PROSPECTUS
===============================================================================
The Contracts offered in connection with this Prospectus are the "Aetna Marathon
Plus" group and individual deferred variable annuity contracts ("Contracts")
issued by Aetna Life Insurance and Annuity Company (the "Company"). The
Contracts are available as (1) nonqualified deferred annuity contracts, (2)
Individual Retirement Annuities ("IRA") under Section 408(b) of the Internal
Revenue Code (may be subject to approval by state regulatory agencies); or (3)
qualified contracts issued in connection with certain employer sponsored
retirement plans (may be subject to approval by the Company and state regulatory
agencies). Currently, the IRA is not available as a "SIMPLE IRA" as defined in
Section 408(p) of the Internal Revenue Code. In most states, group Contracts are
offered, generally to certain broker-dealers or banks which have agreed to act
as Distributors of the Contracts. Individuals who have established accounts with
those broker-dealers or banks are eligible to participate in the Contract.
Individual Contracts are offered only in those states where the group Contracts
are not authorized for sale. (See "Purchase.")
The Contracts provide that Purchase Payments may be allocated to the ALIAC
Guaranteed Account (the "Guaranteed Account"), a credited interest option, or to
one or more of the Subaccounts of Variable Annuity Account B, a separate account
of the Company. The Subaccounts invest directly in shares of the following
Funds:
<TABLE>
<S> <C>
[bullet] Aetna Variable Fund [bullet] Fidelity VIP II Index 500 Portfolio
[bullet] Aetna Income Shares [bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Aetna Variable Encore Fund [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Investment Advisers Fund, Inc. [bullet] Janus Aspen Flexible Income Portfolio
[bullet] Aetna Ascent Variable Portfolio [bullet] Janus Aspen Growth Portfolio
[bullet] Aetna Crossroads Variable Portfolio [bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Aetna Legacy Variable Portfolio [bullet] MFS Total Return Series
[bullet] Aetna Variable Capital Appreciation Portfolio [bullet] MFS World Governments Series
[bullet] Aetna Variable Growth Portfolio [bullet] Oppenheimer Capital Appreciation Fund
[bullet] Aetna Variable Index Plus Portfolio [bullet] Oppenheimer Global Securities Fund
[bullet] Aetna Variable Small Company Portfolio [bullet] Oppenheimer Growth & Income Fund
[bullet] Calvert Responsibly Invested Balanced Portfolio [bullet] Oppenheimer Strategic Bond Fund
[bullet] Fidelity VIP Equity-Income Portfolio [bullet] Portfolio Partners MFS Emerging Equities Portfolio
[bullet] Fidelity VIP Growth Portfolio [bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Fidelity VIP High Income Portfolio [bullet] Portfolio Partners MFS Value Equity Portfolio
[bullet] Fidelity VIP Overseas Portfolio [bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Fidelity VIP II Asset Manager Portfolio [bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
</TABLE>
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. The Guaranteed Account is described in the
Appendix to this Prospectus, as well as in the Guaranteed Account's prospectus.
The availability of the Funds and the Guaranteed Account is subject to
applicable regulatory authorization; not all options may be available in all
jurisdictions or under all Contracts. (See "Investment Options.")
This Prospectus provides investors with the information about the Separate
Account that they should know before investing in the Contracts. Additional
information about the Separate Account is contained in a Statement of Additional
Information ("SAI") which is available at no charge. The SAI has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents for the SAI is printed on page 25 of this Prospectus. An
SAI for this Prospectus and for any Fund prospectus may be obtained by
indicating the request on your Application or by calling the number listed under
the "Inquiries" section of the Prospectus Summary.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE ALIAC GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK, NOR
ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov.
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 NOVEMBER 28, 1997.
<PAGE>
TABLE OF CONTENTS
===============================================================================
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 ............................................. 5
PURCHASE ............................................................... 5
Contract Availability ................................................ 5
Purchasing Interests in the Contract ................................. 5
Purchase Payments ................................................... 5
Contract Rights ...................................................... 6
Designations of Beneficiary and Annuitant ........................... 6
Right to Cancel ...................................................... 6
CHARGES AND DEDUCTIONS ................................................ 6
Daily Deductions from the Separate Account ........................... 6
Mortality and Expense Risk Charge ................................. 6
Administrative Charge ............................................. 7
Maintenance Fee ...................................................... 7
Reduction or Elimination of Administrative Charge and Maintenance Fee 7
Deferred Sales Charge ................................................ 7
Reduction or Elimination of the Deferred Sales Charge ............... 8
Fund Expenses ...................................................... 9
Premium and Other Taxes ............................................. 9
CONTRACT VALUATION ................................................... 9
Account Value ...................................................... 9
Accumulation Units ................................................... 9
Net Investment Factor ................................................ 9
TRANSFERS ............................................................ 10
Dollar Cost Averaging Program ....................................... 10
Account Rebalancing Program .......................................... 10
WITHDRAWALS ............................................................ 10
SYSTEMATIC DISTRIBUTION OPTIONS ....................................... 11
DEATH BENEFIT DURING ACCUMULATION PERIOD .............................. 12
Death Benefit Amount ................................................ 12
Death Benefit Payment Options ....................................... 13
Nonqualified Contracts ............................................. 13
Qualified Contracts ................................................ 14
<PAGE>
ANNUITY PERIOD ........................................................ 14
Annuity Period Elections ............................................ 14
Partial Annuitization ............................................... 14
Annuity Options ..................................................... 15
Annuity Payments ..................................................... 15
Charges Deducted During the Annuity Period .......................... 16
Death Benefit Payable During the Annuity Period ....................... 16
TAX STATUS .............................................................. 16
Introduction ........................................................ 16
Taxation of the Company ............................................... 16
Tax Status of the Contract ............................................ 17
Taxation of Annuity Contracts ......................................... 18
Contracts Used with Certain Retirement Plans .......................... 20
Qualified Contracts in General ...................................... 20
Individual Retirement Annuities and Simplified
Employee Pension Plans ............................................ 22
Withholding ........................................................... 22
MISCELLANEOUS ........................................................... 22
Distribution ........................................................ 22
Delay or Suspension of Payments ...................................... 23
Performance Reporting ............................................... 23
Voting Rights ........................................................ 23
Modification of the Contract ......................................... 23
Transfers of Ownership; Assignment ................................... 24
Involuntary Terminations ............................................ 24
Legal Matters and Proceedings ......................................... 24
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION .................... 25
APPENDIX--ALIAC GUARANTEED ACCOUNT ...................................... 26
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:
Account: A record that identifies contract values accumulated on each
Certificate Holder's behalf during the Accumulation Period.
Account Value: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Adjusted Account Value: The Account Value, plus or minus the aggregate market
value adjustment for amounts allocated to the Guaranteed Account.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Application: The form or collection of information required by the Company to
purchase an interest in a group contract or an individual contract.
Beneficiary(ies): The person or persons who are entitled to receive any death
benefit proceeds. Under Nonqualified Contracts, Individual Retirement Annuities,
and Section 403(b) Contracts, Beneficiary refers to the beneficiary named under
the Contract. Under Qualified Contracts sold in conjunction with 401(a) or 457
Plans, Beneficiary refers to the beneficiary under the plan.
Certificate: The document issued to a Certificate Holder for an Account
established under a group contract.
Certificate Holder (You): A person or entity who purchases an individual
Contract or acquires an interest under a group Contract.
Claim Date: The date when proof of death and the Beneficiary's claim are
received in good order at the Company's Home Office.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Distributor(s): The registered broker-dealer(s), or banks that may be acting as
broker-dealers without separate registration under the Securities Exchange Act
of 1934, which have entered into selling agreements with the Company to offer
and sell the Contracts. The Company may also serve as a Distributor.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the
Contract.
Group Contract Holder: The entity to which a group Contract is issued.
- -------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
Individual Contract Holder: A person or entity who has purchased an individual
variable annuity contract (also referred to as a "Certificate Holder").
Individual Retirement Annuity: An individual or group variable deferred annuity
intended to qualify under Code Section 408(b).
Nonqualified Contract: A contract established to supplement an individual's
retirement income, or to provide an alternative investment option under an
Individual Retirement Account qualified under Code Section 408(a).
Purchase Payment(s): The gross payment(s) made to the Company under an Account.
Qualified Contracts: Contracts available for use with plans entitled to special
federal income tax treatment under Code Sections 401(a), 403(b), 408(b) or 457.
Registered Representative: The individual who is registered with a broker-dealer
acting as Distributor to offer and sell securities, or who is an employee of a
bank acting as Distributor that is exempt from broker-dealer registration under
the Securities Exchange Act of 1934. Registered Representatives must also be
licensed as insurance agents to sell variable annuity contracts.
Separate Account: Variable Annuity Account B, a separate account established
for the purpose of funding variable annuity contracts issued by the Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Surrender Value: The amount payable upon the withdrawal of all or any portion
of an Account Value.
Valuation Date: The date and time at which the Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after 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 - 2
<PAGE>
PROSPECTUS SUMMARY
===============================================================================
CONTRACTS OFFERED
The Contracts offered in connection with this Prospectus are group and
individual deferred variable annuity contracts issued by Aetna Life Insurance
and Annuity Company (the "Company"). The purpose of the Contract is to
accumulate values and to provide benefits upon retirement. The Contracts are
currently available for (1) individual nonqualified purchases (we reserve the
right to limit the ownership of nonqualified contracts to natural persons); (2)
Individual Retirement Annuities ("IRAs"), other than "SIMPLE IRAs" as defined in
Section 408(p) of the Internal Revenue Code (may be subject to approval by state
regulatory agencies); and (3) purchases made in conjunction with employer
sponsored retirement plans under Sections 401(a), 403(b) or 457 of the Code (may
be subject to approval by the Company and by state regulatory agencies).
In most states, group Contracts are offered, generally to certain
broker-dealers or banks which have agreed to act as Distributors of the
Contracts. Individuals who have established accounts with those broker-dealers
or banks are eligible to participate in the Contract. Individual Contracts are
offered in those states where the group Contracts are not authorized for sale.
Joint Certificate Holders are allowed only on Nonqualified Contracts. A joint
Certificate Holder must be the spouse of the other joint Certificate Holder
except in New York and Pennsylvania. References to "Certificate Holders" in this
Prospectus mean both of the Certificate Holders on joint Accounts.
CONTRACT PURCHASE
You may purchase an interest in the Contract by completing an Application
and submitting it to the Company. Purchase Payments can be applied to the
Contract either through a lump-sum payment or through ongoing contributions.
(See "Purchase.")
FREE LOOK PERIOD
You may cancel the Contract or Certificate within 10 days after you receive
it (or longer if required by state law) by returning it to the Company along
with a written notice of cancellation. Unless state law requires otherwise, the
amount you will receive upon cancellation will reflect the investment
performance of the Subaccounts into which your Purchase Payments were deposited.
In some cases this may be more or less than the amount of your Purchase
Payments. Under a Contract issued as an Individual Retirement Annuity, you will
receive a refund of your Purchase Payment. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account B, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows investment
in the Subaccounts, as well as in the Guaranteed Account described below subject
to the limitations described in "Investment Options," see page 1. For a complete
list of the Funds available under the Contracts, and a description of the
investment objectives of each of the Funds and their investment advisers, see
"Investment Options--The Funds" in this Prospectus, as well as the prospectuses
for each of the Funds.
The Guaranteed Account is the credited interest option available under the
Contract which allows you to earn a fixed rate of interest, if held for the
guaranteed term. (See the Appendix to this Prospectus and the prospectus for the
Guaranteed Account.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), as well as any applicable maintenance fee,
transfer fees and premium and other taxes. The Funds also incur certain fees and
expenses which are deducted directly from the Funds. A deferred sales charge may
apply upon a full or partial withdrawal of the Account Value. (See the Fee Table
and "Charges and Deductions.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, you can
transfer Account Values among the Subaccounts and the Guaranteed Account. If
approved by your state, during the Annuity Period, if you have elected variable
payments you can make transfers among the Subaccounts available during the
Annuity Period. Currently, during the Accumulation Period, transfers are without
charge. However, the Company reserves the right to charge up to $10 for each
additional transfer if more than 12 transfers are made in a calendar year. Any
transfer charge will be applied so that the amount being transferred will be
reduced. Transfers can be requested in writing or by telephone in accordance
with the Company's transfer procedures. If approved by your state, during the
Annuity Period, you can currently make up to four transfers each calendar year.
There is no charge for these transfers. (Transfers from the Guaranteed Account
may be restricted and subject to a market value adjustment. See the Appendix.)
The Company also offers a Dollar Cost Averaging Program and an Account
Rebalancing Program. The Dollar Cost Averaging Program permits the automatic
transfer of amounts from any of the Subaccounts and an available Guaranteed
Account term to any of the other Subaccounts on a monthly or quarterly basis.
The Account Rebalancing Program allows you to request that each year, or at
other more frequent intervals as We allow, We automatically reallocate your
Account Value to specified percentages among the Subaccounts in which you
invest. (See "Transfers.")
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date by properly completing a disbursement form and sending it to the Company.
Certain charges may be assessed upon withdrawal. Amounts withdrawn from the
Guaranteed Account may be subject to a market value adjustment. (See the
Appendix.) The taxable portion of the withdrawal may also be subject to income
tax and a federal tax penalty. (See "Withdrawals.")
The Contract also offers certain Systematic Distribution Options during
the Accumulation Period subject to certain criteria. Some Systematic
Distribution Options are not available in all states and may not be suitable in
every situation. (See "Systematic Distribution Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will
continue to vary with the investment performance of the Subaccount(s) selected.
The Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies)
actually receive a distribution from the Contract. A 10% federal tax penalty
may be imposed on certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
[bullet] Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-5996
Attention: Customer Service
[bullet] Call Customer Service: 1-800-531-4547 (for automated transfers
or changes in the allocation of Account
Values, call: 1-800-262-3862)
- --------------------------------------------------------------------------------
SUMMARY - 2
<PAGE>
FEE TABLE
===============================================================================
This Fee Table describes the various charges and expenses associated with the
Contract. No sales charge is paid upon purchase of the Contract. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. Some expenses may vary as explained under "Charges and Deductions." The
charges and expenses shown below do not include premium taxes that may be
applicable. For more information regarding expenses paid out of assets of a
particular Fund, see the Fund's prospectus.
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge for withdrawals under each Contract (as a percentage
of each Purchase Payment withdrawn).
Years from Receipt Deferred Sales
of Purchase Payment Charge Deduction
- ------------------- ----------------
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK:
Years from Receipt Deferred Sales
of Purchase Payment Charge Deduction
- ------------------- ----------------
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
Annual Maintenance Fee (1) .............. $30.00
Transfer Charge (2) .................... $ 0.00
SEPARATE ACCOUNT ANNUAL EXPENSES
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options under each Contract).
During the Accumulation Period:
Mortality and Expense Risk Charge ...... 1.25%(3)
Administrative Charge. .................. 0.15%
----
Total Subaccount Annual Expenses ...... 1.40%
During the Annuity Period:
Mortality and Expense Risk Charge ...... 1.25%
Administrative Charge .................. 0.00%(4)
----
Total Subaccount Annual Expenses ...... 1.25%
- ------------------
(1) The maintenance fee, if applicable, will generally be deducted from each
Account annually and if the full Account Value is withdrawn. The maintenance
fee is waived when the Account Value is $50,000 or more on the date the
maintenance fee is due. The amount shown is the maximum maintenance fee that
can be deducted under the Contract.
(2) During the Accumulation Period we currently allow an unlimited number of
transfers without charge. However, we reserve the right to impose a fee of
$10 for each transfer in excess of 12 per year.
(3) Under certain Contracts the mortality and expense risk charge during the
Accumulation Period may be reduced. See "Charges and Deductions."
(4) We currently do not impose an Administrative Charge during the Annuity
Period. However, we reserve the right to deduct a daily charge of not more
than 0.25% per year from the Subaccounts.
- -------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of average
net assets and, except where otherwise indicated, are based on figures for the
year ended December 31, 1996. A Fund's "Other Expenses" include operating costs
of the Fund. These expenses are reflected in the Fund's net asset value and are
not deducted from the Account Value.
<TABLE>
<CAPTION>
Investment Other Total
Advisory Fees(1) Expenses Mutual Fund
(after expense (after expense Annual
reimbursement) reimbursement) Expenses
------------------ ---------------- ------------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc.(2) 0.50% 0.08% 0.58%
Aetna Ascent Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Crossroads Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Legacy Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Capital Appreciation Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Growth Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Index Plus Portfolio(2) 0.35% 0.15% 0.50%
Aetna Variable Small Company Portfolio(2) 0.75% 0.15% 0.90%
Calvert Responsibly Invested Balanced Portfolio(3) 0.71% 0.13% 0.84%
Fidelity VIP Equity-Income Portfolio(4) 0.51% 0.07% 0.58%
Fidelity VIP Growth Portfolio(4) 0.61% 0.08% 0.69%
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
Fidelity VIP Overseas Portfolio(4) 0.76% 0.17% 0.93%
Fidelity VIP II Asset Manager Portfolio(4) 0.64% 0.10% 0.74%
Fidelity VIP II Contrafund Portfolio(4) 0.61% 0.13% 0.74%
Fidelity VIP II Index 500 Portfolio(5) 0.13% 0.15% 0.28%
Janus Aspen Aggressive Growth Portfolio(6) 0.72% 0.04% 0.76%
Janus Aspen Balanced Portfolio(6) 0.79% 0.15% 0.94%
Janus Aspen Flexible Income Portfolio(6) 0.65% 0.19% 0.84%
Janus Aspen Growth Portfolio(6) 0.65% 0.04% 0.69%
Janus Aspen Worldwide Growth Portfolio(6) 0.66% 0.14% 0.80%
MFS Total Return Series(7) 0.75% 0.25% 1.00%
MFS World Governments Series(7) 0.75% 0.25% 1.00%
Oppenheimer Capital Appreciation Fund 0.72% 0.03% 0.75%
Oppenheimer Global Securities Fund 0.73% 0.08% 0.81%
Oppenheimer Growth & Income Fund 0.75% 0.25% 1.00%
Oppenheimer Strategic Bond Fund 0.75% 0.10% 0.85%
Portfolio Partners MFS Emerging Equities Portfolio 0.70%(8) 0.13% 0.83%(9)
Portfolio Partners MFS Research Growth Portfolio 0.70%(8) 0.15% 0.85%(9)
Portfolio Partners MFS Value Equity Portfolio 0.65% 0.25% 0.90%(9)
Portfolio Partners Scudder International Growth Portfolio 0.80% 0.20% 1.00%(9)
Portfolio Partners T. Rowe Price Growth Equity Portfolio 0.60% 0.15% 0.75%(9)
</TABLE>
- -------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(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) The Company provides administrative services to the Fund and assumes the
Fund's ordinary recurring direct costs under an Administrative Services
Agreement. The new Administrative Services Agreement became effective on
May 1, 1996 for Aetna Variable Fund, Aetna Income Shares, Aetna Variable
Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna Ascent Variable
Portfolio, Aetna Crossroads Variable Portfolio, and Aetna Legacy Variable
Portfolio. Therefore, for these Funds the "Other Expenses" shown are not
based on actual figures for the year ended December 31, 1996, but reflect
the fee payable under that Agreement. The Administrative Services Agreement
was in effect for Aetna Variable Capital Appreciation Portfolio, Aetna
Variable Growth Portfolio, Aetna Variable Index Plus Portfolio and Aetna
Variable Small Company Portfolio since their inception.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc.,
Aetna Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio, and
Aetna Legacy Variable Portfolio. The Advisory Fees shown above are not
based on actual figures for the year ended December 31, 1996, but reflect
the increased Investment Advisory Fees.
(3) The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03%
expected to be incurred in 1997. "Investment Advisory Fees" include a
performance adjustment, which could cause the fee to be as high as 0.85% or
as low as 0.55%, depending on performance. "Other Expenses" reflect an
indirect fee of 0.03% (relating to an expense offset arrangement with the
Portfolio's custodian). Net fund operating expenses after reductions for
fees paid indirectly (again, restated) would be 0.81%.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent whereby interest earned on
uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses would
have been 0.56% for Equity-Income Portfolio, 0.67% for Growth Portfolio,
0.92% for Overseas Portfolio, 0.73% for Asset Manager Portfolio; and 0.71%
for Contrafund Portfolio.
(5) The Fund's investment adviser agreed to reimburse a portion of Index 500
Portfolio's expenses during the period. Without this reimbursement, the
fund's management fee, other expenses and total expenses would have been
0.28%, 0.15% and 0.43%, respectively, for Index 500 Portfolio.
(6) The fees and expenses shown above are based on gross expenses of the Shares
before expense offset arrangements for the fiscal year ended December 31,
1996. The information for each Portfolio other than the Flexible Income
Portfolio is net of fee waivers or reductions from Janus Capital. Fee
reductions for the Aggressive Growth, Balanced, Growth, and Worldwide
Growth Portfolios reduce the management fee to the level of the
corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, the Management Fee, Other Expenses and Total
Fund Annual Expenses would have been 0.79%, 0.04% and 0.83% for Aggressive
Growth Portfolio; 0.92%, 0.15% and 1.07% for Balanced Portfolio; 0.79%,
0.04% and 0.83% for Growth Portfolio; and 0.77%, 0.14% and 0.91% for
Worldwide Growth Portfolio, respectively. Janus Capital may modify or
terminate the waivers or reductions at any time upon at least 90 days'
notice to the Portfolio's Board of Trustees.
(7) The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the MFS Total Return
Series and MFS World Governments Series would be 1.35% and 1.28%,
respectively, and "Total Fund Annual Expenses" would be 2.10% and 2.03%,
respectively, for these Series. Each Series has an expense offset
arrangement which reduces the Series' custodian fee based upon the amount
of cash maintained by the Series with its custodian and dividend disbursing
agent, and may enter into other such arrangements and directed brokerage
arrangements (which would also have the effect of reducing the Series'
expenses). Any such fee reductions are not reflected under "Other
Expenses."
(8) The advisory fee is .70% of the first $500 million in assets and .65% on
the excess.
(9) Each Portfolio's aggregate expenses are limited to the advisory and
administrative fees disclosed above through April 30, 1999.
- -------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.005%.
<TABLE>
<CAPTION>
EXAMPLE A
---------------------------------------
If you withdraw the entire Account
Value at the end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:
1 year 3 years 5 years 10 years
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $92 $115 $141 $229
Aetna Income Shares $91 $113 $137 $221
Aetna Variable Encore Fund $90 $109 $130 $207
Aetna Investment Advisers Fund, Inc $92 $116 $142 $231
Aetna Ascent Variable Portfolio $94 $121 $151 $249
Aetna Crossroads Variable Portfolio $94 $121 $151 $249
Aetna Legacy Variable Portfolio $94 $121 $151 $249
Aetna Variable Capital Appreciation Portfolio $94 $121 $151 $249
Aetna Variable Growth Portfolio $94 $121 $151 $249
Aetna Variable Index Plus Portfolio $92 $113 $138 $223
Aetna Variable Small Company Portfolio $95 $125 $159 $264
Calvert Responsibly Invested Balanced Portfolio $95 $124 $156 $258
Fidelity VIP Equity-Income Portfolio $92 $116 $142 $231
Fidelity VIP Growth Portfolio $93 $119 $148 $243
Fidelity VIP High Income Portfolio $93 $120 $149 $245
Fidelity VIP Overseas Portfolio $96 $126 $160 $267
Fidelity VIP II Asset Manager Portfolio $94 $121 $151 $248
Fidelity VIP II Contrafund Portfolio $94 $121 $151 $248
Fidelity VIP II Index 500 Portfolio $89 $106 $127 $199
Janus Aspen Aggressive Growth Portfolio $94 $121 $152 $250
Janus Aspen Balanced Portfolio $96 $127 $161 $268
Janus Aspen Flexible Income Portfolio $95 $124 $156 $258
Janus Aspen Growth Portfolio $93 $119 $148 $243
Janus Aspen Worldwide Growth Portfolio $94 $122 $154 $254
MFS Total Return Series $96 $129 $164 $274
MFS World Governments Series $96 $129 $164 $274
Oppenheimer Capital Appreciation Fund $94 $121 $151 $249
Oppenheimer Global Securities Fund $94 $123 $154 $255
Oppenheimer Growth & Income Fund $96 $129 $164 $274
Oppenheimer Strategic Bond Fund $95 $124 $156 $259
Portfolio Partners MFS Emerging Equities Portfolio $95 $123 $155 $257
Portfolio Partners MFS Research Growth Portfolio $95 $124 $156 $259
Portfolio Partners MFS Value Equity Portfolio $95 $125 $159 $264
Portfolio Partners Scudder International
Growth Portfolio $96 $129 $164 $274
Portfolio Partners T. Rowe Price Growth Equity
Portfolio $94 $121 $151 $249
<CAPTION>
EXAMPLE B
--------------------------------------
If you do not withdraw the Account
Value, or if you annuitize at the end
of the periods shown, you would pay the
following expenses (no deferred sales
charge is reflected):*
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aetna Variable Fund $20 $62 $106 $229
Aetna Income Shares $19 $59 $102 $221
Aetna Variable Encore Fund $18 $55 $ 95 $207
Aetna Investment Advisers Fund, Inc $20 $62 $107 $231
Aetna Ascent Variable Portfolio $22 $67 $116 $249
Aetna Crossroads Variable Portfolio $22 $67 $116 $249
Aetna Legacy Variable Portfolio $22 $67 $116 $249
Aetna Variable Capital Appreciation Portfolio $22 $67 $116 $249
Aetna Variable Growth Portfolio $22 $67 $116 $249
Aetna Variable Index Plus Portfolio $19 $60 $103 $223
Aetna Variable Small Company Portfolio $23 $72 $123 $264
Calvert Responsibly Invested Balanced Portfolio $23 $70 $120 $258
Fidelity VIP Equity-Income Portfolio $20 $62 $107 $231
Fidelity VIP Growth Portfolio $21 $66 $113 $243
Fidelity VIP High Income Portfolio $21 $66 $114 $245
Fidelity VIP Overseas Portfolio $24 $73 $125 $267
Fidelity VIP II Asset Manager Portfolio $22 $67 $115 $248
Fidelity VIP II Contrafund Portfolio $22 $67 $115 $248
Fidelity VIP II Index 500 Portfolio $17 $53 $ 92 $199
Janus Aspen Aggressive Growth Portfolio $22 $68 $116 $250
Janus Aspen Balanced Portfolio $24 $73 $125 $268
Janus Aspen Flexible Income Portfolio $23 $70 $120 $258
Janus Aspen Growth Portfolio $21 $66 $113 $243
Janus Aspen Worldwide Growth Portfolio $22 $69 $118 $254
MFS Total Return Series $24 $75 $128 $274
MFS World Governments Series $24 $75 $128 $274
Oppenheimer Capital Appreciation Fund $22 $67 $116 $249
Oppenheimer Global Securities Fund $22 $69 $119 $255
Oppenheimer Growth & Income Fund $24 $75 $128 $274
Oppenheimer Strategic Bond Fund $23 $70 $121 $259
Portfolio Partners MFS Emerging Equities Portfolio $23 $70 $120 $257
Portfolio Partners MFS Research Growth Portfolio $23 $70 $121 $259
Portfolio Partners MFS Value Equity Portfolio $23 $72 $123 $264
Portfolio Partners Scudder International
Growth Portfolio $24 $75 $128 $274
Portfolio Partners T. Rowe Price Growth Equity
Portfolio $22 $67 $116 $249
</TABLE>
- ------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start, since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A.)
- -------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.005%.
<TABLE>
<CAPTION>
Contracts or Certificates Issued in New York
EXAMPLE C
---------------------------------------
If you withdraw the entire Account
Value at the end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:
1 year 3 years 5 years 10 years
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $82 $ 95 $122 $229
Aetna Income Shares $81 $ 93 $118 $221
Aetna Variable Encore Fund $80 $ 89 $112 $207
Aetna Investment Advisers Fund, Inc. $82 $ 96 $124 $231
Aetna Ascent Variable Portfolio $84 $101 $132 $249
Aetna Crossroads Variable Portfolio $84 $101 $132 $249
Aetna Legacy Variable Portfolio $84 $101 $132 $249
Aetna Variable Capital Appreciation Portfolio $84 $101 $132 $249
Aetna Variable Growth Portfolio $84 $101 $132 $249
Aetna Variable Index Plus Portfolio $81 $ 93 $119 $223
Aetna Variable Small Company Portfolio $85 $105 $140 $264
Calvert Responsibly Invested Balanced Portfolio $84 $104 $137 $258
Fidelity VIP Equity-Income Portfolio $82 $ 96 $124 $231
Fidelity VIP Growth Portfolio $83 $ 99 $129 $243
Fidelity VIP High Income Portfolio $83 $100 $130 $245
Fidelity VIP Overseas Portfolio $85 $106 $141 $267
Fidelity VIP II Asset Manager Portfolio $83 $101 $132 $248
Fidelity VIP II Contrafund Portfolio $83 $101 $132 $248
Fidelity VIP II Index 500 Portfolio $79 $ 86 $108 $199
Janus Aspen Aggressive Growth Portfolio $84 $101 $133 $250
Janus Aspen Balanced Portfolio $85 $107 $142 $268
Janus Aspen Flexible Income Portfolio $84 $104 $137 $258
Janus Aspen Growth Portfolio $83 $ 99 $129 $243
Janus Aspen Worldwide Growth Portfolio $84 $102 $135 $254
MFS Total Return Series $86 $109 $145 $274
MFS World Governments Series $86 $109 $145 $274
Oppenheimer Capital Appreciation Fund $84 $101 $132 $249
Oppenheimer Global Securities Fund $84 $103 $135 $255
Oppenheimer Growth & Income Fund $86 $109 $145 $274
Oppenheimer Strategic Bond Fund $85 $104 $137 $259
Portfolio Partners MFS Emerging Equities Portfolio $84 $103 $136 $257
Portfolio Partners MFS Research Growth Portfolio $85 $104 $137 $259
Portfolio Partners MFS Value Equity Portfolio $85 $105 $140 $264
Portfolio Partners Scudder International
Growth Portfolio $86 $109 $145 $274
Portfolio Partners T. Rowe Price Growth Equity
Portfolio $84 $101 $132 $249
<CAPTION>
Contracts or Certificates Issued in New York
EXAMPLE D
--------------------------------------
If you do not withdraw the Account
Value, or if you annuitize at the end
of the periods shown, you would pay the
following expenses (no deferred sales
charge is reflected):*
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Aetna Variable Fund $20 $62 $106 $229
Aetna Income Shares $19 $59 $102 $221
Aetna Variable Encore Fund $18 $55 $ 95 $207
Aetna Investment Advisers Fund, Inc. $20 $62 $107 $231
Aetna Ascent Variable Portfolio $22 $67 $116 $249
Aetna Crossroads Variable Portfolio $22 $67 $116 $249
Aetna Legacy Variable Portfolio $22 $67 $116 $249
Aetna Variable Capital Appreciation Portfolio $22 $67 $116 $249
Aetna Variable Growth Portfolio $22 $67 $116 $249
Aetna Variable Index Plus Portfolio $19 $60 $103 $223
Aetna Variable Small Company Portfolio $23 $72 $123 $264
Calvert Responsibly Invested Balanced Portfolio $23 $70 $120 $258
Fidelity VIP Equity-Income Portfolio $20 $62 $107 $231
Fidelity VIP Growth Portfolio $21 $66 $113 $243
Fidelity VIP High Income Portfolio $21 $66 $114 $245
Fidelity VIP Overseas Portfolio $24 $73 $125 $267
Fidelity VIP II Asset Manager Portfolio $22 $67 $115 $248
Fidelity VIP II Contrafund Portfolio $22 $67 $115 $248
Fidelity VIP II Index 500 Portfolio $17 $53 $ 92 $199
Janus Aspen Aggressive Growth Portfolio $22 $68 $116 $250
Janus Aspen Balanced Portfolio $24 $73 $125 $268
Janus Aspen Flexible Income Portfolio $23 $70 $120 $258
Janus Aspen Growth Portfolio $21 $66 $113 $243
Janus Aspen Worldwide Growth Portfolio $22 $69 $118 $254
MFS Total Return Series $24 $75 $128 $274
MFS World Governments Series $24 $75 $128 $274
Oppenheimer Capital Appreciation Fund $22 $67 $116 $249
Oppenheimer Global Securities Fund $22 $69 $119 $255
Oppenheimer Growth & Income Fund $24 $75 $128 $274
Oppenheimer Strategic Bond Fund $23 $70 $121 $259
Portfolio Partners MFS Emerging Equities Portfolio $23 $70 $120 $257
Portfolio Partners MFS Research Growth Portfolio $23 $70 $121 $259
Portfolio Partners MFS Value Equity Portfolio $23 $72 $123 $264
Portfolio Partners Scudder International
Growth Portfolio $24 $75 $128 $274
Portfolio Partners T. Rowe Price Growth Equity
Portfolio $22 $67 $116 $249
</TABLE>
- ------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start, since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example C.)
- -------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for the three years ended
December 31, 1996 is derived from the financial statements of the Separate
Account, which financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors. It reflects investment options available under the
Contracts as of December 31, 1996; not all investment options shown here are
currently available. The financial statements and the independent auditors'
report thereon, are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $14.001 $10.737 $10.000
Value at end of period $17.181 $14.001 $10.737
Increase (decrease) in value of accumulation units(1) 22.71% 30.40% 7.37%(2)
Number of accumulation units outstanding at end of period 4,919,945 3,068,782 3,178,712
AETNA INCOME SHARES
Value at beginning of period $12.037 $10.324 $10.000
Value at end of period $12.294 $12.037 $10.324
Increase (decrease) in value of accumulation units(1) 2.14% 16.59% 3.24%(3)
Number of accumulation units outstanding at end of period 1,129,814 988,199 983,357
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.968 $10.489 $10.000
Value at end of period $11.394 $10.968 $10.489
Increase (decrease) in value of accumulation units(1) 3.89% 4.57% 4.89%(2)
Number of accumulation units outstanding at end of period 4,871,015 2,694,034 3,407,448
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $13.602 $10.828 $10.000
Value at end of period $15.445 $13.602 $10.828
Increase (decrease) in value of accumulation units(1) 13.55% 25.62% 8.42%(4)
Number of accumulation units outstanding at end of period 1,544,723 919,744 911,281
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.645 $10.000
Value at end of period $12.970 $10.645
Increase (decrease) in value of accumulation units(1) 21.84% 6.45%(5)
Number of accumulation units outstanding at end of period 298,740 15,832
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.587 $10.000
Value at end of period $12.402 $10.587
Increase (decrease) in value of accumulation units(1) 17.14% 5.87%(5)
Number of accumulation units outstanding at end of period 326,292 27,089
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.438 $10.000
Value at end of period $11.751 $10.438
Increase (decrease) in value of accumulation units(1) 12.58% 4.38%(6)
Number of accumulation units outstanding at end of period 492,915 28,778
AETNA VARIABLE INDEX PLUS PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.919
Increase (decrease) in value of accumulation units(1) 9.19%(7)
Number of accumulation units outstanding at end of period 19,177
ALGER AMERICAN BALANCED PORTFOLIO
Value at beginning of period $12.588 $10.000
Value at end of period $13.673 $12.588
Increase (decrease) in value of accumulation units(1) 8.62% 25.88%(8)
Number of accumulation units outstanding at end of period 276,259 54,737
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $12.980 $10.000
Value at end of period $14.506 $12.980
Increase (decrease) in value of accumulation units(1) 11.75% 29.80%(9)
Number of accumulation units outstanding at end of period 2,592,294 615,697
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Value at beginning of period $10.660 $10.000
Value at end of period $12.578 $10.660
Increase (decrease) in value of accumulation units(1) 18.00% 6.60%(10)
Number of accumulation units outstanding at end of period 514,513 95,829
</TABLE>
- -------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Value at beginning of period $12.265 $10.000
Value at end of period $13.548 $12.265
Increase (decrease) in value of accumulation units(1) 10.46% 22.65%(10)
Number of accumulation units outstanding at end of period 842,890 159,379
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Value at beginning of period $13.974 $10.000
Value at end of period $15.417 $13.974
Increase (decrease) in value of accumulation units(1) 10.33% 39.74%(8)
Number of accumulation units outstanding at end of period 1,287,070 233,110
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Value at beginning of period $13.295 $10.000
Value at end of period $13.656 $13.295
Increase (decrease) in value of accumulation units(1) 2.72% 32.95%(11)
Number of accumulation units outstanding at end of period 2,688,730 507,425
AMERICAN CENTURY VP BALANCED (formerly "TCI BALANCED")
Value at beginning of period $12.124 $10.152 $10.000
Value at end of period $13.410 $12.124 $10.152
Increase (decrease) in value of accumulation units(1) 10.61% 19.42% 1.52%(4)
Number of accumulation units outstanding at end of period 223,073 40,407 3,477
AMERICAN CENTURY VP CAPITAL APPRECIATION (formerly "TCI GROWTH")
Value at beginning of period $14.021 $10.847 $10.000
Value at end of period $13.211 $14.021 $10.847
Increase (decrease) in value of accumulation units(1) (5.78)% 29.27% 8.47%(4)
Number of accumulation units outstanding at end of period 1,214,961 1,014,612 893,534
AMERICAN CENTURY VP INTERNATIONAL (formerly "TCI INTERNATIONAL")
Value at beginning of period $10.446 $9.441 $10.000
Value at end of period $11.782 $10.446 $9.441
Increase (decrease) in value of accumulation units(1) 12.80% 10.64% (5.59)%(4)
Number of accumulation units outstanding at end of period 399,464 57,691 3,745
FEDERATED AMERICAN LEADERS FUND II
Value at beginning of period $12.971 $9.838 $10.000
Value at end of period $15.548 $12.971 $9.838
Increase (decrease) in value of accumulation units(1) 19.87% 31.84% (1.62)%(12)
Number of accumulation units outstanding at end of period 3,931,613 2,057,364 188,708
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Value at beginning of period $10.804 $10.073 $10.000
Value at end of period $11.099 $10.804 $10.073
Increase (decrease) in value of accumulation units(1) 2.74% 7.25% 0.73%(12)
Number of accumulation units outstanding at end of period 689,789 417,293 12,714
FEDERATED HIGH INCOME BOND FUND II
Value at beginning of period $11.640 $9.814 $10.000
Value at end of period $13.119 $11.640 $9.814
Increase (decrease) in value of accumulation units(1) 12.71% 18.61% (1.86)%(12)
Number of accumulation units outstanding at end of period 2,069,633 1,020,321 31,309
FEDERATED UTILITY FUND II
Value at beginning of period $12.095 $9.881 $10.000
Value at end of period $13.303 $12.095 $9.881
Increase (decrease) in value of accumulation units(1) 9.99% 22.40% (1.19)%(12)
Number of accumulation units outstanding at end of period 1,260,915 727,601 41,191
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $13.324 $10.002 $10.000
Value at end of period $15.013 $13.324 $10.002
Increase (decrease) in value of accumulation units(1) 12.68% 33.21% 0.02%(13)
Number of accumulation units outstanding at end of period 4,200,501 913,517 17,013
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $13.913 $10.423 $10.000
Value at end of period $15.734 $13.913 $10.423
Increase (decrease) in value of accumulation units(1) 13.09% 33.48% 4.23%(13)
Number of accumulation units outstanding at end of period 3,260,855 885,545 17,013
</TABLE>
- -------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $10.701 $10.000
Value at end of period $12.031 $10.701
Increase (decrease) in value of accumulation units(1) 12.43% 7.01%(10)
Number of accumulation units outstanding at end of period 1,222,580 112,819
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $11.143 $10.000
Value at end of period $12.439 $11.143
Increase (decrease) in value of accumulation units(1) 11.62% 11.43%(8)
Number of accumulation units outstanding at end of period 681,094 150,017
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $11.664 $10.000
Value at end of period $13.180 $11.664
Increase (decrease) in value of accumulation units(1) 12.99% 16.64%(8)
Number of accumulation units outstanding at end of period 450,051 116,810
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $11.658 $10.000
Value at end of period $13.943 $11.658
Increase (decrease) in value of accumulation units(1) 19.60% 16.58%(10)
Number of accumulation units outstanding at end of period 3,294,964 684,272
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $11.336 $10.000
Value at end of period $13.728 $11.336
Increase (decrease) in value of accumulation units(1) 21.10% 13.36%(10)
Number of accumulation units outstanding at end of period 1,994,556 191,671
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO
Value at beginning of period $10.600 $10.000
Value at end of period $10.784 $10.600
Increase (decrease) in value of accumulation units(1) 1.73% 6.00%(14)
Number of accumulation units outstanding at end of period 441,549 66,574
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.040 $10.374 $10.000
Value at end of period $13.879 $13.040 $10.374%
Increase (decrease) in value of accumulation units(1) 6.43% 25.71% 3.74(15)
Number of accumulation units outstanding at end of period 1,248,669 187,584 0
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $12.104 $10.000
Value at end of period $13.865 $12.104
Increase (decrease) in value of accumulation units(1) 14.55% 21.04%(8)
Number of accumulation units outstanding at end of period 682,296 53,016
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $12.071 $9.884 $10.000
Value at end of period $12.995 $12.071 $9.884
Increase (decrease) in value of accumulation units(1) 7.66% 22.13% (1.16)%(16)
Number of accumulation units outstanding at end of period 225,717 45,714 0
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $12.975 $10.109 $10.000
Value at end of period $15.153 $12.975 $10.109
Increase (decrease) in value of accumulation units(1) 16.79% 28.35% 1.09%(4)
Number of accumulation units outstanding at end of period 1,145,305 176,111 9,588
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.765 $10.000
Value at end of period $11.036 $10.765
Increase (decrease) in value of accumulation units(1) 2.52% 7.65%(8)
Number of accumulation units outstanding at end of period 150,230 67,034
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $12.341 $10.000
Value at end of period $15.701 $12.341
Increase (decrease) in value of accumulation units(1) 27.22% 23.41%(11)
Number of accumulation units outstanding at end of period 3,060,432 252,485
</TABLE>
- -------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED 6FINANCIAL INFORMATION (continued)
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
LEXINGTON EMERGING MARKETS FUND, INC.
Value at beginning of period $9.277 $9.795 $10.000
Value at end of period $9.829 $9.277 $ 9.795
Increase (decrease) in value of accumulation units(1) 5.95% (5.28)% (2.05)%(4)
Number of accumulation units outstanding at end of period 255,963 36,773 1,500
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.436 $9.056 $10.000
Value at end of period $13.056 $10.436 $9.056
Increase (decrease) in value of accumulation units(1) 25.11% 15.24% (9.44)%(3)
Number of accumulation units outstanding at end of period 172,966 16,933 537
MFS EMERGING GROWTH SERIES
Value at beginning of period $10.000
Value at end of period $10.074
Increase (decrease) in value of accumulation units(1) 0.74%(17)
Number of accumulation units outstanding at end of period 893,166
MFS RESEARCH SERIES
Value at beginning of period $10.000
Value at end of period $10.970
Increase (decrease) in value of accumulation units(1) 9.70%(17)
Number of accumulation units outstanding at end of period 617,709
MFS TOTAL RETURN SERIES
Value at beginning of period $10.000
Value at end of period $10.894
Increase (decrease) in value of accumulation units(1) 8.94%(17)
Number of accumulation units outstanding at end of period 387,019
MFS VALUE SERIES
Value at beginning of period $10.000
Value at end of period $10.334
Increase (decrease) in value of accumulation units(1) 3.34%(18)
Number of accumulation units outstanding at end of period 20,208
MFS WORLD GOVERNMENTS SERIES
Value at beginning of period $10.000
Value at end of period $10.471
Increase (decrease) in value of accumulation units(1) 4.71%(17)
Number of accumulation units outstanding at end of period 38,958
</TABLE>
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) Reflects less than a full year of performance activity. Funds were first
received in this option during October 1994.
(3) Reflects less than a full year of performance activity. Funds were first
received in this option during August 1994.
(4) Reflects less than a full year of performance activity. Funds were first
received in this option during July 1994.
(5) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1995, when
the Fund became available under the Contract.
(6) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during September 1995,
when the Fund became available under the Contract.
(7) Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during September 1996,
when the Portfolio became available under the Contract.
(8) Reflects less than a full year of performance activity. Funds were first
received in this option during January 1995.
(9) Reflects less than a full year of performance activity. Funds were first
received in this option during February 1995.
(10) 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.
(11) Reflects less than a full year of performance activity. Funds were first
received in this option during April 1995.
(12) Reflects less than a full year of performance activity. Funds were first
received in this option during September 1994.
(13) Reflects less than a full year of performance activity. Funds were first
received in this option during December 1994.
(14) 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.
(15) 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.
(16) Reflects less than a full year of performance activity. Funds were first
received in this option during November 1994.
(17) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during May 1996, when
the Series became available under the Contract.
(18) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1996,
when the series became available under the Contract.
- -------------------------------------------------------------------------------
AUV HISTORY - 4
<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 Inc.
VARIABLE ANNUITY ACCOUNT B
===============================================================================
The Company established Variable Annuity Account B (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"), and
meets the definition of "separate account" under federal securities laws. The
Separate Account is divided into "subaccounts" which do not invest directly in
stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities of any other business conducted
by the Company. Income, gains or losses of the Separate Account are credited to
or charged against the assets of the Separate Account without regard to other
income, gains or losses of the Company. All obligations arising under the
Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
===============================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the Application. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The Company reserves the right to limit
the number of investment options selected during the Accumulation Period. At
this time there is no limit on the number of investment options selected during
the Accumulation Period, but the number of investment options that may be
selected at any one time by a Certificate Holder is limited to 18. Each
Subaccount and each Guaranteed Term of the same duration count as an option once
you have made an allocation to it, even if you no longer have amounts allocated
to that option.
The availability of Funds may be subject to regulatory authorization. In
addition, the Company may add or withdraw Funds, as permitted by applicable law.
Not all Funds may be available in all jurisdictions or under all Contracts.
Subject to state regulatory approval, if the shares of any Fund should no
longer be available for investment by the Separate Account or if in the judgment
of the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contract, we may cease to make such Fund shares
available for investment under the Contract prospectively. The Company may,
alternatively, substitute shares of another Fund for shares already acquired.
The Company reserves the right to substitute shares of another Fund for shares
already acquired without a proxy vote. Any elimination, substitution or addition
of Funds will be done in accordance with applicable state and federal securities
laws.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
- -------------------------------------------------------------------------------
1
<PAGE>
[bullet] Aetna Variable Fund seeks to maximize total return through investments
in a diversified portfolio of common stocks and securities convertible
into common stock.(1)
[bullet] Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.(1)
[bullet] 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)
[bullet] Aetna Investment Advisers Fund, Inc. is a managed fund which seeks to
maximize investment return consistent with reasonable safety of
principal by investing in one or more of the following asset classes:
stocks, bonds and cash equivalents based on the Company's judgment of
which of those sectors or mix thereof offers the best investment
prospects.(1)
[bullet] 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)
[bullet] 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)
[bullet] 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)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Capital Appreciation
Portfolio seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into
common stock. The Portfolio will use a value-oriented approach in an
attempt to outperform the total return performance of publicly traded
common stocks represented by the S & P 500 Composite Stock Price Index
("S & P 500"), a broad based stock market index composed of 500 common
stocks selected by the Standard & Poor's Corporation. The Portfolio
uses the S & P 500 as a comparative benchmark because it represents
approximately two-thirds of the total market value of all U.S. common
stocks, and is well known to investors.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Growth Portfolio seeks
growth of capital through investment in a diversified portfolio of
common stocks and securities convertible into common stocks believed to
offer growth potential.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Index Plus Portfolio
seeks to outperform the total return performance of publicly traded
common stocks represented by the S & P 500.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Small Company Portfolio
seeks growth of capital primarily through investment in a diversified
portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations. Companies with
smaller market capitalizations generally will have market
capitalization at the time of purchase of $1 billion or less.(1)
[bullet] Calvert Responsibly Invested Balanced Portfolio is a nondiversified
portfolio that seeks to achieve a total return above the rate of
inflation through an actively managed, nondiversified portfolio of
common and preferred stocks, bonds and money market instruments which
offer income and capital growth opportunity and which satisfy the
social criteria established for the Portfolio.(2)
[bullet] 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)
[bullet] 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)
[bullet] Fidelity Investments Variable Insurance Products Fund--High Income
Portfolio seeks to obtain a high level of current income by investing
primarily in high-yielding, lower-rated, fixed income securities, while
also considering growth of capital. Lower-rated corporate debt
obligations are commonly known as "junk bonds" or
- -------------------------------------------------------------------------------
2
<PAGE>
"high yield, high risk bonds" and involve significant degree of risk
(see the Fund's prospectus for a discussion of the risk factors
involved in investing in lower-rated corporate debt obligations).(3)
[bullet] 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).
Foreign investments involve greater risks than U.S. investments,
including political and economic risks and the risk of currency
fluctuation.(3)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Asset Manager
Portfolio seeks high total return with reduced risk over the long-term
by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.(3)
[bullet] 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)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Index 500
Portfolio seeks to provide investment results that correspond to the
total return of common stocks publicly traded in the United States by
duplicating the composition and total return of the Standard & Poor's
Composite Index of 500 Stocks.(3)
[bullet] 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 30, 1996 included companies with capitalizations between
approximately $192 million and $6.5 billion, but which is expected to
change on a regular basis.(4)
[bullet] 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, under normal
circumstances, investing 40%-60% of its assets in securities selected
primarily for their growth potential and 40%-60% of its assets in
securities selected for their income potential.(4)
[bullet] 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)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of capital
in a manner consistent with the preservation of capital. The Portfolio
pursues its investment objective by investing in common stocks of
companies of any size.(4)
[bullet] 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)
[bullet] MFS Total Return Series seeks to provide above-average income (compared
to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital. Its secondary objective is to
provide a reasonable opportunity for growth of capital and income.
Under normal market conditions, at least 25% of the Total Return
Series' assets will be invested in fixed income securities, and at
least 40% and no more than 75% of the Series' assets will be invested
in equity securities.(5)
[bullet] MFS World Governments Series seeks not only preservation, but also
growth of capital, together with moderate current income. The Series
seeks to achieve its objective through a professionally managed,
internationally diversified portfolio consisting primarily of debt
securities and to a lesser extent equity securities. Consistent with
its investment objective and policies, the Series may invest up to 100%
(and generally expects to invest not more than 80%) of its net assets
in foreign securities which are not traded on a U.S. exchange.(5)
[bullet] Oppenheimer Capital Appreciation Fund seeks to achieve capital
appreciation by investing in "growth-type" companies.(6)
[bullet] Oppenheimer Global Securities Fund seeks long-term capital appreciation
by investing a substantial portion of its assets in securities of
foreign issuers, "growth-type" companies, cyclical industries and
special situations which are considered to have appreciation
possibilities. Current income is not an objective. These securities may
be considered to be speculative.(6)
- -------------------------------------------------------------------------------
3
<PAGE>
[bullet] Oppenheimer Growth & Income Fund seeks a high total return (which
includes growth in the value of its shares as well as current income)
from equity and debt securities. From time to time this Fund may focus
on small to medium capitalization common stocks, bonds and convertible
securities.(6)
[bullet] Oppenheimer Strategic Bond Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to
enhance such income by writing covered call options on debt securities.
The Fund intends to invest principally in: (i) foreign government and
corporate debt securities, (ii) U.S. Government securities, and (iii)
lower-rated high yield domestic debt securities, commonly known as
"junk bonds", which are subject to a greater risk of loss of principal
and nonpayment of interest than higher-rated securities. These
securities may be considered to be speculative.(6)
[bullet] Portfolio Partners MFS Emerging Equities Portfolio seeks long term
growth of capital by investing primarily in common stocks issued by
companies that its subadviser believes are early in their life cycle
but which have the potential to became major enterprises (emerging
growth companies).(7)(a)
[bullet] Portfolio Partners MFS Research Growth Portfolio seeks long term growth
of capital and future income by investing primarily in common stocks or
securities convertible into common stocks issued by companies that the
subadviser believes to possess better-than-average prospects for
long-term growth, and, to a lesser extent, in income-producing
securities including bonds and preferred stock.(7)(a)
[bullet] Portfolio Partners MFS Value Equity Portfolio seeks capital
appreciation by investing primarily in common stocks.(7)(a)
[bullet] Portfolio Partners Scudder International Growth Portfolio seeks long
term growth of capital primarily through a diversified portfolio of
marketable foreign equity securities.(7)(b)
[bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio seeks long
term growth of capital and, secondarily, seeks to increase dividend
income by investing primarily in common stocks issued by a diversified
group of well-established growth companies.(7)(c)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company (adviser);
Aeltus Investment Management, Inc. (sub-adviser)
(2) Calvert Asset Management Company, Inc.
(3) Fidelity Management & Research Company
(4) Janus Capital Corporation
(5) Massachusetts Financial Services Company ("MFS")
(6) OppenheimerFunds, Inc.
(7) Aetna Life Insurance and Annuity Company (adviser);
(a) Massachusetts Financial Services Company (sub-adviser)
(b) Scudder, Stevens & Clark, Inc. (sub-adviser)
(c) T. Rowe Price Associates, Inc. (sub-adviser)
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 current prospectus for each Fund which is distributed with and
accompanies 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. Additional prospectuses and
Statements of Additional Information for this Prospectus and for each of the
Funds can be obtained from the Company's Home Office at the address and
telephone number listed under the "Inquiries" section of the Prospectus Summary.
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.
- -------------------------------------------------------------------------------
4
<PAGE>
CREDITED INTEREST OPTION
Purchase Payments may be allocated to the ALIAC Guaranteed Account (the
"Guaranteed Account"). Through the Guaranteed Account, we guarantee stipulated
rates of interest for stated periods of time. Amounts must remain in the
Guaranteed Account for specified periods to receive the quoted interest rates,
or a market value adjustment (which may be positive or negative) will be
applied. (See the Appendix.)
PURCHASE
===============================================================================
CONTRACT AVAILABILITY
The Contracts are offered as (1) nonqualified deferred annuity contracts
(we reserve the right to limit ownership of nonqualified Contracts to natural
persons); (2) Individual Retirement Annuities, other than "SIMPLE IRAs" as
defined in Section 408(p) of the Internal Revenue Code; or (3) Qualified
Contracts used in conjunction with certain employer sponsored retirement plans.
Individual Retirement Annuities are currently available as rollovers, and may
permit ongoing contributions subject to state regulatory approval. Additionally,
availability of the Qualified Contracts described under item (3) is subject to
approval by the Company and state regulatory agencies.
Eligible persons seeking to invest and accumulate money for retirement can
purchase individual interests in group Contracts, or, where required by state
law, they may purchase individual Contracts. In most states, group Contracts are
offered, generally to certain broker-dealers or banks which have agreed to act
as Distributors of the Contracts, and individual accounts are established by the
Company for each Certificate Holder. In some states, an individual Contract will
be owned by the Certificate Holder. In both cases, a Certificate Holder's
interest in the Contract is known as his or her "Account."
The maximum issue age for the Annuitant is 90 (age 85 for those Contracts
or Certificates issued in New York and Pennsylvania).
Joint Certificate Holders. Nonqualified Contracts may be purchased by
spouses as joint Certificate Holders. In New York and Pennsylvania, the joint
Certificate Holders do not need to be spouses. References to "Certificate
Holders" in this Prospectus mean both of the Certificate Holders on joint
Accounts. Tax law prohibits the purchase of Qualified Contracts by joint
Certificate Holders.
PURCHASING INTERESTS IN THE CONTRACT
Group Contracts. Groups will generally consist of those eligible
individuals who have established an account with a broker-dealer or bank which
has agreed to act as a Distributor for the Contracts. A group Contract is issued
to the group Contract Holder. Certificate Holders may purchase interests in a
group Contract by submitting an Application. Once the Application is accepted a
Certificate will be issued.
Individual Contracts. Certain states will not allow a group Contract due
to provisions in their insurance laws. In those states, an eligible individual
will submit an Application and will be issued a Contract rather than a
Certificate.
Regardless of whether you have purchased an interest in a group Contract
or an individual Contract, 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
Certficiate Holder, pending acceptance of the Application. If the Application is
rejected, the Application and any Purchase Payments will be returned to the
Certificate Holder.
PURCHASE PAYMENTS
You may make Purchase Payments under the Contract in one lump sum, through
periodic payments or as a transfer from a pre-existing plan.
The minimum initial Purchase Payment amount is $5,000 for Nonqualified
Contracts and $1,500 for Qualified Contracts. In some states, a Contract issued
as an Individual Retirement Annuity can accept only a lump sum, rollover
Purchase Payment. Additional Purchase Payments made to an existing Contract must
be at least $1,000 or at least $50 per month by electronic funds transfer, and
are subject to the terms and conditions published by us at the time of the
subsequent payment. A Purchase Payment of more than $1,000,000 will be allowed
only with the Company's consent. We also reserve the right to reject any
Purchase Payment to a prospective or existing Account without advance notice
(unless not allowed by state law).
For Qualified Contracts the Code imposes a maximum limit on annual
Purchase Payments which may be excluded from a participant's gross income. (See
"Tax Status.")
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or the
- -------------------------------------------------------------------------------
5
<PAGE>
Guaranteed 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. (See "Investment Options.")
CONTRACT RIGHTS
Under individual Contracts, Certificate Holders have all Contract rights.
Under group Contracts, the group Contract Holder has title to the
Contract and generally only the right to accept or reject any modifications to
the Contract. You have all other rights to your Account under the Contract.
However, under a Nonqualified Contract, if you and the Annuitant are not the
same, and the Annuitant dies first, your rights are automatically transferred
to the Beneficiary. (See "Death Benefit.")
Joint Certificate Holders have equal rights under the Contract and with
respect to their Account. All rights under the Contract must be exercised by
both joint Certificate Holders with the exception of transfers among investment
options, which can be exercised by one joint Certificate Holder after the
Account has been established. See "Death Benefit" regarding the rights of the
surviving joint Certificate Holder upon the death of a joint Certificate Holder
prior to the Annuity Date.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the Beneficiary under the Contract on the
Application. You may also elect to specify the form of payment to be made to the
Beneficiary. For Qualified Contracts issued in conjunction with a Code Section
401(a) qualified pension or profit sharing plan or a Code Section 457 deferred
compensation plan, the employer or trustee must be both the Certificate Holder
and the Beneficiary under the Contract, and the participant on whose behalf the
Account was established must be the Annuitant. Under such plans the participant
is generally allowed to designate a beneficiary under the plan, and the
Certificate Holder may direct that we pay any death proceeds to the plan
beneficiary. "Beneficiary" as used in this Prospectus refers to the person who
is ultimately entitled to receive such proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b)
tax deferred annuity program subject to the Employee Retirement Income Security
Act (ERISA), the spouse of a married participant must be the Beneficiary of at
least 50% of the Account Value. If the married participant is age 35 or older,
the participant may name an alternate Beneficiary provided the participant
furnishes a waiver and spousal consent which meets the requirements of ERISA
Section 205. The participant on whose behalf the Account was established must be
the Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, the
Certificate Holder must be the Annuitant. For Nonqualified Contracts, the
Certificate Holder and the Annuitant, may, but need not, be the same person.
(See "Purchase--Contract Availability.")
RIGHT TO CANCEL
You may cancel the Contract or Certificate without penalty by returning it
to the Company with a written notice of your intent to cancel. In most states,
you have ten days to exercise this "free look" right; some states allow you
longer. Unless state law requires otherwise, the amount you will receive upon
cancellation will reflect the investment performance of the Subaccounts into
which your Purchase Payments were deposited. In some cases this may be more or
less than the amount of your Purchase Payments; therefore, you bear the entire
investment risk for amounts allocated among the Subaccounts during the free look
period. Under Contracts issued as Individual Retirement Annuities, you will
receive a refund of your Purchase Payment. Account Values will be determined as
of the Valuation Date on which we receive your request for cancellation at our
Home Office.
CHARGES AND DEDUCTIONS
===============================================================================
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.
- -------------------------------------------------------------------------------
6
<PAGE>
In certain circumstances, the risk of adverse expense experience
associated with this Contract may be reduced. In such event, the mortality and
expense risk charge applicable to that Contract may likewise be reduced. Whether
such a reduction is available will be determined by the Company based upon
consideration of one of the following factors:
(1) the size and composition of the prospective group such as a group made up
of active employees of the Company or its affiliates;
(2) the type and frequency of administrative and sales services provided; and
(3) the level of maintenance fee and deferred sales charges.
Any reduction of the mortality and expense risk charge will not be
unfairly discriminatory against any person. We will make any reduction in the
mortality and expense risk charge according to our own rules in effect at the
time the Contract is issued. We reserve the right to change these rules from
time to time.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Charge. During the Accumulation Period, the Company makes a
daily deduction from each of the Subaccounts for an administrative charge. The
charge is equal, on an annual basis, to 0.15% of the daily net assets of the
Subaccounts and compensates the Company for administrative expenses that exceed
revenues from the maintenance fee described below. The charge is set at a level
which does not exceed the average expected cost of the administrative services
to be provided while the Contract is in force. The Company does not expect to
make a profit from this charge.
During the Annuity Period, the Company reserves the right to make a
deduction for the administrative charge of an amount equal, on an annual basis,
to a maximum of 0.25% of the daily net assets of the Subaccounts. There is
currently no administrative charge during the Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective during
the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
The maximum maintenance fee deducted under the Contract is $30. The
maintenance fee will be deducted annually on the anniversary of the Contract
effective date. It is deducted on a pro rata basis from each investment option
in which you have an interest. If your entire Account Value is withdrawn, the
full maintenance fee, if applicable, will be deducted at the time of withdrawal.
The maintenance fee will not be deducted (either annually or upon withdrawal) if
your Account Value is $50,000 or more on the day the maintenance fee is due.
REDUCTION OR ELIMINATION OF ADMINISTRATIVE CHARGE AND MAINTENANCE FEE
The administrative charge and maintenance fee may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in such a manner that results in savings of administrative expenses. The
entitlement to such a reduction will be based on:
(1) the size and type of the group of individuals to whom the Contract is
offered; and
(2) the amount of expected Purchase Payments.
Any reduction or elimination of the administrative charge or maintenance
fees will not be unfairly discriminatory against any person. We will make any
reduction in the administrative charge or annual maintenance fees according to
our own rules in effect at the time the Contract is issued. We reserve the right
to change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account and is based
on the number of years which have elapsed since the Purchase Payment was made.
The deferred sales charge for each Purchase Payment is determined by multiplying
the Purchase Payment withdrawn by the appropriate percentage, in accordance with
the schedule set forth in the tables below.
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Withdrawals are taken first against Purchase Payments, then against any
increase in value. However, the deferred sales charge only applies to the
Purchase Payment (not to any associated changes in value). To satisfy a partial
withdrawal, the deferred sales charge is calculated as if the Purchase Payments
are withdrawn from the Subaccounts in the same order they were applied to the
Account. Partial withdrawals from the Guaranteed Account will be treated as
described in the Appendix and the prospectus for the Guaranteed Account. The
total charge will be the sum of the charges applicable for all of the Purchase
Payments withdrawn.
Years since receipt Deferred Sales
of Purchase Payment Charge Deduction
- -------------------------- -----------------
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
Years since receipt Deferred Sales
of Purchase Payment Charge Deduction
- -------------------------- -----------------
Less than 1 7%
1 or more but less than 2 6%
2 or more but less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
A deferred sales charge will not be deducted from any portion of a
Purchase Payment withdrawn if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] paid to a Beneficiary due to the Annuitant's death before Annuity
payments start, up to a maximum of the Purchase Payment(s) in the
Account on the Annuitant's date of death;
[bullet] made due to the election of a Systematic Distribution Option (see
"Systematic Distribution Options");
[bullet] if approved by your state, under a Qualified Contract when the amount
withdrawn is equal to the minimum distribution required by the Code for
this Contract calculated using a method permitted under the Code and
agreed to by the Company;
[bullet] paid upon a full withdrawal where the Account Value is $2,500 or less
and no amount has been withdrawn during the prior 12 months; or
[bullet] paid if we close out your Account when the value is less than $2,500
(or other amount required by state law).
After the first Account Year, you may withdraw all or a portion of your
Purchase Payments without a deferred sales charge, provided that (1) such
withdrawal occurs within three years of the Annuitant's admission to a licensed
nursing care facility (including non-licensed facilities in New Hampshire) and
(2) the Annuitant has spent at least 45 consecutive days in such facility. This
waiver of deferred sales charge does not apply if the Annuitant is in a nursing
care facility at the time the Account is established. It will also not apply if
otherwise prohibited by state law.
The Company does not anticipate that the deferred sales charge will cover
all sales and administrative expenses which it incurs in connection with the
Contract. The difference will be covered by the general assets of the Company
which are attributable, in part, to mortality and expense risk charges under the
Contract described above.
Free Withdrawals. Subject to the restrictions described below, you may
withdraw up to the greater of 10% of your current Account Value (up to 15% of
your current Account Value for Contracts or Certificates issued in the State of
New York) or the minimum distribution amount required by law during each
calendar year without imposition of a deferred sales charge. The free withdrawal
amount will be based on the Account Value calculated on the Valuation Date next
following our receipt of your request for withdrawal and will be adjusted for
amounts requested for distribution under a Systematic Distribution Option,
during the calendar year. If your withdrawal exceeds the applicable free
withdrawal allowance, we will deduct a deferred sales charge on the excess
amount. (See the Appendix for a discussion of withdrawals from the Guaranteed
Account.)
REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE
We may reduce or eliminate the deferred sales charge when sales of the
Contracts are made to individuals or a group of individuals in such a manner
that results in savings of sales expenses. The entitlement to such a reduction
in the deferred sales charge will be based on the following:
(1) the size and type of the group of individuals to whom the Contract is
offered;
(2) the amount of expected Purchase Payments; and
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(3) whether there is a prior or existing relationship with the Company such
as being an employee of the Company or an affiliate, receiving
distributions or making internal transfers from other contracts issued by
the Company, or making transfers of amounts held under qualified plans
sponsored by the Company or an affiliate.
Any reduction or elimination of the deferred sales charge will be subject
to state approval and not be unfairly discriminatory against any person.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities currently impose a premium tax on
Annuities. These taxes currently range from 0% to 4%. Ordinarily, any applicable
state premium tax will be deducted from the Account Value when it is applied to
an Annuity Option. However, we reserve the right to deduct state premium tax
from the Purchase Payment(s) or from the Account Values at any time, but no
earlier than when we have a tax liability under state law.
Any municipal premium tax assessed at a rate in excess of 1% will be
deducted from the Purchase Payment(s) or from the amount applied to an Annuity
Option based on our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
CONTRACT VALUATION
===============================================================================
ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in the Guaranteed Account.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative charge.
Initial Purchase Payments will be credited to your Account at the AUV next
computed following our acceptance of the Application as described under
"Purchasing Interests in the Contract." Each subsequent Purchase Payment (or
amount transferred) received by the Company by the close of business of the New
York Stock Exchange will be credited to your Account at the AUV next computed
following our receipt of your payment or transfer request. The value of an
Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor for
a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of a maximum of
1.25% for mortality and expense risks, and an administrative charge
of 0.15% (unless reduced or eliminated) during the Accumulation
Period and up to 0.25% during the Annuity Period (currently 0% during
the Annuity Period).
The net investment rate may be either positive or negative.
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<PAGE>
TRANSFERS
===============================================================================
At any time prior to the Annuity Date, you can transfer amounts held under
your Account among the investment options available subject to certain
limitations. (See "Investment Options.") Transfers from the Guaranteed Account
may be subject to certain restrictions and to a market value adjustment. (See
the Appendix.) If approved by your state, during the Annuity Period, if you have
elected a variable Annuity, you can make transfers only among the Subaccounts
available during the Annuity Period. (See "Annuity Options.") 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. Any transfer
will be based on the Accumulation Unit Value next determined after the Company
receives a valid transfer request at its Home Office.
During the Accumulation Period, twelve free transfers are allowed per
calendar year. Thereafter, the Company reserves the right to charge up to $10
for each additional transfer. This charge will be deducted from the gross amount
of the transfer. The Company currently does not impose this charge. Currently,
during the Annuity Period, four transfers are allowed each calendar year.
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program. Dollar cost
averaging is a system for investing a fixed amount of money at regular intervals
over a period of time. The Dollar Cost Averaging Program permits the transfer of
amounts from any of the variable funding options and an available Guaranteed
Term subject to the Company's terms and conditions to any of the Subaccounts. A
market value adjustment will not be applied to dollar cost averaging transfers
from any such Guaranteed Term during participation in the Dollar Cost Averaging
Program. If dollar cost averaging from a Guaranteed Term is discontinued, the
Company will automatically transfer the balance remaining in the Guaranteed Term
from which dollar cost averaging is withdrawn to a Guaranteed Term of the same
duration unless the Certificate Holder initiates a transfer to another
investment option. In either case, a market value adjustment will apply. There
is no additional charge for the Dollar Cost Averaging Program. (See the Appendix
for a discussion of the restrictions and features attributable to the Guaranteed
Account.)
Dollar cost averaging does not ensure a profit nor guarantee against loss
in a declining market. You should consider your financial ability to continue
purchases through periods of low price levels. For additional information,
please refer to the "Inquiries" section of the Prospectus Summary, which
describes how you can obtain further information.
The Dollar Cost Averaging Program is not available to individuals who have
elected the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your
Account Value automatically reallocated annually to a specified percentage or at
other more frequent intervals as allowed by Aetna under the program. Only
Account Values accumulating in the Subaccounts can be rebalanced. You may
participate in this program by completing the Account Rebalancing section of the
Application, or by sending a written request to the Company at its Home Office.
The Account Rebalancing Program does not ensure a profit nor guarantee against
loss in a declining market.
The Account Rebalancing Program is not available to Certificate Holders
who have elected the Dollar Cost Averaging Program.
WITHDRAWALS
===============================================================================
All or a portion of your Account Value may be withdrawn at any time during
the Accumulation Period. Withdrawal restrictions applicable to Section 403(b)
Contracts are described below. To request a withdrawal, you must properly
complete a disbursement form and send it to our Home Office. Payments for
withdrawal requests will be made in accordance with Securities and Exchange
Commission requirements, but normally not later than seven calendar days
following our receipt of a disbursement form. Withdrawals may be subject to a
deferred sales charge (see "Charges and Deduction") and to taxes and to tax
penalties (see "Tax Status").
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<PAGE>
Withdrawals may be requested in one of the following forms:
[bullet] Full Withdrawal of an Account: The amount paid for a full withdrawal
will be the Adjusted Account Value minus any applicable deferred sales
charge and maintenance fee due.
[bullet] Partial Withdrawals: (Percentage): The amount paid will be the
percentage of the Adjusted Account Value requested minus any
applicable deferred sales charge.
[bullet] Partial Withdrawals: (Specified Dollar Amount): The amount paid will
be the dollar amount requested. However, the amount withdrawn from
your Account will equal the amount you request plus any applicable
deferred sales charge and plus or minus any applicable market value
adjustment.
For any partial withdrawal, the value of the Accumulation Units canceled
will be withdrawn proportionately from the Guaranteed Account or each Subaccount
in which your Account is invested, unless you request otherwise in writing. All
amounts paid will be based on your Account Value as of the next Valuation Date
after we receive a request for withdrawal at our Home Office, or on such later
date as the disbursement form may specify.
The tax treatment of withdrawals from each Nonqualified Contract may be
affected if you own other annuity contracts issued by us (or our affiliates)
that were purchased on or after October 21, 1988. (See "Tax Status.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b)
Contracts, the withdrawal of salary reduction contributions and earnings on
such contributions is generally prohibited prior to the participant's death,
disability, attainment of age 59-1/2, separation from service or financial
hardship. (See "Tax Status.")
Reinstatement Privilege Following Withdrawal. You may elect to reinstate
all or a portion of the proceeds received from the full withdrawal of your
Account within 30 days after the withdrawal. Accumulation Units will be credited
to your Account for the amount reinstated, as well as for any maintenance fee
charged and any portion of any deferred sales charge imposed at the time of
withdrawal. However, any aggregate negative market value adjustment made to the
Guaranteed Account will not be credited. Reinstated amounts will be reallocated
to applicable investment options in the same proportion as they were allocated
at the time of withdrawal.
The number of Accumulation Units credited will be based upon the
Accumulation Unit Value(s) next computed following receipt at our Home Office of
the reinstatement request along with the amount to be reinstated. Any
maintenance fee which falls due after the withdrawal and before the
reinstatement will be deducted from the amount reinstated. The reinstatement
privilege may be used only once and does not apply to a Certificate Holder's
Account that We close out as described in the Section entitled, "Involuntary
Terminations." If you are contemplating reinstatement, you should seek competent
advice regarding the tax consequences associated with this type of transaction.
SYSTEMATIC DISTRIBUTION OPTIONS
===============================================================================
The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Systematic Distribution Options"). To exercise
these options, your Account Value must meet the minimum dollar amount and age
criteria applicable to that option.
The Systematic Distribution Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract.
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed for those who want to receive only
the minimum distribution that the Code requires each year. ECO is
available only under Qualified Contracts. Under ECO, the Company
calculates the minimum distribution amount required by law, and pays
you that amount once a year. (See "Tax Status.")
Other Systematic Distribution Options may be added from time to time.
Additional information relating to any of the Systematic Distribution Options
may be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Systematic Distribution Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
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<PAGE>
Taking a withdrawal under one of these Systematic Distribution Options may have
tax consequences. Any person concerned about tax implications should consult a
competent tax advisor prior to electing an option.
Once you elect a Systematic Distribution Option, you may revoke it any
time by submitting a written request to our Home Office. Once an option is
revoked, no other Systematic Distribution Option may be elected unless permitted
by the Code. The Company reserves the right to discontinue the availability of
one or all of these Systematic Distribution Options for new elections at any
time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
===============================================================================
A death benefit will be payable to the Beneficiary(ies) if the Certificate
Holder or the Annuitant dies before Annuity payments have commenced. If the
Account is owned jointly, the death benefit applies at the death of the first
joint Certificate Holder. Upon the death of a joint Certificate Holder prior to
the Annuity Date, the surviving Certificate Holder, if any, will become the
designated Beneficiary. Any other Beneficiary designation on record with the
Company at the time of death will be treated as a contingent Beneficiary.
DEATH BENEFIT AMOUNT
If approved by your state, upon the death of the Annuitant, the death
benefit proceeds will be the greater of:
(1) The minimum guaranteed death benefit (described below) as of the date of
death, plus any Purchase Payments made, and less any amount(s)
surrendered, applied to an Annuity option or deducted from the Account,
since the minimum guaranteed death benefit was determined, or
(2) The Account Value on the Claim Date.
The minimum guaranteed death benefit is determined as follows: On the
effective date of the Contract ("Effective Date"), the minimum guaranteed death
benefit equals the amount of the initial Purchase Payment. On each Effective
Date anniversary before the Annuitant reaches age 85, the minimum guaranteed
death benefit is the greater of:
(1) The prior minimum guaranteed death benefit, plus any Purchase Payments
made, and less any amount(s) surrendered, applied to an Annuity option or
deducted from the Account, since the minimum guaranteed death benefit was
previously determined, or
(2) The Account Value on the Effective Date anniversary.
After the Annuitant reaches age 85 the minimum guaranteed death benefit is
equal to the minimum guaranteed death benefit determined on the Effective Date
anniversary immediately preceding the date the Annuitant attained age 85 plus
any Purchase Payments made, and less any amounts surrendered, applied to an
Annuity option or deducted from the Account.
On the Claim Date, if the minimum guaranteed death benefit is greater than
the Account Value, the amount by which the minimum guaranteed death benefit
exceeds the Account Value is allocated to the money market subaccount available
under the Contract. The Beneficiary may elect a death benefit option as
permitted unless the Certificate Holder has specified the form of payment to the
Beneficiary.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the minimum guaranteed death benefit will not apply. The
amount paid on account of the death of the Certificate Holder will be equal to
the Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge. The Beneficiary may elect a death benefit
option available under the Contract unless the Certificate Holder has specified
the form of payment to the Beneficiary.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was also the Annuitant, the spousal Beneficiary will
become the Annuitant and the minimum guaranteed death benefit will also apply at
the death of the spousal Beneficiary. The initial minimum guaranteed death
benefit equals the Account Value as adjusted for any minimum guaranteed death
benefit payable at the death of the original Certificate Holder/Annuitant.
Thereafter, the minimum guaranteed death benefit is determined as above.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was not also the Annuitant, the Annuitant will not change
and the amount of death benefit proceeds payable upon the spousal Beneficiary's
death will be equal to the Adjusted Account Value on the Claim Date, less any
deferred sales charge.
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If the death benefit described above is not approved by your state, the
following death benefit shall apply:
Upon the death of the Annuitant, the guaranteed death benefit proceeds
will be the greatest of:
(1) the total Purchase Payment(s) applied to the Account, minus the sum of
all amounts withdrawn, annuitized or deducted from such Account;
(2) the highest step-up value as of the date of death. The step-up value
is determined on each anniversary of the Effective Date, up to the
Annuitant's 75th birthday (85th birthday for Contracts or Certificates
issued in New York). Each step-up value is calculated as the Account Value
on the Effective Date anniversary, increased by Purchase Payments applied,
and decreased by partial withdrawals, annuitizations and deductions taken
from the Account since the Effective Date anniversary; or
(3) the Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the Account
Value is determined as of the date of death. Any excess amount will be deposited
and allocated to the money market Subaccount available under the Contract. The
Account Value on the claim date plus any excess amount deposited into the
Account becomes the Certificate Holder's Account Value. The death benefit paid
will equal the Account Value when request for payment is made and no deferred
sales charge applies.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the guaranteed death benefit will not apply. The amount of
death benefit proceeds will be equal to the Adjusted Account Value on the Claim
Date. Full or partial withdrawals may be subject to a deferred sales charge.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was the Annuitant, the amount of the death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date, less any deferred sales charge
applicable to any Purchase Payments made since the death of the Certificate
Holder/Annuitant.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was not the Annuitant, the amount of death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge in accordance with the usual rules regarding
the deferred sales charge. (See "Deferred Sales Charge.") If this provision was
not approved in your state, the deferred sales charge will apply only to
Purchase Payments made since the death of the Certificate Holder.
For amounts held in the Guaranteed Account, see the Appendix for a
discussion of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below.
If you die and no Beneficiary exists, the death benefit will be paid in a lump
sum to your estate. Prior to any election by the Beneficiary, the Account Value
will remain in the Account and the Account Value will continue to be affected by
the investment performance of the investment option(s) selected. The Beneficiary
has the right to allocate or transfer any amount to any available investment
option (subject to a market value adjustment, as applicable). The Code requires
that distributions begin within a certain time period, as described below. If no
elections are made, no distributions will be made. Failure to commence
distributions within those time periods can result in tax penalties.
Nonqualified Contracts. Under a Nonqualified Contract, if you die, and the
Beneficiary is your surviving spouse, or if you are a nonnatural person and the
Annuitant dies, and the Beneficiary is the Annuitant's surviving spouse, he or
she automatically becomes the successor Certificate Holder. The successor
Certificate Holder may exercise all rights under the Account and (1) continue in
the Accumulation Period; (2) elect to apply some or all of the Adjusted Account
Value to any of the Annuity Options; or (3) receive at any time a lump sum
payment equal to all or a portion of the Adjusted Account Value. If you die and
you are not the Annuitant, any applicable deferred sales charge will be applied
if a lump sum payment is elected. Under the Code, distributions are not required
until the successor Certificate Holder's death.
If you die and the Beneficiary is not your surviving spouse, he or she may
elect option (2) or (3) above. According to the Code, any portion of the
Adjusted Account Value not distributed in installments over the life or life
expectancy beginning within one year of your death, must be paid within five
years of your death. (See "Tax Status of the Contract.")
If you are a natural person but not the Annuitant and the Annuitant dies,
the Beneficiary may elect to apply the Adjusted Account Value to an Annuity
Option within 60
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<PAGE>
days or to receive a lump sum payment equal to the Adjusted Account Value,
subject to state regulatory approval. If the Beneficiary does not elect an
Annuity Option within 60 days of the date of death, the gain, if any, will be
includable in the Beneficiary's income in the year the Annuitant dies.
If SWO is in effect, payments will cease at the Certificate Holder's or
Annuitant's death. A Beneficiary, however, may elect to continue SWO.
Qualified Contracts. Under a Qualified Contract, the death benefit is paid
at the death of the participant, who is the Annuitant under the Contract. The
Beneficiary has the following options: (1) apply some or all of the Adjusted
Account Value to any of the Annuity Options, subject to the distribution rules
in Code Section 401(a)(9), or (2) receive at any time a lump sum payment equal
to all or a portion of the Adjusted Account Value. If the Account was
established in conjunction with a Section 401(a) qualified pension or profit
sharing plan or a Section 457 deferred compensation plan, payment will be made,
as directed by the Certificate Holder, to either the Certificate Holder or to
the plan Beneficiary.
If ECO or SWO is in effect and the participant dies before the required
beginning date for minimum distributions, payments will cease. A Beneficiary, or
the Certificate Holder on behalf of a plan Beneficiary, may elect ECO or SWO
provided the election would satisfy the Code minimum distribution rules.
If ECO or SWO is in effect and the participant dies after the required
beginning date for minimum distributions, payments will continue as permitted
under the Code minimum distribution rules, unless the option is revoked.
Death benefit payments must satisfy the distribution rules in Code
Section 401(a)(9). (See "Tax Status of the Contract.")
ANNUITY PERIOD
===============================================================================
ANNUITY PERIOD ELECTIONS
You must notify us in writing of the date you want Annuity Payments to
start (the "Annuity Date") and the Annuity Option elected. Payments may not
begin earlier than one year after purchase, or, unless we consent, later than
the later of (a) the first day of the month following the Annuitant's 85th
birthday, or (b) the tenth anniversary of the last Purchase Payment (fifth
anniversary for Contracts issued in Pennsylvania). For Contracts or Certificates
issued in New York, Annuity Payments may not begin later than the first day of
the month following the Annuitant's 90th birthday.
Annuity Payments will not begin until you have selected an Annuity Date
and an Annuity Option. Until a date and option are elected, the Account will
continue in the Accumulation Period.
As of January 1, 1997, the Code generally requires that for Qualified
Contracts, other than IRAs and for five-percent owners in other Qualified
Contracts, minimum annual distributions of the Account Value begin by April 1st
of the calendar year following the calendar year in which a participant attains
age 70-1/2 or retires, whichever occurs later. For IRA depositors and for
five-percent owners, minimum distributions must begin by April 1 of the calendar
year following the calendar year in which the participant attains age 70-1/2. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Systematic Distribution Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like Annuity Payments to begin;
[bullet] the Annuity Option under which you want payments to be calculated and
paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide Annuity Payments (i.e., a
fixed Annuity using the general account or a variable Annuity using any
of the Subaccounts available at the time of annuitization or a
combination of the two).
Once Annuity Payments begin, the Annuity Option may not be changed.
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining
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<PAGE>
portion of your Account Value invested in the Accumulation Period. The Code and
the regulations do not specifically address the tax treatment applicable to
payments provided in this way. Whether such payments are taxable as annuity
payments or as withdrawals is currently unclear; therefore, you should consult
with a qualified tax adviser if you are considering a partial annuitization of
your Account.
ANNUITY OPTIONS
The Certificate Holder may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Annuitant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments--An annuity with
payments guaranteed for 5-30 years.
*[bullet] Option 3--Life Annuity with Cash Refund Feature--An annuity with a
cash refund feature. Payments are guaranteed for the amount applied
to the Annuity Option. If the Annuitant dies before the amount
applied to the Annuity Option (less any applicable premium tax) has
been paid, any remaining balance will be paid in one sum to the
Beneficiary. This option is available only when all payments are as a
fixed Annuity.
[bullet] Option 4--Life Annuity Based Upon the Lives of Two Annuitants--An
annuity paid during the lives of the Annuitant and a second
Annuitant. The Certificate Holder selects an Annuity with 100%,
66-2/3% or 50% of the payment to continue after the first death, or
an Annuity with 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.
[bullet] Option 5--Life Annuity Based Upon the Lives of Two Annuitants with
Guaranteed Payments--An Annuity with Payments for a minimum of 5-30
years, with 100% of the payment to continue after the first death.
*[bullet] Option 6--Life Annuity Based Upon the Lives of Two Annuitants with a
Cash Refund Feature--An Annuity with 100% of the payment to continue
after the first death with a cash refund feature. Payments are
guaranteed for the amount applied to the Annuity Option. If both
Annuitants die prior to the total payment of the amount applied to
the Annuity Option (less any premium tax), any remaining balance will
be paid in one sum to the Beneficiary. This option is available only
when all payments are as a Fixed Annuity.
*(If approved by your state.)
If Option 1 or 4 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 4, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Certificate Holder cannot elect to receive
a lump-sum settlement.
Nonlifetime Annuity Option:
Under the nonlifetime option, payments may be made for generally 5-30
years, as selected by the Certificate Holder. If this option is elected as a
variable Annuity, the Certificate Holder may request that the present value of
all or any portion of the remaining variable payments be paid in one sum.
However, any lump-sum elected before three years of payments have been completed
will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.") If the nonlifetime option is elected on a
fixed basis, you cannot elect to receive a lump-sum settlement.
We may also offer additional Annuity Options under your Contract from time
to time. You can call the number listed in the "Inquiries" section of the
Prospectus Summary, to determine which options are available and the terms of
such options. Additional or enhanced options may not be available to those
already receiving Annuity payments.
ANNUITY PAYMENTS
Date Payments Start. When payments start, the age of the Annuitant plus
the number of years for which payments are guaranteed must not exceed 95. For
Qualified Contracts only, Annuity Payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and Beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and
Beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on how
you allocate your Account Value between fixed and variable payouts (some options
require that all payments be made on a fixed basis). No election may be made
that would result in the first Annuity Payment of less than $50, or total yearly
Annuity Payments of less than $250 (less if required by state law). If the
Account Value on the Annuity Date is insufficient to elect an option for the
minimum amount specified, a lump-sum payment must be elected. We reserve the
right to increase the minimum first
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Annuity Payment amount and the minimum annual Annuity Payment amount based on
increases reflected in the Consumer Price Index-Urban (CPI-U), since July 1,
1993.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3-1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3-1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. This charge, established when a variable
Annuity Option is elected, will not exceed 0.25% per year of amounts held on a
variable basis. Once established, the charge will be effective during the entire
Annuity Period. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
The death benefit, if any, due when the Annuitant dies after Annuity
Payments have begun, will depend on the terms of the Contract and the Annuity
Option selected. If Option 1 or Option 4 was elected, Annuity Payments will
cease on the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 4.
If Lifetime Option 2 or Option 5 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 5, occurs
prior to the end of the guaranteed minimum payment period, we will continue
payments to the Beneficiary unless the Beneficiary elects a lump sum, provided
the Certificate Holder has not prohibited such an election in the Beneficiary
designation.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments will be paid to the
Beneficiary unless the Beneficiary elects a lump sum, provided the Certificate
Holder has not prohibited such an election in the Beneficiary designation.
When 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 acceptable proof
of death, 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 5, such value will be reduced by any payments made after the date
of death.
TAX STATUS
===============================================================================
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).
In addition, this discussion does not cover the potential application of federal
estate and gift tax laws, or state, local or any other tax law. The Company
makes no guarantee regarding the tax treatment of any contract or transaction
involving a Contract.
The Contract may be purchased on a non-tax qualified basis ("Nonqualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under Section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
payments, and on the economic benefit to the Contract Holder, Certificate Holder
or Beneficiary may depend upon the tax status of the individual concerned. 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
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from the Company, it will not be taxed separately as a "regulated investment
company" under the Code. Investment income and realized capital gains are
automatically applied to increase reserves under the Contracts. Under existing
federal income tax law, the Company believes that the Separate Account
investment income and realized net capital gains will not be taxed to the extent
that such income and gains are applied to increase the reserves under the
Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
Diversification. Section 817(h) of the Code requires that with respect to
Nonqualified Contracts, the investments of the Funds be "adequately diversified"
in accordance with Treasury Regulations in order for the Contracts to qualify as
annuity contracts under federal tax law. The Separate Account, through the
Funds, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affects how the Funds' assets may be
invested.
In addition, in certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of the
assets of the separate accounts used to support their contracts. In these
circumstances, income and gains from the separate account assets would be
includible in the variable contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the owner possesses incidents of investment control
over the assets. The ownership rights under the contract are similar to, but
different in certain respects from those described by the IRS in rulings in
which it was determined that owners were not owners of separate account assets.
For example, a Certificate Holder has additional flexibility in allocating
premium payments and account values. In addition, the number of funds provided
under the Contract is significantly greater than the number of funds offered in
contracts on which rulings have been issued. These differences could result in a
Certificate Holder being treated as the owner of a pro rata portion of the
assets of the Separate Account. The Company reserves the right to modify the
Contract as necessary to attempt to prevent a Certificate Holder from being
considered the owner of a pro rata share of the assets of the Separate Account.
Required Distributions--Nonqualified Contracts: In order to be treated as
an annuity contract for federal income tax purposes, Section 72(s) of the Code
requires Nonqualified Contracts to provide that (a) if any Certificate Holder
dies on or after the Annuity Date but prior to the time the entire interest in
the Contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution in effect
at the time of the Certificate Holder's death, and (b) if any Certificate Holder
dies prior to the Annuity Date, the entire interest in the Contract will be
distributed within five years after the date of such Certificate Holder's death.
These requirements will be considered satisfied as to any portion of a
Certificate Holder's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
"designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of the Certificate Holder's death. The "designated beneficiary" refers
to a natural person designated by the Certificate Holder as a Beneficiary and to
whom ownership of the contract passes by reason of death. However, if the
"designated beneficiary" is the surviving spouse of the deceased Certificate
Holder, the Account may be continued with the surviving spouse as the new
Certificate Holder. If the Certificate Holder is a non-natural person, the
surviving spouse who is the "designated beneficiary" of the deceased Annuitant
may continue the Account.
The Nonqualifed Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
The discussion under "Taxation of Annuities" below is based on the
assumption that the Contract qualifies as an annuity contract for federal income
tax purposes.
Required Distributions--Qualified Contracts: The Code has required
distribution rules for Section 401(a), 403(b) and 457 Plans and Individual
Retirement Annuities.
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Other than for IRAs and for five-percent owners in other Qualified Contracts,
distributions must generally begin by April 1 of the calendar year following the
calendar year in which the participant attains age 70-1/2 or retires, whichever
occurs later. For IRA depositors and for five-percent owners, minimum
distributions must begin by April 1 of the calendar year following the calendar
year in which the participant attains age 70-1/2. Under 403(b) plans, if the
Company maintains separate records, distribution of amounts held as of December
31, 1986 must generally begin by the end of the calendar year in which the
participant attains age 75 (or retires, whichever occurs later). However,
special rules require that some or all of the balance be distributed earlier if
any distributions are taken in excess of the minimum required amount.
To comply with these provisions, distributions must be in a form and
amount sufficient to satisfy the minimum distribution and minimum distribution
incidental death benefit rules specified in Section 401(a) (9) of the Code.
In general, annuity payments must be distributed over the participant's
life or the joint lives of the participant and beneficiary, or over a period not
greater than the participant's life expectancy or the joint life expectancies of
the participant and beneficiary. Also, any distribution under a Section 457 Plan
payable over a period of more than one year must be made in substantially
nonincreasing amounts.
If the participant dies on or after the required beginning date for
minimum distributions, distributions to the beneficiary must be made at least as
rapidly as the method of distribution in effect at the time of the participant's
death. However, if the required minimum distribution is calculated each year
based on the participant's single life expectancy or the joint life expectancies
of the participant and beneficiary, the regulations for Code Section 401(a)(9)
provide specific rules for calculating the required minimum distributions at the
participant's death. For example, if ECO was elected with the calculation based
on the participant's single life expectancy, and the life expectancy is
recalculated each year, the recalculated life expectancy becomes zero in the
calendar year following the participant's death and the entire remaining
interest must be distributed to the beneficiary by December 31 of the year
following the participant's death. However, a spousal beneficiary, other than
under a Section 457 Plan, has certain rollover rights which can only be
exercised in the year of the participant's death. The rules are complex and the
participant should consult a tax adviser before electing the method of
calculation to satisfy the minimum distribution requirements.
If the participant dies before the required beginning date for minimum
distributions, the entire interest must be distributed by December 31 of the
calendar year containing the fifth anniversary of the date of the participant's
death. Alternatively, payments may be made over the life of the beneficiary or
over a period not extending beyond the life expectancy of the beneficiary, not
to exceed 15 years for a non-spousal beneficiary under a Section 457 Plan,
provided the distribution begins to a non-spouse beneficiary by December 31 of
the calendar year following the calendar year of the participant's death. If
payments are made to a spousal beneficiary, distributions must begin by the
later of December 31 of the calendar year following the calendar year of the
death or December 31 of the calendar year in which the participant would have
attained age 70-1/2.
An exception applies for a spousal beneficiary under an Individual
Retirement Annuity. In lieu of taking a distribution under these rules, a
spousal Beneficiary may elect to treat the Account as his or her own IRA and
defer taking a distribution until his or her age 70-1/2. The surviving spouse is
deemed to have made such an election if the surviving spouse makes a rollover to
or from the Account or fails to take a distribution within the required time
period.
If the participant or beneficiary fails to take the required minimum
distribution for any tax year, a 50% excise tax is imposed on the required
amount that was not distributed.
TAXATION OF ANNUITY CONTRACTS
In General: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Certificate Holder under a Nonqualified
Contract who is a natural person generally is not taxed on increases in the
Account Value until distribution occurs by withdrawing all or part of such
Account Value (e.g., withdrawals or Annuity Payments under the Annuity Option
elected). The taxable portion of a distribution (in the form of a single sum
payment or an Annuity) is taxable as ordinary income.
Non-Natural Holders of a Nonqualified Contract: If the Certificate Holder
is not a natural person, a Nonqualified Contract is not treated as an annuity
for income tax purposes and the "income on the contract" for the taxable year is
currently taxable as ordinary income. "Income on the contract" is any increase
over the year in the Surrender Value, adjusted for Purchase Payments made
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during the year, amounts previously distributed and amounts previously included
in income. There are some exceptions to the rule and a non-natural person should
consult with its tax adviser prior to purchasing this Contract. A non-natural
person exempt from federal income taxes should consult with its tax adviser
regarding treatment of "income on the contract" for purposes of the unrelated
business income tax. When the Certificate Holder is not a natural person, the
Annuitant is considered the Certificate Holder for the purpose of meeting the
required distribution-at-death rules. In addition, when the Certificate Holder
is not a natural person, a change in Annuitant is treated as the death of the
Certificate Holder.
The following discussion generally applies to Qualified Contracts or
Nonqualified Contracts owned by a natural person.
Withdrawals: In the case of a withdrawal under a Qualified Contract,
including withdrawals under SWO or ECO, the amount taxable is generally based on
the ratio of the "investment in the contract" to Account Value. The "investment
in the contract" generally equals the amount of any nondeductible Purchase
Payments paid by or on behalf of any individual less any amount received
previously which was excludable from gross income. For a Qualified Contract, the
"investment in the contract" can be zero. Special tax rules may be available for
certain distributions from a Qualified Contract.
With respect to Nonqualified Contracts, partial withdrawals, including
withdrawals under SWO, are generally treated as taxable income to the extent
that the Account Value immediately before the withdrawal exceeds the "investment
in the contract" at that time. The Account Value immediately before a withdrawal
may have to be increased by any positive market value adjustment (MVA) that
results from such a withdrawal. There is, however, no definitive guidance on the
proper tax treatment of MVAs in these circumstances, and a Certificate Holder
should contact a competent tax advisor with respect to the potential tax
consequences of any MVA that arises as a result of a partial withdrawal.
Full withdrawals of a Nonqualified Contract are treated as taxable income
to the extent that the amount received exceeds the "investment in the contract."
Annuity Payments: Although the tax consequences may vary depending on the
Annuity Payment elected under the Contract, in general, only the portion of the
Annuity Payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional annuity payments is
taxable. For variable Annuity Payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
fixed annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity Payments is taxable. If Annuity Payments cease as a result of
an Annuitant's death before full recovery of the "investment in the contract,"
consult a competent tax advisor regarding deductibility of the unrecovered
amount.
Penalty Tax: In the case of a distribution pursuant to a Nonqualified
Contract, or a Qualified Contract other than a Qualified Contract sold in
conjunction with a Code Section 457 Plan, there may be imposed a federal income
tax penalty equal to 10% of the amount treated as taxable income.
In general, there is no penalty tax on distributions from a Nonqualified
Contract: (1) made on or after the date on which the taxpayer attains age
59-1/2; (2) made as a result of the death of the Certificate Holder; (3)
attributable to the taxpayer's total and permanent disability; (4) received in
substantially equal periodic payments (at least annually) over the life or life
expectancy of the taxpayer or the joint lives or joint life expectancies of the
taxpayer and a "designated beneficiary;" or (5) allocable to "investment in the
contract" before August 14, 1982.
If a distribution is made from a Qualified Contract sold in conjunction
with a Section 401(a) Plan or Section 403(b) Plan, the penalty tax will not
apply on distribution made when the participant (a) attains age 59-1/2, (b)
becomes permanently and totally disabled, (c) dies, (d) separates from service
with the plan sponsor at or after age 55, (e) rolls over the distribution amount
to another plan of the same type in accordance with the terms of the Code, or
(f) takes the distributions in substantially equal periodic payments (at least
annually) over his or her life or life
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expectancy or the joint lives or joint life expectancies of the participant and
plan beneficiary, provided the participant has separated from service with the
plan sponsor. In addition, the penalty tax does not apply for the amount of a
distribution equal to unreimbursed medical expenses incurred by the participant
that qualify for deduction as specified in the Code. The Code may impose other
penalty taxes in other circumstances.
In general, the same exceptions described in the preceding paragraph will
apply to distributions made from an Individual Retirement Annuity. Beginning
January 1, 1997, the penalty tax is also waived on distributions made from an
IRA to pay for health insurance premiums for certain unemployed individuals.
Beginning January 1, 1998, the penalty tax is waived if the amounts withdrawn
are used for a qualified first-time home purchase or for higher education
expenses.
Taxation of Death Benefit Proceeds: Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
Generally, such amounts are includible in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity Payments, as described
above.
Transfers, Assignments or Exchanges of the Contract: A transfer of
ownership of a Contract, the designation of an Annuitant, payee or other
Beneficiary who is not also a Certificate Holder, the selection of certain
Annuity Dates, or the exchange of a Contract may result in certain tax
consequences. The assignment, pledge, or agreement to assign or pledge any
portion of the Account Value generally will be treated as a distribution. The
assignment or transfer of ownership of a Qualified Contract generally is not
allowed. Anyone contemplating any such designation, transfer, assignment,
selection, or exchange should contact a competent tax adviser with respect to
the potential tax effects of such a transaction.
Multiple Contracts: All deferred nonqualified annuity contracts that are
issued by the Company (or its affiliates) to the same owner during any calendar
year are treated as one annuity contract for purposes of determining the amount
includible in gross income under Section 72(e) of the Code. In addition, the
Treasury Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts or
otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract and
separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
Qualified Contracts in General: The Qualified Contract is designed for use
as an Individual Retirement Annuity or as a Contract used in connection with
certain employer sponsored retirement plans. The tax rules applicable to
participants and beneficiaries in Qualified Contracts are complex. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59-1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants and beneficiaries under Qualified Contracts may be subject to the
terms and conditions of the retirement plans themselves, in addition to the
terms and conditions of the Contract issued in connection with such plans. Some
retirement plans are subject to distribution and other requirements that are not
incorporated in the provisions of the Contracts. Purchasers are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts satisfy applicable laws, and should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
Section 457 Plans. Code Section 457 provides for certain deferred
compensation plans. These plans may be offered with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. The plans may permit participants to specify the form of
investment for their deferred compensation account. Prior to the August 20, 1996
enactment of the Small Business Job Protection Act of 1996 (the "Small Business
Act") compensation deferred under the plans, all property and rights purchased
with such amounts, and all income attributable to such amounts, property or
rights remained solely the property and rights of the employer (without being
restricted to the provision of
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benefits) subject only to the claims of the employer's general creditors. For
that reason, depending on the terms of the particular plan, the employer may
have been entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations.
Under the Small Business Act, plans maintained by State or local
governments, their political subdivisions, agencies, instrumentalities and
certain affiliates will be required to hold all assets and income of the Plan in
trust for the exclusive benefit of plan participants and their beneficiaries.
For purposes of meeting the new requirement, custodial accounts and annuity
contracts are treated as trusts. State and local government plans that were in
existence on August 20, 1996 are allowed a transition period that ends January
1, 1999 to comply with the new requirement.
In general, all amounts received under a Section 457 plan are taxable and
reportable to the IRS as taxable income. Also, all amounts except death benefit
proceeds are subject to federal income tax withholding as wages. If we make
payments directly to a participant on behalf of the employer as owner, we will
withhold federal taxes (and state taxes, if applicable).
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from the participant's gross income. Such limit is generally the lesser
of $7,500 (as adjusted to reflect changes in the cost of living) or 33-1/3% of
the participant's includible compensation (25% of gross compensation).
Section 401(a) Plans. Section 401(a) permits corporate employers to
establish various types of retirement plans for employees, and permits
self-employed individuals to establish various types of retirement plans for
themselves and for their employees. These retirement plans may permit the
purchase of the Contract to accumulate retirement savings under the plans.
Adverse tax consequences to the plan, to the participant or to both may result
if this Contract is assigned or transferred to an individual except to a
participant as a means to provide benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a participant's gross income. Such limit must be calculated under
the Plan by the employer in accordance with Section 415 of the Code. This limit
is generally the lesser of 25% of the participant's compensation or $30,000. In
addition, Purchase Payments will be excluded from a participant's gross income
only if the Section 401(a) Plan meets certain nondiscrimination requirements.
All distributions will be taxed as they are received unless the
distribution is rolled over to another plan of the same type or to an individual
retirement annuity/account ("IRA") in accordance with the Code, or unless the
participant has made after-tax contributions to the plan, which are not taxed
upon distribution. The Code has specific rules that apply, depending on the type
of distribution received, if after-tax contributions were made.
In general, payments received by a beneficiary after the participant's
death are taxed in the same manner as if the participant had received those
payments, except that a limited death benefit exclusion may apply for payments
due to deaths that occurred on or before August 20, 1996. This exclusion no
longer applies to payments due to deaths occurring after August 20, 1996.
Section 403(b) Plans. Under Section 403(b), contributions made by public
school systems or nonprofit healthcare organizations and other Section 501(c)(3)
tax exempt organizations to purchase annuity contracts for their employees are
generally excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by the participant and his or her employer cannot exceed either of two
limits set by the Code. The first limit, under Section 415, is generally the
lesser of 25% of includible compensation or $30,000. The second limit, which is
the exclusion allowance under Section 403(b), is usually calculated according to
a formula that takes into account the participant's length of employment and any
pretax contributions to certain other retirement plans. These two limits apply
to the participant's contributions as well as to any contributions made by the
employer on behalf of the participant. There is an additional limit that
specifically limits salary reduction contributions to generally no more than
$9,500 annually (subject to indexing); a participant's own limit may be higher
or lower, depending on certain conditions. In addition, Purchase Payments will
be excluded from a participant's gross income only if the Plan meets certain
nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those
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amounts may only occur upon death of the participant, attainment of age 59-1/2,
separation from service, total and permanent disability, or financial hardship.
In addition, income attributable to salary reduction contributions may not be
distributed in the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity,
hereinafter referred to as an "IRA." Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis into an
IRA. Employers may establish Simplified Employee Pension (SEP) Plans and
contribute to an IRA owned by the employee. Purchasers of a Qualified Contract
for use with IRAs will be provided with supplemental information required by the
Internal Revenue Service. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRAs.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients may be provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions from Section 401(a) Plans and Section 403(b) tax-deferred
annuities are subject to mandatory 20% federal income tax withholding. We will
report to the IRS the taxable portion of all distributions.
MISCELLANEOUS
===============================================================================
DISTRIBUTION
The Company will serve as the principal underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC") and is a member of the National
Association of Securities Dealers, Inc. ("NASD"). As principal underwriter, the
Company will contract with one or more registered broker-dealers, or with banks
that may be acting as broker-dealers without separate registration under the
Securities Exchange Act of 1934 pursuant to legal and regulatory exceptions
("Distributors") to offer and sell the Contracts. The Company and one or more of
its affiliates may also sell the Contracts directly. All individuals offering
and selling the Contracts must either be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must also be licensed as insurance agents
to sell variable annuity contracts.
From time to time, the Company may offer customers of certain
broker-dealers special guaranteed rates in connection with the Guaranteed
Account offered through the Contracts, and may negotiate different commissions
for these broker-dealers.
The Company may also contract with independent third party broker-dealers
who will act as wholesalers by assisting the Company in finding broker-dealers
or banks interested in acting as Distributors for the Company. These wholesalers
may also provide training, marketing and other sales related functions for the
Company and the Distributors and may provide certain administrative services to
the Company in connection with the Contracts. The Company may pay such
wholesalers compensation based on Purchase Payments for the Contracts purchased
through Distributors selected by the wholesaler.
The Company may also designate third parties to provide services in
connection with the Contracts such as reviewing applications for completeness
and compliance with insurance requirements and providing the Distributors with
approved marketing material, prospectuses or other supplies. These parties will
also receive payments based on Purchase Payments for their services, to the
extent such payments are allowed by applicable securities laws. All costs and
expenses related to these services will be paid by the Company.
Payment of Commissions. We pay Distributors and their Registered
Representatives who sell the Contracts commissions and service fees. In limited
circumstances, we also pay certain of these professionals compensation,
overrides or reimbursement for expenses associated with the distribution of the
Contract. In total, the compensation amounts are considered equivalent to
approximately 7.5% of the Purchase Payments credited to the Contract over the
Contract's estimated life. At times the Company may offer certain distributors
an enhanced commission for a limited period of time. In addition, some sales
personnel may receive various types of non-cash compensation such as special
sales incentives, including trips and educational and/or business seminars.
Supervisory and other management personnel of the Company may receive
- --------------------------------------------------------------------------------
22
<PAGE>
compensation that will vary based on the relative profitablity to the Company of
the funding options you select. Funding options that invest in Funds advised by
the Company or its affiliates are generally more profitable to the Company.
We pay these commissions, fees and related distribution expenses out of
any deferred sales charges assessed or out of our general assets, including
investment income and any profit from investment advisory fees and mortality and
expense risk charges. No additional deductions or charges are imposed for
commissions and related expenses.
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 it is not reasonably practicable
for the Company fairly to determine the value of the Subaccount's assets; or (c)
during such other periods as the SEC may by order permit for the protection of
investors. The conditions under which restricted trading or an emergency exists
shall be determined by the rules and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative charge and any applicable deferred sales charge).
"Non-standardized returns" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
monthly, quarterly, year-to-date and three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at
shareholders' meetings of the appropriate Funds(s). The number of votes to which
each Contract Holder may give direction will be determined as of the record
date. The number of votes each Contract Holder is entitled to direct with
respect to a particular Fund during the Accumulation Period equals the portion
of the Account Values(s) of the Contract attributable to that Fund, divided by
the net asset value of one share of that Fund. During the Annuity Period, the
number of votes is equal to the valuation reserve for the portion of the
Contract attributable to that Fund, divided by the net asset value of one share
of that Fund. In determining the number of votes, fractional votes will be
recognized. Where the value of the Contract or valuation reserve relates to more
than one Fund, the calculation of votes will be performed separately for each
Fund.
If you are a Certificate Holder under a group Contract, you have a fully
vested (100%) interest in the benefits provided to you under your Account.
Therefore, you may instruct the group Contract Holder how to direct the Company
to cast the votes for the portion or the value of valuation reserve attributable
to your Account. Votes attributable to those Certificate Holders who do not
instruct the group Contract Holder will be cast by the Company in the same
proportion as votes for which instructions have been received by the group
Contract Holder. Votes attributable to individual or group Contract Holders who
do not direct us will be cast by us in the same proportion as votes for which
directions we have received.
You will receive a notice of each meeting of shareholders, together with
any proxy solicitation materials, and a statement of the number of votes
attributable to your Account.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to group Contracts that would apply only to
- --------------------------------------------------------------------------------
23
<PAGE>
individuals who become Certificate Holders under that Contract after the
effective date of such changes. If the Contract Holder does not agree to a
change, the Company reserves the right to refuse to establish new Accounts under
the Contract. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
TRANSFERS OF OWNERSHIP; ASSIGNMENT
Assignments or transfers of ownership of a Qualified Contract generally
are not allowed except as permitted under the Code, incident to a divorce. The
prohibition does not apply to a Qualified Contract sold in conjunction with (1)
a Section 457 deferred compensation plan, or (2) a Section 401(a) plan where the
Contract is owned by a trustee. We will accept assignments or transfers of
ownership of a Nonqualified Contract or a Qualified Contract where assignments
or transfers of ownership are not prohibited, with proper notification. The date
of any such transfer will be the date we receive the notification at our Home
Office. (Refer to "Tax Status" for general tax information.) If you are
contemplating a transfer of ownership or assignment you should consult a tax
adviser due to the potential for tax liability.
No assignment of a Contract will be binding on us unless made in writing
and sent to us at our Home Office. The Company will use reasonable procedures to
confirm that the assignment is authentic, including verification of signature.
If the Company fails to follow its procedures, it would be liable for any losses
to you directly resulting from the failure. Otherwise, we are not responsible
for the validity of any assignment. The rights of the Certificate Holder and the
interest of the Annuitant and any Beneficiary will be subject to the rights of
any assignee of record.
INVOLUNTARY TERMINATIONS
We reserve the right to terminate any Account with a value of $2,500 or
less immediately following a partial withdrawal (unless otherwise required by
state law). However, an Individual Retirement Annuity may only be closed out
when Purchase Payments have not been received for a 24-month period and the
paid-up annuity benefit at maturity would be less than $20 per month. If such
right is exercised, you will be given 90 days advance written notice. No
deferred sales charge will be deducted for involuntary terminations. The Company
does not intend to exercise this right in cases where the Account Value is
reduced to $2,500 or less solely due to investment performance.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.
- --------------------------------------------------------------------------------
24
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
===============================================================================
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements of
the Separate Account and the Company. A list of the contents of the SAI is set
forth below:
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
- --------------------------------------------------------------------------------
25
<PAGE>
APPENDIX ALIAC GUARANTEED ACCOUNT
===============================================================================
The ALIAC Guaranteed Account (the "Guaranteed Account") is a credited
interest option available during the Accumulation Period under the Contracts.
This Appendix is a summary of the Guaranteed Account and is not intended to
replace the Guaranteed Account prospectus. You should read the accompanying
Guaranteed Account prospectus carefully before investing.
The Guaranteed Account is a credited interest option in which we guarantee
stipulated rates of interest for stated periods of time on amounts directed to
the Guaranteed Account. For guaranteed terms of one year or less, a guaranteed
rate is credited for the full term. For guaranteed rates of greater than one
year (except for those Contracts or Certificates issued in the state of New
York), the initial guaranteed rate is credited from the date of deposit to the
end of a specified period within the guaranteed term. The interest rate
stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. Guaranteed interest rates will never be
less than an annual effective rate of 3%.
During a deposit period, amounts may be applied to any of the available
guaranteed terms. A Guaranteed Term is the period of time specified by the
Company for which a specific Guaranteed Rate or Rates are offered on amounts
invested during a specific Deposit Period. Guaranteed Terms are made available
by the Company subject to the Company's terms and conditions. See the prospectus
for the Guaranteed Account for further details regarding Guaranteed Term. The
Company may offer more than one Guaranteed Term of the same duration and credit
one with a higher rate contingent upon use only with the Dollar Cost Averaging
Program. If amounts are applied to a Guaranteed Term which is credited with a
higher rate using dollar cost averaging and the dollar cost averaging is
discontinued, the amounts will be transferred to another Guaranteed Term of the
same duration and a market value adjustment ("MVA") will apply. The Company also
reserves the right to limit the number of Guaranteed Terms or the availability
of certain Guaranteed Terms. Purchase Payments received after the initial
payment will be allocated in the same proportions as the last allocation, if no
new allocation instructions are received with the Purchase Payment. If the same
guaranteed term(s) are not available, the next shortest term will be used. If no
shorter guaranteed term is available, the next longer guaranteed term will be
used.
Except for transfers from an available Guaranteed Term subject to the
Company's terms and conditions in connection with the Dollar Cost Averaging
Program, withdrawals taken in connection with an Estate Conservation or
Systematic Withdrawal distribution option, and, if approved by your state,
withdrawals for minimum distributions required by the Code for which the
deferred sales charge is waived, withdrawals or transfers from a guaranteed term
before the guaranteed term matures may be subject to an MVA. An MVA reflects the
change in the value of the investment due to changes in interest rates since the
date of deposit. When interest rates increase after the date of deposit, the
value of the investment decreases, and the MVA is negative. Conversely, when
interest rates decrease after the date of deposit, the value of the investment
increases, and the MVA is positive. It is possible that a negative MVA could
result in the Certificate Holder receiving an amount which is less than the
amount paid into the Guaranteed Account.
For partial withdrawals during the Accumulation Period, amounts to be
withdrawn from the Guaranteed Account will be withdrawn on a pro rata basis from
each group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows you to transfer without an MVA to available guaranteed terms of
the current deposit
- --------------------------------------------------------------------------------
26
<PAGE>
period or to other available investment options, or surrender without an MVA (if
applicable, a deferred sales charge is assessed on the surrendered amount). The
provision is available only during the calendar month immediately following a
guaranteed term maturity date and only applies to the first transaction
regardless of the amount involved in the transaction.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a guaranteed term during a deposit period may not be
transferred to any other funding option or to another guaranteed term during
that deposit period or for 90 days after the close of that deposit period. This
does not apply to (1) amounts transferred on the Maturity Date or under the
maturity value transfer provision; (2) amounts transferred from the Guaranteed
Account before the Maturity Date due to the election of an Annuity Option; (3)
amounts distributed under the Estate Conservation or Systematic Withdrawal
Options; and (4) amounts transferred from an available Guaranteed Term in
connection with the Dollar Cost Averaging Program. However, if the Certificate
Holder discontinues the Dollar Cost Averaging Program and the amounts in it are
transferred in accordance with the Company's terms and conditions governing
Guaranteed Terms, an MVA will apply. Transfers after the 90-day period are
permitted from guaranteed term(s) to other guaranteed term(s) available during a
deposit period or to other available investment options. Except for transactions
described in items (1), (3) and (4) above, amounts withdrawn or transferred from
the Guaranteed Account prior to the maturity date will be subject to an MVA.
However, only a positive aggregate MVA will be applied to transfers made due to
annuitization under one of the lifetime Annuity Options described in item (2)
above.
The Company reserves the right to limit the number of investment options
selected during the Accumulation Period. At this time there is no limit on the
number of options selected during the Accumulation Period, but the number of
investment options that may be selected at any one time by a Certificate Holder
presently is limited to 18. Under the Guaranteed Account, each guaranteed term
is counted as one funding option. If a guaranteed term matures, and is renewed
for the same term, it will not count as an additional investment option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. The Guaranteed Account cannot be used as an
investment option during the Annuity Period. Transfers made due to the election
of a lifetime Annuity Option will be subject to only a positive aggregate MVA.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted amounts
calculated due to a withdrawal of amounts) which may be greater or less than
the Account Value of those amounts; or
(2) the applicable portion of the Account Value attributable to the Guaranteed
Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than the
Account Value of those amounts.
DISTRIBUTION
The Company is the principal underwriter of the Contract. The Company is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc.
From time to time, the Company may offer customers of certain
broker-dealers special guaranteed rates in connection with the Guaranteed
Account offered through the Contracts, and may negotiate different commissions
for these broker-dealers.
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27
<PAGE>
Variable Annuity Account B
of
Aetna Life Insurance and Annuity Company
Supplement for Aetna Marathon Plus dated November 28, 1997 to
Statement of Additional Information dated May 1, 1997
The information in this supplement updates and amends the information contained
in the Statement of Additional Information dated May 1, 1997 for Aetna Marathon
Plus (the "Statement") and should be read with that Statement. Capitalized terms
are defined in the Statement or the Prospectus.
[bullet] The following replaces the funds listed on page 3 of the Statement:
<TABLE>
<S> <C>
Aetna Variable Fund Janus Aspen Aggressive Growth Portfolio
Aetna Income Shares Janus Aspen Balanced Portfolio
Aetna Variable Encore Fund Janus Aspen Flexible Income Portfolio
Aetna Investment Advisers Fund, Inc. Janus Aspen Growth Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Short-Term Bond Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Worldwide Growth Portfolio
Aetna Legacy Variable Portfolio MFS Total Return Series
Aetna Variable Capital Appreciation Portfolio MFS World Governments Series
Aetna Variable Growth Portfolio Oppenheimer Capital Appreciation Fund
Aetna Variable Index Plus Portfolio Oppenheimer Global Securities Fund
Aetna Variable Small Company Portfolio Oppenheimer Growth & Income Fund
Calvert Responsibly Invested Balanced Portfolio Oppenheimer Strategic Bond Fund
[Federated American Leaders Fund II] Portfolio Partners MFS Emerging Equities Portfolio
[Federated Equity Income Fund II] Portfolio Partners MFS Research Growth Portfolio
[Federated Fund for U.S. Government Securities II] Portfolio Partners MFS Value Equity Portfolio
[Federated Growth Strategies Fund II] Portfolio Partners Scudder International Growth
[Federated High Income Bond Fund II] Portfolio
[Federated International Equity Fund II] Portfolio Partners T. Rowe Price Growth Equity
[Federated Prime Money Fund II] Portfolio
[Federated Utility Fund II]
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
</TABLE>
Complete descriptions of each of the Fund, 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.
- --------------------------------------------------------------------------------
1
<PAGE>
The tables shown below reflect the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1996 for the Subaccount available under the Contract. Table A reflects the
total return quotations for Contracts issued nationwide (other than Contracts or
Certificates issued in New York). Table B reflects the total return quotations
for Contracts or Certificates issued in the state of New York. The returns are
based on the maximum Subaccount and Contract charges as shown in the "Fee Table"
of the prospectus.
[bullet] The following is in addition to the chart found on page 5 "Table A"
of the statement:
<TABLE>
<CAPTION>
TABLE A
-------------------------------------------------------------------------------
($30 annual maintenance fee) STANDARDIZED NON-STANDARDIZED
- -------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calvert Responsibly Invested 3.26% 9.39%* 11.03% 10.67% 8.90% 9.55%**
Balanced Fund
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[bullet] The following is in addition to the chart found on page 7 "Table B" of
the statement:
<TABLE>
<CAPTION>
TABLE B
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
-------------------------------------------------------------------------------
($30 annual maintenance fee) STANDARDIZED NON-STANDARDIZED
- -------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calvert Responsibly Invested 4.37% 9.74%* 11.03% 10.67% 8.90% 9.55%**
Balanced Fund
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects total return from November 2, 1992, the date the Fund was first
offered through the Separate Account.
** Reflects total return from September 2, 1986, the Fund's inception date.
- --------------------------------------------------------------------------------
2
