<PAGE>
As filed with the Securities and Exchange Registration No. 33-34370*
Commission on April 22, 1996 Registration No. 811-2512
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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Post-Effective Amendment No. 22 To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment To
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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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)
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It is proposed that this filing will become effective:
X on May 1, 1996 pursuant to paragraph (a)(3) of Rule 485 (Request for
--- acceleration has been made.)
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.
Registrant expects to file a Rule 24f-2 Notice for the fiscal year ended
December 31, 1995 on or before February 29, 1996.
*Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the securities covered by the following earlier Registration Statement:
33-87932.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
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, and
Portfolio Companies . . . . . . . . . . . . . . . . . . . . The Company; Variable Annuity
Account B; The Funds
6 Deductions and Expenses. . . . . . . . . . . . . . . . . . . Charges and Deductions; Distribution
7 General Description of Variable Annuity Contracts. . . . . . Purchase; Miscellaneous
8 Annuity Period . . . . . . . . . . . . . . . . . . . . . . . Annuity Period
9 Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . Death Benefit During Accumulation
Period; Death Benefit Payable During
the Annuity Period
10 Purchases and Contract Value . . . . . . . . . . . . . . . . Purchase; Contract Valuation
11 Redemptions. . . . . . . . . . . . . . . . . . . . . . . . . Right to Cancel; Withdrawals
12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Status
13 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . Miscellaneous - Legal Matters and
Proceedings
14 Table of Contents of the Statement of Additional
Information. . . . . . . . . . . . . . . . . . . . . . . . . Contents of the Statement of
Additional Information
</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>
PROSPECTUS
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This Prospectus describes the "Aetna Marathon Plus" [Growth Plus (New York)]
group and individual deferred variable annuity contracts ("Contracts") issued by
Aetna Life Insurance and Annuity Company (the "Company"). The Contracts are
available as (1) nonqualified deferred annuity contracts, (2) Individual
Retirement Annuities under Section 408(b) of the Internal Revenue Code, or (3)
qualified contracts issued in connection with certain employer sponsored
retirement plans. (Availability of Contracts of the type identified in items (2)
and (3) may be subject to state regulatory approval.) In most states, group
Contracts are offered, generally to certain broker-dealers or banks which have
agreed to act as Distributors of the Contracts. Individuals who have established
accounts with those broker-dealers or banks are eligible to participate in the
Contract. Individual Contracts are offered only in those states where the group
Contracts are not authorized for sale. (See "Purchase.")
The Contracts provide that contributions may be allocated to the ALIAC
Guaranteed Account (the "Guaranteed Account"), a credited interest option, or to
one or more of the Subaccounts of Variable Annuity Account B, a separate account
of the Company. The Subaccounts invest directly in shares of the following
Funds:
- Aetna Variable Fund - Fidelity VIP High Income Portfolio
- Aetna Income Shares - Fidelity VIP Overseas Portfolio
- Aetna Variable Encore Fund - Fidelity VIP II Asset Manager
- Aetna Investment Advisers Fund, Portfolio
Inc. - Fidelity VIP II Contrafund
- Aetna Ascent Variable Portfolio Portfolio
- Aetna Crossroads Variable Portfolio - Fidelity VIP II Index 500 Portfolio
- Aetna Legacy Variable Portfolio - Fidelity VIP II Investment Grade
- Alger American Balanced Portfolio Bond Portfolio
- Alger American Growth Portfolio - Janus Aspen Aggressive Growth
- Alger American Income and Growth Portfolio
Portfolio - Janus Aspen Balanced Portfolio
- Alger American Leveraged AllCap - Janus Aspen Flexible Income
Portfolio Portfolio
- Alger American MidCap Growth - Janus Aspen Growth Portfolio
Portfolio - Janus Aspen Short-Term Bond
- Alger American Small Cap Portfolio Portfolio
- Federated American Leaders Fund II - Janus Aspen Worldwide Growth
- Federated Fund for U.S. Government Portfolio
Securities II - Lexington Emerging Markets Fund,
- Federated Growth Strategies Fund II Inc.
- Federated High Income Bond Fund II - Lexington Natural Resources Trust
- Federated International Equity Fund - MFS Emerging Growth Series
II - MFS Research Series
- Federated Prime Money Fund II - MFS Total Return Series
- Federated Utility Fund II - MFS World Governments Series
- Fidelity VIP Equity-Income - TCI Balanced (a Twentieth Century
Portfolio fund)
- Fidelity VIP Growth Portfolio - TCI Growth (a Twentieth Century
fund)
- TCI International (a Twentieth
Century fund)
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. The Guaranteed Account is described in the
Appendix to this Prospectus, as well as in the Guaranteed Account's prospectus.
The availability of the Funds and the Guaranteed Account is subject to
applicable regulatory authorization; not all options may be available in all
jurisdictions or under all Contracts. (See "Investment Options.")
This Prospectus provides investors with the information about the Separate
Account that they should know before investing in the Contracts. Additional
information about the Separate Account is contained in a Statement of Additional
Information ("SAI") which is available at no charge. The SAI has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents for the SAI is printed on page 25 of this Prospectus. An
SAI may be obtained by indicating the request on your application or enrollment
form or by calling the number listed under the "Inquiries" section of the
Prospectus Summary.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE ALIAC GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK, NOR
ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1996.
<PAGE>
TABLE OF CONTENTS
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- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DEFINITIONS.......................................................................... DEFINITIONS - 1
PROSPECTUS SUMMARY................................................................... SUMMARY - 1
FEE TABLE............................................................................ FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION...................................................... AUV HISTORY - 1
THE COMPANY.......................................................................... 1
VARIABLE ANNUITY ACCOUNT B........................................................... 1
INVESTMENT OPTIONS................................................................... 1
The Funds........................................................................ 1
Credited Interest Option......................................................... 6
PURCHASE............................................................................. 6
Contract Availability............................................................ 6
Purchasing Interests in the Contract............................................. 6
Purchase Payments................................................................ 6
Contract Rights.................................................................. 7
Designations of Beneficiary and Annuitant........................................ 7
Right to Cancel.................................................................. 7
CHARGES AND DEDUCTIONS............................................................... 8
Daily Deductions from the Separate Account....................................... 8
Mortality and Expense Risk Charge.......................................... 8
Administrative Charge...................................................... 8
Maintenance Fee.................................................................. 8
Reduction or Elimination of Administrative Charge and Maintenance Fee............ 8
Deferred Sales Charge............................................................ 8
Reduction or Elimination of the Deferred Sales Charge............................ 9
Fund Expenses.................................................................... 10
Premium and Other Taxes.......................................................... 10
CONTRACT VALUATION................................................................... 10
Account Value.................................................................... 10
Accumulation Units............................................................... 10
Net Investment Factor............................................................ 10
TRANSFERS............................................................................ 11
Dollar Cost Averaging Program.................................................... 11
Account Rebalancing Program...................................................... 11
WITHDRAWALS.......................................................................... 11
ADDITIONAL WITHDRAWAL OPTIONS........................................................ 12
DEATH BENEFIT DURING ACCUMULATION PERIOD............................................. 13
Death Benefit Amount............................................................. 13
Death Benefit Payment Options.................................................... 13
Nonqualified Contracts...................................................... 13
Qualified Contracts......................................................... 14
ANNUITY PERIOD....................................................................... 14
Annuity Period Elections......................................................... 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Partial Annuitization............................................................ 15
Annuity Options.................................................................. 15
Annuity Payments................................................................. 15
Charges Deducted During the Annuity Period....................................... 16
Death Benefit Payable During the Annuity Period.................................. 16
TAX STATUS........................................................................... 16
Introduction..................................................................... 16
Taxation of the Company.......................................................... 17
Tax Status of the Contract....................................................... 17
Taxation of Annuity Contracts.................................................... 18
Contracts Used with Certain Retirement Plans..................................... 20
MISCELLANEOUS........................................................................ 22
Distribution..................................................................... 22
Delay or Suspension of Payments.................................................. 23
Performance Reporting............................................................ 23
Voting Rights.................................................................... 23
Modification of the Contract..................................................... 24
Transfers of Ownership; Assignment............................................... 24
Involuntary Terminations......................................................... 24
Legal Matters and Proceedings.................................................... 24
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.................................. 25
APPENDIX--ALIAC GUARANTEED ACCOUNT................................................... 26
</TABLE>
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
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- --------------------------------------------------------------------------------
The following terms are defined as they are used in this Prospectus:
ACCOUNT: A record that identifies contract values accumulated on each
Certificate Holder's behalf during the Accumulation Period.
ACCOUNT VALUE: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
ACCOUNT YEAR: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of each Subaccount before annuity
payments begin.
ADJUSTED ACCOUNT VALUE: The Account Value, plus or minus the aggregate market
value adjustment for amounts allocated to the Guaranteed Account.
ANNUITANT: The person on whose life or life expectancy the annuity payments are
based.
ANNUITY: A series of payments for life, a definite period or a combination of
the two.
ANNUITY DATE: The date on which annuity payments begin.
ANNUITY PERIOD: The period during which annuity payments are made.
ANNUITY UNIT: A measure of the value of each Subaccount selected during the
Annuity Period.
BENEFICIARY(IES): The person or persons who are entitled to receive any death
benefit proceeds. Under Nonqualified Contracts, Individual Retirement Annuities,
and Section 403(b) Contracts, Beneficiary refers to the beneficiary named under
the Contract. Under Qualified Contracts sold in conjunction with 401(a) or 457
Plans, Beneficiary refers to the beneficiary under the plan.
CERTIFICATE: The document issued to a Certificate Holder for an Account
established under a group contract.
CERTIFICATE HOLDER (YOU): A person or entity who purchases an individual
Contract or acquires an interest under a group Contract. For Nonqualified
Contracts, we reserve the right to limit ownership to natural persons.
COMPANY (WE, US): Aetna Life Insurance and Annuity Company.
CONTRACT: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
DISTRIBUTOR(S): The registered broker-dealer(s), or banks that may be acting as
broker-dealers without separate registration under the Securities Exchange Act
of 1934, which have entered into selling agreements with the Company to offer
and sell the Contracts. The Company may also serve as a Distributor.
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.
GROUP CONTRACT HOLDER: The entity to which a group Contract is issued.
HOME OFFICE: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
INDIVIDUAL CONTRACT HOLDER: A person or entity who has purchased an individual
variable annuity contract (also referred to as a "Certificate Holder"). For
Nonqualified Contracts, we reserve the right to limit ownership to natural
persons.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY: An individual or group variable deferred annuity
intended to qualify under Code Section 408(b).
NONQUALIFIED CONTRACT: A contract established to supplement an individual's
retirement income, or to provide an alternative investment option under an
Individual Retirement Account qualified under Code Section 408(a).
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under an Account.
QUALIFIED CONTRACTS: Contracts available for use with plans entitled to special
federal income tax treatment under Code Sections 401(a), 403(b), 408(b) or 457.
REGISTERED REPRESENTATIVE: The individual who is registered with a broker-dealer
acting as Distributor to offer and sell securities, or who is an employee of a
bank acting as Distributor that is exempt from broker-dealer registration under
the Securities Exchange Act of 1934. Registered Representatives must also be
licensed as insurance agents to sell variable annuity contracts.
SEPARATE ACCOUNT: Variable Annuity Account B, a separate account established for
the purpose of funding variable annuity contracts issued by the Company.
SUBACCOUNT(S): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
SURRENDER VALUE: The amount payable upon the withdrawal of all or any portion of
an Account Value.
VALUATION DATE: The date and time at which the value of the Subaccount is
calculated. Currently, this calculation occurs at 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.
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DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
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- --------------------------------------------------------------------------------
CONTRACTS OFFERED
The Contracts described in this Prospectus are group and individual deferred
variable annuity contracts issued by Aetna Life Insurance and Annuity Company
(the "Company"). The purpose of the Contract is to accumulate values and to
provide benefits upon retirement. The Contracts are currently available for (1)
individual nonqualified purchases; (2) Individual Retirement Annuities; and (3)
purchases made in conjunction with employer sponsored retirement plans under
Sections 401(a), 403(b) or 457 of the Code. (Availability of Contracts of the
type identified in items (2) and (3) may be subject to state regulatory
approval.)
In most states, group Contracts are offered, generally to certain
broker-dealers or banks which have agreed to act as Distributors of the
Contracts. Individuals who have established accounts with those broker-dealers
or banks are eligible to participate in the Contract. Individual Contracts are
offered only in those states where the group Contracts are not authorized for
sale. Joint Certificate Holders are allowed only on Nonqualified Contracts. A
joint Certificate Holder must be the spouse of the other joint Certificate
Holder. In New York and Pennsylvania, the joint Certificate Holders do not need
to be spouses. References to "Certificate Holders" in this Prospectus mean both
of the Certificate Holders on joint Accounts.
CONTRACT PURCHASE
You may purchase an interest in the Contract by completing an application or
enrollment form and submitting it to the Company. Purchase Payments can be
applied to the Contract either through a lump-sum payment or through ongoing
contributions. (See "Purchase.")
FREE LOOK PERIOD
You may cancel the Contract or Certificate within 10 days after you receive
it (or longer if required 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 will reflect the investment
performance of the Subaccounts into which your Purchase Payments were deposited.
In some cases this may be more or less than the amount of your Purchase
Payments. Under a Contract issued as an Individual Retirement Annuity, you will
receive a refund of your Purchase Payment. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account B, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows investment
in any or all of the Subaccounts, as well as in the Guaranteed Account described
below. For a complete list of the Funds available under the Contracts, and a
description of the investment objectives of each of the Funds and their
investment advisers, see "Investment Options--The Funds" in this Prospectus, as
well as the prospectuses for each of the Funds.
The Guaranteed Account is the credited interest option available under the
Contract which allows you to earn a fixed rate of interest, if held for the
guaranteed term. (See the Appendix to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), as well as any annual maintenance fee,
transfer fees and premium and other taxes. The Funds also incur certain fees and
expenses which are deducted directly from the Funds. A deferred sales charge may
apply upon a full or partial withdrawal of the Account Value. (See the Fee Table
and "Charges and Deductions.")
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SUMMARY - 1
<PAGE>
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Guaranteed Account.
Currently transfers are without charge. However, the Company reserves the right
to charge up to $10 if more than 12 transfers are made in a calendar year.
Transfers can be requested in writing or by telephone in accordance with the
Company's transfer procedures. (Transfers from the Guaranteed Account may be
restricted and subject to a market value adjustment. See the Appendix.)
The Company also offers a Dollar Cost Averaging Program and an Account
Rebalancing Program. The Dollar Cost Averaging Program permits the automatic
transfer of amounts from any of the Subaccounts and the one-year Guaranteed
Account term to any of the other Subaccounts on a monthly or quarterly basis.
The Account Rebalancing Program allows Certificate Holders to have portions of
their Account Value automatically reallocated annually to a specified
percentage. (See "Transfers.")
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date by properly completing a disbursement form and sending it to the Company.
Certain charges may be assessed upon withdrawal. Amounts withdrawn from the
Guaranteed Account may be subject to a market value adjustment. (See the
Appendix.) The taxable portion of the withdrawal may also be subject to income
tax and a federal tax penalty. (See "Withdrawals.")
The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional Withdrawal
Options are not available in all states and may not be suitable in every
situation. (See "Additional Withdrawal Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to the
Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies) actually
receive a distribution from the Contract. A 10% federal tax penalty may be
imposed on certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
<TABLE>
<S> <C>
- Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-5996
Attention: Customer Service
- Call Customer Service: 1-800-531-4547 (for automated transfers or changes
in the allocation of
Account Values, call: 1-800-262-3862)
</TABLE>
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SUMMARY - 2
<PAGE>
FEE TABLE
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This Fee Table describes the various charges and expenses associated with the
Contract. No sales charge is paid upon purchase of the Contract. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. Some expenses may vary as explained under "Charges and Deductions." The
charges and expenses shown below do not include premium taxes that may be
applicable. For more information regarding expenses paid out of assets of a
particular Fund, see the Fund's prospectus.
DIRECT CHARGES. These charges are deducted directly from the Account Value. They
include:
DEFERRED SALES CHARGE. The deferred sales charge is deducted as a
percentage of each Purchase Payment withdrawn. The amount of the deferred
sales charge is calculated as follows:
<TABLE>
<CAPTION>
DEFERRED
SALES
YEARS FROM RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
<CAPTION>
CONTRACTS OR CERTIFICATES ISSUED
IN NEW YORK:
DEFERRED
SALES
YEARS FROM RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL MAINTENANCE FEE.................................................................... $ 30.00
The maintenance fee will generally be deducted annually from each Account. The maintenance
fee is waived when the Account Value is $50,000 or more on the date the maintenance fee is
due. The amount shown is the MAXIMUM maintenance fee that can be deducted under the
Contract.
TRANSFER CHARGE........................................................................... $ 0.00
We currently allow an unlimited number of transfers without charge. However, we reserve
the right to impose a fee of $10 for each transfer in excess of 12 per year.
</TABLE>
INDIRECT CHARGES. Each Subaccount pays these expenses out of its assets. The
charges are reflected in the Subaccount's daily Accumulation Unit Value and are
not charged directly to an Account. They include:
DURING THE ACCUMULATION PERIOD:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25%
ADMINISTRATIVE CHARGE..................................................................... 0.15%
---------
TOTAL SUBACCOUNT ANNUAL EXPENSES.......................................................... 1.40%
---------
---------
</TABLE>
DURING THE ANNUITY PERIOD:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25%
ADMINISTRATIVE CHARGE..................................................................... 0.00%
---------
We currently do not impose an Administrative Charge during the Annuity Period. However, we
reserve the right to deduct a daily charge of not more than 0.25% per year from the
Subaccounts.
TOTAL SUBACCOUNT ANNUAL EXPENSES.......................................................... 1.25%
---------
---------
</TABLE>
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FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of average
net assets and, except where otherwise indicated, are based on figures for the
year ended December 31, 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 Account Value.
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
FEES(1) OTHER EXPENSES
(AFTER EXPENSE (AFTER EXPENSE TOTAL
REIMBURSEMENT) REIMBURSEMENT) ANNUAL
-------------- -------------- -----------
<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%
Aetna Ascent Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Crossroads Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Legacy Variable Portfolio(2) 0.50% 0.15% 0.65%
Alger American Balanced Portfolio 0.75% 0.25% 1.00%
Alger American Growth Portfolio 0.75% 0.10% 0.85%
Alger American Income and Growth
Portfolio 0.63% 0.12% 0.75%
Alger American Leveraged AllCap
Portfolio(3) 0.85% 0.71% 1.56%
Alger American MidCap Growth Portfolio 0.80% 0.10% 0.90%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Federated American Leaders Fund II(4) 0.00% 0.85% 0.85%
Federated Fund for U.S. Government
Securities II(4) 0.00% 0.80% 0.80%
Federated Growth Strategies Fund II(4) 0.00% 0.85% 0.85%
Federated High Income Bond Fund II(4) 0.00% 0.80% 0.80%
Federated International Equity Fund
II(4) 0.00% 1.25% 1.25%
Federated Prime Money Fund II(4) 0.00% 0.80% 0.80%
Federated Utility Fund II(4) 0.00% 0.85% 0.85%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP High Income Portfolio(5) 0.60% 0.11% 0.71%
Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91%
Fidelity VIP II Asset Manager
Portfolio(5) 0.71% 0.08% 0.79%
Fidelity VIP II Contrafund
Portfolio(5) 0.61% 0.11% 0.72%
Fidelity VIP II Index 500 Portfolio(6) 0.00% 0.28% 0.28%
Fidelity VIP II Investment Grade Bond
Portfolio 0.45% 0.14% 0.59%
Janus Aspen Aggressive Growth
Portfolio(7) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio(7) 0.82% 0.55% 1.37%
Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07%
Janus Aspen Growth Portfolio(7) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond
Portfolio(7) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth
Portfolio(7) 0.68% 0.22% 0.90%
Lexington Emerging Markets Fund,
Inc.(8) 0.85% 0.90% 1.75%
Lexington Natural Resources Trust 1.00% 0.47% 1.47%
MFS Emerging Growth Series(9) 0.75% 0.25% 1.00%
MFS Research Series(9) 0.75% 0.25% 1.00%
MFS Total Return Series(9) 0.75% 0.25% 1.00%
MFS World Governments Series(9) 0.75% 0.25% 1.00%
TCI Balanced(10) 1.00% 0.00% 1.00%
TCI Growth(10) 1.00% 0.00% 1.00%
TCI International(10) 1.50% 0.00% 1.50%
</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.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(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 Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent such reimbursement, the other expenses and total expenses of
the Fund would have been 3.07% and 3.92%, respectively. The Adviser can
terminate this voluntary waiver at any time in its sole discretion.
(4)The management fee for each of the Funds has been reduced to reflect a
voluntary waiver of the management fee. The Adviser can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for each of the Funds is as follows: 0.50%--Prime Money Fund II;
0.60%--High Income Bond Fund II and the Fund for U.S. Government Securities
II; 0.75%-- American Leaders Fund II, Growth Strategies Fund II and Utility
Fund II; and 1.00%--International Equity Fund II.
The total operating expenses of each of the Funds, absent the voluntary
waiver of the management fee and the voluntary reimbursement of certain other
operating expenses, would have been: 2.21% for the American Leaders Fund II;
5.61% for the Fund for U.S. Government Securities II; 77.81% for the Growth
Strategies Fund II; 4.20% for the High Income Bond Fund II; 3.49% for the
Prime Money Fund II; and 3.09% for the Utility Fund II. The total operating
expenses of the International Equity Fund II are based on expenses expected
during the fiscal year ending December 31, 1996. The total operating expenses
for the fiscal year ending December 31, 1995 were 1.22%, and would have been
12.64% absent the voluntary waiver of the management fee and the voluntary
reimbursement of certain other operating expenses.
(5)A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.71% for the High Income Portfolio, 0.81% for the Asset Manager Portfolio;
and 0.73% for the Contrafund Portfolio.
(6) The Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent reimbursement, the management fee, other expenses and total
expenses would have been 0.28%, 0.19% and 0.47%, respectively, for the Index
500 Portfolio.
(7)The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth,
and Worldwide Growth Portfolios reduce 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 or reductions, the Management Fee, Other Expenses and Total Fund
Annual Expenses would have been 0.82%, 0.11%, and 0.93% for Aggressive Growth
Portfolio; 1.00%, 0.55%, 1.55% for Balanced Portfolio; 0.85%, 0.13% and 0.98%
for Growth Portfolio; 0.65%, 0.72% and 1.37% for Short-Term Bond Portfolio;
and 0.87%, 0.22% and 1.09% for Worldwide Growth Portfolio; respectively.
Janus Capital may modify or terminate the waivers or reductions at any time
upon 90 days' notice to the Portfolio's Board of Trustees.
(8)The Fund's investment adviser has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage, and extraordinary
expenses, but including management fees and operating expenses) to an annual
rate of 1.75% of the Fund's average net assets through April 30, 1997.
Without this agreement, the Fund's Investment Advisory Fee, Total Other
Expenses and Total Fund Annual Expenses would have been 0.85%, 3.24% and
4.09% for the most recent fiscal year.
(9)The Adviser has agreed to bear, subject to reimbursement, expenses for each
of the Funds such that each Fund's aggregate operating expenses shall not
exceed, on an annualized basis, 1.00% of the average daily net assets of the
Funds from November 2, 1994 through December 31, 1996; 1.25% of the average
daily net assets of the Funds from January 1, 1997 through December 31, 1998;
and 1.50% of the average daily net assets of the Funds from January 1, 1999
through December 31, 2004; provided, however, that this obligation may be
terminated or revised at any time. Absent this expense arrangement, "Other
Expenses" for the MFS Emerging Growth Series, MFS Research Series and MFS
Total Return Series would have been 2.16%, 3.15% and 2.02%, respectively, and
"Total Annual Fund Expenses" would have been 2.91%, 3.90% and 2.77%,
respectively.
The Adviser has agreed to bear, subject to reimbursement, until December 31,
2004, expenses of the World Governments Series such that the Fund's aggregate
expenses do not exceed 1.00% on an annualized basis, of its average daily net
assets. Absent this expense arrangement, "Other Expenses" and "Total Annual
Fund Expenses" for the Fund would have been 1.24% and 1.99%, respectively.
(10)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.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.058%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
-------------------------------------- -------------------------------------
IF YOU WITHDRAW THE ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW THE ACCOUNT
VALUE AT THE END OF THE PERIODS SHOWN, VALUE, OR IF YOU ANNUITIZE AT THE END
YOU WOULD PAY THE FOLLOWING EXPENSES, OF THE PERIODS SHOWN, YOU WOULD PAY
INCLUDING ANY APPLICABLE DEFERRED THE FOLLOWING EXPENSES (NO DEFERRED
SALES CHARGE: SALES CHARGE IS REFLECTED):*
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $ 90 $109 $131 $208 $18 $56 $ 96 $208
Aetna Income Shares $ 90 $110 $132 $210 $18 $56 $ 97 $210
Aetna Variable Encore Fund $ 91 $110 $133 $212 $18 $57 $ 98 $212
Aetna Investment Advisers Fund, Inc. $ 90 $110 $132 $210 $18 $56 $ 97 $210
Aetna Ascent Variable Portfolio $ 93 $119 $149 $244 $21 $66 $113 $244
Aetna Crossroads Variable Portfolio $ 93 $119 $149 $244 $21 $66 $113 $244
Aetna Legacy Variable Portfolio $ 93 $119 $149 $244 $21 $66 $113 $244
Alger American Balanced Portfolio $ 97 $130 $166 $279 $25 $77 $131 $279
Alger American Growth Portfolio $ 95 $126 $159 $264 $23 $72 $123 $264
Alger American Income and Growth
Portfolio $ 94 $123 $154 $254 $22 $69 $118 $254
Alger American Leveraged AllCap
Portfolio $102 $147 $194 $333 $30 $93 $159 $333
Alger American MidCap Growth Portfolio $ 96 $127 $161 $269 $24 $74 $126 $269
Alger American Small Cap Portfolio $ 96 $128 $162 $271 $24 $74 $127 $271
Federated American Leaders Fund II $ 95 $126 $159 $264 $23 $72 $123 $264
Federated Fund for U.S. Government
Securities II $ 95 $124 $156 $259 $23 $71 $121 $259
Federated High Income Bond Fund II $ 95 $124 $156 $259 $23 $71 $121 $259
Federated Utility Fund II $ 95 $126 $159 $264 $23 $72 $123 $264
Fidelity VIP Equity-Income Portfolio $ 93 $118 $147 $240 $21 $65 $111 $240
Fidelity VIP Growth Portfolio $ 94 $121 $151 $249 $22 $68 $116 $249
Fidelity VIP High Income Portfolio $ 94 $121 $152 $250 $22 $68 $116 $250
Fidelity VIP Overseas Portfolio $ 96 $127 $162 $270 $24 $74 $126 $270
Fidelity VIP II Asset Manager Portfolio $ 95 $124 $156 $258 $23 $70 $120 $258
Fidelity VIP II Contrafund Portfolio $ 94 $122 $152 $251 $22 $68 $117 $251
Fidelity VIP II Index 500 Portfolio $ 90 $108 $130 $205 $18 $55 $ 94 $205
Fidelity VIP II Investment Grade Bond
Portfolio $ 93 $118 $146 $238 $21 $64 $110 $238
Janus Aspen Aggressive Growth Portfolio $ 95 $126 $159 $265 $23 $72 $124 $265
Janus Aspen Balanced Portfolio $100 $141 $185 $316 $29 $88 $149 $316
Janus Aspen Flexible Income Portfolio $ 97 $132 $170 $286 $26 $79 $134 $286
Janus Aspen Growth Portfolio $ 95 $123 $155 $257 $23 $70 $120 $257
Janus Aspen Short-Term Bond Portfolio $ 94 $121 $151 $249 $22 $68 $116 $249
Janus Aspen Worldwide Growth Portfolio $ 96 $127 $161 $269 $24 $74 $126 $269
Lexington Emerging Markets Fund, Inc. $104 $153 $203 $351 $32 $99 $168 $351
Lexington Natural Resources Trust $101 $144 $190 $325 $30 $91 $154 $325
MFS Emerging Growth Series $ 97 $130 $166 $279 $25 $77 $131 $279
MFS Research Series $ 97 $130 $166 $279 $25 $77 $131 $279
MFS Total Return Series $ 97 $130 $166 $279 $25 $77 $131 $279
MFS World Governments Series $ 97 $130 $166 $279 $25 $77 $131 $279
TCI Balanced $ 97 $130 $166 $279 $25 $77 $131 $279
TCI Growth $ 97 $130 $166 $279 $25 $77 $131 $279
TCI International $101 $145 $191 $328 $30 $91 $156 $328
</TABLE>
- --------------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start, since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.051%.
<TABLE>
<CAPTION>
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
-----------------------------------------------------------------------------
EXAMPLE C EXAMPLE D
------------------------------------- -------------------------------------
IF YOU WITHDRAW THE ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW THE ACCOUNT
VALUE AT THE END OF THE PERIODS VALUE, OR IF YOU ANNUITIZE AT THE END
SHOWN, YOU WOULD PAY THE FOLLOWING OF THE PERIODS SHOWN, YOU WOULD PAY
EXPENSES, INCLUDING ANY APPLICABLE THE FOLLOWING EXPENSES (NO DEFERRED
DEFERRED SALES CHARGE: SALES CHARGE IS REFLECTED):*
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $80 $ 89 $112 $207 $18 $55 $ 95 $207
Aetna Income Shares $80 $ 89 $113 $210 $18 $56 $ 97 $210
Aetna Variable Encore Fund $80 $ 90 $114 $212 $18 $57 $ 98 $212
Aetna Investment Advisers Fund, Inc. $80 $ 89 $113 $210 $18 $56 $ 97 $210
Aetna Ascent Variable Portfolio $83 $ 99 $129 $243 $21 $66 $113 $243
Aetna Crossroads Variable Portfolio $83 $ 99 $129 $243 $21 $66 $113 $243
Aetna Legacy Variable Portfolio $83 $ 99 $129 $243 $21 $66 $113 $243
Alger American Balanced Portfolio $86 $110 $147 $279 $25 $76 $131 $279
Alger American Growth Portfolio $85 $105 $140 $264 $23 $72 $123 $264
Alger American Income and Growth
Portfolio $84 $102 $135 $253 $22 $69 $118 $253
Alger American Leveraged AllCap
Portfolio $92 $127 $175 $333 $30 $93 $158 $333
Alger American MidCap Growth Portfolio $85 $107 $142 $269 $24 $73 $126 $269
Alger American Small Cap Portfolio $86 $107 $143 $271 $24 $74 $127 $271
Federated American Leaders Fund II $85 $105 $140 $264 $23 $72 $123 $264
Federated Fund for U.S. Government
Securities II $84 $104 $137 $259 $23 $70 $121 $259
Federated Growth Strategies Fund II $85 $105 $140 $264 $23 $72 $123 $264
Federated High Income Bond Fund II $84 $104 $137 $259 $23 $70 $121 $259
Federated International Equity Fund II $89 $117 $160 $303 $27 $84 $143 $303
Federated Prime Money Fund II $84 $104 $137 $259 $23 $70 $121 $259
Federated Utility Fund II $85 $105 $140 $264 $23 $72 $123 $264
Fidelity VIP Equity-Income Portfolio $83 $ 98 $127 $239 $21 $65 $111 $239
Fidelity VIP Growth Portfolio $84 $101 $132 $248 $22 $67 $115 $248
Fidelity VIP High Income Portfolio $84 $101 $133 $249 $22 $68 $116 $249
Fidelity VIP Overseas Portfolio $86 $107 $143 $270 $24 $74 $126 $270
Fidelity VIP II Asset Manager Portfolio $84 $104 $137 $258 $23 $70 $120 $258
Fidelity VIP II Contrafund Portfolio $84 $101 $133 $250 $22 $68 $117 $250
Fidelity VIP II Index 500 Portfolio $80 $ 88 $110 $204 $18 $55 $ 94 $204
Fidelity VIP II Investment Grade Bond
Portfolio $82 $ 97 $126 $237 $21 $64 $110 $237
Janus Aspen Aggressive Growth Portfolio $85 $106 $140 $265 $23 $72 $124 $265
Janus Aspen Balanced Portfolio $90 $121 $166 $315 $29 $87 $149 $315
Janus Aspen Flexible Income Portfolio $87 $112 $151 $286 $26 $78 $134 $286
Janus Aspen Growth Portfolio $84 $103 $136 $257 $23 $70 $120 $257
Janus Aspen Short-Term Bond Portfolio $84 $101 $132 $248 $22 $67 $115 $248
Janus Aspen Worldwide Growth Portfolio $85 $107 $142 $269 $24 $73 $126 $269
Lexington Emerging Markets Fund, Inc. $93 $132 $184 $350 $32 $99 $167 $350
Lexington Natural Resources Trust $91 $124 $171 $324 $30 $90 $154 $324
MFS Emerging Growth Series $86 $110 $147 $279 $25 $76 $131 $279
MFS Research Series $86 $110 $147 $279 $25 $76 $131 $279
MFS Total Return Series $86 $110 $147 $279 $25 $76 $131 $279
MFS World Governments Series $86 $110 $147 $279 $25 $76 $131 $279
TCI Balanced $86 $110 $147 $279 $25 $76 $131 $279
TCI Growth $86 $110 $147 $279 $25 $76 $131 $279
TCI International $91 $125 $172 $327 $30 $91 $155 $327
</TABLE>
- --------------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start, since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example C.)
- --------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE TWO YEARS ENDED
DECEMBER 31, 1995 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
------------- -------------
<S> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $10.737 $10.000
Value at end of period $14.001 $10.737
Increase (decrease) in value of accumulation
units(1) 30.40% 7.37%(2)
Number of accumulation units outstanding at end of
period 3,068,782 3,178,712
AETNA INCOME SHARES
Value at beginning of period $10.324 $10.000
Value at end of period $12.037 $10.324
Increase (decrease) in value of accumulation
units(1) 16.59% 3.24%(3)
Number of accumulation units outstanding at end of
period 988,199 983,357
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.489 $10.000
Value at end of period $10.968 $10.489
Increase (decrease) in value of accumulation
units(1) 4.57% 4.89%(2)
Number of accumulation units outstanding at end of
period 2,694,034 3,407,448
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $10.828 $10.000
Value at end of period $13.602 $10.828
Increase (decrease) in value of accumulation
units(1) 25.62% 8.42%(4)
Number of accumulation units outstanding at end of
period 919,744 911,281
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.645
Increase (decrease) in value of accumulation
units(1) 6.45%(5)
Number of accumulation units outstanding at end of
period 15,832
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.587
Increase (decrease) in value of accumulation
units(1) 5.87%(5)
Number of accumulation units outstanding at end of
period 27,089
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.438
Increase (decrease) in value of accumulation
units(1) 4.38%(6)
Number of accumulation units outstanding at end of
period 28,778
ALGER AMERICAN BALANCED PORTFOLIO
Value at beginning of period $10.000
Value at end of period $12.588
Increase (decrease) in value of accumulation
units(1) 25.88%(7)
Number of accumulation units outstanding at end of
period 54,737
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $10.000
Value at end of period $12.980
Increase (decrease) in value of accumulation
units(1) 29.80%(8)
Number of accumulation units outstanding at end of
period 615,697
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.660
Increase (decrease) in value of accumulation
units(1) 6.60%(9)
Number of accumulation units outstanding at end of
period 95,829
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Value at beginning of period $10.000
Value at end of period $12.265
Increase (decrease) in value of accumulation
units(1) 22.65%(9)
Number of accumulation units outstanding at end of
period 159,379
ALGER AMERICAN MIDCAP PORTFOLIO
Value at beginning of period $10.000
Value at end of period $13.974
Increase (decrease) in value of accumulation
units(1) 39.74%(7)
Number of accumulation units outstanding at end of
period 233,110
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000
Value at end of period $13.295
Increase (decrease) in value of accumulation
units(1) 32.95%(10)
Number of accumulation units outstanding at end of
period 507,425
FEDERATED AMERICAN LEADERS FUND II
Value at beginning of period $ 9.838 $10.000
Value at end of period $12.971 $ 9.838
Increase (decrease) in value of accumulation
units(1) 31.84% (1.62)%(11)
Number of accumulation units outstanding at end of
period 2,057,364 188,708
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Value at beginning of period $10.073 $10.000
Value at end of period $10.804 $10.073
Increase (decrease) in value of accumulation
units(1) 7.25% 0.73%(11)
Number of accumulation units outstanding at end of
period 417,293 12,714
FEDERATED GROWTH STRATEGIES FUND II
Value at beginning of period $10.000
Value at end of period $10.277
Increase (decrease) in value of accumulation
units(1) 2.77%(12)
Number of accumulation units outstanding at end of
period 17,503
FEDERATED HIGH INCOME BOND FUND II
Value at beginning of period $ 9.814 $10.000
Value at end of period $11.640 $ 9.814
Increase (decrease) in value of accumulation
units(1) 18.61% (1.86)%(11)
Number of accumulation units outstanding at end of
period 1,020,321 31,309
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
FEDERATED INTERNATIONAL EQUITY FUND II
Value at beginning of period $10.000
Value at end of period $10.255
Increase (decrease) in value of accumulation
units(1) 2.55%(13)
Number of accumulation units outstanding at end of
period 158,319
FEDERATED PRIME MONEY FUND II
Value at beginning of period $10.033 $10.000
Value at end of period $10.406 $10.033
Increase (decrease) in value of accumulation
units(1) 3.71% 0.33%(14)
Number of accumulation units outstanding at end of
period 554,934 51,949
FEDERATED UTILITY FUND II
Value at beginning of period $ 9.881 $10.000
Value at end of period $12.095 $ 9.881
Increase (decrease) in value of accumulation
units(1) $22.40% (1.19)%(11)
Number of accumulation units outstanding at end of
period 727,601 41,191
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.002 $10.000
Value at end of period $13.324 $10.002
Increase (decrease) in value of accumulation
units(1) 33.21% 0.02%(15)
Number of accumulation units outstanding at end of
period 913,517 17,013
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.423 $10.000
Value at end of period $13.913 $10.423
Increase (decrease) in value of accumulation
units(1) 33.48% 4.23%(15)
Number of accumulation units outstanding at end of
period 885,545 17,013
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.701
Increase (decrease) in value of accumulation
units(1) 7.01%(9)
Number of accumulation units outstanding at end of
period 112,819
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.000
Value at end of period $11.143
Increase (decrease) in value of accumulation
units(1) 11.43%(7)
Number of accumulation units outstanding at end of
period 150,017
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $10.000
Value at end of period $11.664
Increase (decrease) in value of accumulation
units(1) 16.64%(7)
Number of accumulation units outstanding at end of
period 116,810
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000
Value at end of period $11.658
Increase (decrease) in value of accumulation
units(1) 16.58%(9)
Number of accumulation units outstanding at end of
period 684,272
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $10.000
Value at end of period $11.336
Increase (decrease) in value of accumulation
units(1) 13.36%(9)
Number of accumulation units outstanding at end of
period 191,671
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.600
Increase (decrease) in value of accumulation
units(1) 6.00%(16)
Number of accumulation units outstanding at end of
period 66,574
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.374 $10.000
Value at end of period $13.040 $10.374
Increase (decrease) in value of accumulation
units(1) 25.71% 3.74%(13)
Number of accumulation units outstanding at end of
period 187,584 0
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000
Value at end of period $12.104
Increase (decrease) in value of accumulation
units(1) 21.04%(7)
Number of accumulation units outstanding at end of
period 53,016
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 9.884 $10.000
Value at end of period $12.071 $ 9.884
Increase (decrease) in value of accumulation
units(1) 22.13% (1.16)%(14)
Number of accumulation units outstanding at end of
period 45,714 0
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.109 $10.000
Value at end of period $12.975 $10.109
Increase (decrease) in value of accumulation
units(1) 28.35% 1.09%(4)
Number of accumulation units outstanding at end of
period 176,111 9,588
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.765
Increase (decrease) in value of accumulation
units(1) 7.65%(7)
Number of accumulation units outstanding at end of
period 67,034
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000
Value at end of period $12.341
Increase (decrease) in value of accumulation
units(1) 23.41%(10)
Number of accumulation units outstanding at end of
period 252,485
LEXINGTON EMERGING MARKETS FUND, INC.
Value at beginning of period $ 9.795 $10.000
Value at end of period $ 9.277 $ 9.795
Increase (decrease) in value of accumulation
units(1) (5.28)% (2.05)%(4)
Number of accumulation units outstanding at end of
period 36,773 1,500
</TABLE>
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AUV HISTORY - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $ 9.056 $10.000
Value at end of period $10.436 $ 9.056
Increase (decrease) in value of accumulation
units(1) 15.24% (9.44)%(3)
Number of accumulation units outstanding at end of
period 16,933 537
TCI BALANCED
Value at beginning of period $10.152 $10.000
Value at end of period $12.124 $10.152
Increase (decrease) in value of accumulation
units(1) 19.42% 1.52%(4)
Number of accumulation units outstanding at end of
period 40,407 3,477
TCI GROWTH
Value at beginning of period $10.847 $10.000
Value at end of period $14.021 $10.847
Increase (decrease) in value of accumulation
units(1) 29.27% 8.47%(4)
Number of accumulation units outstanding at end of
period 1,014,612 893,534
TCI INTERNATIONAL
Value at beginning of period $ 9.441 $10.000
Value at end of period $10.446 $ 9.441
Increase (decrease) in value of accumulation
units(1) 10.64% (5.59)%(4)
Number of accumulation units outstanding at end of
period 57,691 3,745
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during October 1994.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during August 1994.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during July 1994.
(5) 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.
(6) 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.
(7) Reflects less than a full year of performance activity. Funds were first
received in this option during January 1995.
(8) Reflects less than a full year of performance activity. Funds were first
received in this option during February 1995.
(9) 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.
(10) Reflects less than a full year of performance activity. Funds were first
received in this option during April 1995.
(11) Reflects less than a full year of performance activity. Funds were first
received in this option during September 1994.
(12) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1995.
(13) 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.
(14) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1994.
(15) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1994.
(16) 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.
- --------------------------------------------------------------------------------
AUV HISTORY - 5
<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 a wholly owned subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly owned subsidiary of Aetna Life and Casualty Company.
VARIABLE ANNUITY ACCOUNT B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company established Variable Annuity Account B (the "Separate Account")
in 1976 as a segregated asset account for the purpose of funding its variable
annuity contracts. The Separate Account is registered as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"), and meets the
definition of "separate account" under federal securities laws. The Separate
Account is divided into "subaccounts" which do not invest directly in stocks,
bonds or other investments. Instead, each Subaccount buys and sells shares of a
corresponding Fund.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities of any other business conducted by
the Company. 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. All obligations arising under the
Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the application or enrollment form. In turn, the Subaccounts
invest in the corresponding Funds at net asset value.
The availability of Funds may be subject to regulatory authorization. In
addition, the Company may add or withdraw Funds, as permitted by applicable law.
Not all Funds may be available in all jurisdictions or under all Contracts.
Subject to state regulatory approval, if the shares of any Fund should no
longer be available for investment by the Separate Account or if in the judgment
of the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contract, we may cease to make such Fund shares
available for investment under the Contract prospectively. The Company may,
alternatively, substitute shares of another Fund for shares already acquired.
The Company reserves the right to substitute shares of another Fund for shares
already acquired without a proxy vote. Any elimination, substitution or addition
of Funds will be done in accordance with applicable state and federal securities
laws.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. 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)
- --------------------------------------------------------------------------------
1
<PAGE>
- -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)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks to
provide capital appreciation by allocating its investments among equities and
fixed income securities. The Portfolio is managed for investors who generally
have an investment horizon exceeding 15 years, and who have a high level of
risk tolerance.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA CROSSROADS VARIABLE PORTFOLIO seeks to
provide total return (i.e., income and capital appreciation, both realized and
unrealized) by allocating its investments among equities and fixed income
securities. The Portfolio is managed for investors who generally have an
investment horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA LEGACY VARIABLE PORTFOLIO seeks to
provide total return consistent with preservation of capital by allocating its
investments among equities and fixed income securities. The Portfolio is
managed for investors who generally have an investment horizon exceeding five
years and who have a low level of risk tolerance.(1)
- -ALGER AMERICAN FUND--ALGER AMERICAN BALANCED PORTFOLIO seeks current income and
long-term capital appreciation by investing in common stocks and fixed income
securities, with emphasis on income-producing securities which appear to have
some potential for capital appreciation.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities. The Portfolio primarily invests in equity securities of
companies which have a market capitalization of $1 billion or greater.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN INCOME AND GROWTH PORTFOLIO seeks a high
level of dividend income to the extent consistent with prudent investment
management by investing primarily in dividend paying equity securities. Capital
appreciation is a secondary objective of the Portfolio.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO seeks long-term
capital appreciation by investing in a diversified, actively managed portfolio
of equity securities. Income is a consideration in the selection of investments
but is not an investment objective of the Portfolio. The Portfolio may engage
in leveraging (up to 33 1/3%) of its assets and options and futures
transactions, which are deemed to be speculative and which may cause the
Portfolio's net asset value to fluctuate.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN MIDCAP GROWTH 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 the securities, have total market
capitalization within the range of companies included in the S&P Midcap 400
Index, updated quarterly. The S&P Midcap 400 Index is designed to track the
performance of medium capitalization companies. As of March 31, 1996, the range
of market capitalization of these companies was $153 million to $8.9
billion.(2)
- -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. As of March 31, 1996,
the range of market capitalization of these companies was $20 million to $3.0
billion.(2)
- --------------------------------------------------------------------------------
2
<PAGE>
- -FEDERATED INSURANCE SERIES--FEDERATED AMERICAN LEADERS FUND II (FORMERLY IMS
EQUITY GROWTH AND INCOME FUND) seeks to achieve long-term growth of capital and
to provide income. The Fund pursues its investment objective by investing,
under normal circumstances, at least 65% of its total assets in common stock of
"blue-chip" companies. "Blue-chip" companies generally are top-quality,
established growth companies which, in the opinion of the Adviser meet certain
criteria.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
(FORMERLY IMS U.S. GOVERNMENT BOND FUND) seeks to provide current income. The
Fund pursues its investment objective by investing at least 65% of the value of
its total assets in securities issued or guaranteed as to payment of principal
and interest by the U.S. government, its agencies or instrumentalities.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED GROWTH STRATEGIES FUND II (FORMERLY IMS
GROWTH STOCK FUND) seeks capital appreciation. The Fund pursues its objective
by investing at least 65% of its assets in equity securities of companies with
prospects for above-average growth in earnings and dividends or companies where
significant fundamental changes are taking place. Equity securities include
common stocks, preferred stocks, and securities (including debt securities)
that are convertible into common stocks.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED HIGH INCOME BOND FUND II (FORMERLY IMS
CORPORATE BOND FUND) seeks high current income by investing primarily in a
diversified portfolio of professionally managed fixed income securities. The
fixed-income securities in which the Fund intends to invest are lower-rated
corporate debt obligations (commonly known as "junk bonds" or "high yield, high
risk bonds" which involve significant degree of risk). (See the Fund's
prospectus for a discussion of the risk factors involved in investing in
lower-rated corporate debt obligations).(3)
- -FEDERATED INSURANCE SERIES--FEDERATED INTERNATIONAL EQUITY FUND II (FORMERLY
IMS INTERNATIONAL STOCK FUND) seeks total return on its assets by investing at
least 65% of its assets (and under normal market conditions, substantially all
of its assets) in equity securities of issuers located in at least three
different countries outside of the United States, investing in non-U.S.
securities carries substantial risks in addition to those associated with
domestic investments.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED PRIME MONEY FUND II (FORMERLY IMS PRIME
MONEY FUND) seeks to provide current income consistent with stability of
principal and liquidity. The Fund pursues its investment objective by investing
exclusively in a portfolio of money market instruments maturing in 397 days or
less. The average maturity of the money market instruments in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less. An
investment in this Fund is neither insured nor guaranteed by the U.S.
government.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED UTILITY FUND II (FORMERLY IMS UTILITY
FUND) seeks to achieve high current income and moderate capital appreciation by
investing primarily in a professionally managed and diversified portfolio of
equity and debt securities of utility companies. Under normal market
conditions, the Fund will invest at least 65% of its total assets in securities
of utility companies.(3)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME PORTFOLIO
seeks reasonable income by investing primarily in income-producing equity
securities. In selecting investments, the Fund also considers the potential for
capital appreciation.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO seeks
capital appreciation by investing mainly in common stocks, although its
investments are not restricted to any one type of security.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--HIGH INCOME PORTFOLIO
seeks to obtain a high level of current income by investing primarily in high-
yielding, lower-rated, fixed income securities, while also considering growth
of capital. Lower-rated corporate debt obligations are commonly known as "junk
bonds" or "high yield, high risk bonds" and involve significant degree of risk
(see the Fund's prospectus for a discussion of the risk factors involved in
investing in lower-rated corporate debt obligations).(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS PORTFOLIO seeks
long-term growth by investing mainly in foreign securities (at least 65% of the
Fund's total assets in securities of issuers from at least three countries
outside of North America).(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II--ASSET MANAGER
PORTFOLIO seeks high total
- --------------------------------------------------------------------------------
3
<PAGE>
return with reduced risk over the long-term by allocating its assets among
domestic and foreign stocks, bonds and short-term fixed-income instruments.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND PORTFOLIO
seeks maximum total return over the long term by investing mainly in equity
securities of companies that are undervalued or out-of-favor.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II--INDEX 500 PORTFOLIO
seeks to provide investment results that correspond to the total return of
common stocks publicly traded in the United States by duplicating the
composition and total return of the Standard & Poor's Composite Index of 500
Stocks.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II--INVESTMENT GRADE BOND
PORTFOLIO seeks as high a level of current income as is consistent with the
preservation of capital by investing in a broad range of investment-grade
fixed-income securities.(4)
- -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
capitalizations fall within the range of companies in the S & P MidCap 400
Index, which as of December 29, 1995 included companies with capitalizations
between approximately $118 million and $7.5 billion, but which is expected to
change on a regular basis.(5)
- -JANUS ASPEN SERIES--BALANCED PORTFOLIO seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by investing 40%-60% of its assets
in securities selected primarily for their growth potential and 40%-60% of its
assets in securities selected for their income potential.(5)
- -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).(5)
- -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing in common stocks of companies of any size.(5)
- -JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO seeks as high a level of current
income as is consistent with preservation of capital. The Portfolio pursues its
investment objective by investing primarily in short-and intermediate-term
fixed income securities.(5)
- -JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of
capital in a manner consistent with preservation of capital. The Portfolio
pursues its investment objective primarily through investments in common stocks
of foreign and domestic issuers.(5)
- -LEXINGTON EMERGING MARKETS FUND, INC. seeks long-term growth of capital
primarily through investment in equity securities of companies domiciled in, or
doing business in emerging countries and emerging markets. Investments in
emerging markets involve risks not present in domestic markets. See the Fund's
prospectus for information on risks inherent in this investment.(6)
- -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.(6)
- -MFS EMERGING GROWTH SERIES seeks to provide long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of companies that MFS believes are early in
their life cycle but which have the potential to become major enterprises
(emerging growth companies). Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital.(7)
- -MFS RESEARCH SERIES seeks to provide long-term growth of capital and future
income by allocating the Series' assets to industry groups (e.g.,
pharmaceuticals, retail and computer software). A substantial proportion of the
Series' assets will be invested in the common stocks or securities convertible
into common stocks of companies believed to possess better than average
prospects for long-term growth. A smaller proportion of its assets may be
invested in bonds, short-term
- --------------------------------------------------------------------------------
4
<PAGE>
obligations, preferred stocks or common stocks whose principal characteristic
is income production rather than growth.(7)
- -MFS TOTAL RETURN SERIES seeks to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. Its secondary objective is to provide a reasonable
opportunity for growth of capital and income. Under normal market conditions,
at least 25% of the Total Return Series' assets will be invested in fixed
income securities, and at least 40% and no more than 75% of the Series' assets
will be invested in equity securities.(7)
- -MFS WORLD GOVERNMENTS SERIES seeks not only preservation, but also growth of
capital, together with moderate current income. The Series seeks to achieve its
objective through a professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a lesser extent equity
securities. Consistent with its investment objective and policies, the Series
may invest up to 100% (and generally expects to invest not more than 80%) of
its net assets in foreign securities which are not traded on a U.S.
exchange.(7)
- -TCI PORTFOLIOS, INC.--TCI BALANCED (a Twentieth Century fund) seeks capital
growth and current income. It seeks capital growth by investing in
approximately 60% of the Portfolio's assets 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 management, have better-than-average potential for appreciation.
Management intends to maintain approximately 40% of the Portfolio's assets in
fixed income securities.(8)
- -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.(8)
- -TCI PORTFOLIOS, INC.--TCI INTERNATIONAL (a Twentieth Century fund) seeks
capital growth by investing primarily in an internationally diversified
portfolio of common stocks that are considered by management to have prospects
for appreciation. The Fund will invest primarily in securities of issuers
located in countries with developed economies.(8)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company
(2) Fred Alger Management, Inc.
(3) Federated Advisers
(4) Fidelity Research & Management Company
(5) Janus Capital Corporation
(6) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. serves as the subadviser for the Lexington Natural Resources
Trust
(7) Massachusetts Financial Services Company ("MFS")
(8) Investors Research Corporation
RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The use
of certain derivatives may involve high risk of volatility to a Fund, and 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.
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.
CONFLICTS OF INTEREST (MIXED AND SHARED FUNDING). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
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 contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in
- --------------------------------------------------------------------------------
5
<PAGE>
order to identify any material irreconcilable conflicts which might arise and to
determine what action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTION
Purchase Payments may be allocated to the ALIAC Guaranteed Account (the
"Guaranteed Account"). Through the Guaranteed Account, we guarantee stipulated
rates of interest for stated periods of time. Amounts must remain in the
Guaranteed Account for specified periods to receive the quoted interest rates,
or a market value adjustment (which may be positive or negative) will be
applied. (See the Appendix.)
PURCHASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT AVAILABILITY
The Contracts are offered as (1) nonqualified deferred annuity contracts;
(2) Individual Retirement Annuities; or (3) Qualified Contracts used in
conjunction with certain employer sponsored retirement plans. Individual
Retirement Annuities are currently available as rollovers, and may permit
ongoing contributions subject to state regulatory approval. Additionally,
availability of the Qualified Contracts described under item (3) is subject to
state regulatory approval.
Eligible persons seeking to invest and accumulate money for retirement can
purchase individual interests in group Contracts, or, where required by state
law, they may purchase individual Contracts. In most states, group Contracts are
offered, generally to certain broker-dealers or banks which have agreed to act
as Distributors of the Contracts, and individual accounts are established by the
Company for each Certificate Holder. In some states, an individual Contract will
be owned by the Certificate Holder. In both cases, a Certificate Holder's
interest in the Contract is known as his or her "Account."
The maximum issue age for the Annuitant is 90 (age 80 for those Contracts or
Certificates issued in the state of New York, and age 85 for those Contracts or
Certificates issued in the state of Pennsylvania).
JOINT CERTIFICATE HOLDERS. Nonqualified Contracts may be purchased by
spouses as joint Certificate Holders. In New York and Pennsylvania, the joint
Certificate Holders do not need to be spouses. References to "Certificate
Holders" in this Prospectus mean both of the Certificate Holders on joint
Accounts. Tax law prohibits the purchase of Qualified Contracts by joint
Certificate Holders.
PURCHASING INTERESTS IN THE CONTRACT
GROUP CONTRACTS. Groups will generally consist of those eligible
individuals who have established an Account with a broker-dealer or bank which
has agreed to act as a Distributor for the Contracts. The Contract application
must be completed by the prospective group Contract Holder and sent to the
Company at its Home Office. Once we approve the Contract application, a group
Contract is issued to the group Contract Holder. Certificate Holders may
purchase interests in a group Contract by submitting an enrollment form. Once
the enrollment form is accepted a Certificate will be issued.
INDIVIDUAL CONTRACTS. Certain states will not allow a group Contract due to
provisions in their insurance laws. In those states where individual Contracts
are offered, eligible persons will submit an individual application to the
Company. In those states, an individual will be issued a Contract rather than a
Certificate.
Regardless of whether you have purchased a group or individual Contract, the
Company must accept or reject the application or enrollment form within two
business days of receipt. If these items are incomplete, the Company may hold
any forms and accompanying Purchase Payments for five days. Purchase Payments
may be held for longer periods only with the consent of the Certficiate Holder,
pending acceptance of the application or enrollment form. If the application or
enrollment form is rejected, the application or enrollment form and any Purchase
Payments will be returned to the Certificate Holder.
PURCHASE PAYMENTS
You may make Purchase Payments under the Contract in one lump sum, through
periodic payments or as a transfer from a pre-existing plan.
The minimum initial Purchase Payment amount is $5,000 for Nonqualified
Contracts and $1,500 for Qualified Contracts. Additional Purchase Payments made
to an existing Contract must be at least $1,000 and are subject to the terms and
conditions published by us at the time of the subsequent payment. A Purchase
Payment of more than $1,000,000 will be allowed only with the
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Company's consent. We also reserve the right to reject any Purchase Payment to a
prospective or existing Account without advance notice.
For Qualified Contracts the Code imposes a maximum limit on annual Purchase
Payments which may be excluded from a participant's gross income. (See "Tax
Status.")
ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be
allocated to the Subaccounts or the Guaranteed Account as specified on the
application or enrollment form. Changes in such allocation may be made in
writing or by telephone transfer. Allocations must be in whole percentages, and
there may be limitations on the number of investment options that can be
selected during the Accumulation Period. (See "Transfers.")
CONTRACT RIGHTS
Under individual Contracts, Certificate Holders have all Contract rights.
Under group Contracts, the group Contract Holder has title to the Contract
and generally only the right to accept or reject any modifications to the
Contract. You have all other rights to your Account under the Contract. However,
under a Nonqualified Contract, if you and the Annuitant are not the same, and
the Annuitant dies first, a different provision applies. In this case, your
rights are automatically transferred to the Beneficiary. (See "Death Benefit.")
Joint Certificate Holders have equal rights under the Contract and with
respect to their Account. On the death of a joint Certificate Holder prior to
the Annuity Date, the surviving Certificate Holder may retain all ownership
rights under the Contract or elect to have the proceeds distributed. (See "Death
Benefit.") All rights under the Contract must be exercised by both joint
Certificate Holders with the exception of transfers among investment options; at
our discretion, one joint Certificate Holder can select additional investment
options or change investment options after the Account has been established.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the beneficiary under the Contract on the
application or enrollment form. However, for Qualified Contracts issued in
conjunction with a Code Section 401(a) qualified pension or profit sharing plan
or a Code Section 457 deferred compensation plan, the employer or trustee must
be both the Certificate Holder and the beneficiary under the Contract, and the
participant on whose behalf the Account was established must be the Annuitant.
Under such plans the participant is generally allowed to designate a beneficiary
under the plan, and the Certificate Holder may direct that we pay any death
proceeds to the plan beneficiary. "Beneficiary" as used in this Prospectus
refers to the person who is ultimately entitled to receive such proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b) tax
deferred annuity program subject to the Employee Retirement Income Security Act
(ERISA), the spouse of a married participant must be the Beneficiary of at least
50% of the Account Value. If the married participant is age 35 or older, the
participant may name an alternate Beneficiary provided the participant furnishes
a waiver and spousal consent which meets the requirements of ERISA Section 205.
The participant on whose behalf the Account was established must be the
Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, you must
be the Annuitant. For Nonqualified Contracts, you may (but need not) select a
different person as the Annuitant. (See "Purchase-- Contract Availability.")
RIGHT TO CANCEL
You may cancel the Contract or Certificate without penalty by returning it
to the Company with a written notice of your intent to cancel. In most states,
you have ten days to exercise this right; some states allow you longer. Unless
state law requires otherwise, the amount you will receive upon cancellation will
reflect the investment performance of the Subaccounts into which your Purchase
Payments were deposited. In some cases this may be more or less than the amount
of your Purchase Payments; therefore, you bear the entire investment risk for
amounts allocated among the Subaccounts during the free look period. Under
Contracts issued as Individual Retirement Annuities, you will receive a refund
of your Purchase Payment. Account Values will be determined as of the Valuation
Date on which we receive your request for cancellation at our Home Office.
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CHARGES AND DEDUCTIONS
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DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily deduction from
each of the Subaccounts for the mortality and expense risk charge. The charge is
equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts
and compensates the Company for the assumption of the mortality and expense
risks under the Contract. The mortality risks are those assumed for our promise
to make lifetime payments according to annuity rates specified in the Contract.
The expense risk is the risk that the actual expenses for costs incurred under
the Contract will exceed the maximum costs that can be charged under the
Contract.
If the amount deducted for mortality and expense risks is not sufficient to
cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
ADMINISTRATIVE CHARGE. During the Accumulation Period, the Company makes a
daily deduction from each of the Subaccounts for an administrative charge. The
charge is equal, on an annual basis, to 0.15% of the daily net assets of the
Subaccounts and compensates the Company for administrative expenses that exceed
revenues from the maintenance fee described below. The charge is set at a level
which does not exceed the average expected cost of the administrative services
to be provided while the Contract is in force. The Company does not expect to
make a profit from this charge.
During the Annuity Period, the Company reserves the right to make a
deduction for the administrative charge of an amount equal, on an annual basis,
to a maximum of 0.25% of the daily net assets of the Subaccounts. There is
currently no administrative charge during the Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective during
the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
The maximum maintenance fee deducted under the Contract is $30. The
maintenance fee will be deducted on a pro rata basis from each investment option
in which you have an interest. If your entire Account Value is withdrawn, the
full maintenance fee will be deducted at the time of withdrawal. The maintenance
fee will not be deducted (either annually or upon withdrawal) if your Account
Value is $50,000 or more on the day the maintenance fee is due.
REDUCTION OR ELIMINATION OF ADMINISTRATIVE CHARGE AND MAINTENANCE FEE
The administrative charge and maintenance fee will be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in such a manner that results in savings of administrative expenses. The
entitlement to such a reduction will be based on:
(1) the size and type of group of individuals to whom the Contract is offered;
and
(2) the amount of expected Purchase Payments.
Any reduction or elimination of the administrative charge or maintenance
fees will not be unfairly discriminatory against any person. We will make any
reduction in the administrative charge or annual maintenance fees according to
our own rules in effect at the time an application for a Contract is approved.
We reserve the right to change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account and is based
on the number of years which have elapsed since the Purchase Payment was made.
The deferred sales charge for each Purchase Payment is determined by multiplying
the Purchase Payment withdrawn by the appropriate percentage, in accordance with
the schedule set forth in the tables below.
Withdrawals are taken first against Purchase Payments, then against any
increase in value. However, the deferred sales charge only applies to the
Purchase
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Payment (not to any associated changes in value). To satisfy a partial
withdrawal, the deferred sales charge is calculated as if the Purchase Payments
are withdrawn from the Subaccounts in the same order they were applied to the
Account. Partial withdrawals from the Guaranteed Account will be treated as
described in the Appendix and the prospectus for the Guaranteed Account. The
total charge will be the sum of the charges applicable for all of the Purchase
Payments withdrawn.
<TABLE>
<CAPTION>
DEFERRED
SALES
YEARS SINCE RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
<CAPTION>
DEFERRED
SALES
YEARS SINCE RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
</TABLE>
A deferred sales charge will not be deducted from any portion of a Purchase
Payment withdrawn if the withdrawal is:
- - applied to provide Annuity benefits;
- - paid to a Beneficiary due to the Annuitant's death before Annuity Payments
start, up to a maximum of the Purchase Payment(s) in the Account on the
Annuitant's date of death;
- - made due to the election of an Additional Withdrawal Option (see "Additional
Withdrawal Options");
- - paid upon a full withdrawal where the Account Value is $2,500 or less and no
amount has been withdrawn during the prior 12 months; or
- - paid if we close out your Account when the value is less than $2,500.
After the first Account Year, you may withdraw all or a portion of your
Purchase Payments without a deferred sales charge, provided that (1) such
withdrawal occurs within three years of the Annuitant's admission to a licensed
nursing care facility (including non-licensed facilities in New Hampshire) and
(2) the Annuitant has spent at least 45 consecutive days in such facility. This
waiver of deferred sales charge does not apply if the Annuitant is in a nursing
care facility at the time the Account is established. It will also not apply if
otherwise prohibited by state law.
The Company does not anticipate that the deferred sales charge will cover
all sales and administrative expenses which it incurs in connection with the
Contract. The difference will be covered by the general assets of the Company
which are attributable, in part, to mortality and expense risk charges under the
Contract described above.
FREE WITHDRAWALS. At least 12 months after the date the first Purchase
Payment is applied to your Account, you may withdraw up to 10% of your current
Account Value (up to 15% of your current Account Value for Contracts or
Certificates issued in the State of New York) during each calendar year without
imposition of a deferred sales charge. The free withdrawal applies only to the
first partial or full withdrawal in each calendar year. The free withdrawal
amount will be based on the Account Value calculated on the Valuation Date next
following our receipt of your request for withdrawal. If your withdrawal exceeds
the applicable free withdrawal allowance, we will deduct a deferred sales charge
on the excess amount. (See the Appendix for a discussion of withdrawals from the
Guaranteed Account.) This provision may not be exercised if you have elected the
Systematic Withdrawal Option or Estate Conservation Option. (See "Additional
Withdrawal Options.")
REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE
We may reduce or eliminate the deferred sales charge when sales of the
Contracts are made to individuals or a group of individuals in such a manner
that results in savings of sales expenses. The entitlement to such a reduction
in the deferred sales charge will be based on the following:
(1) the size and type of group of individuals to whom the Contract is offered;
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(2) the amount of expected Purchase Payments; and
(3) whether there is a prior or existing relationship with the Company such as
being an employee of the Company or an affiliate, receiving distributions or
making internal transfers from other Contracts issued by the Company, or
making transfers of amounts held under qualified plans sponsored by the
Company or an affiliate.
Any reduction or elimination of the deferred sales charge will not be
unfairly discriminatory against any person.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. Ordinarily, any state premium tax will be
deducted from the Account Value when it is applied to an Annuity Option.
However, we reserve the right to deduct state premium tax from the Purchase
Payment(s) or from the Account Values at any time, but no earlier than when we
have a tax liability under state law.
Any municipal premium tax assessed at a rate in excess of 1% will be
deducted from the Purchase Payment(s) or from the amount applied to an Annuity
Option based on 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 our Annuity purchase rates for
residents of such municipalities.
CONTRACT VALUATION
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ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in the Guaranteed Account.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative charge.
Initial Purchase Payments will be credited to your Account as described
under "Purchasing Interests in the Contract." Each subsequent Purchase Payment
(or amount transferred) will be credited to your Account at the AUV computed on
the next Valuation Date following our receipt of your payment or transfer
request. The value of an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of a
Subaccount from one Valuation Date to the next. The net investment factor for a
Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current Valuation
Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding Valuation
Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of the
Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for mortality and
expense risks, and an administrative charge of 0.15% during the
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Accumulation Period and up to 0.25% during the Annuity Period (currently 0%
during the Annuity Period).
The net investment rate may be either positive or negative.
TRANSFERS
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At any time prior to the Annuity Date, you can transfer amounts held under
your Account from one Subaccount to another. Transfers from the Guaranteed
Account may be subject to certain restrictions and to a market value adjustment.
(See the Appendix.) A request for transfer can be made either in writing or by
telephone. The telephone transfer privilege is available automatically; no
special election is necessary. All transfers must be in accordance with the
terms of the Contract.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options. Twelve free transfers are allowed per calendar
year. Thereafter, the Company reserves the right to charge up to $10 for each
additional transfer. The Company currently does not impose this charge. The
total number of investment options that you may select during the Accumulation
Period may be limited, as set forth on your application or enrollment form. Any
transfer will be based on the Accumulation Unit Value next determined after the
Company receives a valid transfer request at its Home Office. Transfers are
currently not available during the Annuity Period; however, they may become
available during the second half of 1996. (See "Annuity Options.")
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program. Dollar cost
averaging is a system for investing a fixed amount of money at regular intervals
over a period of time. The Dollar Cost Averaging Program permits the transfer of
amounts from any of the variable funding options and the one-year Guaranteed
Term to any of the variable investment options. A market value adjustment will
not be applied to dollar cost averaging transfers from the one-year Guaranteed
Term. (See the Appendix for a discussion of the restrictions and features
attributable to the Guaranteed Account.)
Dollar cost averaging does not ensure a profit nor guarantee against loss in
a declining market. You should consider your financial ability to continue
purchases through periods of low price levels. For additional information,
please refer to the "Inquiries" section of the Prospectus Summary, which
describes how you can obtain further information.
The Dollar Cost Averaging Program is not available to individuals who have
elected an Additional Withdrawal Option or the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your Account
Value automatically reallocated annually to a specified percentage. Only Account
Values accumulating in the Subaccounts can be rebalanced. You may participate in
this program by completing the Account Rebalancing section of the application or
enrollment form, or by sending a written request to the Company at its Home
Office.
The Account Rebalancing Program is not available to Certificate Holders who
have elected the Dollar Cost Averaging Program, and the Account Rebalancing
Program does not ensure a profit nor guarantee against loss in a declining
market.
WITHDRAWALS
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All or a portion of your Account Value may be withdrawn at any time during
the Accumulation Period, subject to the withdrawal restrictions under Section
403(b) Contracts described below. To request a withdrawal, you must properly
complete a disbursement form and send it to our Home Office. Payments for
withdrawal requests will be made in accordance with SEC requirements, but
normally not later than seven calendar days following our receipt of a
disbursement form.
Withdrawals may be requested in one of the following forms:
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- -FULL WITHDRAWAL OF AN ACCOUNT: The amount paid for a full withdrawal will be
the Adjusted Account Value minus any applicable deferred sales charge and
maintenance fee due.
- -PARTIAL WITHDRAWALS: (Percentage): The amount paid will be the percentage of
the Adjusted Account Value requested minus any applicable deferred sales
charge.
- -PARTIAL WITHDRAWALS: (Specified Dollar Amount): The amount paid will be the
dollar amount requested. However, the amount withdrawn from your Account will
equal the amount you request plus any applicable deferred sales charge and plus
or minus any applicable market value adjustment.
For any partial withdrawal, the value of the Accumulation Units canceled
will be withdrawn proportionately from the Guaranteed Account or each Subaccount
in which your Account is invested, unless you request otherwise in writing. All
amounts paid will be based on your Account Value as of the next Valuation Date
after we receive a request for withdrawal at our Home Office, or on such later
date as the disbursement form may specify. Taxes or tax penalties may be due on
the amount withdrawn. (See "Tax Status.")
The tax treatment of withdrawals from each Nonqualified Contract may be
affected if you own other annuity contracts issued by us (or our affiliates)
that were purchased on or after October 21, 1988. (See "Tax Status.")
WITHDRAWAL RESTRICTIONS FROM 403(B) PLANS. Under Section 403(b) Contracts,
the withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
ADDITIONAL WITHDRAWAL OPTIONS
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The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Additional Withdrawal Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
- -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from
your Account based on a payment method you select. It is designed for those who
want a periodic income while retaining investment flexibility for amounts
accumulated under a Contract.
- -ECO--ESTATE CONSERVATION OPTION. ECO offers the same investment flexibility as
SWO but is designed for those who want to receive only the minimum distribution
that the Code requires each year. ECO is only available under Qualified
Contracts. Under ECO, the Company calculates the minimum distribution amount
required by law, generally at age 70 1/2, and pays you that amount once a year.
(See "Tax Status.")
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Additional Withdrawal Options, you will retain all
of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Once you elect an Additional Withdrawal Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is revoked,
it may not be elected again, nor may any other Additional Withdrawal Option be
elected unless permitted by the Code. The Company reserves the right to
discontinue the availability of one or all of these Additional Withdrawal
Options at any time, and/or to change the terms of future elections.
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DEATH BENEFIT DURING ACCUMULATION PERIOD
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A death benefit will be payable to the Beneficiary(ies) if the Certificate
Holder or the Annuitant dies before annuity payments have commenced. Upon the
death of a joint Certificate Holder prior to the Annuity Date, the surviving
Certificate Holder, if any, will become the designated Beneficiary. Any other
Beneficiary designation on record with the Company at the time of death will be
treated as a contingent Beneficiary.
The amount of death benefit proceeds will be determined as of the date of
death. Under some circumstances, the amount of the death benefit is guaranteed,
as described below.
DEATH BENEFIT AMOUNT
Upon the death of the Annuitant, the death benefit proceeds will be the
greatest of:
(1) the total Purchase Payment(s) applied to the Account, minus the sum of all
amounts withdrawn, annuitized or deducted from such Account;
(2) the highest step-up value as of the date of death. The step-up value is
determined on each anniversary of the Effective Date, up to the Annuitant's
75th birthday (85th birthday for Contracts or Certificates issued in New
York). Each step-up value is calculated as the Account Value on the
Effective Date anniversary, increased by Purchase Payments applied, and
decreased by partial withdrawals, annuitizations and deductions taken from
the Account since the Effective Date anniversary; or
(3) the Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the Account
Value is determined as of the date of death. Any excess amount will be deposited
and allocated to the money market Subaccount available under the Contract. The
Account Value on the claim date plus any excess amount deposited into the
Account becomes the Certificate Holder's Account Value. The claim date is the
date we receive valid proof of death and the Beneficiary's claim at our Home
Office.
Upon the death of a spousal Beneficiary who continued the Account in his or
her own name, the amount of the death benefit proceeds will be equal to the
Adjusted Account Value, less any deferred sales charge applicable to any
Purchase Payments made after we receive proof of death.
Under Nonqualifed Contracts only, if the Certificate Holder is not the
Annuitant and dies, the amount of death benefit proceeds will be equal to the
Adjusted Account Value on the claim date. Full or partial withdrawals may be
subject to a deferred sales charge.
For amounts held in the Guaranteed Account, see the Appendix for a
discussion of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below. If
you die and no Beneficiary exists, the death benefit will be paid in a lump sum
to your estate. Prior to any election, the Account Value will remain in the
Account and the Account Value will continue to be affected by the investment
performance of the investment option(s) selected. The Beneficiary has the right
to allocate or transfer any amount to any available investment option (subject
to a market value adjustment, as applicable). The Code requires that
distributions begin within a certain time period, as described below. If no
elections are made, no distributions will be made. Failure to commence
distribution within those time periods can result in tax penalties.
NONQUALIFIED CONTRACTS. Under a Nonqualified Contract, if you die, or if
you are a nonnatural person and the Annuitant dies, and the Beneficiary is your
surviving spouse, he or she automatically becomes the successor Certificate
Holder. The successor Certificate Holder may exercise all rights under the
Account and (1) continue in the Accumulation Period; (2) elect to apply some or
all of the Adjusted Account Value to any of the Annuity Options; or (3) receive
at any time a lump sum payment equal to all or a portion of the Adjusted Account
Value. If you die and you are not the Annuitant, any applicable deferred sales
charge will be applied if a lump sum payment is elected. Under the Code,
distributions are not required until the successor Certificate Holder's death.
If you die and the Beneficiary is not your surviving spouse, he or she may
elect option (2) or (3) above. According to the Code, any portion of the
Adjusted
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Account Value not distributed in installments over the life or life expectancy
beginning within one year of your death, must be paid within five years of your
death. (See "Tax Status of the Contract.")
If you are a natural person but not the Annuitant and the Annuitant dies,
the Beneficiary may elect to apply the Adjusted Account Value to an Annuity
Option within 60 days or to receive a lump sum payment equal to the Adjusted
Account Value, subject to state regulatory approval. If the Beneficiary does not
elect an Annuity Option within 60 days of the date of death, the gain, if any,
will be includable in the Beneficiary's income in the year the Annuitant dies.
If SWO is in effect, payments will cease at the Certificate Holder's or
Annuitant's death. A Beneficiary, however, may elect to continue SWO.
QUALIFIED CONTRACTS. Under a Qualified Contract, the death benefit is paid
at the death of the participant, who is the Annuitant under the Contract. The
Beneficiary has the following options: (1) apply some or all of the Adjusted
Account Value to any of the Annuity Options, subject to the distribution rules
in Code Section 401(a)(9), or (2) receive at any time a lump sum payment equal
to all or a portion of the Adjusted Account Value. If the Account was
established in conjunction with a Section 401(a) qualified pension or profit
sharing plan or a Section 457 deferred compensation plan, payment will be made,
as directed by the Certificate Holder, to either the Certificate Holder or to
the plan beneficiary.
If ECO or SWO is in effect and the participant dies before the required
beginning date for minimum distributions, payments will cease. A Beneficiary, or
the Certificate Holder on behalf of a plan Beneficiary, may elect ECO or SWO
provided the election would satisfy the Code minimum distribution rules.
If ECO or SWO is in effect and the participant dies after the required
beginning date for minimum distributions, payments will continue as permitted
under the Code minimum distribution rules, unless the option is revoked.
Death benefit payments must satisfy the distribution rules in Code Section
401(a)(9). (See "Tax Status of the Contract.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
You must notify us in writing of the date you want Annuity Payments to start
(the "Annuity Date") and the Annuity Option elected. Payments may not begin
earlier than one year after purchase, or, unless we consent, later than the
later of (a) the first day of the month following the Annuitant's 85th birthday,
or (b) the tenth anniversary of the last Purchase Payment (fifth anniversary for
Contracts issued in Pennsylvania). For Contracts or Certificates issued in New
York, Annuity Payments may not begin later than the time period specified in
(a).
Annuity Payments will not begin until you have selected an Annuity Date and
an Annuity Option. Until a date and option are elected, the Account will
continue in the Accumulation Period.
The Code generally requires that for Qualified Contracts, minimum annual
distributions of the Account Value must begin by April 1st of the calendar year
following the calendar year in which a participant attains age 70 1/2. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
At least 30 days prior to the Annuity Date, you must notify us in writing of
the following:
- - the date on which you would like Annuity Payments to begin;
- - the Annuity Option under which you want payments to be calculated and paid;
- - whether the payments are to be made monthly, quarterly, semi-annually or
annually; and
- - the investment option(s) used to provide Annuity Payments (i.e., a fixed
Annuity using the general account or a variable Annuity using any of the
Subaccounts available at the time of annuitization). [As of the date of this
Prospectus, Aetna Variable Fund,
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Aetna Income Shares and Aetna Investment Advisers Fund, Inc. are the only
Subaccounts available; however, additional Subaccounts may be available under
some Annuity Options in the future. ("See Annuity Options.")]
Once Annuity Payments begin, the Annuity Option may not be changed, nor may
transfers currently be made among the investment option(s) selected. (See
"Annuity Options" below for more information about transfers during the Annuity
Period.)
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 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.
ANNUITY OPTIONS
You may choose one of the following Annuity Options:
LIFETIME ANNUITY OPTIONS:
- -OPTION 1--Life Annuity--An annuity with payments ending on the Annuitant's
death.
- -OPTION 2--Life Annuity with Guaranteed Payments-- An annuity with payments
guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may
offer at the time of annuitization.
- -OPTION 3--Life Income Based Upon the Lives of Two Annuitants--An Annuity will
be paid during the lives of the Annuitant and a second Annuitant, with 100%,
66 2/3% or 50% of the payment to continue after the first death, or 100% of the
payment to continue at the death of the second Annuitant and 50% of the payment
to continue at the death of the Annuitant.
- -OPTION 4--Life Income Based Upon the Lives of Two Annuitants--An annuity with
payments for a minimum of 120 months, with 100% of the payment to continue
after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity Payments begin, the Certificate Holder cannot elect to receive
a lump-sum settlement.
NONLIFETIME ANNUITY OPTION:
Under the nonlifetime option, payments may be made for generally 5-30 years,
as selected. If this option is elected on a variable basis, the Certificate
Holder may request at any time during the payment period that the present value
of all or any portion of the remaining variable payments be paid in one sum.
However, any lump-sum elected before three years of payments have been completed
will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions-- Deferred Sales Charge.") If the nonlifetime option is elected on a
fixed basis, you cannot elect to receive a lump-sum settlement.
We may also offer additional Annuity Options under your Contract from time
to time. Later in 1996, subject to state regulatory approval, the Company
expects to offer additional Annuity Options and enhanced versions of the Annuity
Options listed above. These additional Annuity Options and enhanced versions of
the existing options will have additional Subaccounts available and will allow
transfers between Subaccounts during the Annuity Period. Please refer to the
Contract or Certificate, or call the number listed in the "Inquiries" section of
the Prospectus Summary, to determine which options are available and the terms
of such options. It is not expected that these additional or enhanced options
will be made available to those who have already commenced receiving Annuity
Payments.
ANNUITY PAYMENTS
DATE PAYOUTS START. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. For
Qualified Contracts only, Annuity Payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and
Beneficiary.
AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on how
you allocate your Account Value between fixed and variable payouts. No election
may be made that would result in the first Annuity Payment of less than $50, or
total yearly Annuity
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Payments of less than $250 (less if required by state law). If the Account Value
on the Annuity Date is insufficient to elect an option for the minimum amount
specified, a lump-sum payment must be elected. We reserve the right to increase
the minimum first Annuity Payment amount and the minimum annual Annuity Payment
amount based on increases reflected in the Consumer Price Index-Urban (CPI-U),
since July 1, 1993.
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
selected (3 1/2% 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 exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. This charge, established when a variable
Annuity Option is elected, will not exceed 0.25% per year of amounts held on a
variable basis. Once established, the charge will be effective during the entire
Annuity Period. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE
ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant
under Option 2, or the surviving Annuitant under Option 4, occurs prior to the
end of the guaranteed minimum payment period, we will pay to the Beneficiary in
a lump sum, unless otherwise requested, the present value of the guaranteed
annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the Beneficiary (unless otherwise requested), and no deferred sales charge
will be imposed.
If the Annuitant dies after Annuity Payments have begun and if there is a
death benefit payable under the Annuity Option elected, the remaining value must
be distributed to the Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment.
TAX STATUS
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any contract or
transaction involving a Contract.
The Contract may be purchased on a non-tax qualified basis ("Nonqualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under Section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
Payments, and on the economic benefit to the Contract Holder, Certificate Holder
or Beneficiary may depend upon the tax status of the individual concerned.
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Any person concerned about these tax implications should consult a competent tax
adviser before initiating any transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, the Company believes
that the Separate Account investment income and realized net capital gains will
not be taxed to the extent that such income and gains are applied to increase
the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretation thereof result in the Company
being taxed on income or gains attributable to the Separate Account, then the
Company may impose a charge against the Separate Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
Diversification. Section 817(h) of the Code requires that with respect to
Nonqualified 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. 1.817-5, which affects how the Funds' assets may be
invested.
In addition, 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 these circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the owner possesses incidents of investment control over the assets.
The ownership rights under the contract are similar to, but different in certain
respects from those described by the IRS in rulings in which it was determined
that owners were not owners of separate account assets. For example, a
Certificate Holder has additional flexibility in allocating premium payments and
account values. In addition, the number of funds provided under the Contract is
significantly greater than the number of funds offered in contracts on which
rulings have been issued. These differences could result in a Certificate Holder
being treated as the owner of a pro rata portion of the assets of the Separate
Account. The Company reserves the right to modify the Contract as necessary to
attempt to prevent a Certificate Holder from being considered the owner of a pro
rata share of the assets of the Separate Account.
REQUIRED DISTRIBUTIONS--NONQUALIFIED CONTRACTS: In order to be treated as an
annuity contract for federal income tax purposes, Section 72(s) of the Code
requires Nonqualified Contracts to provide that (a) if any Certificate Holder
dies on or after the Annuity Date but prior to the time the entire interest in
the Contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution in effect
at the time of the Certificate Holder's death, and (b) if any Certificate Holder
dies prior to the Annuity Date, the entire interest in the Contract will be
distributed within five years after the date of such Certificate Holder's death.
These requirements will be considered satisfied as to any portion of a
Certificate Holder's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
"designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of the Certificate Holder's death. The "designated beneficiary" refers
to a natural person designated by the Certificate Holder as a Beneficiary and to
whom ownership of the contract passes by reason of death. However, if the
"designated beneficiary" is the surviving spouse of the deceased Certificate
Holder, the Account may be continued with the surviving spouse as the new
Certificate Holder.
The Nonqualifed Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
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The discussion under "Taxation of Annuities" below is based on the
assumption that the Contract qualifies as an annuity contract for federal income
tax purposes.
REQUIRED DISTRIBUTIONS--QUALIFIED CONTRACTS: The Code has required
distribution rules for Section 401(a), 403(b) and 457 Plans and Individual
Retirement Annuities. Distributions must generally begin by April 1 of the
calendar year following the calendar year in which the participant attains age
70 1/2. For governmental or church 401(a), 403(b) or 457 plans, distributions
must begin by April 1 of the calendar year following the calendar year the
participant attains age 70 1/2 or retires, whichever occurs later. Under 403(b)
plans, if the Company maintains separate records, distribution of amounts held
as of December 31, 1986 must generally begin by the end of the calendar year in
which the participant attains age 75 (or retires, if later, for governmental or
church plans). However, special rules require that some or all of the balance be
distributed earlier if any distributions are taken in excess of the minimum
required amount.
To comply with these provisions, distributions must be in a form and amount
sufficient to satisfy the minimum distribution and minimum distribution
incidental death benefit rules specified in Section 401(a) (9) of the Code.
In general, annuity payments must be distributed over the participant's life
or the joint lives of the participant and beneficiary, or over a period not
greater than the participant's life expectancy or the joint life expectancies of
the participant and beneficiary. Also, any distribution under a Section 457 Plan
payable over a period of more than one year must be made in substantially
nonincreasing amounts.
If the participant dies on or after the required beginning date for minimum
distributions, distributions to the beneficiary must be made at least as rapidly
as the method of distribution in effect at the time of the participant's death.
However, if the required minimum distribution is calculated each year based on
the participant's single life expectancy or the joint life expectancies of the
participant and beneficiary, the regulations for Code Section 401(a)(9) provide
specific rules for calculating the required minimum distributions at the
participant's death. For example, if ECO was elected with the calculation based
on the participant's single life expectancy, and the life expectancy is
recalculated each year, the recalculated life expectancy becomes zero in the
calendar year following the participant's death and the entire remaining
interest must be distributed to the beneficiary by December 31 of the year
following the participant's death. However, a spousal beneficiary, other than
under a Section 457 Plan, has certain rollover rights which can only be
exercised in the year of the participant's death. The rules are complex and the
participant should consult a tax adviser before electing the method of
calculation to satisfy the minimum distribution requirements.
If the participant dies before the required beginning date for minimum
distributions, the entire interest must be distributed by December 31 of the
calendar year containing the fifth anniversary of the date of the participant's
death. Alternatively, payments may be made over the life of the beneficiary or
over a period not extending beyond the life expectancy of the beneficiary, not
to exceed 15 years for a non-spousal beneficiary under a Section 457 Plan,
provided the distribution begins to a non-spouse beneficiary by December 31 of
the calendar year following the calendar year of the participant's death. If
payments are made to a spousal beneficiary, distributions must begin by the
later of December 31 of the calendar year following the calendar year of the
death or December 31 of the calendar year in which the participant would have
attained age 70 1/2.
An exception applies for a spousal beneficiary under an Individual
Retirement Annuity. In lieu of taking a distribution under these rules, a
spousal Beneficiary may elect to treat the Account as his or her own IRA and
defer taking a distribution until his or her age 70 1/2. The surviving spouse is
deemed to have made such an election if the surviving spouse makes a rollover to
or from the Account or fails to take a distribution within the required time
period.
If the participant or beneficiary fails to take the required minimum
distribution for any tax year, a 50% excise tax is imposed on the required
amount that was not distributed.
TAXATION OF ANNUITY CONTRACTS
IN GENERAL: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Certificate Holder under a Nonqualified
Contract who is a natural person generally is not taxed on increases in the
Account Value until distribution occurs by withdrawing all or part of such
Account Value (e.g., withdrawals or Annuity Payments under the Annuity
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Option elected). The taxable portion of a distribution (in the form of a single
sum payment or an Annuity) is taxable as ordinary income.
NON-NATURAL HOLDERS OF A NONQUALIFIED CONTRACT: If the Certificate Holder is
not a natural person, a Nonqualified 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
distributed and amounts previously included in income. There are some exceptions
to the 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.
The following discussion generally applies to Qualified Contracts or
Nonqualified Contracts owned by a natural person.
WITHDRAWALS: In the case of a withdrawal under a Qualified Contract,
including withdrawals under SWO or ECO, the amount taxable is generally based on
the ratio of the "investment in the contract" to Account Value. The "investment
in the contract" generally equals the amount of any nondeductible Purchase
Payments paid by or on behalf of any individual less any amount received
previously which was excludable from gross income. For a Qualified Contract, the
"investment in the contract" can be zero. Special tax rules may be available for
certain distributions from a Qualified Contract.
With respect to Nonqualified Contracts, partial withdrawals, including
withdrawals under SWO, are generally treated as taxable income to the extent
that the Account Value immediately before the withdrawal exceeds the "investment
in the contract" at that time. The Account Value immediately before a withdrawal
may have to be increased by any positive market value adjustment (MVA) that
results from such a withdrawal. There is, however, no definitive guidance on the
proper tax treatment of MVAs in these circumstances, and a Certificate Holder
should contact a competent tax advisor with respect to the potential tax
consequences of any MVA that arises as a result of a partial withdrawal.
Full withdrawals of a Nonqualified Contract are treated as taxable income to
the extent that the amount received exceeds the "investment in the contract."
ANNUITY PAYMENTS: Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
Annuity Payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional annuity payments is
taxable. For variable Annuity Payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
fixed annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity Payments is taxable. If Annuity Payments cease as a result of
an Annuitant's death before full recovery of the "investment in the contract,"
consult a competent tax advisor regarding deductibility of the unrecovered
amount.
PENALTY TAX: In the case of a distribution pursuant to a Nonqualified
Contract, or a Qualified Contract other than a Qualified Contract sold in
conjunction with a Code Section 457 Plan, there may be imposed a federal income
tax penalty equal to 10% of the amount treated as taxable income.
In general, there is no penalty tax on distributions from a Nonqualified
Contract: (1) made on or after the date on which the taxpayer attains age
59 1/2; (2) made as a result of the death of the Certificate Holder; (3)
attributable to the taxpayer's total and permanent disability; (4) received in
substantially equal periodic payments (at least annually) over the life or life
expectancy of the taxpayer or the joint lives or joint life expectancies of the
taxpayer and a "designated beneficiary;" or (5) allocable to "investment in the
contract" before August 14, 1982.
If a distribution is made from a Qualified Contract sold in conjunction with
a Section 401(a) Plan or Section 403(b) Plan, the penalty tax will not apply on
distribution made when the participant (a) attains age 59 1/2, (b)
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becomes permanently and totally disabled, (c) dies, (d) separates from service
with the plan sponsor at or after age 55, (e) rolls over the distribution amount
to another plan of the same type in accordance with the terms of the Code, or
(f) takes the distributions in substantially equal periodic payments (at least
annually) over his or her life or life expectancy or the joint lives or joint
life expectancies of the participant and plan beneficiary, provided the
participant has separated from service with the plan sponsor. In addition, the
penalty tax does not apply for the amount of a distribution equal to
unreimbursed medical expenses incurred by the participant that qualify for
deduction as specified in the Code. The Code may impose other penalty taxes in
other circumstances.
In general, the same exceptions described in the preceding paragraph will
apply to distributions made from an Individual Retirement Annuity. However, the
exceptions for separation from service under (d) above and unreimbursed medical
expenses will not apply.
TAXATION OF DEATH BENEFIT PROCEEDS: Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
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 as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity Payments, as described
above.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF THE CONTRACT: A transfer of
ownership of a Contract, the designation of an Annuitant, payee or other
Beneficiary who is not also a Certificate Holder, the selection of certain
Annuity Dates, or the exchange of a Contract may result in certain tax
consequences. The assignment, pledge, or agreement to assign or pledge any
portion of the Account Value generally will be treated as a distribution. The
assignment or transfer of ownership of a Qualified Contract generally is not
allowed. Anyone contemplating any such designation, transfer, assignment,
selection, or exchange should contact a competent tax adviser with respect to
the potential tax effects of such a transaction.
MULTIPLE CONTRACTS: All deferred nonqualified annuity contracts that are
issued by the Company (or its affiliates) to the same owner during any calendar
year are treated as one annuity contract for purposes of determining the amount
includible in gross income under Section 72(e) of the Code. In addition, the
Treasury Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts or
otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract and
separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
QUALIFIED CONTRACTS IN GENERAL
The Qualified Contract is designed for use as an Individual Retirement
Annuity or as a Contract used in connection with certain employer sponsored
retirement plans. The tax rules applicable to participants and beneficiaries in
Qualified Contracts are complex. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
aggregate distributions in excess of a specified annual amount; and in other
specified circumstances.
The Company makes no attempt to provide more than general information about
use of the Contracts with the various types of retirement plans. Participants
and beneficiaries under Qualified Contracts may be subject to the terms and
conditions of the retirement plans themselves, in addition to the terms and
conditions of the Contract issued in connection with such plans. Some retirement
plans are subject to distribution and other requirements that are not
incorporated in the provisions of the Contracts. Purchasers are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts satisfy applicable laws, and should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
SECTION 457 PLANS
Code Section 457 provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. These plans are
subject to various restrictions on contributions and distributions.
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The plans may permit participants to specify the form of investment for their
deferred compensation account. In general, all investments are owned by the
sponsoring employer and are subject to the claims of the general creditors of
the employer. Depending on the terms of the particular plan, the employer may be
entitled to draw on deferred amounts for purposes unrelated to its Section 457
plan obligations. In general, all amounts received under a Section 457 plan are
taxable and reportable to the IRS as taxable income. Also, all amounts except
death benefit proceeds are subject to federal income tax withholding as wages.
If we make payments directly to a participant on behalf of the employer as
owner, we will withhold federal taxes (and state taxes, if applicable).
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from the participant's gross income. Such limit is generally the lesser
of $7,500 or 33 1/3% of the participant's includible compensation (25% of gross
compensation).
SECTION 401(A) PLANS
Section 401(a) permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish various types of retirement plans for themselves and for their
employees. These retirement plans may permit the purchase of the Contract to
accumulate retirement savings under the plans. Adverse tax consequences to the
plan, to the participant or to both may result if this Contract is assigned or
transferred to an individual except to a participant as a means to provide
benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a participant's gross income. Such limit must be calculated under
the Plan by the employer in accordance with Section 415 of the Code. This limit
is generally the lesser of 25% of the participant's compensation or $30,000. In
addition, Purchase Payments will be excluded from a participant's gross income
only if the Section 401(a) Plan meets certain nondiscrimination requirements.
All distributions will be taxed as they are received unless the distribution
is rolled over to another plan of the same type or to an individual retirement
annuity/account ("IRA") in accordance with the Code, or unless the participant
has made after-tax contributions to the plan, which are not taxed upon
distribution. The Code has specific rules that apply, depending on the type of
distribution received, if after-tax contributions were made.
In general, payments received by a beneficiary after the participant's death
are taxed in the same manner as if the participant had received those payments,
except that a limited death benefit exclusion may apply.
SECTION 403(B) PLANS
Under Section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by the participant and his or her employer cannot exceed either of two
limits set by the Code. The first limit, under Section 415, is generally the
lesser of 25% of includible compensation or $30,000. The second limit, which is
the exclusion allowance under Section 403(b), is usually calculated according to
a formula that takes into account the participant's length of employment and any
pretax contributions to certain other retirement plans. These two limits apply
to the participant's contributions as well as to any contributions made by the
employer on behalf of the participant. There is an additional limit that
specifically limits salary reduction contributions to generally no more than
$9,500 annually (subject to indexing); a participant's own limit may be higher
or lower, depending on certain conditions. In addition, Purchase Payments will
be excluded from a participant's gross income only if the Plan meets certain
nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b) contracts
of: (1) salary reduction contributions made after December 31, 1988; (2)
earnings on those contributions; and (3) earnings during such period on amounts
held as of December 31, 1988. Distribution of those amounts may only occur upon
death of the participant, attainment of age 59 1/2, separation from service,
total and permanent disability, or financial hardship. In addition, income
attributable to salary reduction contributions may not be distributed in the
case of hardship.
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INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity,
hereinafter referred to as an "IRA." Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis into an
IRA. Employers may establish Simplified Employee Pension (SEP) Plans and
contribute to an IRA owned by the employee. Purchasers of a Qualified Contract
for use with IRAs will be provided with supplemental information required by the
Internal Revenue Service. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRAs.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients may be provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions from Section 401(a) Plans and Section 403(b) tax-deferred
annuities are subject to mandatory 20% federal income tax withholding. We will
report to the IRS the taxable portion of all distributions.
MISCELLANEOUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities sold
by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC") 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, or with banks that may
be acting as broker-dealers without separate registration under the Securities
Exchange Act of 1934 pursuant to legal and regulatory exceptions
("Distributors") to offer and sell the Contracts. The Company and one or more of
its affiliates may also sell the Contracts directly. All individuals offering
and selling the Contracts must either be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must also be licensed as insurance agents
to sell variable annuity contracts.
[The Company may also contract with independent third party broker-dealers
who will act as wholesalers by assisting the Company in finding broker-dealers
or banks interested in acting as Distributors for the Company. These wholesalers
may also provide training, marketing and other sales related functions for the
Company and the Distributors and may provide certain administrative services to
the Company in connection with the Contracts. The Company may pay such
wholesalers compensation based on Purchase Payments for the Contracts purchased
through Distributors selected by the wholesaler.
The Company may also designate third parties to provide services in
connection with the Contracts such as reviewing applications for completeness
and compliance with insurance requirements and providing the Distributors with
approved marketing material, prospectuses or other supplies. These parties will
also receive payments based on Purchase Payments for their services, to the
extent such payments are allowed by applicable securities laws. All costs and
expenses related to these services will be paid by the Company.]
[Federated Securities Corp. ("FSC"), an affiliate of the adviser to the
Funds in the Federated Insurance Series, may enter into agreements with some of
the Distributors to provide services to customers in connection with the Funds
acquired through the Contracts. These services will include providing customers
with information concerning the Funds, their investment objectives, policies and
limitations; portfolio securities; performance, responding to customer inquiries
and providing such other services as the parties may agree. Fees paid by FSC to
Distributors for these services may be based on the total number of assets in
the Funds attributable to the Distributor's customers.]
PAYMENT OF COMMISSIONS. [We pay Distributors and their Registered
Representatives who sell the Contracts commissions and service fees. In limited
circumstances, we also pay certain of these professionals compensation,
overrides or reimbursement for expenses associated with the distribution of the
Contract. In total,
- --------------------------------------------------------------------------------
22
<PAGE>
the compensation amounts are considered equivalent to approximately 7.5% of the
Purchase Payments credited to the Contract over the Contract's estimated life.
We pay these commissions, fees and related distribution expenses out of any
deferred sales charges assessed or out of our general assets, including
investment income and any profit from investment advisory fees and mortality and
expense risk charges. No additional deductions or charges are imposed for
commissions and related expenses.]
[Commissions will be paid to Distributors who sell the Contracts.
Distributors will be paid commissions, up to an amount currently equal to 6.5%
of Purchase Payments for promotional or distribution expenses associated with
the marketing of the Contracts.]
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or is not reasonably practicable for
the value of the Subaccount's assets; or (c) during such other periods as the
SEC may by order permit for the protection of investors. The conditions under
which restricted trading or an emergency exists shall be determined by the rules
and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative charge and any applicable deferred sales charge).
"Non-standardized returns" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
monthly, quarterly, year-to-date and three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at shareholders'
meetings of the appropriate Funds(s). The number of votes to which each Contract
Holder may give direction will be determined as of the record date. The number
of votes each Contract Holder is entitled to direct with respect to a particular
Fund during the Accumulation Period equals the portion of the Account Values(s)
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 for 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.
If you are a Certificate Holder under a group Contract, you have a fully
vested (100%) interest in the benefits provided to you under your Account.
Therefore, you may instruct the group Contract Holder how to direct the Company
to cast the votes for the portion or the value of valuation reserve attributable
to your Account. Votes attributable to those Certificate Holders who do not
instruct the group Contract Holder will be cast by the Company in the same
proportion as votes for which instructions have been received by the group
Contract Holder. Votes attributable to individual or group Contract Holders who
do not direct us will be cast by us in the same proportion as votes for which
directions we have received.
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 your Account.
- --------------------------------------------------------------------------------
23
<PAGE>
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 days written notice to the Contract Holder,
make other changes to group Contracts that would apply only to individuals who
become Certificate Holders under that Contract after the effective date of such
changes. If the Contract Holder does not agree to a change, no new Certificate
Holders will be covered under the Contract. Certain changes will require the
approval of appropriate state or federal regulatory authorities.
TRANSFERS OF OWNERSHIP; ASSIGNMENT
Assignments or transfers of ownership of a Qualified Contract generally are
not allowed except as permitted under the Code, incident to a divorce. The
prohibition does not apply to a Qualified Contract sold in conjunction with (1)
a Section 457 deferred compensation plan, or (2) a Section 401(a) plan where the
Contract is owned by a trustee. We will accept assignments or transfers of
ownership of a Nonqualified Contract or a Qualified Contract where assignments
or transfers of ownership are not prohibited, with proper notification. The date
of any such transfer will be the date we receive the notification at our Home
Office. (Refer to "Tax Status" for general tax information.) If you are
contemplating a transfer of ownership or assignment you should consult a tax
adviser due to the potential for tax liability.
No assignment of a Contract will be binding on us unless made in writing and
sent to us at our Home Office. The Company will use reasonable procedures to
confirm that the assignment is authentic, including verification of signature.
If the Company fails to follow its procedures, it would be liable for any losses
to you directly resulting from the failure. Otherwise, we are not responsible
for the validity of any assignment. The rights of the Certificate Holder and the
interest of the Annuitant and any Beneficiary will be subject to the rights of
any assignee of record.
INVOLUNTARY TERMINATIONS
We reserve the right to terminate any Account with a value of $2,500 or less
immediately following a partial withdrawal. However, an Individual Retirement
Annuity may only be closed out when Purchase Payments have not been received for
a 24-month period and the paid-up annuity benefit at maturity would be less than
$20 per month. If such right is exercised, you will be given 90 days advance
written notice. No deferred sales charge will be deducted for involuntary
terminations. The Company does not intend to exercise this right in cases where
the Account Value is reduced to $2,500 or less solely due to investment
performance.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Susan E. Bryant, Esq., Counsel to the Company.
- --------------------------------------------------------------------------------
24
<PAGE>
CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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:
<TABLE>
<S> <C>
General Information and History
Variable Annuity Account B
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
APPENDIX
ALIAC GUARANTEED ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE ALIAC GUARANTEED ACCOUNT (THE "GUARANTEED ACCOUNT") IS A CREDITED INTEREST
OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS. THIS
APPENDIX IS A SUMMARY OF THE GUARANTEED ACCOUNT AND IS NOT INTENDED TO REPLACE
THE GUARANTEED ACCOUNT PROSPECTUS. YOU SHOULD READ THE ACCOMPANYING GUARANTEED
ACCOUNT PROSPECTUS CAREFULLY BEFORE INVESTING.
The Guaranteed Account is a credited interest option in which we guarantee
stipulated rates of interest for stated periods of time on amounts directed to
the Guaranteed Account. For guaranteed terms of one year or less, a guaranteed
rate is credited for the full term. For guaranteed rates of greater than one
year, the initial guaranteed rate is credited from the date of deposit to the
end of a specified period within the guaranteed term. The interest rate
stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. Guaranteed interest rates will never be
less than an annual effective rate of 3%.
During a deposit period, amounts may be applied to any of the available
guaranteed terms. Purchase Payments received after the initial payment will be
allocated in the same proportions as the last allocation, if no new allocation
instructions are received with the Purchase Payment. If the same guaranteed
term(s) are not available, the next shortest term will be used. If no shorter
guaranteed term is available, the next longer guaranteed term will be used.
Except for transfers from the one-year Guaranteed Term in connection with
the Dollar Cost Averaging Program and withdrawals taken in connection with an
Estate Conservation or Systematic Withdrawal distribution option, withdrawals or
transfers from a guaranteed term before the guaranteed term matures may be
subject to a market value adjustment ("MVA"). An MVA reflects the change in the
value of the investment due to changes in interest rates since the date of
deposit. When interest rates increase after the date of deposit, the value of
the investment decreases, and the MVA is negative. Conversely, when interest
rates decrease after the date of deposit, the value of the investment increases,
and the MVA is positive. It is possible that a negative MVA could result in the
Certificate Holder receiving an amount which is less than the amount paid into
the Guaranteed Account
For partial withdrawals during the Accumulation Period, amounts to be
withdrawn from the Guaranteed Account will be withdrawn on a pro rata basis from
each group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows you to transfer without an MVA to available guaranteed terms of
the current deposit period or to other available investment options, or
surrender without an MVA (if applicable, a deferred sales charge is assessed on
the surrendered amount). The provision is available only during the calendar
month immediately following a guaranteed term maturity date and only applies to
the first transaction regardless of the amount involved in the transaction.
- --------------------------------------------------------------------------------
26
<PAGE>
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a guaranteed term during a deposit period may not be
transferred to any other funding option or to another guaranteed term during
that deposit period or for 90 days after the close of that deposit period. This
does not apply to (1) amounts transferred on the Maturity Date or under the
maturity value transfer provision; (2) amounts transferred from the Guaranteed
Account before the Maturity Date due to the election of an Annuity Option, (3)
amounts transferred from the one-year Guaranteed Term in connection with the
Dollar Cost Averaging Program; and (4) amounts distributed under the Estate
Conservation or Systematic Withdrawal distribution. Transfers after the 90-day
period are permitted from guaranteed term(s) to other guaranteed term(s)
available during a deposit period or to other available investment options.
Except for transactions described in items (1), (3) and (4) above, amounts
withdrawn or transferred from the Guaranteed Account prior to the maturity date
will be subject to a Market Value Adjustment. However, only a positive aggregate
MVA will be applied to transfers made due to annuitization under one of the
lifetime Annuity Options described in item (2) above.
The Certificate Holder may select a maximum of 18 different investment
options during the Accumulation Period. Under the Guaranteed Account, each
guaranteed term is counted as one funding option. If a guaranteed term matures,
and is renewed for the same term, it will not count as an additional investment
option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. The Guaranteed Account cannot be used as an
investment option during the Annuity Period. Transfers made due to the election
of a lifetime Annuity Option will be subject to only a positive aggregate MVA.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted amounts
calculated due to a withdrawal of amounts) which may be greater or less than
the Account Value of those amounts; or
(2) the applicable portion of the Account Value attributable to the Guaranteed
Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than the
Account Value of those amounts.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
Marathon Plus
New York Growth Plus
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Sales Material and Advertising . . . . . . . . . . . . . . . . . . . . . 8
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Financial Statements of the Separate Account . . . . . . . . . . . . . . S-1
Financial Statements of the 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 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 each of the Subaccounts of the Separate
Account will be invested exclusively in shares of the Funds described in the
Prospectus. Purchase Payments made under the Contract may be allocated to one
or more of the Subaccounts. 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:
1
<PAGE>
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity VIP High Income Portfolio
Aetna Income Shares Fidelity VIP Overseas Portfolio
Aetna Variable Encore Fund Fidelity VIP II Asset Manager Portfolio
Aetna Investment Advisers Fund, Inc. Fidelity VIP II Contrafund Portfolio
Aetna Ascent Variable Portfolio Fidelity VIP II Index 500 Portfolio
Aetna Crossroads Variable Portfolio Fidelity VIP II Investment Grade Bond Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Aggressive Growth Portfolio
Alger American Balanced Portfolio Janus Aspen Balanced Portfolio
Alger American Growth Portfolio Janus Aspen Flexible Income Portfolio
Alger American Income and Growth Portfolio Janus Aspen Growth Portfolio
Alger American Leveraged AllCap Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American MidCap Growth Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Small Cap Portfolio Lexington Emerging Markets Fund, Inc.
Federated American Leaders Fund II Lexington Natural Resources Trust
Federated Fund for U. S. Government Securities II MFS Emerging Growth Series
Federated Growth Strategies Fund II MFS Research Series
Federated High Income Bond Fund II MFS Total Return Series
Federated International Equity Fund II MFS World Governments Series
Federated Prime Money Fund II TCI Balanced
Federated Utility Fund II TCI Growth
Fidelity VIP Equity-Income Portfolio TCI International
Fidelity VIP Growth Portfolio
</TABLE>
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 as defined in the prospectus. 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 titled "Purchase" and "Contract
Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts. 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 various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
2
<PAGE>
fractional periods thereof). The standardized figures reflect the deduction of
all recurring charges during each period (e.g., mortality and expense risk
charges, maintenance fees, administrative charges, and deferred sales 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 figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly,
quarterly, year-to-date and three-year periods.
If a Fund was in existence prior to the date it became available under the
Contract, standardized and non-standardized total returns may include periods
prior to such date. These figures are calculated 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.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts 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 tables shown below reflect the average annual standardized and non-
standardized total return quotation figures for the periods ended December 31,
1995 for the Subaccounts available under the Contract. Table A reflects the
total return quotations for Contracts issued nationwide (other than Contracts or
Certificates issued in New York). Table B reflects the total return quotations
for Marathon Plus and Growth Plus Contracts or Certificates issued in the state
of New York. For those Subaccounts where results are not available for the full
calendar period indicated, the percentage shown is an average annual return
since inception (denoted with an asterisk).
TABLE A
<TABLE>
<CAPTION>
----------------------------- --------------------------------------- ---------
FUND
($30 MAINTENANCE FEE) 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 21.22% 11.45% 12.07% 30.34% 10.19% 11.87% 12.07% 04/30/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares 8.37% 7.78% 8.33% 16.53% 6.09% 8.28% 8.33% 06/01/78
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (2.81%) 2.55% 4.72% 4.51% 2.92% 3.18% 4.72% 09/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 16.61% 9.81% 8.90%* 25.39% 10.07% 10.27% 9.13%* 06/23/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 1.98%* n/a n/a 9.66%* n/a n/a n/a 07/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 0.94%* n/a n/a 8.54%* n/a n/a n/a 07/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio (0.02)%* n/a n/a 7.51%* n/a n/a n/a 07/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
----------------------------- --------------------------------------- ---------
FUND
($30 MAINTENANCE FEE) 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>
Alger American Balanced Portfolio 17.89% 6.65% 6.53%* 26.77% 8.30% 7.18% 6.82%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 24.18% 19.52% 17.49%* 33.53% 17.23% 19.81% 17.60%* 01/08/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income and Growth
Portfolio 22.61% 10.61% 8.42%* 31.84% 9.02% 11.05% 8.42%* 11/14/88
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap
Portfolio 59.94%* n/a n/a 71.99%* n/a n/a n/a 01/25/95
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 32.41% 25.87%* n/a 42.38% 27.09%* n/a n/a 04/30/93
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio 32.28% 18.54% 20.84%* 42.24% 14.38% 18.85% 20.84%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II 22.56% 11.65%* n/a 31.78% 14.54%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government
Securities II (0.32)% 1.40%* n/a 7.19% 4.86%* n/a n/a 03/28/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 10.25% 3.67%* n/a 18.55% 6.91%* n/a n/a 03/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 13.77% 5.13%* n/a 22.34% 8.23%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 23.83% 19.27% 11.75%* 33.15% 17.87% 19.57% 11.75%* 10/22/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 24.08% 18.72% 13.31%* 33.42% 15.64% 19.03% 13.31%* 11/07/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 10.65% 16.87% 9.86% 18.98% 11.02% 17.20% 9.86% 10/11/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 0.52% 6.02% 5.80%* 8.09% 13.63% 6.56% 5.80%* 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 7.19% 10.70% 9.40%* 15.27% 8.43% 11.13% 9.64%* 09/06/89
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 28.00%* n/a n/a 37.63%* n/a n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 25.75% 12.65%* n/a 35.22% 13.34% 13.78%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade Bond
Portfolio 7.53% 7.13% 7.34%* 15.63% 6.24% 7.64% 7.34%* 12/05/88
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 16.85% 24.31%* n/a 25.65% 25.93%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 14.38% 10.28%* n/a 23.00% 12.26%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 13.52% 6.06%* n/a 22.07% 8.16%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 19.31% 11.66%* n/a 28.30% 13.60%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio 0.39% 0.81%* n/a 7.96% 3.08%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 16.74% 17.14%* n/a 25.53% 18.93%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc. (11.97%) (7.64%)* n/a (5.34%) (3.86%)* n/a n/a 03/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 7.11% 3.80%* n/a 15.18% 5.36% 4.71%* n/a 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 8.47%* n/a n/a 16.64%* n/a n/a n/a 07/24/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series 2.21%* n/a n/a 9.90%* n/a n/a n/a 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
----------------------------- --------------------------------------- ---------
FUND
($30 MAINTENANCE FEE) 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>
MFS Total Return Series 16.85%* n/a n/a 25.65%* n/a n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 4.83% 4.15%* n/a 12.73% 8.03%* n/a n/a 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Balanced 11.00% 7.55% n/a 19.36% 7.91% 8.25%* n/a 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Growth 20.16% 12.97% 11.40%* 29.21% 11.02% 13.37% 11.40%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
TCI International 2.84% (0.82%)* n/a 10.59% 2.91%* n/a n/a 05/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
TABLE B
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
<TABLE>
<CAPTION>
----------------------------- --------------------------------------- ---------
FUND
($30 ANNUAL MAINTENANCE FEE) 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 22.53% 11.69% 12.08% 30.35% 10.19% 11.88% 12.08% 04/30/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares 9.54% 8.06% 8.34% 16.54% 6.10% 8.28% 8.34% 06/01/78
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (1.76%) 2.89% 4.73% 4.52% 2.93% 3.19% 4.73% 09/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 17.87% 10.07% 9.07%* 25.40% 10.07% 10.28% 9.14%* 06/23/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 1.99%* n/a n/a 9.67%* n/a n/a n/a 07/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 0.95%* n/a n/a 8.55%* n/a n/a n/a 07/03/95
- ----------------------------------------------------------------------------------------------------------- ------------------------
Aetna Legacy Variable Portfolio (0.01)%* n/a n/a 7.52%* n/a n/a n/a 07/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Balanced Portfolio 19.17% 6.95% 6.74%* 26.78% 8.31% 7.18% 6.83%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 25.52% 19.70% 17.58%* 33.53% 17.24% 19.82% 17.61%* 01/08/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income and Growth
Portfolio 23.93% 10.86% 8.43%* 31.85% 9.02% 11.05% 8.43%* 11/14/88
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap
Portfolio 59.95%* n/a n/a 72.00%* n/a n/a n/a 01/25/95
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 33.84% 26.20%* n/a 42.39% 27.10%* n/a n/a 04/30/93
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio 33.71% 18.73% 20.85%* 42.25% 14.38% 18.85% 20.85%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II 23.88% 12.26%* n/a 31.79% 14.55%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government
Securities II 0.76% 2.09%* n/a 7.20% 4.87%* n/a n/a 03/28/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Growth Strategies Fund II (4.48%)* n/a n/a 2.72%* n/a n/a n/a 11/01/95
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 11.44% 4.32%* n/a 18.56% 6.91%* n/a n/a 03/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
----------------------------- --------------------------------------- ---------
FUND
($30 ANNUAL MAINTENANCE FEE) 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>
Federated International Equity Fund II (4.79%)* n/a n/a 2.38%* n/a n/a n/a 04/04/95
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II (2.56%) (0.94%)* n/a 3.66% 3.53%* n/a n/a 11/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 15.00% 5.76%* n/a 22.35% 8.23%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 25.17% 19.45% 11.76%* 33.16% 17.88% 19.58% 11.76%* 10/22/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 25.42% 18.91% 13.32%* 33.43% 15.65% 19.03% 13.32%* 11/07/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 11.84% 17.07% 9.86% 18.99% 11.03% 17.21% 9.86% 10/11/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 1.61% 6.32% 5.80%* 8.10% 13.64% 6.57% 5.80%* 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 8.35% 10.95% 9.58%* 15.27% 8.44% 11.14% 9.65%* 09/06/89
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 28.00%* n/a n/a 37.64%* n/a n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 27.11% 13.11%* n/a 35.23% 13.35% 13.79%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade Bond
Portfolio 8.70% 7.41% 7.35%* 15.64% 6.25% 7.65% 7.35%* 12/05/88
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 18.11% 24.72%* n/a 25.65% 25.93%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 15.62% 10.75%* n/a 23.00% 12.26%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 14.75% 6.54%* n/a 22.08% 8.17%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 20.60% 12.12%* n/a 28.30% 13.61%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio 1.48% 1.31%* n/a 7.96% 3.09%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 18.00% 17.58%* n/a 25.54% 18.93%* n/a n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc. (11.02%) (6.92%)* n/a (5.33%) (3.85%)* n/a n/a 03/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 8.27% 4.21%* n/a 15.19% 5.37% 4.72%* n/a 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 8.48%* n/a n/a 16.64%* n/a n/a n/a 07/24/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series 2.21%* n/a n/a 9.91%* n/a n/a n/a 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 16.86%* n/a n/a 25.66%* n/a n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 5.97% 4.93%* n/a 12.73% 8.04%* n/a n/a 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Balanced 12.21% 7.88%* n/a 19.37% 7.92% 8.25%* n/a 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Growth 21.46% 13.20% 11.41%* 29.22% 11.03% 13.37% 11.41%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
TCI International 3.95% (0.09%)* n/a 10.59% 2.91%* n/a n/a 05/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
6
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date 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 Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date 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 Date 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 Date on 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 Subaccount is
1.0015000 as of the tenth Valuation Date 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
7
<PAGE>
Annuity Units determined above) produces a result of 1.0014057. This is then
multiplied by the Annuity Unit value for the prior Valuation Date (assume such
value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the
Valuation Date on 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.
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.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, 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
Services, 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.
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Certificate Holders. These topics may include the relationship
between sectors of the economy and the economy as a whole and its effect on
various securities markets, investment strategies and techniques (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer and account rebalancing), the advantages and disadvantages of
investing in tax-deferred and taxable investments, customer profiles and
hypothetical purchase and investment scenarios, financial management and tax and
retirement planning, and investment alternatives to certificates of deposit and
other financial instruments, including comparison between the Contracts and the
characteristics of and market for such financial instruments.
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
8
<PAGE>
include primarily the examination of the Separate Account's financial statements
and the review of filings made with the SEC.
9
<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>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT B
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
<PAGE>
VARIABLE ANNUITY ACCOUNT C
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 C:
- 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 Selling Agreement
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(2)
(3.3) Form of Federated Broker Dealer Agreement (9/2/94)(3)
(4.1) Form of Variable Annuity Contracts and Certificates
(G-CDA-IC(NQ), (G-CDA-IC(IR)), (I-CDA-IC(NQ/MP)),
(I-CDA-IC(IR/MP)), (GMCC-IC(NQ) and (GMCC-IC(IR))(4)
(4.2) Form of Variable Annuity Contracts and Certificates
(G-CDA-IC(IR/NY), GMCC-IC(IR-NY), G-CDA-IC(NQ/NY),
GMCC-IC(NQ/NY))(5)
(5) Form of Variable Annuity Contract Application (300-MAR-IB and
710.6.13)(4)
(6) Certificate of Incorporation and By-Laws of Depositor(6)
(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 as of March 31, 1995(2)
<PAGE>
(8.2) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company, Insurance Management Series and Federated
Advisors dated December 12, 1994(7)
(8.3) Fund Participation Agreements between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation (Variable
Insurance Products Fund) dated February 1, 1994 and amended
March 1, 1996(2)
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation (Variable
Insurance Products Fund II) dated February 1, 1994 and amended
March 1, 1996(2)
(8.5) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994,
and amended March 1, 1996(2)
(8.6) 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(2)
(8.7) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation (its investment advisor) dated
April 28, 1994
(8.8) Form of Fund Participation Agreement among MFS Variable
Insurance Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company
(8.9) 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(2)
(8.10) Form of Administrative Service Agreement between Aetna Life
Insurance and Annuity Company and Agency, Inc.
(9) Opinion of Counsel(8)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(9)
(14) Not applicable
(15.1) Powers of Attorney(10)
(15.2) Authorization for Signatures(2)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75986), as filed
electronically on April 22, 1996.
2. 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.
3. Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-79122), as filed
electronically on August 16, 1995.
<PAGE>
4. Incorporated by reference to Post-Effective Amendment No. 15 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on April 19, 1994.
5. Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 33-87932), as filed
electronically on September 18, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996.
7. Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 33-79122) as filed on
September 15, 1994.
8. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year
ended December 31, 1995, as filed electronically on February 29, 1996.
9. Incorporated by reference to Post-Effective Amendment No. 19 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on April
28, 1995.
10. Incorporated by reference to Post-Effective Amendment No. 1 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
<TABLE>
<CAPTION>
Name and Principal
Business Address* Positions and Offices with Depositor
- ------------------ ------------------------------------
<S> <C>
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 Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President
Glen Salow Director and Vice President
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
</TABLE>
* 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 reference to Item 26 of Post-Effective Amendment No.
5 to Registration Statement on Form N-4 (File No. 33-75986) filed
electronically on April 12, 1996, and supplemented by Post-Effective Amendment
No. 6 to Registration Statement on Form N-4 (File No. 33-75986) filed
electronically on April 22, 1996.
ITEM 27. NUMBER OF CONTRACT OWNERS
<PAGE>
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.
(b) See Item 25 regarding the Depositor.
<PAGE>
(c) Compensation as of December 31, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions 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
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
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
<PAGE>
(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) The Company hereby represents that it will rely upon and comply with
the provisions of Paragraphs (1) through (4) of the SEC Staff's No-
Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer
Binder] Fed. SEC. L. Rep. (CCH) PARA 78,904 at 78,523 (November 22,
1988).
(e) 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, has duly caused this Post-Effective Amendment No.
22 to its Registration Statement on Form N-4 (File No. 33-34370) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hartford, State of Connecticut, on the 22nd 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. 22 to the Registration Statement on Form N-4 (File No. 33-34370)
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
Daniel P. Kearney* Director and President )
- ------------------------------ (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director and Chief Financial ) April
- ------------------------------ Officer ) 22, 1996
Timothy A. Holt )
)
Christopher J. Burns* Director )
- ------------------------------ )
Christopher J. Burns )
)
<PAGE>
Laura R. Estes* Director )
- ------------------------------ )
Laura R. Estes )
)
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 )
By: /s/ Julie E. Rockmore
--------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT C
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
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 Selling Agreement
--------
99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling *
Agreement
99-B.3.3 Form of Federated Broker Dealer Agreement (9/2/94) *
99-B.4.1 Form of Variable Annuity Contracts and Certificates *
99-B.4.2 Form of Variable Annuity Contracts and Certificates *
(G-CDA-IC(IR/NY), GMCC-IC(IR/NY), G-CDA-IC(NQ/NY),
GMCC-IC(NQ/NY))
99-B.5 Form of Variable Annuity Contract Applications *
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 by and among Aetna Life Insurance *
and Annuity Company, Insurance Management Series and Federated
Advisors dated December 12, 1994
99-B.8.3 Fund Participation Agreements between Aetna Life Insurance and *
Annuity Company and Fidelity Distributors Corporation (Variable
Insurance Products Fund) dated February 1, 1994 and amended
March 1, 1996
99-B.8.4 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Distributors Corporation (Variable
Insurance Products Fund II) dated February 1, 1994 and amended
March 1, 1996
99-B.8.5 Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Janus Aspen Series dated April 19, 1994,
and amended March 1, 1996
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.8.6 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.8.7 Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation (its investment advisor)
dated April 28, 1994
--------
99-B.8.8 Form of Fund Participation Agreement among MFS Variable
Insurance Trust, Aetna Life Insurance and Annuity Company
and Massachusetts Financial Services Company.
--------
99-B.8.9 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.8.10 Form of Administrative Service Agreement between Aetna Life
Insurance and Annuity Company and Agency, Inc.
--------
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-B15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
27 Financial Data Schedule
--------
</TABLE>
E*Incorporated by reference
<PAGE>
SELLING AGREEMENT
This Agreement ("Agreement") effective _________________, 1994 ("Effective
Date") is made by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY ("ALIAC"),
an insurance corporation organized and existing under the laws of the State of
Connecticut, with its principal place of business at 151 Farmington Avenue,
Hartford, Connecticut 06156; and
BROKER 2 , a registered Broker-Dealer; and
BROKER 1, a registered Broker-Dealer and a licensed insurance agency.
W I T N E S S E T H:
WHEREAS, ALIAC wishes to offer and sell group and individual nonqualified and
Individual Retirement Annuity ("IRA") combination fixed and variable annuity
contracts (hereinafter known as "Marathon Plus") to the customers of BROKER 1, a
Broker-Dealer and member of the National Association of Securities Dealers, Inc.
("NASD") and a licensed insurance agency, through BROKER 1 and BROKER 2, who is
a Broker-Dealer and member of the NASD, and through licensed insurance agents;
WHEREAS, BROKER 1 and BROKER 2 wish to sell Marathon Plus in accordance with the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties do hereby agree as follows:
SECTION 1. DEFINITIONS
When used in this Agreement, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1. BROKER-DEALER: "Broker-Dealer" shall mean an entity registered as a
Broker-Dealer pursuant to Section 15(b) of the Securities Exchange Act of 1934
and who is a member firm of the NASD.
1.2 EFFECTIVE DATE: "Effective Date" shall mean the date on which this
Agreement is executed by ALIAC.
1.3 CERTIFICATE: "Certificate" shall mean the document that may be required
under state insurance law evidencing that an account has been established under
a Group Contract.
1
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1.4 GROUP CONTRACT: "Group Contract" shall mean those contracts described in
Schedule A attached hereto which is made part of this Agreement.
1.5 INDIVIDUAL CONTRACT: "Individual Contract" shall mean those contracts
described in Schedule B attached hereto which is made part of this Agreement.
1.6 PURCHASE PAYMENT: "Purchase Payment" shall mean payment(s) accepted by
ALIAC at its Home Office under the Marathon Plus Group and Individual Contracts.
1.7 REGISTERED REPRESENTATIVE: "Registered Representative" shall mean an
individual (i) registered as an agent of either BROKER 2 or BROKER 1 and
possessing the requisite NASD and state registrations to offer and sell Marathon
Plus, and (ii) possessing a variable product insurance agent license, and (iii)
who is appointed by ALIAC.
1.8 TERMINATION DATE: "Termination Date" shall mean the 30 calendar days after
the day ALIAC, BROKER 2 or BROKER 1 provides notice of termination to the other
parties in the manner set forth in Sections 7.4, 7.5 and 7.6; however, in the
event ALIAC terminates for cause in accordance with Section 7.2, "Termination
Date" is the date of the written notice given by ALIAC.
SECTION 2. LICENSING AND APPOINTMENT
OF REGISTERED REPRESENTATIVES
2.1 AUTHORIZATION: Subject to the terms and conditions of this Agreement,
BROKER 2 and BROKER 1 are hereby authorized on behalf of ALIAC to offer and sell
Marathon Plus to the customers of BROKER 1. BROKER 2 and BROKER 1 are not
authorized to offer Marathon Plus for sale until notified by ALIAC that the
requirements of the applicable federal and state authorities have been met
regarding the proposed offer and sale of Marathon Plus.
2.2 REGISTRATION AND LICENSING: BROKER 2 and BROKER 1 shall ensure that no
Certificate or Individual Contract shall be solicited or sold by anyone other
than a Registered Representative. BROKER 2 and BROKER 1 agree to sell Marathon
Plus only through Registered Representatives. All insurance licensing fees and
securities registration fees shall be paid by BROKER 2 and/or BROKER 1.
2.3 SUPERVISION: BROKER 2 and BROKER 1 are each responsible for obtaining and
keeping in effect the applicable licenses and registrations required of its
Registered Representatives under this Agreement and for supervising its
Registered Representatives, agents and other employees in all of their
activities subject to this Agreement, and for not allowing any person to solicit
or sell any Certificate or Individual Contract, respectively, if that person
either is subject to a NASD or state regulatory bar or suspension order, or has
been a defendant in any litigation related to sales activities that has been
adversely decided or settled against such person.
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<PAGE>
2.4 APPOINTMENT: ALIAC hereby agrees to appoint up to 300 licensed insurance
agents in their home states. Such agents shall be Registered Representatives of
either BROKER 2 or BROKER 1. Upon request, BROKER 2 and BROKER 1 shall provide
ALIAC with background information on any Registered Representative to be
appointed by ALIAC, including disciplinary actions and financial and credit
reports. ALIAC shall pay the initial appointment fees as shall be reasonably
necessary for such Registered Representatives to solicit or sell Certificates
and Individual Contracts, respectively. ALIAC shall pay the appointment renewal
fee thereafter.
2.5 TERMINATION: ALIAC shall have the absolute and unconditional right to
terminate the appointment of any Registered Representative appointed under
Section 2.4 upon 30-days written notice to the Registered Representative, BROKER
2 and BROKER 1. ALIAC may terminate the appointment of any Registered
Representative for cause without prior notice. For purposes of this Agreement,
cause shall be defined as:
a) Imposition of any fine, penalty, suspension or other sanction against
a Registered Representative by any Federal, state or foreign
securities or insurance regulatory authority.
b) Any criminal act by a Registered Representative.
c) Failure to conform to any applicable published rules and regulations
under any Federal or State law or to any business practice or standard
of ALIAC as communicated to Registered Representatives, AGENCY, BROKER
2 and BROKER 1 from time to time.
d) Knowing or intentional false or misleading statements about ALIAC or
its products by a Registered Representative.
e) Fraud or creation of liability by misfeasance or malfeasance by a
Registered Representative.
f) Breach of any representation made by a Registered Representative in
connection with the licensing, registration or appointment of such
Registered Representative.
2.6 NON-EXCLUSIVITY: ALIAC reserves the right to offer Marathon Plus itself,
or through Broker-Dealers, Registered Representative and/or licensed insurance
agents other than the Registered Representatives appointed under Section 2.4
hereof.
SECTION 3. COMPENSATION
3.1 COMMISSION SCHEDULE: Subject to the terms of this Agreement, ALIAC will
pay to BROKER 2 and to BROKER 1 commissions in connection with the offer,
solicitation and sale of Marathon Plus, as provided in Schedule C which is
attached hereto and made a
3
<PAGE>
part of this Agreement. ALIAC, BROKER 2 and BROKER 1 shall mutually agree on
the commissions payable with respect to any other contracts that become subject
to this Agreement. The payments due under this Section 3.1 shall be paid
monthly. Commissions shall be paid to BROKER 1 through its designated paying
agent. Commissions shall be paid to BROKER 2 through its affiliated nominee,
which nominee is a licensed insurance agency. BROKER 1 hereby designates as its
paying agent Agency, Inc., ("Agency") a licensed insurance agency. BROKER 2
hereby designates Agency as its affiliated nominee.
3.2 ALIAC reserves the right to reject any application for an Individual
Contract or Certificate, to refuse to accept any Purchase Payment at any time
for any reason, or to rescind any Individual Contract or Certificate without
incurring a liability to BROKER 2 or BROKER 1 for commissions or other
compensation. In the event of a rejection or rescission by a customer, BROKER 2
and BROKER 1 will repay to ALIAC all sums paid on account of such Certificate or
Individual Contract.
In the event that a customer exercises the "free look" provided under the
Marathon Plus and surrenders a Certificate or Individual Contract within 10 days
after such Certificate or Individual Contract is issued, BROKER 2 and BROKER 1
will repay to ALIAC all amounts paid on account of such Certificate or
Individual Contract.
In the event that a Certificate or Individual Contract is surrendered within one
year of the date such Certificate or Individual Contract is issued, BROKER 2 and
BROKER 1 will repay to ALIAC the amounts paid to BROKER 2 or BROKER 1 on account
of such Certificate of Individual Contract as follows:
DATE OF SURRENDER REPAYMENT AMOUNT
Within six months after issue 100%
Six months to one year after issue 50%
ALIAC shall provide monthly to Agency, as paying agent for BROKER 1 and as
affiliated nominee of BROKER 2, a detailed account of all payments, reductions
and amounts due BROKER 2 and BROKER 1 from ALIAC.
3.3 FULL COMPENSATION: The amount set forth in Section 3.1 shall constitute
full expense reimbursement and compensation to BROKER 2 and BROKER 1 for all
services performed and expenses incurred by them for the solicitation, offer and
sale of Marathon Plus.
3.4 ADVANCES AND INDEBTEDNESS: ALIAC reserves the right to deduct any amount
it determines is owed by BROKER 2 and BROKER 1 to ALIAC and its affiliates from
any compensation otherwise due BROKER 2 and BROKER 1, respectively. This right
covers, but is not limited to:
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<PAGE>
a. advances;
b. compensation previously paid for deposits received by ALIAC and later
returned to credited to the appropriate customer for any reason;
c. any overpayment of compensation;
d. any amount due ALIAC under Sections 8.6 and 8.7 of this Agreement.
If the offset of compensation due hereunder does not eliminate the amount owed
by BROKER 2 or BROKER 1 under this Section 3.4, the balance due ALIAC shall be
paid by BROKER 2 or BROKER 1, respectively, to ALIAC on demand, and, if not so
paid, shall be a debt of BROKER 2 or BROKER 1 on which interest shall be charged
at eight percent (8%) per annum. ALIAC shall have all rights of a creditor to
collect amounts owed it by BROKER 2 or BROKER 1.
SECTION 4. LIMITATIONS OF AUTHORITY
4.1 LIMITS ON AUTHORITY: Nothing contained herein shall be construed as
granting general agency authority to BROKER 2 or BROKER 1 to solicit application
and enrollment forms for Individual Contracts, Group Contracts and Certificates
directly from prospective customers except as expressly provided in this
Agreement. BROKER 2 and BROKER 1 may obligate ALIAC only to the extent
permitted under this Agreement, or any amendment thereto mutually agreed upon by
all parties hereto. Specifically, BROKER 2 and BROKER 1 shall have no authority
on behalf of ALIAC to directly or indirectly through any person:
a. alter the Certificates or Individual Contracts;
b. waive or modify any terms, conditions or limitations of the
Certificates, Individual Contracts, underwriting rules, grant permits,
special rates, or interest rates, or make endorsements.
c. incur any indebtedness or liability, or expend or contract for the
expenditure of the funds of ALIAC;
d. adjust or settle any claim or commit ALIAC with respect thereto, or
bind ALIAC or any of its affiliates in any way.
Upon notice to all parties hereto, ALIAC reserves the right to suspend, withdraw
or modify the Group and Individual Contracts and Certificates, to change the
terms or conditions of the offering of Group and Individual Contracts and
Certificates, to introduce new contracts, or to remedy defects in the
interpretation or administration of the Group and Individual Contracts and
Certificates.
5
<PAGE>
4.2 All Purchase Payments collected by Registered Representatives of BROKER 2
or BROKER 1 shall be held in a fiduciary capacity and shall be remitted
immediately in full to ALIAC. Payments from customers shall be only in the form
of checks, money orders or other instruments and shall be drawn to the order of
ALIAC.
4.3 ASSIGNMENT: Neither this Agreement nor any benefits to accrue hereunder
shall be assigned or transferred by any party, in whole or in part, without the
prior written consent of the other parties. Notwithstanding the foregoing,
ALIAC may assign its rights and obligations hereunder in connection with the
sale or reinsurance to a third party of all or substantially all of the Group
and Individual Contracts. BROKER 2 or BROKER 1 may assign any rights it may
have to commissions payable under Section 3.1 of this Agreement only if such
assignments are in accordance with applicable federal and state laws and
regulations and the rules of the NASD.
SECTION 5. REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF ALIAC: ALIAC represents and warrants to
BROKER 2 and BROKER 1 as follows:
a. It is a registered as a Broker-Dealer with the Securities and Exchange
Commission and with all applicable state jurisdictions, is a member in
good standing of the NASD, and is in compliance with appropriate state
insurance and securities licensing requirements.
b. It has obtained all required federal and state approvals and
registrations necessary to sell Marathon Plus, or its otherwise exempt
therefrom.
c. It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder.
5.2 REPRESENTATION AND WARRANTIES OF BROKER 2: BROKER 2 represents and
warrants to ALIAC as follows:
a. It is a registered Broker-Dealer with the Securities and Exchange
Commission and is a member in good standing of the NASD. BROKER 2
represents that it is or will become registered, as required, in those
states and jurisdictions where its Registered Representatives will
solicit, offer and sell Marathon Plus. BROKER 2 represents that each
Registered Representative who solicits, offers and sells Marathon Plus
will hold all securities registrations and insurance licenses required
by the NASD and any state or jurisdiction.
b. It is a corporation organized, existing and in good standing under the
laws of the State of and is qualified to do business as a
corporation in those jurisdictions where it is or will be doing
business.
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<PAGE>
c. It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder.
5.3 REPRESENTATIONS AND WARRANTIES OF BROKER 1: BROKER 1 represents and
warrants to ALIAC as follows:
a. It is a registered Broker-Dealer with the Securities and Exchange
Commission and is a member in good standing of the NASD. BROKER 2
represents that it is or will become registered, as required, in those
states and jurisdictions where its Registered Representatives will
solicit, offer and sell Marathon Plus. BROKER 2 represents that each
Registered Representative who solicits, offers and sells Marathon Plus
will hold all securities registrations and insurance licenses required
by the NASD and any state or jurisdiction.
b. It is licensed as an insurance agency with the State of , and
all other states which require that it be so licensed for the sale of
Marathon Plus by its Registered Representatives.
c. It is a corporation organized, existing and in good standing under the
laws of the State of , and is qualified to do business as
a corporation in those jurisdictions where it is or will be doing
business.
d. It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder.
SECTION 6. CUSTOMER CONFIDENTIALITY
6.1 CONFIDENTIALITY: BROKER 2 and BROKER 1 agree that the names and addresses
and other information regarding all customers and prospective customers of ALIAC
and all ALIAC proprietary information which may come to the attention of BROKER
2 and/or BROKER 1 or any organization or person affiliated with BROKER 2 and/or
BROKER 1, as a result of this Agreement are confidential. Without the prior
written consent of ALIAC, such information shall not be used or provided to
others by BROKER 2, BROKER 1 or any organization or person affiliated with
BROKER 2 and/or BROKER 1 for any purpose whatsoever, except as may be necessary
in connection with the Individual Contracts covered by this Agreement, or if
such disclosure is required by state or federal regulatory authorities. It is
understood and agreed that this Section 6.1 shall not apply to the extent of
information about ALIAC customers and prospective customers that BROKER 2 and/or
BROKER 1 possesses through other arrangements and agreements. This Section 6.1
shall survive termination of this Agreement.
7
<PAGE>
SECTION 7. TERMINATION OF AGREEMENT
7.1 It is expressly understood by the parties hereto that ALIAC's obligation to
pay any commissions with respect to Individual Contracts sold and Certificates
solicited prior to the Terminate Date of this Agreement, and the obligation of
BROKER 2 and BROKER 1 to repay any commissions or compensation to ALIAC with
respect to such Individual Contracts and Certificates, shall survive the
termination of this Agreement.
7.2 TERMINATION FOR CAUSE BY ALIAC: ALIAC may terminate this Agreement at any
time for cause by giving written notice to BROKER 2 and BROKER 1. For purposes
of this section, "cause" includes solely the following acts or omissions:
a. Revocation, suspension, refusal to renew, or other loss of any
insurance license or Broker-Dealer registration by BROKER 2 or BROKER
1.
b. Imposition of any fine, penalty, suspension or other sanction against
BROKER 2 or BROKER 1, or any of their principals by any federal, state
or foreign securities or insurance regulatory authority.
c. Failure by BROKER 2 or BROKER 1 to perform its responsibilities under
this Agreement.
d. Breach of any of the representations and warranties set forth in
Section 5 of this Agreement.
e. Breach by BROKER 2 or BROKER 1 of any material term of this Agreement
and the failure to cure such breach within 30 days of the earlier of
discovery or notification by ALIAC, provided that, if such breach
would constitute activities that, if made known to regulatory
authorities, could result in a regulatory sanction described in (a) or
(b) above, ALIAC may terminate this Agreement irrespective of any
cure.
f. Any criminal act by BROKER 2 or BROKER 1 or any of their principals
which, in ALIAC's opinion, materially affects such party's ability to
perform any of its duties under this Agreement.
g. Filing of a petition in bankruptcy, the reorganization under
bankruptcy laws, or filing of an agreement providing for execution
payment of debts of BROKER 2 or BROKER 1; the dissolution, sale,
change of ownership, or any substantial reorganization of BROKER 2 or
BROKER 1 which, in ALIAC's opinion, affects such party's ability to
perform any of its duties under this Agreement.
h. Failure by BROKER 2 or BROKER 1 to cooperate and participate in any
compliant, charge or other proceeding to the extent requested by
ALIAC.
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i. Knowing or intentional false or misleading statements about ALIAC or
its products by BROKER 2 or BROKER 1, their principals or employees.
j. Fraud by BROKER 2 or BROKER 1, or creation of liability for ALIAC due
to misfeasance or malfeasance by BROKER 2 or BROKER 1.
7.3 CONSEQUENCES OF TERMINATION FOR CAUSE: If the Agreement is terminated for
cause under Section 7.2, ALIAC shall have the right to enter into a Selling
Agreement with BROKER 1 and to continue to sell and solicit Individual Contracts
and Certificates, respectively, to the customers of BROKER 1, and ALIAC shall
owe no liquidated or other damages to BROKER 2 or BROKER 1 under this Agreement.
7.4 TERMINATION WITHOUT CAUSE BY ALIAC. ALIAC may terminate this Agreement at
any time without cause by giving 90 days' advance written notice to BROKER 2 and
BROKER 1. If ALIAC terminates this Agreement without cause, ALIAC shall not owe
BROKER 2 or BROKER 1 any further compensation or damages, liquidated or
otherwise.
If ALIAC terminates this Agreement without cause, ALIAC shall have the right to
enter into a Selling Agreement with BROKER 1 and to continue to sell and solicit
Individual Contracts and Certificates, respectively, to customers or BROKER 1.
7.5 TERMINATION WITHOUT CAUSE BY BROKER 2: BROKER 2 may terminate this
Agreement by giving 90 days' advance written notice to ALIAC. If BROKER 2
terminates this Agreement without cause, BROKER 2 shall owe no liquidated
damages to ALIAC, and ALIAC shall owe BROKER 2 no further commissions,
compensation or damages, liquidated or otherwise.
Upon any termination without cause by BROKER 2, ALIAC shall have the right to
continue to sell and solicit Individual Contracts and Certificates,
respectively, to customers of BROKER 1.
7.6 TERMINATION WITHOUT CAUSE BY BROKER 1: BROKER 1 may terminate this
Agreement by giving 90 days' written notice to ALIAC. If BROKER 1 terminates
this Agreement without cause, BROKER 1 shall owe no liquidated damages to ALIAC,
and ALIAC shall owe BROKER 1 no further commission, compensation or damages,
liquidated or otherwise.
7.7 RETURN OF MATERIALS: Upon any termination, BROKER 2 and BROKER 1 shall
promptly return all ALIAC records, supplies and materials to ALIAC and shall
cease all activities under this Agreement on behalf of ALIAC. ALIAC shall
promptly return all BROKER 2 or BROKER 1 materials.
9
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SECTION 8. GENERAL
8.1 ADMINISTRATIVE INQUIRIES/CUSTOMER COMPLAINTS: Each party will immediately
notify the others of any regulatory or administrative investigation or inquiry,
claim or judicial proceeding that may affect the Group or Individual Contracts
or Certificates marketed or the services rendered under this Agreement. Each
party will immediately notify the others of receipt of any customer complaint or
grievance concerning the marketing or servicing of the Group or Individual
Contracts or Certificates. Within five (5) business days after receipt by any
part of notice of such investigation, inquiry, claim or judicial proceeding or
customer complaint, as specified above, that party will notify the others by
forwarding a copy of all documents received in connection with the matter and
will communicate to the others all additional information necessary to provide a
complete understanding of the matter. BROKER 2 and BROKER 1 shall cooperate and
assist ALIAC, which will investigate and respond to all such inquiries,
grievances and complaints as ALIAC, in its sole discretion, deems appropriate.
ALIAC reserves the right to make a financial settlement with a particular
customer in response to such customer's allegation of an error, omission or
wrongdoing by a Registered Representative. ALIAC will notify BROKER 2 or BROKER
1 of any such settlement and, upon such notice, BROKER 2 or BROKER 1 shall
reimburse ALIAC for the amount of the settlement in the manner described in
Section 3.4.
8.2 INDEPENDENT CONTRACTOR STATUS: In the performance of all responsibilities
under this Agreement, the relationship among BROKER 2, BROKER 1 and ALIAC is
that of independent contractors and none other. Nothing contained herein shall
be construed as establishing an employment, joint venture or partnership among
BROKER 2, BROKER 1 and ALIAC.
8.3 WAIVER: Any party hereto may waive its right to require performance by any
other party of any provision of this Agreement. If any party hereto does so
waive, it may require performance at a later time. If any party hereto waives
the breach of any provision of this Agreement by another party, the waiving
party retains the right to require performance of that provision, and such
waiver shall not be construed to waive subsequent breaches of that provision or
any breaches of any other provision.
8.4 MODIFICATION: No party hereto shall be bound by any promise, agreement,
understanding or representation relative to the subject matter of this
Agreement, unless the same is made by an instrument in writing, signed by an
officer of each party, which expresses by its terms an intention to modify this
Agreement. Any such amendment agreed to in writing shall be made a part of this
Agreement.
8.5 INDEMNIFICATION BY ALIAC: ALIAC shall defend, indemnify and hold harmless
BROKER 2 and/or BROKER 1, their directors, officers and employees against any
losses, liabilities, claims, damages or expenses, or actions with respect to
these, arising out of or in connection with this Agreement to which BROKER 2
and/or BROKER 1 may become subject (including all costs of investigation,
disputing, or defending any such claim or
10
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action) insofar as such losses, liabilities, claims, damages or expenses arise
out of or result from:
a. any person acquiring any Group or Individual Contract or Certificate
on the grounds that the registration statement or related prospectus,
as from time to time amended and supplemented, or the annual or
interim reports to holders of Group or Individual Contracts or
Certificates, includes an untrue statement of material fact, or omits
to state a material fact that is either required to be stated therein
or necessary in order to make the statements therein not misleading;
or
b. errors, omissions, negligence, fraud, bad faith, or willful
misfeasance or unauthorized acts:
1. by ALIAC or any officer, director, employee, or agent appointed,
utilized or employed by ALIAC ("ALIAC Representative"); or
2. by any employee, agent, Registered Representative, or Broker-
Dealer who acts pursuant to authority specifically granted by an ALIAC
Representative. For this purpose, BROKER 2 and/or BROKER 1, and its
directors, officers and employees shall not be ALIAC Representatives.
8.6 INDEMNIFICATION BY BROKER 2: BROKER 2 shall defend, indemnify and hold
harmless ALIAC, its affiliated companies, their directors, officers and
employees against any losses, liabilities, claims, damages or expenses, or
action with respect to these, arising out of or in connection with this
agreement to which ALIAC may become subject (including all costs of
investigating, disputing, or defending any such claim or action) insofar as such
losses, liabilities, claims, damages and expenses arise out of or result from
errors, omissions, negligence, fraud, bad faith or willful misfeasance or
unauthorized acts:
a. by BROKER 2 or any officer, director, employee, Registered
Representative, consultant or agent utilized or employed by BROKER 2
("BROKER 2 Representative"); or
b. by an employee, agent, consultant, Registered Representative, or
Broker-Dealer who acts with the authorization, recommendation or
consent of any BROKER 2 Representative.
8.7 INDEMNIFICATION BY BROKER 1: BROKER 1 shall defend, indemnify and hold
harmless ALIAC, its affiliated companies, their directors, officers and
employees against any losses, liabilities, claims, damages or expenses, or
actions with respect to these, arising out of or in connection with this
Agreement to which ALIAC may become subject (including all costs of
investigating, disputing or defending any such claim or action) insofar as such
losses, liabilities, claims, damages and expenses arise out of or result from
errors, omissions, negligence, fraud, bad faith or willful misfeasance or
unauthorized acts:
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a. by BROKER 1 or any officer, director, employee, consultant or agent
utilized or employed by BROKER 1 ("BROKER 1 Representative"); or
b. by any employee, agent, consultant, Registered Representative, or
Broker-Dealer who acts with the authorization, recommendation or
consent of any BROKER 1 Representative.
8.8 NOTICE OF ACTION: After receipt by an indemnified party of notice of the
commencement of any action with respect to which a claim will be made against
any indemnifying party, such indemnified party shall notify the indemnifying
party promptly in writing of the commencement of the action. The omission to so
notify the indemnifying party shall not relieve the indemnifying party from any
liability which it may otherwise have to any indemnified party except and to the
extent the indemnifying party is prejudiced thereby. In any such action where
the indemnified party has given the notice described in this Section 8.8, the
indemnifying party shall be entitled to participate in and, to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume defense of the action with counsel satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party). After notice to such indemnified party that the
indemnifying party has elected to assume defense of the action, the indemnifying
party shall not be liable to such indemnified party for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense other than reasonable costs of investigation.
8.9 NOTICES: Any notices required by or given in connection with this
Agreement shall be in writing. Notice shall be deemed to be given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by registered or certified mail, postage prepaid,
to the address set forth below, or to any other address as such party may
designate in writing:
Notice to BROKER 2: [Name]
Notice to BROKER 1: [Name]
Notice to ALIAC: Aetna Life Insurance and
Annuity Company
Annuity Operations
151 Farmington Avenue
Hartford, CT 06156
Attn.: Compliance Officer
8.10 CONTROLLING LAW: This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
12
<PAGE>
8.11 DISPUTE RESOLUTION: If any dispute arises out of this Agreement or its
termination, all parties will use their best efforts to resolve the dispute
informally, including, if desired by all parties, referring the dispute to a
mutually acceptable mediator. In the event that informal resolution is not
achieved, the dispute will be settled by arbitration in accordance with
Commercial Arbitration Rules of the American Arbitration Association.
8.12 SEVERABILITY: If any portion or all of any Section or Sections, or any
application thereof, shall become invalid, illegal or unenforceable for any
reason, the remainder of this Agreement and any other application of such
provision shall not be affected thereby.
8.13 HEADINGS: The headings and titles of paragraphs contained in this
Agreement are for convenience only and have no effect upon the construction or
interpretation of any part of this Agreement.
8.14 COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
8.15 EXECUTION: This Agreement shall first be executed by BROKER 1 and
BROKER 2 and shall not be effective until thereafter accepted and executed by
ALIAC at which time it shall be effective as of the Effective Date set forth
above.
8.16 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement of
the parties in connection with the sale of the Marathon Plus contract and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations and/or agreements between the parties in
conjunction with the subject matter hereof except as set forth in this
Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed.
AETNA LIFE INSURANCE AND
ANNUITY COMPANY
By:___________________________
Title:________________________
Date:_________________________
13
<PAGE>
STATE OF CONNECTICUT )
) ss: Hartford
COUNTY OF HARTFORD )
On this _____ day of ____________, 1994, before me, ___________________, the
undersigned officer, personally appeared __________________, who acknowledged
himself to be the _____________ of Aetna Life Insurance and Annuity Company, a
corporation, and that he, as such ______________, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as __________________.
IN WITNESS WHEREOF, I hereunder set my hand.
_________________________
BROKER 2
By:___________________________
Title:________________________
Date:_________________________
STATE OF )
) ss.
COUNTY OF )
On this _____ day of _________________, 1994, before me, ________________, the
undersigned officer, personally appeared ___________________, who acknowledged
himself to be the ________________ of BROKER 2, a corporation, and that he, as
such ________________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as ____________________.
IN WITNESS WHEREOF, I hereunder set my hand.
___________________________
14
<PAGE>
BROKER 1
By:___________________________
Title:________________________
Date:_________________________
STATE OF )
) ss:
COUNTY OF )
On this _____ day of ______________, 1994, before me, __________________, the
undersigned officer, personally appeared ___________________, who acknowledged
himself to be the __________________ of BROKER 1, a corporation, and that he, as
such _________________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as ___________________.
IN WITNESS WHEREOF, I hereunto set my hand.
____________________________
15
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SCHEDULE A
GROUP CONTRACTS
Marathon Plus Group Nonqualified Annuity Contract Form G-CDA-IC (NQ)
Marathon Plus Group Individual Retirement Annuity Contract Form G-CDA-IC (IR)
16
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SCHEDULE B
INDIVIDUAL CONTRACTS
Marathon Plus Individual Nonqualified Annuity Contract Form I-CDA-IC (NQ-MP)
Marathon Plus Individual Retirement Annuity Contract Form I-CDA-IC (IR-MP)
17
<PAGE>
SCHEDULE C
MARATHON PLUS SELLING AGREEMENT
COMPENSATION SCHEDULE
COMMISSIONS
Percent of Purchase Payments 3.50%
OVERRIDE COMMISSIONS: SALES
Percent of Purchase Payments 2.5%
COMMISSIONS PAYABLE IN CONNECTION WITH:
1. Deposits on reinstatement of surrendered contracts
2. Deposits to Contracts that, in ALIAC's judgment, replace Contracts
previously issued by ALIAC on the same life or lives; and
3. Deposits on special plans or arrangements not shown in ALIAC's rate
books, or on cases carrying special rate quotes.
shall be at the rates allowed under the Company's pertinent Schedule of
Commission that is current at the time the deposit is made.
18
<PAGE>
FUND PARTICIPATION AGREEMENT
Aetna Life Insurance and Annuity Company (the "Company") and Lexington
Emerging Markets Fund, Inc. ("Lexington Fund" or the "Fund") and its investment
adviser, Lexington Management Corporation ("LMC") hereby agree to an arrangement
whereby shares of the Fund shall be made available to serve as underlying
investment media for Variable Annuity Contracts ("Contracts") to be issued by
the Company.
1. ESTABLISHMENT OF ACCOUNTS: AVAILABILITY OF FUNDS.
(a) The Company represents that it has established Variable Annuity
Accounts B, C and D (the "Accounts"), each of which is a separate
account under Connecticut Insurance law, and has registered each
of the Accounts (except Variable Annuity Account D, for which no
such registration is required) as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") to serve as
an investment vehicle for the Contracts. Each Contract provides
for the allocation of net amounts received by the Company to an
Account for investment in the shares of one or more specified
open-end investment companies ("Funds") available through the
Account as underlying investment media. Selection of a
particular Fund and changes therein from time to time are made by
the person covered under the Contract ("Participant") or Contract
owner, as applicable under a particular Contract.
(b) Lexington Fund and LMC represent and warrant that the investments
of the Fund will at all times be adequately diversified within
the meaning of Section 817(h) of the Internal Revenue Service
Code of 1986, as amended (the "Code"), and the Regulations
thereunder, and that at all times while this agreement is in
effect, all beneficial interests will be owned by one or more
insurance companies or by any other party permitted under Section
1.817-5(f)(3) of the Regulations promulgated under the Code.
2. MARKETING AND PROMOTION.
The Company agrees to make every reasonable effort to market its Contracts,
whether directly or through its affiliates. It will use its best efforts to
cause equal emphasis and promotion to be given to shares of the Fund relative to
other Funds available through the Account. In marketing and administering the
Contracts, the Company and its affiliates will comply with all applicable State
and Federal laws.
3. PRICING INFORMATION: ORDERS: SETTLEMENT.
(a) Lexington Fund will make shares available to be purchased by the
Company, and will accept redemption orders from the Company, on
behalf of the Account at the net asset value applicable to each
order. Funds shares shall be purchased and redeemed in such
quantity and at such time determined by the
<PAGE>
Company to be necessary to meet the requirements of those
Contracts for which the Funds serve as underlying investment
media.
(b) Lexington Fund will provide to the Company closing net asset
value, dividend and capital gain information at the close of
trading each day that the New York Stock Exchange (the
"Exchange") is open (each such day, a "business day"). The
Company will send via facsimile transmission to Lexington Fund or
its specified agent orders to purchase and/or redeem Fund shares
by 10:00 a.m. Eastern Time the following business day. Payment
for net purchases will be wired by the Company to a custodial
account designated by Lexington Fund to coincide with the order
for shares of the Fund.
(c) Orders from Contract owners or Participants received by the
Company and sent by the Company prior to the close of the
Exchange on any given business day via facsimile transmission to
Lexington Fund or its specified agent by 10:00 a.m., Eastern
Time, the following business day will be executed by Lexington
Fund at the net asset value determined as of the close of the
Exchange on such prior business day. Any orders received by the
Company after the close of the Exchange on such prior business
day (or not meeting the foregoing sentence's requirements) will
be executed by Lexington Fund at the net asset value determined
as of the close of the Exchange on the next business day
following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be wired
by Lexington Fund from the Lexington Fund custodial account to an
account designated by the Company.
(e) Each party has the right to rely on information or confirmations
provided by the other party (or by any affiliate of the other
party), and shall not be liable in the event that an error is a
result of any misinformation supplied by the other party. If a
mistake is caused in supplying such information or confirmations,
which results in a reconciliation with incorrect information, the
amount required to make a Contract owner's or a Participant's
account whole shall be borne by the party providing the incorrect
information.
4. EXPENSES.
(a) Except as other provided in this Agreement, all expenses incident
to the performance by Lexington Fund under this Agreement shall
be paid by Lexington Fund, including the cost of registration of
Lexington Fund shares with the Securities and Exchange Commission
(the "SEC") and in states where required.
(b) Lexington Fund shall distribute to the Company its proxy
material, periodic fund reports to shareholders and other
material that are required by law to be
2
<PAGE>
sent to Contract owners. In addition, Lexington Fund shall
provide the Company with a sufficient quantity of its
prospectuses to be used in connection with the offerings and
transactions contemplated by this Agreement. Subject to
subsection (c) below, the cost of preparing and printing
such materials shall be paid by Lexington Fund, and the cost
of distributing such material shall be paid by the Company.
(c) In lieu of Lexington Fund's providing printed copies of
prospectuses and periodic fund reports to shareholders, the
Company shall have the right to request that Lexington Fund
provide a copy of such materials in an electronic format, which
the Company may use to have such materials printed together with
similar materials of other Account funding media that the Company
or any distributor will distribute to existing or prospective
Contract owners or participants. In that event Lexington Fund
shall reimburse the Company for the same proportion of the total
printing expense for such materials as the number of pages in
each such printed document provided by Lexington Fund bears to
the total number of pages in such printed document.
5. REPRESENTATIONS.
(a) The Company agrees that it and its agents shall not, without the
written consent of Lexington Fund, make representations
concerning Lexington Fund or its shares excepts those contained
in the then current prospectuses and in current printed sales
literature of Lexington Fund.
(b) The Company represents and warrants that interests in certain
Contracts are or will be registered under the Securities Act of
1933 ("1933 Act") or are exempt from registration thereunder;
that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and
that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The
Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law
and that it has legally and validly established the Account prior
to any issuance or sale thereof as a segregated asset account
under Section 38a-433 of the General Statutes of Connecticut and
that each Account is or will be registered as a unit investment
trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts or is exempt
from registration thereunder.
(c) The Company represents that the Contracts are currently treated
as annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment and
that it will notify Lexington Fund and LMC immediately upon
having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in
the future.
3
<PAGE>
(d) The Company represents and warrants that all of its directors,
officers, and employees dealing with the money and or securities
of the Fund are and shall continue to be at all times covered by
a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than $2 million. The aforesaid
bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
(e) LMC and Lexington Fund make no representation as to whether any
aspect of the Fund's operations (including, but not limited to,
fees and expenses and investment policies) complies with the
insurance laws or regulations of the various states.
(f) The Lexington Fund represents that it will sell and distribute
Fund shares in accordance with all applicable federal and state
securities laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, and the 1940 Act.
(g) Lexington Fund represents it is currently qualified as a
regulated investment company under Subchapter M of the Code and
that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a
reasonable basis for believing that it ceased to so qualify or
might not so qualify in the future.
(h) LMC and Lexington Fund represent and warrant that the Fund's
shares sold pursuant to this Agreement shall be registered under
the 1933 Act, duly authorized for issuance and sold in compliance
with the laws of the State of Connecticut and all applicable
federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and 1940
Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall also register
and qualify its shares for sale in accordance with the laws of
the various rates only if and to the extent deemed advisable by
the Fund or LMC.
(i) Lexington Fund represents that it is lawfully organized and
validly existing under the last of its state of domicile and that
it is and will comply in all materials respects with the 1940
Act.
(j) LMC and Lexington Fund represent and warrant that all of their
respective directors, officers, and employees dealing with the
money and/or securities of the Fund are and shall continue to be
at all times covered by a blanket fidelity bond or similar
coverage for the benefits of the Fund in an amount no less than
the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or
4
<PAGE>
related provisions as may be promulgated from time to time.
The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding
company.
6. ADMINISTRATION OF ACCOUNTS.
(a) Administrative services to Contract owners and Participants shall
be the responsibility of the Company and shall not be the
responsibility of Lexington Fund or LMC. LMC recognizes the
Company as the sole shareholder of Fund shares issued under this
Agreement. From time to time, LMC may pay amounts from its past
profits to the Company for providing certain administrative
services for the Fund or for providing Contract owners with other
services that relate to the Fund. These services may include,
among other things, sub-accounting services, answering inquiries
of Contract owners regarding the Fund, transmitting, on behalf of
the Fund, proxy statements, annual reports, updated prospectus
and other communications to Contract owners regarding the Fund,
and such other related services as the Fund or a Contract holder
may request. In consideration of the savings resulting from such
arrangement, and to compensate the Company for its costs, LMC
agrees to pay to the Company an amount equal to 15 basis points
(0.15%) per annum of the average aggregate amount invested by the
Company in the Fund under this Agreement. Payment of such
amounts by LMC will not increase the fees paid by the Fund or its
shareholders.
(b) The parties agree that LMC's payments to the Company are for
administrative services only and do not constitute payment in any
manner for investment advisory services or for costs of
distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 6, the average
aggregate amount invested by the Company over a one month period
shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held
by the Company) on each business day during the month and
dividing by the total number of business days during each month.
(d) LMC will calculate the reimbursement of administrative expenses
at the end of each calendar quarter and will make such
reimbursement to the Company within 30 days thereafter. The
reimbursement check will be accompanied by a statement showing
the calculation of the monthly amounts payable by LMC and such
other supporting data as may be reasonably requested by the
Company.
5
<PAGE>
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Lexington Fund, upon three
months advance written notice to the other;
(b) at the option of the Company, upon one week advance written
notice to Lexington Fund, if Lexington Fund shares are not
available for any reason to meet the requirement of Contracts as
determined by the Company.
(c) at the option of either the Company or Lexington Fund,
immediately upon institution of formal proceedings against the
broker-dealer or broker-dealers marketing the Contracts, the
Account, the Company, Lexington Fund or LMC by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC or
any other regulatory body.
(d) upon the requisite vote of Contract owners or Participants having
an interest in the Fund, to substitute for the Fund's shares of
another investment company in accordance with the terms of the
applicable Contracts. The Company will give 60 days written
notice to Lexington Fund of any proposed vote to replace the
Fund's shares;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if the Fund's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of
Fund shares as an underlying investment medium for Contracts
issued or to be issued by the Company. Prompt notice shall be
given by either party should such situation occur.
8. CONTINUATION OF AGREEMENT.
Termination as the result of any cause listed in Section 7 shall not affect
Lexington Fund's obligation to furnish its shares to Contracts then in force for
which its shares serve or may serve as the underlying medium unless such further
sale of Fund shares is proscribed by law or the SEC or other regulatory body.
9. ADVERTISING MATERIALS: FILED DOCUMENTS.
(a) Advertising and sales literature with respect to the Fund
prepared by the Company or its agents for use in marketing its
Contracts will be submitted to Lexington Fund for review before
such material is submitted to any regulatory body for review.
6
<PAGE>
(b) Lexington Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of
additional information, annual and semiannual reports, proxy
statements and all amendments or supplements to any of the above
that relate to the Fund promptly after the filing of such
document with the SEC or other regulatory authorities. The
Company will provide to Lexington Fund at least one complete copy
of all registration statements, prospectuses, statements of
additional information, annual and semiannual reports, proxy
statements, and all amendments or supplements to any of the above
that relate to the Account promptly after the filing of such
document with the SEC or other regulatory authority.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges on Fund
shares to all Contract owners and Participants to the extent the
SEC continues to interpret the 1940 Act as requiring such
privileges. Shares held in Variable Annuity Account D, and in
any other separate account not required to be registered under
the 1940 Act, will be voted in the Company's sole discretion.
(b) Except as to Variable Annuity Account D or any other separate
account not required to be registered under the 1940 Act, the
Company will distribute to Contract owners and participants, as
appropriate, all proxy material furnished by Lexington Fund and
will vote Fund shares in accordance with instructions received
from Contract owners and participants. The Company, with respect
to the Contract and in each Account shall vote Fund shares for
which no instructions have been received in the same proportion
as shares for which such instructions have been received. The
Company and its agents shall not oppose or interfere with the
solicitation of proxies for Fund shares held for such Contract
owners and participants.
11. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Lexington Fund
and each of its directors, officers, employees, agents and each
person, if any, who controls the Fund or its investment adviser
within the meaning of the Securities Act of 1933 (the "1933 Act")
against any losses, claims, damages or liabilities to which the
Fund or any such director, officer, employee, agent, or
controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement,
prospectus or sales literature of the Company, or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise
out of or as a result of conduct, statements or representations
(other than
7
<PAGE>
statements or representations contained in the prospectuses
or sales literature of the Fund) of the Company or its
agents, with respect to the sale and distribution of
Contracts for which Fund shares are the underlying
investment. The Company will reimburse any legal or other
expenses reasonably incurred by the Fund or any such
director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such
Registration Statement or prospectus in conformity with
written materials furnished to the Company by the Fund
specifically for use therein. This indemnity agreement will
be in addition to any liability which the Company may
otherwise have.
(b) The Company shall not be liable under this Section 11. to
Lexington Fund, LMC or other parties covered under Section 11.
(a) with respect to any losses, claims, damages or liabilities
(or actions in respect thereof) incurred or assessed against any
such party (including Lexington Fund and LMC) as such may arise
from such party's willful misfeasance, bad faith, or gross
negligence in the performance of such party's duties or by reason
of such party's reckless disregard of obligations or duties under
this Agreement.
(c) Lexington Fund and LMC agree to indemnify and hold harmless the
Company and its directors, officers, employees, agents and each
person, if any, who controls the Company within the meaning of
the 1933 Act against any losses, claims, damages or liabilities
to which the Company or any such director, officer, employee,
agent or controlling person may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement,
prospectuses or sales literature of the Fund or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or material
fact required to be stated therein or necessary to make the
statements therein not misleading. Lexington Fund will reimburse
any legal or other expenses reasonably incurred by the Company or
any such director, officer, employee, agent or controlling person
in connection with investigating or defending any such loss,
claim, damage or liability or action; PROVIDED, HOWEVER, that LMC
and Lexington Fund will not be liable in any such case to the
extent that any such loss, claim, damage or liability rises out
of or is based upon Registration Statements or prospectuses which
are in conformity with written materials furnished to Lexington
Fund by the Company specifically for use therein. This indemnity
agreement will be in addition to any liability which Lexington
Fund or LMC may otherwise have.
8
<PAGE>
(d) Lexington Fund and LMC shall not be liable under this Section 11.
to the Company or other parties covered under Section 11. (c)
with respect to any losses, claims, damages or liabilities (or
actions in respect thereof) incurred or assessed against any such
party (including the Company) as such may arise from such party's
willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties or by reason of such party's
reckless disregard of obligations or duties under this Agreement.
(e) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party of
the commencement thereof; but the omission to notify the
indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this
Section 11. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish to,
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party
will not be liable to such indemnified party under this Section
11. for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Lexington Fund on March 21, 1994,
with the SEC and the order issued by the SEC in response thereto
(the "Shared Funding Exemptive Order"). The Company has reviewed
the conditions to the requested relief set forth in such
application for exemptive relief. As set forth in such
application, the Board of Directors of Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contractholders of all
separate accounts ("Participating Companies") investing in the
Fund. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable
federal or state insurance tax, or securities laws, or
regulations, or a public ruling, private letter ruling, no-action
or interpretative letter, or any similar actions by insurance,
tax or securities regulatory authorities; (iii) an administrative
or judicial decision in any relevant proceedings; (iv) the manner
in which the investments of any portfolio are being managed; (v)
a difference in voting instructions given by variable annuity
contractholders and variable life insurance contractholders, or
(vi) a decision by an insurer to disregard the voting
instructions of contractholders. The Board shall promptly inform
the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
9
<PAGE>
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Shared
Funding Exemptive Order by providing the Board with all
information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever
contractholder voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict
exists with regard to contractholder investments in the Fund, the
Board shall give prompt notice to all participating Companies.
If the Board determines that the Company is responsible for
causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as
determined by a majority of the disinterested Board members),
take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may
include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the
Fund and reinvesting such assets in a different investment
medium or submitting the question of whether such
segregation should be implemented to a vote of all affected
contractholders and as appropriate, segregating the assets
of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners
of one or more Participating Companies) that votes in favor
of such segregation, or offering to the affected
contractholders the option of making such a change; and/or
(ii) establishing a new registered management investment company
or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting
instructions and said decision represents a minority position or
would preclude a majority vote by all of its contractholders
having an interest in the Fund, the Company at its sole cost, may
be required, at the Board's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members
of the Board.
(e) For the purpose of this Section 12, a majority of the
disinterested Board members shall determine whether or not any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will Lexington
10
<PAGE>
Fund be required to establish a new funding medium for any
Contract. The Company shall not be required by this Section
12 to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of
the Contract owners or participants materially adversely
affected by the irreconcilable material conflict.
13. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally,
but only by an instrument in writing signed by all parties
hereto.
(b) NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or
sent by telex, telecopier or registered or certified mail,
postage prepaid, return receipt requested, to the party or
parties to whom they are directed at the following addresses, or
at such other addresses as may be designated by notice from such
party to all other parties.
To the Company:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Timothy J. Thornton
To Lexington Management Corporation:
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Attention: Lisa Curcio, Secretary
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one
agreement, and any party hereto may execute this Agreement by
signing any such counterpart.
11
<PAGE>
(e) SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(f) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to
the subject matter hereof.
(g) GOVERNING LAW. This Agreement shall be governed and interpreted
in accordance with the laws of the State of Connecticut.
14. LIMITATION ON LIABILITY OF TRUSTEES, ETC.
This Agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The obligations
of this Agreement that pertain to the Fund shall only be binding upon the assets
and property of the Fund and shall not be binding upon any individual trustee,
officer or shareholder of the Fund. This provision shall not affect the
obligations or liabilities of LMC under this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of this 28th day of April, 1995.
AETNA INSURANCE COMPANY OF AMERICA
By /S/ SCOTT A. STRIEGEL
-------------------------------------------
Name: Scott A. Striegel
Title: Senior Vice President
LEXINGTON MANAGEMENT CORPORATION
By /S/ LAWRENCE KANTOR
-------------------------------------------
Name: Lawrence Kantor
Title: Managing Director
LEXINGTON EMERGING MARKETS FUND, INC.
By /S/ LISA CURCIO
-------------------------------------------
Name: Lisa Curcio
Title: Secretary
12
<PAGE>
FORM OF PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
AETNA LIFE INSURANCE AND ANNUITY COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of April 1996, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), AETNA LIFE INSURANCE AND ANNUITY COMPANY, a Connecticut corporation
(the "Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, the Company, the underwriter for the variable annuity and the
variable life policies, is registered as a broker-dealer with the SEC under the
1934 Act and is a member in good standing of the NASD; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase by
such Accounts, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
order for the Shares. For purposes of this Section 1.1, the Company
shall be the designee of the Trust for receipt of such orders from
Policy owners and receipt by such designee shall constitute receipt by
the Trust; PROVIDED that the Trust receives notice of such orders by
9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and
the Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall calculate such
net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may refuse to sell any Shares to the Company and the Accounts,
or suspend or terminate the offering of the Shares if such action is
required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Board acting in good faith and in light of
its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and MFS
or its affiliates. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles III and VII of this
Agreement is in effect to govern such sales. The Company will not resell
the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request,
any full or fractional Shares held by the Accounts (based on orders
placed by Policy holders on that Business Day), executing such requests
on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes
of this Section 1.4, the Company shall be the designee of the Trust for
receipt of requests for redemption from Policy owners and receipt by
such designee shall constitute receipt by the Trust; provided that the
Trust receives notice of such request for redemption by 9:30 a.m. New
York time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the
Company shall be placed separately for each Portfolio and shall not be
netted with respect to any Portfolio. However, with respect to payment
of the purchase price by the Company and of redemption proceeds by the
Trust, the Company and the Trust shall net purchase and redemption
orders with respect to each Portfolio and shall transmit one net payment
for all of the Portfolios in accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the
Shares by 2:00 p.m. New York time on the next Business Day after an
order to purchase the Shares is made in accordance with the provisions
of Section 1.1. hereof. In the event of net redemptions, the Trust
shall pay the redemption proceeds by 2:00
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<PAGE>
p.m. New York time on the next Business Day after an order to redeem the
shares is made in accordance with the provisions of Section 1.4. hereof.
All such payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust will be recorded in an appropriate
title for the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on
a Portfolio's Shares in additional Shares of that Portfolio. The Trust
shall notify the Company of the number of Shares so issued as payment of
such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per
share for each Portfolio available to the Company on each Business Day
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York time. In the event that the
Trust is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the purchase
and redemption of Shares. Such additional time shall be equal to the
additional time which the Trust takes to make the net asset value
available to the Company. If the Trust provides materially incorrect
share net asset value or dividend or capital gain distribution
information, the Trust shall make an adjustment to the number of shares
purchased or redeemed for the Accounts to reflect the correct net asset
value per share or dividend or capital gain distribution. Any material
error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon
discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or
will be registered under the 1933 Act or are exempt from or not subject
to registration thereunder, and that the Policies will be issued, sold,
and distributed in compliance in all material respects with all
applicable state and federal laws, including without limitation the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly established the
Account as a segregated asset account under applicable law and has
registered or, prior to any issuance or sale of the Policies, will
register the Accounts as unit investment trusts in accordance with the
provisions of the 1940 Act (unless exempt therefrom) to serve as
segregated investment accounts for the Policies, and that it will
maintain such registration for so long as any Policies are outstanding.
The Company shall amend the registration statements under the 1933 Act
for the Policies and the registration statements under the 1940 Act for
the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contract under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), that it will
maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the
Policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that it is the underwriter
for the variable annuity and the variable life policies, is a member in
good standing of the NASD and is a registered broker-dealer with the
SEC. The Company represents and warrants that it, as the issuer and
underwriter, will sell and distribute
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<PAGE>
such policies in accordance in all material respects with all applicable
state and federal securities laws, including without limitation the 1933
Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust shall amend the registration statement for its
Shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its Shares. The Trust
shall register and qualify the Shares for sale in accordance with the
laws of the various states only if and to the extent deemed necessary by
the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Trust and MFS represent that the Trust and the Underwriter
will sell and distribute the Shares in accordance in all material
respects with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940
Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS
represents and warrants that it is not subject to state securities laws
other than the securities laws of The Commonwealth of Massachusetts and
that it is exempt from registration as an investment adviser under the
securities laws of The Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to
the Board such reports, material or data as the Board may reasonably
request so that it may carry out fully the obligations imposed upon it
by the conditions contained in the exemptive application pursuant to
which the SEC has granted exemptive relief to permit mixed and shared
funding (the "Mixed and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the
Shares as the Company may reasonably request for distribution to
existing Policy owners whose Policies are funded by such Shares. The
Trust or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares as
the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof,
the Trust or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial
printer) and other assistance as is reasonably necessary in order for
the parties hereto once each year (or more frequently if the prospectus
for the Shares is supplemented or amended) to have the prospectus for
the Policies and the prospectus for the Shares printed together in one
document; the expenses of such printing to be apportioned between (a)
the Company and (b) the Trust or its designee in proportion to the
number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear
the cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED, however, that the Company shall bear
all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the
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<PAGE>
event that the Company requests that the Trust or its designee provides
the Trust's prospectus in a "camera ready" or diskette format, the Trust
shall be responsible for providing the prospectus in the format in which
it or MFS is accustomed to formatting prospectuses and shall bear the
expense of providing the prospectus in such format (E.G., typesetting
expenses), and the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust
or its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser
who requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of
charge copies, if and to the extent applicable to the Shares, of the
Trust's proxy materials, reports to Shareholders and other
communications to Shareholders in such quantity as the Company shall
reasonably require for distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3
above, or of Article V below, the Company shall pay the expense of
printing or providing documents to the extent such cost is considered a
distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Shares'
prospectus or prospectuses for distribution to prospective purchasers or
to owners of existing Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate
to include in the prospectus pursuant to which a Policy is offered
disclosure regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been
received in the same proportion as the Shares of such
Portfolio for which instructions have been received from
Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable contract
owners. The Company will in no way recommend action in connection with
or oppose or interfere with the solicitation of proxies for the Shares
held for such Policy owners. The Company reserves the right to vote
shares held in any segregated asset account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts holding
Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the
Company of any changes of interpretations or amendments to the Mixed and
Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least three
(3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to such
use within three (3) Business Days after receipt of such material.
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<PAGE>
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the Trust,
MFS or their respective designees, except with the permission of the
Trust, MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning the
Trust, MFS or any of their affiliates which is intended for use only by
brokers or agents selling the Policies (I.E., information that is not
intended for distribution to Policy holders or prospective Policy
holders) is so used, and neither the Trust, MFS nor any of their
affiliates shall be liable for any losses, damages or expenses relating
to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or the
Accounts is named, at least three (3) Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably
objects to such use within three (3) Business Days after receipt of such
material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such
registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to
respond to any request for approval on a prompt and timely basis. The
parties hereto agree that this Section 4.4. is neither intended to
designate nor otherwise imply that MFS is an underwriter or distributor
of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the
Company or the Trust, as appropriate) will each provide to the other at
least one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Policies, or to the Trust or its Shares, prior to or
contemporaneously with the filing of such document with the SEC or other
regulatory authorities. The Company and the Trust shall also each
promptly inform the other or the results of any examination by the SEC
(or other regulatory authorities) that relates to the Policies, the
Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant
portions of any "deficiency letter" or other correspondence or written
report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice
as is reasonably practicable of any proxy solicitation for any
Portfolio, and of any material change in the Trust's registration
statement, particularly any change resulting in change to the
registration statement or prospectus or statement of additional
information for any Account. The Trust and MFS will cooperate with the
Company so as to enable the Company to solicit proxies from Policy
owners or to make changes to its prospectus, statement of additional
information or registration statement, in an orderly manner. The Trust
and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
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<PAGE>
4.7. For purpose of this Article IV and Article VIII, the phrase
"sales literature or other promotional material" includes but is not
limited to advertisements (such as material published, or designed for
use in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media), and sales literature (such as
brochures, circulars, reprints or excerpts or any other advertisement,
sales literature, or published articles), distributed or made generally
available to customers or the public, educational or training materials
or communications distributed or made generally available to some or all
agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution and Shareholder servicing expenses, then,
subject to obtaining any required exemptive orders or regulatory
approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust in
writing. Each party, however, shall, in accordance with the allocation
of expenses specified in Articles III and V hereof, reimburse other
parties for expense initially paid by one party but allocated to another
party. In addition, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust and/or to the
Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost
of registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration
fees; preparation and filing of the Trust's proxy materials and reports
to Shareholders; setting in type and printing its prospectus and
statement of additional information (to the extent provided by and as
determined in accordance with Article III above); setting in type and
printing the proxy materials and reports to Shareholders (to the extent
provided by and as determined in accordance with Article III above); the
preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the
issuance or transfer of the Shares; and the costs of distributing the
Trust's prospectuses and proxy materials to owners of Policies funded by
the Shares and any expenses permitted to be paid or assumed by the Trust
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The
Trust shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies
and of distributing the Trust's Shareholder reports to Policy owners.
The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional
information; and the cost of preparing, printing and distributing annual
individual account statements for Policy owners as required by state
insurance laws.
5.4. MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Policy owners of
shares of the Portfolios in the Trust, equal to 0.15% per annum of the
aggregate net assets of the Trust attributable to such Policy owners.
In no event shall such fee be paid by the Trust, its shareholders or by
the Policy holders.
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<PAGE>
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio will
meet the diversification requirements of Section 851 of the Code
("Section 851 Diversification Requirements") and Section 817(h)(1) of
the Code and Treas. Reg. 1.817-5 relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts ("Section 817(h)(1) Diversification Requirements"), as they
may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections) (collectively,
"Diversification Requirements"). In the event that any Portfolio is not
so diversified at the end of any applicable quarter, the Trust and MFS
will make every effort to adequately diversify the Portfolio so as to
achieve compliance within the grace periods afforded by Treas. Reg.
1.817-5 and Section 851(d) of the Code (the "Grace Periods"). In the
event that any Portfolio is not so diversified at the end of any
applicable Grace Period, the Trust or MFS will promptly notify the
Company of such non-diversification, such notification to be provided in
no event later than 20 days after the end of the applicable Grace
Period.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the
Code and that they will maintain such qualification (under Subchapter M
or any successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests
of the variable annuity contract owners and the variable life insurance
policy owners of the Company and/or affiliated companies ("contract
owners") investing in the Trust. The Board shall have the sole
authority to determine if a material irreconcilable conflict exists, and
such determination shall be binding on the Company only if approved in
the form of a resolution by a majority of the Board, or a majority of
the disinterested trustees of the Board. The Board will give prompt
notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC has
granted the Mixed and Shared Funding Exemptive Order by providing the
Board, as it may reasonably request, with all information necessary for
the Board to consider any issues raised and agrees that it will be
responsible for promptly reporting any potential or existing conflicts
of which it is aware to the Board including, but not limited to, an
obligation by the Company to inform the Board whenever contract owner
voting instructions are disregard. The Company also agrees that, if a
material irreconcilable conflict arises, it will at its own cost and to
the extent reasonably practicable (as determined by a majority of the
disinterested trustees) remedy such conflict up to and including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting to a vote of all affected contract owners
whether to withdraw assets from the Trust or any Portfolio and
reinvesting such assets in a different investment medium and, as
appropriate, segregating the assets attributable to any appropriate
group of contract owners that votes in favor of such segregation, or
offering to any of the affected contract owners the option of
segregating the assets attributable to their contracts or policies, and
(b) establishing a new registered management investment company and
segregating the assets underlying the Policies, unless a majority of
Policy owners materially adversely affected by the conflict have voted
to decline the offer to establish a new registered management investment
company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
-8-
<PAGE>
determines that any proposed action does not adequately remedy any
material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, HOWEVER, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the disinterested
trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with
respect to mixed or shares funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different
from those contained in the Mixed Shared Funding Exemptive Order, then
(a) the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2,
7.3 and 7.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust,
MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls the
Trust or MFS within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
expenses (including reasonable counsel fees) to which an Indemnified
Party may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to
the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement, prospectus or statement
of additional information for the Policies or contained
in the Policies or sales literature or other promotional
material for the Policies (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the commission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading PROVIDED that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reasonable reliance upon and in
conformity with information furnished to the Company or
its designee by or on behalf of the Trust or MFS for use
in the registration statement, prospectus or statement
of additional information for the Policies or in the
Policies or sales literature or other promotional
material (or any amendment or supplement) or otherwise
for use in connection with the sale of the Policies or
Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus, statement of additional information or sales
literature or other promotional material of the Trust
not supplied by the Company or this designee, or persons
under its control and on which the Company has
reasonably relied) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Policies or Shares; or
-9-
<PAGE>
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
registration statement, prospectus, statement of
additional information, or sales literature or other
promotional literature of the Trust, or any amendment
thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished to the Trust by or on behalf of
the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2. IDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
collectively, the "Indemnified Parties" for purposes of this Section
8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or
expenses (including reasonable counsel fees) to which any Indemnified
Party may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statement therein not
misleading, PROVIDED that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reasonable reliance upon and in
conformity with information furnished to the Trust, MFS,
the Underwriter or their respective designees by or on
behalf of the Company for use in the registration
statement, prospectus or statement of additional
information for the Trust or in sales literature or
other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statement or representations
contained in the registration statement, prospectus,
statement of additional information or sales literature
or other promotional material for the Policies not
supplied by the Trust, MFS, the Underwriter or any of
their respective designees or persons under their
respective control and on which any such entity has
reasonably relied) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or
distribution of the Policies or Shares; or
(c) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or
in good faith
-10-
<PAGE>
or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement)
or arise out of or result from any other material breach
of this Agreement by the Trust; or
(d) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(e) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms
of the Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating
Insurance Company or any Policy owner, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made
by the Company hereunder or by any Participating Insurance Company under
an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by the Company or any
Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly established
segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by the Company or any
Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to
any losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this
Section 8.5. of commencement of action, such Indemnified Party will, if
a claim in respect thereof is to be made against the indemnifying party
under this section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any Indemnified Party
otherwise than under this section. In case any such action is brought
against any Indemnified Party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party.
After notice from the indemnifying party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of
any additional counsel obtained by it, and the indemnifying party shall
not be liable to such Indemnified Party under this section for any legal
or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation.
8.6. Each of the parties agrees promptly to notify the other parties
of the commencement of any litigation or proceeding against it or any of
its respective officers, directors, trustees, employees or 1933 Act
control persons in connection with the Agreement, the issuance or sale
of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this Article
VIII shall survive any termination of this Agreement.
-11-
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the purchase of the
Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the
Shares of Portfolios are not reasonably available to
meet the requirements of the Policies or are not
"appropriate funding vehicles" for the Policies, as
reasonably determined by the Company. Without limiting
the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles"
if, for example, such Shares did not meet the
diversification or other requirements referred to in
Article VI hereof; or if the Company would be permitted
to disregard Policy owner voting instructions pursuant
to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and
an explanation of such cause shall be furnished to the
Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of
formal proceedings against the Company by the NASD, the
SEC, or any insurance department or any other regulatory
body regarding the Company's duties under this Agreement
or related to the sale of the Policies, the operation of
the Accounts, or the purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or
any state securities or insurance department or any
other regulatory body regarding the Trust's or MFS'
duties under this Agreement or related to the sale of
the Shares; or
(e) at the option of the Company, the Trust or MFS upon
receipt of any necessary regulatory approvals and/or the
vote of the Policy owners having an interest in the
Accounts (or any subaccounts) to substitute the shares
of another investment company for the corresponding
Portfolio Shares in accordance with the terms of the
Policies for which those Portfolio Shares had been
selected to serve as the underlying investment media.
The Company will give thirty (30) days' prior written
notice to the Trust of the Date of any proposed vote or
other action taken to replace the Shares; or
-12-
<PAGE>
(f) termination by either the Trust or MFS by written notice
to the Company, if either one or both of the Trust or
MFS respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the
date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the
Trust and MFS, if the Company shall determine, in its
sole judgment exercised in good faith, that the Trust or
MFS has suffered a material adverse change in this
business, operations, financial condition or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(h) at the option of any party to this Agreement, upon
another party's material breach of any provision of this
Agreement; or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 11.1(a) may be exercised
for cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from
allocating payments to a Portfolio that was otherwise available under
the Policies, until thirty (30) days after the Company shall have
notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and conditions
of this Agreement, for all Policies in effect on the effective date of
termination of this Agreement (the "Existing Policies"), except as
otherwise provided under Article VII of this Agreement. Specifically,
without limitation, the owners of the Existing Policies shall be
permitted to transfer or reallocate investment under the Policies,
redeem investments in any Portfolio and/or invest in the Trust upon the
making of additional purchase payments under the Existing Policies.
-13-
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
AETNA LIFE INSURANCE AND ANNUITY COMPANY
151 Farmington Avenue
Hartford, Connecticut 06156
Attn: Drew E. Lawton
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required by
applicable law or regulation, shall not disclose, disseminate or utilize
such names and addresses and other confidential information without the
express written consent of the affected party until such time as it may
come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
-14-
<PAGE>
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument
are not binding upon any of the Trust's trustees, officers, employees,
agents or shareholders individually, but are binding solely upon the
assets and property of the Trust in accordance with its proportionate
interest hereunder. The Company further acknowledges that the assets
and liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon
the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations
of each Portfolio hereunder shall be several and not joint, in
accordance with its proportionate interest hereunder, and the Company
agrees not to proceed against any Portfolio for the obligations of
another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE
PORTFOLIOS
By its authorized officer and not individually,
By:
-------------------------------
A. Keith Brodkin, Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By:
-------------------------------
Arnold D. Scott, Senior Executive Vice President
-15-
<PAGE>
As of April __, 1996
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
- --------------------------------------------------------------------------------
<S> <C> <C>
Variable Annuity Account B Variable Annuity World Government Series
(Est. October 18, 1976) Emerging Growth Series
Total Return Series
Research Series
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement ("Agreement") is made by and between AETNA LIFE INSURANCE AND
ANNUITY COMPANY ("ALIAC"), an insurance corporation organized and existing under
the laws of the State of Connecticut, with its principal place of business at
151 Farmington Avenue, Hartford, Connecticut, 06156; and
AGENCY, INC., a licensed insurance agency.
WITNESSETH
WHEREAS, ALIAC wishes to offer and sell group and individual nonqualified and
Individual Retirement Annuity ("IRA") combination fixed and variable annuity
contracts (hereinafter known collectively as "Marathon Plus") to the customers
of, BROKER 1, a Broker-Dealer and member of National Association of Securities
Dealers, Inc. ("NASD") and a licensed insurance agency, through BROKER 1 and
through BROKER 2, who is a Broker-Dealer and a member of the NASD, and through
licensed insurance agents; and
WHEREAS, ALIAC has entered into a Selling Agreement with BROKER 2 and BROKER 1
in respect of the offer and sale of Marathon Plus; and
WHEREAS, ALIAC wishes to retain AGENCY to assist ALIAC, BROKER 2 and BROKER 1
for the purpose of providing the administrative services needed to support the
marketing and distribution of Marathon Plus; and
WHEREAS, AGENCY wishes to provide such administrative services to ALIAC, BROKER
2 and BROKER 1;
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties do hereby agree as follows:
SECTION 1. DEFINITIONS
When used in this Agreement, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1. BROKER-DEALER: "Broker-Dealer" shall mean an entity which is registered as
a Broker-Dealer with the Securities and Exchange Commission and applicable state
jurisdictions and is a member firm of the NASD.
1.2 EFFECTIVE DATE: "Effective Date" shall mean the date on which this
Agreement is executed by ALIAC.
<PAGE>
1.3 CERTIFICATE: "Certificate" shall mean the document that may be required
under state insurance law evidencing that an account has been established under
a group contract.
1.4 GROUP CONTRACT: "Group Contract" shall mean those contracts described in
Schedule A attached hereto which is made a part of this Agreement.
1.5 INDIVIDUAL CONTRACT: "Individual Contract" shall mean those contracts
described in Schedule B attached hereto which is made part of this Agreement.
1.6 PURCHASE PAYMENT: "Purchase Payment" shall mean payment(s) accepted by
ALIAC at its Home Office under the Marathon Plus Group and Individual Contracts.
1.7 REGISTERED REPRESENTATIVE: "Registered Representative" shall mean an
individual registered as an agent of a Broker-Dealer possessing the NASD and
state securities registrations necessary to offer and sell Marathon Plus Group
and Individual Contracts, who is also licensed as an insurance agent, and who is
appointed by ALIAC.
1.8 TERMINATION DATE: "Termination Date" shall mean the day 30 calendar days
after the day ALIAC or AGENCY provides notice of termination in the manner set
forth in Sections 6.4 or 6.5; however, in the event ALIAC terminates for cause
in accordance with Section 6.2, "Termination Date" is the date of the written
notice given by ALIAC.
SECTION 2. COMPENSATION
2.1 COMPENSATION FOR SERVICES: Subject to all terms and conditions of this
Agreement, ALIAC will pay to AGENCY compensation, as described in Schedule B
attached hereto and made a part of this Agreement, in consideration for the
administrative and support services provided by AGENCY pursuant to Section 7
herein. ALIAC shall provide monthly to AGENCY a detailed account of all
payments, reductions and amounts due AGENCY from ALIAC. The payments due under
this Section shall be paid monthly.
2.2 ALIAC reserves the right to reject any application for an Individual
Contract or Certificate from BROKER 1 or BROKER 2 and to refuse to accept any
Purchase Payment at any time for any reason, or to rescind any Individual
Contract or Certificate without incurring a liability to AGENCY for any
compensation. In the event of a rejection or rescission, AGENCY will repay to
ALIAC all sums paid AGENCY under Section 2.1 in respect of such Certificate or
Individual Contract.
2.3 FULL COMPENSATION: The compensation described in Section 2.1 shall
constitute full compensation to AGENCY for all administrative and support
services provided and expenses incurred in respect of the marketing and
distribution of Marathon Plus by BROKER 2 and BROKER 1.
2
<PAGE>
2.4 ADVANCES AND INDEBTEDNESS: ALIAC reserves the right to deduct any amount
it determines is owed by AGENCY from any compensation from ALIAC due AGENCY.
This right includes, but is not limited to:
a) Advances;
b) Compensation previously paid for deposits received by ALIAC and later
returned or credited for any reason;
c) Any overpayment of compensation;
d) Any amount due ALIAC under Section 8.6 of this Agreement.
If the offset of compensation due hereunder does not eliminate the amount owed
by AGENCY under this Section 2.4, the balance due ALIAC shall be paid by AGENCY
to ALIAC on demand and, if not so paid, shall be a debt of AGENCY which interest
shall be charged at eight percent (8%) per annum. ALIAC shall have all rights
of a creditor to collect amounts owed it by AGENCY.
SECTION 3. LIMITATIONS OF AUTHORITY
3.1 LIMITATIONS ON AUTHORITY: Nothing contained herein shall be construed as a
grant of any authority to AGENCY or any of its officers, employees, agents or
representatives to engage in the solicitation, offer or sale of Marathon Plus or
any other securities of ALIAC. Further, AGENCY understands and agrees that it
may not and shall not engage in the solicitation, offer or sale Marathon Plus or
any other ALIAC securities. Further, AGENCY shall have no authority on behalf
of ALIAC to directly or indirectly through any person:
a) Alter the Certificates or Individual Contracts;
b) Waive or modify any terms, conditions or limitations of the
Certificates, Individual Contracts, underwriting rules, grant permits,
special rates, or interest rates, or make endorsements;
c) Incur any indebtedness or liability, or expend or contract for the
expenditure of the funds of ALIAC; or
d) Adjust or settle any claim or commit ALIAC with respect thereto, or
bind ALIAC or any of its affiliates in any way.
ALIAC reserves the right to suspend, withdraw or modify the Group and Individual
Contracts and Certificates, to change the terms or conditions of the offering of
Group and Individual Contracts and Certificates, to introduce new contracts, or
to remedy defects in the interpretation or administration of the Group and
Individual Contracts and Certificates.
3
<PAGE>
3.2 AGENCY is not authorized to receive any money on ALIAC's behalf or in
connection with the sale or solicitation of any Group or Individual Contracts or
Certificates.
3.3 ASSIGNMENT: Neither this Agreement nor any benefits to accrue hereunder
shall be assigned or transferred by any party, in whole or in part, without the
prior written consent of ALIAC. Notwithstanding the foregoing, ALIAC may assign
its rights and obligations hereunder in connection with the sale or reinsurance
to a third party of all or substantially all of the Group and Individual
Contracts.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF ALIAC: ALIAC represents and warrants to
AGENCY as follows:
a) It is registered as a Broker-Dealer with the Securities and Exchange
Commission and with all applicable state jurisdictions, is a member in
good standing of the NASD and is in compliance with applicable state
insurance licensing requirements.
b) It has obtained all applicable required federal and state approvals and
registrations for the sale of Marathon Plus, or is otherwise exempt
therefrom.
c) It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder.
4.2 REPRESENTATIONS AND WARRANTIES OF AGENCY: AGENCY represents and warrants
to ALIAC as follows:
a) It is licensed as an insurance agency
b) It, or a designated principal, has and shall maintain during the term
of this Agreement all applicable state insurance licenses in all
jurisdictions where Group Contracts, Individual Contracts and
Certificates will be sold or solicited.
c) it is a corporation organized, existing and in good standing under the
laws of the State of ______ and is qualified to do business as a
corporation in all jurisdictions where it is or will be doing business.
d) It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder;
SECTION 5. CUSTOMER CONFIDENTIALITY
4
<PAGE>
5.1 CONFIDENTIALITY: AGENCY agrees that the names and addresses and all other
information regarding all customers and prospective customers of ALIAC and all
ALIAC proprietary information which may come to the attention of AGENCY or any
organization or person affiliated with AGENCY as a result of this Agreement, are
confidential. Without the prior written consent of ALIAC, such information
shall not be used or provided to others by AGENCY or any organization or person
affiliated with AGENCY, for any purpose whatsoever, except as may be necessary
in connection with the Group and Individual Contracts covered by this Agreement,
or if such disclosure is required by state or federal regulatory authorities.
It is understood and agreed that this Section 5.1 shall not apply with respect
to information about ALIAC customers and prospective customers that AGENCY
possesses through other arrangements and agreements. This Section 5.1 shall
survive termination of this Agreement.
SECTION 6. TERMINATION OF AGREEMENT
6.1 It is expressly understood by the parties hereto that ALIAC's obligation to
pay any compensation prior to the Termination Date of this Agreement, and the
obligation of AGENCY to repay any compensation to ALIAC, shall survive the
termination of this Agreement.
6.2 TERMINATION FOR CAUSE BY ALIAC: ALIAC may terminate this Agreement at any
time for cause by giving written notice to AGENCY. For purposes of this
Section, "cause" includes solely the following acts or omissions:
a) Revocation, suspension, refusal to renew, or other loss of any
insurance license by AGENCY.
b) Imposition of any fine, penalty, suspension, or other sanction against
AGENCY or any of its principals by any federal, state, or foreign
securities or insurance regulatory authority.
c) Failure by AGENCY to perform its responsibilities under this Agreement.
d) Breach by AGENCY of any of the representations and warranties set forth
in Section 4 of this Agreement.
e) Breach by AGENCY of any material term of this Agreement and the failure
to cure such breach within 30 days of the earlier of discovery or
notification by ALIAC, provided that, if such breach would constitute
activities that, if made known to regulatory authorities, could result
in a regulatory sanction described in (a) or (b) above, ALIAC may
terminate this Agreement irrespective of any cure.
5
<PAGE>
f) Any criminal act by AGENCY or any of its principals which, in ALIAC's
opinion, materially affects AGENCY's ability to perform any of its
duties under this Agreement.
g) Filing of a petition in bankruptcy, the reorganization under bankruptcy
laws, or filing of an agreement providing for execution payment of
debts of AGENCY. The dissolution, sale, change of ownership, or any
substantial reorganization of AGENCY, which, in ALIAC's opinion,
affects AGENCY's ability to perform any of its duties under this
Agreement.
h) Failure by AGENCY to cooperate and participate in any complaint,
charge, or other proceeding to the extent requested by ALIAC.
i) Knowing or intentionally making false or misleading statements about
ALIAC or its products by AGENCY, its principlas, agents, or employees.
j) Fraud by AGENCY, or the creation of liability for ALIAC due to
misfeasance or malfeasance by AGENCY.
6.3 CONSEQUENCES OF TERMINATION FOR CAUSE: If the Agreement is terminated for
cause under Section 6.2, ALIAC shall owe no liquidated or other damages to
AGENCY under this Agreement
6.4 TERMINATION WITHOUT CAUSE BY ALIAC: ALIAC may terminate this Agreement at
any time without cause by giving 90 days advance written notice to AGENCY. If
ALIAC terminates this Agreement without cause, ALIAC shall not owe AGENCY any
further compensation or damages, liquidated or otherwise.
6.5 TERMINATION WITHOUT CAUSE BY AGENCY: AGENCY may terminate this Agreement
by giving 90 days advance written notice to ALIAC. If AGENCY terminates this
Agreement without cause, AGENCY shall not owe liquidated damages to ALIAC and
ALIAC shall not owe AGENCY further compensation, or damages, liquidated or
otherwise.
6.6 RETURN OF MATERIALS: Upon any termination, AGENCY shall promptly return
all ALIAC records, supplies and materials to ALIAC and shall cease all
activities under this Agreement on behalf of ALIAC. ALIAC shall promptly return
all AGENCY materials.
SECTION 7. SERVICES
7.1 AGENCY agrees to perform the administrative services and duties necessary
to support the marketing, sale and retention of the Group and Individual
Contracts and Certificates, including the provision of services to BROKER 2,
BROKER 1, and Registered Representatives during the term of this Agreement.
AGENCY may provide
6
<PAGE>
such services directly or, with the prior written approval of ALIAC, through
consultants or subsidiaries. These services shall include, but are not limited
to:
a) SUBMITTING LICENSING AND REGISTRATION INFORMATION. AGENCY shall assist
in gathering the information and forms required in connection with the
appointment of licensed insurance agents and shall forward such
information and forms to ALIAC in good order. ALIAC shall reimburse
AGENCY for all fees incurred in appointing the insurance agents.
b) SERVICING OF REGISTERED REPRESENTATIVES. AGENCY shall provide technical
and administrative assistance to the Registered Representatives of
BROKER 1 and BROKER 2, and their administrative staff where required, in
connection with the solicitation, offer and sale and/or the servicing of
the Group and Individual Contracts and Certificates.
c) REVIEW OF APPLICATION & ENROLLMENT FORMS. AGENCY shall process and
forward to ALIAC only those applications and enrollment forms which
conform to ALIAC's underwriting rules and which are in "good order" and
are submitted by properly licensed, registered and appointed Registered
Representatives. AGENCY shall deliver applications and enrollment
forms, and any initial deposit received therewith, to ALIAC within one
business day following receipt by AGENCY of said applications and forms.
Within 4 days of receipt by AGENCY of any application or enrollment form
that is not in "good order," or such later time as allowed by the
applicant, AGENCY shall either forward said application or enrollment
form to ALIAC if revised to "good order" or return same to the
Registered Representative to remedy any deficiencies.
d) ENFORCE UNDERWRITING RULES. AGENCY shall, in reviewing any enrollment
or application forms, enforce and build into its processing system all
pertinent ALIAC underwriting rules as provided to AGENCY by ALIAC.
These underwriting rules may be changed by ALIAC upon 30 days advanced
written notice to AGENCY. ALIAC, in its sole discretion, may grant an
exception to any underwriting rule. ALIAC's agreement to any exception
must be communicated to AGENCY in writing.
e) SUPERVISE EMPLOYEES. AGENCY shall supervise and be fully responsible
for the activities of all of its employees and agents who perform
services under this Agreement.
f) DESIGN OF PROMOTIONAL MATERIALS. AGENCY shall assist ALIAC in creating
the design and content of marketing and sales literature and materials
used to retain the Group and Individual Contracts.
7
<PAGE>
g) DISTRIBUTION OF PROMOTIONAL MATERIALS. AGENCY shall coordinate the
distribution of marketing and sales literature and materials used to
retain the Group and Individual Contracts. AGENCY agrees to use only
such literature and materials that have been approved in writing by
ALIAC and, if required, filed with and approved by the NASD.
h) EDUCATION/TRAINING. Subject to ALIAC's review and approval, AGENCY
shall conduct product training programs to provide Registered
Representatives with the information necessary for the sale of Marathon
Plus. Such training shall cover the basic requirements of the
nonqualified annuity and Individual Retirement Annuity business,
standards for submitting business to ALIAC, ALIAC's concerns with
respect to the sale of marathon Plus, and any other matter which ALIAC
deems appropriate for the training of Registered Representatives to sell
Marathon Plus, including ALIAC's standards with respect to sales
practices. All literature materials and manuals used in training
Registered Representatives shall be reviewed and approved by ALIAC.
i) DEVELOPMENT OF DATA BASE OF REGISTERED REPRESENTATIVE SALES ACTIVITY AND
VOLUME OF SALES. AGENCY shall create and maintain a data base to
monitor Registered Representative sales activity and volume of
production. This data base will be made available to ALIAC as
requested.
j) MARKETING AND SALES MATERIAL SUPPLIES. AGENCY shall maintain sufficient
supplies of marketing and sales literature and retention materials as
provided by ALIAC to satisfy the needs of the Registered Representatives
selling Group and Individual Contracts and/or soliciting Certificates.
AGENCY shall notify ALIAC of any literature shortages or requirements in
sufficient time to allow ALIAC to replenish or create the needed
material.
k) RECORD KEEPING; RIGHT OF INSPECTION. AGENCY and ALIAC agree to keep the
necessary records, as required by applicable state and federal laws and
acceptable business practices, and to render the necessary assistance to
one another for the accurate and timely preparation of such records.
ALIAC, its representatives or the representatives of any regulatory body
with jurisdiction, shall, during normal business hours and upon
reasonable notice, have access to any record maintained by AGENCY
regarding Group and Individual Contracts and Certificates or
compensation paid relating to such contracts for purposes of reviewing
or copying in the event of a routine internal compliance audit,
regulatory audit, or compliance or regulatory problem, or for inspection
of records AGENCY maintains with respect to any ALIAC contract. AGENCY,
during normal business hours an upon reasonable notice, shall have
access to any records maintained by ALIAC accounting for Purchase
Payments and surrenders, and related commissions. This section shall
survive termination of this Agreement.
8
<PAGE>
l) PROCEDURES. AGENCY and its employees, representatives, agents,
subsidiaries and consultants shall follow ALIAC procedures, as
determined by ALIAC from time to time, regarding forms, applications and
other such matters as may arise with respect to providing administrative
services to support the marketing and distribution of Marathon Plus.
m) POLICYHOLDER SERVICE. AGENCY shall keep an inventory of policyholder
service forms in order to fulfill supply requests from Registered
Representatives. ALIAC shall be the primary source of policyholder
service, but AGENCY shall, when appropriate and not prohibited by any
law or regulation, assist in facilitating and expediting policyholder
service.
n) DISCLOSURE INFORMATION. AGENCY will provide, in writing and on a timely
basis, any information requested by ALIAC with respect to ALIAC's
obligation to provide full and fair disclosure to potential or existing
customers of the Group and Individual Contracts and for any
prospectuses, registration statements or other documents which may be
required to be filed or maintained by any federal or state laws or
regulations.
SECTION 8. GENERAL
8.1 ADMINISTRATIVE INQUIRIES/CUSTOMER COMPLAINTS: Each party will immediately
notify the other of any regulatory or administrative investigation or inquiry,
claim or judicial proceeding which may affect the Group or Individual Contracts
or Certificates marketed or the services rendered under this Agreement. Each
party will immediately notify the other of receipt of any customer complaint or
grievance concerning the marketing or servicing of the Group or Individual
Contracts or Certificates. Within five (5) business days after receipt by any
party of notice of such investigation, inquiry, claim or judicial proceeding or
customer complaint, as specified above, that party will notify the other by
forwarding a copy of all documents received in connection with the matter and
will communicate to the others all additional information necessary to provide a
complete understanding of the matter. AGENCY shall cooperate and assist ALIAC,
which will investigate and respond to all such inquiries, grievances and
complaints as ALIAC, in its sole discretion, deems appropriate. ALIAC reserves
the right to make a financial settlement with a particular customer in response
to such customer's allegation of an error, omission or wrongdoing by AGENCY.
ALIAC will notify AGENCY of any such settlement and, upon such notice, AGENCY
shall reimburse ALIAC for the amount of the settlement in the manner described
in Section 2.4
8.2 INDEPENDENT CONTRACTOR STATUS: In the performance of all responsibilities
under this Agreement, the relationship of AGENCY to ALIAC is that of an
independent contractor and none other. Nothing contained herein shall be
construed as establishing an employment, joint venture, or partnership
relationship between AGENCY and ALIAC.
9
<PAGE>
8.3 WAIVER: Any party hereto may waive its right to require performance by any
other party of any provision of this Agreement. If any party hereto does so
waive, it may require performance at a later time. If any party hereto waives
the breach of any provision of this Agreement by another party, the waiving
party retains the right to require performance of that provision, and such
waiver shall not be construed to waive subsequent breaches of that provision or
any breaches of any other provision.
8.4 MODIFICATION: No party hereto shall be bound by any promise, agreement,
understanding or representation relative to the subject matter of this
Agreement, unless the same is made by an instrument in writing, signed by an
officer of each party, which expresses by its terms an intention to modify this
Agreement. Any such amendment agreed to in writing shall be made a part of this
Agreement.
8.5 INDEMNIFICATION BY ALIAC: ALIAC shall defend, indemnify and hold harmless
AGENCY, its directors, officers and employees against any losses, liabilities,
claims, damages, or expenses, or action with respect to these, arising out of or
in connection with this Agreement to which AGENCY may become subject (including
all costs of investigating, disputing, or defending any such claim or action)
insofar as such losses, liabilities, claims, damages or expenses arise out of or
result from errors, omissions, negligence, fraud, bad faith, or willful
misfeasance or unauthorized acts
1) by ALIAC or any officer, director, employee, or agent appointed,
utilized or employed by ALIAC or
2) by any employee, agent or representative of ALIAC who acts with the
authorization, recommendation or consent of ALIAC.
8.6 INDEMNIFICATION BY AGENCY: ALIAC shall defend, indemnify and hold harmless
ALIAC, its affiliated companies, their directors, officers, and employees,
against any losses, liabilities, claims, damages or expenses, or actions with
respect to these, arising out of or in connection with this Agreement to which
ALIAC may become subject (including all costs of investigating, disputing or
defending any such claim or action) insofar as such losses, liabilities, claims,
damages and expenses arise out of or result from errors, omissions, negligence,
fraud, bad faith or willful misfeasance or unauthorized acts
a) by AGENCY, or any officer, director, employee, consultant or agent
utilized or employed by AGENCY, or
b) by any employee, agent, consultant, or representative who acts with the
authorization, recommendation, or consent of AGENCY.
8.7 NOTICE OF ACTION: After receipt by an indemnified party of notice of the
commencement of any action with respect to which a claim will be made against an
indemnifying party, such indemnified party shall notify the indemnifying party
promptly in writing of the commencement of the action. The failure to so notify
the indemnifying
10
<PAGE>
party shall not relieve the indemnifying party from any liability which it may
otherwise have to any indemnified party except and to the extent the
indemnifying party is prejudiced thereby. In any such action where the
indemnified party has given the notice described in this Section 8.7, the
indemnifying party shall be entitled to participate in and, to the extent that
it shall wish, jointly assume defense of the action with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party). After notice to such
indemnified party that the indemnifying party has elected to assume defense of
the action, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense other than reasonable costs of investigation.
8.8. NOTICES: Any notice required by or given in connection with this Agreement
shall be in writing. Notice shall be deemed to be given on the date of service
if served personally on the party to whom notice is to be given, or on the date
of mailing if sent by registered or certified mail, postage prepaid, to the
addresses set forth below, or to any other address as such party may designate
in writing:
Notice to AGENCY: [Name]
Notice to ALIAC: Aetna Life Insurance and Annuity Company
Annuity Operations
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Compliance Officer
8.9 CONTROLLING LAW: This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
8.10 DISPUTE RESOLUTION: If any dispute arises out of this Agreement or its
termination, all parties will use their best efforts to resolve the dispute
informally, including, if desired by all parties, referring the dispute to a
mutually acceptable mediator. In the event that informal resolution is not
achieved, the dispute will be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
8.11 SEVERABILITY: If any portion or all of any Section or Sections, or any
application thereof, shall become invalid, illegal, or unenforceable for any
reason, the remainder of this Agreement and any other application of such
provision shall not be affected thereby.
8.12 HEADINGS: The headings and titles of paragraphs contained in this
agreement are for convenience only and have no effect upon the construction or
interpretation of any part of this Agreement.
11
<PAGE>
8.13 COUNTERPARTS: This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
8.14 EXECUTION: This Agreement shall first be executed by AGENCY and shall not
be effective until thereafter accepted and executed by ALIAC at which time it
shall be effective.
8.15 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement of the
parties and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations and/or agreement between the parties in
conjunction with the subject matter hereof except as set forth in this
Agreement.
IN WITNESS WHEREOF, the parties of this Agreement have caused it to be executed.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By
-------------------------
Title
-----------------------
Date
-------------------------
STATE OF CONNECTICUT )
ss. Hartford
COUNTY OF HARTFORD )
On this, the _____ day of ____________, 1995, before me, _______________, the
undersigned officer, personally appeared _____________, who acknowledged himself
to be the __________________ of Aetna Life Insurance and Annuity Company, a
corporation, and that he, as such ___________, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as __________________.
IN WITNESS WHEREOF, I hereunto set my hand.
------------------------------
12
<PAGE>
AGENCY, INC.
By
-------------------------
Title
-----------------------
Date
-------------------------
STATE OF )
ss.
COUNTY OF )
On this, the _____ day of ____________, 1995, before me, _______________, the
undersigned officer, personally appeared _____________, who acknowledged himself
to be the __________________ of AGENCY, Inc., a corporation, and that he, as
such ___________, being authorized so to do, executed the foregoing instrument
for the purposes therein contained, by signing the name of the corporation by
himself as __________________.
13
<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.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 22, 1996
<PAGE>
151 Farmington Avenue SUSAN E. BRYANT
Hartford, CT 06156 Counsel
Law and Regulatory Affairs, RE4C
(860) 273-7834
Fax: (860) 273-8340
April 22, 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. 22 to the Registration Statement on Form
N-4 FILE NOS. 33-34370 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. 22 to the Registration Statement on Form N-4 (File No. 33-34370)
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
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<TOTAL-LIABILITIES> 1,130,935,704
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<NET-ASSETS> 1,130,935,704
<DIVIDEND-INCOME> 112,097,675
<INTEREST-INCOME> 0
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<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
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<NET-CHANGE-IN-ASSETS> 335,131,068
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 0
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