As filed with the Securities and Exchange Commission on April 18, 2000
Registration No. 33-76004*
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-6
POST-EFFECTIVE AMENDMENT NO. 13 TO
REGISTRATION STATEMENT
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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Variable Life Account B of
Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, TS31, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code:
(860) 273-4686
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<TABLE>
<S> <C>
Julie E. Rockmore, Counsel Copy to Jeremy Sachs, Esquire
Aetna Life Insurance and Annuity Company The Lincoln National Life Insurance Company
151 Farmington Avenue, TS31, Hartford, Connecticut 06156 350 Church Street--MLW1
(Name and Complete Address of Agent for Service) Hartford, CT 06103-1106
</TABLE>
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Approximate date of proposed public offering: Continuous
Indefinite Number of Units of Interest in Variable Life Insurance Contracts
(Title of Securities Being Registered)
-------------
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Form 24f-2 for Registrant, for the fiscal year ending
December 31, 1999 was filed March 24, 2000.
-------------
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
*Pursuant to Rule 429(a) under the Securities Act of 1933, the Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the securities covered by Registration Statement No. 33-02339.
================================================================================
<PAGE>
VARIABLE LIFE ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-8B-2
Item No. Part I Prospectus
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<S> <C>
1 Cover Page; The Company; The Separate Account and the General Account
2 Cover Page; The Company; The Separate Account and the General Account
3 Not Applicable
4 Cover Page; The Company; Additional Information--Distribution of the Policies
5 The Company; The Separate Account and the General Account
6 The Company; The Separate Account and the General Account
7 Not Applicable
8 Financial Statements
9 Legal Matters and Proceedings
10 Policy Summary; Charges and Deductions; Accumulation Unit; Policy Values; Right to Instruct Voting of Fund
Shares; Policy Lapse; Reinstatement of a Lapsed Policy; Cash Surrender Value; Maturity Value; Death Benefit;
Settlement Options; Policy Loans; Right to Examine the Policy; Additional Information; Miscellaneous Provisions
11 Policy Summary; The Fixed Account; The Funds
12 Not Applicable
13 Policy Summary; Charges and Deductions
14 Premium Payments; Policy Values; Accumulation Unit; Miscellaneous Policy Provisions
15 Policy Summary; The Funds; Premium Payments; Policy Values; Accumulation Unit
16 Policy Summary; The Funds; Premium Payments; Policy Values
17 Cash Surrender Value; Surrender Charges; Policy Loans
18 Premiums; The Separate Account; The Fixed Account; The Funds; Tax Matters
19 Reports to Policy Owners; Right to Instruct Voting of Fund Shares; Additional Information-- Records and
Accounts
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Directors and Officers of the Company
24 Miscellaneous Policy Provisions
25 The Company
26 Policy Summary; Charges and Deductions
27 The Company
28 The Company; Directors and Officers of the Company
29 The Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 The Company; Additional Information
36 Not Applicable
37 Not Applicable
38 Additional Information
39 The Company
40 Policy Summary; Charges and Deductions
41 The Company
42 The Company; Directors and Officers of the Company
43 Not Applicable
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
44 Policy Values; Accumulation Unit; Financial Statements
45 Not Applicable
46 Appendix A--Illustrations of Death Benefit; Total Account Values and Cash Surrender Values for AetnaVest
Policies; Appendix B--Illustrations of Death Benefits; Total Account Values and Cash Surrender Values for
AetnaVest II Policies
47 Policy Summary; Policy Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Not Applicable
52 The Separate Account; The Fixed Account; The Funds
53 Tax Matters
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
</TABLE>
3
<PAGE>
AetnaVest & AetnaVest II
<TABLE>
<S> <C> <C>
Aetna Life Insurance and
Annuity Company Administrative Office: Variable Life Account B
Home Office: Personal Service Center, MVLI
151 Farmington Avenue 350 Church Street Prospectus
Hartford, Connecticut 06156 Hartford, CT 06103-1106 Dated: May 1, 2000
Telephone: (800) 334-7586 Telephone: (800) 334-7586
</TABLE>
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Flexible Premium Variable Life Insurance Policies
- --------------------------------------------------------------------------------
This Prospectus describes AetnaVest and AetnaVest II, two flexible premium
variable life insurance contracts (the "Policy" or "Policies"), offered by Aetna
Life Insurance and Annuity Company (the "Company", "we", "us").
In October 1998, the Company and life insurance affiliates of Lincoln
Financial Group ("Lincoln") entered into a transaction whereby nearly all of the
Company's variable life insurance business was reinsured by the Lincoln
affiliates.
The Policies feature: - flexible premium payments;
- a choice of one of two death benefit options; and
- a choice of underlying investment options.
You may allocate net premiums to subaccounts which invest in the funds
listed below. Each fund has its own investment objective. Not all funds may be
available under all Policies or in all jurisdictions. You should review each
fund's Prospectus before making your decision.
<TABLE>
<S> <C>
o Aetna Ascent VP o Janus Aspen Growth Portfolio
o Aetna Balanced VP, Inc. o Janus Aspen Worldwide Growth Portfolio
o Aetna Income Shares d/b/a Aetna Bond VP o Oppenheimer Global Securities Fund/VA
o Aetna Crossroads VP o Oppenheimer Strategic Bond Fund/VA
o Aetna Variable Fund d/b/a Aetna Growth and Income VP o Portfolio Partners, Inc. (PPI) MFS Capital
o Aetna Index Plus Large Cap VP Opportunities Portfolio (formerly PPI MFS
o Aetna Legacy VP Value Equity Portfolio)
o Fidelity Variable Insurance Products Fund (VIP) o Portfolio Partners, Inc. (PPI) MFS Emerging
Equity-Income Portfolio Equities Portfolio
o Fidelity Variable Insurance Products Fund II (VIP I) o Portfolio Partners, Inc. (PPI) MFS Research
Contrafund[RegTM] Portfolio Growth Portfolio
o Janus Aspen Aggressive Growth Portfolio o Portfolio Partners, Inc. (PPI) Scudder International
o Janus Aspen Balanced Portfolio 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 interests. We
determined the rates periodically, but we guarantee that they will never be less
than 4.5% a year.
This Prospectus and other information about Variable Life Account B filed with
the Securities and Exchange Commission ("Commission") can be found in the
Commission's web site at http://www.sec.gov. You can get copies of this
information by visiting the Commission's Public Reference Room or writing the
Commission's Public Reference Section, Washington, D.C. 20549-6009 and paying a
duplicating fee. You can get information on the operation of the Public
Reference Room by calling 1-800-SEC-0330.
The Commission has not approved or disapproved these securities or determined if
this Prospectus is accurate or complete. It is a criminal offense to state
otherwise.
To be valid, this Prospectus must have the current mutual funds' Prospectuses
with it. You should read the Prospectus and the attached prospectus for any
available Fund if you are considering buying a Policy or exercising elections
under a Policy. You should also keep them for future reference. You can obtain
any fund's Statement Information (SAI), which provides more information about a
fund, by calling (800) 334-7586.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Policy Summary .................................... 3
Replacements ..................................... 3
Initial Choices to be Made ....................... 3
Level or Varying Death Benefit ................... 3
Amount of Premium Payment ........................ 4
Selection of Funding Vehicles .................... 4
Charges and Fees ................................. 4
Policy Loans ..................................... 5
The Company, the Separate Account and the
General Account .................................. 6
The Company ...................................... 6
The Separate Account ............................. 6
The General Account .............................. 6
Death Benefit Options ............................. 7
Premiums .......................................... 7
The Fixed Account ................................. 8
The Funds ......................................... 8
Mixed and Shared Funding .......................... 10
Premium Payments .................................. 11
Accumulation Unit ................................. 11
Policy Values ..................................... 12
Transfers Among the Funding Options ............... 12
Telephone Transfers ............................... 13
Limits on Frequent Transfers ...................... 13
Automated Transfers (Dollar Cost Averaging) ....... 14
Maturity Value .................................... 14
Cash Surrender Value .............................. 14
Charges and Deductions ............................ 14
Premium Charge ................................... 14
Insurance and Administrative Charges ............. 14
Charges Assessed Against the Underlying
Funds ........................................... 17
Surrender Charges ................................ 18
Policy Surrender .................................. 20
Full Surrenders .................................. 20
Partial Surrenders ............................... 20
Policy Lapse ...................................... 21
Reinstatement of a Lapsed Policy .................. 22
Policy Loans ...................................... 22
Policy Changes .................................... 23
Right to Examine the Policy ....................... 23
Exchanging Your Policy ............................ 24
Payment of Death Benefit .......................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Policy Settlement ................................. 24
Settlement Options ............................... 25
Calculation of Settlement Payments
on a Variable Basis .............................. 26
Directors and Officers ............................ 27
Reports to Policy Owners .......................... 30
Right to Instruct Voting of Fund Shares ........... 30
Disregard of Voting Instructions ................. 30
State Regulation .................................. 31
Legal Matters and Proceedings ..................... 31
Additional Information ............................ 31
The Registration Statement ....................... 31
Distribution of the Policies ..................... 31
Records and Accounts ............................. 32
Independent Auditors ............................. 32
Tax Matters ....................................... 32
General .......................................... 32
Federal Tax Status of the Company ................ 32
Life Insurance Qualification ..................... 32
General Rules .................................... 33
Modified Endowment Contracts ..................... 33
Diversification Standards ........................ 34
Investor Control ................................. 34
Other Tax Considerations ......................... 35
Withholding ...................................... 35
Miscellaneous Policy Provisions ................... 35
The Policy ....................................... 35
Payment of Benefits .............................. 36
Age and Sex ...................................... 36
Incontestability ................................. 36
Suicide .......................................... 36
Protection of Proceeds ........................... 36
Non-Participation ................................ 36
Coverage Beyond Maturity ......................... 36
Appendix A--Illustrations of Death Benefit,
Total Account Values and Cash Surrender
Values for AetnaVest Policies .................... 38
Appendix B--Illustrations of Death Benefit,
Total Account Values, and Cash Surrender
Values for AetnaVest II Policies ................. 43
Financial Statements of the Separate Account ...... S-1
Financial Statements of the Company ............... F-1
</TABLE>
This Prospectus does not constitute an offer in any jurisdiction where
prohibited. No dealer, salesman or other person is authorized to give any
information or make any representation in connection with this offering other
than those contained in this Prospectus, or other sales material authorized by
the Company and if given or made, such other information or representations must
not be relied upon.
The purpose of the policy is to provide insurance protection. Life
insurance is a long-term investment. Owners should consider their need for
insurance coverage and the policy's long-term investment potential. We do not
claim that the policy is in any way similar or comparable to an investment in a
mutual fund.
2
<PAGE>
POLICY SUMMARY
This section is an overview of key Policy features for AetnaVest and
AetnaVest II. (Regulations in your state may vary the provisions of your own
Policy.) Your Policy is a flexible premium variable life insurance policy, under
which flexible premium payments are permitted and the death benefit and policy
values may vary with the investment performance of the funding option(s)
selected. Its value may change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable basis.
Review your personal financial objectives and discuss them with a qualified
financial counselor before you buy a variable life insurance policy. This Policy
may, or may not, be appropriate for your individual financial goals. The value
of the Policy and, under one option, the death benefit amount depend on the
investment results of the funding options you select.
At all times, your Policy must qualify as life insurance under the Internal
Revenue Code of 1986 ("Code") to receive favorable tax treatment under Federal
law. If these requirements are met, you may benefit from favorable federal tax
treatment. The Company reserves the right to return your premium payment if it
results in your Policy's failing to meet federal tax law requirements.
Replacements
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable life insurance policy with this Policy. This
Prospectus and the prospectuses of the Funds should be read carefully to
understand the Policy being offered.
Initial Choices to be Made
The policy owner (the "Owner" or "you") is the person named in the policy
specifications who has all of the Policy ownership rights. If no Owner is named,
the Insured (the person whose life is insured under the Policy) will be the
Owner of the Policy. You, as the Owner, have three important choices to make
when the Policy is first purchased. You need to choose:
1) either the level or varying death benefit option;
2) the amount of premium you want to pay;
3) the amount of your net premium payment to be placed in each of the
funding options you select. The net premium payment is the balance of
your premium payment that remains after certain charges are deducted
from it;
Level or Varying Death Benefit
The death benefit is the amount the Company pays to the beneficiary(ies)
when the Insured dies. Before we pay the beneficiary(ies), any outstanding loan
account balances or outstanding amounts due are subtracted from the death
benefit. We calculate the death benefit payable, as of the date the Insured
died.
If you choose the level death benefit option, the death benefit will be the
greater of:
1) the "specified amount" in effect for the Policy at the time of the
Insured's death (the initial specified amount may be found on the
Policy's specification page); or
2) the applicable percentage of the "total account value" (the total of the
balances in the Fixed Account and the Separate Account minus any
outstanding Loan Account amounts);
3
<PAGE>
If you choose the varying death benefit option, the death benefit will be
the greater of:
1) the specified amount plus the total account value or
2) the applicable percentage of the total account value
See "Death Benefit Options" for more details.
If you have borrowed against your Policy or surrendered a portion of your
Policy, the Loan Account balance and any surrendered amount will reduce your
initial death benefit.
You may borrow within described limits against the Policy. You may
surrender the Policy in full or withdraw part of its value. A surrender charge
is applied if the Policy is surrendered totally.
Amount of Premium Payment
When you first buy your Policy, you must decide how much premium to pay.
Premium payments may be changed within the limits described in "Premium
Payments." If your Policy lapses because your monthly deduction is larger than
the "cash surrender value" (total account value minus the surrender charge and
the amount necessary to repay any loans) you may reinstate your Policy. See
"Reinstatement of Policy."
You may use the value of the Policy to pay the premiums due and continue
the Policy in force if sufficient values are available for premium payments. Be
careful; if the investment options you choose do not do as well as you expect,
there may not be enough value to continue the Policy in force without more
premium payments. Charges against Policy values for the Cost of Insurance
increase as the Insured gets older. See "Charges and Deductions."
When you first receive your Policy you will have 10 days to look it over
(more in some states). This is called the right-to-examine time period. Use this
time to review your Policy and make sure it meets your needs. During this time
period, your initial premium payment will be allocated to the funding options
you initially select. If you then decide you do not want your policy, you will
receive a refund. See "Right to Examine Policy."
Selection of Funding Vehicles
This Prospectus focuses on the Separate Account investment information that
makes up the variable part of the Policy. If you put money into the variable
funding options, you take all the investment risk on that money. This means that
if the funds you select go up in value, the value of your Policy, net of charges
and expenses, also goes up. If those funds lose value, so does your Policy. See
"The Funds."
You must choose the sub-accounts in which you want to place each net
premium payment. Each sub-account invests in shares of a certain Fund. A
sub-account is not guaranteed and will increase or decrease in value according
to the particular Fund's investment performance.
You may also choose to place your net premium payment or part of it into
the Fixed Account. Net premium payments put into the Fixed Account become part
of the Company's General Account, do not share the investment experience of the
Separate Account and have a guaranteed minimum interest rate of 4.5% per year.
For additio0nal information on the Fixed Account, see "The Fixed Account."
Charges and Fees
We deduct a premium charge from all of your premium payments. For
AetnaVest, this is 2.50% (2.35% for California residents). For AetnaVest II,
this is currently 3.5%, and will never exceed 6%.
Monthly deductions are made from the total account value for administrative
expenses and the Cost of Insurance along with any supplemental riders or
benefits that are placed on your Policy. For AetnaVest
4
<PAGE>
Policies, this administrative expense charge ranges from $0 to $5 per month. For
AetnaVest II Policies, this charge is $20 during the first policy year and $5
during subsequent policy years.
Daily deductions are subtracted from the Separate Account for mortality and
expense risk. The current charge for mortality and expense risk under the
AetnaVest Policies varies:
<TABLE>
<S> <C>
Aetna Ascent VP, Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under AetnaVest Policies ........... 0.70%
</TABLE>
The current charge under AetnaVest II Policies is 0.70% per year of the
average daily net assets of the separate account. We reserve the right to change
this charge but it will never exceed 0.90% per year.
Currently, we deduct from Variable Life Account B (the separate account) a
daily administrative charge for the administration and maintenance of the
Policies. This charge is at an annual rate of 0.30% of the average daily net
assets of the separate account. It will never exceed 0.30% for AetnaVest and
0.50% for AetnaVest II.
Each Fund has its own management fee charge also deducted daily. Investment
results for the Funds you choose will be affected by the fund management charges
and other expenses. The table in "Charges and Deductions--Charges Assessed
Against the Underlying Funds" shows you the charges and other expenses currently
in effect for each Fund.
At any time, you may make transfers between funding options without charge.
Within 45 days after each policy anniversary, you may also transfer to the
separate account $500 or, if greater, 25% of the fixed account value. The
Company may increase this limit in the future.
If you surrender your Policy, in full or in part, within the first 10
policy years, (15 years for AetnaVest II) a surrender charge will be deducted
from the amount paid to you. The initial surrender charge is based on the
specified amount and depends on the Insured's age and, in most states, the sex
of the Insured. This surrender charge will remain the same for policy years 1-5.
For policy years 6 through 10 (6 through 15 for AetnaVest II) this charge
reduces on a monthly basis to zero.
For partial surrenders, the surrender charge is imposed in proportion to
the total of the account value less full surrender charges. A charge of the
lesser of $25 or 2% of the net surrender payment will be made against the total
account value.
If you surrender your Policy within the first 10 years (15 years for
AetnaVest II) after an increase in the specified amount, a surrender charge will
also be imposed which will be 70% of what the surrender charge would be on a new
policy with that specified amount. This charge will also apply for the same time
frame as stated previously. If the specified amount is decreased within the
first 10 policy years (15 years for AetnaVest II), the surrender charge will
remain the same. See "Charges and Deductions--Surrender Charges."
Policy Loans
If you decide to borrow against your Policy, interest will be charged to
the loan account. Currently, the interest rate on loans accrues at an annual
rate of 8%.
There are two types of policy loans: nonpreferred (those taken within the
first ten policy years); and preferred (those taken in the eleventh policy year
and beyond).
Annual interest will be credited on the loan account value at the same
rate interest is charged, for preferred loans, and at 4.5% per year (6% in New
York) for nonpreferred loans. See "Policy Loans."
5
<PAGE>
THE COMPANY, THE SEPARATE ACCOUNT, AND THE GENERAL ACCOUNT
The Company
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized under the insurance laws of the State of Connecticut in 1976. Through
a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance
Company (formerly Participating Annuity Life Insurance Company organized in
1954). The Company is engaged in the business of issuing life insurance policies
and variable annuity contracts. The Company is an indirect wholly owned
subsidiary of Aetna Inc., a publicly traded healthcare and financial services
company, whose principal offices are at the same location as the Company's Home
Office.
The Company serves as the principal underwriter for the securities offered
hereunder and also acts as the principal underwriter for Variable Life Account C
and Variable Annuity Accounts B, C and G (separate accounts of the Company
registered as unit investment trusts), and Variable Annuity Account I (a
separate account of Aetna Insurance Company of America, registered as a unit
investment trust). Additionally, the Company is registered as an investment
adviser under the Investment Advisers Act of 1940, and as such, is the
investment adviser for Portfolio Partners, Inc. The Company is also the
depositor of Variable Life Accounts B and C and Variable Annuity Accounts B, C
and G.
The Lincoln National Life Insurance Company ("Lincoln") and its affiliates
perform certain administrative functions relating to the Policies, and maintain
books and records necessary to operate and administer the Policies.
The Separate Account
Variable Life Account B is the separate account that supports the variable
options. If you allocate any of your total account value to the variable
options, that value is invested in the separate account. The separate account
purchases shares of the Funds to fund the benefits provided by the Policies. We
describe the currently available Funds, their investment objectives, and their
investment advisers in this Prospectus. Each Fund also has a prospectus, which
contains complete descriptions of the Fund's investment objectives, investment
restrictions and other material information relating to an investment in the
Fund. Any and all Fund distributions for Fund shares held by the separate
account will be reinvested in additional Fund shares at net asset value.
We created Variable Life Account B in 1986 under Connecticut law. We hold
the separate account assets to satisfy the claims of the Policy Owners to the
extent that they have allocated amounts to the Separate Account. Our other
creditors could reach only those separate account assets (if any) that are in
excess of the amount of our reserves and liabilities under the Policies with
respect to the separate account. The Company is responsible for meeting all
obligations to Owners under the Policies.
The separate account is registered with the Commission as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act") and meets the
definition of separate account under the federal securities laws. The
registration of the separate account involves no approval or disapproval by the
Commission of the separate account or the Company's management or investment
practices or policies. The Company does not guarantee the separate account's
investment performance.
The General Account
The General Account is the Company's general asset account, in which assets
attributable to the non-variable portion of the Policies are held. Both the
fixed account value and the loan account value are held in the General Account.
6
<PAGE>
DEATH BENEFIT OPTIONS
At the time of purchase, you must choose between the two available death
benefit options. The amount payable under either option will be determined as of
the date of the Insured's death.
Option 1 generally provides a level death benefit. Under Option 1, the
death benefit will be the higher of the Specified Amount (a minimum of
$100,000), or the applicable percentage of the Total Account Value. The
percentage is 250% through age 40 and decreases yearly to 100% at age 95.
Option 2 provides a varying death benefit which increases or decreases over
time, depending on the amount of premium paid and the investment performance of
the underlying funding options selected. Under Option 2, the death benefit will
be the higher of either the specified amount plus the total account value; or
the applicable percentage of the total account value.
Under both Option 1 and Option 2, the death benefit may be affected by
partial surrenders. The death benefit for both options will be reduced by the
amount necessary to repay any loans in full.
PREMIUMS
At the time you purchase a Policy, you also choose the amount of premium
you will pay. You may vary premium payments to some extent and still keep your
Policy in force. To understand how this works, there are three terms you should
be familiar with. These are: basic premium, planned premiums, and additional
premiums.
Basic premium is that premium which must be paid to assure that the Policy
remains in force for at least 2 years after issue, assuming there have been no
loans or surrenders. The basic premium is stated in the Policy. If basic
premiums are not paid, or if there are surrenders or loans taken during the
first two Policy Years, the Policy will lapse if the cash surrender value is
less than the monthly deduction.
Your basic premiums are not current if your actual premiums paid, minus
loans and minus partial surrenders, are less than the basic premium (expressed
as a monthly amount) times the number of months the Policy has been in force.
After the first two Policy years, as long as the Policy's cash surrender
value is greater than the monthly deduction, your Policy will not lapse.
Planned premiums are those premiums you choose to pay on a scheduled basis.
These are usually equal to or greater than the basic premium. We will bill you
annually, semiannually, or quarterly, or at any other agreed-upon frequency.
Pre-authorized monthly check payments may also be arranged.
Additional premiums are any premiums you pay in addition to planned
premiums.
Payment of basic premiums, planned premiums or additional premiums in any
amount will not, except as noted above, guarantee that your Policy will remain
in force. Conversely, failure to pay planned premiums or additional premiums
will not necessarily cause your Policy to lapse. (See "Policy Lapse." Page 21)
You may increase your planned premium at any time by submitting a written
notice to us or by paying additional premiums, except that:
1) We may require evidence of insurability if the additional premium or the
new planned premium during the current policy year would increase the
difference between the death benefit and the total account value. If
satisfactory evidence of insurability is requested and not provided, we
will refund the increase in premium without interest and without
participation of such amounts in the underlying funding options;
7
<PAGE>
2) No premiums can be accepted if they would disqualify the Policy as a
"life insurance policy" under federal tax laws. In no event may the total
of all premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance.
(See "Tax Matters"). If, at any time, a premium is paid which would
result in total premiums exceeding such maximum premium limitation, we
will only accept that portion of the premium which will make total
premiums equal the maximum. Any part of the premium in excess of that
amount will be returned or applied as otherwise agreed and no further
premiums will be accepted until allowed by the then-current maximum
premium limitations prescribed by law; and
3) When there is an outstanding loan, all premiums paid in excess of the
basic premium will be considered repayment of the loan account value
(this is true in all states for AetnaVest Policies and in all states
except Texas for AetnaVest II Policies).
Under limited circumstances, we may backdate a Policy, upon request, by
assigning an issue date earlier than the date the application is signed but no
earlier than six months prior to state approval of the Policy. Backdating may be
desirable, for example, so that you can purchase a particular specified amount
for lower cost of insurance rates, based on a younger insurance age. For a
backdated Policy, you must pay the minimum premium payable for the period
between the issue date and the date the initial premium is credited to the
separate account. Backdating your Policy will not affect the date on which your
premium payments are credited to the separate account and your policy is
credited with "accumulation units." Your Policy cannot be credited with
accumulation units until your net premium is actually deposited in the separate
account. (See "Policy Values.")
THE FIXED ACCOUNT
You may allocate all or a part of your premiums to the Fixed Account, which
will be credited with interest at a rate determined by us from time to time, but
guaranteed to be at least 4.5% per year. The interest rate credited to each
premium payment will depend on the date the payment is received at our
Administrative Office.
Credited interest rates reflect the Company's return on the Fixed Account
invested assets and the amortization of any realized gains and/or losses which
the Company may incur on these assets.
THE FUNDS
You may also allocate all or a portion of your premiums to the Separate Account
and direct that they be invested in one or more of the subaccounts. Each
subaccount invests in a specific Fund. Each of the Funds is an open-end,
management investment company whose shares are available to fund the benefits
provided by the Policy. Not all Funds may be available under all Policies or in
all jurisdictions. In addition, the Company may add, withdraw or substitute
Funds, subject to the conditions in the Policy and to compliance with regulatory
requirements. Substitute funds may have higher charges than the funds being
replaced. The investment results of the Funds are likely to differ significantly
and there is no assurance that any of the Funds will achieve their respective
investment objectives. Shares of the Funds will rise and fall in value and you
could lose money by investing in the Funds. Shares of the Funds are not bank
deposits and are not guaranteed, endorsed or insured by any financial
institutions, the Federal Deposit Insurance Corporation or any other government
agency. Unless otherwise noted, all Funds are diversified, as defined under the
Investment Company Act of 1940. Refer to the Fund prospectuses for additional
information. Fund prospectuses may be obtained free of charge from our
Administrative Office at the address and phone number listed on the cover of
this Prospectus, or by contacting the SEC Public Reference Room. Orders for the
purchase of Fund shares may be subject to acceptance by the Fund. We reserve the
right to reject, without prior notice, any amounts allocated to a sub-account if
the sub-account investment in the corresponding Fund is not accepted by the Fund
for any reason.
8
<PAGE>
Each fund described below is an investment vehicle for one or more
insurance company separate accounts. A given fund may have a similar investment
objective and principal investment strategy to those for another mutual fund
managed by the same investment adviser or subadviser. However, because of timing
of investments and other variables we cannot guarantee that there will be any
correlation between the two investments. Even though the management strategy and
the objectives of the funds are similar, the investment results may vary.
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)
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)
9
<PAGE>
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.(5a)
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)
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
Shares of the Funds are available to insurance company separate accounts
which fund variable annuity contracts and variable life insurance policies,
including the Policies described in this Prospectus. Because Fund shares are
offered to separate accounts of both affiliated and unaffiliated insurance
companies, it is
10
<PAGE>
conceivable that, in the future, it may not be advantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
these Funds simultaneously, since the interests of such Policy Owners or
contractholders may differ. Although neither the Company nor the Funds currently
foresees any such disadvantages either to variable life insurance or to variable
annuity policyholders, each Fund's Board of Trustees/Directors has agreed to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate accounts
might withdraw its investment in a Fund. This might force that Fund to sell
portfolio securities at disadvantageous prices.
PREMIUM PAYMENTS
If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably certain questions relating to the Insured's health, a
"temporary insurance agreement" in the amount applied for (subject to stated
maximums) will be provided.
After the first premium payment, all premiums must be sent directly to our
Administrative Office and will be deemed received when actually received at the
Administrative Office. Your premium payments will be allocated, as you have
directed, as of the valuation date on which each payment is received in the
Administrative Office.
You may reallocate your future premium payments at any time, up to four
times per year, free of charge. After four times, a $10 charge is imposed on
each subsequent change in order to reimburse us for costs associated with
allocation changes. Any reallocation will apply to premium payments made after
you have received written verification from us.
ACCUMULATION UNIT
An "accumulation unit" is the measure of the net investment result of each
variable funding option. Accumulation units are used to calculate the value of
the variable portion of your Policy (prior to the election of a settlement
option). Accumulation units are valued at the end of each normal business day
Monday through Friday that the New York Stock Exchange is open (valuation date).
A "valuation period" is the period of time from one valuation date to the next
valuation date. The value of an accumulation unit for any valuation period is
determined by multiplying the value of an accumulation unit for the immediately
preceding value period by the net investment factor for the current period for
the appropriate Fund. The net investment factor equals the net investment rate
plus 1.0000000. The net investment rate is determined separately for each Fund.
It is computed according to a formula that is equivalent to the following:
(a) the net assets of the Fund held in the separate account at the end of
a valuation period, minus
(b) the net assets of the Fund held in the separate account at the
beginning of that valuation period, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the separate account divided by
(d) the value of the accumulation units held by the separate account at
the beginning of the valuation period, minus
(e) a daily charge at an annual rate not to exceed 0.90% of the value of
the Fund shares held in the separate account for mortality and expense
risks and no more than 0.50% (0.30% for AetnaVest) of the value of the
Fund shares held in the separate account for the Company's
administrative expenses attributable to Policies funded through the
separate account.
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<PAGE>
The current charge for mortality and expense risk under AetnaVest Policies
is equal to annual rates as follows, applied to the average daily net assets of
the Funds:
<TABLE>
<S> <C>
Aetna Ascent VP, Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under AetnaVest Policies ........... 0.70%
</TABLE>
The current charge for mortality and expense risk under AetnaVest II
Policies is equal to an annual rate of 0.70% of the Fund's average daily net
assets.
A daily deduction at a rate not to exceed 0.30% per year for AetnaVest, or
0.50% per year for AetnaVest II (currently 0.30% for both Policies), is also
taken from the separate account value to pay for administrative expenses.
POLICY VALUES
Once your Policy has been issued, each premium payment allocated to a
variable funding option of the separate account will be credited to your Policy
in the form of accumulation units of the funding option based on that funding
option's accumulation unit value (AUV). Initial premium will be credited to your
account at the AUV computed on the next valuation date following our acceptance
of the application. Each subsequent premium received by the Company by the close
of business of the New York Stock Exchange will be credited to your account at
the AUV computed on the next valuation date following our receipt of your
premium. The AUV may increase or decrease. The number of accumulation units
credited is determined by dividing the net premium (the premium less the charge
deducted from it) by the AUV next computed after we receive the premium. Shares
of a Fund are purchased by the Separate Account at the net asset value next
determined by the Fund following receipt of the net premium payment by the
Company. Since each Fund has a unique AUV, a policy owner who has elected a
combination of funding options will have accumulation units credited to each
funding option.
The value of your Policy is determined by:
(a) multiplying the total number of accumulation units credited to the
Policy for each funding option, respectively, by the appropriate current
AUV; and
(b) if you have elected a combination of funding options, totaling the
resulting values for each portion of the Policy; and
(c) adding any fixed account and/or loan account value.
The number of accumulation units credited to a Policy will not be impacted
by any subsequent change in the value of an accumulation unit. The number of
units is increased by subsequent contributions to or transfers into that funding
option, and decreased by charges and withdrawals from that funding option.
Fixed Account values will reflect amounts allocated to the General Account
through either payment of premiums or transfers from the separate account. There
is no assurance that the separate account value of the Policy will equal or
exceed the premiums paid and allocated to the separate account. You will be
advised at least annually as to the number of accumulation units which remain
credited to the Policy, the current accumulation unit values, and your total
account value.
TRANSFERS AMONG THE FUNDING OPTIONS
You may elect to transfer your accumulated separate account value among any
of the Funds, or from any of the Funds to the Fixed Account. Within the 45 days
after your Policy's anniversary, you may also transfer a portion of the fixed
account value to one or more Funds. This type of transfer is allowed only once
in the 45-day period and will be effective on the valuation date that your
request is received in good order at our Administrative Office. The amount of
such transfer cannot exceed the greater of (1) 25% of the fixed account
12
<PAGE>
value, or (2) $500. If the fixed account value is less than or equal to $500,
you may transfer all or a portion of the fixed account value. We may increase
this limit from time to time. The first four transfers in any one policy year
are made free of charge. Each additional transfer will be subject to a $10
charge.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of accumulation units based on the accumulation unit
values next determined after a written request is received by us at our
Administrative Office, provided the request is received by the close of business
of the New York Stock Exchange. We reserve the right to limit the total number
of Funds you may elect to 17 over the lifetime of the Policy.
For AetnaVest II Policies, we will waive the $10 charge if you are changing
your allocation so that 100% of the existing separate account value and all
future allocations are credited to the Fixed Account.
If you contemplate the transfer of assets, you should consider the risks
inherent in a shift from one funding option to another. In general, frequent
transfers based on short-term expectations will tend to accentuate the danger
that a transfer will be made at an inopportune time.
Orders for the purchase of Fund shares may be subject to acceptance by the
Fund. We reserve the right to reject, without prior notice, any transfer request
to a subaccount if the subaccount's investment in the corresponding Fund is not
accepted by the Fund for any reason.
TELEPHONE TRANSFERS
You may request a transfer of account values either in writing or by
telephone. In order to make telephone transfers, you must complete a written
telephone transfer authorization form and return it to the Administrative
Office. Once the form is processed, you may request a transfer by telephoning
the Company at 800-334-7586. All transfers must be in accordance with the terms
of the Policy.
Transfer instructions are currently accepted on each valuation date. Once
instructions have been accepted and processed, they may not be rescinded;
however, new telephone instructions may be given on the following day. If the
transfer instructions are not in good order, the Company will not execute the
transfer and you will be notified.
We will use reasonable procedures, such as requiring identifying
information from callers, recording telephone instructions, and providing
written confirmation of transactions, in order to confirm that telephone
instructions are genuine. Any telephone instructions which we reasonably believe
to be genuine will be your responsibility, including losses arising from any
errors in the communication of instructions. As a result of this procedure, you
will bear the risk of loss. If the Company does not use reasonable procedures,
as described above, it may be liable for losses due to unauthorized
instructions.
LIMITS ON FREQUENT TRANSFERS
The Policy is not designed to serve as a vehicle for frequent trading in
response to short-term fluctuations in the market. Such frequent trading can
disrupt management of a Fund and raise its expenses. This in turn can have an
adverse effect on Fund performance. Accordingly, organizations and individuals
who use market-timing investment strategies and make frequent transfers should
not purchase the Policy.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
policy owners. Such restrictions could include:
(1) Not accepting transfer instructions from an agent acting on behalf of
more than one policy owner; and
(2) Not accepting preauthorized transfer forms from market-timers or other
entities acting on behalf of more than one policy owner at a time.
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<PAGE>
We further reserve the right to impose, without prior notice, restrictions
on any transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other policy owners.
AUTOMATED TRANSFERS (DOLLAR COST AVERAGING)
Dollar cost averaging describes a system of investing a uniform sum of
money at regular intervals over an extended period of time. Dollar cost
averaging is based on the economic fact that buying a security with a constant
sum of money at fixed intervals results in acquiring more of the item when
prices are low and less of it when prices are high.
You may establish automated transfers of account values from the Funds on a
monthly or quarterly basis from the Aetna Money Market VP to any other
investment option through written request or other method acceptable to the
Company. You must have a minimum of $5,000 allocated to the Aetna Money Market
VP in order to enroll in the dollar cost averaging program. The minimum
automated transfer amount is $50 per month. There is currently no charge for the
dollar cost averaging 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 reserve the right to suspend or modify automated transfer privileges
at any time.
Before participating in the dollar cost averaging program, you should
consider the risks involved in switching between investments available under the
Policy. Dollar cost averaging requires regular investments regardless of
fluctuating price levels, and does not guarantee profits or prevent losses.
Therefore, you should carefully consider market conditions and each Fund's
investment policies and related risks before electing to participate in the
dollar cost averaging program.
MATURITY VALUE
The maturity value of the Policy is the total account value on the maturity
date, less the amount necessary to repay any loans in full.
CASH SURRENDER VALUE
The cash surrender value of your Policy is the amount you can receive in
cash by surrendering the policy. The cash surrender value equals the total
account value minus the applicable surrender charge, less the amount necessary
to repay any loans in full. Your Policy's total account value is equal to the
sum of the fixed account value the separate account value and loan account
value.
The cash surrender value will never be less than zero. All or a part of the
cash surrender value may be applied to one or more of the settlement options.
CHARGES AND DEDUCTIONS
Premium Charge
This deduction represents average applicable state premium taxes (ranging
up to 4%) as well as administrative expenses and federal income tax liabilities.
For AetnaVest Policies, a deduction of 2.50% of premiums paid (2.35% for
California issues) will be made. For AetnaVest II Policies, a deduction of 3.5%
(guaranteed to be no higher than 6%) will be made to cover such taxes and other
expenses.
Insurance and Administrative Charges
Deductions are made from your total account value on a periodic basis for
insurance and administrative costs. The charges for insurance and administrative
costs will vary from Policy to Policy. They are broken down as follows:
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<PAGE>
(a) A monthly deduction is made from the total account value. This deduction
includes charges for the Cost of Insurance, for any supplemental riders or
benefits, and for administrative expenses.
The Cost of Insurance is equal to the Amount at Risk (the death benefit
before deductions for loans, divided by 1.0036748, minus the total account
value), multiplied by the Cost of Insurance rate which will not exceed the rate
shown in the Policy. (Such rate varies according to the attained age, premium
class and, in most states, sex of the Insured, and is based on the
Commissioner's 1980 Standard Ordinary Mortality Tables (the "1980 CSO Tables"),
nonsmoker and smoker versions.)
Charges for any supplemental riders or benefits are described in the
applicable rider or benefit policy form.
A monthly administrative charge and a daily asset-based charge (see (c)
following) are also charged. These charges are designed to recover acquisition
and maintenance costs under the Policy such as policy underwriting and issue,
policyholder reports and transaction handling. For AetnaVest Policies, the
monthly charge decreases by attained age. At younger ages, the account value
builds slowly so the daily asset-based charge is small. In those years, the
monthly charge must be larger to cover the Company's expenses. As the total
account value grows, the asset-based daily charge can cover the Company's
expenses without as high a monthly expense charge. The monthly charge varies for
AetnaVest Policies according to the table below:
AETNAVEST
ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Specified Amount
-------------------------
Attained $100,000- $1,000,000
Age 999,999 & Over
---------- -------- ----------
<S> <C> <C>
Up to 29 $ 5.00 $ 3.00
30-39 4.00 2.00
40-49 3.00 1.00
50-59 2.00 0.00
60-69 1.00 0.00
70 & Over 0.00 0.00
</TABLE>
For AetnaVest II Policies, the monthly charge for administrative expenses
in the first Policy Year is $20 and in all subsequent Policy Years, the monthly
charge is $5. The monthly administrative charge and the asset-based
administrative charge work together to cover the Company's acquisition and
maintenance costs. In later years of the Policy, revenue collected from the
daily asset-based charge grows with the total account value to cover increased
expenses from account-based transactional expenses. The administrative charges
will not exceed our costs.
The monthly deduction is taken proportionately from each funding option, if
more than one is used. This is accomplished by canceling accumulation units and
withdrawing the value of the canceled accumulation units from each funding
option in the same proportion as their respective values have to your fixed
account and separate account values. The monthly deduction is made at the same
time each month, beginning with the issue date.
(b) A daily deduction at a rate not to exceed 0.90% per year is taken only from
the separate account value for mortality and expense risks. This deduction
is currently set at the following amounts:
<TABLE>
<S> <C>
1) AetnaVest Policies:
Aetna Ascent VP, Aetna Crossroads VP and Aetna Legacy VP ......... 0.55%
Aetna Balanced VP, Inc. and Aetna Growth and Income VP ........... 0.65%
For all other Funds available under AetnaVest .................... 0.70%
2) For all Funds available under AetnaVest II .................... 0.70%
</TABLE>
This charge may be increased or decreased to reflect our expectations of future
mortality and expense experience.
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<PAGE>
(c) A daily deduction at a rate not to exceed 0.30% per year for AetnaVest, or
0.50% per year for AetnaVest II (currently 0.30% for both Policies), is also
taken from the separate account value to pay for administrative expenses as
described under (a) above.
Once a Policy is issued, monthly deductions, including Cost of Insurance
charges, will be taken from your Policy values as of the issue date, even if the
issue date is earlier than the date the application is signed (See "Premiums").
If the Policy's issuance is delayed due to underwriting requirements, the
charges will not be assessed until the underwriting is complete and the
application for the policy is approved. Cost of Insurance charges will be in
amounts based on the specified amount of the Policy issued, even if the
temporary insurance coverage received during the underwriting period is for a
lesser amount. If we decline an application, we will refund the full premium
payment made.
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<PAGE>
Charges Assessed Against the Underlying Funds
The following table illustrates the investment advisory fees, other
expenses and total expenses paid by each of the Funds as a percentage of average
net assets based on figures for the year ended December 31, 1999 unless
otherwise indicated:
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual Expenses
Investment Expenses Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- ------------------------------------------------ ------------ ---------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2) 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>
(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.
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<PAGE>
(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.
For further details on each Fund's expenses please refer to that Fund's
prospectus.
Surrender Charges
The surrender charge is the amount retained by the Company upon the full or
partial surrender of the Policy. There will be a surrender charge if you
surrender your Policy (in whole or in part) before the end of ten years for
AetnaVest Policies and fifteen years for AetnaVest II Policies, from either the
Policy issue date or from the effective date of an increase in the specified
amount under the Policy. The surrender charge is imposed partially as a deferred
sales charge, and also to enable the Company to recover certain administrative
costs.
The initial surrender charge is based on the specified amount. It also
depends on the Insured's issue age and, in most states, sex.
The dollar amount of the surrender charge will remain the same for five
years following the issue date. Thereafter, the charge will decline monthly for
the next five years (ten for AetnaVest II) so that, ten years after the issue
date for AetnaVest Policies and fifteen years after the issue date for AetnaVest
II Policies (assuming no increases in the specified amount), the surrender
charge will be zero.
If you decrease the specified amount while the surrender charge applies,
the surrender charge will remain the same.
If you increase the specified amount (which you can do at any time after
the first policy year subject to satisfactory evidence of the Insured's
insurability), a new surrender charge will be applicable, in addition to the
then-existing surrender charge. This charge will be determined based on the
Insured's attained age, sex, and underwriting status at the issue date (except
for AetnaVest II Policies issued in Massachusetts and Montana where this charge
will not be determined based on sex). The surrender charge applicable to the
increase will be 70% of the surrender charge on a new policy whose specified
amount equals the amount of the increase, and will cover administrative
expenses. The additional surrender charge will also remain constant for five
years from the start of the policy year in which the increase occurs, and will
decrease to zero at the end of ten years for AetnaVest Policies and fifteen
years for AetnaVest II Policies. See the examples in the boxes below.
The maximum portion of the surrender charge which is to be applied to
reimburse the Company for sales and promotional expenses will be 30% of the
first year's basic premium (if you surrender in full during that year). Full
surrenders after the first year will result in the imposition of the same dollar
surrender charge for the initial five years and, therefore, the sales expense
portion of the surrender charge (expressed as a percentage of basic premiums
paid) will decline after the first policy year.
AETNAVEST POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This example assumes that you bought a Policy with an initial specified
amount of $100,000 that had a surrender charge at the time of issue equal to
$890. The example illustrates the impact of an increase in your specified amount
by $50,000 at the beginning of the third policy year. For any given year, your
surrender
18
<PAGE>
charge will be less than it would have been for someone who simply purchased a
brand new Policy with a specified amount of $150,000.
As noted above, for original specified amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the tenth Policy Year. For any increase in specified amount,
the increase in surrender charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the tenth
year following increase.
<TABLE>
<CAPTION>
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $ 489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 712.00 489.50 1,201.50
8 534.00 489.50 1,023.50
9 356.00 391.60 747.60
10 178.00 293.70 471.70
11 0 195.80 195.80
12 0 97.90 97.90
13 0 0 0
</TABLE>
AETNAVEST II POLICIES: EXAMPLE OF IMPACT OF INCREASE IN
SPECIFIED AMOUNT ON THE SURRENDER CHARGE
This example assumes that you bought a Policy with an initial specified
amount of $100,000 that had a surrender charge at the time of issue equal to
$890. The example illustrates the impact of an increase in your specified amount
by $50,000 at the beginning of the third policy year. For any given year, your
surrender charge will be less than it would have been for someone who simply
purchased a brand new policy with a specified amount of $150,000.
As noted above, for original specified amounts, the surrender charge is the
same for the first five Policy Years, and thereafter declines monthly until it
is $0 at the end of the fifteenth policy year. For any increase in specified
amount, the increase in surrender charge applies for five years from the date of
increase, and declines monthly thereafter until it is $0 at the end of the
fifteenth year following increase.
19
<PAGE>
<TABLE>
<CAPTION>
Additional
Original Surrender Charge --
Surrender Charge -- Increase in
Initial Specified Specified Amount Total
Beginning of Amount at the beginning Surrender
Policy Year: of $100,000 of Policy Year 3 Charges
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 890.00 -- $ 890.00
2 890.00 -- 890.00
3 890.00 $ 489.50 1,379.50
4 890.00 489.50 1,379.50
5 890.00 489.50 1,379.50
6 890.00 489.50 1,379.50
7 801.00 489.50 1,290.50
8 712.00 489.50 1,201.50
9 623.00 440.55 1,063.55
10 534.00 391.60 925.60
11 445.00 342.65 787.65
12 356.00 293.70 649.70
13 267.00 244.75 511.75
14 178.00 195.80 373.80
15 89.00 146.85 235.85
16 0 97.90 97.90
17 0 48.95 48.95
18 0 0 0
</TABLE>
The Company may offer the Policy in a group arrangement in connection with
a multiple employer trust plan under which a trustee, employer or employers, or
other similar entity purchases a Policy which covers a group of individuals on a
group basis. Certificates replicating all the provisions of a Policy are issued
to individual employees. In such arrangements, an employer may permit group
solicitation of its employees for the purchase of Policies on either a group or
individual basis.
The Company may reduce the surrender charge, the monthly deduction, or
both, in connection with Policies issued under such arrangements. Generally,
sales and administrative costs per Policy vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which Policies are
purchased, and other factors. The amount of reductions will be considered on a
case-by-case basis and will reflect the reduced sales effort and administrative
costs expected as a result of sales to a particular group or sponsored
arrangement.
Based on its actuarial determination, the Company does not anticipate that
the surrender charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to, payment of sales and distribution expenses, would be charged
to and paid by the Company.
POLICY SURRENDER
Full Surrenders
When you surrender your Policy for the full cash surrender value, all
applicable surrender charges are imposed.
Partial Surrenders
When you surrender part of your Policy, we will apply the same proportion
of the total applicable surrender charges as the amount to be paid on surrender
bears to the total cash surrender value. Once you have made a partial surrender,
or surrenders, future applicable surrender charges will be reduced
proportionately. In addition, under Option 1, the specified amount will be
reduced by the amount surrendered.
20
<PAGE>
Other rules apply to partial surrenders:
1) No partial surrender can be made until one year after the issue date;
2) The amount paid to you on a partial surrender must be at least $500;
3) If a partial surrender is made, there will be a transaction charge, made
against the total account value, of $25 or 2% of the amount of the net
surrender payment, whichever is less;
4) If, at the time of a partial surrender, your total account value is
attributable to more than one funding option, both the surrender charge
and the amount paid to you upon the surrender will be taken
proportionately from the values accumulated in each funding option. You
cannot select the funding option to be used in the surrender;
5) A partial surrender will not be allowed if it would cause the specified
amount to drop below the minimum allowable specified amount; and
6) Partial surrenders may only be made prior to election of a settlement
option.
As mentioned previously, a partial surrender will also reduce the death
benefit (and the specified amount, if Option 1 is in effect), by the amount of
the reduction in your total account value resulting from the surrender. If the
specified amount is reduced, the most recent increase in coverage is reduced
first, then the next most recent coverage, and so forth.
If the death benefit on an Option 1 Policy is calculated as a percentage of
the total account value rather than as the specified amount, a partial surrender
will reduce the specified amount only if the partial surrender decreases the
difference between the death benefit and the total account value. A partial
surrender will not reduce the specified amount of an Option 2 Policy.
Payment of any amount due from separate account values on a full or partial
surrender will be made within seven calendar days after your written surrender
request is received at our Administrative Office, except that payment may be
postponed when the New York Stock Exchange has been closed and for such other
periods as the Commission may require. Payment of values from the fixed account
value may be deferred for up to six months, except when used to pay premiums to
the Company.
If you surrender your Policy, in whole or in part, there may be tax
implications. (See "Tax Matters.")
POLICY LAPSE
A lapse occurs if your monthly deduction is greater than the cash surrender
value and no payment to cover the deduction is made within 61 days of our
notifying you. This may happen after the first two policy years, or during the
first two policy years if your basic premiums are not current.
If the cash surrender value of the Policy is insufficient to cover the
monthly deduction on the appropriate date, your insurance coverage will
terminate at the end of a 61-day grace period. The grace period begins with the
mailing of a notice to you, once we discover the insufficiency. We will require
the payment of the amount necessary to keep this Policy in force for the current
month, plus two additional months. During the grace period, a Policy has no cash
surrender value, so that if the Policy is terminated at the end of the grace
period, no money will be paid to you.
If your policy's cash surrender value is insufficient to cover the monthly
deduction on the appropriate date, an amount equal to the monthly deduction will
be removed from the total account value and will not participate in investment
performance. If a premium payment is subsequently made and the cash surrender
value exceeds the amount of the monthly deduction, or, within the first two
years the basic premiums are paid, the amount removed will be returned to the
total account value and will resume participation in investment performance.
21
<PAGE>
REINSTATEMENT OF LAPSED POLICY
We will consider reinstatement within five years after the date of
termination (provided it is before the maturity date). We will require
satisfactory evidence of insurability. Regardless of when the Policy lapses, the
original and any additional tables of surrender charges that were issued on this
Policy will apply upon reinstatement. The loan account value will be reinstated.
All values will be reinstated as of the date of the Policy's termination.
Under AetnaVest II Policies issued in most states, if the Policy lapses
during the first two policy years, the payment required at reinstatement will
equal the sum of basic premiums for each monthly deduction day to date, less
premiums previously paid. If the Policy lapses after the first two policy years,
you must make a premium payment that will cause the surrender value upon
reinstatement to equal three times the next monthly deduction.
For AetnaVest Policies, upon reinstatement, no surrender charge deduction
will apply to coverage which was in force for two or more years (one or more
years for multiple employer trust policies) prior to the date of termination.
For terminated coverage which was in force less than two years, future surrender
charges will not be reduced from the original schedule. If you request
reinstatement during the first two policy years, the premium required at
reinstatement will be the lesser of (a) a premium sufficient to pay for three
monthly deductions plus any applicable surrender charge; or (b) overdue basic
premiums.
POLICY LOANS
If you purchase an AetnaVest Policy you may borrow against your Policy
after the end of the second policy year (in California and Texas, after the end
of the first policy year). AetnaVest II Policy Owners may borrow against their
Policy beginning in the first policy year. For all Policies, loans must be taken
before the election of a settlement option.
The most you can borrow is 90% (100% for AetnaVest II policies issued in
Texas) of the fixed account and separate account values less the surrender
charge applicable at the time of the loan. Interest on the loan, including
preferred loans, will accrue at 8% per year, payable once a year at each
anniversary of the loan. Any interest not paid when due becomes part of the loan
and bears interest.
The amount you receive as a result of the loan will, together with any
accrued but not paid interest, constitute the loan account value. Repayments on
the loan will be allocated among the funding options in the same proportion the
loan was taken from the funding options. The loan account value will be reduced
by the amount of any loan repayment. The amount necessary to repay all loans in
full is the loan account value plus any accrued interest.
The loan account value is credited with the amount of any loans you make on
your Policy, as collateral. The loan account value is credited with interest at
a rate of at least 4.5% per year (6% in New York). Such credited interest is
transferred out of the loan account value monthly and reallocated
proportionately to the applicable funding options.
Beginning in the eleventh policy year, up to 10% of the maximum loan amount
available, at the beginning of a policy year, can be taken as a preferred loan
during that policy year. Amounts borrowed in excess of the maximum loan amount
available for a preferred loan will not be considered a preferred loan. The
portion of the loan account value equal to the preferred loan will be credited
at the policy loan interest rate of 8% per year. The portion of the loan account
value not considered a preferred loan will be credited interest at 4.5% per year
(6% in New York). The preferred loan feature is only available in approving
states as stated in your Policy.
If you are using more than one underlying funding option, the amount of the
loan will be withdrawn in proportion to the value held in each funding option.
You cannot select the funding option to be used for the loan.
22
<PAGE>
POLICY CHANGES
You may make changes to your Policy, as described below, by submitting a
written request to our Administrative Office in a form satisfactory to us.
Beginning one year after the issue date, you may increase or decrease the
specified amount of your Policy as follows:
1) For an increase, we will require satisfactory evidence of insurability
unless there is no increase in the amount at risk;
2) The cash surrender value at the time of an increase must be at least three
times the sum of (a) the most recent monthly deduction from total account
value and (b) the amount of the increase, divided by 1000, times the
applicable Cost of Insurance Rate;
3) An increase in the specified amount will increase the surrender charge
unless there is no increase in the amount at risk;
4) Increases are limited to four times the original specified amount;
5) Decreases in the specified amount will not decrease the surrender charge
or your basic premium. Decreases during the second year after the issue
date will usually not enable you to reduce your planned premium below the
basic premium without lapsing the Policy;
6) No decrease may reduce the specified amount to less than the
then-current minimum for this type of Policy;
7) The decrease will be applied first to the most recent coverage under the
Policy, then to the next most recent, and so forth.
You can also change from one death benefit option to the other.
The specified amount will be changed when a change in death benefit option
is made. If the change is from Option 1 to Option 2, the new specified amount
will equal the amount at risk as of the date of the change. If the change is
from Option 2 to Option 1, the new specified amount will equal the death benefit
as of the date of the change.
A change in death benefit option will not be allowed if the new specified
amount would be less than the then-current minimum. We may require satisfactory
evidence of insurability before allowing the change. There will be no change in
the surrender charge (either increase or decrease) at the time of a change in
death benefit option.
RIGHT TO EXAMINE THE POLICY
The Policy has a specific period during which you may examine the Policy.
If for any reason you are dissatisfied, it may be returned to our Administrative
Office for a refund. It must be returned within ten days (state variations may
apply) after you receive the Policy and the written notice of withdrawal right,
or within 45 days after you sign the application for the Policy, whichever
occurs latest.
If you return (cancel) the Policy, we will pay a refund of:
1) the difference between payments made and amounts allocated to the
separate account,
2) the value of the amount allocated to the separate account as of the date
the returned Policy is received by us, and
3) any fees imposed on the amounts allocated to the separate account.
23
<PAGE>
If state law does not permit such a refund, then the refund will equal
premiums paid, without interest. Refunds will usually occur within seven days of
notice of cancellation, although a refund of premiums paid by check may be
delayed until the check clears your bank.
EXCHANGING YOUR POLICY
You may exchange the AetnaVest Policy for a period of two years after the
issue date for a new adjustable premium policy issued by the Company, under
which policy values and benefits do not vary with the investment performance of
a separate account. The new policy will have the same issue date as the old
Policy, and no evidence of insurability will be required. Since your total
account value will be transferred from the old Policy to the new policy in its
entirety, the cash surrender value under the new policy cannot exceed the cash
surrender value under the old Policy at the time of exchange. We have the right
to adjust the cash surrender value under the new policy to make sure this is the
case. You have the right to select whether the new policy has the same death
benefit or net amount at risk as the old Policy. There may be a charge due to
the Company, or a refund due to you, equal to the difference in cash value
between the old Policy and the new policy.
For AetnaVest II Policies you may simply transfer the entire separate
account value of your Policy to the Fixed Account. No charge will be made for
any such transfer.
PAYMENT OF DEATH BENEFIT
The death benefit is the amount payable to the beneficiary upon the death
of the Insured. Any outstanding loan amounts or overdue deductions are withheld
from the death benefit prior to payment.
The death benefit under the Policy will be paid in a lump sum within seven
days after we receive due proof of death (a certified copy of the death
certificate) at our Administrative Office, unless you or the beneficiary have
elected that it be paid under one or more of the settlement options described
below.
Payment of the death benefit may be delayed if the Policy is being
contested. While the Insured is living, you may elect a settlement option for
the beneficiary and deem it irrevocable. You may revoke or change a prior
election. The beneficiary may make or change an election within 90 days of the
death of the Insured, unless you have made an irrevocable election. A
beneficiary who has elected Settlement Option 1 may elect another option within
two years after the insured's death.
All or a part of the proceeds of the death benefit may be applied under one
or more of the following settlement options, or such options as we may choose to
make available in the future.
If the Policy is assigned as collateral security, we will pay any amount
due the assignee in one lump sum. Any excess death benefit proceeds due will be
paid as elected.
POLICY SETTLEMENT
There are several ways in which a beneficiary may receive annuity payments
due from a death benefit, or which the Insured may choose to receive annuity
payments from the cash surrender value of the Policy.
Proceeds in the form of settlement options are payable by the Company upon
the Insured's death; upon maturity of the Policy; or upon election of one of the
following settlement options or any we make available (after any applicable
surrender charges have been deducted).
A written request is required to elect, change, or revoke a settlement
option. This request will take effect upon receipt or recording of the written
request, in good order, at our Administrative Office.
The first variable settlement option payment will be as of the tenth
valuation period following the receipt of the properly completed election form.
24
<PAGE>
Settlement Options
Options 2, 3 and 4 are in the form of an annuity, which is a series of
payments for life or a definite period. An "annuitant" is the person or persons
on whose life annuity payments are based and who may be entitled to receive such
payment.
Option 1--Payment of interest on the sum left with us;
Option 2--Payments for a stated number of years, at least three but no
more than thirty;
Option 3--Payments for the lifetime of the annuitant. If also chosen, we
will guarantee payments for 60, 120, 180 or 240 months;
Option 4--Payments during the joint lifetimes of two annuitants. At the
death of either, payments will continue to the survivor. When this option is
chosen, a choice must be made of:
(a) 100% of the payment to continue to the survivor;
(b) 66% of the payment to continue to the survivor;
(c) 50% of the payment to continue to the survivor;
(d) Payments for a minimum of 120 months, with 100% of the payment to
continue to the survivor;
(e) 100% of the payment to continue to the survivor if the survivor is the
annuitant, and 50% of the payment to continue to the survivor if the
survivor is the second annuitant.
In most states, no election may be made that would result in a first
payment of less than $25 or that would result in total yearly payments of less
than $120. If the value of the Policy is insufficient to elect an option for the
minimum amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in our General Account.
Proceeds in the General Account will be used to make payments on a fixed dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3.5%. We may add interest daily at any higher rate.
Under Option 1, the annuitant may later tell the Company to (a) pay to him
or her a portion or all of the sum held by the Company; or (b) apply a portion
or all of the sum held by the Company to another settlement option.
Proceeds applied under Options 2, 3 and 4 will be held (a) in the General
Account; or (b) in the Company's Variable Annuity Account B, invested in one or
more of the available investment options; or (c) a mix of (a) and (b). Proceeds
in Variable Annuity Account B will be used to make payments on a variable basis.
If payments are to be funded on a variable basis, the first and subsequent
payments will vary depending on the Assumed Net Investment Rate. This rate will
be 3.5% per annum, unless a 5% annual rate is chosen. The Assumed Net Investment
Rate is chosen by the payee.
Selection of a 5% rate causes a higher first payment, but subsequent
payments will increase only to the extent the actual net investment rate exceeds
5% on an annualized basis, and they will decline if the rate is less than 5%.
Use of the 3.5% Assumed Net Investment Rate causes a lower first payment, but
subsequent payments will increase more rapidly or decline more slowly as changes
occur in the actual net investment rate. The investment performance of the
underlying funding option(s) must equal such assumed rate, plus enough to cover
the mortality and expense risk and administrative fee charges, if future
payments on a variable basis are to remain level.
If payments on a variable basis are not to decrease, gross return on the
assets of the underlying funding option must be:
25
<PAGE>
(a) 4.75% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time settlement option
payments start, if an Assumed Net Investment Rate of 3.5% is chosen; or
(b) 6.25% on an annual basis, plus an annual return of up to .25% needed to
offset the administrative charge in effect at the time settlement option
payments start, if an Assumed Net Investment Rate of 5% is chosen.
Option 2, 3, or 4 may be chosen on a fixed dollar basis. However, if the
guaranteed payments are less than the payments which would be made from the
purchase of the Company's current single premium immediate annuity, the larger
payment will be made instead.
As to funds held under Option 1, the annuitant may elect to make a
withdrawal or to change options. Under Option 2, if payments are made on a
variable basis, the current value may be withdrawn at any time. Amounts held in
the Fixed Account may not be withdrawn under Option 2. No withdrawals or changes
of option may be made under Options 3 and 4.
When an annuitant dies while receiving payments under Option 2, 3 or 4, the
present value of any remaining guaranteed payments will either be paid in one
sum to the beneficiary, or upon election by the beneficiary, any remaining
guaranteed payments will continue to the beneficiary. If no beneficiary exists,
the present value of any remaining guaranteed payments will be paid in one sum
to the annuitant's estate. If the annuitant dies while receiving payments under
Option 1, the current value of the Option will be paid in one sum to the
beneficiary, or to the annuitant's estate.
If a beneficiary dies (and there is no contingent beneficiary), while
receiving payments, the current value of the account (Option 1), or the present
value of any remaining guaranteed payments will be paid in one sum to the estate
of the beneficiary. The interest rate used to determine the first payment will
be used to calculate the present value.
Payments will be made upon receipt of a written request filed with us. If
the Owner has made no settlement election when the beneficiary becomes entitled
to proceeds, the beneficiary may make the election.
Calculation of Settlement Payments on a Variable Basis
When you have chosen payment on a variable basis, the first payment is
calculated as follows:
(a) the portion of the proceeds applied to make payments on the variable
basis; divided by
(b) 1000; times
(c) the payment rate for the option chosen.
Such amount, or portion, of the variable payment will be divided by the
Settlement Option Unit Value (described below), as of the tenth valuation period
(the period of time between one valuation Date and the next valuation Date)
before the due date of the first payment, to determine the number of Settlement
Option Units. Each future payment is equal to the number of Settlement Option
Units, times the Settlement Option Unit Value as of the tenth valuation period
prior to the due date of the payment.
For any valuation period, the Settlement Option Unit Value is equal to:
(a) The Settlement Option Unit value for the previous valuation period;
times
(b) The Net Return Factor (as defined below) for the valuation period;
times
(c) A factor to reflect the Assumed Net Investment Rate. The factor for 3.5%
per year is .9999058; for 5% per year, it is .9998663.
26
<PAGE>
The Net Return Factor equals:
(i) The net assets of the applicable fund held in Variable Annuity Account
B at the end of a valuation period, minus
(ii) The net assets of the applicable fund held in Variable Annuity Account
B at the beginning of that valuation period, plus or minus
(iii) Taxes or provision for taxes, if any, attributable to the operations
of Variable Annuity Account B, divided by
(iv) The value of Settlement Option Units and other accumulation units held
in Variable Annuity Account B at the beginning of the valuation period,
minus
(v) A daily charge at an annual rate of 1.25% for annuity mortality and
expense risk and a daily administrative expense charge that will not exceed
.25% on an annual basis of your account value invested in the subaccount.
The number of Settlement Option Units remains fixed. However, the dollar
value of the Settlement Option Unit Values and the payment may increase or
decrease due to investment gain or loss.
Payments will not be affected by changes in the mortality or expense
results or administrative charges.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Name and Address*
Position with Company Business Experience During Past 5 Years
- -------------------------- ------------------------------------------------------------------------------
<S> <C>
Thomas J. McInerney President (since October 1998) Aetna Investment Adviser Holding Company,
Director, President and Inc., Aetna Retail Holding Company, Inc., Aetna Services Holding Company,
Chairman, Executive Inc.; President (since September 1997) Aetna Life Insurance and Annuity
Committee (Principal Company; President (since September 1997) Aetna Insurance Company of
Executive Officer) America; President (since September 1997) Aetna Retirement Holdings, Inc.;
President (since August 1997) Aetna Retirement Services, Inc.; Executive Vice
President (since August 1997) Aetna Inc., Aetna Services, Inc. and Aetna Life
Insurance Company; Vice President, Strategy (March 1997--August 1997)
Aetna Inc., Aetna Services, Inc. and Aetna Life Insurance Company; Vice
President, Sales (December 1996--March 1997) and Vice President, National
Accounts (April 1996--March 1997) Aetna US Healthcare Inc.; Vice
President, Strategy, Finance, & Administration (July 1995--April 1996) Aetna
Inc.; Vice President, Guaranteed Products (November 1992--July 1995) Aetna
Life Insurance Company.
Shaun P. Mathews President (January 1998--February 1999) Aetna Investment Services, Inc;
Director and Senior Vice Senior Vice President (since June 1999) Aetna Retirement Holdings, Inc.;
President 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.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
Position with Company Business Experience During Past 5 Years
- --------------------------- --------------------------------------------------------------------------------
<S> <C>
Catherine Hale Smith Senior Vice President (since October 1998) Aetna Investment Adviser Holding
Director, Chief Financial Company, Inc., Aetna Retail Holding Company, Inc., Aetna Services Holding
Officer and Senior Vice Company, Inc.; Chief Financial Officer and Senior Vice President, Business
President 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.
Kirk P. Wickman Senior Vice President, General Counsel and Corporate Secretary (since June
Senior Vice President, 1999) Aetna Retirement Holdings, Inc., Aetna Investment Adviser Holding
General Counsel and Company, Inc., Aetna Retail Holding Company, Inc., Aetna Services Holding
Corporate Secretary 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 Controller, and Assistant Treasurer (since July 1999)
Vice President, Corporate Aetna Retirement Services, Inc.; Vice President, Corporate Controller, and
Controller, and Assistant Assistant Treasurer (since June 1999) Aetna Investment Adviser Holding
Treasurer 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>
28
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
Position with Company Business Experience During Past 5 Years
- -------------------------- ------------------------------------------------------------------------------
<S> <C>
Therese A. Squillacote Vice President and Chief Compliance Officer (since February 1999) Aetna
Vice President and Chief Insurance Company of America; Vice President and Chief Compliance Officer
Compliance Officer (since December 1998) Aetna Life Insurance and Annuity Company; Vice
President and Chief Compliance Officer (since December 1998) Aetna
Investment Services, Inc.; Chief Compliance Officer (since December 1998)
Systematized Benefits Administrators, Inc.; Vice President, Compliance (since
March 1998) Aetna Financial Services, Inc.; Compliance Manager (May 1997
to December 1998) Aetna Life Insurance and Annuity Company; Registered
Principal (since July 1997) Aetna Investment Services, Inc.; Director,
Compliance (December 1995 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>
* The address of all Directors and Officers listed is 151 Farmington Avenue,
Hartford, Connecticut. These individuals may also be directors and/or officers
of other affiliates of the Company.
These individuals may also be directors and/or officers of other affiliates of
the Company.
Directors, officers and employees of the Company are covered by a blanket
fidelity bond in the amount of $60 million issued by Travelers Casualty and
Surety Company of America.
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<PAGE>
REPORTS TO POLICY OWNERS
Within 30 days after each Policy anniversary and before proceeds are
applied to a settlement option, we, or our designee, will send you a report
containing the following information:
1. A statement of changes in total account value and cash surrender value
since the prior report or since the issue date, if there has been no prior
report. This includes a statement of monthly deductions and investment
results and any interest earnings for the report period;
2. Cash surrender value, death benefit, and any loan account value, as of
the Policy anniversary;
3. A projection of total account value, loan account value and cash surrender
value as of the succeeding Policy Anniversary.
If you have Policy values funded in either separate account you will
receive such additional periodic reports as may be required by the Commission.
Some state laws require additional reports; these requirements vary from
state to state.
RIGHT TO INSTRUCT VOTING OF FUND SHARES
In accordance with our view of present applicable law, the Company will
vote the shares of each of the Funds held in the separate account in accordance
with instructions received from Policy owners having a voting interest in the
Funds. Policy owners having such an interest will receive periodic reports
relating to the Fund, proxy material and a form for giving voting instructions.
The number of shares which you have a right to vote will be determined as of a
record date established by the Fund. To determine how many votes each policy
owner is entitled to direct with respect to a Fund, first we will calculate the
dollar amount of your account value attributable to that Fund. Second, we will
divide that amount by $100.00. The result is the number of votes you may direct.
Voting instructions will be solicited by written communication at least 14 days
before such meeting.
The votes will be cast at meetings of the shareholders of the Fund and will
be based on instructions received from Policy owners. However, if the Investment
Company Act of 1940 or any regulations thereunder should be amended or if the
present interpretation should change, and as a result we determine that we are
permitted to vote the shares of the Fund in our own right, we may elect to do
so.
Fund shares for which no timely instructions are received, and Fund shares
which are not otherwise attributable to Policy owners, will be voted by us in
the same proportion as the voting instructions which are received for all
Policies participating in each Fund through the separate account.
Policy owners having a voting interest will receive periodic reports
relating to the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund. In
addition, we may disregard voting instructions in favor of changes initiated by
a Policy owner in the investment policy or the investment adviser of a Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities or we determined that
the change would have an adverse effect on the separate accounts in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a summary
of that action and the reasons for such action will be included in the next
annual report to Policy owners.
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<PAGE>
STATE REGULATION
The Company is subject to regulation and supervision by the Insurance
Department of the State of Connecticut, which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where we are authorized to do business. The Policies have been approved by the
Insurance Department of the State of Connecticut and in other jurisdictions.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and compliance
with local insurance laws and regulations.
The Policies are offered for sale in all jurisdictions where we are
authorized to do business except the District of Columbia, Guam, Puerto Rico,
and the Virgin Islands.
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 sales 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.
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.
ADDITIONAL INFORMATION
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed
with the Commission relating to the offering described in this Prospectus. This
Prospectus does not include all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. The omitted information may be obtained at the
Commission's principal office in Washington, DC upon payment of the Commission's
prescribed fees.
Distribution of the Policies
The Company will serve as underwriter of the securities offered hereunder
as defined by the federal securities laws. The Company is registered as a
broker-dealer with the Commission and is a member of the NASD. The Company will
contract with one or more registered broker-dealers including broker-dealers
affiliated with it ("distributors") to offer and sell the Policies. The Company
may also offer and sell policies directly. All persons selling the Policies will
be registered representatives of the distributors, and will also be licensed as
insurance agents to sell variable life insurance.
The maximum commission payable by the Company to salespersons and their
supervising broker-dealers for policy distribution is 55% of the initial basic
premium or, in the event of an increase in the specified amount, 55% of the
basic premium attributable to the increase. In lieu of premium-based commission,
the Company may pay equivalent amounts based on total account value. In
particular circumstances, we may also pay certain of these professionals for
their administrative expenses. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. However, all such compensation
will be in accordance with NASD rules. Supervisory and other management
personnel of the Company may receive compensation that will vary based on the
relative profitability to the Company of the funding options you select. Funding
options that invest in Funds advised by the Company or its affiliates are
generally more profitable to the Company.
The registered representative may be required to return all or part of any
commission if the Policy is not continued for a certain period.
The Company may also contract with independent third party broker-dealers
who will act as wholesalers by assisting the Company in finding broker-dealers
to offer and sell the Policies. These parties may also
31
<PAGE>
provide training, marketing and other sales related functions for the Company
and other broker-dealers and may provide certain administrative services to the
Company in connection with the Policies. The Company may pay such parties
compensation based on premium payments for the Policies purchased through
broker-dealers selected by the wholesaler.
Records and Accounts
All records and accounts relating to the separate accounts and the Funds
will be maintained by the Company or its designee. All reports required to be
made and information required to be given will be provided by the Company or its
designee.
The Lincoln National Life Insurance Company ("Lincoln") and its affiliates
perform certain administrative functions relating to the Policies, and maintain
books and records necessary to operate and administer the Policies.
Independent Auditors
KPMG LLP, CityPlace II, Hartford, Connecticut, were the independent
auditors for the Separate Account for the years December 31, 1997 and 1998, 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.
TAX MATTERS
General
The following is a discussion of the federal income tax considerations
relating to the Policies. This discussion is based on the Company's
understanding of federal income tax laws as they now exist and are currently
interpreted by the Internal Revenue Service ("IRS"). These laws are complex, and
tax results may vary among individuals. A person or persons contemplating the
purchase of or the exercise of elections under the Policy described in this
Prospectus should seek competent tax advice.
Federal Tax Status of the Company
The Company is taxed as a life insurance company under the Code. The
separate account is not a separate entity from the Company. Therefore, the
separate account is not taxed separately as a "regulated investment company,"
but is taxed as part of the Company. Investment income and realized capital
gains attributable to the separate account are automatically applied to increase
reserves under the policy. Because of this, under existing federal income tax
law we believe that any such income and gains will not be taxed to the extent
that such income and gains are applied to increase reserves under the policy. In
addition, any foreign tax credits attributable to the separate account will
first be used to reduce any income taxes imposed on the separate account before
being used by the Company.
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make
provisions for any such taxes. However, if changes in the federal tax laws or
their interpretation result in our being taxed on income or gains attributable
to the separate account, then we may impose a charge against the separate
account (with respect to the policy) to set aside provisions to pay such taxes.
Life Insurance Qualification
Section 7702 of the Code includes a definition of life insurance for tax
purposes. These rules generally place limits on the amount of premiums payable
under the contract and the level of cash surrender value. In no event may the
total of all premiums paid exceed the then-current maximum premium limitations
established by federal law for a Policy to qualify as life insurance. If, at any
time, a premium is paid which would result in total premiums exceeding such
maximum premium limitation, we will only accept that portion
32
<PAGE>
of the premium which will make total premiums equal the maximum. Any part of the
premium in excess of that amount will be returned or applied as otherwise agreed
and no further premiums will be accepted until allowed by the then-current
maximum premium limitations prescribed by law. The Secretary of the Treasury has
been granted authority to prescribe regulations to carry out the purposes of
Section 7702, and proposed regulations governing mortality charges were issued
in 1991. The Company believes that the Policy meets the statutory definition of
life insurance. As such, and assuming the diversification standards of Section
817(h) (discussed below) are satisfied, then except in limited circumstances (a)
death benefits paid under the Policy should generally be excluded from the gross
income of the beneficiary for federal income tax purposes under Section
101(a)(1) of the Code, and (b) a Policy owner should not generally be taxed on
the cash value under a Policy, including increments thereof, prior to actual
receipt. The principal exceptions to these rules are corporations that are
subject to the alternative minimum tax, and thus may be subject to tax on
increments in the Policy's total account value, and Policy owners who acquire a
Policy in a "transfer for value" and thus can become subject to tax on the
portion of the death benefit which exceeds the total of their cost of
acquisition and subsequent premium payments.
The Company intends to comply with any future final regulations issued
under Sections 7702 and 817(h) of the Code, and therefore reserves the right to
make such changes as it deems necessary to ensure such compliance. Any such
changes will apply uniformly to affected Policy owners and will be made only
after advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
modified endowment contract (see "Modified Endowment Contracts" below), the
Policy owner will be taxed on the surrender value only to the extent that it
exceeds the gross premiums paid less prior untaxed withdrawals. The amount of
any unpaid Policy loans will, upon surrender, be added to the surrender value
and will be treated for this purpose as if it had been received.
Assuming the Policy is not a modified endowment contract, the proceeds of
any partial surrenders are generally not taxable unless the total amount
received due to such surrenders exceeds total premiums paid less prior untaxed
partial surrender amounts. However, partial surrenders made within the first 15
Policy Years in connection with reductions of specified amounts may be taxable
in certain limited instances where the surrender value plus any unpaid Policy
debt exceeds the total premiums paid less the untaxed portion of any prior
partial surrenders. This result may occur even if the total amount of any
partial surrenders does not exceed total premiums paid to that date.
Loans received under the Policy will ordinarily be considered indebtedness
of the Policy owner, and assuming the Policy is not considered a modified
endowment contract, Policy loans will not be treated as current distributions
subject to tax. Generally, amounts of loan interest paid by individuals will be
considered nondeductible "personal interest."
Modified Endowment Contracts
A class of contracts known as "modified endowment contracts" has been
created under Section 7702A of the Code. The tax rules applicable to loan
proceeds and proceeds of a partial surrender of any Policy that is considered to
be a modified endowment contract will differ from the general rules noted above.
A contract will be considered a modified endowment contract if it fails the
"7-pay test." A Policy fails the 7-pay test if, at any time in the first seven
policy years, the amount paid into the Policy exceeds the amount that would have
been paid had the Policy provided for the payment of seven (7) level annual
premiums. In the event of a distribution under the Policy, the Company will
notify the Policy owner if the Policy is a modified endowment contract.
Each Policy is subject to testing under the 7-pay test during the first
seven policy years and for the seven policy years following the time a material
change takes effect. A material change, for these purposes, includes
33
<PAGE>
the exchange of a life insurance policy for another life insurance policy or the
conversion of a term life insurance policy into a whole life or universal life
insurance policy. In addition, an increase in the future benefits provided
constitutes a material change unless the increase is attributable to (1) the
payment of premiums necessary to fund the lowest death benefit payable in the
first seven policy years or (2) the crediting of interest or other earnings with
respect to such premiums. A reduction in death benefits during the first seven
policy years may also cause a Policy to be considered a modified endowment
contract.
If the Policy is considered to be a modified endowment contract, the
proceeds of any partial surrenders, any policy loans and most assignments will
be currently taxable to the extent that the Policy's total account value
immediately before payment exceeds gross premiums paid (increased by the amount
of loans previously taxed and reduced by untaxed amounts previously received).
These rules may also apply to policy loans or partial surrender proceeds
received during the two-year period prior to the time that a Policy becomes a
modified endowment contract. If the Policy becomes a modified endowment
contract, it may be aggregated with other modified endowment contracts purchased
by you from the Company (and its affiliates) during any one calendar year for
purposes of determining the taxable portion of withdrawals from the Policy.
A penalty tax equal to 10% of the amount includable in income will apply to
the taxable portion of the proceeds of any policy surrender or policy loan
received by any Policyowner of a modified endowment contract who is not an
individual. Taxable policy distributions made to an individual who has not
reached the age of 591/2 will also be subject to the penalty tax unless those
distributions are attributable to the individual becoming disabled, or are part
of a series of equal periodic payments made not less frequently than annually
for the life or life expectancy of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or
the investments of a mutual fund, the shares of which are owned by separate
accounts of insurance companies) underlying the Policy must be "adequately
diversified" in accordance with Treasury regulations in order for the Policy to
qualify as life insurance. The Treasury Department has issued regulations
prescribing the diversification requirements in connection with variable
contracts. The Separate Account, through the Funds, intends to comply with these
requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered
the owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable contractowner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable contractowner will be considered the
owner of separate account assets if the contractowner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h) concerning diversification,
that those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., you), rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular Funds without
being treated as owners of the underlying assets." As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from those described by the IRS in pre-Section 817(h) rulings
in which it was determined that Policy owners were not owners of separate
account assets. For example, a Policy owner has additional flexibility in
allocating premium payments and account values. While the Company does not
believe that these differences would result in a Policy owner being treated as
the owner of a pro rata portion of the assets of the Separate Account, there is
no regulation or ruling of the IRS that confirms this conclusion. In addition,
the Company does not
34
<PAGE>
know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. The Company
therefore reserves the right to modify the Policy as necessary to attempt to
prevent a Policy owner from being considered the owner of a pro rata share of
the assets of the Separate Account.
Other Tax Considerations
Business-owned life insurance may be subject to certain additional rules.
Section 264(a)(1) of the Code generally prohibits employers from deducting
premiums on policies covering officers, employees or other financially
interested parties where the employer is a beneficiary under the Policy.
Additions to the Policy's total account value may also be subject to tax under
the corporation alternative minimum tax provisions. In addition, Section
264(a)(4) of the Code limits the Policy owner's deduction for interest on loans
taken against life insurance covering the lives of officers, employees, or
others financially interested in the Policy owner's trade or business. Under
current tax law, interest may generally be deducted on an aggregate total of
$50,000 of loans per covered life only with respect to life insurance policies
covering each officer, employee or others who may have a financial interest in
the Policy owner's trade or business and are considered key persons. Generally,
a key person means an officer or a 20 percent owner. However, the number of key
persons will be limited to the greater of (a) 5 individuals, or (b) the lesser
of 5 percent of the total officers and employees of the taxpayer or 20
individuals. Deductible interest for these policies will be capped based on the
applicable Moody's Corporate Bond Rate.
Section 264(f) of the Code denies a deduction for a portion of a Policy
owner's otherwise deductible interest that is allocable to unborrowed policy
cash values. The nondeductible interest amount is the amount that bears the same
ratio to such interest as the company's average unborrowed cash value of life
insurance and annuity policies issued after June 8, 1997 bears to the sum of the
average unborrowed cash values of policies plus the average adjusted tax basis
of other assets owned by the company. This provision does not apply to policies
in which the insured is a 20% owner, officer, director or employee of the
business, including policies jointly covering such individual and his or her
spouse. The rule also will not apply where the Policy owner is a natural person,
unless a trade or business is directly or indirectly the beneficiary of the
policy.
Depending on the circumstances, the exchange of a policy, a change in the
Policy's death benefit option, a policy loan, a full or partial surrender, a
change in ownership or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, estate,
inheritance and other tax consequences of policy ownership, premium payments and
receipt of policy proceeds depend on the circumstances of each Policy owner or
beneficiary. Any person concerned about these tax implications should consult a
competent tax advisor before initiating any transactions.
Withholding
Generally, unless you provide us with a written election to the contrary
before we make the distribution, we are required to withhold income tax from any
portion of a distribution we make to you that is includable in your income. If
you do not wish us to withhold tax from the payment, or if enough is not
withheld, you may have to pay later. You may also have to pay penalties if your
withholding and estimated tax payments are insufficient.
MISCELLANEOUS POLICY PROVISIONS
The Policy
The Policy which you receive and the application you make when you purchase
the Policy are the whole contract. A copy of the application is attached to the
Policy when it is issued to you. Any application for changes, once approved by
us, will become part of the Policy.
Application forms are completed by the applicant and forwarded to the
Company for acceptance. Upon acceptance, the Policy is prepared, executed by
duly authorized officers of the Company, and forwarded to the Policy owner.
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<PAGE>
Payment of Benefits
All benefits are payable at our Administrative Office. We may require
submission of the Policy before we grant loans, make changes or pay benefits.
Age and Sex
If age or sex is misstated on the application, the amount payable on death
will be that which would have been purchased by the most recent monthly
deduction at the correct age and sex. (If the application is taken in a state
where unisex rates are used, the Insured's sex is inapplicable.)
Incontestability
We will not contest coverage under the Policy (other than any waiver of
premium rider) after it has been in force during the lifetime of the Insured
more than two years from the issue date.
For coverage which takes effect on a later date (i.e., an increase or
reinstatement of insurance), we will not contest such coverage after it has been
in force during the lifetime of the Insured more than two years from its
effective date. Any contest of such later coverage will be based on the
supplemental application.
Suicide
In most states, if the Insured commits suicide within two years from the
issue date, the only benefit paid will be the sum of (a) plus (b) minus (c),
where:
(a) equals premiums paid less amounts allocated to the separate account; and
(b) equals the separate account value on the date of suicide, plus the portion
of the monthly deductions deducted from the separate account value; and
(c) equals the amount necessary to repay any loans in full and any interest
earned on the loan account value transferred to the separate account value,
and any surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of
any increase in coverage, we will pay as a benefit only the monthly deductions
for the increase, in lieu of the face amount of the increase.
All amounts will be calculated as of the date of death.
Protection of Proceeds
To the extent provided by law, the proceeds of the Policy are subject
neither to claims by a beneficiary's creditors nor to any legal process against
any beneficiary.
Non-Participation
The Policy is not entitled to share in the divisible surplus of the
Company. No dividends are payable.
Coverage Beyond Maturity
The Policy is considered matured on the issue date anniversary after which
the Insured has reached age 95 (for AetnaVest Policies) or 100 (for AetnaVest II
Policies). This is the Maturity Date.
For AetnaVest II Policies only, you may, by written request in the 30 days
before the maturity date of this Policy, elect to continue coverage beyond the
maturity date. At Age 100, the separate account value will be transferred to the
Fixed Account. If coverage beyond maturity is elected, we will continue to
credit interest to the total account value of this Policy. Monthly deductions
will be calculated with a Cost of Insurance rate equal to zero.
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At this time, uncertainties exist regarding the tax treatment of the Policy
should the Policy continue beyond the maturity date. You should therefore
consult with your tax advisor prior to making this election. (See Tax Matters.)
The coverage beyond maturity provision is only available in approving states.
(This provision is not available in New York.)
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APPENDIX A
AETNAVEST
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES
The following tables illustrate how the total account values, cash
surrender values, and death benefits of a Policy change with the investment
experience of the variable funding options. The tables show how the total
account values, cash surrender values, and death benefits of a Policy issued to
an insured of a given age and a given premium would vary over time if the
investment return on the assets held in each Fund were a uniform, gross, annual
rate of 0%, 6%, 12%, respectively.
Tables I through IV illustrate Policies issued to males, ages 25 and 40, in
the nonsmoker rate class. The total account values, cash surrender values, and
death benefits would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12% respectively, over a period
of years, but fluctuated above and below those averages for individual Policy
Years.
The second column of each table shows the accumulated values of the
premiums paid at the stated interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through eleventh columns illustrate the cash surrender values of each Policy
over the designated period. Tables II and IV assume that the maximum Cost of
Insurance Rates allowable under the Policy are charged in all policy years.
These tables also assume that the maximum allowable mortality and expense risk
charge of 0.90% on an annual basis is assessed in each policy year. Tables I and
III assume that the current scale of Cost of Insurance Rates applies during all
policy years. These tables also assume the current level of mortality and
expense risk charge assessed on an annual basis: 0.65% for Aetna Balanced VP,
Inc., 0.65% for Aetna Growth and Income VP; 0.55% for Aetna Ascent VP; 0.55% for
Aetna Crossroads VP; 0.55% for Aetna Legacy VP and 0.70% for all other Funds
available under the AetnaVest Policies. The tables also assume a 0.30% current
(0.50% guaranteed) administration charge.
The investment advisory fees and other Fund expenses, net of waivers and
reductions (see the table on page 17), vary by Fund from .34% to 1.00%. An
arithmetic average of 0.68% has been used for the illustrations.
The amounts shown for the death benefits, cash surrender values, and total
account values reflect the fact that the net investment return is lower than the
gross, return on the assets held in each Fund as a result of expenses paid by
the Fund and other charges levied by the Separate Account. After deduction of
these amounts, the illustrated gross annual investment rates of return of 0%,
6%, and 12% correspond to approximate net annual rates of -1.64%, 4.27%, and
10.17%, respectively on a current basis. On a guaranteed basis, the illustrated
gross annual investment rates of return of 0%, 6%, and 12% correspond to
approximate net annual rates of -1.86%, 4.03%, and 9.92%, respectively.
The hypothetical values shown in the tables do not reflect any Separate
Account charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the death
benefits, total account values, and cash surrender values illustrated.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the policy
owner has not requested an increase or decrease in the specified amount of the
Policy, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex, and underwriting classification, the specified amount or
premium requested, the proposed frequency of premium payments and any available
riders requested. A fee of $25 is charged for each such illustration.
The hypothetical gross annual investment return assumed in such an
illustration will not exceed 12%.
38
<PAGE>
AetnaVest Policy
Table I
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 428 100,000 100,000 100,000 182 199 216 0 0 0
2 878 100,000 100,000 100,000 365 411 460 17 63 112
3 1,351 100,000 100,000 100,000 548 635 731 200 287 383
4 1,846 100,000 100,000 100,000 730 871 1,032 382 523 684
5 2,367 100,000 100,000 100,000 909 1,118 1,365 561 770 1,017
6 2,914 100,000 100,000 100,000 1,097 1,388 1,746 813 1,104 1,462
7 3,488 100,000 100,000 100,000 1,279 1,667 2,164 1,064 1,452 1,949
8 4,091 100,000 100,000 100,000 1,456 1,955 2,623 1,311 1,810 2,478
9 4,724 100,000 100,000 100,000 1,625 2,252 3,124 1,550 2,177 3,049
10 5,388 100,000 100,000 100,000 1,786 2,556 3,673 1,780 2,550 3,667
15 9,244 100,000 100,000 100,000 2,441 4,169 7,277 2,441 4,169 7,277
20 14,165 100,000 100,000 100,000 2,754 5,856 12,876 2,754 5,856 12,876
25 20,446 100,000 100,000 100,000 2,529 7,400 21,574 2,529 7,400 21,574
30 28,462 100,000 100,000 100,000 1,479 8,446 35,284 1,479 8,446 35,284
40 (Age 65) 51,751 0 100,000 114,131 0 4,806 93,550 0 4,806 93,550
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
39
<PAGE>
AetnaVest Policy
Table II
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 25
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$408.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 428 100,000 100,000 100,000 181 198 216 0 0 0
2 878 100,000 100,000 100,000 364 410 458 16 62 110
3 1,351 100,000 100,000 100,000 545 632 727 197 284 379
4 1,846 100,000 100,000 100,000 725 865 1,026 377 517 678
5 2,367 100,000 100,000 100,000 901 1,109 1,355 553 761 1,007
6 2,914 100,000 100,000 100,000 1,087 1,375 1,731 803 1,091 1,447
7 3,488 100,000 100,000 100,000 1,266 1,650 2,143 1,051 1,435 1,928
8 4,091 100,000 100,000 100,000 1,440 1,933 2,593 1,295 1,788 2,448
9 4,724 100,000 100,000 100,000 1,605 2,224 3,085 1,530 2,149 3,010
10 5,388 100,000 100,000 100,000 1,762 2,521 3,622 1,756 2,515 3,616
15 9,244 100,000 100,000 100,000 2,372 4,060 7,096 2,372 4,060 7,096
20 14,165 100,000 100,000 100,000 2,629 5,625 12,413 2,629 5,625 12,413
25 20,446 100,000 100,000 100,000 2,290 6,927 20,480 2,290 6,927 20,480
30 28,462 100,000 100,000 100,000 1,077 7,584 32,935 1,077 7,584 32,935
40 (Age 65) 51,751 0 100,000 102,707 0 2,125 84,186 0 2,125 84,186
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
40
<PAGE>
AetnaVest Policy
Table III
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 781 100,000 100,000 100,000 455 490 525 0 0 0
2 1,601 100,000 100,000 100,000 888 986 1,090 215 313 417
3 2,463 100,000 100,000 100,000 1,298 1,489 1,696 625 816 1,023
4 3,367 100,000 100,000 100,000 1,686 1,997 2,350 1,013 1,324 1,677
5 4,317 100,000 100,000 100,000 2,050 2,510 3,054 1,377 1,837 2,381
6 5,314 100,000 100,000 100,000 2,391 3,028 3,814 1,842 2,479 3,265
7 6,361 100,000 100,000 100,000 2,702 3,545 4,630 2,287 3,130 4,215
8 7,460 100,000 100,000 100,000 2,982 4,058 5,503 2,702 3,778 5,223
9 8,614 100,000 100,000 100,000 3,230 4,567 6,443 3,084 4,421 6,297
10 9,826 100,000 100,000 100,000 3,445 5,069 7,452 3,434 5,058 7,441
15 16,857 100,000 100,000 100,000 3,933 7,380 13,783 3,933 7,380 13,783
20 25,831 100,000 100,000 100,000 2,754 8,525 22,597 2,754 8,525 22,597
25 37,284 0 100,000 100,000 0 7,476 35,410 0 7,476 35,410
30 51,902 0 100,000 100,000 0 2,337 55,402 0 2,337 55,402
25 (Age 65) 37,284 0 100,000 100,000 0 7,476 35,410 0 7,476 35,410
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy Owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
41
<PAGE>
AetnaVest Policy
Table IV
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 40
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$744.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $100,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 781 100,000 100,000 100,000 452 487 522 0 0 0
2 1,601 100,000 100,000 100,000 878 976 1,079 205 303 406
3 2,463 100,000 100,000 100,000 1,280 1,469 1,676 607 796 1,003
4 3,367 100,000 100,000 100,000 1,655 1,963 2,313 982 1,290 1,640
5 4,317 100,000 100,000 100,000 2,004 2,458 2,995 1,331 1,785 2,322
6 5,314 100,000 100,000 100,000 2,323 2,950 3,723 1,774 2,401 3,174
7 6,361 100,000 100,000 100,000 2,612 3,437 4,501 2,197 3,022 4,086
8 7,460 100,000 100,000 100,000 2,868 3,918 5,331 2,588 3,638 5,051
9 8,614 100,000 100,000 100,000 3,091 4,391 6,218 2,945 4,245 6,072
10 9,826 100,000 100,000 100,000 3,277 4,851 7,165 3,266 4,840 7,154
15 16,857 100,000 100,000 100,000 3,579 6,855 12,977 3,579 6,855 12,977
20 25,831 100,000 100,000 100,000 2,160 7,511 20,737 2,160 7,511 20,737
25 37,284 0 100,000 100,000 0 5,362 31,203 0 5,362 31,203
30 51,902 0 0 100,000 0 0 45,165 0 0 45,165
25 (Age 65) 37,284 0 100,000 100,000 0 5,962 31,203 0 5,362 31,203
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
42
<PAGE>
APPENDIX B
AETNAVEST II
ILLUSTRATIONS OF DEATH BENEFIT, TOTAL ACCOUNT VALUES AND
CASH SURRENDER VALUES
The following tables illustrate how the total account values, cash
surrender values, and death benefits of a Policy change with the investment
experience of the variable funding options. The tables show how the total
account values, cash surrender values, and death benefits of a Policy issued to
an insured of a given age and a given premium would vary over time if the
investment return on the assets held in each Fund were a uniform, gross, annual
rate of 0%, 6%, 12%, respectively.
Tables V through VIII illustrate Policies issued to males, ages 35 and 55,
in the nonsmoker rate class. Tables IX through XII illustrate Policies issued on
a unisex basis, ages 35 and 55, in the nonsmoker rate class. These tables are
provided for use in those states where unisex rates are required. The total
account values, cash surrender values, and death benefits would be different
from those shown if the gross annual investment rates of return averaged 0%, 6%,
and 12%, respectively, over a period of years, but fluctuated above and below
those averages for individual policy years.
The second column of each table shows the accumulated values of the
premiums paid at the stated interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through eleventh columns illustrate the cash surrender values of each Policy
over the designated period. Tables VI, VIII, X and XII assume that the maximum
Cost of Insurance Rates allowable under the Policy are charged in all policy
years. These tables also assume that the maximum allowable mortality and expense
risk charge of .90% on an annual basis, the maximum allowable administrative
charge of .50% and the maximum allowable premium load of 6% are assessed in each
policy year. Tables V, VII, IX and XI assume that the current scale of Cost of
Insurance Rates applies during all policy years. These tables also assume the
current level of mortality and expense risk charges of 0.70% on an annual basis.
The investment advisory fees and other Fund expenses, net of waivers and
reductions (see the table on page 16), vary by Fund from .34% to 1.00%. An
arithmetic average of .68% has been used for the illustrations.
The amounts shown for the death benefits, cash surrender values, and total
account values reflect the fact that the net investment return is lower than the
gross return on the assets held in each Fund as a result of expenses paid by
each Fund and other charges levied by the Separate Account. After deduction of
these amounts, the illustrated gross annual investment rates of return of 0%,
6%, and 12% correspond to approximate net annual rates of -1.67%, 4.23%, and
10.14%, respectively on a current basis. On a guaranteed basis, the illustrated
gross annual investment rates of return of 0%, 6%, and 12% correspond to
approximate net annual rates of -2.06%, 3.82%, and 9.70%, respectively.
The hypothetical values shown in the tables do not reflect any Separate
Account charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6%, or 12% by an
amount sufficient to cover the tax charges in order to produce the death
benefits, total account values, and cash surrender values illustrated.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums are allocated to Variable Life Account B and if no Policy loans
have been made. The tables are also based on the assumptions that the Policy
Owner has not requested an increase or decrease in the Specified Amount of the
Policy, that no partial surrenders have been made, and that no transfer charges
have been incurred.
Upon request, we will provide an illustration based upon the proposed
insured's age, sex (if necessary), and underwriting classification, the
specified amount or premium requested, the proposed frequency of premium
payments and any available riders requested. A fee of $25 is charged for each
such illustration.
The hypothetical gross annual investment return assumed in such an
illustration will not exceed 12%.
43
<PAGE>
AetnaVest II
Policy Table V
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$1,410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,480 250,000 250,000 250,000 685 745 806 0 0 0
2 3,035 250,000 250,000 250,000 1,518 1,688 1,865 168 338 515
3 4,667 250,000 250,000 250,000 2,311 2,645 3,008 961 1,295 1,658
4 6,381 250,000 250,000 250,000 3,064 3,615 4,239 1,714 2,265 2,889
5 8,181 250,000 250,000 250,000 3,771 4,594 5,565 2,421 3,244 4,215
6 10,070 250,000 250,000 250,000 4,432 5,581 6,992 3,206 4,355 5,766
7 12,054 250,000 250,000 250,000 5,049 6,578 8,534 3,958 5,487 7,443
8 14,137 250,000 250,000 250,000 5,617 7,578 10,197 4,661 6,622 9,241
9 16,325 250,000 250,000 250,000 6,135 8,582 11,993 5,314 7,761 11,172
10 18,622 250,000 250,000 250,000 6,601 9,586 13,933 5,915 8,900 13,247
15 31,947 250,000 250,000 250,000 7,950 14,386 26,178 7,939 14,375 26,167
20 48,954 250,000 250,000 250,000 7,185 18,163 44,142 7,185 18,163 44,142
25 70,660 250,000 250,000 250,000 3,679 19,922 71,368 3,679 19,922 71,368
30 98,363 0 250,000 250,000 0 17,999 114,301 0 17,999 114,301
30 (Age 65) 98,363 0 250,000 250,000 0 17,999 114,301 0 17,999 114,301
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
44
<PAGE>
AetnaVest II
Policy Table VI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 35
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$1,410.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,480 250,000 250,000 250,000 646 704 763 0 0 0
2 3,035 250,000 250,000 250,000 1,438 1,601 1,771 88 251 421
3 4,667 250,000 250,000 250,000 2,188 2,507 2,853 838 1,157 1,503
4 6,381 250,000 250,000 250,000 2,895 3,420 4,014 1,545 2,070 2,664
5 8,181 250,000 250,000 250,000 3,554 4,335 5,257 2,204 2,985 3,907
6 10,070 250,000 250,000 250,000 4,165 5,251 6,587 2,939 4,025 5,361
7 12,054 250,000 250,000 250,000 4,721 6,161 8,007 3,630 5,070 6,916
8 14,137 250,000 250,000 250,000 5,223 7,064 9,526 4,267 6,108 8,570
9 16,325 250,000 250,000 250,000 5,666 7,953 11,147 4,845 7,132 10,326
10 18,622 250,000 250,000 250,000 6,050 8,829 12,882 5,364 8,143 12,196
15 31,947 250,000 250,000 250,000 6,896 12,727 23,470 6,885 12,716 23,459
20 48,954 250,000 250,000 250,000 5,313 14,923 37,996 5,313 14,923 37,996
25 70,660 0 250,000 250,000 0 12,923 57,314 0 12,923 57,314
30 98,363 0 250,000 250,000 0 2,209 82,829 0 2,209 82,829
30 (Age 65) 98,363 0 250,000 250,000 0 2,209 82,829 0 2,209 82,829
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
45
<PAGE>
AetnaVest I
Policy Table VII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$4,380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,599 250,000 250,000 250,000 2,271 2,463 2,657 0 0 0
2 9,428 250,000 250,000 250,000 4,575 5,109 5,669 1,119 1,653 2,213
3 14,498 250,000 250,000 250,000 6,734 7,763 8,886 3,278 4,307 5,430
4 19,822 250,000 250,000 250,000 8,745 10,421 12,328 5,289 6,965 8,872
5 25,412 250,000 250,000 250,000 10,601 13,077 16,013 7,145 9,621 12,557
6 31,282 250,000 250,000 250,000 12,296 15,722 19,962 9,157 12,583 16,823
7 37,445 250,000 250,000 250,000 13,822 18,349 24,201 11,028 15,555 21,407
8 43,916 250,000 250,000 250,000 15,166 20,945 28,752 12,718 18,497 26,304
9 50,711 250,000 250,000 250,000 16,314 23,494 33,641 14,212 21,392 31,539
10 57,846 250,000 250,000 250,000 17,223 25,952 38,870 15,466 24,195 37,113
15 99,240 250,000 250,000 250,000 17,096 35,618 70,927 17,067 35,589 70,898
20 152,070 250,000 250,000 250,000 6,673 38,087 119,071 6,673 38,087 119,071
25 219,497 0 250,000 250,000 0 22,767 199,015 0 22,767 199,015
30 305,552 0 0 363,713 0 0 346,393 0 0 346,393
10 (Age 65) 57,846 250,000 250,000 250,000 17,223 25,952 38,870 15,466 24,195 37,113
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
46
<PAGE>
AetnaVest II Policy
Table VIII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
MALE ISSUE AGE 55
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$4,380.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,599 250,000 250,000 250,000 1,891 2,069 2,248 0 0 0
2 9,428 250,000 250,000 250,000 3,739 4,217 4,719 283 761 1,263
3 14,498 250,000 250,000 250,000 5,358 6,256 7,240 1,902 2,800 3,784
4 19,822 250,000 250,000 250,000 6,735 8,165 9,802 3,279 4,709 6,346
5 25,412 250,000 250,000 250,000 7,847 9,914 12,386 4,391 6,458 8,930
6 31,282 250,000 250,000 250,000 8,671 11,468 14,969 5,532 8,329 11,830
7 37,445 250,000 250,000 250,000 9,179 12,790 17,527 6,385 9,996 14,733
8 43,916 250,000 250,000 250,000 9,333 13,826 20,018 6,885 11,378 17,570
9 50,711 250,000 250,000 250,000 9,085 14,514 22,394 6,983 12,412 20,292
10 57,846 250,000 250,000 250,000 8,384 14,784 24,596 6,627 13,027 22,839
15 99,240 0 250,000 250,000 0 7,160 30,753 0 7,131 30,724
20 152,070 0 0 250,000 0 0 16,301 0 0 16,301
25 219,497 0 0 0 0 0 0 0 0 0
30 305,552 0 0 0 0 0 0 0 0 0
10 (Age 65) 57,846 250,000 250,000 250,000 8,384 14,784 24,596 6,627 13,027 22,839
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
47
<PAGE>
AetnaVest II Policy
Table IX
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 35
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$1,350.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,417 250,000 250,000 250,000 640 697 755 0 0 0
2 2,906 250,000 250,000 250,000 1,427 1,588 1,756 137 298 466
3 4,469 250,000 250,000 250,000 2,177 2,492 2,836 887 1,202 1,546
4 6,110 250,000 250,000 250,000 2,885 3,406 3,996 1,595 2,116 2,706
5 7,833 250,000 250,000 250,000 3,548 4,326 5,243 2,258 3,036 3,953
6 9,642 250,000 250,000 250,000 4,165 5,250 6,582 2,993 4,078 5,410
7 11,541 250,000 250,000 250,000 4,737 6,179 8,026 3,694 5,136 6,983
8 13,536 250,000 250,000 250,000 5,260 7,108 9,579 4,346 6,194 8,665
9 15,630 250,000 250,000 250,000 5,734 8,038 11,254 4,949 7,253 10,469
10 17,829 250,000 250,000 250,000 6,155 8,964 13,059 5,499 8,308 12,403
15 30,588 250,000 250,000 250,000 7,421 13,454 24,524 7,410 13,443 24,513
20 46,871 250,000 250,000 250,000 6,890 17,181 41,534 6,890 17,181 41,534
25 67,653 250,000 250,000 250,000 3,919 19,205 67,403 3,919 19,205 67,403
30 94,177 0 250,000 250,000 0 17,811 107,944 0 17,811 107,944
30 (Age 65) 94,177 0 250,000 250,000 0 17,811 107,944 0 17,811 107,944
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
48
<PAGE>
AetnaVest II Policy
Table X
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 35
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$1,350.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,417 250,000 250,000 250,000 603 658 714 0 0 0
2 2,906 250,000 250,000 250,000 1,350 1,504 1,666 60 214 376
3 4,469 250,000 250,000 250,000 2,059 2,360 2,688 769 1,070 1,398
4 6,110 250,000 250,000 250,000 2,723 3,218 3,780 1,433 1,928 2,490
5 7,833 250,000 250,000 250,000 3,340 4,077 4,947 2,050 2,787 3,657
6 9,642 250,000 250,000 250,000 3,909 4,934 6,194 2,737 3,762 5,022
7 11,541 250,000 250,000 250,000 4,424 5,782 7,522 3,381 4,739 6,479
8 13,536 250,000 250,000 250,000 4,889 6,623 8,942 3,975 5,709 8,028
9 15,630 250,000 250,000 250,000 5,294 7,447 10,455 4,509 6,662 9,670
10 17,829 250,000 250,000 250,000 5,644 8,257 12,071 4,988 7,601 11,415
15 30,588 250,000 250,000 250,000 6,365 11,822 21,898 6,354 11,811 21,887
20 46,871 250,000 250,000 250,000 4,798 13,744 35,303 4,798 13,744 35,303
25 67,653 0 250,000 250,000 0 11,767 53,055 0 11,767 53,055
30 94,177 0 250,000 250,000 0 1,895 76,388 0 1,895 76,388
30 (Age 65) 94,177 0 250,000 250,000 0 1,895 76,388 0 1,895 76,388
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
49
<PAGE>
AetnaVest II Policy
Table XI
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 55
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 250,000 250,000 250,000 2,252 2,439 2,627 0 0 0
2 9,041 250,000 250,000 250,000 4,536 5,058 5,604 1,224 1,746 2,292
3 13,903 250,000 250,000 250,000 6,689 7,697 8,796 3,377 4,385 5,484
4 19,008 250,000 250,000 250,000 8,697 10,342 12,212 5,385 7,030 8,900
5 24,368 250,000 250,000 250,000 10,553 12,986 15,870 7,241 9,674 12,558
6 29,996 250,000 250,000 250,000 12,251 15,622 19,791 9,243 12,614 16,783
7 35,906 250,000 250,000 250,000 13,786 18,246 24,003 11,109 15,569 21,326
8 42,112 250,000 250,000 250,000 15,146 20,843 28,527 12,800 18,497 26,181
9 48,627 250,000 250,000 250,000 16,321 23,404 33,395 14,306 21,389 31,380
10 55,469 250,000 250,000 250,000 17,276 25,891 38,615 15,592 24,207 36,931
15 95,161 250,000 250,000 250,000 17,716 36,072 70,885 17,688 36,044 70,857
20 145,821 250,000 250,000 250,000 8,364 39,646 119,410 8,364 39,646 119,410
25 210,477 0 250,000 250,000 0 27,611 200,157 0 27,611 200,157
30 292,995 0 0 365,060 0 0 347,676 0 0 347,676
10 (Age 65) 55,469 250,000 250,000 250,000 17,276 25,891 38,615 15,592 24,207 36,931
</TABLE>
(1) Assumes no Policy loan has been made. Current cost of insurance rates
assumed. Current mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
50
<PAGE>
AetnaVest II Policy
Table XII
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 55
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$4,200.00 ANNUAL BASIC PREMIUM
NONSMOKER RISK
FACE AMOUNT $250,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Gross Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------------- ------------ ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 250,000 250,000 250,000 1,807 1,977 2,149 0 0 0
2 9,041 250,000 250,000 250,000 3,592 4,049 4,530 280 737 1,218
3 13,903 250,000 250,000 250,000 5,163 6,024 6,968 1,851 2,712 3,656
4 19,008 250,000 250,000 250,000 6,513 7,888 9,459 3,201 4,576 6,147
5 24,368 250,000 250,000 250,000 7,632 9,621 11,997 4,320 6,309 8,685
6 29,996 250,000 250,000 250,000 8,490 11,186 14,556 5,482 8,178 11,548
7 35,906 250,000 250,000 250,000 9,064 12,551 17,118 6,387 9,874 14,441
8 42,112 250,000 250,000 250,000 9,316 13,665 19,645 6,970 11,319 17,299
9 48,627 250,000 250,000 250,000 9,197 14,466 22,089 7,182 12,451 20,074
10 55,469 250,000 250,000 250,000 8,660 14,889 24,399 6,976 13,205 22,715
15 95,161 0 250,000 250,000 0 9,055 32,140 0 9,027 32,112
20 145,821 0 0 250,000 0 0 23,473 0 0 23,473
25 210,477 0 0 0 0 0 0 0 0 0
30 292,995 0 0 0 0 0 0 0 0 0
10 (Age 65) 55,469 250,000 250,000 250,000 8,660 14,889 24,399 6,976 13,205 22,715
</TABLE>
(1) Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
The investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
51
<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 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 support 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 asessing 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 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
<PAGE>
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. 13 TO
THE REGISTRATION STATEMENT
This Post-Effective Amendment No. 13 to Registration Statement No.
33-76004 is comprised of the following papers and documents:
o The facing sheet.
o One Prospectus for the AetnaVest and AetnaVest II Flexible Premium Variable
Life Insurance Policy consisting of 102 pages
o The undertaking to file reports
o The undertaking pursuant to Rule 484
o Indemnfication
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. Consents of Independent Auditors (included as Exhibit No. 7 (a) and (b)
below)
<PAGE>
The following Exhibits:
1. Exhibits required by paragraph A of instructions to exhibits for Form
N-8B-2:
(1) Resolution establishing Variable Life Account B(1)
(2) Not Applicable
(3)(i) Master General Agent Agreement(1)
(3)(ii) Life Insurance General Agent Agreement(1)
(3)(iii) Broker Agreement(1)
(3)(iv) Life Insurance Broker-Dealer Agreement(1)
(4) Not Applicable
(5)(i) AetnaVest I Policy (Policy No. 38899)(2)
(5)(ii) Endorsement (70279-97) to Policy No. 38899(3)
(5)(iii) AetnaVest II Policy, including Term Rider (Policy No.
38899-90)(2)
Amendment Rider (70194-94) to AetnaVest I Policy (Policy No.
38899)(2)
(5)(v) Amendment Rider (70195-94(NY)) to AetnaVest II Policy (Policy No.
38899-90)(2)
(6)(i) Certificate of Incorporation of Aetna Life Insurance and Annuity
Company(4)
(6)(ii) Amendment of Certificate of Incorporation of Aetna Life Insurance
and Annuity Company(5)
(6)(iii) By-Laws as amended September 17, 1997 of Aetna Life Insurance and
Annuity Company(6)
(7) Not Applicable
(8)(i) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company and Aetna Variable Fund, Aetna Variable
Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna
GET Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, Aetna Variable
Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998(7)
(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(8)
(8)(xiii) 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(9)
<PAGE>
(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(10)
(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(10)
(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(7)
(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(8)
(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(10)
(8)(ix) 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(10)
(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(5)
(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
<PAGE>
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(11)
(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(12)
(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(7)
(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(9)
(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(11)
(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(13)
(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(7)
(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, 199 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(9)
(8)(xx) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(14)
<PAGE>
(8)(xxi) Amendment dated January 1, 1997 to Service Agreement between
Aetna Life Insurance and Annuity Company and Fidelity
Investments Institutional Operations Company dated as of
November 1, 1995(11)
(8)(xxii) Service Contract between Fidelity Distributors Corporation and
Aetna Life Insurance and Annuity Company dated May 2, 1997(8)
(8)(xxiii) Fund Participation Agreement among Janus Aspen Series and Aetna
Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(15)
(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(8)
(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(9)
(8)(xxvi) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(15)
(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.(16)
(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(9)
(8)(xxix) Service Agreement effective as of March 11, 1997 between
Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
Company(16)
(9) Not Applicable
(10)(i) Application (70059-96)(17)
(10)(ii) Application (70059-96ZNY)(17)
(10)(iii) Application Supplement (70268-97 (3/98))(17)
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
7.(b) Consent of Independent Auditors--Ernst & Young LLP
8. Copy of Power of Attorney(10)
<PAGE>
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. 6 to Registration
Statement on Form S-6 (File No. 33-76004), as filed on April 22, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form S-6 (File No. 33-76004), as filed on July 14, 1997.
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.
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 Registration Statement on Form N-4 (File No.
333-56297) as filed on June 8, 1998.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form S-6 (File No. 33-64277), as filed on February 25, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Variable Life Account B of Aetna Life Insurance and Annuity Company, certifies
that it meets the requirements of Securities Act Rule 485(b) for effectiveness
of this Post-Effective Amendment to its Registration Statement on Form S-6
(File No. 33-76004) and has duly caused this Post-Effective Amendment No. 13 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
18th day of April, 2000.
VARIABLE LIFE ACCOUNT B OF AETNA LIFE
INSURANCE AND ANNUITY COMPANY
(Registrant)
(SEAL)
ATTEST: /s/ Karen A. Peddle
Karen A. Peddle
Assistant Corporate Secretary
By: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
(Depositor)
By Thomas J. McInerney*
Thomas J. McInerney
Principal Executive Officer Pursuant to the requirements of the Securities Act
of 1933, this Post-Effective Amendment No. 13 to the Registration Statement has
been signed below by the following persons in the capacities indicated and on
the dates indicated.
<TABLE>
<S> <C> <C> <C>
Signature Title Date
- --------- ----- ----
Thomas J. McInerney* Director and President )
- ---------------------- (Principal Executive Officer) )
Thomas J. McInerney )
)
)
) April
Catherine H. Smith* Director and Chief Financial Officer ) 18, 2000
- ---------------------- )
Catherine H. Smith )
)
)
Shaun P. Mathews* Director )
- ---------------------- )
Shaun P. Mathews )
)
)
Deborah Koltenuk* Vice President, Corporate Controller, and )
- ---------------------- Assistant Treasurer )
Deborah Koltenuk )
)
</TABLE>
By: /s/ Michael A. Pignatella
Michael A. Pignatella
*Attorney-in-Fact
<PAGE>
VARIABLE LIFE ACCOUNT B
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
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 --
(b) Consent of Independent Auditors--Ernst & Young LLP --
</TABLE>
[Aetna Letterhead]
[Aetna Logo]
Aetna Inc.
151 Farmington Avenue
Hartford, CT 06156-8975
Michael A. Pignatella
Counsel
AFS Law, TS31
April 18, 2000 (860) 273-0261
Fax: (860) 273-9407
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Life Account B
Post-Effective Amendment No. 13 to Registration Statement on Form S-6
Prospectus Title: AetnaVest & AetnaVest II
File Nos. 33-76004* and 811-4536
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I or those for whom I have supervisory
responsibility, have reviewed the S-6 Registration Statement, as amended to the
date hereof, and this Post-Effective Amendment No. 13. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
- --------------------
* Pursuant to Rule 429(a) under the Securities Act of 1933, the Registrant has
included a combined prospectus under this Registration Statement which
includes all the information which would currently be required in a
prospectus relating to the securities covered by Registration Statement No.
33-02339.
<PAGE>
Based upon the foregoing, I am of the opinion that the Securities have been
legally authorized and, assuming that the Securities have been issued and sold
in accordance with the provisions of the prospectus being registered, will be
legally issued.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Michael A. Pignatella
Michael A. Pignatella
[letterhead]
[logo] Lincoln
(R) -------
Financial Group
Lincoln Life
Lincoln National Life Insurance Co.
350 Church Street
Hartford, CT 06103-1106
April 18, 2000
Re: AetnaVest & AetnaVest II (File No. 33-76004)
Dear Sir or Madam:
In my capacity as Actuary of The Lincoln National Life Insurance Company,
administrator for the above referenced Aetna Life Insurance and Annuity Company
(ALIAC) policies, I have provided actuarial advice concerning ALIAC's AetnaVest
and AetnaVest II Flexible Premium Variable Life Insurance Policy (the
"Policies"). I also provided actuarial advice concerning the preparation of
Post-Effective Amendment No. 13 to Registration Statement on Form S-6, File No.
33-76004 (the "Registration Statement") for filing with the Securities and
Exchange Commission under the Securities Act of 1933 in connection with the
Policy.
In my opinion the illustrations of benefits under the Policies included in the
prospectus under the caption "Illustrations of Death Benefit, Total Account
Values and Surrender Values" are, based on the assumptions stated in the
illustrations, consistent with the provisions of the Policies. Also, in my
opinion the ages selected in the illustrations are representative of the manner
in which the Policies operate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Ronald D. Franzluebbers
Ronald D. Franzluebbers
Assistant Vice President & Actuary
Consent of Independent Auditors
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 reports 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. 13 to Registration Statement (File No. 33-76004) on Form S-6 and to the
reference to our firm under the heading "Independent Auditors" in the
prospectus.
/s/ KPMG LLP
KPMG LLP
Hartford, Connecticut
April 18, 2000
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. 13 to the Registration Statement (Form S-6
No. 33-76004) 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 17, 2000
