Variable Life Account B--CVUL and CVUL II
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Underwritten By: Administrative Office:
Aetna Life Insurance and Annuity Company Lincoln Corporate Specialty Markets
Home Office: 350 Church Street--MSM1
151 Farmington Avenue Hartford, CT 06103-1106
Hartford, Connecticut 06156 (860) 466-1561
(800) 334-7586
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Prospectus Dated May 1, 2000
The Flexible Premium Variable Universal Life Insurance Policy
This Prospectus describes Corporate VUL ("CVUL") and Corporate VUL II ("CVUL
II"), two flexible premium variable life insurance contracts (the "Policy" or
"Policies") offered by Aetna Life Insurance and Annuity Company (the "Company",
"we", "us", "our"). The Policies can be purchased by corporations or other
groups where individuals share a common employer or affiliation with the group
or sponsoring organization. The Policy features: flexible premium payments; a
choice of one of three death benefit options; a choice of life insurance
qualification methods; and a choice of underlying investment options.
In October 1998, the Company and life insurance affiliates of Lincoln Financial
Group ("Lincoln") entered into a transaction whereby nearly all of the
Company's variable life insurance business was reinsured by the Lincoln
affiliates.
You may allocate net premiums to subaccounts which invest in the funds listed
below. Each fund has its own investment objective.
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o Aetna Balanced VP, Inc. o Janus Aspen Aggressive Growth Portfolio
o Aetna Income Shares d/b/a Aetna Bond VP o Janus Aspen Balanced Portfolio
o Aetna Growth VP o Janus Aspen Flexible Income Portfolio
o Aetna Variable Fund d/b/a Aetna Growth and Income VP o Janus Aspen Growth Portfolio
o Aetna Index Plus Large Cap VP o Janus Aspen Worldwide Growth Portfolio
o Aetna Variable Encore Fund d/b/a Aetna Money o MFS Total Return Series
Market VP o MFS Global Governments Series
o Aetna Small Company VP o Oppenheimer Aggressive Growth Fund/VA
o Aetna Value Opportunity VP o Oppenheimer Global Securities Fund/VA
o Fidelity Variable Insurance Products Fund (VIP) o Oppenheimer Main Street Growth & Income Fund/VA
Equity-Income Portfolio o Oppenheimer Strategic Bond Fund/VA
o Fidelity Variable Insurance Product Fund (VIP) o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities
Growth Portfolio Portfolio (formerly PPI MFS Value Equity Portfolio)
o Fidelity Variable Insurance Product Fund (VIP) o Portfolio Partners, Inc. (PPI) MFS Emerging Equities
High Income Portfolio Portfolio
o Fidelity Variable Insurance Product Fund (VIP) o Portfolio Partners, Inc. (PPI) MFS Research Growth
Overseas Portfolio Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) o Portfolio Partners, Inc. (PPI) Scudder International
Asset Manager Portfolio Growth Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) o Portfolio Partners, Inc. (PPI) T. Rowe Price Growth
Contrafund[RegTM] Portfolio Equity Portfolio
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Net premiums allocated to the Fixed Account earn fixed rates of interest. We
determine the rates periodically, but we guarantee that they will never be less
than 4.0% a year.
This prospectus and other information about Variable Life Account B filed with
the Securities and Exchange Commission ("Commission") can be found in the
Commission's web site at http://www.sec.gov. You can get copies of this
information by visiting the Commission's Public Reference Room (call
1-800-SEC-0330) or writing the Commission's Public Reference Section,
Washington, DC 20549-6009 and paying a duplication fee.
The Commission has not approved or disapproved these securities or determined
if this prospectus is accurate or complete. It is a criminal offense to state
otherwise.
To be valid, this prospectus must have the current fund prospectuses with it.
You should read the Prospectus and the attached prospectus for any available
fund if you are considering buying a Policy or exercising elections under a
Policy. You should also keep them for future reference. You can obtain any
fund's Statement of Additional Information (SAI), which provides more
information about a fund, by calling (800) 334-7586.
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Table of Contents
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Policy Summary .................................... 1 Right to Examine the Policy ...................... 27
The Company ....................................... 5 Payment of Death Benefit .......................... 27
The Separate Account .............................. 5 Policy Settlement ................................. 28
The General Account ............................... 6 Settlement Options ............................... 28
Allocation of Premiums ............................ 6 Calculation of Variable Payment Settlement
Fixed Account .................................... 6 Options Values .................................. 30
Separate Account ................................. 6 Term Insurance Rider .............................. 31
Mixed and Shared Funding ......................... 10 Directors & Officers .............................. 32
Charges & Fees .................................... 10 Additional Information ............................ 35
Premium Charge ................................... 10 Reports to Policyowners .......................... 35
Premium Charge Refund ............................ 11 Right to Instruct Voting of Fund Shares .......... 35
Charges and Fees Assessed Against the Total Disregard of Voting Instructions ................. 35
Account Value .................................... 12 State Regulation ................................. 36
Charges and Fees Associated with the Legal Matters and Proceedings .................... 36
Variable Funding Options ......................... 13 The Registration Statement ....................... 36
Mortality and Expense Risk Charge ................ 13 Distribution of the Policies ..................... 36
Administrative Charge - Corporate VUL only ....... 13 Records and Accounts ............................. 37
Surrender Charge - Corporate VUL only ............ 13 Independent Auditors ............................. 37
Surrender Charges on Full and Partial Tax Matters ....................................... 38
Surrenders -- Corporate VUL only ................ 14 General .......................................... 38
Charges Assessed Against the Underlying Federal Tax Status of the Company ................ 38
Funds ............................................ 15 Life Insurance Qualification ..................... 38
Reduction of Charges ............................. 16 General Rules .................................... 39
Policy Choices .................................... 16 Modified Endowment Contracts ..................... 39
Premium Payments ................................. 17 Diversification Standards ........................ 40
Guaranteed Death Benefit - Investor Control ................................. 40
Corporate VUL only .............................. 18 Other Tax Considerations ......................... 41
Life Insurance Qualification ..................... 19 Miscellaneous Policy Provisions ................... 41
Death Benefit Options ............................ 19 The Policy ....................................... 41
Initial Allocations to Funding Options ........... 20 Payment of Benefits .............................. 41
Transfers Between Funding Options ................ 20 Age .............................................. 42
Limits on Frequent Transfers ..................... 21 Incontestability ................................. 42
Policy Values ..................................... 21 Suicide .......................................... 42
Total Account Value .............................. 21 Coverage Beyond Maturity ......................... 42
Accumulation Unit Value .......................... 22 Nonparticipation ................................. 42
Maturity Value ................................... 22 Appendix A -
Surrender Value .................................. 22 Illustrations of Death Benefit, Total Account
Policy Rights ..................................... 23 Values and Surrender Values, Corporate VUL 43
Partial Surrenders ............................... 23 Appendix B -
Avoiding Loss of Coverage ........................ 23 Illustrations of Death Benefit, Total Account
No Lapse Coverage - Corporate VUL only ........... 24 Values and Surrender Values, Corporate
Reinstatement of a Lapsed Policy .................. 24 VUL II .. ........................................ 53
Policy Loans ..................................... 24 Financial Statements of the Separate Account ...... S-1
Policy Changes ................................... 25 Financial Statements of the Company ............... F-1
Death Benefit Option Change ...................... 26
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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.
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Policy Summary
This section is an overview of key Policy features of the Corporate VUL and
Corporate VUL II Policies. These Policies are administered by The Lincoln
National Life Insurance Company.
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. The Policy owner
will have all rights and privileges under the Policy. The Policies may be used
for such purposes as funding non-qualified executive deferred compensation or
salary continuation plans. These Policies may be used by corporations and other
businesses as a means of funding death benefit liabilities incurred under
executive retirement plans or as a source for funding cash flow obligations
under such plans. The Policies are not designed to be used in an employer's
pension or profit sharing plan. (Regulations in your state may vary the
provisions of your own Policy.) It may not be advantageous to replace existing
insurance or supplement an existing flexible premium variable life insurance
policy with a corporate VUL or Corporate VUL II policy.
Your Policy is a flexible premium variable life insurance policy. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
The value of the Policy and, under one option, the death benefit amount is not
guaranteed and depends on the investment results of the funding options you
select.
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 prospectus 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 several important choices to
make when the Policy is first purchased. You need to choose:
1) one of three death benefit options;
2) the life insurance qualification method;
3) the amount of premium you want to pay;
4) the amount of your net premium payment to be placed in each of the funding
options you select. The net premium payment is the balance of your
premium payment that remains after certain charges are deducted from it;
5) (Corporate VUL only) if you want the guaranteed death benefit provision,
and to what age (See "Policy Choices--Guaranteed Death Benefit.")
Death Benefit Options
The death benefit is the amount the Company pays to the beneficiary(ies) when
the Insured dies. Before we pay the beneficiary(ies), any outstanding loan
account balances or outstanding amounts due are subtracted from the death
benefit. We calculate the death benefit payable as of the date the Insured
died.
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At all times, your Policy must qualify as life insurance under the Internal
Revenue Code of 1986 (the "Code") to receive favorable tax treatment under
Federal law. If these requirements are met, you may benefit from favorable
federal tax treatment. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
If you have surrendered a portion of your Policy, any surrendered amount will
reduce your initial death benefit.
Life Insurance Qualification Method
At the time of purchase you must choose which life insurance qualification
method best suits your needs--Cash Accumulation or Guideline Premium. Both
methods require a Policy to provide minimum ratios of life insurance coverage
to total account value. The guideline premium method may also restrict premiums
payable under the Policy. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
Amount of Premium Payment
When you first buy your Policy, you must decide how much premium to pay.
Premium payments may be changed within the limits described in "Policy
Choices--Premium Payments." If your Policy lapses because your monthly
deduction is larger than the net accumulation value, you may reinstate your
Policy. See "Policy Rights--Reinstatement of a Lapsed Policy."
You may use the value of the Policy to pay the monthly deductions due and
continue the Policy in force if sufficient values are available. If the
investment options you choose do not do as well as you expect, there may not be
enough value to continue the Policy in force without more premium payments.
Charges against Policy values for the Cost of Insurance increase as the Insured
gets older. (See "Charges and Fees.")
When you first receive your Policy you will have 10 days to look it over (more
in some states). This is called the "right-to-examine" time period. Use this
time to review your Policy and make sure it meets your needs. During this time
period, your initial premium payment will be allocated to the funding options
you initially select unless your state requires a full refund of premiums. If
you then decide you do not want your Policy, you will receive a refund. See
"Policy Rights--Right to Examine the Policy."
Selection of Funding Vehicles
This Prospectus focuses on the Separate Account investment information that
makes up the "variable" part of the contract. If you put money into the
variable funding options, you take all the investment risk on that money. This
means that if the mutual fund(s) you select go up in value, the value of your
Policy, net of charges and expenses, also goes up. If those funds lose value,
so does your Policy. See "Allocation of Premiums."
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 variable
sub-account is not guaranteed and will increase or decrease in value according
to the particular Fund's investment performance.
You may also choose to place your net premium payment or part of it into the
Fixed Account. Net premium payments put into the Fixed Account become part of
the Company's General Account, do not share the investment experience of the
Separate Account, and have a guaranteed minimum interest rate of 4.0% per year.
For additional information on the Fixed Account, see "Allocation of
Premiums--Fixed Account."
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Guaranteed Death Benefit Provision (CVUL only)
You may elect to have a guaranteed death benefit provision to age 80 or age
100. This means that your Policy will remain in force even though the cash
value is not enough to pay the current monthly deductions as long as the
guaranteed death benefit premium test is met. Each year the Company will
determine that the sum of premiums to that point in time is sufficient to
support the guaranteed death benefit provision. Your total premiums paid to
date minus the partial surrenders must be equal to the required monthly
guaranteed death benefit premium times the number of months that have passed
since the original Policy issue date. See "Policy Choices--Guaranteed Death
Benefit."
No-Lapse Coverage Provision (CVUL only)
Your Policy will not terminate during the first five years after the initial
issue date or the issue date of any increase in the specified amount if the sum
of premiums paid equals or exceeds:
1) the sum of the minimum monthly premiums for each Policy month from the
issue date, including the current month; plus
2) any partial surrenders; plus
3) any increase in the loan account value within that same five years,
equals or is more than the sum of premiums paid.
Charges and Fees
A Premium Charge deduction will be made from each premium payment. That
deduction is, in the first policy year, 7% for Corporate VUL, guaranteed not to
exceed 10%, and 10.5% for Corporate VUL II, guaranteed not to exceed 15%; it
declines thereafter. This charge represents the expense associated with the
startup and maintenance of a Policy. For Corporate VUL, this includes average
applicable premium taxes, although the Company is responsible for payment of
premium taxes and any other amounts payable with respect to your premium
payments to the extent they exceed the premium charge. See the "Charges and
Fees" section appearing later in this prospectus for details for the schedule
of premium charge percentages.
For Corporate VUL II, except as noted below, an explicit Premium Tax Charge
equal to the state and municipal taxes associated with premiums received is
also deducted from premium payments.
Upon a full surrender of your Policy within the first 36 months for Corporate
VUL and first 24 months for Corporate VUL II if your Policy is not in default,
you may be entitled to a credit for some or all of the premium charges which
have been deducted from your premium payments. See the "Charges and Fees"
section appearing later in this prospectus.
A monthly deduction is made from the total account value on the same day of
each month beginning with the date of issue. The monthly deduction includes the
Cost of Insurance and any charges for supplemental riders or benefits. Once a
policy is issued, monthly deductions will begin as of the date of issue, even
if the Policy's issuance was delayed due to underwriting requirements or other
reasons. The monthly deduction also includes a monthly administrative expense
charge during all policy years. For Corporate VUL, this charge is $7. For
Corporate VUL II the current monthly charge is $6, guaranteed not to exceed
$10. See the "Charges and Fees" section appearing later in this prospectus.
A daily charge is deducted from the assets of Variable Life Account B for
mortality and expense risks assumed by the company. The daily deductions from
net assets of the Separate Account for
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Corporate VUL are at the annual rates of .70% during policy years 1 through 10
and .20% thereafter. For Corporate VUL II, these percentages are .70% during
policy years 1 through 10 and .35% thereafter. The Company reserves the right
to increase the mortality and expense risk charge if it believes that
circumstances have changed so that the current charges are no longer adequate.
The maximum mortality and expense risk charge is .90% per year.
For Corporate VUL only, a daily administrative charge is deducted equivalent on
an annual basis to .30% of the average daily net assets of Variable Life
Account B to compensate the Company for expenses associated with the
administration and maintenance of the policies. The daily administrative charge
is guaranteed to never exceed .50% on an annual basis of the average daily net
assets of Variable Life Account B.
Each Fund has its own management fee charge also deducted daily. Investment
results for the Funds you chose will be affected by the management charges and
other expenses. The table in section "Charges and Fees--Charges Assessed
Against the Underlying Funds," shows you the charges and other expenses
currently in effect for each Fund.
For Corporate VUL only, if you surrender your Policy (in whole or in part) a
surrender charge may apply. The maximum initial surrender charge is 30% of the
first year's minimum monthly premium for the initial specified amount. Once
determined, the surrender charge will decrease annually until it reaches zero
after nine years. If you increase the specified amount, a new surrender charge
applies, in addition to the then existing surrender charge. See the "Charges
and Fees" section appearing later in this prospectus.
Policy Loans
If you borrow against your Policy, interest will be charged to the Loan
Account. Currently, the interest rate on loans accrues at an annual rate equal
to the greater of 1) the monthly average of the Composite Yield on Corporate
Bonds as published by Moody's Investors Service, Inc. for the calendar month
ending two months before the policy anniversary month, or 2) 5%.
For Corporate VUL, there are two types of loans, preferred (those taken during
policy years 11 and beyond up to 10% of each year's total loan value), and
non-preferred (all others). Annual interest is credited on the loan account
value at the same rate interest is charged for preferred loans. For
non-preferred loans, the rate credited is 1% less than the loan interest rate.
For Corporate VUL II, there are no preferred loans. Annual interest is credited
on the loan account value not to exceed .9% less than the loan interest rate.
However, in no case will the credited interest rate be less than 4.0% annually.
See "Policy Rights--Policy Loans."
Changes in Specified Amount
Within certain limits, you may increase or decrease the specified amount
beginning with the second policy year. Increases will require satisfactory
evidence of insurability. Decreases in the first five years are subject to
approval of the Company. Currently the minimum specified amount is $100,000.
Such changes will affect other aspects of your Policy. See "Policy
Rights--Policy Changes."
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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.
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The General Account
This is the Company's general asset account, in which assets attributable to
the non-variable portion of the Policies are held. These are the fixed account
value and the loan account value. The fixed account value is the non-loaned
portion, the loan account value is equal to the sum of all unpaid loans.
Allocation of Premiums
You may allocate all or a part of your net premiums to the Fixed Account (part
of the Company's General Account) or to the subaccounts currently available
through the Separate Account in connection with the Policy. Each subaccount
invests in a specific fund. 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 allocation to a sub-account if
the sub-account's investment in the corresponding Fund is not accepted by the
Fund for any reason.
Fixed Account
Amounts held in the Fixed Account will be credited with interest at rates of
not less than 4.0% per year. Additional excess interest of up to 0.5% per year
may be credited to the fixed account value beginning in policy year 11.
Credited interest rates reflect the Company's return on Fixed Account invested
assets and the amortization of any realized gains and/or losses which the
Company may incur on these assets.
Separate Account
The Separate Account subaccounts invest in the following funds
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 through the management strategy
and the objectives of the funds may be similar, the investment results may
vary.
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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 Variable Portfolios, Inc.--Aetna Growth VP seeks growth of capital
through investment in a diversified portfolio consisting primarily of common
stocks and securities convertible into common stocks believed to offer
growth potential.(1)
o Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP seeks to
outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.(1)
o Aetna Variable Portfolios, Inc.--Aetna Small Company VP seeks growth of
capital primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stocks of companies with
smaller market capitalizations.(1)
o Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP seeks growth of
capital primarily through investment in a diversified portfolio of common
stocks and securities convertible into common stock.(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--Growth Portfolio seeks capital
appreciation by investing primarily in common stocks of companies the
investment adviser believes have above-average growth potential.(2)
o Fidelity Variable Insurance Products Fund--High Income Portfolio seeks a high
level of current income while also considering growth of capital.(2)(a)
o Fidelity Variable Insurance Products Fund--Overseas Portfolio seeks long-term
growth of capital by investing in foreign securities, primarily in common
stocks.(2)(b)
o Fidelity Variable Insurance Products Fund II--Asset Manager Portfolio seeks
high total return with reduced risk over the long term by allocating its
assets among stocks, bonds and short-term instruments.(2)(c)
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o Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] Portfolio
seeks long term capital appreciation by investing primarily in common stocks
of companies whose value the investment adviser believes is not fully
recognized by the public.(2)(a)
o Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified portfolio
that seeks long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in common stocks selected for their growth
potential, and normally invests at least 50% of its equity assets in
medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies
in the S&P MidCap 400 Index. Market capitalization is a commonly used measure
of the size and value of a company. The market capitalizations within the
Index will vary, but as of December 31, 1999, they ranged from approximately
$170 million to $37 billion.(3)
o Janus Aspen Series--Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by normally investing 40%-60% of
its assets in securities selected primarily for their growth potential and
40%-60% of its assets in securities selected primarily for their income
potential. This Portfolio normally invests at least 25% of its assets in
fixed-income securities.(3)
o Janus Aspen Series--Flexible Income Portfolio seeks to obtain maximum total
return, consistent with preservation of capital. The Portfolio pursues its
investment objective by primarily investing in a wide variety of
income-producing securities such as corporate bonds and notes, government
securities and preferred stock. As a fundamental policy, the Portfolio will
invest at least 80% of its assets in income-producing securities. The
Portfolio may own an unlimited amount of high-yield/ high-risk securities, and
these may be a big part of the portfolio. This Portfolio generates total
return from a combination of current income and capital appreciation, but
income is usually the dominant portion.(3)
o Janus Aspen Series--Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing primarily in common stocks selected for
their growth potential. Although the Portfolio can invest in companies of any
size, it generally invests in larger, more established issuers.(3)
o Janus Aspen Series--Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with 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 MFS Total Return Series seeks primarily to provide above average income
(compared to a portfolio invested entirely in equity securities) consistent
with the prudent employment of capital. Its secondary objective is to provide
a reasonable opportunity for growth of capital and income. The series is a
"balanced fund." Under normal market conditions, the series invests (i) at
least 40%, but not more than 75%, of its net assets in equity securities; and
(ii) at least 25% of its net assets in non-convertible fixed income
securities.(4)
o MFS Global Governments Series is a non-diversified series that seeks to
provide income and capital appreciation. Under normal market conditions, the
series invests at least 65% of its total assets in U.S. government securities
and foreign government securities, including emerging market governments.(4)
8
<PAGE>
o Oppenheimer Aggressive Growth Fund/VA seeks to achieve long-term capital
appreciation by investing in "growth-type" companies.(5)
o Oppenheimer Global Securities Fund/VA seeks long-term capital appreciation by
investing a substantial portion of its assets in securities of foreign
issuers, "growth-type" companies, cyclical industries, and special
situations which are considered to have appreciation possibilities.(5)
o Oppenheimer Main Street Growth & Income Fund/VA seeks a high total return
(which includes growth in the value of its shares as well as current income)
from equity and debt securities.(5)
o Oppenheimer Strategic Bond Fund/VA seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance
such income by writing covered call options on debt securities.(5)
o Portfolio Partners, Inc. (PPI)--MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio) seeks capital appreciation.(6)(a)
o Portfolio Partners, Inc. (PPI)--MFS Emerging Equities Portfolio seeks
long-term growth of capital.(6)(a)
o Portfolio Partners, Inc. (PPI)--MFS Research Growth Portfolio seeks long-term
growth of capital and future income.(6)(a)
o Portfolio Partners, Inc. (PPI)--Scudder International Growth Portfolio seeks
long-term growth of capital.(6)(b)
o Portfolio Partners, Inc. (PPI)--T. Rowe Price Growth Equity Portfolio seeks
long-term capital growth, and secondarily, increasing dividend income.(6)(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)
(b) Fidelity Management & Research (U.K.) Inc. (subadviser)
Fidelity Management & Research Far East Inc. (subadviser)
Fidelity International Investment Advisors (subadviser)
Fidelity International Investment Advisors (U.K.) Limited (subadviser)
Fidelity Investments Japan Limited (subadviser)
(c) Fidelity Management & Research (U.K.) Inc. (subadviser)
Fidelity Management & Research Far East Inc. (subadviser)
Fidelity Investments Money Management, Inc. (subadviser)
Fidelity Investments Japan Limited (subadviser)
(3) Investment Adviser: Janus Capital Corporation
(4) Investment Adviser: Massachusetts Financial Services Company
(5) Investment Adviser: OppenheimerFunds, Inc.
(6) 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)
The availability of the Funds listed above is subject to applicable regulatory
approvals. Not all Funds are available in all jurisdictions or under all
Policies.
9
<PAGE>
There is no assurance that the Funds will achieve their investment objectives.
Policy owners bear the full investment risk of investments in the Funds
selected.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of
leverage in connection with derivatives can also increase risk of losses. See
the prospectus for the Funds for a discussion of the risks associated with an
investment in those funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the Policies described in this Prospectus. Because Fund shares are offered to
separate accounts of both affiliated and unaffiliated insurance companies, it
is conceivable that, in the future, it may not be advantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in these Funds simultaneously, since the interests of such Policy owners
or contractholders may differ. Although neither the Company nor the Funds
currently foresees any such disadvantages either to variable life insurance or
to variable annuity policyholders, each Fund's Board of Trustees/Directors has
agreed to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in a Fund. This might force
that Fund to sell portfolio securities at disadvantageous prices.
Charges & Fees
Premium Charge
A deduction, called the premium charge, will be made from each premium payment.
This charge represents administrative expenses associated with the startup and
maintenance of a Policy, and, for Corporate VUL, includes average applicable
state premium taxes. For Corporate VUL, the Company is responsible for payment
of actual premium taxes and other amounts payable with respect to your premium
payments to the extent they exceed the premium charge. DAC taxes are paid by
the Company.
For Corporate VUL II, an amount equal to the state and municipal taxes
associated with premiums received is deducted from premium payments.
10
<PAGE>
Corporate VUL
1. Guaranteed Premium Charge
The premium charge is guaranteed to be no higher than the percentages shown in
the following table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 10% 5%
2 and after 5% 5%
</TABLE>
2. Current Premium Charge
The premium charge is currently set at the percentages shown in the following
table.
<TABLE>
<CAPTION>
Premiums Paid up to the Premiums Paid over the
first year's Guaranteed first year's Guaranteed
Death Benefit Premium Death Benefit Premium
Policy Year(s) to age 80 to age 80
- ---------------- ------------------------- ------------------------
<S> <C> <C>
1 7% 2%
2 and after 2% 2%
</TABLE>
Corporate VUL II
1. Guaranteed Premium Charge
The premium charge is guaranteed to be no higher than the percentages shown in
the following table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Policy Year(s) Target Premium Target Premium
- ---------------- --------------------- ---------------------------
<S> <C> <C>
1 15% 6%
2-5 10% 6%
6 and after 6% 6%
</TABLE>
2. Current Premium Charge
The premium charge is currently set at the amounts shown in the following
table.
<TABLE>
<CAPTION>
Premiums Paid up to Premiums Paid greater than
Policy Year(s) Target Premium Target Premium
- ---------------- --------------------- ---------------------------
<S> <C> <C>
1 10.5% 2.5%
2-5 7.5% 1.5%
6-7 3.5% 1.5%
8 and after 1.5% 1.5%
</TABLE>
Premium Charge Refund
Upon a full surrender of your Policy within the first 36 months of the Policy
for Corporate VUL and first 24 months for Corporate VUL II if your Policy is
not in default you may be entitled to a credit for some or all of the premium
charges which have been deducted from your premium payments although a
surrender charge will also apply for Corporate VUL. To determine the surrender
value during the premium charge refund period the total account value will be
reduced by the applicable surrender charge (Corporate VUL only) and the amount
of any loan account value, including accrued interest. That amount would be
increased by the applicable credit for the premium charge. For Corporate VUL
II, a decrease in the specified amount in policy years 1 or 2 will
proportionately decrease the amount of the premium charge refund.
11
<PAGE>
Calculation of the Premium Charge Refund Amount
Corporate VUL
For Policies which are surrendered during the first twelve months after the
date of issue, the credit will be the sum of all premium charges deducted. For
policy months 13 through 36, the credit will be equal to the sum of all premium
charges deducted since the date of issue multiplied by twelve and then divided
by the number of policy months since the date of issue of the Policy. For
example, during policy month 24, the credit would be equal to the total of all
premium charges deducted since the date of issue multiplied by 12/24, or half
of all premium charges paid. No credits apply if a Policy is in default.
Corporate VUL II
For Policies surrendered during the first twelve months after the date of
issue, the refund is 7% of premium paid in the first policy year up to the
target premium and 3% of premium paid in the first policy year above target
premium. For months 13 through 24, the refund is 75% of the first policy year
refund amount.
Charges and Fees Assessed Against the Total Account Value
The total account value is the sum of the separate account value, the fixed
account value and the loan account value.
A monthly deduction is made from the total account value. The monthly deduction
is made as of the same day each month, beginning with the date of issue. This
day is called the monthly deduction day. The monthly deduction includes the
Cost of Insurance attributable to the basic insurance coverage, and any charges
for supplemental riders or benefits. The Cost of Insurance for Corporate VUL
depends on the attained age, risk class of the Insured and specified amount of
the Policy and number of policy years elapsed. Attained age is the issue age of
the Insured increased by the number of policy years elapsed. For Corporate VUL
II, the Cost of Insurance depends on the issue age, risk class of the Insured
and the number of policy years elapsed and specified amount of the Policy.
Once a Policy is issued, the monthly deductions, including Cost of Insurance
charges, will begin as of the date of issue, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
specified amount of the Policy issued, even if the temporary insurance coverage
received during the underwriting period was for a lesser amount.
The monthly deduction also includes a monthly administrative expense charge
during all policy years as follows:
Corporate VUL - $7
Corporate VUL II - $6 currently, guaranteed not to exceed $10.
The monthly administrative expense charge is for items such as premium billing
and collection, policy value calculation, confirmations and periodic reports
and will not exceed our costs. The monthly deduction is deducted
proportionately from each funding option, if more than one is used. This is
accomplished by liquidating accumulation units and withdrawing the value of the
liquidated accumulation units from each funding option in the same proportion
as their respective values have to your fixed account and separate account
values.
12
<PAGE>
Charges and Fees Associated with the Variable Funding Options
Mortality and Expense Risk Charge
The Company deducts a daily charge from the assets of Variable Life Account B
for mortality and expense risks assumed by it in connection with the Policy.
The amount of this charge is a percentage of the average daily net assets of
the Separate Account based on policy years as follows.
1. Corporate VUL
<TABLE>
<CAPTION>
Percentage of Separate Account
Policy Years Average Daily Net Assets
<S> <C>
1-10 0.70%
11 and later 0.20%
</TABLE>
2. Corporate VUL II
<TABLE>
<CAPTION>
Percentage of Separate Account
Policy Years Average Daily Net Assets
<S> <C>
1-10 0.70%
11 and later 0.35%
</TABLE>
The mortality and expense risk charge is assessed to compensate the Company for
assuming certain mortality and expense risks under the Policies. The Company
reserves the right to increase the mortality and expense risk charge if it
believes that circumstances have changed so that the current charges are no
longer adequate. In no event will the charge exceed 0.90% of average daily net
assets on an annual basis.
Administrative Charge - Corporate VUL only
The Company also deducts a daily administrative charge equivalent on an annual
basis to 0.30% of the average daily net assets of Variable Life Account B to
compensate the Company for expenses associated with the administration and
maintenance of the Policies. These types of expenses are described above in
connection with the monthly administrative charge. The daily administrative
charge and the monthly administrative charge work together to cover the
Company's administrative expenses. In later years of the Policy, the revenue
collected from the daily asset-based charge grows with the total account value
to cover increased expenses from account-based transactional expenses. The
daily administrative charge is guaranteed not to exceed 0.50% of the average
daily net assets of the Separate Account on an annual basis.
Surrender Charge - Corporate VUL only
If you surrender your Policy (in whole or in part) a surrender charge may
apply, as described below.
This charge is retained by the Company and is imposed in part as a deferred
sales charge and in part to enable the Company to recover certain first year
administrative costs. The maximum portion of the surrender charge applied to
reimburse the Company for sales and promotional expense is 30% of the first
year's minimum monthly premium. (Any surrenders may result in tax implications;
see "Tax Matters.")
13
<PAGE>
The initial surrender charge, as specified in your Policy, is based on the
specified amount. It also depends on the Insured's attained age and risk class.
Once determined, the surrender charge will decrease annually until it reaches
zero after nine years.
If you increase the specified amount, a new surrender charge will be
applicable, in addition to the then existing surrender charge. This charge will
be determined based on the Insured's attained age and risk class. The surrender
charge applicable to the increase will be equal to the surrender charge on a
new Policy whose specified amount equals the amount of the increase, and will
cover administrative expenses. The additional surrender charge will also
decrease annually until it reaches zero after nine years.
If you decrease the specified amount while the surrender charge applies, the
surrender charge will remain the same as it was before the decrease.
Based on its actuarial determination, the Company does not anticipate that the
surrender charge will cover all sales and administrative expenses which the
Company will incur in connection with the Policy. Any such shortfall, including
but not limited to payment of sales and distribution expenses, would be charged
to and paid by the Company.
Surrender Charges on Full and Partial Surrenders - Corporate VUL only
Full Surrender: All applicable surrender charges are imposed.
Partial Surrender: A proportional percentage of all surrender charges is
imposed. The proportional percentage is the amount of the net partial surrender
divided by the sum of the fixed account Value and the separate account value
less full surrender charges. When a partial surrender is made, any applicable
remaining surrender charges will be reduced in the same proportion.
No surrender charge applies to Corporate VUL II.
14
<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. Expenses of the Funds are not fixed or specified under the terms of
the Policies, and actual expenses may vary.
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- --------- ---------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Growth VP(2) 0.60% 0.11% 0.71% 0.00% 0.71%
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 Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Aetna Small Company VP(2) 0.75% 0.13% 0.88% 0.00% 0.88%
Aetna Value Opportunity VP(2) 0.60% 0.13% 0.73% 0.00% 0.73%
Fidelity VIP Equity-Income Portfolio(3) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP Growth Portfolio(3) 0.58% 0.08% 0.66% -- 0.66%
Fidelity VIP High Income Portfolio(3) 0.58% 0.11% 0.69% -- 0.69%
Fidelity VIP Overseas Portfolio(3) 0.73% 0.18% 0.91% -- 0.91%
Fidelity VIP II Asset Manager Portfolio(3) 0.53% 0.10% 0.63% -- 0.63%
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 Flexible Income Portfolio(4) 0.65% 0.07% 0.72% 0.00% 0.72%
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%
MFS Total Return Series(5) 0.75% 0.15% 0.90% 0.00% 0.90%
MFS Global Governments Series(6) 0.75% 0.30% 1.05% 0.14% 0.91%
Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67%
Oppenheimer Global Securities Fund/VA 0.67% 0.02% 0.69% -- 0.69%
Oppenheimer Main Street Growth and Income Fund/VA 0.73% 0.05% 0.78% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(7) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(7) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(7) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(7) 0.80% 0.20% 1.00% 0.00% 1.00%
PPI T. Rowe Price Growth Equity Portfolio(7) 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
15
<PAGE>
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; 0.65% for Fidelity VIP Growth Portfolio; 0.87% for Fidelity VIP
Overseas Portfolio; 0.62% for Fidelity VIP II Asset Manager Portfolio; and
0.65% for Fidelity VIP II Contrafund[RegTM] Portfolio.
(4) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of expense offset arrangements.
(5) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other
Expenses" shown above do not take into account these expense reductions,
and are therefore higher than the actual expenses of the series. Had these
fee reductions been taken into account, Net Fund Annual Expenses After
Waivers or Reductions would be lower and would equal 0.89% for the series.
(6) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other
Expenses" shown above do not take into account these expense reductions,
and are therefore higher than the actual expenses of the series. Had these
fee reductions been taken into account, Net Fund Annual Expenses After
Waivers or Reductions would be lower and would equal 0.90% for the series.
In addition, MFS has contractually agreed, subject to reimbursement, to
bear expenses for the series such that the series' actual Other Expenses
(which were 0.29% after taking into account the expense offset
arrangement), do not exceed 0.15% of the average daily net assets of the
series during the current fiscal year. This contractual fee arrangement
will continue until at least May 1, 2001, unless changed with the consent
of the board of trustees which oversees the series.
(7) 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.
Reduction of Charges
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. We reserve the
right to reduce premium charges or any other charges on certain multiple life
sales ("cases") where it is expected that the amount or nature of such cases
will result in savings of sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of reductions will be
determined by a number of factors, including the number of lives to be insured,
the total premiums expected to be paid, total assets under management for the
Policy owner, the nature of the relationship among the insured individuals, the
purpose for which the policies are being purchased, expected persistency of the
individual policies, and any other circumstances which we believe to be
relevant to the expected reduction of our expenses. Some of these reductions
may be guaranteed and others may be subject to withdrawal or modification by us
on a uniform case basis. Reductions in charges will not be unfairly
discriminatory to any Policy owners.
Policy Choices
When you buy a Policy, you make several important choices:
o Which life insurance qualification method best suits your needs - cash value
accumulation or guideline premium;
16
<PAGE>
o Which one of the three death benefit options you would like;
o The premium accumulation rate you would like if you choose death benefit
Option 3;
o The way your premiums will be allocated to the Funds and/or the Fixed
Account;
o The amount of premium you intend to pay. For Corporate VUL only, you must
decide whether you want to pay the amount necessary to guarantee your death
benefit to age 80 or 100.
Each of these choices is described in detail below:
Premium Payments
Planned premiums are those premiums you choose to pay on a scheduled basis. We
will bill you annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Additional premiums are any premiums you pay in addition to planned
premiums.
Corporate VUL only
During the first five policy years, payment of the minimum monthly premium
assures that the Policy will remain in force, as long as there are no partial
surrenders or loans taken during that time. The minimum monthly premium is
stated in the Policy. If minimum monthly premiums are not paid, or there are
partial surrenders or loans taken during the first five policy years, the
Policy will lapse if the surrender value is less than the next monthly
deduction.
Minimum monthly premiums are current if premiums paid, minus loans and partial
surrenders, are greater than or equal to the minimum monthly premium multiplied
by the number of months the Policy has been in force.
Corporate VUL and Corporate VUL II
Payment of minimum monthly premiums, planned premiums, or additional premiums
in any amount will not, except as noted above, guarantee that your Policy will
remain in force. Conversely, failure to pay planned premiums or additional
premiums will not necessarily cause your Policy to lapse. For Corporate VUL,
not paying your planned premiums can, however, cause the guaranteed death
benefit provision to terminate. (See "Guaranteed Death Benefit.") The Policy's
surrender value must be sufficient to cover the next monthly deduction or, for
Corporate VUL only, the no lapse coverage must be in effect to keep the policy
in force.
At any time, you may increase your planned premium by written notice to us, or
pay additional premiums, except that:
o We may require evidence of insurability if the additional premium or the new
planned premium during the current policy year increases the difference
between the death benefit and the total account value. If satisfactory
evidence of insurability is requested and not provided, we will refund the
increase in premium without interest and without investing such amounts in
the underlying funding options.
o If you have chosen the guideline premium method for life insurance
qualification in no event may the total of all premiums paid exceed the
then-current maximum premium limitations established by federal income tax
law for a Policy to qualify as life insurance. (See "Tax Considerations for
Policy Owners.")
o If, at any time, a premium is paid which would result in total premiums
exceeding such maximum premium limitations, we will only accept that portion
of the premium which will make total premiums equal to the maximum. Any part
of the premium in excess of that amount will be
17
<PAGE>
returned or applied as otherwise agreed and no further premiums will be
accepted until allowed by the then-current maximum premium limitations
prescribed by law.
o If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably to certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for (subject
to stated maximums) will be provided.
o After the first premium payment, all premiums must be sent directly to our
Administrative Office and will be deemed received when actually received at
the Administrative Office. Your premium payments received during a valuation
period at the Administrative Office will be allocated as you have directed
and amounts allocated to the Funds will be credited at the accumulation unit
value determined at the end of the valuation period after each payment is
received in the Administrative Office.
You may reallocate your future premium payments at any time free of charge. Any
reallocation will apply to premium payments made after you have received
written verification from us.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a date of issue earlier than the date the application is signed, but
no earlier than six months prior to state approval of the Policy. Backdating
may be desirable, for example, so that you can purchase a particular policy
specified amount for lower cost of insurance rates, based on a younger
insurance age. For a backdated Policy, you must pay the minimum premium payable
for the period between the date of issue and the date the initial premium is
invested in the Separate Account. Backdating of your Policy will not affect the
date on which your premium payments are credited to the Separate Account and
you are credited with accumulation units. You cannot be credited with
accumulation units until your net premium is actually deposited in the Separate
Account. (See "Policy Values.")
If we decline an application for a policy we will refund all premium payments
made.
Guaranteed Death Benefit - Corporate VUL only
The guaranteed death benefit assures that as long as the guaranteed death
benefit premium test, as described below, is met, the Policy will stay in force
even if the Surrender Value is insufficient to cover current monthly
deductions. The guaranteed death benefit premium is a specified amount of
premium required to keep the Policy in force to either age 80 or age 100 of the
Insured.
By paying the specified guaranteed death benefit premium, you can choose which
guaranteed Death Benefit will be in effect. This benefit may not be available
to all risk classes
We will test annually to determine if the sum of all premiums paid to date is
sufficient to support the guaranteed death benefit then in effect. In order for
the guaranteed death benefit to be in effect, the cumulative premiums paid less
partial surrenders must be greater than or equal to the required monthly
guaranteed death benefit premium times the number of months elapsed since the
Policy's date of issue.
If these premiums are deficient, the Policy owner will be notified and given 61
days to pay the amount deficient. If the guaranteed death benefit to age 100
had been in place, and the amount deficient is not received within the 61-day
period, the guaranteed death benefit to age 80 will be substituted. If the
cumulative premium test is satisfied based on the guaranteed death benefit
premium to age 80, the guaranteed death benefit to age 80 will then be in
effect. Otherwise the guaranteed death benefit will terminate. If the
guaranteed death benefit to age 80 had been in effect and the amount deficient
is not received within the 61-day period, the guaranteed death benefit will
terminate.
18
<PAGE>
If the guaranteed death benefit is terminated it may not be reinstated.
Increases, decreases, partial surrenders, and death benefit option changes may
affect the guaranteed death benefit premium. These events and loans may also
affect the Policy's ability to remain in force even if the cumulative annual
guaranteed death benefit test has been met.
Life Insurance Qualification
A Policy must satisfy either of two testing methods to qualify as a life
insurance contract for tax purposes under Section 7702 of the Code. At the time
of purchase, you may choose a Policy which uses either the guideline premium
test or the cash value accumulation test. Both methods require a life insurance
policy to meet minimum ratios of life insurance coverage to total account
value. We refer to the ratios as applicable percentages. We refer to required
life insurance coverage in excess of the total account value as the death
benefit corridor.
The applicable percentages for the guideline premium test are 250% through
attained age 40, decreasing over time to 100% at attained age 95 and above. The
guideline premium test also restricts the maximum premiums that may be paid
into a life insurance policy for a specified death benefit. The cash value
accumulation test does not limit premiums which may be paid but has higher
required applicable percentages. For example, applicable percentages for
Corporate VUL non-smokers range from 716% at attained age 20, 372% at attained
age 40 to 100% at attained age 100. Applicable percentages for Corporate VUL II
non-smokers range from 730% at attained age 20, 380% at attained age 40 to 100%
at attained age 100.
If your primary objective were to pay as much premium as possible into the
Policy to target a cash value funding objective, generally a cash value
accumulation method policy would best meet your needs, since it generally
permits higher premium payments. The choice, however, might result in higher
eventual Cost of Insurance charges because of the higher death benefit
corridor. In addition, the payment of higher premiums which would be associated
with choosing the cash value accumulation method, increases the possibility
that the amount paid into the Policy will exceed the amount that would have
been paid had the Policy provided for seven level annual premiums (the "7-pay
test"). If premiums paid exceed such limit during any 7-pay testing period, any
partial surrender or Policy loan may be subject to federal income taxation.
(See "Tax Considerations for Policyowners.")
If your primary objective were to maximize the potential for growth in total
account value, or to conserve total account value, generally a guideline
premium Policy would best meet your needs. This is because the applicable
percentages are lower, resulting in lower Cost of Insurance charges for the
smaller required death benefit corridor coverage.
If your primary objective were to provide a specified death benefit at low
cost, then generally there is no difference between the testing methods because
the planned premium will be less than the maximum premium limit under the
guideline premium test and additional death benefit insurance coverage may not
be necessary under either testing method to comply with the death benefit
corridor requirements.
Death Benefit Options
At the time of purchase, you must choose from three available death benefit
Options. The amount payable under the option chosen will be determined as of
the date of the Insured's death. The death benefit may be affected by partial
surrenders. The death benefit for all three options will be reduced by the loan
account value plus any accrued interest.
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Under Option 1, the death benefit will be the greater of the specified amount
or target face amount if a term insurance rider is attached to the Policy (see
"Term Insurance Rider"), or the applicable percentage of the total account
value. Option 1 generally provides a level death benefit.
Under Option 2, the death benefit will be the greater of the specified amount,
plus the total account value or the target face amount if a term insurance
rider is attached to the Policy (see "Term Insurance Rider"), or the applicable
percentage of the total account value. Option 2 provides a varying death
benefit which increases or decreases over time, depending on the amount of
premium paid and the investment performance of the underlying funding options
you choose.
Under Option 3, the death benefit will be the greater of the specified amount
plus the accumulated premium(s) accumulated at the premium accumulation rate or
target face amount if a term insurance rider is attached to the Policy (see
"Term Insurance Rider"), or the applicable percentage of the total account
value but will not exceed the total death benefit paid under Option 2. This
option may only be selected at issue.
The choice of death benefit option should be based upon the pattern of death
benefits which best matches the intended use of the Policy. For example, an
Option 1 Policy should be chosen for a simple, fixed, level total death benefit
need. Option 2 would be chosen to provide a level death benefit in addition to
the policy total account value, and Option 3 would provide a level death
benefit for the specified amount plus a return of accumulated premiums.
Choosing the option which provides the lowest pattern of death benefits which
meets the desired need will be the most efficient for accumulating potential
cash value, since the lower Cost of Insurance charges will improve the growth
or preservation of the total account value. Other than providing the
appropriate pattern of desired death benefits, there is no economic advantage
of one option over another, since the Cost of Insurance charges for all three
Options is based upon the amount at risk, the difference between the death
benefit and the total account value each month.
The same is true for the choice of a premium accumulation rate under Option 3.
Choice of a higher premium accumulation rate will cause the death benefit to
increase more rapidly, but this will also generate higher Cost of Insurance
charges and lower the potential growth in total account value.
Initial Allocations to Funding Options
At purchase, you must decide how to allocate your net premiums among the Funds
and/or the Fixed Account. Net premiums must be allocated in whole percentages.
You should carefully consider current market conditions and each Fund's
investment policies and related risks before allocating money to the Funds.
Transfers Between Funding Options
Before the maturity date, you may transfer Policy values from one Fund to
another at any time, or to the Fixed Account. For Corporate VUL II, the Company
reserves the right to charge $25 for each transfer after the twelfth transfer
per year. Within 45 days after each policy anniversary, and before the maturity
date, you may also transfer a portion of the Fixed Account Value to one or more
Funds. A transfer from the Fixed Account is allowed only once in the 45-day
period after the Policy anniversary and will be effective as of the next
valuation period after your request is received at our Administrative Office.
The amount of such transfer cannot exceed the greater of 20% of the greatest
amount held in the fixed account value during the prior 5 years or $1000.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of accumulation units based on the accumulation unit
values determined at the end of the valuation period after your request is
received by us at our Administrative Office. (See "Accumulation Unit Value.")
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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.
You should carefully consider current market conditions and each Fund's
investment policies and related risks before transferring values among the
Funds.
Limits on Frequent Transfers
The Policy is not designed to serve as a vehicle for frequent trading in
response to short-term fluctuations in the market. Such frequent trading can
disrupt management of a Fund and raise its expenses. This in turn can have an
adverse effect on Fund performance. Accordingly, corporations and individuals
who use market-timing investment strategies and make frequent transfers should
not purchase the Policy.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
Policy owners. Such restrictions could include:
(1) Not accepting transfer instructions from an agent acting on behalf of more
than one Policy owner; and
(2) Not accepting preauthorized transfer forms from market-timers or other
entities acting on behalf of more than one Policy owner at a time.
We further reserve the right to impose, without prior notice, restrictions or
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other Policy owners.
Policy Values
Total Account Value
The net premium is the premium paid, less the premium charge (Corporate VUL) or
the premium paid, less the premium charge, less a premium tax charge (Corporate
VUL II).
Once your Policy has been issued, each net premium allocated to a funding
option through the Separate Account is credited in the form of accumulation
units for the funding option based on that funding option's accumulation unit
value (see below). Each net premium received after the date of issue will be
credited to your Policy at the accumulation unit value(s) determined for the
valuation period in which it is received by us at our Administrative Office
following the date of issue of the Policy. (See "Premium Payments.") The number
of accumulation units credited is determined by dividing the net premium by the
value of an accumulation unit computed at the end of the valuation period
during which we receive the premium. Shares in each Fund elected by you will be
purchased by the Separate Account at the net asset value next determined by the
Fund following receipt of the net premium by the Company. Since each Fund has
its own accumulation unit value, a Policy owner who has elected a combination
of funding options will have accumulation units credited for each funding
option.
The total account value of your Policy is the sum of the fixed account value,
separate account value and loan account value. It is determined by:
(a) multiplying the total number of accumulation units credited to the Policy
for each applicable funding option by its appropriate current accumulation
unit value;
(b) if you have elected a combination of funding options, totaling the
resulting values;
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(c) adding any values attributable to the Fixed Account; and
(d) any values attributable to the Loan Account.
The number of accumulation units credited to a Policy for each funding option
will not be changed by any subsequent change in the value of an accumulation
unit. The number is increased by subsequent contributions or transfers into that
funding option, and decreased by charges and withdrawals from that funding
option.
There is no assurance that the separate account value of the Policy will equal
or exceed the premiums paid and allocated to the Separate Account.
You will be advised at least annually as to the number of accumulation units
which remain credited to the Policy for each Fund, the current accumulation unit
values, the separate account value, the fixed account value, and the total
account value.
Accumulation Unit Value
The value of an accumulation unit for any valuation period is determined by
multiplying the value of an accumulation unit for the immediately preceding
valuation period by the net investment factor for the current period for the
appropriate Fund. The net investment factor equals the net investment rate plus
1.0000000. The net investment rate is determined separately for each Fund. It is
computed according to a formula that is equivalent to the following:
(a) the net assets of the Fund held in Variable Life Account B at the end of a
valuation period, minus
(b) the net assets of the Fund held in Variable Life Account B at the
beginning of that valuation period, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of
Variable Life Account B, divided by
(d) the value of the accumulation units held by Variable Life Account B at the
beginning of the valuation period, minus
(e) a daily charge for mortality and expense risk and for administrative
expenses in connection with these Policies.
(See "Charges and Fees Associates with the Variable Funding Options.")
Maturity Value
The maturity value of the Policy is the total account value on the maturity
date, less the loan account value and any unpaid accrued interest. The maturity
date is the policy anniversary on which the Insured reaches attained age 100.
Surrender Value
The surrender value of your Policy is the amount you can receive in cash by
surrendering the Policy. This equals the total account value (minus the
applicable surrender charge for Corporate VUL), the loan account value and any
accrued interest, plus any credit for premium charges paid. All or part of the
surrender value may be applied to one or more of the settlement options. (See
"Surrender Charge.")
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Policy Rights
Partial Surrenders
A partial surrender may be made at any time after the first policy year. If, at
the time of a partial surrender your total account value is attributable to
more than one funding option, the surrender charge (Corporate VUL only),
transaction charge and the amount paid to you upon the surrender will be taken
proportionately from the accumulation unit values in each funding option.
The amount of a partial surrender may not exceed the surrender value on the
date the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a settlement option.
For an Option 1 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value, death benefit, and
specified amount. The specified amount and total account value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
For an Option 2 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value and the death benefit,
but it will not reduce the specified amount.
For an Option 3 Policy (see "Death Benefit Options"):
A partial surrender will reduce the total account value, death benefit, and
specified amount. The specified amount and total account value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
Payment of any amount due from the separate account values on a full or partial
surrender will be made within seven calendar days after we receive your written
request at our Administrative Office in a form satisfactory to us. Payment may
be postponed when the New York Stock Exchange has been closed and for such
other periods as the Commission may require. Additionally, for Corporate VUL
II, payment may be postponed when trading on the New York Stock Exchange is
restricted, when an emergency exists so that disposal of the securities held in
the Funds is not reasonably practicable or it is not reasonably practicable to
determine the value of the Funds' net assets; or during any other period when
the Commission, by order, so permits for the protection of securityholders.
Payment from the fixed account values may be deferred up to 6 months, except
when used to pay premiums to the Company.
The specified amount remaining in force after a partial surrender may not be
less than $100,000. Any request for partial surrender that would reduce the
specified amount below this amount will not be granted. In addition, if,
following the partial surrender and the corresponding decrease in the specified
amount, the Policy would not comply with the maximum premium limitations
required by federal tax law, the decrease may be limited to the extent
necessary to meet the federal tax law requirements.
Avoiding Loss of Coverage
Take note: The following explanations of the No-Lapse Coverage Provisions and
the Reinstatement of a Lapsed Policy should be read together with the Guaranteed
Death Benefit Provision (Corporate VUL only), discussed earlier under Policy
Choices. These three provisions and the interrelationship between them determine
whether you keep or lose your insurance. [If you have any questions
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about how they operate and how each provision affects the others, please
contact the Administrative Office.]
No Lapse Coverage - Corporate VUL only
A Corporate VUL Policy will not terminate during the five-year period after its
date of issue or the date of issue of any increase if, on each monthly
deduction day within that period, the sum of premiums paid equals or exceeds:
1) the sum of the minimum monthly premiums for each Policy month from the date
of issue, including the current month; plus, 2) any partial surrenders; plus 3)
any increase in loan account value since the Policy's date of issue or the
effective date of any increase.
If, on each monthly deduction day within the five-year period, the sum of
premiums paid is less than the sum of items 1, 2, and 3 above, and the
surrender value is insufficient to cover the current monthly deduction, the
grace period provision will apply. The 61-day grace period begins on the
monthly deduction day on which the surrender value is insufficient to cover the
current monthly deduction. The Policy will terminate without value at the end
of the 61-day period unless sufficient payment described in the notification
letter is received by the Company.
After the five-year period expires, and depending on the investment performance
of the Funds, the total account value may be insufficient to keep this Policy
in force, and payment of an additional premium may be necessary, unless the
guaranteed death benefit provision is in effect.
Reinstatement of a Lapsed Policy
A lapse occurs if your monthly deduction is greater than the Policy's surrender
value and no payment to cover the deduction is made within the 61 days of our
notifying you.
You can apply for reinstatement within five years after the date of lapse and
before the maturity date. To reinstate your Policy we will require satisfactory
evidence of insurability and an amount sufficient to pay for the current
monthly deductions, plus two additional monthly deductions.
For Corporate VUL only, if the Policy is reinstated within five years of the
Policy's date of issue, or while the no lapse coverage provision (see "No Lapse
Coverage") would be in effect if this Policy had not lapsed, all values,
including the loan account value, will be reinstated to the point they were on
the date of lapse. However, the guaranteed death benefit provision will not be
reinstated.
For Corporate VUL II, and Corporate VUL when the no lapse coverage provision
(see "No Lapse Coverage") has expired, the Policy will be reinstated on the
monthly deduction day following our approval. The Policy's total account value
at reinstatement will be the net premium paid less the monthly deduction due
that day. Any loan account value will not be reinstated, and the guaranteed
death benefit will not be reinstated.
If the Policy's surrender value less any loan account value plus accrued
interest is not sufficient to cover the full surrender charge at the time of
lapse, the remaining portion of the surrender charge will also be reinstated at
the time of Policy reinstatement.
Policy Loans
Unless otherwise required by state law, the maximum loan amount is 90% of the
sum of the fixed account value and the separate account value less the
surrender charge applicable at the time of the loan.
An amount equal to what you receive for a loan, together with any interest
added to the loan for due and unpaid interest, as described below, will be
added to the loan account value.
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Corporate VUL only
Loans taken during the first ten policy years are considered nonpreferred
loans. Beginning in the eleventh policy year, up to 10% of the maximum loan
amount available at the beginning of a policy year can be taken as a preferred
loan during that policy year at zero net cost to the Policy owner. Amounts
borrowed that are in excess of the maximum loan amount available for a
preferred loan will be considered a nonpreferred loan.
Corporate VUL and Corporate VUL II
If a policy loan is requested, the amount to be borrowed will be withdrawn by
us from the funding options and fixed account value in proportion to the value
of the Policy attributable to each funding option and the Fixed Account. For
Corporate VUL II and, subject to state approval for Corporate VUL, repayments
on the loan will be allocated in proportion to the value withdrawn from the
Fixed Account, if any, and to the variable funding options according to the
Policy owner's then current premium allocations. If state approval has not been
received for Corporate VUL, repayments on the loan will be allocated among the
funding options in the same proportion as the loan was taken from the funding
options. The loan account value will be reduced by the amount of any loan
repayment.
Interest on loans will accrue at an annual rate which will be the greater of:
1) The monthly average (i.e., the Composite Yield on Corporate Bonds as
published by Moody's Investors Service, Inc.) for the calendar month which ends
two months before the month in which the policy anniversary occurs, or
2) 5.0%.
Increases to the current interest rate may occur only when the maximum annual
interest rate is at least .5% higher than the interest rate in effect for the
prior policy year.
Decreases to the current interest rate will occur only when the maximum annual
interest rate is at least .5% lower than the interest rate in effect for the
prior policy year.
We will notify you of the current interest rate charged for a loan at the time
the loan is made. If your Policy has a loan outstanding, we will notify you of
any change in the interest rate before the new rate becomes effective.
Interest is payable once a year on each anniversary of the loan, or earlier
upon surrender, payment of proceeds, or maturity of a Policy. Any interest not
paid when due becomes part of the loan and bears interest.
We will credit interest on the loan account value. The loan account value for
nonpreferred loans under Corporate VUL, and all loans under Corporate VUL II
will be credited interest, during any policy year, at an annual rate that is
the interest rate charged on the loan minus 1% for Corporate VUL, and minus a
rate not to exceed .90% for Corporate VUL II. However, in no case will the
credited interest rate be less than 4.0% annually.
For Corporate VUL only, the loan account value on preferred loans will be
credited interest at a rate equal to the interest rate charged. In no case will
the credited interest rate be less than 5.0% annually.
Policy Changes
You may make changes to your Policy as described below by submitting a written
request to our Administrative Office in a form satisfactory to us.
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Increases: You may increase the specified amount of your Policy any time
subject to the following conditions:
o Satisfactory evidence of insurability may be required.
For Corporate VUL,
o An increase in the specified amount will increase the surrender charge.
o The minimum monthly premium will be increased when the specified amount is
increased.
o An Increase in the specified amount will increase the guaranteed death
benefit amount and will increase the guaranteed death benefit premium.
o The 5 year period as described in the no lapse coverage provision will
restart on the date of issue of an increase.
Decreases: Generally, you may decrease the specified amount of your Policy;
however, no decrease may reduce the specified amount below the minimum for the
type of Policy (see "Death Benefit Options"), and the availability of decreases
before the sixth policy year for Corporate VUL and before the eighth policy
year for Corporate VUL II is subject to approval of this feature by state
regulatory agencies and to the Company's satisfaction that the decrease is
intended to meet a legitimate, non-insurance related business need of the
policy owner.
The following additional rules apply to Corporate VUL policies only:
o Any decrease in the specified amount will cause a decrease in the guaranteed
death benefit premium. The guaranteed death benefit premium will be based on
the new specified amount.
o Subject to state regulatory approval, at the time of a decrease, we will
deduct a surrender charge from the total account value. For this purpose,
the surrender charge will be prorated according to the percentage the
decrease amount bears to the specified amount before the decrease.
Death Benefit Option Change
A death benefit option change will be allowed, subject to the following
conditions:
o The change will take effect on the monthly deduction day on or next following
the date on which our Administrative Office receives your written request.
o Evidence of insurability may be required.
o For Corporate VUL only, the change in death benefit option will not change
the surrender charge, but will affect the guaranteed death benefit amount
and the guaranteed death benefit premium.
We will not allow a change in the death benefit option if the specified amount
will be reduced below the minimum.
o Changes from Option 1 to Option 2 are allowed at any time for Corporate VUL
II and, subject to state regulatory approval, for Corporate VUL. If state
regulatory approval has not been received, such changes are allowed for
Corporate VUL only after the fifth policy year. The new specified amount
will equal the specified amount less the total account value at the time of
the change.
o Changes from Option 2 to Option 1 are allowed at any time. The new specified
amount will equal the specified amount plus the total account value as of
the time of the change.
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o Changes from Option 3 to 1 are allowed at any time. The specified amount will
be increased to equal the specified amount prior to the change plus the
lesser of the accumulated premiums or the total account value at the time of
the change.
o Changes from Option 3 to 2 are allowed at any time for Corporate VUL II and,
subject to state regulatory approval, for Corporate VUL. If state regulatory
approval has not been received, such changes are allowed for Corporate VUL
only after the fifth policy year. The specified amount will be reduced to
equal the specified amount prior to the change minus the difference between
the total account value and the sum of the accumulated premiums at the time
of the change.
o Changes from Options 1 or 2 to Option 3 are not allowed.
Right to Examine the Policy
The Policy has a period during which you may examine the Policy. If for any
reason you are dissatisfied, it may be returned to our Administrative Office
for a refund. It must be returned within ten days after you receive the Policy
and any written notice of withdrawal right, or within 45 days after you sign
the application for the Policy, whichever occurs later. Some states provide a
longer period of time to exercise these rights. Your Policy will indicate if
you have more than 10 days to review the Policy. If you return (cancel) the
Policy, we will pay a refund of
(1) the difference between payments made and amounts allocated to the Separate
Account, plus
(2) the value of the amount allocated to the Separate Account as of the date
the returned Policy is received by us, plus
(3) any fees imposed on the amounts allocated to the Separate Account.
Some state laws require a refund equal to all premiums paid, without interest.
In states which require a full refund of premiums during the right-to-examine
period, the first net premium will be allocated in its entirety to Aetna Money
Market VP, regardless of the policy owner's premium allocation percentages
until the day following the expiration of the right-to-examine period. Any
other net premium received prior to that day will also be allocated to Aetna
Money Market VP. On the day following the expiration of the right-to-examine
period, the policy value and future net premiums will be allocated in
accordance with the policy owner's selected premium allocation percentages.
If the policy is issued, any monies received prior to policy issue will be
credited with the return attributable to Aetna Money Market VP from the date of
receipt until the day the policy is issued or, for states which require the
full premium refund, until the day following the right-to-examine period on the
issued policy.
Refunds will usually occur within seven days of notice of cancellation,
although a refund of premiums paid by check may be delayed until the check
clears your bank.
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 payable.
The death benefit under the Policy will be paid in a lump sum within seven days
after we receive due proof of the Insured's death (a certified copy of the
death certificate), unless you or the
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beneficiary have elected that it be paid under one or more of the settlement
options or such options as we may choose to make available in the future.
Payment of the death benefit may be delayed if the Policy is being contested.
(See "Settlement Options.")
While the Insured is living, you may elect a settlement option for the
beneficiary and deem it irrevocable. You may revoke or change a prior election.
The beneficiary may make or change an election within 90 days of the death of
the Insured, unless you have made an irrevocable election. A beneficiary who
has elected settlement option 1 may elect another option within two years after
the Insured's death.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any excess death benefit due will be paid as
elected.
Policy Settlement
Settlement Options
There are several ways in which a beneficiary may receive annuity payments due
from a death benefit, if elected upon maturity, or which the insured may choose
to receive annuity payments from the surrender value of the Policy.
Proceeds in the form of settlement options are payable by the Company upon the
Insured's death, upon maturity of the Policy, or upon election of one of the
settlement options (after any applicable surrender charges have been deducted).
A written request may be made to elect, change, or revoke a settlement option
before payments begin under any settlement option. This request must be in a
form satisfactory to us, and will take effect upon its filing at the
Administrative Office. If no settlement option has been elected by the Policy
owner when the death benefit becomes payable to the beneficiary, that
beneficiary may make the election. If the Policy has been assigned, we must
consent to the election of any settlement option. We may refuse to permit a
settlement option if the payee is not a natural person. Also, the annuitant's
age plus the number of years for which payments are guaranteed under a
settlement option may not exceed 95.
The amount of the first payment for settlement options other than payment of
interest on a sum left with us (whether on a fixed or variable basis) is
determined, based on the option chosen, using the annuity rates specified in
the Policy. This rate is the same regardless of whether an annuitant is male or
female.
There may be different tax consequences associated with the various settlement
options.
The following are the currently available settlement options (others may become
available). Options 2, 3 and 4 are in the form of an annuity, which is a series
of payments for life or a definite period of time.
Settlement Options For Corporate VUL
Option 1 - Payment of interest on the sum left with us;
Option 2 - Payments for a stated number of years, at least three but no more
than thirty. If variable payments are selected for this option, you may
withdraw all or a portion of the remaining payments at any time.
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Option 3 - Payments for the lifetime of the payee. If also chosen, we will
guarantee payments for 60, 120, 180 or 240 months; or
Option 4 - Payments during the joint lifetimes of two payees. At the death of
either, payments will continue to the survivor. When this option is chosen, a
choice must be made of:
a) 100% of the payment to continue to the survivor;
b) 66 2/3% of the payment to continue to the survivor;
c) 50% of the payment to continue to the survivor;
d) Payments for a minimum of 120 months, with 100% of the payment to continue
to the survivor; or
e) 100% of the payment to continue to the survivor if the survivor is the
payee, and 50% of the payment to continue to the survivor if the survivor
is the second payee.
In most states, no election may be made that would result in a first payment of
less than $25 or that would result in total yearly payments of less than $120.
If the value of the Policy is insufficient to elect an option for the minimum
amount specified, a lump-sum payment must be elected.
Proceeds applied under Option 1 will be held by us in the General Account.
Proceeds in the General Account will be used to make payments on a fixed-dollar
basis. We will add interest to such proceeds at an annual rate of not less than
3.0%. We may add interest daily at any higher rate.
Under Option 1, the payee may later tell the Company to (a) pay to him or her a
portion of all of the sum held by the Company; or (b) apply a portion of all of
the sum held by the Company to another Settlement Option.
Proceeds applied under settlement options 2, 3 and 4 will be held at the
election of you or your beneficiary: (a) in a fixed annuity using the General
Account; or (b) in Variable Annuity Account B, invested in one or more of the
available investment options; or (c) a mix of (a) and (b). Proceeds held in
Variable Annuity Account B will be used to make payments on a variable basis.
Settlement Options For Corporate VUL II
Options 1, 2 and 3 described below are available on either a fixed payment or a
variable payment basis.
For a fixed settlement option, the amount of the first and each subsequent
payment is the same. That amount will be based on an interest rate of at least
3%.
If our then current settlement option rate would provide higher payments on a
comparable fixed payment annuity at the time payments commence, we also will
use the higher rate for fixed settlement options under a Policy.
Except to the extent noted below for Option 1, no withdrawals from or changes
of a settlement option may be made under Options 1, 2 and 3 once payments
begin.
Option 1 - Payments for a stated number of years, but no more than thirty. The
period must be for at least five years, but if variable payments are selected,
you may withdraw all or a portion of the remaining payments at any time.
Option 2 - Payments for the lifetime of the annuitant. If also chosen, we will
guarantee payments for a number of years from 5 to 30 or a "cash refund" upon
the annuitant's death. The cash refund
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election is available only if all amounts allocated to this Option 2 are on a
fixed basis and are subject to that election. The amount of the cash refund is
the difference between the amount applied to this annuity option at the time of
settlement and the total amount of payments received under the option prior to
the annuitant's death.
Option 3 - Life income based upon the lives of two annuitants - payments during
the joint lifetimes of two annuitants. Payments will continue until both
annuitants have died. When this option is chosen, a choice must be made of (a)
100%, 66 2/3% or 50% of the payment to continue after the first death; (b)
payments for a minimum of 5 to 30 years, with 100% of the payment to continue
after the first death; (c) 100% of the payment to continue to the surviving
annuitant if the survivor is the original payee, and 50% of the payment to
continue to the survivor if the surviving annuitant is the second payee; or (d)
100% of the payment to continue after the first death, with a "cash refund"
feature comparable to that described for Option 2 above.
Option 4 - Payment of interest on the sum left with us at 3% or such higher
rate as we may, in our sole discretion, declare. After commencement of this
option, the payee may make a written request to receive all or a portion of the
amount held under this option as a lump sum or have it applied to one or more
of the other available settlement options.
Upon the death of the annuitant(s), any remaining guaranteed payments will
continue to the Beneficiary unless the beneficiary elects to receive the
present value of any remaining guaranteed payments in a lump sum. Such payments
will be paid at least as rapidly as under the method of distribution then in
effect. If the beneficiary dies while receiving payments, the present value of
any remaining guaranteed payments will be paid in one sum to the beneficiary's
estate.
Although the foregoing discussion of settlement options is in terms of monthly
payments, you or your beneficiary may elect to receive quarterly, semi-annual
or annual payments instead.
No fixed or variable settlement option may be elected that would result in a
first payment of less than $50 or that would result in total yearly payments of
less than $250. If the proceeds payable are insufficient to elect an option for
these minimum amounts, a lump-sum payment must be elected.
Calculation of Variable Payment Settlement Options Values
Variable settlement options will be supported by the then available Funds of
the Company's Variable Annuity Account B (Account B), a separate account very
similar to the Separate Account, except that Account B supports variable
annuity benefits, rather than variable life insurance benefits. We reserve the
right to impose a maximum limit of four Funds that can be used at any one time
for a Settlement Option. We will provide an Account B prospectus in connection
with selection of a Settlement Option. That prospectus will describe the
available Funds, the cost and expenses of such Funds and the charges imposed on
Account B. The available Funds may be, and the charges imposed on Account B are
expected to be, different from those that relate to the Separate Account prior
to commencement of a settlement option. Accordingly, you should review the
Account B prospectus, as well as the prospectuses for Account B's underlying
Funds, prior to selecting any variable payment settlement option.
You make transfers among Funds under our administrative procedures in effect at
the time. Currently, we limit the number of transfers to four per calendar
year, but we can change this limit in the future.
For a variable settlement option, the first payment is determined using an
assumed interest rate of 3.5% or 5% as selected by the Policy owner or payee,
as the case may be. Subsequent payments
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<PAGE>
will vary based on Fund performance as discussed below. The initial payment
will be higher if 5% is elected as the assumed interest rate; but subsequent
payments will increase less with favorable fund performance (and decrease more
with unfavorable Fund performance) than if 3.5% is elected.
The amount of each variable annuity payment after the first is determined
pursuant to a formula described in the Policies that is generally used by
actuaries for making such calculations. Generally speaking, if the total return
of the Fund for any month, less a deduction currently equivalent to an annual
rate of 1.25% for mortality and expense risks which we expect to result in a
profit to us, exceeds the settlement option's assumed interest rate (3.5% or
5%, as discussed above), the next variable payment will be larger than the
previous one. On the other hand, if the Fund's total return for any month, as
so adjusted, is less than the assumed rate, the next variable payment will be
smaller than the previous one.
Term Insurance Rider
The Policy can be issued with a term insurance rider as a portion of the total
death benefit. The rider provides term life insurance on the life of the
Insured, which is annually renewable to attained age 100. This rider will
continue in effect unless explicitly canceled by the Policy owner. The rider
provides a vehicle for short-term insurance protection for Policy owners who
desire lower required premiums under the Policy, in anticipation of growth in
total account value to fund life insurance coverage in later policy years. The
amount of coverage provided under the rider's benefit amount, varies from month
to month.
Corporate VUL
The benefit amount is the greater of (a) or (b), where (a) is the target face
amount, which is an amount selected by you, or a percentage of the total
account value as described in the Policy if that percentage is greater than the
target face amount; less (i) the greater of the Policy's specified amount and
total account value, if death benefit option 1 is in effect; or (ii) the
Policy's specified amount plus the total account value, if death benefit option
2 is in effect; or (iii) the Policy's specified amount plus the accumulated
premiums, if death benefit option 3 is in effect; (b) is zero. The result of
death benefit option 3 will never be greater than the result of death benefit
option 2. We may limit the target face amount selected.
Corporate VUL II
The benefit amount is the target face amount minus the specified amount.
However, if the death benefit of the Policy is defined as a percentage of the
total account value, the benefit amount is zero.
The cost of the rider is added to the monthly deductions, and is based on the
Insured's premium class and attained age for Corporate VUL, or the Insured's
premium class, issue age and the number of policy years elapsed for Corporate
VUL II. We may adjust the monthly rider rate from time to time, but the rate
will never exceed the guaranteed cost of insurance rates for the rider for that
policy year. For Corporate VUL only, the cost for this rider is added to our
calculation of the minimum monthly premium for no lapse protection and to our
calculation of the guaranteed death benefit premium.
If the Policy's death benefit increases as a result of an increase in total
account value (see "Life Insurance Qualification"), the rider's target death
benefit will be reduced by an equivalent amount to maintain the total desired
death benefit.
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<PAGE>
The rider's death benefit is included in the total death benefit paid under the
Policy. (See "Death Benefit Options.")
Directors & Officers
<TABLE>
<CAPTION>
Name and Address*
Position with Company Business Experience During Past 5 Years
- ---------------------------------------------------------------------------------------------------
<S> <C>
Thomas J. McInerney President (since October 1998) Aetna Investment Adviser Holding
Director, President and Company, Inc., Aetna Retail Holding Company, Inc., Aetna Services
Chairman, Executive Holding Company, Inc.; President (since September 1997) Aetna Life
Committee (Principal Insurance and Annuity Company; President (since September 1997)
Executive Officer) Aetna Insurance Company of America; President (since September 1997)
Aetna Retirement Holdings, Inc.; President (since August 1997) Aetna
Retirement Services, Inc.; Executive Vice President (since August 1997)
Aetna Inc., Aetna Services, Inc. and Aetna Life Insurance Company;
Vice President, Strategy (March 1997 -- August 1997) Aetna Inc., Aetna
Services, Inc. and Aetna Life Insurance Company; Vice President, Sales
(December 1996 -- March 1997) and Vice President, National Accounts
(April 1996 -- March 1997) Aetna US Healthcare Inc.; Vice President,
Strategy, Finance, & Administration (July 1995 - April 1996) Aetna Inc.;
Vice President, Guaranteed Products (November 1992 - July 1995) Aetna
Life Insurance Company.
Shaun P. Mathews President (January 1998 -- February 1999) Aetna Investment Services,
Director and Senior Vice Inc; Senior Vice President (since June 1999) Aetna Retirement Holdings,
President Inc.; Senior Vice President (since June 1999) Aetna Retirement Holdings,
Inc.; Senior Vice President (since October 1998) Aetna Investment
Adviser Holding Company, Inc., Aetna Retail Holding Company, Inc.,
Aetna Services Holding Company, Inc.; Senior Vice President, Product
and Brand Management (since September 1998), Senior Vice President,
Product Management (September 1997 -- September 1998), Vice
President, Products Group (February 1996 -- September 1997), Senior
Vice President, Strategic Markets and Products (February 1993 --
February 1996) Aetna Life Insurance and Annuity Company.
</TABLE>
32
<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
Director, Chief Financial Holding Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Officer and Senior Vice Services Holding Company, Inc.; Chief Financial Officer and Senior Vice
President President, Business Strategy and Finance (since February 1998) Aetna
Life Insurance and Annuity Company; 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
Senior Vice President, June 1999) Aetna Retirement Holdings, Inc., Aetna Investment Adviser
General Counsel and Holding Company, Inc., Aetna Retail Holding Company, Inc., Aetna
Corporate Secretary Services Holding Company, Inc.; Senior Vice President, General Counsel
and Corporate Secretary (since April 1999) Aetna Retirement Services,
Inc.; Vice President, General Counsel and Corporate Secretary (October
1998 -- June 1999) Aetna Investment Advisor Holding Company, Inc.,
Aetna Retail Holding Company, Inc., Aetna Services Holding Company,
Inc.; Vice President, General Counsel and Assistant Secretary (April
1997 -April 1999) Aetna Retirement Services, Inc.; Vice President,
General Counsel and Corporate Secretary (December 1996 -- June 1999)
Aetna Retirement Holdings, Inc.; Senior Vice President (since March
1999), General Counsel and Corporate Secretary (since November 1996),
Vice President (November 1996 -- March 1999) Aetna Life Insurance
and Annuity Company; Vice President and Counsel (June 1992 --
November 1996) Aetna Life Insurance Company.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name and Address*
Position with Company Business Experience During Past 5 Years
- ---------------------------------------------------------------------------------------------------
<S> <C>
Deborah Koltenuk Vice President, Corporate Controller, and Assistant Treasurer (since July
Vice President, 1999) Aetna Retirement Services, Inc.; Vice President, Corporate
Corporate Controller, Controller, and Assistant Treasurer (since June 1999) Aetna Investment
and Assistant Adviser Holding Company, Inc., Aetna Retail Holding Company, Inc.,
Treasurer 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.
Therese A. Squillacote Vice President and Chief Compliance Officer (since February 1999)
Vice President and Aetna Insurance Company of America; Vice President and Chief
Chief Compliance Compliance Officer (since December 1998) Aetna Life Insurance and
Officer 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.
34
<PAGE>
Additional Information
Reports to Policyowners
Within 30 days after each policy anniversary and before proceeds are applied to
a settlement option, we, or our designees will send you a report containing the
following information:
1) A statement of changes in the total account value and surrender value since
the prior report or since the date of issue, if there has been no prior report.
This includes a statement of monthly deductions and investment results and any
interest earnings for the report period;
2) surrender value, death benefit, and any loan account value as of the policy
anniversary;
3) A projection of the total account value, loan account value and surrender
value as of the succeeding policy anniversary.
If you have Policy values funded in a Separate Account you will receive, in
addition, such periodic reports as may be required by the Commission.
Some state laws require additional reports; these requirements vary from state
to state.
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each separate account. The votes will be cast at
meetings of the shareholders of the Fund and will be based on instructions
received from Policy owners. However, if the 1940 Act or any regulations
thereunder should be amended or if the present interpretation thereof should
change, and as a result we determine that we are permitted to vote the shares
of the Fund in our own right, we may elect to do so.
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. During the settlement option
period, the number of votes is determined by dividing the valuation reserve (as
defined below) attributable in the Fund, if any, by the net asset value of one
share of the Fund. Fractional votes will be counted. Where the value of the
total account value or the valuation reserve relates to more than one Fund, the
calculation of votes will be performed separately for each Fund. The valuation
reserve is established pursuant to the insurance laws of Connecticut to measure
voting rights during the settlement option period and the value of a
commutation right, if available, under settlement option 2 when elected on a
variable basis.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by us, but not more than 90 days before the meeting of
the Fund. Voting instructions will be solicited by written communication at
least 14 days before such meeting.
Fund shares for which no timely instructions are received, and Fund shares
which are not otherwise attributable to Policy owners, will be voted by us in
the same proportion as the voting instructions which are received for all
Policies participating in each Fund through Variable Life Account B.
Policyowners having a voting interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund.
35
<PAGE>
In addition, we may disregard voting instructions in favor of changes initiated
by a Policy owner in the investment policy or the investment adviser of the
Fund if we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we determined that the
change would have an adverse effect on the separate accounts in that the
proposed investment policy for a Fund may result in overly speculative or
unsound investments. In the event we do disregard voting instructions, a
summary of that action and the reasons for such action will be included in the
next annual report to Policy owners.
State Regulation
We are subject to regulation and supervision by the Insurance Department of the
state of Connecticut, which periodically examines our affairs. We are also
subject to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. The Policies have been approved by the Insurance
Department of the State of Connecticut and in other jurisdictions where they
are offered.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business, for the purposes of determining solvency and
compliance with local insurance laws and regulations.
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the
separate account as a party or which would materially affect the separate
account. The validity of the securities offered by this prospectus has been
passed upon by Counsel to the Company.
In recent years, several life insurance and annuity companies have been named
as defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000 by Loretta Shaner against the Company (the "Shaner Complaint"). The
Shaner Complaint seeks unspecified compensatory damages from the Company and
unnamed affiliates of the Company. The Shaner Complaint claims that the
Company's sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. The Company intends to defend the
action vigorously.
The Company also is a party to other litigation and arbitration proceedings in
the ordinary course of its business, none of which is expected to have a
material adverse effect on the Company.
The Registration Statement
A Registration Statement under the Securities Act of 1933 has been filed with
the Commission relating to the offering described in this Prospectus. This
Prospectus does not include all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the rules
and regulations of the Commission. The omitted information may be obtained at
the Commission's principal office in Washington, DC, upon payment of the
Commission's prescribed fees.
Distribution of the Policies
We offer the Policies through life insurance salespersons and certain home
office sales employees. Such persons are registered representatives of Aetna
Investment Services, Inc., a wholly owned subsidiary of the Company, (which is
a registered broker-dealer), or of other registered broker-dealers which have
entered into distribution agreements with the Company. For Corporate VUL, the
maximum commission payable by the Company to salespersons and their supervising
broker-
36
<PAGE>
dealers for Policy distribution is 50% of the guaranteed death benefit premium
to age 80, or, in the event of an increase in the specified amount, 50% of the
guaranteed death benefit premium to age 80, attributable to the increase.
For Corporate VUL II, maximum commission will equal 15% of the sum of
first-year premiums up to target premium. In policy years two through five,
maximum commission will equal 10% of the sum of premiums paid for each policy
year up to the target premium. During policy years one through five, we will
also pay a maximum of 3% of the sum of premiums paid each year in excess of the
target premium. For each of policy years six and seven, maximum commission will
equal 3% of the premiums paid, and an amount equal to .10% of the total account
value less any loan account value as of the end of each month. For policy year
eight and each year thereafter, maximum commission will equal .20% of total
account value less any loan account value as of the end of each month.
In particular circumstances, we may also pay certain of these professionals for
their administrative expenses. In addition, some sales personnel may receive
various types of non-cash compensation as special sales incentives, including
trips and educational and/or business seminars. However, all such compensation
will be in accordance with NASD rules. Supervisory and other management
personnel of the Company may receive compensation that will vary based on the
relative profitability of the Company of the funding options you select.
Funding options that invest in Funds advised by the Company or its affiliates
are generally more profitable to the Company. The Company may be deemed to be
an underwriter for purposes of the federal securities laws.
The registered representative may be required to return all or part of any
commission if the Policy is not continued for a certain period.
Application forms are completed by the applicant and forwarded to the Company
for acceptance. Upon acceptance, the Policy is prepared, executed by duly
authorized officers of the Company, and forwarded to the Policy owner.
Corporate VUL Policies are offered for sale in all jurisdictions where we are
authorized to do business except Guam, Puerto Rico, and the Virgin Islands.
We expect to offer Corporate VUL II Policies for sale in all jurisdictions
where we are authorized to do business except New York, and where the Policies
are approved by state regulators except Guam, Puerto Rico and the Virgin
Islands.
Records and Accounts
Andesa, TPA, Inc., Suite 502, 1605 N. Cedar Crest Boulevard, Allentown,
Pennsylvania, will act as a transfer agent on behalf of the Company as it
relates to the policies described in this Prospectus. In the role of a transfer
agent, Andesa will perform administrative functions, such as decreases,
increases, surrenders and partial surrenders, fund allocation changes and
transfers on behalf of the Company.
All records and accounts relating to the separate account and the Funds will be
maintained by the Company or its designee. All financial transactions will be
handled by the Company or its designee. All reports required to be made and
information required to be given will be provided by Andesa on behalf of the
Company.
Independent Auditors
KPMG LLP, CityPlace II, Hartford, Connecticut, were the independent auditors
for the Separate Account for the years ended 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 review of filings made with the SEC.
37
<PAGE>
Tax Matters
General
The following is a discussion of the federal income tax considerations relating
to the Policy. This discussion is based on the Company's understanding of
federal income tax laws as they now exist and are currently interpreted by the
Internal Revenue Service ("IRS"). These laws are complex, and tax results may
vary among individuals. A person or persons contemplating the purchase of or
the exercise of elections under the Policy described in this Prospectus should
seek competent tax advice.
Federal Tax Status of the Company
The Company is taxed as a life insurance company under the Code. The separate
account is not a separate entity from the Company. Therefore, the separate
account is not taxed separately as a "regulated investment company", but is
taxed as part of the Company. Investment income and realized capital gains
attributable to the separate account are automatically applied to increase
reserves under the policy. Because of this, under existing federal income tax
law we believe that any such income and gains will not be taxed to the extent
that such income and gains are applied to increase reserves under the policy.
In addition, any foreign tax credits attributable to the separate account will
first be used to reduce any income taxes imposed on the separate account before
being used by the Company.
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make
provisions for any such taxes. However, if changes in the federal tax laws or
their interpretation result in our being taxed on income or gains attributable
to the separate account, then we may impose a charge against the separate
account (with respect to the policy) to set aside provisions to pay such taxes.
Life Insurance Qualification
As described more fully on page 18, Section 7702 of the Code includes a
definition of life insurance for tax purposes. These rules generally place
limits on the amount of premiums payable under the contract and the level of
cash surrender value. In no event may the total of all premiums paid exceed the
then-current maximum premium limitations established by federal law for a
Policy to qualify as life insurance. If, at any time, a premium is paid which
would result in total premiums exceeding such maximum premium limitation, we
will only accept that portion of the premium which will make total premiums
equal the maximum. Any part of the premium in excess of that amount will be
returned or applied as otherwise agreed and no further premiums will be
accepted until allowed by the then-current maximum premium limitations
prescribed by law. The Secretary of the Treasury has been granted authority to
prescribe regulations to carry out the purposes of Section 7702, and proposed
regulations governing mortality charges were issued in 1991. The Company
believes that the Policy meets the statutory definition of life insurance. As
such, and assuming the diversification standards of Section 817(h) (discussed
below) are satisfied, then except in limited circumstances (a) death benefits
paid under the Policy should generally be excluded from the gross income of the
beneficiary for federal income tax purposes under Section 101(a)(1) of the
Code, and (b) a Policy owner should not generally be taxed on the cash value
under a Policy, including increments thereof, prior to actual receipt. The
principal exceptions to these rules are corporations that are subject to the
alternative minimum tax, and thus may be subject to tax on increments in the
Policy's total account value, and Policy owners who acquire a Policy in a
"transfer for value" and thus can become subject to tax on the portion of the
death benefit which exceeds the total of their cost of acquisition and
subsequent premium payments.
38
<PAGE>
The Company intends to comply with any future final regulations issued under
Sections 7702 and 817(h) of the Code, and therefore reserves the right to make
such changes as it deems necessary to ensure such compliance. Any such changes
will apply uniformly to affected policy owners and will be made only after
advance written notice.
General Rules
Upon the surrender or cancellation of any Policy, whether or not it is a
modified endowment contract, the Policy owner will be taxed on the surrender
value only to the extent that it exceeds the gross premiums paid less prior
untaxed withdrawals. The amount of any unpaid policy loans will, upon
surrender, be added to the surrender value and will be treated for this purpose
as if it had been received.
Assuming the Policy is not a modified endowment contract, the proceeds of any
partial surrenders are generally not taxable unless the total amount received
due to such surrenders exceeds total premiums paid less prior untaxed partial
surrender amounts. However, partial surrenders made within the first 15 policy
years may be taxable in certain limited instances where the surrender value
plus any unpaid Policy debt exceeds the total premiums paid less the untaxed
portion of any prior partial surrenders. This result may occur even if the
total amount of any partial surrenders does not exceed total premiums paid to
that date.
Loans received under the Policy will ordinarily be considered indebtedness of
the policy owner, and assuming the Policy is not considered a modified
endowment contract, policy loans will not be treated as current distributions
subject to tax. Generally, amounts of loan interest paid by individuals will be
considered nondeductible "personal interest."
Modified Endowment Contracts
A class of contracts known as "modified endowment contracts" has been created
under Section 7702A of the Code. The tax rules applicable to loan proceeds and
proceeds of a partial surrender of any Policy that is considered to be a
modified endowment contract will differ from the general rules noted above.
A contract will be considered a modified endowment contract if it fails the
"7-pay test." A Policy fails the 7-pay test if, at any time in the first seven
policy years, the amount paid into the Policy exceeds the amount that would
have been paid had the Policy provided for the payment of seven (7) level
annual premiums. In the event of a distribution under the Policy, the Company
will notify the Policy owner if the Policy is a modified endowment Contract.
In addition, each Policy is subject to the 7-pay test during the first seven
policy years following the time a material change takes effect. A material
change, for these purposes, includes the exchange of a life insurance policy
for another life insurance policy or the conversion of a term life insurance
policy into a whole life or universal life insurance policy. In addition, an
increase in the future benefits provided constitutes a material change unless
the increase is attributable to (1) the payment of premiums necessary to fund
the lowest death benefit payable in the first seven policy years or (2) the
crediting of interest or other earnings with respect to such premiums. A
reduction in death benefits during the first seven policy years may also cause
a Policy to be considered a modified endowment contract.
If the Policy is considered to be a modified endowment contract, the proceeds
of any partial surrenders, any policy loans and most assignments will be
currently taxable to the extent that the Policy's total account value
immediately before payment exceeds gross premiums paid (increased
39
<PAGE>
by the amount of loans previously taxed and reduced by untaxed amounts
previously received). These rules may also apply to policy loans or partial
surrender proceeds received during the two-year period prior to the time that a
Policy becomes a modified endowment contract. If the Policy becomes a modified
endowment contract, it may be aggregated with other modified endowment
contracts purchased by you from the Company (and its affiliates) during any one
calendar year for purposes of determining the taxable portion of withdrawals
from the Policy.
A penalty tax equal to 10% of the amount includable in income will apply to the
taxable portion of the proceeds of any policy surrender or policy loan received
by any policy owner of a modified endowment contract who is not an individual.
Taxable policy distributions made to an individual who has not reached the age
of 59 1/2 will also be subject to the penalty tax unless those distributions
are attributable to the individual becoming disabled, or are part of a series
of equal periodic payments made not less frequently than annually for the life
or life expectancy of such individual (i.e., an annuity).
Diversification Standards
Section 817(h) of the Code provides that separate account investments (or the
investments of a mutual fund, the shares of which are owned by separate
accounts of insurance companies) underlying the Policy must be "adequately
diversified" in accordance with Treasury regulations in order for the Policy to
qualify as life insurance. The Treasury Department has issued regulations
prescribing the diversification requirements in connection with variable
contracts. The Separate Account, through the Funds, intends to comply with
these requirements.
Investor Control
In certain circumstances, owners of variable contracts may be considered the
owners for federal income tax purposes of the assets of the separate account
used to support their contracts. In those circumstances, income and gains from
separate account assets would be includable in the variable policy owner's
gross income. In several rulings published prior to the enactment of Section
817(h), the IRS stated that a variable policy owner will be considered the
owner of separate account assets if the policy owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations under Section 817(h) concerning diversification,
that those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor (i.e., you), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which Policy owners may direct their investments to particular Funds
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from those described by the IRS in pre-Section 817(h) rulings in which
it was determined that Policy owners were not owners of separate account
assets. For example, a policy owner has additional flexibility in allocating
premium payments and account values. While the Company does not believe that
these differences would result in a policy owner being treated as the owner of
a pro rata portion of the assets of the separate account, there is no
regulation or ruling of the IRS that confirms this conclusion. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary or to limit the number of variable
40
<PAGE>
options available to attempt to prevent a policy owner from being considered
the owner of a pro rata share of the assets of the separate account.
Other Tax Considerations
Business-owned life insurance may be subject to certain additional rules.
Section 264(a)(1) of the Code generally prohibits employers from deducting
premiums on policies covering officers, employees or other financially
interested parties where the employer is a beneficiary under the Policy.
Additions to the Policy's total account value may also be subject to tax under
the corporation alternative minimum tax provisions. In addition, Section
264(a)(4) of the Code limits the policy owner's deduction for interest on loans
taken against life insurance covering the lives of officers, employees, or
others financially interested in the policy owner's trade or business. Under
current tax law, interest may generally be deducted on an aggregate total of
$50,000 of loans per covered life only with respect to life insurance policies
covering each officer, employee or others who may have a financial interest in
the policy owner's trade or business and are considered key persons.
Generally, a key person means an officer or a 20 percent owner. However, the
number of key persons will be limited to the greater of (a) 5 individuals, or
(b) the lesser of 5 percent of the total officers and employees of the taxpayer
or 20 individuals. Deductible interest for these contracts will be capped based
on applicable Moody's Corporate Bond Rate. Section 264(f) denies a deduction
for a portion of a policy owner's otherwise deductible interest that is
allocable to unborrowed policy cash values. The nondeductible interest amount
is the amount that bears the same ratio to such interest as the company's
average unborrowed cash values of life insurance and annuity policies issued
after June 8, 1997 bears to the sum of the average unborrowed cash values of
policies plus the average adjusted tax basis of other assets owned by the
company. This provision does not apply to policies in which the insured is a 20
percent owner, officer, director or employee of the business, including
policies jointly covering such individual and his or her spouse. The rule also
will not apply where the policy owner is a natural person, unless a trade or
business is directly or indirectly the beneficiary of the policy.
Depending on the circumstances, the exchange of a policy, a change in the
Policy's death benefit option, a policy loan, a full or partial surrender, a
change in ownership or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, estate,
inheritance and other tax consequences of policy ownership, premium payments
and receipt of policy proceeds depend on the circumstances of each Policy owner
or beneficiary. Any person concerned about these tax implications should
consult a competent tax advisor before initiating any transaction.
Miscellaneous Policy Provisions
The Policy
The Policy which you receive and the application you make when you purchase the
Policy are the whole contract. A copy of the application is attached to the
Policy when it is issued to you. Any application for changes, once approved by
us, will become part of the Policy.
Payment of Benefits
All benefits are payable at the Administrative Office. We may require
submission of the Policy before we grant loans, make changes or pay benefits.
41
<PAGE>
Age
If age is misstated on the application, the amount payable on death will be
that which would have been purchased by the most recent monthly deduction at
the current age.
Incontestability
We will not contest coverage under the Policy after the Policy has been in
force during the lifetime of the insured for a period of two years from the
Policy's date of issue. Our right to contest coverage is not affected by the
guaranteed death benefit provision.
For coverage which takes effect on a later date (e.g., an increase in
coverage), we will not contest such coverage after it has been in force during
the lifetime of the Insured more than two years from its effective date.
Suicide
In most states, if the Insured commits suicide within two years from the date
of issue, the only benefit paid will be the sum of:
a) premiums paid less amounts allocated to the separate account; and
b) the separate account value on the date of suicide, plus the portion of the
monthly deduction from the separate account value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the loan account value transferred to the separate account value, and any
surrenders from the fixed account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the monthly deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
You may, by written request at any time before the maturity date of this
Policy, elect to continue coverage beyond the maturity date. At Age 100, the
separate account value will be transferred to the Fixed Account. If coverage
beyond maturity is elected, we will continue to credit interest to the total
account value of this Policy. Monthly deductions will be calculated with a Cost
of Insurance rate equal to zero.
At this time, uncertainties exist regarding the tax treatment of the Policy
should it continue beyond the maturity date. You should therefore consult with
your tax advisor prior to making this election. (See "Tax Matters.")
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
42
<PAGE>
Appendix A
Illustrations of Death Benefit, Total Account Values and Surrender Values,
Corporate VUL
The following tables illustrate how the death benefit, total account values and
surrender values of a Policy change with the investment experience of the
variable funding options. The tables show how the death benefit, total account
values, and surrender values of a Policy issued to an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I, II, V and VI illustrate Policies issued on a unisex basis, age 45, in
the nonsmoker rate class for simplified issue underwriting. Tables III, IV, VII
and VIII illustrate Policies issued on a unisex basis, age 45 in the nonsmoker
rate class for guaranteed issue underwriting. Tables I through IV show values
under the guideline premium test for the definition of life insurance, and
Tables V through VIII show values under the cash value accumulation test for
the definition of life insurance. The death benefit, total account values, and
surrender values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a
period of years, but fluctuated above and below those averages for individual
policy years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through the eleventh columns illustrate the surrender values of each Policy
over the designated period. Tables I, III, V and VII assume that the maximum
Cost of Insurance allowable under the Policy are charged in all policy years.
These tables also assume that the maximum allowable mortality and expense risk
charge of 0.90% on an annual basis, the maximum allowable administrative
expense charge of 0.50% on an annual basis, and the maximum allowable premium
load of 10% up to the first year's guaranteed death benefit premium to age 80
and 5% over the guaranteed death benefit premium to age 80, are assessed in the
first policy year and 5% on all premium in all policy years thereafter. Tables
II, IV, VI and VIII assume that the current scale of Cost of Insurance rates
applies during all policy years. These tables also assume the current mortality
and expense risk charge of 0.70% on an annual basis for the first 10 policy
years and 0.20% for policy years 11 and thereafter, the current administrative
expense charge of 0.30% on an annual basis, and the current premium load of 7%
up to the first year's guaranteed death benefit premium to age 80 and 2% over
the guaranteed death benefit premium to age 80 are assessed in the first policy
year and 2% on all premium in all policy years thereafter.
The amounts shown for death benefit, surrender values, and total account values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
The investment advisory fees and other Fund expenses vary by Fund from 0.34% to
1.00%. A simple average of 0.71% has been used for the illustrations.
In addition, these values reflect the application of the mortality and expense
risk charge, premium load and administrative expense charge described above.
After deduction of these amounts, the illustrated net annual return is -2.11%,
3.89% and 9.89% on the maximum charge basis for all years.
43
<PAGE>
The illustrated net annual return on a current charge basis is -1.71%, 4.29%
and 10.29% for policy years 1-10 and -1.21%, 4.79% and 10.79% for policy years
11 and thereafter.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event,
the gross annual investment rate of return would have to exceed 0%, 6%, or 12%
by an amount sufficient to cover the tax charges in order to produce the death
benefit, total account values, and surrender values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums were allocated to Variable Life Account B, and if no policy
loans have been made. The tables are also based on the assumptions that the
Policy owner has not requested an increase or decrease in the specified amount
of the Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the specified amount or premium
requested, the proposed frequency of premium payments and any available riders
requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
44
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,362 3,618 3,875 3,085 3,341 3,598
2 12,460 500,000 500,000 500,000 6,822 7,560 8,332 6,486 7,224 7,996
3 19,146 500,000 500,000 500,000 10,081 11,526 13,099 9,782 11,228 12,800
4 26,176 500,000 500,000 500,000 13,130 15,506 18,196 12,532 14,907 17,598
5 33,558 500,000 500,000 500,000 15,971 19,496 23,656 15,458 18,983 23,143
6 41,309 500,000 500,000 500,000 18,579 23,470 29,490 18,152 23,043 29,063
7 49,448 500,000 500,000 500,000 20,936 27,409 35,718 20,596 27,067 35,376
8 57,994 500,000 500,000 500,000 23,020 31,279 42,353 22,763 31,023 42,097
9 66,967 500,000 500,000 500,000 24,799 35,049 49,412 24,628 34,878 49,241
10 76,388 500,000 500,000 500,000 26,253 38,690 56,920 26,253 38,690 56,920
15 131,051 500,000 500,000 500,000 27,676 53,890 102,482 27,878 53,690 102,482
20 200,816 500,000 500,000 500,000 16,045 58,957 165,484 16,045 58,957 165,484
25 289,856 0 500,000 500,000 0 40,357 255,461 0 40,357 255,461
30 403,496 0 0 500,000 0 0 399,454 0 0 399,454
20 (Age 65) 200,816 500,000 500,000 500,000 16,045 58,957 165,484 16,045 58,957 165,484
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
45
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,550 3,817 4,084 3,100 3,366 3,634
2 12,450 500,000 500,000 500,000 7,210 7,982 8,789 6,701 7,473 8,280
3 19,146 500,000 500,000 500,000 10,680 12,198 13,848 10,208 11,726 13,376
4 26,176 500,000 500,000 500,000 13,951 16,455 19,289 13,352 15,856 18,690
5 33,558 500,000 500,000 500,000 17,071 20,801 25,200 16,558 20,288 24,687
6 41,309 500,000 500,000 500,000 20,012 25,212 31,604 19,585 24,784 31,176
7 49,448 500,000 500,000 500,000 25,329 29,700 38,585 22,444 29,358 38,223
8 57,994 500,000 500,000 500,000 25,329 34,204 46,079 25,072 33,948 45,823
9 66,967 500,000 500,000 500,000 27,736 38,821 54,305 27,565 38,650 54,134
10 76,388 500,000 500,000 500,000 29,893 43,439 63,207 29,893 43,439 63,207
15 131,051 500,000 500,000 500,000 37,672 67,984 123,603 37,672 67,984 123,603
20 200,616 500,000 500,000 500,000 37,977 92,486 221,226 37,977 92,486 221,226
25 289,856 500,000 500,000 500,000 29,827 116,944 388,487 29,827 116,944 388,487
30 403,496 500,000 500,000 725,917 3,804 134,299 678,427 3,804 134,299 678,427
20 (Age 65) 200,816 500,000 500,000 500,000 37,977 92,486 221,226 37,977 92,486 221,226
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
46
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 3,945 4,237 4,530 3,636 3,927 4,220
2 13,671 500,000 500,000 500,000 8,011 8,860 9,746 7,636 8,484 9,370
3 21,330 500,000 500,000 500,000 11,865 13,536 15,350 11,532 13,202 15,017
4 29,163 500,000 500,000 500,000 15,501 18,256 21,373 14,834 17,588 20,705
5 37,388 500,000 500,000 500,000 18,919 23,020 27,855 18,347 22,448 27,283
6 46,023 500,000 500,000 500,000 22,097 27,805 34,820 21,620 27,328 34,343
7 55,090 500,000 500,000 500,000 25,017 32,592 42,299 24,635 32,210 41,918
8 64,611 500,000 500,000 500,000 27,654 37,351 50,322 27,368 37,065 50,035
9 74,608 500,000 500,000 500,000 29,982 42,054 58,919 29,791 41,863 58,728
10 85,105 500,000 500,000 500,000 31,981 46,675 68,136 31,981 46,675 68,136
15 146,005 500,000 500,000 500,000 36,308 67,655 125,662 38,308 67,655 125,662
20 223,781 500,000 500,000 500,000 27,314 80,641 210,002 27,314 80,641 210,002
25 322,831 0 500,000 500,000 0 73,956 340,972 0 73,956 340,972
30 448,539 0 500,000 605,807 0 21,964 567,109 0 21,984 567,109
20 (Age 65) 223,731 500,000 500,000 500,000 27,314 80,641 210,002 27,314 80,641 210,002
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
47
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 4,155 4,459 4,763 3,652 3,956 4,260
2 13,871 500,000 500,000 500,000 8,445 9,332 10,257 7,876 8,763 9,688
3 21,330 500,000 500,000 500,000 12,537 14,288 16,190 12,010 13,761 15,663
4 29,163 500,000 500,000 500,000 16,423 19,321 22,598 15,755 18,653 21,931
5 37,388 500,000 500,000 500,000 20,149 24,481 29,583 19,577 23,908 29,011
6 46,023 500,000 500,000 500,000 23,692 29,746 37,178 23,215 29,269 36,701
7 55,090 500,000 500,000 500,000 27,060 35,131 45,461 26,678 34,749 45,079
8 64,611 500,000 500,000 500,000 30,192 40,577 54,444 29,906 40,291 54,157
9 74,608 500,000 500,000 500,000 33,183 46,183 64,300 32,992 45,993 64,109
10 85,105 500,000 500,000 500,000 35,919 51,844 75,017 25,919 51,844 75,017
15 146,005 500,000 500,000 500,000 46,762 82,849 148,658 46,762 82,849 148,658
20 223,731 500,000 500,000 500,000 49,204 115,204 269,270 49,204 115,204 269,270
25 322,931 500,000 500,000 553,576 39,719 147,407 477,221 39,719 147,407 477,221
30 449,539 500,000 500,000 886,168 6,898 172,512 828,195 6,698 172,512 886,188
20 (Age 65) 223,731 500,000 500,000 500,000 49,204 115,204 269,270 49,204 115,204 269,270
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
48
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,362 3,618 3,875 3,065 3,341 3,598
2 12,450 500,000 500,000 500,000 6,822 7,560 8,332 6,486 7,224 7,996
3 19,146 500,000 500,000 500,000 10,081 11,526 13,099 9,782 11,228 12,800
4 26,176 500,000 500,000 500,000 13,130 15,506 18,196 12,532 14,907 17,598
5 33,558 500,000 500,000 500,000 15,971 19,496 23,656 15,458 18,983 23,143
6 41,309 500,000 500,000 500,000 18,579 23,470 29,490 18,152 23,043 29,063
7 49,448 500,000 500,000 500,000 20,938 27,409 35,718 20,596 27,067 35,376
8 57,994 500,000 500,000 500,000 23,020 31,279 42,353 22,763 31,023 42,097
9 66,967 500,000 500,000 500,000 24,799 35,049 49,412 24,626 34,878 49,241
10 76,388 500,000 500,000 500,000 26,253 38,690 56,920 26,253 38,690 56,920
15 131,051 500,000 500,000 500,000 27,878 53,890 102,482 27,878 53,890 102,482
20 200,816 500,000 500,000 500,000 16,045 58,957 165,484 16,045 58,957 165,484
25 289,856 0 500,000 500,000 0 40,357 255,461 0 40,357 255,461
30 403,496 0 0 570,511 0 0 396,188 0 0 396,188
20 (Age 65) 200,816 500,000 500,000 500,000 16,045 58,957 165,484 16,045 58,057 165,484
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
49
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$5,784.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - SIMPLIFIED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,073 500,000 500,000 500,000 3,550 3,817 4,084 3,100 3,366 3,634
2 12,450 500,000 500,000 500,000 7,210 7,982 8,789 6,701 7,473 8,280
3 19,146 500,000 500,000 500,000 10,680 12,198 13,848 10,208 11,726 13,376
4 26,176 500,000 500,000 500,000 13,951 16,455 19,289 13,352 15,856 18,690
5 33,558 500,000 500,000 500,000 17,071 20,801 25,200 16,558 20,288 24,687
6 41,309 500,000 500,000 500,000 20,012 25,212 31,604 19,585 24,784 31,176
7 49,448 500,000 500,000 500,000 22,786 29,700 38,565 22,444 29,358 38,223
8 57,994 500,000 500,000 500,000 25,329 34,204 46,079 25,072 33,948 45,823
9 66,967 500,000 500,000 500,000 27,736 38,821 54,305 27,565 38,650 54,134
10 76,388 500,000 500,000 500,000 29,893 43,439 63,207 29,893 43,439 63,207
15 131,051 500,000 500,000 500,000 37,672 67,984 123,603 37,672 67,984 123,603
20 200,816 500,000 500,000 500,000 37,977 92,486 221,226 37,977 92,486 221,226
25 289,856 500,000 500,000 617,864 29,827 116,944 386,178 29,627 116,944 386,178
30 403,496 500,000 500,000 933,059 3,804 134,299 647,958 3,804 134,299 647,958
20 (Age 65) 200,816 500,000 500,000 500,000 37,977 92,486 221,226 37,977 92,486 221,226
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
50
<PAGE>
Table VII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 3,945 4,237 4,530 3,636 3,927 4,220
2 13,871 500,000 500,000 500,000 8,011 8,860 9,746 7,636 8,484 9,370
3 21,330 500,000 500,000 500,000 11,865 13,536 15,350 11,532 13,202 15,017
4 29,163 500,000 500,000 500,000 15,501 18,256 21,373 14,834 17,588 20,705
5 37,388 500,000 500,000 500,000 18,919 23,020 27,855 18,347 22,448 27,283
6 46,023 500,000 500,000 500,000 22,097 27,805 34,820 21,620 27,328 34,343
7 55,090 500,000 500,000 500,000 25,017 32,592 42,299 24,635 32,210 41,918
8 64,611 500,000 500,000 500,000 27,654 37,351 50,322 27,368 37,065 50,035
9 74,608 500,000 500,000 500,000 29,982 42,054 58,919 29,791 41,863 58,728
10 85,105 500,000 500,000 500,000 31,981 46,876 68,136 31,981 46,675 68,136
15 146,005 500,000 500,000 500,000 36,308 67,655 125,662 36,308 67,855 125,662
20 223,731 500,000 500,000 500,000 27,314 80,841 210,002 27,314 80,641 210,002
25 322,931 0 500,000 544,406 0 73,956 340,255 0 73,956 340,255
30 449,539 0 500,000 763,805 0 21,984 530,421 0 21,984 530,241
20 (Age 65) 223,731 500,000 500,000 500,000 27,314 80,641 210,002 27,314 80,641 210,002
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
51
<PAGE>
Table VIII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE
POLICY(1)
UNISEX ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$6,444.00 ANNUAL PREMIUM
CASH VALUE ACCUMULATION TEST - GUARANTEED ISSUE
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit Total Account Value Surrender Value
Accumulated Gross Annual Investment Gross Annual Investment Gross Annual Investment
at Returns of Returns of Returns of
Policy 5% Interest ------------------------------- ------------------------------- -------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,766 500,000 500,000 500,000 4,155 4,459 4,763 3,652 3,956 4,260
2 13,871 500,000 500,000 500,000 8,445 9,332 10,257 7,876 8,763 9,688
3 21,330 500,000 500,000 500,000 12,537 14,288 16,190 12,010 13,761 15,663
4 29,163 500,000 500,000 500,000 16,423 19,321 22,596 15,755 18,653 21,931
5 37,386 500,000 500,000 500,000 20,149 24,481 29,583 19,577 23,908 29,011
6 46,023 500,000 500,000 500,000 23,692 29,748 37,178 23,215 29,269 36,701
7 55,090 500,000 500,000 500,000 27,060 35,131 45,461 26,578 34,749 45,079
8 64,611 500,000 500,000 500,000 30,192 40,577 54,444 29,906 40,291 54,157
9 74,606 500,000 500,000 500,000 33,183 46,183 64,300 32,992 45,993 64,109
10 85,105 500,000 500,000 500,000 35,919 51,844 75,017 25,919 51,844 75,017
15 146,005 500,000 500,000 500,000 46,762 82,849 148,658 46,762 82,849 148,658
20 223,731 500,000 500,000 500,000 49,204 115,204 269,270 49,204 115,204 269,270
25 322,931 500,000 500,000 746,308 39,719 147,407 466,442 39,719 147,407 466,442
30 449,539 500,000 500,000 1,110,294 6,898 172,512 771,037 6,698 172,512 771,037
20 (Age 65) 223,731 500,000 500,000 500,000 49,204 115,204 269,270 49,204 115,204 269,270
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
52
<PAGE>
Appendix B
ILLUSTRATION OF DEATH BENEFIT, TOTAL ACCOUNT VALUES, AND SURRENDER VALUES,
Corporate VUL II.
The following tables illustrate how the death benefit, total account values and
surrender values of a Policy change with the investment experience of the
variable funding options. The tables show how the death benefit, total account
values, and surrender values of a Policy issued to an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross, after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I, II, VII and VIII illustrate Policies issued on a unisex basis, age
45, in the preferred nonsmoker rate class for fully underwriting issue. Tables
III, IV, IX and X illustrate Policies issued on a unisex basis, age 45 in the
nonsmoker rate class for guaranteed issue underwriting. Tables V, VI, XI and
XII illustrate Policies issued on a unisex basis, age 45 in the nonsmoker rate
class for simplified issue underwriting. Tables I through VI show values under
the guideline premium test for the definition of life insurance, and Tables VII
through XII show values under the cash value accumulation test for the
definition of life insurance. The death benefit, total account values, and
surrender values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a
period of years, but fluctuated above and below those averages for individual
policy years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed interest rate of 5%. The third through fifth columns
illustrate the death benefit of a Policy over the designated period. The sixth
through eighth columns illustrate the total account values, while the ninth
through the eleventh columns illustrate the surrender values of each Policy
over the designated period. Tables I, III, V, VII, IX and XI assume that the
maximum Cost of Insurance allowable under the Policy are charged in all policy
years. These tables also assume that the maximum allowable mortality and
expense risk charge of 0.90% on an annual basis, the maximum allowable premium
load of 15% up to the first year's target premium and 6% over the target
premium, are assessed in the first policy year; the maximum allowable premium
load of 10% up to the second year's target premium and 6% over the target
premium, are assessed in the second through fifth policy year and 6% on all
premium in all policy years thereafter, and an assumed premium tax charge of
2.05% on all premium in all policy years.
Tables II, IV, VI, VIII, X and XII assume that the current scale of Cost of
Insurance rates applies during all policy years. These tables also assume the
current mortality and expense risk charge of 0.70% on an annual basis for the
first 10 policy years and 0.35% for policy years 11 and thereafter, the current
premium load of 10.5% up to the first year's target premium and 2.5% over the
target premium are assumed in the first policy year, the current premium load
of 7.5% up to the second through the fifth years' target premiums and 1.5% over
the target premiums are assumed in the second through the fifth policy years,
the current premium load of 3.5% up to the sixth and the seventh years' target
premiums and 1.5% over the target premiums are assumed in the sixth and the
seventh policy years, 1.5% on all premium in all policy years thereafter, and
an assumed premium tax charge of 2.20% on all premium in all policy years.
The amounts shown for death benefit, surrender values, and total account values
reflect the fact that the net investment return is lower than the gross, after
tax return on the assets held in each Fund as a result of expenses paid by each
Fund and Separate Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See the individual prospectuses for each Fund
for more information.
53
<PAGE>
In addition, these values reflect application of the mortality and expense risk
charge, premium load and assumed premium tax charge described above. After
deduction of these amounts, the illustrated net annual return is -1.61%, 4.39%
and 10.39% on a maximum charge basis for all years. The illustrated net annual
return on a current charge basis is -1.41%, 4.59% and 10.59% for policy years
1-10 and -1.06%, 4.94% and 10.94% for policy years 11 and thereafter.
The investment advisory fees and other Fund expenses vary by Fund from 0.34% to
1.00%. A simple average of 0.71% has been used for the illustrations.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event,
the gross annual investment rate of return would have to exceed 0%, 6%, or 12%
by an amount sufficient to cover the tax charges in order to produce the death
benefit, total account values, and surrender values illustrated.
The tables illustrate the policy values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all net premiums were allocated to Variable Life Account B, and if no Policy
loans have been made. The tables are also based on the assumptions that the
Policy owner has not requested an increase or decrease in the specified amount
of the Policy, and no partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the specified amount or premium
requested, the proposed frequency of premium payments and any available riders
requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
54
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 6,029 6,449 6,871 6,729 7,149 7,571
2 21,525 542,188 542,188 542,188 12,343 13,593 14,895 12,868 14,118 15,420
3 33,101 542,188 542,188 542,188 18,437 20,932 23,637 18,437 20,932 23,637
4 45,256 542,188 542,188 542,188 24,298 28,460 33,157 24,298 28,460 33,157
5 58,019 542,188 542,188 542,188 29,926 36,185 43,541 29,926 36,185 43,541
6 71,420 542,188 542,188 542,188 35,708 44,527 55,318 35,708 44,527 55,318
7 85,491 542,188 542,188 542,188 41,217 53,067 68,170 41,217 53,067 68,170
8 100,266 542,188 542,188 542,188 46,436 61,796 82,201 46,435 61,796 82,201
9 115,779 542,188 542,188 542,188 51,338 70,701 97,523 51,338 70,701 97,523
10 132,068 542,188 542,188 542,188 55,894 79,761 114,259 55,894 79,761 114,259
15 226,575 542,188 542,188 542,188 72,878 127,234 225,515 72,876 127,234 225,516
20 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
25 501,136 542,188 542,188 827,838 58,847 225,039 713,653 58,847 225,039 713,653
30 697,610 542,188 542,188 1,289,748 66 265,777 1,205,372 65 265,777 1,205,372
20 (Age 65) 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
55
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 7,647 8,140 8,634 8,347 8,840 9,334
2 21,525 542,188 542,188 542,188 15,276 16,757 18,297 15,801 17,262 18,822
3 33,101 542,188 542,188 542,188 22,605 25,573 28,787 22,605 25,573 28,787
4 45,256 542,188 542,188 542,188 29,661 34,625 40,220 29,661 34,625 40,220
5 58,019 542,188 542,188 542,188 36,478 43,955 52,734 36,478 43,956 52,734
6 71,420 542,188 542,188 542,188 43,479 54,029 66,922 43,479 54,029 66,922
7 85,491 542,188 542,188 542,188 50,287 64,481 82,548 50,287 64,481 62,548
8 100,266 542,188 542,188 542,188 57,107 75,549 100,002 57,107 75,549 100,002
9 115,779 542,188 542,188 542,188 63,730 87,045 119,260 63,730 87,045 119,260
10 132,068 542,188 542,188 542,188 70,134 98,971 140,506 70,134 98,971 140,506
15 226,575 542,188 542,188 542,188 99,272 167,397 289,052 99,272 167,397 289,052
20 347,193 542,188 542,188 661,391 120,979 251,019 542,124 120,979 251,019 542,124
25 501,136 542,188 542,188 1,122,224 138,205 359,669 967,434 138,205 359,669 967,434
30 697,610 542,188 542,188 1,794,448 144,268 502,786 1,677,054 144,288 502,786 1,677,054
20 (Age 65) 347,193 542,188 542,188 661,391 120,979 251,019 542,124 120,979 251,019 542,124
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
56
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE
POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 6,029 6,449 6,871 6,729 7,149 7,571
2 21,525 542,188 542,188 542,188 12,343 13,593 14,895 12,868 14,116 15,420
3 33,101 542,188 542,188 542,188 18,437 20,932 23,637 18,437 20,932 23,637
4 45,256 542,188 542,188 542,188 24,298 28,460 33,157 24,298 28,460 33,157
5 58,019 542,188 542,188 542,188 29,926 36,185 43,541 29,926 36,185 43,541
6 71,420 542,188 542,188 542,188 35,708 44,527 55,318 35,708 44,527 55,318
7 85,491 542,188 542,188 542,188 41,217 53,067 68,170 41,217 53,067 68,170
8 100,266 542,188 542,188 542,188 46,436 61,796 82,201 46,436 61,796 82,201
9 115,779 542,188 542,188 542,188 51,338 70,701 97,523 51,338 70,701 97,523
10 132,068 542,188 542,188 542,188 55,894 79,761 114,259 55,894 79,761 114,259
15 226,575 542,188 542,188 542,188 72,878 127,234 225,515 72,878 127,234 225,515
20 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
25 501,136 542,188 542,188 827,838 58,847 225,039 713,653 68,847 225,039 713,653
30 697,610 542,188 542,188 1,289,748 66 265,777 1,205,372 66 265,777 1,205,372
20 (Age 65) 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
57
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 7,297 7,779 8,261 7,997 8,479 8,961
2 21,525 542,188 542,188 542,188 14,682 16,122 17,622 15,207 16,647 16,147
3 33,101 542,188 542,188 542,188 21,864 24,749 27,875 21,864 24,749 27,876
4 45,256 542,188 542,188 542,188 28,850 33,661 39,126 28,850 33,681 39,126
5 58,019 542,188 542,188 542,188 35,647 42,937 51,491 35,647 42,937 51,491
6 71,420 542,188 542,188 542,188 42,653 52,954 65,538 42,653 52,954 65,538
7 85,491 542,188 542,188 542,188 49,462 63,346 81,005 49,462 63,346 81,005
8 100,266 542,188 542,188 542,188 56,292 74,328 93,261 56,292 74,328 98,261
9 115,779 542,188 542,188 542,188 62,834 85,704 117,269 62,834 85,704 117,269
10 132,068 542,188 542,188 542,188 69,156 97,473 138,210 69,156 97,473 138,210
15 226,575 542,188 542,188 542,188 97,657 164,747 284,423 97,657 164,747 284,423
20 347,193 542,188 542,188 650,866 117,909 246,207 533,497 117,909 246,207 533,497
25 501,136 542,188 542,188 1,104,100 131,897 351,029 951,811 131,897 351,029 951,811
30 697,610 542,188 542,188 1,764,304 132,509 489,010 1,648,882 132,509 489,010 1,648,882
20 (Age 65) 347,193 542,188 542,188 650,866 86,207 246,207 533,497 88,207 246,207 533,497
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
58
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 6,029 6,449 6,871 6,729 7,149 7,571
2 21,525 542,188 542,188 542,188 12,343 13,593 14,895 12,868 14,118 15,420
3 33,101 542,188 542,188 542,188 18,437 20,932 23,637 18,437 20,932 23,637
4 45,256 542,188 542,188 542,188 24,298 28,460 33,157 24,298 28,460 33,157
5 58,019 542,188 542,188 542,188 29,926 36,185 43,541 29,926 36,185 43,541
6 71,420 542,188 542,188 542,188 35,708 44,527 55,318 35,708 44,527 55,318
7 85,491 542,188 542,188 542,188 41,217 53,067 68,170 41,217 53,067 68,170
8 100,266 542,188 542,188 542,188 46,436 61,796 82,201 46,436 61,796 82,201
9 115,779 542,188 542,188 542,188 51,338 70,701 97,523 51,338 70,701 97,523
10 132,068 542,188 542,188 542,188 55,894 79,761 114,259 55,894 79,761 114,259
15 226,575 542,188 542,188 542,188 72,878 127,234 225,515 72,878 127,234 225,515
20 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
25 501,136 542,188 542,188 827,838 58,847 225,039 713,653 58,847 225,039 713,653
30 697,610 542,188 542,188 1,289,748 66 265,777 1,205,372 66 265,777 1,205,372
20 (Age 65) 347,193 542,188 542,188 542,188 76,940 177,003 408,271 76,940 177,003 408,271
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
59
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$10,000.00 ANNUAL PREMIUM
GUIDELINE PREMIUM TEST
FACE AMOUNT $542,188
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 542,188 542,188 542,188 7,495 7,983 8,471 8,195 8,683 9,171
2 21,525 542,188 542,188 542,188 15,072 16,537 18,061 15,597 17,062 18,586
3 33,101 542,188 542,188 542,188 22,440 25,379 28,583 22,440 25,379 28,563
4 45,256 542,188 542,188 542,188 29,603 34,530 40,082 29,603 34,530 40,082
5 58,019 542,188 542,188 542,188 36,565 44,004 52,731 36,565 44,004 52,731
6 71,420 542,188 542,188 542,188 43,719 54,236 67,076 43,719 54,236 67,076
7 85,491 542,188 542,188 542,188 50,658 64,833 82,854 50,658 64,833 82,864
8 100,266 542,188 542,188 542,188 57,564 76,008 100,430 57,564 76,008 100,430
9 115,779 542,188 542,188 542,188 64,214 87,558 119,765 64,214 87,558 119,765
10 132,068 542,188 542,188 542,188 70,581 99,477 141,036 70,581 99,477 141,035
15 226,575 542,188 542,188 542,188 98,672 167,023 289,037 98,672 167,023 289,037
20 347,193 542,188 542,188 659,928 117,873 248,298 540,925 117,873 248,293 540,925
25 501,136 542,188 542,188 1,118,303 131,631 353,685 964,054 131,631 363,685 964,054
30 697,610 542,188 542,188 1,786,111 132,260 492,755 1,669,263 132,260 492,755 1,669,263
20 (Age 65) 347,193 542,188 542,188 659,928 117,873 243,298 540,925 117,873 248,298 540,925
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
60
<PAGE>
Table VII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE
POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 18,017 19,165 20,313 19,767 20,915 22,063
2 53,813 497,803 497,803 497,803 36,923 40,429 44,075 38,235 41,741 45,388
3 82,754 497,803 497,803 497,803 55,471 62,584 70,276 55,471 62,584 70,276
4 113,142 497,803 497,803 497,803 73,661 85,668 99,176 73,661 85,668 99,176
5 145,049 497,803 497,803 497,803 91,503 109,738 131,085 91,503 109,738 131,065
6 178,551 497,803 497,803 497,803 109,990 135,893 167,448 109,990 135,893 167,448
7 213,729 497,803 497,803 497,803 128,133 163,183 207,495 128,113 163,183 207,495
8 224,415 497,803 497,803 497,803 123,859 168,311 226,900 123,859 168,311 226,900
9 235,636 497,803 497,803 497,803 119,449 173,514 248,041 119,449 173,514 248,041
10 247,418 497,803 497,803 658,103 114,349 178,776 271,051 114,849 178,776 271,051
15 315,775 497,803 497,803 880,790 88,100 205,694 419,962 88,100 205,694 419,962
20 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
25 514,362 0 497,803 1,572,271 0 253,385 970,416 0 253,385 970,416
30 656,471 0 497,803 2,093,912 0 261,500 1,438,165 0 261,500 1,438,165
20 (Age 65) 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
61
<PAGE>
Table VIII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE
POLICY
UNISEX ISSUE AGE 45 PREFERRED NONSMOKER RISK
FULLY UNDERWRITTEN
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 20,653 21,936 23,219 22,403 23,686 24,969
2 53,813 497,803 497,803 497,803 41,600 45,508 49,570 42,913 46,820 50,882
3 82,754 497,803 497,803 497,803 62,121 70,035 78,593 62,121 70,035 76,593
4 113,142 497,803 497,803 497,803 82,252 95,601 110,616 82,252 95,601 110,616
5 145,049 497,803 497,803 497,803 102,030 122,293 146,012 102,030 122,293 146,012
6 178,551 497,803 497,803 511,847 122,479 151,260 186,292 122,479 151,250 186,292
7 213,729 497,803 497,803 614,008 142,625 181,582 230,592 142,625 181,562 230,592
8 224,415 497,803 497,803 653,966 139,146 188,567 253,351 139,146 188,557 253,351
9 235,636 497,803 497,803 696,637 135,607 195,819 278,339 135,607 195,819 278,339
10 247,418 497,803 497,803 742,358 131,985 203,346 305,752 131,985 203,346 305,752
15 315,775 497,803 521,904 1,037,362 113,535 246,844 494,615 113,535 248,844 494,615
20 403,017 497,803 554,345 1,456,044 89,209 302,880 795,545 89,209 302,880 795,545
25 514,362 497,803 599,462 2,080,671 60,512 369,992 1,284,204 60,512 369,992 1,284,204
30 656,471 497,803 655,601 3,006,790 18,610 450,287 2,065,159 18,610 450,287 2,065,159
20 (Age 65) 403,017 497,803 554,345 1,456,044 89,209 302,880 795,545 89,209 302,880 795,545
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
62
<PAGE>
Table IX
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 18,017 19,165 20,313 19,767 20,915 22,063
2 53,813 497,803 497,803 497,803 36,923 40,429 44,075 38,235 41,741 45,388
3 82,754 497,803 497,803 497,803 55,471 62,584 70,276 55,471 62,584 70,276
4 113,142 497,803 497,803 497,803 73,861 85,668 99,176 73,661 85,668 99,176
5 145,049 497,803 497,803 497,803 91,503 109,738 131,065 91,503 109,738 131,085
6 178,551 497,803 497,803 497,803 109,990 135,893 167,448 109,990 135,893 167,448
7 213,729 497,803 497,803 497,803 128,113 163,183 207,495 126,113 163,183 207,495
8 224,415 497,803 497,803 497,803 123,859 168,311 226,900 123,859 168,311 226,900
9 235,636 497,803 497,803 497,803 119,449 173,514 246,041 119,449 173,514 246,041
10 247,418 497,803 497,803 658,103 114,849 178,776 271,051 114,849 178,776 271,051
15 315,775 497,803 497,803 880,790 86,100 205,694 419,962 88,100 205,694 419,962
20 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
25 514,362 0 497,803 1,572,271 0 253,385 970,416 0 253,385 970,416
30 656,471 0 497,803 2,093,912 0 261,500 1,438,165 0 261,500 1,438,165
20 (Age 65) 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
63
<PAGE>
Table X
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
GUARANTEED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 20,341 21,613 22,887 22,091 23,363 24,637
2 53,813 497,803 497,803 497,803 41,077 44,949 48,976 42,390 46,262 50,289
3 82,754 497,803 497,803 497,803 61,475 69,319 77,801 61,475 69,319 77,801
4 113,142 497,803 497,803 497,803 81,549 94,785 109,674 81,549 94,785 109,674
5 145,049 497,803 497,803 497,803 101,313 121,415 144,945 101,313 121,415 144,945
6 178,551 497,803 497,803 503,592 121,766 150,325 185,108 121,766 150,325 185,108
7 213,729 497,803 497,803 610,525 141,914 180,586 229,284 141,914 180,586 229,284
8 224,415 497,803 497,803 650,196 138,422 187,514 251,891 138,422 187,514 251,891
9 235,636 497,803 497,803 692,540 134,845 194,684 276,682 134,645 194,684 276,682
10 247,418 497,803 497,803 737,732 131,160 202,094 303,847 131,160 202,094 303,847
15 315,775 497,803 517,628 1,029,055 112,181 246,805 490,655 112,161 246,805 490,655
20 403,017 497,803 548,082 1,439,872 86,490 299,458 786,709 86,490 299,458 786,709
25 514,362 497,803 589,495 2,046,492 54,423 363,840 1,263,108 54,423 363,840 1,263,108
30 656,471 497,803 640,487 2,938,113 6,224 439,907 2,017,990 6,224 439,907 2,017,990
20 (Age 65) 403,017 407,803 546,082 1,439,872 86,490 299,458 786,709 86,490 299,458 786,709
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
64
<PAGE>
Table XI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
GUARANTEED INSURANCE COSTS ANS MAXIMUM CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest ------------------------------- ------------------------------- --------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 18,017 19,165 20,313 19,767 20,915 22,063
2 53,813 497,803 497,803 497,803 36,923 40,429 44,075 38,235 41,741 45,388
3 82,754 497,803 497,803 497,803 55,471 62,584 70,276 55,471 62,584 70,276
4 113,142 497,803 497,803 497,803 73,661 85,668 99,176 73,661 85,668 99,176
5 145,049 497,803 497,803 497,803 91,503 109,738 131,085 91,503 109,738 131,085
6 178,551 497,803 497,803 497,803 109,990 135,893 167,448 109,990 135,893 167,448
7 213,729 497,803 497,803 497,803 128,113 163,183 207,495 128,113 163,183 207,495
8 224,415 497,803 497,803 497,803 123,859 168,311 226,900 123,859 168,311 225,900
9 235,636 497,803 497,803 497,803 119,449 173,514 248,041 119,449 173,514 246,041
10 247,418 497,803 497,803 658,103 114,849 178,776 271,051 114,849 178,776 271,051
15 315,775 497,803 497,803 880,790 88,100 205,694 419,962 88,100 205,694 419,962
20 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
25 514,362 0 497,803 1,572,271 0 253,385 970,416 0 253,385 970,416
30 656,471 0 497,803 2,093,912 0 261,500 1,438,165 0 261,500 1,438,165
20 (Age 65) 403,017 497,803 497,803 1,177,612 50,834 232,073 643,417 50,834 232,073 643,417
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges,
and premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
65
<PAGE>
Table XII
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE II INSURANCE
POLICY
UNISEX ISSUE AGE 45 NONSMOKER RISK
SIMPLIFIED ISSUE
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
$25,000.00 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value Cash Surrender Value
at Return of Annual Investment Return of Annual Investment Return of
Policy 5% Interest --------------------------------- --------------------------------- ----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ----------- -------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 497,803 497,803 497,803 20,517 21,795 23,074 22,267 23,545 24,824
2 53,813 497,803 497,803 497,803 41,420 45,313 49,361 42,732 46,626 50,674
3 82,754 497,803 497,803 497,803 61,973 69,862 78,392 61,973 69,862 78,392
4 113,142 497,803 497,803 497,803 82,190 95,505 110,480 82,190 95,505 110,480
5 145,049 497,803 497,803 497,803 102,082 122,304 145,971 102,082 122,304 145,971
6 178,551 497,803 497,803 512,012 122,647 151,373 186,353 122,647 151,373 183,353
7 213,729 497,803 497,803 614,464 142,887 181,781 230,763 142,887 181,781 230,763
8 224,415 497,803 497,803 654,646 139,472 188,848 253,615 139,472 188,848 253,615
9 235,636 497,803 497,803 697,481 135,963 196,145 278,656 135,953 196,145 278,656
10 247,418 497,803 497,803 743,128 132,302 203,667 306,070 132,302 203,667 306,070
15 315,775 497,803 521,291 1,035,573 112,975 248,552 493,762 112,975 246,552 493,762
20 403,017 497,803 550,706 1,445,690 86,311 300,391 789,888 88,311 300,391 789,888
25 514,362 497,803 592,075 2,053,914 54,010 365,432 1,267,689 54,010 365,432 1,267,689
30 656,471 497,803 643,318 2,948,835 5,825 441,851 2,025,388 5,825 441,851 2,025,388
20 (Age 65) 403,017 497,803 550,706 1,445,690 86,311 300,891 789,888 86,311 300,891 789,888
</TABLE>
If premiums are paid more frequently than annually, the death benefits, total
account values, and cash surrender values would be less than those illustrated.
If a larger premium is paid, the surrender value as a percentage of the total
account value will be greater than or equal to those illustrated. If a smaller
premium is paid, the surrender value as a percentage of the total account value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments results. Actual investment results
may be more or less than those shown and will depend on a number of factors
including the Policy owner's allocations, and the Fund's rate of return. The
total account value and cash value for a Policy would be different from those
shown in the actual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below those averages for individual
policy years. No representations can be made that these rates of return will
definitely be achieved for any one year or sustained over a period of time.
66
<PAGE>
FINANCIAL STATEMENTS
VARIABLE LIFE ACCOUNT B
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities.....................................................S-2
Statements of Operations and Changes in Net Assets......................................S-5
Notes to Financial Statements...........................................................S-6
Independent Auditors Report.............................................................S-19
</TABLE>
S-1
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Total
Shares Cost Assets
--------- ------------ ------------
<S> <C> <C> <C>
Aetna Ascent VP 210,193 $ 3,021,614 $ 3,136,076
Aetna Balanced VP, Inc. 1,840,829 28,411,306 28,661,711
Aetna Bond VP 1,585,677 20,656,384 19,297,688
Aetna Crossroads VP 173,950 2,335,123 2,395,290
Aetna Growth and Income VP 5,612,663 185,527,276 172,252,616
Aetna Growth VP 3,353 52,285 58,067
Aetna Index Plus Large Cap VP 984,575 18,690,522 20,548,071
Aetna Legacy VP 89,319 1,115,863 1,115,594
Aetna Money Market VP 2,865,679 38,252,424 38,443,372
Aetna Small Company VP 38,381 525,384 634,048
Aetna Value Opportunity VP 8,229 130,042 135,120
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 1,233,869 30,324,637 31,722,779
Growth Portfolio 370,659 16,510,133 20,360,310
High Income Portfolio 95,391 1,092,091 1,078,868
Overseas Portfolio 165,315 3,310,781 4,536,234
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 92,841 1,602,587 1,733,346
Contrafund Portfolio 996,741 22,982,190 29,054,986
Janus Aspen Series:
Aggressive Growth Portfolio 962,665 45,420,154 57,461,476
Balanced Portfolio 800,621 18,485,162 22,353,327
Flexible Income Portfolio 5,978 69,472 68,267
Growth Portfolio 1,017,622 26,378,071 34,242,981
Worldwide Growth Portfolio 1,381,919 46,635,796 65,986,620
MFS Variable Insurance Trust:
Total Return Series 639 11,219 11,344
World Government Series 198 2,000 1,984
Oppenheimer Funds:
Aggressive Growth Fund 8,969 728,396 738,203
Global Securities Fund 19,315 516,931 645,319
Growth & Income Fund 12,694 303,537 312,661
Strategic Bond Fund 264,204 1,274,694 1,313,094
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 419,434 28,129,870 34,741,713
PPI MFS Research Growth Portfolio 1,075,876 13,315,190 15,901,444
PPI MFS Value Equity Portfolio 53,473 2,451,631 2,928,730
PPI Scudder International Growth Portfolio 959,535 21,745,757 24,458,534
PPI T. Rowe Price Growth Equity Portfolio 36,443 1,968,414 2,405,261
------------ ------------
TOTAL ASSETS $581,976,936 $638,735,134
============ ============
Net assets represented by:
Policyholders' account values: (Notes 1 and 5)
Aetna Ascent VP
Policyholders' account values ......................................................... $ 3,136,076
Aetna Balanced VP, Inc.
Policyholders' account values ......................................................... 28,661,711
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999 (continued):
<TABLE>
<S> <C>
Aetna Bond VP
Policyholders' account values ........................ $19,297,688
Aetna Crossroads VP
Policyholders' account values ........................ 2,395,290
Aetna Growth and Income VP
Policyholders' account values ........................ 172,252,616
Aetna Growth VP
Policyholders' account values ........................ 58,067
Aetna Index Plus Large Cap VP
Policyholders' account values ........................ 20,548,071
Aetna Legacy VP
Policyholders' account values ........................ 1,115,594
Aetna Money Market VP
Policyholders' account values ........................ 38,443,372
Aetna Small Company VP
Policyholders' account values ........................ 634,048
Aetna Value Opportunity VP
Policyholders' account values ........................ 135,120
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio
Policyholders' account values ....................... 31,722,779
Growth Portfolio
Policyholders' account values ....................... 20,360,310
High Income Portfolio
Policyholders' account values ....................... 1,078,868
Overseas Portfolio
Policyholders' account values ....................... 4,536,234
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio
Policyholders' account values ....................... 1,733,346
Contrafund Portfolio
Policyholders' account values ....................... 29,054,986
Janus Aspen Series:
Aggressive Growth Portfolio
Policyholders' account values ....................... 57,461,476
Balanced Portfolio
Policyholders' account values ....................... 22,353,327
Flexible Income Portfolio
Policyholders' account values ....................... 68,267
Growth Portfolio
Policyholders' account values ....................... 34,242,981
Worldwide Growth Portfolio
Policyholders' account values ....................... 65,986,620
MFS Variable Insurance Trust:
Total Return Series
Policyholders' account values ....................... 11,344
World Government Series
Policyholders' account values ....................... 1,984
Oppenheimer Funds:
Aggressive Growth Fund
Policyholders' account values ....................... 738,203
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statement of Assets and Liabilities -- December 31, 1999 (continued):
<TABLE>
<S> <C>
Global Securities Fund
Policyholders' account values ......... $ 645,319
Growth & Income Fund
Policyholders' account values ......... 312,661
Strategic Bond Fund
Policyholders' account values ......... 1,313,094
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio
Policyholders' account values ......... 34,741,713
PPI MFS Research Growth Portfolio
Policyholders' account values ......... 15,901,444
PPI MFS Value Equity Portfolio
Policyholders' account values ......... 2,928,730
PPI Scudder International Growth Portfolio
Policyholders' account values ......... 24,458,534
PPI T. Rowe Price Growth Equity Portfolio
Policyholders' account values ......... 2,405,261
------------
$638,735,134
============
</TABLE>
See accompanying notes to financial statements.
S-4
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ................................................... $ 48,867,068 $ 43,340,466 $ 35,222,623
Expenses: (Notes 2 and 5)
Valuation period deduction .................................. (5,991,275) (4,390,578) (2,713,203)
-------------- ------------- -------------
Net Investment Income ........................................ 42,875,793 38,949,888 32,509,420
-------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ......................................... 874,382,151 481,590,756 260,329,704
Cost of investments sold .................................... 793,957,391 454,360,016 245,858,726
-------------- ------------- -------------
Net realized gain .......................................... 80,424,760 27,230,740 14,470,978
Net unrealized gain on investments: (Note 5)
Beginning of year ........................................... 29,609,254 16,987,228 14,132,669
End of year ................................................. 56,758,198 29,609,254 16,987,228
-------------- ------------- -------------
Net change in unrealized gain .............................. 27,148,944 12,622,026 2,854,559
-------------- ------------- -------------
Net realized and unrealized gain on investments .............. 107,573,704 39,852,766 17,325,537
-------------- ------------- -------------
Net increase in net assets resulting from operations ......... 150,449,497 78,802,654 49,834,957
-------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM UNIT TRANSACTIONS:
Variable life premium payments ............................... 135,305,924 171,088,399 127,736,110
Transfers to the Company for monthly deductions .............. (32,799,767) (29,899,398) (21,545,914)
Redemptions by policyholders ................................. (162,896,593) (15,359,273) (24,062,185)
Transfers on account of policy loans ......................... (4,913,122) (4,006,080) (2,875,077)
Other ........................................................ 779,888 (342,142) 263,373
-------------- ------------- -------------
Net increase (decrease) in net assets resulting from unit
transactions (Note 5) ....................................... (64,523,670) 121,481,506 79,516,307
-------------- ------------- -------------
Net changes in net assets .................................... 85,925,827 200,284,160 129,351,264
NET ASSETS:
Beginning of period .......................................... 552,809,307 352,525,147 223,173,883
-------------- ------------- -------------
End of period ................................................ $ 638,735,134 $ 552,809,307 $ 352,525,147
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
S-5
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999
1. Summary of Significant Accounting Policies & Account Information
Variable Life Account B (the "Account") is a separate account established
by Aetna Life Insurance and Annuity Company (the "Company") and is
registered under the Investment Company Act of 1940 as a unit investment
trust. The Account is sold exclusively for use with variable life insurance
product contracts as defined under the Internal Revenue Code of 1986, as
amended. The Variable Account consists of eight products which are listed
below.
o Aetna Vest
o Aetna Vest II
o Aetna Vest Plus
o Aetna Vest Estate Protector
o Aetna Vest Estate Protector II
o Corporate Specialty Market
o Corporate Specialty Market II
o NYSUT Individual Life
Effective October 1, 1998, Aetna Life Insurance Company and Aetna Life
Insurance & Annuity Company contracted the administrative servicing
obligations to its individual variable life business to The Lincoln
National Life Insurance Company (Lincoln Life) and Lincoln Life & Annuity
Company of New York (LLANY). Although the Company is responsible for all
policy terms and conditions, Lincoln Life and LLANY are responsible for
servicing the individual life contracts, including the payment of benefits,
oversight of investment management and contract administration. The assets
of the Variable Account are owned by Lincoln Life. The portion of the
Variable Account's assets supporting the variable life policies may not be
used to satisfy liabilities arising out of any other business of Lincoln
Life.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following funds are stated at the closing net asset
value per share as determined by each fund on December 31, 1999:
<TABLE>
<S> <C>
Aetna Ascent VP Janus Aspen Series:
Aetna Balanced VP, Inc. o Aggressive Growth Portfolio
Aetna Bond VP o Balanced Portfolio
Aetna Crossroads VP o Flexible Income Portfolio
Aetna Growth and Income VP o Growth Portfolio
Aetna Growth VP o Worldwide Growth Portfolio
Aetna Index Plus Large Cap VP MFS Variable Insurance Trust:
Aetna Legacy VP o Total Return Series
Aetna Money Market VP o World Government Series
Aetna Small Company VP Oppenheimer Funds:
Aetna Value Opportunity VP o Aggressive Growth Fund
Fidelity Investments o Global Securities Fund
Insurance Products Fund: o Growth & Income Fund
o Equity-Income Portfolio o Strategic Bond Fund
o Growth Portfolio Portfolio Partners Inc. (PPI):
o High Income Portfolio o PPI MFS Emerging Equities Portfolio
o Overseas Portfolio o PPI MFS Research Growth Portfolio
Fidelity Investments Variable Insurance o PPI MFS Value Equity Portfolio
Products Fund II: o PPI Scudder International Growth Portfolio
o Asset Manager Portfolio o PPI T. Rowe Price Growth Equity Portfolio
o Contrafund Portfolio
</TABLE>
S-6
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operation of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended. The Account will not be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code. Under current federal income tax law, no federal income taxes
are payable with respect to the Variable Account's net investment income
and the net realized gain on investments.
2. Mortality & Expense Guarantees & Other Transactions with Affiliates
The Company charges each variable sub-account for mortality and expense
risk. The amount charged is deducted daily at rates per year specified in
each policy.
The Company deducts a premium load from each premium payment to cover
administration expenses, state taxes, and Federal income tax liabilities.
The percentage deducted from each premium payment is specified in each
policy.
The Company charges monthly administrative fees for items such as
underwriting and issuance, premium billing and collection, policy value
calculation, confirmations and periodic reports. The amount of the monthly
administrative fees are specified in each policy.
The Company charges a monthly deduction for the cost of insurance and any
charges for supplemental riders. The cost of insurance charge is equal to
the amount at risk multiplied by a monthly cost of insurance rate. The cost
of insurance rate is variable and is based on the insured's issue age, sex
(where permitted by law), number of policy years elapsed and premium class.
Under certain circumstances, the Company reserves the right to charge a
transfer fee between sub-accounts. The amount of the transfer fee is
specified in each policy.
The Company, upon full surrender of a policy, may charge a surrender
charge. This charge is in part a deferred sales charge and in part a
recovery of certain first year administrative costs. The amount of the
surrender charge, if any, will depend on the specified amount, insured's
age, risk class and sex (where permitted by law). The maximum surrender
charges are included in each policy and are in compliance with each state's
nonforfeiture law.
3. Dividend Income
On an annual basis, the underlying mutual funds in which the Account
invests distribute substantially all of their taxable income and realized
capital gains to their shareholders. Distributions paid to the Account are
automatically reinvested in shares of the underlying mutual funds. The
Account's proportionate share of each underlying mutual fund's
undistributed net investment income and accumulated net realized gain
(loss) on investments is included in net unrealized gain (loss) on
investments in the Statements of Operations and Changes in Net Assets of
the Account.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1999, 1998 and 1997
aggregated $852,734,274 and $874,382,151, $642,022,151 and $481,590,756,
and $372,335,431 and $260,329,704, respectively.
S-7
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds
Period from
Dividends Deductions Sales
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: $ 207,334 ($27,423) $ 797,996
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 4,927,154 (362,224) 24,237,521
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Bond VP 1,443,656 (280,638) 18,417,017
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 150,412 (21,636) 728,894
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 30,198,699 (1,580,938) 32,617,948
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 3,015 (34,261) 5,715,725
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 881,321 (196,915) 14,299,931
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Legacy VP 62,497 (9,474) 227,116
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Money Market VP 1,696,087 (398,471) 240,430,804
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Small Company VP 8,993 (28,237) 4,384,995
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 6,310 (991) 96,462
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 1,764,504 (369,449) 17,136,392
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio 2,197,635 (205,229) 16,307,193
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
High Income Portfolio 62,986 (7,432) 326,086
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio 125,931 (32,249) 1,315,907
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 232,267 (29,020) 2,871,385
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio 1,565,873 (381,504) 26,236,688
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 1,087,970 (302,514) 130,280,210
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio 550,807 (265,810) 17,853,236
Policyholders' account values
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized
Gain (Loss)
Cost of Net -----------
Investments Realized Beginning End
Sold Gain (Loss) of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: $ 774,178 $ 23,818 ($53,438) $ 114,462
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 25,666,801 (1,429,280) (88,169) 250,405
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP 18,670,143 (253,126) (21,056) (1,358,696)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 729,509 (615) (13,664) 60,167
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 29,355,401 3,262,547 (6,059,944) (13,274,660)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 5,103,503 612,222 - 5,782
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 11,770,545 2,529,386 1,027,911 1,857,549
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 226,972 144 (9,107) (269)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP 240,018,029 412,775 267,256 190,948
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 3,960,970 424,025 (23,492) 108,664
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 76,961 19,501 12,485 5,078
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio 15,738,454 1,397,938 2,106,941 1,398,142
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 12,435,135 3,872,058 3,937,336 3,850,177
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
High Income Portfolio 352,715 (26,629) (22,754) (13,223)
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio 1,200,968 114,939 190,775 1,225,453
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio 2,692,023 179,362 266,952 130,759
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio 20,796,590 5,440,098 5,961,343 6,072,796
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 109,911,278 20,368,932 3,818,015 12,041,322
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 12,910,893 4,942,343 3,434,432 3,868,165
Policyholders' account values
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Net Increase Net Assets
Change in (Decrease) in ------------------------------
Unrealized Net Assets Resulting Beginning End
Gain (Loss) From Unit Transactions of Period of Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: $ 167,900 ($13,121)
Policyholders' account values $ 2,777,568 $ 3,136,076
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 338,574 (8,902,224)
Policyholders' account values 34,089,711 28,661,711
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1,337,640) (10,250,586)
Policyholders' account values 29,976,022 19,297,688
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 73,831 137,429
Policyholders' account values 2,055,869 2,395,290
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP (7,214,716) (9,143,942)
Policyholders' account values 156,730,966 172,252,616
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP(1) 5,782 (528,691)
Policyholders' account values - 58,067
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 829,638 3,159,014
Policyholders' account values 13,345,627 20,548,071
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 8,838 45,676
Policyholders' account values 1,007,913 1,115,594
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP (76,308) 143,868
Policyholders' account values 36,665,421 38,443,372
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 132,156 (890,290)
Policyholders' account values 987,401 634,048
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP (7,407) 61,807
Policyholders' account values 55,900 135,120
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio (708,799) (7,091,968)
Policyholders' account values 36,730,553 31,722,779
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio (87,159) (4,688,720)
Policyholders' account values 19,271,725 20,360,310
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio 9,531 804,059
Policyholders' account values 236,353 1,078,868
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio 1,034,678 178,105
Policyholders' account values 3,114,830 4,536,234
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio (136,193) (1,643,684)
Policyholders' account values 3,130,614 1,733,346
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio 111,453 (16,110,899)
Policyholders' account values 38,429,965 29,054,986
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio 8,223,307 4,654,782
Policyholders' account values 23,428,999 57,461,476
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio 433,733 (4,727,822)
Policyholders' account values 21,420,076 22,353,327
===================================================================================================================================
</TABLE>
S-8
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds
Period from
Dividends Deductions Sales
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio (2) $ 5,337 ($658) $ 122,746
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Growth Portfolio 202,497 (257,076) 21,130,544
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio 96,897 (512,954) 56,371,577
Policyholders' account values
- ----------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 26 (6) 1,588
Policyholders' account values
- ----------------------------------------------------------------------------------------------
World Government Series (4) -- (1) --
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) -- (45) 22
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Global Securities Fund 12,736 (3,636) 751,030
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Growth & Income Fund 1,424 (2,052) 710,579
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Strategic Bond Fund 40,196 (11,335) 1,349,254
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 329,059 (312,763) 92,317,033
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 26,665 (127,616) 11,385,569
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 39,629 (11,919) 1,177,567
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 885,006 (199,531) 134,290,559
Policyholders' account values
- ----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 54,145 (17,268) 492,577
Policyholders' account values
- ----------------------------------------------------------------------------------------------
Total Variable Life Account B $48,867,068 ($5,991,275) $874,382,151
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flexible Income Portfolio (2) $ 124,997 ($2,251) $ - ($1,205) ($1,205)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 15,320,528 5,810,016 3,730,121 7,864,910 4,134,789
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio 42,528,486 13,843,091 5,492,542 19,350,824 13,858,282
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 1,601 (13) -- 125 125
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
World Government Series (4) -- -- -- (16) (16)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) 20 2 -- 9,807 9,807
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Global Securities Fund 654,790 96,240 19,272 128,388 109,116
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund 654,333 56,246 11,048 9,124 (1,924)
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund 1,342,562 6,692 16,740 38,400 21,660
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio 82,923,450 9,393,583 3,702,269 6,611,843 2,909,574
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 10,005,001 1,380,568 974,898 2,586,254 1,611,356
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 900,465 277,102 82,622 477,099 394,477
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 126,685,605 7,604,954 698,227 2,712,777 2,014,550
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 424,485 68,092 149,693 436,847 287,154
Policyholders' account values
- ------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $793,957,391 $80,424,760 $29,609,254 $56,758,198 $27,148,944
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio (2) $ 67,044
Policyholders' account values $ - $ 68,267
- ---------------------------------------------------------------------------------------------------
Growth Portfolio 950,511
Policyholders' account values 23,402,244 34,242,981
- ---------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio (4,853,866)
Policyholders' account values 43,555,170 65,986,620
- ---------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust:
Total Return Series (3) 11,212
Policyholders' account values -- 11,344
- ---------------------------------------------------------------------------------------------------
World Government Series (4) 2,001
Policyholders' account values -- 1,984
- ---------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund (5) 728,439
Policyholders' account values -- 738,203
- ---------------------------------------------------------------------------------------------------
Global Securities Fund 113,811
Policyholders' account values 317,052 645,319
- ---------------------------------------------------------------------------------------------------
Growth & Income Fund 183,796
Policyholders' account values 75,171 312,661
- ---------------------------------------------------------------------------------------------------
Strategic Bond Fund 544,409
Policyholders' account values 711,472 1,313,094
- ---------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio (8,310,862)
Policyholders' account values 30,733,122 34,741,713
- ---------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 1,275,501
Policyholders' account values 11,734,970 15,901,444
- ---------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio 1,424,018
Policyholders' account values 805,423 2,928,730
- ---------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio (2,509,255)
Policyholders' account values 16,662,810 24,458,534
- ---------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 656,778
Policyholders' account values 1,356,360 2,405,261
- ---------------------------------------------------------------------------------------------------
Total Variable Life Account B ($ 64,523,670) $552,809,307 $638,735,134
===================================================================================================
</TABLE>
(1) - Reflects less than a full year of activity. Funds were first received in
this option during January 1999.
(2) - Reflects less than a full year of activity. Funds were first received in
this option during February 1999.
(3) - Reflects less than a full year of activity. Funds were first received in
this option during March 1999.
(4) - Reflects seed money. No funds have been received for this option.
(5) - Reflects less than a full year of activity. Funds were first received in
this option during December 1999.
S-9
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds
Period from
Dividends Deductions Sales
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1) $ 129,523 ($22,620) $ 393,522
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) 5,079,318 (289,232) 8,936,646
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 1,751,860 (257,828) 6,762,101
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 77,190 (14,622) 473,877
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 27,303,998 (1,392,329) 39,271,149
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 591,905 (73,086) 3,515,589
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 44,001 (8,540) 377,983
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 940,509 (288,392) 130,650,119
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 8,723 (5,056) 362,699
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 298 (130) 44,207
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 1,381,671 (281,139) 8,873,609
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,011,596 (128,591) 2,784,250
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
High Income Portfolio: -- (1,531) 31,686
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio: 141,761 (22,734) 562,478
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 329,918 (29,778) 2,518,344
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,313,979 (283,258) 12,306,538
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: -- (142,378) 19,717,643
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio: 709,668 (145,407) 5,250,108
Policyholders' account values
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,062,152 (162,916) 8,751,672
Policyholders' account values
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Unrealized
Gain (Loss)
Cost of Net -----------
Investments Realized Beginning End
Sold Gain (Loss) of Period of Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: (1) $ 353,120 $ 40,402 $ 27,927 ($53,438)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) 7,346,946 1,589,700 1,971,257 (88,169)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 6,468,168 293,933 (12,114) (21,056)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 453,989 19,888 5,069 (13,664)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 34,639,034 4,632,115 6,207,999 (6,059,944)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 3,029,008 486,581 (23,927) 1,027,911
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) 360,207 17,776 618 (9,107)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 130,229,304 420,815 70,857 267,256
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) 395,417 (32,718) -- (23,492)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 44,499 (292) -- 12,485
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 7,588,754 1,284,855 1,523,698 2,106,941
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,517,613 266,637 380,110 3,937,336
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 34,229 (2,543) -- (22,754)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 539,506 22,972 (8,270) 190,775
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,406,138 112,206 281,699 266,952
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 10,124,110 2,182,428 1,505,359 5,961,343
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 17,285,188 2,432,455 844,868 3,818,015
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 3,955,227 1,294,881 885,469 3,434,432
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 6,729,863 2,021,809 1,360,430 3,730,121
Policyholders' account values
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Net Increase Net Assets
Change in (Decrease) in ----------
Unrealized Net Assets Resulting Beginning End
Gain (Loss) From Unit Transactions of Period of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP: (1) ($81,365) $ 909,075
Policyholders' account values $ 1,802,553 $ 2,777,568
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.: (2) (2,059,426) 5,433,280
Policyholders' account values 24,336,071 34,089,711
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) (8,942) 7,092,195
Policyholders' account values 21,104,804 29,976,022
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) (18,733) 1,281,854
Policyholders' account values 710,292 2,055,869
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) (12,267,943) 6,076,102
Policyholders' account values 132,379,023 156,730,966
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (6) 1,051,838 9,326,844
Policyholders' account values 1,961,545 13,345,627
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (7) (9,725) 314,262
Policyholders' account values 650,139 1,007,913
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (8) 196,399 15,075,889
Policyholders' account values 20,320,201 36,665,421
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (9) (23,492) 1,039,944
Policyholders' account values -- 987,401
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (10) 12,485 43,539
Policyholders' account values -- 55,900
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 583,243 13,578,473
Policyholders' account values 20,183,450 36,730,553
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,557,226 7,444,713
Policyholders' account values 7,120,144 19,271,725
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: (22,754) 263,181
Policyholders' account values -- 236,353
- ------------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 199,045 984,072
Policyholders' account values 1,789,714 3,114,830
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: (14,747) 198,288
Policyholders' account values 2,534,727 3,130,614
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 4,455,984 10,540,804
Policyholders' account values 20,220,028 38,429,965
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 2,973,147 5,763,410
Policyholders' account values 12,402,365 23,428,999
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 2,548,963 8,806,330
Policyholders' account values 8,205,641 21,420,076
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,369,691 6,131,508
Policyholders' account values 11,980,000 23,402,244
====================================================================================================================================
</TABLE>
S-10
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds
Period from
Dividends Deductions Sales
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Worldwide Growth Portfolio: $ 1,360,015 ($344,460) $ 13,676,121
Policyholders' account values
- -------------------------------------------------------------------------------------------
Global Securities Fund -- (1,051) 10,993
Policyholders' account values
- -------------------------------------------------------------------------------------------
Growth & Income Fund -- (183) 65,110
Policyholders' account values
- -------------------------------------------------------------------------------------------
Strategic Bond Fund 104 (2,331) 315,681
Policyholders' account values
- -------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 68,284 (239,521) 100,307,103
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 2,113 (88,033) 22,358,392
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 628 (2,334) 188,157
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 27,896 (158,883) 92,935,246
Policyholders' account values
- -------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 3,356 (4,215) 149,733
Policyholders' account values
- -------------------------------------------------------------------------------------------
Total Variable Life Account B $43,340,466 ($4,390,578) $481,590,756
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Portfolio: $ 10,222,511 $ 3,453,610 $ 1,817,349 $ 5,492,542 $ 3,675,193
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Global Securities Fund 12,018 (1,025) -- 19,272 19,272
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund 66,180 (1,070) -- 11,048 11,048
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund 319,744 (4,063) -- 16,740 16,740
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 97,276,639 3,030,464 42,515 3,702,269 3,659,754
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 21,336,998 1,021,394 (86,245) 974,898 1,061,143
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 215,959 (27,802) -- 82,622 82,622
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 90,246,159 2,689,087 192,560 698,227 505,667
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 163,488 (13,755) -- 149,693 149,693
Policyholders' account values
- -------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $454,360,016 $27,230,740 $16,987,228 $29,609,254 $12,622,026
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Worldwide Growth Portfolio: $ 11,107,525
Policyholders' account values $ 24,303,287 $ 43,555,170
- ---------------------------------------------------------------------------------------------------
Global Securities Fund 299,856
Policyholders' account values -- 317,052
- ---------------------------------------------------------------------------------------------------
Growth & Income Fund 65,376
Policyholders' account values -- 75,171
- ---------------------------------------------------------------------------------------------------
Strategic Bond Fund 701,022
Policyholders' account values -- 711,472
- ---------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 5,152,269
Policyholders' account values 19,061,872 30,733,122
- ---------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 2,590,172
Policyholders' account values 7,148,181 11,734,970
- ---------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 752,309
Policyholders' account values -- 805,423
- ---------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: (712,067)
Policyholders' account values 14,311,110 16,662,810
- ---------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 1,221,281
Policyholders' account values -- 1,356,360
- ---------------------------------------------------------------------------------------------------
Total Variable Life Account B $121,481,506 $352,525,147 $552,809,307
===================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent Portfolio's name changed to Aetna
Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced Fund VP.
(3) - Effective May 1, 1998, Aetna Income Shares' name changed to Aetna Bond
Fund VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name changed
to Aetna Crossroads VP.
(5) - Effective May 1, 1998, Aetna Variable Funds' name changed to Aetna Growth
and Income VP.
(6) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name changed
to Aetna Index Plus Large Cap VP.
(7) - Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(8) - Effective May 1, 1998, Aetna Variable Encore Funds' name changed to Aetna
Money Market VP.
(9) - Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(10)- Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-11
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- --------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds
Period from
Dividends Deductions Sales
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $26,573,304 ($1,085,553) $11,219,896
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Income Shares: 1,087,150 (148,230) 2,358,910
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 372,968 (144,720) 74,201,538
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 2,876,287 (185,443) 1,960,106
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 112,004 (11,360) 1,279,898
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 45,840 (3,290) 198,099
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 38,169 (3,596) 225,894
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 77,848 (4,920) 143,972
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 576,583 (128,523) 53,957,227
Policyholders' account values
- --------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) 132,455 (57,820) 15,197,338
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 1,485,715 (163,582) 14,420,981
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Growth Portfolio: 192,233 (54,856) 6,814,876
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Overseas Portfolio: 46,706 (8,253) 359,668
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 175,953 (18,257) 244,742
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Contrafund Portfolio: 235,708 (110,146) 4,519,164
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: -- (95,697) 18,445,996
Policyholders' account values
- --------------------------------------------------------------------------------------------------
Balanced Portfolio: 192,757 (52,872) 1,238,408
Policyholders' account values
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $ 7,857,508 $3,362,388 $7,294,643 $6,207,999 ($1,086,644)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 2,406,924 (48,014) (190,180) (12,114) 178,066
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 73,731,940 469,598 106,394 70,857 (35,537)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 1,561,449 398,657 1,383,931 1,971,257 587,326
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,184,906 94,992 15,645 27,927 12,282
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 193,283 4,816 (191) 5,069 5,260
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 207,391 18,503 20 618 598
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 131,418 12,554 -- (23,927) (23,927)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) 53,285,312 671,915 172,057 -- (172,057)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) 15,512,673 (315,335) (146,911) -- 146,911
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 11,843,310 2,577,671 1,096,283 1,523,698 427,415
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 5,870,796 944,080 294,867 380,110 85,243
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 322,274 37,394 37,941 (8,270) (46,211)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 220,690 24,052 134,978 281,699 146,721
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 3,602,586 916,578 730,883 1,505,359 774,476
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 17,632,824 813,172 249,074 844,868 595,794
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 1,021,789 216,619 243,163 885,469 642,306
Policyholders' account values
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Variable Fund: $ 11,743,902
Policyholders' account values $92,871,626 $132,379,023
- ----------------------------------------------------------------------------------------------------------
Aetna Income Shares: 6,856,045
Policyholders' account values 13,179,787 21,104,804
- ----------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 10,565,707
Policyholders' account values 9,092,185 20,320,201
- ----------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 4,867,703
Policyholders' account values 15,791,541 24,336,071
- ----------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,049,257
Policyholders' account values 545,378 1,802,553
- ----------------------------------------------------------------------------------------------------------
Aetna Crossroads Varible Portfolio: 533,974
Policyholders' account values 123,692 710,292
- ----------------------------------------------------------------------------------------------------------
Aetna Legacy Varible Portfolio: 582,502
Policyholders' account values 13,963 650,139
- ----------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 1,899,990
Policyholders' account values -- 1,961,545
- ----------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio: (1) (14,034,001)
Policyholders' account values 13,086,083 --
- ----------------------------------------------------------------------------------------------------------
American Century VP Capital Apprecition Fund: (2) (6,388,736)
Policyholders' account values 6,482,525 --
- ----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity--Income Portfolio: 2,546,018
Policyholders' account values 13,310,213 20,183,450
- ----------------------------------------------------------------------------------------------------------
Growth Portfolio: 900,915
Policyholders' account values 5,052,529 7,120,144
- ----------------------------------------------------------------------------------------------------------
Overseas Portfolio: 1,227,751
Policyholders' account values 532,327 1,789,714
- ----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 796,072
Policyholders' account values 1,410,186 2,534,727
- ----------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 11,491,722
Policyholders' account values 6,911,690 20,220,028
- ----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,426,169
Policyholders' account values 9,662,927 12,402,365
- ----------------------------------------------------------------------------------------------------------
Balanced Portfolio: 3,632,486
Policyholders' account values 3,574,345 8,205,641
==========================================================================================================
</TABLE>
S-12
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets (continued):
- --------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds
Period from
Dividends Deductions Sales
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio: $ 309,334 ($90,076) $ 3,312,122
Policyholders' account values
- --------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) 101,542 (32,381) 9,071,413
Policyholders' account values
- --------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 325,821 (167,065) 7,022,675
Policyholders' account values
- --------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: -- (17,086) 9,834,242
Policyholders' account values
- --------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: -- (6,128) 1,889,839
Policyholders' account values
- --------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: -- (12,927) 1,858,258
Policyholders' account values
- --------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) 264,246 (110,422) 20,554,442
Policyholders' account values
- --------------------------------------------------------------------------------------------
Total Variable Life Account B $35,222,623 ($2,713,203) $260,329,704
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Unrealized
Gain (Loss) Net
Cost of Net ----------- Change in
Investments Realized Beginning End Unrealized
Sold Gain (Loss) of Period of Period Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio: $ 2,585,617 $ 726,505 $ 566,478 $ 1,360,430 $ 793,952
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) 8,891,967 179,446 26,773 -- (26,773)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 5,257,711 1,764,964 872,277 1,817,349 945,072
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 9,998,952 (164,710) -- 42,515 42,515
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 1,891,124 (1,285) -- (86,245) (86,245)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 1,827,173 31,085 -- 192,560 192,560
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) 18,819,109 1,735,333 1,244,544 -- (1,244,544)
Policyholders' account values
- ----------------------------------------------------------------------------------------------------------------------------
Total Variable Life Account B $245,858,726 $14,470,978 $14,132,669 $16,987,228 $ 2,854,559
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Net Increase Net Assets
(Decrease) in ----------
Net Assets Resulting Beginning End
From Unit Transactions of Period of Period
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio: $ 3,065,638
Policyholders' account values 7,174,647 11,980,000
- ----------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (3) (4,049,682)
Policyholders' account values 3,827,848 --
- ----------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 11,519,359
Policyholders' account values 9,915,136 24,303,287
- ----------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 19,201,153
Policyholders' account values -- 19,061,872
- ----------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 7,241,839
Policyholders' account values -- 7,148,181
- ----------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 14,100,392
Policyholders' account values -- 14,311,110
- ----------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund:
International Portfolio: (4) (11,259,868)
Policyholders' account values 10,615,255 --
- ----------------------------------------------------------------------------------------------------
Total Variable Life Account B $ 79,516,307 $223,173,883 $352,525,147
====================================================================================================
</TABLE>
(1) - Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Emerging Equity Portfolio.
(2) - Effective November 28, 1997, assets from this fund were transferred into
the PPI MFS Research Growth Portfolio.
(3) - Effective November 28, 1997, assets from this fund were transferred into
the Aetna Variable Encore Fund.
(4) - Effective November 28, 1997, assets from this fund were transferred into
the PPI Scudder International Growth Portfolio.
S-13
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit Period of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Aetna Vest $ 14.535 $ 16.480 13.38% 8,108.4 $ 133,629
Aetna Vest II 14.499 16.415 13.21% 4,820.1 79,120
Aetna Vest Plus 14.499 16.415 13.21% 152,300.6 2,499,946
Aetna Vest Estate Protector 14.559 16.507 13.38% 19,644.4 324,275
Aetna Vest Estate Protector II 10.038 11.404 13.61% 8,690.6 99,106
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Aetna Vest 24.655 27.745 12.53% 101,885.7 2,826,794
Aetna Vest II 24.909 28.016 12.47% 204,589.9 5,731,870
Aetna Vest Plus 20.890 23.496 12.47% 506,450.0 11,899,396
Aetna Vest Estate Protector 15.716 17.703 12.64% 27,963.4 495,026
Aetna Vest Estate Protector II 11.233 12.678 12.87% 72,757.6 922,452
Corporate Specialty Market 18.186 20.455 12.47% 330,977.4 6,770,020
Corporate Specialty Market II - 12.667 - 81.2 (1) 1,028
NYSUT Individual Life 13.516 15.225 12.64% 993.4 15,125
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Aetna Vest 25.084 24.650 (1.73%) 238,723.8 5,884,656
Aetna Vest II 16.865 16.573 (1.73%) 62,569.1 1,036,982
Aetna Vest Plus 13.505 13.271 (1.73%) 318,545.3 4,227,550
Aetna Vest Estate Protector 12.035 11.845 (1.58%) 43,161.3 511,251
Aetna Vest Estate Protector II 10.614 10.470 (1.36%) 68,097.4 712,967
Corporate Specialty Market 13.035 12.810 (1.73%) 527,603.9 6,758,389
Corporate Specialty Market II - 10.457 - 15,480.3 (4) 161,885
NYSUT Individual Life 11.441 11.260 (1.58%) 355.9 4,008
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Aetna Vest 14.040 15.343 9.28% 3,856.3 59,167
Aetna Vest II 14.005 15.282 9.12% 3,676.4 56,182
Aetna Vest Plus 14.005 15.282 9.12% 142,144.1 2,172,206
Aetna Vest Estate Protector 14.063 15.368 9.28% 419.3 6,444
Aetna Vest Estate Protector II 10.244 11.217 9.50% 9,029.9 101,291
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Aetna Vest 50.962 59.274 16.31% 1,158,596.7 68,674,147
Aetna Vest II 28.434 33.055 16.25% 739,037.9 24,428,941
Aetna Vest Plus 23.889 27.772 16.25% 2,074,042.4 57,600,081
Aetna Vest Estate Protector 17.070 19.874 16.42% 126,208.8 2,508,237
Aetna Vest Estate Protector II 10.966 12.793 16.66% 150,942.3 1,930,981
Corporate Specialty Market 21.581 25.089 16.25% 679,447.2 17,046,334
Corporate Specialty Market II - 12.781 - 2,764.0 (4) 35,327
NYSUT Individual Life 13.623 15.860 16.43% 1,801.2 28,568
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Corporate Specialty Market - 17.615 - 3,234.8 (2) 56,983
Corporate Specialty Market II - 17.226 - 62.9 (1) 1,084
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Aetna Vest 17.044 20.975 23.06% 91,316.0 1,915,309
Aetna Vest II 17.044 20.975 23.06% 32,056.5 672,369
Aetna Vest Plus 17.044 20.975 23.06% 412,230.7 8,646,340
Aetna Vest Estate Protector 17.096 21.071 23.25% 74,181.7 1,563,077
Aetna Vest Estate Protector II 12.397 15.310 23.50% 190,679.2 2,919,241
Corporate Specialty Market 17.044 20.975 23.06% 210,675.0 4,418,818
Corporate Specialty Market II - 15.295 - 22,261.8 (4) 340,501
NYSUT Individual Life 15.850 19.535 23.25% 3,707.1 72,416
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Legacy VP:
Aetna Vest $ 13.378 $ 14.206 6.19% 854.8 $ 12,144
Aetna Vest II 13.345 14.150 6.03% 949.2 13,431
Aetna Vest Plus 13.345 14.150 6.03% 60,327.0 853,620
Aetna Vest Estate Protector 13.400 14.230 6.19% 3,283.5 46,723
Aetna Vest Estate Protector II 10.379 11.044 6.41% 17,050.0 188,297
NYSUT Individual Life 11.902 12.639 6.19% 109.1 1,379
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Aetna Vest 18.074 18.803 4.03% 142,725.6 2,683,604
Aetna Vest II 13.211 13.744 4.03% 42,777.2 587,924
Aetna Vest Plus 12.416 12.917 4.03% 1,113,716.2 14,385,720
Aetna Vest Estate Protector 11.301 11.774 4.18% 66,839.9 786,966
Aetna Vest Estate Protector II 10.413 10.871 4.40% 128,032.1 1,391,821
Corporate Specialty Market 11.878 12.357 4.04% 1,497,529.1 18,505,645
Corporate Specialty Market II - 10.861 - 6,736.3 (2) 73,160
NYSUT Individual Life 10.849 11.304 4.19% 2,524.2 28,532
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Corporate Specialty Market 10.085 13.065 29.55% 48,446.2 632,957
Corporate Specialty Market II - 12.420 - 87.8 (1) 1,091
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Corporate Specialty Market 12.266 14.521 18.39% 9,236.5 134,125
Corporate Specialty Market II - 13.658 - 72.8 (1) 995
- -------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Aetna Vest 15.238 16.041 5.27% 16,109.0 258,402
Aetna Vest II 15.238 16.041 5.27% 17,559.9 281,675
Aetna Vest Plus 15.238 16.041 5.27% 721,177.1 11,568,312
Aetna Vest Estate Protector 15.301 16.132 5.43% 118,968.5 1,919,142
Aetna Vest Estate Protector II 10.733 11.338 5.64% 115,816.5 1,313,121
Corporate Specialty Market 17.538 18.462 5.27% 875,042.6 16,155,452
Corporate Specialty Market II - 11.327 - 18,694.6 (5) 211,759
NYSUT Individual Life 13.031 13.739 5.43% 1,085.7 14,916
- -------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Corporate Specialty Market 19.002 25.856 36.07% 787,399.8 20,359,247
Corporate Specialty Market II - 17.930 - 59.3 (1) 1,063
- -------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Corporate Specialty Market 9.588 10.271 7.12% 104,943.0 1,077,856
Corporate Specialty Market II - 9.902 - 102.2 (1) 1,012
- -------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Corporate Specialty Market 13.859 19.568 41.19% 231,765.2 4,535,149
Corporate Specialty Market II - 15.111 - 71.8 (1) 1,085
- -------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Corporate Specialty Market 16.358 17.991 9.98% 96,286.7 1,732,320
Corporate Specialty Market II - 12.223 - 83.9 (1) 1,026
- -------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Aetna Vest 18.229 22.425 23.02% 50,642.2 1,135,635
Aetna Vest II 18.229 22.425 23.02% 20,952.5 469,853
Aetna Vest Plus 18.229 22.425 23.02% 630,388.5 14,136,214
Aetna Vest Estate Protector 18.305 22.551 23.20% 78,555.6 1,771,520
Aetna Vest Estate Protector II 12.417 15.329 23.45% 131,432.8 2,014,695
Corporate Specialty Market 19.607 24.119 23.01% 385,619.2 9,300,909
Corporate Specialty Market II - 15.314 - 13,049.1 (4) 199,838
NYSUT Individual Life 15.355 18.918 23.20% 1,391.4 26,322
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio:
Aetna Vest $ 23.949 $ 53.447 123.17% 78,595.7 $ 4,200,721
Aetna Vest II 23.949 53.447 123.17% 36,544.0 1,953,171
Aetna Vest Plus 23.949 53.447 123.17% 615,554.6 32,899,806
Aetna Vest Estate Protector 14.569 32.562 123.50% 115,022.2 3,745,343
Aetna Vest Estate Protector II 12.855 28.789 123.95% 92,599.5 2,665,841
Corporate Specialty Market 17.969 40.102 123.17% 292,816.6 11,742,518
Corporate Specialty Market II - 28.762 - 8,727.2 (4) 251,013
NYSUT Individual Life 15.506 34.657 123.50% 88.4 3,063
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Aetna Vest 22.446 28.168 25.49% 20,837.1 586,949
Aetna Vest II 22.621 28.388 25.50% 7,862.9 223,214
Aetna Vest Plus 22.435 28.156 25.50% 463,856.2 13,060,229
Aetna Vest Estate Protector 17.895 22.491 25.68% 39,932.2 898,116
Aetna Vest Estate Protector II 12.622 15.896 25.94% 136,489.4 2,169,638
Corporate Specialty Market 19.675 24.691 25.50% 207,597.6 5,125,875
Corporate Specialty Market II - 15.881 - 17,176.7 (4) 272,785
NYSUT Individual Life 15.198 19.102 25.68% 864.9 16,521
- ---------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Corporate Specialty Market - 11.019 - 6,104.4 (3) 67,265
Corporate Specialty Market II - 10.678 - 93.8 (1) 1,002
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Aetna Vest 24.316 34.664 42.55% 45,552.7 1,579,018
Aetna Vest II 24.294 34.632 42.55% 66,432.0 2,300,676
Aetna Vest Plus 24.260 34.583 42.55% 670,451.6 23,186,343
Aetna Vest Estate Protector 17.775 25.376 42.76% 90,466.0 2,295,685
Aetna Vest Estate Protector II 12.564 17.973 43.05% 132,777.4 2,386,410
Corporate Specialty Market 19.965 28.461 42.55% 83,369.6 2,372,762
Corporate Specialty Market II - 17.956 - 5,674.5 (5) 101,893
NYSUT Individual Life 15.384 21.964 42.77% 919.4 20,194
- ---------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Aetna Vest 25.260 41.127 62.81% 111,800.0 4,597,968
Aetna Vest II 25.267 41.138 62.81% 54,942.3 2,260,212
Aetna Vest Plus 25.235 41.087 62.82% 866,585.5 35,605,247
Aetna Vest Estate Protector 18.286 29.817 63.06% 133,793.7 3,989,387
Aetna Vest Estate Protector II 12.017 19.634 63.39% 175,254.1 3,441,022
Corporate Specialty Market 20.776 33.827 62.82% 468,018.3 15,831,874
Corporate Specialty Market II - 19.616 - 12,499.1 (4) 245,183
NYSUT Individual Life 14.465 23.587 63.06% 666.8 15,727
- ---------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
Total Return Series:
Corporate Specialty Market - 11.518 - 897.9 (7) 10,343
Corporate Specialty Market II - 11.167 - 89.7 (1) 1,001
- ---------------------------------------------------------------------------------------------------------------------------
World Government Series:
Corporate Specialty Market - 10.192 - 97.3 (1) 992
Corporate Specialty Market II - 10.272 - 96.5 (1) 992
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund:
Corporate Specialty Market - 19.578 - 37,648.5 (7) 737,069
Corporate Specialty Market II - 19.458 - 58.3 (1) 1,134
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund:
Aetna Vest 10.828 16.991 56.91% 530.2 9,008
Aetna Vest II - 16.990 - 80.4 (1) 1,366
Aetna Vest Plus 10.828 16.991 56.91% 28,329.2 481,330
Aetna Vest Estate Protector 10.842 17.038 57.14% 1,533.3 26,124
Aetna Vest Estate Protector II 11.082 17.450 57.46% 7,181.2 125,309
Corporate Specialty Market 10.550 17.971 70.34% 60.7 1,091
Corporate Specialty Market II - 17.532 - 62.2 (1) 1,091
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-16
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholder
-------- in Value of Outstanding Account Value
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Growth & Income Fund:
Corporate Specialty Market $ - $ 12.711 - 16,095.7 (4) $ 204,601
Corporate Specialty Market II - 12.033 - 8,980.1 (5) 108,060
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund:
Aetna Vest 10.027 10.208 1.80% 4,611.8 47,076
Aetna Vest II - 10.207 - 100.3 (1) 1,024
Aetna Vest Plus 10.027 10.208 1.80% 62,229.8 635,239
Aetna Vest Estate Protector 10.040 10.236 1.95% 18,761.9 192,046
Aetna Vest Estate Protector II 10.036 10.253 2.16% 32,613.6 334,376
Corporate Specialty Market - 10.480 - 95.5 (1) 1,001
Corporate Specialty Market II - 10.262 - 9,903.4 (4) 101,626
NYSUT Individual Life 10.040 10.236 1.96% 69.0 706
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Aetna Vest 22.283 33.285 49.37% 55,607.9 1,850,914
Aetna Vest II 22.285 33.288 49.37% 23,443.9 780,405
Aetna Vest Plus 22.273 33.270 49.37% 595,667.2 19,817,897
Aetna Vest Estate Protector 13.899 20.793 49.60% 70,939.0 1,475,019
Aetna Vest Estate Protector II 11.576 17.352 49.90% 33,469.0 580,761
Corporate Specialty Market 18.326 27.375 49.38% 373,848.2 10,234,094
Corporate Specialty Market II - 17.339 - 66.4 (1) 1,152
NYSUT Individual Life 14.396 21.537 49.60% 68.3 1,471
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Aetna Vest 14.665 18.009 22.80% 53,119.5 956,611
Aetna Vest II 14.730 18.089 22.81% 22,767.3 411,846
Aetna Vest Plus 14.529 17.843 22.81% 490,083.9 8,744,344
Aetna Vest Estate Protector 11.161 13.727 22.99% 21,110.1 289,781
Aetna Vest Estate Protector II 11.518 14.194 23.23% 51,498.0 730,964
Corporate Specialty Market 13.288 16.318 22.81% 292,084.8 4,766,382
Corporate Specialty Market II - 14.182 - 74.7 (1) 1,060
NYSUT Individual Life 12.394 15.243 22.99% 29.9 456
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Aetna Vest 11.408 16.805 47.31% 3,672.2 61,712
Aetna Vest II 11.408 16.805 47.31% 76.1 1,279
Aetna Vest Plus 11.408 16.805 47.31% 118,377.4 1,989,331
Aetna Vest Estate Protector 11.422 16.851 47.53% 13,787.2 232,334
Aetna Vest Estate Protector II 11.699 17.294 47.83% 36,907.3 638,291
Corporate Specialty Market - 18.361 - 59.6 (1) 1,094
Corporate Specialty Market II - 17.491 - 62.6 (1) 1,094
NYSUT Individual Life 11.422 16.851 47.53% 213.3 3,595
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Aetna Vest 18.503 29.019 56.83% 101,117.4 2,934,330
Aetna Vest II 18.389 28.840 56.83% 29,315.3 845,458
Aetna Vest Plus 18.286 28.679 56.84% 510,350.3 14,636,580
Aetna Vest Estate Protector 13.907 21.844 57.07% 44,976.9 982,475
Aetna Vest Estate Protector II 11.198 17.624 57.39% 11,999.5 211,482
Corporate Specialty Market 15.323 24.031 56.83% 191,821.0 4,609,695
Corporate Specialty Market II - 17.608 - 13,545.9 (6) 238,514
- ----------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Aetna Vest 11.539 13.975 21.11% 8,785.9 122,779
Aetna Vest II 11.539 13.974 21.10% 149.0 2,081
Aetna Vest Plus 11.539 13.975 21.11% 107,827.6 1,506,845
Aetna Vest Estate Protector 11.553 14.013 21.30% 4,053.9 56,808
Aetna Vest Estate Protector II 11.839 14.388 21.53% 47,493.8 683,338
Corporate Specialty Market - 15.481 - 2,040.5 (6) 31,590
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-17
<PAGE>
Aetna Life Insurance and Annuity Company Variable Life Account B
Notes to Financial Statements -- December 31, 1999 (continued):
6. Condensed Financial Information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units Policyholders'
-------- in Value of Outstanding Account Values
Beginning End of Accumulation at End at End
of Period Period Unit of Period of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate Specialty Market II $ - $ 14.536 - 72.3 (1) $1,052
NYSUT Individual Life 11.553 14.013 21.29% 54.8 768
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) - Reflects seed money. No funds have been received for this option.
(2) - Reflects less than a full year of activity. Funds were first received in
this option during January 1999.
(3) - Reflects less than a full year of activity. Funds were first received in
this option during February 1999.
(4) - Reflects less than a full year of activity. Funds were first received in
this option during March 1999.
(5) - Reflects less than a full year of activity. Funds were first received in
this option during April 1999.
(6) - Reflects less than a full year of activity. Funds were first received in
this option during October 1999.
(7) - Reflects less than a full year of activity. Funds were first received in
this option during December 1999.
S-18
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors of The Lincoln National Life Insurance Company
and
Contract Owners of Aetna Life Insurance and Annuity Company Variable Life
Account B
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Life Account B (the "Account")
(comprised of the Aetna Ascent VP, Aetna Balanced VP, Inc., Aetna Bond VP,
Aetna Crossroads VP, Aetna Growth and Income VP, Aetna Growth VP, Aetna Index
Plus Large Cap VP, Aetna Legacy VP, Aetna Money Market VP, Aetna Small Company
VP, Aetna Value Opportunity VP, Fidelity Investments Variable Insurance
Products Fund Equity-Income Portfolio, Fidelity Investments Variable Insurance
Products Fund Growth Portfolio, Fidelity Investments Variable Insurance
Products Fund High Income Portfolio, Fidelity Investments Variable Insurance
Products Fund Overseas Portfolio, Fidelity Investments Variable Insurance
Products Fund II Asset Manager Portfolio, Fidelity Investments Variable
Insurance Products Fund II Contrafund Portfolio, Janus Aspen Series Aggressive
Growth Portfolio, Janus Aspen Series Balanced Portfolio, Janus Aspen Series
Flexible Income Portfolio, Janus Aspen Series Growth Portfolio, Janus Aspen
Series Worldwide Growth Portfolio, MFS Variable Insurance Trust Total Return
Series, MFS Variable Insurance Trust World Government Series, Oppenheimer Funds
Aggressive Growth Fund, Oppenheimer Funds Global Securities Fund, Oppenheimer
Funds Growth & Income Fund, Oppenheimer Funds Strategic Bond Fund, Portfolio
Partners Inc. (PPI) MFS Emerging Equities Portfolio, Portfolio Partners Inc.
(PPI) MFS Research Growth Portfolio, Portfolio Partners Inc. (PPI) MFS Value
Equity Portfolio, Portfolio Partners Inc. (PPI) Scudder International Growth
Portfolio, and Portfolio Partners Inc. (PPI) T. Rowe Price Growth Equity
Portfolio subaccounts), as of December 31, 1999, and the related statement of
operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The accompanying financial statements of the Account for the years
ended December 31, 1998 and 1997, were audited by other auditors whose report
dated February 26, 1999, expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned as of December 31,
1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Aetna Life Insurance and Annuity Company Variable
Life Account B at December 31, 1999, and the results of their operations and
changes in their net assets for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
February 28, 2000
S-19
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Life Account B
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Life Account B (the "Account") as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and
condensed financial information for the year ended December 31, 1998. These
financial statements and condensed financial information are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and condensed financial information based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provides 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>
