As filed with the Securities and Exchange Registration No. 33-34370*
Commission on April 16, 1997 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 27 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--------
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
--------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1996
on February 28, 1997.
*Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the following earlier Registration Statement: 33-87932.
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4
ITEM NO. PART A (PROSPECTUS) LOCATION
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Definitions.......................................... Definitions
3 Synopsis............................................. Prospectus Summary; Fee Table
4 Condensed Financial Information...................... Condensed Financial Information
5 General Description of Registrant, Depositor, and The Company; Variable Annuity Account
Portfolio Companies.................................. B; The Funds
6 Deductions and Expenses.............................. Charges and Deductions; Distribution
7 General Description of Variable Annuity Contracts.... Purchase; Miscellaneous
8 Annuity Period....................................... Annuity Period
9 Death Benefit........................................ Death Benefit During Accumulation
Period; Death Benefit Payable During
the Annuity Period
10 Purchases and Contract Value......................... Purchase; Contract Valuation
11 Redemptions.......................................... Right to Cancel; Withdrawals
12 Taxes................................................ Tax Status
13 Legal Proceedings.................................... Miscellaneous - Legal Matters and
Proceedings
14 Table of Contents of the Statement of Additional Contents of the Statement of
Information.......................................... Additional Information
<PAGE>
FORM N-4 PART B (STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION) LOCATION
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data; Average Annual
Total Return Quotations
22 Annuity Payments..................................... Annuity Payments
23 Financial Statements................................. Financial Statements
</TABLE>
Part C (Other Information)
--------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
================================================================================
The Contracts offered in connection with this Prospectus are the "Aetna Marathon
Plus" [Growth Plus (New York)] group and individual deferred variable annuity
contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company (the
"Company"). The Contracts are available as (1) nonqualified deferred annuity
contracts, (2) Individual Retirement Annuities ("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 Equity-Income Portfolio
[bullet] Aetna Income Shares [bullet] Fidelity VIP Growth Portfolio
[bullet] Aetna Variable Encore Fund [bullet] Fidelity VIP High Income Portfolio
[bullet] Aetna Investment Advisers Fund, Inc. [bullet] Fidelity VIP Overseas Portfolio
[bullet] Aetna Ascent Variable Portfolio [bullet] Fidelity VIP II Asset Manager Portfolio
[bullet] Aetna Crossroads Variable Portfolio [bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Aetna Legacy Variable Portfolio [bullet] Fidelity VIP II Index 500 Portfolio
[bullet] Aetna Variable Capital Appreciation Portfolio [bullet] Fidelity VIP II Investment Grade Bond Portfolio
[bullet] Aetna Variable Growth Portfolio [bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Aetna Variable Index Plus Portfolio [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Variable Small Company Portfolio [bullet] Janus Aspen Flexible Income Portfolio
[bullet] Alger American Balanced Portfolio [bullet] Janus Aspen Growth Portfolio
[bullet] Alger American Growth Portfolio [bullet] Janus Aspen Short-Term Bond Portfolio
[bullet] Alger American Income and Growth Portfolio [bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Alger American Leveraged AllCap Portfolio [bullet] Lexington Emerging Markets Fund, Inc.
[bullet] Alger American MidCap Growth Portfolio [bullet] Lexington Natural Resources Trust
[bullet] Alger American Small Capitalization Portfolio [bullet] MFS Emerging Growth Series
[bullet] American Century VP Balanced (formerly "TCI Balanced") [bullet] MFS Research Series
[bullet] American Century VP Capital Appreciation [bullet] MFS Total Return Series
(formerly "TCI Growth")
[bullet] American Century VP International [bullet] MFS Value Series
(formerly "TCI International")
[bullet] Federated American Leaders Fund II [bullet] MFS World Governments Series
[bullet] [Federated Equity Income Fund II] [bullet] Oppenheimer Capital Appreciation Fund
[bullet] Federated Fund for U.S. Government Securities II [bullet] Oppenheimer Global Securities Fund
[bullet] [Federated Growth Strategies Fund II] [bullet] Oppenheimer Growth & Income Fund
[bullet] Federated High Income Bond Fund II [bullet] Oppenheimer Strategic Bond Fund
[bullet] [Federated International Equity Fund II]
[bullet] [Federated Prime Money Fund II]
[bullet] [Federated Utility Fund II]
</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."
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1997.
<PAGE>
TABLE OF CONTENTS
================================================================================
<TABLE>
<S> <C>
DEFINITIONS ........................................................... DEFINITIONS- 1
PROSPECTUS SUMMARY ..................................................... SUMMARY- 1
FEE TABLE .............................................................. FEE TABLE- 1
CONDENSED FINANCIAL INFORMATION ......................................... AUV HISTORY- 1
THE COMPANY ...................................................................... 1
VARIABLE ANNUITY ACCOUNT B ....................................................... 1
INVESTMENT OPTIONS ................................................................ 1
The Funds ...................................................................... 1
Credited Interest Option ....................................................... 6
PURCHASE ......................................................................... 6
Contract Availability .......................................................... 6
Purchasing Interests in the Contract ........................................... 6
Purchase Payments ............................................................. 7
Contract Rights ................................................................ 7
Designations of Beneficiary and Annuitant ..................................... 7
Right to Cancel ................................................................ 7
CHARGES AND DEDUCTIONS .......................................................... 8
Daily Deductions from the Separate Account ..................................... 8
Mortality and Expense Risk Charge ........................................... 8
Administrative Charge ....................................................... 8
Maintenance Fee ................................................................ 8
Reduction or Elimination of Administrative Charge and Maintenance Fee ............ 8
Deferred Sales Charge .......................................................... 8
Reduction or Elimination of the Deferred Sales Charge ......................... 10
Fund Expenses ................................................................... 10
Premium and Other Taxes ....................................................... 10
CONTRACT VALUATION ................................................................ 10
Account Value ................................................................... 10
Accumulation Units ............................................................. 10
Net Investment Factor .......................................................... 10
TRANSFERS ......................................................................... 11
Dollar Cost Averaging Program ................................................. 11
Account Rebalancing Program .................................................... 11
WITHDRAWALS ...................................................................... 11
ADDITIONAL WITHDRAWAL OPTIONS .................................................... 12
DEATH BENEFIT DURING ACCUMULATION PERIOD ........................................ 13
Death Benefit Amount .......................................................... 13
Death Benefit Payment Options ................................................. 13
Nonqualified Contracts ....................................................... 13
Qualified Contracts .......................................................... 14
<PAGE>
ANNUITY PERIOD ................................................................... 14
Annuity Period Elections ....................................................... 14
Partial Annuitization .......................................................... 15
Annuity Options ................................................................ 15
Annuity Payments ................................................................ 15
Charges Deducted During the Annuity Period ..................................... 16
Death Benefit Payable During the Annuity Period .................................. 16
TAX STATUS ......................................................................... 16
Introduction ................................................................... 16
Taxation of the Company .......................................................... 17
Tax Status of the Contract ....................................................... 17
Taxation of Annuity Contracts .................................................... 18
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS ..................................... 20
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 .................................................... 24
Transfers of Ownership; Assignment .............................................. 24
Involuntary Terminations ....................................................... 24
Legal Matters and Proceedings .................................................... 24
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............................... 25
APPENDIX--ALIAC GUARANTEED ACCOUNT ................................................. 26
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
================================================================================
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.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Distributor(s): The registered broker-dealer(s), or banks that may be acting as
broker-dealers without separate registration under the Securities Exchange Act
of 1934, which have entered into selling agreements with the Company to offer
and sell the Contracts. The Company may also serve as a Distributor.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
Group Contract Holder: The entity to which a group Contract is issued.
Home Office: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Individual Contract Holder: A person or entity who has purchased an individual
variable annuity contract (also referred to as a "Certificate Holder").
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Individual Retirement Annuity: An individual or group variable deferred annuity
intended to qualify under Code Section 408(b).
Nonqualified Contract: A contract established to supplement an individual's
retirement income, or to provide an alternative investment option under an
Individual Retirement Account qualified under Code Section 408(a).
Purchase Payment(s): The gross payment(s) made to the Company under an Account.
Qualified Contracts: Contracts available for use with plans entitled to special
federal income tax treatment under Code Sections 401(a), 403(b), 408(b) or 457.
Registered Representative: The individual who is registered with a broker-dealer
acting as Distributor to offer and sell securities, or who is an employee of a
bank acting as Distributor that is exempt from broker-dealer registration under
the Securities Exchange Act of 1934. Registered Representatives must also be
licensed as insurance agents to sell variable annuity contracts.
Separate Account: Variable Annuity Account B, a separate account established for
the purpose of funding variable annuity contracts issued by the Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Surrender Value: The amount payable upon the withdrawal of all or any portion of
an Account Value.
Valuation Date: The date and time at which the 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 p 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. 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. Transfers can be requested in writing or
by telephone in accordance with the Company's transfer procedures. 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 Additional Withdrawal Options during the
Accumulation Period subject to certain criteria. Some Additional Withdrawal
Options are not available in all states and may not be suitable in every
situation. (See "Additional Withdrawal Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies)
actually receive a distribution from the Contract. A 10% federal tax penalty may
be imposed on certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
[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%
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%(3)
----
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) 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%
Alger American Balanced Portfolio 0.75% 0.39% 1.14%
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Income and Growth Portfolio 0.63% 0.18% 0.81%
Alger American Leveraged AllCap Portfolio(3) 0.85% 0.24% 1.09%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Cap Portfolio 0.85% 0.03% 0.88%
American Century VP Balanced (formerly "TCI Balanced")(4) 1.00% 0.00% 1.00%
American Century VP Capital Appreciation (formerly "TCI Growth")(4) 1.00% 0.00% 1.00%
American Century VP International (formerly "TCI International")(4) 1.50% 0.00% 1.50%
Federated American Leaders Fund II(5) 0.53% 0.32% 0.85%
[Federated Equity Income Fund II(6) 0.00% 0.85% 0.85%]
Federated Fund for U.S. Government Securities II(5) 0.00% 0.80% 0.80%
[Federated Growth Strategies Fund II(5) 0.00% 0.85% 0.85%]
Federated High Income Bond Fund II(5) 0.00% 0.80% 0.80%
[Federated International Equity Fund II(5) 0.00% 1.25% 1.25%]
[Federated Prime Money Fund II(5) 0.00% 0.80% 0.80%]
Federated Utility Fund II(5) 0.24% 0.61% 0.85%
Fidelity VIP Equity-Income Portfolio(7) 0.51% 0.07% 0.58%
Fidelity VIP Growth Portfolio(7) 0.61% 0.08% 0.69%
Fidelity VIP High Income Portfolio 0.59% 0.12% 0.71%
Fidelity VIP Overseas Portfolio(7) 0.76% 0.17% 0.93%
Fidelity VIP II Asset Manager Portfolio(7) 0.64% 0.10% 0.74%
Fidelity VIP II Contrafund Portfolio(7) 0.61% 0.13% 0.74%
Fidelity VIP II Index 500 Portfolio(8) 0.13% 0.15% 0.28%
Fidelity VIP II Investment Grade Bond Portfolio 0.45% 0.13% 0.58%
Janus Aspen Aggressive Growth Portfolio(9) 0.72% 0.04% 0.76%
Janus Aspen Balanced Portfolio(9) 0.79% 0.15% 0.94%
Janus Aspen Flexible Income Portfolio(9) 0.65% 0.19% 0.84%
Janus Aspen Growth Portfolio(9) 0.65% 0.04% 0.69%
Janus Aspen Short-Term Bond Portfolio(9) 0.47% 0.19% 0.66%
Janus Aspen Worldwide Growth Portfolio(9) 0.66% 0.14% 0.80%
Lexington Emerging Markets Fund, Inc.(10) 0.85% 1.38% 2.23%
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
MFS Emerging Growth Series(11) 0.75% 0.25% 1.00%
MFS Research Series(11) 0.75% 0.25% 1.00%
MFS Total Return Series(11) 0.75% 0.25% 1.00%
MFS Value Series(11) 0.75% 0.25% 1.00%
MFS World Governments Series(11) 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%
</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) Included in "Other Expenses" of the Alger American Leveraged AllCap
Portfolio is 0.03% of interest expense.
(4) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
(5) The management fee for each of the Funds has been reduced to reflect a
voluntary waiver of the management fee. The adviser can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for each of the Funds is as follows: 0.50%--Prime Money Fund II;
0.60%--High Income Bond Fund II and the Fund for U.S. Government Securities
II; 0.75%--American Leaders Fund II, Growth Strategies Fund II and Utility
Fund II; and 1.00%--International Equity Fund II.
The total operating expenses of each of the Funds, absent the voluntary
waiver of the management fee and the voluntary reimbursement of certain
other operating expenses, would have been: 1.07% for the American Leaders
Fund II; 1.81% for the Fund for U.S. Government Securities II; 4.72% for
the Growth Strategies Fund II; 1.39% for the High Income Bond Fund II;
4.30% for the International Equity Fund II; 1.37% for the Prime Money Fund
II; and 1.36% for the Utility Fund II.
(6) The estimated investment advisory fee has been reduced to reflect the
anticipated voluntary waiver of the investment advisory fee. The Fund's
adviser can terminate this voluntary waiver at any time at its sole
discretion. The maximum investment advisory fee is 0.75%. The Fund has no
present intention of paying or accruing a 12b-1 fee during the fiscal year
ending December 31, 1997. If the Fund were paying or accruing the 12b-1
fee, Institutional Shares would be able to pay up to 0.25% of its average
daily net assts for the 12b-1 fee. See "Fund Information" in the Fund
prospectus.
The total operating expenses are estimated to be 1.82% respectively absent
the anticipated voluntary waiver of the management fee and the anticipated
voluntary reimbursement of certain other operating expenses. Total Fund
operating expenses are estimated based on average expenses expected to be
incurred during the period ending December 31, 1997. During the course of
this period, expenses may be more or less than the average amount shown.
(7) 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.
(8) 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.
(9) 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; 0.65%, 0.19% and 0.84% for Short-Term
Bond 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.
(10) The Fund's investment adviser has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions, and
extraordinary expenses, but including management fees and operating
expenses) to an annual rate of 1.75% of the Fund's average net assets from
May 1, 1996 through April 30, 1997. For the period ending
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
December 31, 1996, the Total Fund Annual Expenses, after reimbursement, was
1.64%. Effective May 1, 1997, an expense limitation is no longer in effect.
The Advisory Fees, Other Expenses and Total Fund Annual Expenses shown
above reflect the actual expenses of the Fund before reimbursement, as if
such arrangement had not been in effect at any time during 1996. The
example shown in the table above should not be considered a representation
of past or future expenses and actual expenses may be greater or less than
those shown.
(11) 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 Emerging
Growth Series, MFS Research Series, MFS Total Return Series, MFS World
Governments Series and MFS Value Series would be 0.41%, 0.73%, 1.35%, 1.28%
and 3.08%, respectively, and "Total Fund Annual Expenses" would be 1.16%,
1.48%, 2.10%, 2.03% and 3.83%, 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."
- --------------------------------------------------------------------------------
FEE TABLE - 4
<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 EXAMPLE B
-------------------------------------- ----------------------------------------
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $ 92 $115 $141 $229 $20 $62 $106 $229
Aetna Income Shares $ 91 $113 $137 $221 $19 $59 $102 $221
Aetna Variable Encore Fund $ 90 $109 $130 $207 $18 $55 $ 95 $207
Aetna Investment Advisers Fund, Inc $ 92 $116 $142 $231 $20 $62 $107 $231
Aetna Ascent Variable Portfolio $ 94 $121 $151 $249 $22 $67 $116 $249
Aetna Crossroads Variable Portfolio $ 94 $121 $151 $249 $22 $67 $116 $249
Aetna Legacy Variable Portfolio $ 94 $121 $151 $249 $22 $67 $116 $249
Aetna Variable Capital Appreciation Portfolio $ 94 $121 $151 $249 $22 $67 $116 $249
Aetna Variable Growth Portfolio $ 94 $121 $151 $249 $22 $67 $116 $249
Aetna Variable Index Plus Portfolio $ 92 $113 $138 $223 $19 $60 $103 $223
Aetna Variable Small Company Portfolio $ 95 $125 $159 $264 $23 $72 $123 $264
Alger American Balanced Portfolio $ 97 $133 $171 $288 $26 $79 $135 $288
Alger American Growth Portfolio $ 94 $122 $153 $253 $22 $69 $118 $253
Alger American Income and Growth Portfolio $ 94 $123 $154 $255 $22 $69 $119 $255
Alger American Leveraged AllCap Portfolio $ 97 $131 $168 $283 $25 $78 $133 $283
Alger American MidCap Growth Portfolio $ 95 $124 $156 $258 $23 $70 $120 $258
Alger American Small Capitalization Portfolio $ 95 $125 $158 $262 $23 $71 $122 $262
American Century VP Balanced (formerly "TCI
Balanced") $ 96 $129 $164 $274 $24 $75 $128 $274
American Century VP Capital Appreciation
(formerly "TCI Growth") $ 96 $129 $164 $274 $24 $75 $128 $274
American Century VP International (formerly
"TCI International") $101 $144 $189 $323 $29 $90 $153 $323
Federated American Leaders Fund II $ 95 $124 $156 $259 $23 $70 $121 $259
Federated Fund for U.S. Government Securities II $ 94 $122 $154 $254 $22 $69 $118 $254
Federated High Income Bond Fund II $ 94 $122 $154 $254 $22 $69 $118 $254
Federated Utility Fund II $ 95 $124 $156 $259 $23 $70 $121 $259
Fidelity VIP Equity-Income Portfolio $ 92 $116 $142 $231 $20 $62 $107 $231
Fidelity VIP Growth Portfolio $ 93 $119 $148 $243 $21 $66 $113 $243
Fidelity VIP High Income Portfolio $ 93 $120 $149 $245 $21 $66 $114 $245
Fidelity VIP Overseas Portfolio $ 96 $126 $160 $267 $24 $73 $125 $267
Fidelity VIP II Asset Manager Portfolio $ 94 $121 $151 $248 $22 $67 $115 $248
Fidelity VIP II Contrafund Portfolio $ 94 $121 $151 $248 $22 $67 $115 $248
Fidelity VIP II Index 500 Portfolio $ 89 $106 $127 $199 $17 $53 $ 92 $199
Fidelity VIP II Investment Grade Bond Portfolio $ 92 $116 $142 $231 $20 $62 $107 $231
Janus Aspen Aggressive Growth Portfolio $ 94 $121 $152 $250 $22 $68 $116 $250
Janus Aspen Balanced Portfolio $ 96 $127 $161 $268 $24 $73 $125 $268
Janus Aspen Flexible Income Portfolio $ 95 $124 $156 $258 $23 $70 $120 $258
Janus Aspen Growth Portfolio $ 93 $119 $148 $243 $21 $66 $113 $243
Janus Aspen Short-Term Bond Portfolio $ 93 $118 $146 $239 $21 $65 $111 $239
Janus Aspen Worldwide Growth Portfolio $ 94 $122 $154 $254 $22 $69 $118 $254
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
---------------------------------------- ----------------------------------------
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lexington Emerging Markets Fund, Inc $108 $165 $224 $389 $ 37 $111 $188 $389
Lexington Natural Resources Trust $100 $141 $185 $315 $ 29 $ 88 $149 $315
MFS Emerging Growth Series $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
MFS Research Series $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
MFS Total Return Series $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
MFS Value Series $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
MFS World Governments Series $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
Oppenheimer Capital Appreciation Fund $ 94 $121 $151 $249 $ 22 $ 67 $116 $249
Oppenheimer Global Securities Fund $ 94 $123 $154 $255 $ 22 $ 69 $119 $255
Oppenheimer Growth & Income Fund $ 96 $129 $164 $274 $ 24 $ 75 $128 $274
Oppenheimer Strategic Bond Fund $ 95 $124 $156 $259 $ 23 $ 70 $121 $259
</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 - 6
<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 EXAMPLE D
------------------------------- ----------------------------------------
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the period shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $82 $ 95 $122 $229 $20 $ 62 $106 $229
Aetna Income Shares $81 $ 93 $118 $221 $19 $ 59 $102 $221
Aetna Variable Encore Fund $80 $ 89 $112 $207 $18 $ 55 $ 95 $207
Aetna Investment Advisers Fund, Inc. $82 $ 96 $124 $231 $20 $ 62 $107 $231
Aetna Ascent Variable Portfolio $84 $101 $132 $249 $22 $ 67 $116 $249
Aetna Crossroads Variable Portfolio $84 $101 $132 $249 $22 $ 67 $116 $249
Aetna Legacy Variable Portfolio $84 $101 $132 $249 $22 $ 67 $116 $249
Aetna Variable Capital Appreciation Portfolio $84 $101 $132 $249 $22 $ 67 $116 $249
Aetna Variable Growth Portfolio $84 $101 $132 $249 $22 $ 67 $116 $249
Aetna Variable Index Plus Portfolio $81 $ 93 $119 $223 $19 $ 60 $103 $223
Aetna Variable Small Company Portfolio $85 $105 $140 $264 $23 $ 72 $123 $264
Alger American Balanced Portfolio $87 $113 $152 $288 $26 $ 79 $135 $288
Alger American Growth Portfolio $84 $102 $134 $253 $22 $ 69 $118 $253
Alger American Income and Growth Portfolio $84 $103 $135 $255 $22 $ 69 $119 $255
Alger American Leveraged AllCap Portfolio $87 $111 $149 $283 $25 $ 78 $133 $283
Alger American MidCap Growth Portfolio $84 $104 $137 $258 $23 $ 70 $120 $258
Alger American Small Capitalization Portfolio $85 $105 $139 $262 $23 $ 71 $122 $262
American Century VP Balanced (formerly "TCI
Balanced") $86 $109 $145 $274 $24 $ 75 $128 $274
American Century VP Capital Appreciation
(formerly "TCI Growth") $86 $109 $145 $274 $24 $ 75 $128 $274
American Century VP International (formerly
"TCI International") $91 $124 $170 $323 $29 $ 90 $153 $323
Federated American Leaders Fund II $85 $104 $137 $259 $23 $ 70 $121 $259
[Federated Equity Income Fund II] $85 $104 $137 $259 $23 $ 70 $121 $259
Federated Fund for U.S. Government Securities II $84 $102 $135 $254 $22 $ 69 $118 $254
[Federated Growth Strategies II] $85 $104 $137 $259 $23 $ 70 $121 $259
Federated High Income Bond Fund II $84 $102 $135 $254 $22 $ 69 $118 $254
[Federated International Equity Fund II] $88 $116 $157 $299 $27 $ 82 $141 $299
[Federated Prime Money Fund II] $84 $102 $135 $254 $22 $ 69 $118 $254
Federated Utility Fund II $85 $104 $137 $259 $23 $ 70 $121 $259
Fidelity VIP Equity-Income Portfolio $82 $ 96 $124 $231 $20 $ 62 $107 $231
Fidelity VIP Growth Portfolio $83 $ 99 $129 $243 $21 $ 66 $113 $243
Fidelity VIP High Income Portfolio $83 $100 $130 $245 $21 $ 66 $114 $245
Fidelity VIP Overseas Portfolio $85 $106 $141 $267 $24 $ 73 $125 $267
Fidelity VIP II Asset Manager Portfolio $83 $101 $132 $248 $22 $ 67 $115 $248
Fidelity VIP II Contrafund Portfolio $83 $101 $132 $248 $22 $ 67 $115 $248
Fidelity VIP II Index 500 Portfolio $79 $ 86 $108 $199 $17 $ 53 $ 92 $199
Fidelity VIP II Investment Grade Bond Portfolio $82 $ 96 $124 $231 $20 $ 62 $107 $231
Janus Aspen Aggressive Growth Portfolio $84 $101 $133 $250 $22 $ 68 $116 $250
Janus Aspen Balanced Portfolio $85 $107 $142 $268 $24 $ 73 $125 $268
Janus Aspen Flexible Income Portfolio $84 $104 $137 $258 $23 $ 70 $120 $258
Janus Aspen Growth Portfolio $83 $ 99 $129 $243 $21 $ 66 $113 $243
Janus Aspen Short-Term Bond Portfolio $83 $ 98 $128 $239 $21 $ 65 $111 $239
Janus Aspen Worldwide Growth Portfolio $84 $102 $135 $254 $22 $ 69 $118 $254
Lexington Emerging Markets Fund, Inc. $97 $145 $205 $389 $37 $111 $188 $389
Lexington Natural Resources Trust $90 $121 $166 $315 $29 $ 88 $149 $315
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 7
<PAGE>
<TABLE>
<CAPTION>
Contracts or Certificates Issued in New York
EXAMPLE C EXAMPLE D
--------------------------------------------- ------------------------------------------
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end of
you would pay the following expenses, the periods shown, you would pay the
including any applicable deferred following expenses (no deferred sales
sales charge: charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MFS Emerging Growth Series $86 $109 $145 $274 $24 $75 $128 $274
MFS Research Series $86 $109 $145 $274 $24 $75 $128 $274
MFS Total Return Series $86 $109 $145 $274 $24 $75 $128 $274
MFS Value Series $86 $109 $145 $274 $24 $75 $128 $274
MFS World Governments Series $86 $109 $145 $274 $24 $75 $128 $274
Oppenheimer Capital Appreciation Fund $84 $101 $132 $249 $22 $67 $116 $249
Oppenheimer Global Securities Fund $84 $103 $135 $255 $22 $69 $119 $255
Oppenheimer Growth & Income Fund $86 $109 $145 $274 $24 $75 $128 $274
Oppenheimer Strategic Bond Fund $85 $104 $137 $259 $23 $70 $121 $259
</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 - 8
<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. 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 GROWTH STRATEGIES FUND II
Value at beginning of period $ 10.277 $10.000
Value at end of period $ 12.596 $10.277
Increase (decrease) in value of accumulation units(1) 22.57% 2.77%(11)
Number of accumulation units outstanding at end of period 570,182 17,503]
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 INTERNATIONAL EQUITY FUND II
Value at beginning of period $ 10.255 $ 10.000
Value at end of period $ 10.952 $ 10.255
Increase (decrease) in value of accumulation units(1) 6.80% 2.55%
Number of accumulation units outstanding at end of period 541,970 158,319]
[FEDERATED PRIME MONEY FUND II
Value at beginning of period $ 10.406 $ 10.033 $ 10.000
Value at end of period $ 10.748 $ 10.406 $ 10.033
Increase (decrease) in value of accumulation units(1) 3.29% 3.71% 0.33%
Number of accumulation units outstanding at end of period 720,521 554,934 51,949]
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 FINANCIAL 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 total number of investment options
you may select during the Accumulation Period is currently 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.
[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
- --------------------------------------------------------------------------------
1
<PAGE>
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] Alger American Fund--Alger American Balanced Portfolio seeks current
income and long-term capital appreciation by investing in common stocks
and fixed income securities, with emphasis on income-producing
securities which appear to have some potential for capital
appreciation.(2)
[bullet] Alger American Fund--Alger American Growth Portfolio seeks long-term
capital appreciation by investing in a diversified, actively managed
portfolio of equity securities. The Portfolio primarily invests in
equity securities of companies which have a market capitalization of $1
billion or greater.(2)
[bullet] Alger American Fund--Alger American Income and Growth Portfolio seeks a
high level of dividend income to the extent consistent with prudent
investment management by investing primarily in dividend paying equity
securities. Capital appreciation is a secondary objective of the
Portfolio.(2)
[bullet] Alger American Fund--Alger American Leveraged AllCap Portfolio seeks
long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Income is a consideration in
the selection of investments but is not an investment objective of the
Portfolio. The Portfolio may engage in leveraging (up to 331/3%) of its
assets and options and futures transactions, which are deemed to be
speculative and which may cause the Portfolio's net asset value to
fluctuate.(2)
- --------------------------------------------------------------------------------
2
<PAGE>
[bullet] Alger American Fund--Alger American MidCap Growth Portfolio seeks
long-term capital appreciation. Except during temporary defensive
periods, the portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of purchase of the
securities, have total market capitalization within the range of
companies included in the S&P Midcap 400 Index, updated quarterly. The
S&P Midcap 400 Index is designed to track the performance of medium
capitalization companies. As of March 31, 1997, the range of market
capitalization of these companies was $120 million to $7.19 billion.(2)
[bullet] Alger American Fund--Alger American Small Capitalization Portfolio
seeks long-term capital appreciation. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of purchase of such
securities, have total market capitalization within the range of
companies included in the Russell 2000 Growth Index ("Russell Index"),
and the S&P SmallCap 600 Index ("S&P Index"), updated quarterly. As of
March 31, 1997, the range of market capitalization of the companies in
the Russell Index was $10 million to $1.94 billion; the range of market
capitalization of the companies in the S&P Index at that date was $32
million to $2.58 billion. The combined range was $10 million to $2.58
billion.(2)
[bullet] American Century VP Balanced (formerly "TCI Balanced") seeks capital
growth and current income. It seeks capital growth by investing
approximately 60% of the Portfolio's assets in common stocks (including
securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in
the opinion of the Fund's management, have better-than-average
potential for appreciation. Management intends to maintain
approximately 40% of the Portfolio's assets in fixed income
securities.(3)
[bullet] American Century VP Capital Appreciation (formerly "TCI Growth") seeks
capital growth. The Fund seeks to achieve its objective by investing in
common stocks (including securities convertible into common stocks) and
other securities that meet certain fundamental and technical standards
of selection and, in the opinion of the Fund's investment manager, have
better than average potential for appreciation.(3)
[bullet] American Century VP International (formerly "TCI International") seeks
capital growth by investing primarily in an internationally diversified
portfolio of common stocks that are considered by management to have
prospects for better than average appreciation. In order to achieve
maximum investment flexibility, the fund has not established geographic
limits on asset distribution on either a country-by-country or
region-by-region basis. The investment manager expects to invest both
in issuers whose principal place of business is located in countries
with developed economies (such as Germany, the United Kingdom and
Japan) and in issuers whose principal place of business is located in
countries with less developed economies (such as Portugal, Malaysia and
Mexico).(3)
[bullet] Federated Insurance Series--Federated American Leaders Fund II
(formerly IMS Equity Growth and Income Fund) seeks to achieve long-term
growth of capital and to provide income. The Fund pursues its
investment objective by investing, under normal circumstances, at least
65% of its total assets in common stock of "blue-chip" companies.
"Blue-chip" companies generally are top-quality, established growth
companies which, in the opinion of the Adviser meet certain
criteria.(4)
[bullet] [Federated Insurance Series--Federated Equity Income Fund II seeks to
provide above average income and capital appreciation. The Fund
attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include
common stocks, preferred stocks, and securities (including debt
securities) that are convertible into common stocks. The portion of the
Fund's total assets invested in common stocks, preferred stocks, and
convertible securities will vary according to the Fund's assessment of
market and economic conditions and outlook.(4)]
[bullet] Federated Insurance Series--Federated Fund for U.S. Government
Securities II (formerly IMS U.S. Government Bond Fund) seeks to provide
current income. The Fund pursues its investment objective by investing
at least 65% of the value of its total assets in securities issued or
guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.(4)
[bullet] [Federated Insurance Series--Federated Growth Strategies Fund II
(formerly IMS Growth Stock Fund) seeks capital appreciation. The Fund
pursues its objective by investing at least 65% of its assets in equity
securities of companies with prospects for above-average growth in
earnings and dividends or companies where significant fundamental
changes are taking place. Equity securities include common stocks,
preferred stocks, and securities (including debt securities) that are
convertible into common stocks.(4)]
[bullet] Federated Insurance Series--Federated High Income Bond Fund II
(formerly IMS Corporate Bond Fund) seeks high current income by
investing primarily in a diversified portfolio of professionally
managed fixed income securities. The fixed-income securities in which
the Fund intends to invest are lower-rated corporate debt obligations
(commonly known as "junk bonds" or "high yield, high risk bonds" which
involve significant degree of risk). (See the Fund's prospectus for a
discussion of the risk factors involved in investing in lower-rated
corporate debt obligations).(4)
[bullet] [Federated Insurance Series--Federated International Equity Fund II
(formerly IMS International Stock Fund) seeks total return on its
assets by investing at least 65% of its assets (and under normal market
conditions, substantially all of its assets) in equity securities of
issuers located in at least three different countries outside of the
United States. Investing in non-U.S. securities carries substantial
risks in addition to those associated with domestic investments.(4)]
[bullet] [Federated Insurance Series--Federated Prime Money Fund II (formerly
IMS Prime Money Fund) seeks to provide current income consistent with
stability of principal and liquidity. The Fund pursues its investment
objective by investing exclusively in a portfolio of money market
instruments maturing in 397 days or less. The average maturity of the
money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. An investment in this
Fund is neither insured nor guaranteed by the U.S. government.(4)]
[bullet] Federated Insurance Series--Federated Utility Fund II (formerly IMS
Utility Fund) seeks to achieve high current income and moderate capital
appreciation by investing primarily in a professionally managed and
diversified portfolio of equity and debt securities of utility
companies. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities of utility companies.(4)
[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.(5)
[bullet] Fidelity Investments Variable Insurance Products Fund--Growth
Portfolio seeks capital appreciation by investing
- --------------------------------------------------------------------------------
3
<PAGE>
mainly in common stocks, although its investments are not restricted
to any one type of security.(5)
[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 "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).(5)
[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.(5)
[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.(5)
[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.(5)
[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.(5)
[bullet] Fidelity Investments Variable Insurance Products Fund II--Investment
Grade Bond Portfolio seeks as high a level of current income as is
consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities.(5)
[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.(6)
[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.(6)
[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).(6)
[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.(6)
[bullet] Janus Aspen Series--Short-Term Bond Portfolio seeks as high a level of
current income as is consistent with preservation of capital. The
Portfolio pursues its investment objective by investing primarily in
short- and intermediate-term fixed income securities.(6)
[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.(6)
[bullet] Lexington Emerging Markets Fund, Inc. seeks long-term growth of capital
primarily through investment in equity securities of companies
domiciled in, or doing business in emerging countries and emerging
markets. Investments in emerging markets involve risks not present in
domestic markets. See the Fund's prospectus for information on risks
inherent in this investment.(7)
[bullet] Lexington Natural Resources Trust is a nondiversified portfolio that
seeks long-term growth of capital through investment primarily in
common stocks of companies which own or develop natural resources and
other basic
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4
<PAGE>
commodities or supply goods and services to such companies.(7)
[bullet] MFS Emerging Growth Series seeks to provide long-term growth of capital
by investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of companies that MFS believes are
early in their life cycle but which have the potential to become major
enterprises (emerging growth companies). Dividend and interest income
from portfolio securities, if any, is incidental to the Series'
investment objective of long-term growth of capital.(8)
[bullet] MFS Research Series seeks to provide long-term growth of capital and
future income by allocating the Series' assets to industry groups
(e.g., pharmaceuticals, retail and computer software). A substantial
proportion of the Series' assets will be invested in the common stocks
or securities convertible into common stocks of companies believed to
possess better than average prospects for long-term growth. A smaller
proportion of its assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal
characteristic is income production rather than growth.(8)
[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.(8)
[bullet] MFS Value Series seeks capital appreciation. Dividend income, if any,
is a consideration incidental to the Series' objective of capital
appreciation.(8)
[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.(8)
[bullet] Oppenheimer Capital Appreciation Fund seeks to achieve capital
appreciation by investing in "growth-type" companies.(9)
[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.(9)
[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.(9)
[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.(9)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company (adviser);
Aeltus Investment Management, Inc. (sub-adviser)
(2) Fred Alger Management, Inc.
(3) American Century Investment Management, Inc.
(4) Federated Advisers
(5) Fidelity Management & Research Company
(6) Janus Capital Corporation
(7) Lexington Management Corporation (adviser);
Market Systems Research Advisors, Inc. serves as the
subadviser for the Lexington Natural Resources Trust
(8) Massachusetts Financial Services Company ("MFS")
(9) OppenheimerFunds, Inc.
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
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5
<PAGE>
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.
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.
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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 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. On the death of a joint Certificate Holder prior to
the Annuity Date, the surviving Certificate Holder may retain all ownership
rights under the Contract or elect to have the proceeds distributed. (See "Death
Benefit.") All rights under the Contract must be exercised by both joint
Certificate Holders with the exception of transfers among investment options;
which can be exercised by one joint Certificate Holder, after the Account has
been established.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the Beneficiary under the Contract on the
Application. However, for Qualified Contracts issued in conjunction with a Code
Section 401(a) qualified pension or profit sharing plan or a Code Section 457
deferred compensation plan, the employer or trustee must be both the Certificate
Holder and the Beneficiary under the Contract, and the participant on whose
behalf the Account was established must be the Annuitant. Under such plans the
participant is generally allowed to designate a beneficiary under the plan, and
the Certificate Holder may direct that we pay any death proceeds to the plan
beneficiary. "Beneficiary" as used in this Prospectus refers to the person who
is ultimately entitled to receive such proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b)
tax deferred annuity program subject to the Employee Retirement Income Security
Act (ERISA), the spouse of a married participant must be the Beneficiary of at
least 50% of the Account Value. If the married participant is age 35 or older,
the participant may name an alternate Beneficiary provided the participant
furnishes a waiver and spousal consent which meets the requirements of ERISA
Section 205. The participant on whose behalf the Account was established must be
the Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, 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
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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.
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
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withdrawn from the Subaccounts and the Guaranteed Account and is based on the
number of years which have elapsed since the Purchase Payment was made. The
deferred sales charge for each Purchase Payment is determined by multiplying the
Purchase Payment withdrawn by the appropriate percentage, in accordance with the
schedule set forth in the tables below.
Withdrawals are taken first against Purchase Payments, then against any
increase in value. However, the deferred sales charge only applies to the
Purchase 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 an Additional Withdrawal Option (see
"Additional Withdrawal Options");
[bullet] 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 Aetna;
[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. At least 12 months after the date the first Purchase
Payment is applied to your Account and subject to the restrictions described
below, you may withdraw up to 10% of your current Account Value (up to 15% of
your current Account Value for Contracts or Certificates issued in the State of
New York) during each calendar year without imposition of a deferred sales
charge. The free withdrawal applies only to the first partial or full withdrawal
in each calendar year. The free withdrawal amount will be based on the Account
Value calculated on the Valuation Date next following our receipt of your
request for withdrawal. If your withdrawal exceeds the applicable free
withdrawal allowance, we will deduct a deferred sales charge on the excess
amount. (See the Appendix for a discussion of withdrawals from the Guaranteed
Account.) This provision may not be exercised if an Additional Withdrawal Option
is in effect in the same calendar year (See "Additional Withdrawal Options") or
if you have withdrawn a minimum distribution required by the Code for which the
deferred sales charge has been waived in the same calendar year.
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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
(3) whether there is a prior or existing relationship with the Company such as
being an employee of the Company or an affiliate, receiving distributions or
making internal transfers from other Contracts issued by the Company, or
making transfers of amounts held under qualified plans sponsored by the
Company or an affiliate.
Any reduction or elimination of the deferred sales charge will not be
unfairly discriminatory against any person.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities 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
computed on the next Valuation Date 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 computed on the next Valuation Date following our receipt of your payment or
transfer request. The value of an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor for
a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
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(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for
mortality and expense risks, and an administrative charge of 0.15%
(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.
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.) 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. 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 to any of the Subaccounts. A market value adjustment will not be applied to
dollar cost averaging transfers from the one-year Guaranteed Term. There is no
additional charge for this 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 an Additional Withdrawal Option or the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your
Account Value automatically reallocated annually to a specified percentage 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
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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").
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.")
ADDITIONAL WITHDRAWAL OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Additional Withdrawal Options"). To exercise
these options, your Account Value must meet the minimum dollar amount and age
criteria applicable to that option.
The Additional Withdrawal 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 Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Additional Withdrawal Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus. Taking a withdrawal under
one of these Additional Withdrawal 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 an Additional Withdrawal Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is revoked,
it may not be elected again for three years, nor may any other Additional
Withdrawal Option be elected unless permitted by the Code. The Company reserves
the right to discontinue the availability of one or all of these Additional
Withdrawal Options for new elections at any time, and/or to change the terms of
future elections.
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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. Upon the
death of a joint Certificate Holder prior to the Annuity Date, the surviving
Certificate Holder, if any, will become the designated Beneficiary. Any other
Beneficiary designation on record with the Company at the time of death will be
treated as a contingent Beneficiary.
The amount of death benefit proceeds will be determined as of the date of
death. Under some circumstances, the amount of the death benefit is guaranteed,
as described below.
DEATH BENEFIT AMOUNT
Upon the death of the Annuitant, the 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 claim date is the
date we receive valid proof of death and the Beneficiary's claim at our Home
Office.
Upon the death of the Annuitant's spousal Beneficiary who continued the
Account in his or her own name, the amount of the death benefit proceeds will be
equal to the Adjusted Account Value on the claim date, less any deferred sales
charge applicable to any Purchase Payments made since the death of the
Annuitant.
If the spousal beneficiary continued the Account after the death of a
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.")
Under Nonqualifed Contracts only, if the Certificate Holder is not the
Annuitant and dies, the amount of death benefit proceeds will be equal to the
Adjusted Account Value on the claim date. Full or partial withdrawals may be
subject to a deferred sales charge.
For amounts held in the Guaranteed Account, see the Appendix for a
discussion of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below.
If you die and no Beneficiary exists, the death benefit will be paid in a lump
sum to your estate. Prior to any election 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, or if
you are a nonnatural person and the Annuitant dies, and the Beneficiary is your
surviving spouse, he or she automatically becomes the successor Certificate
Holder. The successor Certificate Holder may exercise all rights under the
Account and (1) continue in the Accumulation Period; (2) elect to apply some or
all of the Adjusted Account Value to any of the Annuity Options; or (3) receive
at any time a lump sum payment equal to all or a portion of the Adjusted Account
Value. If you die and you are not the Annuitant, any applicable deferred sales
charge will be applied if a lump sum payment is elected. Under the Code,
distributions are not required until the successor Certificate Holder's death.
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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 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 Additional Withdrawal Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[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;
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<PAGE>
[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. (See
"Annuity Options" below for more information about transfers during the
Annuity Period.)
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining portion of your Account Value invested in the
Accumulation Period. The Code and the regulations 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%, 662/3% 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 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
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<PAGE>
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 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 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 (31/2% 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 31/2% 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.
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.
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),
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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 from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, the Company believes
that the Separate Account investment income and realized net capital gains will
not be taxed to the extent that such income and gains are applied to increase
the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
Diversification. Section 817(h) of the Code requires that with respect to
Nonqualified Contracts, the investments of the Funds be "adequately diversified"
in accordance with Treasury Regulations in order for the Contracts to qualify as
annuity contracts under federal tax law. The Separate Account, through the
Funds, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. Sec. 1.817-5, which affects how the Funds' assets may be
invested.
In addition, in certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of the
assets of the separate accounts used to support their contracts. In these
circumstances, income and gains from the separate account assets would be
includible in the variable contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the owner possesses incidents of investment control
over the assets. The ownership rights under the contract are similar to, but
different in certain respects from those described by the IRS in rulings in
which it was determined that owners were not owners of separate account assets.
For example, a Certificate Holder has additional flexibility in allocating
premium payments and account values. In addition, the number of funds provided
under the Contract is significantly greater than the number of funds offered in
contracts on which rulings have been issued. These differences could result in a
Certificate Holder being treated as the owner of a pro rata portion of the
assets of the Separate Account. The Company reserves the right to modify the
Contract as necessary to attempt to prevent a Certificate Holder from being
considered the owner of a pro rata share of the assets of the Separate Account.
Required Distributions--Nonqualified Contracts: In order to be treated as
an annuity contract for federal income tax purposes, Section 72(s) of the Code
requires Nonqualified Contracts to provide that (a) if any Certificate Holder
dies on or after the Annuity Date but prior to the time the entire interest in
the Contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution in effect
at the time of the Certificate Holder's death, and (b) if any Certificate Holder
dies prior to the Annuity Date, the entire interest in the Contract will be
distributed within five years after the date of such Certificate Holder's death.
These requirements will be considered satisfied as to any portion of a
Certificate Holder's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
"designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of the Certificate Holder's death. The "designated beneficiary" refers
to a natural person designated by the Certificate Holder as a Beneficiary and to
whom ownership of the contract passes by reason of death. However, if the
"designated beneficiary" is the surviving spouse of the deceased Certificate
Holder, the Account may be continued with the surviving spouse as the new
Certificate Holder.
The Nonqualifed Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements
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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. 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
701/2 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 701/2.
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
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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 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.
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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 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.
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.
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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 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
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employer on behalf of the participant. There is an additional limit that
specifically limits salary reduction contributions to generally no more than
$9,500 annually (subject to indexing); a participant's own limit may be higher
or lower, depending on certain conditions. In addition, Purchase Payments will
be excluded from a participant's gross income only if the Plan meets certain
nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those amounts may only
occur upon death of the participant, attainment of age 591/2, 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
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services, to the extent such payments are allowed by applicable securities laws.
All costs and expenses related to these services will be paid by the Company.}
[Federated Securities Corp. ("FES"), an affiliate of the adviser to the
Funds in the Federated Insurance Series, may enter into agreements with some of
the Distributors to provide services to customers in connection with the Funds
acquired through the Contracts. These services will include providing customers
with information concerning the Funds, their investment objectives, policies and
limitations; portfolio securities; performance, responding to customer inquiries
and providing such other services as the parties may agree. Fees paid to FSC to
Distributors for these services may be based on the total number of assets in
the Funds attributable to the Distributor's customers.]
Payment of Commissions. {We pay Distributors and their Registered
Representatives who sell the Contracts commissions and service fees. In limited
circumstances, we also pay certain of these professionals compensation,
overrides or reimbursement for expenses associated with the distribution of the
Contract. In total, the compensation amounts are considered equivalent to
approximately 7.5% of the Purchase Payments credited to the Contract over the
Contract's estimated life. In addition, some sales personnel may receive various
types of non-cash compensation as special sales incentives, including trips and
educational and/or business seminars. Supervisory and other management personnel
of the Company may receive 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
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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
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.
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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
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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. 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 in connection with
the Dollar Cost Averaging Program, withdrawals taken in connection with an
Estate Conservation or Systematic Withdrawal distribution option, and
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 a market value adjustment
("MVA"). An MVA reflects the change in the value of the investment due to
changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases, and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in the Certificate Holder receiving an
amount which is less than the amount paid into the Guaranteed Account
For partial withdrawals during the Accumulation Period, amounts to be
withdrawn from the Guaranteed Account will be withdrawn on a pro rata basis from
each group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows you to transfer without an MVA to available guaranteed terms of
the current deposit period or to other available investment options, or
surrender without an MVA (if applicable, a deferred sales charge is assessed on
the surrendered amount). The provision is available only during the calendar
month immediately following
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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 transferred from an available Guaranteed Term in connection with the
Dollar Cost Averaging Program; and (4) amounts distributed under the Estate
Conservation or Systematic Withdrawal distribution. Transfers after the 90-day
period are permitted from guaranteed term(s) to other guaranteed term(s)
available during a deposit period or to other available investment options.
Except for transactions described in items (1), (3) and (4) above, amounts
withdrawn or transferred from the Guaranteed Account prior to the maturity date
will be subject to a Market Value Adjustment. However, only a positive aggregate
MVA will be applied to transfers made due to annuitization under one of the
lifetime Annuity Options described in item (2) above.
The Certificate Holder may select a maximum of 18 different investment
options during the Accumulation Period. Under the Guaranteed Account, each
guaranteed term is counted as one funding option. If a guaranteed term matures,
and is renewed for the same term, it will not count as an additional investment
option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. The Guaranteed Account cannot be used as an
investment option during the Annuity Period. Transfers made due to the election
of a lifetime Annuity Option will be subject to only a positive aggregate MVA.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted amounts
calculated due to a withdrawal of amounts) which may be greater or less than
the Account Value of those amounts; or
(2) the applicable portion of the Account Value attributable to the Guaranteed
Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than the
Account Value of those amounts.
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.
- --------------------------------------------------------------------------------
27
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1997
Marathon Plus
New York Growth Plus
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account B (the
"Separate Account") dated May 1, 1997.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
----
General Information and History.......................................... 2
Variable Annuity Account B............................................... 2
Offering and Purchase of Contracts....................................... 3
Performance Data......................................................... 3
General............................................................ 3
Average Annual Total Return Quotations............................. 4
Annuity Payments......................................................... 9
Sales Material and Advertising........................................... 10
Independent Auditors..................................................... 10
Financial Statements of the Separate Account............................. S-1
Financial Statements of the Company...................................... F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. 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. The Company is engaged in the business of issuing life insurance
policies and annuity contracts in all states of the United States. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account B" below).
Other than the mortality and expense risk charges and administrative charge
described in the prospectus, all expenses incurred in the operations of the
Separate Account are borne by the Company. See "Charges and Deductions" in the
prospectus. The Company receives reimbursement for certain administrative costs
from some unaffiliated sponsors of the Funds used as funding options under the
Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. The Company may make additions to,
deletions from or substitution of available investment options as permitted by
law and subject to the conditions of the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Contracts.
-2-
<PAGE>
The Funds currently available under the Contract are as follows:
<TABLE>
<S> <C>
Aetna Variable Fund Federated Prime Money Fund II
Aetna Income Shares Federated Utility Fund II
Aetna Variable Encore Fund Fidelity VIP Equity-Income Portfolio
Aetna Investment Advisers Fund, Inc. Fidelity VIP Growth Portfolio
Aetna Ascent Variable Portfolio Fidelity VIP High Income Portfolio
Aetna Crossroads Variable Portfolio Fidelity VIP Overseas Portfolio
Aetna Legacy Variable Portfolio Fidelity VIP II Asset Manager Portfolio
Aetna Variable Capital Appreciation Portfolio Fidelity VIP II Contrafund Portfolio
Aetna Variable Growth Portfolio Fidelity VIP II Index 500 Portfolio
Aetna Variable Index Plus Portfolio Fidelity VIP II Investment Grade Bond Portfolio
Aetna Variable Small Company Portfolio Janus Aspen Aggressive Growth Portfolio
Alger American Balanced Portfolio Janus Aspen Balanced Portfolio
Alger American Growth Portfolio Janus Aspen Flexible Income Portfolio
Alger American Income and Growth Portfolio Janus Aspen Growth Portfolio
Alger American Leveraged AllCap Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American MidCap Growth Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Small Capitalization Portfolio Lexington Emerging Markets Fund, Inc.
American Century VP Balanced Lexington Natural Resources Trust
(formerly "TCI Balanced") MFS Emerging Growth Series
American Century VP Capital Appreciation MFS Research Series
(formerly "TCI Growth") MFS Total Return Series
American Century VP International MFS Value Series
(formerly "TCI International") MFS World Governments Series
Federated American Leaders Fund II Oppenheimer Capital Appreciation Fund
Federated Equity Income Fund II Oppenheimer Global Securities Fund
Federated Fund for U. S. Government Securities II Oppenheimer Growth & Income Fund
Federated Growth Strategies Fund II Oppenheimer Strategic Bond Fund
Federated High Income Bond Fund II
Federated International Equity Fund II
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are Registered
Representatives as defined in the prospectus. The offering of the Contracts is
continuous. A description of the manner in which Contracts are purchased may be
found in the prospectus under the sections titled "Purchase" and "Contract
Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and
-3-
<PAGE>
Exchange Commission (the "standardized return"), as well as "non-standardized
returns," both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since
inception and then adjust them to reflect the deduction of all recurring charges
under the Contracts during each period (e.g., mortality and expense risk
charges, maintenance fees, administrative charges, and deferred sales charges).
These charges will be deducted on a pro rata basis in the case of fractional
periods. The maintenance fee is converted to a percentage of assets based on the
average account size under the Contracts described in the prospectus. The total
return figures shown below may be different from the actual historical total
return under your Contract because for periods prior to 1994, the Subaccount's
investment performance was based on the performance of the underlying Fund plus
any cash held by the Subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly, quarterly,
year-to-date and three-year periods.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables shown below reflect the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1996 for the Subaccounts available under the Contract. Table A reflects the
total return quotations for Contracts issued nationwide (other than Contracts or
Certificates issued in New York). Table B reflects the total return quotations
for Marathon Plus and Growth Plus Contracts or Certificates issued in the state
of New York. For those Subaccounts where results are not available for the full
calendar period indicated, the percentage shown is an average annual return
since inception (denoted with an asterisk).
-4-
<PAGE>
<TABLE>
<CAPTION>
TABLE A
-------------------------------------------------------------------------------------------
FUND
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 14.11% 11.15% 12.63% 22.70% 16.03% 11.58% 12.63% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (5.02%) 4.70% 7.31% 2.13% 4.11% 5.27% 7.31% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (3.39%) 2.36% 4.60% 3.88% 3.67% 2.99% 4.60% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 5.60% 9.24% 9.73%* 13.55% 11.81% 9.71% 9.73%* 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 13.31% 17.72%* n/a 21.84% 21.44%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 8.93% 13.64%* n/a 17.13% 17.45%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio 4.70% 9.75%* n/a 12.58% 13.65%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio 1.54%* n/a n/a 9.18%* n/a n/a n/a 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Balanced Portfolio 1.01% 7.83% 7.11%* 8.61% 9.15% 8.33% 7.11%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 3.93% 14.64% 17.02%* 11.75% 14.55% 15.00% 17.02%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income and Growth
Portfolio 9.73% 10.18% 9.75%* 17.99% 12.45% 10.63% 9.75%* 11/15/88
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap
Portfolio 2.73% 37.29%* n/a 10.46% 39.46%* n/a n/a 01/25/95
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 2.60% 21.63%* n/a 10.32% 15.12% 22.40%* n/a 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization
Portfolio (4.48%) 8.99% 18.54%* 2.71% 11.28% 9.46% 18.54%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Balanced 2.88% 4.64% 8.28%* 10.62% 9.44% 5.21% 8.69%* 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (12.28%) 4.09% 9.27%* (5.68%) 5.92% 4.68% 9.27%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP International 4.90% 4.39%* n/a 12.79% 6.21%* n/a n/a 05/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II 11.47% 15.06%* n/a 19.86% 16.39%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government
Securities II (4.46%) 2.32%* n/a 2.73% 4.14%* n/a n/a 03/28/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 4.81% 7.33%* n/a 12.70% 8.92%* n/a n/a 03/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 2.29% 7.53%* n/a 9.99% 9.09%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 4.78% 15.99% 12.15% 12.67% 16.59% 16.33% 12.15% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
-5-
<PAGE>
-------------------------------------------------------------------------------------------
FUND
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 5.17% 13.16% 13.55% 13.09% 14.17% 13.55% 13.55% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 4.55% 12.95% 9.57% 12.42% 9.08% 13.35% 9.57% 09/19/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 3.75% 7.11% 6.42%* 11.55% 6.58% 7.62% 6.42%* 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 5.08% 9.23% 10.14%* 12.99% 6.46% 9.70% 10.14%* 09/06/89
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 11.14% 26.16%* n/a 19.51% 28.47%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 12.61% 14.89%* n/a 21.09% 17.74% 15.47%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade
Bond Portfolio (5.39%) 4.56% 6.68%* 1.73% 3.75% 5.14% 6.68%* 12/05/88
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth (1.02%) 18.59%* n/a 6.43% 15.34% 19.59%* n/a 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 6.53% 11.81%* n/a 14.54% 11.91% 12.99%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 0.12% 6.63%* n/a 7.65% 8.71% 7.98%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 8.61% 13.42%* n/a 16.78% 14.95% 14.55%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio (4.66%) 1.40%* n/a 2.51% 3.28% 2.94%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 18.31% 20.48%* n/a 27.22% 16.95% 21.43%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc. (1.47%) (1.98%)* n/a 5.95% 0.01%* n/a n/a 03/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 16.35% 7.90% 8.00%* 25.10% 10.38% 8.40% 8.47%* 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 7.30% 19.11%* n/a 15.38% 22.98%* n/a n/a 07/24/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series 12.17% 17.86%* n/a 20.61% 21.78%* n/a n/a 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 4.86% 16.52%* n/a 12.76% 19.09%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Value Series 0.62%* n/a n/a 8.19%* n/a n/a n/a 08/14/96
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series (4.62%) 3.95%* n/a 2.56%* 5.89%* n/a n/a 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund 10.23% 14.65% 14.73% 18.52% 12.16% 15.02% 14.73% 08/15/86
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 8.00% 10.41% 8.88%* 16.13% 2.86% 10.85% 9.14%* 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 21.49% 35.14%* n/a 30.64% 38.52%* n/a n/a 07/06/95
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 2.75% 4.58%* n/a 10.49% 6.03% 5.84%* n/a 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
-6-
<PAGE>
<TABLE>
<CAPTION>
TABLE B
CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
------------------------------------------------------------------------------------------
Fund
($30 annual maintenance fee) STANDARDIZED NON-STANDARDIZED Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 15.34% 11.39% 12.63% 22.70% 16.03% 11.58% 12.63% 05/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (4.00%) 5.01% 7.31% 2.13% 4.11% 5.27% 7.31% 05/15/73
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (2.35%) 2.70% 4.60% 3.88% 3.67% 2.99% 4.60% 08/01/75
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. 6.73% 9.50% 9.73%* 13.55% 11.81% 9.71% 9.73%* 04/03/89
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 14.53% 18.50%* n/a 21.84% 21.44%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio 10.10% 14.43%* n/a 17.13% 17.45%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio 5.82% 10.54%* n/a 12.58% 13.65%* n/a n/a 07/05/95
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio 1.54%* n/a n/a 9.18%* n/a n/a n/a 09/16/96
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Balanced Portfolio 2.10% 8.10% 7.11%* 8.61% 9.15% 8.33% 7.11%* 09/05/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 5.04% 14.84% 17.02%* 11.75% 14.55% 15.00% 17.02%* 01/09/89
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Income and Growth
Portfolio 10.91% 10.43% 9.75%* 17.99% 12.45% 10.63% 9.75%* 11/15/88
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap
Portfolio 3.83% 37.82%* n/a 10.46% 39.46%* n/a n/a 01/25/95
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth 3.70% 21.96%* n/a 10.32% 15.12% 22.40%* n/a 05/03/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization
Portfolio (3.45%) 9.25% 18.54%* 2.71% 11.28% 9.46% 18.54%* 09/21/88
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Balanced 3.99% 4.95% 8.51%* 10.62% 9.44% 5.21% 8.69%* 05/01/91
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (11.34%) 4.41% 9.27%* (5.68%) 5.92% 4.68% 9.27%* 11/20/87
- ------------------------------------------------------------------------------------------------------------------------------------
American Century VP International 6.02% 4.80%* n/a 12.79% 6.21%* n/a n/a 05/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated American Leaders Fund II 12.67% 15.38%* n/a 19.86% 16.39%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government
Securities II (3.43%) 2.72%* n/a 2.73% 4.14%* n/a n/a 03/28/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Growth Strategies Fund II 15.21% 16.48%* n/a 22.56% 20.23%* n/a n/a 10/02/95
- ------------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II 5.94% 7.69%* n/a 12.70% 8.92%* n/a n/a 03/01/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated International Equity Fund 0.38% 2.69%* n/a 6.79% 5.65%* n/a n/a 05/08/95
II
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II (2.92%) 1.53%* n/a 3.27% 3.46%* n/a n/a 11/18/94
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 3.39% 7.89%* n/a 9.99% 9.09%* n/a n/a 02/10/94
- ------------------------------------------------------------------------------------------------------------------------------------
-7-
<PAGE>
------------------------------------------------------------------------------------------
Fund
($30 annual maintenance fee) STANDARDIZED NON-STANDARDIZED Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 5.91% 16.18% 12.15% 12.67% 16.59% 16.33% 12.15% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 6.30% 13.38% 13.55% 13.09% 14.17% 13.55% 13.55% 10/09/86
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 5.68% 13.18% 9.57% 12.42% 9.08% 13.35% 9.57% 09/19/85
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 4.86% 7.39% 6.42%* 11.55% 6.58% 7.62% 6.42%* 02/13/87
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 6.21% 9.49% 10.14%* 12.99% 6.46% 9.70% 10.14%* 09/06/89
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 12.34% 26.69%* n/a 19.51% 28.47%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 13.82% 15.16%* n/a 21.09% 17.74% 15.47%* n/a 08/27/92
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Investment Grade
Bond Portfolio (4.38%) 4.88% 6.68% 1.73% 3.75% 5.14% 6.68%* 12/05/88
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth 0.04% 19.00%* n/a 6.43% 15.34% 19.59%* n/a 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 7.67% 12.28%* n/a 14.54% 11.91% 12.99%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 1.19% 7.15%* n/a 7.65% 8.71% 7.98%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 9.78% 13.87%* n/a 16.78% 14.95% 14.55%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio (3.64%) 1.99%* n/a 2.51% 3.28% 2.94%* n/a 09/13/93
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 19.59% 20.87%* n/a 27.22% 16.95% 21.43%* n/a 09/13/93
Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc. (0.41%) (1.55%) n/a 5.95% 0.01%* n/a n/a 03/30/94
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust 17.60% 8.17% 8.26%* 25.10% 10.38% 8.40% 8.47%* 10/14/91
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Emerging Growth Series 8.46% 19.92%* n/a 15.38% 22.98%* n/a n/a 07/24/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Research Series 13.37% 18.69%* n/a 20.61% 21.78%* n/a n/a 07/26/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 5.99% 17.08%* n/a 12.76% 19.09%* n/a n/a 01/03/95
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Value Series 0.62%* n/a n/a 8.19%* n/a n/a n/a 08/14/96
- ------------------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series (3.59%) 4.39%* n/a 2.56% 5.89%* n/a n/a 06/14/94
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund 11.41% 14.86% 14.73% 18.52% 12.16% 15.02% 14.73% 08/15/86
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 9.17% 10.65% 9.06%* 16.13% 2.86% 10.85% 9.14%* 11/12/90
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 22.80% 35.91%* n/a 30.64% 38.52%* n/a n/a 07/06/95
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 3.86% 5.07%* n/a 10.49% 6.03% 5.84%* n/a 05/03/93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
-8-
<PAGE>
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date before the first Annuity
payment is due. Such value (less any applicable premium tax) is applied to
provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
- --------
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due.
-9-
<PAGE>
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life Subaccounts or their underlying funds by performance and/or
investment objective. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds, reduced by applicable charges under the Separate Account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports, including, but not
limited to The Wall Street Journal, Money magazine, USA Today and The VARDS
Report.
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Certificate Holders. These topics may include the relationship
between sectors of the economy and the economy as a whole and its effect on
various securities markets, investment strategies and techniques (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer and account rebalancing), the advantages and disadvantages of
investing in tax-deferred and taxable investments, customer profiles and
hypothetical purchase and investment scenarios, financial management and tax and
retirement planning, and investment alternatives to certificates of deposit and
other financial instruments, including comparison between the Contracts and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
-10-
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
Index
Statement of Assets and Liabilities....................................... S-2
Statements of Operations and Changes in Net Assets........................ S-6
Notes to Financial Statements............................................. S-7
Independent Auditors' Report.............................................. S-15
S-1
<PAGE>
Form No. SAI.34370-97 ALIAC Ed. May 1997
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996:
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 22,674,496 shares (cost $674,480,933) .............................................. $ 734,460,247
Aetna Income Shares; 5,554,723 shares (cost $69,738,402) ................................................ 70,118,035
Aetna Variable Encore Fund; 8,093,492 shares (cost $107,322,605) ........................................ 106,781,998
Aetna Investment Advisers Fund, Inc; 8,423,410 shares (cost $112,230,262) ............................... 127,344,696
Aetna GET Fund, Series B; 1,148,634 shares (cost $11,845,728) ........................................... 16,333,339
Aetna GET Fund, Series C; 907,283 shares (cost $9,136,442) .............................................. 9,281,276
Aetna Ascent Variable Portfolio; 446,824 shares (cost $5,362,215) ....................................... 5,638,668
Aetna Crossroads Variable Portfolio; 442,088 shares (cost $5,144,208) ................................... 5,295,700
Aetna Legacy Variable Portfolio; 549,727 shares (cost $6,140,411) ....................................... 6,186,987
Aetna Variable Index Plus Portfolio; 182,043 shares (cost $1,989,418) ................................... 1,985,372
Alger American Funds:
Balanced Portfolio; 408,798 shares (cost $4,238,672) .................................................. 3,777,291
Growth Portfolio; 1,268,424 shares (cost $41,195,068) ................................................. 43,545,003
Income and Growth Portfolio; 768,597 shares (cost $7,300,499) ......................................... 6,471,587
Leveraged AllCap Portfolio; 589,862 shares (cost $11,198,918) ......................................... 11,419,728
MidCap Portfolio; 929,402 shares (cost $19,160,303) ................................................... 19,842,727
Small Capitalization Portfolio; 1,436,114 shares (cost $59,246,689) ................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio; 336,323 shares (cost $597,518) ......................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 3,446,529 shares (cost $66,707,023) .......................................... 72,480,497
Growth Portfolio; 1,860,260 shares (cost $54,670,184) ................................................. 57,928,484
High Income Portfolio; 1,174,877 shares (cost $13,895,035) ............................................ 14,709,464
Overseas Portfolio; 515,036 shares (cost $8,959,583) .................................................. 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 350,352 shares (cost $5,447,282) ............................................. 5,931,464
Contrafund Portfolio; 3,414,168 shares (cost $50,327,864) ............................................. 56,538,618
Index 500 Portfolio; 307,196 shares (cost $25,139,330) ................................................ 27,380,370
Investment Grade Bond Portfolio; 389,026 shares (cost $4,585,849) ..................................... 4,761,677
Insurance Management Series:
American Leaders Fund II; 4,005,705 shares (cost $52,316,587) ......................................... 61,127,055
Growth Strategies Fund II; 561,108 shares (cost $6,448,785) ........................................... 7,182,178
High Income Bond Fund II; 2,651,478 shares (cost $26,128,555) ......................................... 27,151,137
International Equity Fund II; 531,863 shares (cost $5,627,988) ........................................ 5,935,590
Prime Money Fund II; 7,744,318 shares (cost $7,744,318) ............................................... 7,744,318
US Government Securities Fund II; 758,792 shares (cost $7,582,811) .................................... 7,656,209
Utility Fund II; 1,420,364 shares (cost $15,043,602) .................................................. 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio; 1,729,280 shares (cost $31,007,236) ...................................... 31,542,060
Balanced Portfolio; 797,173 shares (cost $11,400,361) ................................................. 11,774,244
Flexible Income Portfolio; 457,937 shares (cost $5,073,822) ........................................... 5,147,217
Growth Portfolio; 1,346,496 shares (cost $19,790,729) ................................................. 20,884,154
Short-Term Bond Portfolio; 192,639 shares (cost $1,947,988) ........................................... 1,920,611
Worldwide Growth Portfolio; 3,419,377 shares (cost $61,321,568) ....................................... 66,472,691
Lexington Emerging Markets Fund; 249,599 shares (cost $2,582,550) ....................................... 2,515,960
Lexington Natural Resources Trust Fund; 332,525 shares (cost $4,213,645) ................................ 4,751,784
MFS Funds:
Emerging Growth Series; 679,608 shares (cost $9,083,804) .............................................. 8,998,008
Research Series; 516,109 shares (cost $6,571,748) ..................................................... 6,776,512
Total Return Series; 307,540 shares (cost $4,144,359) ................................................. 4,216,370
Value Series; 19,591 shares (cost $207,906) ........................................................... 208,841
Worldwide Government Series; 38,555 shares (cost $398,609) ............................................ 407,913
Neuberger & Berman Advisers Management Trust -
Growth Portfolio; 319,727 shares (cost $8,249,239) .................................................... 8,242,574
Scudder Variable Life Investment Fund -
International Portfolio; 909,444 shares (cost $10,539,678) ............................................ 12,050,127
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
TCI Portfolios, Inc:
Balanced Fund; 396,732 shares (cost $2,846,031) ....................................................... $ 2,991,356
Growth Fund; 4,332,926 shares (cost $45,957,552) ...................................................... 44,369,162
International Fund; 789,697 shares (cost $4,330,759) .................................................. 4,706,594
--------------
NET ASSETS (cost $1,726,620,671) ......................................................................... $1,848,811,724
==============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation ...................................................................... $ 644,728,031
Annuity contracts in payment period .................................................................... 89,732,216
Aetna Income Shares:
Annuity contracts in accumulation ...................................................................... 66,534,546
Annuity contracts in payment period .................................................................... 3,583,489
Aetna Variable Encore Fund:
Annuity contracts in accumulation ...................................................................... 106,781,998
Aetna Investment Advisers Fund, Inc:
Annuity contracts in accumulation ...................................................................... 119,402,212
Annuity contracts in payment period .................................................................... 7,942,484
Aetna GET Fund, Series B:
Annuity contracts in accumulation ...................................................................... 16,333,339
Aetna GET Fund, Series C:
Annuity contracts in accumulation ...................................................................... 9,281,276
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,638,668
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 5,295,700
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation ...................................................................... 6,186,987
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation ...................................................................... 1,985,372
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 3,777,291
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 43,545,003
Income and Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 6,471,587
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ...................................................................... 11,419,728
MidCap Portfolio:
Annuity contracts in accumulation ...................................................................... 19,842,727
Small Capitalization Portfolio:
Annuity contracts in accumulation ...................................................................... 58,751,429
Calvert Responsibly Invested Balanced Portfolio:
Annuity contracts in accumulation ...................................................................... 596,637
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation ...................................................................... 72,480,497
Growth Portfolio:
Annuity contracts in accumulation ...................................................................... 57,928,484
High Income Portfolio:
Annuity contracts in accumulation ...................................................................... 14,709,464
Overseas Portfolio:
Annuity contracts in accumulation ...................................................................... 9,703,271
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation ...................................................................... 5,931,464
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Contrafund Portfolio:
Annuity contracts in accumulation ....................................................................... $ 56,538,618
Index 500 Portfolio:
Annuity contracts in accumulation ....................................................................... 27,380,370
Investment Grade Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 4,761,677
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation ....................................................................... 61,127,055
Growth Strategies Fund II:
Annuity contracts in accumulation ....................................................................... 7,182,178
High Income Bond Fund II:
Annuity contracts in accumulation ....................................................................... 27,151,137
International Equity Fund II:
Annuity contracts in accumulation ....................................................................... 5,935,590
Prime Money Fund II:
Annuity contracts in accumulation ....................................................................... 7,744,318
US Government Securities Fund II:
Annuity contracts in accumulation ....................................................................... 7,656,209
Utility Fund II:
Annuity contracts in accumulation ....................................................................... 16,774,494
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 31,542,060
Balanced Portfolio:
Annuity contracts in accumulation ....................................................................... 11,774,244
Flexible Income Portfolio:
Annuity contracts in accumulation ....................................................................... 5,147,217
Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 20,884,154
Short-Term Bond Portfolio:
Annuity contracts in accumulation ....................................................................... 1,920,611
Worldwide Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 66,472,691
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ....................................................................... 2,515,960
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ....................................................................... 4,751,784
MFS Funds:
Emerging Growth Series:
Annuity contracts in accumulation ....................................................................... 8,998,008
Research Series:
Annuity contracts in accumulation ....................................................................... 6,776,512
Total Return Series:
Annuity contracts in accumulation ....................................................................... 4,216,370
Value Series:
Annuity contracts in accumulation ....................................................................... 208,841
Worldwide Government Series:
Annuity contracts in accumulation ....................................................................... 407,913
Neuberger & Berman Advisers Management Trust - Growth Portfolio:
Annuity contracts in accumulation ....................................................................... 8,242,574
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation ....................................................................... 12,050,127
TCI Portfolios, Inc:
Balanced Fund:
Annuity contracts in accumulation ....................................................................... 2,991,356
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Growth Fund:
Annuity contracts in accumulation ......................................................................... $ 44,369,162
International Fund:
Annuity contracts in accumulation ......................................................................... 4,706,594
--------------
$1,848,811,724
==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ..................................................................... $ 120,367,178 $ 112,097,675
Expenses: (Notes 2 and 5)
Valuation Period Deductions ................................................... (17,483,870) (11,786,592)
--------------- ---------------
Net investment income ............................................................ 102,883,308 100,311,083
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................................ 365,025,974 495,934,611
Cost of investments sold ....................................................... 347,598,566 463,921,121
--------------- ---------------
Net realized gain ............................................................ 17,427,408 32,013,490
Net unrealized gain (loss) on investments: (Note 5)
Beginning of year .............................................................. 28,746,944 (44,356,052)
End of year .................................................................... 122,191,053 28,746,944
--------------- ---------------
Net change in unrealized gain ................................................ 93,444,109 73,102,996
--------------- ---------------
Net realized and unrealized gain on investments .................................. 110,871,517 105,116,486
--------------- ---------------
Net increase in net assets resulting from operations ............................. 213,754,825 205,427,569
--------------- ---------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ...................................... 538,586,667 178,474,387
Sales and administrative charges deducted by the Company ......................... (17,370) (34,250)
--------------- ---------------
Net variable annuity contract purchase payments .............................. 538,569,297 178,440,137
Transfers from the Company for mortality guarantee adjustments ................... 690,779 1,565,140
Transfers from the Company's fixed account options ............................... 50,549,121 4,144,061
Redemptions by contract holders .................................................. (73,738,526) (46,390,791)
Annuity Payments ................................................................. (12,108,943) (9,198,421)
Other ............................................................................ 159,467 1,143,373
--------------- ---------------
Net increase in net assets from unit transactions (Note 5) ................... 504,121,195 129,703,499
--------------- ---------------
Change in net assets ............................................................. 717,876,020 335,131,068
NET ASSETS:
Beginning of year ................................................................ 1,130,935,704 795,804,636
--------------- ---------------
End of year ...................................................................... $ 1,848,811,724 $ 1,130,935,704
=============== ===============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Annuity Account B ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with variable annuity contracts that may be entitled to
tax-deferred treatment under specific sections of the Internal Revenue Code
of 1986, as amended.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1996:
<TABLE>
<S> <C>
Aetna Variable Fund Insurance Management Series:
Aetna Income Shares [bullet]American Leaders Fund II
Aetna Variable Encore Fund [bullet]Growth Strategies Fund II
Aetna Investment Advisers Fund, Inc. [bullet]High Income Bond Fund II
Aetna GET Fund, Series B [bullet]International Equity Fund II
Aetna GET Fund, Series C [bullet]Prime Money Fund II
Aetna Ascent Variable Portfolio [bullet]U.S. Government Securities Fund II
Aetna Crossroads Variable Portfolio [bullet]Utility Fund II
Aetna Legacy Variable Portfolio Janus Aspen Series:
Aetna Variable Index Plus Portfolio [bullet]Aggressive Growth Portfolio
Alger American Funds: [bullet]Balanced Portfolio
[bullet]Balanced Portfolio [bullet]Flexible Income Portfolio
[bullet]Growth Portfolio [bullet]Growth Portfolio
[bullet]Income and Growth Portfolio [bullet]Short-Term Bond Portfolio
[bullet]Leveraged AllCap Portfolio [bullet]Worldwide Growth Portfolio
[bullet]MidCap Portfolio Lexington Fund Emerging Markets Fund
[bullet]Small Capitalization Portfolio Lexington Natural Resources Trust Fund
Calvert Responsibly Invested Balanced Portfolio MFS Funds:
Fidelity Investments Variable Insurance Products Fund: [bullet]Emerging Growth Series
[bullet]Equity-Income Portfolio [bullet]Research Series
[bullet]Growth Portfolio [bullet]Total Return Series
[bullet]High Income Portfolio [bullet]Value Series
[bullet]Overseas Portfolio [bullet]World Government Series
Fidelity Investments Variable Insurance Products Fund II: Neuberger & Berman Advisers Management Trust -
[bullet]Asset Manager Portfolio [bullet]Growth Portfolio
[bullet]Contrafund Portfolio Scudder Variable Life Investment Fund -
[bullet]Index 500 Portfolio [bullet]International Portfolio
[bullet]Investment Grade Bond Portfolio [bullet]TCI Portfolios, Inc.:
[bullet]Balanced Fund
[bullet]Growth Fund
[bullet]International Fund
</TABLE>
S-7
<PAGE>
Notes to Financial Statements - December 31, 1996 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which
is taxed as a life insurance company under the Internal Revenue Code of
1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December
31, 1995 aggregated $972,030,476 and $365,025,974; $725,949,193 and
$495,934,611, respectively.
S-8
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $77,000,986 ($7,148,689) $96,146,932 $97,318,697 ($1,171,765)
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 4,527,825 (813,024) 19,585,006 18,826,116 758,890
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 5,358,925 (1,043,955) 78,888,315 76,637,102 2,251,213
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 11,247,847 (1,372,478) 16,403,009 13,386,571 3,016,438
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 1,055,590 (226,340) 915,330 681,610 233,720
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 46,499 (14,753) 361,353 354,510 6,843
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 235,037 (27,609) 317,740 277,917 39,823
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 257,055 (29,943) 362,140 312,870 49,270
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 363,749 (38,623) 406,948 384,407 22,541
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 10,290 (2,403) 139,030 133,438 5,592
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 775,351 (33,904) 244,368 332,405 (88,037)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 758,872 (394,360) 6,990,444 6,528,212 462,232
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 2,009,995 (55,929) 390,051 732,537 (342,486)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 61,186 (116,503) 4,991,495 4,605,949 385,546
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 190,158 (166,087) 3,198,308 3,039,709 158,599
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 184,900 (588,663) 31,506,275 29,929,826 1,576,449
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested 44,676 (3,984) 141,022 137,780 3,242
Balanced Portfolio:
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 940,850 (608,164) 4,030,269 3,343,817 686,452
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 1,412,110 (540,670) 2,600,136 2,280,711 319,425
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 178,909 (112,363) 1,318,057 1,318,142 (85)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Net Unrealized Increase
Gain (Loss) Net (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: ($8,051,873) $59,979,314 $68,031,187 $4,966,306
Annuity contracts in accumulation $530,231,821 $644,728,031
Annuity contracts in payment period 62,550,401 89,732,216
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 3,224,044 379,633 (2,844,411) ($9,600,618)
Annuity contracts in accumulation 74,693,652 66,534,546
Annuity contracts in payment period 3,395,721 3,583,489
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 2,487,618 (540,607) (3,028,225) $22,111,260
Annuity contracts in accumulation 81,132,780 106,781,998
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 12,419,220 15,114,435 2,695,215 $602,270
Annuity contracts in accumulation 104,415,595 119,402,212
Annuity contracts in payment period 6,739,809 7,942,484
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 2,566,580 4,487,610 1,921,030 ($650,835)
Annuity contracts in accumulation 14,000,174 16,333,339
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 0 144,834 144,834 $9,097,853
Annuity contracts in accumulation 0 9,281,276
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 5,570 276,453 270,883 $4,773,151
Annuity contracts in accumulation 347,383 5,638,668
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 8,209 151,493 143,284 $4,409,627
Annuity contracts in accumulation 466,407 5,295,700
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,609 46,576 44,967 $5,470,774
Annuity contracts in accumulation 323,579 6,186,987
- ------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 0 (4,046) (4,046) $1,975,940
Annuity contracts in accumulation (1) 1,985,372
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 1,644 (461,380) (463,024) $2,897,855
Annuity contracts in accumulation 689,050 3,777,291
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (63,817) 2,349,936 2,413,753 $29,514,421
Annuity contracts in accumulation 10,790,085 43,545,003
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: (6,769) (828,912) (822,143) $4,660,630
Annuity contracts in accumulation 1,021,520 6,471,587
- ------------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 32,561 220,810 188,249 $8,946,454
Annuity contracts in accumulation 1,954,796 11,419,728
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Portfolio: 7,193 682,424 675,231 $15,727,261
Annuity contracts in accumulation 3,257,565 19,842,727
- ------------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 46,283 (495,260) (541,543) $32,655,969
Annuity contracts in accumulation 25,464,317 58,751,429
- ------------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested (13,512) (881) 12,631 $193,226
Balanced Portfolio:
Annuity contracts in accumulation 346,846 596,637
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund:
Equity-Income Portfolio: 966,600 5,773,475 4,806,875 $51,230,275
Annuity contracts in accumulation 15,424,209 72,480,497
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: (34,190) 3,258,300 3,292,490 $38,219,867
Annuity contracts in accumulation 15,225,262 57,928,484
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 15,029 814,429 799,400 $12,636,277
Annuity contracts in accumulation 1,207,326 14,709,464
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Overseas Portfolio: $75,181 ($91,010) $880,668 $813,434 $67,234
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 119,231 (54,259) 540,553 465,407 75,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 146,164 (428,708) 5,044,449 4,308,117 736,332
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 143,406 (203,362) 6,086,685 5,356,843 729,842
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 45,797 (42,799) 882,619 925,636 (43,017)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 857,970 (631,122) 6,368,961 4,596,688 1,772,273
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 405 (44,481) 119,084 103,727 15,357
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,647,290 (260,987) 5,863,283 5,644,702 218,581
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 10,567 (51,003) 250,169 236,027 14,142
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 289,134 (87,958) 12,400,851 12,398,826 2,025
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 367,608 (86,361) 5,011,311 5,085,345 (74,034)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 547,259 (186,219) 1,034,753 867,262 167,491
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 243,931 (266,292) 6,134,481 4,875,603 1,258,878
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 181,099 (68,277) 2,812,822 2,536,688 276,134
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 304,512 (43,754) 1,127,628 1,090,808 36,820
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 324,844 (141,840) 1,249,735 1,041,911 207,824
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 79,326 (23,159) 2,910,009 2,872,811 37,198
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 642,050 (384,732) 4,899,145 3,899,490 999,655
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (27,131) 1,463,410 1,431,864 31,546
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 15,653 (38,378) 2,192,808 1,809,743 383,065
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
----------- Change in
Beginning End Unrealized
of Year of Year Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $51,434 $743,689 $692,255
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: 98,360 484,182 385,822
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 122,841 6,210,754 6,087,913
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 70,864 2,241,040 2,170,176
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 11,466 175,829 164,363
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: 2,916,888 8,810,467 5,893,579
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 3,614 733,393 729,779
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 229,008 1,022,582 793,574
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 43,172 307,602 264,430
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: (1,182) 0 1,182
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 75,600 73,398 (2,202)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Utility Fund II: 799,746 1,730,892 931,146
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 1,164,909 534,823 (630,086)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 26,040 373,883 347,843
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 29,809 73,395 43,586
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 84,852 1,093,423 1,008,571
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 1,330 (27,376) (28,706)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 253,639 5,151,123 4,897,484
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (4,024) (66,591) (62,567)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 188,717 538,139 349,422
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas Portfolio: $6,948,020
Annuity contracts in accumulation $2,011,591 $9,703,271
- ----------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable
Insurance Products Fund II:
Asset Manager Portfolio: $4,043,035
Annuity contracts in accumulation 1,362,489 5,931,464
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: $38,043,675
Annuity contracts in accumulation 11,953,242 56,538,618
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: $22,367,490
Annuity contracts in accumulation 2,172,818 27,380,370
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: $3,931,632
Annuity contracts in accumulation 705,701 4,761,677
- ----------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II: $26,548,788
Annuity contracts in accumulation 26,685,567 61,127,055
- ----------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: $6,301,239
Annuity contracts in accumulation 179,879 7,182,178
- ----------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: $12,876,189
Annuity contracts in accumulation 11,876,490 27,151,137
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund II: $4,073,916
Annuity contracts in accumulation 1,623,538 5,935,590
- ----------------------------------------------------------------------------------------------------------------
Prime Money Fund II: $1,765,443
Annuity contracts in accumulation 5,774,492 7,744,318
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: $2,942,870
Annuity contracts in accumulation 4,508,328 7,656,209
- ----------------------------------------------------------------------------------------------------------------
Utility Fund II: $6,514,735
Annuity contracts in accumulation 8,800,082 16,774,494
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: $19,085,222
Annuity contracts in accumulation 11,850,407 31,542,060
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio: $10,311,561
Annuity contracts in accumulation 725,884 11,774,244
- ----------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: $3,237,811
Annuity contracts in accumulation 1,568,242 5,147,217
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio: $16,916,813
Annuity contracts in accumulation 2,567,942 20,884,154
- ----------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: $1,106,654
Annuity contracts in accumulation 749,298 1,920,611
- ----------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: $54,723,321
Annuity contracts in accumulation 5,594,913 66,472,691
- ----------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: $2,232,953
Annuity contracts in accumulation 341,159 2,515,960
- ----------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: $2,162,813
Annuity contracts in accumulation 1,879,209 4,751,784
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets - Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $73,635 ($33,243) $190,630 $186,959
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: 94,710 (22,219) 253,406 258,774
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 87,973 (13,218) 140,628 132,113
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 4,089 (372) 496 486
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 0 (1,705) 19,663 19,513
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 770,877 (98,063) 3,864,131 3,857,033
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 276,128 (136,107) 4,557,311 4,016,790
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 67,198 (24,832) 247,893 231,495
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 6,228,055 (611,968) 19,145,021 17,607,144
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 62,276 (41,867) 397,143 365,001
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $120,367,178 ($17,483,870) $365,025,974 $347,598,566
==================================================================================================================================
</TABLE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss) Net
Net ----------- Change in
Realized Beginning End Unrealized
Gain (Loss) of Year of Year Gain (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $3,671 $0 ($85,796) ($85,796)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Research Series: (5,368) 0 204,764 204,764
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return Series: 8,515 0 72,010 72,010
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Value Series: 10 0 935 935
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
World Government Series: 150 0 9,304 9,304
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: 7,098 77,158 (6,666) (83,824)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: 540,521 652,411 1,510,449 858,038
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: 16,398 16,540 145,325 128,785
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 1,537,877 8,206,103 (1,588,390) (9,794,493)
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
International Fund: 32,142 15,650 375,835 360,185
Annuity contracts in accumulation
- ----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $17,427,408 $28,746,944 $122,191,053 $93,444,109
==================================================================================================================================
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1996 (continued):
<TABLE>
<CAPTION>
5. Supplemental Information to Statements of Operations and Changes in Net Assets-Year Ended December 31, 1996 (Continued)
- ------------------------------------------------------------------------------------------------------------------
Net
Increase
(Decrease) Net Assets
In Net Assets ------------------------------------
from Unit Beginning End
Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Funds:
Emerging Growth Series: $9,039,741
Annuity contracts in accumulation $0 $8,998,008
- ------------------------------------------------------------------------------------------------------------------
Research Series: $6,504,625
Annuity contracts in accumulation 0 6,776,512
- ------------------------------------------------------------------------------------------------------------------
Total Return Series: $4,061,090
Annuity contracts in accumulation 0 4,216,370
- ------------------------------------------------------------------------------------------------------------------
Value Series: $204,179
Annuity contracts in accumulation 0 208,841
- ------------------------------------------------------------------------------------------------------------------
World Government Series: $400,164
Annuity contracts in accumulation 0 407,913
- ------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust-
Growth Portfolio: ($710,088)
Annuity contracts in accumulation 8,356,574 8,242,574
- ------------------------------------------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund-
International Portfolio: ($54,117)
Annuity contracts in accumulation 10,565,664 12,050,127
- ------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
Balanced Fund: $2,313,929
Annuity contracts in accumulation 489,878 2,991,356
- ------------------------------------------------------------------------------------------------------------------
Growth Fund: ($7,301,710)
Annuity contracts in accumulation 54,311,401 44,369,162
- ------------------------------------------------------------------------------------------------------------------
International Fund: $3,691,239
Annuity contracts in accumulation 602,619 4,706,594
- ------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $504,121,195 $1,130,935,704 $1,848,811,724
==================================================================================================================
</TABLE>
S-14
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1996, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1996, the results of its operations and the changes in its
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Premiums $133.6 $212.7 $191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
------- ------- -------
Total revenue 1,640.8 1,619.2 1,399.6
------- ------- -------
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy
acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
------- ------- -------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
------- ------- -------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
------- ------- -------
Net income $141.1 $175.9 $145.3
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
December 31,
-------------------------
1996 1995
---- ----
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds
(cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
--------- ---------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Account assets 15,318.3 10,987.0
--------- ---------
Total assets $31,693.3 $27,144.9
========= =========
Liabilities and Shareholder's Equity
- -------------------------------------
Liabilities:
Future policy benefits $3,617.0 $3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
--------- ---------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Account liabilities 15,318.3 10,987.0
--------- ---------
Total liabilities 30,083.8 25,561.9
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and
outstanding) 2.8 2.8
Paid-in capital 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
--------- ---------
Total shareholder's equity 1,609.5 1,583.0
--------- ---------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Shareholder's equity, beginning of year $1,583.0 $1,088.5 $1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- -------- --------
Shareholder's equity, end of year $1,609.5 $1,583.0 $1,088.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $141.1 $175.9 $145.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance
reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
-------- -------- --------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
-------- -------- --------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
-------- -------- --------
Net cash provided by financing activities 440.2 772.0 789.1
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
-------- -------- --------
Cash and cash equivalents, end of year $459.1 $568.8 $623.3
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $85.5 $92.8 $85.9
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business
segments: financial services and individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services, financial planning and pension plan
administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company
of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity
Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1995 and 1994 financial information to conform to the 1996
presentation.
Future Application of Accounting Standards
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was
issued in June 1996. This statement provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. Transactions covered by this statement would include
securitizations, sales of partial interests in assets, repurchase
agreements and securities lending. This statement requires that after a
transfer of financial assets, an entity would recognize any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available
for sale and carried at fair value. These securities are written down (as
realized capital losses) for other than temporary declines in value.
Unrealized capital gains and losses related to available for sale other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market
prices or dealer quotations. Where quoted market prices or dealer
quotations are not available, fair values are measured utilizing quoted
market prices for similar securities or by using discounted cash flow
methods. Cost for mortgage-backed securities is adjusted for unamortized
premiums and discounts, which are amortized using the interest method over
the estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily represents an
investment in the Aetna Series Fund, Inc., a retail mutual fund which has
been seeded by the Company, and is carried at fair value.
Mortgage loans and policy loans are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in
the Consolidated Balance Sheets for changes in the fair value of the
agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For
fixed ordinary life contracts, such costs are amortized over expected
premium-paying periods (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross
profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00%.
Investment yield is based on the Company's experience. Mortality and
withdrawal rate assumptions are based on relevant Aetna experience and are
periodically reviewed against both industry standards and experience.
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 4.00% to 7.00%), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest.
Reserves on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments begin under contracts with life contingent
payouts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity, reflected as an offsetting amount in both premiums and current and
future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal life and variable annuity contracts
are segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment
Advisers Fund, Inc., Aetna GET Fund, the Aetna Series Fund Inc., or the
Aetna Generation Funds (collectively, "Funds"), which are managed by the
Company, or other selected mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $515.6 million for 1996 (fair value $523.0 million)
and $322.2 million for 1995 (fair value $343.9 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to
8.38% in 1995.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and losses on the sale of assets
supporting the guaranteed interest option). The Consolidated Statements of
Cash Flows do not reflect investment activity of the Separate Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting
income reported for financial statement purposes for certain items.
Deferred income tax expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
--------- --------- --------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- --------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- --------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- --------- --------- ---------
Total Debt Securities $12,539.1 $ 432.6 $ 66.2 $12,905.5
========= ========= ========= =========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Debt securities available for sale as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political
subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
--------- --------- --------- ---------
Total U.S. corporate securities 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government 316.4 26.1 2.0 340.5
Utilities 236.3 32.9 269.2
Other 749.9 60.5 3.5 806.9
--------- --------- --------- ---------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 2,383.9 167.6 2.2 2,549.3
--------- --------- --------- ---------
Total residential mortgage-
backed securities 2,940.6 266.8 4.0 3,203.4
Commercial/multifamily mortgage-
backed securities 741.9 32.3 0.2 774.0
Other asset-backed securities 961.2 35.5 0.5 996.2
--------- --------- --------- ---------
Total Debt Securities $11,923.7 $ 811.6 $ 14.5 $12,720.8
========= ========= ========= =========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, net unrealized appreciation of $366.4
million and $797.1 million, respectively, on available for sale debt
securities included $288.5 million and $619.1 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in Future Policy Benefits and Policyholders' Funds
Left With the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.
Amortized Fair
Cost Value
--------- -----
(millions)
Due to mature:
One year or less $ 424.4 $ 425.7
After one year through five years 2,162.4 2,194.2
After five years through ten years 2,467.4 2,509.6
After ten years 2,568.4 2,675.4
Mortgage-backed securities 4,028.7 4,204.3
Other asset-backed securities 887.8 896.3
--------- ---------
Total $12,539.1 $12,905.5
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, which is in excess of the market value of the
loaned securities, is deposited by the borrower with a lending agent, and
retained and invested by the lending agent to generate additional income
for the Company. The market value of the loaned securities is monitored on
a daily basis with additional collateral obtained or refunded as the market
value fluctuates. At December 31, 1996 and 1995, the Company had loaned
securities (which are reflected as invested assets) with a market value of
approximately $444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and
$7.4 million, respectively, were on deposit as required by regulatory
authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10%
of the Company's shareholder's equity at December 31, 1996.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of
the Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996
and 1995, approximately 3% of the Company's CMO holdings were in the
interest-only ("IOs") and principal-only ("POs") tranches, which are
subject to more prepayment and extension risks than other types of CMO
instruments. Remaining CMO holdings are in other tranches that have
prepayment and extension risks which fall between the degree of risk
associated with PACs and sequentials, and IOs and POs.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1996
Equity Securities $ 184.9 $ 16.3 $ 0.8 $ 200.4
======= ======= ======= =======
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $ 1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</TABLE>
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of future cash flows. Such estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular financial
instrument, nor do they consider the tax impact of the realization of
unrealized gains or losses. In many cases, the fair value estimates cannot
be substantiated by comparison to independent markets, nor can the
disclosed value be realized in immediate settlement of the instrument. In
evaluating the Company's management of interest rate, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' Funds Left With
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1996, Treasury
futures contracts were used to manage interest rate risk in the Company's
bond portfolio and stock index futures contracts were used to manage price
risk in the Company's equity portfolio. In 1996 and 1995, interest rate
swaps and forward commitments to enter into interest rate swaps,
respectively, were also used to manage interest rate risk in the Company's
bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
underlying assets at a specified future date. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk. Cash
settlements are made daily based on changes in the prices of the underlying
assets. There were no futures contracts open as of December 31, 1996 and
1995.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be exposed to credit-related losses in the
event of nonperformance by counterparties to financial instruments,
however, the Company controls its exposure to credit risk through credit
approvals, credit limits and regular monitoring procedures. The credit
exposure of interest rate swaps is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. There were no interest rate swap agreements open as of
December 31, 1996. At December 31, 1995, the Company had an open forward
swap agreement with a notional amount of $100.0 million and a fair value of
$0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996.
As of December 31, 1996 and 1995, there were no option contracts
outstanding.
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1996 was as follows:
Amortized Fair
Cost Value
---- -----
(millions)
Residential collateralized mortgage obligations $ 2,227.8 $ 2,309.0
Principal-only strips (included above) 44.5 53.3
Interest-only strips (included above) 10.3 22.8
Other structured securities with derivative
characteristics (1) 126.3 129.2
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
-------- -------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
-------- -------- --------
Net investment income $1,045.6 $1,004.3 $ 917.2
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus those
amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$57.8 million, $70.0 million and $64.9 million for the years ended December
31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was
$713.6 million and $670.7 million as of December 31, 1996 and 1995,
respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
-------- -------- -------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
======== ======= =======
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======== ======= =======
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for
1994, allocable to experience rated contracts, were deducted from net
realized capital gains (losses) and an offsetting amount was reflected in
policyholder funds' left with the Company. Net unamortized gains were $53.3
million and $7.3 million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1
million and $1.1 million, of which $(3.2) million, $2.2 million and $0.8
million were allocable to experience rated contractholders, for the years
ended December 31, 1996, 1995 and 1994, respectively. There was no
valuation reserve for mortgage loans at December 31, 1996 or at December
31, 1995.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(millions)
Proceeds on Sales $5,182.2 $4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders), were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
-------- -------- --------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
-------- -------- --------
Net change in unrealized
capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
======== ======== ========
Net unrealized capital gains allocable to experience rated contracts of
$245.2 million and $43.3 million at December 31, 1996 and $515.0 million
and $104.1 million at December 31, 1995 are reflected on the Consolidated
Balance Sheets in Policyholders' Funds Left With the Company and Future
Policy Benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders, at December 31:
1996 1995 1994
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $101.7 $179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
------ ------ --------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
------ ------ --------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
------ ------ --------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
------ ------ --------
Net unrealized capital gains (losses) $ 60.5 $132.5 $(189.0)
====== ====== ========
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual Life Insurance 12.5 0.4 0.5 0.8 -- 14.2
Corporate Allocation -- -- -- -- 14.0 14.0
---------------------------------------------------------------
Total Company $ 41.6 $ 1.4 $ 1.8 $ 2.5 $ 14.0 $ 61.3
- --------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally related to actions taken or
expected to be taken to improve its cost structure relative to its
competitors. The severance portion of the charge is based on a plan to
eliminate 702 positions (primarily customer service, sales and information
technology support staff). The facilities portion of the charge is based on
a plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions
taken or expected to be taken to reduce the level of corporate expenses and
other costs previously absorbed by Aetna's property-casualty operations.
The cost allocated to the Company associated with this charge was $9.1
million after tax ($14.0 million pretax).
The activity during 1996 within the severance and facilities reserve
(pretax, in millions) and the number of positions eliminated related to
such actions were as follows:
Reserve Positions
---------------------------------------------------------------------------
Beginning of year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
-------------------------------
End of year $ 47.9 524
---------------------------------------------------------------------------
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed
by March 31, 1998. The corporate allocation actions and the vacating of the
leased office space are expected to be substantially completed in 1997.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns of Aetna. Aetna
allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal (3.5) (14.4) (8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1996 1995 1994
---- ---- ----
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1996 1995
---- ----
(millions)
Deferred tax assets:
Insurance reserves $ 344.6 $ 290.4
Unrealized gains allocable to
experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other
than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------- -------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------- -------
Total gross liabilities 622.3 725.5
------- -------
Net deferred tax liability $ 80.5 $ 169.6
======= =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax
return purposes under the Deficit Reduction Act of 1984. The balance in
such account was approximately $17.2 million at December 31, 1996. This
amount would be taxed only under certain conditions. No income taxes have
been provided on this amount since management believes the conditions under
which such taxes would become payable are remote.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 consecutive months of highest
earnings in a 120-month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $4.3 million, $6.1
million and $5.5 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with
15 years of service or at age 65 with 10 years of service. Retirees are
generally required to contribute to the plans based on their years of
service with Aetna. The costs to the Company associated with the Aetna
postretirement plans for 1996, 1995 and 1994 were $1.8 million, $1.4
million and $1.0 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1996, 1995 and 1994 were $0.7 million,
$0.8 million and $0.7 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $5.4 million, $4.9 million and $3.3
million in 1996, 1995 and 1994, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1996, 1995
and 1994, were $8.1 million, $6.3 million and $1.7 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings.
10. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts. Under
the insurance contracts, the Separate Accounts pay the Company a daily fee
which, on an annual basis, ranges, depending on the product, from .10% to
1.90% of their average daily net assets. The Company also receives fees
from the variable life and annuity mutual funds and The Aetna Series Fund
for serving as investment adviser. Under the advisory agreements, the Funds
pay the Company a daily fee which, on an annual basis, ranges, depending on
the fund, from .25% to .85% of their average daily net assets. The Company
also receives fees (expressed as a percentage of the average daily net
assets) from the variable life and annuity mutual funds and The Aetna
Series Fund for providing administration services, and from The Aetna
Series Fund for providing shareholder services and promoting sales. The
amount of compensation and fees received from the Separate Accounts and
Funds, included in Charges Assessed Against Policyholders, amounted to
$185.4 million, $128.1 million and $104.6 million in 1996, 1995 and 1994,
respectively. The Company may waive advisory fees at its discretion.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a wholly
owned subsidiary of HOLDCO and an affiliate of the Company, has been acting
as Subadvisor of all affiliated mutual funds and of most of the General
Account assets. Fees paid by the Company to Aeltus, included in both
Charges Assessed Against Policyholders and Net Investment Income, on an
annual basis, range from .06% to .55% of the average daily net assets under
management. For the year ended December 31, 1996, the Company paid $16.0
million in such fees.
The Company may, from time to time, make reimbursements to a Fund for some
or all of its operating expenses. Reimbursement arrangements may be
terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $108.0 million commission,
paid by the Company to Aetna Life in 1988, was capitalized as deferred
policy acquisition costs. An additional $6.1 million commission, paid by
the Company to Aetna Life in 1996, was capitalized as deferred policy
acquisition costs. The Company maintained insurance reserves of $628.3
million and $655.5 million as of December 31, 1996 and 1995, respectively,
relating to the business assumed. In consideration for the assumption of
this business, a loan was established relating to the assets held by Aetna
Life which support the insurance reserves. The loan is being reduced in
accordance with the decrease in the reserves. The fair value of this loan
was $625.3 million and $663.5 million as of December 31, 1996 and 1995,
respectively, and is based upon the fair value of the underlying assets.
Premiums of $25.3 million, $28.0 million and $32.8 million and current and
future benefits of $39.5 million, $43.0 million and $43.8 million were
assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and
$25.1 million resulted from this agreement in 1996, 1995 and 1994,
respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company
also is responsible for administering fixed annuity payments that are made
to annuitants receiving variable payments. Reserves of $28.9 million and
$28.0 million were maintained for this contract as of December 31, 1996 and
1995, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement
with Aetna Life to reinsure amounts in excess of this limit, up to a
maximum of $8.0 million on any new individual life business, on a yearly
renewable term basis. Premium amounts related to this agreement were $5.2
million, $3.2 million and $1.3 million for 1996, 1995 and 1994,
respectively.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or
1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million
due from affiliates in 1996 and 1995, respectively. Other liabilities
include $10.7 million and $12.4 million due to affiliates for 1996 and
1995, respectively.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges for these services based upon measures
appropriate for the type and nature of service provided.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1996
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
======= ======= ======= =======
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======= ======= ======= =======
1995
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
======= ======= ======= =======
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======= ======= ======= =======
1994
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
======= ======= ======= =======
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======= ======= ======= =======
12. Commitments and Contingent Liabilities
Commitments
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value
of the securities underlying the commitments. At December 31, 1996, the
Company had commitments to purchase investments of $17.9 million. The fair
value of the investments at December 31, 1996 approximated $18.3 million.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
Litigation
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- --------------------------------------------------------------------------------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------------------------------
Net income $ 150.2 $ 175.9 $ 145.3
- --------------------------------------------------------------------------------
Assets under management: (3)
Financial Services $27,268.1 $22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- --------------------------------------------------------------------------------
Total assets under management $30,098.6 $25,125.3 $20,343.4
- --------------------------------------------------------------------------------
(1) The 1996 results include severance and facilities charges of $30.7 million,
after tax. Of this charge $21.5 million related to the Financial Services
segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services
and Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994,
respectively.
F-31
<PAGE>
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Statement of Assets and Liabilities as of December 31,
1996
- Statements of Operations and Changes in Net Assets for
the years ended
December 31, 1996 and 1995
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Balance Sheets as of December 31, 1996
and 1995
- Consolidated Statements of Changes in Shareholder's
Equity for the years ended December 31, 1996, 1995 and
1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account B(1)
(2) Not applicable
(3.1) Form of Selling Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(3.3) Form of Federated Broker Dealer Agreement (9/2/94)(4)
(4.1) Form of Variable Annuity Contract G-MP1(5/96)
(4.2) Form of Variable Annuity Contract Certificate MP1Cert (5/96)
(5)
(4.3) Form of Variable Annuity Contract I-MP1(5/96)(5)
(4.4) Form of Variable Annuity Contract G-CDA-96(NY)(5)
(4.5) Form of Variable Annuity Contract Certificate GMCC-96(NY)(5)
(4.6) Form of Variable Annuity Contracts and Certificates
G-CDA-IC-(NQ), G-CDA-IC(IR), I-CDA-IC(NQ/MP), I-CDA-IC(IR/MP),
GMCC-IC(NQ) and GMCC-IC(IR)(6)
(4.7) Form of Variable Annuity contracts and Certificates
(G-CDA-IC(IR/NY), GMCC-IC(IR/NY), G-CDA-IC(NQ/NY) and
GMCC-IC(NQ/NY)(7)
<PAGE>
(4.8) Form of Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to
Contracts G-MP1(5/96) and MP1CERT(5/96)(5)
(4.9) Form of Endorsements MP1QP(5/97) and I-MP1QP(5/97) to
Contracts G-MP1(5/96) and MP1CERT(5/96)(5)
(4.10) Form of Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to
Contracts G-MP1(5/96) and MP1CERT(5/96)(5)
(4.11) Form of Endorsements MP1DC(5/97) and I-MP1DC(5/97) to
Contracts G-MP1(5/96) and MP1CERT(5/96)(5)
(4.12) Form of Endorsements G-MP1IRA(11/96) to Contracts G-CDA-96(NY)
and GMCC-96(NY)(5)
(4.13) Form of Endorsements MP1END(5/97) and I-MP1END (5/97) to
Contracts G-MP1(5/96) and MP1CERT(5/96)
(5) Form of Variable Annuity Contract Applications (300-MAR-IB and
710.6.13)(6)
(6.1) Certificate of Incorporation and By-Laws of Aetna Life
Insurance and Annuity Company(8)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(9)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated as of March 31, 1995(3)
(8.2) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company, Insurance Management Series and Federated
Advisors (7/1/94)
(8.3) Fund Participation Agreements between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated February 1, 1994 and amended on
December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996 and March 1, 1996(9)
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994 and
amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996 and March 1, 1996(9)
(8.5) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(10)
(8.6) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994,
and amended March 1, 1996(3)
(8.7) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991(3)
<PAGE>
(8.8) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation (its investment advisor)
dated April 28, 1994(2)
(8.9) Fund Participation Agreement among MFS Variable Insurance
Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company(5)
(8.10) First Amendment dated September 3,1996 to Fund Participation
Agreement among MFS Variable Insurance Trust, Aetna Life
Insurance and Annuity Company and Massachusetts Financial
Services Company(11)
(8.11) Second Amendment dated March 14, 1997 Fund Participation
Agreement among MFS Variable Insurance Trust, Aetna Life
Insurance and Annuity Company and Massachusetts Financial
Services Company.
(8.12) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Oppenheimer Variable Annuity Account Funds
and Oppenheimer Funds, Inc.
(8.13) Service Agreement between Oppenheimer Funds, Inc. and Aetna
Life Insurance and Annuity Company
(8.14) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994(3)
(8.15) Form of Administrative Service Agreement between Aetna Life
Insurance and Annuity Company and Agency, Inc.(2)
(9) Opinion of Counsel(12)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(11)
(14) Not applicable
(15.1) Powers of Attorney(13)
(15.2) Authorization for Signatures(3)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on April
22, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 22 to Registration
Statement on Form N-4 (File No. 33-34370), as filed electronically on April
22, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on April
12, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-79122), as filed electronically on August
16, 1995.
<PAGE>
5. Incorporated by reference to Post-Effective Amendment No. 26 to Registration
Statement on Form N-4 (File No. 33-34370), as filed electronically on
February 21, 1997.
6. Incorporated by reference to Post-Effective Amendment No. 15 to Registration
Statement on Form N-4 (File No. 33-34370), as filed on April 19, 1994.
7. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on form N-4 (File No. 33-87932), as filed electronically on
September 18, 1996.
8. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996.
9. Incorporated by reference to Post-Effective Amendment No. 12 to Registration
Statement on Form N-4 (File No. 33-75964), as filed electronically on
February 11, 1997.
10. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-88720), as filed electronically on June
28, 1996.
11. Incorporated by reference to Post-Effective Amendment No. 24 to Registration
Statement on Form N-4 (File No. 33-34370), as filed electronically on
September 16, 1996.
12. Incorporated by reference to Registration's Rule 24f-2 Notice for the fiscal
year ended December 31, 1996, as filed electronically with the Securities
and Exchange Commission on February 28, 1997.
13. Incorporated by reference to Registration Statement on Form S-2 (File No.
33-60477), as filed electronically on April 4, 1997.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
- ------------------ -------------------------------------
Daniel P. Kearney Director and President
Timothy A. Holt Director, Senior Vice President and Chief
Financial Officer
Christopher J. Burns Director and Senior Vice President
Laura R. Estes Director and Senior Vice President
J. Scott Fox Director and Senior Vice President
Gail P. Johnson Director and Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President
Glen Salow Director and Vice President
Creed R. Terry Director and Vice President
Deborah Koltenuk Vice President and Treasurer, Corporate Controller
Frederick D. Kelsven Vice President and Chief Compliance Officer
Kirk P. Wickman Vice President, General Counsel and Secretary
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor
or Registrant
Incorporated herein by reference to Item 26 of Post-Effective Amendment
No. 2 to the Registration Statement on Form N-4 (File No. 33-61897), as filed
electronically on April 11, 1997.
Item 27. Number of Contract Owners
<PAGE>
As of February 28, 1997, there were 49,006 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
Item 28. Indemnification
Reference is hereby made to Section 33-771(f) of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and Section 33-776(4)
regarding indemnification of officers, employees and agents of Connecticut
corporations. These statutes provide in general that Connecticut corporations
incorporated prior to January 1, 1997 shall indemnify their officers, directors,
employees and agents against "liability" (defined as the obligation to pay a
judgment, settlement, penalty, fine, excise tax in the case of an employee
benefit plan or reasonable expenses incurred with respect to a proceeding). In
the case of a proceeding by or in the right of the corporation, indemnification
is limited to reasonable expenses incurred in connection with the proceeding
against the corporation to which the individual was named a party. The
corporation's obligation to provide such indemnification does not apply unless
(1) the individual has met the standard of conduct set forth in Section 33-771;
and (2) a determination is made (by majority vote of a quorum of the board of
directors who were not parties to the proceeding, or if a quorum cannot be
obtained, by a committee of the board selected as described in Section
33-775(b)(2); by special legal counsel selected by the board of directors or
members thereof as described in Section 33-775(b)(3); by shareholders) that the
individual met the standard set forth in Section 33-771; or (3) the court, upon
application by the individual, determines in view of all the circumstances that
such person is reasonably entitled to be indemnified. Also, unless limited by
its Certificate of Incorporation, a corporation must indemnify an individual who
was wholly successful on the merits or otherwise against reasonable expenses
incurred by him in connection with a proceeding to which he was a party because
of his relationship as director, officer, employee or agent of the corporation.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who is or was a director, officer, employer
or agent of the corporation. Consistent with the statute, Aetna Inc. has
procured insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the principal underwriter and investment adviser for Aetna
Variable Encore Fund, Aetna Variable Fund, Aetna Series Fund, Inc.,
Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna
Investment Advisers Fund, Inc., Aetna GET Fund, and Aetna Variable
Portfolios, Inc. (all management investment companies registered under
the Investment Company Act of 1940 (1940 Act)). Additionally, Aetna
acts as the principal underwriter and depositor for Variable Life
Account B of Aetna, Variable Annuity Account C of Aetna and Variable
Annuity Account G of Aetna (separate accounts of Aetna registered as
unit investment trusts under the 1940 Act). Aetna is also the principal
underwriter for Variable Annuity
<PAGE>
Account I of Aetna Insurance Company of America (AICA) (a separate
account of AICA registered as a unit investment trust under the 1940
Act).
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation*
- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Aetna Life Insurance $288,029 $17,661,810
and Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account B.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
<PAGE>
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) The Company hereby represents that it is relying upon and will comply
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer Binder]
Fed. SEC. L. Rep. (CCH) P. 78,904 at 78,523 (November 22, 1988).
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account B of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment No. 27 to its
Registration Statement on Form N-4 (File No. 33-34370) and has duly caused this
Post-Effective Amendment No. 27 to its Registration Statement on Form N-4 (File
No. 33-34370) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 16th day of
April, 1997.
VARIABLE ANNUITY ACCOUNT B OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Depositor)
By: Daniel P. Kearney*
----------------------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 27 to the Registration Statement on Form N-4 (File No. 33-34370) has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Daniel P. Kearney* Director and President )
- ------------------------------------ (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director, Senior Vice President and Chief )
- ----------------------------------- Financial Officer )
Timothy A. Holt )
)
Christopher J. Burns* Director ) April
- ------------------------------------ ) 16, 1997
Christopher J. Burns )
)
Laura R. Estes* Director )
- ------------------------------------ )
Laura R. Estes )
)
J. Scott Fox* Director )
- ------------------------------------ )
J. Scott Fox )
<PAGE>
Gail P. Johnson* Director )
- ------------------------------------ )
Gail P. Johnson )
)
John Y. Kim* Director )
- ------------------------------------ )
John Y. Kim )
)
Shaun P. Mathews* Director )
- ------------------------------------ )
Shaun P. Mathews )
)
Glen Salow* Director )
- ------------------------------------ )
Glen Salow )
)
Creed R. Terry* Director )
- ------------------------------------ )
Creed R. Terry )
)
Deborah Koltenuk* Vice President and Treasurer, )
- ------------------------------------ Corporate Controller )
Deborah Koltenuk )
</TABLE>
By: /s/Julie E. Rockmore
------------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity *
Company establishing Variable Annuity Account B
99-B.3.1 Form of Selling Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling Agreement *
99-B.3.3 Form of Federated Broker Dealer Agreement (9/2/94) *
99-B.4.1 Form of Variable Annuity Contract G-MP1(5/96)
------
99-B.4.2 Form of Variable Annuity Contract Certificate MP1Cert(5/96) *
99-B.4.3 Form of Variable Annuity Contract I-MP1(5/96) *
99-B.4.4 Form of Variable Annuity Contract G-CDA-96(NY) *
99-B.4.5 Form of Variable Annuity Contract Certificate GMCC-96(NY) *
99-B.4.6 Form of Variable Annuity Contracts and Certificates G-CDA-IC-(NQ), *
G-CDA-IC(IR), I-CDA-IC(NQ/MP), I-CDA-IC(IR/MP), GMCC-IC(NQ) and GMCC-IC(IR)
99-B.4.7 Form of Variable Annuity contracts and Certificates (G-CDA-IC(IR/NY), *
GMCC-IC(IR/NY), G-CDA-IC(NQ/NY) and GMCC-IC(NQ/NY)
99-B.4.8 Form of Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to Contracts *
G-MP1(5/96) and MP1CERT(5/96)
99-B.4.9 Form of Endorsements MP1QP(5/97) and I-MP1QP(5/97) to Contracts G-MP1(5/96) *
and MP1CERT(5/96)
99-B.4.10 Form of Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to Contracts *
G-MP1(5/96) and MP1CERT(5/96)
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.4.11 Form of Endorsements MP1DC(5/97) and I-MP1DC(5/97) to Contracts G-MP1(5/96) *
and MP1CERT(5/96)
99-B.4.12 Form of Endorsements G-MP1IRA(11/96)) to Contracts *
G-CDA-96(NY) and GMCC-96(NY)
99-B.4.13 Form of Endorsements MP1END(5/97) and I-MP1END(5/97) to Contract GMP1(5/96)
and MP1CERT(5/96)
------
99-B.5 Form of Variable Annuity Contract Applications (300-MAR-IB and 710.6.13 *
99-B.6.1 Certificate of Incorporation and By-Laws of Depositor *
99-B.6.2 Amendment of Certificate of Incorporation of Depositor *
99-B.8.1 Fund Participation Agreement (Amended and Restated) between Aetna Life *
Insurance and Annuity Company, Alger American Fund and Fred Alger
Management, Inc. dated March 31, 1995
99-B.8.2 Fund Participation Agreement by and among Aetna Life Insurance and Annuity
Company, Insurance Management Series and Federated Advisors (7/1/94)
------
99-B.8.3 Fund Participation Agreements between Aetna Life Insurance and Annuity *
Company, Variable Insurance Products Fund and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996
99-B.8.4 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Variable Insurance Products Fund II and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996
99-B.8.5 Service Agreement between Aetna Life Insurance and Annuity Company and *
Fidelity Investments Institutional Operations Company dated as of November
1, 1995
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.8.6 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Janus Aspen Series dated April 19, 1994, and amended March 1,
1996
99-B.8.7 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Lexington Management Corporation regarding Natural Resources
Trust dated December 1, 1988 and amended February 11, 1991
99-B.8.8 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Lexington Emerging Markets Fund, Inc. and Lexington Management
Corporation (its investment advisor) dated April 28, 1994
99-B.8.9 Fund Participation Agreement among MFS Variable Insurance Trust, Aetna Life *
Insurance and Annuity Company and Massachusetts Financial Services Company
99-B.8.10 First Amendment dated September 3,1996 to Fund Participation Agreement among *
MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company
99-B.8.11 Second Amendment dated March 14, 1997 to Fund Participation Agreement among
MFS Variable Insurance Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company
------
99-B.8.12 Fund Participation Agreement between Aetna Life Insurance and Annuity
Company, Oppenheimer Variable Annuity Account Funds and Oppenheimer Funds,
Inc.
------
99-B.8.13 Service Agreement between Oppenheimer Funds, Inc. and Aetna Life Insurance
and Annuity Company
------
99-B.8.14 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Investors Research Corporation and TCI Portfolios, Inc. dated July
29, 1992 and amended December 22, 1992 and June 1, 1994(3)
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.8.15 Form of Administrative Service Agreement between Aetna Life Insurance and *
Annuity Company and Agency, Inc.
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors
------
99-B.10.2 Consent of Counsel
------
99-B.13 Schedule for Computation of Performance Data *
99-B15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
27 Financial Data Schedule
------
*Incorporated by reference
</TABLE>
[Aetna logo] Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
P.O. Box 30670
Hartford, Connecticut 06150-0670
(800) 531-4547
You may call the toll-free number shown above for answers to questions or to
resolve a complaint.
Aetna Life Insurance and Annuity Company, a stock company,
herein called Aetna, agrees to pay the benefits stated in this Contract.
Specifications
- --------------------------------------------------------------------------------
Plan
SPECIMEN
- --------------------------------------------------------------------------------
Type of Plan
SPECIMEN
- --------------------------------------------------------------------------------
Contract Holder
SPECIMEN
- --------------------------------------------------------------------------------
Contract Number
SPECIMEN
- --------------------------------------------------------------------------------
Effective Date
SPECIMEN
- --------------------------------------------------------------------------------
This Contract is delivered in SPECIMEN and is subject to the laws of that
jurisdiction
The variable features of the Group Contract are described in parts III and IV.
Right to Cancel
- --------------------------------------------------------------------------------
The Group Contract Holder may cancel this Contract within 10 days by returning
it to the agent from whom it was purchased, or to Aetna at the address shown
above. Within seven days of receiving the Contract at its home office, Aetna
will return the amount of Certificate Holder Purchase Payment(s) received, plus
any increase, or minus any decrease, on the amount, if any, allocated to the
Separate Account fund(s).
This page and the pages that follow constitute the entire Contract.
Signed at the home office on the Effective Date.
/s/Daniel Kearney /s/Susan M. Schechter
President Secretary
Group Variable, Fixed, or Combination Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA.
APPLICATION OF A MARKET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR
DECREASE IN THE CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT
APPLY TO A GUARANTEED TERM AT THE TIME OF ITS MATURITY.
<PAGE>
Specifications
- --------------------------------------------------------------------------------
Guaranteed There is a guaranteed interest rate for Purchase
Interest Rate Payment(s) held in the AG Account. (See Contract
Schedule I).
- --------------------------------------------------------------------------------
Deductions from There will be deductions for mortality and expense
the Separate risks and administrative fees. (See Contract
Account Schedule I and II).
- --------------------------------------------------------------------------------
Deduction from Purchase Payment(s) are subject to a deduction for
Purchase premium taxes, if any. (See 3.01.)
Payment(s)
- --------------------------------------------------------------------------------
Surrender There will be a charge deducted upon surrender. (See
Fee Contract Schedule I).
This Contract is a legal contract and constitutes the entire legal relationship
between Aetna and the Contract Holder.
READ THIS CONTRACT CAREFULLY. This Contract sets forth, in detail, all of the
rights and obligations of both you and Aetna. THEREFORE, IT IS IMPORTANT THAT
YOU READ THIS CONTRACT CAREFULLY.
2
<PAGE>
Contract Schedule I
Accumulation Period
Separate Account
- --------------------------------------------------------------------------------
Separate Account: Variable Annuity Account B
Charges to Separate A daily charge is deducted from any portion of the
Account: Current Value allocated to the Separate Account.
The deduction is the daily equivalent of the
annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality Risk Charge 0.35%
Expense Risk Charge 0.90%
-----
Total Separate Account
Charges 1.40%
ALIAC Guaranteed Account (AG Account)
- --------------------------------------------------------------------------------
Minimum Guaranteed 3.0% (effective annual rate of return)
Interest Rate:
Separate Account and AG Account
- --------------------------------------------------------------------------------
Transfers: An unlimited number of Transfers are allowed
during the Accumulation Period. Aetna allows 12
free Transfers in any calendar year. Thereafter,
Aetna reserves the right to charge $10 for each
subsequent Transfer.
Maintenance Fee: The annual Maintenance Fee is $30. If the
Account's Current Value is $50,000 or more on the
date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
3
<PAGE>
Contract Schedule I (Continued)
Accumulation Period
Separate Account and AG Account (Cont'd)
- --------------------------------------------------------------------------------
Surrender Fee: For each surrender, the Surrender Fee will be
determined as follows:
<TABLE>
<CAPTION>
Length of Time from Deposit of Net Surrender Fee
Purchase Payment (Years) (as percentage of
Net Purchase Payment)
<S> <C>
Less than 2 years 7%
2 or more but less than 4 years 6%
4 or more but less than 5 years 5%
5 or more but less than 6 years 4%
6 or more but less than 7 years 3%
7 years or more 0%
</TABLE>
Systematic Withdrawal The specified payment or specified percentage may
Option (SWO): not be greater than 10% of the Account's Current
Value at time of election.
See 1. GENERAL DEFINITIONS for explanations.
4
<PAGE>
Contract Schedule II
Annuity Period
Separate Account
- --------------------------------------------------------------------------------
Charges to Separate A daily charge at an annual effective rate of
Account: 1.25% for Annuity mortality and expense risks. The
administrative charge is established upon election
of an Annuity option. This charge will not exceed
0.25%.
Variable Annuity Assumed If a Variable Annuity is chosen, an assumed annual
Annual Net Return Rate: net return rate of 5.0% may be elected. If 5.0% is
not elected, Aetna will use an assumed annual net
return rate of 3.5%.
The assumed annual net return rate factor for 3.5%
per year is 0.9999058.
The assumed annual net return rate factor for 5.0%
per year is 0.9998663.
If the portion of a Variable Annuity payment for
any Fund is not to decrease, the Annuity return
factor under the Separate Account for that Fund
must be:
(a) 4.75% on an annual basis plus an annual
return of up to 0.25% to offset the
administrative charge set at the time
Annuity payments commence if an assumed annual
net return rate of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return
of up to 0.25% to offset the administrative
charge set at the time Annuity payments
commence, if an assumed annual net return rate
of 5% is chosen.
Fixed Annuity
- --------------------------------------------------------------------------------
Minimum Guaranteed 3.0% (effective annual rate of return)
Interest Rate:
See 1. GENERAL DEFINITIONS for explanations.
5
<PAGE>
TABLE OF CONTENTS
I. GENERAL DEFINITIONS
- --------------------------------------------------------------------------------
Page
1.01 Account ........................................................... 9
1.02 Accumulation Period ............................................... 9
1.03 Adjusted Current Value ............................................ 9
1.04 ALIAC Guaranteed Account (AG Account) ............................. 9
1.05 Annuitant ......................................................... 9
1.06 Annuity ........................................................... 9
1.07 Beneficiary ....................................................... 9
1.08 Certificate Holder ................................................ 9
1.09 Code .............................................................. 9
1.10 Contract .......................................................... 9
1.11 Contract Holder ................................................... 9
1.12 Current Value ..................................................... 9
1.13 Deposit Period .................................................... 10
1.14 Dollar Cost Averaging ............................................. 10
1.15 Fixed Annuity ..................................................... 10
1.16 Fund(s) ........................................................... 10
1.17 General Account ................................................... 10
1.18 Guaranteed Rates - AG Account ..................................... 10
1.19 Guaranteed Term ................................................... 10
1.20 Guaranteed Term(s) Groups ......................................... 10
1.21 Maintenance Fee ................................................... 11
1.22 Market Value Adjustment (MVA) ..................................... 11
1.23 Matured Term Value ................................................ 11
1.24 Matured Term Value Transfer ....................................... 11
1.25 Maturity Date ..................................................... 11
1.26 Net Purchase Payment(s) ........................................... 11
1.27 Nonunitized Separate Account ...................................... 11
1.28 Purchase Payment(s) ............................................... 11
1.29 Reinvestment ...................................................... 11
6
<PAGE>
Page
1.30 Separate Account .................................................. 12
1.31 Surrender Value ................................................... 12
1.32 Transfers ......................................................... 12
1.33 Valuation Period (Period) ......................................... 12
1.34 Variable Annuity .................................................. 12
II. GENERAL PROVISIONS
- --------------------------------------------------------------------------------
2.01 Change of Contract ................................................ 12
2.02 Change of Fund(s) ................................................. 13
2.03 Nonparticipating Contract ......................................... 13
2.04 Payments and Elections ............................................ 14
2.05 State Laws ........................................................ 14
2.06 Control of Contract ............................................... 14
2.07 Designation of Beneficiary ........................................ 14
2.08 Misstatements and Adjustments ..................................... 14
2.09 Incontestability .................................................. 14
2.10 Grace Period ...................................................... 15
2.11 Individual Certificates ........................................... 15
III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS
- --------------------------------------------------------------------------------
3.01 Net Purchase Payment .............................................. 15
3.02 Certificate Holder's Account ...................................... 15
3.03 Fund(s) Record Units -- Separate Account .......................... 15
3.04 Net Return Factor(s) -- Separate Account .......................... 16
3.05 Fund Record Unit Value -- Separate Account ........................ 16
3.06 Market Value Adjustment ........................................... 16
3.07 Transfer of Current Value from the Funds or AG Account ............ 17
3.08 Notice to the Certificate Holder .................................. 18
3.09 Loans ............................................................. 18
3.10 Systematic Withdrawal Option (SWO) ................................ 18
3.11 Death Benefit Amount .............................................. 20
7
<PAGE>
Page
3.12 Death Benefit Options Available to Beneficiary .................... 20
3.13 Liquidation of Surrender Value .................................... 22
3.14 Surrender Fee ..................................................... 22
3.15 Payment of Surrender Value ........................................ 23
3.16 Payment of Adjusted Current Value ................................. 23
IV. ANNUITY PROVISIONS
- --------------------------------------------------------------------------------
4.01 Choices ........................................................... 23
4.02 Terms of Annuity Options .......................................... 24
4.03 Death of Annuitant/Beneficiary .................................... 25
4.04 Fund(s) Annuity Units -- Separate Account ......................... 26
4.05 Fund(s) Annuity Unit Value -- Separate Account .................... 26
4.06 Annuity Net Return Factor(s) -- Separate Account .................. 26
4.07 Annuity Options ................................................... 27
8
<PAGE>
I. GENERAL DEFINITIONS
- --------------------------------------------------------------------------------
1.01 Account: A record established for each Certificate Holder
to maintain the value of all Net Purchase Payments
held on his/her behalf during the Accumulation
Period.
1.02 Accumulation Period: The period during which the Net Purchase
Payment(s) are applied to an Account to provide
future Annuity payment(s).
1.03 Adjusted Current Value: The Current Value of an Account plus or minus any
aggregate AG Account MVA, if applicable. (See
1.22)
1.04 ALIAC Guaranteed An accumulation option where Aetna guarantees
Account (AG Account): stipulated rate(s) of interest for specified
periods of time. All assets of Aetna, including
amounts in the Nonunitized Separate Account, are
available to meet the guarantees under the AG
Account.
1.05 Annuitant: The person whose life is measured for purposes of
the guaranteed death benefit and the duration of
Annuity payments under this Contract.
1.06 Annuity: Payment of an income:
(a) For the life of one or two persons;
(b) For a stated period; or
(c) For some combination of (a) and (b).
1.07 Beneficiary: The individual or estate entitled to receive any
death benefit due under the Contract. If the
Account is held by joint Certificate Holders, the
survivor will be deemed the designated
Beneficiary and any other Beneficiary on record
will be treated as the contingent Beneficiary.
1.08 Certificate Holder: A person who purchases an interest in this
Contract as evidenced by a certificate. Aetna
reserves the right to limit ownership to natural
persons. If more than one Certificate Holder owns
an Account, each Certificate Holder will be a
joint Certificate Holder. Any joint Certificate
Holder must be the spouse of the other joint
Certificate Holder. Joint Certificate Holders have
joint ownership rights and both must authorize
exercising any ownership rights unless Aetna
allows otherwise.
1.09 Code: The Internal Revenue Code of 1986, as it may be
amended from time to time.
1.10 Contract: This agreement between Aetna and the Contract
Holder.
1.11 Contract Holder: The entity to which the Contract is issued.
1.12 Current Value: As of the most recent Valuation Period, the Net
Purchase Payment and any additional amount
deposited pursuant to 3.11 plus any interest added
to the portion allocated to the AG Account; and
plus or minus the investment experience of the
portion allocated to the Funds since deposit; less
all Maintenance Fees deducted, any amounts
surrendered and any amounts applied to an Annuity.
9
<PAGE>
1.13 Deposit Period: A calendar week, a calendar month, a calendar
quarter, or any other period of time specified by
Aetna during which Net Purchase Payment(s),
Transfers and Reinvestments are accepted into the
AG Account for one or more Guaranteed Terms. Aetna
reserves the right to extend the Deposit Period.
1.14 Dollar Cost Averaging: A program that permits the Certificate Holder to
systematically transfer amounts from any of the
Funds and the one-year AG Account Guaranteed Term
to any of the Funds. Dollar Cost Averaging is not
available with the Systematic Withdrawal Option
or the Estate Conservation Option.
1.15 Fixed Annuity: An Annuity with payments that do not vary in
amount.
1.16 Fund(s): The open-end management investment companies
(mutual funds) in which the Separate Account
invests.
1.17 General Account: The Account holding the assets of Aetna, other
than those assets held in Aetna's separate
accounts.
1.18 Guaranteed Rates -- Aetna will declare the interest rate(s) applicable
AG Account: to a specific Guaranteed Term at the start of the
Deposit Period for that Guaranteed Term. The
rate(s) are guaranteed by Aetna for the Deposit
Period and the ensuing Guaranteed Term. The
Guaranteed Rates are annual effective yields. That
is, interest is credited daily at a rate that will
produce the Guaranteed Rate over the period of a
year. No Guaranteed Rate will ever be less than
the Minimum Guaranteed Rate shown on Contract
Schedule I.
For Guaranteed Terms of one year or less, one
Guaranteed Rate is credited for the full
Guaranteed Term. For longer Guaranteed Terms, an
initial Guaranteed Rate is credited from the date
of deposit to the end of a specified period within
the Guaranteed Term. There may be different
Guaranteed Rate(s) declared for subsequent
specified time intervals throughout the Guaranteed
Term.
1.19 Guaranteed Term: The period of time for which AG Account Guaranteed
Rates are guaranteed on Net Purchase Payments,
Transfers and Reinvestments made into a current
Deposit Period for the AG Account. Such period
begins on the day following the close of the
Deposit Period and ends on the designated Maturity
Date. Guaranteed Terms are offered at Aetna's
discretion for various lengths of time ranging up
to and including ten years.
During a Deposit Period, Aetna may make available
any number of Guaranteed Terms. The Certificate
Holder may allocate Net Purchase Payments and
Transfers into any or all of the available
Guaranteed Terms.
1.20 Guaranteed Term(s) All AG Account Guaranteed Term(s) with the same
Groups: length of time from the close of the Deposit
Period until the designated Maturity Date.
10
<PAGE>
1.21 Maintenance Fee: The Maintenance Fee (see Contract Schedule I) will
be deducted during the Accumulation Period from
the Current Value on each anniversary of the date
the Account is established and upon surrender of
the entire Account.
1.22 Market Value Adjustment An adjustment that may apply to an amount
(MVA): withdrawn or transferred from an AG Account
Guaranteed Term prior to the end of that
Guaranteed Term. The adjustment reflects the
change in the value of the investment due to
changes in interest rates since the date of
deposit and is computed using the formula given in
3.06. The adjustment is expressed as a percentage
of each dollar being withdrawn.
1.23 Matured Term Value: The amount payable on an AG Account Guaranteed
Term's Maturity Date.
1.24 Matured Term Value During the calendar month following an AG Account
Transfer: Maturity Date, the Certificate Holder may notify
Aetna's home office in writing to Transfer or
surrender all or part of the Matured Term Value,
plus interest at the new Guaranteed Rate accrued
thereon, from the AG Account without an MVA. This
provision only applies to the first such written
request received from the Certificate Holder
during this period for any Matured Term Value.
1.25 Maturity Date: The last day of an AG Account Guaranteed Term.
1.26 Net Purchase Payment(s): The Purchase Payment less premium taxes, as
applicable.
1.27 Nonunitized Separate A separate account set up by Aetna under Title 38,
Account: Section 38a-433, of the Connecticut General
Statutes, that holds assets for AG Account Terms.
There are no discrete units for this Account. The
Certificate Holder does not participate in the
investment gain or loss from the assets held in
the Nonunitized Separate Account. Such gain or
loss is borne entirely by Aetna. These assets may
be chargeable with liabilities arising out of any
other business of Aetna.
1.28 Purchase Payment(s): Payment(s) accepted by Aetna at its home office.
Aetna reserves the right to refuse to accept any
Purchase Payment at any time for any reason. No
advance notice will be given to the Contract
Holder or Certificate Holder.
1.29 Reinvestment: Aetna will mail a notice to the Certificate Holder
at least 18 calendar days before a Guaranteed
Term's Maturity Date. This notice will contain the
Terms available during the current Deposit Periods
with their Guaranteed Rate(s) and projected
Matured Term Value. If no specific direction is
given by the Certificate Holder prior to the
Maturity Date, each Matured Term Value will be
reinvested in the current Deposit Period for a
Guaranteed Term of the same duration. If a
Guaranteed Term of the same duration is
unavailable, each Matured Term Value will
automatically be reinvested in the current Deposit
Period for the next shortest Guaranteed Term
available. If no shorter Guaranteed Term is
available, the next longer Guaranteed Term
11
<PAGE>
1.29 Reinvestment will be used. Aetna will mail a confirmation
(Cont'd): statement to the Certificate Holder the next
business day after the Maturity Date. This notice
will state the Guaranteed Term and Guaranteed
Rate(s) which will apply to the reinvested
Matured Term Value.
1.30 Separate Account: A separate account that buys and holds shares of
the Fund(s). Income, gains or losses, realized or
unrealized, are credited or charged to the
Separate Account without regard to other income,
gains or losses of Aetna. Aetna owns the assets
held in the Separate Account and is not a trustee
as to such amounts. This Separate Account
generally is not guaranteed and is held at market
value. The assets of the Separate Account, to
the extent of reserves and other contract
liabilities of the Account, shall not be charged
with other Aetna liabilities.
1.31 Surrender Value: The amount payable by Aetna upon the surrender of
any portion of an Account.
1.32 Transfers: The movement of invested amounts among the
available Fund(s) and the AG Account under this
Contract during the Accumulation Period.
1.33 Valuation Period The period of time for which a Fund determines its
(Period): net asset value, usually from 4:15 p.m. Eastern
time each day the New York Stock Exchange is open
until 4:15 p.m. the next such day, or such other
day that one or more of the Funds determines its
net asset value.
1.34 Variable Annuity: An Annuity with payments that vary with the net
investment results of one or more Funds under
the Separate Account.
II. GENERAL PROVISIONS
- --------------------------------------------------------------------------------
2.01 Change of Contract: Only an authorized officer of Aetna may change the
terms of this Contract. Aetna will notify the
Contract Holder in writing at least 30 days before
the effective date of any change. Any change will
not affect the amount or terms of any Annuity
which begins before the change.
Aetna reserves the right to refuse to accept any
Purchase Payment at any time for any reason. This
applies to an initial Purchase Payment to
establish a new Account or to subsequent Purchase
Payments to existing Accounts under the Contract.
No advance notice will be given to the Contract
Holder or Certificate Holder.
Aetna may make any change that affects the AG
Account Market Value Adjustment (3.06) with at
least 30 days' advance written notice to the
Contract Holder and the Certificate Holder. Any
such change shall become effective for any new
Term and will apply to all present and future
Accounts.
12
<PAGE>
2.01 Change of Contract Aetna reserves the right to change the terms of
(Cont'd): the Systematic Withdrawal Option (3.10) for future
elections and discontinue the availability of this
option after proper notification.
Any change that affects any of the following under
this Contract will not apply to Accounts in
existence before the effective date of the change:
(a) Net Purchase Payment (1.26)
(b) AG Account Guaranteed Rate (1.18)
(c) Net Return Factor(s) -- Separate Account
(3.04)
(d) Current Value (1.12)
(e) Surrender Value (1.31)
(f) Fund(s) Annuity Unit Value -- Separate
Account (4.05)
(g) Annuity options (4.07)
(h) Fixed Annuity Interest Rates (4.01)
(i) Transfers (1.32).
Any change that affects the Annuity options and
the tables for the options may be made:
(a) No earlier than 12 months after the effective
date of this Contract; and
(b) No earlier than 12 months after the effective
date of any prior change.
Any Account established on or after the effective
date of any change will be subject to the change.
If the Contract Holder does not agree to any
change under this provision, no new Accounts may
be established under this Contract. This Contract
may also be changed as deemed necessary by Aetna
to comply with federal or state law.
2.02 Change of Fund(s): The assets of the Separate Account are segregated
by Fund. If the shares of any Fund are no longer
available for investment by the Separate Account
or if in our judgment, further investment in such
shares should become inappropriate in view of the
purpose of the Contract, Aetna may cease to make
such Fund shares available for investment under
the Contract prospectively, or Aetna may
substitute shares of another Fund for shares
already acquired. Aetna may also, from time to
time, add additional Funds. Any elimination,
substitution or addition of Funds will be done in
accordance with applicable state and federal
securities laws. Aetna reserves the right to
substitute shares of another Fund for shares
already acquired without a proxy vote.
2.03 Nonparticipating The Contract Holder, Certificate Holders or
Contract: Beneficiaries will not have a right to share in
the earnings of Aetna.
13
<PAGE>
2.04 Payments and Elections: While the Certificate Holder is living, Aetna will
pay the Certificate Holder any Annuity payments as
and when due. After the Certificate Holder's
death, or at the death of the first Certificate
Holder if the Account is owned jointly, any
Annuity payments required to be made will be paid
in accordance with 4.03. Aetna will determine
other payments and/or elections as of the end of
the Valuation Period in which the request is
received at its home office. Such payments will be
made within seven calendar days of receipt at its
home office of a written claim for payment which
is in good order, except as provided in 3.15.
2.05 State Laws: The Contract and the Certificates comply with the
laws of the state in which they are delivered. Any
surrender, death, or Annuity payments are equal to
or greater than the minimum required by such laws.
Annuity tables for legal reserve valuation shall
be as required by state law. Such tables may be
different from Annuity tables used to determine
Annuity payments.
2.06 Control of Contract: This is a Contract between the Contract Holder and
Aetna. The Contract Holder has title to the
Contract. Contract Holder rights are limited to
accepting or rejecting Contract modifications. The
Certificate Holder has all other rights to amounts
held in his or her Account.
Each Certificate Holder shall own all amounts held
in his or her Account. Each Certificate Holder
may make any choices allowed by this Contract for
his or her Account. Choices made under this
Contract must be in writing. If the Account is
owned jointly, both Certificate Holders must
authorize any Certificate Holder change in
writing. Until receipt of such choices at Aetna's
home office, Aetna may rely on any previous
choices made.
The Contract is not subject to the claims of any
creditors of the Contract Holder or the
Certificate Holder, except to the extent
permitted by law.
The Certificate Holder may assign or transfer his
or her rights under the Contract. Aetna reserves
the right not to accept assignment or transfer to
a nonnatural person. Any assignment or transfer
made must be submitted to Aetna's home office in
writing and will not be effective until accepted
by Aetna.
2.07 Designation of Each Certificate Holder shall name his or her
Beneficiary: Beneficiary. If the Account is owned jointly, both
joint Certificate Holders must agree in writing to
the Beneficiary designated. The Beneficiary may be
changed at any time. Changes to a Beneficiary must
be submitted to Aetna's home office in writing and
will not be effective until accepted by Aetna. If
the Account is owned jointly, at the death of one
joint Certificate Holder, the survivor will be
deemed the Beneficiary; any other Beneficiary on
record will be deemed a contingent Beneficiary.
2.08 Misstatements and If Aetna finds the age of any Annuitant to be
Adjustments: misstated, the correct facts will be used to
adjust payments.
2.09 Incontestability: Aetna cannot cancel this Contract because of any
error of fact.
14
<PAGE>
2.10 Grace Period: This Contract will remain in effect even if
Purchase Payments are not continued except as
provided in the Payment of Adjusted Current Value
provision (see 3.17).
2.11 Individual Certificates: Aetna shall issue a certificate to each
Certificate Holder. The certificate will summarize
certain provisions of the Contract. Certificates
are for information only and are not a part of the
Contract.
III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS
- --------------------------------------------------------------------------------
3.01 Net Purchase Payment: This amount is the actual Purchase Payment less
any premium tax. Aetna reserves the right to pay
premium taxes when due and deduct the amount from
the Current Value when we pay the tax or at a
later date.
The Net Purchase Payment will be credited among:
(a) The current Deposit Period(s) for Guaranteed
Terms under the AG Account; and
(b) The Fund(s) in which the Separate Account
invests.
For each Net Purchase Payment, the Certificate
Holder shall tell Aetna the allocation percentage
to be applied to the current Deposit Period for
each of the available Guaranteed Terms in the AG
Account and/or each Fund. If allocation
instructions are not received along with any
subsequent Net Purchase Payment, the allocation
will be the same as that indicated when the
Contract was purchased. If the same Guaranteed
Term is no longer available, the Net Purchase
Payment will be allocated to the next shortest
Guaranteed Term available in the current Deposit
Period. If no shorter Guaranteed Term is
available, the next longer Guaranteed Term will be
used.
3.02 Certificate Aetna will maintain an Account for each
Holder's Account: Certificate Holder.
Aetna will declare from time to time the
acceptability and the minimum amount for
additional Purchase Payments. Each Account will be
subject to the Terms and Conditions of the
Contract in effect at the time the first Purchase
Payment for such Account is applied to the
Contract except for changes made to comply with
federal or state law.
3.03 Fund(s) Record Units -- The portion of the Net Purchase Payment(s)
Separate Account: applied to each Fund under the Separate Account
will determine the number of Fund record units for
that Fund. This number is equal to the portion of
the Net Purchase Payment(s) applied to each Fund
divided by the Fund record unit value (see 3.05)
for the Valuation Period in which the Purchase
Payment is received in good order at Aetna's home
office.
15
<PAGE>
3.04 Net Return Factor(s) -- The net return factor(s) are used to compute
Separate Account: all Separate Account record units for any Fund.
The net return factor(s) for each Fund is equal to
1.0000000 plus the net return rate.
The net return rate is equal to:
(a) The value of the shares of the Fund held by
the Separate Account at the end of the
Valuation Period; minus
(b) The value of the shares of the Fund held by
the Separate Account at the start of the
Valuation Period; plus or minus
(c) Taxes (or reserves for taxes) on the Separate
Account (if any); divided by
(d) The total value of the Fund(s) record units
and Fund(s) annuity units of the Separate
Account at the start of the Valuation Period;
minus
(e) A daily Separate Account charge at an annual
rate as shown on Contract Schedule I for
mortality and expense risks, which may include
profit; and a daily administrative charge.
A net return rate may be more or less than 0%. The
value of a share of the Fund is equal to the net
assets of the Fund divided by the number of shares
outstanding.
3.05 Fund Record Unit A Fund record unit value is computed by
Value -- Separate multiplying the net return factors for the current
Account: Valuation Period by the Fund record unit value for
the previous Period. The dollar value of Fund
record units, Separate Account assets, and
Variable Annuity payments may go up or down due to
investment gain or loss.
3.06 Market Value An MVA will apply to any withdrawal from the AG
Adjustment: Account before the end of a Guaranteed Term when
the withdrawal is:
(a) A Transfer; except for Transfers from the
one-year AG Account Guaranteed Account under
the Dollar Cost Averaging program or, as
specified in 1.24 Matured Term Value Transfer;
(b) A full or partial surrender (including a 10%
free withdrawal under 3.14); except for a
partial withdrawal under the Systematic
Withdrawal Option; or
(c) Due to election of an Annuity (see 4.07).
Full and partial surrenders and Transfers made
within six months after the date of the
Annuitant's death will be the greater of:
(a) The aggregate MVA amount which is the sum of
all market value adjusted amounts
calculated due to a withdrawal of amounts.
This total may be greater or less than the
Current Value of those amounts; or
(b) The applicable portion of the Current Value in
the AG Account.
16
<PAGE>
3.06 Market Value After the six-month period, the surrender or
Adjustment (Cont'd): Transfer will be the aggregate MVA amount, which
may be greater or less than the Current Value of
those amounts.
The greater of the aggregate MVA amount or the
applicable portion of the Current Value applies to
amounts withdrawn from the AG Account on account
of an election of Annuity options 2 or 3 (see
4.07).
Market value adjusted amounts will be equal to the
amount withdrawn multiplied by the following
ratio:
x
---
365
(1 + i)
-------------
x
---
365
(1 + j)
Where:
i is the Deposit Period Yield
j is the Current Yield
x is the number of days remaining,
(computed from Wednesday of the week
of withdrawal) in the Guaranteed Term.
The Deposit Period Yield will be determined as
follows:
(a) At the close of the last business day of each
week of the Deposit Period, a yield will be
computed as the average of the yields on that
day of U.S. Treasury Notes which mature in the
last three months of the Guaranteed Term.
(b) The Deposit Period Yield is the average of
those yields for the Deposit Period. If
withdrawal is made before the close of the
Deposit Period, it is the average of those
yields on each week preceding withdrawal.
The Current Yield is the average of the yields on
the last business day of the week preceding
withdrawal on the same U.S. Treasury Notes
included in the Deposit Period Yield.
In the event that no U.S. Treasury Notes which
mature in the last three months of the Guaranteed
Term exist, Aetna reserves the right to use the
U.S. Treasury Notes that mature in the following
quarter.
3.07 Transfer of Current Before an Annuity option is elected, all or any
Value from the Funds portion of the Adjusted Current Value of the
or AG Account: Certificate Holder's Account may be transferred
from any Fund or Guaranteed Term of the AG
Account:
(a) To any other Fund; or
(b) To any Guaranteed Term of the AG Account
available in the current Deposit Period.
17
<PAGE>
3.07 Transfer of Current Transfer requests can be submitted as a percentage
Value from the Funds or as a dollar amount. Aetna may establish a
or AG Account (Cont'd): minimum transfer amount. Within a Guaranteed Term
Group, the amount to be surrendered or transferred
will be withdrawn first from the oldest Deposit
Period, then from the next oldest, and so on until
the amount requested is satisfied.
The Certificate Holder may make an unlimited
number of Transfers during the Accumulation
Period. The number of free Transfers allowed by
Aetna is shown on Contract Schedule I. Additional
Transfers may be subject to a Transfer fee as
shown on Contract Schedule I.
Amounts transferred from the AG Account under the
Dollar Cost Averaging program, or amounts
transferred as a Matured Term Value on or within
one calendar month of a Term's Maturity Date do
not count against the annual Transfer limit.
Amounts applied to Guaranteed Terms of the AG
Account may not be transferred to the Funds or to
another Guaranteed Term during the Deposit Period
or for 90 days after the close of the Deposit
Period except for (1) Matured Term Value(s) during
the calendar month following the Term's Maturity
Date; (2) amounts used as a premium for an Annuity
option; (3) amounts transferred from the one-year
AG Account Guaranteed Term under the Dollar Cost
Averaging program; and (4) amounts distributed
under the Systematic Withdrawal Option.
3.08 Notice to the The Certificate Holder will receive quarterly
Certificate Holder: statements from Aetna of:
(a) The value of any amounts held in:
(1) The AG Account; and
(2) The Fund(s) under the Separate Account.
(b) The number of any Fund(s) record units; and
(c) The Fund(s) record unit value.
Such number or values will be as of a specific
date no more than 60 days before the date of the
notice.
3.09 Loans: Loans are not available under this Contract.
3.10 Systematic Withdrawal A distribution option under which a portion of
Option (SWO): the Account's Current Value will automatically be
surrendered and distributed each year. SWO
payments will be calculated on the Account's full
Current Value. The distributed amount is withdrawn
pro rata from each investment option under the
Account. A Surrender Fee will not be deducted from
any portion of the Current Value which is paid as
a distribution under SWO.
Certificate Holders should consult their tax
adviser prior to requesting this distribution
option. Aetna will not be responsible for any
adverse tax consequences due to receiving SWO
payments.
18
<PAGE>
3.10 Systematic Withdrawal (a) Amount of Distribution: The Certificate Holder
Option (SWO) may elect one of the three payment methods
(Cont'd): described below.
(1) Specified Payment: Payments of a
designated dollar amount. The annual
amount may not be greater than the
percentage of the Current Value at time of
election as shown on Contract Schedule I.
This annual dollar amount will remain
constant. At its discretion, Aetna may
require a minimum initial payment amount;
(2) Specified Period: Payments which are made
over a period of time which must be at
least 10 years. The annual amount paid each
year is calculated by dividing the Current
Value as of December 31 of the prior year
by the number of payment years remaining;
or
(3) Specified Percentage: Payment of a
designated percentage which cannot be
greater than the percentage of the Current
Value at the time of election as shown on
Contract Schedule I. The percentage may be
changed by written request. Aetna reserves
the right to limit the number of times the
percentage may be changed. The annual
amount is calculated by multiplying the
Current Value as of December 31 of the
year prior to the payment by the
designated percentage.
(b) Minimum Initial Current Value: At its discretion,
Aetna may require a minimum initial Current Value
for election of this option. If after election of
this option the Current Value is insufficient to
make a scheduled SWO payment, Aetna will distribute
the entire Account balance.
(c) Date of Distribution: The Certificate Holder shall
specify the initial distribution date. The earliest
date for distribution is the date on which the
Certificate Holder attains age 59 1/2. As elected
by the Certificate Holder, SWO payments will be
made on a monthly, quarterly, semi-annual or annual
basis. If SWO payments are made more frequently
than annually, the designated annual amount is
divided by the number of payments due each calendar
year. Subsequent distributions will be made on the
15th of any month or such other date Aetna may
designate or allow.
(d) SWO payments will cease upon the Certificate
Holder's or Annuitant's death. A Beneficiary,
however, may elect to continue SWO as provided
in 3.12.
(e) Election and Revocation: SWO may be elected by
submitting a completed and signed election form to
Aetna's home office. Once elected, this option may
be revoked by the Certificate Holder or spousal
Beneficiary, if elected after the Certificate
Holder's death, by submitting a written request to
Aetna at its home office. Any revocation will apply
only to amounts not yet paid. SWO may be elected
only once by the Certificate Holder or by the
spousal Beneficiary.
19
<PAGE>
3.11 Death Benefit Amount: If the Certificate Holder or Annuitant dies before
Annuity payments start, the Beneficiary is
entitled to a death benefit under the Account. If
the Account is owned jointly, the death benefit is
paid at the death of the first joint Certificate
Holder to die. The claim date is the date when
proof of death and the Beneficiary's claim are
received in good order at Aetna's home office. The
amount of the death benefit is determined as
follows:
(a) Death of Annuitant when the Certificate
Holder is the Annuitant: The guaranteed death
benefit is the greatest of:
(1) The sum of all Purchase Payment(s) made to
the Account (as of the date of death)
minus the sum of all amounts surrendered,
applied to an Annuity, or deducted from
the Account;
(2) The highest step up value, as of the date
of death, prior to the Annuitant's 75th
birthday. A step-up value is determined on
each anniversary of the Effective Date.
Each step-up value is calculated as the
Account's Current Value on the Effective
Date anniversary, increased by the amount
of any Purchase Payment(s) made, and
decreased by the sum of all amounts
surrendered, deducted, and/or applied to
an Annuity option since the Effective Date
anniversary.
(3) The Account's Current Value as of the date
of death.
The excess, if any, of the guaranteed death
benefit value over the Account's Current
Value is determined as of the date of death.
Any excess amount will be deposited to the
Account and allocated to Aetna Variable
Encore Fund as of the claim date. The Current
Value on the claim date plus any excess
amount deposited becomes the Account's
Current Value.
(b) Death of the Certificate Holder if the
Certificate Holder is not the Annuitant: The
death benefit amount is the Account's Adjusted
Current Value on the claim date. A Surrender
Fee may apply to any full or partial surrender
(see 3.14 and Contract Schedule I).
(c) Death of spousal Beneficiary who continued the
Account: The death benefit amount equals the
Account's Adjusted Current Value on the claim
date, less any applicable Surrender Fee on
Purchase Payments made since the death of the
Certificate Holder or Annuitant.
3.12 Death Benefit Options Prior to any election, or until amounts must
Available to be otherwise distributed under this section, the
Beneficiary: Current Value will be retained in the Account. The
Beneficiary has the right to allocate or
reallocate any amount to any of the available
investment options (subject to an MVA if
applicable). The following options are available
to the Beneficiary:
(a) When the Certificate Holder is the Annuitant
if the the Annuitant dies (or when the
Certificate Holder is a nonnatural person if
the Annuitant dies):
20
<PAGE>
3.12 Death Benefit Options (1) If the Beneficiary is the surviving
Available to spouse, the spousal Beneficiary will be
Beneficiary (Cont'd): the successor Certificate Holder and may
exercise all Certificate Holder rights
under the Contract and continue in the
Accumulation Period, or may elect (i) or
(ii) below.
Under the Code, distributions from the
Account are not required until the spousal
Beneficiary's death. The spousal
Beneficiary may elect to:
(i) Apply some or all of the Adjusted
Current Value to an Annuity option
(see 4.07);
(ii) Receive, at any time, a lump sum
payment equal to the Adjusted Current
Value of the Account.
(2) If the Beneficiary is other than the
surviving spouse, options (i) or (ii) above
apply. Any portion of the Adjusted Current
Value not applied to an Annuity option
within one year of the death must be
distributed within five years of the date of
death.
(3) If no Beneficiary exists, a lump sum
payment equal to the Adjusted Current Value
must be made to the Annuitant's estate
within five years of the date of death.
(4) If the Beneficiary is an entity, a lump sum
payment equal to the Adjusted Current Value
must be made within five years of the date
of death.
(b) When the Certificate Holder is not the Annuitant
when the Certificate Holder dies:
(1) If the Beneficiary is the Certificate Holder's
surviving spouse, the spousal Beneficiary will
be the successor Certificate Holder and may
exercise all Certificate Holder rights under
the Contract and continue in the Accumulation
Period, or may elect (i) or (ii), below. Under
the Code, distributions from the Account are
not required until the spousal Beneficiary's
death. The spousal Beneficiary may elect to:
(i) Apply some or all of the Adjusted Current
Value to Annuity option 2 or 3 (see 4.07);
(ii) Receive, at any time, a lump sum payment
equal to the Surrender Value.
(2) If the Beneficiary is other than the
Certificate Holder's surviving spouse, options
(i) or (ii) under (1) above apply. Any portion
of the death benefit not applied to an Annuity
option within one year of the Certificate
Holder's death must be distributed within
five years of the date of death.
21
<PAGE>
3.12 Death Benefit Options (3) If no Beneficiary exists, a lump sum
Available to Beneficiary payment equal to the Surrender Value must
(Cont'd): be made to the Certificate Holder's estate
within five years of the date of death.
(4) If the Beneficiary is an entity, a lump
sum payment equal to the Surrender Value
must be made within five years of the date
of death.
(c) When the Certificate Holder is a natural
person and not the Annuitant, when the
Annuitant dies, the Beneficiary (or the
Certificate Holder if no Beneficiary exists)
may elect to:
(i) Apply all or some of the Adjusted Current
Value to an Annuity option within 60 days
of the date of death; or
(ii) Receive a lump sum payment equal to the
Adjusted Current Value.
3.13 Liquidation of All or any portion of the Account's Current Value
Surrender Value: may be surrendered at any time. Surrender requests
can be submitted as a percentage of the Account
value or as a specific dollar amount. Net Purchase
Payment amounts are withdrawn first, and then the
excess value, if any. For any partial surrender,
amounts are withdrawn on a pro rata basis from the
Fund(s) and/or the Guaranteed Term(s) Groups of
the AG Account in which the Current Value is
invested. Within a Guaranteed Term Group, the
amount to be surrendered or transferred will be
withdrawn first from the oldest Deposit Period,
then from the next oldest, and so on until the
amount requested is satisfied.
After deduction of the Maintenance Fee, if
applicable, the surrendered amount shall be
reduced by a Surrender Fee, if applicable. An MVA
may apply to amounts surrendered from the AG
Account.
3.14 Surrender Fee: The Surrender Fee only applies to the Net Purchase
Payment(s) portion surrendered and varies
according to the elapsed time since deposit (see
Contract Schedule I). Net Purchase Payment amounts
are withdrawn in the same order they were applied.
No Surrender Fee is deducted from any portion of
the Current Value which is paid:
(a) To a Beneficiary due to the Annuitant's death
before Annuity payments start, up to a maximum
of the aggregate Net Purchase Payment(s) minus
the total of all partial surrenders, amounts
applied to an Annuity and deductions made prior
to the Annuitant's date of death;
(b) As a premium for an Annuity option (see
4.07);
(c) As a distribution under the SWO provision
(see 3.10);
22
<PAGE>
3.14 Surrender Fee (d) At least 12 months after the date of the
(Cont'd): first Purchase Payment to the Account, in an
amount equal to or less than 10% of the
Current Value. This applies to the first
surrender request, partial or full, in a
calendar year. The Current Value is
calculated as of the date the surrender
request is received in good order at Aetna's
home office. This waiver is not available to
the Certificate Holder while SWO is in
effect;
(e) For a full surrender of the Account where the
Current Value of the Account is $2,500 or
less and no surrenders have been taken from
the Account within the prior 12 months;
(f) By Aetna under 3.16; or
(g) If the Annuitant has spent at least 45
consecutive days in a licensed nursing care
facility and each of the following conditions
are met:
(1) more than one calendar year has elapsed
since the date the certificate was
issued; and
(2) the surrender is requested within 3 years
of admission to a licensed nursing care
facility.
This waiver does not apply if
the Annuitant was in a nursing care
facility at the time the certificate was
issued.
3.15 Payment of Under certain emergency conditions, Aetna may
Surrender Value: defer payment:
(a) For a period of up to 6 months (unless not
allowed by state law); or
(b) As provided by federal law.
3.16 Payment of Adjusted Current Value:
Upon 90 days' written notice to the Certificate
Holder, Aetna will terminate any Account if the
Current Value becomes less than $2,500
immediately following any partial surrender.
Aetna does not intend to exercise this right in
cases where an Account Current Value is reduced
to $2,500 or less solely due to investment
performance. A Surrender Fee will not be deducted
from the Adjusted Current Value.
IV. ANNUITY PROVISIONS
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4.01 Choices: The Certificate Holder may tell Aetna to apply any
portion of the Adjusted Current Value (minus any
premium tax, if applicable,) to any Annuity option
(see 4.07). The first Annuity payment may not be
earlier than one calendar year after the initial
Purchase Payment nor 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. In lieu of the election of an
Annuity, the Certificate Holder may tell
Aetna to make a lump sum payment.
23
<PAGE>
4.01 Choices When an Annuity option is chosen, Aetna must also
(Cont'd): be told if payments are to be made other than
monthly and whether to pay:
(a) A Fixed Annuity using the General Account;
(b) A Variable Annuity using any of the Fund(s)
available under this Contract for Annuity
purposes; or
(c) A combination of (a) and (b).
If a Fixed Annuity is chosen, the Annuity purchase
rate for the option chosen reflects the Minimum
Guaranteed Interest Rate (see Contract Schedule
II), but may reflect higher interest rates. If a
Variable Annuity is chosen, the initial Annuity
payment for the option chosen reflects the assumed
annual return rate elected. (see Contract Schedule
II).
4.02 Terms of Annuity (a) When payments start, the age of the Annuitant
Options: plus the number of years for which payments
are guaranteed must not exceed 95.
(b) An Annuity option may not be elected if the
first payment would be less than $50 or if the
total payments in a year would be less than
$250 (less if required by state law). Aetna
reserves the right to increase the minimum
first Annuity payment amount and the annual
minimum Annuity payment amount based upon
increases reflected in the Consumer Price
Index-Urban, (CPI-U) since July 1, 1993.
(c) If a Fixed Annuity is chosen and a larger
payment would result from applying the
Surrender Value to a current Aetna single
premium immediate Annuity, Aetna will make the
larger payment.
(d) For purposes of calculating the guaranteed
first payment of a Variable Annuity or the
payments for a Fixed Annuity, the Annuitant's
and second Annuitant's adjusted age will be
used. The Annuitant's and second Annuitant's
adjusted age is his or her age as of the
birthday closest to the Annuity commencement
date reduced by one year for Annuity
commencement dates occurring during the period
of time from July 1, 1993 through December 31,
1999. The Annuitant's and second Annuitant's
age will be reduced by two years for Annuity
commencement dates occurring during the period
of time from January 1, 2000 through December
31, 2009. The Annuitant's and second
Annuitant's age will be reduced by one
additional year for Annuity commencement
dates occurring in each succeeding decade.
The Annuity purchase rates for options 2 and 3
are based on mortality from 1983 Table a.
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<PAGE>
4.02 Terms of Annuity (e) Assumed Annual Net Return Rate is the
Options (Cont'd): interest rate used to determine the
amount of the first Annuity payment under
a Variable Annuity as shown on Contract
Schedule II. The Separate Account must
earn this rate plus enough to cover the
mortality and expense risks charges
(which may include profit) and
administrative charges if future Variable
Annuity Payments are to remain level,
(see Annuity return factor under Variable
Annuity Assumed Annual Net Return Rate
on Contract Schedule II).
(f) Once elected, Annuity payments cannot be
commuted to a lump sum except for Variable
Annuity payments under option 1 (see
4.07). The life expectancy of the
Annuitant or the Annuitant and second
Annuitant shall be irrevocable upon the
election of an Annuity option.
4.03 Death of Annuitant/ (a) Certificate Holder is Annuitant: When
Beneficiary: the Certificate Holder is the Annuitant
and the Annuitant dies under option 1 or
2, or both the Annuitant and the second
Annuitant die under option 3(d), the
present value of any remaining guaranteed
payments will be paid in one sum to the
Beneficiary, or upon election by the
Beneficiary, any remaining payments will
continue to the Beneficiary. If option 3
has been elected and the Certificate
Holder dies, the remaining payments will
continue to the successor payee. If no
successor payee has been designated, the
Beneficiary will be treated as the
successor payee. If the Account has joint
Certificate Holder's, the surviving joint
Certificate Holder will be deemed the
successor payee.
(b) Certificate Holder is Not Annuitant: When
the Certificate Holder is not the
Annuitant and the Certificate Holder
dies, the remaining payments will
continue to the successor payee. If no
successor payee has been designated, the
Beneficiary will be treated as the
successor payee. If the Account has joint
Certificate Holder's, the surviving joint
Certificate Holder will be deemed the
successor payee.
If the Annuitant dies under option 1 or
2, or both the Annuitant and the second
Annuitant die under option 3(d), the
present value of any remaining guaranteed
payments will be paid in one sum to the
Beneficiary, or upon the election by the
Beneficiary, any remaining payments will
continue to the Beneficiary. If option 3
has been elected, and the Annuitant dies,
the remaining payments will continue to
the Certificate Holder.
(c) No Beneficiary Named/Surviving: If there
is no Beneficiary, the present value of
any remaining payments will be paid in
one sum to the Certificate Holder, or if
the Certificate Holder is not living,
then to the Certificate Holder's estate.
25
<PAGE>
4.03 Death of Annuitant/ (d) If the Beneficiary or the successor payee
Beneficiary (Cont'd): dies while receiving Annuity payments,
the present value of any remaining
guaranteed payments will be paid in one
sum to the successor Beneficiary/payee,
or upon election by the successor
Beneficiary/payee, any remaining payments
will continue to the successor
Beneficiary/payee. If no successor
Beneficiary/payee has been designated,
the present value of any remaining
guaranteed payments will be paid in one
sum to the Beneficiary's/payee's estate.
(e) The present value will be determined as
of the Valuation Period in which proof of
death acceptable to Aetna and a request
for payment is received at Aetna's home
office. The interest rate used to
determine the first payment will be used
to calculate the present value.
4.04 Fund(s) Annuity Units -- The number of each Fund's Annuity Units is
Separate Account: based on the amount of the first Variable
Annuity payment which is equal to:
(a) The portion of the Current Value applied
to pay a Variable Annuity (minus any
premium tax); divided by
(b) 1,000; multiplied by
(c) The payment rate for the option chosen.
Such amount, or portion, of the variable
payment will be divided by the appropriate
Fund Annuity unit value (see 4.05) on the
tenth Valuation Period before the due date of
the first payment to determine the number of
each Fund Annuity units. The number of each
Fund Annuity units remains fixed. Each future
payment is equal to the sum of the products
of each Fund Annuity unit value multiplied by
the appropriate number of units. The Fund
Annuity unit value on the tenth Valuation
Period prior to the due date of the payment
is used.
4.05 Fund(s) Annuity Unit
Value -- Separate Account: For any Valuation Period, a Fund Annuity unit
value is equal to: Account:
(a) The value for the previous Period;
multiplied by
(b) The Annuity net return factor(s) (see
4.06 below) for the Period; multiplied by
(c) A factor to reflect the assumed annual
net return rate (see Contract Schedule
II).
The dollar value of a Fund Annuity unit
values and Annuity payments may go up or down
due to investment gain or loss.
4.06 Annuity Net Return The Annuity net return factor(s) are used to
Factor(s) -- Separate compute all Separate Account Annuity Payments
Account: for any Fund.
The Annuity net return factor(s) for each
Fund is equal to 1.0000000 plus the net
return rate.
The net return rate is equal to:
(a) The value of the shares of the Fund held
by the Separate Account at the end of a
Valuation Period; minus
26
<PAGE>
4.06 Annuity Net Return (b) The value of the shares of the Fund held
Factor(s) -- Separate by the Separate Account at the start of
Account (Cont'd): the Valuation Period; plus or minus
(c) Taxes (or reserves for taxes) on the
Separate Account (if any); divided by
(d) The total value of the Fund(s) record
units and Fund(s) Annuity units of the
Separate Account at the start of the
Valuation Period; minus
(e) A daily charge for Annuity mortality and
expense risks, which may include profit,
and a daily administrative charge (at
the annual rate as shown on Contract
Schedule II).
A net return rate may be more or less than
0%.
The value of a share of the Fund is equal to
the net assets of the Fund divided by the
number of shares outstanding.
Payments shall not be changed due to changes
in the mortality or expense results or
administrative charges.
4.07 Annuity Options: Option 1 -- Payments for a Stated Period of
Time -- An Annuity will be paid for the
number of years chosen. The number of years
must be at least 5 and not more than 30.
If payments for this option are made under a
Variable Annuity, the present value of any
remaining payments may be withdrawn at any
time. If a withdrawal is requested within 3
years after the start of payments, it will be
treated as a surrender and any applicable
Surrender Fee will be applied (see 3.14).
If a nonspouse Beneficiary elects this option
at the death of the Certificate Holder, the
period selected may not extend beyond the
Beneficiary's life expectancy.
Option 2 -- Life Income -- An Annuity will be
paid for the life of the Annuitant. If also
chosen, Aetna will guarantee payments for 60,
120, 180, or 240 months.
Option 3 -- Life Income Based upon the Lives
of Two Annuitants -- An Annuity will be paid
during the lives of the Annuitant and a
second Annuitant. Payments will continue
until both Annuitants have died. When this
option is chosen, a choice must be made of:
(a) 100% of the payment to continue after the
first death;
(b) 66 2/3% of the payment to continue after
the first death;
(c) 50% of the payment to continue after the
first death;
(d) Payments for a minimum of 120 months with
100% of the payment to continue after the
first death; or
(e) 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.
Other Options -- Aetna may make other options
available as allowed by the laws of the state
in which this Contract and the Certificate is
delivered.
27
<PAGE>
OPTION 1
Payments for a Stated Period of Time
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
Guaranteed Monthly Quarterly Semi-Annual Annual
Years Rate Payment Payment Payment Payment
- --------------------------------------------------------------------------------
3 3.00% $ 28.99 $ 86.76 $ 172.88 $ 343.23
4 3.00% 22.06 66.02 131.56 261.19
5 3.00% 17.91 53.59 106.78 211.99
6 3.00% 15.14 45.30 90.27 179.22
7 3.00% 13.16 39.39 78.49 155.83
8 3.00% 11.68 34.96 69.66 138.31
9 3.00% 10.53 31.52 62.81 124.69
10 3.00% 9.61 28.77 57.33 113.82
11 3.00% 8.86 26.52 52.85 104.93
12 3.00% 8.24 24.65 49.13 97.54
13 3.00% 7.71 23.08 45.98 91.29
14 3.00% 7.26 21.73 43.29 85.95
15 3.00% 6.87 20.56 40.96 81.33
16 3.00% 6.53 19.54 38.93 77.29
17 3.00% 6.23 18.64 37.14 73.74
18 3.00% 5.96 17.84 35.56 70.59
19 3.00% 5.73 17.13 34.14 67.78
20 3.00% 5.51 16.50 32.87 65.26
21 3.00% 5.32 15.92 31.72 62.98
22 3.00% 5.15 15.40 30.68 60.92
23 3.00% 4.99 14.92 29.74 59.04
24 3.00% 4.84 14.49 28.88 57.33
25 3.00% 4.71 14.09 28.08 55.76
26 3.00% 4.59 13.73 27.36 54.31
27 3.00% 4.47 13.39 26.68 52.97
28 3.00% 4.37 13.08 26.06 51.74
29 3.00% 4.27 12.79 25.49 50.60
30 3.00% 4.18 12.52 24.95 49.53
28
<PAGE>
OPTION 2
Life Income
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
Payments Guaranteed for a Stated Period of Months
Adjusted
Age of None 60 120 180 240
Annuitant
- --------------------------------------------------------------------------------
50 $ 4.05 $ 4.05 $ 4.03 $ 3.99 $ 3.93
51 4.12 4.11 4.09 4.05 3.99
52 4.19 4.19 4.16 4.11 4.04
53 4.27 4.26 4.23 4.18 4.10
54 4.35 4.34 4.31 4.25 4.16
55 4.44 4.42 4.39 4.32 4.22
56 4.53 4.51 4.47 4.40 4.29
57 4.62 4.61 4.56 4.48 4.35
58 4.72 4.71 4.65 4.56 4.42
59 4.83 4.81 4.75 4.64 4.49
60 4.95 4.93 4.86 4.73 4.55
61 5.07 5.05 4.97 4.83 4.62
62 5.20 5.17 5.08 4.92 4.69
63 5.34 5.31 5.20 5.02 4.76
64 5.49 5.45 5.33 5.12 4.83
65 5.65 5.61 5.47 5.22 4.89
66 5.82 5.77 5.61 5.33 4.96
67 6.01 5.94 5.75 5.44 5.02
68 6.20 6.13 5.91 5.54 5.08
69 6.41 6.33 6.07 5.65 5.14
70 6.64 6.54 6.23 5.76 5.19
71 6.88 6.76 6.41 5.86 5.24
72 7.14 7.00 6.59 5.97 5.28
73 7.43 7.26 6.77 6.06 5.32
74 7.73 7.53 6.96 6.16 5.35
75 8.06 7.82 7.14 6.25 5.38
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
29
<PAGE>
OPTION 3
Life Income for Two Payees
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
<TABLE>
<CAPTION>
Adjusted Ages
Second
Annuitant Annuitant Option 3a Option 3b Option 3c Option 3d Option 3e
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $ 3.69 $ 4.05 $ 4.27 $ 3.69 $ 4.03
55 55 3.88 4.25 4.47 3.87 4.14
55 60 3.99 4.44 4.71 3.98 4.42
60 55 3.99 4.44 4.71 3.98 4.42
60 60 4.24 4.71 4.99 4.23 4.57
60 65 4.38 4.97 5.32 4.38 4.93
65 60 4.38 4.97 5.32 4.38 4.93
65 65 4.72 5.33 5.70 4.71 5.14
65 70 4.93 5.68 6.15 4.91 5.66
70 65 4.93 5.68 6.15 4.91 5.66
70 70 5.40 6.21 6.70 5.36 5.96
70 75 5.69 6.68 7.32 5.62 6.67
75 70 5.69 6.68 7.32 5.62 6.67
75 75 6.37 7.45 8.15 6.23 7.12
75 80 6.78 8.11 8.99 6.54 8.13
</TABLE>
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
30
<PAGE>
OPTION 1
Payments for a Stated Period of Time
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Guaranteed Monthly Quarterly Semi-Annual Annual
Years Rate Payment Payment Payment Payment
- --------------------------------------------------------------------------------
3 3.50% $ 29.19 $ 87.33 $ 173.91 $ 344.86
4 3.50% 22.27 66.61 132.65 263.04
5 3.50% 18.12 54.19 107.92 213.99
6 3.50% 15.35 45.92 91.44 181.32
7 3.50% 13.38 40.01 79.69 158.01
8 3.50% 11.90 35.59 70.88 140.56
9 3.50% 10.75 32.16 64.05 127.00
10 3.50% 9.83 29.42 58.59 116.18
11 3.50% 9.09 27.18 54.13 107.34
12 3.50% 8.46 25.32 50.42 99.98
13 3.50% 7.94 23.75 47.29 93.78
14 3.50% 7.49 22.40 44.62 88.47
15 3.50% 7.10 21.24 42.31 83.89
16 3.50% 6.76 20.23 40.29 79.89
17 3.50% 6.47 19.34 38.51 76.37
18 3.50% 6.20 18.55 36.94 73.25
19 3.50% 5.97 17.85 35.54 70.47
20 3.50% 5.75 17.22 34.28 67.98
21 3.50% 5.56 16.65 33.15 65.74
22 3.50% 5.39 16.13 32.13 63.70
23 3.50% 5.24 15.66 31.19 61.85
24 3.50% 5.09 15.24 30.34 60.17
25 3.50% 4.96 14.85 29.56 58.62
26 3.50% 4.84 14.49 28.85 57.20
27 3.50% 4.73 14.15 28.19 55.90
28 3.50% 4.63 13.85 27.58 54.69
29 3.50% 4.53 13.57 27.02 53.57
30 3.50% 4.45 13.30 26.49 52.53
31
<PAGE>
OPTION 1
Payments for a Stated Period of Time
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 5.0%
Guaranteed Monthly Quarterly Semi-Annual Annual
Years Rate Payment Payment Payment Payment
- --------------------------------------------------------------------------------
3 5.00% $ 29.80 $ 89.04 $ 176.99 $ 349.72
4 5.00% 22.89 68.38 135.93 268.58
5 5.00% 18.74 56.00 111.33 219.98
6 5.00% 15.99 47.77 94.96 187.64
7 5.00% 14.02 41.90 83.30 164.59
8 5.00% 12.56 37.52 74.58 147.35
9 5.00% 11.42 34.11 67.81 133.99
10 5.00% 10.51 31.40 62.42 123.34
11 5.00% 9.77 29.19 58.03 114.66
12 5.00% 9.16 27.36 54.38 107.45
13 5.00% 8.64 25.81 51.31 101.39
14 5.00% 8.20 24.50 48.69 96.21
15 5.00% 7.82 23.36 46.44 91.75
16 5.00% 7.49 22.37 44.47 87.88
17 5.00% 7.20 21.51 42.75 84.88
18 5.00% 6.94 20.74 41.23 81.47
19 5.00% 6.71 20.06 39.88 78.80
20 5.00% 6.51 19.46 38.68 76.42
21 5.00% 6.33 18.91 37.59 74.28
22 5.00% 6.17 18.42 36.62 72.35
23 5.00% 6.02 17.98 35.73 70.61
24 5.00% 5.88 17.57 34.93 69.02
25 5.00% 5.76 17.20 34.20 67.57
26 5.00% 5.65 16.87 33.53 66.25
27 5.00% 5.54 16.56 32.92 65.04
28 5.00% 5.45 16.28 32.35 63.93
29 5.00% 5.36 16.01 31.83 62.90
30 5.00% 5.28 15.77 31.35 61.95
32
<PAGE>
OPTION 2
Life Income
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
Payments Guaranteed for a Stated Period of Months
Adjusted
Age of None 60 120 180 240
Annuitant
- --------------------------------------------------------------------------------
50 $ 4.34 $ 4.34 $ 4.31 $ 4.27 $ 4.22
51 4.41 4.40 4.38 4.33 4.27
52 4.48 4.47 4.45 4.40 4.32
53 4.56 4.55 4.52 4.46 4.38
54 4.64 4.63 4.59 4.53 4.44
55 4.72 4.71 4.67 4.60 4.50
56 4.81 4.80 4.75 4.67 4.56
57 4.91 4.89 4.84 4.75 4.62
58 5.01 4.99 4.93 4.83 4.69
59 5.12 5.10 5.03 4.92 4.75
60 5.23 5.21 5.13 5.00 4.82
61 5.36 5.33 5.24 5.09 4.88
62 5.49 5.45 5.35 5.19 4.95
63 5.63 5.59 5.47 5.28 5.02
64 5.78 5.73 5.60 5.38 5.08
65 5.94 5.89 5.73 5.48 5.15
66 6.11 6.05 5.87 5.58 5.21
67 6.29 6.22 6.02 5.69 5.27
68 6.49 6.41 6.17 5.79 5.33
69 6.70 6.60 6.33 5.90 5.38
70 6.92 6.81 6.49 6.00 5.43
71 7.17 7.04 6.66 6.10 5.48
72 7.43 7.27 6.84 6.20 5.52
73 7.71 7.53 7.02 6.30 5.55
74 8.02 7.70 7.20 6.39 5.59
75 8.35 8.08 7.38 6.48 5.62
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
33
<PAGE>
OPTION 2
Life Income
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 5.0%
Payments Guaranteed for a Stated Period of Months
Adjusted
Age of None 60 120 180 240
Annuitant
- --------------------------------------------------------------------------------
50 $ 5.26 $ 5.25 $ 5.22 $ 5.17 $ 5.11
51 5.33 5.32 5.28 5.23 5.15
52 5.40 5.38 5.34 5.29 5.20
53 5.47 5.45 5.41 5.35 5.26
54 5.54 5.53 5.48 5.41 5.31
55 5.63 5.61 5.56 5.47 5.36
56 5.71 5.69 5.63 5.54 5.42
57 5.80 5.78 5.72 5.61 5.47
58 5.90 5.88 5.81 5.69 5.53
59 6.01 5.98 5.90 5.77 5.59
60 6.12 6.09 6.00 5.85 5.65
61 6.24 6.21 6.10 6.93 5.71
62 6.37 6.33 6.21 6.02 5.77
63 6.51 6.46 6.33 6.11 5.83
64 6.66 6.60 6.45 6.20 5.89
65 6.82 6.75 6.57 6.30 5.95
66 6.99 6.91 6.71 6.39 6.01
67 7.17 7.08 6.85 6.49 6.06
68 7.36 7.27 6.99 6.59 6.12
69 7.57 7.46 7.15 6.69 6.17
70 7.80 7.67 7.30 6.78 6.21
71 8.05 7.89 7.47 6.88 6.25
72 8.31 8.13 7.64 6.97 6.29
73 8.59 8.38 7.81 7.06 6.33
74 8.90 8.64 7.99 7.15 6.36
75 9.23 8.93 8.16 7.23 6.38
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
34
<PAGE>
OPTION 3
Life Income for Two Payees
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 3.5%
<TABLE>
<CAPTION>
Adjusted Ages
Second
Annuitant Annuitant Option 3a Option 3b Option 3c Option 3d Option 3e
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $ 3.97 $ 4.35 $ 4.56 $ 3.97 $ 4.31
55 55 4.16 4.54 4.76 4.15 4.42
55 60 4.27 4.73 5.00 4.26 4.48
60 55 4.27 4.73 5.00 4.26 4.70
60 60 4.51 4.99 5.27 4.50 4.84
60 65 4.66 5.25 5.61 4.65 4.93
65 60 4.66 5.25 5.61 4.65 5.22
65 65 4.99 5.61 5.99 4.98 5.42
65 70 5.19 5.97 6.44 5.17 5.54
70 65 5.19 5.97 6.44 5.17 5.93
70 70 5.67 6.49 6.99 5.62 6.23
70 75 5.95 6.96 7.61 5.87 6.40
75 70 5.95 6.96 7.61 5.87 6.95
75 75 6.64 7.73 8.43 6.48 7.40
75 80 7.04 8.39 9.29 6.79 7.64
</TABLE>
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
35
<PAGE>
OPTION 3
Life Income for Two Payees
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Variable Annuity with Assumed Net Return Rate of 5.0%
<TABLE>
<CAPTION>
Adjusted Ages
Second
Annuitant Annuitant Option 3a Option 3b Option 3c Option 3d Option 3e
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $ 4.88 $ 5.26 $ 5.48 $ 4.88 $ 5.23
55 55 5.04 5.44 5.66 5.04 5.32
55 60 5.15 5.63 5.91 5.14 5.38
60 55 5.15 5.63 5.91 5.14 5.59
60 60 5.37 5.87 6.16 5.37 5.72
60 65 5.52 6.14 6.51 5.51 5.80
65 60 5.52 6.14 6.51 5.51 6.10
65 65 5.83 6.49 6.87 5.82 6.29
65 70 6.04 6.84 7.34 6.00 6.41
70 65 6.04 6.84 7.34 6.00 6.81
70 70 6.49 7.35 7.87 6.44 7.08
70 75 6.77 7.84 8.51 6.68 7.25
75 70 6.77 7.84 8.51 6.68 7.81
75 75 7.45 8.60 9.33 7.27 8.25
75 80 7.86 9.28 10.20 7.57 8.49
</TABLE>
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
36
<PAGE>
[Aetna logo]
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
P.O. Box 30670
Hartford, Connecticut 06150-0670
(800) 531-4547
Group Variable, Fixed, or Combination Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO FIXED DOLLAR AMOUNT. THIS CONTRACT CONTAINS A MARKET VALUE
ADJUSTMENT FORMULA. APPLICATION OF A MARKET VALUE ADJUSTMENT MAY RESULT IN
EITHER AN INCREASE OR DECREASE IN THE CURRENT VALUE. THE MARKET VALUE ADJUSTMENT
FORMULA DOES NOT APPLY TO A GUARANTEED TERM AT THE TIME OF ITS MATURITY.
Aetna Life Insurance and Annuity Company
Endorsement
The Contract and Certificate are endorsed as follows.
1. Add the following to Contract Schedule I.
Annual Waiver of Surrender Fee:
As provided in 3.14 (d), the amount that may be withdrawn without a
surrender fee cannot exceed [10%] of the Current Value calculated on
the date Aetna receives a surrender request in good order at its Home
Office.
2. Delete Section 1.13, Deposit Period, and replace it with the following.
1.13 Deposit Period
A day, a calendar week, a calendar month, a calendar quarter, or any
other period of time specified by Aetna during which Net Purchase
Payment(s), Transfers and/or Reinvestments may be allocated to one or
more AG Account Guaranteed Terms. Aetna reserves the right to shorten
or to extend the Deposit Period.
During a Deposit Period, Aetna may offer any number of Guaranteed Terms
and more than one Guaranteed Term of the same duration may be offered.
3. Delete Section 1.14, Dollar Cost Averaging, and replace it with the
following.
1.14 Dollar Cost Averaging
A program that permits the Certificate Holder to systematically
transfer amounts from any of the Funds or an available AG Account
Guaranteed Term to any of the Funds. Aetna reserves the right to
establish terms and conditions governing Dollar Cost Averaging. Dollar
Cost Averaging is not available when a Systematic Distribution Option
is in effect.
4. Delete the second sentence in Section 1.18 Guaranteed Rates --
AG Account
The rate(s) are guaranteed by Aetna for the period beginning with the
date of allocation and ending on the Maturity Date.
5. Delete Section 1.19, Guaranteed Term, and replace it with the
following.
1.19 Guaranteed Term
The period of time specified by Aetna for which a specific Guaranteed
Rate(s) are offered on amounts invested during a specific Deposit
Period. Guaranteed Terms are made available subject to Aetna's terms
and conditions, including, but not limited to, Aetna's right to
restrict
MP1END(5/97) 1
<PAGE>
allocations to new Net Purchase Payments (such as by prohibiting
Transfers into a particular Guaranteed Term from any other
Guaranteed Term or from any of the Funds, or by prohibiting
Reinvestment of a Matured Term Value to a particular Guaranteed Term.
More than one Guaranteed Term of the same duration may be offered
during a Deposit Period.
6. Delete Section 1.32, Transfers, and replace it with the following.
1.32 Transfers
The movement of invested amounts among the available Funds and the AG
Account during the Accumulation Period or, during the Annuity Period,
among the available Funds under a Variable Annuity.
7. Delete the fourth paragraph under Section 2.01, Change of Contract.
8. Delete the second and third paragraphs in Section 3.01, Net Purchase
Payment, and replace them with the following.
Each Net Purchase Payment will be allocated, as directed by the
Certificate Holder, among:
(a) AG Account Guaranteed Terms made available subject to terms and
conditions specified by Aetna; and
(b) The Funds in which the Separate Account invests.
For each Net Purchase Payment, the Certificate Holder shall tell Aetna
the percentage of each Purchase Payment to allocate to any AG Account
Guaranteed Terms made available subject to terms and conditions
specified by Aetna and/or each Fund. Unless different allocation
instructions are received for any subsequent Net Purchase Payment, the
allocation will be the same as for the initial Net Purchase Payment. If
the same Guaranteed Term is no longer available, the Net Purchase
Payment will be allocated to the next shortest Guaranteed Term
available in the current Deposit Period, If no shorter Guaranteed
Period is available, the next longest Guaranteed Term will be used.
9. Delete the last sentence in Section 3.02, Certificate Holder's Account.
10. Delete the first subsections (a) and (b) under Section 3.06, Market
Value Adjustment, and replace them with the following.
(a) A Transfer, except for Transfers under the Dollar Cost Averaging
program, or as specified in 1.24 Matured Term Value Transfer;
(b) A full or partial surrender (including a free withdrawal under
3.14), except for a payment made (1) under an SDO (see 3.10), or
(2) under a qualified Contract, when the amount withdrawn is equal
to the required minimum distribution for the Account calculated
using a method permitted under the Code and agreed to by Aetna;
MP1END(5/97) 2
<PAGE>
11. Delete the title of Section 3.07, Transfer of Current Value from the
Funds or AG Account, and replace it with the following.
3.07 Transfer of Current Value from the Funds or AG Account During the
Accumulation Period
12. Delete the first paragraph in Section 3.07, Transfer of Current Value
from the Funds or AG Account During the Accumulation Period, and
replace it with the following.
Before an Annuity option is elected, all or any portion of the Adjusted
Current Value of the Certificate Holder's Account may be transferred
from any Fund or AG Account Guaranteed Term to:
(a) Any other Fund; or
(b) Any AG Account Guaranteed Term, made available subject to terms
and conditions specified by Aetna, in the current Deposit Period.
13. Delete Section 3.10, Systematic Withdrawal Option (SWO), and replace
it with the following.
3.10 Systematic Distribution Options
Without further endorsement of the Contract or Certificate, Aetna may,
from time to time, make one or more systematic distribution options
(SDOs) available during the Accumulation Period. When an SDO is
elected, Aetna will make automatic payments from the Certificate
Holder's Account. No Surrender Fee or MVA will apply to the automatic
payments made under an SDO.
Any SDO will be subject to the following criteria:
(a) Any SDO will be available to similarly situated contracts
uniformly, and on the basis of objective criteria consistently
applied;
(b) The availability of any SDO may be limited by terms and
conditions applicable to the election of such SDO; and
(c) Aetna may discontinue the availability of an SDO at any time.
Except to the extent required to comply with applicable law,
discontinuance of an SDO will apply only to future elections and
will not affect SDOs in effect at the time an option is
discontinued.
14. Delete the first sentence in Subsection (a) of Section 3.11, Death
Benefit Amount, and replace it with the following.
(a) Death of Annuitant:
MP1END(5/97) 3
<PAGE>
15. Delete the Subsection (c) under Section 3.11, Death Benefit Amount,
and replace it with the following.
(c) Death of the Annuitant's spousal beneficiary who continued the
Account: The death benefit amount equals the Account's Adjusted
Current Value on the claim date, less any applicable Surrender Fee
on Purchase Payments made since the death of the Annuitant.
16. In Section 3.11, Death Benefit Amount, add the following additional
subsection.
(d) Death of the spousal beneficiary of a Certificate Holder who was
not the Annuitant and who continued the Account: The death benefit
amount equals the Account's Adjusted Current Value on the claim
date. A Surrender Fee may apply to any full or partial surrender
(See 3.14 and Contract Schedule I).
17. Delete Subsection (c) under Section 3.14, Surrender Fee, and replace
it with the following.
(c) As a distribution under an SDO (see 3.10)
18. Delete Subsection (d) under Section 3.14, Surrender Fee, and replace
it with the following
(d) At least 12 months after the date of the first Purchase Payment to
the Account, in an amount not to exceed the amount shown on
Contract Schedule I under Annual Waiver of Surrender Fee. This
waiver of the Surrender Fee applies to the first full or partial
surrender in the calendar year. This waiver is not available if a
systematic distribution option has been in effect at any time
during the calendar year.
19. In Section 3.14, Surrender Fee, add the following additional
subsection.
(h) Under a qualified Contract when the amount withdrawn is equal to
the minimum distribution required by the Code for the Account
calculated using a method permitted under the Code and agreed to
by Aetna.
20. Insert the following as the last paragraph in Section 4.01, Choices.
During the Annuity Period when a Variable Annuity has been elected, at
the request of the Certificate Holder, all or any portion of the amount
allocated to a Fund may be transfered to any other Fund available
during the Annuity Period. Four transfers, without charge, are allowed
each calendar year. Aetna reserves the right to change the number of
transfers allowed.
Transfer requests must be expressed as a percentage of the allocation
among the Funds of the amount upon which the Variable Annuity will be
based. Aetna reserves the right to establish a minimum transfer amount.
Transfers will be effective as of the Valuation Period in which Aetna
receives a transfer request in good order at its Home Office.
MP1END(5/97) 4
<PAGE>
21. Delete Subsection (c) under Section 4.02 Terms of Annuity Options, and
replace it with the following.
(c) If a fixed Annuity is chosen, Aetna will use the applicable
current settlement rate if it will provide higher fixed Annuity
payments.
22. Delete Section 4.07, Annuity Options, and replace it with the
following.
4.07 Annuity Options
Option 1. Payments for a Specified Period: Payments are made for the
number of years specified by the Certificate Holder. The number of
years must be at least five and not more than 30.
Option 2. Life income based on the life of one Annuitant: Payments are
made until the death of the Annuitant. When this option is elected, the
Certificate Holder must also choose one of the following:
(a) payments cease at the death of the Annuitant;
(b) payments are guaranteed for a specified period from five to 30
years;
(c) cash refund: when the Annuitant dies, the Beneficiary will receive
a lump sum payment equal to the amount applied to the Annuity
option (less any premium tax, if applicable) less the total amount
of Annuity payments made prior to such death. This cash refund
feature is only available if the total amount applied to the
Annuity option is allocated to a fixed Annuity.
Option 3. Life income based on the lives of two Annuitants: Payments
are made for the lives of two Annuitants, one of whom is designated the
second Annuitant, and cease only when both Annuitants have died. When
this option is elected, the Certificate Holder must also choose one of
the following:
(a) 100% of the payment to continue after the first death;
(b) 66 2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) 100% of the payment to continue after the first death and
payments are guaranteed for a period of five to 30 years;
(e) 100% of the payment to continue at the death of the designated
second Annuitant and 50% of the payment to continue at the death
of the Annuitant; or
(f) 100% of the payment continues after the first death with a cash
refund feature. When the Annuitant and designated second Annuitant
die, the Beneficiary will receive a lump sum payment equal to the
amount applied to the Annuity option (less any premium tax) less
the total amount of Annuity payments paid prior to such death.
This cash refund feature is only available if the total amount
applied to the Annuity option is allocated to a fixed Annuity.
If a fixed Annuity is chosen under Option 1, Option 2 (a) or (b), or
Option 3 (a) or (d), the Certificate Holder may elect, at the time the
Annuity option is selected, an annual increase of one, two or three
percent compounded annually.
As allowed under applicable state law, Aetna reserves the right to
offer additional Annuity options.
MP1END(5/97) 5
<PAGE>
23. Delete the tables showing rates for Annuity Options 1, 2 and 3 and
replace them with the tables provided in Addendum A attached.
Endorsed and made a part of the Contract and the Certificate as of the Effective
Date or when the endorsement is approved.
/s/ Dan Kearney
--------------------------
President
Aetna Life Insurance and Annuity Company
MP1END(5/97) 6
<PAGE>
Aetna Life Insurance and Annuity Company
Endorsement
The Contract is endorsed as follows.
1. Add the following to Contract Schedule I.
Annual Waiver of Surrender Fee:
As provided in 3.13 (d), the amount that may be withdrawn without a
surrender fee cannot exceed [10%] of the Current Value calculated on
the date Aetna receives a surrender request in good order at its Home
Office.
2. Delete Section 1.11, Deposit Period, and replace it with the following.
1.11 Deposit Period
A day, a calendar week, a calendar month, a calendar quarter, or any
other period of time specified by Aetna during which Net Purchase
Payment(s), Transfers and/or Reinvestments may be allocated to one or
more AG Account Guaranteed Terms. Aetna reserves the right to shorten
or to extend the Deposit Period.
During a Deposit Period, Aetna may offer any number of Guaranteed Terms
and more than one Guaranteed Term of the same duration may be offered.
3. Delete Section 1.12, Dollar Cost Averaging, and replace it with the
following.
1.12 Dollar Cost Averaging
A program that permits the Contract Holder to systematically transfer
amounts from any of the Funds or an available AG Account Guaranteed
Term to any of the Funds. Aetna reserves the right to establish terms
and conditions governing Dollar Cost Averaging. Dollar Cost Averaging
is not available when an SDO is in effect.
4. Delete the second sentence in Section 1.16 Guaranteed Rates -- AG
Account, and replace it with the following.
The rate(s) are guaranteed by Aetna for the period beginning with the
first day of the Deposit Period and ending on the Maturity Date.
Guaranteed Rates are credited beginning with the date of allocation.
I-MP1END(5/97) 1
<PAGE>
5. Delete Section 1.17, Guaranteed Term, and replace it with the
following.
1.17 Guaranteed Term
The period of time specified by Aetna for which a specific Guaranteed
Rate(s) is offered on amounts invested during a specific Deposit
Period. Guaranteed Terms are made available subject to Aetna's terms
and conditions, including, but not limited to, Aetna's right to
restrict allocations to new Net Purchase Payments (such as by
prohibiting Transfers into a particular Guaranteed Term from any other
Guaranteed Term or from any of the Funds, or by prohibiting
Reinvestment of a Matured Term Value to a particular Guaranteed Term.
More than one Guaranteed Term of the same duration may be offered
during a Deposit Period.
6. Delete Section 1.30, Transfers, and replace it with the following.
1.30 Transfers
The movement of invested amounts among the available Funds and the AG
Account during the Accumulation Period or, during the Annuity Period,
among the available Funds under a Variable Annuity.
7. Delete the fourth paragraph under Section 2.01, Change of Contract.
8. Delete the second and third paragraphs in Section 3.01, Net Purchase
Payment, and replace them with the following.
Each Net Purchase Payment will be allocated, as directed by the
Contract Holder, among:
(a) AG Account Guaranteed Terms made available subject to terms and
conditions specified by Aetna; and
(b) The Funds in which the Separate Account invests.
For each Net Purchase Payment, the Contract Holder shall tell Aetna the
percentage of each Purchase Payment to allocate to any AG Account
Guaranteed Terms made available subject to terms and conditions
specified by Aetna and/or each Fund. Unless different allocation
instructions are received for any subsequent Net Purchase Payment, the
allocation will be the same as for the initial Net Purchase Payment. If
the same Guaranteed Term is no longer available, the Net Purchase
Payment will be allocated to the next shortest Guaranteed Term
available in the current Deposit Period, If no shorter Guaranteed
Period is available, the next longest Guaranteed Term will be used.
9. Delete the first subsections (a) and (b) under Section 3.05, Market
Value Adjustment, and replace them with the following.
(a) A Transfer, except for Transfers under the Dollar Cost Averaging
program, or as specified in 1.22 Matured Term Value Transfer;
I-MP1END(5/97) 2
<PAGE>
(b) A full or partial surrender (including a free withdrawal under
3.12), except for a payment made (1) under an SDO (see 3.09), or
(2) under a qualified Contract, when the amount withdrawn is equal
to the required minimum distribution for the Account calculated
using a method permitted under the Code and agreed to by Aetna;
10. Delete the title of Section 3.07, Transfer of Current Value from the
Funds or AG Account, and replace it with the following.
3.07 Transfer of Current Value from the Funds or AG Account During the
Accumulation Period
11. Delete the first paragraph in Section 3.06, Transfer of Current Value
from the Funds or AG Account During the Accumulation Period, and
replace it with the following.
Before an Annuity option is elected, all or any portion of the Adjusted
Current Value of the Contract's Current Value may be transferred from
any Fund or AG Account Guaranteed Term to:
(a) Any other Fund; or
(b) Any AG Account Guaranteed Term, made available subject to terms
and conditions specified by Aetna, in the current Deposit Period.
12. Delete Section 3.09, Systematic Withdrawal Option (SWO), and replace
it with the following.
3.09 Systematic Distribution Options
Without further endorsement of the Contract or Certificate, Aetna may,
from time to time, make one or more systematic distribution options
(SDOs) available during the Accumulation Period. When an SDO is
elected, Aetna will make automatic payments from the Contrat's Current
Value. No Surrender Fee or MVA will apply to the automatic payments
made under an SDO.
Any SDO will be subject to the following criteria:
(a) Any SDO will be available to similarly situated contracts
uniformly, and on the basis of objective criteria consistently
applied;
(b) The availability of any SDO may be limited by terms and conditions
applicable to the election of such SDO; and
(c) Aetna may discontinue the availability of an SDO at any time.
Except to the extent required to comply with applicable law,
discontinuance of an SDO will apply only to future elections and
will not affect SDOs in effect at the time an option is
discontinued.
I-MP1END(5/97) 3
<PAGE>
13. Delete the first sentence in Subsection (a) of Section 3.10, Death
Benefit Amount, and replace it with the following.
(a) Death of Annuitant:
14. Delete the Subsection (c) under Section 3.10, Death Benefit Amount,
and replace it with the following.
(c) Death of the Annuitant's spousal beneficiary who continued the
Contract: The death benefit amount equals the Adjusted Current
Value on the claim date, less any applicable Surrender Fee on
Purchase Payments made since the death of the Annuitant.
15. In Section 3.10, Death Benefit Amount, add the following additional
subsection.
(d) Death of the spousal beneficiary of a Contract Holder who was not
the Annuitant and who continued the Contract: The death benefit
amount equals the Adjusted Current Value on the claim date. A
Surrender Fee may apply to any full or partial surrender (See 3.13
and Contract Schedule I).
16. Delete Subsection (c) under Section 3.13, Surrender Fee, and replace
it with the following.
(c) As a distribution under an SDO (see 3.09)
17. Delete Subsection (d) under Section 3.13, Surrender Fee, and replace
it with the following
(d) At least 12 months after the date of the first Purchase Payment in
an amount not to exceed the amount shown on Contract Schedule I
under Annual Waiver of Surrender Fee. This waiver of the Surrender
Fee applies to the first full or partial surrender in the calendar
year. This waiver is not available if a systematic distribution
option has been in effect at any time during the calendar year.
18. In Section 3.13, Surrender Fee, add the following additional
subsection.
(h) Under a qualified Contract when the amount withdrawn is equal to
the minimum distribution required by the Code calculated using a
method permitted under the Code and agreed to by Aetna.
19. Insert the following as the last paragraph in Section 4.01, Choices.
During the Annuity Period when a Variable Annuity has been elected, at
the request of the Contract Holder, all or any portion of the amount
allocated to a Fund may be transfered to any other Fund available
during the Annuity Period. Four transfers, without charge, are allowed
each calendar year. Aetna reserves the right to change the number of
transfers allowed.
I-MP1END(5/97) 4
<PAGE>
Transfer requests must be expressed as a percentage of the allocation
among the Funds of the amount upon which the Variable Annuity will be
based. Aetna reserves the right to establish a minimum transfer amount.
Transfers will be effective as of the Valuation Period in which Aetna
receives a transfer request in good order at its Home Office.
20. Delete Subsection (c) under Section 4.02 Terms of Annuity Options, and
replace it with the following.
(c) If a fixed Annuity is chosen, Aetna will use the applicable
current settlement rate if it will provide higher fixed Annuity
payments.
21. Delete Section 4.07, Annuity Options, and replace it with the
following.
4.07 Annuity Options
Option 1. Payments for a Specified Period: Payments are made for the
number of years specified by the Contract Holder. The number of years
must be at least five and not more than 30.
Option 2. Life income based on the life of one Annuitant: Payments are
made until the death of the Annuitant. When this option is elected, the
Contract Holder must also choose one of the following:
(a) payments cease at the death of the Annuitant;
(b) payments are guaranteed for a specified period from five to 30
years;
(c) cash refund: when the Annuitant dies, the Beneficiary will receive
a lump sum payment equal to the amount applied to the Annuity
option (less any premium tax, if applicable) less the total amount
of Annuity payments made prior to such death. This cash refund
feature is only available if the total amount applied to the
Annuity option is allocated to a fixed Annuity.
Option 3. Life income based on the lives of two Annuitants: Payments
are made for the lives of two Annuitants, one of whom is designated the
second Annuitant, and cease only when both Annuitants have died. When
this option is elected, the Contract Holder must also choose one of the
following:
(a) 100% of the payment to continue after the first death;
(b) 66 2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) 100% of the payment to continue after the first death and payments
are guaranteed for a period of five to 30 years;
(e) 100% of the payment to continue at the death of the designated
second Annuitant and 50% of the payment to continue at the death
of the Annuitant; or
(f) 100% of the payment continues after the first death with a cash
refund feature. When the Annuitant and designated second Annuitant
die, the Beneficiary will receive a lump sum payment equal to the
amount applied to the Annuity option (less any premium tax) less
the total amount of Annuity payments paid prior to such death.
This cash refund feature is only available if the total amount
applied to the Annuity option is allocated to a fixed Annuity.
I-MP1END(5/97) 5
<PAGE>
If a fixed Annuity is chosen under Option 1, Option 2 (a) or (b), or
Option 3 (a) or (d), the Contract Holder may elect, at the time the
Annuity option is selected, an annual increase of one, two or three
percent compounded annually.
As allowed under applicable state law, Aetna reserves the right to
offer additional Annuity options.
22. Delete the tables showing rates for Annuity Options 1, 2 and 3 and
replace them with the tables provided in Addendum A attached.
Endorsed and made a part of the Contract as of the Effective Date or when the
endorsement is approved.
/s/ Dan Kearney
-----------------------
President
Aetna Life Insurance and Annuity Company
I-MP1END(5/97) 6
FUND PARTICIPATION AGREEMENT
by and among
INSURANCE MANAGEMENT SERIES
FEDERATED ADVISORS
and
AETNA LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT is made as of the 1 day of July, 1994, by and among
INSURANCE MANAGEMENT SERIES, an open-end management investment company organized
as a Massachusetts business trust (the "Trust"), FEDERATED ADVISORS, an
insurance trust organized under the laws of the state of Delaware ("Advisor"),
and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a life insurance company organized
under the laws of the State of Connecticut ("ALIAC"), on its own behalf and on
behalf of each segregated asset account of ALIAC set forth on Schedule A hereto
as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940 as amended (the "1940 Act"), and has registered
its shares under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, beneficial interests in the Trust are divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, set forth in Schedule B hereto, as may
be amemded from time to time (the "Portfolios"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established to fund variable annuity contracts and variable life
insurance policies to be offered by unaffiliated insurance companies that have
entered into participation agreements with the Trust (the "Participating
Insurance Companies"); and
WHEREAS, ALIAC has established the Accounts to serve as investment
vehicles for certain variable annuity contracts or life insurance policies set
forth in Schedule A hereto, as may be amended from time to time ("Contracts").
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by ALIAC to be necessary to meet the requirements of the Contracts.
The Trustees of the Trust (the "Trustees") may refuse to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Trustees acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Portfolio.
1.2. The Trust will redeem any full or fractional shares of any Portfolio
when requested by ALIAC on behalf of an Account at the net asset value next
computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3. ALIAC will transmit orders from time to time to the Trust for the
purchase of shares of its Portfolios as directed by Contractholders. Orders for
shares of the Portfolios placed by the Company with the Trust by 5:30 p.m.,
Eastern time, on any Business day shall be priced at the net asset value
determined by the Trust as of the end of that Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Trust calculates its asset value pursuant to the rules of the SEC.
1.4. Purchase orders that are transmitted to the Trust in accordance with
Section 1.3. shall be paid for no later than 3:00 p.m., Eastern time, on the
Business Day following the Business Day that the Trust receives notice of the
order. Payments shall be made in federal funds transmitted by wire to the Trust
or its agent. Upon receipt by the Trust of the federal funds so wired, such
funds shall cease to be the responsibility of ALIAC and shall become the
responsibility of the Trust for this purpose.
1.5. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to ALIAC or the Accounts. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
2
<PAGE>
1.6. The Trust shall furnish prompt notice to ALIAC of any income
dividends or capital gain distributions payable on the Trust's shares. ALIAC
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify ALIAC of the number of shares so issued
as payment of such dividends and distributions. ALIAC may change this election
from time to time.
1.7. In accordance with Section 1.1., the Trust shall calculate the net
asset value of shares of its Portfolios on each Business Day and shall make the
net asset value per share for each Portfolio available to ALIAC on a daily basis
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value per share
available by 6:00 p.m., Eastern time.
1.8. The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Shared Trust Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
ALIAC agrees that Trust shares will be used only for the purposes of funding the
Contracts and Accounts listed in Schedule A.
1.9. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8. and
Article IV.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares,
preparation and filing of the documents listed in this Section 2.1. and all
taxes to which an issuer is subject on the issuance and transfer of its shares.
2.2. At the option of ALIAC, the Trust shall either (a) provide ALIAC (at
ALIAC's expense) with as many copies of the Trust's current prospectus,
statement of additional information, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any of
the foregoing, as ALIAC shall reasonably request, or (b) provide ALIAC with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide ALIAC with a copy of its statement of additional information in a
form suitable for duplication by ALIAC. The Trust (at its expense) shall provide
ALIAC with copies of any Trust-sponsored proxy materials in such quantity as
ALIAC shall reasonably require for distribution to Contract holders.
3
<PAGE>
2.3. ALIAC shall bear the costs of printing and distributing the Trust's
prospectus, statement of additional information, shareholder reports and other
shareholder communications to holders of and applicants for Contracts for which
the Trust is serving or is to serve as an investment vehicle. ALIAC shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions) to Contract holders. ALIAC assumes sole
responsibility for ensuring that such materials are delivered to Contract
holders in accordance with applicable federal and state securities laws.
2.4. The Trust recognizes ALIAC as the sole shareholder of Trust Shares
purchased in accordance with this Agreement. The Advisor and Trust further
recognize that the Trust will derive substantial savings with respect to its
administrative expenses, including significant reductions in expenses
attributable to postage, shareholder communications, and recordkeeping by virtue
of the Trust's having a sole shareholder rather than multiple shareholders. In
consideration of these administrative savings, the Adviser agrees to pay ALIAC a
fee equivalent to 15 basis points per annum of the amount invested in the Trust
through the Accounts in accordance with the Agreement (the "Fee").
2.5. The Adviser will calculate the amount of the total Fee to be paid to
ALIAC at the end of each calendar quarter and will such payment to ALIAC within
30 days thereafter. Each payment will be accompanied by a statement showing the
calculation of the Fee for the relevant calendar quarter and such other
supporting data as may be reasonably requested by ALIAC.
2.6. ALIAC agrees and acknowledges that Adviser is the sole owner of the
name and mark "Federated" and that all use of any designation comprised in whole
or part of Federated (a "Federated Mark") under this Agreement shall inure to
the benefit of Adviser. Except as provided in Section 2.5., ALIAC shall not use
any Federated Mark on its own behalf or on behalf of the Accounts or Contracts
in any registration statement, advertisement, sales literature or other
materials relating to the Accounts or Contracts without the prior written
consent of Adviser. Upon termination of this Agreement for any reason, ALIAC
shall cease all use of any Federated Mark(s) as soon as reasonably practicable.
2.7. ALIAC shall furnish, or cause to be furnished, to the Trust or its
designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or Adviser is named promptly after the filing of
such document with the SEC or other regulatory authorities. ALIAC shall furnish,
or shall cause to be furnished to the Trust or its designee, each piece of sales
literature or other promotional material in which the Trust or its investment
adviser is named, at least five Business Days prior to its use. No such material
shall be used if the Trust or its designee reasonably objects to such use within
five Business Days after receipt of such material.
4
<PAGE>
2.8. The Trust shall furnish, or cause to be furnished, to ALIAC at least
one copy of the application for the order, the order, and any amendments
thereto, all prospectuses, statements of additional information, reports, proxy
statements and other voting solicitation materials, all amendments, and
supplements thereto, and any other filings that relate to the Trust or its
shares, promptly after the filing of such document with the SEC or other
regulatory authorities.
2.9. ALIAC shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or Adviser in
connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee.
2.10. The Trust shall not give any information or make any
representations or statements on behalf of ALIAC or concerning ALIAC, the
Accounts or the Contracts, other than information or representations contained
in and accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by ALIAC for
distribution, including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of ALIAC.
2.11 So long as, and to the extent that the SEC interprets the 1940 Act
to require pass-through voting privileges for variable annuity contract and
variable life insurance policy holders, ALIAC will provide pass-through voting
privileges to holders of Contracts, the assets of which are invested, through
the Accounts, in shares of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and ALIAC
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, ALIAC will
vote shares of the Trust held by the Account and for which no timely voting
instructions from Contract holders are received as well as shares it owns that
are held by that Account, in the same proportion as those shares for which
voting instructions are received. ALIAC and its agents will not recommend or
oppose or interfere with the solicitation of proxies for Trust shares held by
Contract holders without the prior written consent of the Trust, which consent
may be withheld in the Trust's sole discretion.
ARTICLE III.
Representations and Warranties
5
<PAGE>
3.1. ALIAC represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Connecticut and
that it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2. ALIAC represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or that the Accounts are exempt
from registration.
3.3. ALIAC represents and warrants that the Contracts will be registered
under the 1933 Act prior to any issuance or sale of the Contracts or that the
Contracts are exempt from registration thereunder; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws, and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
3.4. ALIAC warrants and represents that it is duly authorized to enter
this Agreement and that the Agreement is legal, valid and enforceable against it
except as may be limited by bankruptcy or principles of equity.
3.5. ALIAC represents and warrants that all its directors, officers and
employees dealing with the money and/or securities of the Trust are, and shall
continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust, in an account not less than $2 million.
The aforesaid bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
3.6. The Trust and Adviser represent and warrant that the Trust is duly
organized and validly existing under the laws of the Commonwealth of
Massachusetts.
3.7. The Trust and Adviser represent and warrant that the Trust received
an order from the SEC that exempts the Trust from certain 1940 Act requirements
and permits Participating Insurance Companies to purchase Trust shares for their
respective separate accounts funding variable annuity contracts and variable
life insurance policies without regard to such requirements (the "Order").
3.8. The Trust and Adviser represent and warrant that the Adviser is duly
organized and validly existing under the laws of the State of Delaware, and is,
and shall remain, duly registered in all material respects under applicable
federal and state securities laws, and further that Adviser shall perform its
obligations for the Trust in compliance in all material respects with such laws.
3.9. The Trust and Adviser represent and warrant that the Trust shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and the Trust shall be registered under the 1940 Act prior to any issuance
or sale of such shares. The Trust shall amend its registration statement under
the 1933 Act and the 1940 Act from time to
6
<PAGE>
time as required in order to effect the continuous offering of its shares. The
Trust shall register and qualify its shares for sale in accordance with the laws
of the various states only if and to the extent deemed advisable by the Trust.
3.10. The Trust and Adviser represent and warrant that the investments of
each Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended ("Code"), and
the rules and regulations thereunder.
3.11. The Trust and Adviser represent and warrant that each is duly
authorized to enter into this Agreement and the Agreement is legal, valid and
enforceable against each except as may be limited by bankruptcy or principles of
equity.
3.12. The Trust and Adviser represent and warrant that all their
respective Trustees or directors, officers and employees dealing with the money
and/or securities of the Trust are, and shall continue to be at all times,
covered by a blanket fidelity bond or similar coverage for the benefit of the
Trust in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall be issued by a reputable bonding company.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract holders of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform ALIAC if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2. ALIAC agrees to promptly report any potential or existing conflicts
of which it is aware to the Trustees. ALIAC will assist the Trustees in carrying
out their responsibilities under the Order by providing the Trustees with all
information reasonably necessary for the Trustees to consider any issues raised
including, but not limited to, information as to a decision by ALIAC to
disregard Contract holder voting instructions.
7
<PAGE>
4.3. If it is determined by a majority of the Trustees, or a majority of
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract holders, ALIAC shall, in cooperation with
other Participating Insurance Companies whose contract holders are also
affected, at its expense and to the extent reasonably practicable (as determined
by the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract holders, as appropriate, segregating the assets of any appropriate
group (i.e., variable annuity contract holders or variable life insurance policy
holders of one or more Participating Insurance Companies) that votes in favor of
such segregation, or offering to the affected Contract holders the option of
making such a change and (b) establishing a new registered management investment
company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision
by ALIAC to disregard Contract holder voting instructions and that decision
represents a minority position or would preclude a majority vote, ALIAC may be
required, at the Trust's election, to withdraw the affected Account's investment
in the Trust and terminate this Agreement with respect to such Account;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested Trustees. Any such withdrawal and termination
must take place within six (6) months after the Trust gives written notice that
this provision is being implemented. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by ALIAC for the
purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to ALIAC conflicts with the
majority of other state regulators, ALIAC will withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account within six (6) months after the Trustees inform ALIAC in writing that it
has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
ALIAC for the purchase and redemption of shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6., a majority of the
disinterested Trustees shall determine whether any proposed action adequately
remedies any irreconcilable material conflict, but in no event will ALIAC be
required to establish a new funding medium for the Contracts if an offer to do
so has been declined by vote of a majority of Contract holders materially
adversely affected by the irreconcilable material conflict. In the event that
the Trustees determine that any proposed action does not
8
<PAGE>
adequately remedy any irreconcilable material conflict, ALIAC will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform ALIAC in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7. ALIAC shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonable request so that the Trustees
may fully carry out the duties imposed upon them by the Order and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Trustees.
4.8. If any rule issued under those provisions of the 1940 Act that are
the bases of the Order is revised in any material respect, the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with such revised rule as adopted to the extent it is
applicable.
ARTICLE V.
Indemnification
5.1. ALIAC agrees to indemnify and hold harmless the Trust and Adviser
and each of its respective Trustees or directors, officers, employees and agents
and each person, if any, who controls the Trust or the Adviser within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Article V.) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
ALIAC) or expenses (including the reasonable costs of investigating or defending
any alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
a registration statement or prospectus for the Contracts or
in the Contracts themselves or in sales literature generated
or approved by ALIAC on behalf of the Contracts or Accounts
(or any amendment or supplement to any of the foregoing)
(collectively, "ALIAC Documents" for the purposes of this
Article V.), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to ALIAC by or on
behalf of the Trust or Adviser for use in ALIAC Documents
9
<PAGE>
or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in
Section 5.2.(a)) or wrongful conduct of ALIAC or persons
under its control, with respect to the sale or acquisition
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2.(a) or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written
information furnished to the Trust by or on behalf of ALIAC;
or
(d) arise out of or result from any failure by ALIAC to provide
the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by ALIAC in this
Agreement or arise out of or result from any other material
breach of this Agreement by ALIAC.
5.2. The Trust and Adviser agree to indemnify and hold harmless ALIAC and
its directors, officers, employees and agents and each person, if any, who
controls ALIAC within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Article V.) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust) for expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or sales literature
for the Trust (or any amendment or supplement thereto)
(collectively, "Trust Documents" for the purposes of this
Article V.), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the Trust by
or on behalf of ALIAC for use in
10
<PAGE>
Trust Documents or otherwise for use in connection with the
sale of the Contracts of Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from ALIAC Documents) or wrongful conduct
of the Trust or persons under its control, with respect to
the sale or acquisition of the Contracts or Trust Shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in ALIAC
Documents or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and
accurately derived from written information furnished to
ALIAC by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust or
Adviser to provide the services or furnish the materials
required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Trust.
5.3. Neither ALIAC nor the Trust or Adviser shall be liable under the
indemnification provisions of Sections 5.1. or 5.2., as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
any Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4. Neither ALIAC nor the Trust or Adviser shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party or parties in writing within a reasonable
time after the summons, or other first written notification, giving information
concerning the nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any designated agent),
but failure to notify the party or parties against whom indemnification is
sought of any such claim shall not relieve that party from any liability which
it may have to the Indemnified Party in the absence of Sections 5.1. and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party or parties shall be entitled to participate, at its or
their own expense, in
11
<PAGE>
the defense of such action. The indemnifying party or parties also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party or parties named in the action. After notice from the indemnifying
party or parties to the Indemnified Party of an election to assume such defense,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party or parties will not be liable to the
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such party or parties independently in connection with
the defense hereof other than reasonable costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days'
advance written notice delivered to the other parties; or
(b) termination by ALIAC by written notice to the Trust and
Adviser with respect to any Portfolio based upon ALIAC's
determination that shares of such Portfolio are not
reasonably available to meet the needs of the Contracts; or
(c) termination by ALIAC by written notice to the Trust and
Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
ALIAC; or
(d) termination by ALIAC by written notice to the Trust and
Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a regulated investment
company under Subchapter M of the Code or under any
successor or similar provision, or if ALIAC reasonably
believes the Trust may fail to so qualify; or
(e) termination by ALIAC by written notice to the Trust and
Adviser with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements of
Section 3.10; or
(f) termination by ALIAC by written notice to the Trust and
Adviser, if ALIAC shall determine, in its sole judgment
exercised in good faith, that either the Trust of Adviser
has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
12
<PAGE>
(g) termination by either the Trust or Adviser by written notice
to ALIAC, if either one or both of the Trust or Adviser
shall determine, in its sole judgment exercised in good
faith, that ALIAC has suffered a material adverse change in
its business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of
material adverse publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust shall,
at the option of ALIAC, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement; provided, however, that ALIAC continues to pay the costs set forth in
Section 2.3.
6.3. The provisions of Article V. shall survive the termination of this
Agreement, and the provisions of Article IV. and Section 2.8. shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract holders in accordance with Section 6.2.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or Advisers:
---------------------------
---------------------------
---------------------------
Attention:
If to ALIAC:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut
Attention: Barrett N. Sidel
ARTICLE VIII.
Miscellaneous
13
<PAGE>
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
This Agreement shall be subject to the provisions of the 1933 Act, the 1934 Act
and the 1940 Act and the rules and regulations thereunder, including exemptions
from those statutes, rules and regulations as the SEC may grant (including, but
not limited to, the Order) and the terms hereof shall be interpreted and
construed in accordance thereof.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer or agent of the Trust, or holder or
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including, without limitation, the SEC, the National
Association of Dealers, Inc. and state insurance or securities regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date and year first above written.
AETNA LIFE INSURANCE AND INSURANCE MANAGEMENT SERIES
ANNUITY COMPANY
By: /s/ Richard C. Murphy By: /s/ J. Christopher Donahue
----------------------- -----------------------------
Name: Richard C. Murphy Name: J. Christopher Donahue
Title: Vice President Title: President
FEDERATED ADVISERS
By: /s/ J. Christopher Donahue
-----------------------------
Name: J. Christopher Donahue
Title: President
15
<PAGE>
SCHEDULE A
Separate Accounts and Associated Contracts
Contracts Funded
Name of Separate Account By Separate Account
- ------------------------ --------------------
ALIAC Variable Annuity Separate Aetna Growth Plus
Account B Aetna Marathon Plus
16
<PAGE>
SCHEDULE B
Fee Schedule
Federated will pay to ALIAC 5 basis points on an annualized basis on the
average of the aggregate account values in the Federated managed portion
(Insurance Management Series) of the Contracts listed on Schedule A (the "IMS
Value"). This payment will be made quarterly, within 30 days of the end of each
calendar quarter, commencing once the Federated Funds are charging at their
stated voluntary expense caps or on January 15, 1995, whichever is earlier.
17
SECOND AMENDMENT TO
PARTICIPATION AGREEMENT
THIS SECOND AMENDMENT TO THE PARTICIPATION AGREEMENT (the "Second Amendment")
is made and entered into as of the 14th day of March, 1997, by and among MFS
VARIABLE INSURANCE TRUST, a Massachusetts business trust (the "Trust"), AETNA
LIFE INSURANCE AND ANNUITY COMPANY, a Connecticut corporation (the "Company") on
its own behalf and on behalf of each of the segregated asset accounts of the
Company set forth in Schedule A hereto (the "Accounts") and MASSACHUSETTS
FINANCIAL SERVICES COMPANY, a Delaware corporation ("MFS").
WITNESSETH
WHEREAS, the Trust, the Company and MFS are parties to a Participation
Agreement dated April 30, 1996 and amended as of September 3, 1996 (the
"Agreement"); and
WHEREAS, the Trust, the Company and MFS now desire to modify the
Agreement to add an additional segregated asset account to which shares of the
listed portfolio will be made available.
NOW THEREFORE, in consideration of the premises and the mutual covenants and
promises expressed herein, the parties agree as follows:
1. Schedule A of the Agreement is hereby deleted and replaced with Schedule A,
attached hereto; and
2. the Agreement, as supplemented by this Second Amendment, is ratified and
confirmed; and
3. this Second Amendment may be executed in two or more counterparts, which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as
of the date first above written.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By its authorized officer,
By: /s/ Laura Estes
----------------------
Title: Senior Vice President
MFS VARIABLE INSURANCE TRUST, on behalf of the Portfolios
By its authorized officer and not individually,
By: /s/ A. Keith Brodki
----------------------
Title: Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
by its authorized officer,
By: /s/ Arnold D. Scott
----------------------
Title: Senior Executive Vice President
<PAGE>
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
- ---------------------------------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
Name of Separate Policies Funded by Separate Account Portfolios
Account and Date Applicable to Policies
Established by Board of
Directors
- ---------------------------------------- --------------------------------------- ----------------------------------------
World Government Series
Variable Annuity Account B Variable Annuity Emerging Growth Series
(Est. October 18, 1976) Total Return Series
Research Series
Value Series
- ---------------------------------------- --------------------------------------- ----------------------------------------
Variable Annuity Account D Variable Annuity Emerging Growth Series
(Est. November 27, 1974) Research Series
- ---------------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
FUND PARTICIPATION AGREEMENT
Aetna Life Insurance and Annuity Company (the "Company") Oppenheimer
Variable Account Funds (the "Fund") and OppenheimerFunds, Inc. (the "Adviser")
hereby agree to an arrangement whereby the Fund shall be made available to serve
as underlying investment media for Variable Annuity or Variable Life Contracts
("Contracts") to be issued by the Company.
1. Establishment of Accounts; Availability of Fund.
(a) The Company represents that it has established Variable Annuity
Accounts B, C, D and Variable Life Account B and may establish
such other accounts as may be set forth in Schedule A attached
hereto and as may be amended from time to time with the mutual
consent of the parties hereto (the "Accounts"), each of which is a
separate account under Connecticut Insurance law, and has
registered or will register each of the Accounts (except for such
Accounts for which no such registration is required) as a unit
investment trust under the Investment Company Act of 1940 (the
"1940 Act"), to serve as an investment vehicle for the Contracts.
Each Contract provides for the allocation of net amounts received
by the Company to an Account for investment in the shares of one
of more specified open-end management investment companies
available through that Account as underlying investment media.
Selection of a particular investment management company and
changes therein from time to time are made by the participant or
Contract owner, as applicable under a particular Contract.
(b) The Fund and the Adviser represent and warrant that the
investments of the series of the Fund (each designated a
"Portfolio") specified in Schedule B attached hereto (as may be
amended from time to time with the mutual consent of the parties
hereto) will at all times be adequately diversified within the
meaning of Section 817(h) of the Internal Revenue Service Code of
1986, as amended (the "Code"), and the Regulations thereunder, and
that at all times while this agreement is in effect, all
beneficial interests will be owned by one or more insurance
companies or by any other party permitted under Section
1.817-5(f)(3) of the Regulations promulgated under the Code or by
the successor thereto, or by any other party permitted under a
Revenue Ruling or private letter ruling granted by the Internal
Revenue Service.
2. Pricing Information; Orders; Settlement.
(a) The Fund will make Fund shares available to be purchased by the
Company, and will accept redemption orders from the Company, on
behalf of each Account at the net asset value applicable to each
order on those days on which the Fund calculates its net asset
value (a "Business Day"). Fund shares shall be purchased and
redeemed in such quantity and at such time determined by the
Company to be necessary to meet the requirements of those
Contracts for which the Fund serve as underlying investment media,
provided, however, that the Board of Trustees of the Fund
(hereinafter the "Trustees") may upon reasonable notice to the
Company, refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio
1
<PAGE>
if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees,
acting in good faith and in the best interests of the shareholders
of any Portfolio and is acting in compliance with their fiduciary
obligations under federal and/or any applicable state laws.
(b) The Fund will provide to the Company closing net asset value,
dividend and capital gain information at the close of trading each
Business Day, and in no event later than 7:00 p.m. Eastern time on
such business day. The Company will send via facsimile or
electronic transmission to the Fund or its specified agent orders
to purchase and/or redeem Fund shares by 10:00 a.m. Eastern
Standard Time the following business day. Payment for net
purchases will be wired by the Company to an account designated by
the Fund to coincide with the order for shares of the Fund.
(c) The Fund hereby appoints the Company as its agent for the limited
purpose of accepting purchase and redemption orders for Fund
shares relating to the Contracts from Contract owners or
participants. Orders from Contract owners or participants received
from any distributor of the Contracts (including affiliates of the
Company) by the Company, acting as agent for the Fund, prior to
the close of the Exchange on any given business day will be
executed by the Fund at the net asset value determined as of the
close of the Exchange on such business day, provided that the Fund
receives written (or facsimile) notice of such order by 10 a.m.
Eastern Standard Time on the next following Business Day. Any
orders received by the Company acting as agent on such day but
after the close of the Exchange will be executed by the Fund at
the net asset value determined as of the close of the Exchange on
the next business day following the day of receipt of such order,
provided that the Fund receives written (or facsimile) notice of
such order by 10 a.m. Eastern Standard Time within two days
following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be wired
by the Fund to an account designated by the Company. Payments for
net purchases of the Fund will be wired by the Company to an
account designated by the Fund on the same Business Day the
Company places an order to purchase Fund shares. Payments shall be
in federal funds transmitted by wire.
(e) Each party shall not be liable in the event that an error is a
result of any misinformation supplied by the other party.
(f) The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule A offered by the then current
prospectus and statement of additional information of the Fund in
accordance with the provisions of such prospectus and statement of
additional information. The Company shall not permit any person
other than a Contract owner or Participant to give instructions to
the Company which would require the Company to redeem or exchange
shares of the Fund. This provision shall not be construed to
prohibit the Company from substituting shares of another fund, as
permitted by law.
2
<PAGE>
3. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by the Fund under this Agreement shall
be paid by the Fund, including the cost of registration of Fund
shares with the Securities and Exchange Commission (the "SEC") and
in states where required. The Fund and Adviser shall pay no fee or
other compensation to the Company under this Agreement, and the
Company shall pay no fee or other compensation to the Fund or
Adviser, except as provided herein and in Schedule C attached
hereto and made a part of this Agreement as may be amended from
time to time with the mutual consent of the parties hereto. All
expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party, unless
otherwise specified in this Agreement.
(b) The Fund or the Adviser shall provide to the Company Post Script
files of periodic fund reports to shareholders and other materials
that are required by law to be sent to Contract owners. In
addition, the Fund or the Adviser shall provide the Company with a
sufficient quantity of its prospectuses, statements of additional
information and any supplements to any of these materials, to be
used in connection with the offerings and transactions
contemplated by this Agreement. In addition, the Fund shall
provide the Company with a sufficient quantity of its proxy
material that is required to be sent to Contract owners. The
Adviser shall be permitted to review and approve the typeset form
of such material prior to such printing provided such material has
been provided by the Adviser to the Company within a reasonable
period of time prior to typesetting.
(c) In lieu of the Fund's or Adviser's providing printed copies of
prospectuses, statements of additional information and any
supplements to any of these materials, and periodic fund reports
to shareholders, the Company shall have the right to request that
the Fund transmit a copy of such materials in an electronic format
(Post Script files), which the Company may use to have such
materials printed together with similar materials of other Account
funding media that the Company or any distributor will distribute
to existing or prospective Contract owners or participants.
4. Representations.
The Company agrees that it and its agents shall not, without the written
consent of the Fund or the Adviser, make representations concerning the Fund, or
its shares except those contained in the then current prospectuses and in
current printed sales literature approved by or deemed approved by the Fund or
the Adviser.
5. Termination.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company, the Adviser or the Fund, upon
sixty days advance written notice to the other parties;
3
<PAGE>
(b) at the option of the Company, upon one week advance written notice
to the Adviser and the Fund, if Fund shares are not available for
any reason to meet the requirement of Contracts as determined by
the Company. Reasonable additional advance notice of election to
terminate shall be furnished by Company;
(c) at the option of either the Company, the Adviser or the Fund,
immediately upon institution of formal proceedings against the
broker-dealer or broker-dealers marketing the Contracts, the
Account, the Company, the Fund or the Adviser by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC or
any other regulatory body;
(d) upon the determination of the Accounts to substitute for the
Fund's shares the shares of another investment company in
accordance with the terms of the applicable Contracts. The Company
will give 60 days written notice to the Fund and the Adviser of
any decision to replace the Fund's' shares;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if Fund shares are not registered, issued or sold in conformance
with Federal law or such law precludes the use of Fund shares as
an underlying investment medium for Contracts issued or to be
issued by the Company. Prompt notice shall be given by the
appropriate party should such situation occur.
6. Continuation of Agreement.
Termination as the result of any cause listed in Section 5 shall not
affect the Fund's obligation to furnish its shares to Contracts then in force
for which its shares serve or may serve as the underlying medium unless such
further sale of Fund shares is prohibited by law or the SEC or other regulatory
body, or is determined by the Fund's Board to be necessary to remedy or
eliminate an irreconcilable conflict pursuant to Section 10 hereof.
7. Advertising Materials; Filed Documents.
(a) All advertising or sales literature with respect to the Fund
prepared by the Company or its agents for use in marketing its
Contracts will be submitted to the Fund or its designee for review
before such material is submitted to any regulatory body for
review or placed in use. No such material shall be used if the
Fund or its designee reasonably object to such use in writing,
transmitted by facsimile within five business days after receipt
of such material.
(b) The Fund will provide at least one complete copy of its financials
as soon as available to the Company and at least one complete copy
of all registration statements, prospectuses, statements of
additional information, annual and semi-annual reports, proxy
statements and all amendments or supplements to any of the above
that relate to the Fund promptly after the filing of such document
with the SEC or other regulatory authorities. At the Adviser's
request, the Company will provide to the Adviser at
4
<PAGE>
least one complete copy of all registration statements,
prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, and all amendments or
supplements to any of the above that relate to the Account
promptly after the filing of such document with the SEC or other
regulatory authority.
(c) The Fund or the Adviser will provide via Excel spreadsheet
diskette format or in electronic transmission to the Company at
least quarterly portfolio information necessary to update Fund
profiles.
8. Proxy Voting.
(a) The Company shall provide pass-through voting privileges on Fund
shares held by registered separate accounts to all Contract owners
and participants to the extent the SEC continues to interpret the
1940 Act as requiring such privileges. The Company shall provide
pass-through voting privileges on Fund shares held by unregistered
separate accounts to all Contract owners.
(b) The Company will distribute to Contract owners and participants,
as appropriate, all proxy material furnished by the Fund and will
vote Fund shares in accordance with instructions received from
such Contract owners and participants. If and to the extent
required by law, the Company, with respect to each group Contract
and in each Account, shall vote Fund shares for which no
instructions have been received in the same proportion as shares
for which such instructions have been received. The Company and
its agents shall cooperate with the solicitation of proxies for
Fund shares held for such Contract owners and participants.
9. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and the
Adviser, and each of their directors, officers, employees, agents
and each person, if any, who controls the Fund or its Adviser
within the meaning of the Securities Act of 1933 (the "1933 Act")
against any losses, claims, damages or liabilities to which the
Fund or the Adviser or any such director, officer, employee,
agent, or controlling person may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, prospectus
or sales literature of the Company or the Contracts, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or arise out of or
as a result of conduct, statements or representations (other than
statements or representations contained in the prospectuses or
sales literature of the Fund) of the Company or its agents, with
respect to the sale and distribution of Contracts for which Fund
shares are the underlying investment. The Company will reimburse
any legal or other expenses reasonably incurred by the Fund or any
such director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however, that the Company will not
5
<PAGE>
be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an
untrue statement or omission or alleged omission made in such
Registration Statement or prospectus in conformity with written
materials furnished to the Company by the Fund specifically for
use therein or (ii) the willful misfeasance, bad faith, or gross
negligence by the Fund or Adviser in the performance of its duties
or the Fund's or Adviser's reckless disregard of obligations or
duties under this Agreement or to the Company, whichever is
applicable. This indemnity agreement will be in addition to any
liability which Company may otherwise have.
(b) The Fund and the Adviser agree to indemnify and hold harmless the
Company and its directors, officers, employees, agents and each
person, if any, who controls the Company within the meaning of the
1933 Act against any losses, claims, damages or liabilities to
which the Company or any such director, officer, employee, agent
or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectuses or sales
literature of the Fund or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or material fact required to be
stated therein or necessary to make the statements therein not
misleading. The Fund will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer,
employee, agent, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the Fund will not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (i) an untrue statement
or omission or alleged omission made in such Registration
Statement or prospectuses which are in conformity with written
materials furnished to the Fund by the Company specifically for
use therein or (ii) the willful misfeasance, bad faith, or gross
negligence by the Company in the performance of its duties or the
Company's reckless disregard of obligations or duties under this
Agreement or to the Fund or the Adviser, whichever is applicable.
This indemnity agreement will be in addition to any liability
which the Fund or the Adviser may otherwise have.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 10. In case
any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to
the extent that it may wish to, assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party
will not be liable to such
6
<PAGE>
indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation.
10. Potential Conflicts.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by the Fund on March 28, 1986 and on
June 9, 1986 with the SEC and the order issued by the SEC dated
July 16, 1986 (File No. 812-6324) in response thereto (the "Shared
Funding Exemptive Order"). The Company has reviewed the conditions
to the requested relief set forth in such application for
exemptive relief. As set forth in such application, the Board of
Directors of Fund (the "Board") will monitor the Fund for the
existence of any material irreconcilable conflict between the
interests of the contractholders of all separate accounts
("Participating Companies") investing in the Fund. An
irreconcilable material conflict may arise for a variety of
reasons, including: (i) an action by any state insurance
regulatory authority; (ii) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter,
or any similar actions by insurance, tax or securities regulatory
authorities; (iii) an administrative or judicial decision in any
relevant proceeding; (iv) the manner in which the investments of
any portfolio are being managed; (v) a difference in voting
instructions given by variable annuity contractholders and
variable life insurance contractholders; or (vi) a decision by an
insurer to disregard the voting instructions of contractholders.
The Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications
thereof.
(b) The Company agrees to be bound by the responsibilities of a
participating insurance company as set forth in the Mixed and
Shared Funding Exemptive Order, including without limitation the
requirement that the Company report any potential or existing
conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the
Shared Funding Exemptive Order by providing the Board with all
information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever contractholder voting
instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict
exists with regard to contractholder investments in a Fund, the
Board shall give prompt notice to all Participating Companies. If
the Board determines that the Company is responsible for causing
or creating said conflict, the Company shall at its sole cost and
expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Board members), take such
action as is necessary to remedy or eliminate the irreconcilable
material conflict. Such necessary action may include but shall not
be limited to:
7
<PAGE>
(i) withdrawing the assets allocable to the Account from the Fund
and reinvesting such assets in a different investment medium
or submitting the question of whether such segregation should
be implemented to a vote of all affected contractholders and
as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more
Participating Companies) that votes in favor of such
segregation, or offering to the affected contractholders the
option of making such a change; and/or
(ii) establishing a new registered management investment company
or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting
instructions and said decision represents a minority position or
would preclude a majority vote by all of its contractholders
having an interest in the Fund, the Company at its sole cost, may
be required, at the Board's election, to withdraw an Account's
investment in the Fund and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members
of the Board.
(e) For the purpose of this Section 10, a majority of the
disinterested Board members shall determine whether or not any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a
new funding medium for any Contract. The Company shall not be
required by this Section 11 to establish a new funding medium for
any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners or participants materially
adversely affected by the irreconcilable material conflict.
11. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally,
but only by an instrument in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or
sent by telex, telecopier or registered or certified mail, postage
prepaid, return receipt requested, to the party or parties to whom
they are directed at the following addresses, or at such other
addresses as may be designated by notice from such party to all
other parties.
To the Company:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, Counsel
8
<PAGE>
To the Fund:
Oppenheimer Variable Account Fund
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
To the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Andrew J. Donohue, Executive VP and
General Counsel
Any notice, demand or other communication given in a manner prescribed in
this subsection (b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
agreement, and any party hereto may execute this Agreement by
signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be
affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties hereto and supersedes all
prior agreement and understandings relating to the subject matter
hereof.
(g) Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Connecticut.
(h) It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect.
(i) The terms of this Agreement and the Schedules thereto will be held
confidential by each party except to the extent that either party
or its counsel may deem it necessary to disclose such terms.
9
<PAGE>
12. Limitation on Liability of Trustees, etc.
This agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his or her capacity as an officer of the Fund. The
Company and the Adviser each understand and agree that the obligations of the
Fund under this Agreement are not binding upon any shareholder or Trustee of the
Fund personally, but bind only the Fund and the Fund's property; the Company and
the Adviser each represent that it has notice of the provisions of the
Declaration of Trust of the Fund disclaiming shareholder and Trustee liability
for acts or obligations of the Fund.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers effective as of the 11th day of March, 1997.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Michael J. Gilotti
-----------------------
Name:Michael J. Gilotti
Title: Vice President
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By: /s/ Andrew J. Donahue
-----------------------
Name: Andrew J. Donahue
Title: Vice President and Secretary
OPPENHEIMERFUNDS, INC.
By: /s/ Andrew J. Donahue
------------------------
Name: Andrew J. Donahue
Title: Executive Vice President
10
SERVICE AGREEMENT
AGREEMENT, effective as of March 11 1997, between OppenheimerFunds,
Inc. (the "Adviser"), a Colorado corporation, and Aetna Life Insurance and
Annuity Company (the "Company"), a Connecticut corporation, for the provision of
described administrative services by the Company in connection with the sale of
shares of the Oppenheimer Variable Account Funds (the "Fund") as described in
the Fund Participation Agreement dated March 11, 1997 between the Company, the
Fund and the Adviser (the "Fund Participation Agreement").
In consideration of their mutual promises, the Adviser and the Company agree as
follows:
1. The Company agrees to provide the following services to the Adviser:
a. responding to inquiries from owners of the Company variable
annuity contracts and variable life insurance policies using
the Funds as an investment vehicle ("Contractholders")
regarding the services performed by the Company that relate to
the Funds;
b. providing information to Adviser and Contractholders with
respect to Fund shares attributable to Contractholder
accounts;
c. communicating directly with Contractholders concerning the
Funds' operations;
d. providing such other similar services as Adviser may
reasonably request pursuant to Adviser's agreement with the
Funds to the extent permitted under applicable federal and
state requirements.
2. (a) Administrative services to Contractholders owners and
participants shall be the responsibility of the Company and
shall not be the responsibility of the Fund or the Adviser.
The Adviser recognizes the Company as the sole shareholder of
Fund shares issued under the Fund Participation Agreement, and
that substantial savings will be derived in administrative
expenses, such as significant reductions in postage expense
and shareholder communications, by virtue of having a sole
shareholder for each of the Accounts rather than multiple
shareholders. In consideration of the savings resulting from
such arrangement, and to compensate the Company for its costs,
the Adviser agrees to pay to the Company and the Company
agrees to accept as full compensation for all services
rendered hereunder an amount described in Schedule A attached
hereto and made a part of this Agreement as may be amended
from time to time with the mutual consent of the parties
hereto.
(b) The parties agree that the Adviser's payments to the Company
are for administrative services only and do not constitute
payment in any manner for investment advisory services or for
costs of distribution.
1
<PAGE>
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 2, the average
aggregate amount invested by the Company over a one month
period shall be computed by totaling the Company's aggregate
investment (share net asset value multiplied by total number
of shares held by the Company) on each business day during the
month and dividing by the total number of business days during
each month.
(d) The Fund will calculate the reimbursement of administrative
expenses at the end of each month and will make such
reimbursement to the Company within 30 days thereafter. The
reimbursement payment will be accompanied by a statement
showing the calculation of the monthly amounts payable by the
Adviser and such other supporting data as may be reasonably
requested by the Company. Payment will be wired by the Adviser
to an account designated by the Company.
3. The Company agrees to indemnify and hold harmless the Adviser and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of
the Company under this Agreement or a breach of a material provision of
this Agreement, except to the extent such loss, liability or expense is
the result of the Adviser's own willful misfeasance, bad faith or gross
negligence in the performance of its duties.
4. The Adviser agrees to indemnify and hold harmless the Company and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of
the Adviser under this Agreement or a breach of a material provision
under this Agreement, except to the extent such loss, liability or
expense is the result of the Company's own willful misfeasance, bad
faith or gross negligence in the performance of its duties.
5. Either party may terminate this Agreement, without penalty, (i) on
sixty (60) days written notice to the other party, for any cause or
without cause, or (ii) on reasonable notice to the other party, if it
is not permissible to continue the arrangement described herein under
laws, rules or regulations applicable to either party or the Fund, or
if the Participation Agreement is terminated.
6. The terms of this arrangement will be held confidential by each party
except to the extent that either party or its counsel may deem it
necessary to disclose this arrangement.
7. This Agreement represents the entire Agreement of the parties on the
subject matter hereof and it cannot be amended or modified except in
writing, signed by the parties. This Agreement may be executed in one
or more separate counterparts, all of which, when taken together, shall
constitute one and the same Agreement.
2
<PAGE>
8. All notices and other communications hereunder shall be given or made
in writing and shall be delivered personally, or sent by telex,
telecopier or registered or certified mail, postage prepaid, return
receipt requested, to the party to whom they are directed at the
following addresses, or at such other addresses as may be designated by
notice from such party to the other party.
To Aetna:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, Counsel
To OFI:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attention: Andrew J. Donohue, Executive Vice President
& General Counsel
Any notice, demand or other communication given in a manner prescribed in this
Section 8 shall be deemed to have been delivered on receipt.
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their authorized officers as of the day and year first above
written.
OPPENHEIMERFUNDS, INC.
By: /s/ Andrew J. Donahue
----------------------
Andrew J. Donahue, Executive Vice President
Date: March 11, 1997
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Michael J. Gilotti
-----------------------
Michael J. Gilotti
Date: March 12, 1997
3
Consent
of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contract Owners of Aetna Variable Annuity Account B:
We consent to the use of our reports dated February 4, 1997 and February 14,
1997 included herein and to the references to our Firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors"
in the Statement of Additional Information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
April 16, 1997
151 Farmington Avenue
Hartford, CT 06156
Susan E. Bryant
Counsel
Law Division, RE4A
April 16, 1997 Investments & Financial Services
(860) 273-7834
Fax: (860) 273-0356
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Variable Annuity Account B of Aetna Life Insurance and Annuity Company
Post-Effective Amendment No. 27 to Registration Statement on Form N-4
File Nos. 33-34370* and 811-2512
Dear Sir or Madam:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1997 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1996 filed
on behalf of Variable Annuity Account B of Aetna Life Insurance and Annuity
Company on February 28, 1997) as an exhibit to this Post-Effective Amendment No.
27 to Registration Statement on Form N-4 (File No. 33-34370).
Sincerely,
/s/Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
- ---------------
*Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the following earlier Registration Statement: 33-87932.
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<ARTICLE> 6
<CIK> 0000103005
<NAME> ALIAC Marathon Plus
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,726,620,671
<INVESTMENTS-AT-VALUE> 1,848,811,724
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,848,811,724
<PAYABLE-FOR-SECURITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
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<NET-ASSETS> 1,848,811,724
<DIVIDEND-INCOME> 120,367,178
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 17,483,870
<NET-INVESTMENT-INCOME> 102,883,308
<REALIZED-GAINS-CURRENT> 17,427,408
<APPREC-INCREASE-CURRENT> 93,444,109
<NET-CHANGE-FROM-OPS> 213,754,825
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
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