<PAGE>
Variable Annuity Account B
Individual Retirement Planning Variable Annuity Contracts For
Employer-Sponsored Deferred Compensation Plans and Individual Who
Wish To Supplement Their Retirement Benefits
June 15, 1995 Supplement to May 1, 1995 Prospectus
Washington
Certain provisions specified in this Prospectus have not been approved by the
State of Washington.
Deferred Sales Charge
Partial withdrawals of 10% or less of the Contract Value without a deferred
sales charge are not permitted under Contracts issued in the State of
Washington.
See the section entitled "Deferred Sales Charge" in the Prospectus.
<PAGE>
[LOGO OF AETNA APPEARS HERE] [LOGO OF INDIVIDUAL B ACCOUNT APPEARS HERE]
VARIABLE ANNUITY
ACCOUNT B
Aetna Life Insurance and
Annuity Company Prospectus Dated:
MAY 1, 1995
Annuity Operations
151 Farmington Avenue
Hartford, Connecticut 06156
Telephone: 1-800-525-4225
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT PLANNING VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-
SPONSORED DEFERRED COMPENSATION PLANS AND INDIVIDUALS WHO WISH TO SUPPLEMENT
THEIR RETIREMENT BENEFITS
- --------------------------------------------------------------------------------
This Prospectus describes individual deferred variable annuity contracts
issued by Aetna Life Insurance and Annuity Company (the "Company"). The
Contract allows lump-sum payments and allows installment payments. See
"Contract Purchase." The Contract is designed to provide retirement
benefits to (1) individuals who are either not participating in formal
retirement plans, or are participating in formal retirement plans but
wish to personally supplement their benefits, (2) participants under
Plans, and (3) participants under Section 457 Plans.
The Contracts allow values to accumulate under a credited interest or
variable option, or a combination of these investment options. They also
provide for the payment of annuity benefits on a fixed or variable
basis, or a combination thereof.
The variable funding options currently available through the Separate
Account under the Contract described in this Prospectus are as follows:
. Aetna Variable Fund
. Aetna Income Shares
. Aetna Variable Encore Fund
. Aetna Investment Advisers Fund, Inc.
. TCI Growth (a Twentieth Century Fund)
The credited interest option available for the accumulation of values is
the Fixed Account. This option is offered only in those jurisdictions in
which it is approved.
Except as specifically mentioned, this Prospectus describes only the
variable options of the Contracts. Information concerning the Fixed
Account is found in the Appendix in this Prospectus.
This Prospectus sets forth concisely the information about Variable
Annuity Account B (the "Separate Account") that a prospective investor
should know before investing. Additional information about the Separate
Account is contained in a Statement of Additional Information ("SAI")
dated May 1, 1995, which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Table of
Contents for the SAI may be found in this Prospectus. An SAI may be
obtained without charge by indicating the request on the application
contained in this Prospectus or by calling 1-800-525-4225.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT
PROSPECTUSES OF THE FUNDS. ALL PROSPECTUSES SHOULD BE READ AND RETAINED
FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
DEFINITIONS................................................................ 3
PROSPECTUS SUMMARY......................................................... 5
FEE TABLE.................................................................. 6
CONDENSED FINANCIAL INFORMATION............................................ 8
PERFORMANCE DATA........................................................... 9
THE COMPANY................................................................ 10
VARIABLE ANNUITY ACCOUNT B................................................. 10
THE FUNDS.................................................................. 10
Fund Investment Advisers.................................................. 11
Mixed and Shared Funding.................................................. 11
Fund Additions, Substitutions and Limitations............................. 11
PURCHASE
Contract Purchase......................................................... 12
Net Purchase Payments..................................................... 12
Distribution.............................................................. 13
DETERMINING CONTRACT VALUE
Accumulation Units........................................................ 13
Net Investment Factor..................................................... 13
CONTRACT RIGHTS
Right to Cancel........................................................... 14
Rights Under the Contract................................................. 14
Transfers and Allocation Changes.......................................... 14
Withdrawals............................................................... 14
Reinvestment Privilege.................................................... 15
CHARGES AND DEDUCTIONS
Maintenance Fee........................................................... 15
Mortality and Expense Risk Charges........................................ 15
Administrative Expense Charge............................................. 16
Fund Expenses............................................................. 16
Deferred Sales Charge..................................................... 16
Premium Tax............................................................... 18
ADDITIONAL WITHDRAWAL OPTIONS.............................................. 18
General................................................................... 18
Estate Conservation Option................................................ 19
Systematic Withdrawal Option.............................................. 19
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
ANNUITY PERIOD
Annuity Period Elections.................................................. 20
Individuals.............................................................. 20
Plans.................................................................... 20
Section 457 Plans........................................................ 21
Annuity Options........................................................... 21
DEATH BENEFIT.............................................................. 22
Accumulation Period....................................................... 22
Individuals and Plans.................................................... 22
Section 457 Plans........................................................ 23
Annuity Period............................................................ 23
Individuals and Plans.................................................... 24
Section 457 Plans........................................................ 24
TAX STATUS
Introduction.............................................................. 24
Taxation of the Company................................................... 24
Federal Tax Status of the Contract........................................ 25
Tax Status of Deferred Compensation Plans................................. 25
Tax Status of Amounts Distributed to Individuals.......................... 26
Accumulation Period...................................................... 27
Annuity Payments......................................................... 27
Possible Changes in Taxation............................................... 28
Other Tax Consequences..................................................... 28
MISCELLANEOUS
Voting Rights............................................................. 28
Modification of the Contract.............................................. 28
Contract Holder Inquiries................................................. 29
Telephone Transfers....................................................... 29
Transfer of Ownership; Assignment......................................... 29
Legal Proceedings......................................................... 29
Legal Matters............................................................. 29
STATEMENT OF ADDITIONAL INFORMATION --TABLE OF CONTENTS.................... 30
APPENDIX--The Fixed Account................................................ 31
</TABLE>
2
<PAGE>
DEFINITIONS
As used in this Prospectus, the following terms have the meanings shown:
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of the Separate Account assets
attributable to each Fund used as a variable funding option.
AGGREGATE PURCHASE PAYMENT(S): The sum of all Purchase Payment(s) made under a
Contract.
ANNUITANT: A natural person on whose life an Annuity payment is based.
ANNUITY: A series of payments for life, for a definite period or a combination
of the two.
ANNUITY PERIOD: The period during which Annuity payments are made.
ANNUITY UNIT: A measure of the value attributable to each Fund selected during
the Annuity Period.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY: Aetna Life Insurance and Annuity Company, sometimes referred to as
"we" or "us."
CONTRACT: The individual deferred variable annuity contracts offered by this
Prospectus.
CONTRACT HOLDER: The entity to which, or individual to whom, the Contract is
issued.
CONTRACT VALUE: The dollar value of amounts held under the Contract as of any
Valuation Period, including the value of the Accumulation Units in the Funds
and any amounts invested in the Fixed Account, plus interest earned on those
amounts, less any maintenance fees due, but excluding amounts used for Annuity
Options.
CONTRACT YEAR: The period of 12 months measured from the Contract's Effective
Date or from any anniversary of such Effective Date.
DISTRIBUTOR(S): The registered broker-dealer(s) which have entered into selling
agreements with the Company to offer and sell the Contracts. The Company may
also serve as a Distributor.
EFFECTIVE DATE: The date the Company accepts and approves the Contract
application or enrollment form, as applicable.
FUNDS: The mutual funds offered as variable funding options for the investment
of assets of the Separate Account under the Contracts.
HOME OFFICE: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
NET PURCHASE PAYMENT(S): The Purchase Payment(s) less premium taxes, if
applicable.
PARTICIPANT: An eligible person participating in a Plan or a Section 457 Plan.
Participants have no rights to the assets accumulated under the Plan.
PLAN(S): Employer-sponsored deferred compensation plans sponsored by (i) tax-
exempt organizations for deferrals not subject to Section 457 of the Code and
(ii) taxable organizations for their employees and/or independent contractors.
3
<PAGE>
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract.
PURCHASE PAYMENT PERIOD: For installment Purchase Payment Contracts, the period
of time for completion of the agreed-upon annual number and amount of Purchase
Payments. For example, if it is determined that the Purchase Payment Period
will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made. When a particular remittance is intended to include more than one regular
Purchase Payment, the Company will credit the number of Purchase Payments
represented by such remittance in determining the Purchase Payment Period.
However, the number of completed Purchase Payment Periods may never be greater
than the number of full calendar years since the date the Contract is
established.
SEC: Securities and Exchange Commission
SECTION 457 PLAN: Employer-sponsored deferred compensation plans sponsored by
tax-exempt organizations for deferrals that are subject to Section 457 of the
Code for their employees and/or independent contractors. Only individuals may
participate under a Section 457 Plan. See "Tax Status--Introduction."
SEPARATE ACCOUNT: Variable Annuity Account B, an account that segregates assets
from other assets of the Company. The Separate Account holds shares of the
Funds acquired for the Contracts. The Company holds title to the assets held in
the Separate Account.
UNDERWRITER: The registered broker-dealer which contracts with other registered
broker-dealers on behalf of the Separate Accounts to offer and sell the
Contracts.
VALUATION PERIOD: The period of time from when a Fund determines its net asset
value until the next time it determines its net asset value, usually from 4:15
p.m. Eastern time, each day the New York Stock Exchange is open, until 4:15
p.m. the next such business day.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the Annuity Period and the value of
a commutation right available under the "Payments for a Specified Period"
nonlifetime Annuity option when elected on a variable basis under the Contract.
VARIABLE ANNUITY CONTRACT: An Annuity Contract providing for the accumulation
of values and/or for Annuity payments which vary in dollar amount with
investment results.
4
<PAGE>
PROSPECTUS SUMMARY
PURCHASE
The Contract provisions described in this Prospectus are designed to provide
retirement benefits to:
(1) Individuals who are either not participating in formal retirement
plans, or are participating in formal retirement plans but wish to
personally supplement their benefits ("Individuals"), and
(2) Participants under Plans, (see "Definitions"), and
(3) Participants under Section 457 Plans (see "Definitions").
The Contracts may be purchased by completing the proper application form and
submitting it to the Company with the initial Purchase Payment.
REDEMPTION
The Contract Holder may redeem all or a portion of the Account Value during the
Accumulation Period by properly completing the Company's disbursement form and
sending it to the Company. Certain charges and deductions may be assessed upon
withdrawal. See "Charges and Deductions" and "Contract Rights--Withdrawals."
DEFERRED SALES CHARGES
Amounts withdrawn may be subject to a deferred sales charge. The maximum
deferred sales charge that could be assessed on a full or partial withdrawal is
5% of the amount withdrawn. See "Charges and Deductions--Deferred Sales
Charge."
TAXES AND WITHHOLDING
For Plans and Section 457 Plans, Purchase Payments and investment results of
the Separate Account credited to the value of the Account are generally not
taxable until distributed or made available under the employer's plan. For
Individuals, a 10% tax penalty may be imposed on the amount withdrawn.
Withholding for income tax may also be imposed on certain withdrawals. See "Tax
Status of Deferred Compensation Plans" and "Tax Status of Amounts Distributed
to Individuals."
CONTRACT CHARGES
Certain charges are associated with these Contracts, for example, mortality and
expense risk charges, administrative expense charges and maintenance fees. The
funds are also subject to certain fees and expenses. Purchase Payments may also
be subject to premium taxes. See "Charges and Deductions" for a complete
explanation of these charges.
FREE LOOK PROVISION
Contract Holders have the right to cancel their Contract within ten days after
receipt by returning it to the Company along with a written notice of
cancellation. Unless state law requires otherwise, the amount the Contract
Holder will receive on cancellation under this provision may reflect the
investment performance of the Purchase Payments deposited in the Separate
Account while invested. In certain cases, this may be less than the amount of
the Purchase Payments. See "Contract Rights--Right to Cancel."
5
<PAGE>
FEE TABLE
(Based on year ended December 31, 1994)
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CONTRACT HOLDERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT WILL BE BORNE, DIRECTLY OR INDIRECTLY,
UNDER THE CONTRACT. THE INFORMATION LISTED REFLECTS THE CHARGES DUE UNDER THE
CONTRACT AS WELL AS THE FEES AND EXPENSES DEDUCTED FROM THE FUNDS. ADDITIONAL
INFORMATION REGARDING THE CHARGES AND DEDUCTIONS ASSESSED UNDER THE CONTRACT
CAN BE FOUND UNDER "CHARGES AND DEDUCTIONS" IN THIS PROSPECTUS. CHARGES AND
EXPENSES SHOWN DO NOT TAKE INTO ACCOUNT PREMIUM TAXES THAT MAY BE APPLICABLE.
FOR MORE INFORMATION REGARDING EXPENSES PAID OUT OF THE ASSETS OF A PARTICULAR
FUND, SEE THE FUND'S PROSPECTUS.
CONTRACT HOLDER TRANSACTION EXPENSES
DEFERRED SALES CHARGE (as a percentage of amount withdrawn)(/1/):
INSTALLMENT PURCHASE PAYMENT CONTRACT SINGLE PURCHASE PAYMENT CONTRACT
<TABLE>
<CAPTION>
(based on Completed Purchase
Payment Periods) Deduction
- ---------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or 10 2%
more than 10 0%
</TABLE>
<TABLE>
<CAPTION>
(based on Completed
Contract Years) Deduction
- ----------------------------------------------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
ANNUAL CONTRACT MAINTENANCE FEE(/2/)
<TABLE>
<S> <C>
Installment Purchase Payment Contract $20.00 each
Single Premium Purchase Payment Contract 0.00 each
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
Administrative Expense Charge(/3/) 0%
-----
Total Separate Account Annual Expenses 1.25%
=====
</TABLE>
(/1/) Thededuction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Contract. The deferred sales
charge may be referred to in the Contract as a "surrender fee". See
"Charges and Deductions--Deferred Sales Charge" in this Prospectus for
instances in which this charge is not deducted.
(/2/) A maintenance fee, to the extent permitted by state law, is also deducted
upon termination of Contract.
(/3/) We currently do not impose an Administrative Expense Charge. However, we
reserve the right to deduct a daily charge of not more than 0.25% per year
from the portion of the Contract Values held in the Separate Account.
6
<PAGE>
MUTUAL FUND ANNUAL EXPENSES
(Except as noted, the following figures are a percentage of average net assets
and, except where otherwise indicated, are based on figures for the year ended
December 31, 1994)
<TABLE>
<CAPTION>
TOTAL
MUTUAL
INVESTMENT FUND
ADVISORY OTHER ANNUAL
FEES(/1/) EXPENSES(/2/) EXPENSES
---------- ------------- --------
<S> <C> <C> <C>
Aetna Variable Fund 0.25% 0.05% 0.30%
Aetna Income Shares 0.25% 0.08% 0.33%
Aetna Variable Encore Fund 0.25% 0.07% 0.32%
Aetna Investment Advisers Fund, Inc. 0.25% 0.07% 0.32%
TCI Growth(/3/) 1.00% 0.00% 1.00%
</TABLE>
- --------
(/1/) Certain of the unaffiliated Fund managers reimburse the Company for
administrative costs incurred in connection with administering the Fund as
variable funding options. These reimbursements are paid out of the
managers' investment advisory fees and are not charged to investors.
(/2/) A mutual fund's "Other Expenses" include operating costs of the fund. The
expenses are factored into the fund's net asset value -- not deducted from
the Contract Holder's or Participant's Account Value.
(/3/) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest, fees and expenses of the
non-interested directors (including counsel fees) and extraordinary
expenses.
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, you would have paid the following
expenses on a $1,000 investment:(/1/)
<TABLE>
If you surrender your contract at If you do not surrender your
the end of the applicable time ---
period: contract or if you annuitize:
<CAPTION>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $68 $105 $146 $189 $16 $50 $ 87 $189
Aetna Income Shares $68 $106 $147 $192 $16 $51 $ 88 $192
Aetna Variable Encore Fund $68 $106 $147 $191 $16 $51 $ 88 $191
Aetna Investment
Advisers Fund, Inc. $68 $106 $147 $191 $16 $51 $ 88 $191
TCI Growth $75 $126 $180 $263 $23 $72 $123 $263
</TABLE>
- --------
(/1/)The illustration reflects the $20.00 annual maintenance fee as an annual
charge of 0.040% of assets.
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN
THE TEN-YEAR PERIOD ENDED DECEMBER 31, 1994 (AS APPLICABLE), IS DERIVED FROM
THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS
HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE
INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF
ADDITIONAL INFORMATION.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- --------- --------- --------- ------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning
of period $93.586 $88.783 $84.249 $67.496 $66.174 $51.900 $45.839 $43.994 $37.445 $27.565
Value at end of
period $91.515 $93.586 $88.783 $84.249 $67.496 $66.174 $51.900 $45.839 $43.994 $37.445
Increase (decrease)
in value of
accumulation
unit(/1/) (2.21)% 5.41% 5.38% 24.82% 2.00% 27.50% 13.22% 4.19% 17.49% 35.84%
Number of
accumulation units
outstanding at end
of period 478,180 1,100,182 1,073,452 908,777 810,126 831,547 887,039 1,020,744 1,273,920 1,089,637
<CAPTION>
AETNA INCOME SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value at beginning
of period $43.469 $40.129 $37.815 $32.066 $29.752 $26.291 $24.734 $23.888 $21.203 $17.698
Value at end of
period $41.302 $43.469 $40.129 $37.815 $32.066 $29.752 $26.291 $24.734 $23.888 $21.203
Increase (decrease)
in value of
accumulation
unit(/1/) (4.99)% 8.32% 6.12% 17.93% 7.78% 13.16% 6.29% 3.54% 12.66% 19.80%
Number of
accumulation units
outstanding at end
of period 151,836 508,993 450,636 427,893 358,454 366,176 383,856 377,078 565,148 533,123
<CAPTION>
AETNA VARIABLE ENCORE FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value at beginning
of period $35.605 $34.936 $34.122 $32.431 $30.285 $28.029 $26.401 $25.028 $23.660 $22.084
Value at end of
period $36.602 $35.605 $34.936 $34.122 $32.431 $30.285 $28.029 $26.401 $25.028 $23.660
Increase (decrease)
in value of
accumulation
unit(/1/) 2.80% 1.92% 2.39% 5.21% 7.09% 8.05% 6.17% 5.49% 5.78% 7.14%
Number of
accumulation units
outstanding at end
of period 194,998 410,858 532,949 548,425 722,438 653,519 720,726 898,557 881,853 1,170,600
<CAPTION>
AETNA INVESTMENT ADVISERS
FUND, INC.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value at beginning
of period $14.503 $13.363 $12.717 $10.882 $10.423 $10.000(/2/)
Value at end of
period $14.252 $14.503 $13.363 $12.717 $10.882 $10.423
Increase (decrease)
in value of
accumulation
unit(/1/) (1.73)% 8.53% 5.08% 16.86% 4.40% 4.23%
Number of
accumulation units
outstanding at end
of period 679,528 2,642,078 2,332,457 1,324,822 984,798 639,219
<CAPTION>
TCI GROWTH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value at beginning
of period(/3/) $10.473 $10.000
Value at end of
period $10.213 $10.473
Increase (decrease)
in value of
accumulation
unit(/1/) (2.48)% 4.73%
Number of
accumulation units
outstanding at end
of period 568,154 1,069,488
</TABLE>
(/1/)The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar
annual maintenance fee, if any. Inclusion of these charges would reduce
the investment results shown.
(/2/)The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(/3/)The initial Accumulation Unit value was established at $10.000 on February
1, 1993, the date on which the Portfolio became available under the
contract.
8
<PAGE>
PERFORMANCE DATA
From time to time, the Company may advertise different types of historical
performance for the variable funding options of the Separate Account available
under the Contracts described in this Prospectus. The Company may advertise the
"standardized average annual total returns" of the variable funding options,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
return." Both methods are described below. Further information is contained in
the SAI.
"Standardized average annual total returns" are computed according to a formula
in which a hypothetical investment of $1,000 is applied to the variable funding
options under the Contract and then related to the ending redeemable values
over the most recent one, five and ten-year periods (or since inception if less
than 10 years). Standardized returns will reflect the deduction of all
recurring charges during each period (e.g., mortality and expense risk charges,
the annual maintenance fee, the administrative expense charge and any
applicable deferred sales charge).
"Non-standardized return" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
a three-year period.
For Funds that were in existence prior to the date that the Fund became
available under the Contract, the performance data will show the investment
performance that such Fund would have achieved (reduced by the applicable
charges) had it been available under the Contract for the period quoted.
The Company may distribute sales literature that compares the percentage change
in Accumulation Unit values for any of the Funds to established market indexes
such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average or to the percentage change in unit value for other management
investment companies that have investment objectives similar to the Fund being
compared.
Any advertisement will also include total return figures calculated as
described in the Statement of Additional Information. The total return figures
do reflect the deduction of any applicable maintenance fees and deferred sales
charge, as well as any asset based charges.
The Company may publish in advertisements and reports to Contract Holders and
Participants, the ratings and other information assigned to it by one or more
independent rating organizations such as A.M. Best Company, Duff & Phelps,
Standard & Poor's Corporation and Moody's Investors Service, Inc. The purpose
of the ratings is to reflect the financial strength and/or claims-paying
ability of the Company. From time to time, the Company will quote articles from
newspapers and magazines or other publications or reports, including, but not
limited to The Wall Street Journal, Money magazine, USA Today and The VARDS
Report.
The Company may also quote ranking services such as Morningstar's Variable
Annuity/Life Performance Report and Lipper's Variable Insurance Products
Performance Analysis Service (VIPPAS), which rank variable annuity or life
subaccounts or their underlying funds by performance and/or
investment objective.
9
<PAGE>
THE COMPANY
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized in 1976 under the insurance laws of the State of Connecticut; it is
the depositor for Variable Annuity Account B. As of December 31, 1994, the
Company managed over $20.4 billion of assets. As of December 31, 1993, the
Company ranked among the top 2% of all U.S. life insurance companies by size.
The Company is a wholly owned subsidiary of Aetna Life and Casualty Company
which, with its subsidiaries, constitutes one of the nation's largest
diversified financial services organizations. The Company's Home Office is
located at 151 Farmington Avenue, Hartford, Connecticut 06156.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B is a separate account established by the Company in
1976 pursuant to the insurance laws of the State of Connecticut. The Separate
Account was formed for the purpose of segregating assets attributable to the
variable portions of Contracts from other assets of the Company. The Separate
Account is registered as a unit investment trust under the Investment Company
Act of 1940 and meets the definition of "separate account" under the federal
securities laws.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities arising out of any other business
the Company may conduct. Income, gains or losses of the Separate Account are
credited to or charged against the assets of the Separate Account without
regard to other income, gains or losses of the Company. However, all
obligations arising under the Contracts are general corporate obligations of
the Company.
THE FUNDS
The Contract Holder will designate some or all of the mutual funds described
below as variable funding options under the Contract. The Contract Holder may
select one or more of the Funds for investment of the Purchase Payments made on
their behalf. Except where noted, all of the Funds are diversified as defined
in the Investment Company Act of 1940.
. AETNA VARIABLE FUND (sometimes called the "Growth and Income Fund") seeks
to maximize total return through investments in a diversified portfolio
of common stocks and securities convertible into common stock.
. AETNA INCOME SHARES (sometimes called the "Bond Fund") seeks to maximize
total return, consistent with reasonable risk, through investments in a
diversified portfolio consisting primarily of debt securities.
. AETNA VARIABLE ENCORE FUND (sometimes called the "Money Market Fund")
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.
. AETNA INVESTMENT ADVISERS FUND, INC. (sometimes called the "Managed
Fund") is a managed mutual fund which seeks to maximize investment return
consistent with reasonable safety of principal by investing in one or
more of the following asset classes: stocks, bonds and cash equivalents
based on the Company's judgment of which of those sectors or mix thereof
offers the best investment prospects.
. TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century Fund) seeks capital
growth by investing in common stocks (including securities convertible
into common stocks) and other securities that meet certain fundamental
and technical standards of selection and, in the opinion of TCI Growth's
management, have better than average potential for appreciation. TCI
Growth tries to stay fully invested in such securities, regardless of the
movement of prices generally. The Fund
10
<PAGE>
may invest in foreign securities. Foreign investing involves risks that
differ from those involved in domestic investing. See the Fund's prospec-
tus for a discussion of these risks.
There is no assurance that the Funds will achieve their investment objectives.
Participants and Contract Holders bear the full investment risk of investments
in the Funds selected.
Some of the 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.
More comprehensive information, including a discussion of potential risks, is
found in the current prospectus for each Fund which is distributed with and
must accompany this Prospectus. Contract Holders and Participants should read
the accompanying prospectuses carefully before investing. Additional
prospectuses and the Statements of Additional Information for this Prospectus
and each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed on the cover of this Prospectus.
FUND INVESTMENT ADVISERS
The following identifies the investment adviser for each Fund.
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
---- ------------------
<S> <C>
Aetna Variable Fund Aetna Life Insurance
and Annuity Company (ALIAC)
Aetna Income Shares ALIAC
Aetna Variable Encore Fund ALIAC
Aetna Investment Advisers Fund, Inc. ALIAC
TCI Growth Investors Research Corporation
</TABLE>
MIXED AND SHARED FUNDING
Shares of the Funds are sold to the Company for funding variable annuities. The
Funds may be sold to other companies for the same purpose. This is referred to
as "shared funding." Shares of the Funds may also be used for funding variable
life insurance policies through variable life separate accounts sponsored by us
or by third parties. This is referred to as "mixed funding."
It is conceivable that, in the future, it may be disadvantageous for variable
annuity separate accounts and variable life separate accounts to invest in
these Funds simultaneously, since the interests of the contract holders or
policy owners or of the insurance companies may differ. Each Fund's Board of
Trustees or 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.
FUND ADDITIONS, SUBSTITUTIONS AND LIMITATIONS
We may, from time to time, add additional mutual funds as eligible variable
funding options under the Contracts. In such event, the Contract Holder or you,
if permitted by the Contract Holder, may be permitted to select from these
other funds, subject to any conditions that may be imposed in connection with
those options. See "Transfers and Allocation Changes."
11
<PAGE>
The Company's current policy is to allow only the Aetna Variable Fund, Aetna
Income Shares and Aetna Investment Advisers Fund, Inc., to be used as variable
investment options during the Annuity Period. See "Annuity Period Elections."
A Contract Holder which is a Plan or a Section 457 Plan may decide to offer
only a select number of Funds as funding options under its Plan, or may decide
to substitute shares of one Fund for shares of another Fund currently held by
the Separate Account.
PURCHASE
CONTRACT PURCHASE
An eligible Individual, or an organization eligible to establish deferred
compensation plans may acquire one or more individual Contracts by filling out
the appropriate application forms and returning them to the Company or to a
Distributor for delivery to the Company. Once we approve the application, a
Contract (or Contracts) is issued to the individual or organization as Contract
Holder. The Contract Holder exercises all rights under the Contracts. See
"Contract Rights."
The Company must accept or reject an application within two business days of
its receipt. If the application is incomplete, the Company may hold it and any
accompanying Purchase Payment for five days. Purchase Payments may be held for
longer periods only with the consent of the Contract Holder, pending acceptance
of the application. If the application is accepted, a Contract will be issued
to the Contract Holder. Any Purchase Payment accompanying the application or
received prior to acceptance of the application, will be invested as of the
date of acceptance. If the application is rejected, the application and any
Purchase Payments will be returned to the Contract Holder. Initial payments
held for longer than the five business days will be deposited in the Aetna
Variable Encore Fund until the forms are completed.
The minimum Purchase Payment for a new single payment deferred Contract issued
to Individuals is $5,000. All other single payment Contracts have a minimum
Purchase Payment of $10,000. Installment Purchase Payment Contracts are
available to Individuals only. Installment Purchase Payments must be at least
$100 per month ($1,200 annually) and may not be less than $25 per payment. The
usual maximum issue age where Annuity payments are not to begin immediately is
age 80. For Contracts where Annuity payments are to begin immediately, the
maximum issue age depends on the Annuity option selected but may not be greater
than age 90.
This Contract may be aggregated with other Annuity Contracts purchased by the
Contract Holder from the Company (and its affiliates) on or after October 21,
1988 for purposes of determining the taxable portion of payments from this
Contract. See "Tax Status of Amounts Distributed to Individuals."
NET PURCHASE PAYMENTS
Each Purchase Payment is forwarded to the Company through a Distributor. Each
Net Purchase Payment, to the extent it is to be accumulated on a variable
basis, is placed in the Separate Account and credited to the Contract.
The Contract Holder or, if permitted by a Plan or a Section 457 Plan, the
Participant may elect to have the Net Purchase Payment(s) accumulate (a) on a
variable basis by allocation to one or more of the available Funds; (b) on a
fixed basis under the available credited interest option; or (c) in a
combination of any of the available investment options. The Net Purchase
Payment(s) must be allocated to the respective options in increments of whole
percentage amounts.
Under an installment Purchase Payment Contract, the Contract Holder may elect
to change the allocation of future Net Purchase Payments to any accumulation
option described above.
12
<PAGE>
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities
and Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. (NASD). As Underwriter, the Company will contact with
one or more registered broker-dealers ("Distributors"), including at least one
affiliate of the Company, to offer and sell the Contracts. All persons offering
and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell Variable
Annuity Contracts. These registered representatives may also provide services
to Participants in connection with establishing their Accounts under the
Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum percentage amount that
the Company will ever pay as commission with respect to any given Purchase
Payment is with respect to those made during the first year of Purchase
Payments under a Contract. That percentage amount will range from 1% to 7 1/2%
of those Purchase Payments. The Company may also pay renewal commissions on
Purchase Payments made after the first year and service fees. The average of
all payments made by the Company is estimated to equal approximately 3% of the
total Purchase Payments made over the life of an average Contract. The Company
may also reimburse the Distributor for certain expenses. The name of the
Distributor and the registered representative responsible for your Contract are
set forth on your application. Commissions and sales related expenses are paid
by the Company and are not deducted from Purchase Payments. See "Charges and
Deductions--Deferred Sales Charge."
DETERMINING CONTRACT VALUE
ACCUMULATION UNITS
A Purchase Payment that is directed to one or more of the Funds is deposited in
the Separate Account and credited to the Account in the form of Accumulation
Units for each Fund selected. The number of Accumulation Units credited is
determined by dividing the applicable portion of the Purchase Payment by that
Contract's Accumulation Unit value of the appropriate Fund. The Accumulation
Unit value used is that next-computed following the date on which a Purchase
Payment is received, unless the application has not been accepted. In that
event, Purchase Payments will be credited at the Accumulation Unit Value next
determined after acceptance of the application. Shares of the Funds are
purchased by the Separate Account at the net asset value next determined by the
Fund following receipt of Purchase Payments by the Separate Account. The value
of Accumulation Units attributable to the Funds will be affected by the
investment performance, expenses and charges of those Funds. Generally, if the
net asset value of the fund increases, so does the Accumulation Unit value;
however, performance of the Separate Account is reduced by charges and
deductions under the Contract.
Accumulation Units are valued separately for each Fund. Therefore, if you elect
to have a Purchase Payment invested in a combination of Funds, you will have
Accumulation Units credited from more than one source. The value of your
Account as of the most recent Valuation Period, is determined by adding the
value of any Accumulation Units attributed to the Fund(s) you have selected to
the value of any amounts invested in the Fixed Account.
NET INVESTMENT FACTOR
The value of an Accumulation Unit for any Valuation Period is calculated by
multiplying the Accumulation Unit value for the immediately preceding Valuation
Period by the net investment factor of the appropriate investment option for
the current period.
13
<PAGE>
The net investment factor is calculated separately for each Fund in which
assets of the Separate Account are invested. It is determined by adding
1.0000000 to the net investment rate.
The net investment rate equals (a) the net assets of the Fund held by the
Separate Account at the end of a Valuation Period, minus (b) the net assets of
the Fund held by the Separate Account at the beginning of a Valuation Period,
plus or minus (c) taxes or provision for taxes, if any, attributable to the
operation of the Separate Account, divided by (d) the value of the Fund's
Accumulation and Annuity Units held by the Separate Account at the beginning of
the Valuation Period, minus (e) a daily charge at an annual rate of 1.25% for
the Annuity mortality and expense risks and a daily administrative expense
charge which will not exceed 0.25% (0% through April 30, 1996) on an annual
basis. The net investment rate may be more or less than zero.
CONTRACT RIGHTS
RIGHT TO CANCEL
The Contract Holder may cancel the Contract no later than ten days after
receiving it (or as otherwise allowed by state law) by returning it along with
a written notice of cancellation to the Company. The Company will produce a
refund not later than seven days after it receives the Contract and the written
notice at its Home Office. Unless the applicable state law requires a refund of
the Purchase Payment(s) only, the Company will refund the Purchase Payment(s)
plus any increase or minus any decrease in the value attributable to any
Purchase Payment(s) allocated to the variable option(s).
RIGHTS UNDER THE CONTRACT
All rights under the Contract rest with the Contract Holder. For a Contract
issued to a Plan or Section 457 Plan, the Contract Holder is the employer or
other obligor under the Plan and the Contract will be a part of the employer's
general assets, subject to the claims of its general creditors. Benefits
available to Participants are governed exclusively by the provisions of the
Plan or Section 457 Plan and are backed only by the general assets of the
employer. Some of the options and elections under the Contract may not be
available to Participants under the provisions of the Plan or Section 457 Plan.
Contact your employer for information regarding the specifics of your plan.
TRANSFERS AND ALLOCATION CHANGES
During each calendar year, the Contract Holder may change the allocation of
future Net Purchase Payments among the allowable investment options. There is
no limit to the number of changes you may make to your allocations. You may
also make any number of transfers of not less than $500 among funding options
during the calendar year, without charge.
Any transfer will be based on the Accumulation Unit value next determined after
a proper request is received by the Company at its Home Office.
During the Annuity Period, no transfers of accumulated value are allowed.
WITHDRAWALS
The Contract Holder may withdraw all or a portion of the Contract value during
the Accumulation Period. To do so, the Contract Holder must properly complete a
disbursement form and send it to the Home Office. Disbursement forms are
available from the Company and its representatives. Withdrawals may be
requested in one of the following three ways:
. Full Withdrawal of the Contract: The amount paid will be the full value
of the Contract minus any applicable deferred sales charge and
maintenance fee due.
. Partial Withdrawal (Percentage): The amount paid will be the percentage
of the Contract value requested minus any applicable deferred sales
charge.
. Partial Withdrawal (Specific Dollar Amount): The amount paid will be the
dollar amount requested. However, the amount withdrawn from the Contract
will equal the dollar amount requested plus any applicable deferred sales
charge.
All amounts paid will be based on account values as of the end of the Valuation
Period the disbursement form is received in the Home Office. For any partial
withdrawal, unless requested otherwise by the
14
<PAGE>
Contract Holder, the value of the Accumulation Units cancelled will be
withdrawn proportionately from each investment option used under the Contract.
Payments for withdrawal requests will be made in accordance with SEC
requirements, but normally not later than seven calendar days after a properly
completed disbursement form is received at the Company's Home Office or within
seven calendar days of the date the disbursement form may specify. Payments may
be delayed for: (a) any period in which the New York Stock Exchange
("Exchange") is closed (other than customary weekend and holiday closings) or
in which trading on the Exchange is restricted; (b) any period in which an
emergency exists where disposal of securities held by the funds is not
reasonably practicable or where it is not reasonably practicable for the value
of the assets of the Funds to be fairly determined; or (c) such other periods
as the SEC may by order permit for the protection of Contract Holders and
Participants. The conditions under which restricted trading or an emergency
exists shall be determined by the rules and regulations of the SEC.
Tax treatment of withdrawals from this Contract may be modified if the Contract
Holder owns other Annuity Contracts issued by the Company (and its affiliates)
that were purchased on or after October 21, 1988. See "Tax Status of Amounts
Distributed to Individuals."
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinvest all or a portion of the proceeds
received for the full withdrawal of a Contract within 30 days after such
withdrawal. Accumulation Units will be credited to the Contract for the amount
reinvested, as well as for any applicable maintenance fee and any appropriate
portion of any deferred sales charge imposed at the time of withdrawal.
Any maintenance fee which falls due after the withdrawal and before the
reinvestment will be deducted from the amount reinvested. Such reinvested
amounts will be reallocated to the applicable investment options in the same
proportion as they were allocated at the time of withdrawal.
The number of Accumulation Units credited will be based upon the Accumulation
Unit value(s) next computed following receipt at the Company's Home Office of
the reinvestment request along with the amount to be reinvested. The
reinvestment privilege may be used only once.
CHARGES AND DEDUCTIONS
MAINTENANCE FEE
A $20 annual maintenance fee is deducted from installment Purchase Payment
Contracts during the Accumulation Period on the Contract anniversary date (or,
if not a Valuation Date, on the next Valuation Date). The Company deducts this
fee from each respective investment option in the same proportion as the values
held under each option have to the total value of the Contract. A maintenance
fee, to the extent permitted by state law, is also deducted upon termination of
the Contract. This fee is to reimburse the Company for some of its
administrative expenses relating to the establishment and maintenance of the
Contract.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes a daily deduction from the variable portion of Contract
values for mortality and expense risks. The deduction, made as part of the
calculation of Accumulation and Annuity Unit value(s), is equivalent to 1.25%
per year. The mortality risk charge is to compensate the Company for the risk
it assumes when it promises to continue making payments for the lives of
individual Annuitants according to Annuity rates specified in the Contract at
issue. The expense risk charge is to compensate
15
<PAGE>
us for the risk that actual expenses for costs incurred under the Contract will
exceed the maximum costs that can be charged under the Contract. During 1994,
the Company received $8,918,042 for mortality and expense risks from Contracts
funded through the Separate Account.
ADMINISTRATIVE EXPENSE CHARGE
The Company reserves the right to deduct a daily charge of not more than 0.25%
per year from the variable portion of Contract values to reimburse the Company
for some of the expenses incurred by the Company for administering the
Contract. This charge will be established by the Company on an annual basis
effective each May 1 and continue until April 30 of the following year. During
the Accumulation Period, the charge may fluctuate annually. Once an Annuity
option is elected, the administrative expense charge will be established and
will remain effective during the entire Annuity Period.
For the period May 1, 1995 through April 30, 1996 the Company has established
the charge to be zero. Since the administrative expense charge is a percentage
of the variable portion of Contract values, there may be no relationship
between the amount so deducted and the amount of expenses attributable to the
Contract.
FUND EXPENSES
Most expenses incurred in the operations of each Fund are borne by that Fund
and are deducted before the Fund calculates its net assets. Each Fund has an
investment adviser and pays an investment advisory fee, which is deducted daily
from each Fund's net assets. Fund advisers may reimburse the Funds they advise
for some or all of these expenses. For further details of each Fund's expenses,
Contract Holders and Participants should read the accompanying prospectus for
each Fund and refer to the Fee Table in this Prospectus.
DEFERRED SALES CHARGE
There are no deductions from Purchase Payments for sales commissions or related
expenses. Sales commissions and expenses are advanced by the Company and
recovered out of any deferred sales charges or, if deferred sales charges are
insufficient, out of its profits from investment activities, including the
mortality and expense risk charges under the Contract. For sales commissions
paid in connection with the sale of the Contracts, see "Contract Purchase--
Distribution." Deferred sales charges may be deducted from amounts withdrawn
during the first 10 Purchase Payment Periods (for Installment Purchase Payment
Contracts) or 9 Contract Years (for Single Purchase Payment Contracts), as set
forth in the table below. The deferred sales charge will apply to withdrawals
during the Accumulation Period. It will apply during the Annuity Period if the
nonlifetime Annuity Option is elected on a variable basis and the remaining
value is withdrawn before three years of Annuity payments have been completed.
See "Annuity Period--Annuity Options." There are additional restrictions and
deductions on withdrawals. See "Contract Rights--Withdrawals."
The following tables reflect the deferred sales charge deduction as a
percentage of the amount withdrawn:
SINGLE PURCHASE PAYMENT CONTRACTS:
<TABLE>
<CAPTION>
DEFERRED
COMPLETED SALES CHARGE
CONTRACT YEARS DEDUCTION
- ----------------------- ------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
INSTALLMENT PURCHASE PAYMENT CON-
TRACTS (Individuals only):
<TABLE>
<CAPTION>
DEFERRED
PURCHASE PAYMENT SALES CHARGE
PERIODS COMPLETED DEDUCTION
- ----------------------- ------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or 10 2%
More than 10 0%
</TABLE>
16
<PAGE>
The deduction for the deferred sales charge will not exceed 8.5% of the total
Purchase Payments actually made to the Contract.
A deferred sales charge is not deducted from any Contract value which:
For Individuals is--
(a) applied to provide Annuity benefits,
(b) withdrawn on or after the tenth anniversary of the Effective Date of
the Contract,
(c) paid due to the death of the Contract Holder before Annuity payments
begin,
(d) withdrawn from an installment Purchase Payment Contract providing the
Contract Holder is at least age 59 1/2 and nine Purchase Payment
Periods have been completed, or
(e) paid where the Contract value is less than $2,500 and no withdrawals
have been made from that Contract within the prior 12 months. If more
than one Contract is being fully withdrawn on behalf of a Participant,
all Contract values will be added together to determine eligibility for
the $2,500 exemption.
For Plans is--
(a) applied to provide Annuity benefits,
(b) withdrawn on or after the tenth anniversary of the Effective Date of
the Contract,
(c) paid due to the death of the Participant before Annuity payments begin,
(d) withdrawn due to the election of the Systematic Withdrawal Option, or
(e) paid where the Contract value is less than $2,500 and no withdrawals
have been made from that Contract within the prior 12 months. If more
than one Contract is being fully withdrawn on behalf of a Participant,
all Contract values will be added together to determine eligibility for
the $2,500 exemption.
For Section 457 Plans is--
(a) applied to provide Annuity benefits,
(b) withdrawn on or after the tenth anniversary of the Effective Date of
the Contract,
(c) paid due to the death of the Participant before Annuity payments begin,
(d) withdrawn due to the election of the Estate Conservation Option or the
Systematic Withdrawal Option,
(e) withdrawn due to unforeseeable emergency provisions as specified in the
Code, or
(f) paid where the Contract value is less than $2,500 and no withdrawals
have been made from that Contract within the prior 12 months. If more
than one Contract is being fully withdrawn on behalf of a Participant,
all Contract values will be added together to determine eligibility for
the $2,500 exemption.
For single Purchase Payment Contracts issued to Individuals, up to and
including 10% of the current Contract value may be withdrawn annually without a
deferred sales charge. This applies only to the first partial withdrawal in
each calendar year; it does not apply to full Contract surrenders. The 10%
amount is calculated using the Contract value on the date of withdrawal. This
provision may not be exercised if SWO or ECO is elected. See "Additional
Withdrawal Options." This provision also does not apply to installment Purchase
Payment Contracts.
In the instances cited in the above paragraphs, no deferred sales charge is
deducted. However, the withdrawn amount may be subject to the 10% federal
penalty tax. See "Tax Status of Amounts Distributed Under the Contract."
17
<PAGE>
Based on its actuarial determination, the Company does not anticipate that the
deferred sales charge will cover all sales and administrative expenses which
the Company will incur in connection with the Contract. Also, the Company does
not intend to profit from either the annual maintenance fee or the
administrative expense charge, if imposed. The Company does hope to profit from
the daily deduction for mortality and expense risks. Any such profit, as well
as any other profit realized by the Company and held in the general account
(which supports insurance and Annuity obligations), would be available for any
proper corporate purpose, including, but not limited to, payment of sales and
distribution expenses.
PREMIUM TAX
Several states and municipalities impose a premium tax on Annuities. Currently
such taxes range up to 4%. Ordinarily, any state premium tax will be deducted
from the amount applied to an Annuity option. However, the Company reserves the
right to deduct a state premium tax at any time from the Purchase Payment(s) or
from the Contract value based upon the Company's determination of when such
tax is due.
Any municipal premium tax assessed at a rate in excess of 1% will be deducted
from the Purchase Payment(s) or from the amount applied to an Annuity option
based upon the Company's determination of when such tax is due. The Company
will absorb any municipal premium tax which is assessed at 1% or less. The
Company reserves the right, however, to reflect this added expense in its
Annuity purchase rates for residents of such municipalities.
ADDITIONAL WITHDRAWAL OPTIONS
GENERAL
The Company offers two additional withdrawal options that are not considered
Annuity options. The Estate Conservation Option ("ECO") is available to Section
457 Plan participants only and the Systematic Withdrawal Option ("SWO") is
available to Plan and Section 457 Plan Participants. These options are
available to you with contract values of at least $25,000 at the time of
election and are available at certain ages as described below. Under SWO, you
receive a series of partial withdrawals from your account based on a payment
method you select. It is designed for those who want a periodic income while
retaining investment flexibility for amounts accumulating under the Contract.
ECO offers the same investment flexibility as SWO, but is designed for those
who want to receive only the minimum distribution that the Code requires each
year. Under ECO, the Company calculates the minimum distribution amount
required by law and pays you that amount once a year.
Amounts withdrawn for ECO and SWO will be deducted from the Contract in the
same manner as for any other withdrawals during the Accumulation Period except
that no deferred sales charge will be applied. See "Contract Rights--
Withdrawals During Accumulation Period" and "Deferred Sales Charge."
Since ECO and SWO are not Annuity options, the Contract remains in the
Accumulation Period, retains all the rights and flexibility described in this
prospectus, and is subject to all other Contract charges. The value of the
Accumulation Units cancelled will be withdrawn proportionately from the
investment options used under the Contract. The Company reserves the right to
discontinue the availability of these options and to change the terms for
future elections.
Once elected, the applicable option(s) may be revoked by the Contract Holders
or Participants at any time, but only by submitting a written request to the
Company's Home Office. Any revocation will apply only to the amounts not yet
paid. Once ECO or SWO is revoked, it may not be elected again.
18
<PAGE>
Participants should determine the availability of ECO and SWO by checking with
the Contract Holder. Participants should also determine the terms and
conditions that may apply (any pay-out election under a deferred compensation
plan must be irrevocable).
SWO is different from ECO in the following ways: (1) SWO payments are made for
fixed dollar amount or fixed time period whereas ECO payments vary in dollar
amount and can continue indefinitely during the Participant's lifetime, and (2)
generally, SWO payments will be higher than expected ECO payments.
Participants should carefully assess their future income needs when considering
the election of these options. Participants should also consult their tax
advisor before requesting the election of these options due to the potential
for adverse tax consequences.
In the event of the Participant's death, payment may be continued if allowed by
the Plan or Section 457 Plan.
ESTATE CONSERVATION OPTION
ECO is available to Section 457 Plans only.
At the time of ECO election, the total aggregate value of all Contracts applied
to ECO must be $25,000 or more. The first distribution must be made in the
calendar year in which the Participant has attained age 70 1/2.
The Company will calculate and distribute an annual amount using the method
contained in the Code's minimum distribution regulations. The annual
distribution is determined by dividing the prior December 31 value of the
Contract by a life expectancy factor from tables designed by the IRS. The
factor will be based on either the Participant's life expectancy or the joint
life expectancies of the Participant and the Participant's designated
beneficiary. If ECO is based on the Participant's life expectancy, the full
Contract value must be distributed in the year following the Participant's
death as required by current IRS regulations. Factors will be recalculated for
each year's distribution. This calculation will be changed, if necessary, to
conform to changes in the Code or applicable regulations.
SYSTEMATIC WITHDRAWAL OPTION
The Company will distribute a portion of the Contract, as directed by the
Contract Holder, monthly, quarterly, semiannually, or annually.
No election may be made that would result in a payment of less than $250.
At the time of SWO election, the total aggregate value of all Contracts applied
to SWO must be $25,000 or more.
One of two methods of distribution may be elected:
(a) Specified Payment -- payments of a designated amount. The annual dollar
amount chosen cannot be greater than 10% of the cash value applied to
SWO. The specified payment minimum distribution is determined by
dividing the value of the Participant's portion of the Contract by the
life expectancy factor. The value of the Account to be used in this
calculation is the value on the December 31st prior to the year for
which the payment is being made. The specified payment amount will
remain constant unless a higher amount is required under Code
distribution requirements. If the dollar amount chosen is less than the
Code's minimum distribution, the Company will calculate and pay the
minimum distribution amount.
19
<PAGE>
(b) Specified Period -- payments for a designated time period. The
specified period must be at least 10 years but not greater than the
Participant's life expectancy factor. Each annual distribution is
determined by dividing the value of the Participant's portion of the
Plan Account by the number of years remaining in the elected period.
The value of the Contract to be used in this calculation is the value
on the December 31st prior to the year for which the payments are being
made. For payments made more often than annually, the annual payment
result (calculated above) is divided by the number of payments due each
year.
The annual minimum SWO distribution, or maximum SWO time period, will be
determined, as directed by the Contract Holder, by a life expectancy factor
from tables designated by the IRS. The factor will be based on either the
Participant's life expectancy or the joint life expectancies of the Participant
and Participant's designated beneficiary. Factors will be reduced by one for
each distribution year.
ANNUITY PERIOD
ANNUITY PERIOD ELECTIONS
The Contract Holder must notify the Company in writing of the Annuity start
date and Annuity option elected. (For more details, see the SAI.) Until a date
and option are elected, the Contract will continue in the Accumulation Period.
The Contract Holder may give written notice to the Company at least 30 days
before Annuity payments begin, electing or changing (a) the date on which
Annuity payments are to begin, (b) the Annuity option, (c) whether the payments
are to be made monthly, quarterly, semiannually or annually, and (d) the
investment option(s) used to provide Annuity payments (i.e., a Fixed Annuity
using the general account, Aetna Variable Fund, Aetna Income Shares, Aetna
Investment Advisers Fund, Inc. or any combination thereof). Aetna Variable
Encore Fund and TCI Growth cannot be used as investment options during the
Annuity Period. Once Annuity Payments begin, the Annuity Option may not be
changed, nor may transfers be made among funding options.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate (3
1/2% per annum, unless a 5% annual rate is elected). Selection of a 5% rate
causes a higher first payment, but Annuity payments will increase thereafter
only to the extent that the net investment rate exceeds 5% on an annualized
basis. Annuity payments would decline if the net investment rate were below 5%.
Use of the 3 1/2% assumed rate causes a lower first payment, but subsequent
payments would increase more rapidly or decline more slowly as changes occur in
the net investment rate.
No election may be made that would result in a first Annuity payment of less
than $20 or total yearly Annuity payments of less than $100. If the value of
the Contract is insufficient to elect an option for the minimum amount
specified, a lump-sum payment must be elected.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
INDIVIDUALS
The Annuity commencement date will normally be the retirement date elected
by the Contract Holder.
PLANS
The retirement date and the Annuity options available to Participants are
normally established by the terms of the Plan.
20
<PAGE>
The present value of the expected payments to the Plan Participant must be
more than 50% of the present value of the total expected payments to be
made to the Plan Participant and beneficiary.
SECTION 457 PLANS
The retirement date and the Annuity options available to Participants are
normally established by the terms of the Section 457 Plan, subject to
applicable provisions of the Code.
Section 401(a)(9) of the Code has required minimum distribution rules for
457 Plans. Under such rules, generally, for all nongovernmental Section 457
Plans, distributions must begin no later than April 1 of the calendar year
following the calendar year in which the Participant attains age 70 1/2. In
addition, distributions must be in a form and amount sufficient to satisfy
the Code requirements.
In determining the amount of benefit payments, the minimum distribution
incidental death benefit rule described in IRS regulations* must be
satisfied.
Annuity payments may not extend beyond (a) the life of the Annuitant, (b)
the joint lives of the Annuitant and beneficiary, (c) a period certain
greater than the Annuitant's life expectancy, or (d) a period certain
greater than the joint life expectancies of the Annuitant and beneficiary.
A 50% federal penalty tax will be assessed on the amount of distribution
required each year which is not distributed under the Code's minimum
distribution rules.
* This rule assures that any death benefits payable under the Plan are
incidental to the primary purpose of the Plan which is to provide
retirement benefits or deferred compensation to the Participant. The
amount to be distributed under this rule is determined based on the
Participant's age and tables contained in the IRS Regulations.
ANNUITY OPTIONS
LIFETIME:
(a) Life Annuity -- an Annuity with payments guaranteed to the date of the
Annuitant's death. This option may be elected with payments guaranteed
for 5, 10, 15 or 20 years. Because it provides a specified minimum
number of Annuity payments, the election of a guaranteed payment period
results in somewhat lower payments.
(b) Life Income Based Upon the Lives of Two Payees -- An Annuity will be
paid during the lives of the Annuitant and a second Annuitant. Payments
will continue until both Annuitants have died. When this option is
chosen, a choice must be made of:
(i) 100% of the payment to continue after the first death;
(ii) 66 2/3% of the payment to continue after the first death;
(iii) 50% of the payment to continue after the first death;
(iv) Payments for a minimum of 120 months, with 100% of the payment to
continue after the first death; or
(v) 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant;
Because (iv) provides a specified minimum number of Annuity payments,
the election of the guaranteed payment period results in somewhat lower
payments.
For Plans and Section 457 Plans, payments under any lifetime Annuity option
will be determined without regard to the sex of the Annuitant(s). Such Annuity
payments will be based solely on the age of the Annuitant(s).
21
<PAGE>
If a lifetime option is elected without a guaranteed minimum payment period, it
is possible that only one Annuity payment will be made if the Annuitant under
(a), or the surviving Annuitant under (b) (i), (ii), (iii) or (v), should die
prior to the due date of the second Annuity payment.
Once lifetime Annuity payments begin, neither the Contract Holder nor the
Annuitant can elect to receive a lump-sum settlement.
NONLIFETIME:
Payments for a Specified Period -- an Annuity with payments to be made for
three to thirty years, as selected. If this option is elected on a variable
basis, the Contract Holder, if permitted by the Plan or Section 457 Plan,
may request at any time during the payment period that the present value of
all or any portion of the remaining variable payments be paid in one sum.
However, any lump sum elected before three years of payments have been
completed will be treated as a withdrawal during the Accumulation Period
and any applicable deferred sales charge will be assessed. See "Charges and
Deductions -- Deferred Sales Charge." This option is not available on a
variable basis under a Contract which provides for immediate Annuity
benefits.
The Company makes a daily deduction for mortality and expense risks from any
Contract values held on a variable basis. See "Mortality and Expense Risk
Charges." Therefore, electing the nonlifetime option on a variable basis will
result in a deduction being made even though the Company assumes no mortality
risk.
The Company may make available to Contract Holders optional methods of payment
in addition to the Annuity options described above.
DEATH BENEFIT
ACCUMULATION PERIOD
The Contract value is determined using the Accumulation Unit value(s) on the
date a request for payment and proof of death acceptable to the Company are
received at its Home Office. Until the election of method of payment, amounts
will remain invested as they were before the death, and the beneficiary will
assume all nonforfeitable rights under the Contract. The Code requires that
distributions begin within a certain time period, as described below. If no
elections are made concerning the distribution, no distributions will be made.
Failure to commence distribution within the following time periods can result
in tax penalties.
INDIVIDUALS AND PLANS
The beneficiary may elect to have any portion of the death proceeds:
(a) Paid in a lump sum;
(b) Applied to any of the "Annuity Options" (in no event may Annuity
payments to a beneficiary extend beyond the beneficiary's life
expectancy or any period certain greater than the beneficiary's
life expectancy.);
(c) Remain in the investment options available under the Contract; or
(d) Remain on deposit in the Company's general account, earning the
then current interest rate. The beneficiary may elect to receive
monthly, quarterly, semiannual or annual interest payments. (The
balance on deposit can be withdrawn at any time or applied to any
"Annuity Options.")
The death proceeds must either be applied to an Annuity option within one
year of the Contract Holder's date of death, or the entire Contract value
must be distributed within five years of the Contract Holder's date of
death. An exception to this provision applies if the beneficiary is the
surviving spouse, in which case the beneficiary may elect to be treated as
a successor Contract
22
<PAGE>
Holder of the Contract. This successor Contract Holder may exercise all
rights to the Contract. Under the Code, no distributions from the Contract
are required until the death of this successor Contract Holder.
If required by the Code, these distribution rules will also apply to
amounts paid due to the death of a Plan Participant.
SECTION 457 PLANS
If the Participant's designated beneficiary under the Section 457 Plan is
the surviving spouse, the Code allows a Section 457 Plan to give the
Participant's designated beneficiary until the Participant would have
attained age 70 1/2 to begin Annuity payments, to receive a lump-sum
distribution, or to begin receiving distributions under ECO or SWO.
If the Participant's designated beneficiary under the Section 457 Plan is
not the surviving spouse, the Section 457 Plan must provide that either
Annuity payments begin within one year of the Participant's death, or the
entire value must be distributed within five years of the Participant's
death. Annuity payments may not extend beyond fifteen years.
In no event may payments to any Participant's designated beneficiary extend
beyond the life of the Participant's designated beneficiary or any period
certain greater than the Participant's designated beneficiary's life
expectancy and must be in substantially non-increasing amounts.
If a lump-sum distribution is elected, the beneficiary will receive the value
of the Contract determined as of the Valuation Period in which proof of death
acceptable to us and a request for payment are received at the Home Office. If
an Annuity Option is elected, the value applied to the Annuity Option is
determined in the same manner as a lump-sum distribution; the amount of payout
will depend on the Annuity option elected and the investment option(s) used to
provide such payments. See "Annuity Period." If amounts are left in the
variable investment options, the account value will continue to be affected by
the investment performance of the investment option(s) selected. If amounts are
left on deposit in the general account, the principal amount is guaranteed but
interest payments may vary. In general, regardless of the method of payment,
payments received by your beneficiaries after your death are taxed in the same
manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
If an Annuitant dies after Annuity payments have begun, any death benefit
payable will depend upon the terms of the Contract and the Annuity option
selected.
If lifetime option (a) or (b) was elected without a guaranteed minimum payment
period under the Contract, Annuity payments will cease upon the death of the
Annuitant under a Life Annuity or the death of the surviving Annuitant under
options (b)(i), (ii), (iii) or (v).
Under the Contract, if lifetime option (a) or (b) was elected with a guaranteed
minimum payment period and the death of the second Annuitant under option (a)
or the surviving Annuitant under option (b)(iv) occurs prior to the end of that
period, the Company will pay to the designated beneficiary in a lump sum,
unless otherwise requested, the present value of the guaranteed Annuity
payments remaining. Such value will be determined as of the Valuation Period in
which proof of death acceptable to the Company and a request for payment are
received at its Home Office. The value will be reduced by any payments made
after the date of death.
If the nonlifetime option was elected under the Contract and the Annuitant dies
before all payments are made, the value of any remaining payments may be paid
in a lump sum to the beneficiary and no deferred sales charge will be imposed.
Such value will be determined as of the Valuation Period in which proof of
death acceptable to the Company and a request for payment are received at its
Home Office.
23
<PAGE>
INDIVIDUALS AND PLANS
If the Contract Holder dies after Annuity payments commence and there is a
death benefit payable under the Annuity option elected, the remaining
values must be distributed at least as rapidly as under the original method
of distribution. If required by the Code, these distribution rules will
also apply to amounts paid due to the death of a Plan Participant.
SECTION 457 PLANS
If there is a death benefit payable under the Annuity option elected,
Annuity payments must be distributed to the Participant's beneficiary at
least as rapidly as under the original method of distribution and in
substantially nonincreasing amounts.
Any lump-sum payment paid during the Accumulation Period or under the
applicable lifetime or nonlifetime Annuity options will normally be made within
seven calendar days after proof of death acceptable to the Company and a
request for payment is received at its Home Office.
TAX STATUS
INTRODUCTION
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all
of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of the
current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
The Contract may be purchased and used in connection with:
(1) Individuals who are either not participating in formal retirement
plans, or are participating in formal retirement plans but wish to
personally supplement their benefits, and
(2) Participants under employer-sponsored deferred compensation plans
sponsored by tax- exempt organizations for deferrals not subject to
Code Section 457 and by taxable organizations for their employees
and/or independent contractors, and
(3) Participants under employer-sponsored deferred compensation plans
sponsored by tax- exempt organizations for deferrals that are subject
to Code Section 457 for their employees and/or independent contractors.
The ultimate effect of federal income taxes on the amounts held under a
Contract, or Annuity Payments, and on the economic benefit to the Contract
Holder, the Annuitant, or the Beneficiary may depend on the tax status of the
individual concerned.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not an entity separate from the
Company, and its operation forms a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains are automatically applied to
increase reserves under the Contracts. Under existing federal income tax law,
the Company believes that the Separate Account investment income and realized
net capital gains will not be taxed to the extent that such income and gains
are applied to increase the reserves under the Contracts.
24
<PAGE>
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the
Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
With respect to contracts sold to Individuals and taxable organizations,
Section 817(h) of the Code requires that the investments of the Funds be
"adequately diversified" in accordance with Treasury Regulations in order for
the Contracts to qualify as annuity contracts under federal tax law. The
Separate Account, through the Funds, intends to comply with the diversification
requirements prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how
the Fund's assets may be invested.
In certain circumstances, owners of variable annuity contracts that are
Individuals and taxable organizations may be considered the owners, for federal
income tax purposes, of the assets of the separate accounts used to support
their contracts. In these circumstances, income and gains from the separate
account assets would be includible in the variable contract owner's gross
income. One of the circumstances that has raised this issue is the number of
funding options available under the Contract. The Company reserves the right to
modify the Contract as necessary to attempt to prevent a Contract Holder from
being considered the owner of a pro rata share of the assets of the Separate
Account.
TAX STATUS OF DEFERRED COMPENSATION PLANS
SECTION 457 PLANS. The Contract may be used with Section 457 plans. The tax
rules applicable to participants and beneficiaries in retirement plans vary
according to the terms and conditions of the plan. Special favorable tax
treatment may be available for certain types of contributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to separation from service (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; and in other specified circumstances.
The Company makes no attempt to provide more than general information about use
of the Contracts with Section 457 plans. Owners and participants under Section
457 plans as well as annuitants and beneficiaries are cautioned that the rights
of any person to any benefits under the Contracts may be subject to the terms
and conditions of the plans themselves, regardless of the terms and conditions
of the Contract issued in connection with such a plan. Section 457 plans are
subject to distribution and other requirements that are not incorporated in the
administration of the Contracts. Owners are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable law. Purchasers of Contracts for use with any
Section 457 plan should consult their legal counsel and tax adviser regarding
the suitability of the Contract.
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. These plans are
subject to various restrictions on contributions and distributions. The plans
may permit participants to specify the form of investment for their deferred
compensation account. In general, all investments are owned by the sponsoring
employer and are subject to the claims of the general creditors of the
employer. Depending on the terms of the particular plan, the employer may be
entitled to draw on deferred amounts for purposes unrelated to its Section 457
plan obligations. In general, all amounts received under a Section 457 plan are
taxable and are subject to federal income tax withholding as wages. This
includes payments for death benefits and periodic and nonperiodic
distributions. If we make payments directly to a participant or beneficiary on
behalf of the employer as Owner, we will withhold federal taxes (and state
taxes, if applicable) and will report to the IRS the taxable income.
25
<PAGE>
PLANS OF NON-457 TAX-EXEMPT ORGANIZATIONS AND TAXABLE ORGANIZATIONS
Effective January 1, 1987, provisions of Section 457 of the Code applicable to
deferred compensation plans of state and local governments were extended to
deferred compensation plans sponsored by tax-exempt employers. While no
limitation is imposed on deferrals under deferred compensation plans of taxable
employers, each Participant in a plan subject to Section 457 has a maximum
allowable deferral of the lesser of $7,500 or 33 1/3% of the Participant's
includible compensation. However, the Code does allow the following
"grandfathering" provisions for those who were Participants in tax-exempt
employer deferred compensation plans as of August 16, 1986.
(1) Section 457 shall not apply to amounts deferred from taxable years
beginning before January 1, 1986.
(2) Section 457 shall not apply to amounts deferred from taxable years
beginning after December 31, 1986 provided (a) a deferral agreement was
in writing on August 16, 1986, and (b) as of August 16, 1986, the
agreement provided for a deferral of a fixed amount or of an amount
determined pursuant to a fixed formula, and (c) the agreement has not
been modified as to amount or formula after August 16, 1986.
Only individuals may participate under a Section 457 Plan subject to the
Section 457 rules. Therefore, corporations may not participate in tax-exempt
employer deferred compensation plans unless they qualify under the
"grandfathering" provisions.
Any reference in this Prospectus to Section 457 Plans relates only to
contributions subject to Section 457 of the Code and these references do not
apply to "grandfathered" contributions.
Some of the options and elections under the Contract may not be available to
Participants under the provisions of the Plans or Section 457 Plan.
In general, all amounts received under these Plans are taxable and are subject
to federal income tax withholding as wages. This includes payments for death
benefits and periodic and nonperiodic distributions. Under Plans sponsored by
taxable organizations, such payments made to a participant are generally
deductible by the Contract Holder as compensation paid to the participant. If
we make payments directly to a participant or beneficiary on behalf of the
employer as owner, we will withhold federal taxes (and state taxes, if
applicable) and will report to the IRS the taxable income.
The owner of a Contract who is not a natural person must generally include in
income any increase in the excess of the Contract Value over the "investment in
the contract" during the taxable year. There are some exceptions to this rule
and prospective owners that are not natural persons may wish to discuss this
with a competent tax advisor.
For Contracts issued to taxable organizations, Section 72(e)(ii) of the Code
may apply. See "Tax Status of Amounts Distributed to Individuals."
TAX STATUS OF AMOUNTS DISTRIBUTED TO INDIVIDUALS
The following description of the federal income tax status of amounts
distributed under the Contracts to Individuals is not exhaustive and is not
intended to cover all situations. Contract Holders who are individuals should
seek advice from their tax advisors as to the application of federal (and where
applicable, state and local) tax laws to amounts received by them and by their
beneficiaries under the Contracts.
Section 72(e)(11) of the Code provides that Annuity Contracts issued by the
same insurer (and its affiliates) to the same Contract Holder during a calendar
year shall be treated as a single Annuity Contract. This means that any amount
received under this Contract, or any other Contract subject to this provision,
prior to the Contract's Annuity starting date will be taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all
such Contracts. For purposes of this
26
<PAGE>
section, immediate Annuity Contracts, and Contracts used to fund qualified
pension and profit-sharing plans under Section 401(a) of the Code, Annuity
plans under Sections 403(a) or 403(b) of the Code, and individual retirement
annuities and accounts under Section 408 of the Code are not aggregated.
In the case of certain distributions, there may be imposed a federal income tax
penalty equal to 10% of the amount treated as taxable income. In general,
however, there is no penalty tax on distributions: (1) made on or after the
date on which the taxpayer attains age 59 1/2; (2) made as a result of death or
disability of a Contract Holder; (3) received in substantially equal periodic
payments as a life annuity or a joint and survivor annuity for the lives or
life expectancies of the Contract Holder and a "designated beneficiary."
ACCUMULATION PERIOD
For Individuals, generally only the portion of any distribution representing
the investment results are taxable. Under partial withdrawals, the taxable
amounts are distributed first. In addition, in order to be treated as an
annuity contract for federal income tax purposes, section 72(s) of the Code
requires the Contracts to provide that (a) if any Contract Holder dies on or
after the annuity date but prior to the time the entire interest in the
Contract has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of such owner's death; and (b) if any Contract Holder dies prior
to the annuity date, the entire interest in the Contract will be distributed
within five years after the date of such Contract Holder's death. These
requirements will be considered satisfied as to any portion of a Contract
Holder's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
Contract Holder's death. The "designated beneficiary" refers to a natural
person designated by the Contract Holder as a Beneficiary and to whom ownership
of the contract passes by reason of death. However, if the "designated
beneficiary" is the surviving spouse of the deceased Contract Holder, the
Contract may be continued with the surviving spouse as the new Contract Holder.
The Contracts sold to individuals contain provisions which are intended to
comply with the requirements of section 72(s) of the Code, although no
regulations interpreting these requirements have yet been issued. The Company
intends to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code section 72(s) when clarified by
regulation or otherwise.
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the Annuity payment elected
under the Contract, in general, only the portion of the Annuity payment that
represents the amount by which the Account Value exceeds the "investment in the
contract" will be taxed; after the "investment in the contract" is recovered,
the full amount of any additional Annuity payments is taxable. For Variable
Annuity payments, the taxable portion is generally determined by an equation
that establishes a specific dollar amount of each payment that is not taxed.
The dollar amount is determined by dividing the "investment in the contract" by
the total number of expected periodic payments. However, the entire
distribution will be taxable once the recipient has recovered the dollar amount
of his or her "investment in the contract". For Fixed Annuity payments, in
general there is no tax on the portion of each payment which represents the
same ratio that the "investment in the contract" bears to the total expected
value of the Annuity payments for the term of the payments; however, the
remainder of each Annuity payment is taxable. Once the "investment in the
contract" has been fully recovered, the full amount of any additional Annuity
payments is taxable. If Annuity payments cease as a result of an Annuitant's
death before full recovery of the "investment in the contract," consult a
competent tax advisor regarding deductibility of the unrecovered amount.
27
<PAGE>
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. Although as of the date of this
Prospectus Congress is not actively considering any legislation regarding the
taxation of annuities, there is always the possibility that the tax treatment
of annuities could change by legislation or other means (such as IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be retroactive (that is, effective prior to the
date of the change).
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income tax consequences
is not exhaustive and special rules are provided with respect to other tax
situations not discussed in this Prospectus. Further, the federal income tax
consequences discussed herein reflect the Company's understanding of the
current law and the law may change. Federal estate and gift tax consequences of
ownership or receipt of distributions under the Contract depend on the
individual circumstances of each Owner or recipient of a distribution. A
competent tax adviser should be consulted for further information.
MISCELLANEOUS
VOTING RIGHTS
Each Contract Holder may direct the Company in the voting of shares at meetings
of shareholders of the appropriate Fund(s). The number of votes to which each
Contract Holder may give direction will be determined as of the record date.
The number of votes each Contract Holder is entitled to direct with respect to
a particular Fund during the Accumulation Period is equal to the portion of the
current value of the Contract attributable to that Fund divided by the net
asset value of one share of that Fund. During the Annuity Period, the number of
votes is equal to the Valuation Reserve applicable to the portion of the
Contract attributable to that Fund, divided by the net asset value of one share
of that Fund. In determining the number of votes, fractional votes will be
recognized. Where the value of the Contract or Valuation Reserve relates to
more than one Fund, the calculation of votes will be performed separately for
each Fund.
Each Contract Holder will receive a notice of each meeting of shareholders,
together with any proxy solicitation materials, and a statement of the number
of votes attributable to the Contract. Votes attributable to Contract Holders
who do not direct the Company will be cast by the Company in the same
proportion as the votes for which directions have been received by the Company.
MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to limitations described below, by notifying the Contract Holder in
writing 30 days before the effective date of the change. Changes to the
following Contract provisions may be considered material by the Company and
cannot be changed without the approval of appropriate state or federal
regulatory authorities:
(a) transfers among investment options;
(b) notification to the Contract Holder;
(c) conditions governing payments of withdrawal values;
(d) terms of Annuity Options;
(e) death benefit payments; and
(f) maintenance fee provisions.
28
<PAGE>
However, no change will be made to the following provisions:
(a) the Annuity options;
(b) the contractual promise that no deduction will be made from the
Purchase Payment(s) for sales or administrative expenses;
(c) the deferred sales charges;
(d) the mortality and expense risk charges;
(e) the administrative expense charge provision; and
(f) the annual maintenance fee.
No modification may affect any Annuity commencing prior to the effective date
of such modification unless deemed necessary for the Plan, Section 457 Plan, or
Contract to comply with the requirements of the Code or other laws and
regulations affecting the Plan, Section 457 Plan, or Contract.
CONTRACT HOLDER INQUIRIES
A Contract Holder may direct inquiries to a local representative of the
Distributor or may write directly to the Company at the address shown on the
cover page of this Prospectus.
TELEPHONE TRANSFERS
Subject to the Contract Holder's approval, the Participant automatically has
the right to make transfers among Funds by telephone. The Company has enacted
procedures to prevent abuses of account transactions by telephone. The
procedures include requiring the use of a personal identification number (PIN)
to execute transactions. The Participant is responsible for safeguarding his or
her PIN, and for keeping Account information confidential. If the Company fails
to follow its procedures it would be liable for any loss to the Contract
resulting from the failure. To ensure authenticity, the Company records all
calls on the 800 line.
TRANSFER OF OWNERSHIP; ASSIGNMENT
No assignment of the Contract will be binding on the Company unless and until
such assignment is accepted by the Company at its Home Office.
LEGAL PROCEEDINGS
The Company know of no material legal proceedings pending to which the Separate
Account is a party or which would materially affect the Separate Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed upon
by Susan E. Bryant, Esq., Counsel to the Company.
29
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION -- TABLE OF CONTENTS
The following items are the contents of the Statement of Additional
Information:
<TABLE>
<S> <C>
General Information and History............................................. 2
Variable Annuity Account B.................................................. 2
Offering and Purchase of Contracts.......................................... 3
Performance Data............................................................ 3
General.................................................................... 3
Average Annual Total Return Quotations..................................... 4
Annuity Payments............................................................ 5
Dollar-Cost Averaging....................................................... 6
Sales Material.............................................................. 6
Independent Auditors........................................................ 7
Financial Statements of the Separate Account................................ S-1
Financial Statements of Aetna Life Insurance and Annuity Company............ F-1
</TABLE>
30
<PAGE>
APPENDIX
THE FIXED ACCOUNT
THE FIXED ACCOUNT IS AN INVESTMENT OPTION AVAILABLE DURING THE ACCUMULATION
PERIOD UNDER THE CONTRACTS. THE FOLLOWING SUMMARIZES MATERIAL INFORMATION
CONCERNING THE FIXED ACCOUNT THAT IS OFFERED AS AN OPTION UNDER THE CONTRACT.
ADDITIONAL INFORMATION MAY BE FOUND IN THE CONTRACT OR CERTIFICATE (AS
APPLICABLE). AMOUNTS ALLOCATED TO THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S
GENERAL ACCOUNT THAT SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN
THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON
EXEMPTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THIS
PROSPECTUS REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF THE STATEMENTS. DISCLOSURE IN THIS APPENDIX
REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC.
FIXED ACCOUNT
This option guarantees that amounts allocated to this option will earn the
minimum interest rate specified in the Contract. (This minimum interest rate
cannot be changed by the Company.) The Company may credit a higher interest
rate from time to time. The Company's determination of interest rates reflects
the investment income earned on invested assets and the amortization of any
capital gains and/or losses realized on the sale of invested assets. Under this
option, the Company assumes the risk of investment gain or loss by guaranteeing
Net Purchase Payment values and promising a minimum interest rate and Annuity
payment.
Amounts applied to the Fixed Account will earn the interest rate in effect when
actually applied to the Fixed Account.
MORTALITY AND EXPENSE RISK CHARGES
The Fixed Account will reflect a compound interest rate credited by the
Company. The interest rate quoted is an annual effective yield. The Company
makes no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment option are
allowed in each calendar year during the Accumulation Period. The amount which
may be transferred may vary at the Company's discretion; however, it will never
be less than 10% of the amount held under the Fixed Account.
ANNUITIZATIONS
By giving notice to the Company at its Home Office at least 30 days before the
commencement of Annuity payments, the Contract Holder may elect to have amounts
which have been accumulating under the Fixed Account transferred to one or more
of the funds available during the Annuity Period to provide variable Annuity
payments.
31
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT PLANNING VARIABLE ANNUITY
CONTRACTS FOR EMPLOYER-SPONSORED
DEFERRED COMPENSATION PLANS AND
INDIVIDUALS WHO WISH TO SUPPLEMENT
THEIR RETIREMENT BENEFITS
DATED MAY 1, 1995
[LOGO OF B INDIVIDUAL B ACCOUNT APPEARS HERE]
INDIVIDUAL
[LOGO OF AETNA APPEARS HERE]
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Annuity Operations
151 Farmington Avenue, Hartford, Connecticut 06156
Telephone: 1-800-525-4225
76000-1 (formerly 710.00. 14-15) (5/95___76000-1)(formerly 710.00. 14-15) (5/95)
[LOGO OF RECYCLED PAPER APPEARS HERE]
