President's Letter
Dear Valued Client,
What a year this has been in the market! Many of us feel as if we've been riding
a roller coaster. Record highs one day. Record drops another. But you'll see on
the following pages that, overall, your Aetna Retirement Services variable
annuity or variable life insurance contract has once again delivered solid
returns(1).
The dramatic changes such as those witnessed in the 1998 financial markets
reinforce the importance of choosing a competent, long-term financial partner --
one who can help you to weather the dips in the market.
At Aetna Retirement Services, we take our role as your financial partner very
seriously, and realize that the dollars we hold are actually your dreams.
Perhaps it's your hope of an early retirement. Or a dream home. It may be the
promise of your child's or grandchild's college education. Or the pride you take
in knowing that your family is financially secure because of the financial plans
you've made with us in retirement. Whatever your goals, our team of
professionals is here to help you achieve them.
As we move through 1999, I want you to know that we are prepared to help meet
your needs well into the next millennium. We have a team of extremely competent
business experts and systems leading our charge in addressing the Year 2000 bug.
In fact, we are making steady progress in systems remediation, and expect to be
Year 2000 ready by mid-1999.
My colleagues at Aetna Retirement Services and I look forward to continuing our
partnership into the next millennium. Thank you for your confidence and support.
Sincerely,
/s/ Thomas J. McInerney
- -----------------------
Thomas J. McInerney
- --------------------------
(1)Remember that past performance is no indication of future results.
<PAGE>
Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Investments, at net asset value: (Note 1)
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 198,115 $ 2,831,006 $ 2,777,568
Aetna Balanced VP: 2,167,178 34,177,879 34,089,711
Aetna Bond VP: 2,295,254 29,997,078 29,976,022
Aetna Crossroads VP: 154,345 2,069,533 2,055,869
Aetna Growth and Income VP: 4,919,365 162,790,910 156,730,966
Aetna Index Plus Large Cap VP: 758,705 12,317,717 13,345,627
Aetna Legacy VP: 81,480 1,017,019 1,007,913
Aetna Money Market VP: 2,738,801 36,398,167 36,665,421
Aetna Small Company VP: 77,201 1,010,893 987,401
Aetna Value Opportunity VP: 3,879 43,415 55,900
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,443,313 34,623,612 36,730,553
Growth Portfolio: 429,501 15,334,389 19,271,725
High Income Portfolio: 20,499 259,107 236,353
Overseas Portfolio: 155,353 2,924,055 3,114,830
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 172,391 2,863,661 3,130,614
Contrafund Portfolio: 1,569,966 32,468,622 38,429,965
Janus Aspen Series:
Aggressive Growth Portfolio: 849,184 19,610,984 23,428,999
Balanced Portfolio: 952,003 17,985,644 21,420,076
Growth Portfolio: 994,148 19,672,123 23,402,244
Worldwide Growth Portfolio: 1,497,256 38,062,628 43,555,170
Oppenheimer Funds:
Global Securities Fund: 14,366 297,779 317,052
Growth & Income Fund: 3,670 64,123 75,171
Strategic Bond Fund: 138,959 694,732 711,472
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 554,349 27,030,853 30,733,122
PPI MFS Research Growth Portfolio: 982,828 10,760,071 11,734,970
PPI MFS Value Equity Portfolio: 21,279 722,801 805,423
PPI Scudder International Growth Portfolio: 994,201 15,964,583 16,662,810
PPI T. Rowe Price Growth Equity Portfolio: 24,523 1,206,669 1,356,360
------------ ------------
NET ASSETS $523,200,053 $552,809,307
============ ============
</TABLE>
<TABLE>
<S> <C>
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>
<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
<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
<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>
<PAGE>
Variable Life Account B
Condensed Financial Information -- Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Value
Per Unit
--------
Beginning End of
of Year Year
- -----------------------------------------------------------------------------------
<S> <C> <C>
Aetna Money Market VP:
Aetna Vest $ 17.310 $ 18.074
Aetna Vest II 12.653 13.211
Aetna Vest Plus 11.892 12.416
Aetna Vest Estate Protector 10.807 11.301
Aetna Vest Estate Protector II 10.045 10.413
Corporate Specialty Market 11.377 11.878
NYSUT Individual Life 10.603 10.849
- -----------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market 11.484 10.085
- -----------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 9.567 12.266
- -----------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 13.788 15.238
Aetna Vest II 13.788 15.238
Aetna Vest Plus 13.788 15.238
Aetna Vest Estate Protector 13.824 15.301
Aetna Vest Estate Protector II 10.851 10.733
Corporate Specialty Market 15.869 17.538
NYSUT Individual Life 12.924 13.031
- -----------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 13.759 19.002
- -----------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market 10.575 9.588
- -----------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 12.415 13.859
- -----------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 14.361 16.358
- -----------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 14.166 18.229
Aetna Vest II 14.166 18.229
Aetna Vest Plus 14.166 18.229
Aetna Vest Estate Protector 14.203 18.305
Aetna Vest Estate Protector II 10.825 12.417
Corporate Specialty Market 15.236 19.607
NYSUT Individual Life 13.744 15.355
- -----------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest 18.017 23.949
Aetna Vest II 18.017 23.949
Aetna Vest Plus 18.017 23.949
Aetna Vest Estate Protector 10.944 14.569
Aetna Vest Estate Protector II 10.705 12.855
Corporate Specialty Market 13.519 17.969
NYSUT Individual Life 10.705 15.506
- -----------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Money Market VP:
Aetna Vest 4.41% 118,796.8 $ 2,147,105
Aetna Vest II 4.41% 42,027.0 555,225
Aetna Vest Plus 4.41% 1,069,947.5 13,284,681
Aetna Vest Estate Protector 4.57% 57,290.6 647,417
Aetna Vest Estate Protector II 3.66% (1) 276,653.4 2,880,793
Corporate Specialty Market 4.40% 1,436,476.9 17,063,155
NYSUT Individual Life 2.32% (4) 8,023.2 87,045
- -------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market (12.18%) (2) 97,904.2 987,401
- -------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 28.21% (6) 4,557.2 55,900
- -------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 10.52% 16,969.9 258,580
Aetna Vest II 10.52% 14,601.3 222,487
Aetna Vest Plus 10.52% 670,325.9 10,214,130
Aetna Vest Estate Protector 10.68% 106,752.9 1,633,394
Aetna Vest Estate Protector II (1.09%) (2) 43,643.7 468,407
Corporate Specialty Market 10.52% 1,364,494.0 23,930,267
NYSUT Individual Life 0.83% (4) 252.3 3,288
- -------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 38.11% 1,014,192.3 19,271,725
- -------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market (9.33%) (3) 24,649.9 236,353
- -------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 11.63% 224,748.4 3,114,830
- -------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 13.91% 191,384.9 3,130,614
- -------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 28.68% 45,254.8 824,956
Aetna Vest II 28.68% 17,282.1 315,037
Aetna Vest Plus 28.68% 582,925.1 10,626,213
Aetna Vest Estate Protector 28.88% 73,829.1 1,351,411
Aetna Vest Estate Protector II 14.71% (1) 55,697.8 691,620
Corporate Specialty Market 28.69% 1,255,443.5 24,615,341
NYSUT Individual Life 11.72% (4) 350.9 5,387
- -------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest 32.92% 49,127.2 1,176,559
Aetna Vest II 32.92% 35,013.7 838,551
Aetna Vest Plus 32.92% 525,450.3 12,584,179
Aetna Vest Estate Protector 33.12% 77,832.2 1,133,931
Aetna Vest Estate Protector II 20.08% (3) 29,088.0 373,931
Corporate Specialty Market 32.92% 407,461.9 7,321,785
NYSUT Individual Life 44.85% (3) 4.0 63
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
<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
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998
1. Summary of Significant Accounting Policies
Variable Life Account B (the "Account") is a separate account established by
Aetna Life Insurance and Annuity Company (the "Company) and is registered
under the Investment Company Act of 1940 as a unit investment trust. The
Account is sold exclusively for use with variable life insurance product
contracts as defined under the Internal Revenue Code of 1986, as amended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported therein. Although actual results could differ
from these estimates, any such differences are expected to be immaterial to
the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value
per share as determined by each fund on December 31, 1998:
Aetna Ascent VP
Aetna Balanced VP
Aetna Bond VP
Aetna Crossroads VP
Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna Legacy VP
Aetna Money Market VP
Aetna Small Company VP
Aetna Value Opportunity VP
Fidelity Investments Variable Insurance
Products Fund:
o Equity-Income Portfolio
o Growth Portfolio
o High Income Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Oppenheimer Funds:
o Global Securities Fund
o Growth & Income Fund
o Strategic Bond Fund
Portfolio Partners, Inc. (PPI):
o PPI MFS Emerging Equities Portfolio
o PPI MFS Research Growth Portfolio
o PPI MFS Value Equity Portfolio
o PPI Scudder International Growth Portfolio
o PPI T. Rowe Price Growth Equity Portfolio
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the policies and are paid to the Company.
3. Dividend Income
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions paid
to the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment
<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.
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation
Period
Dividends Deductions
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Ascent VP: (1) $ 129,523 ($22,620)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 5,079,318 (289,232)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,751,860 (257,828)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 77,190 (14,622)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 27,303,998 (1,392,329)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 591,905 (73,086)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 44,001 (8,540)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 940,509 (288,392)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 8,723 (5,056)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 298 (130)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,381,671 (281,139)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Growth Portfolio: 1,011,596 (128,591)
Policyholders' account values
- --------------------------------------------------------------------------------------------
High Income Portfolio: 0 (1,531)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Overseas Portfolio: 141,761 (22,734)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 329,918 (29,778)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,313,979 (283,258)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (142,378)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Balanced Portfolio: 709,668 (145,407)
Policyholders' account values
- --------------------------------------------------------------------------------------------
Growth Portfolio: 1,062,152 (162,916)
Policyholders' account values
- --------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1) $ 393,522 $ 353,120 $ 40,402
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 8,936,646 7,346,946 1,589,700
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 6,762,101 6,468,168 293,933
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 473,877 453,989 19,888
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 39,271,149 34,639,034 4,632,115
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 3,515,589 3,029,008 486,581
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 377,983 360,207 17,776
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 130,650,119 130,229,304 420,815
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 362,699 395,417 (32,718)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 44,207 44,499 (292)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 8,873,609 7,588,754 1,284,855
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,784,250 2,517,613 266,637
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
High Income Portfolio: 31,686 34,229 (2,543)
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Overseas Portfolio: 562,478 539,506 22,972
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,518,344 2,406,138 112,206
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 12,306,538 10,124,110 2,182,428
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 19,717,643 17,285,188 2,432,455
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Balanced Portfolio: 5,250,108 3,955,227 1,294,881
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio: 8,751,672 6,729,863 2,021,809
Policyholders' account values
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<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>
<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.
<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>
<PAGE>
Variable Life Account B
Notes to Financial Statements -- December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation
Period
Dividends Deductions
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Income Shares: 1,087,150 (148,230)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 372,968 (144,720)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 112,004 (11,360)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 45,840 (3,290)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 38,169 (3,596)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 77,848 (4,920)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 576,583 (128,523)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
American Century VP Capital Appreciation Fund: (2) 132,455 (57,820)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 1,485,715 (163,582)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Growth Portfolio: 192,233 (54,856)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Overseas Portfolio: 46,706 (8,253)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Contrafund Portfolio: 235,708 (110,146)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (95,697)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
Balanced Portfolio: 192,757 (52,872)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Proceeds Cost of Net
from Investments Realized
Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $11,219,896 $ 7,857,508 $3,362,388
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Income Shares: 2,358,910 2,406,924 (48,014)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 74,201,538 73,731,940 469,598
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 1,960,106 1,561,449 398,657
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,279,898 1,184,906 94,992
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 198,099 193,283 4,816
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 225,894 207,391 18,503
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 143,972 131,418 12,554
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 53,957,227 53,285,312 671,915
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation Fund: (2) 15,197,338 15,512,673 (315,335)
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 14,420,981 11,843,310 2,577,671
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio: 6,814,876 5,870,796 944,080
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio: 359,668 322,274 37,394
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 244,742 220,690 24,052
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 4,519,164 3,602,586 916,577
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 18,445,996 17,632,824 813,172
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,238,408 1,021,789 216,619
PolicyHolders' account values
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<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>
<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.
<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>
<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
