<PAGE>
As filed with the Securities and Exchange Registration No. 33-76002
Commission on April 12, 1996 Registration No. 811-2512
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
Post-Effective Amendment No. 4 To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment To
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
(EXACT NAME OF REGISTRANT)
Aetna Life Insurance and Annuity Company
(NAME OF DEPOSITOR)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(NAME AND ADDRESS OF AGENT FOR SERVICE)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (CHECK APPROPRIATE SPACE):
immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1996 pursuant to paragraph (b) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
The Registrant filed a Rule 24f-2 Notice for the fiscal year ended December 31,
1995 on February 29, 1996.
<PAGE>
Page 2
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VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-4
Item No Part A (Prospectus) Location
- -------- ------------------- --------
<S> <C> <C>
1 Cover Page Cover Page
2 Definitions Definitions
3 Synopsis or Highlights Prospectus Summary; Fee Table
4 Condensed Financial Information Condensed Financial Information
5 General Description of Registrant, Depositor, The Company; Variable Annuity
and Portfolio Companies Account B; The Funds
6 Deductions and Expenses Charges and Deductions;
Distribution
7 General Description of Variable Annuity Contract Rights; Miscellaneous
Contracts
8 Annuity Period Annuity Period
9 Death Benefit Death Benefit
10 Purchases and Contract Value Purchase; Determining Contract Value
11 Redemptions Contract Rights - Withdrawals; Right to Cancel
12 Taxes Tax Status
13 Legal Proceedings Miscellaneous - Legal Proceedings
14 Table of Contents of the Statement of Statement of Additional Information - Table of
Additional Information Contents
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-4
Item No Part B (Statement of Additional Information Location
- -------- ------------------------------------------- --------
<S> <C> <C>
15 Cover Page Cover page
16 Table of Contents Table of Contents
17 General Information and History General Information and History
18 Services General Information and History; Independent Auditors
19 Purchase of Securities Being Offered Offering and Purchase of Contracts
20 Underwriters Offering and Purchase of Contracts
21 Calculation of Performance Data Performance Data; Average Annual Total Return Quotations
22 Annuity Payments Annuity Payments
23 Financial Statements Financial Statements
</TABLE>
PART C (OTHER INFORMATION)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
AEXTRA ASSETS
- --------------------------------------------------------------------------------
The individual variable annuity contract (the "Contract") described in this
Prospectus is designed to supplement retirement income for an individual
("you"). Purchase Payments are intended to be made on an installment basis.
The amounts held under the Contract may be entitled to tax deferred treatment
under certain sections of the Internal Revenue Code of 1986, as amended (the
"Code").
The Contract allows values to accumulate under a credited interest or variable
option, or a combination of these options. It also provides for the payment of
annuity benefits on a fixed or variable basis, or a combination thereof.
The variable funding options will reflect the investment experience of one or
more of the following mutual funds ("Funds"), as you select. The variable
funding options currently available through Variable Annuity Account B (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.
- Alger American Small Cap Portfolio
- Janus Aspen Aggressive Growth Portfolio
- Janus Aspen Flexible Income Portfolio
- Lexington Natural Resources Trust
- Neuberger & Berman Growth Portfolio
- Scudder International Portfolio Class A Shares
- 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 states in which it is
approved.
Except as specifically mentioned, this Prospectus describes only the variable
options of the Contract. Information concerning the Fixed Account is found in
the Appendix in this Prospectus.
This Prospectus contains the information about 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, 1996, which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Table of Contents for
the SAI is found in this Prospectus. An SAI may be obtained without charge by
indicating the request on your application or by calling 1-800-531-4547.
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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1996.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . DEFINITIONS - 1
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . SUMMARY - 1
FEE TABLE. . . . . . . . . . . . . . . . . . . . . . . . . FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . AUV HISTORY - 1
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VARIABLE ANNUITY ACCOUNT B . . . . . . . . . . . . . . . . . . . . . . . 2
THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Net Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . 4
Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
DETERMINING CONTRACT VALUE . . . . . . . . . . . . . . . . . . . . . . . 5
Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . . . 5
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . 5
CONTRACT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Right To Cancel . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transfers and Allocation Changes. . . . . . . . . . . . . . . . . . 6
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reinvestment Privilege. . . . . . . . . . . . . . . . . . . . . . . 6
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 7
Maintenance Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mortality and Expense Risk Charges. . . . . . . . . . . . . . . . . 7
Administrative Expense Charge . . . . . . . . . . . . . . . . . . . 7
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Allocation and Transfer Fees. . . . . . . . . . . . . . . . . . . . 7
Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Commissions and Expenses. . . . . . . . . . . . . . . . . . . . . . 8
ANNUITY PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Annuity Period Elections. . . . . . . . . . . . . . . . . . . . . . 8
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partial Annuitization . . . . . . . . . . . . . . . . . . . . . . . 9
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . . 9
Annuity Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Federal Tax Status of the Company . . . . . . . . . . . . . . . . . 10
Tax Status of the Contract. . . . . . . . . . . . . . . . . . . . . 10
Use of the Contract . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Status of Amounts Distributed Under the Contract. . . . . . . . 11
Taxation of Death Benefit Proceeds. . . . . . . . . . . . . . . . . 12
Non-Natural Holders of the Contract . . . . . . . . . . . . . . . . 12
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Modification of the Contract. . . . . . . . . . . . . . . . . . . . 12
Contract Owner Inquiries. . . . . . . . . . . . . . . . . . . . . . 13
Telephone Transfers . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
Transfer of Ownership; Assignment . . . . . . . . . . . . . . . . . 13
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION. . . . . . . . . . . 13
APPENDIX - THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . 14
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the meanings shown:
ACCOUNT VALUE: The dollar value of amounts held in an Account 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.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to a
Contract are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of Separate Account assets
attributable to each Fund used as a variable funding option.
AGGREGATE PURCHASE PAYMENTS: The sum of all Purchase Payments made under a
Contract.
ANNUITANT: A natural person on whose life an Annuity payment is based.
ANNUITY: A series of payments for life, 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.
CONTRACT: The individual installment Purchase Payment contracts offered by this
Prospectus.
CONTRACT OWNER (YOU): The person to whom the Contract is issued. The Contract
Owner may be a current or retired employee of Aetna Life & Casualty Company
(Aetna) or certain of its subsidiaries, or a career agent for Aetna or
certain of its subsidiaries who receive eligible commissions.
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 on which the Company accepts and approves the Contract
application.
ELIGIBLE COMMISSIONS: Net compensation received by career agents of Aetna or
certain of its subsidiaries sufficient to meet initial Purchase Payment and
installment Purchase Payment requirements provided in this Prospectus.
FUND(S): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the
Contract.
HOME OFFICE: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
NET PURCHASE PAYMENTS: The Purchase Payments less premium taxes, if applicable.
PAYROLL DEDUCTION: Automated regular deductions made by Aetna or certain of its
subsidiaries from the wages, eligible commissions or other payments (as
applicable) paid to the Contract Owner.
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract.
SEC: Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account B, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by
the Company. 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 Account to offer and sell the
Contracts.
- --------------------------------------------------------------------------------
DEFINTIONS - 1
<PAGE>
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
the close of business of the New York Stock Exchange on any normal business
day, Monday through Friday, that the New York Stock Exchange is open, until
the close of business on the next such business day.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of the
state 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 for Annuity payments which vary in dollar amount with
investment results.
- --------------------------------------------------------------------------------
DEFINITION - 2
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
PURCHASE
The Contract provisions described in this Prospectus are designed for
individuals who wish to personally supplement their retirement income by making
contributions through Payroll Deduction. The Contract is available through
direct marketing. The Contract may be purchased by completing the proper
application form and submitting it to the Distributor with an Aetna Payroll
Deduction Authorization form. "Purchase of Contract" outlines the complete
process of purchasing a Variable Annuity Contract.
REDEMPTION
You may withdraw all or a portion of the Account Value during the
Accumulation Period by properly completing our disbursement form. Certain
charges and deductions may be assessed upon withdrawal, as described below. (
See "Charges and Deductions" and "Withdrawals.")
TAXES
A 10% federal tax penalty may be imposed on the taxable portion of a
distribution paid to you. (See "Tax Status.")
CONTRACT CHARGES
Certain charges are associated with the Contracts such as the maintenance
fee, mortality and expense risk charges, administrative expense charge, fund
expenses, transfer charge and premium tax. A complete explanation of these
charges is found in "Charges and Deductions."
FREE LOOK PERIOD
You may cancel the Contract no later than 10 days after receiving it (or as
otherwise allowed by state law) by returning it to the Company along with a
written notice of cancellation. Unless state law requires otherwise, the amount
you will receive upon 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
your Purchase Payments. (See "Contract Rights-Right to Cancel.")
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CONTRACT OWNERS 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 OWNER TRANSACTION EXPENSES
Transfers and Allocation Changes(1) $0.00
ANNUAL CONTRACT MAINTENANCE FEE(2) $15.00
SEPARATE ACCOUNT ANNUAL EXPENSES - VARIABLE OPTIONS ONLY
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
MORTALITY AND EXPENSE RISK FEES 1.25%
ADMINISTRATIVE EXPENSE CHARGE(3) 0.00%
----
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES 1.25%
----
----
(1) The Company currently allows an unlimited number of transfers or allocation
changes without charge. However, we reserve the right to assess a transfer
fee of $10 for each transfer in excess of 12 per calendar year. See
"Transfers and Allocation Changes."
(2) A maintenance fee, to the extent permitted by state law, is also deducted
upon termination of the 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 variable portion of contract values.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
FUND ANNUAL EXPENSES
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1995. A Fund's "Other Expenses" include operating costs of the Fund. These
expenses are reflected in the Fund's net asset value and are not deducted from
the Contract Value under the Contract.
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY FEES (1) OTHER EXPENSES
(AFTER EXPENSE (AFTER EXPENSE TOTAL FUND
REIMBURSEMENT) REIMBURSEMENT) ANNUAL EXPENSES
-------------- -------------- ---------------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.25% 0.06% 0.31%
Aetna Income Shares(2) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(2) 0.25% 0.08% 0.33%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Janus Aspen Aggressive Growth Portfolio(3) 0.75% 0.11% 0.86%
Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07%
Lexington Natural Resources Trust 1.00% 0.47% 1.47%
Neuberger & Berman Growth Portfolio(4) 0.84% 0.10% 0.94%
Scudder International Portfolio Class A Shares 0.88% 0.20% 1.08%
TCI Growth(5) 1.00% 0.00% 1.00%
</TABLE>
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2) As of May 1, 1996, the Company will provide administrative services to the
Fund and will assume the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not
based on figures for the year ended December 31, 1995, but reflect the fee
payable under this agreement.
(3) The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth Portfolio reduces
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers, Investment Advisory
Fees, Other Expenses and Total Fund Annual Expenses for the Aggressive
Growth Portfolio would have been: 0.82%, 0.11%, and 0.93%. Janus Capital
may modify or terminate the waivers or reductions at any time upon 90 days'
notice to the Portfolio's Board of Trustees.
(4) Neuberger & Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investment
assets in a corresponding series ("Series") of Advisers Management Trust.
Expenses in the table reflect expenses of the Portfolio and include the
Portfolio's pro rated portion of the operating expenses of the Portfolio's
corresponding Series. The Portfolio pays Neuberger & Berman Management
Inc. ("NBMI") an administration fee based on the Portfolio's net asset
value. The corresponding Series of the Portfolio pays NBMI a management
fee based on the Series' average daily net assets. Accordingly, this table
combines management fees at the Series level and administration fees at the
Portfolio level in a unified fee rate. (See "Expenses" in the Trust's
prospectus.)
(5) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest, fees, expenses of the non-
interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
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 whether or not you withdraw or annuitize your
contract at the end of the applicable time period:(1)
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Variable Fund $16 $49 $85 $186
Aetna Income Shares $16 $50 $86 $188
Aetna Variable Encore Fund $16 $51 $87 $191
Aetna Investment Advisers Fund, Inc. $16 $50 $86 $188
Alger American Small Cap Portfolio $22 $68 $117 $251
Janus Aspen Aggressive Growth Portfolio $21 $66 $114 $245
Janus Aspen Flexible Income Portfolio $24 $73 $124 $266
Lexington Natural Resources Trust $28 $85 $144 $306
Neuberger & Berman Growth Portfolio $22 $69 $118 $253
Scudder International Portfolio Class A Shares $24 $73 $125 $267
TCI Growth $23 $71 $121 $259
</TABLE>
(1) The illustration reflects the $15.00 annual maintenance fee as an annual
charge of 0.006% of assets.
- --------------------------------------------------------------------------------
FEE TABLE - 4
<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, 1995 (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, 1995 AND THE INDEPENDENT
AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL
INFORMATION.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------------- ----------- ---------- ------------ ---------- ----------
AETNA VARIABLE FUND
<S> <C> <C> <C> <C> <C> <C>
Value at beginning of period $10.698 $10.940 $10.378 $84.249 $67.496 $66.174
Value at end of period $13.972 $10.698 $10.940 $10.378(2) $84.249 $67.496
Increase (decrease) in value of accumulation
unit(1) 30.61% (2.21)% 5.41% (2) 24.82% 2.00%
Number of accumulation units outstanding at
end of period 30,554,957 11,117,383 879,670 3,107 908,777 810,126
AETNA INCOME SHARES
Value at beginning of period $10.457 $11.006 $10.160 $37.815 $32.066 $29.752
Value at end of period $12.212 $10.457 $11.006 $10.160(3) $37.815 $32.066
Increase (decrease) in value of accumulation
unit(1) 16.78% (4.99)% 8.33% (3) 17.93% 7.78%
Number of accumulation units outstanding at
end of period 4,853,662 1,988,960 166,913 4,196 427,893 358,454
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.509 $10.223 $10.031 $34.122 $32.431 $30.285
Value at end of period $11.007 $10.509 $10.223 $10.031(4) $34.122 $32.431
Increase (decrease) in value of accumulation
unit(1) 4.73% 2.79% 1.91% (4) 5.21% 7.09%
Number of accumulation units outstanding at
end of period 4,354,272 1,822,449 90,782 2,808 548,425 722,438
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.971 $11.164 $10.286 $12.717 $10.882 $10.423
Value at end of period $13.803 $10.971 $11.164 $10.286(6) $12.717 $10.882
Increase (decrease) in value of accumulation
unit(1) 25.81% (1.73)% 8.54% (6) 16.86% 4.40%
Number of accumulation units outstanding at
end of period 6,430,772 3,541,703 318,711 6,537 1,324,822 984,798
<CAPTION>
1989 1988 1987 1986
------------ ---------- ---------- ----------
AETNA VARIABLE FUND
<S> <C> <C> <C> <C>
Value at beginning of period $51.900 $45.839 $43.994 $37.445
Value at end of period $66.174 $51.900 $45.839 $43,994
Increase (decrease) in value of accumulation
unit(1) 27.50% 13.22% 4.19% 17.49%
Number of accumulation units outstanding at
end of period 831,547 887,039 1,020,744 1,273,920
AETNA INCOME SHARES
Value at beginning of period $26.291 $24.734 $23.888 $21.203
Value at end of period $29,752 $26.291 $24.734 $23.888
Increase (decrease) in value of accumulation
unit(1) 13.16% 6.29% 3.54% 12.66%
Number of accumulation units outstanding at
end of period 366,176 383,856 377,078 565,148
AETNA VARIABLE ENCORE FUND
Value at beginning of period $28.029 $26.401 $25.028 $23.660
Value at end of period $30.285 $28.029 $26.401 $25.028
Increase (decrease) in value of accumulation
unit(1) 8.05% 6.17% 5.49% 5.78%
Number of accumulation units outstanding at
end of period 653,619 720,726 898,557 881,853
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.000(5)
Value at end of period $10.423
Increase (decrease) in value of accumulation
unit(1) 4.23%
Number of accumulation units outstanding at
end of period 639,219
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
------------ ---------- ------- -------
<S> <C> <C> <C> <C>
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $ 9.622 $10.307 $10.000(7)
Value at end of period $13.714 $ 9.622 $10.307
Increase (decrease) in value of accumulation
unit(1) 42.52% (6.64)% 3.07%
Number of accumulation units outstanding at
end of period 1,364,901 441,809 31,855
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.319 $10.000(9)
Value at end of period $12.992 $10.319
Increase (decrease) in value of accumulation
unit(1) 25.91% 3.19%
Number of accumulation units outstanding at
end period 723,839 131,702
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 9.886 $10.000(9)
Value at end of period $12.094 $ 9.886
Increase (decrease) in value of accumulation
unit(1) 22.33% (1.14)%
Number of accumulation units outstanding at
end of period 84,048 15,893
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $ 9.079 $ 9.716 $10.000(10)
Value at end of period $10.479 $ 9.079 $ 9.716
Increase (decrease) in value of accumulation
unit(1) 15.42% (6.56)% (2.84)%
Number of accumulation units outstanding at
end of period 162,462 141,076 27,908
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $12.199 $12.990 $10.123 $10.000(8)
Value at end of period $15.871 $12.199 $12.990 $10.123
Increase (decrease) in value of accumulation
unit(1) 30.10% (6.09)% 28.32% 1.23%
Number of accumulation units outstanding at
end of period 526,542 228,370 71,556 2,275
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $13.372 $13.654 $10.051 $10.000(8)
Value at end of period $14.674 $13.372 $13.654 $10.051
Increase (decrease) in value of accumulation
unit(1) 9.74% (2.07)% 35.85% 0.51%
Number of accumulation units outstanding at
end of period 720,017 652,630 144,303 324
TCI GROWTH
Value at beginning of period $10.883 $11.159 $10.232 $10.000(11)
Value at end of period $14.091 $10.883 $11.159 $10.232
Increase (decrease) in value of accumulation
unit(1) 29.47% (2.48)% 9.06% 2.32%
Number of accumulation units outstanding at
end of period 2,735,782 1,123,366 261,107 4,284
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
(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 charges or the fixed dollar
annual maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $85.546. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.54%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 3.78%.
(3) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $39.496. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.45%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.60%.
(4) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.828. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.07%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.31%.
(5) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(6) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $12.991. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.15%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 2.86%.
(7) The initial Accumulation Unit value was established at $10.000 on 9/17/93,
the date on which the Portfolio became available under the Contract.
(8) The initial Accumulation Unit value was established at $10.000 on 11/2/92,
the date on which the Fund/Portfolio became available under the Contract.
(9) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(10) The initial Accumulation Unit value was established at $10.000 on 5/26/93,
the date on which the Fund became available under the Contract.
(11) The initial Accumulation Unit value was established at $10.000 on 8/21/92,
the date on which the Fund became available under the Contract.
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<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" and "non-standardized 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). Such returns will reflect
the deduction of all recurring charges during each period (e.g., mortality and
expense risk charges, the annual maintenance fee and any applicable
administrative expense charge). "Non-standardized returns" may also include a
three-year period in addition to the one, five and ten-year periods.
For Funds that were in existence prior to the date 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.
We will 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 percentage changes in unit values for other management investment companies
that have investment objectives similar to the Fund being compared.
We may publish in advertisements and reports to Contract Owners, the
ratings and other information assigned to us 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 our financial strength and/or claims-paying ability.
We 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. From time to time, we 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.
- --------------------------------------------------------------------------------
1
<PAGE>
THE COMPANY
- --------------------------------------------------------------------------------
Aetna Life Insurance and Annuity Company (the "Company") is the issuer
of the Contract, and as such, it is responsible for providing the insurance
and annuity benefits under the Contract. The Company is a stock life
insurance company organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
The Company is engaged in the business of issuing life insurance policies and
variable annuity contracts in all states of the United States. The Company's
principal executive offices are located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna Life and Casualty
Company.
VARIABLE ANNUITY ACCOUNT B
- --------------------------------------------------------------------------------
Variable Annuity Account B is a separate account established by the Company
in 1976 according 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. 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 we 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
- --------------------------------------------------------------------------------
You may select one or more of the Funds described below for investment of the
Purchase Payments. Except where otherwise noted, all of the Funds are
diversified, as defined in the 1940 Act.
- - AETNA VARIABLE FUND seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into
common stock. (1)
- - AETNA INCOME SHARES seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio consisting
primarily of debt securities. (1)
- - AETNA VARIABLE ENCORE 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. (1)
- - AETNA INVESTMENT ADVISERS FUND, INC. is a managed 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. (1)
- - ALGER AMERICAN FUND - ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks
long-term capital appreciation. Except during temporary defensive periods,
the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase of such securities,
have total market capitalization within the range of companies included
in the Russell 2000 Growth Index, updated quarterly. The Russell 2000
Growth Index is designed to track the performance of small capitalization
companies. At March 31, 1996, the range of market capitalization of these
companies was $20 million to $3.0 billion. (2)
- --------------------------------------------------------------------------------
2
<PAGE>
- - JANUS ASPEN SERIES - AGGRESSIVE GROWTH PORTFOLIO is a NONDIVERSIFIED
portfolio that seeks long-term growth of capital. The Portfolio pursues
its investment objective by normally investing at least 50% of its equity
assets in securities issued by medium-sized companies. Medium-sized
companies are those whose market capitalization's fall within the range of
companies in the S & P Midcap 400 Index, which as of December 29, 1995
included companies with capitalization's between approximately $118 million
and $7.5 billion, but which is expected to change on a regular basis.(3)
- - JANUS ASPEN SERIES - FLEXIBLE INCOME PORTFOLIO seeks to obtain maximum
total return, consistent with preservation of capital. Total return is
expected to result from a combination of current income and capital
appreciation. The Portfolio invests in all types of income producing
securities and may have substantial holdings of debt securities rated below
investment grade (e.g., junk bonds).(3)
- - LEXINGTON NATURAL RESOURCES TRUST is a NONDIVERSIFIED portfolio that seeks
long-term growth of capital through investment primarily in common stocks
of companies which own or develop natural resources and other basic
commodities or supply goods and services to such companies. (4)
- - NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST - GROWTH PORTFOLIO seeks
capital appreciation without regard to income. The Portfolio pursues its
investment objective by investing in common stocks, often of companies that
may be temporarily out of favor in the market. (5)
- - SCUDDER VARIABLE LIFE INVESTMENT FUND - INTERNATIONAL PORTFOLIO CLASS A
SHARES seeks long-term growth of capital primarily through diversified
holdings of marketable foreign equity investments. (6)
- - TCI PORTFOLIOS, INC. - TCI GROWTH (a Twentieth Century fund) seeks capital
growth. The Fund seeks to achieve its objective 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 the Fund's investment manager, have better
than average potential for appreciation. (7)
There is no assurance that the Funds will achieve their investment
objectives. Participants 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 high risk of volatility to a Fund. The use of leverage
in connection with such derivatives can also increase risk of losses. Some of
the Funds may also invest in foreign or international securities which involve
greater risks than U.S. investments. See the prospectuses of 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 respective Fund prospectuses which accompany this Prospectus.
You should read the Fund prospectuses and consider carefully, and on a
continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives.
FUND INVESTMENT ADVISERS
(1) Aetna Life Insurance and Annuity Company
(2) Fred Alger Management, Inc.
(3) Janus Capital Corporation
(4) Lexington Management Corporation (adviser);
Market Systems Research Advisors, Inc. (subadviser)
(5) Neuberger & Berman Management Incorporated
(6) Scudder, Stevens & Clark, Inc.
(7) Investors Research Corporation
Mixed and Shared Funding
Shares of the Funds are sold to us 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."
- --------------------------------------------------------------------------------
3
<PAGE>
It is conceivable that, in the future, it may be disadvantageous for
variable annuity separate accounts and variable life separate accounts of the
same or of an unaffiliated insurance company to invest in these Funds
simultaneously, since the interests of the contract holders or policy owners or
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 AND LIMITATIONS
We may, from time to time, add additional mutual funds as eligible variable
funding options under the Contracts. No more than 18 different choices of
investment options may be made over the life of the Account. See "Transfers and
Allocation Changes."
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."
THE CONTRACT
- --------------------------------------------------------------------------------
PURCHASE
You may only establish this Contract through Payroll Deduction. The
Contract application form is forwarded together with the initial Purchase
Payment, if any, to the Home Office. Upon acceptance, we issue the Contract
and forward it to you. The Company must accept or reject an application
within two business days of 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 your consent,
pending acceptance of the application. If the application is accepted, a
Contract will be issued to you. 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 you. You may
cancel the Contract within 10 days after receiving it. See "Right to Cancel"
for more information.
Installment Purchase Payments made through Payroll Deduction must be at
least $50 per month ($600 annually) and may not be less than $50 per payment,
but may not exceed $999.99 per payment.
Purchase Payments, other than those made through Payroll Deduction, may be
forwarded directly to us and must be in a minimum amount of $500.
If Purchase Payments have not been received for three full years and the
Contract value is less than $2,000, we may, upon 30 days' written notice to you,
pay any Account value in a lump-sum to you. Such lump-sum payment will
terminate the Contract, and the reinvestment privilege will not apply (see
"Reinvestment Privilege").
This Contract may be aggregated with other annuity contracts purchased
by you 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").
NET PURCHASE PAYMENTS
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.
You 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 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;
however, no less than $10 may be allocated to any one investment option.
You may elect to change the allocation of future Net Purchase Payments
to any accumulation option described above.
- --------------------------------------------------------------------------------
4
<PAGE>
We reserve the right to discontinue accepting Purchase Payments upon 30
days' written notice to you.
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 contract 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.
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.
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 provisions 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, 1997) on an annual
basis. The net investment rate may be more or less than zero.
CONTRACT RIGHTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
<PAGE>
RIGHT TO CANCEL
You may cancel the Contract no later than ten days after receiving it (or
as otherwise allowed by state law) by returning it to us along with a written
notice of cancellation. We will produce a refund not later than seven days
after we receive the Contract and the written notice at the Home Office. Unless
the applicable state law requires a refund of the Purchase Payments only, we
will refund the Purchase Payments plus any increase or minus any decrease in the
value attributable to any Purchase Payments allocated to the variable options.
TRANSFERS AND ALLOCATION CHANGES
During each calendar year, you may change the allocation of future Net
Purchase Payments and/or transfer account values among the funding options
available under the Contract. However, you may not make allocations or
transfers to new funding options (including the credited interest option) if the
total number of funding options you have selected would exceed 18 since the time
that you acquired an interest in the Contract.
We currently allow unlimited transfers without charge of accumulated
amounts to available investment options during the Accumulation Period; however,
we reserve the right to charge $10 for each transfer after the first 12 in any
calendar year.
Transfers of not less than $500 may be made among the available Funds or
from any of the Funds to the Fixed Account. Any transfer will be based on the
Accumulation Unit Value next determined after we receive a valid request at our
Home Office. During the Annuity Period, no transfers of accumulated values are
allowed.
You may change the allocation of future Net Purchase Payments as often as
desired, free of charge.
WITHDRAWALS
You may withdraw all or a portion of the Contract Value during the
Accumulation Period by properly completing a disbursement form and sending it to
our Home Office. Disbursement request forms may be obtained by calling the Home
Office at 1-800-531-4547.
In the case of a full withdrawal of the Contract, the amount paid will be
the full value of the Contract minus any maintenance fee due.
All amounts paid will be based on Contract values as of the end of the
Valuation Period in which the request is received in the Home Office. For any
partial withdrawal, unless you request otherwise, 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 our Home Office or within seven
calendar days of the date you may specify on the form. 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 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 Owners. 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 you own
other Annuity Contracts issued by us (and our affiliates) that were purchased on
or after October 21, 1988. (See "Tax Status.")
REINVESTMENT PRIVILEGE
You may elect to reinvest all or a portion of the proceeds received from a
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 any maintenance fee 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.
- --------------------------------------------------------------------------------
6
<PAGE>
The number of Accumulation Units credited will be based upon the
Accumulation Unit Value next computed following receipt at the Home Office of
the reinvestment request along with the amount to be reinvested. The
reinvestment privilege may be used only once.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
THIS SECTION DESCRIBES THE MAXIMUM CONTRACT CHARGES WHICH WE MAY DEDUCT FOR
ADMINISTRATIVE EXPENSES, SALES RELATED EXPENSES AND TRANSFER FEES. A
DESCRIPTION OF MORTALITY AND EXPENSE RISK CHARGES AND FUND EXPENSES IS ALSO
INCLUDED.
MAINTENANCE FEE
A $15 annual maintenance fee is deducted from the Contract during the
Accumulation Period on the Contract anniversary date (or, if not a valuation
date, on the next valuation date). This fee is to reimburse us for some of our
administrative expenses relating to the establishment and maintenance of the
Contract. We deduct 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.
MORTALITY AND EXPENSE RISK CHARGES
We make 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 us for the risk we assume when we promise
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 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 1995, we received $11,786,592 for mortality and expense risks from
Contracts funded through the Separate Account.
ADMINISTRATIVE EXPENSE CHARGE
We reserve the right to deduct a daily charge of not more than 0.25% per
year from the variable portion of Contract values to reimburse us for expenses
incurred by us for administering the Contract. This charge will be established
by us 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 charge will be established and
will remain effective during the entire Annuity Period.
Through April 30, 1997, we have 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
Each Fund has an investment adviser. An investment advisory fee, based on
the Fund's average net assets, is deducted from the assets of each Fund and paid
to the investment adviser.
Most expenses incurred in the operations of the Funds are borne by that
Fund. Fund advisers may reimburse the Funds that they advise for some or all of
these expenses. For further details of each Fund's expenses, you should read
the accompanying prospectus for each Fund and refer to the Fee Table in this
Prospectus.
ALLOCATION AND TRANSFER FEES
Under the Contract, unlimited transfers are currently allowed without
charge. However, we reserve the right to charge $10 for each additional
transfer once 12 transfers have been made in a calendar year. We do not
currently impose such a charge.
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, some states
require that the premium tax be deducted from purchase payments as they are
received. In those states, the Company will pay when assessed and will deduct
the amount of that
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tax from the Contract value at the time of withdrawal or death.
Any municipal premium tax assessed at a rate in excess of 1% will be
deducted from the Purchase Payments or from the amount applied to an Annuity
option based upon our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in its Annuity purchase rates for
residents of such municipalities.
COMMISSIONS AND EXPENSES
No commissions are paid for this Contract. Other than the mortality and
expense risk charges and any administrative expense charge, all expenses
incurred in the operations of the Separate Account are borne by the Company.
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
You must notify us in writing of the Annuity start date and Annuity option
elected. Until a date and option are elected, the Contract will continue in the
Accumulation Period. The Annuity commencement date will normally be the
retirement date that you elect. (For details, see the SAI.)
At least 30 days before Annuity payments begin, you must notify us in
writing to elect or change (a) the date on which the 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). No other funds may currently 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 was 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.
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
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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.
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 you 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, you may request at any time during the payment period that
the present value of all or any portion of the remaining variable payments
by paid in one sum.
We make a daily deduction for mortality and expense risks from any account
values held on a variable basis. (See "Mortality and Expense Risk Charge.")
Therefore, electing the nonlifetime option on a variable basis will result in a
deduction being made even though we assume no mortality risk.
In addition to the Annuity options described, we may make additional
methods of payment available to you and other payees.
- - PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining portion of your Account Value invested in the
Accumulation Period. The Tax Code and the regulations thereunder do not
specifically address the tax treatment applicable to payments provided pursuant
to the exercise of this option. The Company takes the position that payments
provided pursuant to this option are taxable as annuity payments, and not as a
withdrawal. However, because the tax treatment of such payments is currently
unclear, you should consult with a qualified tax adviser if you are considering
a partial annuitization of your Account.
DEATH BENEFIT
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Any lump-sum payment during the Accumulation Period or under the applicable
lifetime or nonlifetime Annuity options will normally be paid within seven
calendar days after proof of death acceptable to us and a request for payment
are received at our Home Office.
ACCUMULATION PERIOD
Your 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
your beneficiary extend beyond your beneficiary's life expectancy or any
period certain greater than your beneficiary's life expectancy);
(c) remain in the investment options available under the Contract; or
(d) remain on deposit in our general account, earning the then-current interest
rate. Your 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.)
Until the election of a method of payment, amounts will remain invested as
they were before death, and the beneficiary will assume rights under the
Contracts. The Code requires that distributions begin within a certain time
period. The death proceeds must either be applied to an Annuity option within
one year of your date of death, or the entire Contract Value must be distributed
within five years of your date of death. An exception to this provision applies
if your beneficiary is your surviving spouse, in which case your beneficiary may
elect to be treated as a successor Contract Owner of the Contract. This
successor Contract Owner may exercise all rights to the Contract. Under the
Code, if no elections are made
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concerning distribution, no distributions will be made. Failure to commence
distribution within the above time periods can result in tax penalties.
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 the 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 Annuitant under option
(a) or the surviving Annuitant under option (b) (iv) occurs before the end of
that period, we will pay to your 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 us and a request for payment are received at our
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 your beneficiary. Such value will be determined as of the
Valuation Period in which proof of death acceptable to us and a request for
payment are received at our Home Office.
If you die after Annuity payments begin 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.
TAX STATUS
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FEDERAL TAX STATUS OF THE COMPANY
We are taxed as a life insurance company in accordance with the Code. For
federal income tax purposes, the operations for the Separate Account form a part
of our total operations and are not taxed independently, although operations of
the Separate Account are treated separately for accounting and financial
statement purposes. Under the current provisions of the Code, the investment
income and realized capital gains of the Separate Account (i.e., income and
capital gains distributed to the Separate Account by the Funds) will not be
taxable to us to the extent such amounts are credited to the Contracts. Based
on this, no charge is being made currently to the Separate Account for federal
income taxes. However, we reserve the right to make a deduction for federal
income taxes attributable to the Contracts should such taxes be imposed in the
future.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION: Section 817(h) of the Code requires that with respect to
the Contracts, 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.
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1.817-5, which affects how the Funds' assets may be invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those 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 an Owner from being considered the owner of a pro rata share of the
assets of the Separate Account.
USE OF THE CONTRACT
The Contract is intended for individuals who wish to personally supplement
their retirement benefits. It is not intended to replace the benefits provided
by employer sponsored retirement plans.
TAX STATUS OF AMOUNTS DISTRIBUTED UNDER THE CONTRACT
The following description of the federal income tax status of amounts
distributed under the Contract is not exhaustive and is not intended to cover
all situations. You should seek advice from your tax adviser as to the
application of federal (and where applicable, state and local) tax laws to
amounts received by you and by your beneficiaries under the Contracts.
The following discussion generally applies to a Contract owned by a natural
person. If the Contract Holder is not a natural person, see "Non-Natural
Holders of the Contract" below.
Section 72(e)(11) of the Code provides that annuity contracts issued by the
same insurer ( and its affiliates) to the same contract owner 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 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.
The Code imposes a 10% penalty tax on the taxable portion of any distribution
unless made when:
(a) you have attained age 59 1/2;
(b) you have become disabled;
(c) you have died; or
(d) the distribution amount is annuitized over the life or life expectancy of
you or the joint life expectancies of you and your beneficiary in
accordance with terms of the Code.
In addition, a distribution from the Contract is also exempt from the
penalty tax, if allocable to investments made in a predecessor contract before
August 14, 1982, and transferred in a tax-free exchange under Section 1035 of
the Code to this Contract.
Federal income taxes (and state taxes, if applicable) will automatically be
withheld from any payments paid to you, unless we are instructed otherwise by
you. We will report to the Internal Revenue Service (IRS) the taxable portion
of all distributions whether or not income taxes are withheld.
A. ACCUMULATION PERIOD
Generally, only the portion of any distribution representing investment
results, i.e., any investment gain in excess of the amount invested in the
Contract, is taxable.
Any distribution from the Contract during the Accumulation Period will be
considered first a return of the accumulated investment results of the
Contract, and is taxable as ordinary income. Any distribution in excess of
such results will be treated as a return of Purchase Payment(s).
B. ANNUITY PERIOD
When Annuity payments begin under a Contract, a fixed portion is annually
excludable from each year's payments as a tax-free recovery of the
investment in the Contract. The excludable portion applies to payments
received until the investment in the Contract is fully recovered. Payments
received thereafter are fully includable in income.
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For the nonlifetime option, the excludable portion is equal to the Purchase
Payments (the investment in the Contract), divided by the number of years
for which Annuity payments will be made. For a single or joint lifetime
option, the excludable portion is equal to the Purchase Payments (the
investment in the Contract), reduced as provided in the Code to reflect any
guaranteed payment period, divided by your life expectancy. If the Annuity
payments received in any year are less than the excludable portion, the
excludable portion may be redetermined for future years to recoup the loss
in exclusions.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed form the Contract because of the death of the
Contract Holder. Generally, such amounts are includible in the income of the
recipient as follows: (1) if distributed in a lump sum, they are taxed in the
same manner as a full surrender, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as Annuity Payments.
NON-NATURAL HOLDERS OF THE CONTRACT
If the Contract Holder is not a natural person, the Contract is not
treated as an annuity for income tax purposes and the "income on the
contract" for the taxable year is currently taxable as ordinary income.
"Income on the contract" is any increase over the year in the surrender
value, adjusted for amounts previously included in income. There are some
exceptions to this rule and a non-natural person should consult with its tax
adviser prior to purchasing this Contract. A non-natural person exempt from
federal income taxes should consult with its tax adviser regarding treatment
of "income on the contract" for purposes of the unrelated business income tax.
MISCELLANEOUS
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VOTING RIGHTS
You may direct us in the voting of shares at meetings of shareholders of
the appropriate Fund(s). The number of votes to which you may give direction
will be determined as of the record date.
The number of votes you are 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.
You 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 Owners who do not
direct us will be cast by us in the same proportion as the votes for which we
have received directions.
MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to the limitations described below, by giving written notice to you
30 days before the effective date of the change. 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 Owner;
(c) conditions governing payments of withdrawal values;
(d) terms of Annuity options;
(e) death benefit payments;
(f) maintenance fee provisions.
No change will be made to the following contractual provisions:
(a) the Annuity options;
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(b) the contractual promise that no deduction will be made from the Contract
for sales expenses;
(c) the mortality and expense risk charges;
(d) the administrative expense charge provision;
(e) the annual maintenance fee; and
(f) the maximum transfer fee.
Once an Annuity has begun, we will not change the terms or the amount of the
Annuity payments, unless a change is deemed necessary to comply with Code
requirements or other laws and regulations affecting the Contract.
CONTRACT OWNER INQUIRIES
You may direct inquiries to the Company at the address shown on the cover
page of this prospectus, or you may call our Home Office at 1-800-531-4547.
TELEPHONE TRANSFERS
You automatically have the right to make transfers among Funds by
telephone. The Company has enacted procedures to prevent abuses of account
transactions via the 800 number. The procedures include requiring the use of a
personal identification number (PIN) to execute transactions. You are
responsible for safeguarding your PIN, and for keeping account information
confidential. If the Company fails to follow its procedures it would be liable
for any losses to your 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 us unless and until such
assignment is accepted by us at our Home Office.
LEGAL PROCEEDINGS
The Company knows 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.
CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
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The Statement of Additional Information contains more specific
information on the Separate Account and the Contract, as well as the
financial statements of the Separate Account and the Company. A list of the
contents of the SAI is set forth below:
General Information and History
Variable Annuity Account B
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Dollar-Cost Averaging
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company
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APPENDIX
FIXED ACCOUNT
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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 YOUR CONTACT. 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 the minimum interest rate specified in the Contract.
(This minimum interest rate cannot be changed by us.) We may credit a higher
interest rate from time to time. The Company's determination of credited
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, we assume 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 us.
The interest rate quoted is an annual effective yield. We make 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
Assets accumulating under the Fixed Account may be transferred to any other
available investment option in each calendar year during the Accumulation
Period. The amount which may be transferred may vary at our discretion;
however, it will never be less than 10% of the amount held under the Fixed
Account.
By notifying us at our Home Office at least 30 days before Annuity payments
begin, you may elect to have amounts which have been accumulating under the
Fixed Account transferred to any of the available funding options, to provide
variable annuity payments.
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VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
AetnaPlus Contracts
Individual Variable Annuity Contracts for AEXTRA ASSETS
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"Separate Account") dated May 1, 1996.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
PAGE
----
General Information and History. . . . . . . . . . . . . . . . . . . . . 1
Variable Annuity Account B . . . . . . . . . . . . . . . . . . . . . . . 1
Offering and Purchase of Contracts . . . . . . . . . . . . . . . . . . . 2
Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Average Annual Total Return Quotations. . . . . . . . . . . . . . . . 3
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dollar-Cost Averaging. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Sales Material and Advertising . . . . . . . . . . . . . . . . . . . . . 5
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Statements of the Separate Account . . . . . . . . . . . . . . S-1
Financial Statements of Aetna Life Insurance and Annuity Company . . . . F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1995, the Company had
assets of $27.1 billion (subject to $25.5 billion of customer and other
liabilities, $1.6 billion of shareholder equity) which includes $11 billion in
assets held in the Company's separate accounts. The Company had $22 billion in
assets under management, including $8 billion in its mutual funds. As of
December 31, 1994, it ranked among the top 2% of all U.S. life insurance
companies by size. The Company is a wholly owned subsidiary of Aetna Retirement
Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement
Services, Inc., and an indirect wholly owned subsidiary of Aetna Life and
Casualty Company. The Company is engaged in the business of issuing life
insurance policies and annuity contracts in all states of the United States.
The Company's Home Office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account B" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options under
the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate
Account has no custodian. However, the Funds in whose shares the assets of the
Separate Account are invested each have custodians, as discussed in their
respective prospectuses.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. The assets of the Separate Account will be invested
exclusively in shares of the mutual funds described in the Prospectus. Purchase
Payments made under the Contract may be allocated to one or more of the variable
investment options listed below. The Company may make additions to or deletions
from available investment options as permitted by law. The availability of the
Funds is subject to applicable regulatory authorization. Not all Funds are
available in all jurisdictions or under all Contracts. The Funds currently
available under the Contract are as follows:
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Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Alger American Small Cap Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Flexible Income Portfolio
Lexington Natural Resources Trust
Neuberger & Berman Growth Portfolio
Scudder International Portfolio Class A Shares
TCI Growth
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections entitled "The Contract - Purchase."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the variable options of the Separate Account available under the
Contracts issued by the Company. The Company may advertise the "standardized
average annual total returns," calculated in a manner prescribed by the
Securities and Exchange Commission (the "standardized return"), as well as "non-
standardized returns," both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the variable options under the Contract, and then related
to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). Such figures reflect the deduction of all
recurring charges during each period (e.g., mortality and expense risk charges,
maintenance fees and any applicable administrative expense charges). These
charges will be deducted on a pro rata basis in the case of fractional periods.
The maintenance fee is converted to a percentage of assets based on the average
account size under the Contracts described in the Prospectus.
The non-standardized total return figures use the same formula, but may be
computed to include monthly, quarterly, year-to-date and three year periods as
well as the one, five and ten year periods.
For variable options of the Separate Account that were in existence prior to the
date the Fund became available under the Contract, the standardized and non-
standardized total returns may include periods prior to the date on which such
Fund became available under the Contract. These figures are calculated
2
<PAGE>
by adjusting the actual returns of the Fund to reflect the charges that would
have been assessed under the Contract had that Fund been available under the
Contract during that period.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance. Investment results of the
Funds will fluctuate over time, and any presentation of the Funds' total return
quotations for any prior period should not be considered as a representation of
how the variable options will perform in any future period. Additionally, the
Account Value upon redemption may be more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED
The table set forth below reflects the average annual standardized and non-
standardized total return quotation figures for the periods ended December 31,
1995 for the variable options under the Contract.
<TABLE>
<CAPTION>
FUND
STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
--------------------------- ------------------------------------- ----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------- ------- ------- -------- ------ ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 30.55% 12.05% 12.25% 30.55% 10.36% 12.05% 12.25% 04/30/75
Aetna Income Shares 16.72% 8.45% 8.51% 16.72% 6.26% 8.45% 8.51% 06/01/78
Aetna Variable Encore Fund 4.68% 3.34% 4.89% 4.68% 3.09% 3.34% 4.89% 09/01/75
Aetna Investment Advisers Fund, Inc. 25.59% 10.45% 9.31%* 25.59% 10.24% 10.45% 9.31%* 06/23/89
Alger American Small Cap Portfolio 42.26% 18.70% 20.79%* 42.26% 14.01% 18.70% 20.79%* 09/21/88
Janus Aspen Aggressive Growth 25.85% 25.96%* n/a 25.85% 25.96%* n/a n/a 9/13/93
Portfolio
Janus Aspen Flexible Income Portfolio 22.27% 8.25%* n/a 22.27% 8.25%* n/a n/a 09/13/93
Lexington Natural Resources Trust 15.36% 4.82%* n/a 15.36% 5.45% 4.82%* n/a 10/14/91
Neuberger & Berman Growth Portfolio 30.04% 16.56% 12.84% 30.04% 16.11% 16.56% 12.84% 12/31/85
Scudder International Portfolio Class
A Shares 9.68% 8.93% 7.95%* 9.68% 13.39% 8.93% 7.95%* 05/01/87
TCI Growth 29.42% 13.44% 11.40%* 29.42% 11.20% 13.44% 11.40%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
3
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to commence, the value of the Contract is determined
using Accumulation Unit values as of the tenth Valuation Period before the first
Annuity payment is due. Such value (less any applicable premium tax) is applied
to provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). 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 increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% 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.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Period to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Fund(s) (with a ten Valuation Period lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Period prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Period in which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for
4
<PAGE>
the prior Valuation Period (assume such value to be $13.504376) to produce an
Annuity Unit value of $13.523359 for the Valuation Period in which the second
payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
DOLLAR-COST AVERAGING
The term "dollar-cost averaging" describes a system of investing a uniform sum
of money at regular intervals over an extended period of time. It is based on
the economic fact that buying a variably priced item with a constant sum of
money at fixed intervals results in acquiring more of the item when prices are
low and less of it when prices are high. In order to maximize the effectiveness
of dollar-cost averaging, it is important that investors consider their
financial ability to continue purchasing the securities through periods of high
and low price levels. Investors should also note that no system can protect
against reduced values in a declining market.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
5
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
INDEX
Independent Auditors' Report . . . . . . . . . . . . . S-2
Statement of Assets and Liabilities. . . . . . . . . . S-3
Statement of Operations. . . . . . . . . . . . . . . . S-8
Statements of Changes in Net Assets. . . . . . . . . . S-10
Notes to Financial Statements . . . . . . . . . . . . S-11
Condensed Financial Information . . . . . . . . . . . S-13
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1995, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year
period then ended and condensed financial information for the year ended
December 31, 1995. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Aetna Life Insurance and Annuity Company Variable Annuity
Account B as of December 31, 1995, the results of its operations for the year
then ended, changes in its net assets for each of the years in the two-year
period then ended and condensed financial information for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
S-2
<PAGE>
VARIABLE ANNUITY ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 20,401,661 shares at $29.06 per share (cost $600,834,096)..............................$ 592,782,223
Aetna Income Shares; 6,006,058 shares at $13.00 per share (cost $74,865,329) ............................... 78,089,373
Aetna Variable Encore Fund; 6,101,341 shares at $13.30 per share (cost $78,645,161) ........................ 81,132,779
Aetna Investment Advisers Fund, Inc.; 7,664,725 shares at $14.50 per share (cost $98,736,185)............... 111,155,405
Aetna GET Fund, Series B; 1,128,914 shares at $12.40 per share (cost $11,433,593) .......................... 14,000,173
Aetna Ascent Variable Portfolio; 32,179 shares at $10.80 per share (cost $341,813) ......................... 347,383
Aetna Crossroads Variable Portfolio; 43,426 shares at $10.74 per share (cost $458,196) ..................... 466,405
Aetna Legacy Variable Portfolio; 30,419 shares at $10.64 per share (cost $321,970) ......................... 323,579
Alger American Funds:
Alger American Balanced Portfolio; 50,517 shares at $13.64 per share (cost $687,406)...................... 689,050
Alger American Growth Portfolio; 346,280 shares at $31.16 per share(cost $10,853,903) .................... 10,790,086
Alger American Income and Growth Portfolio; 57,421 shares at $17.79 per share (cost $1,028,289)........... 1,021,520
Alger American Leveraged AllCap Portfolio; 112,151 shares at $17.43 per share (cost $1,922,235)........... 1,954,796
Alger American MidCap Growth Portfolio; 167,570 shares at $19.44 per share (cost $3,250,372).............. 3,257,565
Alger American Small Capitalization Portfolio; 646,138 shares at $39.41 per share (cost $25,418,034)...... 25,464,317
Calvert Responsibly Invested Balanced Portfolio; 203,667 shares at $1.70 per share (cost $360,358).......... 346,846
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio; 800,426 shares at $19.27 per share (cost $14,457,609)............................ 15,424,209
Growth Portfolio; 521,413 shares at $29.20 per share (cost $15,259,452)................................... 15,225,262
High Income Portfolio; 100,193 shares at $12.05 per share (cost $1,192,297)............................... 1,207,326
Overseas Portfolio; 117,982 shares at $17.05 per share (cost $1,960,157).................................. 2,011,591
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio; 86,288 shares at $15.79 per share (cost $1,264,129).............................. 1,362,489
Contrafund Portfolio; 867,434 shares at $13.78 per share (cost $11,830,403)............................... 11,953,244
Index 500 Portfolio; 28,699 shares at $75.71 per share (cost $2,101,954).................................. 2,172,818
Investment Grade Bond Portfolio; 56,547 shares at $12.48 per share (cost $694,235)........................ 705,701
Insurance Management Series:
Corporate Bond Fund; 1,213,125 shares at $9.79 per share (cost $11,647,482)............................... 11,876,490
Equity Growth and Income Fund; 2,084,810 shares at $12.80 per share (cost $23,768,678).................... 26,685,566
Growth Stock Fund; 17,464 shares at $10.30 per share (cost $176,265)...................................... 179,879
International Stock Fund; 156,864 shares at $10.35 per share (cost $1,580,366)............................ 1,623,538
Prime Money Fund; 5,774,492 shares at $1.00 per share (cost $5,775,674)................................... 5,774,492
U.S. Government Bond Fund; 438,127 shares at $10.29 per share (cost $4,432,728)........................... 4,508,328
Utility Fund; 797,832 shares at $11.03 per share (cost $8,000,336)........................................ 8,800,082
Janus Aspen Series:
Aggressive Growth Portfolio; 693,818 shares at $17.08 per share (cost $10,685,497)........................ 11,850,406
Balanced Portfolio; 55,709 shares at $13.03 per share (cost $699,844)..................................... 725,884
Flexible Income Portfolio; 141,156 shares at $11.11 per share (cost $1,538,432)........................... 1,568,241
Growth Portfolio; 190,925 shares at $13.45 per share (cost $2,483,088).................................... 2,567,940
Short-Term Bond Portfolio; 74,706 shares at $10.03 per share (cost $747,969).............................. 749,299
Worldwide Growth Portfolio; 365,442 shares at $15.31 per share (cost $5,341,275).......................... 5,594,914
Lexington Emerging Markets Fund; 36,371 shares at $9.38 per share (cost $345,183)........................... 341,159
Lexington Natural Resources Trust; 166,302 shares at $11.30 per share (cost $1,690,491)..................... 1,879,208
S-3
<PAGE>
<CAPTION>
<S> <C>
Neuberger & Berman Advisers Management Trust - Growth Portfolio; 323,147 shares at $25.86
per share (cost $8,279,416) .............................................................................. 8,356,574
Scudder Variable Life Investment Fund - International Portfolio; 893,880 shares
at $11.82 per share (cost $9,913,254)..................................................................... 10,565,665
TCI Portfolios, Inc.:
TCI Balanced; 69,585 shares at $7.04 per share (cost $473,338) ........................................... 489,878
TCI Growth; 4,503,433 shares at $12.06 per share (cost $46,105,299) ...................................... 54,311,402
TCI International; 113,062 shares at $5.33 per share (cost $586,969) ..................................... 602,619
--------------
NET ASSETS ...................................................................................................$1,130,935,704
--------------
--------------
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995 (continued)
Net assets represented by:
<TABLE>
<CAPTION>
ACCUMULATION
UNIT
UNITS VALUE
----- -----
<S> <C> <C> <C>
Reserves for annuity contracts in accumulation and payment period:
AETNA VARIABLE FUND:
Non-Qualified 1964 ................................................... 5,159.1 $149.975........ $773,737
Non-Qualified I ...................................................... 157,693.1 169.682........ 26,757,709
Non-Qualified II ..................................................... 91,497.4 119.527........ 10,936,439
Non-Qualified III .................................................... 129,657.4 114.464........ 14,841,063
Non-Qualified V ......................................................30,554,956.8 13.972........ 426,924,429
Non-Qualified VI ..................................................... 538,384.8 13.060........ 7,031,177
Non-Qualified VII .................................................... 3,068,782.3 14.001........ 42,967,268
Reserves for annuity contracts in payment period (Note 1) .............................................. 62,550,401
AETNA INCOME SHARES:
Non-Qualified I ...................................................... 7,341.1 46.171........ 338,944
Non-Qualified II ..................................................... 46,936.3 48.232........ 2,263,808
Non-Qualified III .................................................... 11,092.5 46.616........ 517,093
Non-Qualified V ...................................................... 4,853,662.2 12.212........ 59,271,792
Non-Qualified VI ..................................................... 36,561.4 11.140........ 407,298
Non-Qualified VII .................................................... 988,198.5 12.037........ 11,894,717
Reserves for annuity contracts in payment period (Note 1) .............................................. 3,395,721
AETNA VARIABLE ENCORE FUND:
Non-Qualified I ...................................................... 19,658.0 37.683........ 740,766
Non-Qualified II ..................................................... 53,953.2 38.335........ 2,068,303
Non-Qualified III .................................................... 21,094.2 36.081........ 761,100
Non-Qualified V ...................................................... 4,354,271.6 11.007........ 47,927,808
Non-Qualified VI ..................................................... 8,053.2 10.728........ 86,394
Non-Qualified VII .................................................... 2,694,033.8 10.968........ 29,548,408
AETNA INVESTMENT ADVISERS FUND, INC.:
Non-Qualified I ...................................................... 38,200.7 18.002........ 687,677
Non-Qualified II ..................................................... 101,130.6 17.932........ 1,813,429
Non-Qualified III .................................................... 26,617.3 17.889........ 476,148
Non-Qualified V ...................................................... 6,430,772.1 13.803........ 88,762,468
S-4
<PAGE>
<CAPTION>
<S> <C> <C> <C>
Non-Qualified VI ..................................................... 14,277.8 11.589........ 165,459
Non-Qualified VII .................................................... 919,744.2 13.602........ 12,510,415
Reserves for annuity contracts in payment period (Note 1) .............................................. 6,739,809
AETNA GET FUND, SERIES B:
Non-Qualified V ...................................................... 1,089,582.2 12.849........ 14,000,173
AETNA ASCENT VARIABLE PORTFOLIO:
Non-Qualified V ...................................................... 16,790.9 10.652........ 178,853
Non-Qualified VII .................................................... 15,831.9 10.645........ 168,530
AETNA CROSSROADS VARIABLE PORTFOLIO:
Non-Qualified V ...................................................... 16,953.1 10.594........ 179,603
Non-Qualified VII .................................................... 27,089.2 10.587........ 286,802
AETNA LEGACY VARIABLE PORTFOLIO:
Non-Qualified V ...................................................... 2,222.3 10.443........ 23,208
Non-Qualified VII .................................................... 28,777.7 10.438........ 300,371
ALGER AMERICAN FUNDS:
ALGER AMERICAN BALANCED PORTFOLIO:
Non-Qualified VII .................................................... 54,737.3 12.588........ 689,050
ALGER AMERICAN GROWTH PORTFOLIO:
Non-Qualified V ...................................................... 275,493.6 10.157........ 2,798,288
Non-Qualified VII .................................................... 615,696.6 12.980........ 7,991,798
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO:
Non-Qualified VII .................................................... 95,828.9 10.660........ 1,021,520
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO:
Non-Qualified VII .................................................... 159,378.8 12.265........ 1,954,796
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO:
Non-Qualified VII .................................................... 233,109.8 13.974........ 3,257,565
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO:
Non-Qualified V ...................................................... 1,364,900.9 13.714........ 18,718,117
Non-Qualified VII .................................................... 507,425.1 13.295........ 6,746,200
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO:
Non-Qualified V ...................................................... 25,730.0 13.480........ 346,846
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS:
EQUITY - INCOME PORTFOLIO:
Non-Qualified V ...................................................... 294,244.1 11.054........ 3,252,637
Non-Qualified VII..................................................... 913,516.8 13.324........ 12,171,572
GROWTH PORTFOLIO:
Non-Qualified V ...................................................... 288,576.0 10.066........ 2,904,786
Non-Qualified VII..................................................... 885,545.2 13.913........ 12,320,476
HIGH INCOME PORTFOLIO:
Non-Qualified VII..................................................... 112,818.5 10.701........ 1,207,326
OVERSEAS PORTFOLIO:
Non-Qualified V ...................................................... 33,813.3 10.052........ 339,882
Non-Qualified VII..................................................... 150,017.4 11.143........ 1,671,709
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II
ASSET MANAGER PORTFOLIO:
Non-Qualified VII..................................................... 116,810.0 11.664........ 1,362,489
CONTRAFUND PORTFOLIO:
Non-Qualified V ...................................................... 379,862.0 10.468........ 3,976,320
Non-Qualified VII..................................................... 684,272.2 11.658........ 7,976,924
INDEX 500 PORTFOLIO:
Non-Qualified VII..................................................... 191,671.3 11.336........ 2,172,818
S-5
<PAGE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT GRADE BOND PORTFOLIO:
Non-Qualified VII..................................................... 66,574.4 10.600........ 705,701
INSURANCE MANAGEMENT SERIES:
CORPORATE BOND FUND:
Non-Qualified VII..................................................... 1,020,320.8 11.640........ 11,876,490
EQUITY GROWTH AND INCOME FUND:
Non-Qualified VII..................................................... 2,057,363.9 12.971........ 26,685,566
GROWTH STOCK FUND:
Non-Qualified VII..................................................... 17,503.1 10.277........ 179,879
INTERNATIONAL STOCK FUND:
Non-Qualified VII..................................................... 158,318.6 10.255........ 1,623,538
PRIME MONEY FUND:
Non-Qualified VII..................................................... 554,933.5 10.406........ 5,774,492
U.S. GOVERNMENT BOND FUND:
Non-Qualified VII..................................................... 417,293.2 10.804........ 4,508,328
UTILITY FUND:
Non-Qualified VII..................................................... 727,600.6 12.095........ 8,800,082
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO:
Non-Qualified V....................................................... 723,838.5 12.992........ 9,404,275
Non-Qualified VII..................................................... 187,583.5 13.040........ 2,446,131
BALANCED PORTFOLIO:
Non-Qualified V....................................................... 7,771.5 10.835........ 84,204
Non-Qualified VII..................................................... 53,016.1 12.104........ 641,680
FLEXIBLE INCOME PORTFOLIO:
Non-Qualified V....................................................... 84,047.6 12.094........ 1,016,439
Non-Qualified VII..................................................... 45,713.6 12.071........ 551,802
GROWTH PORTFOLIO:
Non-Qualified V....................................................... 26,022.4 10.870........ 282,874
Non-Qualified VII..................................................... 176,110.7 12.975........ 2,285,066
SHORT-TERM BOND PORTFOLIO:
Non-Qualified V....................................................... 2,677.9 10.325........ 27,650
Non-Qualified VII..................................................... 67,034.3 10.765........ 721,649
WORLDWIDE GROWTH PORTFOLIO:
Non-Qualified V....................................................... 227,582.2 10.893........ 2,479,004
Non-Qualified VII..................................................... 252,485.1 12.341........ 3,115,910
LEXINGTON EMERGING MARKETS FUND:
Non-Qualified VII..................................................... 36,773.1 9.277........ 341,159
LEXINGTON NATURAL RESOURCES TRUST:
Non-Qualified V ...................................................... 162,462.2 10.479........ 1,702,501
Non-Qualified VII .................................................... 16,932.5 10.436........ 176,707
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST - GROWTH PORTFOLIO:
Non-Qualified V ...................................................... 526,542.1 15.871........ 8,356,574
SCUDDER VARIABLE LIFE INVESTMENT FUND:
INTERNATIONAL PORTFOLIO:
Non-Qualified V ...................................................... 720,017.3 14.674........ 10,565,665
TCI PORTFOLIOS, INC.:
TCI BALANCED:
Non-Qualified VII..................................................... 40,406.8 12.124........ 489,878
S-6
<PAGE>
<CAPTION>
<S> <C> <C> <C>
TCI GROWTH:
Non-Qualified II ..................................................... 82,191.6 13.224........ 1,086,884
Non-Qualified III .................................................... 24,926.7 13.107........ 326,719
Non-Qualified V ...................................................... 2,735,782.0 14.091........ 38,549,513
Non-Qualified VI ..................................................... 10,258.8 11.884........ 121,912
Non-Qualified VII .................................................... 1,014,612.2 14.021........ 14,226,374
TCI INTERNATIONAL:
Non-Qualified VII...................................................... 57,691.1 10.446........ 602,619
--------------
$1,130,935,704
--------------
--------------
</TABLE>
See Notes to Financial Statements.
S-7
<PAGE>
VARIABLE ANNUITY ACCOUNT B
STATEMENT OF OPERATIONS - Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Aetna Variable Fund.................................................................... $97,535,899
Aetna Income Shares.................................................................... 4,800,986
Aetna Variable Encore Fund............................................................. 61,853
Aetna Investment Advisers Fund, Inc.................................................... 7,359,482
Aetna GET Fund, Series B .............................................................. 359,007
Aetna Ascent Variable Portfolio........................................................ 7,378
Aetna Crossroads Variable Portfolio.................................................... 8,108
Aetna Legacy Variable Portfolio........................................................ 5,625
Alger American Fund - Alger American Balanced Portfolio................................ 267
Alger American Fund - Alger American Growth Portfolio.................................. 1,379
Alger American Fund - Alger American MidCap Portfolio.................................. 2
Calvert Responsibly Invested Balanced Portfolio..................... .................. 30,986
Fidelity Investments Variable Insurance Products Fund - Equity-Income Portfolio........ 126,924
Fidelity Investments Variable Insurance Products Fund - Growth Portfolio............... 1,403
Fidelity Investments Variable Insurance Products Fund - Overseas Portfolio............. 106
Fidelity Investments Variable Insurance Products Fund II - Asset Manager Portfolio..... 3,070
Fidelity Investments Variable Insurance Products Fund II - Contrafund Portfolio........ 146,072
Insurance Management Series - Corporate Bond Fund...................................... 425,532
Insurance Management Series - Equity Growth and Income Fund............................ 249,502
Insurance Management Series - Prime Money Fund......................................... 225,699
Insurance Management Series - U.S. Government Bond Fund................................ 98,938
Insurance Management Series - Utility Fund............................................. 186,623
Janus Aspen Series - Aggressive Growth Portfolio....................................... 113,664
Janus Aspen Series - Balanced Portfolio................................................ 5,931
Janus Aspen Series - Flexible Income Portfolio......................................... 51,680
Janus Aspen Series - Growth Portfolio.................................................. 41,839
Janus Aspen Series - Short-Term Bond Portfolio......................................... 15,670
Janus Aspen Series - Worldwide Growth Portfolio........................................ 17,957
Lexington Emerging Markets Fund........................................................ 3,323
Lexington National Resources Trust..................................................... 7,842
Neuberger & Berman Advisers Management Trust - Growth Portfolio........................ 111,452
Scudder Variable Life Investment Fund - International Portfolio........................ 40,450
TCI Portfolios, Inc. - TCI Balanced.................................................... 5,359
TCI Portfolios, Inc. - TCI Growth...................................................... 47,667
Total investment income ............................................................ 112,097,675
Valuation period deductions (Note 2)................................................... (11,786,592)
Net investment income ................................................................. 100,311,083
S-8
<PAGE>
<CAPTION>
<S> <C> <C>
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales .................................................................$495,934,611
Cost of investments sold ............................................................ 463,921,121
Net realized gain ................................................................. 32,013,490
Net unrealized gain (loss) on investments:
Beginning of year ................................................................... (44,356,052)
End of year ......................................................................... 28,746,944
Net unrealized gain ............................................................... 73,102,996
Net realized and unrealized gain on investments ....................................... 105,116,486
------------
Net increase in net assets resulting from operations .................................. $205,427,569
------------
------------
</TABLE>
See Notes to Financial Statements.
S-9
<PAGE>
VARIABLE ANNUITY ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income ................................................ $100,311,083 $74,514,904
Net realized and unrealized gain (loss) on investments ............... 105,116,486 (89,424,840)
-------------- ------------
Net increase (decrease) in net assets resulting from operations .... 205,427,569 (14,909,936)
-------------- ------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments .......................... 178,474,387 170,170,873
Sales and administrative charges deducted by the Company ............. (34,250) (8,045)
-------------- ------------
Net variable annuity contract purchase payments .................... 178,440,137 170,162,828
Transfers from the Company for mortality guarantee adjustments........ 1,565,140 537,027
Transfers from (to) the Company's fixed account options .............. 4,144,061 (6,000,310)
Redemptions by contract holders ...................................... (46,390,791) (32,737,461)
Annuity payments ..................................................... (9,198,421) (7,564,589)
Other ................................................................ 1,143,373 (127,555)
-------------- ------------
Net increase in net assets from unit transactions .................. 129,703,499 124,269,940
-------------- ------------
Change in net assets ................................................. 335,131,068 109,360,004
NET ASSETS:
Beginning of year .................................................... 795,804,636 686,444,632
-------------- ------------
End of year .......................................................... $1,130,935,704 $795,804,636
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Financial Statements.
S-10
<PAGE>
VARIABLE ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account B ("Account") is registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with annuity contracts that may be entitled to tax-
deferred treatment under specific sections of the Internal Revenue Code of
1986, as amended.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. VALUATION OF INVESTMENTS
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Aetna Variable Fund Insurance Management Series:
Aetna Income Shares - Corporate Bond Fund
Aetna Variable Encore Fund - Equity Growth and Income Fund
Aetna Investment Advisers Fund, Inc. - Growth Stock Fund
Aetna GET Fund, Series B - International Stock Fund
Aetna Ascent Variable Portfolio - Prime Money Fund
Aetna Crossroads Variable Portfolio - U.S. Government Bond Fund
Aetna Legacy Variable Portfolio - Utility Fund
Alger American Funds: Janus Aspen Series:
- Alger American Balanced Portfolio - Aggressive Growth Portfolio
- Alger American Growth Portfolio - Balanced Portfolio
- Alger American Income and Growth Portfolio - Flexible Income Portfolio
- Alger American Leveraged AllCap Portfolio - Growth Portfolio
- Alger American MidCap Growth Portfolio - Short-Term Bond Portfolio
- Alger American Small Capitalization Portfolio - Worldwide Growth Portfolio
Calvert Responsibly Invested Balanced Portfolio Lexington Emerging Markets Fund:
Fidelity Investments Variable Insurance Products Fund: Lexington Natural Resources Trust
- Equity-Income Portfolio Neuberger & Berman Advisers Management Trust:
- Growth Portfolio - Growth Portfolio
- High Income Portfolio Scudder Variable Life Investment Fund:
- Overseas Portfolio - International Portfolio
Fidelity Investments Variable Insurance Products Fund II: TCI Portfolios, Inc.:
- Asset Manager Portfolio - TCI Balanced
- Contrafund Portfolio - TCI Growth
- Index 500 Portfolio - TCI International
- Investment Grade Bond Portfolio
</TABLE>
b. OTHER
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
S-11
<PAGE>
VARIABLE ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued)
c. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
d. ANNUITY RESERVES
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. DIVIDEND INCOME
On an annual basis, the Funds distribute substantially all of their
taxable income and realized capital gains to their shareholders.
Distributions to the Account are automatically reinvested in shares of the
Funds. The Account's proportionate share of each Fund's undistributed net
investment income and accumulated net realized gain on investments is
included in net unrealized gain in the Statement of Operations.
4. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended Decmeber 31, 1995 aggregated
$725,949,193 and $495,934,611, respectively.
5. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
S-12
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AETNA VARIABLE FUND:
Non-Qualified 1964 ....................................... $114.828 $149.975 30.61%
Non-Qualified I .......................................... 129.838 169.682 30.69%
Non-Qualified II ......................................... 91.515 119.527 30.61%
Non-Qualified III ........................................ 87.638 114.464 30.61%
Non-Qualified V .......................................... 10.698 13.972 30.61%
Non-Qualified VI ......................................... 9.993 13.060 30.69%
Non-Qualified VII ........................................ 10.737 14.001 30.40%
- -------------------------------------------------------------------------------------------------------
AETNA INCOME SHARES:
Non-Qualified I .......................................... $39.514 $46.171 16.85%
Non-Qualified II ......................................... 41.302 48.232 16.78%
Non-Qualified III ........................................ 39.919 46.616 16.78%
Non-Qualified V .......................................... 10.457 12.212 16.78%
Non-Qualified VI ......................................... 9.534 11.140 16.85%
Non-Qualified VII ........................................ 10.324 12.037 16.59%
- -------------------------------------------------------------------------------------------------------
AETNA VARIABLE ENCORE FUND:
Non-Qualified I .......................................... $35.958 $37.683 4.80%
Non-Qualified II ......................................... 36.602 38.335 4.73%
Non-Qualified III ........................................ 34.450 36.081 4.73%
Non-Qualified V .......................................... 10.509 11.007 4.73%
Non-Qualified VI ......................................... 10.237 10.728 4.80%
Non-Qualified VII ........................................ 10.489 10.968 4.57%
- -------------------------------------------------------------------------------------------------------
AETNA INVESTMENT ADVISERS FUND, INC.:
Non-Qualified I .......................................... $14.299 $18.002 25.90%
Non-Qualified II ......................................... 14.252 17.932 25.82%
Non-Qualified III ........................................ 14.218 17.889 25.82%
Non-Qualified V .......................................... 10.971 13.803 25.81%
Non-Qualified VI ......................................... 10.000 11.589 15.89% (4)
Non-Qualified VII ........................................ 10.828 13.602 25.62%
- -------------------------------------------------------------------------------------------------------
AETNA GET FUND, SERIES B:
Non-Qualified V .......................................... $10.159 $12.849 26.48%
- -------------------------------------------------------------------------------------------------------
AETNA ASCENT VARIABLE PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.652 6.52% (7)
Non-Qualified VII ........................................ 10.000 10.645 6.45% (7)
- -------------------------------------------------------------------------------------------------------
AETNA CROSSROADS VARIABLE PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.594 5.94% (7)
Non-Qualified VII ........................................ 10.000 10.587 5.87% (7)
- -------------------------------------------------------------------------------------------------------
AETNA LEGACY VARIABLE PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.443 4.43% (8)
Non-Qualified VII ........................................ 10.000 10.438 4.38% (8)
- -------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUNDS:
ALGER AMERICAN BALANCED PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $12.588 25.88% (1)
- -------------------------------------------------------------------------------------------------------
ALGER AMERICAN GROWTH PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.157 1.57% (7)
Non-Qualified VII ........................................ 10.000 12.980 29.80% (2)
- -------------------------------------------------------------------------------------------------------
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $10.660 6.60% (5)
- -------------------------------------------------------------------------------------------------------
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $12.265 22.65% (5)
- -------------------------------------------------------------------------------------------------------
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $13.974 39.74% (1)
- -------------------------------------------------------------------------------------------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO:
Non-Qualified V .......................................... $9.622 $13.714 42.52%
Non-Qualified VII ........................................ 10.000 13.295 32.95% (3)
- -------------------------------------------------------------------------------------------------------
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO:
Non-Qualified V .......................................... $10.518 $13.480 28.17%
- -------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS:
EQUITY - INCOME PORTFOLIO:
Non-Qualified V .......................................... $10.000 $11.054 10.54% (7)
Non-Qualified VII ........................................ 10.002 13.324 33.21%
- -------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.066 0.66% (7)
Non-Qualified VII ........................................ 10.423 13.913 33.48%
- -------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $10.701 7.01% (5)
- -------------------------------------------------------------------------------------------------------
OVERSEAS PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.052 0.52% (7)
Non-Qualified VII ........................................ 10.000 11.143 11.43% (1)
- -------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II:
ASSET MANAGER PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $11.664 16.64% (1)
- -------------------------------------------------------------------------------------------------------
CONTRAFUND PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.468 4.68% (7)
Non-Qualified VII ........................................ 10.000 11.658 16.58% (5)
- -------------------------------------------------------------------------------------------------------
INDEX 500 PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $11.336 13.36% (5)
- -------------------------------------------------------------------------------------------------------
INVESTMENT GRADE BOND PORTFOLIO:
Non-Qualified VII ........................................ $10.000 $10.600 6.00% (6)
- -------------------------------------------------------------------------------------------------------
INSURANCE MANAGEMENT SERIES:
CORPORATE BOND FUND:
Non-Qualified VII ........................................ $9.814 $11.640 18.61%
- -------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
(Decrease)
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY GROWTH AND INCOME FUND:
Non-Qualified VII ....................................... $9.838 $12.971 31.84%
- -------------------------------------------------------------------------------------------------------
GROWTH STOCK FUND:
Non-Qualified VII ........................................ $10.000 $10.277 2.77% (9)
- -------------------------------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND:
Non-Qualified VII ........................................ $10.000 $10.255 2.55% (4)
- -------------------------------------------------------------------------------------------------------
PRIME MONEY FUND:
Non-Qualified VII ........................................ $10.033 $10.406 3.71%
- -------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BOND FUND:
Non-Qualified VII ........................................ $10.073 $10.804 7.25%
- -------------------------------------------------------------------------------------------------------
UTILITY FUND:
Non-Qualified VII ........................................ $9.881 $12.095 22.40%
- -------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO:
Non-Qualified V .......................................... $10.319 $12.992 25.91%
Non-Qualified VII ........................................ 10.374 13.040 25.71%
- -------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.835 8.35% (7)
Non-Qualified VII ........................................ 10.000 12.104 21.04% (1)
- -------------------------------------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO:
Non-Qualified V .......................................... $9.886 $12.094 22.33%
Non-Qualified VII ........................................ 9.884 12.071 22.13%
- -------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.870 8.70% (7)
Non-Qualified VII ........................................ 10.109 12.975 28.35%
- -------------------------------------------------------------------------------------------------------
SHORT TERM BOND PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.325 3.25% (7)
Non-Qualified VII ........................................ 10.000 10.765 7.65% (1)
- -------------------------------------------------------------------------------------------------------
WORLDWIDE GROWTH PORTFOLIO:
Non-Qualified V .......................................... $10.000 $10.893 8.93% (7)
Non-Qualified VII ........................................ 10.000 12.341 23.41% (3)
- -------------------------------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS FUND:
Non-Qualified VII ........................................ $9.795 $9.277 (5.28%)
- -------------------------------------------------------------------------------------------------------
LEXINGTON NATURAL RESOURCES TRUST:
Non-Qualified V .......................................... $9.079 $10.479 15.42%
Non-Qualified VII ........................................ 9.056 10.436 15.24%
- -------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST - GROWTH PORTFOLIO:
Non-Qualified V .......................................... $12.199 $15.871 30.10%
- -------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND - INTERNATIONAL
PORTFOLIO:
Non-Qualified V .......................................... $13.372 $14.674 9.74%
- -------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TCI PORTFOLIOS, INC.:
TCI BALANCED:
Non-Qualified VII ........................................ $10.152 $12.124 19.42%
- -------------------------------------------------------------------------------------------------------
TCI GROWTH:
Non-Qualified II ......................................... $10.213 $13.224 29.47%
Non-Qualified III ........................................ 10.123 13.107 29.47%
Non-Qualified V .......................................... 10.883 14.091 29.47%
Non-Qualified VI ......................................... 10.000 11.884 18.84% (4)
Non-Qualified VII ........................................ 10.847 14.021 29.27%
- -------------------------------------------------------------------------------------------------------
TCI INTERNATIONAL:
Non-Qualified VII ........................................ $9.441 $10.446 10.64%
- -------------------------------------------------------------------------------------------------------
</TABLE>
NON-QUALIFIED 1964 Individual contract issued from December 1, 1964 to
March 14, 1967.
NON-QUALIFIED I Individual contract issued in connection with deferred
compensation plans from March 15, 1967 through April
30, 1975; other individual contracts issued from March
15, 1967 through October 31, 1975; and group contracts
issued from March 15, 1967 to December 31, 1975.
NON-QUALIFIED II Individual contracts issued in connection with deferred
compensation plans since May 1, 1975; other individual
contracts issued since November 1, 1975; and group
contracts issued since January 1, 1976.
NON-QUALIFIED III Group contracts issued in connection with deferred
compensation plans for tax-exempt organizations
(non-governmental only) since May 3, 1982.
NON-QUALIFIED V Group Aetna Plus contracts issued in connection
with Deferred Compensation Plans issued since
August 28, 1992.
NON-QUALIFIED VI Certain existing contracts that were converted to ACES,
the new administrative system (previously valued under
Non-Qualified I).
NON-QUALIFIED VII Certain individual and group contracts issued as
non-qualified deferred annuity contracts or Individual
Retirement Annuity contracts issued since May 4, 1994.
1 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during January 1995 when
the fund became available under the contract.
2 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during February 1995 when
the fund became available under the contract.
3 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during April 1995 when
the fund became available under the contract.
S-16
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
- --------------------------------------------------------------------------------
4 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during May 1995 when the
fund became available under the contract.
5 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during June 1995 when the
fund became available under the contract.
6 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during July 1995 when the
fund became available under the contract.
7 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during August 1995 when
the fund became available under the contract.
8 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during September 1995
when the fund became available under the contract.
9 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during November 1995 when
the fund became available under the contract.
S-17
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report..................................... F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993.............................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994... F-4
Consolidated Statements of Changes in Shareholder's Equity for
the Years Ended
December 31, 1995, 1994 and 1993.............................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.............................. F-6
Notes to Consolidated Financial Statements....................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its methods of accounting for certain investments in debt and
equity securities.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 6, 1996
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premiums............................................. $ 130.8 $ 124.2 $ 82.1
Charges assessed against policyholders............... 318.9 279.0 251.5
Net investment income................................ 1,004.3 917.2 911.9
Net realized capital gains........................... 41.3 1.5 9.5
Other income......................................... 42.0 10.3 9.5
-------- -------- --------
Total revenue...................................... 1,537.3 1,332.2 1,264.5
-------- -------- --------
Benefits and expenses:
Current and future benefits.......................... 915.3 854.1 818.4
Operating expenses................................... 318.7 235.2 207.2
Amortization of deferred policy acquisition costs.... 43.3 26.4 19.8
-------- -------- --------
Total benefits and expenses........................ 1,277.3 1,115.7 1,045.4
-------- -------- --------
Income before federal income taxes..................... 260.0 216.5 219.1
Federal income taxes................................. 84.1 71.2 76.2
-------- -------- --------
Net income............................................. $ 175.9 $ 145.3 $ 142.9
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Balance Sheets
(millions)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
- -------------------------------------------------------
Investments:
Debt securities, available for sale:
(amortized cost: $11,923.7 and $10,577.8)........... $12,720.8 $10,191.4
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $51.3 and
$43.3)............................................ 57.6 47.2
Investment in affiliated mutual funds (cost: $173.4
and $187.1)....................................... 191.8 181.9
Common stock (cost: $6.9 at December 31, 1995)..... 8.2 --
Short-term investments............................... 15.1 98.0
Mortgage loans....................................... 21.2 9.9
Policy loans......................................... 338.6 248.7
Limited partnership.................................. -- 24.4
--------- ---------
Total investments................................ 13,353.3 10,801.5
Cash and cash equivalents.............................. 568.8 623.3
Accrued investment income.............................. 175.5 142.2
Premiums due and other receivables..................... 37.3 75.8
Deferred policy acquisition costs...................... 1,341.3 1,164.3
Reinsurance loan to affiliate.......................... 655.5 690.3
Other assets........................................... 26.2 15.9
Separate Accounts assets............................... 10,987.0 7,420.8
--------- ---------
Total assets..................................... $27,144.9 $20,934.1
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
- -------------------------------------------------------
Liabilities:
Future policy benefits............................... $ 3,594.6 $ 2,912.7
Unpaid claims and claim expenses..................... 27.2 23.8
Policyholders' funds left with the Company........... 10,500.1 8,949.3
--------- ---------
Total insurance reserve liabilities.............. 14,121.9 11,885.8
Other liabilities.................................... 259.2 302.1
Federal income taxes:
Current............................................ 24.2 3.4
Deferred........................................... 169.6 233.5
Separate Accounts liabilities........................ 10,987.0 7,420.8
--------- ---------
Total liabilities................................ 25,561.9 19,845.6
--------- ---------
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized;
55,000 shares issued and outstanding)............... 2.8 2.8
Paid-in capital...................................... 407.6 407.6
Net unrealized capital gains (losses)................ 132.5 (189.0)
Retained earnings.................................... 1,040.1 867.1
--------- ---------
Total shareholder's equity....................... 1,583.0 1,088.5
--------- ---------
Total liabilities and shareholder's equity..... $27,144.9 $20,934.1
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's equity, beginning of year................ $ 1,088.5 $ 1,246.7 $ 990.1
Net change in unrealized capital gains (losses)........ 321.5 (303.5) 113.7
Net income............................................. 175.9 145.3 142.9
Common stock dividends declared........................ (2.9) -- --
--------- --------- ---------
Shareholder's equity, end of year...................... $ 1,583.0 $ 1,088.5 $ 1,246.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 175.9 $ 145.3 $ 142.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income.............. (33.3) (17.5) (11.1)
Decrease (increase) in premiums due and other
receivables....................................... 25.4 1.3 (5.6)
Increase in policy loans........................... (89.9) (46.0) (36.4)
Increase in deferred policy acquisition costs...... (177.0) (105.9) (60.5)
Decrease in reinsurance loan to affiliate.......... 34.8 27.8 31.8
Net increase in universal life account balances.... 393.4 164.7 126.4
Increase in other insurance reserve liabilities.... 79.0 75.1 86.1
Net increase in other liabilities and other
assets............................................ 15.0 53.9 7.0
Decrease in federal income taxes................... (6.5) (11.7) (3.7)
Net accretion of discount on bonds................. (66.4) (77.9) (88.1)
Net realized capital gains......................... (41.3) (1.5) (9.5)
Other, net......................................... -- (1.0) 0.2
---------- ---------- ----------
Net cash provided by operating activities........ 309.1 206.6 179.5
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale................. 4,207.2 3,593.8 473.9
Equity securities.................................. 180.8 93.1 89.6
Mortgage loans..................................... 10.7 -- --
Limited partnership................................ 26.6 -- --
Investment maturities and collections of:
Debt securities available for sale................. 583.9 1,289.2 2,133.3
Short-term investments............................. 106.1 30.4 19.7
Cost of investment purchases in:
Debt securities.................................... (6,034.0) (5,621.4) (3,669.2)
Equity securities.................................. (170.9) (162.5) (157.5)
Short-term investments............................. (24.7) (106.1) (41.3)
Mortgage loans..................................... (21.3) -- --
Limited partnership................................ -- (25.0) --
---------- ---------- ----------
Net cash used for investing activities........... (1,135.6) (908.5) (1,151.5)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment
contracts........................................... 1,884.5 1,737.8 2,117.8
Withdrawals of investment contracts.................. (1,109.6) (948.7) (1,000.3)
Dividends paid to shareholder........................ (2.9) -- --
---------- ---------- ----------
Net cash provided by financing activities........ 772.0 789.1 1,117.5
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents... (54.5) 87.2 145.5
Cash and cash equivalents, beginning of year........... 623.3 536.1 390.6
---------- ---------- ----------
Cash and cash equivalents, end of year................. $ 568.8 $ 623.3 $ 536.1
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Income taxes paid, net............................... $ 90.2 $ 82.6 $ 79.9
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business segments,
financial services and life insurance.
The financial services products include individual and group annuity contracts
which offer a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify under Internal Revenue Code
Sections 401, 403, 408 and 457, and individual and group non-qualified annuity
contracts. These contracts may be immediate or deferred and are offered
primarily to individuals, pension plans, small businesses and employer-sponsored
groups in the health care, government, education (collectively "not-for-profit"
organizations) and corporate markets. Financial services also include pension
plan administrative services.
The life insurance products include universal life, variable universal life,
interest sensitive whole life and term insurance. These products are offered
primarily to individuals, small businesses, employer sponsored groups and
executives of Fortune 2000 companies.
BASIS OF PRESENTATION
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a
wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a
wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two
subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna
Investment Services, Inc. ("AISI"), which were previously reported in the
consolidated financial statements were distributed in the form of dividends to
ARSI in December of 1995. The impact to the Company's financial statements of
distributing these dividends was immaterial.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Intercompany transactions have been
eliminated. Certain reclassifications have been made to 1994 and 1993 financial
information to conform to the 1995 presentation.
ACCOUNTING CHANGES
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires the classification of debt securities into three categories: "held to
maturity", which are carried at amortized cost; "available for sale", which are
carried at fair value with changes in fair value recognized as a component of
shareholder's equity; and "trading", which are carried at fair value with
immediate recognition in income of changes in fair value.
Initial adoption of this standard resulted in a net increase of $106.8 million,
net of taxes of $57.5 million, to net unrealized gains in shareholder's equity.
These amounts exclude gains and losses allocable to experience-rated (including
universal life) contractholders. Adoption of FAS No. 115 did not have a material
effect on deferred policy acquisition costs.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of ninety days or less when purchased.
INVESTMENTS
Debt Securities
At December 31, 1995 and 1994, all of the Company's debt securities are
classified as available for sale and carried at fair value. These securities are
written down (as realized losses) for other than temporary decline in value.
Unrealized gains and losses related to these securities, after deducting amounts
allocable to experience-rated contractholders and related taxes, are reflected
in shareholder's equity.
Fair values for debt securities are based on quoted market prices or dealer
quotations. Where quoted market prices or dealer quotations are not available,
fair values are measured utilizing quoted market prices for similar securities
or by using discounted cash flow methods. Cost for mortgage-backed securities is
adjusted for unamortized premiums and discounts, which are amortized using the
interest method over the estimated remaining term of the securities, adjusted
for anticipated prepayments.
Purchases and sales of debt securities are recorded on the trade date.
Equity Securities
Equity securities are classified as available for sale and carried at fair value
based on quoted market prices or dealer quotations. Equity securities are
written down (as realized losses) for other than temporary declines in value.
Unrealized gains and losses related to such securities are reflected in
shareholder's equity. Purchases and sales are recorded on the trade date.
The investment in affiliated mutual funds represents an investment in the Aetna
Series Fund, Inc., a retail mutual fund which has been seeded by the Company,
and is carried at fair value.
Mortgage Loans and Policy Loans
Mortgage loans and policy loans are carried at unpaid principal balances net of
valuation reserves, which approximates fair value, and are generally secured.
Purchases and sales of mortgage loans are recorded on the closing date.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Limited Partnership
The Company's limited partnership investment was carried at the amount invested
plus the Company's share of undistributed operating results and unrealized gains
(losses), which approximates fair value. The Company disposed of the limited
partnership during 1995.
Short-Term Investments
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of over ninety days and
less than one year, are considered available for sale and are carried at fair
value, which approximates amortized cost.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring insurance business have been deferred. These costs,
all of which vary with and are primarily related to the production of new
business, consist principally of commissions, certain expenses of underwriting
and issuing contracts and certain agency expenses. For fixed ordinary life
contracts, such costs are amortized over expected premium-paying periods. For
universal life and certain annuity contracts, such costs are amortized in
proportion to estimated gross profits and adjusted to reflect actual gross
profits. These costs are amortized over twenty years for annuity pension
contracts, and over the contract period for universal life contracts.
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
would not be adequate to cover related losses and expenses.
INSURANCE RESERVE LIABILITIES
The Company's liabilities include reserves related to fixed ordinary life, fixed
universal life and fixed annuity contracts. Reserves for future policy benefits
for fixed ordinary life contracts are computed on the basis of assumed
investment yield, assumed mortality, withdrawals and expenses, including a
margin for adverse deviation, which generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 10.00%. Assumed
investment yield is based on the Company's experience. Mortality and withdrawal
rate assumptions are based on relevant Aetna experience and are periodically
reviewed against both industry standards and experience.
Reserves for fixed universal life (included in Future Policy Benefits) and fixed
deferred annuity contracts (included in Policyholders' Funds Left With the
Company) are equal to the fund value. The fund value is equal to cumulative
deposits less charges plus credited interest thereon, without reduction for
possible future penalties assessed on premature withdrawal. For guaranteed
interest options, the interest credited ranged from 4.00% to 6.38% in 1995 and
4.00% to 5.85% in 1994. For all other fixed options, the interest credited
ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994.
Reserves for fixed annuity contracts in the annuity period and for future
amounts due under settlement options are computed actuarially using the 1971
Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table,
the
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1983 Group Annuity Mortality Table and, in some cases, mortality improvement
according to scales G and H, at assumed interest rates ranging from 3.5% to
9.5%. Reserves relating to contracts with life contingencies are included in
Future Policy Benefits. For other contracts, the reserves are reflected in
Policyholders' Funds Left With the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
PREMIUMS, CHARGES ASSESSED AGAINST POLICYHOLDERS, BENEFITS AND EXPENSES
Premiums are recorded as revenue when due for fixed ordinary life contracts.
Charges assessed against policyholders' funds for cost of insurance, surrender
charges, actuarial margin and other fees are recorded as revenue for universal
life and certain annuity contracts. Policy benefits and expenses are recorded in
relation to the associated premiums or gross profit so as to result in
recognition of profits over the expected lives of the contracts.
SEPARATE ACCOUNTS
Assets held under variable universal life, variable life and variable annuity
contracts are segregated in Separate Accounts and are invested, as designated by
the contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers
Fund, Inc., Aetna GET Fund, or The Aetna Series Fund Inc., which are managed by
the Company or other selected mutual funds not managed by the Company. Separate
Accounts assets and liabilities are carried at fair value except for those
relating to a guaranteed interest option which is offered through a Separate
Account. The assets of the Separate Account supporting the guaranteed interest
option are carried at an amortized cost of $322.2 million for 1995 (fair value
$343.9 million) and $149.7 million for 1994 (fair value $146.3 million), since
the Company bears the investment risk where the contract is held to maturity.
Reserves relating to the guaranteed interest option are maintained at fund value
and reflect interest credited at rates ranging from 4.5% to 8.38% in both 1995
and 1994. Separate Accounts assets and liabilities are shown as separate
captions in the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains (losses) of the Separate Accounts are not
reflected in the Consolidated Statements of Income (with the exception of
realized capital gains (losses) on the sale of assets supporting the guaranteed
interest option). The Consolidated Statements of Cash Flows do not reflect
investment activity of the Separate Accounts.
FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax benefits
result from changes during the year in cumulative temporary differences between
the tax basis and book basis of assets and liabilities.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS
Investments in debt securities available for sale as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies and corporations... $ 539.5 $ 47.5 $ -- $ 587.0
Obligations of states and political
subdivisions................................ 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial.................................. 2,764.4 110.3 2.1 2,872.6
Utilities.................................. 454.4 27.8 1.0 481.2
Other...................................... 2,177.7 159.5 1.2 2,336.0
--------- ---------- ----- ---------
Total U.S. Corporate securities............ 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government................................. 316.4 26.1 2.0 340.5
Financial.................................. 534.2 45.4 3.5 576.1
Utilities.................................. 236.3 32.9 -- 269.2
Other...................................... 215.7 15.1 -- 230.8
--------- ---------- ----- ---------
Total Foreign securities................... 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Residential pass-throughs.................. 556.7 99.2 1.8 654.1
Residential CMOs........................... 2,383.9 167.6 2.2 2,549.3
--------- ---------- ----- ---------
Total Residential mortgage-backed
securities................................ 2,940.6 266.8 4.0 3,203.4
Commercial/Multifamily mortgage-backed
securities.................................. 741.9 32.3 0.2 774.0
--------- ---------- ----- ---------
Total Mortgage-backed securities........... 3,682.5 299.1 4.2 3,977.4
Other asset-backed securities................ 961.2 35.5 0.5 996.2
--------- ---------- ----- ---------
Total debt securities available for sale..... $11,923.7 $811.6 $14.5 $12,720.8
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Investments in debt securities available for sale as of December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies and corporations... $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9
Obligations of states and political
subdivisions................................ 37.9 1.2 -- 39.1
U.S. Corporate securities:
Financial.................................. 2,216.9 3.8 109.4 2,111.3
Utilities.................................. 100.1 -- 7.9 92.2
Other...................................... 1,344.3 6.0 67.9 1,282.4
--------- ---------- ---------- ---------
Total U.S. Corporate securities............ 3,661.3 9.8 185.2 3,485.9
Foreign securities:
Government................................. 434.4 1.2 33.9 401.7
Financial.................................. 368.2 1.1 23.0 346.3
Utilities.................................. 204.4 2.5 9.5 197.4
Other...................................... 46.3 0.8 1.5 45.6
--------- ---------- ---------- ---------
Total Foreign securities................... 1,053.3 5.6 67.9 991.0
Residential mortgage-backed securities:
Residential pass-throughs.................. 627.1 81.5 5.0 703.6
Residential CMOs........................... 2,671.0 32.9 139.4 2,564.5
--------- ---------- ---------- ---------
Total Residential mortgage-backed
securities.................................. 3,298.1 114.4 144.4 3,268.1
Commercial/Multifamily mortgage-backed
securities.................................. 435.0 0.2 21.3 413.9
--------- ---------- ---------- ---------
Total Mortgage-backed securities............. 3,733.1 114.6 165.7 3,682.0
Other asset-backed securities................ 696.1 0.2 16.8 679.5
--------- ---------- ---------- ---------
Total debt securities available for sale..... $10,577.8 $133.4 $519.8 $10,191.4
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of
$797.1 million and $(386.4) million, respectively, on available for sale debt
securities included $619.1 million and $(308.6) million, respectively, related
to experience-rated contractholders, which were not included in shareholder's
equity.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities for the year ended December
31, 1995 are shown below by contractual maturity. Actual maturities may differ
from contractual maturities because securities may be restructured, called, or
prepaid.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
(MILLIONS)
<S> <C> <C>
Due to mature:
One year or less..................................... $ 348.8 $ 351.1
After one year through five years.................... 2,100.2 2,159.5
After five years through ten years................... 2,516.0 2,663.4
After ten years...................................... 2,315.0 2,573.2
Mortgage-backed securities........................... 3,682.5 3,977.4
Other asset-backed securities........................ 961.2 996.2
--------- ---------
Total................................................ $11,923.7 $12,720.8
--------- ---------
--------- ---------
</TABLE>
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities, is
deposited by the borrower with a lending agent, and retained and invested by the
lending agent to generate additional income for the Company. The market value of
the loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value fluctuates. At December 31, 1995, the
Company had loaned securities (which are reflected as invested assets on the
Consolidated Balance Sheets) with a market value of approximately $264.5
million.
At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0
million, respectively, were on deposit as required by regulatory authorities.
The valuation reserve for mortgage loans was $3.1 million at December 31, 1994.
There was no valuation reserve for mortgage loans at December 31, 1995. The
carrying value of non-income producing investments was $0.1 million and $0.2
million at December 31, 1995 and 1994, respectively.
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Investments in a single issuer, other than obligations of the U.S. government,
with a carrying value in excess of 10% of the Company's shareholder's equity at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED
DEBT SECURITIES COST FAIR VALUE
---------- ----------
(MILLIONS)
<S> <C> <C>
General Electric Corporation........................... $ 314.9 $ 329.3
General Motors Corporation............................. 273.9 284.5
Associates Corporation of North America................ 230.2 239.1
Society National Bank.................................. 203.5 222.3
Ciesco, L.P............................................ 194.9 194.9
Countrywide Funding.................................... 171.2 172.7
Baxter International................................... 168.9 168.9
Time Warner............................................ 158.6 166.1
Ford Motor Company..................................... 156.7 162.6
</TABLE>
The portfolio of debt securities at December 31, 1995 and 1994 included $662.5
million and $318.3 million, respectively, (5% and 3%, respectively, of the debt
securities) of investments that are considered "below investment grade". "Below
investment grade" securities are defined to be securities that carry a rating
below BBB-/Baa3, by Standard & Poors/ Moody's Investor Services, respectively.
The increase in below investment grade securities is the result of a change in
investment strategy, which has reduced the Company's holdings in residential
mortgage-back securities and increased the Company's holdings in corporate
securities. Residential mortgage-back securities are subject to higher
prepayment risk and lower credit risk, while corporate securities earning a
comparable yield are subject to higher credit risk and lower prepayment risk. We
expect the percentage of below investment grade securities will increase in
1996, but we expect that the overall average quality of the portfolio of debt
securities will remain at AA-. Of these below investment grade assets, $14.5
million and $31.8 million, at December 31, 1995 and 1994, respectively, were
investments that were purchased at investment grade, but whose ratings have
since been downgraded.
Included in residential mortgage-back securities are collateralized mortgage
obligations ("CMOs") with carrying values of $2.5 billion and $2.6 billion at
December 31, 1995 and 1994, respectively. The principal risks inherent in
holding CMOs are prepayment and extension risks related to dramatic decreases
and increases in interest rates whereby the CMOs would be subject to repayments
of principal earlier or later than originally anticipated. At December 31, 1995
and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings
consisted of sequential and planned amortization class debt securities which are
subject to less prepayment and extension risk than other CMO instruments. At
December 31, 1995 and 1994, approximately 81% and 82%, respectively, of the
Company's CMO holdings were collateralized by residential mortgage loans, on
which the timely payment of principal and interest was backed by specified
government agencies (e.g., GNMA, FNMA, FHLMC).
If due to declining interest rates, principal was to be repaid earlier than
originally anticipated, the Company could be affected by a decrease in
investment income due to the reinvestment of these funds at a lower interest
rate. Such prepayments may result in a duration mismatch between assets and
liabilities which could be corrected as cash from prepayments could be
reinvested at an appropriate duration to adjust the mismatch.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Conversely, if due to increasing interest rates, principal was to be repaid
slower than originally anticipated, the Company could be affected by a decrease
in cash flow which reduces the ability to reinvest expected principal repayments
at higher interest rates. Such slower payments may result in a duration mismatch
between assets and liabilities which could be corrected as available cash flow
could be reinvested at an appropriate duration to adjust the mismatch.
At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of the
Company's CMO holdings consisted of interest-only strips ("IOs") or
principal-only strips ("POs"). IOs receive payments of interest and POs receive
payments of principal on the underlying pool of mortgages. The risk inherent in
holding POs is extension risk related to dramatic increases in interest rates
whereby the future payments due on POs could be repaid much slower than
originally anticipated. The extension risks inherent in holding POs was
mitigated somewhat by offsetting positions in IOs. During dramatic increases in
interest rates, IOs would generate more future payments than originally
anticipated.
The risk inherent in holding IOs is prepayment risk related to dramatic
decreases in interest rates whereby future IO cash flows could be much less than
originally anticipated and in some cases could be less than the original cost of
the IO. The risks inherent in IOs are mitigated somewhat by holding offsetting
positions in POs. During dramatic decreases in interest rates POs would generate
future cash flows much quicker than originally anticipated.
Investments in available for sale equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------ ---------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
1995
Equity Securities................ $231.6 $ 27.2 $ 1.2 $ 257.6
------ ----- --- ----------
1994
Equity Securities................ $230.5 $ 6.5 $ 7.9 $ 229.1
------ ----- --- ----------
</TABLE>
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS
Realized capital gains or losses are the difference between proceeds received
from investments sold or prepaid, and amortized cost. Net realized capital gains
as reflected in the Consolidated Statements of Income are after deductions for
net realized capital gains (losses) allocated to experience-rated contracts of
$61.1 million, $(29.1) million and $(54.8) million for the years ended December
31, 1995, 1994, and 1993, respectively. Net realized capital gains (losses)
allocated to experience-rated contracts are deferred and subsequently reflected
in credited rates on an amortized basis. Net unamortized gains (losses),
reflected as a component of Policyholders' Funds Left With the Company, were
$7.3 million and $(50.7) million at the end of December 31, 1995 and 1994,
respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt securities
are included in net realized capital gains (losses) and amounted to $3.1
million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million
and $(91.5) million were allocable to experience-rated contractholders, for the
years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were
primarily related to writedowns of interest-only mortgage-backed securities to
their fair value.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Net realized capital gains (losses) on investments, net of amounts allocated to
experience-rated contracts, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $32.8 $ 1.0 $ 9.6
Equity securities...................................... 8.3 0.2 0.1
Mortgage loans......................................... 0.2 0.3 (0.2)
----- ----- ------
Pretax realized capital gains.......................... $41.3 $ 1.5 $ 9.5
----- ----- ------
After-tax realized capital gains....................... $25.8 $ 1.0 $ 6.2
----- ----- ------
</TABLE>
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses
of $11.8 million, $25.6 million and $23.7 million were realized from the sales
of investments in debt securities in 1995, 1994 and 1993, respectively.
Changes in unrealized capital gains (losses), excluding changes in unrealized
capital gains (losses) related to experience-rated contracts, for the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $255.9 $ (242.1) $164.3
Equity securities...................................... 27.3 (13.3) 10.6
Limited partnership.................................... 1.8 (1.8) --
------ -------- ------
285.0 (257.2) 174.9
Deferred federal income taxes (See Note 6)............. (36.5) 46.3 61.2
------ -------- ------
Net change in unrealized capital gains (losses)........ $321.5 $ (303.5) $113.7
------ -------- ------
------ -------- ------
</TABLE>
Net unrealized capital gains (losses) allocable to experience-rated contracts of
$515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and
$(47.7) million at December 31, 1994 are reflected on the Consolidated Balance
Sheet in Policyholders' Funds Left With the Company and Future Policy Benefits,
respectively, and are not included in shareholder's equity.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Shareholder's equity included the following unrealized capital gains (losses),
which are net of amounts allocable to experience-rated contractholders, at
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Debt securities
Gross unrealized capital gains....................... $179.3 $ 27.4 $ 164.3
Gross unrealized capital losses...................... (1.3) (105.2) --
------ ------- -------
178.0 (77.8) 164.3
Equity securities
Gross unrealized capital gains....................... 27.2 6.5 12.0
Gross unrealized capital losses...................... (1.2) (7.9) (0.1)
------ ------- -------
26.0 (1.4) 11.9
Limited Partnership
Gross unrealized capital gains....................... -- -- --
Gross unrealized capital losses...................... -- (1.8) --
------ ------- -------
Deferred federal income taxes (See Note 6)............. 71.5 108.0 61.7
------ ------- -------
Net unrealized capital gains (losses).................. $132.5 $(189.0) $ 114.5
------ ------- -------
------ ------- -------
</TABLE>
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $ 891.5 $823.9 $828.0
Preferred stock........................................ 4.2 3.9 2.3
Investment in affiliated mutual funds.................. 14.9 5.2 2.9
Mortgage loans......................................... 1.4 1.4 1.5
Policy loans........................................... 13.7 11.5 10.8
Reinsurance loan to affiliate.......................... 46.5 51.5 53.3
Cash equivalents....................................... 38.9 29.5 16.8
Other.................................................. 8.4 6.7 7.7
-------- ------ ------
Gross investment income................................ 1,019.5 933.6 923.3
Less investment expenses............................... (15.2) (16.4) (11.4)
-------- ------ ------
Net investment income.................................. $1,004.3 $917.2 $911.9
-------- ------ ------
-------- ------ ------
</TABLE>
Net investment income includes amounts allocable to experience-rated
contractholders of $744.2 million, $677.1 million and $661.3 million for the
years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to
contractholders is included in Current and Future Benefits.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
The amount of dividends that may be paid to the shareholder in 1996 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$70.0 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity those amounts determined in
conformity with statutory accounting practices prescribed or permitted by the
Department, which differ in certain respects from generally accepted accounting
principles. Statutory net income was $70.0 million, $64.9 million and $77.6
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Statutory shareholder's equity was $670.7 million and $615.0 million as of
December 31, 1995 and 1994, respectively.
At December 31, 1995 and December 31, 1994, the Company does not utilize any
statutory accounting practices which are not prescribed by insurance regulators
that, individually or in the aggregate, materially affect statutory
shareholder's equity.
6. FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
Aetna allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the member
for the use of its tax saving attributes in the consolidated return.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted
which resulted in an increase in the federal corporate tax rate from 34% to 35%
retroactive to January 1, 1993. The enactment of OBRA resulted in an increase in
the deferred tax liability of $3.4 million at date of enactment, which is
included in the 1993 deferred tax expense.
Components of income tax expense (benefits) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -------
(MILLIONS)
<S> <C> <C> <C>
Current taxes (benefits):
Income from operations............................... $82.9 $78.7 $ 87.1
Net realized capital gains........................... 28.5 (33.2) 18.1
----- ----- -------
111.4 45.5 105.2
----- ----- -------
Deferred taxes (benefits):
Income from operations............................... (14.4) (8.0) (14.2)
Net realized capital gains........................... (12.9) 33.7 (14.8)
----- ----- -------
(27.3) 25.7 (29.0)
----- ----- -------
Total................................................ $84.1 $71.2 $ 76.2
----- ----- -------
----- ----- -------
</TABLE>
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
6. FEDERAL INCOME TAXES (CONTINUED)
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the following
reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Income before federal income taxes..................... $260.0 $216.5 $219.1
Tax rate............................................... 35% 35% 35%
------ ------ ------
Application of the tax rate............................ 91.0 75.8 76.7
------ ------ ------
Tax effect of:
Excludable dividends................................. (9.3) (8.6) (8.7)
Tax reserve adjustments.............................. 3.9 2.9 4.7
Reinsurance transaction.............................. (0.5) 1.9 (0.2)
Tax rate change on deferred liabilities.............. -- -- 3.7
Other, net........................................... (1.0) (0.8) --
------ ------ ------
Income tax expense................................... $ 84.1 $ 71.2 $ 76.2
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Insurance reserves................................... $290.4 $211.5
Net unrealized capital losses........................ -- 136.3
Unrealized gains allocable to experience-rated
contracts........................................... 216.7 --
Investment losses not currently deductible........... 7.3 15.5
Postretirement benefits other than pensions.......... 7.7 8.4
Other................................................ 32.0 28.3
------ ------
Total gross assets..................................... 554.1 400.0
Less valuation allowance............................... -- 136.3
------ ------
Deferred tax assets, net of valuation.................. 554.1 263.7
Deferred tax liabilities:
Deferred policy acquisition costs.................... 433.0 385.2
Unrealized losses allocable to experience-rated
contracts........................................... -- 108.0
Market discount...................................... 4.4 3.6
Net unrealized capital gains......................... 288.2 --
Other................................................ (1.9) 0.4
------ ------
Total gross liabilities................................ 723.7 497.2
------ ------
Net deferred tax liability............................. $169.6 $233.5
------ ------
------ ------
</TABLE>
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
6. FEDERAL INCOME TAXES (CONTINUED)
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. At December 31, 1994, $81.0 million of net unrealized
capital losses were reflected in shareholder's equity without deferred tax
benefits. As of December 31, 1995, no valuation allowance was required for
unrealized capital gains and losses. The reversal of the valuation allowance had
no impact on net income in 1995.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $17.2 million at December 31, 1995. This amount would be taxed
only under certain conditions. No income taxes have been provided on this amount
since management believes the conditions under which such taxes would become
payable are remote.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1986. Discussions are
being held with the Service with respect to proposed adjustments. However,
management believes there are adequate defenses against, or sufficient reserves
to provide for, such challenges. The Service has commenced its examinations for
the years 1987 through 1990.
7. BENEFIT PLANS
Employee Pension Plans--The Company, in conjunction with Aetna, has
non-contributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over sixty consecutive months of highest
earnings in a 120 month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are currently deductible for tax
reporting purposes. The accumulated benefit obligation and plan assets are
recorded by Aetna. The accumulated plan assets exceed accumulated plan benefits.
There has been no funding to the plan for the years 1993 through 1995, and
therefore, no expense has been recorded by the Company.
Agent Pension Plans--The Company, in conjunction with Aetna, has a non-qualified
pension plan covering certain agents. The plan provides pension benefits based
on annual commission earnings. The accumulated plan assets exceed accumulated
plan benefits. There has been no funding to the plan for the years 1993 through
1995, and therefore, no expense has been recorded by the Company.
Employee Postretirement Benefits--In addition to providing pension benefits,
Aetna also provides certain postretirement health care and life insurance
benefits, subject to certain caps, for retired employees. Medical and dental
benefits are offered to all full-time employees retiring at age 50 with at least
15 years of service or at age 65 with at least 10 years of service. Retirees are
required to contribute to the plans based on their years of service with Aetna.
The cost to the Company associated with the Aetna postretirement plans for 1995,
1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, respectively.
Agent Postretirement Benefits--The Company, in conjunction with Aetna, also
provides certain postemployment health care and life insurance benefits for
certain agents.
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
7. BENEFIT PLANS (CONTINUED)
The cost to the Company associated to the agents' postretirement plans for 1995,
1994 and 1993 were $0.8 million, $0.7 million and $0.6 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested in
common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993,
respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock options
and deferred contingent common stock or cash awards to certain key employees.
Aetna also has a stock option plan under which executive and middle management
employees of Aetna may be granted options to purchase common stock of Aetna at
the market price on the date of grant or, in connection with certain business
combinations, may be granted options to purchase common stock on different
terms. The cost to the Company associated with the Aetna stock plans for 1995,
1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively.
8. RELATED PARTY TRANSACTIONS
The Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable life and annuity contracts. Under the
insurance contracts, the Separate Accounts pay the Company a daily fee which, on
an annual basis, ranges, depending on the product, from .25% to 1.80% of their
average daily net assets. The Company also receives fees from the variable life
and annuity mutual funds and The Aetna Series Fund for serving as investment
adviser. Under the advisory agreements, the Funds pay the Company a daily fee
which, on an annual basis, ranges, depending on the fund, from .25% to 1.00% of
their average daily net assets. The advisory agreements also call for the
variable funds to pay their own administrative expenses and for The Aetna Series
Fund to pay certain administrative expenses. The Company also receives fees
(expressed as a percentage of the average daily net assets) from The Aetna
Series Fund for providing administration, shareholder services and promoting
sales. The amount of compensation and fees received from the Separate Accounts
and Funds, included in Charges Assessed Against Policyholders, amounted to
$128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993,
respectively. The Company may waive advisory fees at its discretion.
The Company may, from time to time, make reimbursements to a Fund for some or
all of its operating expenses. Reimbursement arrangements may be terminated at
any time without notice.
Since 1981, all domestic individual non-participating life insurance of Aetna
and its subsidiaries has been issued by the Company. Effective December 31,
1988, the Company entered into a reinsurance agreement with Aetna Life Insurance
Company ("Aetna Life") in which substantially all of the non-participating
individual life and annuity business written by Aetna Life prior to 1981 was
assumed by the Company. A $108.0 million commission, paid by the Company to
Aetna Life in 1988, was capitalized as deferred policy acquisition costs. The
Company maintained insurance reserves of $655.5 million and $690.3 million as of
December 31, 1995 and 1994, respectively, relating to the business assumed. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance reserves.
The loan is being reduced in accordance with the decrease in the reserves. The
fair value of this loan was $663.5 million and $630.3 million as of December 31,
1995 and 1994, respectively, and is based upon the fair value of the underlying
assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current
and future benefits of $43.0 million, $43.8 million and $55.4 million were
assumed in 1995, 1994 and 1993, respectively.
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Investment income of $46.5 million, $51.5 million and $53.3 million was
generated from the reinsurance loan to affiliate in 1995, 1994 and 1993,
respectively. Net income of approximately $18.4 million, $25.1 million and $13.6
million resulted from this agreement in 1995, 1994 and 1993, respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company also is
responsible for administering fixed annuity payments that are made to annuitants
receiving variable payments. Reserves of $28.0 million and $24.2 million were
maintained for this contract as of December 31, 1995 and 1994, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement with
Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0
million on any new individual life business, on a yearly renewable term basis.
Premium amounts related to this agreement were $3.2 million, $1.3 million and
$0.6 million for 1995, 1994 and 1993, respectively.
The Company received no capital contributions in 1995, 1994 or 1993.
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
Premiums due and other receivables include $5.7 million and $27.6 million due
from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4
million and $27.9 million due to affiliates for 1995 and 1994, respectively.
Substantially all of the administrative and support functions of the Company are
provided by Aetna and its affiliates. The financial statements reflect allocated
charges for these services based upon measures appropriate for the type and
nature of service provided.
9. REINSURANCE
The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverables deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
9. REINSURANCE (CONTINUED)
The following table includes premium amounts ceded/assumed to/from affiliated
companies as discussed in Note 8 above.
<TABLE>
<CAPTION>
CEDED TO ASSUMED
DIRECT OTHER FROM OTHER
AMOUNT COMPANIES COMPANIES
--------- ------------- -------------
(MILLIONS)
<S> <C> <C> <C>
1995
Premiums:
Life Insurance.................................................................. $ 28.8 $ 8.6 $ 28.0
Accident and Health Insurance................................................... 7.5 7.5 --
Annuities....................................................................... 82.1 -- 0.5
--------- ----- -----
Total earned premiums........................................................... $ 118.4 $ 16.1 $ 28.5
--------- ----- -----
--------- ----- -----
1994
Premiums:
Life Insurance.................................................................. $ 27.3 $ 6.0 $ 32.8
Accident and Health Insurance................................................... 9.3 9.3 --
Annuities....................................................................... 69.9 -- 0.2
--------- ----- -----
Total earned premiums........................................................... $ 106.5 $ 15.3 $ 33.0
--------- ----- -----
--------- ----- -----
1993
Premiums:
Life Insurance.................................................................. $ 22.4 $ 5.6 $ 33.3
Accident and Health Insurance................................................... 12.9 12.9 --
Annuities....................................................................... 31.3 -- 0.7
--------- ----- -----
Total earned premiums........................................................... $ 66.6 $ 18.5 $ 34.0
--------- ----- -----
--------- ----- -----
<CAPTION>
NET
AMOUNT
---------
<S> <C>
1995
Premiums:
Life Insurance.................................................................. $ 48.2
Accident and Health Insurance................................................... --
Annuities....................................................................... 82.6
---------
Total earned premiums........................................................... $ 130.8
---------
---------
1994
Premiums:
Life Insurance.................................................................. $ 54.1
Accident and Health Insurance................................................... --
Annuities....................................................................... 70.1
---------
Total earned premiums........................................................... $ 124.2
---------
---------
1993
Premiums:
Life Insurance.................................................................. $ 50.1
Accident and Health Insurance................................................... --
Annuities....................................................................... 32.0
---------
Total earned premiums........................................................... $ 82.1
---------
---------
</TABLE>
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3
Short-term investments.................................... 15.1 15.1 98.0 98.0
Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4
Equity securities......................................... 257.6 257.6 229.1 229.1
Limited partnership....................................... -- -- 24.4 24.4
Mortgage loans............................................ 21.2 21.9 9.9 9.9
Liabilities:
Investment contract liabilities:
With a fixed maturity................................... 989.1 1,001.2 826.7 833.5
Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's management
of interest rate and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
SHORT-TERM INSTRUMENTS: Fair values are based on quoted market prices or dealer
quotations. Where quoted market prices are not available, the carrying amounts
reported in the Consolidated Balance Sheets approximates fair value. Short-term
instruments have a maturity date of one year or less and include cash and cash
equivalents, and short-term investments.
DEBT AND EQUITY SECURITIES: Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair value is estimated by using quoted market prices for similar
securities or discounted cash flow methods.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS: Fair value is estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans. The fair value estimate
of mortgage loans of lower quality, including problem and restructured loans, is
based on the estimated fair value of the underlying collateral.
INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH THE
COMPANY):
WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS)
During 1995, the Company received $0.4 million for writing call options on
underlying securities. As of December 31, 1995 there were no option contracts
outstanding.
At December 31, 1995, the Company had a forward swap agreement with a notional
amount of $100.0 million and a fair value of $0.1 million.
The Company did not have transactions in derivative instruments in 1994.
The Company also holds investments in certain debt and equity securities with
derivative characteristics (i.e., including the fact that their market value is
at least partially determined by, among other things, levels of or changes in
interest rates, prepayment rates, equity markets or credit ratings/spreads). The
amortized cost and fair value of these securities, included in the $13.4 billion
investment portfolio, as of December 31, 1995 was as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
(MILLIONS) COST VALUE
----------- -----------
<S> <C> <C>
Collateralized mortgage obligations..................................................................... $ 2,383.9 $ 2,549.3
Principal-only strips (included above).................................................................. 38.7 50.0
Interest-only strips (included above)................................................................... 10.7 20.7
Structured Notes (1).................................................................................... 95.0 100.3
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
11. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
the value of the securities underlying the commitments. At December 31, 1995,
the Company had commitments to purchase investments of $31.4 million. The fair
value of the investments at December 31, 1995 approximated $31.5 million. There
were no outstanding forward commitments at December 31, 1994.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or December 31, 1994 which were beyond the ordinary course of
business. The Company is involved in lawsuits arising, for the most part, in the
ordinary course of its business operations as an insurer.
12. SEGMENT INFORMATION
The Company's operations are reported through two major business segments: Life
Insurance and Financial Services.
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Financial services..................................................................... $ 1,129.4 $ 946.1 $ 892.8
Life insurance......................................................................... 407.9 386.1 371.7
----------- ----------- -----------
Total revenue.......................................................................... $ 1,537.3 $ 1,332.2 $ 1,264.5
----------- ----------- -----------
Income before federal income taxes:
Financial services..................................................................... $ 158.0 $ 119.7 $ 121.1
Life insurance......................................................................... 102.0 96.8 98.0
----------- ----------- -----------
Total income before federal income taxes............................................... $ 260.0 $ 216.5 $ 219.1
----------- ----------- -----------
Net income:
Financial services..................................................................... $ 113.8 $ 85.5 $ 86.8
Life insurance......................................................................... 62.1 59.8 56.1
----------- ----------- -----------
Net income............................................................................... $ 175.9 $ 145.3 $ 142.9
----------- ----------- -----------
Assets under management, at fair value:
Financial services..................................................................... $ 23,224.3 $ 17,785.2 $ 16,600.5
Life insurance......................................................................... 2,698.1 2,171.7 2,175.5
----------- ----------- -----------
Total assets under management.......................................................... $ 25,922.4 $ 19,956.9 $ 18,776.0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Independent Auditors' Report
- Statement of Assets and Liabilities as of December 31, 1995
- Statement of Operations for the year ended December 31, 1995
- Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994
- Notes to Financial Statements
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
- Consolidated Balance Sheets as of December 31, 1995 and 1994
- Consolidated Statements of Changes in Shareholder's
Equity for the years ended December 31, 1995, 1994 and
1993
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account B(1)
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement(1)
(3.2) Alternative Form of Wholesaling Agreement and related Selling
Agreement(1)
(4) Form of Variable Annuity Contract (ICDA-HI(NQ))(2)
(5) Form of Variable Annuity Contract Application (707.00.1B)(2)
(6) Certificate of Incorporation and By-Laws of Depositor(3)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated March 31, 1995(1)
(8.2) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and Janus Aspen Series dated April 19,
1994 as amended March 1, 1996(1)
<PAGE>
(8.3) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991(1)
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Advisers Management Trust (now Neuberger
& Berman Advisers Management Trust) dated April 14, 1989 and as
assigned and modified on May 1, 1995(1)
(8.5) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment Fund
dated April 27, 1992 and amended February 19, 1993 and
August 13, 1993(1)
(8.6) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994(1)
(9) Opinion of Counsel(4)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(5)
(14) Not applicable
(15.1) Powers of Attorney(6)
(15.2) Authorizations for Signatures(1)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on April
12, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-76002), as filed on April 28, 1995.
3. Incorporated by reference to Post-Effective Amendment No. 58 to
Registration Statement on Form N-4 (File No. 2-52449), as filed on February
28, 1994.
4. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year
ended December 31, 1995, as filed electronically on February 29, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 3 on Form N-4
(File No. 33-76002), as filed on April 28, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-75974), as filed
electronically on April 9, 1996.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL
BUSINESS ADDRESS* POSITIONS AND OFFICES WITH DEPOSITOR
------------------ ------------------------------------
Daniel P. Kearney Director and President
Timothy A. Holt Director, Senior Vice President and Chief Financial
Officer
Christopher J. Burns Director and Senior Vice President
Laura R. Estes Director and Senior Vice President
Gail P. Johnson Director and Senior Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Senior Vice President
Glen Salow Director and Vice President, ALIAC IT
Creed R. Terry Director and Vice President
Eugene M. Trovato Vice President and Treasurer, Corporate Controller
Zoe Baird Senior Vice President and General Counsel
Diane Horn Vice President and Chief Compliance Officer
Susan E. Schechter Corporate Secretary and Counsel
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
Incorporated herein by references to Item 26 of Post-Effective Amendment No.
5 to Registration Statement on Form N-4 (File No. 33-75986), as filed
electronically on April 12, 1996.
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 1996, there were 34,893 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
ITEM 28. INDEMNIFICATION
Reference is hereby made to Section 33-320a of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents,
and certain other defined individuals against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses actually incurred in
connection with proceedings against the corporation. The corporation's
obligation to provide such indemnification does not apply unless (1) the
individual is successful on the merits in the defense of any such proceeding;
or (2) a determination is made (by a majority of the board of directors not a
party to the proceeding by written consent; by independent legal counsel
selected by a majority of the directors not involved in the proceeding; or by
a majority of the shareholders not involved in the proceeding) that the
individual acted in good faith and in the best interests of the corporation;
or (3) the court, upon application by the individual, determines in view of
all the circumstances that such person is reasonably entitled to be
indemnified.
C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut
corporation cannot indemnify a director or officer to an extent either
greater or less than that authorized by the statute, e.g., pursuant to its
certificate of incorporation, bylaws, or any separate contractual
arrangement. However, the statute does specifically authorize a corporation
to procure indemnification insurance to provide greater indemnification
rights. The premiums for such insurance may be shared with the insured
individuals on an agreed basis.
Consistent with the statute, Aetna Life and Casualty Company has procured
insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor, which supplements the indemnification
rights provided by C.G.S. Section 33-320a to the extent such coverage does
not violate public policy.
ITEM 29. PRINCIPAL UNDERWRITER
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC)
also acts as the principal underwriter for Variable Life
Account B and Variable Annuity Accounts C and G (separate
accounts of ALIAC registered as unit investment trusts), and
Variable Annuity Account I (a separate account of Aetna
Insurance Company of America registered as a unit investment
trust). Additionally, ALIAC is the investment adviser for
Aetna Variable Fund, Aetna Income Shares, Aetna Variable
Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET
Fund, Aetna Series Fund, Inc. and Aetna Generation Portfolios,
Inc. ALIAC is also the depositor of Variable Life Account B,
and Variable Annuity Accounts C and G.
<PAGE>
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF NET UNDERWRITING COMPENSATION
PRINCIPAL DISCOUNTS AND ON REDEMPTION BROKERAGE
UNDERWRITER COMMISSIONS OR ANNUITIZATION COMMISSIONS COMPENSATION*
----------- ----------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Aetna Life $294,931 $11,944,532
Insurance and
Annuity
Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and expense
risk guarantees and contract charges assessed to cover costs incurred in the
sales and administration of the contracts issued under Variable Annuity
Account B.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All records concerning contract owners of Variable Annuity Account B are
located at the home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
ITEM 31. MANAGEMENT SERVICES
Not applicable
<PAGE>
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration
statement on Form N-4 as frequently as is necessary to ensure
that the audited financial statements in the registration
statement are never more than sixteen months old for as long
as payments under the variable annuity contracts may be
accepted;
(b) to include as part of any application to purchase a contract
offered by a prospectus which is part of this registration
statement on Form N-4, a space that an applicant can check to
request a Statement of Additional Information; and
(c) to deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form N-4 promptly upon written or oral request.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, the Registrant, Variable Annuity Account B of Aetna Life
Insurance and Annuity Company, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 4 to its Registration Statement on Form N-4 (File No. 33-76002) and has
caused this Post-Effective Amendment No 4 to its Registration Statement on
Form N-4 (File No. 33-76002) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on
the 12th day of April, 1996.
VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE
AND ANNUITY COMPANY
(REGISTRANT)
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(DEPOSITOR)
By: Daniel P. Kearney*
----------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, as amended, this Post-Effective
Amendment No. 4 to the Registration Statement on Form N-4 (File No. 33-76002)
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Daniel P. Kearney* Director and President )
- ------------------------ (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director, Senior Vice President and Chief Financial) April
- ------------------------ Officer ) 12, 1996
Timothy A. Holt )
)
Christopher J. Burns* Director )
- ------------------------ )
Christopher J. Burns )
)
Laura R. Estes* Director )
- ------------------------ )
Laura R. Estes )
<CAPTION>
<PAGE>
)
Gail P. Johnson* Director )
- ------------------------ )
Gail P. Johnson )
)
John Y. Kim* Director )
- ------------------------ )
John Y. Kim )
)
)
Shaun P. Mathews* Director )
- ------------------------ )
Shaun P. Mathews )
)
Glen Salow* Director )
- ------------------------ )
Glen Salow )
)
Creed R. Terry* Director )
- ------------------------ )
Creed R. Terry )
)
Eugene M. Trovato* Vice President and Treasurer, Corporate Controller)
- ------------------------ )
Eugene M. Trovato )
</TABLE>
By: /s/ Julie E. Rockmore
-----------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- ------- -----
99-B.1 Resolution of the Board of Directors of Aetna Life Insurance *
and Annuity Company establishing Variable Annuity Account B
99-B.3.1 Form of Broker-Dealer Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and related Selling *
Agreement
99-B.4 Form of Variable Annuity Contract (ICDA-HI(NQ)) *
99-B.5 Form of Variable Annuity Contract Application (707.00.1B) *
99-B.6 Certificate of Incorporation and By-Laws of Depositor *
99-B.8.1 Fund Participation Agreement (Amended and Restated) between *
Aetna Life Insurance and Annuity Company, Alger American
Fund and Fred Alger Management, Inc. dated March 31, 1995
99-B.8.2 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended March 1, 1996
99-B.8.3 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Lexington Management Corporation
regarding Natural Resources Trust dated December 1, 1988 and
amended February 11, 1991
99-B.8.4 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Advisers Management Trust (now
Neuberger & Berman Advisers Management Trust) dated April
14, 1989 and as assigned and
modified on May 1, 1995
99-B.8.5 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Scudder Variable Life Investment Fund
dated April 27, 1992 and amended February 19, 1993 and
August 13, 1993
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- -----
99-B.8.6 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors
-----
99-B.10.2 Consent of Counsel
-----
99-B.13 Computation of Performance Data *
99-B.15.1 Powers of At *
99-B.15.2 Authorizations for Signatures *
27 Financial Data Schedule
-----
*Incorporated by reference
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contract Owners of Aetna Variable Annuity Account B:
We consent to the use of our reports dated February 6, 1996 and February 16,
1996 included herein and to the references to our Firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors"
in the Statement of Additional Information.
Our report dated February 6, 1996 refers to a change in 1993 in the Company's
method of accounting for certain investments in debt and equity securities.
KPMG Peat Marwick LLP
Hartford, Connecticut
April 12, 1996
<PAGE>
Exhibit 10.2
Susan E. Bryant
Counsel
Law & Regulatory Affairs, RE4C
151 Farmington Avenue
Hartford, CT 06156
(860) 273-7834
Fax: (860) 273-8340
April 12, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Variable Annuity Account B of Aetna Life Insurance and Annuity
Company Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4
File Nos. 33-76002 and 811-2512
-------------------------------
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I
hereby consent to the use of my opinion dated February 28, 1996 (incorporated
herein by reference to the 24f-2 Notice for the fiscal year ended December
31, 1995 filed on behalf of Variable Annuity Account B of Aetna Life
Insurance and Annuity Company on February 29, 1996) as an exhibit to this
Post-Effective Amendment No. 4 to the Registration Statement on Form N-4
(File No. 33-76002) and to my being named under the caption "Legal Matters"
therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,102,188,760
<INVESTMENTS-AT-VALUE> 1,130,935,704
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,130,935,704
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,130,935,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,130,935,704
<DIVIDEND-INCOME> 112,097,675
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (11,786,592)
<NET-INVESTMENT-INCOME> 100,311,083
<REALIZED-GAINS-CURRENT> 32,013,490
<APPREC-INCREASE-CURRENT> 73,102,996
<NET-CHANGE-FROM-OPS> 205,427,569
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 335,131,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
