<PAGE>
As filed with the Securities and Exchange Registration No. 33-75998
Commission on April 22, 1996 Registration No. 811-2512
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- -------------------------------------------------------------------------------
Post-Effective Amendment No. 4 To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment To
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- -------------------------------------------------------------------------------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
(EXACT NAME OF REGISTRANT)
Aetna Life Insurance and Annuity Company
(NAME OF DEPOSITOR)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(NAME AND ADDRESS OF AGENT FOR SERVICE)
- -------------------------------------------------------------------------------
It is proposed that this filing will become effective (CHECK APPROPRIATE SPACE):
___ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
---
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of securities under the Securities Act of
1933. The Registrant filed a Rule 24f-2 Notice for the fiscal year ended
December 31, 1995 on February 29, 1996.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-4
Item No. Part A (Prospectus) Location
- -------- ------------------- --------
<S> <C> <C>
1 Cover Page . . . . . . . . . . . . . . . . . Cover Page
2 Definitions . . . . . . . . . . . . . . . . Definitions
3 Synopsis or Highlights . . . . . . . . . . . Prospectus Summary; Fee Table
4 Condensed Financial Information . . . . . . Condensed Financial
Information
5 General Description of Registrant,
Depositor, 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus describes individual deferred variable annuity contracts
("Contracts") issued by Aetna Life Insurance and Annuity Company (the
"Company"). The Contracts are designed to provide retirement benefits to
individuals who either are not participating in formal retirement plans, or are
participating in formal retirement plans but wish to personally supplement their
benefits. The Contracts may receive favorable tax deferred treatment under
Federal income tax law. (See "Purchase.")
The Contracts provide that contributions may be allocated to the Fixed 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 Overseas Portfolio
- Aetna Income Shares - Janus Aspen Aggressive Growth
- Aetna Variable Encore Fund Portfolio
- Aetna Investment Advisers Fund, - Janus Aspen Balanced Portfolio
Inc. - Janus Aspen Flexible Income
- Aetna Ascent Variable Portfolio Portfolio
- Aetna Crossroads Variable Portfolio - Janus Aspen Growth Portfolio
- Aetna Legacy Variable Portfolio - Janus Aspen Short-Term Bond
- Alger American Growth Portfolio Portfolio
- Alger American Small Cap Portfolio - Janus Aspen Worldwide Growth
- Fidelity VIP II Contrafund Portfolio
Portfolio - Lexington Natural Resources Trust
- Fidelity VIP Equity-Income - Neuberger & Berman Growth Portfolio
Portfolio - Scudder International Portfolio
- Fidelity VIP Growth Portfolio Class A Shares
- TCI Growth (a Twentieth Century
fund)
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of the Fixed Account is
contained in the Appendix to this Prospectus.
The availability of the Funds and the Fixed Account is subject to applicable
regulatory authorization. Not all Funds (or Credited Interest Options) may be
available in all jurisdictions or under all Contracts. (See "Investment
Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract. 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 15 of this Prospectus. An
SAI may be obtained 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. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1996.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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......................................................... 3
PURCHASE............................................................................. 4
Contract Availability............................................................ 4
Contract Purchase................................................................ 4
Purchase Payments................................................................ 4
Right to Cancel.................................................................. 4
CHARGES AND DEDUCTIONS............................................................... 4
Daily Deductions from the Separate Account....................................... 4
Mortality and Expense Risk Charge.......................................... 4
Administrative Expense Charge.............................................. 5
Maintenance Fee.................................................................. 5
Deferred Sales Charge............................................................ 5
Fund Expenses.................................................................... 6
Premium and Other Taxes.......................................................... 6
CONTRACT VALUATION................................................................... 6
Contract Value................................................................... 6
Accumulation Units............................................................... 6
Net Investment Factor............................................................ 6
TRANSFERS............................................................................ 7
Dollar Cost Averaging Program.................................................... 7
WITHDRAWALS.......................................................................... 7
Reinvestment Privilege........................................................... 8
ADDITIONAL WITHDRAWAL OPTION......................................................... 8
DEATH BENEFIT DURING ACCUMULATION PERIOD............................................. 8
ANNUITY PERIOD....................................................................... 9
Annuity Period Elections......................................................... 9
Partial Annuitization............................................................ 9
Annuity Options.................................................................. 9
Annuity Payments................................................................. 10
Charges Deducted During the Annuity Period....................................... 10
Death Benefit Payable During the Annuity Period.................................. 10
TAX STATUS........................................................................... 11
Introduction..................................................................... 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Taxation of the Company.......................................................... 11
Tax Status of the Contract....................................................... 11
Taxation of Annuities............................................................ 12
MISCELLANEOUS........................................................................ 13
Distribution..................................................................... 13
Delay or Suspension of Payments.................................................. 14
Performance Reporting............................................................ 14
Voting Rights.................................................................... 14
Modification of the Contract..................................................... 14
Transfer of Ownership; Assignment................................................ 15
Legal Matters and Proceedings.................................................... 15
APPENDIX--FIXED ACCOUNT.............................................................. 16
</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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following terms are defined as they are used in this Prospectus:
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to a
Contract are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of each Subaccount before annuity
payments begin.
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.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY (WE, US): Aetna Life Insurance and Annuity Company.
CONTRACTS: The individual deferred, variable annuity contracts described in this
Prospectus.
CONTRACT HOLDER (YOU): The person or entity to whom the Contract is issued.
CONTRACT VALUE: The total dollar value of amounts held in a Contract as of each
Valuation Date during the Accumulation Period.
CONTRACT YEAR: A period of twelve months measured from the date on which a
Contract is established (the effective date) or from an anniversary of such
effective date.
CREDITED INTEREST OPTION: The fixed interest option under the Contract. The
Credited Interest Option currently available is the Fixed Account, which is
described in the Appendix to this Prospectus. Amounts allocated to the Credited
Interest Option are included in the Contract Value.
FUND(S): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
HOME OFFICE: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract.
PURCHASE PAYMENT PERIODS: For "Installment Purchase Payment Contracts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
SEPARATE ACCOUNT: Variable Annuity Account B, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
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.
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.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACTS OFFERED
The Contracts offered in this Prospectus are individual deferred variable
annuity contracts issued by Aetna Life Insurance and Annuity Company (the
"Company"). Both Installment Purchase Payment Contracts and Single Purchase
Payment Contracts are available. The purpose of the Contract is to accumulate
values and to provide benefits upon retirement. The Contracts are available to
individuals who are either not participating in formal retirement plans, or are
participating in formal retirement plans but wish to personally supplement their
benefits.
CONTRACT PURCHASE
The Contracts may be purchased by completing the application and submitting
it to the Company. The minimum Purchase Payment for a Single Purchase Payment
Contract is $5,000. Installment Purchase Payments must be at least $100 per
month ($1,200 annually) and may not be less than $25 per payment. (See
"Purchase.")
FREE LOOK PERIOD
You may cancel the Contract no later than 10 days after receiving it (or
longer if required by state law) by returning it to us 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. (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 in this Prospectus. The Contract
allows investment in any or all of the Subaccounts, as well as in the Fixed
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 Contract also provides for investment in the Fixed Account, which allows
you to earn fixed rates of interest. (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
charges and an administrative expense charge), as well as any annual maintenance
fee 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 Contract Value. (See the Fee Table and
"Charges and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Contract
Values may be transferred among the Subaccounts and the Fixed Account without
charge. Transfers can be requested in writing or by telephone in accordance with
the Company's transfer procedures. (See the Appendix for a full description of
the restrictions applicable to transfers from the Fixed Account.) (See
"Transfers.")
WITHDRAWALS
All or a part of the Contract 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. (See "Withdrawals.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
The Contract also offers an Additional Withdrawal Option during the
Accumulation Period to persons meeting certain criteria. The Additional
Withdrawal Option is not available in all states and may not be suitable in
every situation. (See "Additional Withdrawal Option.")
DEATH BENEFIT
A death benefit is payable if you die before the Annuity Date. Death benefit
proceeds will be paid to the beneficiary in an amount equal to the Contract
Value. Until the election of a method of payment, the Contract Value will remain
invested under the Contract. The beneficiary may elect to receive the proceeds
in a lump sum or under any of the payment options available under the Contract.
However, the Code requires that distributions begin within a certain time
period. (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 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
Contributions and 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 06156-1277
Attention: Customer Service
- Call Customer Service: 1-800-525-4225 (for automated transfers or changes
in the allocation of
Account Values, call: 1-800-262-3862)
</TABLE>
- --------------------------------------------------------------------------------
SUMMARY - 2
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the Annuity
Period, see "Charges Deducted During the Annuity Period." 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. Charges shown do not
include premium taxes that may be applicable. For more information regarding
fees and expenses paid out of the assets of a particular Fund, see the Fund's
prospectus.
DIRECT CHARGES. These charges are deducted directly from the Contract Value.
They include:
DEFERRED SALES CHARGE. The deferred sales charge is deducted as a
percentage of the amount withdrawn. The total amount deducted for the
deferred sales charge will not exceed 8.5% of the total Purchase Payments
applied to the Contract. The amount of the deferred sales charge is
calculated as follows:
<TABLE>
<CAPTION>
INSTALLMENT PURCHASE PAYMENT CONTRACTS:
DEFERRED
SALES
PURCHASE PAYMENT CHARGE
PERIODS COMPLETED DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
<CAPTION>
SINGLE PURCHASE PAYMENT CONTRACT:
DEFERRED
SALES
CONTRACT YEARS CHARGE
COMPLETED DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT MAINTENANCE FEE--INSTALLMENT PURCHASE PAYMENT CONTRACT.................... $ 20.00
--SINGLE PURCHASE PAYMENT CONTRACT.......................... $ 0.00
The maintenance fee will generally be deducted annually from an Installment Purchase
Payment Contract during the Accumulation Period. The maintenance fee, to the extent
permitted by state law, is also deducted upon termination of the Contract.
</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 your Contract. They include:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25%
ADMINISTRATIVE EXPENSE CHARGE............................................................. 0.00%
---------
We currently do not impose an Administrative Expense Charge. However, we reserve the right
to deduct a daily charge of not more than 0.25% per year from the Subaccounts.
TOTAL SEPARATE ACCOUNT CHARGES............................................................ 1.25%
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
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, these figures are a percentage of each Fund's
average net assets and are based on figures for the year ended December 31,
1995. A Fund's "Other Expenses" include operating costs of the Fund. These
expenses are reflected in the Fund's net asset value and are not deducted from
your Contract Value.
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
FEES(1) OTHER EXPENSES TOTAL FUND
(AFTER EXPENSE (AFTER EXPENSE ANNUAL
REIMBURSEMENT) REIMBURSEMENT) EXPENSES
-------------- -------------- -----------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.25% 0.06% 0.31%
Aetna Income Shares(2) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund,
Inc.(2) 0.25% 0.08% 0.33%
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 Growth Portfolio 0.75% 0.10% 0.85%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Fidelity VIP II Contrafund
Portfolio(3) 0.61% 0.11% 0.72%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91%
Janus Aspen Aggressive Growth
Portfolio(4) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio(4) 0.82% 0.55% 1.37%
Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07%
Janus Aspen Growth Portfolio(4) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond
Portfolio(4) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth
Portfolio(4) 0.68% 0.22% 0.90%
Lexington Natural Resources Trust 1.00% 0.47% 1.47%
Neuberger & Berman Growth Portfolio(5) 0.84% 0.10% 0.94%
Scudder International Portfolio Class
A Shares 0.88% 0.20% 1.08%
TCI Growth(6) 1.00% 0.00% 1.00%
</TABLE>
- --------------------------
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2)As of May 1, 1996, the Company will provide administrative services to the
Fund and will assume the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not based
on figures for the year ended December 31, 1995, but reflect the fee payable
under this agreement.
(3)A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.73% for the Contrafund Portfolio.
(4) 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 management fee and then against other expenses. Without such
waivers or reductions, Management Fees, Other Expenses and Total Fund Annual
Expenses for the Portfolios would have been: 0.82%, 0.11% and 0.93% for
Aggressive Growth Portfolio; 1.00%, 0.55%, and 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.
(5) Neuberger & Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust.
Expenses in the table reflect expenses of the Portfolio and include the
Portfolio's pro rata portion of the operating expenses of the Portfolio's
corresponding Series. The Portfolio pays Neuberger & Berman Management Inc.
("NBMI") an administration fee based on the Portfolio's net asset value. The
corresponding Series of the Portfolio pays NBMI a management fee based on
the Series' average daily net assets. Accordingly, this table combines
management fees at the Series level and administration fees at the Portfolio
level in a unified fee rate. (See "Expenses" in the Trust's prospectus.)
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(6) 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.
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 $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.023%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
------------------------------------- -------------------------------------
IF YOU WITHDRAW YOUR ENTIRE CONTRACT IF YOU DO NOT WITHDRAW YOUR CONTRACT
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 $68 $105 $145 $188 $16 $50 $ 86 $188
Aetna Income Shares $68 $106 $146 $190 $16 $51 $ 87 $190
Aetna Variable Encore Fund $68 $106 $147 $193 $17 $51 $ 88 $193
Aetna Investment Advisers Fund, Inc. $68 $106 $146 $190 $16 $51 $ 87 $190
Aetna Ascent Variable Portfolio $71 $115 $162 $225 $20 $60 $104 $225
Aetna Crossroads Variable Portfolio $71 $115 $162 $225 $20 $60 $104 $225
Aetna Legacy Variable Portfolio $71 $115 $162 $225 $20 $60 $104 $225
Alger American Growth Portfolio $73 $121 $172 $245 $22 $66 $114 $245
Alger American Small Cap Portfolio $74 $123 $175 $253 $22 $69 $118 $253
Fidelity VIP II Contrafund Portfolio $72 $117 $165 $232 $20 $63 $107 $232
Fidelity VIP Equity-Income Portfolio $71 $114 $160 $220 $19 $59 $102 $220
Fidelity VIP Growth Portfolio $72 $117 $164 $230 $20 $62 $106 $230
Fidelity VIP Overseas Portfolio $74 $123 $175 $252 $22 $68 $117 $252
Janus Aspen Aggressive Growth Portfolio $73 $121 $172 $247 $22 $67 $115 $247
Janus Aspen Balanced Portfolio $78 $136 $196 $298 $27 $82 $140 $298
Janus Aspen Flexible Income Portfolio $75 $127 $182 $268 $24 $73 $125 $268
Janus Aspen Growth Portfolio $72 $119 $168 $238 $21 $64 $110 $238
Janus Aspen Short-Term Bond Portfolio $72 $117 $164 $230 $20 $62 $106 $230
Janus Aspen Worldwide Growth Portfolio $73 $122 $174 $251 $22 $68 $117 $251
Lexington Natural Resources Trust $79 $139 $201 $307 $28 $85 $145 $307
Neuberger & Berman Growth Portfolio $74 $124 $176 $255 $22 $69 $119 $255
Scudder International Portfolio Class A
Shares $75 $128 $183 $269 $24 $73 $126 $269
TCI Growth $74 $125 $179 $261] $23 $71 $122 $261
</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 - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE
TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM THE
FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE
BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE INDEPENDENT
AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL
INFORMATION.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
------------- ----------- ---------- ------------ ---------- ----------
AETNA VARIABLE FUND
<S> <C> <C> <C> <C> <C> <C>
Value at beginning of period $10.698 $10.940 $10.378 $84.249 $67.496 $66.174
Value at end of period $13.972 $10.698 $10.940 $10.378(2) $84.249 $67.496
Increase (decrease) in value of accumulation
unit(1) 30.61% (2.21)% 5.41% (2) 24.82% 2.00%
Number of accumulation units outstanding at
end of period 30,554,957 11,117,383 879,670 3,107 908,777 810,126
AETNA INCOME SHARES
Value at beginning of period $10.457 $11.006 $10.160 $37.815 $32.066 $29.752
Value at end of period $12.212 $10.457 $11.006 $10.160(3) $37.815 $32.066
Increase (decrease) in value of accumulation
unit(1) 16.78% (4.99)% 8.33% (3) 17.93% 7.78%
Number of accumulation units outstanding at
end of period 4,853,662 1,988,960 166,913 4,196 427,893 358,454
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.509 $10.223 $10.031 $34.122 $32.431 $30.285
Value at end of period $11.007 $10.509 $10.223 $10.031(4) $34.122 $32.431
Increase (decrease) in value of accumulation
unit(1) 4.73% 2.79% 1.91% (4) 5.21% 7.09%
Number of accumulation units outstanding at
end of period 4,354,272 1,822,449 90,782 2,808 548,425 722,438
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.971 $11.164 $10.286 $12.717 $10.882 $10.423
Value at end of period $13.803 $10.971 $11.164 $10.286(6) $12.717 $10.882
Increase (decrease) in value of accumulation
unit(1) 25.81% (1.73)% 8.54% (6) 16.86% 4.40%
Number of accumulation units outstanding at
end of period 6,430,772 3,541,703 318,711 6,537 1,324,822 984,798
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.652
Increase (decrease) in value of accumulation
unit(1) 6.52%
Number of accumulation units outstanding at
end of period 16,791
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.594
Increase (decrease) in value of accumulation
unit(1) 5.94%
Number of accumulation units outstanding at
end of period 16,953
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.000(8)
Value at end of period $10.443
Increase (decrease) in value of accumulation
unit(1) 4.43%
Number of accumulation units outstanding at
end of period 2,222
<CAPTION>
1989 1988 1987 1986
------------ ---------- ---------- ----------
AETNA VARIABLE FUND
<S> <C> <C> <C> <C>
Value at beginning of period $51.900 $45.839 $43.994 $37.445
Value at end of period $66.174 $51.900 $45.839 $43,994
Increase (decrease) in value of accumulation
unit(1) 27.50% 13.22% 4.19% 17.49%
Number of accumulation units outstanding at
end of period 831,547 887,039 1,020,744 1,273,920
AETNA INCOME SHARES
Value at beginning of period $26.291 $24.734 $23.888 $21.203
Value at end of period $29,752 $26.291 $24.734 $23.888
Increase (decrease) in value of accumulation
unit(1) 13.16% 6.29% 3.54% 12.66%
Number of accumulation units outstanding at
end of period 366,176 383,856 377,078 565,148
AETNA VARIABLE ENCORE FUND
Value at beginning of period $28.029 $26.401 $25.028 $23.660
Value at end of period $30.285 $28.029 $26.401 $25.028
Increase (decrease) in value of accumulation
unit(1) 8.05% 6.17% 5.49% 5.78%
Number of accumulation units outstanding at
end of period 653,619 720,726 898,557 881,853
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.000(5)
Value at end of period $10.423
Increase (decrease) in value of accumulation
unit(1) 4.23%
Number of accumulation units outstanding at
end of period 639,219
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation
unit(1)
Number of accumulation units outstanding at
end of period
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation
unit(1)
Number of accumulation units outstanding at
end of period
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation
unit(1)
Number of accumulation units outstanding at
end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
------------ ---------- ------- -------
ALGER AMERICAN GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
Value at beginning of period $10.000(7)
Value at end of period $10.157
Increase (decrease) in value of accumulation
unit(1) 1.57%
Number of accumulation units outstanding at
end of period 275,494
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $ 9.622 $10.307 $10.000(9)
Value at end of period $13.714 $ 9.622 $10.307
Increase (decrease) in value of accumulation
unit(1) 42.52% (6.64)% 3.07%
Number of accumulation units outstanding at
end of period 1,364,901 441,809 31,855
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.468
Increase (decrease) in value of accumulation
unit(1) 4.68%
Number of accumulation units outstanding at
end of period 379,862
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $11.054
Increase (decrease) in value of accumulation
unit(1) 10.54%
Number of accumulation units outstanding at
end of period 294,244
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.066
Increase (decrease) in value of accumulation
unit(1) 0.66%
Number of accumulation units outstanding at
end of period 288,576
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.052
Increase (decrease) in value of accumulation
unit(1) 0.52%
Number of accumulation units outstanding at
end of period 33,813
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.319 $10.000(11)
Value at end of period $12.992 $10.319
Increase (decrease) in value of accumulation
unit(1) 25.91% 3.19%
Number of accumulation units outstanding at
end period 723,839 131,702
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.835
Increase (decrease) in value of accumulation
unit(1) 8.35%
Number of accumulation units outstanding at
end period 7,772
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 9.886 $10.000(11)
Value at end of period $12.094 $ 9.886
Increase (decrease) in value of accumulation
unit(1) 22.33% (1.14)%
Number of accumulation units outstanding at
end of period 84,048 15,893
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.870
Increase (decrease) in value of accumulation
unit(1) 8.70%
Number of accumulation units outstanding at
end period 26,022
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.325
Increase (decrease) in value of accumulation
unit(1) 3.25%
Number of accumulation units outstanding at
end period 2,678
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.893
Increase (decrease) in value of accumulation
unit(1) 8.93%
Number of accumulation units outstanding at
end period 227,582
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
------------ ---------- ------- -------
LEXINGTON NATURAL RESOURCES TRUST
<S> <C> <C> <C> <C>
Value at beginning of period $ 9.079 $ 9.716 $10.000(12)
Value at end of period $10.479 $ 9.079 $ 9.716
Increase (decrease) in value of accumulation
unit(1) 15.42% (6.56)% (2.84)%
Number of accumulation units outstanding at
end of period 162,462 141,076 27,908
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $12.199 $12.990 $10.123 $10.000(10)
Value at end of period $15.871 $12.199 $12.990 $10.123
Increase (decrease) in value of accumulation
unit(1) 30.10% (6.09)% 28.32% 1.23%
Number of accumulation units outstanding at
end of period 526,542 228,370 71,556 2,275
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $13.372 $13.654 $10.051 $10.000(10)
Value at end of period $14.674 $13.372 $13.654 $10.051
Increase (decrease) in value of accumulation
unit(1) 9.74% (2.07)% 35.85% 0.51%
Number of accumulation units outstanding at
end of period 720,017 652,630 144,303 324
TCI GROWTH
Value at beginning of period $10.883 $11.159 $10.232 $10.000(13)
Value at end of period $14.091 $10.883 $11.159 $10.232
Increase (decrease) in value of accumulation
unit(1) 29.47% (2.48)% 9.06% 2.32%
Number of accumulation units outstanding at
end of period 2,735,782 1,123,366 261,107 4,284
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charges or the fixed dollar
annual maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $85.546. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.54%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 3.78%.
(3) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $39.496. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.45%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.60%.
(4) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.828. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.07%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.31%.
(5) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(6) The Accumulation Unit value was converted to $10.000 on November 2, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $12.991. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.15%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 2.86%.
(7) The initial Accumulation Unit value was established at $10.000 during
August 1995, when the Fund became available under the Contract.
(8) The initial Accumulation Unit value was established at $10.000 during
September 1995, when the Fund became available under the Contract.
(9) The initial Accumulation Unit value was established at $10.000 on September
17, 1993, the date on which the Portfolio became available under the
Contract.
(10) The initial Accumulation Unit value was established at $10.000 on November
2, 1992, the date on which the Fund/Portfolio became available under the
Contract.
(11) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
(12) The initial Accumulation Unit value was established at $10.000 on May 26,
1993, the date on which the Fund became available under the Contract.
(13) The initial Accumulation Unit value was established at $10.000 on August
21, 1992, the date on which the Fund became available under the Contract.
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<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 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. 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.
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)
- -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
- --------------------------------------------------------------------------------
1
<PAGE>
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 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 SMALL CAPITALIZATION PORTFOLIO seeks
long-term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of such securities, have total market
capitalization within the range of companies included in the Russell 2000
Growth Index, updated quarterly. The Russell 2000 Growth Index is designed to
track the performance of small capitalization companies. At March 31, 1996, the
range of market capitalization of these companies was $20 million to $3.0
billion.(2)
- -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.(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.(3)
- -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.(3)
- -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).(3)
- -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.(4)
- -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 primarily for their income potential.(4)
- -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).(4)
- -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the
- --------------------------------------------------------------------------------
2
<PAGE>
preservation of capital. The Portfolio pursues its investment objective by
investing in common stocks of companies of any size.(4)
- -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.(4)
- -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.(4)
- -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.(5)
- -NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST-- GROWTH PORTFOLIO seeks capital
appreciation without regard to income. The Portfolio generally invests in
securities believed to have the maximum potential for long-term capital
appreciation. The Portfolio expects to be almost fully invested in common
stocks, often of companies that may be temporarily out of favor in the
market.(6)
- -SCUDDER VARIABLE LIFE INVESTMENT FUND-- INTERNATIONAL PORTFOLIO CLASS A SHARES
seeks long-term growth of capital primarily through diversified holdings of
marketable foreign equity investments.(7)
- -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)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company
(2) Fred Alger Management, Inc.
(3) Fidelity Management & Research Company
(4) Janus Capital Corporation
(5) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. (subadviser)
(6) Neuberger & Berman Management Inc. (Investment Manager); Neuberger & Berman,
L.P. (Sub-Adviser)
(7) Scudder, Stevens & Clark, Inc.
(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 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 Fixed Account, which is the
Credited Interest Option available under the Contract. The Fixed Account is a
part of the Company's general account and guarantees a minimum interest rate, as
specified in the Contract. The Company may credit higher interest rates from
time to time. Transfers from the Fixed Account are limited. (See the Appendix.)
- --------------------------------------------------------------------------------
3
<PAGE>
PURCHASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT AVAILABILITY
The Contracts are designed to provide retirement benefits to individuals who
either are not participating in formal retirement plans, or are participating in
formal retirement plans but wish to personally supplement their benefits. The
usual maximum issue age where Annuity payments are not to begin immediately is
age 80. For Contracts where Annuity payments are to begin immediately, the
maximum issue age depends on the Annuity option selected but may not be greater
than age 90.
This Contract may be aggregated with other annuity contracts purchased by
you from us (and our affiliates) on or after October 21, 1988, for purposes of
determining the taxable portion of payments from this Contract. (See "Tax
Status.")
CONTRACT PURCHASE
Prospective Contract Holders may purchase a Contract by submitting an
application to the Company. The Company must accept or reject the application
within two business days of receipt. If the application is 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
Contract Holder, pending acceptance of the forms. Any Purchase Payment
accompanying the application, or received prior to the acceptance of the
application, will be invested as of the date of acceptance. If the application
is rejected, the application and any Purchase Payments will be returned to the
Contract Holder.
PURCHASE PAYMENTS
Two types of Contracts are available. Continuing, periodic payments will be
placed in "Installment Purchase Payment Contracts." Lump-sum transfers of
amounts accumulated under a pre-existing plan may be placed in "Single Purchase
Payment Contracts." The minimum Purchase Payment for a new Single Purchase
Payment Contract is $5,000. Installment Purchase Payments must be at least $100
per month ($1,200 annually) and may not be less than $25 per payment.
ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be
allocated to the Subaccounts or the Fixed Account as specified on the
application. 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.")
RIGHT TO CANCEL
You may cancel the Contract 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 a longer free-look period.
When we receive your request for cancellation, we will return your Contract
Value, unless the laws of the state in which the Contract was issued require
that we return the initial Purchase Payment (if greater than the Contract
Value). In states that do not require a return of Purchase Payments, you bear
the entire investment risk for amounts allocated among the Subaccounts during
the free look period. Contract Values will be determined as of the Valuation
Date on which we receive your request for cancellation at our Home Office.
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
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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 EXPENSE CHARGE. The Company reserves the right, upon 30
days' notice, to make a deduction from each of the Subaccounts for an
administrative expense charge. The administrative expense charge 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.
Under the Contract, the amount of the administrative expense charge may be
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 expense charge
during the Accumulation Period or 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 of $20 from Installment Purchase Contracts on each Contract Year
anniversary. No maintenance fee is deducted from Single Purchase Payment
Contracts. The maintenance fee is to reimburse the Company for some of its
administrative expenses relating to the establishment and maintenance of the
Contracts.
The maintenance fee will be deducted on a pro rata basis from each
Subaccount in which you have an interest. The maintenance fee will also be
deducted upon termination of the Contract, to the extent permitted by state law.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Contract Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts and the Fixed Account.
For Installment Purchase Payment Contracts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Contracts, it is based on the number of Contract Years that have elapsed
since the Contract effective date. The amount of the deferred sales charge is
determined in accordance with the schedule set forth in the following tables:
<TABLE>
<CAPTION>
INSTALLMENT PURCHASE PAYMENT CONTRACT:
DEFERRED
SALES
PURCHASE PAYMENT CHARGE
PERIODS COMPLETED DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
<CAPTION>
SINGLE PURCHASE PAYMENT CONTRACT:
DEFERRED
SALES
CONTRACT YEARS CHARGE
COMPLETED DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
A deferred sales charge will not be deducted from any portion of the
Contract Value if the withdrawal is:
- - applied to provide Annuity benefits;
- - taken on or after the tenth anniversary of the effective date of the Contract;
- - paid due to your death;
- - made due to the election of the Systematic Withdrawal Option (see "Additional
Withdrawal Option"); or
- - paid due to a full withdrawal where the Contract Value is $2,500 or less and
no amount has been withdrawn during the prior 12 months; or
- - taken from an Installment Purchase Payment Contract if you are at least age
59 1/2 and have completed nine Purchase Payment Periods.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Contract. The Company does not
anticipate that the deferred sales charge will cover all sales and
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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 the mortality and expense risk charge described above.
FREE WITHDRAWALS. Up to 10% of the current Contract Value may be withdrawn
during each calendar year without imposition of a deferred sales charge. The
free withdrawal applies only to the first partial withdrawal in each calendar
year. The 10% amount will be based on the Contract Value calculated on the
Valuation Date next following our receipt of your request for withdrawal. This
provision does not apply to a full withdrawal of the Contract or if SWO is
elected. This provision also does not apply for those Contracts issued in the
state of Washington. (See "Additional Withdrawal Option.")
In the instances cited above, no deferred sales charge is deducted. However,
the withdrawn amount may be subject to the 10% penalty tax.
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 prospectus.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Contract Values at any time, but no
earlier than 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 upon our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
The Company's current practice is to deduct for premium taxes at the time of
complete withdrawal or annuitization. In addition to the premium tax, the
Company reserves the right to assess a charge for any state or federal taxes due
against the Contract or the Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
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CONTRACT VALUE
Until the Annuity Date, the Contract Value is the total dollar value of
amounts held under your Contract as of any Valuation Date. The Contract 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 Fixed 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 expense charge (if any).
Initial Purchase Payments will be credited to your Contract as described
under "Purchase." Each subsequent Purchase Payment (or amount transferred) will
be credited to your Contract 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:
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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 expense charge which will not exceed
0.25% on an annual basis (currently 0%).
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 Contract from one Subaccount to another. Transfers between the Fixed
Account and the Subaccounts are subject to certain restrictions. (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 without charge. The transfer amount may not be less
than $500. The total number of investment options that you may select during the
Accumulation Period may be limited, as set forth on your application. 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 under some Annuity Options later in 1996. (See "Annuity
Period--Annuity Options.")
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Contract 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. 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. Please refer
to the Inquiries section of the Prospectus Summary which describes how you can
obtain further information.
WITHDRAWALS
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All or a portion of the Contract Value may be withdrawn at any time during
the Accumulation Period. 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:
- -FULL WITHDRAWAL OF A CONTRACT: The amount paid upon a full withdrawal will be
the Contract Value allocated to the Subaccounts and the Fixed Account, minus
any applicable deferred sales charge and maintenance fee due.
- -PARTIAL WITHDRAWALS (Percentage): The amount paid will be the percentage of the
Contract Value requested minus any applicable deferred sales charge.
- -PARTIAL WITHDRAWAL (Specified Dollar Amount): The amount paid will be the
dollar amount requested. However, the amount withdrawn from the Contract will
equal the amount requested plus any applicable deferred sales charge.
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or the
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7
<PAGE>
Fixed Account in which your Contract is invested, unless you request otherwise
in writing. All amounts paid will be based on Contract Values 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.
Tax treatment of withdrawals from this Contract may be modified if you own
other annuity contracts issued by us (and our affiliates) that were purchased on
or after October 12, 1988. (See "Tax Status--Multiple Contracts.")
REINVESTMENT PRIVILEGE
You may elect to reinvest all or a portion of the proceeds received from a
full withdrawal of your Contract within 30 days after such withdrawal has been
made. Accumulation Units will be credited to the Contract for the amount
reinvested, as well as any maintenance fee and any deferred sales charge imposed
at the time of withdrawal. Any maintenance fee which falls due after the
withdrawal and before the reinvestment will be deducted from the amounts
reinvested. Reinvested amounts will be reallocated to the applicable investment
options in the same proportion as they were allocated at the time of withdrawal.
Accumulation Units will be credited to your Contract based on the Accumulation
Unit Value next computed following our receipt of your request along with the
amount to be reinvested. The reinvestment privilege may be used only once. If
you are contemplating reinvestment, you should seek competent advice regarding
the tax consequences associated with such a transaction.
ADDITIONAL WITHDRAWAL OPTION
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The Company offers a withdrawal option under the Contract that is not
considered an annuity option ("Additional Withdrawal Option"). To exercise this
option, the Contract Value must meet the minimum dollar amounts and age criteria
applicable to that option.
- -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from
the Contract 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.
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to the Additional Withdrawal Option may be
obtained from your local representative or from the Company at its Home Office.
If you select an Additional Withdrawal Option, you will retain all of the
rights and flexibility permitted under the Contract during the Accumulation
Period. Your Contract 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 the option is revoked,
it may not be elected again. The Company reserves the right to discontinue the
availability of SWO or any other Additional Withdrawal Options at any time,
and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
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The Contract provides that a death benefit is payable to the
beneficiary(ies) upon your death before the Annuity Date. The amount of the
death benefit will be equal to the Contract Value. Death benefit proceeds may be
paid to the beneficiary:
- - in a lump sum; or
- - in accordance with any of the Annuity Options available under the Contract.
The beneficiary may instead elect one of the following two options; however,
the Code limits how long the death benefit proceeds may be left in these options
(see below):
- - to leave the Contract Value invested in the Contract; or
- - to leave the Contract Value on deposit in the Company's general account, and
to receive monthly, quarterly, semi-annual or annual interest payments at
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<PAGE>
the interest rate then being credited on such deposits. The balance on deposit
can be withdrawn at any time or applied to an Annuity Option.
When paying the beneficiary, we will determine the Contract Value on the
Valuation Date following the date on which we receive proof of death acceptable
to the Company. Interest, if any, will be paid from the date of death at a rate
no less than required by law. We will mail payment to the beneficiary within
seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a certain
period of time. Generally, either payments must begin by December 31 of the year
following the year of your death, or the entire value of your benefits must be
distributed by December 31 of the fifth year following the year of your death.
An exception to this provision applies if the beneficiary is your surviving
spouse, in which case the beneficiary may elect to be treated as a successor
Contract Holder of the Contract. This successor Contract Holder may exercise all
rights to the Contract. Under the Code, no distributions from the Contract are
required until the death of this successor Contract Holder. In no event may
payments extend beyond the life expectancy of the beneficiary or any period
certain greater than the beneficiary's life expectancy. If no elections are
made, no distributions will be made. Failure to commence distributions within
the above time periods can result in tax penalties. Regardless of the method of
payment, death benefit proceeds will generally be taxed to the beneficiary in
the same manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
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 to start receiving annuity payments;
- - the Annuity Option under which you want your 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 any of the Subaccounts available at the
time of annuitization). As of the date of this Prospectus, Aetna Variable
Fund, 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" below.)
Until a date and option are elected, the Account will continue in the
Accumulation Period. 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 Contract
Value, while leaving the remaining portion of your Contract 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 Contract.
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 Payees--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.
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- -OPTION 4--Life Income based Upon the Lives of Two Payees--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 Annuitant cannot elect to receive a
lump-sum settlement.
NONLIFETIME ANNUITY OPTIONS:
- -OPTION 1--PAYMENTS FOR A SPECIFIED PERIOD-- payments will continue for a
specified period of time, as provided for under your Contract.
An annuity may be selected on a fixed or variable basis and payments may be
made for 3-30 years. If a nonlifetime option is elected on a variable basis, the
Annuitant 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.") The nonlifetime option is not available on
a variable basis under a Contract which provides for immediate annuity benefits.
We may also offer additional Annuity Options under your Contract from time
to time. The Company expects to offer additional Annuity Options and enhanced
versions of the Annuity Options listed above at some time during 1996. 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. (Additional Subaccounts and transfer
capability are expected during the second half of 1996.) Such additional or
enhanced options will be made available by an endorsement to the Contract, which
will include the guaranteed annuity payout rates and other terms applicable to
such options. (Depending on which guaranteed payout rates apply to the existing
options, the guaranteed payout rates for the new and enhanced options will be
the same or lower.) Please refer to the Contract 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.
AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on the
size of your Contract Value, how you allocate it between fixed and variable
payouts, and the Annuity Option chosen. No election may be made that would
result in the first Annuity payment of less than $20, or total yearly Annuity
payments of less than $100. If your Contract Value on the Annuity Date is
insufficient to elect an option for the minimum amount specified, a lump-sum
payment must be elected.
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 expense charge from
amounts held under the variable options. (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.
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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. Under
Options 2 and 4, such value will be reduced by any payments made after the date
of death.
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 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 or beneficiary may depend upon the tax status of
the individual concerned. 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
the Contracts, the investments of the Funds be "adequately diversified" in
accordance with Treasury Regulations in order for the Contracts to qualify as
annuity contracts under federal tax law. The Separate Account, through the
Funds, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affects how the Funds' assets may be
invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In 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 contract 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
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the IRS in rulings in which it was determined that contract owners were not
owners of separate account assets. For example, a Contract 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 Contract 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 Contract
Holder from being considered the owner of a pro rata share of the assets of the
Separate Account.
REQUIRED DISTRIBUTIONS: In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires that the
Contracts provide that (a) if any Contract Holder dies on or after the annuity
date but prior to the time the entire interest in the Contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of such
Contract Holder's death; and (b) if any Contract Holder dies prior to the
annuity date, the entire interest in the Contract will be distributed within
five years after the date of such Contract Holder's death. These requirements
will be considered satisfied as to any portion of a Contract Holder's interest
which is payable to or for the benefit of a "designated beneficiary" and which
is distributed over the life of such "designated beneficiary" or over a period
not extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of the Contract Holder's death. The
"designated beneficiary" refers to a natural person designated by the Contract
Holder as a beneficiary and to whom ownership of the Contract passes by reason
of death. However, if the "designated beneficiary" is the surviving spouse of
the deceased Contract Holder, the Contract may be continued with the surviving
spouse as the new Contract Holder.
The Contracts 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.
The following discussion is based on the assumption that the Contract
qualifies as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Contract Holder who is a natural person
generally is not taxed on increases in the Contract Value until distribution
occurs by withdrawing all or part of such Contract Value (e.g., withdrawals or
Annuity payments under the Annuity Option elected). For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the Contract
Value generally will be treated as a distribution. 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 CONTRACT. If the Contract Holder is not a natural
person, a 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 advisor 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 a Contract owned by a natural
person.
WITHDRAWALS: Partial withdrawals, including withdrawals under the
Systematic Withdrawal Option, are generally treated as taxable income to the
extent that the Contract Value immediately before the withdrawal exceeds the
"investment in the contract" at that time. Full surrenders of a 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 Contract 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
- --------------------------------------------------------------------------------
12
<PAGE>
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 adviser regarding deductibility of the unrecovered
amount.
PENALTY TAX: In the case of a distribution, there may be imposed a federal
income tax penalty equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions: (1) made on or after
the date on which the taxpayer attains age 59 1/2; (2) made as a result of death
or disability of a Contract Holder; (3) received in substantially equal periodic
payments as a life annuity or a joint and survivor annuity for the lives or life
expectancies of the Contract Holder and a "designated beneficiary".
TAXATION OF DEATH BENEFIT PROCEEDS: Amounts may be distributed from the
Contract because of the death of a Contract 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 Contract Holder, the selection of certain Annuity
Dates, or the exchange of a Contract may result in certain tax consequences that
are not discussed herein. 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 non-qualified annuity contracts that are
issued on or after October 12, 1988 by the Company (or its affiliates) to the
same owner during any calendar year are treated as one annuity contract for the
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.
WITHHOLDING: 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, however,
generally are provided the opportunity to elect not to have tax withheld from
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 and is a member of the National Association
of Securities Dealers, Inc. (NASD). As principal underwriter, the Company will
contract with one or more registered broker-dealers ("Distributors"), including
at least one affiliate of the Company, to offer and sell the Contracts. All
persons offering and selling the Contracts must be registered representatives of
the Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services to
Contract Holders in connection with establishing their Contracts.
PAYMENT OF COMMISSIONS. Persons offering and selling the Contracts may
receive commissions in
- --------------------------------------------------------------------------------
13
<PAGE>
connection with the sale of the Contracts. The maximum percentage amount that
the Company will ever pay as commission with respect to any given Purchase
Payment is with respect to those made during the first year of Purchase Payments
under an Account. The percentage amount will range from 1% to 7 1/2% of those
Purchase Payments. The Company may also pay renewal commissions and service fees
on Purchase Payments made after the first year. The average of all payments made
by the Company is estimated to equal approximately 3% of the total Purchase
Payments made over the life of an average Contract. The Company may also
reimburse the Distributor for certain expenses. The name of the Distributor and
the registered representative responsible for your Contract are set forth in
your application. Commissions and sales related expenses are paid by the Company
and are not deducted from Purchase Payments. (See "Charges and
Deductions--Deferred Sales Charge.")
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,
the administrative expense 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
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular and
special meetings of Fund shareholders in accordance with instructions received
from Contract Holders. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions.
Contract Holders will receive periodic reports relating to the Fund(s) in
which they have an interest, as well as any proxy materials and a form on which
to give voting instructions. Voting instructions will be solicited by written
communication at least 14 days before such meeting. The number of votes to which
each person may give direction will be determined as of the record date set by
the Fund.
The number of votes each Contract Holder may cast during the Accumulation
Period is equal to the portion of the Contract Value attributable to that Fund,
divided by the net asset value of one share of that Fund. During the Annuity
Period, the number of votes is equal to the valuation reserve applicable to the
portion of the Contract attributable to that Fund, divided by the net asset
value of one share of that Fund. In determining the number of votes, fractional
votes will be recognized. Where the Contract Value or valuation reserve relates
to more than one Fund, the calculation of votes will be performed separately for
each Fund.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 day's written notice to the Contract Holder,
make
- --------------------------------------------------------------------------------
14
<PAGE>
changes to certain provisions of the Contract if it deems an amendment
appropriate. However, no change will affect the amount or terms of any annuity
which begins before the change, and certain provisions of the Contract may not
be changed. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
TRANSFER OF OWNERSHIP; ASSIGNMENT
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 Contract Holder and the
interest of the Annuitant and any beneficiary will be subject to the rights of
any assignee of record.
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.
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>
- --------------------------------------------------------------------------------
15
<PAGE>
APPENDIX
FIXED ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED ACCOUNT.
AMOUNTS ALLOCATED TO THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT
THAT SUPPORTS GENERAL INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED
ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THE PROSPECTUS REGARDING
THE FIXED ACCOUNT, MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED
ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract (this minimum interest rate cannot be changed by the Company). The
Company may credit a higher interest rate from time to time. The Company's
determination of interest rates reflects the investment income earned on
invested assets and the amortization of any capital gains and/or losses realized
on the sale of invested assets. Under the Fixed Account, the Company assumes the
risk of investment gain or loss by guaranteeing Purchase Payment values and
promising a minimum interest rate and Annuity Payment.
Under certain emergency conditions, the Company may defer payment:
(a) for a period of up to 6 months (unless not allowed by state law); and
(b) as provided by federal law.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period. The
amount which may be transferred may vary at our discretion; however, it will
never be less than 10% of the amount held under the Fixed Account.
By notifying us at our Home Office at least 30 days before Annuity Payments
begin, you may elect to have amounts which have been accumulating under the
Fixed Account transferred to one or more of the Subaccounts available during the
Annuity Period to provide variable Annuity Payments.
- --------------------------------------------------------------------------------
16
<PAGE>
- -------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
Individual Variable Annuity Contracts
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
1-800-525-4225
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.................................................. 5
Sales Material and Advertising.................................... 6
Independent Auditors.............................................. 7
Financial Statements of the Separate Account...................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company.. F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1995, the Company had
assets of $27.1 billion (subject to $25.5 billion of customer and other
liabilities, $1.6 billion of shareholder equity) which includes $11 billion in
assets held in the Company's separate accounts. The Company had $22 billion in
assets under management, including $8 billion in its mutual funds. As of
December 31, 1994, it ranked among the top 2% of all U.S. life insurance
companies by size. The Company is a wholly owned subsidiary of Aetna
Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna
Retirement Services, Inc., and an indirect wholly owned subsidiary of Aetna
Life and Casualty Company. The Company is engaged in the business of issuing
life insurance policies and annuity contracts in all states of the United
States. The Company's Home Office is located at 151 Farmington Avenue,
Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account B" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options
under the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate
Account has no custodian. However, the Funds in whose shares the assets of the
Separate Account are invested each have custodians, as discussed in their
respective prospectuses.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity
contracts issued by the Company. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended. The assets of 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>
Aetna Variable Fund Fidelity VIP Overseas Portfolio
Aetna Income Shares Janus Aspen Aggressive Growth Portfolio
Aetna Variable Encore Fund Janus Aspen Balanced Portfolio
Aetna Investment Advisers Fund, Inc. Janus Aspen Flexible Income Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Growth Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Short-Term Bond Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Growth Portfolio Lexington Natural Resources Trust
Alger American Small Cap Portfolio Neuberger & Berman Growth Portfolio
Fidelity VIP II Contrafund Portfolio Scudder International Portfolio Class A
Shares
Fidelity VIP Equity-Income Portfolio TCI Growth
Fidelity VIP Growth Portfolio
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is
continuous. A description of the manner in which Contracts are purchased may
be found in the prospectus under the sections 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
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 expense 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.
2
<PAGE>
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 Funds 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 Contract Value upon redemption may be more or
less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED
The set of tables shown below represents the two variations in contract payment
type. Table A reflects the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1995 for the
Subaccounts under Single Payment Contracts issued by the Company. Table B
reflects the average annual standardized and non-standardized total return
quotation figures for the periods ended December 31, 1995 for the Subaccounts
under Installment Payment Contracts with a $20 annual maintenance fee. 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 *).
<TABLE>
<CAPTION>
TABLE A
-------------------------------------------------------------------------------
SINGLE PAYMENT CONTRACT FUND
($0 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 24.08% 11.20% 12.31% 30.61% 10.42% 12.11% 12.31% 04/30/75
Aetna Income Shares 10.94% 7.62% 8.57% 16.78% 6.32% 8.51% 8.57% 06/01/78
Aetna Variable Encore Fund (0.50%) 2.56% 4.94% 4.74% 3.14% 3.40% 4.94% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.37% 9.61% 8.86%* 25.65% 10.30% 10.50% 9.37%* 06/23/89
Aetna Ascent Variable Portfolio 4.32%* n/a n/a 9.81%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.25% n/a n/a 8.68%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.27%* n/a n/a 7.66%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.95% 19.24% 17.44%* 34.68% 17.73% 20.22% 17.96%* 01/08/89
Alger American Small Cap Portfolio 35.39% 17.79% 20.51%* 42.52% 14.07% 18.75% 20.85%* 09/21/88
Fidelity VIP II Contrafund Portfolio 31.01%* n/a n/a 37.91%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.75% 18.84% 11.99%* 33.43% 18.12% 19.82% 11.99%* 10/22/86
Fidelity VIP Growth Portfolio 27.01% 18.31% 13.55%* 33.69% 15.88% 19.28% 13.55%* 11/07/86
Fidelity VIP Overseas Portfolio 2.91% 5.91% 5.90%* 8.32% 13.86% 6.78% 6.02%* 02/13/87
Janus Aspen Aggressive Growth Portfolio 19.61% 23.24%* n/a 25.91% 26.02%* n/a n/a 09/13/93
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Balanced Portfolio 17.08% 10.02%* n/a 23.24% 12.50%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.21% 5.92%* n/a 22.33% 8.31%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 22.14% 11.27%* n/a 28.56% 13.78%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.77% 1.02%* n/a 8.18% 3.30%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.40% 16.51%* n/a 25.69% 19.13%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.65% 3.61%* n/a 15.42% 5.51% 4.88%* n/a 10/14/91
Neuberger & Berman Growth Portfolio 23.59% 15.67% 12.90% 30.10% 16.17% 16.62% 12.90% 12/31/85
Scudder International Portfolio Class A Shares 4.25% 8.11% 7.88%* 9.74% 13.44% 8.99% 8.01%* 05/01/87
TCI Growth 23.00% 12.57% 11.32%* 29.47% 11.26% 13.50% 11.46%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
<TABLE>
<CAPTION>
TABLE B
----------------------------------------------------------------------------------
INSTALLMENT PURCHASE PAYMENT FUND
ACCOUNT: STANDARDIZED NON-STANDARDIZED INCEPTION
($20 MAINTENANCE FEE) 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 24.06% 10.94% 12.28% 30.59% 10.40% 12.09% 12.28% 04/30/75
Aetna Income Shares 10.92% 7.38% 8.54% 16.75% 6.30% 8.48% 8.54% 06/01/78
Aetna Variable Encore Fund (0.53%) 2.32% 4.92% 4.71% 3.12% 3.38% 4.92% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.35% 9.35% 8.49%* 25.63% 10.28% 10.48% 9.34%* 06/23/89
Aetna Ascent Variable Portfolio 4.29%* n/a n/a 9.78%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.23%* n/a n/a 8.66%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.25%* n/a n/a 7.63%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.93% 18.97% 17.07%* 34.66% 17.71% 20.20% 17.93%* 01/08/89
Alger American Small Cap Portfolio 35.37% 17.52% 19.97%* 42.50% 14.05% 18.73% 20.82%* 09/21/88
Fidelity VIP II Contrafund Portfolio 30.99%* n/a n/a 37.89%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.73% 18.57% 11.34%* 33.40% 18.10% 19.80% 11.97%* 10/22/86
Fidelity VIP Growth Portfolio 26.99% 18.04% 12.89%* 33.67% 15.86% 19.26% 13.53%* 11/07/86
Fidelity VIP Overseas Portfolio 2.88% 5.67% 5.38%* 8.30% 13.84% 6.76% 5.99%* 02/13/87
Janus Aspen Aggressive Growth Portfolio 19.59% 23.21%* n/a 25.88% 25.99%* n/a n/a 9/13/93
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Balanced Portfolio 17.06% 9.99%* n/a 23.22% 12.48%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.19% 5.89%* n/a 22.30% 8.28%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 22.11% 11.24%* n/a 28.54% 13.75%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.75% 1.00%* n/a 8.15% 3.27%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.38% 16.48%* n/a 25.67% 19.11%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.63% 3.59%* n/a 15.40% 5.48% 4.86%* n/a 10/14/91
Neuberger & Berman Growth Portfolio 23.57% 15.41% 12.87% 30.07% 16.15% 16.60% 12.87% 12/31/85
Scudder International Portfolio Class A Shares 4.23% 7.86% 7.35%* 9.71% 13.42% 8.97% 7.99%* 05/01/87
TCI Growth 22.98% 12.32% 10.74%* 29.45% 11.23% 13.47% 11.44%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
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 period 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.
5
<PAGE>
EXAMPLE:
Assume that, at the date Annuity Payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth valuation period prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
Payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the valuation period in which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent
month.
If the net investment factor with respect to the appropriate 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 Annuity
Units determined above) produces a result of 1.0014057. This is then multiplied
by the Annuity Unit value for the prior valuation period (assume such value to
be $13.504376) to produce an Annuity Unit value of $13.523359 for the valuation
period in which the second payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
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.
6
<PAGE>
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Contract 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 include primarily the examination of
the Separate Account's financial statements and the review of filings made with
the SEC.
7
<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 NET
AMOUNT COMPANIES COMPANIES AMOUNT
--------- ------------- ------------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
1995
Premiums:
Life Insurance....................................... $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance........................ 7.5 7.5 -- --
Annuities............................................ 82.1 -- 0.5 82.6
--------- ----- ----- ---------
Total earned premiums................................ $ 118.4 $ 16.1 $ 28.5 $ 130.8
--------- ----- ----- ---------
--------- ----- ----- ---------
1994
Premiums:
Life Insurance....................................... $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance........................ 9.3 9.3 -- --
Annuities............................................ 69.9 -- 0.2 70.1
--------- ----- ----- ---------
Total earned premiums................................ $ 106.5 $ 15.3 $ 33.0 $ 124.2
--------- ----- ----- ---------
--------- ----- ----- ---------
1993
Premiums:
Life Insurance....................................... $ 22.4 $ 5.6 $ 33.3 $ 50.1
Accident and Health Insurance........................ 12.9 12.9 -- --
Annuities............................................ 31.3 -- 0.7 32.0
--------- ----- ----- ---------
Total earned premiums................................ $ 66.6 $ 18.5 $ 34.0 $ 82.1
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3
Short-term investments.................................... 15.1 15.1 98.0 98.0
Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4
Equity securities......................................... 257.6 257.6 229.1 229.1
Limited partnership....................................... -- -- 24.4 24.4
Mortgage loans............................................ 21.2 21.9 9.9 9.9
Liabilities:
Investment contract liabilities:
With a fixed maturity................................... 989.1 1,001.2 826.7 833.5
Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's management
of interest rate and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
SHORT-TERM INSTRUMENTS: Fair values are based on quoted market prices or dealer
quotations. Where quoted market prices are not available, the carrying amounts
reported in the Consolidated Balance Sheets approximates fair value. Short-term
instruments have a maturity date of one year or less and include cash and cash
equivalents, and short-term investments.
DEBT AND EQUITY SECURITIES: Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair value is estimated by using quoted market prices for similar
securities or discounted cash flow methods.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS: Fair value is estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans. The fair value estimate
of mortgage loans of lower quality, including problem and restructured loans, is
based on the estimated fair value of the underlying collateral.
INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH THE
COMPANY):
WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS)
During 1995, the Company received $0.4 million for writing call options on
underlying securities. As of December 31, 1995 there were no option contracts
outstanding.
At December 31, 1995, the Company had a forward swap agreement with a notional
amount of $100.0 million and a fair value of $0.1 million.
The Company did not have transactions in derivative instruments in 1994.
The Company also holds investments in certain debt and equity securities with
derivative characteristics (i.e., including the fact that their market value is
at least partially determined by, among other things, levels of or changes in
interest rates, prepayment rates, equity markets or credit ratings/spreads). The
amortized cost and fair value of these securities, included in the $13.4 billion
investment portfolio, as of December 31, 1995 was as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
(MILLIONS) COST VALUE
----------- -----------
<S> <C> <C>
Collateralized mortgage obligations......................... $ 2,383.9 $ 2,549.3
Principal-only strips (included above)...................... 38.7 50.0
Interest-only strips (included above)....................... 10.7 20.7
Structured Notes (1)........................................ 95.0 100.3
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
11. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
the value of the securities underlying the commitments. At December 31, 1995,
the Company had commitments to purchase investments of $31.4 million. The fair
value of the investments at December 31, 1995 approximated $31.5 million. There
were no outstanding forward commitments at December 31, 1994.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or December 31, 1994 which were beyond the ordinary course of
business. The Company is involved in lawsuits arising, for the most part, in the
ordinary course of its business operations as an insurer.
12. SEGMENT INFORMATION
The Company's operations are reported through two major business segments: Life
Insurance and Financial Services.
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Financial services........................................ $ 1,129.4 $ 946.1 $ 892.8
Life insurance............................................ 407.9 386.1 371.7
----------- ----------- -----------
Total revenue............................................. $ 1,537.3 $ 1,332.2 $ 1,264.5
----------- ----------- -----------
Income before federal income taxes:
Financial services........................................ $ 158.0 $ 119.7 $ 121.1
Life insurance............................................ 102.0 96.8 98.0
----------- ----------- -----------
Total income before federal income taxes.................. $ 260.0 $ 216.5 $ 219.1
----------- ----------- -----------
Net income:
Financial services........................................ $ 113.8 $ 85.5 $ 86.8
Life insurance............................................ 62.1 59.8 56.1
----------- ----------- -----------
Net income.................................................. $ 175.9 $ 145.3 $ 142.9
----------- ----------- -----------
Assets under management, at fair value:
Financial services........................................ $ 23,224.3 $ 17,785.2 $ 16,600.5
Life insurance............................................ 2,698.1 2,171.7 2,175.5
----------- ----------- -----------
Total assets under management............................. $ 25,922.4 $ 19,956.9 $ 18,776.0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Independent Auditors' Report
- Statement of Assets and Liabilities as of December 31, 1995
- Statement of Operations for the year ended December 31, 1995
- Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994
- Notes to Financial Statements
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
- Consolidated Balance Sheets as of December 31, 1995 and 1994
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1995, 1994 and 1993
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account B(1)
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement(2)
(3.2) Alternate Form of Wholesaling Agreement and related Selling
Agreement(2)
(4) Form of Variable Annuity Contract (IA-CDA-IA))(3)
(5) Form of Variable Annuity Contract Application (707.00.1B)(3)
(6) Certification of Incorporation and By-Laws of Depositor(4)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated March 31, 1995(2)
(8.2) Fund Participation Agreement 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)
<PAGE>
(8.3) 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)
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994 and
amended March 1, 1996(2)
(8.5) 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)
(8.6) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Advisers Management Trust (now Neuberger &
Berman Advisers Management Trust) dated April 14, 1989 and as
assigned and modified on May 1, 1995(2)
(8.7) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment Fund dated
April 27, 1992 and amended February 19, 1993 and
August 13, 1993(2)
(8.8) 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)
(9) Opinion of Counsel(5)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(3)
(14) Financial Data Schedule
(15.1) Powers of Attorney (6)
(15.2) Authorizations for Signatures(2)
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. 33-75998), as filed on April 28, 1995.
4. 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.
5. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year ended
December 31, 1995, as filed electronically on February 29, 1996.
6. 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, ALIAC IT
Creed R. Terry Director and Vice President
Eugene M. Trovato Vice President and Treasurer, Corporate
Controller
Zoe Baird Senior Vice President and General Counsel
Diane Horn Vice President and Chief Compliance Officer
Susan E. Schechter Corporate Secretary and Counsel
</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, as supplemented by Post-Effective Amendment
No. 6 to Registration Statement on Form N-4 (File No. 33-75986) filed
electronically on April 22, 1996.
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 1996, there were 34,893 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
ITEM 28. INDEMNIFICATION
Reference is hereby made to Section 33-320a of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents, and
certain other defined individuals against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification does not apply unless (1) the individual is successful on
the merits in the defense of any such proceeding; or (2) a determination is
made (by a majority of the board of directors not a party to the proceeding by
written consent; by independent legal counsel selected by a majority of the
directors not involved in the proceeding; or by a majority of the shareholders
not involved in the proceeding) that the individual acted in good faith and in
the best interests of the corporation; or (3) the court, upon application by
the individual, determines in view of all the circumstances that such person is
reasonably entitled to be indemnified.
C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut
corporation cannot indemnify a director or officer to an extent either greater
or less than that authorized by the statute, e.g., pursuant to its certificate
of incorporation, bylaws, or any separate contractual arrangement. However,
the statute does specifically authorize a corporation to procure
indemnification insurance to provide greater indemnification rights. The
premiums for such insurance may be shared with the insured individuals on an
agreed basis.
Consistent with the statute, Aetna Life and Casualty Company has procured
insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor, which supplements the indemnification
rights provided by C.G.S. Section 33-320a to the extent such coverage does not
violate public policy.
ITEM 29. PRINCIPAL UNDERWRITER
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts
as the principal underwriter for Variable Life Account B and Variable
Annuity Accounts C and G (separate accounts of ALIAC registered as unit
investment trusts), and Variable Annuity Account I (a separate account
of Aetna Insurance Company of America registered as a unit investment
trust). Additionally, ALIAC is the investment adviser for Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, Aetna Series Fund, Inc. and Aetna
Generation Portfolios, Inc. ALIAC is also the depositor of Variable
Life Account B, and Variable Annuity Accounts C and G.
<PAGE>
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1995:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Aetna Life $294,931 $11,944,532
Insurance and
Annuity
Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and expense
risk guarantees and contract charges assessed to cover costs incurred in the
sales and administration of the contracts issued under Variable Annuity
Account B.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All records concerning contract owners of Variable Annuity Account B are
located at the home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
ITEM 31. MANAGEMENT SERVICES
Not applicable
<PAGE>
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4, a
space that an applicant can check to request a Statement of Additional
Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(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, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 4 to its Registration Statement on Form N-4 (File No. 33-75998) and has
caused this Post-Effective Amendment No. 4 to its Registration Statement on Form
N-4 (File No. 33-75998) 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. 4 to the Registration Statement on Form N-4 (File No. 33-75998)
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, Senior Vice President )
- -------------------------- and Chief Financial Officer ) April
Timothy A. Holt ) 22, 1996
)
)
Christopher J. Burns* Director )
- -------------------------- )
Christopher J. Burns )
)
Laura R. Estes* Director )
- -------------------------- )
Laura R. Estes )
<PAGE>
Gail P. Johnson* Director )
- -------------------------- )
Gail P. Johnson )
)
)
John Y. Kim* Director )
- -------------------------- )
John Y. Kim )
)
Shaun P. Mathews* Director )
- -------------------------- )
Shaun P. Mathews )
)
Glen Salow* Director )
- -------------------------- )
Glen Salow )
)
Creed R. Terry* Director )
- -------------------------- )
Creed R. Terry )
)
Eugene M. Trovato* Vice President and Treasurer, )
- -------------------------- Corporate Controller )
Eugene M. Trovato )
By: /s/ Julie E. Rockmore
--------------------------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
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 Broker-Dealer Agreement *
99-B.3.2 Alternate Form of Wholesaling Agreement and related Selling *
Agreement
99-B.4 Form of Variable Annuity Contract (I-CDA-HI(NQ)) *
99-B.5 Form of Variable Annuity Contract Application (707.00.1B) *
99-B.6 Certificate of Incorporation and By-Laws of Depositor *
99-B.8.1 Fund Participation Agreement (Amended and Restated) between *
Aetna Life Insurance and Annuity Company, Alger American
Fund and Fred Alger Management, Inc. dated March 31, 1995
99-B.8.2 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Fidelity Distributors Corporation
(Variable Insurance Products Fund) dated February 1, 1994
and amended March 1, 1996
99-B.8.3 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.8.4 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Janus Aspen Series dated April 19,
1994 and amended March 1, 1996
99-B.8.5 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
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.8.6 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Advisers Management Trust (now
Neuberger & Berman Advisers Management Trust) dated April
14, 1989 and as assigned and modified on May 1, 1995
99-B.8.7 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company and Scudder Variable Life Investment
Fund dated April 27, 1992 and amended February 19, 1993
and August 13, 1993
99-B.8.8 Fund Participation Agreement between Aetna Life Insurance *
and Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors
--------
99-B.10.2 Consent of Counsel
--------
99-B.13 Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorizations for Signatures *
27 Financial Data Schedule
--------
</TABLE>
*Incorporated by reference
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contract Owners of Aetna Variable Annuity Account B:
We consent to the use of our reports dated February 6, 1996 and February 16,
1996 included herein and to the references to our Firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors"
in the Statement of Additional Information.
Our report dated February 6, 1996 refers to a change in 1993 in the Company's
method of accounting for certain investments in debt and equity securities.
/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. 4 to the Registration
Statement on Form N-4
FILE NOS. 33-75998 AND 811-2512
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I
hereby consent to the use of my opinion dated February 28, 1996 (incorporated
herein by reference to the 24f-2 Notice for the fiscal year ended December 31,
1995 filed on behalf of Variable Annuity Account B of Aetna Life Insurance and
Annuity Company on February 29, 1996) as an exhibit to this Post-Effective
Amendment No. 4 to the Registration Statement on Form N-4 (File No. 33-75998)
and to my being named under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,102,188,760
<INVESTMENTS-AT-VALUE> 1,130,935,704
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,130,935,704
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,130,935,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,130,935,704
<DIVIDEND-INCOME> 112,097,675
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (11,786,592)
<NET-INVESTMENT-INCOME> 100,311,083
<REALIZED-GAINS-CURRENT> 32,013,490
<APPREC-INCREASE-CURRENT> 73,102,996
<NET-CHANGE-FROM-OPS> 205,427,569
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 335,131,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
