As filed with the Securities and Exchange Registration No. 333-15817
Commission on April 14, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 5 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, TS31, 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, TS31, Hartford, Connecticut 06l56
(Name and Complete Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 2000 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
N-8B-2
Item No. Part I - Prospectus
1 Cover Page; The Separate Account; The Company and Management
2 Cover Page; The Separate Account; The Company and Management
3 Not Applicable
4 Distribution of the Certificates
5 The Separate Account; The Company and Management
6 The Separate Account; The Company and Management
7 Not Applicable
8 Not Applicable
9 Additional Information - Legal Matters
10 The Separate Account; Certificate Rights; Certificate Choices;
Additional Information; Miscellaneous Certificate Provisions;
Termination or Change in Coverage; Allocation of Premiums -
Fund Additions, Deletions or Substitutions
11 Allocation of Premiums - The Funds
12 Allocation of Premiums - The Funds
13 Charges & Fees
14 Certificate Choices
15 Allocation of Premiums; Certificate Choices; Certificate Values
16 The Separate Account; Allocation of Premiums - The Funds;
Certificate Values
17 Certificate Rights
18 The Separate Account
19 Additional Information - Reports to Owners
20 Not Applicable
21 Certificate Rights - Certificate Loans
22 Not Applicable
<PAGE>
N-8B-2
Item No. Part I - Prospectus
23 The Company and Management
24 Not Applicable
25 The Company and Management
26 Not Applicable
27 The Company and Management
28 The Company and Management
29 The Company and Management
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Additional Information - State Regulation
36 Not Applicable
37 Not Applicable
38 Additional Information - Distribution of the Certificates
39 The Company and Management
40 Not Applicable
41 The Company and Management
42 Not Applicable
43 Not Applicable
44 Charges & Fees; Certificate Values
45 Not Applicable
46 The Separate Account; Certificate Values
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Cover Page; Certificate Choices
52 Allocation of Premiums - Fund Additions, Deletions or
Substitutions;
<PAGE>
N-8B-2
Item No. Part I - Prospectus
Termination or Change in Coverage
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements of Separate Account; Financial Statements
of Insurance Company
<PAGE>
Variable Life Account B
Aetna Life Insurance and Annuity Company (the "Company")
151 Farmington Avenue
Hartford, Connecticut 06156
(800)-677-4636
Prospectus Dated May 1, 2000
Flexible Premium Group Variable Universal Life Insurance for New York State
United Teachers Benefit Trust ("NYSUT Benefit Trust")
This Prospectus describes Certificates that provide life insurance coverage for
eligible Members of New York State United Teachers "NYSUT" and their spouses
and children. The Company issues the Certificates under a group Policy held by
NYSUT Benefit Trust.
The Certificates allow you to make flexible premium payments, as long as you
pay enough premiums to:
o cover charges; or
o qualify for the Certificate's No Lapse Coverage, which is available during
the first 5 years after the Certificate's issuance or after a coverage
increase.
You may choose (and later change) whether the amount of the Certificate's death
benefit coverage generally remains constant or varies with the Certificate's
account value. We pay the death benefit when the insured person dies. You also
may choose to (a) borrow from the Certificate; (b) surrender the Certificate in
whole or part; (c) increase or decrease insurance coverage; and (d) elect
certain optional supplemental benefits. These choices are subject to
limitations described in this Prospectus.
Your account value is the amount of Net Premiums you pay, increased (or
decreased) by the investment return (positive or negative) the Net Premiums
earn, less the charges described in this Prospectus. You decide whether your
account value is invested in Variable Life Account B under one or more Variable
Options, and/or in the Fixed Account. The account value you invest in each
Variable Option is not guaranteed and will vary with the investment performance
of an associated Fund. The attached Fund prospectuses provide detailed
information about these associated Funds.
The Variable Options are:
<TABLE>
<S> <C>
o Aetna Ascent VP o Janus Aspen Balanced Portfolio
o Aetna Balanced VP, Inc. o Janus Aspen Growth Portfolio
o Aetna Income Shares d/b/a Aetna Bond VP o Janus Aspen Worldwide Growth Portfolio
o Aetna Crossroads VP o Oppenheimer Global Securities Fund/VA
o Aetna Variable Fund d/b/a Aetna Growth and o Oppenheimer Strategic Bond Fund/VA
Income VP o Portfolio Partners, Inc. (PPI) MFS Capital
o Aetna Index Plus Large Cap VP Opportunities Portfolio (formerly PPI MFS Value Equity
o Aetna Legacy VP Portfolio)
o Aetna Variable Encore Fund d/b/a Aetna Money o Portfolio Partners, Inc. (PPI) MFS Emerging Equities
Market VP Portfolio
o Fidelity Variable Insurance Products Fund (VIP) o Portfolio Partners, Inc. (PPI) MFS Research Growth
Equity-Income Portfolio Portfolio
o Fidelity Variable Insurance Products Fund II o Portfolio Partners, Inc. (PPI) Scudder International
(VIP II)--Contrafund[RegTM] Portfolio Growth Portfolio
o Janus Aspen Aggressive Growth Portfolio o Portfolio Partners, Inc. (PPI) T. Rowe Price Growth
Equity Portfolio
</TABLE>
Net Premiums allocated to the Fixed Account earn fixed rates of interest. We
determine these rates periodically, but we guarantee that they will never be
less than 4% a year.
i
<PAGE>
Replacing existing insurance or supplementing an existing flexible premium
variable life insurance policy with a Certificate may not be in your best
interest. The Certificates have a "free look" period during which you may
return the Certificate to us for a refund. (See Right of Certificate
Examination.)
In certain circumstances, NYSUT Benefit Trust or the Company may terminate the
group Policy and outstanding Certificates (including your coverage) without
your consent. (See Termination or Change in Coverage.) Also, NYSUT Benefit
Trust, by agreement with the Company, may make changes in the Certificate (and
your coverage) without your consent. Your consent is required, however, if such
changes result in a reduction in benefits or an increase in guaranteed charges.
You should read the Prospectus and the attached prospectus for any available
Fund if you are considering buying a Certificate or exercising elections under
a Certificate. You should also keep them for future reference. You can obtain
any Fund's Statement of Additional Information ("SAI"), which provides more
information about a Fund, by calling (800) 677-4636.
Additional Disclosure Information. The SEC has not approved or disapproved
these securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Getting Additional Information. This Prospectus and other information about
Variable Life Account B required to be filed with the Securities and Exchange
Commission ("SEC") can be found on the EDGAR Database on the SEC's web site at
www.sec.gov or at the SEC Public Reference Room in Washington, DC. You may call
1-202-942-8090 to get information about the operations of the Public Reference
Room. You may obtain copies of reports and other information about the Variable
Life Account B and the Funds, after paying a duplicating fee, by sending an
E-mail request to [email protected] or by writing to the SEC Public Reference
Section, Washington, DC 20549-0102.
ii
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Definitions .......................................................... v
The Separate Account ................................................. 1
Charges & Fees ....................................................... 1
Premium Load ....................................................... 1
Charges and Fees Assessed Against the Total Account Value.......... 1
Monthly Deduction ................................................ 1
Cost of Insurance ................................................ 2
Certificate Fee .................................................. 2
Charges for Supplemental Benefits ................................ 2
Transfer and Partial Surrender Charges ........................... 2
Charges Assessed Against the Separate Account ...................... 3
Mortality and Expense Risk Charge ................................ 3
Charges Assessed Against the Underlying Funds ...................... 3
Allocation of Premiums ............................................... 5
The Funds .......................................................... 5
Mixed and Shared Funding; Conflicts of Interest .................... 7
Fund Additions, Deletions or Substitutions ......................... 7
Limits Imposed by the Funds ........................................ 7
Fixed Account ...................................................... 8
Certificate Choices .................................................. 9
Premium Payments ................................................... 9
Commencement of Coverage ........................................... 9
5-Year No Lapse Coverage Provision ................................. 10
Death Benefit Options .............................................. 10
Transfers .......................................................... 11
Telephone or Electronic Transfers .................................. 11
Transfer Limitations ............................................... 11
Automated Transfers (Dollar Cost Averaging) ........................ 12
Termination or Change in Coverage .................................... 13
Certificate Values ................................................... 15
Total Account Value ................................................ 15
Accumulation Unit Value ............................................ 15
Maturity Value ..................................................... 15
Certificate Rights ................................................... 16
Full Surrenders .................................................... 16
Partial Surrenders ................................................. 16
Paid-Up Nonforfeiture Option ....................................... 16
Grace Period ....................................................... 17
Reinstatement of a Lapsed Certificate .............................. 17
Certificate Loans .................................................. 18
Certificate Changes .................................................. 19
Increase in Specified Amount ....................................... 19
Decrease in Specified Amount ....................................... 19
Change in Death Benefit Option ..................................... 19
Right of Certificate Examination ................................... 20
Supplemental Benefits .............................................. 20
Certificate Settlement ............................................... 20
Settlement Options ................................................. 21
Calculation of Variable Payment Settlement Option Values ........... 22
The Company and Management ........................................... 22
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Additional Information ............................................ 26
Reports to Owners ............................................... 26
Right to Instruct Voting of Fund Shares ......................... 26
State Regulation ................................................ 26
Legal Matters and Proceedings ................................... 26
The Registration Statement ...................................... 27
Distribution of the Certificates ................................ 27
Independent Auditors ............................................ 27
Tax Matters ....................................................... 28
Federal Tax Status of the Company ............................... 28
Life Insurance Qualification .................................... 28
General Rules ................................................... 29
Modified Endowment Contracts .................................... 29
Diversification Standards ....................................... 30
Investor Control ................................................ 30
Withholding ..................................................... 30
Other Tax Considerations ........................................ 30
Miscellaneous Certificate Provisions .............................. 31
The Certificates ................................................ 31
Payment and Deferral of Benefits ................................ 31
Suicide and Incontestability .................................... 31
Protection of Proceeds .......................................... 32
Nonparticipation ................................................ 32
Changes in Owner and Beneficiary; Assignment .................... 32
Performance Reporting and Advertising ........................... 32
Illustrations of Death Benefit and Total Account Values......... 32
</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 Certificates is to provide insurance protection. Life
insurance is a long-term investment. Owners should consider their need for
insurance coverage and the Certificates' long-term investment potential. We do
not claim that the Certificates are in any way similar or comparable to an
investment in a mutual fund.
iv
<PAGE>
Definitions
Accumulation Unit: A unit used to measure the value of the Owner's interest in
each applicable Variable Option.
Attained Age: An Insured's age (as of his or her closest birthday) nearest the
Certificate Issue Date, plus the number of full Certificate Years elapsed.
Amount at Risk: The Death Benefit under a Certificate divided by 1.0032737,
minus the Certificate's Total Account Value.
Annuitant: A person whose life determines the amount of life contingent annuity
payments.
Annuity: A series of payments for life or for a definite period.
Basic Monthly Premium: The minimum amount of premium that you must pay to keep
the 5-year No Lapse Coverage in effect, assuming there have been no Certificate
Loans or Partial Surrenders.
Certificate Loan: The amount received by borrowing from the Total Account
Value.
Certificate Year/Certificate Anniversary: The first Certificate Year is the
12-month period beginning on the Issue Date of the Certificate. Your
Certificate Anniversary is the Certificate Issue Date plus 1 year, 2 years,
etc.
Company: Aetna Life Insurance and Annuity Company.
Cost of Insurance: A monthly charge related to the Company's expected mortality
cost for an Insured's basic insurance coverage under a Certificate. This charge
does not include any supplemental benefit provisions that you elect through a
Certificate rider. The charge is equal to the Amount at Risk for the Insured on
the Monthly Deduction Day, multiplied by that Insured's monthly Cost of
Insurance rate.
Death Benefit: The amount we pay following an Insured's death. We describe this
payment in the Death Benefit Options section. Payment of the Death Benefit is
subject to all provisions contained in the Certificate.
Death Benefit Option: Either of the two methods that you may elect for
determining a Death Benefit.
Fixed Account: A non-variable funding option available under the Certificates
that guarantees a minimum interest rate of 4% per year.
Fixed Account Value: The portion of a Certificate's Total Account Value held in
the Fixed Account. The Fixed Account Value is part of the general assets of the
Company.
Full Surrender: Your right to terminate a Certificate in exchange for payment
of its Surrender Value.
Fund(s): One or more of the mutual funds (open-end management investment
companies or a separate series thereof) available under the Certificate. Our
Separate Account purchases shares of the Funds to fund the benefits provided by
the Certificates.
v
<PAGE>
Grace Period: The 61-day period beginning on any Monthly Deduction Day on which
a Certificate's Surrender Value is insufficient to cover the current Monthly
Deduction. A similar Grace Period also applies if the amount of any loan and
any accrued loan interest exceeds the Total Account Value. The Certificate will
lapse without value at the end of the Grace Period unless a sufficient payment
is received by the Company or unless the 5-year No Lapse Coverage is in effect.
Home Office: The Company's principal executive offices at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Insured: The person on whose life a Certificate is issued. For initial or
continued coverage, an Insured must be (a) a Member or (b) an Insured Member's
spouse. However, we do not offer coverage for an Insured Member's spouse if the
spouse's Attained Age is 80 or older at the Issue Date of the spouse's
Certificate.
Issue Date: The Issue Date for a Certificate, or for a Specified Amount
increase, is stated in the Certificate Specifications or Supplemental
Certificate Specifications in your Certificate.
Loan Account Value: The sum of all unpaid Certificate Loans. To repay
Certificate Loans in full, you must pay the Loan Account Value plus any accrued
interest.
Loan Value: 90% of the Total Account Value of a Certificate.
Maturity Date: The Certificate Anniversary on which the Insured's Attained Age
is 100.
Member: An eligible member of NYSUT or a NYSUT agency fee payer.
Monthly Deduction: A monthly charge assessed against the Total Account Value.
The Monthly Deduction includes the Cost of Insurance, the Certificate fee and
any charges for supplemental benefit riders.
Monthly Deduction Day: The first Monthly Deduction Day is the Issue Date.
Monthly Deduction Days occur each month thereafter on the same day as the Issue
Date of the Certificate.
Net Premium: The Net Premium equals the amount of the premium you pay less the
then-current Premium Load deduction.
Net Single Premium: The amount required to purchase a guaranteed benefit (using
the Insured's Age and premium class) if the Net Premium is allocated to the
Fixed Account. The Net Single Premium is determined using a guaranteed interest
rate of 4% per year and the Certificate's guaranteed maximum Cost of Insurance
rates.
No Lapse Coverage: A provision in the Certificate providing that, if at least
the Basic Monthly Premiums are paid, a Certificate will remain in force for a
period of at least 5 years beginning on the (a) Issue Date or (b) the Issue
Date of an increase in Specified Amount. Under this provision, the Certificate
remains in force even if the Surrender Value is insufficient to pay the current
Monthly Deduction.
Owner: The person to whom a Certificate is issued. The Owner is entitled to
exercise all rights under the Certificate, and is also referred to as "you."
Unless otherwise specified in the Certificate or application form, the
Certificate is owned by the Insured.
Partial Surrender: The amount you receive in cash by surrendering a part of a
Certificate.
vi
<PAGE>
Planned Premiums: Premiums we agree to bill.
Policy: The group life insurance contract owned by NYSUT Benefit Trust,
pursuant to which the Certificates are issued. The Certificates are subject to
the terms of the Policy.
Pro-Rata Basis: In the same proportion that each of the Variable Options and
the Fixed Account Value under a Certificate bear to the sum of Certificate's
Separate Account Value and Fixed Account Value.
SEC: Securities and Exchange Commission.
Separate Account: A separate account maintained by the Company for the purpose
of funding the Certificates; Variable Life Account B.
Separate Account Value: The portion of a Certificate's Total Account Value
attributable to the variable portion of the Certificate. The variable portion
of the Certificate includes all amounts held in one or more of the Variable
Options.
Settlement Option(s): The method(s) by which payment may be made (a) from a
Death Benefit, (b) at the Maturity Date, or (c) at the Full Surrender of a
Certificate.
Specified Amount: The amount chosen by the Owner at enrollment that is used in
determining the Death Benefit. The Owner may increase or decrease the Specified
Amount as described in this Prospectus.
Surrender Value: The Total Account Value on the date of surrender, less (a) the
Loan Account Value and (b) any accrued interest.
Total Account Value: The sum of the (a) Fixed Account Value, the (b) Separate
Account Value and the (c) Loan Account Value.
Valuation Date: The date and time when we calculate the Accumulation Unit Value
of a Variable Option. Currently, this calculation occurs after the close of
business of the New York Stock Exchange on any normal business day, Monday
through Friday, that the New York Stock Exchange is open.
Valuation Period: The period of time between successive Valuation Dates.
Variable Option: One or more of the variable funding options available under
the Certificate as described in this Prospectus.
we, our, us, Company: Aetna Life Insurance and Annuity Company.
Written Request: A request in writing, in a form satisfactory to us and
received by us at the Home Office.
you, your: The person entitled to purchase or exercise any rights or privileges
under a Certificate or a Settlement Option. This is generally the Owner (or,
during a Settlement Option, the payee).
vii
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
The Separate Account
Our 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
Certificates. 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's assets to satisfy the claims of the Certificate 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 Certificates
with respect to the Separate Account. The Company is responsible for meeting
all obligations to Owners under the Certificates.
The Separate Account is registered with the SEC 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
SEC of the Separate Account or the Company's management or investment practices
or policies. The Company does not guarantee the Separate Account's investment
performance.
Charges & Fees
Premium Load
We deduct a charge equal to 8% of the premium before the premium is allocated
to the Certificate's Total Account Value. We use the proceeds of this charge to
cover certain expenses and taxes associated with the sales, start-up and
maintenance of the Certificates. We reserve the right to increase this charge
to not more than 10% under both new and previously-issued Certificates.
Charges and Fees Assessed Against the Total Account Value
When we assess charges and fees against the Total Account Value, we deduct them
from each of a Certificate's Variable Options and the Fixed Account Value on a
Pro Rata Basis. This means we deduct charges in proportion to the amount of
Total Account Value you then have in each of the investment options.
Monthly Deduction. The Monthly Deduction includes the Cost of Insurance, a
Certificate fee, and any charges for supplemental benefits. We deduct the first
Monthly Deduction on the Issue Date, even if the Issue Date is earlier than the
date the application form for a Certificate is signed. Monthly Deductions then
occur on each Monthly Deduction Day thereafter. If the Certificate's issuance
is delayed due to underwriting requirements, we will not assess charges until
we complete the underwriting and approve the application for the Certificate.
For a discussion of when insurance coverage and investment performance commence
under a Certificate, see Commencement of Coverage.
1
<PAGE>
Cost of Insurance. The Cost of Insurance charge is based on (a) the cost of our
base insurance rates under a Certificate and (b) our Amount at Risk, on the
date of the deduction. (Base insurance rates do not include any supplemental
benefits you elect through a Certificate rider.)
The Cost of Insurance charge is equal to (a) the Certificate's Amount at Risk
on the Monthly Deduction Day, (b) multiplied by a monthly Cost of Insurance
rate. Our Amount at Risk at any time is approximately the difference between
the Certificate's then-applicable Death Benefit and its Total Account Value. An
increase in the Total Account Value or a decrease in the Death Benefit will
result in a smaller Cost of Insurance charge. A decrease in the Total Account
Value or an increase in the Death Benefit will result in a larger Cost of
Insurance charge.
The Cost of Insurance rate generally increases over the life of a Certificate.
The rate is based on the Insured's Attained Age and risk class. The Cost of
Insurance rates for "standard risk" Insureds will not exceed those based on a
50% male/50% female blend under the 1980 Commissioners Standard Ordinary
Mortality Table, smoker or non-smoker (1980 Tables). "Substandard risk"
Insureds have monthly deductions based on Cost of Insurance rates that may be
higher than those in the 1980 Tables. A table of guaranteed maximum Cost of
Insurance rates per $1,000 of the Amount at Risk is included in each
Certificate. We may adjust the monthly Cost of Insurance rates from time to
time, but they will never exceed the applicable guaranteed maximum rates.
Current cost of insurance rates are generally lowest for Certificates having
Specified Amounts of at least $250,000. We expect to review our current cost of
insurance rates at least annually in light of the actual mortality experience
of participants under the NYSUT Benefit Trust group Policy. In many cases, we
expect that these periodic reviews will result in upward or downward revisions
to the current Cost of Insurance rates. These rate revisions will apply both to
previously and subsequently-issued Certificates. We use the same Cost of
Insurance rates for male and female insureds. Our rates will generally be lower
for non-smokers than for smokers. We also offer preferred Cost of Insurance
rates for both smokers and non-smokers who meet more stringent requirements
than do standard risk smokers and non-smokers, respectively. If an Insured
classified "smoker" changes his or her smoking habits so as to fall within our
non-smoker category, he or she may make a Written Request for reclassification
after the first Certificate Year.
We base Cost of Insurance rates for an increase in Specified Amount on the
Insured's risk class at the time of the increase. You must provide evidence of
insurability.
Certificate Fee. The Monthly Deduction also includes a Certificate fee of $14 a
month during the first Certificate Year, or the first year of an increase in
Specified Amount. This fee starts on the Issue Date of the Certificate and the
date of the increase. The Certificate fee then drops to $6 a month. We use the
proceeds of this charge for administrative expenses, such as risk underwriting
and Certificate issuance, premium billing and collection, Certificate value
calculation, confirmation of Certificate transactions, and periodic reports to
Owners. We reserve the right to raise this charge, both for new and
previously-issued Certificates. The maximum charge is $19 a month during the
first Certificate Year (whether from the Issue Date of the Certificate or after
an increase in Specified Amount) and $11 a month thereafter. We do not expect
the monthly Certificate fee to exceed our actual annual administrative costs
over time.
Charges for Supplemental Benefits. The Monthly Deduction includes a
supplemental benefits charge if you elect any supplemental benefits. (You may
elect supplemental benefits by adding riders to the Certificate.) The amount of
this charge varies depending on the riders you select. The charge is described
in each applicable Certificate rider.
Transfer and Partial Surrender Charges. We reserve the right to charge an
administrative fee of up to $25 for each transfer between investment options in
excess of 12 transfers per year. For Partial Surrenders, we reserve the right
to charge an administrative fee of $25 or, if less, 2% of the surrender amount.
We are not currently assessing this charge.
2
<PAGE>
Charges Assessed Against the Separate Account
Mortality and Expense Risk Charge. We deduct a mortality and expense risk
charge from the Separate Account Value. This charge compensates the Company for
the aggregate mortality and expense risk assumed in connection with the
Certificates. The mortality risk assumed by the Company is that Insureds, as a
group, may live for a shorter period of time than estimated. If so, the Company
could end up paying more in Death Benefits than it collects with Cost of
Insurance charges. The expense risk assumed is that the expenses incurred (a)
issuing and administering the Certificates and (b) operating the Separate
Account will be greater than the administrative charges that the Company can
impose for such expenses. We expect to earn a profit from this charge.
The mortality and expense risk charge currently equals an annual rate of 0.85%
of the average daily net assets of the Separate Account during the first 10
Certificate years, and 0% thereafter. This charge is deducted daily. Because we
first offered the Certificates for sale in 1997, the planned reduction after
the tenth year is not yet in effect for any outstanding Certificate. The
Company reserves the right to increase or decrease the rate or period of the
mortality and expense risk charge, if it believes that circumstances have
changed so that current charges are no longer appropriate. However, we
guarantee that the annual rate of this charge will never exceed (a) 1.25%
during the first 10 Certificate years or (b) 0.40% thereafter.
The Separate Account currently is not subject to any taxes. However, if taxes
are assessed against the Separate Account, we reserve the right to assess the
amount of the taxes against the Separate Account Value.
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. These amounts are based on figures for the year ended December 31,
1999, unless otherwise indicated:
<TABLE>
<CAPTION>
Total Fund
Annual Net Fund
Expenses Annual Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fees(1) Expenses Reductions Reductions Reductions
------------ ---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2) 0.60% 0.14% 0.74% 0.00% 0.74%
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Crossroads VP(2) 0.60% 0.14% 0.74% 0.04% 0.70%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna Legacy VP(2) 0.60% 0.15% 0.75% 0.10% 0.65%
Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Fidelity VIP Equity-Income Portfolio(3) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP II Contrafund[RegTM] Portfolio(3) 0.58% 0.09% 0.67% -- 0.67%
Janus Aspen Aggressive Growth Portfolio(4) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Balanced Portfolio(4) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Growth Portfolio(4) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(4) 0.65% 0.05% 0.70% 0.00% 0.70%
Oppenheimer Global Securities Fund/VA 0.67% 0.02% 0.69% -- 0.69%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(5) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(5) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(5) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(5) 0.80% 0.20% 1.00% 0.00% 1.00%
PPI T. Rowe Price Growth Equity Portfolio(5) 0.60% 0.15% 0.75% 0.00% 0.75%
</TABLE>
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(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 Investment Advisory Fees and are not charged to investors.
(2) The investment adviser is contractually obligated through December 31, 2000
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 fund's "Total Fund Annual Expenses
Without Waivers or Reductions" do not exceed the percentage reflected
under "Net Fund Annual Expenses After Waivers or Reductions."
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain
funds', or the investment adviser on behalf of certain funds', custodian,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. These credits are not
included under Total Waivers and Reductions. If these credits had been
included, the amounts shown under Net Fund Annual Expenses After Waivers
or Reductions presented in the table would have been 0.56% for Fidelity
VIP Equity-Income Portfolio; and 0.65% for Fidelity VIP II
Contrafund[RegTM] Portfolio.
(4) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of expense offset arrangements.
(5) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2001, 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.
4
<PAGE>
Allocation of Premiums
You may allocate all or a part of your Net Premiums to the Funds currently
available through the Separate Account under your Certificate. You also may
allocate all or a part of your Net Premiums to the Fixed Account.
The Funds
The investment objectives of the Funds are described below. 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 institution, 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 Home Office at the
address and phone number listed on the cover page of the Prospectus, or by
contacting the SEC at its web site, or by contacting the SEC Public Reference
Room.
o Aetna Balanced VP, Inc. seeks to maximize investment return, consistent with
reasonable safety of principal by investing in a diversified portfolio of
one or more of the following asset classes: stocks, bonds, and cash
equivalents, based on the investment adviser's judgment of which of those
sectors or mix thereof offers the best investment prospects.(1)
o Aetna Income Shares d/b/a Aetna Bond VP seeks to maximize total return,
consistent with reasonable risk, through investments in a diversified
portfolio consisting primarily of debt securities. It is anticipated that
capital appreciation and investment income will both be major factors in
achieving total return.(1)
o Aetna Variable Fund d/b/a Aetna Growth and Income VP seeks to maximize total
return through investments in a diversified portfolio of common stocks and
securities convertible into common stock. It is anticipated that capital
appreciation and investment income will both be major factors in achieving
total return.(1)
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP seeks to provide high
current return, consistent with preservation of capital and liquidity,
through investment in high-quality money market instruments. An investment
in the fund is neither insured nor guaranteed by the U.S. Government.(1)
o Aetna Generation Portfolios, Inc.--Aetna Ascent VP seeks to provide capital
appreciation. The Portfolio is managed for investors who generally have an
investment horizon exceeding 15 years and who have a high level of risk
tolerance.(1)
o Aetna Generation Portfolios, Inc.--Aetna Crossroads VP seeks to provide total
return (i.e., income and capital appreciation, both realized and
unrealized). The Portfolio is managed for investors who generally have an
investment horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
o Aetna Generation Portfolios, Inc.--Aetna Legacy VP seeks to provide total
return consistent with preservation of capital. The Portfolio is managed for
investors who generally have an investment horizon exceeding five years and
who have a low level of risk tolerance.(1)
o Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP seeks to
outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.(1)
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<PAGE>
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 II--Contrafund[RegTM] 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)(a)
o Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified portfolio
that seeks long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in common stocks selected for their growth
potential, and normally invests at least 50% of its equity assets in
medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies
in the S&P MidCap 400 Index. Market capitalization is a commonly used measure
of the size and value of a company. The market capitalizations within the
Index will vary, but as of December 31, 1999, they ranged from approximately
$170 million to $37 billion.(3)
o Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by normally investing 40%-60% of
its assets in securities selected primarily for their growth potential and
40%-60% of its assets in securities selected primarily for their income
potential. This Portfolio normally invests at least 25% of its assets in
fixed-income securities.(3)
o Janus Aspen Series--Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues
its investment objective by investing primarily in common stocks selected
for their growth potential. Although the Portfolio can invest in companies
of any size, it generally invests in larger, more established issuers.(3)
o Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital. The
Portfolio pursues its investment objective by investing primarily in common
stocks of companies of any size throughout the world. The Portfolio normally
invests in issuers from at least five different countries, including the
United States. The Portfolio may at times invest in fewer than five
countries or even a single country.(3)
o Oppenheimer Global Securities Fund/VA seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign
issuers, "growth-type" companies, cyclical industries, and special
situations which are considered to have appreciation possibilities.(4)
o Oppenheimer Strategic Bond Fund/VA seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance
such income by writing covered call options on debt securities.(4)
o Portfolio Partners, Inc. (PPI)--MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio) seeks capital appreciation.(5)(a)
o Portfolio Partners, Inc. (PPI)--MFS Emerging Equities Portfolio seeks
long-term growth of capital.(5)(a)
o Portfolio Partners, Inc. (PPI)--MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(5)(a)
o Portfolio Partners, Inc. (PPI)--Scudder International Growth Portfolio seeks
long-term growth of capital.(5)(b)
o Portfolio Partners, Inc. (PPI)--T. Rowe Price Growth Equity Portfolio seeks
long-term capital growth, and secondarily, increasing dividend income.(5)(c)
6
<PAGE>
Investment Adviser:
(1)Investment Adviser: Aeltus Investment Management, Inc.
(2)Investment Adviser: Fidelity Management & Research Company
(a)Fidelity Management & Research (U.K.) Inc. (subadviser)
Fidelity Management & Research Far East Inc. (subadviser)
Fidelity Investments Japan Limited (subadviser)
(3)Investment Adviser: Janus Capital Corporation
(4)Investment Adviser: OppenheimerFunds, Inc.
(5)Investment Adviser: Aetna Life Insurance and Annuity Company
(a)Massachusetts Financial Services Company (subadviser)
(b)Scudder Kemper Investments, Inc. (subadviser)
(c)T. Rowe Price Associates, Inc. (subadviser)
Mixed and Shared Funding; Conflicts of Interest
The Funds only sell shares to separate accounts of insurance companies that may
or may not be affiliated with the Company. These separate accounts may fund
variable annuity contracts or variable life insurance policies, such as the
Certificates described in this Prospectus. We currently do not foresee any
disadvantages to you arising out of this. Nevertheless, differences in
treatment under tax and other laws, as well as other considerations, could
cause the interests of various contract owners to conflict. For example,
violation of the federal tax laws by one separate account investing in the
Funds could cause the contracts funded through another separate account to lose
their tax-deferred status, unless remedial action were taken. However, each
Fund has advised us that its board of trustees (or directors) intends to
monitor events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that a Fund's response to any such event insufficiently
protects Certificate holders, we will see to it that appropriate action to
protect is taken. If it becomes necessary for any separate account to replace
shares of any Fund in which it invests, that Fund may have to liquidate
securities in its portfolio on a disadvantageous basis.
Fund Additions, Deletions or Substitutions
Orders for the purchase of Fund shares may be subject to acceptance by the
Fund. The Company may add additional Funds as investment options under your
Certificate at any time. The Company also has the right to replace shares of a
Fund with shares of another Fund if the Company believes that the Fund is no
longer appropriate as an investment option under the Certificate. The Company
may also stop accepting premium allocations to a Fund at any time. If the
Company stops accepting premium allocations to a Fund, and shares of that Fund
are not replaced with shares of another Fund, amounts you have deposited in
that Fund could stay in the Fund. Also, any dividends or capital gains earned
on that Fund could be reinvested in the Fund. To do any of these actions, the
Company must comply with (a) the terms of the 1940 Act and (b) any insurance
laws or regulations applicable at the time. The Company will provide notice to
you before replacing a Fund or closing a Fund to new payments. The Company will
also provide notice about any new Fund that is added.
Limits Imposed by the Funds
Orders for the purchase of shares of a Fund may be subject to acceptance by the
Fund. We reserve the right to reject, without prior notice, any transfer
request directed to a particular Fund if the Separate Account's investment in
that Fund is not accepted by the Fund for any reason.
7
<PAGE>
Fixed Account
The Company has not registered interests in the Fixed Account with the SEC,
based on an exclusion under the Securities Act of 1933. The SEC has not
reviewed the disclosures in this Prospectus relating to the Fixed Account.
These disclosures, however, may be subject to certain anti-fraud provisions of
the federal securities laws relating to the accuracy and completeness of the
statements. The Fixed Account available under the Certificates is a fixed
funding option. We credit interest on amounts in the Fixed Account (the Fixed
Account Value) at rates that we declare from time to time. We determine these
rates in our sole discretion. We guarantee a 4% minimum annual interest rate,
compounded monthly. Current interest rates may also vary depending on when you
allocate an amount to the Fixed Account.
The Fixed Account is supported by the general assets of the Company. The
general assets of the Company include all assets of the Company except those
held in legally-segregated separate accounts sponsored by the Company or its
affiliates. The Company invests the assets attributable to the Fixed Account in
investments chosen by the Company, as applicable law permits. Fixed Account
assets and investments, and any investment income they generate, are solely the
property of the Company.
8
<PAGE>
Certificate Choices
Premium Payments
The Certificates are flexible premium variable universal life insurance. This
means that you have the right to decide, within certain limits,
o when to make premium payments; and
o the amount of the payments.
Each Certificate specifies Planned Premiums and Basic Monthly Premiums. If you
fail to pay your premiums, your Certificate may not remain in force (lapse).
However, payment of Planned or Basic Monthly Premiums does not guarantee that
your Certificate will remain in force. Your Certificate remains in force only
as long as (a) your Surrender Value is adequate to cover the Monthly Deductions
under the Certificate or (b) you have made enough premium payments to keep the
5-year No Lapse Coverage provision of your Certificate in effect. (See No Lapse
Coverage.) Your Surrender Value is increased by your premium payments and any
positive investment returns they generate. Your Surrender Value is decreased by
the charges we deduct, and any negative investment returns you experience.
Planned Premiums are those premiums you request and we agree to bill on an
annual, semiannual, quarterly or other periodic basis. You can also arrange
pre-authorized automatic monthly check payments, or salary or pension deduction
arrangements through the Member's employer. You may change your Planned Premium
at any time by submitting a Written Request to us. Premiums paid by payroll
deduction are generally forwarded by your employer to NYSUT Benefit Trust,
which forwards them to us. We are not responsible for errors and delays caused
by, or other conduct of, your employer or NYSUT Benefit Trust.
We may require evidence of insurability if payment of any premium would
increase the difference between the Death Benefit and the Total Account Value
(thus increasing our Amount at Risk). If you fail to provide satisfactory
evidence of insurability, we will refund the refused premium.
We may also refuse to accept any premium payment (other than one required to
keep a Certificate in force) if it would cause the Certificate to fail to be
treated as life insurance for federal income tax purposes. Additionally, if you
pay premiums in excess of the Planned Premium, or increase your Planned Premium
too much, you may cause the Certificate to be classified as a "Modified
Endowment Contract" for federal income tax purposes. (See Tax Matters.) In that
case, we will notify you and, if you wish to avoid Modified Endowment Contract
status, we will refund the excess premium.
When we refuse or refund excess premiums, we do not (a) pay interest on the
premiums or (b) increase or decrease the premiums to give effect to their
investment in the Funds.
Commencement of Coverage
The insurance coverage under a Certificate starts when:
o we approve the insurance based on the application and any other information
required to be submitted by the Insured;
o we or our representative receives at least the first Basic Monthly Premium;
and
o the Insured is eligible for coverage.
9
<PAGE>
Therefore, coverage may not commence until some time after you submit an
application for a Certificate. We may offer immediate temporary fixed insurance
coverage. This coverage may be available if, with your application (a) you
submit at least the full first Basic Monthly Premium for the billing frequency,
or a completed Payroll Deduction Authorization, and (b) certain other
requirements are met. For more information about the availability, terms and
conditions of this coverage, you should consult your Aetna representative, who
can also provide you with a copy of our conditional receipt.
The Issue Date of a Certificate is generally the date that we approve a
Certificate. You may request that we backdate a Certificate. We may grant this
request, under limited circumstances, by assigning an Issue Date that is up to
6 months earlier than otherwise would apply. You may desire backdating, for
example, so that you can purchase coverage at lower Cost of Insurance rates
based on a younger insurance age. For a backdated Certificate, you must pay the
cost of insurance and other charges from the requested Issue Date to the Issue
Date that would have applied without backdating. Of course, because the
Certificate was not in effect prior to the original Issue Date, you would not
receive insurance coverage or be credited with interest or investment return
for periods prior to the original Issue Date of your Certificate.
Your initial premium payment starts earning a return in the Separate Account or
the Fixed Account on the later of the (a) Issue Date of the Certificate or (b)
the date that we receive at least the first Basic Monthly Premium at our Home
Office. After the first premium payment, you must send all premiums to our Home
Office. We deem all premiums, except the first one, received when we actually
receive them at the Home Office, together with any identifying information we
require from the Member's employer or NYSUT Benefit Trust. We allocate your
premium payment as you direct, effective at the end of the Valuation Period in
which we receive the payment.
You may reallocate your future premium payments at any time. You must use whole
percentages when changing allocations. We effect the change with the next
premium payment after we receive your request. We will send you confirmation of
the change. (See Transfers.)
5-Year No Lapse Coverage Provision
Your Certificate includes a 5-year No Lapse Coverage Provision. If you pay the
specified amount of premiums, this provision provides that during the 5-year
period after either the (a) Issue Date or (b) the Issue Date of any Specified
Amount increase, your Certificate will not enter a Grace Period--and therefore
will not terminate. We calculate the specified amount of premiums you must pay
as follows: the sum of premiums paid within the 5-year period must equal or
exceed (a) the sum of the Basic Monthly Premiums for each Certificate Month
from the start of the period, including the current month; plus (b) any Partial
Surrenders since the start of the period; plus (c) any increase in the Loan
Account Value since the start of the period.
The 5-year No Lapse Coverage Provision is lost if (a) you have not paid the
specified amount of premiums on any Monthly Deduction Day within the applicable
5-year period, and (b) the Surrender Value of your Certificate is less than the
Monthly Deduction for that day. This means that the Certificate will enter the
Grace Period. You must then make additional premium payments to prevent the
termination of the Certificate. (See Grace Period.)
While your Certificate is operating under the 5-year No Lapse Coverage
Provision, we keep track of the amount of all Monthly Deductions that we do not
collect. When you pay Net Premiums at a later date, we deduct these uncollected
amounts from any Surrender Value created by your Net Premium payments.
Your Certificate's 5-year No Lapse Coverage Provision no longer operates at the
end of the applicable 5-year period. At that time your Certificate may lapse
unless you pay sufficient premiums to permit us to collect the full amount of
previously uncollected Monthly Deductions, if any. (See Grace Period.)
Death Benefit Options
At the time of enrollment, you must choose between the two available Death
Benefit Options.
Under Option 1, the Death Benefit will be the greater of: (a) the Specified
Amount or (b) the applicable percentage
10
<PAGE>
of the Total Account Value. The applicable percentage is 250% through age 40,
and decreases yearly to 100% at age 95. Option 1 generally provides a level
Death Benefit.
Under Option 2, the Death Benefit will be the greater of: (a) the Specified
Amount plus the Total Account Value or (b) the applicable percentage (described
above) of the Total Account Value. Option 2 provides a varying Death Benefit
which increases or decreases over time, depending upon the amount of premiums
paid and the investment performance of the Fund(s) you choose.
We calculate the Death Benefit payable under either Option as of the date of
death of the Insured. We reduce the Death Benefit by (a) the amount necessary
to repay any Loan Account Value in full, with all accrued interest; (b) if the
Certificate is within the Grace Period, the amount required to keep the
Certificate in force through the date of death; and (c) the amount of any other
Monthly Deductions that we were unable to collect. (See 5-year No Lapse
Coverage Provision.)
Transfers
You may transfer all or part of your Separate Account Value in any Variable
Option to any other Variable Option or to the Fixed Account. You must make all
transfers before the Certificate's Maturity Date. We reserve the right to (a)
charge an administrative fee of $25 for each transfer over 12 per year and (b)
limit the total number of Variable Options you may elect over the lifetime of
the Certificate.
You may also request a transfer of a portion of the Fixed Account Value to one
or more of the Variable Options. You must make this request within the 45-day
period following a Certificate Anniversary. We allow this type of transfer only
once within this 45-day period, and we must receive your request at the Home
Office within the 45-day period. We effect the transfer at the end of the
Valuation Period in which we receive your request at our Home Office. The
amount of any such transfer cannot exceed the greater of 25% of the Fixed
Account Value or $500.
Telephone or Electronic Transfers
You may request a transfer of account values by Written Request (as set forth
above), telephone, or electronically, where available (for example, through the
Internet). All transfers must comply with the terms of the Certificate.
We currently accept transfer instructions on each Valuation Date. Once we
accept instructions, you may not rescind them. You may give new telephone or
electronic instructions, however, on the following day. The Company will not
execute a transfer if the transfer instructions are not in good order. The
Company will notify you in this event.
We will use reasonable procedures, such as (a) requiring identifying
information, (b) recording telephone or electronic instructions, and (c)
providing written confirmation of transactions, in order to confirm that
telephone instructions are genuine. You are responsible for the results of any
telephone or electronic instructions that we reasonably believe to be genuine,
even if losses result from errors in the communication of instructions. As a
result of this procedure, the Owner will bear the risk of loss. If the Company
does not use reasonable procedures, as described above, we may be liable for
losses that result from any unauthorized instructions.
Transfer Limitations
The Certificate 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.
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
Owners. Such restrictions could include: (a) Not accepting transfer
instructions from an agent acting on behalf of more than one Owner; and (b) not
accepting preauthorized transfer forms from market timers or other entities
acting on behalf of more than one Owner at a time.
11
<PAGE>
We further reserve the right to impose, without prior notice, restrictions on
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other Owners.
Automated Transfers (Dollar Cost Averaging)
Dollar Cost Averaging describes an automated system of investing the same
amount of money at regular intervals over a period of time. Dollar Cost
Averaging is based on the principle that acquiring Accumulation Units with the
same amount of money at fixed intervals results in acquiring more units when
prices are low and fewer units when prices are high.
You may establish a Dollar Cost Averaging program for either a 1, 2 or 3 year
period. Under your program, you may make automated transfers of amounts on a
monthly or quarterly basis. You may transfer amounts from the Aetna Money
Market VP Fund Variable Option to any other Variable Option through a Written
Request or other method acceptable to the Company. We do not permit Dollar Cost
Averaging to or from the Fixed Account. You must have a minimum of $5,000
allocated to the Aetna Money Market VP Variable Option in order to enroll in
the Dollar Cost Averaging program. The minimum automated transfer amount is $50
per month. There is no additional charge for this program. You may start or
stop participation in the Dollar Cost Averaging program at any time, but you
must give the Company at least 30 days' notice to change any automated transfer
instructions that are currently in place. We include automated transfers when
we determine the number of charge-free transfers that you can make. The Company
reserves the right to suspend or modify automated transfer privileges at any
time.
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<PAGE>
Termination or Change in Coverage
Your Certificate, and all coverage thereunder, may be terminated without your
consent if any of the following occur. Your Certificate could be terminated
even if your Certificate's 5-year No Lapse Coverage is still in effect, and
even if you have paid enough premiums to prevent your Certificate from lapsing.
(1) NYSUT may notify the Company that NYSUT wishes to terminate the group
Policy. NYSUT Benefit Trust has agreed to provide each Insured with advance
notice of Policy cancellation or discontinuance. NYSUT Benefit Trust must mail
or deliver the notice to the Insured at the last known address of record at
least 15 days before the effective date of the Policy cancellation or
discontinuance. Prior to the termination date, you could exercise your rights
to make a Full Surrender or to convert your Certificate to paid-up fixed life
insurance. (See Paid-Up Nonforfeiture Option.)
(2) We may terminate the group Policy, and your Certificate, if NYSUT Benefit
Trust stops sending payroll deduction premiums to us. In this event, we could
terminate the group Policy and your Certificate regardless of (a) whether you
paid premiums for your Certificate by payroll deduction, (b) the amount of
premium you paid, or (c) the available Surrender Value under your Certificate.
Prior to any termination, we would provide NYSUT Benefit Trust with an
opportunity to cure the problem in accordance with the terms of the group
Policy.
(3) We also will terminate your Certificate immediately when the Insured ceases
to be within at least one of the categories of persons that is eligible for
coverage under a Certificate. Those eligibility requirements are set forth
above under Definitions--Insured. A non-member Insured who (a) is eligible only
as the spouse of an Insured Member and (b) loses eligibility may elect to
become a Member within 31 days after loss of eligibility. In this event, we
will continue the Certificate uninterrupted. We must receive notice of your
election at the Home Office within the 31-day period. Otherwise, we will pay
you the Certificate's Surrender Value that we calculate at the end of the last
Valuation Period during which the Certificate was in force.
If your Certificate terminates for one of the above reasons, you have the
option of converting your coverage to an individual policy. We make the
conversion privilege available only within the 31-day period following (a)
termination of the group Policy by NYSUT Benefit Trust or us, or (b)
termination of a Certificate upon the Insured's ineligibility for continued
coverage. You may convert your Certificate to any substantially comparable
flexible premium general account life insurance policy that we offer for these
purposes under the terms of your Certificate. Term insurance is not available.
We must receive notice of your conversion and the first premium under the
conversion policy at the Home Office within the 31-day period.
Upon conversion, you receive the same amount of insurance that you had under
your Certificate. The terms of the conversion policy, however, may involve
additional charges or may not be as attractive to you as those under the
Certificate. We reserve the right to permit you to pay only the initial premium
for the conversion policy at the time of conversion. If the initial premium for
the conversion policy is less than the Surrender Value under the terminating
Certificate, we will distribute to you the rest of the Surrender Value as of
the Certificate's termination date. You may be required to pay income taxes
with respect to a partial distribution in connection with a conversion or any
other distribution of Surrender Value following termination of a Certificate.
(See Tax Matters.)
The Company will notify the Owner of the right to convert. We will require no
evidence of insurability.
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<PAGE>
If we receive a timely conversion request, and the Insured dies during the time
allowed for conversion, we will pay as a death benefit the amount that could
have been converted. If we have not received a conversion request, we only pay
a Death Benefit if the Insured dies within the 31-day conversion period. We pay
the Death Benefit to the Beneficiary designated by the Insured. If there is no
designated beneficiary, we may pay from the Death Benefit up to $500 to any
person that we believe is entitled to this money because that person incurred
funeral expenses incident to the death of the Insured.
NYSUT Benefit Trust, by agreement with us, may make changes in your Certificate
(and your coverage) without your consent. Your consent is required if a change
results in a reduction in benefit or an increase in guaranteed charges.
We reserve the right at any time to cease issuing new Certificates to any class
of Members or their relations.
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<PAGE>
Certificate Values
Total Account Value
If you allocate amounts under a Certificate to a Variable Option of the
Separate Account, we credit you with Accumulation Units of that Variable
Option. The number of Accumulation Units we credit is determined by dividing
(a) the amount you allocate by (b) the appropriate current Accumulation Unit
Value. Each Variable Option has a unique Accumulation Unit Value. If you select
a combination of Variable Options, we credit you with Accumulation Units for
each Variable Option that you select.
We determine the Total Account Value of your Certificate as follows:
o for any Variable Option, we multiply the total number of Accumulation Units
credited to the Certificate by the current Accumulation Unit Value for that
Variable Option;
o for a combination of Variable Options, we total the resulting values; and
o we add any Fixed Account Value and any Loan Account Value.
The value of an Accumulation Unit varies based on the positive or negative
investment performance of the related Fund and the charges we deduct. We do not
increase or decrease the number of Accumulation Units credited to a Certificate
based on any subsequent changes in the value of an Accumulation Unit. We
increase the number of Accumulation Units you hold for a Variable Option when
you allocate Net Premiums or other account value to that Variable Option.
Similarly, we cancel Accumulation Units in a Variable Option when (a) you
remove any account value from a Variable Option (such as upon transfer, Full or
Partial Surrender, or Certificate Loan) or (b) we make a Monthly Deduction. The
number of units we cancel is determined by dividing (a) the amount of account
value removed by (b) the appropriate current Accumulation Unit Value.
The Fixed Account Value includes (a) all amounts allocated to the Fixed Account
under a Certificate and (b) any interest credited thereon. We reduce the Fixed
Account Value by amounts removed from the Fixed Account, such as upon a
transfer, Full or Partial Surrender, Certificate Loan or Monthly Deduction.
We will advise you at least annually as to (a) the number of Accumulation Units
then credited to your Certificate, (b) the current Accumulation Unit Values,
(c) the Separate Account Value, (d) the Fixed Account Value, and (e) the Total
Account Value. (See Reports to Owners.)
Accumulation Unit Value
We determine the value of an Accumulation Unit for any Valuation Period by
multiplying (a) the value of an Accumulation Unit for the immediately preceding
Valuation Period by (b) the sum of 1 plus the net investment rate for the
current period for the appropriate Variable Option.
The net investment rate equals (a) the value of the net assets of the Variable
Option held in the Separate Account at the end of a Valuation Period (before
any adjustment for amounts allocated to or removed from the Variable Option
during the period); plus or minus (b) the value of the net assets of the
Variable Option held in the Separate Account at the beginning of that Valuation
Period, adjusted by any taxes or provisions for taxes attributable to the
operation of the Separate Account (with any federal tax liability offset by
foreign tax credits to the extent allowed); divided by (c) the value of the
Variable Option's Accumulation Units held in the Separate Account at the
beginning of the Valuation Period; minus (d) the rate of any applicable daily
charge for mortality and expense risk.
Maturity Value
The Maturity Value of a Certificate is the Surrender Value on the Maturity
Date. You may apply all or part of the Surrender Value to one or more of the
Settlement Options. (See Certificate Settlement.)
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<PAGE>
Certificate Rights
Full Surrenders
By Written Request, you may surrender your Certificate for its Surrender Value
at any time before the Maturity Date. The Insured must be alive to surrender
your Certificate. All insurance coverage under the Certificate ends on the date
of the Full Surrender. The Surrender Value equals the Total Account Value on
the date of surrender, less the Loan Account Value and less any unpaid accrued
interest. We may require return of the Certificate for a Full Surrender.
We compute the Surrender Value as of the end of the Valuation Period in which
we receive your Written Request for surrender.
Partial Surrenders
By Written Request, you may partially surrender your Certificate at any time
(a) after the first Certificate Year and (b) before the Maturity Date.
The minimum amount of any Partial Surrender is $500. We may also charge an
administrative fee of $25 or, if less, 2% of the amount surrendered. We deduct
any Partial Surrender and any related administration charge on a Pro-Rata Basis
from each investment option in use under the Certificate.
If the Death Benefit Option for a Certificate is Option 1, your Partial
Surrender reduces the Total Account Value, Death Benefit, and Specified Amount
of your Certificate. The Total Account Value and Specified Amount are each
reduced by the amount of the surrender. We will not allow a Partial Surrender
if the Specified Amount will be reduced below the minimum Specified Amount set
forth in the Certificate Specifications. Your Partial Surrender may not reduce
the Specified Amount, however, if the Death Benefit for the Certificate
immediately prior to the surrender is determined based on the applicable
percentage of the Total Account Value.
If your Specified Amount is reduced from above $250,000 to less than $250,000,
your current Cost of Insurance rate may also increase. (See Cost of Insurance.)
A Specified Amount reduction also reduces the required Basic Monthly Premium
for the 5-year No Lapse Coverage. We determine the future premium required to
maintain the 5-year No Lapse Coverage based on the new Specified Amount. We
will deliver to you a supplemental Certificate Specifications page that states
the amount of this future premium.
If the Death Benefit Option for a Certificate is Option 2, your Partial
Surrender reduces both the Total Account Value and the Death Benefit, but not
the Specified Amount. The Total Account Value and the Death Benefit are each
reduced by the amount of the surrender.
Paid-Up Nonforfeiture Option
By Written Request, you may elect, at any time before the Maturity Date, to
continue your Certificate as fixed (non-variable) paid-up life insurance.
We apply your Surrender Value as a Net Single Premium to determine the
Specified Amount of the paid-up insurance. We base the cost of the paid-up
insurance on the guaranteed maximum Cost of Insurance rates in the Certificate
and an interest rate of 4% compounded annually. The Specified Amount of the
paid-up insurance cannot exceed the Death Benefit under the Certificate as of
the effective date of the paid-up insurance. Excess Surrender Value is
distributed to you and is treated as a partial distribution for federal income
tax purposes. (See Tax Matters.) The effective date of the paid-up coverage is
the first Monthly Deduction Day that occurs on or after our receipt of your
Written Request.
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<PAGE>
We allow Full Surrenders and Certificate Loans, as described in this
Prospectus, if you continue your Certificate in force as paid-up insurance. All
supplemental rider benefits terminate and are not available with the paid-up
coverage. The Surrender Value of the paid-up insurance is the Net Single
Premium for that insurance on the date of surrender, less any outstanding loan
balance. Partial Surrenders are not available.
Under this option, we pay proceeds upon death of the Insured or maturity that
equal (a) the Specified Amount, less (b) any Certificate Loans and accrued
unpaid interest under the paid-up insurance. See "Tax Matters" for a discussion
of possible tax consequences resulting from your electing the paid-up
nonforfeiture option.
Grace Period
If your Surrender Value is insufficient to allow a Monthly Deduction on the
Monthly Deduction Day, we allow you 61 days of grace for payment of an amount
sufficient to allow the Monthly Deduction.
If your Surrender Value is insufficient because of outstanding loans, and you
have paid sufficient premiums to meet the conditions of the 5-year No Lapse
Coverage period, we may require payment of the amount equal to the lesser of
(1) or (2) where:
(1) is the amount necessary to meet the loan-related conditions of the No Lapse
Coverage provision; or
(2) is an amount sufficient to cover the Monthly Deduction(s) that would result
in the Surrender Value being greater than zero.
If you have not paid sufficient premiums to meet the conditions of the 5-year
No Lapse Coverage period, we may require payment of the amount necessary to
keep your Certificate in force for the current month plus two additional
months.
If you do not make payment within the 61-day Grace Period, the Certificate will
terminate without value at the end of the Grace Period. This termination is
effective on the Monthly Deduction Day for the first unpaid Monthly Deduction.
We will mail written notice to your last address known to us at least 31 days
before termination of a Certificate. We will also mail this notice to the last
known address of any assignee of record.
During the days of grace, this Certificate stays in force. If the Insured's
death occurs during the days of grace, we deduct from the Death Benefit the
amount required to keep a Certificate in force.
Reinstatement of a Lapsed Certificate
You may reinstate a Certificate terminated after its Grace Period. Upon
reinstatement, we calculate the Certificate Year as if there had never been a
lapse in coverage. You must apply for reinstatement (a) within 5 years after
the date of termination and (b) before the Maturity Date.
Also, we must receive (a) evidence of the Insured's current insurability that
is satisfactory to us, and (b) a premium payment that at least equals the
following amount: the sum of (1) and (2), where (1) is any portion of the Loan
Account Value plus accrued interest on the date of lapse exceeding the Total
Account Value on the date of lapse and (2) is a premium payment sufficient to
keep the Certificate in force for the current month plus 2 additional months.
If we reinstate your Certificate within a 5-year No Lapse Coverage period, all
values, including the Loan Account Value, are reinstated as they were on the
date of lapse.
If we reinstate your Certificate after a 5-year No Lapse Coverage period has
expired, the coverage would be reinstated on the Monthly Deduction Day
following our approval. We first apply your payment to pay any positive excess
of (1) over (2), where (1) is the Loan Account Value plus accrued interest on
the date of lapse, and (2) is the Total Account Value on the date of lapse. We
treat any remainder as a premium. The Total Account Value at reinstatement is
the Net Premium paid, less the Monthly Deduction for that day. We do not
reinstate any Loan Account Value.
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<PAGE>
We restart Monthly Deductions and investment performance on the Monthly
Deduction Day on or first following our approval of the reinstatement. We pay
the reinstated Death Benefit if the Insured dies prior to that date, but only
if we have received (a) a reinstatement request and (b) all payments and
information required for us to grant the request.
We must consent before we reinstate any supplemental benefit rider. If the
Certificate lapsed within a 5-year No Lapse Coverage period, and that period
has not yet expired by the time of reinstatement, we will reinstate any
Certificate Loan Value and consider as due any prior uncollected Monthly
Deductions. (See 5-year No Lapse Coverage Provision.) We will also restore any
portion of the No Lapse Coverage period that still remains by the time of
reinstatement. In that case, you may put the No Lapse Coverage into effect for
any time during such remaining period, provided you have paid at least the
cumulative amount of all Basic Monthly Premiums required to date for this
purpose. This cumulative amount includes any amount of unpaid Basic Monthly
Premiums due for periods prior to the reinstatement.
A reinstatement may result in restarting the test used for determining whether
the Certificate is a Modified Endowment Contract. (See Tax Matters.)
Certificate Loans
We grant loans at any time (a) after the expiration of the Right of Certificate
Examination and (b) before the Maturity Date. The amount of the loan may not be
more than the Loan Value. The Loan Value is 90% of the Total Account Value,
unless state law otherwise requires. We transfer the amount of the loan out of
the Fixed Account and any Variable Options on a Pro-Rata Basis. We instead hold
the amount of the loan as part of the Loan Account Value. We effect loans and
loan repayments as of the end of the Valuation Period in which we receive the
Written Request for the loan or the repayment.
You may repay the loan in full or in part at any time prior to the Maturity
Date, as long as the Certificate is in force and the Insured is alive. The
amount necessary to repay all loans in full is the Loan Account Value plus any
accrued interest. We allocate loan repayments to the Fixed Account Value and
the Separate Account Value in the same proportion in which the loan was taken.
Unless you specifically instruct us otherwise, we consider Additional Premiums
received as loan repayments. The full Surrender Value under this Certificate
equals (a) the Total Account Value on the date of surrender, (b) less the Loan
Account Value plus any accrued interest. If you do not repay a loan prior to
the Maturity Date, the amount payable at the Maturity Date equals (a) the Total
Account Value on the Maturity Date, (b) less the Loan Account Value on the
Maturity Date plus any accrued interest.
The amount of interest you earn on the Loan Account Value and the amount of
interest we charge on a loan depends on whether the loan is considered
preferred. Beginning in the 11th Certificate Year and on each Certificate
Anniversary thereafter, that portion of the Loan Value attributable to the
Separate Account Value will be considered preferred (Preferred Loans). All
other loans will be considered non-preferred (non-Preferred Loans).
Preferred Loans earn interest at a rate of 4.0% and are charged interest at a
rate of 4.0%. In other words, the interest rate credited equals the interest
rate charged.
Non-Preferred Loans earn interest at a rate of no less than 6.0% and are
currently charged interest at a rate of 8%.
We may credit interest in excess of these rates, in our sole discretion.
Accordingly, since we credit the Loan Account Value with interest rather than
with the investment experience of the Funds, a loan may permanently affect the
amount of your Death Benefit and the Certificate's Surrender Value, even if you
repay the loan.
Loan interest is due and payable on (a) each Certificate Anniversary, (b) the
date the Certificate ends or (c) upon full repayment of the Loan Account Value.
We add any interest not paid when due to the Loan Account Value on the
Certificate Anniversary. Any amount of unpaid interest bears interest on the
same terms.
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For a discussion of the federal income tax consequences of Certificate Loans,
see Tax Matters.
Certificate Changes
You may make certain changes to your Certificate, as described below, by
submitting a Written Request. We will send you supplemental Certificate
Specifications once the change is completed. If you decrease a Specified Amount
larger than $250,000 to less than $250,000 (or vice-versa), you can cause an
increase (or decrease) in your current Cost of Insurance Rate. (See Monthly
Deduction.)
Increase in Specified Amount
We allow increases in Specified Amounts at any time while a Certificate is in
force. We may require you to provide satisfactory evidence of insurability.
Your Surrender Value immediately after an increase must be at least 3 times the
sum of (a) the most recent Monthly Deduction from the Total Account Value and
(b) the Specified Amount of the increase multiplied by the applicable Cost of
Insurance rate divided by 1000. You must request Specified Amount increases in
multiples of $1,000. We show any maximum limit on your Specified Amount in the
Certificate Specifications.
We also show the Issue Date for any increase in the supplemental Certificate
Specifications. We restart the 5-year period of the No Lapse Coverage provision
applicable to the increase on the Issue Date of the increase. We determine the
Basic Monthly Premium after the increase based on the Insured's Attained Age
and new Specified Amount.
For possible tax consequences of an increase in Specified Amount, see Tax
Matters.
Decrease in Specified Amount
You may decrease the Specified Amount of a Certificate after the first
Certificate Year. We do not allow a decrease in the Specified Amount if (a)
your Specified Amount is reduced below the minimum Specified Amount set forth
in the Certificate Specifications or (b) your Certificate would be treated as
other than life insurance for income tax purposes.
The Issue Date of the decrease is the Monthly Deduction Day on or next
following the date on which we receive your Written Request. The decrease
reduces any past increases in the reverse order in which the increases
occurred. (We follow this same order for decreases in Specified Amount
resulting from changes in Death Benefit Option or a Partial Surrender.) If the
5-year No Lapse Coverage provision is still applicable, we adjust the Basic
Monthly Premium for that purpose based on the reduced Specified Amount.
A Specified Amount decrease can cause a Certificate to be taxed as a Modified
Endowment Contract. For a discussion of tax considerations in connection with
Specified Amount decreases, see Tax Matters.
Change in Death Benefit Option
We allow changes from Option 1 to Option 2 at any time while a Certificate is
in force. We reduce the Specified Amount to equal the Specified Amount less the
Total Account Value at the time of the change. We also allow changes from
Option 2 to Option 1 at any time while a Certificate is in force. We increase
the Specified Amount to equal the Specified Amount plus the Total Account Value
as of the date of the change. If the Death Benefit at the time of the change is
determined based on the applicable percentage of the Total Account Value, we
may calculate the new Specified Amount differently from the foregoing
description.
We do not allow a change in the Death Benefit Option if (a) the Specified
Amount is reduced below the minimum Specified Amount set forth in the
Certificate Specifications or (b) your Certificate would be treated as other
than
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<PAGE>
life insurance for income tax purposes. Also, we may require evidence of
insurability. We effect the change on the Monthly Deduction Day on or next
following the date on which we receive your Written Request. In cases where we
require evidence of insurability, we must also approve the increase.
Following any change in Death Benefit Option, we will adjust the Basic Monthly
Premium so that it will be based on the new Specified Amount. A change in Death
Benefit Option may restart the test for determining whether a Certificate is a
Modified Endowment Contract for federal income tax purposes. (See Tax Matters.)
Right of Certificate Examination
Your Certificate includes a 10-day free look period. If for any reason you are
dissatisfied with your Certificate, you may return it to us or to our
representative within 10 days of receipt for a refund. If you return your
Certificate, we will deem it void from its beginning. We will refund to you an
amount equal to (a) the premiums paid or (b) where permitted by state law, the
premiums paid, adjusted for any positive or negative investment performance in
the Variable Options you selected (but not deducting any charges made under the
Certificate).
Supplemental Benefits
The supplemental benefits currently available as riders to a Certificate are
listed below. Your Aetna representative can provide you with additional
information about these riders. The riders contain other terms and conditions.
o Disability Benefit Rider--provides for a credit of the benefit amount
described in the rider if the covered Insured is totally disabled. As a
general matter, you may not increase the Specified Amount of your
Certificate while we are providing benefits under this rider.
o Accelerated Death Benefit Rider--provides for the advance payment to you of a
portion of the Specified Amount if the Insured provides requisite evidence
that the Insured has less than one year to live. There is no charge for this
rider.
o Accidental Death Benefit Rider--provides for the payment of up to $200,000 to
provide a double Death Benefit if the Insured dies as a result of an
accident as defined in the rider.
o Child Insurance Rider--provides for non-participating term life insurance on
the child(ren) of the Insured.
We may make other riders for supplemental benefits available under the
Certificate from time to time. We will set forth the charges for such riders in
your Certificate Specifications. You may add or cancel supplemental benefit
riders at any time, pursuant to our procedures then in effect. Any change you
make in supplemental benefits may cause us to revise the amount of the Basic
Monthly Premium. If so, we will provide you with supplemental Certificate
Specifications that set forth the new amount. A change in supplemental benefit
rider coverage may also have tax consequences. (See Tax Matters.)
Certificate Settlement
The Company generally pays proceeds in a lump sum upon (a) the death of the
Insured, (b) a Full Surrender or (c) maturity. You may elect one or more of the
Settlement Options discussed below. We may agree to other Settlement Options at
our discretion.
You may make a Written Request to elect, change or revoke a Settlement Option
before payments begin under any Settlement Option. We give effect to your
request upon its receipt at our Home Office. If you have not elected a
Settlement Option when your proceeds become payable, your payee may make the
election. We must consent to
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<PAGE>
the election of any Settlement Option if the Certificate has been assigned. We
pay any excess Death Benefit due as elected. The payee is entitled to exercise
any rights and privileges that are permitted under a Settlement Option.
You may not elect a fixed or variable Settlement Option that results in (a) a
first payment of less than $50 or (b) total yearly payments of less than $250.
You must elect a lump-sum payment if your selected payment option fails to meet
these minimum requirements. We may refuse to permit a Settlement Option if (a)
the payee is not a natural person or (b) the Annuitant's age (plus the number
of years for which any payments under the annuity option chosen) exceeds 95
years.
The several Settlement Options may differ in their tax consequences.
Settlement Options
The Settlement Options listed below are available under the Certificates.
Options 1, 2 and 3 are available on either a fixed payment or a variable
payment basis. We determine the amount of the first payment under Options 1, 2
and 3 (whether on a fixed or variable basis) based on the option chosen, using
the annuity rates specified in the Certificate. This rate is the same
regardless of whether an Annuitant is male or female.
For a fixed Settlement Option, the amount of the first and each subsequent
payment is the same. We base that amount on an interest rate of at least 3%.
Our then current settlement option rate could provide higher payments on a
comparable fixed premium annuity at the time payments commence. If so, we use
the higher rate for fixed Settlement Options under a Certificate.
For a variable Settlement Option, we determine the first payment using an
assumed interest rate of 3.5% or 5%, as specified by you or the payee.
Subsequent payments then vary based on Fund performance, as discussed below
under Calculation of Variable Payment Settlement Option Values. If you elect
5%, the initial payment is higher, but subsequent payments increase less with
favorable Fund performance (and decrease more with unfavorable Fund
performance) than if 3.5% is elected.
Once payments begin you cannot make withdrawals from or changes to Settlement
Options 1, 2 and 3, except to the extent noted below for Option 1.
Option 1 -- We provide payments for a stated number of years, but no more than
30. You must select a payment period of at least 5 years. If variable payments
are selected, you may withdraw all or a portion of the remaining payments at
any time.
Option 2 -- We provide payments for the lifetime of the Annuitant. If you
chose, we also will guarantee payments for a number of years from 5 to 30, or
provide a "cash refund" upon the Annuitant's death. The cash refund election is
available only if you allocate the entire amount on a fixed basis. The amount
of the cash refund is (a) the amount applied to the option at the time of
settlement, less (b) 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--We provide
payments during the joint lifetimes of two Annuitants. We continue payments
until both Annuitants have died. When you select this option, you must choose
from among the following payment methods: (a) 100%, 66-2/3% or 50% of the
payment continues 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 -- We provide 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.
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Upon the death of the Annuitant(s) (or the payee under Option 4), we will pay
(a) the current value of the funds held under Option 4 and (b) the present
value of any remaining guaranteed payments under the other Options. We continue
paying any remaining guaranteed payments to the beneficiary unless the
beneficiary elects to receive the present value of any remaining guaranteed
payments in a lump sum. If the beneficiary subsequently dies, we will pay the
present value of any remaining guaranteed payments in one sum to the
beneficiary's' estate.
You may elect to receive monthly payments as described above, or elect to
receive quarterly, semi-annual or annual payments instead.
Calculation of Variable Payment Settlement Option Values
Variable Settlement Options are supported by the available Funds of the
Company's Variable Annuity Account B (Account B). Account B is 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 permit a maximum of only four Funds to 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 describes the
available Funds, the costs and expenses of the Funds, and the charges imposed
on Account B. Account B may differ from the Separate Account in terms of the
(a) Funds available for selection and (b) charges imposed. Accordingly, you
should review the Account B prospectus, as well as the prospectuses for Account
B's underlying Funds, prior to selecting any variable payment Settlement
Option.
We determine the amount of each variable annuity payment after the first
payment by a formula described in the Certificates. This formula is generally
used by actuaries for making these types of calculations. Speaking generally,
the formula works as follows: if the total return of the Fund for any month,
less a mortality and expense risk deduction currently equivalent to an annual
rate of 1.25%, 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
adjusted for the mortality and expense risk deduction, is less than the assumed
interest rate, the next variable payment will be smaller than the previous one.
The amount of any increase or decrease in variable annuity payments does not
bear a direct relationship to the Fund's total returns. We expect to make a
profit on the mortality and expense risk deduction.
You may 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.
The Company and Management
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, an Arkansas
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
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Investment Advisers Act of 1940 and, as such, is the investment adviser for
Portfolio Partners, Inc. The Company is also the depositor of Variable Life
Account B and Variable Annuity Accounts B, C and G.
The following are the Directors and Executive Officers of Aetna Life Insurance
and Annuity Company. Unless otherwise indicated, the principal business address
for all individuals is the Company's Home Office.
<TABLE>
<CAPTION>
Name and Address Position with Company Business Experience During Past 5 Years
- ---------------------- ------------------------------------ -------------------------------------------------------------
<S> <C> <C>
Thomas J. McInerney Director, President and Chairman, President (since October 1998) Aetna Investment Adviser
Executive Committee (Principal Holding Company, Inc., Aetna Retail Holding Company, Inc.,
Executive Officer) Aetna Services Holding Company, Inc.; President (since
September 1997) Aetna Life Insurance and Annuity
Company; President (since September 1997) 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 Director and Senior Vice President President (January 1998-February 1999) Aetna Investment
Services, Inc; Senior Vice President (since June 1999) Aetna
Retirement Holdings, Inc.; Senior Vice President (since June
1999) Aetna Retirement Holdings, Inc.; Senior Vice President
(since October 1998) Aetna Investment Adviser Holding
Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Services Holding Company, Inc.; Senior Vice President,
Product and Brand Management (since September 1998),
Senior Vice President, Product Management (September
1997-September 1998), Vice President, Products Group
(February 1996-September 1997), Senior Vice President,
Strategic Markets and Products (February 1993-February
1996) Aetna Life Insurance and Annuity Company.
Catherine Hale Smith Director, Chief Financial Officer Senior Vice President (since October 1998) Aetna Investment
and Senior Vice President Adviser Holding Company, Inc., Aetna Retail Holding
Company, Inc., Aetna Services Holding Company, Inc.; Chief
Financial Officer and Senior Vice President, Business
Strategy and Finance (since February 1998) Aetna Life
Insurance and Annuity Company; Senior Vice President
(since March 1999), Chief Financial Officer (since February
1998) Aetna Retirement Services, Inc.; Vice President,
Strategy, Finance and Administration, Financial Relations
(September 1996-February 1998), Aetna Inc.; Chief of Staff,
Health/Group Life, Strategy and Communication (April
1993-September 1996) Aetna Life Insurance Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with Company Business Experience During Past 5 Years
- ------------------ ------------------------------------- --------------------------------------------------------------
<S> <C> <C>
Kirk P. Wickman Senior Vice President, General Senior Vice President, General Counsel and Corporate
Counsel and Corporate Secretary Secretary (since June 1999) Aetna Retirement Holdings, Inc.,
Aetna Investment Adviser Holding Company, Inc., Aetna
Retail Holding Company, Inc., Aetna Services Holding
Company, Inc.; Senior Vice President, General Counsel and
Corporate Secretary (since April 1999) Aetna Retirement
Services, Inc.; Vice President, General Counsel and
Corporate Secretary (October 1998-June 1999) Aetna
Investment Advisor Holding Company, Inc., Aetna Retail
Holding Company, Inc., Aetna Services Holding Company,
Inc.; Vice President, General Counsel and Assistant Secretary
(April 1997-April 1999) Aetna Retirement Services, Inc.; Vice
President, General Counsel and Corporate Secretary
(December 1996-June 1999) Aetna Retirement Holdings,
Inc.; Senior Vice President (since March 1999), General
Counsel and Corporate Secretary (since November 1996),
Vice President (November 1996-March 1999) Aetna Life
Insurance and Annuity Company; Vice President and Counsel
(June 1992-November 1996) Aetna Life Insurance Company.
Deborah Koltenuk Vice President, Corporate Vice President, Corporate Controller, and Assistant Treasurer
Controller, and Assistant Treasurer (since July 1999) Aetna Retirement Services, Inc.; Vice
President, Corporate Controller, and Assistant Treasurer
(since June 1999) Aetna Investment Adviser Holding
Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Services Holding Company, Inc., Aetna Life Insurance and
Annuity Company, Aetna Insurance Company of America;
Vice President, Corporate Controller and Assistant Treasurer,
(April 1999-July 1999) Aetna Retirement Services, Inc.; Vice
President, Treasurer and Corporate Controller (October
1998-June 1999) Aetna Investment Adviser Holding
Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Services Holding Company, Inc.; Vice President and
Controller (April 1997-April 1999) Aetna Retirement
Services, Inc.; Vice President, Treasurer and Corporate
Controller (July 1996-June 1999) Aetna Life Insurance and
Annuity Company; Vice President, Treasurer and Corporate
Controller (September 1996-June 1999) Aetna Retirement
Holdings, Inc.; Vice President and Treasurer, Corporate
Controller (April 1997-June 1999) Aetna Insurance Company
of America; 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.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Name and Address Position with Company Business Experience During Past 5 Years
- ------------------------ -------------------------- --------------------------------------------------------------
<S> <C> <C>
Therese A. Squillacote Vice President and Chief Vice President and Chief Compliance Officer (since February
Compliance Officer 1999) Aetna Insurance Company of America; Vice President
and Chief 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 to 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 to December 1995)
Connecticut Mutual Financial Services, Inc.
</TABLE>
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Travelers Casualty and
Surety Company of America.
25
<PAGE>
Additional Information
Reports to Owners
The Company maintains all records relating to the Separate Account and the
Certificates. At least once in each Certificate Year, the Company will send you
a report containing the Certificate Values (see Total Account Value) as of the
most recent Certificate Anniversary. If you allocate any portion of your Total
Account Value to the Separate Account, we will send you those additional
periodic reports that the SEC requires us to send to you. (See Right to
Instruct Voting of Fund Shares.)
Right to Instruct Voting of Fund Shares
You are entitled to instruct us how to vote Fund shares held in the Variable
Options of the Separate Account and attributable to your Certificate at
meetings of shareholders of the Funds. The number of votes for which you may
give directions will be determined as of the record date for the meeting. The
number of votes you are entitled to direct with respect to a particular Fund is
equal to (a) your Total Account Value invested in that Fund divided by (b)
$100. Fractional votes will be recognized. The Separate Account will vote all
shares of each Fund that it holds of record in the same proportion as those
shares for which we have received instructions from owners participating in
that Fund through the Separate Account.
If you are entitled to give us voting instructions, we will send you proxy
material and a form for providing such instructions. In certain cases, we may
disregard instructions relating to changes in a Fund's investment manager or
its investment policies. We will advise you if we do and detail the reasons in
our next report to Certificate owners.
We reserve the right to modify these procedures in any manner consistent with
applicable legal requirements and interpretations as in effect from time to
time.
State Regulation
The Company, in its sole discretion, selects the states where it will offer the
Certificates for sale. One or more eligible purchasers must reside in a
selected state. The Company is subject to regulation and supervision by the
Insurance Department of the State of Connecticut, which periodically examines
its affairs. The Company is also subject to the insurance laws and regulations
of all other jurisdictions where it is authorized to do business. We are
required to submit annual statements of our operations, including financial
statements, to the insurance departments of those jurisdictions for the
purposes of determining solvency and compliance with local insurance laws and
regulations.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the
Separate Account as a party or which would materially affect the Separate
Account. The validity of the securities offered by this prospectus has been
passed upon by Counsel to the Company.
In recent years, several life insurance and annuity companies have been named
as defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000, by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
26
<PAGE>
The Company also is a party to other litigation and arbitration proceedings in
the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
The Registration Statement
We filed a Registration Statement under the Securities Act of 1933 with the SEC
relating to the offering described in this Prospectus. Consistent with SEC
rules and regulations, we did not include in this Prospectus all of the
information set forth in the Registration Statement. You may obtain information
omitted from the Prospectus at the SEC's principal office in Washington, DC,
upon payment of the SEC's prescribed fees.
Distribution of the Certificates
The Company serves as principal underwriter of the securities sold by this
Prospectus, as defined by the federal securities laws. Aetna Investment
Services, Inc. ("Aetna Services"), an affiliate of the Company, distributes the
Certificates. The Company and Aetna Services are registered as broker-dealers
with the SEC and are members of the National Association of Securities Dealers,
Inc. All persons offering or selling the Certificates will be (a) registered
representatives of Aetna Services, and (b) licensed as the Company's insurance
agents to sell variable life insurance. The Company and NYSUT Benefit Trust
entered into an agreement that calls (a) for NYSUT Benefit Trust to exclusively
endorse the Certificate to Members for supplemental group variable universal
life insurance and (b) for NYSUT Benefit Trust to perform administrative
services. The administrative services NYSUT Benefit Trust performs includes
making available NYSUT Benefit Trust payroll slots to facilitate premium
remittances to the Company. Under the agreement, the Company paid NYSUT Benefit
Trust $100,000 in 1999 and will pay NYSUT Benefit Trust $65,000 in 2000. NYSUT
Benefit Trust indicated to the Company that it intends to use these amounts to
enhance benefits to its members.
Salespersons selling Certificates may earn salaries or commissions. The maximum
sales commission paid for Certificate distribution is 25% of the first year
premium up to 12 Basic Monthly Premiums. For an increase in Specified Amount,
the maximum sales commission is 25% of 12 times the amount of Basic Monthly
Premium attributable to the increase. The maximum sales commission on all other
premiums is 2% through the 15th Certificate year, or the 15th year following a
Specified Amount increase. Some sales personnel may receive various types of
non-cash compensation as special sales incentives, including trips and
educational and/or business seminars. However, all such compensation will be
paid in accordance with NASD rules.
Independent Auditors
KPMG LLP, CityPlace II, Hartford, Connecticut, were the independent auditors
for the Separate Account for the years ended December 31, 1998 and 1997 and
continue to be the independent auditors for the Company. Ernst & Young LLP, Ft.
Wayne, Indiana, were the independent auditors for the Separate Account for the
year ended December 31, 1999. The independent auditors provide services to the
Separate Account that include primarily the examination of the Separate
Account's financial statements and the review of filings made with the SEC.
27
<PAGE>
Tax Matters
The following discussion reflects our understanding of current federal income
tax laws. These laws are complex, and tax results may vary among individuals.
This discussion is general in nature, and you should not consider it as tax
advice. You should seek competent tax advice if you are considering the
purchase of a Certificate or exercising elections under a Certificate. Please
note that your taxable income is not reduced by premium payments you pay by
payroll deduction.
Federal Tax Status of the Company
The Company is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended ("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
Certificate. 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 Certificates. 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 in income or gains attributable
to the Separate Account, then we may impose a charge against the Separate
Account (with respect to some or all of the Certificates) to set aside
provisions to pay such taxes.
Life Insurance Qualification
A Certificate is treated as "life insurance" for federal income tax purposes if
(a) it meets the definition of life insurance under Section 7702 of the Code
and (b) the investments of the underlying Funds satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe that
the Certificates will meet these requirements and that:
o the death benefit that the beneficiary receives under your Certificate or
riders to your Certificate will not be subject to federal income tax; and
o increases in your Certificate's Total Account Value as a result of interest
or investment experience will not be subject to federal income tax unless
and until there is a distribution from your Certificate, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Certificate can
be affected by whether your Certificate is a Modified Endowment Contract
(discussed below). In all cases, however, the character of all income that we
describe below as taxable to the payee will be ordinary income (as opposed to
capital gain).
Among other things, Section 7702 places limits on the amount of premium
payments that you may make under a Certificate. For that reason, we will accept
only that portion of any premium payment that will not exceed those limits. We
will return to you, or apply as you and we otherwise agree, any portion of the
premium payment that exceeds the then-applicable limitations.
We intend to comply with Sections 7702 and 817(h) of the Code. For that reason,
we reserve the right to make any changes to the Certificate or group policy
that we believe are necessary to ensure compliance. We will apply
28
<PAGE>
any changes uniformly to affected Owners and make changes only after giving you
advance written notice. In some cases, we may need to distribute to you amounts
from your Certificate to assure that it continues to qualify and be taxed as
life insurance. Any amounts we distribute to you may be includible in your
taxable income.
General Rules
As long as your Certificate remains in force during the insured person's
lifetime, as a non-modified endowment contract, a Certificate loan will be
treated as indebtedness, and no part of the loan proceeds will be subject to
current federal income tax. Interest you pay on the loan generally is
considered "personal interest," and will not be tax deductible.
After the first 15 Certificate years, the proceeds from a partial surrender
will not be subject to federal income tax except to the extent such proceeds
exceed your "basis" in your Certificate. (Your basis generally will equal the
premiums you have paid, less the amount of any previous distributions from your
Certificate that were not taxable.) During the first 15 Certificate years, the
proceeds from a partial surrender, under limited circumstances, could be
subject to federal income tax, under a complex formula, to the extent that your
Total Account Value exceeds your basis in your Certificate. This result may
occur even if the total amount of distributions from the Certificate to that
date does not exceed total premiums paid to that date.
On the maturity date or upon full surrender, any excess in the amount of
proceeds we pay (including amounts we use to discharge any Certificate loan)
over your basis in the Certificate, will be subject to federal income tax. In
addition, if a Certificate terminates after a grace period while there is a
policy loan outstanding, the cancellation of such loan and accrued loan
interest will be treated as a distribution and could be subject to tax under
the above rules.
Modified Endowment Contracts
A Certificate will be a Modified Endowment Contract if it fails the "7-pay
test." A Certificate fails the 7-pay test if, at any time in the first seven
Certificate Years, the amount paid into the Certificate exceeds the amount that
would have been paid had the Certificate been designed to become paid up after
payment of seven equal annual premiums. A new 7-pay test begins at any time a
material change takes effect. A material change, for example, may include a
change in death benefit option, the selection of additional rider benefits, an
increase in your Certificate's specified amount of coverage, and certain other
changes.
In the event of a reduction in future benefits during the first seven
Certificate Years (or within the first seven Certificate Years after a material
change), we recalculate the 7-pay test retroactively based on the reduced level
of benefits. (For example, a reduction in future benefits could result if you
request a decrease in Specified Amount, Partial Surrender or termination of
additional benefits under a Rider.) If the premiums previously paid are greater
than the recalculated 7-pay test limit, the Certificate will be a Modified
Endowment Contract.
A Certificate received in exchange for a Modified Endowment Contract will also
be a Modified Endowment Contract.
If the Certificate is a Modified Endowment Contract, the proceeds of any
Partial Surrender, Certificate Loans, assignments, pledges or other
distributions from the Certificate will be currently includible in the
Certificate Owner's income to the extent that the Certificate's Total Account
Value immediately before payment exceeds total premiums paid (increased by the
amount of distributions previously taxed and reduced by untaxed amounts
previously distributed from the Certificate). All Modified Endowment Contracts
that you purchase from the Company (and its affiliates) during the same
calendar year, will be aggregated for purposes of determining the taxable
portion of distributions from the Certificate.
Distributions during any Certificate year in which a Certificate becomes a
Modified Endowment Contract and any subsequent Certificate Year will be taxed
as described above. In addition, distributions from a Certificate within two
years before it becomes a Modified Endowment Contract may also be subject to
tax in this manner. Thus, a
29
<PAGE>
distribution made from a Certificate that is not a Modified Endowment Contract
could later become taxable as a distribution from a Modified Endowment
Contract.
If the Certificate is a Modified Endowment Contract, a penalty will apply to
the taxable portion of most distributions, unless the Owner has reached the age
of 591/2. The penalty tax does not, however, apply to any full or partial
distributions that are made while the Owner is disabled (within the meaning of
the Code) or that are part of a series of equal periodic payments made not less
frequently than annually for the life or life expectancy of such Owner or the
joint lives (or joint life expectancies) of such Owner and his or her
beneficiary (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 Certificate must be "adequately
diversified" in accordance with Treasury regulations. The Treasury Department
has issued regulations prescribing the diversification requirements in
connection with variable contracts. Our failure to comply with these
regulations would disqualify your Certificate as a life insurance policy under
Section 7702 of the Code. If this were to occur, you would be subject to
federal income tax on the income under the Certificate for the period of the
disqualification and for subsequent periods. Also, if the Insured died during
the period of the disqualification, a portion of the death benefit proceeds
would be considered taxable income for the recipient. The Separate Account,
through the Funds, intends to comply with these requirements.
Investor Control
The IRS has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the owner possesses
incidents of investment control over the assets. In these circumstances, income
and gains from the separate account assets would be includible in the variable
contract owner's gross income. The Treasury announced that it will issue
guidance regarding the extent to which owners could direct their investments
among subaccounts without being treated as owners of the underlying assets of
the separate account. It is possible that the Treasury's position, when
announced, may adversely affect the tax treatment of existing contracts.
The Company reserves the right to modify the Certificate as necessary to
attempt to prevent a holder from being considered the federal tax owner of a
pro rata share of the assets of the Separate Account.
Withholding
Generally, we are required to withhold income tax from any portion of a
distribution we make to you that is includible in your income. However, we will
not withhold income tax if you provide us with a written election request
before we make the distribution. If you request that we not withhold tax from
the distribution, or if enough tax is not withheld, you may have to pay these
taxes later. You may also have to pay penalties if your withholding and
estimated tax payments are insufficient.
Other Tax Considerations
Changes you make to your Certificate (for example, a decrease in benefits) may
have other effects on your Certificate. Such effects may include limiting the
amount of premiums that you can pay under your Certificate, as well as the
amount of Total Account Value that you may maintain under your Certificate.
If the insured person is the Certificate's owner, the death benefit under a
Certificate will generally be includible in the owner's estate for purposes of
federal estate tax. If the owner is not the insured person, under certain
conditions, an amount approximately equal to the cash surrender value of the
Certificate would be includible in the owner's estate, if the owner died before
the insured. Federal estate tax is integrated with federal gift tax under a
unified rate schedule. In general, estates less than $675,000 (or larger
amounts specified in the Code to commence in certain future years) will not
incur a federal estate tax liability. In addition, an unlimited marital
deduction may be available for federal estate tax purposes.
30
<PAGE>
As a general rule, if a "transfer" is made to a person two or more generations
younger than the Certificate's owner, a generation skipping tax may be payable
at rates similar to the maximum estate tax rate in effect at the time. The
generation skipping tax provisions generally apply to "transfers" that would be
subject to the gift and estate tax rules. Individuals are generally allowed an
aggregate generation skipping tax exemption of $1 million. Because these rules
are complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
The particular situation of each Certificate owner, insured person or
beneficiary will determine how ownership or receipt of Certificate proceeds
will be treated for purposes of federal estate and generation skipping taxes,
as well as state and local estate, inheritance, transfer, income and other
taxes. We do not intend for the foregoing summary to be complete or to cover
all situations. You should consult counsel and other advisers for more complete
information.
Finally, The U.S. Congress frequently considers legislation that, if enacted,
could change the tax treatment of life insurance policies. In addition, the
Treasury Department may amend existing regulations, issue regulations on the
qualification of life insurance and modified endowment contracts, or adopt new
interpretations of existing law. State and local tax law or, if you are not a
U.S. citizen and resident, foreign tax law, may also affect the tax
consequences to you, the insured person or your beneficiary, and are subject to
change. Any changes in federal, state, local or foreign tax law or
interpretation could have a retroactive effect. We suggest you consult a
qualified tax adviser.
Misc. Certificate Provisions
The Certificates
We consider your variable life insurance contract to consist of the following
documents: (a) the Certificate you receive; (b) the related group Policy owned
by NYSUT Benefit Trust; (c) the application form you completed to purchase your
Certificate; (d) any applications for any changes we approve; and (e) any
riders. Copies of all applications are attached to and made a part of the
Certificate. Only the Company's President, Executive Vice President or the
Corporate Secretary may agree with you to a change in the Certificate or the
Policy. Any change in the Certificate or the Policy must be in writing.
Payment and Deferral of Benefits
We pay all benefits at our Home Office. We may require you to submit your
Certificate to our Home Office before we grant Certificate Loans, make changes
or pay benefits.
We ordinarily make payments of any Separate Account Value within 7 days after
our receipt of your Written Request. However, the Company reserves the right to
suspend or postpone the date of any payment of any benefit or values for any
Valuation Period (a) when the New York Stock Exchange is closed (except
holidays or weekends); (b) when trading on the Exchange is restricted; (c) when
the SEC determines an emergency exists so that it is not reasonably practicable
for the Fund to dispose of the securities it holds or to determine the value of
the Funds' net assets. In these instances, we also may defer payment from the
Separate Account of Full Surrender and Partial Surrender Values, any Death
Benefit in excess of the current Specified Amount, and any portion of the Loan
Value.
We may defer payment of any Fixed Account Value for up to 6 months, except when
used to pay amounts due us. We may also delay payment of the Death Benefit if
the Certificate is being contested.
Suicide and Incontestability
In most states, we pay only a limited benefit if the Insured dies by suicide
within 2 years from the Issue Date of a Certificate. Generally, this benefit
consists of a refund of premiums paid, subject to any positive or negative
adjustment to reflect investment performance in the Separate Account. In most
states, if the Insured dies by
31
<PAGE>
suicide within 2 years from the Issue Date of any increase in coverage, we pay
as to that increase only the amount of prior Monthly Deductions that were
attributable to that increase.
In most states, we will not contest any coverage under a Certificate after it
has been in force for 2 years from its Issue Date, because of statements made
in the initial application form or any subsequent application. However, if the
Age of the Insured is misstated, regardless how long the coverage has been in
effect, we will adjust the amount of the Death Benefit to reflect the coverage
that would have been purchased by the most recent pre-Maturity Date Monthly
Deduction at the correct Age.
Protection of Proceeds
To the extent provided by law, the proceeds of the Certificate are not subject
to (a) claims by a beneficiary's creditors or (b) any legal process against any
beneficiary.
Nonparticipation
The Certificate is not entitled to share in the divisible surplus of the
Company. We will pay no dividends to you.
Changes in Owner and Beneficiary; Assignment
Unless otherwise stated in the Certificate, you may change the Owner and/or the
beneficiary or beneficiaries, or both, at any time while the Certificate is in
force. You must make a request for these types of changes by Written Request.
After we agree to the change in writing, the change takes effect as of the date
on which your Written Request was signed. On the insured's death, we pay Death
Benefit proceeds to each named beneficiary as specified in your then effective
beneficiary designation. We pay all proceeds to the Owner or the Owner's estate
if no named beneficiary is living at the date of the Insured's death. If there
is no designated beneficiary, as required by state law we may pay from the
Death Benefit up to $500 to any person that we believe is entitled to this
money because that person incurred funeral expenses incident to the death of
the Insured.
You may assign a Certificate. We will not consider an assignment of a
Certificate binding on us unless the assignment is made in writing and received
by us at our Home Office. We use reasonable procedures to confirm that the
assignment is authentic, including verification of signature. If we fail to
follow our procedures, we would be liable for any losses to you directly
resulting from the failure. Otherwise, we are not responsible for the validity
of any assignment. The rights of the Owner and the interest of the beneficiary
are subject to the rights of any assignee of record.
Assignment or change of Owner can have adverse tax consequences. (See Tax
Matters.)
Performance Reporting and Advertising
From time to time, the Company may advertise different types of historical
performance for the Variable Options of the Separate Account available under
the Certificates. We may also distribute sales literature that compares (a) to
(b) or to (c), where: (a) is the percentage change in Accumulation Unit Values
for any of the Variable Options; (b) is established market indices such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average; and (c)
is the percentage change in values of other mutual funds that have investment
objectives similar to the Variable Option being compared.
Illustrations of Death Benefit and Total Account Values
The following pages provide a hypothetical illustration of how the Option 1
Death Benefit and Total Account Values can change over time for a Certificate.
This hypothetical illustration is based on a Certificate issued to an Age 45,
preferred risk, non-smoker Insured. The second column in each table shows the
accumulated values of the premiums paid at an annual interest rate of 5%. The
remaining columns show the hypothetical Death Benefits, Total Account Values
and Surrender Values assuming that the investment return on the assets held in
each Fund is a uniform gross annual rate of either 0%, 6%, and 12%. Additional
assumptions are listed on each illustration.
32
<PAGE>
We provide two pages of values. The first page illustrates the assumption that
the maximum rates for all charges under the Certificate, including the
guaranteed maximum Cost of Insurance rates, are charged in all years. The
maximum allowable charges under the Certificate include (a) 1.25% for years
1-10, and 0.40% for the 11th year and after, for mortality and expense risk in
all Certificate Years, and (b) 10% of each premium as the maximum premium load,
and (c) $19 a month during the first Certificate Year and $11 a month
thereafter for the maximum Certificate Fee.
The second page illustrates the assumption that the current rates for all
charges, including the scale of Cost of Insurance rates for a $250,000
Specified Amount, are charged in all years. Current cost of insurance rates are
generally lowest for Certificates having Specified Amounts of at least
$250,000. The current charges imposed under the Certificates include (a) 0.85%
for mortality and expense risk in Certificate Years 1 through 10 only, and as
is currently planned, 0% thereafter, (b) 8% of each premium as the current
premium load, and (c) $14 a month during the first Certificate Year and $6 a
month thereafter as the current Certificate Fee. We expect to review our
current cost of insurance rates at least annually in light of the actual
mortality experience of participants under the NYSUT group Certificate.
The values shown in these illustrations vary according to assumptions used for
charges and gross rates of investment return. You may experience actual
investment returns and charges that are higher or lower than those illustrated.
The annual charge for Fund expenses reflected in both sets of illustrations is
0.69%. This figure assumes that Total Account Values have been allocated
equally among all Funds and represent a fixed, unweighted average of the
investment advisory fees charged to each of the Funds as of December 31, 1999
(without waivers or deductions) and other operating expenses (without waivers
or deductions) for the year then ended.
After deduction of charges, the illustrated gross annual investment rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of -1.54%,
4.46% and 10.46%, respectively, during the first 10 Certificate Years, and
- -0.69%, 5.31% and 11.31%, respectively, thereafter on a current basis. On a
guaranteed basis, the illustrated gross annual investment rates of return of
0%, 6% and 12% correspond to approximate net annual rates of -1.94%, 4.06% and
10.06% during the first 10 years and -1.09%, 4.91% and 10.91% during the 11th
year and after, respectively.
The Death Benefit and Total Account Values would be different from those shown
if the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above and below those averages for individual
Certificate Years. The illustrations also assume payment of premiums as
indicated, no Certificate Loans, no increases or decreases in Specified Amount,
no Death Benefit Option changes, no Partial Surrenders and no supplemental
rider benefits.
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, we may make such charges in the future. 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 and Total Account Values shown.
Upon request, we will provide a comparable personalized illustration based upon
the Age and underwriting classification of the proposed Insured, including the
Specified Amount and premium requested, the proposed frequency of premium
payments and any available riders requested. We may charge a fee of $25 for
each illustration. The hypothetical gross annual investment return assumed in
such an illustration will not exceed 12%.
33
<PAGE>
FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
UNISEX AGE 45
$1,548.48 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1 (GUARANTEED VALUES)
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Surrender Value
at Returns of Annual Investment Returns of Annual Investment Returns of
Certificate 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 1,626 250,000 250,000 250,000 364 415 467 364 415 467
2 3,333 250,000 250,000 250,000 762 889 1,023 762 889 1,023
3 5,126 250,000 250,000 250,000 1,088 1,317 1,570 1,088 1,317 1,570
4 7,008 250,000 250,000 250,000 1,344 1,697 2,104 1,344 1,697 2,104
5 8,984 250,000 250,000 250,000 1,522 2,017 2,616 1,522 2,017 2,616
6 11,059 250,000 250,000 250,000 1,617 2,269 3,096 1,617 2,269 3,096
7 13,238 250,000 250,000 250,000 1,619 2,438 3,530 1,619 2,438 3,530
8 15,526 250,000 250,000 250,000 1,514 2,505 3,897 1,514 2,505 3,897
9 17,928 250,000 250,000 250,000 1,290 2,451 4,177 1,290 2,451 4,177
10 20,450 250,000 250,000 250,000 939 2,261 4,350 939 2,261 4,350
15 35,085 0 0 250,000 0 0 2,922 0 0 2,922
20 53,762 0 0 0 0 0 0 0 0 0
25 77,600 0 0 0 0 0 0 0 0 0
30 108,023 0 0 0 0 0 0 0 0 0
20 Age 65 53,762 0 0 0 0 0 0 0 0 0
</TABLE>
Assumes no policy loan has been made and no supplemental rider benefits have
been elected. If premiums are paid more frequently than annually, the Death
Benefits, Total Account Values and Surrender Values would be less than those
illustrated. Zeros indicate that the Certificate lapses if additional premiums
are not paid.
The investment results are illustrative only and should not be considered a
representation of past or future investments results.
Actual investment results may be more or less than those shown and will depend
on a number of factors including the Certificate Owner's allocations, and the
Fund's rate of return. The Total Account Value and Surrender Value for a
Certificate 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 years.
34
<PAGE>
FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
UNISEX AGE 45
$1,548.48 ANNUAL BASIC PREMIUM
PREFERRED NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1 (CURRENT VALUES)
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Surrender Value
at Returns of Annual Investment Returns of Annual Investment Returns of
Certificate 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 1,626 250,000 250,000 250,000 670 732 794 670 732 794
2 3,333 250,000 250,000 250,000 1,421 1,590 1,768 1,421 1,590 1,768
3 5,126 250,000 250,000 250,000 2,156 2,484 2,841 2,156 2,484 2,841
4 7,008 250,000 250,000 250,000 2,876 3,413 4,022 2,876 3,413 4,022
5 8,984 250,000 250,000 250,000 3,581 4,380 5,325 3,581 4,380 5,325
6 11,059 250,000 250,000 250,000 4,271 5,387 6,760 4,211 5,387 6,760
7 13,238 250,000 250,000 250,000 4,946 6,435 8,344 4,946 6,435 8,344
8 15,526 250,000 250,000 250,000 5,607 7,527 10,091 5,607 7,527 10,091
9 17,928 250,000 250,000 250,000 6,252 8,664 12,020 6,252 8,664 12,020
10 20,450 250,000 250,000 250,000 6,861 9,825 14,125 6,861 9,825 14,125
15 35,085 250,000 250,000 250,000 8,738 15,581 27,970 8,738 15,581 27,970
20 53,762 250,000 250,000 250,000 7,156 19,373 48,053 7,156 19,373 48,053
25 77,600 250,000 250,000 250,000 783 19,268 78,647 783 19,268 78,647
30 108,023 0 250,000 250,000 0 10,845 127,701 0 10,845 127,701
20 Age 65 53,762 250,000 250,000 250,000 7,156 19,373 48,053 7,156 19,373 48,053
</TABLE>
Assumes no policy loan has been made and no supplemental rider benefits have
been elected. If premiums are paid more frequently than annually, the Death
Benefits, Total Account Values and Surrender Values would be less than those
illustrated. Zeros indicate that the Certificate lapses if additional premiums
are not paid.
The investment results are illustrative only and should not be considered a
representation of past or future investments results.
Actual investment results may be more or less than those shown and will depend
on a number of factors including the Certificate Owner's allocations, and the
Fund's rate of return. The Total Account Value and Surrender Value for a
Certificate 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 years.
35
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities.....................................................S-2
Statements of Operations and Changes in Net Assets......................................S-5
Notes to Financial Statements...........................................................S-6
Independent Auditors' Report............................................................S-19
</TABLE>
S-1
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Total
Shares Cost Assets
--------- ------------ ------------
<S> <C> <C> <C>
Aetna Ascent VP 210,193 $ 3,021,614 $ 3,136,076
Aetna Balanced VP, Inc. 1,840,829 28,411,306 28,661,711
Aetna Bond VP 1,585,677 20,656,384 19,297,688
Aetna Crossroads VP 173,950 2,335,123 2,395,290
Aetna Growth and Income VP 5,612,663 185,527,276 172,252,616
Aetna Growth VP 3,353 52,285 58,067
Aetna Index Plus Large Cap VP 984,575 18,690,522 20,548,071
Aetna Legacy VP 89,319 1,115,863 1,115,594
Aetna Money Market VP 2,865,679 38,252,424 38,443,372
Aetna Small Company VP 38,381 525,384 634,048
Aetna Value Opportunity VP 8,229 130,042 135,120
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 1,233,869 30,324,637 31,722,779
Growth Portfolio 370,659 16,510,133 20,360,310
High Income Portfolio 95,391 1,092,091 1,078,868
Overseas Portfolio 165,315 3,310,781 4,536,234
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 92,841 1,602,587 1,733,346
Contrafund Portfolio 996,741 22,982,190 29,054,986
Janus Aspen Series:
Aggressive Growth Portfolio 962,665 45,420,154 57,461,476
Balanced Portfolio 800,621 18,485,162 22,353,327
Flexible Income Portfolio 5,978 69,472 68,267
Growth Portfolio 1,017,622 26,378,071 34,242,981
Worldwide Growth Portfolio 1,381,919 46,635,796 65,986,620
MFS Variable Insurance Trust:
Total Return Series 639 11,219 11,344
World Government Series 198 2,000 1,984
Oppenheimer Funds:
Aggressive Growth Fund 8,969 728,396 738,203
Global Securities Fund 19,315 516,931 645,319
Growth & Income Fund 12,694 303,537 312,661
Strategic Bond Fund 264,204 1,274,694 1,313,094
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 419,434 28,129,870 34,741,713
PPI MFS Research Growth Portfolio 1,075,876 13,315,190 15,901,444
PPI MFS Value Equity Portfolio 53,473 2,451,631 2,928,730
PPI Scudder International Growth Portfolio 959,535 21,745,757 24,458,534
PPI T. Rowe Price Growth Equity Portfolio 36,443 1,968,414 2,405,261
------------ ------------
TOTAL ASSETS $581,976,936 $638,735,134
============ ============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Ascent VP
Policyholders' account values ......................................................... $ 3,136,076
Aetna Balanced VP, Inc.
Policyholders' account values ......................................................... 28,661,711
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999 (continued):
<TABLE>
<S> <C>
Aetna Bond VP
Policyholders' account values ........................ $19,297,688
Aetna Crossroads VP
Policyholders' account values ........................ 2,395,290
Aetna Growth and Income VP
Policyholders' account values ........................ 172,252,616
Aetna Growth VP
Policyholders' account values ........................ 58,067
Aetna Index Plus Large Cap VP
Policyholders' account values ........................ 20,548,071
Aetna Legacy VP
Policyholders' account values ........................ 1,115,594
Aetna Money Market VP
Policyholders' account values ........................ 38,443,372
Aetna Small Company VP
Policyholders' account values ........................ 634,048
Aetna Value Opportunity VP
Policyholders' account values ........................ 135,120
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio
Policyholders' account values ....................... 31,722,779
Growth Portfolio
Policyholders' account values ....................... 20,360,310
High Income Portfolio
Policyholders' account values ....................... 1,078,868
Overseas Portfolio
Policyholders' account values ....................... 4,536,234
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio
Policyholders' account values ....................... 1,733,346
Contrafund Portfolio
Policyholders' account values ....................... 29,054,986
Janus Aspen Series:
Aggressive Growth Portfolio
Policyholders' account values ....................... 57,461,476
Balanced Portfolio
Policyholders' account values ....................... 22,353,327
Flexible Income Portfolio
Policyholders' account values ....................... 68,267
Growth Portfolio
Policyholders' account values ....................... 34,242,981
Worldwide Growth Portfolio
Policyholders' account values ....................... 65,986,620
MFS Variable Insurance Trust:
Total Return Series
Policyholders' account values ....................... 11,344
World Government Series
Policyholders' account values ....................... 1,984
Oppenheimer Funds:
Aggressive Growth Fund
Policyholders' account values ....................... 738,203
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999 (continued):
<TABLE>
<S> <C>
Global Securities Fund
Policyholders' account values ......... $ 645,319
Growth & Income Fund
Policyholders' account values ......... 312,661
Strategic Bond Fund
Policyholders' account values ......... 1,313,094
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio
Policyholders' account values ......... 34,741,713
PPI MFS Research Growth Portfolio
Policyholders' account values ......... 15,901,444
PPI MFS Value Equity Portfolio
Policyholders' account values ......... 2,928,730
PPI Scudder International Growth Portfolio
Policyholders' account values ......... 24,458,534
PPI T. Rowe Price Growth Equity Portfolio
Policyholders' account values ......... 2,405,261
------------
$638,735,134
============
</TABLE>
See accompanying notes to financial statements.
S-4
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ................................................... $ 48,867,068 $ 43,340,466 $ 35,222,623
Expenses: (Notes 2 and 5)
Valuation period deduction .................................. (5,991,275) (4,390,578) (2,713,203)
-------------- ------------- -------------
Net Investment Income ........................................ 42,875,793 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 ......................................... 874,382,151 481,590,756 260,329,704
Cost of investments sold .................................... 793,957,391 454,360,016 245,858,726
-------------- ------------- -------------
Net realized gain .......................................... 80,424,760 27,230,740 14,470,978
Net unrealized gain on investments: (Note 5)
Beginning of year ........................................... 29,609,254 16,987,228 14,132,669
End of year ................................................. 56,758,198 29,609,254 16,987,228
-------------- ------------- -------------
Net change in unrealized gain .............................. 27,148,944 12,622,026 2,854,559
-------------- ------------- -------------
Net realized and unrealized gain on investments .............. 107,573,704 39,852,766 17,325,537
-------------- ------------- -------------
Net increase in net assets resulting from operations ......... 150,449,497 78,802,654 49,834,957
-------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM UNIT TRANSACTIONS:
Variable life premium payments ............................... 135,305,924 171,088,399 127,736,110
Transfers to the Company for monthly deductions .............. (32,799,767) (29,899,398) (21,545,914)
Redemptions by policyholders ................................. (162,896,593) (15,359,273) (24,062,185)
Transfers on account of policy loans ......................... (4,913,122) (4,006,080) (2,875,077)
Other ........................................................ 779,888 (342,142) 263,373
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from unit
transactions (Note 5) ....................................... (64,523,670) 121,481,506 79,516,307
-------------- ------------- -------------
Net changes in net assets .................................... 85,925,827 200,284,160 129,351,264
NET ASSETS:
Beginning of period .......................................... 552,809,307 352,525,147 223,173,883
-------------- ------------- -------------
End of period ................................................ $ 638,735,134 $ 552,809,307 $ 352,525,147
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
S-5
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999
1. Summary of Significant Accounting Policies & Account Information
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 Variable Account consists of eight products which are listed
below.
o Aetna Vest
o Aetna Vest II
o Aetna Vest Plus
o Aetna Vest Estate Protector
o Aetna Vest Estate Protector II
o Corporate Specialty Market
o Corporate Specialty Market II
o NYSUT Individual Life
Effective October 1, 1998, Aetna Life Insurance Company and Aetna Life
Insurance & Annuity Company contracted the administrative servicing
obligations to its individual variable life business to The Lincoln
National Life Insurance Company (Lincoln Life) and Lincoln Life & Annuity
Company of New York (LLANY). Although the Company is responsible for all
policy terms and conditions, Lincoln Life and LLANY are responsible for
servicing the individual life contracts, including the payment of benefits,
oversight of investment management and contract administration. The assets
of the Variable Account are owned by Lincoln Life. The portion of the
Variable Account's assets supporting the variable life policies may not be
used to satisfy liabilities arising out of any other business of Lincoln
Life.
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, 1999:
<TABLE>
<S> <C>
Aetna Ascent VP Janus Aspen Series:
Aetna Balanced VP, Inc. o Aggressive Growth Portfolio
Aetna Bond VP o Balanced Portfolio
Aetna Crossroads VP o Flexible Income Portfolio
Aetna Growth and Income VP o Growth Portfolio
Aetna Growth VP o Worldwide Growth Portfolio
Aetna Index Plus Large Cap VP MFS Variable Insurance Trust:
Aetna Legacy VP o Total Return Series
Aetna Money Market VP o World Government Series
Aetna Small Company VP Oppenheimer Funds:
Aetna Value Opportunity VP o Aggressive Growth Fund
Fidelity Investments o Global Securities Fund
Insurance Products Fund: o Growth & Income Fund
o Equity-Income Portfolio o Strategic Bond Fund
o Growth Portfolio Portfolio Partners Inc. (PPI):
o High Income Portfolio o PPI MFS Emerging Equities Portfolio
o Overseas Portfolio o PPI MFS Research Growth Portfolio
Fidelity Investments Variable Insurance o PPI MFS Value Equity Portfolio
Products Fund II: o PPI Scudder International Growth Portfolio
o Asset Manager Portfolio o PPI T. Rowe Price Growth Equity Portfolio
o Contrafund Portfolio
</TABLE>
S-6
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
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 operation 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. The Account will not be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code. Under current federal income tax law, no federal income taxes
are payable with respect to the Variable Account's net investment income
and the net realized gain on investments.
2. Mortality & Expense Guarantees & Other Transactions with Affiliates
The Company charges each variable sub-account for mortality and expense
risk. The amount charged is deducted daily at rates per year specified in
each policy.
The Company deducts a premium load from each premium payment to cover
administration expenses, state taxes, and Federal income tax liabilities.
The percentage deducted from each premium payment is specified in each
policy.
The Company charges monthly administrative fees for items such as
underwriting and issuance, premium billing and collection, policy value
calculation, confirmations and periodic reports. The amount of the monthly
administrative fees are specified in each policy.
The Company charges a monthly deduction for the cost of insurance and any
charges for supplemental riders. The cost of insurance charge is equal to
the amount at risk multiplied by a monthly cost of insurance rate. The cost
of insurance rate is variable and is based on the insured's issue age, sex
(where permitted by law), number of policy years elapsed and premium class.
Under certain circumstances, the Company reserves the right to charge a
transfer fee between sub-accounts. The amount of the transfer fee is
specified in each policy.
The Company, upon full surrender of a policy, may charge a surrender
charge. This charge is in part a deferred sales charge and in part a
recovery of certain first year administrative costs. The amount of the
surrender charge, if any, will depend on the specified amount, insured's
age, risk class and sex (where permitted by law). The maximum surrender
charges are included in each policy and are in compliance with each state's
nonforfeiture law.
3. Dividend Income
On an annual basis, the underlying mutual funds in which the Account
invests 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 underlying mutual funds. The
Account's proportionate share of each underlying mutual fund's
undistributed net investment income and accumulated net realized gain
(loss) on investments is included in net unrealized gain (loss) on
investments in the Statements of Operations and Changes in Net Assets of
the Account.
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, 1999, 1998 and 1997
aggregated $852,734,274 and $874,382,151, $642,022,151 and $481,590,756,
and $372,335,431 and $260,329,704, respectively.
S-7
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds
Period from
Dividends Deductions Sales
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: $ 207,334 ($27,423) $ 797,996
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 4,927,154 (362,224) 24,237,521
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Bond VP 1,443,656 (280,638) 18,417,017
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 150,412 (21,636) 728,894
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 30,198,699 (1,580,938) 32,617,948
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 3,015 (34,261) 5,715,725
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 881,321 (196,915) 14,299,931
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Legacy VP 62,497 (9,474) 227,116
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Money Market VP 1,696,087 (398,471) 240,430,804
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Small Company VP 8,993 (28,237) 4,384,995
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 6,310 (991) 96,462
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 1,764,504 (369,449) 17,136,392
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio 2,197,635 (205,229) 16,307,193
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
High Income Portfolio 62,986 (7,432) 326,086
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio 125,931 (32,249) 1,315,907
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 232,267 (29,020) 2,871,385
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio 1,565,873 (381,504) 26,236,688
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 1,087,970 (302,514) 130,280,210
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio 550,807 (265,810) 17,853,236
Policyholders' account values
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized
Gain (Loss)
Cost of Net -----------
Investments Realized Beginning End
Sold Gain (Loss) of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: $ 774,178 $ 23,818 ($53,438) $ 114,462
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 25,666,801 (1,429,280) (88,169) 250,405
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP 18,670,143 (253,126) (21,056) (1,358,696)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 729,509 (615) (13,664) 60,167
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 29,355,401 3,262,547 (6,059,944) (13,274,660)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 5,103,503 612,222 - 5,782
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 11,770,545 2,529,386 1,027,911 1,857,549
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 226,972 144 (9,107) (269)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 240,018,029 412,775 267,256 190,948
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 3,960,970 424,025 (23,492) 108,664
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 76,961 19,501 12,485 5,078
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 15,738,454 1,397,938 2,106,941 1,398,142
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 12,435,135 3,872,058 3,937,336 3,850,177
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
High Income Portfolio 352,715 (26,629) (22,754) (13,223)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio 1,200,968 114,939 190,775 1,225,453
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 2,692,023 179,362 266,952 130,759
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio 20,796,590 5,440,098 5,961,343 6,072,796
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 109,911,278 20,368,932 3,818,015 12,041,322
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 12,910,893 4,942,343 3,434,432 3,868,165
Policyholders' account values
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Net Increase Net Assets
Change in (Decrease) in ------------------------------
Unrealized Net Assets Resulting Beginning End
Gain (Loss) From Unit Transactions of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: $ 167,900 ($13,121)
Policyholders' account values $ 2,777,568 $ 3,136,076
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 338,574 (8,902,224)
Policyholders' account values 34,089,711 28,661,711
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1,337,640) (10,250,586)
Policyholders' account values 29,976,022 19,297,688
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 73,831 137,429
Policyholders' account values 2,055,869 2,395,290
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP (7,214,716) (9,143,942)
Policyholders' account values 156,730,966 172,252,616
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 5,782 (528,691)
Policyholders' account values - 58,067
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 829,638 3,159,014
Policyholders' account values 13,345,627 20,548,071
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 8,838 45,676
Policyholders' account values 1,007,913 1,115,594
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP (76,308) 143,868
Policyholders' account values 36,665,421 38,443,372
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 132,156 (890,290)
Policyholders' account values 987,401 634,048
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP (7,407) 61,807
Policyholders' account values 55,900 135,120
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio (708,799) (7,091,968)
Policyholders' account values 36,730,553 31,722,779
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio (87,159) (4,688,720)
Policyholders' account values 19,271,725 20,360,310
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio 9,531 804,059
Policyholders' account values 236,353 1,078,868
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio 1,034,678 178,105
Policyholders' account values 3,114,830 4,536,234
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio (136,193) (1,643,684)
Policyholders' account values 3,130,614 1,733,346
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio 111,453 (16,110,899)
Policyholders' account values 38,429,965 29,054,986
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 8,223,307 4,654,782
Policyholders' account values 23,428,999 57,461,476
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 433,733 (4,727,822)
Policyholders' account values 21,420,076 22,353,327
===================================================================================================================================
</TABLE>
S-8
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds
Period from
Dividends Deductions Sales
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio (2) $ 5,337 ($658) $ 122,746
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Growth Portfolio 202,497 (257,076) 21,130,544
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio 96,897 (512,954) 56,371,577
Policyholders' account values
- ----------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 26 (6) 1,588
Policyholders' account values
- ----------------------------------------------------------------------------------------------
World Government Series (4) -- (1) --
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) -- (45) 22
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Global Securities Fund 12,736 (3,636) 751,030
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Growth & Income Fund 1,424 (2,052) 710,579
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Strategic Bond Fund 40,196 (11,335) 1,349,254
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 329,059 (312,763) 92,317,033
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 26,665 (127,616) 11,385,569
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 39,629 (11,919) 1,177,567
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 885,006 (199,531) 134,290,559
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 54,145 (17,268) 492,577
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Total Variable Life Account B $48,867,068 ($5,991,275) $874,382,151
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flexible Income Portfolio (2) $ 124,997 ($2,251) $ - ($1,205) ($1,205)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 15,320,528 5,810,016 3,730,121 7,864,910 4,134,789
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio 42,528,486 13,843,091 5,492,542 19,350,824 13,858,282
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 1,601 (13) -- 125 125
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
World Government Series (4) -- -- -- (16) (16)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) 20 2 -- 9,807 9,807
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Global Securities Fund 654,790 96,240 19,272 128,388 109,116
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund 654,333 56,246 11,048 9,124 (1,924)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund 1,342,562 6,692 16,740 38,400 21,660
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 82,923,450 9,393,583 3,702,269 6,611,843 2,909,574
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 10,005,001 1,380,568 974,898 2,586,254 1,611,356
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 900,465 277,102 82,622 477,099 394,477
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 126,685,605 7,604,954 698,227 2,712,777 2,014,550
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 424,485 68,092 149,693 436,847 287,154
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $793,957,391 $80,424,760 $29,609,254 $56,758,198 $27,148,944
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio (2) $ 67,044
Policyholders' account values $ - $ 68,267
- ---------------------------------------------------------------------------------------------------
Growth Portfolio 950,511
Policyholders' account values 23,402,244 34,242,981
- ---------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio (4,853,866)
Policyholders' account values 43,555,170 65,986,620
- ---------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 11,212
Policyholders' account values -- 11,344
- ---------------------------------------------------------------------------------------------------
World Government Series (4) 2,001
Policyholders' account values -- 1,984
- ---------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) 728,439
Policyholders' account values -- 738,203
- ---------------------------------------------------------------------------------------------------
Global Securities Fund 113,811
Policyholders' account values 317,052 645,319
- ---------------------------------------------------------------------------------------------------
Growth & Income Fund 183,796
Policyholders' account values 75,171 312,661
- ---------------------------------------------------------------------------------------------------
Strategic Bond Fund 544,409
Policyholders' account values 711,472 1,313,094
- ---------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio (8,310,862)
Policyholders' account values 30,733,122 34,741,713
- ---------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 1,275,501
Policyholders' account values 11,734,970 15,901,444
- ---------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 1,424,018
Policyholders' account values 805,423 2,928,730
- ---------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio (2,509,255)
Policyholders' account values 16,662,810 24,458,534
- ---------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 656,778
Policyholders' account values 1,356,360 2,405,261
- ---------------------------------------------------------------------------------------------------
Total Variable Life Account B ($ 64,523,670) $552,809,307 $638,735,134
===================================================================================================
</TABLE>
(1) - Reflects less than a full year of activity. Funds were first received in
this option during January 1999.
(2) - Reflects less than a full year of activity. Funds were first received in
this option during February 1999.
(3) - Reflects less than a full year of activity. Funds were first received in
this option during March 1999.
(4) - Reflects seed money. No funds have been received for this option.
(5) - Reflects less than a full year of activity. Funds were first received in
this option during December 1999.
S-9
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds
Period from
Dividends Deductions Sales
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1) $ 129,523 ($22,620) $ 393,522
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) 5,079,318 (289,232) 8,936,646
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,751,860 (257,828) 6,762,101
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 77,190 (14,622) 473,877
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 27,303,998 (1,392,329) 39,271,149
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 591,905 (73,086) 3,515,589
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 44,001 (8,540) 377,983
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 940,509 (288,392) 130,650,119
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 8,723 (5,056) 362,699
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 298 (130) 44,207
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 1,381,671 (281,139) 8,873,609
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,011,596 (128,591) 2,784,250
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
High Income Portfolio: -- (1,531) 31,686
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio: 141,761 (22,734) 562,478
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 329,918 (29,778) 2,518,344
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,313,979 (283,258) 12,306,538
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: -- (142,378) 19,717,643
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio: 709,668 (145,407) 5,250,108
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,062,152 (162,916) 8,751,672
Policyholders' account values
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Unrealized
Gain (Loss)
Cost of Net -----------
Investments Realized Beginning End
Sold Gain (Loss) of Period of Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: (1) $ 353,120 $ 40,402 $ 27,927 ($53,438)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) 7,346,946 1,589,700 1,971,257 (88,169)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 6,468,168 293,933 (12,114) (21,056)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 453,989 19,888 5,069 (13,664)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 34,639,034 4,632,115 6,207,999 (6,059,944)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 3,029,008 486,581 (23,927) 1,027,911
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 360,207 17,776 618 (9,107)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 130,229,304 420,815 70,857 267,256
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 395,417 (32,718) -- (23,492)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 44,499 (292) -- 12,485
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 7,588,754 1,284,855 1,523,698 2,106,941
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,517,613 266,637 380,110 3,937,336
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 34,229 (2,543) -- (22,754)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 539,506 22,972 (8,270) 190,775
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,406,138 112,206 281,699 266,952
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 10,124,110 2,182,428 1,505,359 5,961,343
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 17,285,188 2,432,455 844,868 3,818,015
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 3,955,227 1,294,881 885,469 3,434,432
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 6,729,863 2,021,809 1,360,430 3,730,121
Policyholders' account values
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Net Increase Net Assets
Change in (Decrease) in ----------
Unrealized Net Assets Resulting Beginning End
Gain (Loss) From Unit Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: (1) ($81,365) $ 909,075
Policyholders' account values $ 1,802,553 $ 2,777,568
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) (2,059,426) 5,433,280
Policyholders' account values 24,336,071 34,089,711
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) (8,942) 7,092,195
Policyholders' account values 21,104,804 29,976,022
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) (18,733) 1,281,854
Policyholders' account values 710,292 2,055,869
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) (12,267,943) 6,076,102
Policyholders' account values 132,379,023 156,730,966
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 1,051,838 9,326,844
Policyholders' account values 1,961,545 13,345,627
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) (9,725) 314,262
Policyholders' account values 650,139 1,007,913
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 196,399 15,075,889
Policyholders' account values 20,320,201 36,665,421
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) (23,492) 1,039,944
Policyholders' account values -- 987,401
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 12,485 43,539
Policyholders' account values -- 55,900
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 583,243 13,578,473
Policyholders' account values 20,183,450 36,730,553
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,557,226 7,444,713
Policyholders' account values 7,120,144 19,271,725
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: (22,754) 263,181
Policyholders' account values -- 236,353
- ------------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 199,045 984,072
Policyholders' account values 1,789,714 3,114,830
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: (14,747) 198,288
Policyholders' account values 2,534,727 3,130,614
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 4,455,984 10,540,804
Policyholders' account values 20,220,028 38,429,965
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 2,973,147 5,763,410
Policyholders' account values 12,402,365 23,428,999
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 2,548,963 8,806,330
Policyholders' account values 8,205,641 21,420,076
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,369,691 6,131,508
Policyholders' account values 11,980,000 23,402,244
====================================================================================================================================
</TABLE>
S-10
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds
Period from
Dividends Deductions Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Worldwide Growth Portfolio: $ 1,360,015 ($344,460) $ 13,676,121
Policyholders' account values
- -------------------------------------------------------------------------------------------
Global Securities Fund -- (1,051) 10,993
Policyholders' account values
- -------------------------------------------------------------------------------------------
Growth & Income Fund -- (183) 65,110
Policyholders' account values
- -------------------------------------------------------------------------------------------
Strategic Bond Fund 104 (2,331) 315,681
Policyholders' account values
- -------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 68,284 (239,521) 100,307,103
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 2,113 (88,033) 22,358,392
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 628 (2,334) 188,157
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 27,896 (158,883) 92,935,246
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 3,356 (4,215) 149,733
Policyholders' account values
- -------------------------------------------------------------------------------------------
Total Variable Life Account B $43,340,466 ($4,390,578) $481,590,756
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Portfolio: $ 10,222,511 $ 3,453,610 $ 1,817,349 $ 5,492,542 $ 3,675,193
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Global Securities Fund 12,018 (1,025) -- 19,272 19,272
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund 66,180 (1,070) -- 11,048 11,048
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund 319,744 (4,063) -- 16,740 16,740
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 97,276,639 3,030,464 42,515 3,702,269 3,659,754
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 21,336,998 1,021,394 (86,245) 974,898 1,061,143
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 215,959 (27,802) -- 82,622 82,622
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 90,246,159 2,689,087 192,560 698,227 505,667
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 163,488 (13,755) -- 149,693 149,693
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $454,360,016 $27,230,740 $16,987,228 $29,609,254 $12,622,026
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Worldwide Growth Portfolio: $ 11,107,525
Policyholders' account values $ 24,303,287 $ 43,555,170
- ---------------------------------------------------------------------------------------------------
Global Securities Fund 299,856
Policyholders' account values -- 317,052
- ---------------------------------------------------------------------------------------------------
Growth & Income Fund 65,376
Policyholders' account values -- 75,171
- ---------------------------------------------------------------------------------------------------
Strategic Bond Fund 701,022
Policyholders' account values -- 711,472
- ---------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 5,152,269
Policyholders' account values 19,061,872 30,733,122
- ---------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 2,590,172
Policyholders' account values 7,148,181 11,734,970
- ---------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 752,309
Policyholders' account values -- 805,423
- ---------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: (712,067)
Policyholders' account values 14,311,110 16,662,810
- ---------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 1,221,281
Policyholders' account values -- 1,356,360
- ---------------------------------------------------------------------------------------------------
Total Variable Life Account B $121,481,506 $352,525,147 $552,809,307
===================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent 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 Funds' 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 Funds' 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-11
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds
Period from
Dividends Deductions Sales
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553) $11,219,896
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Income Shares: 1,087,150 (148,230) 2,358,910
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 372,968 (144,720) 74,201,538
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443) 1,960,106
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 112,004 (11,360) 1,279,898
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 45,840 (3,290) 198,099
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 38,169 (3,596) 225,894
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 77,848 (4,920) 143,972
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 576,583 (128,523) 53,957,227
Policyholders' account values
- --------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) 132,455 (57,820) 15,197,338
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 1,485,715 (163,582) 14,420,981
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Growth Portfolio: 192,233 (54,856) 6,814,876
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Overseas Portfolio: 46,706 (8,253) 359,668
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257) 244,742
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Contrafund Portfolio: 235,708 (110,146) 4,519,164
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: -- (95,697) 18,445,996
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Balanced Portfolio: 192,757 (52,872) 1,238,408
Policyholders' account values
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $ 7,857,508 $3,362,388 $7,294,643 $6,207,999 ($1,086,644)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 2,406,924 (48,014) (190,180) (12,114) 178,066
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 73,731,940 469,598 106,394 70,857 (35,537)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 1,561,449 398,657 1,383,931 1,971,257 587,326
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,184,906 94,992 15,645 27,927 12,282
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 193,283 4,816 (191) 5,069 5,260
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 207,391 18,503 20 618 598
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 131,418 12,554 -- (23,927) (23,927)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 53,285,312 671,915 172,057 -- (172,057)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) 15,512,673 (315,335) (146,911) -- 146,911
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 11,843,310 2,577,671 1,096,283 1,523,698 427,415
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 5,870,796 944,080 294,867 380,110 85,243
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 322,274 37,394 37,941 (8,270) (46,211)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 220,690 24,052 134,978 281,699 146,721
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 3,602,586 916,578 730,883 1,505,359 774,476
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 17,632,824 813,172 249,074 844,868 595,794
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,021,789 216,619 243,163 885,469 642,306
Policyholders' account values
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $ 11,743,902
Policyholders' account values $92,871,626 $132,379,023
- ----------------------------------------------------------------------------------------------------------
Aetna Income Shares: 6,856,045
Policyholders' account values 13,179,787 21,104,804
- ----------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 10,565,707
Policyholders' account values 9,092,185 20,320,201
- ----------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 4,867,703
Policyholders' account values 15,791,541 24,336,071
- ----------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,049,257
Policyholders' account values 545,378 1,802,553
- ----------------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 533,974
Policyholders' account values 123,692 710,292
- ----------------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 582,502
Policyholders' account values 13,963 650,139
- ----------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 1,899,990
Policyholders' account values -- 1,961,545
- ----------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) (14,034,001)
Policyholders' account values 13,086,083 --
- ----------------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) (6,388,736)
Policyholders' account values 6,482,525 --
- ----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 2,546,018
Policyholders' account values 13,310,213 20,183,450
- ----------------------------------------------------------------------------------------------------------
Growth Portfolio: 900,915
Policyholders' account values 5,052,529 7,120,144
- ----------------------------------------------------------------------------------------------------------
Overseas Portfolio: 1,227,751
Policyholders' account values 532,327 1,789,714
- ----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 796,072
Policyholders' account values 1,410,186 2,534,727
- ----------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 11,491,722
Policyholders' account values 6,911,690 20,220,028
- ----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,426,169
Policyholders' account values 9,662,927 12,402,365
- ----------------------------------------------------------------------------------------------------------
Balanced Portfolio: 3,632,486
Policyholders' account values 3,574,345 8,205,641
==========================================================================================================
</TABLE>
S-12
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- --------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds
Period from
Dividends Deductions Sales
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio: $ 309,334 ($90,076) $ 3,312,122
Policyholders' account values
- --------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) 101,542 (32,381) 9,071,413
Policyholders' account values
- --------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 325,821 (167,065) 7,022,675
Policyholders' account values
- --------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: -- (17,086) 9,834,242
Policyholders' account values
- --------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: -- (6,128) 1,889,839
Policyholders' account values
- --------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: -- (12,927) 1,858,258
Policyholders' account values
- --------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) 264,246 (110,422) 20,554,442
Policyholders' account values
- --------------------------------------------------------------------------------------------
Total Variable Life Account B $35,222,623 ($2,713,203) $260,329,704
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio: $ 2,585,617 $ 726,505 $ 566,478 $ 1,360,430 $ 793,952
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) 8,891,967 179,446 26,773 -- (26,773)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 5,257,711 1,764,964 872,277 1,817,349 945,072
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 9,998,952 (164,710) -- 42,515 42,515
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 1,891,124 (1,285) -- (86,245) (86,245)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 1,827,173 31,085 -- 192,560 192,560
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) 18,819,109 1,735,333 1,244,544 -- (1,244,544)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $245,858,726 $14,470,978 $14,132,669 $16,987,228 $ 2,854,559
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio: $ 3,065,638
Policyholders' account values 7,174,647 11,980,000
- ----------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) (4,049,682)
Policyholders' account values 3,827,848 --
- ----------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 11,519,359
Policyholders' account values 9,915,136 24,303,287
- ----------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 19,201,153
Policyholders' account values -- 19,061,872
- ----------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 7,241,839
Policyholders' account values -- 7,148,181
- ----------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 14,100,392
Policyholders' account values -- 14,311,110
- ----------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) (11,259,868)
Policyholders' account values 10,615,255 --
- ----------------------------------------------------------------------------------------------------
Total Variable Life Account B $ 79,516,307 $223,173,883 $352,525,147
====================================================================================================
</TABLE>
(1) - Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Emerging Equity Portfolio.
(2) - Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Research Growth Portfolio.
(3) - Effective November 28, 1997, assets from this fund were transferred into
the Aetna Variable Encore Fund.
(4) - Effective November 28, 1997, assets from this fund were transferred into
the PPI Scudder International Growth Portfolio.
S-13
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit Period of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Aetna Vest $ 14.535 $ 16.480 13.38% 8,108.4 $ 133,629
Aetna Vest II 14.499 16.415 13.21% 4,820.1 79,120
Aetna Vest Plus 14.499 16.415 13.21% 152,300.6 2,499,946
Aetna Vest Estate Protector 14.559 16.507 13.38% 19,644.4 324,275
Aetna Vest Estate Protector II 10.038 11.404 13.61% 8,690.6 99,106
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Aetna Vest 24.655 27.745 12.53% 101,885.7 2,826,794
Aetna Vest II 24.909 28.016 12.47% 204,589.9 5,731,870
Aetna Vest Plus 20.890 23.496 12.47% 506,450.0 11,899,396
Aetna Vest Estate Protector 15.716 17.703 12.64% 27,963.4 495,026
Aetna Vest Estate Protector II 11.233 12.678 12.87% 72,757.6 922,452
Corporate Specialty Market 18.186 20.455 12.47% 330,977.4 6,770,020
Corporate Specialty Market II - 12.667 - 81.2 (1) 1,028
NYSUT Individual Life 13.516 15.225 12.64% 993.4 15,125
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Aetna Vest 25.084 24.650 (1.73%) 238,723.8 5,884,656
Aetna Vest II 16.865 16.573 (1.73%) 62,569.1 1,036,982
Aetna Vest Plus 13.505 13.271 (1.73%) 318,545.3 4,227,550
Aetna Vest Estate Protector 12.035 11.845 (1.58%) 43,161.3 511,251
Aetna Vest Estate Protector II 10.614 10.470 (1.36%) 68,097.4 712,967
Corporate Specialty Market 13.035 12.810 (1.73%) 527,603.9 6,758,389
Corporate Specialty Market II - 10.457 - 15,480.3 (4) 161,885
NYSUT Individual Life 11.441 11.260 (1.58%) 355.9 4,008
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Aetna Vest 14.040 15.343 9.28% 3,856.3 59,167
Aetna Vest II 14.005 15.282 9.12% 3,676.4 56,182
Aetna Vest Plus 14.005 15.282 9.12% 142,144.1 2,172,206
Aetna Vest Estate Protector 14.063 15.368 9.28% 419.3 6,444
Aetna Vest Estate Protector II 10.244 11.217 9.50% 9,029.9 101,291
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Aetna Vest 50.962 59.274 16.31% 1,158,596.7 68,674,147
Aetna Vest II 28.434 33.055 16.25% 739,037.9 24,428,941
Aetna Vest Plus 23.889 27.772 16.25% 2,074,042.4 57,600,081
Aetna Vest Estate Protector 17.070 19.874 16.42% 126,208.8 2,508,237
Aetna Vest Estate Protector II 10.966 12.793 16.66% 150,942.3 1,930,981
Corporate Specialty Market 21.581 25.089 16.25% 679,447.2 17,046,334
Corporate Specialty Market II - 12.781 - 2,764.0 (4) 35,327
NYSUT Individual Life 13.623 15.860 16.43% 1,801.2 28,568
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Corporate Specialty Market - 17.615 - 3,234.8 (2) 56,983
Corporate Specialty Market II - 17.226 - 62.9 (1) 1,084
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Aetna Vest 17.044 20.975 23.06% 91,316.0 1,915,309
Aetna Vest II 17.044 20.975 23.06% 32,056.5 672,369
Aetna Vest Plus 17.044 20.975 23.06% 412,230.7 8,646,340
Aetna Vest Estate Protector 17.096 21.071 23.25% 74,181.7 1,563,077
Aetna Vest Estate Protector II 12.397 15.310 23.50% 190,679.2 2,919,241
Corporate Specialty Market 17.044 20.975 23.06% 210,675.0 4,418,818
Corporate Specialty Market II - 15.295 - 22,261.8 (4) 340,501
NYSUT Individual Life 15.850 19.535 23.25% 3,707.1 72,416
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Legacy VP:
Aetna Vest $ 13.378 $ 14.206 6.19% 854.8 $ 12,144
Aetna Vest II 13.345 14.150 6.03% 949.2 13,431
Aetna Vest Plus 13.345 14.150 6.03% 60,327.0 853,620
Aetna Vest Estate Protector 13.400 14.230 6.19% 3,283.5 46,723
Aetna Vest Estate Protector II 10.379 11.044 6.41% 17,050.0 188,297
NYSUT Individual Life 11.902 12.639 6.19% 109.1 1,379
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Aetna Vest 18.074 18.803 4.03% 142,725.6 2,683,604
Aetna Vest II 13.211 13.744 4.03% 42,777.2 587,924
Aetna Vest Plus 12.416 12.917 4.03% 1,113,716.2 14,385,720
Aetna Vest Estate Protector 11.301 11.774 4.18% 66,839.9 786,966
Aetna Vest Estate Protector II 10.413 10.871 4.40% 128,032.1 1,391,821
Corporate Specialty Market 11.878 12.357 4.04% 1,497,529.1 18,505,645
Corporate Specialty Market II - 10.861 - 6,736.3 (2) 73,160
NYSUT Individual Life 10.849 11.304 4.19% 2,524.2 28,532
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market 10.085 13.065 29.55% 48,446.2 632,957
Corporate Specialty Market II - 12.420 - 87.8 (1) 1,091
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 12.266 14.521 18.39% 9,236.5 134,125
Corporate Specialty Market II - 13.658 - 72.8 (1) 995
- -------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 15.238 16.041 5.27% 16,109.0 258,402
Aetna Vest II 15.238 16.041 5.27% 17,559.9 281,675
Aetna Vest Plus 15.238 16.041 5.27% 721,177.1 11,568,312
Aetna Vest Estate Protector 15.301 16.132 5.43% 118,968.5 1,919,142
Aetna Vest Estate Protector II 10.733 11.338 5.64% 115,816.5 1,313,121
Corporate Specialty Market 17.538 18.462 5.27% 875,042.6 16,155,452
Corporate Specialty Market II - 11.327 - 18,694.6 (5) 211,759
NYSUT Individual Life 13.031 13.739 5.43% 1,085.7 14,916
- -------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 19.002 25.856 36.07% 787,399.8 20,359,247
Corporate Specialty Market II - 17.930 - 59.3 (1) 1,063
- -------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market 9.588 10.271 7.12% 104,943.0 1,077,856
Corporate Specialty Market II - 9.902 - 102.2 (1) 1,012
- -------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 13.859 19.568 41.19% 231,765.2 4,535,149
Corporate Specialty Market II - 15.111 - 71.8 (1) 1,085
- -------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 16.358 17.991 9.98% 96,286.7 1,732,320
Corporate Specialty Market II - 12.223 - 83.9 (1) 1,026
- -------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 18.229 22.425 23.02% 50,642.2 1,135,635
Aetna Vest II 18.229 22.425 23.02% 20,952.5 469,853
Aetna Vest Plus 18.229 22.425 23.02% 630,388.5 14,136,214
Aetna Vest Estate Protector 18.305 22.551 23.20% 78,555.6 1,771,520
Aetna Vest Estate Protector II 12.417 15.329 23.45% 131,432.8 2,014,695
Corporate Specialty Market 19.607 24.119 23.01% 385,619.2 9,300,909
Corporate Specialty Market II - 15.314 - 13,049.1 (4) 199,838
NYSUT Individual Life 15.355 18.918 23.20% 1,391.4 26,322
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest $ 23.949 $ 53.447 123.17% 78,595.7 $ 4,200,721
Aetna Vest II 23.949 53.447 123.17% 36,544.0 1,953,171
Aetna Vest Plus 23.949 53.447 123.17% 615,554.6 32,899,806
Aetna Vest Estate Protector 14.569 32.562 123.50% 115,022.2 3,745,343
Aetna Vest Estate Protector II 12.855 28.789 123.95% 92,599.5 2,665,841
Corporate Specialty Market 17.969 40.102 123.17% 292,816.6 11,742,518
Corporate Specialty Market II - 28.762 - 8,727.2 (4) 251,013
NYSUT Individual Life 15.506 34.657 123.50% 88.4 3,063
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Aetna Vest 22.446 28.168 25.49% 20,837.1 586,949
Aetna Vest II 22.621 28.388 25.50% 7,862.9 223,214
Aetna Vest Plus 22.435 28.156 25.50% 463,856.2 13,060,229
Aetna Vest Estate Protector 17.895 22.491 25.68% 39,932.2 898,116
Aetna Vest Estate Protector II 12.622 15.896 25.94% 136,489.4 2,169,638
Corporate Specialty Market 19.675 24.691 25.50% 207,597.6 5,125,875
Corporate Specialty Market II - 15.881 - 17,176.7 (4) 272,785
NYSUT Individual Life 15.198 19.102 25.68% 864.9 16,521
- ---------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Corporate Specialty Market - 11.019 - 6,104.4 (3) 67,265
Corporate Specialty Market II - 10.678 - 93.8 (1) 1,002
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Aetna Vest 24.316 34.664 42.55% 45,552.7 1,579,018
Aetna Vest II 24.294 34.632 42.55% 66,432.0 2,300,676
Aetna Vest Plus 24.260 34.583 42.55% 670,451.6 23,186,343
Aetna Vest Estate Protector 17.775 25.376 42.76% 90,466.0 2,295,685
Aetna Vest Estate Protector II 12.564 17.973 43.05% 132,777.4 2,386,410
Corporate Specialty Market 19.965 28.461 42.55% 83,369.6 2,372,762
Corporate Specialty Market II - 17.956 - 5,674.5 (5) 101,893
NYSUT Individual Life 15.384 21.964 42.77% 919.4 20,194
- ---------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Aetna Vest 25.260 41.127 62.81% 111,800.0 4,597,968
Aetna Vest II 25.267 41.138 62.81% 54,942.3 2,260,212
Aetna Vest Plus 25.235 41.087 62.82% 866,585.5 35,605,247
Aetna Vest Estate Protector 18.286 29.817 63.06% 133,793.7 3,989,387
Aetna Vest Estate Protector II 12.017 19.634 63.39% 175,254.1 3,441,022
Corporate Specialty Market 20.776 33.827 62.82% 468,018.3 15,831,874
Corporate Specialty Market II - 19.616 - 12,499.1 (4) 245,183
NYSUT Individual Life 14.465 23.587 63.06% 666.8 15,727
- ---------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
Total Return Series:
Corporate Specialty Market - 11.518 - 897.9 (7) 10,343
Corporate Specialty Market II - 11.167 - 89.7 (1) 1,001
- ---------------------------------------------------------------------------------------------------------------------------
World Government Series:
Corporate Specialty Market - 10.192 - 97.3 (1) 992
Corporate Specialty Market II - 10.272 - 96.5 (1) 992
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund:
Corporate Specialty Market - 19.578 - 37,648.5 (7) 737,069
Corporate Specialty Market II - 19.458 - 58.3 (1) 1,134
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund:
Aetna Vest 10.828 16.991 56.91% 530.2 9,008
Aetna Vest II - 16.990 - 80.4 (1) 1,366
Aetna Vest Plus 10.828 16.991 56.91% 28,329.2 481,330
Aetna Vest Estate Protector 10.842 17.038 57.14% 1,533.3 26,124
Aetna Vest Estate Protector II 11.082 17.450 57.46% 7,181.2 125,309
Corporate Specialty Market 10.550 17.971 70.34% 60.7 1,091
Corporate Specialty Market II - 17.532 - 62.2 (1) 1,091
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-16
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholder
-------- in Value of Outstanding Account Value
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Growth & Income Fund:
Corporate Specialty Market $ - $ 12.711 - 16,095.7 (4) $ 204,601
Corporate Specialty Market II - 12.033 - 8,980.1 (5) 108,060
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund:
Aetna Vest 10.027 10.208 1.80% 4,611.8 47,076
Aetna Vest II - 10.207 - 100.3 (1) 1,024
Aetna Vest Plus 10.027 10.208 1.80% 62,229.8 635,239
Aetna Vest Estate Protector 10.040 10.236 1.95% 18,761.9 192,046
Aetna Vest Estate Protector II 10.036 10.253 2.16% 32,613.6 334,376
Corporate Specialty Market - 10.480 - 95.5 (1) 1,001
Corporate Specialty Market II - 10.262 - 9,903.4 (4) 101,626
NYSUT Individual Life 10.040 10.236 1.96% 69.0 706
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Aetna Vest 22.283 33.285 49.37% 55,607.9 1,850,914
Aetna Vest II 22.285 33.288 49.37% 23,443.9 780,405
Aetna Vest Plus 22.273 33.270 49.37% 595,667.2 19,817,897
Aetna Vest Estate Protector 13.899 20.793 49.60% 70,939.0 1,475,019
Aetna Vest Estate Protector II 11.576 17.352 49.90% 33,469.0 580,761
Corporate Specialty Market 18.326 27.375 49.38% 373,848.2 10,234,094
Corporate Specialty Market II - 17.339 - 66.4 (1) 1,152
NYSUT Individual Life 14.396 21.537 49.60% 68.3 1,471
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Aetna Vest 14.665 18.009 22.80% 53,119.5 956,611
Aetna Vest II 14.730 18.089 22.81% 22,767.3 411,846
Aetna Vest Plus 14.529 17.843 22.81% 490,083.9 8,744,344
Aetna Vest Estate Protector 11.161 13.727 22.99% 21,110.1 289,781
Aetna Vest Estate Protector II 11.518 14.194 23.23% 51,498.0 730,964
Corporate Specialty Market 13.288 16.318 22.81% 292,084.8 4,766,382
Corporate Specialty Market II - 14.182 - 74.7 (1) 1,060
NYSUT Individual Life 12.394 15.243 22.99% 29.9 456
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Aetna Vest 11.408 16.805 47.31% 3,672.2 61,712
Aetna Vest II 11.408 16.805 47.31% 76.1 1,279
Aetna Vest Plus 11.408 16.805 47.31% 118,377.4 1,989,331
Aetna Vest Estate Protector 11.422 16.851 47.53% 13,787.2 232,334
Aetna Vest Estate Protector II 11.699 17.294 47.83% 36,907.3 638,291
Corporate Specialty Market - 18.361 - 59.6 (1) 1,094
Corporate Specialty Market II - 17.491 - 62.6 (1) 1,094
NYSUT Individual Life 11.422 16.851 47.53% 213.3 3,595
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Aetna Vest 18.503 29.019 56.83% 101,117.4 2,934,330
Aetna Vest II 18.389 28.840 56.83% 29,315.3 845,458
Aetna Vest Plus 18.286 28.679 56.84% 510,350.3 14,636,580
Aetna Vest Estate Protector 13.907 21.844 57.07% 44,976.9 982,475
Aetna Vest Estate Protector II 11.198 17.624 57.39% 11,999.5 211,482
Corporate Specialty Market 15.323 24.031 56.83% 191,821.0 4,609,695
Corporate Specialty Market II - 17.608 - 13,545.9 (6) 238,514
- ----------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Aetna Vest 11.539 13.975 21.11% 8,785.9 122,779
Aetna Vest II 11.539 13.974 21.10% 149.0 2,081
Aetna Vest Plus 11.539 13.975 21.11% 107,827.6 1,506,845
Aetna Vest Estate Protector 11.553 14.013 21.30% 4,053.9 56,808
Aetna Vest Estate Protector II 11.839 14.388 21.53% 47,493.8 683,338
Corporate Specialty Market - 15.481 - 2,040.5 (6) 31,590
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-17
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate Specialty Market II $ - $ 14.536 - 72.3 (1) $1,052
NYSUT Individual Life 11.553 14.013 21.29% 54.8 768
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) - Reflects seed money. No funds have been received for this option.
(2) - Reflects less than a full year of activity. Funds were first received in
this option during January 1999.
(3) - Reflects less than a full year of activity. Funds were first received in
this option during February 1999.
(4) - Reflects less than a full year of activity. Funds were first received in
this option during March 1999.
(5) - Reflects less than a full year of activity. Funds were first received in
this option during April 1999.
(6) - Reflects less than a full year of activity. Funds were first received in
this option during October 1999.
(7) - Reflects less than a full year of activity. Funds were first received in
this option during December 1999.
S-18
<PAGE>
Report of Ernst & Young LLP. Independent Auditors
Board of Directors of The Lincoln National Life Insurance Company
and
Contract Owners of Aetna Life Insurance and Annuity Company 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")
(comprised of the Aetna Ascent VP, Aetna Balanced VP, Inc., Aetna Bond VP,
Aetna Crossroads VP, Aetna Growth and Income VP, Aetna Growth 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 Equity-Income Portfolio, Fidelity Investments Variable Insurance
Products Fund Growth Portfolio, Fidelity Investments Variable Insurance
Products Fund High Income Portfolio, Fidelity Investments Variable Insurance
Products Fund Overseas Portfolio, Fidelity Investments Variable Insurance
Products Fund II Asset Manager Portfolio, Fidelity Investments Variable
Insurance Products Fund II Contrafund Portfolio, Janus Aspen Series Aggressive
Growth Portfolio, Janus Aspen Series Balanced Portfolio, Janus Aspen Series
Flexible Income Portfolio, Janus Aspen Series Growth Portfolio, Janus Aspen
Series Worldwide Growth Portfolio, MFS Variable Insurance Trust Total Return
Series, MFS Variable Insurance Trust World Government Series, Oppenheimer Funds
Aggressive Growth Fund, Oppenheimer Funds Global Securities Fund, Oppenheimer
Funds Growth & Income Fund, Oppenheimer Funds Strategic Bond Fund, Portfolio
Partners Inc. (PPI) MFS Emerging Equities Portfolio, Portfolio Partners Inc.
(PPI) MFS Research Growth Portfolio, Portfolio Partners Inc. (PPI) MFS Value
Equity Portfolio, Portfolio Partners Inc. (PPI) Scudder International Growth
Portfolio, and Portfolio Partners Inc. (PPI) T. Rowe Price Growth Equity
Portfolio subaccounts), as of December 31, 1999, and the related statement of
operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The accompanying financial statements of the Account for the years
ended December 31, 1998 and 1997, were audited by other auditors whose report
dated February 26, 1999, expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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.
Our procedures included confirmation of investments owned as of December 31,
1999, 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Aetna Life Insurance and Annuity Company Variable
Life Account B at December 31, 1999, and the results of their operations and
changes in their net assets for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 28, 2000
S-19
<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.
/s/ KPMG LLP
Hartford, Connecticut
February 26, 1999
S-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997.................................................................. F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998..................... F-4
Consolidated Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997....................................................................... 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 Subsidiaries as of December 31, 1999 and
1998, 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, 1999. 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 Subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 7, 2000
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Premiums $ 107.5 $ 79.4 $ 69.1
Charges assessed against policyholders 388.3 324.3 262.0
Net investment income 886.3 871.8 881.7
Net realized capital (losses) gains (21.5) 10.4 29.7
Other income 129.7 100.2 96.8
-------- -------- --------
Total revenue 1,490.3 1,386.1 1,339.3
-------- -------- --------
Benefits and expenses:
Current and future benefits 746.2 714.4 720.4
Operating expenses:
Salaries and related benefits 153.0 141.0 133.5
Other 214.9 200.8 182.8
Amortization of deferred policy acquisition costs 104.9 91.2 66.3
-------- -------- --------
Total benefits and expenses 1,219.0 1,147.4 1,103.0
-------- -------- --------
Income from continuing operations before income
taxes 271.3 238.7 236.3
Income taxes 90.1 66.6 68.4
-------- -------- --------
Income from continuing operations 181.2 172.1 167.9
Discontinued operations, net of tax:
Income from operations -- 61.8 67.8
Amortization of deferred gain on sale 5.7 -- --
Immediate gain on sale -- 59.0 --
-------- -------- --------
Net income $ 186.9 $ 292.9 $ 235.7
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- --------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value
(amortized cost: $11,657.9 and $11,571.3) $11,410.1 $12,068.2
Equity securities, available for sale:
Nonredeemable preferred stock (cost: $134.7 and $202.6) 130.9 203.3
Investment in affiliated mutual funds (cost: $63.5 and $96.8) 64.1 100.1
Common stock (cost: $6.7 and $1.0) 11.5 2.0
Short-term investments 74.2 48.9
Mortgage loans 6.7 12.7
Policy loans 314.0 292.2
Other investments 13.2 12.7
----------- -----------
Total investments 12,024.7 12,740.1
Cash and cash equivalents 693.3 628.3
Short-term investments under securities loan agreement 232.5 277.3
Accrued investment income 150.7 151.6
Premiums due and other receivables 298.3 61.1
Reinsurance recoverable 3,001.2 2,959.8
Deferred income taxes 150.4 114.3
Deferred policy acquisition costs 1,046.4 893.1
Other assets 96.5 70.4
Separate Accounts assets 38,692.6 29,430.2
----------- -----------
Total assets $56,386.6 $47,326.2
=========== ===========
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,850.4 $ 3,815.9
Unpaid claims and claim expenses 27.3 18.8
Policyholders' funds left with the Company 11,121.7 11,305.6
----------- -----------
Total insurance reserve liabilities 14,999.4 15,140.3
Payables under securities loan agreement 232.5 277.3
Current income taxes 14.7 279.6
Other liabilities 1,063.0 805.5
Separate Accounts liabilities 38,692.6 29,430.2
----------- -----------
Total liabilities 55,002.2 45,932.9
----------- -----------
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 431.8 431.8
Accumulated other comprehensive (loss) income (44.8) 104.8
Retained earnings 994.6 853.9
----------- -----------
Total shareholder's equity 1,384.4 1,393.3
----------- -----------
Total liabilities and shareholder's equity $56,386.6 $47,326.2
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,393.3 $1,852.8 $1,618.3
Comprehensive income:
Net income 186.9 292.9 235.7
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities
($(230.2), $18.2 $49.9, pretax)(1) (149.6) 11.9 32.4
---------- ---------- ----------
Total comprehensive income 37.3 304.8 268.1
---------- ---------- ----------
Capital contribution -- 9.3 (5.0)
Other changes 2.8 2.4 5.7
---------- ---------- ----------
Common stock dividends (49.0) (776.0) (34.3)
---------- ---------- ----------
Shareholder's equity, end of year $1,384.4 $1,393.3 $1,852.8
========== ========== ==========
</TABLE>
(1) Net of reclassification adjustments.
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 186.9 $ 292.9 $ 235.7
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Net accretion of discount on investments (26.5) (29.5) (66.8)
Amortization of deferred gain on sale ( 5.7) -- --
Immediate gain on sale -- (59.0) --
Net realized capital losses (gains) 21.5 (11.1) (36.0)
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 0.9 11.4 ( 4.0)
Increase in premiums due and other receivables 23.3 (23.7) (30.0)
(Increase) decrease in policy loans (21.8) 177.4 (70.3)
Increase in deferred policy acquisition costs (153.3) (132.8) (155.8)
Decrease in reinsurance loan to affiliate -- 397.2 231.1
Net increase in universal life account balances 55.7 122.9 157.1
Decrease in other insurance reserve liabilities (28.6) (41.8) (120.3)
Decrease in other liabilities and other assets (53.9) (53.6) (74.0)
(Decrease) increase in income taxes (259.8) 106.4 (25.8)
---------- ---------- ----------
Net cash (used for) provided by operating activities (261.3) 756.7 40.9
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,890.1 6,790.2 5,311.4
Equity securities 111.2 150.1 103.1
Mortgage loans 6.1 0.3 0.2
Life Business -- 966.5 --
Investment maturities and collections of:
Debt securities available for sale 1,216.5 1,296.3 1,212.7
Short-term investments 80.6 135.3 108.4
Cost of investment purchases in:
Debt securities available for sale (7,099.7) (6,706.4) (6,734.8)
Equity securities (13.0) (125.7) (113.3)
Short-term investments (106.0) (83.9) (167.1)
Increase in property and equipment 5.7 9.0 10.0
Other, net 3.7 (2,725.9) --
---------- ---------- ----------
Net cash provided by (used for) investing activities 95.2 (294.2) (269.4)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 2,040.2 1,571.1 1,621.2
Withdrawals of investment contracts (1,680.8) (1,393.1) (1,256.3)
Capital contribution to Separate Account -- -- (25.0)
Return of capital from Separate Account -- 1.7 12.3
Capital contribution from HOLDCO -- 9.3 (5.0)
Dividends paid to shareholder (255.0) (570.0) (34.3)
Other, net 126.7 (34.3) 26.4
---------- ---------- ----------
Net cash provided by (used for) financing activities 231.1 (415.3) 339.3
---------- ---------- ----------
Net increase in cash and cash equivalents 65.0 47.2 110.8
Cash and cash equivalents, beginning of year 628.3 581.1 470.3
---------- ---------- ----------
Cash and cash equivalents, end of year $ 693.3 $ 628.3 $ 581.1
========== ========== ==========
Supplemental cash flow information:
Income taxes paid, net $ 316.5 $ 60.5 $ 130.3
========== ========== ==========
</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 ("ALIAC") and its wholly owned
subsidiaries (collectively, the "Company") are providers of financial products
and services and investment management services in the United States. The
Company has two business segments: Financial Products and Investment Management
Services. On October 1, 1998, the Company sold its individual life insurance
business to Lincoln National Corporation ("Lincoln") and accordingly, it is now
classified as Discontinued Operations (refer to note 3).
Financial 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,
nonqualified annuity contracts and mutual funds. Annuity contracts may be
deferred or immediate ("payout annuities"). These products also include
programs offered to qualified plans and nonqualified deferred compensation
plans that package administrative and recordkeeping services along with a menu
of investment options, including mutual funds (both ALIAC and nonaffiliated
mutual funds), variable and fixed investment options. Financial Products also
include investment advisory services and pension plan administrative services.
Investment Management Services provides: investment advisory services to
affiliated and unaffiliated institutional and retail clients on a
fee-for-service basis; underwriting services to the Aetna Series Fund Inc.;
distribution services for other Aetna products; and trustee, administrative,
and other fiduciary services to retirement plans requiring or otherwise
utilizing a trustee or custodian.
Discontinued Operations include universal life, variable universal life,
traditional whole life and term insurance.
Principles of Consolidation
The consolidated financial statements include ALIAC and its wholly owned
subsidiaries, Aetna Insurance Company of America ("AICA") and Aetna Investment
Adviser Holding Company, Inc. ("IA Holdco"). ALIAC is a wholly owned subsidiary
of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly owned
subsidiary of Aetna Retirement Services, Inc. whose ultimate parent is Aetna
Inc. ("Aetna"). On July 1, 1999, HOLDCO contributed IA Holdco to the Company
(refer to note 2).
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. The contribution of IA Holdco to the
Company was accounted for in a manner similar to that of a pooling-of-interests
and accordingly, the Company's historical consolidated financial statements
have been restated to include the accounts and results of operations of IA
Holdco. Certain reclassifications have been made to 1998 and 1997 financial
information to conform to the 1999 presentation.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
New Accounting Standards
Accounting by Insurance and Other Enterprises for Insurance-Related Assesments
As of January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3,
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments, issued by the American Institute of Certified Public Accountants
("AICPA"). This statement 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. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations, as the Company had previously
accounted for guaranty-fund and other insurance-related assessments in a manner
consistent with this standard.
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. The Company does not expect the adoption
of this standard to have a material effect on its financial position and
results of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("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. As amended by FAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. The impact
of FAS No. 133 on the Company's financial statements will vary based on certain
factors including future interpretative guidance from the FASB, the extent of
the Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. The Company is evaluating the impact of
adoption of this standard and currently does not believe that it will have a
material effect on its financial position and 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
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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. Securities are written down (as realized capital losses) for other
than temporary declines in value. Included in available-for-sale securities are
investments that support experience-rated products.
Experience-rated products are products where the customer, not the Company,
assumes investment (including realized capital gains and losses) and other
risks, subject to, among other things, minimum guarantees. As long as minimum
guarantees are not triggered, the effect of experience- rated products'
investment performance does not impact the Company's results of operations.
Realized and unrealized capital gains and losses on investments supporting
these products are reflected in policyholder's funds left with the Company.
Realized capital gains and losses on all other investments are reflected in the
Company's results of operations. Unrealized capital gains and losses on all
other investments are reflected in shareholders' equity, net of related income
taxes. Purchases and sales of debt and equity securities are recorded on the
trade date. Sales of mortgage loans are recorded on the closing date.
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. At December
31, 1999 and 1998, the Company loaned securities (which are reflected as
invested assets) with a fair value of approximately $232.5 million and $277.3
million, respectively.
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.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves.
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 5.)
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.
On occasion, the Company sells call options written on underlying securities
which are carried at fair value. Changes in fair value of these options are
recorded in net realized capital gains or losses.
Deferred Policy Acquisition Costs
Certain costs of acquiring certain 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 certain
annuity and pension contracts, such costs are amortized in proportion to
estimated gross profits and adjusted to reflect actual gross profits over the
life of the contracts (up to 20 years for annuity and pension contracts.)
Periodically, modifications may be made to deferred annuity contract features,
such as shortening the surrender charge period or waiving the surrender charge,
changing the mortality and expense fees, etc. Unamortized deferred policy
acquisition costs associated with these modified contracts are not written off,
but rather, continue to be associated with the original block of business to
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
which these costs were previously recorded. Such costs are amortized based on
revised estimates of expected gross profits based upon the contract after the
modification. Unamortized deferred policy acquisition costs related to deferred
annuity products were approximately $1.0 billion and $893 million as of
December 31, 1999 and 1998, respectively.
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 expenses.
Insurance Reserve Liabilities
Future policy benefits include reserves for universal life, immediate annuities
with life contingent payouts and traditional life insurance contracts. Reserves
for universal life products are equal to cumulative deposits less withdrawals
and charges plus credited interest thereon. Reserves for traditional life
insurance contracts represent the present value of future benefits to be paid
to or on behalf of policyholders and related expenses less the present value of
future net premiums.
Reserves for immediate annuities with life contingent payouts 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 1.50%
to 11.25% 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.
Revenue Recognition
For 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
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
and are not recorded as revenue. 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
Separate Accounts assets and liabilities generally represent funds maintained
to meet specific investment objectives of contractholders who bear the
investment risk, subject, in some cases, to minimum guaranteed rates.
Investment income and investment gains and losses generally accrue directly to
such contractholders. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company.
Separate Accounts assets supporting variable options under universal life and
annuity contracts are invested, as designated by the contractholder or
participant under a contract (who bears the investment risk subject, in limited
cases, to minimum guaranteed rates) in shares of mutual funds which are managed
by the Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets are carried at fair value. At December 31, 1999 and
1998 , unrealized losses of $8.0 million and unrealized gains of $10.0 million,
respectively, after taxes, on assets supporting a guaranteed interest option
are reflected in shareholder's equity. 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 3.70% to 12.00%
in 1999 and 3.00 to 8.10% in 1998.
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.
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 recoverable deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets. Of the reinsurance recoverable on
the Consolidated Balance Sheets at December 31, 1999 and 1998, $2,989 million
and $2,946 million, respectively, is related to the reinsurance recoverable
from Lincoln arising from the sale of the domestic life insurance business.
(Refer to note 3)
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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. Contribution of IA Holdco from HOLDCO
On July 1, 1999, HOLDCO contributed IA Holdco to the Company. The primary
operating subsidiary of IA Holdco is Aeltus Investment Management, Inc.
("Aeltus") which has two wholly-owned operating subsidiaries: Aeltus Capital,
Inc. ("ACI"), a broker dealer, and Aeltus Trust Company ("ATC"), a limited
purpose banking entity. Aeltus is a registered investment advisor under the
Investment Advisers Act of 1940 and provides investment advisory services to
institutional and retail clients on a fee-for-service basis. In addition,
Aeltus, through its ACI subsidiary, provides distribution services for certain
Aetna mutual funds and other Aetna products. Aeltus' ATC subsidiary provides
trustee, administrative, and other fiduciary services to retirement plans
requiring or otherwise utilizing a trustee or custodian.
3. 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.
Assets related to and supporting the life policies were transferred to Lincoln
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 $57.7 million was deferred and was being recognized over
approximately 15 years. The remaining portion of the gain is recognized
immediately in net income and was largely attributed to access to the agency
sales force and brokerage distribution channel. Approximately $5.2 million
(after tax) of the deferred gain was recognized during 1999. During the fourth
quarter of 1999, the Company refined certain accrual and tax estimates which
had been established in connection with the recording of the deferred gain. As
a result, the deferred gain was increased by $12.9 million (after tax) to $65.4
million at December 31, 1999. The remaining deferred gain will be recognized
over approximately 14 years. The unamortized portion of the deferred 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 and $620.4 million for 1998
and 1997. Premiums ceded and reinsurance recoveries made in 1999 totaled $476.5
million and $513.4 million, respectively, and in 1998 totaled $153.4 million
and $70.5 million, respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments
Debt securities available for sale as of December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 (Millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,087.2 $ 4.6 $ 22.1 $ 1,069.7
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 514.5 5.6 12.7 507.4
Financial 1,869.8 8.2 44.7 1,833.3
Transportation/capital goods 623.4 .9 39.0 585.3
Health care/consumer products 1,138.7 9.3 51.3 1,096.7
Natural resources 424.6 1.3 15.4 410.5
Other corporate securities 214.0 1.0 14.9 200.1
- ----------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,785.0 26.3 178.0 4,633.3
- ----------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 364.6 17.1 11.9 369.8
Utilities 196.4 7.3 .4 203.3
Other 748.2 8.9 34.3 722.8
- ----------------------------------------------------------------------------------------------------------------
Total foreign securities 1,309.2 33.3 46.6 1,295.9
- ----------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 1,055.9 19.8 17.6 1,058.1
Collateralized mortgage obligations 1,683.1 25.1 37.7 1,670.5
- ----------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,739.0 44.9 55.3 2,728.6
- ----------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,031.5 3.4 48.7 986.2
Other asset-backed securities 705.7 0.3 9.9 696.1
- ----------------------------------------------------------------------------------------------------------------
Total debt securities $ 11,657.9 $ 112.8 $ 360.6 $ 11,410.1
================================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Debt securities available for sale as of December 31 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 2,260.2 94.6 5.6 2,349.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Healthcare/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 5,300.6 239.9 25.3 5,515.2
- ----------------------------------------------------------------------------------------------------------------
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 $ 11,571.3 $ 580.8 $ 83.9 $ 12,068.2
================================================================================================================
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
At December 31, 1999 and 1998, net unrealized (depreciation) appreciation of
$(247.8) million and $496.9 million, respectively, on available-for-sale debt
securities included $(189.7) million and $355.8 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, 1999 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 $ 266.4 $ 266.5
After one year through five years 2,838.4 2,798.7
After five years through ten years 1,718.0 1,674.6
After ten years 2,351.4 2,250.1
Mortgage-backed securities 3,776.5 3,722.3
Other asset-backed securities 707.2 697.9
- -------------------------------------------------------------------------
Total $ 11,657.9 $ 11,410.1
=========================================================================
</TABLE>
At December 31, 1999 and 1998, debt securities carried at fair value of $8.7
million and $8.8 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, 1999.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
Amortized Fair Amortized Fair
(Millions) Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,683.1 $ 1,670.5 $ 1,879.6 $ 1,988.9
=====================================================================================================
Percentage of total:
Supporting experience rated products 80.7% 81.7%
Supporting remaining products 19.3% 18.3%
- -----------------------------------------------------------------------------------------------------
100.0% 100.0%
=====================================================================================================
</TABLE>
(1) At December 31, 1999 and 1998, approximately 81% and 66%, 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)
4. Investments (continued)
There are various categories of CMOs which are subject to different degrees of
risk from changes in interest rates and, for CMO's that are not agency-backed,
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, 1999 and 1998,
approximately 1% and 2%, 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) 1999 1998
- ----------------------------------------------------
<S> <C> <C>
Amortized Cost $ 204.9 $ 300.4
Gross unrealized gains 12.5 13.1
Gross unrealized losses 10.9 8.1
- ----------------------------------------------------
Fair Value $ 206.5 $ 305.4
====================================================
</TABLE>
5. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 6.7 $ 6.8 $ 12.7 $ 12.3
Liabilities:
Investment contract liabilities:
With a fixed maturity 1,055.3 991.0 1,063.9 984.3
Without a fixed maturity 10,066.4 9,452.8 10,241.7 9,686.2
- ------------------------------------------------------------------------------------------
</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)
5. 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.
Off-Balance-Sheet and Other Financial Instruments
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.
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. There were no open
treasury futures as of December 31, 1999.
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, 1999 were
both $6.5 million. The carrying values and estimated fair values as of December
31, 1998 were both $1.5 million.
Options:
During 1999, the Company earned $0.4 million of investment income for writing
call options on underlying securities. The Company did not write any call
options in 1998. As of December 31, 1999 and 1998, there were no option
contracts outstanding.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. 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,
1999 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $ 1,683.1 $ 1,670.5
Principal-only strips (included above) 9.2 9.7
Interest-only strips (included above) 10.7 14.6
Other structured securities with derivative
characteristics (1) 81.7 67.2
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
6. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 823.3 $ 798.8 $ 814.6
Nonredeemable preferred stock 17.1 18.4 12.9
Investment in affiliated mutual funds 2.4 6.6 3.8
Mortgage loans 1.1 0.6 0.3
Policy loans 7.7 7.2 5.7
Reinsurance loan to affiliate -- 2.3 5.5
Cash equivalents 39.0 46.1 40.2
Other 15.3 13.2 16.1
- --------------------------------------------------------------------------------
Gross investment income 905.9 893.2 899.1
Less: investment expenses (19.6) (21.4) (17.4)
- --------------------------------------------------------------------------------
Net investment income $ 886.3 $ 871.8 $ 881.7
================================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $659.6 million, $655.6 million and $673.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Dividend Restrictions and Shareholder's Equity
The Company paid $255.0 million, $570.0 million and $34.3 million in cash
dividends to HOLDCO in 1999,1998 and 1997, respectively. Of the $255.0 million
paid in 1999, $206 million was accrued for in 1998. Of the $776.0 million
dividends paid or 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.
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 $133.9
million, $148.1 million and $80.5 million for the years ended December 31,
1999, 1998 and 1997, respectively. Statutory capital and surplus was $845.2
million and $773.0 million as of December 31, 1999 and 1998, respectively.
As of December 31, 1999, 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.
8. 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 (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (23.6) $ 7.4 $ 21.1
Equity securities 2.1 3.0 8.6
- ----------------------------------------------------------------------------------
Pretax realized capital (losses) gains $ (21.5) $ 10.4 $ 29.7
==================================================================================
After-tax realized capital (losses) gains $ (14.0) $ 7.3 $ 19.2
==================================================================================
</TABLE>
Net realized capital (losses) gains of $(36.7) million, $15.0 million and $83.7
million for 1999, 1998 and 1997, 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 allocable to experienced-rated contractholders were $68.5
million and $118.6 million at December 31, 1999 and 1998, respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. 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) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $ 5,890.1 $ 6,790.2 $ 5,311.3
Gross gains 10.5 98.8 23.8
Gross losses 34.1 91.4 2.7
- ------------------------------------------------------------------
</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) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (199.2) $ 18.9 $ 44.3
Equity securities (3.4) (16.1) 5.6
Other (27.6) 15.4 --
- -------------------------------------------------------------------------------------
Subtotal (230.2) 18.2 49.9
(Decrease) increase in deferred income taxes
(Refer to note 9) (80.6) 6.3 17.5
- -------------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive (loss) income $ (149.6) $ 11.9 $ 32.4
=====================================================================================
</TABLE>
Net unrealized capital (losses) gains allocable to experience-rated contracts
of $(189.7) and $355.8 million at December 31, 1999 and December 31, 1998
respectively, are reflected on the Consolidated Balance Sheets in
Policyholders' funds left with the Company and are not included in
shareholder's equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
(loss) income, which is net of amounts allocable to experience-rated
contractholders, at December 31:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $ 18.6 $ 157.3 $ 140.6
Gross unrealized capital losses (76.7) (16.2) (18.4)
- -----------------------------------------------------------------------------------
(58.1) 141.1 122.2
- -----------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 12.5 13.1 21.2
Gross unrealized capital losses (10.9) (8.1) (0.1)
- -----------------------------------------------------------------------------------
1.6 5.0 21.1
- -----------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 1.3 17.1 --
Gross unrealized capital losses (13.7) (1.8) --
- -----------------------------------------------------------------------------------
(12.4) 15.3 --
- -----------------------------------------------------------------------------------
Deferred income taxes (Refer to note 9) (24.1) 56.6 50.4
- -----------------------------------------------------------------------------------
Net accumulated other comprehensive (loss)
income $ (44.8) $ 104.8 $ 92.9
===================================================================================
</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) 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding (losses) gains arising
during the year (1) $ (146.3) $ 38.3 $ 99.2
Less: reclassification adjustment for gains and
other items included in net income (2) 3.3 26.4 66.8
========================================================================================
Net unrealized (losses) gains on securities $ (149.6) $ 11.9 $ 32.4
========================================================================================
</TABLE>
(1) Pretax unrealized holding (losses) gains arising during the year were
$(225.2) million, $58.8 million and $152.7 million for 1999, 1998 and
1997, respectively.
(2) Pretax reclassification adjustments for gains and other items included in
net income were $5.0 million, $40.6 million and $102.8 million for 1999,
1998 and 1997, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined New York return, and Illinois unitary state income tax return of
Aetna. Aetna allocates to each member, as permitted under a tax sharing
arrangement, 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) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 63.8 $ 257.4 $ 40.0
State 2.5 3.0 3.3
Net realized capital (losses) gains (20.1) 16.8 39.1
- -----------------------------------------------------------------------------
46.2 277.2 82.4
- -----------------------------------------------------------------------------
Deferred taxes (benefits):
Federal 31.3 (196.7) 14.3
Net realized capital gains (losses) 12.6 (13.9) (28.3)
- -----------------------------------------------------------------------------
43.9 (210.6) (14.0)
- -----------------------------------------------------------------------------
Total $ 90.1 $ 66.6 $ 68.4
=============================================================================
</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) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $ 271.3 $ 238.7 $ 236.3
Tax rate 35% 35% 35%
- ------------------------------------------------------------------------------------
Application of the tax rate 95.0 83.5 82.7
Tax effect of:
State income tax, net of federal benefit 1.6 2.0 2.1
Excludable dividends (6.1) (17.1) (15.6)
Other, net (0.4) (1.8) (0.8)
- ------------------------------------------------------------------------------------
Income taxes $ 90.1 $ 66.6 $ 68.4
=====================================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. 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) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 323.1 $ 324.1
Unrealized gains allocable to experience rated contracts -- 124.5
Net unrealized capital losses 90.5 --
Investment losses 1.3 --
Postretirement benefits other than pensions 24.8 27.6
Deferred compensation 42.5 37.3
Sale of individual life 44.9 48.9
Other 20.2 20.4
- ---------------------------------------------------------------------------------------
Total gross assets 547.3 582.8
- ---------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 324.0 282.9
Market discount 6.5 4.5
Net unrealized capital gains -- 181.1
Unrealized losses allocable to experience rated contracts 66.4 --
- ---------------------------------------------------------------------------------------
Total gross liabilities 396.9 468.5
- ---------------------------------------------------------------------------------------
Net deferred tax asset $ 150.4 $ 114.3
=======================================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes.
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, 1999. This amount would be taxed
only under certain conditions. 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 1994. 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 1995 through 1997.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. 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 (September 30), fair value of plan assets exceed projected
benefit obligations. 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 $6.6 million and $3.0 million for the years ended December
31, 1999 and 1997, respectively. There were no charges in 1998 due to favorable
plan asset performance.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed the
formula from the previous final average pay formula to a cash balance formula,
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 did not have a material effect on the
Company's results of operations, liquidity or financial condition.
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
45 with 10 years of service. The company provides subsidized benefits to
employees whose sum of age and service is at least equal to 65. There is a cap
on the portion of the cost paid by the Company relating to medical and dental
benefits. The costs to the Company associated with the Aetna postretirement
plans for 1999, 1998 and 1997 were $2.1 million, $1.0 million and $2.4 million,
respectively.
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 (September 30), accumulated
benefit obligations exceeded fair value of plan assets.
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 1999, 1998 and
1997 were $2.1 million, $1.4 million and $0.6 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested
in common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $7.7 million, $5.3 million and $5.0 million in 1999, 1998 and 1997,
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 employees. Executive, middle
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Benefit Plans (continued)
management and non-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,
from time to time, 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 1999, 1998 and 1997, were $0.4 million, $4.2 million and
$2.9 million, respectively.
11. Related Party Transactions
Investment Advisory and Other Fees
The Company serves as investment advisor to the Aetna managed mutual funds and
variable funds (collectively, the Funds). Under the advisory agreements, the
Funds pay the Company a daily fee which, on an annual basis, ranged, depending
on the fund, from 0.25% to 0.95% 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 and other income, amounted to $424.2 million, $349.0
million and $271.2 million in 1999, 1998 and 1997, respectively.
Reinsurance Transactions
Effective December 31, 1988, the Company entered into a modified coinsurance
reinsurance agreement ("MODCO") with Aetna Life Insurance Company ("Aetna
Life"), an affiliate company, 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. Effective January 1, 1997, this
agreement was amended to transition (based on underlying investment rollover in
Aetna Life) from a modified coinsurance arrangement to a coinsurance agreement.
As a result of this change, reserves were ceded to the Company from Aetna Life
as investment rollover occurred. Effective October 1, 1998, this agreement was
fully transitioned to a coinsurance arrangement and this business along with
the Company's direct individual non-participation life insurance business was
sold to Lincoln. (Refer to note 3).
The operating results of the domestic individual life business are presented as
Discontinued Operations. Premiums of $17.9 million, $336.3 million and $176.7
million and current and future benefits of $8.6 million, $341.1 million and
$183.9 million, were assumed in 1999, 1998 and 1997, respectively. Investment
income of $17.0 million and $37.5 million was generated from a reinsurance loan
to affiliate for the years ended December 31, 1998 and 1997, 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
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions (continued)
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 and $5.9 million for 1998 and 1997,
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 renewable term basis. Premium amounts
related to this agreement were $4.4 million in1998. 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 $115.3 million and $87.8
million were maintained for this contract as of December 31, 1999 and 1998,
respectively.
Capital Transactions
The Company received no capital contributions in 1999. In 1998, the Company
received a capital contribution of $9.3 million in cash from HOLDCO. In 1997,
the Company returned capital of $5.0 million to HOLDCO.
Refer to note 7 for dividends paid to HOLDCO.
Other
Premiums due and other receivables include $10.5 million and $1.6 million due
from affiliates in 1999 and 1998, respectively. Other liabilities include $1.9
million and $2.2 million due to affiliates for 1999 and 1998, respectively.
Aetna transferred to the Company $0.8 million, $1.7 million and $3.8 million
based on its decision not to settle state tax liabilities for the years 1999,
1998 and 1997, respectively, as permitted under the tax sharing arrangement,
which is reported in other changes 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.
12. 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 3)
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Reinsurance (continued)
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.
The following table includes premium amounts ceded/assumed as discussed in note
11.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
----
Premiums:
Discontinued Operations $ 460.1 $ 478.0 $ 17.9 $ --
Accident and Health Insurance 33.4 33.4 -- --
Annuities 111.5 4.9 .9 107.5
- ---------------------------------------------------------------------------------------
Total earned premiums $ 605.0 $ 516.3 $ 18.8 $ 107.5
=======================================================================================
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
=======================================================================================
</TABLE>
F-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1999 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 551.1 $ 118.3 -- $ (43.9) $ 625.5
Net investment income 881.5 1.5 -- 3.3 886.3
- ---------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital losses $ 1,432.6 $ 119.8 -- $ (40.6) $ 1,511.8
=========================================================================================================
Amortization of deferred policy
acquisition costs $ 93.4 $ 11.5 $ 104.9
- ---------------------------------------------------------------------------------------------------------
Income taxes (benefits) $ 87.0 $ 16.5 $ (13.4) $ 90.1
- ---------------------------------------------------------------------------------------------------------
Operating earnings (losses) (2) $ 192.1 $ 28.1 -- $ (7.5) $ 212.7
Other item (3) -- -- (17.5) (17.5)
Net realized capital losses,
net of tax (14.0) -- -- (14.0)
- ---------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations 178.1 28.1 -- (25.0) 181.2
Discontinued operations,
net of tax:
Amortization of deferred
gain on sale -- $ 5.7 -- 5.7
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 178.1 $ 28.1 $ 5.7 $ (25.0) $ 186.9
=========================================================================================================
Segment assets $ 53,324.4 $ 73.2 $ 2,989.0 $ 56,386.6
- ---------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 5.7 $ 5.7
- ---------------------------------------------------------------------------------------------------------
Balance of long-lived assets -- -- -- $ 16.5 $ 16.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial Products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $17.5 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1998 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 445.6 $ 96.7 -- $ (38.4) $ 503.9
Net investment income 865.3 1.5 -- 5.0 871.8
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,310.9 $ 98.2 -- $ (33.4) $ 1,375.7
========================================================================================================
Amortization of deferred policy
acquisition costs $ 80.3 -- -- $ 10.9 $ 91.2
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 67.7 $ 14.7 -- $ (15.8) $ 66.6
- --------------------------------- ---------- ------- -- ------- ----------
Operating earnings (2) $ 170.3 $ 24.0 -- $ (7.1) $ 187.2
Other item (3) -- -- -- (22.4) (22.4)
Net realized capital gains,
net of tax 7.3 -- -- -- 7.3
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 177.6 24.0 -- (29.5) 172.1
Discontinued operations,
net of tax:
Income from operations -- -- $ 61.8 -- 61.8
Immediate gain on sale -- -- 59.0 -- 59.0
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 177.6 $ 24.0 $ 120.8 $ (29.5) $ 292.9
========================================================================================================
Segment assets $ 44,366.4 $ 13.4 $ 2,946.4 $ 47,326.2
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (4) -- -- -- $ 9.0 $ 9.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 14.8 $ 14.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Other item excluded from operating earnings represents after-tax Year 2000
costs of $22.4 million
(4) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
13. Segment Information (continued)
<TABLE>
<CAPTION>
Investment
Year ended December 31, Financial Management Discontinued
1997 (Millions) Products (1) Services (1) Operations (1) Other (1) Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers $ 371.5 $80.3 -- $(23.9) $ 427.9
Net investment income 876.7 1.4 -- 3.6 881.7
- --------------------------------------------------------------------------------------------------------
Total revenue excluding net
realized capital gains $ 1,248.2 $81.7 -- $(20.3) $ 1,309.6
========================================================================================================
Amortization of deferred policy
acquisition costs $ 57.2 -- -- $ 9.1 $ 66.3
- --------------------------------------------------------------------------------------------------------
Income Taxes (benefits) $ 59.7 $11.9 -- $ (3.2) $ 68.4
- --------------------------------------------------------------------------------------------------------
Operating earnings (2) $ 134.9 $19.7 -- $ (5.9) $ 148.7
Net realized capital gains,
net of tax 19.2 -- -- -- 19.2
- --------------------------------------------------------------------------------------------------------
Income from continuing
operations 154.1 $19.7 -- (5.9) 167.9
Discontinued operations,
net of tax:
Income from operations -- -- $ 67.8 -- 67.8
Deferred gain on sale -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
Net income (loss) $ 154.1 $19.7 $ 67.8 $ (5.9) $ 235.7
========================================================================================================
Segment assets $ 36,379.5 $17.9 $ 3,792.5 -- $ 40,189.9
- --------------------------------------------------------------------------------------------------------
Expenditures for long-lived
assets (3) -- -- -- $ 10.0 $ 10.0
- --------------------------------------------------------------------------------------------------------
Balance of long-lived assets $ 12.7 $ 12.7
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Financial products include: deferred and immediate annuity contracts,
mutual funds, programs offered to qualified plans and nonqualified
deferred compensation plans that package administrative and recordkeeping
services along with a menu of investment options, investment advisory
services and pension plan administrative services. Investment Management
Services include the following services: investment advisory to affiliated
and unaffiliated institutional and retail clients, underwriting,
distribution for Company products and trustee, administrative and other
fiduciary services to retirement plans. (Refer to notes 1 and 2.)
Discontinued operations include life insurance products. (Refer to note
3.) Other includes consolidating adjustments and Year 2000 costs.
(2) Operating earnings is comprised of net income (loss) excluding net
realized capital gains and losses and any other items. While operating
earnings is the measure of profit or loss used by the Company's management
when assessing performance or making operating decisions, it does not
replace operating income or net income as a measure of profitability.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. 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, the Company had off-balance
sheet commitments to purchase investments of $68.7 million with an estimated
fair value of $68.9 million. At December 31, 1999, there were no off-balance
sheet commitments.
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.
INDEMNIFICATION
Section 21 of Public Act No. 97-246 of the Connecticut General Assembly (the
"Act") provides that a corporation may provide indemnification of or advance
expenses to a director, officer, employee or agent only as permitted by Sections
33-770 to 33-778, inclusive, of the Connecticut General Statutes, as amended by
Sections 12 to 20, inclusive, of this Act. Reference is hereby made to Section
33-771(e) of the Connecticut General Statutes ("CGS") regarding indemnification
of directors and Section 33-776(d) of CGS regarding indemnification of officers,
employees and agents of Connecticut corporations. These statutes provide in
general that Connecticut corporations incorporated prior to January 1, 1997
shall, except to the extent that their certificate of incorporation expressly
provides otherwise, indemnify their directors, officers, employees and agents
against "liability" (defined as the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable expenses incurred with respect to a proceeding) when
(1) a determination is made pursuant to Section 33-775 that the party seeking
indemnification has met the standard of conduct set forth in Section 33-771 or
(2) a court has determined that indemnification is appropriate pursuant to
Section 33-774. Under Section 33-775, the determination of and the authorization
for indemnification are made (a) by the disinterested directors, as defined in
<PAGE>
Section 33-770(3); (b) by special counsel; (c) by the shareholders; or (d) in
the case of indemnification of an officer, agent or employee of the corporation,
by the general counsel of the corporation or such other officer(s) as the board
of directors may specify. Also, Section 33-772 provides that a corporation shall
indemnify an individual who was wholly successful on the merits or otherwise
against reasonable expenses incurred by him in connection with a proceeding to
which he was a party because he was a director of the corporation. Pursuant to
Section 33-771(d), in the case of a proceeding by or in the right of the
corporation or with respect to conduct for which the director, officer, agent or
employee was adjudged liable on the basis that he received a financial benefit
to which he was not entitled, indemnification is limited to reasonable expenses
incurred in connection with the proceeding against the corporation to which the
individual was named a party. reasonable expenses incurred with respect to a
proceeding) when (1) a determination is made pursuant to Section 33-775 that the
party seeking indemnification has met the standard of conduct set forth in
Section 33-771 or (2) a court has determined that indemnification is appropriate
pursuant to Section 33-774. Under Section 33-775, the determination of and the
authorization for indemnification are made (a) by the disinterested directors,
as defined in Section 33-770(3); (b) by special counsel; (c) by the
shareholders; or (d) in the case of indemnification of an officer, agent or
employee of the corporation, by the general counsel of the corporation or such
other officer(s) as the board of directors may specify. Also, Section 33-772
provides that a corporation shall indemnify an individual who was wholly
successful on the merits or otherwise against reasonable expenses incurred by
him in connection with a proceeding to which he was a party because he was a
director of the corporation. Pursuant to Section 33-771(d), in the case of a
proceeding by or in the right of the corporation or with respect to conduct for
which the director, officer, agent or employee was adjudged liable on the basis
that he received a financial benefit to which he was not entitled,
indemnification is limited to reasonable expenses incurred in connection with
the proceeding against the corporation to which the individual was named a
party.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who was a director, officer, employer or
agent of the corporation. Consistent with the statute, Aetna Inc. has procured
insurance from Lloyd's of London and several major United States and
international excess insurers for its directors and officers and the directors
and officers of its subsidiaries, including the Depositor.
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. 5 TO
THE REGISTRATION STATEMENT
<PAGE>
This Post-Effective Amendment No. 5 to Registration Statement No. 333-15817 is
comprised of the following papers and documents:
o The facing sheet.
o One prospectus consisting of 95 pages for the Flexible Premium Group
Variable Universal Life Insurance Policy for New York State United
Teachers Benefit Trust
o The undertaking to file reports
o The undertaking pursuant to Rule 484
o Indemnification
o Representation pursuant to Section 26(e)(2)(A) of the Investment Company
Act of 1940
o The signatures
o Written consents of the following persons:
A. Consent of Counsel (included as part of Exhibit No. 2 below)
B. Actuarial Consent (included as part of Exhibit No. 6 below)
C. Consent of Independent Auditors (included as Exhibit No. 7 below)
The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for
Form N-8B-2:
(1) Resolution establishing Variable Life Account B(1)
(2) Not Applicable
(3)(i) Master General Agent Agreement(1)
(3)(ii) Life Insurance General Agent Agreement(1)
(3)(iii) Broker Agreement(1)
(3)(iv) Life Insurance Broker-Dealer Agreement(1)
(3)(v) Restated and Amended Third Party Administration and
Transfer Agent Agreement(2)
(4) Not Applicable
(5)(i) Group Policy (70262-97)(3)
(5)(ii) Certificate (70263-97) Under Group Policy(3)
(5)(iii) Disability Benefit Rider (70264-97)(3)
(5)(iv) Accelerated Death Benefit Rider (70265-97)(3)
(5)(v) Accidental Death Benefit Rider (70266-97)(3)
(5)(vi) Accelerated Death Benefit Disclosure Statement
(DISC/NYSUT)(3)
(5)(vii) Children Insurance Rider Term Insurance
(70267-97)(3)
(6)(i) Certificate of Incorporation of Aetna Life Insurance
and Annuity Company, Depositor(4)
(6)(ii) Amendment of Certificate of Incorporation of Aetna
Life Insurance and Annuity Company, Depositor(5)
(6)(iii) By-Laws as amended September 17, 1997 of Aetna Life
Insurance and Annuity Company(6)
(7) Not Applicable
<PAGE>
(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) Second Amendment dated December 31, 1999 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 and amended on November 9,
1998(7)
(8)(iv) Third Amendment dated February 11, 2000 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 and amended on November 9,
1998 and December 31, 1999(17)
(8)(v) Fourth Amendment dated May 1, 2000 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 and amended on November 9,
1998, December 31, 1999 and February 11, 2000(17)
(8)(vi) 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)
<PAGE>
(8)(vii) 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)(viii) Second Amendment dated February 11, 2000 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 and November 14,
1998(17)
(8)(vix) Third Amendment dated May 1, 2000 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, November 14,
1998 and February 11, 2000(17)
(8)(x) 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)(xi) 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)(xii) 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)(xiii) Seventh Amendment dated as of May 1, 1998 to the
Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund and Fidelity Distributors Corporation
dated February 1, 1994 and amended on December 15,
1994, February 1, 1995, May 1, 1995, January 1,
1996, March 1, 1996, May 1, 1997 and November 6,
1997(8)
<PAGE>
(8)(xiv) Eighth Amendment dated December 1, 1999 to 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, November 6, 1997 and May
1, 1998(7)
(8)(xv) 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(5)
(8)(xvi) 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)(xvii) 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(12)
(8)(xviii) Seventh Amendment dated as of May 1, 1998 to the
Fund Participation Agreement between Aetna Life
Insurance and Annuity Company, Variable Insurance
Products Fund II and Fidelity Distributors
Corporation dated February 1, 1994 and amended on
December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996, March 1, 1996, May 1, 1997 and
January 20, 1998(8)
(8)(xix) Eighth Amendment dated December 1, 1999 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, 1997, January 20, 1998 and May
1, 1998(17)
(8)(xx) Service Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Investment
Institutional Operations Company dated as of
November 1, 1995(13)
(8)(xxi) Amendment dated January 1, 1997 to Service Agreement
between Aetna Life Insurance and Annuity Company and
Fidelity Investment Institutional Operations Company
dated as of November 1, 1995(10)
(8)(xxii) Service Contract between Fidelity Distributors
Corporation and Aetna Life Insurance and Annuity
Company dated May 2, 1997(9)
(8)(xxiii) Fund Participation Agreement among Janus Aspen
Series and Aetna Life Insurance and Annuity Company
and Janus Capital Corporation dated December 8,
1997(14)
<PAGE>
(8)(xxiv) 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)(xxv) Second Amendment dated December 1, 1999 to Fund
Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus
Capital Corporation dated December 8, 1997 and
amended on October 12, 1998(7)
(8)(xxvi) Service Agreement between Janus Capital Corporation
and Aetna Life Insurance and Annuity Company dated
December 8, 1997(14)
(8)(xxvii) 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)(xxviii) First Amendment dated December 1, 1999 to Fund
Participation Agreement between Aetna Life Insurance
and Annuity Company and Oppenheimer Variable Annuity
Account Funds and Oppenheimer Funds, Inc. dated
March 11, 1997(17)
(8)(xxix) Service Agreement effective as of March 11, 1997
between Oppenheimer Funds, Inc. and Aetna Life
Insurance and Annuity Company(15)
(9) Not Applicable
(10)(i) Application for Group Variable Universal Life
Insurance (Application for Group Policy)
(70262-1997NYAPP)(3)
(10)(ii) Life Insurance Pre-APP (70272-97)(3)
(10)(iii) Group Life Insurance Application (70272-97(A)ZNY)(3)
(10)(iv) Supplement (70268-97(5/98)) to Application for
Variable Life Insurance(3)
(11) Issuance, Transfer and Redemption Procedures(16)
2. Opinion and Consent of Counsel
3. Not Applicable
4. Not Applicable
5. Not Applicable
6. Actuarial Opinion and Consent
7. (a) Consent of Independent Auditors - KPMG LLP
(b) Consent of Independent Auditors - Ernst & Young LLP
8. Copy of Power of Attorney(17)
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. 5 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on July
29, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form S-6 (File No. 333-15817), as filed on April
16, 1998.
4. 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.
<PAGE>
5. 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.
6. 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.
7. Incorporated by reference to Post-Effective Amendment No. 19 to
Registration Statement on Form N-4 (File No. 333-01107), as filed on
February 16, 2000.
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. 7 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on
February 24, 1998.
13. 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.
14. 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).
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 Registration Statement on Form S-6 (File No.
333-27337), as filed on May 16, 1997.
17. Incorporated by reference to Post-Effective Amendment No. 20 to
Registration Statement on Form N-4 (File No. 333-01107), as filed on April
4, 2000. In addition, a certified copy of the resolution adopted by the
Depositor's Board of Directors authorizing filings pursuant to a power of
attorney as required by Rule 478 under the Securities Act of 1933 is
incorporated by reference to Post-Effective Amendment No. 5 to
Registration Statement on Form N-4 (File No. 33-75986), as filed on April
12, 1996.
<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. 333-15817) and has duly caused this Post-Effective Amendment No. 5 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, and the seal of the Depositor to be hereunto affixed and
attested, all in the City of Hartford, and State of Connecticut, on this 14th
day of April, 2000.
VARIABLE LIFE ACCOUNT B OF
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST:
-----------------------------
Karen A. Peddle
Assistant Corporate Secretary
By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
By: Thomas J. McInerney*
------------------------------
Thomas J. McInerney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 5 to the Registration Statement has been signed below by the
following persons in the capacities indicated and on the dates indicated.
Signature Title Date
- --------- ----- ----
Thomas J. McInerney* Director and President )
- ------------------------------------- (Principal Executive )
Thomas J. McInerney Officer) )
)
Catherine H. Smith* Director and Chief )
- ------------------------------------- Financial Officer ) April
Catherine H. Smith ) 14, 2000
)
Shaun P. Mathews* Director )
- ------------------------------------- )
Shaun P. Mathews )
)
<PAGE>
Deborah Koltenuk* Vice President, )
- ------------------------------------- Corporate Controller, )
Deborah Koltenuk and Assistant Treasurer )
By: /s/ Michael A. Pignatella
---------------------------------
Michael A. Pignatella
*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 (a) Consent of Independent Auditors - KPMG LLP
---------
99-7 (b) Consent of Independent Auditors - Ernst & Young LLP
---------
[AETNA LOGO] 151 Farmington Avenue
[AETNA LETTERHEAD] Hartford, CT 06156
Michael A. Pignatella
Counsel
AFS Law, TS31
April 14, 2000 (860) 273-0261
Fax: (860) 273-9407
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Life Account B
Post Effective Amendment No. 5 to the Registration Statement on Form S-6
Prospectus Title: Flexible Premium Group Variable Universal Life
Insurance for New York State United Teachers Benefit
Trust ("NYSUT Trust")
SEC File Nos.: 333-15817 and 811-4536
Gentlemen:
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")
pursuant to 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. 5 (the "Registration
Statement"). 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 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 are 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/ Michael A. Pignatella
Michael A. Pignatella
PRICEWATERHOUSECOOPERS
April 10, 2000
Re: Flexible Premium Group Variable Universal Life Insurance
(Variable Life Account B)
of New York State United Teachers Benefit Trust
(File No. 333-15817)
Dear Sir or Madam:
I have reviewed materials provided by Aetna Life Insurance and Annuity Company
(ALIAC) regarding ALIAC's Flexible Premium Group Variable Universal Life
Insurance contract that is offered to the New York State United Teachers Benefit
Trust (the "Policy"). These materials included the Policy and Certificate forms,
the illustrated values to be included in the Variable Life Account B prospectus
(the "Prospectus"), and rates currently used by the system administering
in-force certificates under this Policy.
Based on my review of these materials, in my opinion, the illustrations of
benefits under the Policy included in the Prospectus under the caption
"Illustrations of Death Benefit and Total Account Values" reflect the
assumptions stated in the illustrations and are consistent with the provisions
of the policy. Also, in my opinion, the age selected for the illustrations
fairly represents the manner in which the Policy operates.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ John B. Dinius
- -------------------------
John B. Dinius, FSA, MAAA
Principal Consultant
Exhibit 99.B.7(a)
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Life Account B:
We consent to the use of our report dated February 7, 2000, relating to the
consolidated financial statements of Aetna Life Insurance and Annuity Company
and our report dated February 26, 1999, relating to the financial statements of
Variable Life Account B, which are included in this Post-Effective Amendment No.
5 to Registration Statement (File No. 333-15817) 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 14, 2000
Exhibit 99.B.7(b)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Post Effective Amendment No. 5 to the Registration Statement (Form S-6
No. 333-15817) pertaining to Aetna Life Insurance and Annuity Company Variable
Life Account B, and to the use therein of our report dated February 28, 2000,
with respect to the financial statements of Aetna Life Insurance and Annuity
Company Variable Life Account B.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 10, 2000
