
25 501,136 808,000 808,000 954,252 83,088 267,923 822,631 83,088 267,923 822,631
30 697,610 808,000 808,000 1,533,140 54,563 340,960 1,432,841 54,563 340,960 1,432,841
20 (Age 65) 347,193 808,000 808,000 808,000 87,392 200,382 461,115 87,392 200,382 461,115
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
60
<PAGE>
Table VII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $702,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 702,000 702,000 702,000 17,355 18,481 19,608 19,105 20,231 21,358
2 53,813 702,000 702,000 702,000 35,552 38,972 42,531 36,864 40,285 43,843
3 82,754 702,000 702,000 702,000 53,342 60,257 67,738 53,342 60,257 67,738
4 113,142 702,000 702,000 702,000 70,716 82,360 95,466 70,716 82,360 95,466
5 145,049 702,000 702,000 702,000 87,683 105,327 125,999 87,683 105,327 125,999
6 178,551 702,000 702,000 702,000 105,229 130,248 160,753 105,229 130,248 160,753
7 213,729 702,000 702,000 702,000 122,332 156,147 199,068 122,332 156,147 199,068
8 224,415 702,000 702,000 702,000 116,972 159,713 216,645 116,972 159,713 216,645
9 235,636 702,000 702,000 702,000 111,355 163,159 235,884 111,355 163,159 235,884
10 247,418 702,000 702,000 702,000 105,432 166,436 256,952 105,432 166,436 256,952
15 315,775 702,000 702,000 831,467 69,857 179,041 396,445 69,857 179,041 396,445
20 403,017 702,000 702,000 1,110,580 17,973 179,371 606,793 17,973 179,371 606,793
25 514,362 0 702,000 1,481,360 0 150,711 914,305 0 150,711 914,305
30 656,471 0 702,000 1,970,985 0 56,868 1,353,736 0 56,868 1,353,736
20 (Age 65) 403,017 702,000 702,000 702,000 17,973 179,371 606,793 17,973 179,371 606,793
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
61
<PAGE>
Table VIII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $702,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 702,000 702,000 702,000 20,346 21,620 22,894 22,096 23,370 24,644
2 53,813 702,000 702,000 702,000 40,901 44,768 48,790 42,213 46,080 50,103
3 82,754 702,000 702,000 702,000 60,946 68,762 77,215 60,946 68,762 77,215
4 113,142 702,000 702,000 702,000 80,529 93,685 108,491 80,529 93,685 108,491
5 145,049 702,000 702,000 702,000 99,695 119,630 142,980 99,695 119,630 142,980
6 178,551 702,000 702,000 702,000 119,479 147,740 182,193 119,479 147,740 182,193
7 213,729 702,000 702,000 702,000 138,911 177,105 225,576 138,911 177,105 225,576
8 224,415 702,000 702,000 702,000 134,641 183,015 247,399 134,641 183,015 247,399
9 235,636 702,000 702,000 702,000 130,264 189,077 271,500 130,264 189,077 271,500
10 247,418 702,000 702,000 723,787 125,745 195,272 298,104 125,745 195,272 298,104
15 315,775 702,000 702,000 1,010,476 101,098 231,037 481,796 101,098 231,037 481,796
20 403,017 702,000 702,000 1,417,007 67,226 269,505 774,216 67,226 269,505 774,216
25 514,362 702,000 702,000 2,023,046 26,597 315,704 1,248,637 26,597 315,704 1,248,637
30 656,471 0 702,000 2,920,864 0 366,246 2,006,143 0 366,246 2,006,143
20 (Age 65) 403,017 702,000 702,000 1,417,007 67,226 269,505 774,216 67,226 269,505 774,216
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
62
<PAGE>
Table IX
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $669,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 669,000 669,000 669,000 17,461 18,591 19,722 19,211 20,341 21,472
2 53,813 669,000 669,000 669,000 35,771 39,206 42,778 37,084 40,518 44,091
3 82,754 669,000 669,000 669,000 53,683 60,629 68,144 53,683 60,629 68,144
4 113,142 669,000 669,000 669,000 71,186 82,887 96,058 71,186 82,887 96,058
5 145,049 669,000 669,000 669,000 88,291 106,029 126,808 88,291 106,029 126,808
6 178,551 669,000 669,000 669,000 105,986 131,145 161,816 105,986 131,145 161,816
7 213,729 669,000 669,000 669,000 123,250 157,263 200,427 123,250 157,263 200,427
8 224,415 669,000 669,000 669,000 118,065 161,075 218,351 118,065 161,075 218,351
9 235,636 669,000 669,000 669,000 112,639 164,798 237,994 112,639 164,798 237,994
10 247,418 669,000 669,000 669,000 106,926 168,389 259,534 106,926 168,389 259,534
15 315,775 669,000 669,000 841,647 72,762 183,261 401,298 72,762 183,261 401,298
20 403,017 669,000 669,000 1,124,194 23,229 187,732 614,231 23,229 187,732 614,231
25 514,362 0 669,000 1,499,534 0 167,042 925,522 0 167,042 925,522
30 656,471 0 669,000 1,995,178 0 89,492 1,370,352 0 89,492 1,370,352
20 (Age 65) 403,017 669,000 669,000 1,124,194 23,229 187,732 614,231 23,229 187,732 614,231
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
63
<PAGE>
Table X
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $669,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 669,000 669,000 669,000 19,976 21,238 22,501 21,726 22,988 24,251
2 53,813 669,000 669,000 669,000 40,309 44,135 48,116 41,621 45,448 49,429
3 82,754 669,000 669,000 669,000 60,263 67,999 76,367 60,263 67,999 76,367
4 113,142 669,000 669,000 669,000 79,857 92,891 107,558 79,857 92,891 107,558
5 145,049 669,000 669,000 669,000 99,105 118,874 142,025 99,105 118,874 142,025
6 178,551 669,000 669,000 669,000 119,003 147,058 181,249 119,003 147,058 181,249
7 213,729 669,000 669,000 669,000 138,554 176,508 224,651 138,554 176,508 224,651
8 224,415 669,000 669,000 669,000 134,387 182,492 246,484 134,387 182,492 246,484
9 235,636 669,000 669,000 677,254 130,084 188,609 270,575 130,084 188,609 270,575
10 247,418 669,000 669,000 721,293 125,611 194,838 297,077 125,611 194,838 297,077
15 315,775 669,000 669,000 1,005,196 101,164 230,859 479,278 101,164 230,859 479,278
20 403,017 669,000 669,000 1,405,201 66,817 269,428 767,766 66,817 269,428 767,766
25 514,362 669,000 669,000 1,995,398 23,189 314,411 1,231,573 23,189 314,411 1,231,573
30 656,471 0 669,000 2,862,163 0 362,823 1,965,825 0 362,823 1,965,825
20 (Age 65) 403,017 669,000 669,000 1,405,201 66,817 269,428 767,766 66,817 269,428 767,766
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
64
<PAGE>
Table XI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS ANS MAXIMUM CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $672,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 672,000 672,000 672,000 17,452 18,581 19,711 19,202 20,331 21,461
2 53,813 672,000 672,000 672,000 35,751 39,184 42,756 37,064 40,497 44,068
3 82,754 672,000 672,000 672,000 53,652 60,595 68,107 53,652 60,595 68,107
4 113,142 672,000 672,000 672,000 71,143 82,839 96,004 71,143 82,839 96,004
5 145,049 672,000 672,000 672,000 88,236 105,966 126,734 88,236 105,966 126,734
6 178,551 672,000 672,000 672,000 105,917 131,063 161,719 105,917 131,063 161,719
7 213,729 672,000 672,000 672,000 123,166 157,161 200,304 123,166 157,161 200,304
8 224,415 672,000 672,000 672,000 117,965 160,952 218,196 117,965 160,952 218,196
9 235,636 672,000 672,000 672,000 112,522 164,649 237,803 112,522 164,649 237,803
10 247,418 672,000 672,000 672,000 106,790 168,211 259,299 106,790 168,211 259,299
15 315,775 672,000 672,000 840,761 72,498 182,877 400,876 72,498 182,877 400,876
20 403,017 672,000 672,000 1,123,009 22,751 186,972 613,583 22,751 186,972 613,583
25 514,362 0 672,000 1,497,952 0 165,557 924,546 0 165,557 924,546
30 656,471 0 672,000 1,993,071 0 86,526 1,368,905 0 86,526 1,368,905
20 (Age 65) 403,017 672,000 672,000 1,123,009 22,751 186,972 613,583 22,751 186,972 613,583
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
65
<PAGE>
Table XII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $672,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 672,000 672,000 672,000 20,210 21,480 22,750 21,960 23,230 24,500
2 53,813 672,000 672,000 672,000 40,765 44,620 48,629 42,077 45,932 49,942
3 82,754 672,000 672,000 672,000 60,929 68,727 77,161 60,929 68,727 77,161
4 113,142 672,000 672,000 672,000 80,718 93,859 108,645 80,718 93,859 108,645
5 145,049 672,000 672,000 672,000 100,142 120,076 143,417 100,142 120,076 143,417
6 178,551 672,000 672,000 672,000 120,194 148,483 182,951 120,194 148,483 182,951
7 213,729 672,000 672,000 672,000 139,874 178,139 226,668 139,874 178,139 226,668
8 224,415 672,000 672,000 672,000 135,811 184,316 248,823 135,811 184,316 248,823
9 235,636 672,000 672,000 683,926 131,584 190,606 273,241 131,584 190,606 273,241
10 247,418 672,000 672,000 728,539 127,148 196,983 300,061 127,148 196,983 300,061
15 315,775 672,000 672,000 1,014,310 102,092 233,151 483,624 102,092 233,151 483,624
20 403,017 672,000 672,000 1,414,713 66,157 271,116 772,963 66,157 271,116 772,963
25 514,362 672,000 672,000 2,008,080 21,982 316,200 1,239,400 21,982 316,200 1,239,400
30 656,471 0 672,000 2,880,468 0 365,016 1,978,398 0 365,016 1,978,398
20 (Age 65) 403,017 672,000 672,000 1,414,713 66,157 271,116 772,963 66,157 271,116 772,963
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed. The current mortality and expense risk charges may be reduced
from 0.70% to 0.35% in policy years 11 and thereafter. Beginning in policy
years 11 and thereafter, the illustrated net annual return is -1.08%, 4.92%,
and 10.92%.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
66
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<S> <C>
Statement of Assets and Liabilities ........................ S-2
Statements of Operations and Changes in Net Assets ......... S-4
Condensed Financial Information ............................ S-5
Notes to Financial Statements .............................. S-9
Independent Auditors' Report ............................... S-19
</TABLE>
S-1
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1998
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
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 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 Money Market VP:
Aetna Vest $ 17.310 $ 18.074 4.41% 118,796.8 $ 2,147,105
Aetna Vest II 12.653 13.211 4.41% 42,027.0 555,225
Aetna Vest Plus 11.892 12.416 4.41% 1,069,947.5 13,284,681
Aetna Vest Estate Protector 10.807 11.301 4.57% 57,290.6 647,417
Aetna Vest Estate Protector II 10.045 10.413 3.66% (1) 276,653.4 2,880,793
Corporate Specialty Market 11.377 11.878 4.40% 1,436,476.9 17,063,155
NYSUT Individual Life 10.603 10.849 2.32% (4) 8,023.2 87,045
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market 11.484 10.085 (12.18%) (2) 97,904.2 987,401
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 9.567 12.266 28.21% (6) 4,557.2 55,900
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 13.788 15.238 10.52% 16,969.9 258,580
Aetna Vest II 13.788 15.238 10.52% 14,601.3 222,487
Aetna Vest Plus 13.788 15.238 10.52% 670,325.9 10,214,130
Aetna Vest Estate Protector 13.824 15.301 10.68% 106,752.9 1,633,394
Aetna Vest Estate Protector II 10.851 10.733 (1.09%) (2) 43,643.7 468,407
Corporate Specialty Market 15.869 17.538 10.52% 1,364,494.0 23,930,267
NYSUT Individual Life 12.924 13.031 0.83% (4) 252.3 3,288
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 13.759 19.002 38.11% 1,014,192.3 19,271,725
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market 10.575 9.588 (9.33%) (3) 24,649.9 236,353
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 12.415 13.859 11.63% 224,748.4 3,114,830
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 14.361 16.358 13.91% 191,384.9 3,130,614
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 14.166 18.229 28.68% 45,254.8 824,956
Aetna Vest II 14.166 18.229 28.68% 17,282.1 315,037
Aetna Vest Plus 14.166 18.229 28.68% 582,925.1 10,626,213
Aetna Vest Estate Protector 14.203 18.305 28.88% 73,829.1 1,351,411
Aetna Vest Estate Protector II 10.825 12.417 14.71% (1) 55,697.8 691,620
Corporate Specialty Market 15.236 19.607 28.69% 1,255,443.5 24,615,341
NYSUT Individual Life 13.744 15.355 11.72% (4) 350.9 5,387
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest 18.017 23.949 32.92% 49,127.2 1,176,559
Aetna Vest II 18.017 23.949 32.92% 35,013.7 838,551
Aetna Vest Plus 18.017 23.949 32.92% 525,450.3 12,584,179
Aetna Vest Estate Protector 10.944 14.569 33.12% 77,832.2 1,133,931
Aetna Vest Estate Protector II 10.705 12.855 20.08% (3) 29,088.0 373,931
Corporate Specialty Market 13.519 17.969 32.92% 407,461.9 7,321,785
NYSUT Individual Life 10.705 15.506 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:
<TABLE>
<S> <C>
Aetna Ascent V Janus Aspen Series:
Aetna Balanced VP o Aggressive Growth Portfolio
Aetna Bond VP o Balanced Portfolio
Aetna Crossroads VP o Growth Portfolio
Aetna Growth and Income VP o Worldwide Growth Portfolio
Aetna Index Plus Large Cap VP Oppenheimer Funds:
Aetna Legacy VP o Global Securities Fund
Aetna Money Market VP o Growth & Income Fund
Aetna Small Company VP o Strategic Bond Fund
Aetna Value Opportunity VP Portfolio Partners, Inc. (PPI):
Fidelity Investments Variable Insurance o PPI MFS Emerging Equities Portfolio
Products Fund: o PPI MFS Research Growth Portfolio
o Equity-Income Portfolio o PPI MFS Value Equity Portfolio
o Growth Portfolio o PPI Scudder International Growth Portfolio
o High Income Portfolio o PPI T. Rowe Price Growth Equity Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
</TABLE>
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of 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 Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: (1) $ 129,523 ($22,620) $ 393,522 $ 353,120 $ 40,402
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 5,079,318 (289,232) 8,936,646 7,346,946 1,589,700
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,751,860 (257,828) 6,762,101 6,468,168 293,933
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 77,190 (14,622) 473,877 453,989 19,888
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 27,303,998 (1,392,329) 39,271,149 34,639,034 4,632,115
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 591,905 (73,086) 3,515,589 3,029,008 486,581
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 44,001 (8,540) 377,983 360,207 17,776
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 940,509 (288,392) 130,650,119 130,229,304 420,815
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 8,723 (5,056) 362,699 395,417 (32,718)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 298 (130) 44,207 44,499 (292)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,381,671 (281,139) 8,873,609 7,588,754 1,284,855
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,011,596 (128,591) 2,784,250 2,517,613 266,637
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 0 (1,531) 31,686 34,229 (2,543)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 141,761 (22,734) 562,478 539,506 22,972
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 329,918 (29,778) 2,518,344 2,406,138 112,206
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,313,979 (283,258) 12,306,538 10,124,110 2,182,428
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (142,378) 19,717,643 17,285,188 2,432,455
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 709,668 (145,407) 5,250,108 3,955,227 1,294,881
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,062,152 (162,916) 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 Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
------------------------------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553) $11,219,896 $ 7,857,508 $3,362,388
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 1,087,150 (148,230) 2,358,910 2,406,924 (48,014)
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 372,968 (144,720) 74,201,538 73,731,940 469,598
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443) 1,960,106 1,561,449 398,657
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 112,004 (11,360) 1,279,898 1,184,906 94,992
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 45,840 (3,290) 198,099 193,283 4,816
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 38,169 (3,596) 225,894 207,391 18,503
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 77,848 (4,920) 143,972 131,418 12,554
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 576,583 (128,523) 53,957,227 53,285,312 671,915
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation Fund: (2) 132,455 (57,820) 15,197,338 15,512,673 (315,335)
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,485,715 (163,582) 14,420,981 11,843,310 2,577,671
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 192,233 (54,856) 6,814,876 5,870,796 944,080
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 46,706 (8,253) 359,668 322,274 37,394
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257) 244,742 220,690 24,052
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 235,708 (110,146) 4,519,164 3,602,586 916,577
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (95,697) 18,445,996 17,632,824 813,172
PolicyHolders' account values
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 192,757 (52,872) 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
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$566,478 $ 1,360,430 $ 793,952 $ 3,065,638
$ 7,174,647 $ 11,980,000
- ----------------------------------------------------------------------------------------------------------
26,773 0 (26,773) (4,049,682)
3,827,848 0
- ----------------------------------------------------------------------------------------------------------
872,277 1,817,349 945,072 11,519,359
9,915,136 24,303,287
- ----------------------------------------------------------------------------------------------------------
0 42,515 42,515 19,201,153
0 19,061,872
- ----------------------------------------------------------------------------------------------------------
0 (86,245) (86,245) 7,241,839
0 7,148,181
- ----------------------------------------------------------------------------------------------------------
0 192,560 192,560 14,100,392
0 14,311,110
- ----------------------------------------------------------------------------------------------------------
1,244,544 0 (1,244,544) (11,259,868)
10,615,255 0
- ----------------------------------------------------------------------------------------------------------
$14,132,669 $16,987,228 $ 2,854,559 $ 79,516,307 $223,173,883 $352,525,147
==========================================================================================================
</TABLE>
S-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.
33-75248 is comprised of the following papers and documents:
o The facing sheet.
o One Prospectus dated May 1, 1999, consisting of 117 pages, for Corporate
Variable Universal Life (Corporate VUL) and Corporate Variable Universal
Life II (Corporate VUL II).
o The undertaking to file reports
o The undertaking pursuant to Rule 484
o Representation pursuant to Section 26(e)(2)(A) of the Investment
Company Act of 1940
o The signatures
o Written consents of the following persons:
A. Consent of Counsel (included as part of Exhibit No. 2 below)
B. Actuarial Consent (included as part of Exhibit No. 6 below)
C. Consent of Independent Auditors (included as Exhibit No. 7 below)
<PAGE>
The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for Form
N-8B-2:
<TABLE>
<S> <C>
(1) Resolution of the Board of Directors of Aetna Life Insurance and Annuity Company establishing Variable
Life Account B(1)
(2) Not Applicable
(3)(i) Specialty Broker Agreement(2)
(3)(ii) Life Insurance Broker-Dealer Agreements(1)
(3)(iii) Restated and Amended Third Party Administration and Transfer Agent Agreement(3)
(4) Not Applicable
(5)(i) Corporate VUL Policy (Containing information about Cash Value Accumulation Method of Death Benefit
Options) (70180-93US)(4)
(5)(ii) Corporate VUL Policy (Containing Tables of percentages for the Guideline Premium Method for Death
Benefit Options) (70182-93US)(4)
(5)(iii) Term Rider (70181-94US) to Corporate VUL Policy 70182-93US(4)
(5)(iv) Amendment Rider (70284-1998) to Corporate Variable Universal Life Policies 70180-93US and 70182-
93US(2)
(5)(v) Corporate VUL II Policy (Cash Value Policy) (70180-1998US)(2)
(5)(vi) Corporate VUL II Policy (Guideline Premium Policy) (70182-1998US)(2)
(5)(vii) Term Insurance Rider (70181-1998US) to policies 70180-1998US and 70182-1998US(2)
(6)(i) Certificate of Incorporation of Aetna Life Insurance and Annuity Company(5)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life Insurance and Annuity Company(6)
(6)(iii) By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity Company(7)
(7) Not Applicable
(8)(i) Fund Participation Agreement by and among Aetna Life Insurance and Annuity Company and Aetna Variable
Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on
behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, Aetna
Variable Portfolios, Inc. on behalf of each of its series, and Aeltus Investment Management, Inc. dated as
of May 1, 1998(8)
(8)(ii) Amendment dated November 9, 1998 to Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company and Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna
Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation Portfolios, Inc. on
behalf of each of its series, Aetna Variable Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998(9)
(8)(iii) Service Agreement between Aeltus Investment Management, Inc. and Aetna Life Insurance and Annuity
Company in connection with the sale of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna
Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, and Aetna Variable Portfolios, Inc. on behalf of each of
its series dated as of May 1, 1998(8)
(8)(iv) Amendment dated November 4, 1998 to Service Agreement between Aeltus Investment Management, Inc.
and Aetna Life Insurance and Annuity Company in connection with the sale of shares of Aetna Variable
Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund on
behalf of each of its series, Aetna Generation Portfolios, Inc. on behalf of each of its series, and Aetna
Variable Portfolios, Inc. on behalf of each of its series dated as of May 1, 1998(9)
(8)(v) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation dated February 1, 1994 and amended on December
15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(6)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(8)(vi) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996 and March 1, 1996(10)
(8)(vii) Sixth Amendment dated November 6, 1997 to the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996, March 1, 1996 and May 1, 1997(11)
(8)(viii) Seventh Amendment dated as of May 1, 1998 to the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996, March 1, 1996, May 1, 1997 and November 6, 1997(8)
(8)(ix) Fund Participation Agreement between Aetna Life Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors Corporation dated February 1, 1994 and amended on December
15, 1994, February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996(6)
(8)(x) Fifth Amendment dated as of May 1, 1997 to the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors
Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996, and March 1, 1996(10)
(8)(xi) Sixth Amendment dated as of January 20, 1998 to the Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors
Corporation
dated February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996, March 1, 1996 and May 1, 1997(2)
(8)(xii) Seventh Amendment dated as of May 1, 1998 to Fund Participation Agreement between Aetna Life Insurance
and Annuity Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation dated
February 1, 1994 and amended on December 15, 1994, February 1, 1995, May 1, 1995, January 1, 1996,
March 1, 1996, May 1, 1998 and January 20, 1998(10)
(8)(xiii) Service Agreement between Aetna Life Insurance and Annuity Company and Fidelity Investment
Institutional Operations Company dated November 1, 1995(12)
(8)(xiv) Amendment dated January 1, 1997 to Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations Company dated as of November 1, 1995(10)
(8)(xv) Fund Participation Agreement among Janus Aspen Series and Aetna Life Insurance and Annuity Company
and Janus Capital Corporation dated December 8, 1997(13)
(8)(xvi) Amendment dated October 12, 1998 to Fund Participation Agreement among Janus Aspen Series and Aetna
Life Insurance and Annuity Company and Janus Capital Corporation dated December 8, 1997(9)
(8)(xvii) Service Agreement between Janus Capital Corporation and Aetna Life Insurance and Annuity Company
dated December 8, 1997(13)
(8)(xviii) Fund Participation Agreement among MFS Variable Insurance Trust, Aetna Life Insurance and Annuity
Company and Massachusetts Financial Services Company dated April 30, 1996, and amended on September
3, 1996, March 14, 1997 and November 28, 1997(10)
(8)(xix) Fourth Amendment dated May 1, 1998 to the Fund Participation Agreement by and among MFS Variable
Insurance Trust, Aetna Life Insurance and Annuity Company and Massachusetts Financial Services
Company dated April 30, 1996, and amended on September 3, 1996, March 14, 1997 and November 28,
1997(14)
(8)(xx) Fund Participation Agreement dated March 11, 1997 between Aetna Life Insurance and Annuity Company
and Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds, Inc.(15)
(8)(xxi) Service Agreement effective as of March 11, 1997 between Oppenheimer Funds, Inc. and Aetna Life
Insurance and Annuity Company(16)
(9) Not Applicable
(10)(i) Application (70158-93)(2)
(10)(ii) Application (70159-93)(2)
(10)(iii) Application Supplement (70276-97(3/98))(2)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(10)(iv) Application Supplement (70277-97(3/98))(2)
(10)(v) Application Supplement (70183-93)(2)
(10)(vi) Premium Allocation Supplement (APP Funds)(2)
</TABLE>
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(16)
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. 33-75248), as filed on
February 24, 1998
3. Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on
November 26, 1997
4. Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on
April 22, 1997
5. 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
6. 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
7. 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
8. Incorporated by reference to Registration Statement on Form N-4 (File
No. 333-56297), as filed on June 8, 1998
9. 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
10. 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
11. 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
12. 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
13. 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
14. Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 333-56297), as filed on
August 4, 1998
15. 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
16. 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Variable Life Account B of Aetna Life Insurance and Annuity
Company, certifies that it meets the requirements of Securities Act Rule 485(b)
for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form S-6 (File No. 33-75248) and has duly caused this
Post-Effective Amendment No. 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 29 day of April, 1999.
VARIABLE LIFE ACCOUNT B OF AETNA LIFE
INSURANCE AND ANNUITY COMPANY
(SEAL) (Registrant)
ATTEST: /s/ Rose-Marie DeRensis
---------------------------
Rose-Marie DeRensis
Assistant Corporate Secretary By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
By: Thomas J. McInerney*
------------------------------------
Thomas J. McInerney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 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 )
- -------------------------- (Principal Executive Officer) )
Thomas J. McInerney )
)
)
Catherine H. Smith* Director and Chief Financial )
- -------------------------- Officer )
Catherine H. Smith )
) April 29,
) 1999
)
Shaun P. Mathews* Director )
- -------------------------- )
Shaun P. Mathews )
)
)
Deborah Koltenuk* Vice President, Treasurer )
- -------------------------- and Corporate Controller )
Deborah Koltenuk
</TABLE>
By: /s/ Julie E. Rockmore
-------------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
99-2 Opinion and Consent of Counsel
99-6 Actuarial Opinion and Consent
99-7 Consent of Independent Auditors
151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Division, RE4A
April 29, 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: Corporate Variable Universal Life
File Nos.: 33-75248 and 811-4536
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I, or those for whom I have supervisory
responsibility, have reviewed the S-6 Registration Statement as amended to the
date hereof, and this Post-Effective Amendment No.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
[Lincoln Financial Group Logo]
Lincoln National Life Insurance Co.
350 Church Street
Hartford, CT 06103-1106
April 20, 1999
Re: Corporate VUL and Corporate VUL II (File No. 33-75248)
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 Corporate VUL and Corporate VUL II 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. 33-75248 (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 age selected in the illustrations is 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
EX-99.7
Consent of Independent Auditors
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. 33-75248) 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 29, 1999
