As filed with the Securities and Exchange Registration No. 33-34370*
Commission on February 27, 1998 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 34 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) 273-4686
Julie E. Rockmore, 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:
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
*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
Portfolio Companies.................................. The Company; Variable Annuity Account B; The Funds
6 Deductions and Expenses.............................. Charges and Deductions; Distribution
7 General Description of Variable Annuity Contracts.... Purchase; Miscellaneous
8 Annuity Period....................................... Annuity Period
9 Death Benefit........................................ Death Benefit During Accumulation Period; Death
Benefit Payable During the Annuity Period
10 Purchases and Contract Value......................... Purchase; Contract Valuation
11 Redemptions.......................................... Right to Cancel; Withdrawals
12 Taxes................................................ Tax Status
13 Legal Proceedings.................................... Miscellaneous - Legal Matters and Proceedings
14 Table of Contents of the Statement of Additional
Information.......................................... Contents of the Statement of Additional Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-4 PART B (STATEMENT OF LOCATION - STATEMENT
ITEM NO. ADDITIONAL INFORMATION) OF ADDITIONAL INFORMATION
<S> <C> <C>
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History; Independent Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data; Average Annual Total Return Quotations
22 Annuity Payments..................................... Annuity Payments
23 Financial Statements................................. Financial Statements
</TABLE>
Part C (Other Information)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
================================================================================
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") including Roth IRAs under
Sections 408(b) and 408A 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.")
In most states, 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. In certain states, Purchase Payments may be
allocated to the Fixed Account when the Guaranteed Account is not available. The
Subaccounts invest directly in shares of the following Funds:
<TABLE>
<S> <C>
[bullet] Aetna Variable Fund d/b/a [bullet] Fidelity VIP High Income Portfolio
Aetna Growth and Income VP [bullet] Fidelity VIP Overseas Portfolio
[bullet] Aetna Income Shares d/b/a Aetna Bond VP [bullet] Fidelity VIP II Asset Manager Portfolio
[bullet] Aetna Variable Encore Fund d/b/a [bullet] Fidelity VIP II Contrafund Portfolio
Aetna Money Market VP [bullet] Fidelity VIP II Index 500 Portfolio
[bullet] Aetna Balanced VP [bullet] Janus Aspen Aggressive Growth Portfolio
(formerly Aetna Investment Advisers Fund, Inc.) [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Ascent VP [bullet] Janus Aspen Flexible Income Portfolio
(formerly Aetna Ascent Variable Portfolio) [bullet] Janus Aspen Growth Portfolio
[bullet] Aetna Crossroads VP [bullet] Janus Aspen Worldwide Growth Portfolio
(formerly Aetna Crossroads Variable Portfolio) [bullet] MFS Total Return Series
[bullet] Aetna Legacy VP [bullet] MFS World Governments Series
(formerly Aetna Legacy Variable Portfolio) [bullet] Oppenheimer Aggressive Growth Fund
[bullet] Aetna Value Opportunity VP (formerly Oppenheimer Capital Appreciation Fund)
(formerly Aetna Variable Capital Appreciation Portfolio) [bullet] Oppenheimer Global Securities Fund
[bullet] Aetna Growth VP [bullet] Oppenheimer Growth & Income Fund
(formerly Aetna Variable Growth Portfolio) [bullet] Oppenheimer Strategic Bond Fund
[bullet] Aetna Index Plus Large Cap VP [bullet] Portfolio Partners MFS Emerging Equities Portfolio
(formerly Aetna Variable Index Plus Portfolio) [bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Aetna Small Company VP [bullet] Portfolio Partners MFS Value Equity Portfolio
(formerly Aetna Variable Small Company Portfolio) [bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Aetna International VP [bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio
[bullet] Aetna Real Estate Securities VP
[bullet] Calvert Social Balanced Portfolio
(formerly Calvert Responsibly Invested Balanced
Portfolio)
[bullet] [Federated American Leaders Fund II]
[bullet] [Federated Equity Income Fund II]
[bullet] [Federated Fund for U.S. Government Securities II]
[bullet] [Federated Growth Strategies Fund II]
[bullet] [Federated High Income Bond Fund II]
[bullet] [Federated International Equity Fund II]
[bullet] [Federated Prime Money Fund II]
[bullet] [Federated Utility Fund II]
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
</TABLE>
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. The Guaranteed Account is described in the
Appendix to this Prospectus, as well as in the Guaranteed Account's prospectus.
The Fixed Account is described in a separate Appendix to this Prospectus. The
availability of the Funds, the Guaranteed Account and the Fixed 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 20 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 SHOULD BE READ IN CONJUNCTION WITH THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE ALIAC GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE RETAINED
FOR FUTURE REFERENCE.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK, NOR
ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
ARE DATED MAY 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
====================================================================================================================================
<S> <C>
DEFINITIONS .............................................................................................. DEFINITIONS - 1
PROSPECTUS SUMMARY ....................................................................................... SUMMARY - 1
FEE TABLE ................................................................................................ FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .......................................................................... AUV HISTORY - 1
THE COMPANY .................................................................................................................... 1
VARIABLE ANNUITY ACCOUNT B ..................................................................................................... 1
INVESTMENT OPTIONS ............................................................................................................. 1
The Funds .................................................................................................................. 1
Credited Interest Option ................................................................................................... 3
Fixed Acccount ............................................................................................................. 3
PURCHASE ....................................................................................................................... 3
Contract Availability ...................................................................................................... 3
Purchasing Interests in the Contract ....................................................................................... 3
Purchase Payments .......................................................................................................... 3
Contract Rights ............................................................................................................ 4
Designations of Beneficiary and Annuitant .................................................................................. 4
Right to Cancel ............................................................................................................ 4
CHARGES AND DEDUCTIONS ......................................................................................................... 4
Daily Deductions from the Separate Account ................................................................................. 4
Mortality and Expense Risk Charge ...................................................................................... 4
Administrative Charge .................................................................................................. 4
Maintenance Fee ............................................................................................................ 5
Reduction or Elimination of Administrative Charge and Maintenance Fee ...................................................... 5
Deferred Sales Charge ...................................................................................................... 5
Reduction or Elimination of the Deferred Sales Charge ...................................................................... 6
Fund Expenses .............................................................................................................. 6
Premium and Other Taxes .................................................................................................... 6
CONTRACT VALUATION ............................................................................................................. 6
Account Value .............................................................................................................. 6
Accumulation Units ......................................................................................................... 6
Net Investment Factor ...................................................................................................... 7
TRANSFERS ...................................................................................................................... 7
Telephone Transfers ........................................................................................................ 7
Dollar Cost Averaging Program .............................................................................................. 7
Account Rebalancing Program ................................................................................................ 8
WITHDRAWALS .................................................................................................................... 8
SYSTEMATIC DISTRIBUTION OPTIONS ................................................................................................ 8
DEATH BENEFIT DURING ACCUMULATION PERIOD ....................................................................................... 9
Death Benefit Amount ....................................................................................................... 9
Death Benefit Payment Options .............................................................................................. 10
Nonqualified Contracts ................................................................................................. 10
Qualified Contracts .................................................................................................... 10
ANNUITY PERIOD ................................................................................................................. 11
Annuity Period Elections ................................................................................................... 11
Partial Annuitization ...................................................................................................... 11
Annuity Options ............................................................................................................ 11
Annuity Payments ........................................................................................................... 12
Charges Deducted During the Annuity Period ................................................................................. 12
Death Benefit Payable During the Annuity Period ............................................................................ 12
TAX STATUS ..................................................................................................................... 13
Introduction ............................................................................................................... 13
Taxation of the Company .................................................................................................... 13
Tax Status of the Contract ................................................................................................. 13
Taxation of Annuity Contracts .............................................................................................. 14
Contracts Used with Certain Retirement Plans ............................................................................... 16
Qualified Contracts in General ............................................................................................. 16
Individual Retirement Annuities and Simplified Employee Pension Plans ...................................................... 17
Withholding ................................................................................................................ 17
MISCELLANEOUS .................................................................................................................. 17
Distribution ............................................................................................................... 17
Delay or Suspension of Payments ............................................................................................ 18
Performance Reporting ...................................................................................................... 18
Voting Rights .............................................................................................................. 18
Modification of the Contract ............................................................................................... 18
Transfers of Ownership; Assignment ......................................................................................... 19
Involuntary Terminations ................................................................................................... 19
Legal Matters and Proceedings .............................................................................................. 19
Year 2000................................................................................................................... 19
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............................................................................ 20
APPENDIX A--ALIAC GUARANTEED ACCOUNT ........................................................................................... 21
APPENDIX B--FIXED ACCOUNT ...................................................................................................... 23
APPENDIX C--DESCRIPTION OF UNDERLYING FUNDS..................................................................................... 24
</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.
Claim Date: The date when proof of death and the Beneficiary's claim are
received in good order at the Company's Home Office.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Contract Year: The number of completed years since the date of the first payment
under an individual Contract or to an Account under a group Contract.
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.
Fixed Account: A fixed interest option available in certain states which is
described in an Appendix to this prospectus. Amounts allocated to the Fixed
Account are included in the Account Value.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
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) or 408A.
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), 408A or
457.
Roth IRA: An Individual Retirement Annuity intended to qualify under Code
Section 408A.
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") including Roth 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 Section 403(b) of the Code (may
be subject to approval by the Company and by state regulatory agencies). Prior
to May 1, 1998, the Contracts were also available for purchases made in
conjunction with employer-sponsored retirement plans under Sections 401(a) or
457 of the 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 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.") If the Purchase
Payment to a Roth IRA is a rollover from a contract issued by the Company or an
affiliate where the deferred sales charge was eliminated or reduced to
facilitate the rollover to this Contract and you exercise your free look right
under this provision, the Purchase Payment will be restored to the contract from
which it came.
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 (or the Fixed Account,
in certain states) described below subject to the limitations described in
"Investment Options," see page 1. For a complete list of the Funds available
under the Contracts, and a description of the investment objectives of each of
the Funds and their investment advisers, see "Investment Options--The Funds" and
Appendix C 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.)
The Fixed Account is an option available under the Contract in certain
states which allows you to earn a fixed rate of interest. (See the Appendix B to
this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), as well as any 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 (or
Fixed Account in certain states). During the Annuity Period and subject to state
approval, if you have elected variable payments, you can make transfers among
the Subaccounts available during the Annuity Period. Currently, during the
Accumulation Period, transfers are without charge. However, the Company reserves
the right to charge up to $10 for each additional transfer if more than 12
transfers are made in a calendar year. Any transfer charge will be applied so
that the amount being transferred will be reduced. Transfers can be requested in
writing or by telephone in accordance with the Company's transfer procedures. If
approved by your state, during the Annuity Period, you can currently make up to
four transfers each calendar year. There is no charge for these transfers.
(Transfers from the Guaranteed Account may be restricted and subject to a market
value adjustment. See Appendix A.)
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. In
a Contract with a Fixed Account, the Fixed Account is only available for dollar
cost averaging from the Fixed Account to the other investment options over a
period not to exceed 12 months. 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 Appendix
A.) The taxable portion of the withdrawal may also be subject to income tax and
a federal tax penalty. (See "Withdrawals.")
The Contract also offers certain Systematic Distribution Options during the
Accumulation Period subject to certain criteria. Some Systematic Distribution
Options are not available in all states and may not be suitable in every
situation. (See "Systematic Distribution Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies)
actually receive a distribution from the Contract. A 10% federal tax penalty may
be imposed on certain withdrawals. Special rules apply to distributions from a
Roth IRA. (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.
CONTRACTS OTHER THAN ROTH IRA CONTRACTS
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%
- ---------------------------------------------------------------
<PAGE>
Annual Maintenance Fee (1).................................... $30.00
Transfer Charge (2)........................................... $0.00
SEPARATE ACCOUNT ANNUAL EXPENSES
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options under each Contract).
During the Accumulation Period:
Mortality and Expense Risk Charge ............................ 1.25%(3)
Administrative Charge ........................................ 0.15%
----
Total Subaccount Annual Expenses ............................. 1.40%
During the Annuity Period:
Mortality and Expense Risk Charge ............................ 1.25%
Administrative Charge ........................................ 0.00%(4)
----
Total Subaccount Annual Expenses ............................. 1.25%
(1) The maintenance fee, if applicable, will generally be deducted from each
Account annually and if the full Account Value is withdrawn. The
maintenance fee is waived when the Account Value is $50,000 or more on the
date the maintenance fee is due. The amount shown is the maximum
maintenance fee that can be deducted under the Contract.
(2) During the Accumulation Period we currently allow an unlimited number of
transfers without charge. However, we reserve the right to impose a fee of
$10 for each transfer in excess of 12 per year.
(3) Under certain Contracts the mortality and expense risk charge during the
Accumulation Period may be reduced. See "Charges and Deductions."
(4) We currently do not impose an Administrative Charge during the Annuity
Period. However, we reserve the right to deduct a daily charge of not more
than 0.25% per year from the Subaccounts.
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ROTH IRA CONTRACTS
CONTRACT HOLDER TRANSACTION EXPENSES-
Deferred Sales Charge for withdrawals under each Contract (as a percentage of
each Purchase Payment withdrawn). If the Purchase Payment is a rollover from
another contract issued by the Company or an affiliate where the deferred sales
charge has been waived, the deferred sales charge is based on the number of
completed Contract Years since the date of the initial payment to the
predecessor contract. The Company reserves the right to not accept any rollover
contribution to an existing Contract.
----------------------------------------------------------
Completed Contract Deferred Sales
Years Charge Deduction
----------------
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 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............................. 1.10%(3)
Administrative Charge......................................... 0.15%
Total Subaccount Annual Expenses.............................. 1.25%
During the Annuity Period
Mortality and Expense Risk Charge............................. 1.25%
Administrative Charge......................................... 0.00%(4)
Total Subaccount Annual Expenses.............................. 1.25%
- -------------
(1) The maintenance fee, if applicable, will generally be deducted from each
Account annually and if the full Account Value is withdrawn. The
maintenance fee is waived when the Account Value is $50,000 or more on the
date the maintenance fee is due. The amount shown is the maximum
maintenance fee that can be deducted under the Contract.
(2) During the Accumulation Period we currently allow an unlimited number of
transfers without charge. However, we reserve the right to impose a fee of
$10 for each transfer in excess of 12 per year.
(3) Under certain Contracts the mortality and expense risk charge during the
Accumulation Period may be reduced. See "Charges and Deductions" in the
Prospectus.
(4) We currently do not impose an Administrative Charge during the Annuity
Period. However, we reserve the right to deduct a daily charge of not more
than 0.25% per year from the Subaccounts.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
ANNUAL EXPENSES OF THE FUNDS (APPLIES TO ALL CONTRACTS)
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, 1997. 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 Growth and Income VP(2)
Aetna Bond VP(2)
Aetna Money Market VP(2)
Aetna Balanced VP(2)
Aetna Ascent VP(2)
Aetna Crossroads VP(2)
Aetna Legacy VP(2)
Aetna Value Opportunity VP(3)
Aetna Growth VP(3)
Aetna Index Plus Large Cap VP(3)
Aetna Small Company VP(3)
Aetna International VP(3)
Aetna Real Estate Securities VP(3)
Calvert Social Balanced Portfolio(4)
[Federated American Leaders Fund II (3b) ]
[Federated Equity Income Fund II (3a) ]
[Federated Fund for U.S. Government Securities II (3b) ]
[Federated Growth Strategies Fund II (3b) ]
[Federated High Income Bond Fund II (3b) ]
[Federated International Equity Fund (3b) ]
[Federated Prime Money Fund (3b) ]
[Federated Utility Fund II (3b) ]
Fidelity VIP Equity-Income Portfolio(5)
Fidelity VIP Growth Portfolio(5)
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio(5)
Fidelity VIP II Asset Manager Portfolio(5)
Fidelity VIP II Contrafund Portfolio(5)
Fidelity VIP II Index 500 Portfolio(6)
Janus Aspen Aggressive Growth Portfolio(7)
Janus Aspen Balanced Portfolio(7)
Janus Aspen Flexible Income Portfolio(7)
Janus Aspen Growth Portfolio(7)
Janus Aspen Worldwide Growth Portfolio(7)
MFS Total Return Series(8)
MFS World Governments Series(8)
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio(9)(10)
Portfolio Partners MFS Research Growth Portfolio(9)(10)
Portfolio Partners MFS Value Equity Portfolio(10)
Portfolio Partners Scudder International Growth Portfolio(10)
Portfolio Partners T. Rowe Price Growth Equity Portfolio(10)
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
(1) Certain of the 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) For the fiscal year ended December 31, 1997, the Company provided
administrative services to the Fund and assumed the Fund's ordinary
recurring direct costs under an Administrative Services Agreement.
Effective May 1, 1998, the Company will continue to provide administrative
services to the Fund but will no longer assume all of the Fund's ordinary
recurring direct costs under the Administrative Services Agreement. The
"Other Expenses" shown are the actual expenses that would have been
charged to Fund during 1997 in the absence of the Company's assumption of
all of the Fund's ordinary recurring direct costs.
(3) The Portfolios' adviser has agreed to waive a portion of its fee or to
reimburse the Portfolios for certain expenses so that aggregate expenses
do not exceed the following percentage of each Portfolio's net assets:
0.80% for Growth VP; 0.55% for Index Plus Large Cap VP; 1.15% for
International VP; 0.95% for Real Estate Securities VP and Small Company
VP; and 0.80% for Value Opportunity VP. Without such waiver or
reimbursement, aggregate expenses for the fiscal year ended December 31,
1997 would have been ____% for Growth VP; ____% for Index Plus Large Cap
VP; _____% for Small Company VP; and ____% for Value Opportunity VP; and
are estimated for the current fiscal year to be; ____% for International
VP; and _____% for Real Estate Securities VP. These waiver/reimbursement
arrangements are voluntary and may be modified or eliminated at any time.
[(3a) 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 assets 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 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 shown.]
[(3b) 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: ____%--Prime Money
Fund II; ____%--High Income Bond Fund II and the Fund for U.S. Government
Securities II; ____%--American Leaders Fund II, Growth Strategies Fund II
and Utility Fund II; and ____%--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: ____% for the American Leaders
Fund II; ____% for the Fund for U.S. Government Securities II; ____% for
the Growth Strategies Fund II; ____% for the High Income Bond Fund II;
4.30% for the International Equity Fund II; ____% for the Prime Money Fund
II; and ____% for the Utility Fund II.]
(4) The figures above are based on expenses for fiscal year 1997, and have
been restated to reflect an increase in transfer agency expenses of %
expected to be incurred in 1998. "Investment Advisory Fees" include a
performance adjustment, which could cause the fee to be as high as % or as
low as %, depending on performance. "Other Expenses" reflect an indirect
fee of % (relating to an expense offset arrangement with the Portfolio's
custodian). Net fund operating expenses after reductions for fees paid
indirectly (again, restated) would be %.
(5) 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 % for Equity-Income Portfolio, % for Growth Portfolio, % for
Overseas Portfolio, % for Asset Manager Portfolio; and % for Contrafund
Portfolio.
(6) 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
%, % and %, respectively, for Index 500 Portfolio.
(7) 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, 1997. 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 %, % and % for Aggressive
Growth Portfolio; %, % and % for Balanced Portfolio; %,% and % for Growth
Portfolio; and %, % and % 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.
(8) The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses"
shall not exceed 0.25% of the average daily net assets of the Series
during the current fiscal year. Otherwise, "Other Expenses" for the MFS
Total Return Series and MFS World Governments Series would be % and %,
respectively, and "Total Fund Annual Expenses" would be % and %,
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."
(9) The advisory fee is .70% of the first $500 million in assets and .65% on
the excess.
(10) Each Portfolio's aggregate expenses are limited to the advisory fees and
administrative fees disclosed above through April 30, 1999. Without these
limitations, the aggregate expenses for the current period are estimated
to be as follows: __% for the MFS Emerging Equities Portfolio; __% for the
MFS Research Growth Portfolio: __% for the MFS Value Equity Portfolio; __%
for the Scudder International Growth Portfolio; and __% for the T. Rowe
Price Growth Equity Portfolio.
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE) FOR CONTRACTS OTHER THAN ROTH IRA'S
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 %.
<TABLE>
<CAPTION>
Contracts or Certificates issued in all states except New York
EXAMPLE A EXAMPLE B
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end
you would pay the following expenses, of the periods shown, you would pay
including any applicable deferred sales the following expenses (no deferred charge
charge: sales charge is reflected):*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Aetna Growth and Income VP
Aetna Bond VP
Aetna Money Market VP
Aetna Balanced VP
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna Small Company VP
Aetna International VP
Aetna Real Estate Securities VP
Calvert Social Balanced Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS World Governments Series
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International
Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity
Portfolio
</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 - 5
<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 Value, or if you annuitize at the
shown, you would pay the following end of the periods shown, you
expenses, including any applicable would pay the following expenses
deferred sales charge: (no deferred sales charge is
reflected):*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Aetna Growth and Income VP
Aetna Bond VP
Aetna Money Market VP
Aetna Balanced VP
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna Small Company VP
Aetna International VP
Aetna Real Estate Securities VP
Calvert Social Balanced Portfolio
[Federated American Leaders Fund II ]
[Federated Equity Income Fund II ]
[Federated Fund for U.S. Government Securities II ]
[Federated Growth Strategies Fund II ]
[Federated High Income Bond Fund II ]
[Federated International Equity Fund II ]
[Federated Prime Money Fund II ]
[Federated Utility Fund II ]
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS World Governments Series
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity Portfolio
</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 - 6
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE): CONTRACTS ISSUED AS ROTH IRAS--
INCLUDING CONTRACTS OR CERTIFICATES ISSUED IN NEW YORK
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 _____%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end
you would pay the following expenses, of the periods shown, you would pay
including any applicable deferred sales the following expenses (no deferred
charge: sales charge is reflected):*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Aetna Growth and Income VP
Aetna Bond VP
Aetna Money Market VP
Aetna Balanced VP
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna Small Company VP
Aetna International VP
Aetna Real Estate Securities VP
Calvert Social Balanced Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS World Governments Series
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity Portfolio
</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 - 7
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
(Selected data for accumulation units outstanding throughout each period)
The condensed financial information presented below for the four years ended
December 31, 1997 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>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
AETNA GROWTH AND INCOME VP
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 BOND VP
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 MONEY MARKET VP
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 BALANCED VP
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 VP
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 VP
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 VP
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 INDEX PLUS LARGE CAP VP
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
AETNA VALUE OPPORTUNITY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
AETNA SMALL COMPANY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
CALVERT SOCIAL BALANCED PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
[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]
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
[FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Value at beginning of period $10.804 $10.073 $10.000
Value at end of period $11.099 $10.804 $10.073
Increase (decrease) in value of accumulation units(1) 2.74% 7.25% 0.73%(12)
Number of accumulation units outstanding at end of period 689,789 417,293 12,714]
[FEDERATED HIGH INCOME BOND FUND II
Value at beginning of period $11.640 $9.814 $10.000
Value at end of period $13.119 $11.640 $9.814
Increase (decrease) in value of accumulation units(1) 12.71% 18.61% (1.86)%(12)
Number of accumulation units outstanding at end of period 2,069,633 1,020,321 31,309]
[FEDERATED UTILITY FUND II
Value at beginning of period $12.095 $9.881 $10.000
Value at end of period $13.303 $12.095 $9.881
Increase (decrease) in value of accumulation units(1) 9.99% 22.40% (1.19)%(12)
Number of accumulation units outstanding at end of period 1,260,915 727,601 41,191]
[FEDERATED EQUITY INCOME FUND II
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period ]
[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 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 $10.33%
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]
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
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
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
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
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 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
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 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
OPPENHEIMER AGGRESSIVE GROWTH FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
OPPENHEIMER GLOBAL SECURITIES FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
OPPENHEIMER GROWTH AND INCOME FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
OPPENHEIMER STRATEGIC BOND FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO
Value at beginning of period
Value at end of period Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</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 - 5
<PAGE>
- --------------------------------------------------------------------------------
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna 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 obligations of the Company.
INVESTMENT OPTIONS
================================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the Application. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The Company reserves the right to limit
the number of investment options selected during the Accumulation Period. At
this time there is no limit on the number of investment options selected during
the Accumulation Period, but the number of investment options that may be
selected at any one time by a Certificate Holder is limited to 18. Each
Subaccount and each Guaranteed Term of the same duration, or an investment in
the Fixed Account in certain Contracts where the Guaranteed Account is not
available, 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] [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.(2a)]
[bullet] [Federated Insurance Series--Federated Equity Income Fund II seeks to
provide above average income and capital appreciation. The Fund
attempts to achieve its objective 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. (2a)]
[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.(2a)]
[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. (2a)]
[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).(2a)]
[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. (2a)]
[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
objectives 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. (2a)]
[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.(2a)]
[(2a) Federated Advisers]
{The Funds are described in Appendix C of this Prospectus. More detailed
information may be found in the current prospectus for each Fund offered. The
prospectus for the Fund should be read in conjunction with this Prospectus. A
free Fund prospectus is available upon request from the local Company office or
by writing or calling the number listed in the "Inquiries" section of this
Prospectus.}
1
<PAGE>
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. 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.
2
<PAGE>
CREDITED INTEREST OPTION
Purchase Payments may be allocated to the ALIAC Guaranteed Account (the
"Guaranteed Account"). Through the Guaranteed Account, we guarantee stipulated
rates of interest for stated periods of time. Amounts must remain in the
Guaranteed Account for specified periods to receive the quoted interest rates,
or a market value adjustment (which may be positive or negative) will be
applied. (See Appendix A.)
FIXED ACCOUNT
In certain states, Purchase Payments may be allocated to the Fixed Account.
Through the Fixed Account we guarantee to pay the minimum interest rate
specified in the Contract. (See Appendix B)
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, including Roth IRAs, 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. A
Roth IRA Contract is a special form of IRA which can accept nondeductible annual
contributions. Contributions to a Simplified Employee Pension Plan ("SEP") are
not permitted in a Roth IRA Contract. The Roth IRA Contract can also accept
transfers and rollovers, but only from an Individual Retirement
Annuity/Individual Retirement Account, subject to ordinary income tax, or from
another Roth IRA. If the Purchase Payment to a Roth IRA is a rollover from a
contract issued by the Company or an affiliate where the deferred sales charge
was eliminated or reduced and the Contract is canceled during the free look
period, the Purchase Payment will be restored to the predecessor contract.
Eligible persons seeking to invest and accumulate money for retirement can
purchase individual interests in group Contracts, or, where required by state
law, they may purchase individual Contracts. In most states, group Contracts are
offered, generally to certain broker-dealers or banks which have agreed to act
as Distributors of the Contracts, and individual accounts are established by the
Company for each Certificate Holder. In some states, an individual Contract will
be owned by the Certificate Holder. In both cases, a Certificate Holder's
interest in the Contract is known as his or her "Account."
The maximum issue age for the Annuitant is 90 (age 85 for those Contracts
or Certificates issued in New York and Pennsylvania).
Joint Certificate Holders. Nonqualified Contracts may be purchased by
spouses as joint Certificate Holders. In New York and Pennsylvania, the joint
Certificate Holders do not need to be spouses. References to "Certificate
Holders" in this Prospectus mean both of the Certificate Holders on joint
Accounts. Tax law prohibits the purchase of Qualified Contracts by joint
Certificate Holders.
PURCHASING INTERESTS IN THE CONTRACT
Group Contracts. Groups will generally consist of those eligible
individuals who have established an account with a broker-dealer or bank which
has agreed to act as a Distributor for the Contracts. A group Contract is issued
to the group Contract Holder. Certificate Holders may purchase interests in a
group Contract by submitting an Application. Once the Application is accepted a
Certificate will be issued.
Individual Contracts. Certain states will not allow a group Contract due to
provisions in their insurance laws. In those states, an eligible individual will
submit an Application and will be issued a Contract rather than a Certificate.
Regardless of whether you have purchased an interest in a group Contract or
an individual Contract, the Company must accept or reject the Application within
two business days of receipt. If the Application is incomplete, the Company may
hold any forms and accompanying Purchase Payments for five days. Purchase
Payments may be held for longer periods only with the consent of the Certificate
Holder, pending acceptance of the Application. If the Application is rejected,
the Application and any Purchase Payments will be returned to the Certificate
Holder. However, if the Purchase Payment to a Roth IRA is a rollover from a
contract issued by the Company or an affiliate where the deferred sales charge
was eliminated or reduced and the Contract is canceled during the free look
period, the Purchase Payment will be restored to the predecessor contract.
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
3
<PAGE>
initially be allocated to the Subaccounts or the Guaranteed Account or the Fixed
Account as specified on the Application. Changes in such allocation may be made
in writing or by telephone transfer. Allocations must be in whole percentages,
and there may be limitations on the number of investment options that can be
selected. (See "Investment Options.")
CONTRACT RIGHTS
Under individual Contracts, Certificate Holders have all Contract rights.
Under group Contracts, the group Contract Holder has title to the Contract
and generally only the right to accept or reject any modifications to the
Contract. You have all other rights to your Account under the Contract. However,
under a Nonqualified Contract, if you and the Annuitant are not the same, and
the Annuitant dies first, your rights are automatically transferred to the
Beneficiary. (See "Death Benefit.")
Joint Certificate Holders have equal rights under the Contract and with
respect to their Account. All rights under the Contract must be exercised by
both joint Certificate Holders with the exception of transfers among investment
options, which can be exercised by one joint Certificate Holder after the
Account has been established. See "Death Benefit" regarding the rights of the
surviving joint Certificate Holder upon the death of a joint Certificate Holder
prior to the Annuity Date.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the Beneficiary under the Contract on the
Application. You may also elect to specify the form of payment to be made to the
Beneficiary. For Qualified Contracts issued in conjunction with a Code Section
401(a) qualified pension or profit sharing plan or a Code Section 457 deferred
compensation plan, the employer or trustee must be both the Certificate Holder
and the Beneficiary under the Contract, and the participant on whose behalf the
Account was established must be the Annuitant. Under such plans the participant
is generally allowed to designate a beneficiary under the plan, and the
Certificate Holder may direct that we pay any death proceeds to the plan
beneficiary. "Beneficiary" as used in this Prospectus refers to the person who
is ultimately entitled to receive such proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b)
tax deferred annuity program subject to the Employee Retirement Income Security
Act (ERISA), the spouse of a married participant must be the Beneficiary of at
least 50% of the Account Value. If the married participant is age 35 or older,
the participant may name an alternate Beneficiary provided the participant
furnishes a waiver and spousal consent which meets the requirements of ERISA
Section 205. The participant on whose behalf the Account was established must be
the Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, the
Certificate Holder must be the Annuitant. For Nonqualified Contracts, the
Certificate Holder and the Annuitant, may, but need not, be the same person.
(See "Purchase--Contract Availability.")
RIGHT TO CANCEL
You may cancel the Contract or Certificate without penalty by returning it
to the Company with a written notice of your intent to cancel. In most states,
you have ten days to exercise this "free look" right; some states allow you
longer. Unless state law requires otherwise, the amount you will receive upon
cancellation will reflect the investment performance of the Subaccounts into
which your Purchase Payments were deposited. In some cases this may be more or
less than the amount of your Purchase Payments; therefore, you bear the entire
investment risk for amounts allocated among the Subaccounts during the free look
period. Under Contracts issued as Individual Retirement Annuities, you will
receive a refund of your Purchase Payment. Account Values will be determined as
of the Valuation Date on which we receive your request for cancellation at our
Home Office. If the Purchase Payment to a Roth IRA is a rollover from a contract
issued by the Company or an affiliate where the deferred sales charge was
eliminated or reduced and the Contract is canceled during the free look period,
the Purchase Payment will be restored to the predecessor contract.
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. If the Contract is issued as a Roth IRA, the mortality
and expense risk charge is equal, on an annual basis to 1.10% of the daily net
assets of the Subaccounts. 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.
In certain circumstances, the risk of adverse expense experience associated
with this Contract may be reduced. In such event, the mortality and expense risk
charge applicable to that Contract may likewise be reduced. Whether such a
reduction is available will be determined by the Company based upon
consideration of one of the following factors:
(1) the size and composition of the prospective group such as a group made up
of active employees of the Company or its affiliates;
(2) the type and frequency of administrative and sales services provided; and
(3) the level of maintenance fee and deferred sales charges.
Any reduction of the mortality and expense risk charge will not be unfairly
discriminatory against any person. We will make any reduction in the mortality
and expense risk charge according to our own rules in effect at the time the
Contract is issued. We reserve the right to change these rules from time to
time.
If the amount deducted for mortality and expense risks is not sufficient to
cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Charge. During the Accumulation Period, the
4
<PAGE>
Company makes a daily deduction from each of the Subaccounts for an
administrative charge. The charge is equal, on an annual basis, to 0.15% of the
daily net assets of the Subaccounts and compensates the Company for
administrative expenses that exceed revenues from the maintenance fee described
below. The charge is set at a level which does not exceed the average expected
cost of the administrative services to be provided while the Contract is in
force. The Company does not expect to make a profit from this charge.
During the Annuity Period, the Company reserves the right to make a
deduction for the administrative charge of an amount equal, on an annual basis,
to a maximum of 0.25% of the daily net assets of the Subaccounts. There is
currently no administrative charge during the Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective during
the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
The maximum maintenance fee deducted under the Contract is $30. The
maintenance fee will be deducted annually on the anniversary of the Contract
effective date. It is deducted on a pro rata basis from each investment option
in which you have an interest. If your entire Account Value is withdrawn, the
full maintenance fee, if applicable, will be deducted at the time of withdrawal.
The maintenance fee will not be deducted (either annually or upon withdrawal) if
your Account Value is $50,000 or more on the day the maintenance fee is due.
REDUCTION OR ELIMINATION OF ADMINISTRATIVE CHARGE AND MAINTENANCE FEE
The administrative charge and maintenance fee may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in such a manner that results in savings of administrative expenses. The
entitlement to such a reduction will be based on:
(1) the size and type of the group of individuals to whom the Contract is
offered; and
(2) the amount of expected Purchase Payments.
Any reduction or elimination of the administrative charge or maintenance
fees will not be unfairly discriminatory against any person. We will make any
reduction in the administrative charge or annual maintenance fees according to
our own rules in effect at the time the Contract is issued. We reserve the right
to change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account or Fixed
Account and, except for Roth IRAs, is based on the number of years which have
elapsed since the Purchase Payment was made. The deferred sales charge on
withdrawals from a Roth IRA is based on the number of years which have elapsed
from the Account effective date. 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. If the Purchase Payment is a rollover from another contract issued by the
Company or an affiliate where the deferred sales charge has been waived, the
deferred sales charge is based on the number of completed Contract Years since
the date of the initial payment to the predecessor contract. The Company
reserves the right to not accept any rollover contribution to an existing
contract.
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 other than from a Roth IRA, 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 or the Fixed Account will be treated as described in the Appendices
attached to this Prospectus 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.
CONTRACTS OTHER THAN ROTH IRA (NON NEW YORK)
- ---------------------------------------------------------------
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 OTHER THAN ROTH IRA'S (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%
- ---------------------------------------------------------------
ROTH IRA CONTRACTS, INCLUDING THOSE ISSUED IN NEW YORK
- ---------------------------------------------------------------
Completed Contract Years Deferred Sales
Charge Deduction
----------------
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------------------------
A deferred sales charge will not be deducted from any portion of a
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Purchase Payment withdrawn if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] paid to a Beneficiary due to the Annuitant's death before Annuity
payments start, up to a maximum of the Purchase Payment(s) in the
Account on the Annuitant's date of death;
[bullet] made due to the election of a Systematic Distribution Option (see
"Systematic Distribution Options");
[bullet] if approved by your state, under a Qualified Contract when the amount
withdrawn is equal to the minimum distribution required by the Code for
this Contract calculated using a method permitted under the Code and
agreed to by the Company;
[bullet] paid upon a full withdrawal where the Account Value is $2,500 or less
and no amount has been withdrawn during the prior 12 months; or
[bullet] paid if we close out your Account when the value is less than $2,500
(or other amount required by state law);
[bullet] if the withdrawal is applied as a rollover to certain Roth Individual
Retirement Annuities issued by the Company or an affiliate.
After the first Account Year, you may withdraw all or a portion of your
Purchase Payments without a deferred sales charge, provided that (1) such
withdrawal occurs within three years of the Annuitant's admission to a licensed
nursing care facility (including non-licensed facilities in New Hampshire) and
(2) the Annuitant has spent at least 45 consecutive days in such facility. This
waiver of deferred sales charge does not apply if the Annuitant is in a nursing
care facility at the time the Account is established. It will also not apply if
otherwise prohibited by state law.
The Company does not anticipate that the deferred sales charge will cover
all sales and administrative expenses which it incurs in connection with the
Contract. The difference will be covered by the general assets of the Company
which are attributable, in part, to mortality and expense risk charges under the
Contract described above.
Free Withdrawals. Subject to the restrictions described below, you may
withdraw up to the greater of 10% of your current Account Value (up to 15% of
your current Account Value for Contracts or Certificates issued in the State of
New York) or the minimum distribution amount required by law during each
calendar year without imposition of a deferred sales charge. The free withdrawal
amount will be based on the Account Value calculated on the Valuation Date next
following our receipt of your request for withdrawal and will be adjusted for
amounts requested for distribution under a Systematic Distribution Option,
during the calendar year. If your withdrawal exceeds the applicable free
withdrawal allowance, we will deduct a deferred sales charge on the excess
amount. (See Appendix A for a discussion of withdrawals from the Guaranteed
Account.)
REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE
We may reduce or eliminate the deferred sales charge when sales of the
Contracts are made to individuals or a group of individuals in such a manner
that results in savings of sales expenses. The entitlement to such a reduction
in the deferred sales charge will be based on the following:
(1) the size and type of the group of individuals to whom the Contract is
offered;
(2) the amount of expected Purchase Payments; and
(3) whether there is a prior or existing relationship with the Company such as
being an employee of the Company or an affiliate, receiving distributions
or making internal transfers from other contracts issued by the Company, or
making transfers of amounts held under qualified plans sponsored by the
Company or an affiliate. Any reduction or elimination of the deferred sales
charge will be subject to state approval and not be unfairly discriminatory
against any person.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the 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 or Fixed Account.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of
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that Subaccount for the period between the immediately preceding Valuation Date
and the current Valuation Date. (See "Net Investment Factor" below.) The
Accumulation Unit Value will be affected by the investment performance, expenses
and charges of the applicable Fund and is reduced each day by a percentage that
accounts for the daily assessment of mortality and expense risk charges and the
administrative charge.
Initial Purchase Payments will be credited to your Account at the AUV next
computed following our acceptance of the Application as described under
"Purchasing Interests in the Contract." Each subsequent Purchase Payment (or
amount transferred) received by the Company by the close of business of the New
York Stock Exchange will be credited to your Account at the AUV next computed
following our receipt of your payment or transfer request. The value of an
Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor for
a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current Valuation
Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of the
Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of a maximum of 1.25% for
mortality and expense risks (1.10% for Roth IRA Contracts), 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.) Transfers may be made from the Fixed Account to any of the
investment options available subject to certain restrictions. Amounts may not be
transferred into the Fixed Account from any of the investment options. If
approved by your state, during the Annuity Period, if you have elected a
variable Annuity, you can make transfers only among the Subaccounts available
during the Annuity Period. (See "Annuity Options.") A request for transfer can
be made either in writing or by telephone (See "Telephone Transfers" below.) All
transfers must be in accordance with the terms of the Contract. Any transfer
will be based on the Accumulation Unit Value next determined after the Company
receives a valid transfer request at its Home Office.
During the Accumulation Period, twelve free transfers are allowed per
calendar year. Thereafter, the Company reserves the right to charge up to $10
for each additional transfer. This charge will be deducted from the gross amount
of the transfer. The Company currently does not impose this charge. Currently,
during the Annuity Period, four transfers are allowed each calendar year.
Telephone Transfers
You automatically have the right to make transfers among Funds by
telephone. We have enacted procedures to prevent abuses of Account transactions
by telephone, including requiring the use of a personal identification number
(PIN) to execute transactions. You are responsible for safeguarding your PIN,
and for keeping Account information confidential. Although the Company's failure
to follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. Any losses incurred pursuant to actions taken
by the Company in reliance on telephone instructions reasonably believed to be
genuine shall be borne by you. To ensure authenticity, we record calls on the
800 line.
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 or Fixed Account subject to the Company's terms and conditions to any of
the Subaccounts. A market value adjustment will not be applied to dollar cost
averaging transfers from any such Guaranteed Term during participation in the
Dollar Cost Averaging Program. If dollar cost averaging from a Guaranteed Term
is discontinued, the Company will automatically transfer the balance remaining
in the Guaranteed Term from which dollar cost averaging is withdrawn to a
Guaranteed Term of the same duration unless the Certificate Holder initiates a
transfer to another investment option. In either case, a market value adjustment
will apply. If Dollar Cost Averaging is stopped with regard to amounts in the
Fixed Account, the remaining balance in the Fixed Account will be transferred to
the money market fund. There is no additional charge for the Dollar Cost
Averaging Program. (See Appendix A 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
7
<PAGE>
Summary, which describes how you can obtain further information.
The Dollar Cost Averaging Program is not available to individuals who have
elected the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your Account
Value automatically reallocated annually to a specified percentage or at other
more frequent intervals as allowed by Aetna under the program. Only Account
Values accumulating in the Subaccounts can be rebalanced. You may participate in
this program by completing the Account Rebalancing section of the Application,
or by sending a written request to the Company at its Home Office. The Account
Rebalancing Program does not ensure a profit nor guarantee against loss in a
declining market.
The Account Rebalancing Program is not available to Certificate Holders who
have elected the Dollar Cost Averaging Program.
WITHDRAWALS
================================================================================
All or a portion of your Account Value may be withdrawn at any time during
the Accumulation Period. Withdrawal restrictions applicable to Section 403(b)
Contracts are described below. To request a withdrawal, you must properly
complete a disbursement form and send it to our Home Office. Payments for
withdrawal requests will be made in accordance with Securities and Exchange
Commission requirements, but normally not later than seven calendar days
following our receipt of a disbursement form. Withdrawals may be subject to a
deferred sales charge (see "Charges and Deductions") and to taxes and to tax
penalties (see "Tax Status"). Roth IRAs provide for a tax-free withdrawal of all
assets in the Account, both contributions and earnings, provided the withdrawal
is not made within the 5-taxable year period beginning with the first tax year
for which a contribution was made, and the distribution is made after attainment
of age 59-1/2, or on account of death or disability, or for a qualified
first-time home purchase
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 Fixed Account or each Subaccount in which your Account is invested,
unless you request otherwise in writing. All amounts paid will be based
on your Account Value as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify.
The tax treatment of withdrawals from each Nonqualified Contract may be
affected if you own other annuity contracts issued by us (or our affiliates)
that were purchased on or after October 21, 1988. (See "Tax Status.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b) Contracts,
the withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
Reinstatement Privilege Following Withdrawal. You may elect to reinstate
all or a portion of the proceeds received from the full withdrawal of your
Account within 30 days after the withdrawal. Reinvested amounts must be received
by the Company within 60 days of the withdrawal. Accumulation Units will be
credited to your Account for the amount reinstated, as well as for any
maintenance fee charged and any portion of any deferred sales charge imposed at
the time of withdrawal. However, any aggregate negative market value adjustment
made to the Guaranteed Account will not be credited. Reinstated amounts will be
reallocated to applicable investment options in the same proportion as they were
allocated at the time of withdrawal.
The number of Accumulation Units credited will be based upon the
Accumulation Unit Value(s) next computed following receipt at our Home Office of
the reinstatement request along with the amount to be reinstated. Any
maintenance fee which falls due after the withdrawal and before the
reinstatement will be deducted from the amount reinstated. The reinstatement
privilege may be used only once and does not apply to a Certificate Holder's
Account that We close out as described in the Section entitled, "Involuntary
Terminations." If you are contemplating reinstatement, you should seek competent
advice regarding the tax consequences associated with this type of transaction.
SYSTEMATIC DISTRIBUTION OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Systematic
8
<PAGE>
Distribution Options"). To exercise these options, your Account Value must meet
the minimum dollar amount and age criteria applicable to that option.
The Systematic Distribution Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract.
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed forthose who want to receive only
the minimum distribution that the Code requires each year. ECO is
available only under Qualified Contracts. Under ECO, the Company
calculates the minimum distribution amount required by law, and pays
you that amount once a year. (See "Tax Status.") Other Systematic
Distribution Options may be added from time to time. Additional
information relating to any of the Systematic Distribution Options may
be obtained from your local representative or from the Company at its
Home Office.
ECO is not available under the Roth IRA Contract.
If you select one of the Systematic Distribution Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Taking a withdrawal under one of these Systematic Distribution Options may
have tax consequences. Any person concerned about tax implications should
consult a competent tax advisor prior to electing an option.
Once you elect a Systematic Distribution Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is revoked,
no other Systematic Distribution Option may be elected unless permitted by the
Code. The Company reserves the right to discontinue the availability of one or
all of these Systematic Distribution Options for new elections at any time,
and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
================================================================================
A death benefit will be payable to the Beneficiary(ies) if the Certificate
Holder or the Annuitant dies before Annuity payments have commenced. If the
Account is owned jointly, the death benefit applies at the death of the first
joint Certificate Holder. Upon the death of a joint Certificate Holder prior to
the Annuity Date, the surviving Certificate Holder, if any, will become the
designated Beneficiary. Any other Beneficiary designation on record with the
Company at the time of death will be treated as a contingent Beneficiary.
DEATH BENEFIT AMOUNT
If approved by your state, upon the death of the Annuitant, the death
benefit proceeds will be the greater of:
(1) The minimum guaranteed death benefit (described below) as of the date of
death, plus any Purchase Payments made, and less any amount(s) surrendered,
applied to an Annuity option or deducted from the Account, since the
minimum guaranteed death benefit was determined, or
(2) The Account Value on the Claim Date.
The minimum guaranteed death benefit is determined as follows: On the
effective date of the Contract ("Effective Date"), the minimum guaranteed death
benefit equals the amount of the initial Purchase Payment. On each Effective
Date anniversary before the Annuitant reaches age 85, the minimum guaranteed
death benefit is the greater of:
(1) The prior minimum guaranteed death benefit, plus any Purchase Payments
made, and less any amount(s) surrendered, applied to an Annuity option or
deducted from the Account, since the minimum guaranteed death benefit was
previously determined, or
(2) The Account Value on the Effective Date anniversary.
After the Annuitant reaches age 85 the minimum guaranteed death benefit is
equal to the minimum guaranteed death benefit determined on the Effective Date
anniversary immediately preceding the date the Annuitant attained age 85 plus
any Purchase Payments made, and less any amounts surrendered, applied to an
Annuity option or deducted from the Account.
On the Claim Date, if the minimum guaranteed death benefit is greater than
the Account Value, the amount by which the minimum guaranteed death benefit
exceeds the Account Value is allocated to the money market subaccount available
under the Contract. The Beneficiary may elect a death benefit option as
permitted unless the Certificate Holder has specified the form of payment to the
Beneficiary.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the minimum guaranteed death benefit will not apply. The
amount paid on account of the death of the Certificate Holder will be equal to
the Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge. The
9
<PAGE>
Beneficiary may elect a death benefit option available under the Contract unless
the Certificate Holder has specified the form of payment to the Beneficiary.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was also the Annuitant, the spousal Beneficiary will
become the Annuitant and the minimum guaranteed death benefit will also apply at
the death of the spousal Beneficiary. The initial minimum guaranteed death
benefit equals the Account Value as adjusted for any minimum guaranteed death
benefit payable at the death of the original Certificate Holder/Annuitant.
Thereafter, the minimum guaranteed death benefit is determined as above.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was not also the Annuitant, the Annuitant will not change
and the amount of death benefit proceeds payable upon the spousal Beneficiary's
death will be equal to the Adjusted Account Value on the Claim Date, less any
deferred sales charge.
If the death benefit described above is not approved by your state, the
following death benefit shall apply:
Upon the death of the Annuitant, the guaranteed death benefit proceeds will
be the greatest of:
(1) the total Purchase Payment(s) applied to the Account, minus the sum of all
amounts withdrawn, annuitized or deducted from such Account;
(2) the highest step-up value as of the date of death. The step-up value is
determined on each anniversary of the Effective Date, up to the Annuitant's
75th birthday (85th birthday for Contracts or Certificates issued in New
York). Each step-up value is calculated as the Account Value on the
Effective Date anniversary, increased by Purchase Payments applied, and
decreased by partial withdrawals, annuitizations and deductions taken from
the Account since the Effective Date anniversary; or
(3) the Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the Account
Value is determined as of the date of death. Any excess amount will be deposited
and allocated to the money market Subaccount available under the Contract. The
Account Value on the claim date plus any excess amount deposited into the
Account becomes the Certificate Holder's Account Value. The death benefit paid
will equal the Account Value when request for payment is made and no deferred
sales charge applies.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the guaranteed death benefit will not apply. The amount of
death benefit proceeds will be equal to the Adjusted Account Value on the Claim
Date. Full or partial withdrawals may be subject to a deferred sales charge.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was the Annuitant, the amount of the death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date, less any deferred sales charge
applicable to any Purchase Payments made since the death of the Certificate
Holder/Annuitant.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was not the Annuitant, the amount of death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge in accordance with the usual rules regarding
the deferred sales charge. (See "Deferred Sales Charge.") If this provision was
not approved in your state, the deferred sales charge will apply only to
Purchase Payments made since the death of the Certificate Holder.
For amounts held in the Guaranteed Account, see Appendix A for a discussion
of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below.
If you die and no Beneficiary exists, the death benefit will be paid in a lump
sum to your estate. Prior to any election by the Beneficiary, the Account Value
will remain in the Account and the Account Value will continue to be affected by
the investment performance of the investment option(s) selected. The Beneficiary
has the right to allocate or transfer any amount to any available investment
option (subject to a market value adjustment, as applicable). The Code requires
that distributions begin within a certain time period, as described below. If no
elections are made, no distributions will be made. Failure to commence
distributions within those time periods can result in tax penalties.
Nonqualified Contracts. Under a Nonqualified Contract, if you die, and the
Beneficiary is your surviving spouse, or if you are a nonnatural person and the
Annuitant dies, and the Beneficiary is the Annuitant's surviving spouse, he or
she automatically becomes the successor Certificate Holder. The successor
Certificate Holder may exercise all rights under the Account and (1) continue in
the Accumulation Period; (2) elect to apply some or all of the Adjusted Account
Value to any of the Annuity Options; or (3) receive at any time a lump sum
payment equal to all or a portion of the Adjusted Account Value. If you die and
you are not the Annuitant, any applicable deferred sales charge will be applied
if a lump sum payment is elected. Under the Code, distributions are not required
until the successor Certificate Holder's death.
If you die and the Beneficiary is not your surviving spouse, he or she may
elect option (2) or (3) above. According to the Code, any portion of the
Adjusted Account Value not distributed in installments over the life or life
expectancy beginning within one year of your death, must be paid within five
years of your death. (See "Tax Status of the Contract.")
If you are a natural person but not the Annuitant and the Annuitant dies,
the Beneficiary may elect to apply the Adjusted Account Value to an Annuity
Option within 60 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 includible 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
10
<PAGE>
is paid at the death of the participant, who is the Annuitant under the
Contract. The Beneficiary has the following options: (1) apply some or all of
the Adjusted Account Value to any of the Annuity Options, subject to the
distribution rules in Code Section 401(a)(9), or (2) receive at any time a lump
sum payment equal to all or a portion of the Adjusted Account Value. If the
Account was established in conjunction with a Section 401(a) qualified pension
or profit sharing plan or a Section 457 deferred compensation plan, payment will
be made, as directed by the Certificate Holder, to either the Certificate Holder
or to the plan Beneficiary.
If ECO or SWO is in effect and the participant dies before the required
beginning date for minimum distributions, payments will cease. A Beneficiary, or
the Certificate Holder on behalf of a plan Beneficiary, may elect ECO or SWO
provided the election would satisfy the Code minimum distribution rules.
If ECO or SWO is in effect and the participant dies after the required
beginning date for minimum distributions, payments will continue as permitted
under the Code minimum distribution rules, unless the option is revoked.
Death benefit payments must satisfy the distribution rules in Code Section
401(a)(9). (See "Tax Status of the Contract.")
ANNUITY PERIOD
================================================================================
ANNUITY PERIOD ELECTIONS
You must notify us in writing of the date you want Annuity Payments to
start (the "Annuity Date") and the Annuity Option elected. Payments may not
begin earlier than one year after purchase, or, unless we consent, later than
the later of (a) the first day of the month following the Annuitant's 85th
birthday, or (b) the tenth anniversary of the last Purchase Payment (fifth
anniversary for Contracts issued in Pennsylvania). For Contracts or Certificates
issued in New York, Annuity Payments may not begin later than the first day of
the month following the Annuitant's 90th birthday.
Annuity Payments will not begin until you have selected an Annuity Date and
an Annuity Option. Until a date and option are elected, the Account will
continue in the Accumulation Period.
As of January 1, 1997, the Code generally requires that for Qualified
Contracts, other than IRAs and for five-percent owners in other Qualified
Contracts, minimum annual distributions of the Account Value begin by April 1st
of the calendar year following the calendar year in which a participant attains
age 70-1/2 or retires, whichever occurs later. For IRA depositors and for
five-percent owners, minimum distributions must begin by April 1 of the calendar
year following the calendar year in which the participant attains age 70-1/2. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Systematic Distribution Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
For Roth IRAs, the minimum distribution rules do not apply prior to
your death. You are not required to begin taking minimum annual distributions by
April 1 of the calendar year following the calendar year in which you attain age
70-1/2. The general rule that annuity payments may not extend beyond your
life/life expectancy or beyond the joint lives/joint life expectancies of you
and your beneficiaries does not apply to a Roth IRA. The minimum distribution
rules which apply to the beneficiary at your death and which are described in
the Prospectus continue to apply. The rules differ depending on whether you die
after distributions have begun. At least 30 days prior to the Annuity Date, you
must notify us in writing of the following:
[bullet] the date on which you would like Annuity Payments to begin;
[bullet] the Annuity Option under which you want payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide Annuity Payments (i.e., a
fixed Annuity using the general account or a variable Annuity using any
of the Subaccounts available at the time of annuitization or a
combination of the two).
Once Annuity Payments begin, the Annuity Option may not be changed.
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining 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--
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An annuity paid during the lives of the Annuitant and a second
Annuitant. The Certificate Holder selects an Annuity with 100%, 66% or
50% of the payment to continue after the first death, or an Annuity
with 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
[bullet] Option 5--Life Annuity Based Upon the Lives of Two Annuitants with
Guaranteed Payments--An Annuity with Payments for a minimum of 5-30
years, with 100% of the payment to continue after the first death.
*[bullet] Option 6--Life Annuity Based Upon the Lives of Two Annuitants with a
Cash Refund Feature--An Annuity with 100% of the payment to continue
after the first death with a cash refund feature. Payments are
guaranteed for the amount applied to the Annuity Option. If both
Annuitants die prior to the total payment of the amount applied to the
Annuity Option (less any premium tax), any remaining balance will be
paid in one sum to the Beneficiary. This option is available only when
all payments are as a fixed Annuity.
*(If approved by your state.)
If Option 1 or 4 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 4, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Certificate Holder cannot elect to receive
a lump-sum settlement.
Nonlifetime Annuity Option:
Under the nonlifetime option, payments may be made for generally 5-30
years, as selected by the Certificate Holder. If this option is elected as a
variable Annuity, the Certificate Holder may request that the present value of
all or any portion of the remaining variable payments be paid in one sum.
However, any lump-sum elected before three years of payments have been completed
will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.") If the nonlifetime option is elected on a
fixed basis, you cannot elect to receive a lump-sum settlement.
We may also offer additional Annuity Options under your Contract from time
to time. You can call the number listed in the "Inquiries" section of the
Prospectus Summary, to determine which options are available and the terms of
such options. Additional or enhanced options may not be available to those
already receiving Annuity payments.
ANNUITY PAYMENTS
Date Payments Start. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. For
Qualified Contracts only, Annuity Payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and Beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and
Beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on how
you allocate your Account Value between fixed and variable payouts (some options
require that all payments be made on a fixed basis). No election may be made
that would result in the first Annuity Payment of less than $50, or total yearly
Annuity Payments of less than $250 (less if required by state law). If the
Account Value on the Annuity Date is insufficient to elect an option for the
minimum amount specified, a lump-sum payment must be elected. We reserve the
right to increase the minimum first Annuity Payment amount and the minimum
annual Annuity Payment amount based on increases reflected in the Consumer Price
Index-Urban (CPI-U), since July 1, 1993.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3-1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3-1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. This charge, established when a variable
Annuity Option is elected, will not exceed 0.25% per year of amounts held on a
variable basis. Once established, the charge will be effective during the entire
Annuity Period. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
The death benefit, if any, due when the Annuitant dies after Annuity
Payments have begun, will depend on the terms of the Contract and the Annuity
Option selected. If Option 1 or Option 4 was elected, Annuity Payments will
cease on the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 4.
If Lifetime Option 2 or Option 5 was elected and the death of the Annuitant
under Option 2, or the surviving Annuitant under Option 5, occurs prior to the
end of the guaranteed minimum payment period, we will continue payments to the
Beneficiary unless the Beneficiary elects a lump sum, provided the Certificate
Holder has not prohibited such an election in the Beneficiary designation.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, remaining payments will be paid to the Beneficiary unless the
Beneficiary elects a lump sum, provided the Certificate Holder has not
prohibited such an election in the Beneficiary designation.
When the Annuitant dies after Annuity Payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or
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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
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
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 Sections403(b) or
408(b) of the Code, or prior to May 1, 1998 under Sections 401(a) 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. If the Certificate Holder is a non-natural person, the
surviving spouse who is the "designated beneficiary" of the deceased Annuitant
may continue the Account.
If the Certificate Holder is a natural person but not the Annuitant and the
Annuitant dies, if the Beneficiary does not elect an Annuity Option within 60
days of the date of death, the gain, if any, will be includible in the
Beneficiary's income in the year the Annuitant dies.
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The Nonqualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
The discussion under "Taxation of Annuities" below is based on the
assumption that the Contract qualifies as an annuity contract for federal income
tax purposes.
Required Distributions--Qualified Contracts: The Code has required
distribution rules for Section 401(a), 403(b) and 457 Plans and Individual
Retirement Annuities. Other than for IRAs and for five-percent owners in other
Qualified Contracts, distributions must generally begin by April 1 of the
calendar year following the calendar year in which the participant attains age
70-1/2 or retires, whichever occurs later. For traditional IRA participants 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. There is no required distribution date for participants in a Roth IRA.
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 from a traditional IRA 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.
The minimum distribution rules also apply to beneficiaries under a Roth IRA
and are based on whether the participant dies before or after distribution
begins.
If the participant or beneficiary fails to take the required minimum
distribution for any tax year, a 50% excise tax is imposed on the required
amount that was not distributed.
TAXATION OF ANNUITY CONTRACTS
In General: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Certificate Holder under a Nonqualified
Contract who is a natural person generally is not taxed on increases in the
Account Value until distribution occurs by withdrawing all or part of such
Account Value (e.g., withdrawals or Annuity Payments under the Annuity Option
elected). The taxable portion of a distribution (in the form of a single sum
payment or an Annuity) is taxable as ordinary income.
Non-Natural Holders of a Nonqualified Contract: If the Certificate Holder
is not a natural person, a Nonqualified Contract is not treated as an annuity
for income tax purposes and the "income on the contract" for the taxable year is
currently taxable as ordinary income. "Income on the contract" is any increase
over the year in the Surrender Value, adjusted for Purchase Payments made 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.
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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."
Any "qualified" distribution from a Roth IRA is not includible in gross
income. A "qualified" distribution is any distribution made after the
participant attains age 59-1/2, or on account of the participant's death or
disability, or for a qualified first-time home purchase. A distribution will not
be treated as "qualified" if it is made within the 5-taxable year period
beginning with the first taxable year for which a contribution was made. If a
distribution is not "qualified", the accumulated earnings are includible in
income. The 10% premature distribution penalty will apply to the taxable portion
of the distribution unless one of the exceptions under the Code applies. (See
Section 21 of this Supplement.) A partial distribution will first be treated as
a return of cost basis (i.e. aggregate amount of contributions.)
For Roth IRAs, the minimum distribution rules do not apply prior to the
participant's death. (See "ANNUITY PERIOD" above.)
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 expected number of payments as defined in Code Section 72 (d).;
however, the remainder of each Annuity Payment is taxable. Once the "investment
in the contract" has been fully recovered, the full amount of any additional
Annuity Payments is taxable. If Annuity Payments cease as a result of an
Annuitant's death before full recovery of the "investment in the contract,"
consult a competent tax advisor regarding deductibility of the unrecovered
amount.
Penalty Tax: In the case of a distribution pursuant to a Nonqualified
Contract, or a Qualified Contract other than a Qualified Contract sold in
conjunction with a Code Section 457 Plan, there may be imposed a federal income
tax penalty equal to 10% of the amount treated as taxable income.
In general, there is no penalty tax on distributions from a Nonqualified
Contract: (1) made on or after the date on which the taxpayer attains age
59-1/2; (2) made as a result of the death of the Certificate Holder; (3)
attributable to the taxpayer's total and permanent disability; (4) received in
substantially equal periodic payments (at least annually) over the life or life
expectancy of the taxpayer or the joint lives or joint life expectancies of the
taxpayer and a "designated beneficiary;" or (5) allocable to "investment in the
contract" before August 14, 1982.
If a distribution is made from a Qualified Contract sold in conjunction
with a Section 401(a) Plan or Section 403(b) Plan, the penalty tax will not
apply on distribution made when the participant (a) attains age 59-1/2, (b)
becomes permanently and totally disabled, (c) dies, (d) separates from service
with the plan sponsor at or after age 55, (e) rolls over the distribution amount
to another plan of the same type in accordance with the terms of the Code, or
(f) takes the distributions in substantially equal periodic payments (at least
annually) over his or her life or life expectancy or the joint lives or joint
life expectancies of the participant and 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, except for (d), the same exceptions described in the preceding
paragraph will apply to distributions made from an Individual Retirement
Annuity, including a distribution from a Roth IRA that is not a "qualified
distribution" or a rollover to a Roth IRA that is not a "qualified rollover"
contribution. Beginning January 1, 1997, the penalty tax is also waived on
distributions made from an IRA to pay for health insurance premiums for certain
unemployed individuals. Beginning January 1, 1998, the penalty tax is waived if
the amounts withdrawn are used for a qualified first-time home purchase or for
higher education expenses.
Taxation of Death Benefit Proceeds: Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
Generally, such amounts are includible in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity Payments, as described
above.
Special rules may apply on Nonqualified Contracts. See "Required
Distributions - Nonqualified Contracts."
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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.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
Qualified Contracts in General: The Qualified Contract is designed for use
as a Code Section 408(b) 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
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances.
The Company makes no attempt to provide more than general information about
use of the Contracts with the various types of retirement plans. Participants
and beneficiaries under Qualified Contracts may be subject to the terms and
conditions of the retirement plans themselves, in addition to the terms and
conditions of the Contract issued in connection with such plans. Some retirement
plans are subject to distribution and other requirements that are not
incorporated in the provisions of the Contracts. Purchasers are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts satisfy applicable laws, and should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
Section 457 Plans. Code Section 457 provides for certain deferred
compensation plans. These plans may be offered with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. These plans are subject to various restrictions on contributions
and distributions. The plans may permit participants to specify the form of
investment for their deferred compensation account. Prior to the August 20, 1996
enactment of the Small Business Job Protection Act of 1996 (the "Small Business
Act") compensation deferred under the plans, all property and rights purchased
with such amounts, and all income attributable to such amounts, property or
rights remained solely the property and rights of the employer (without being
restricted to the provision of 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 $8,000 (as adjusted to reflect changes in the cost of living) or 33-1/2% 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
Compensation means compensation from the participant's employer sponsoring the
plan and, for years beginning after December 31, 1997, includes any elective
deferrals under Code Section 402 (g) and any amounts not includible in gross
income under Code Sections 125 or 457. 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
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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 compensation or $30,000. Compensation means compensation from
the participant's employer sponsoring the plan and for years beginning after
December 31, 1997, includes any elective deferrals under Code Section 402 (g)
and any amounts not includible in gross income under Code Sections 125 or 457.
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 you and your
employer made to the plan and to certain other retirement plans. These two
limits apply to the participant's contributions as well as to any contributions
made by the employer on behalf of the participant. There is an additional limit
that specifically limits salary reduction contributions to generally no more
than $10,000 annually (subject to indexing); a participant's own limit may be
higher or lower, depending on certain conditions. In addition, Purchase Payments
will be excluded from a participant's gross income only if the Plan meets
certain nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those amounts may only
occur upon death of the participant, attainment of age 59 1/2, separation from
service, total and permanent disability, or financial hardship. In addition,
income attributable to salary reduction contributions may not be distributed in
the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional 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.
Section 408A of the Code permits eligible individuals to contribute to a
Roth IRA on an after-tax (non-deductible) basis.
Distributions from other types of qualified plans are not permitted to be
transferred or rolled over to a Roth IRA. A Roth IRA can accept
transfers/rollovers only from an IRA, subject to ordinary income tax, or from
another Roth IRA.
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. If the
recipient is a non-resident alien, any withholding will be governed by Code
Section 1441 based on the individual's citizenship, the country of domicile and
treaty status. 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
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providing the Distributors with approved marketing material, prospectuses or
other supplies. These parties will also receive payments based on Purchase
Payments for their services, to the extent such payments are allowed by
applicable securities laws. All costs and expenses related to these services
will be paid by the Company.}
[Federated Securities Corp. ("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 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.
Distributors will be paid commissions up to an amount currently equal to 6.0% of
Purchase Payments or as a combination of a certain percentage amount of purchase
payments at time of sale and a trail commission as a percentage of assets. Under
the latter arrangement, commission payments may exceed 6.0% of purchase payments
over the life of the Contract. In limited circumstances, we also pay certain of
these professionals compensation, overrides or reimbursement for expenses
associated with the distribution of the Contract.. At times the Company may
offer certain distributors an enhanced commission for a limited period of time.
In addition, some sales personnel may receive various types of non-cash
compensation such as special sales incentives, including trips and educational
and/or business seminars. Supervisory and other management personnel of the
Company may receive compensation that will vary based on the relative
profitability 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 contributions were first received in
the Fund under the Separate Account, 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, and may include
performance from the Fund's inception date.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at shareholders'
meetings of the appropriate Funds(s). The number of votes to which each Contract
Holder may give direction will be determined as of the record date. The number
of votes each Contract Holder is entitled to direct with respect to a particular
Fund during the Accumulation Period equals the portion of the Account Values(s)
of the Contract attributable to that Fund, divided by the net asset value of one
share of that Fund. During the Annuity Period, the number of votes is equal to
the valuation reserve for the portion of the Contract attributable to that Fund,
divided by the net asset value of one share of that Fund. In determining the
number of votes, fractional votes will be recognized. Where the value of the
Contract or valuation reserve relates to more than one Fund, the calculation of
votes will be performed separately for each Fund.
If you are a Certificate Holder under a group Contract, you have a fully
vested (100%) interest in the benefits provided to you under your Account.
Therefore, you may instruct the group Contract Holder how to direct the Company
to cast the votes for the portion or the value of valuation reserve attributable
to your Account. Votes attributable to those Certificate Holders who do not
instruct the group Contract Holder will be cast by the Company in the same
proportion as votes for which instructions have been received by the group
Contract Holder. Votes attributable to individual or group Contract Holders who
do not direct us will be cast by us in the same proportion as votes for which
directions we have received.
You will receive a notice of each meeting of shareholders, together with
any proxy solicitation materials, and a statement of the number of votes
attributable to your Account.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 days written notice to the Contract Holder,
make other changes to group Contracts that would apply only to individuals who
become Certificate Holders under that
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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.
Year 2000
Aetna Inc. (referred to collectively with its subsidiaries and
affiliates as "Aetna"), has developed and is currently executing a plan to make
its computer systems and applications accommodate date-sensitive information
relating to the Year 2000. The plan covers four stages including (i) inventory,
(ii) assessment, (iii) remediation and (iv) testing and certification. Aetna is
currently in the assessment or remediation stages of its plan for the systems
and applications related to the Separate Account, including those relating to
the Company, [and Aeltus Investment Management, Inc., the subadviser to most
Aetna affiliated mutual funds]. Testing and certification of these systems is
targeted for completion by mid 1999. The costs of these efforts will not affect
the Separate Account.
The Company, its affiliates and the mutual funds that serve as
investment options for the Separate Account also have relationships with
investment advisers, broker dealers, transfer agents, custodians or other
securities industry participants or other service providers that are not
affiliated with Aetna. Aetna is currently examining its relationships with third
parties as part of its Year 2000 plan. While the Company believes that United
States securities industry participants generally are preparing their computer
systems and applications to accommodate Year 2000 date-sensitive information,
preparation by third parties is outside the Company's control. There can be no
assurance that failure of third parties to complete adequate preparations in a
timely manner, and any resulting systems interruptions or other consequences,
would not have an adverse effect, directly or indirectly, on the Separate
Account, including, without limitation, its operation or the valuation of its
assets and units.
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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 A
ALIAC GUARANTEED ACCOUNT
================================================================================
The ALIAC Guaranteed Account (the "Guaranteed Account") is a credited
interest option available during the Accumulation Period under the Contracts.
This Appendix is a summary of the Guaranteed Account and is not intended to
replace the Guaranteed Account prospectus. You should read the accompanying
Guaranteed Account prospectus carefully before investing.
The Guaranteed Account is a credited interest option in which we guarantee
stipulated rates of interest for stated periods of time on amounts directed to
the Guaranteed Account. For guaranteed terms of one year or less, a guaranteed
rate is credited for the full term. For guaranteed rates of greater than one
year (except for those Contracts or Certificates issued in the state of New
York), the initial guaranteed rate is credited from the date of deposit to the
end of a specified period within the guaranteed term. The interest rate
stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. Guaranteed interest rates will never be
less than an annual effective rate of 3%.
During a deposit period, amounts may be applied to any of the available
guaranteed terms. A Guaranteed Term is the period of time specified by the
Company for which a specific Guaranteed Rate or Rates are offered on amounts
invested during a specific Deposit Period. Guaranteed Terms are made available
by the Company subject to the Company's terms and conditions. See the prospectus
for the Guaranteed Account for further details regarding Guaranteed Term. The
Company may offer more than one Guaranteed Term of the same duration and credit
one with a higher rate contingent upon use only with the Dollar Cost Averaging
Program. If amounts are applied to a Guaranteed Term which is credited with a
higher rate using dollar cost averaging and the dollar cost averaging is
discontinued, the amounts will be transferred to another Guaranteed Term of the
same duration and a market value adjustment ("MVA") will apply. The Company also
reserves the right to limit the number of Guaranteed Terms or the availability
of certain Guaranteed Terms. Purchase Payments received after the initial
payment will be allocated in the same proportions as the last allocation, if no
new allocation instructions are received with the Purchase Payment. If the same
guaranteed term(s) are not available, the next shortest term will be used. If no
shorter guaranteed term is available, the next longer guaranteed term will be
used.
Except for transfers from an available Guaranteed Term subject to the
Company's terms and conditions in connection with the Dollar Cost Averaging
Program, withdrawals taken in connection with an Estate Conservation or
Systematic Withdrawal distribution option, and, if approved by your state,
withdrawals for minimum distributions required by the Code for which the
deferred sales charge is waived, withdrawals or transfers from a guaranteed term
before the guaranteed term matures may be subject to an MVA. An MVA reflects the
change in the value of the investment due to changes in interest rates since the
date of deposit. When interest rates increase after the date of deposit, the
value of the investment decreases, and the MVA is negative. Conversely, when
interest rates decrease after the date of deposit, the value of the investment
increases, and the MVA is positive. It is possible that a negative MVA could
result in the Certificate Holder receiving an amount which is less than the
amount paid into the Guaranteed Account.
For partial withdrawals during the Accumulation Period, amounts to be
withdrawn from the Guaranteed Account will be withdrawn on a pro rata basis from
each group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows you to transfer without an MVA to available guaranteed terms of
the
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current deposit period or to other available investment options, or surrender
without an MVA (if applicable, a deferred sales charge is assessed on the
surrendered amount). The provision is available only during the calendar month
immediately following a guaranteed term maturity date and only applies to the
first transaction regardless of the amount involved in the transaction.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a guaranteed term during a deposit period may not be
transferred to any other funding option or to another guaranteed term during
that deposit period or for 90 days after the close of that deposit period. This
does not apply to (1) amounts transferred on the Maturity Date or under the
maturity value transfer provision; (2) amounts transferred from the Guaranteed
Account before the Maturity Date due to the election of an Annuity Option; (3)
amounts distributed under the Estate Conservation or Systematic Withdrawal
Options; and (4) amounts transferred from an available Guaranteed Term in
connection with the Dollar Cost Averaging Program. However, if the Certificate
Holder discontinues the Dollar Cost Averaging Program and the amounts in it are
transferred in accordance with the Company's terms and conditions governing
Guaranteed Terms, an MVA will apply. Transfers after the 90-day period are
permitted from guaranteed term(s) to other guaranteed term(s) available during a
deposit period or to other available investment options. Except for transactions
described in items (1), (3) and (4) above, amounts withdrawn or transferred from
the Guaranteed Account prior to the maturity date will be subject to an MVA.
However, only a positive aggregate MVA will be applied to transfers made due to
annuitization under one of the lifetime Annuity Options described in item (2)
above.
The Company reserves the right to limit the number of investment options
selected during the Accumulation Period. At this time there is no limit on the
number of options selected during the Accumulation Period, but the number of
investment options that may be selected at any one time by a Certificate Holder
presently is limited to 18. Under the Guaranteed Account, each guaranteed term
is counted as one funding option. If a guaranteed term matures, and is renewed
for the same term, it will not count as an additional investment option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. The Guaranteed Account cannot be used as an
investment option during the Annuity Period. Transfers made due to the election
of a lifetime Annuity Option will be subject to only a positive aggregate MVA.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted
amounts calculated due to a withdrawal of amounts) which may be greater or
less than the Account Value of those amounts; or
(2) the applicable portion of the Account Value attributable to the Guaranteed
Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than the
Account Value of those amounts.
DISTRIBUTION
The Company is the principal underwriter of the Contract. The Company is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc.
From time to time, the Company may offer customers of certain
broker-dealers special guaranteed rates in connection with the Guaranteed
Account offered through the Contracts, and may negotiate different commissions
for these broker-dealers.
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APPENDIX B
FIXED ACCOUNT
The Fixed Account is an investment option available during the Accumulation
Period under Contracts offered in certain states. The following summarizes
material information concerning the Fixed Account that is offered as an option
under the Contract. Additional information may be found in your Contract.
Amounts allocated to the Fixed Account are held in the Company's general account
that supports insurance and annuity obligations. Interests in the Fixed Account
have not been registered with the SEC in reliance on exemptions under the
Securities Act of 1933, as amended. Disclosure in this prospectus regarding the
Fixed Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of the statements. Disclosure in this Appendix regarding the Fixed
Account has not been reviewed by the SEC.
Fixed Account
Amounts allocated to this option will earn the minimum guaranteed interest
rate specified in the Contract. The Company may credit a higher interest rate
from time to time. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under this option,
the Company assumes the risk of investment gain or loss by guaranteeing Net
Purchase Payment values and promising a minimum interest rate and Annuity
payment.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account. declared on the date the Purchase
Payment is received in good order at the Company's Home Office. The Fixed
Account is only available in certain states. If a withdrawal is made from the
Fixed Account, a deferred sales charge may apply. Amounts allocated to the Fixed
Account will count as an option for purposes of the 18 investment option limit.
(See the Contract Prospectus).
Dollar Cost Averaging
Amounts invested in the Fixed Account must be transferred into the other
investment options available under the Contract over a period not to exceed 12
months under the Dollar Cost Averaging Program. In the event a Certificate
Holder discontinues dollar cost averaging, the remaining balance in the Fixed
Account will be transferred into the money market fund subaccount unless
directed otherwise.
Mortality and Expense Risk Charges
The Fixed Account will reflect a compound interest rate credited by the
Company. The interest rate quoted is an annual effective yield. The Company
makes no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
Transfers Among Investment Options
Transfers from the Fixed Account to any other available investment option
under the Contract are allowed in each calendar year during the Accumulation
Period. The amount which may be transferred may vary at the Company's
discretion; however, it will never be less than 10% of the amount held under the
Fixed Account.
By giving notice to the Company at its Home Office at least 30 days before
Annuity payments begin, the Certificate Holder may elect to have amounts which
have been accumulated under the Fixed Account transferred to one or more of the
investment options available during the Annuity Period to provide variable
Annuity payments.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as allow provided
by federal law.
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APPENDIX C
DESCRIPTION OF UNDERLYING FUNDS
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Investment Objective
Seeks to maximize total return through investments in a diversified
portfolio of common stocks and securities convertible into common stock. Capital
appreciation and investment income will both be major factors in achieving total
return.
Policies
Invests principally in common stocks and securities convertible into common
stock which the investment adviser believes have significant potential for
capital appreciation and/or investment income. May invest up to 25 percent of
its assets in international equity securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Foreign
securities may involve certain additional risks. Such risks include: currency
fluctuations and related currency conversion costs; less liquidity; price or
income volatility; less government supervision and regulation of foreign stock
exchanges, brokers and listed companies; adverse foreign political and economic
developments; different accounting procedures and auditing standards; and less
publicly available information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Investment Objective
Seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt securities.
Policies
Invests at least 65 percent of its total assets in debt securities. It is
anticipated that the Fund's effective average maturity normally will be between
three and ten years. Usually, at least 70 percent of the Fund's assets are
invested in one or more of the following: a) debt securities or obligations that
are rated at the time of purchase within the four highest categories assigned by
Moody's Investors Service, Inc., Standard & Poor's Corporation, or other rating
agencies, or if not rated, that are considered by the investment adviser to be
of comparable quality; b) securities of the U.S. government, its agencies or
instrumentalities; c) foreign government securities; d) commercial paper and
other short-term investments with a maturity of less than one year; and, e) cash
or cash equivalents. May invest up to 30 percent of its total assets in
high-risk/high-yield securities (often called "junk bonds"). May invest up to 25
percent of its total assets in debt and/or equity international securities.
Risks
The value of debt securities may be affected by changes in general interest
rates. "Junk bonds" tend to offer higher yields than investment-grade bonds, but
additional risks are associated with them. Foreign securities may involve
certain additional risks. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; adverse foreign political and economic developments; different
accounting procedures and auditing standards; and less publicly available
information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Investment Objective
Seeks to provide high current return, consistent with preservation of
capital and liquidity, by investing in high-quality money market instruments.
Policies
Earns interest by investing in short-term debt securities, including
Treasury bills, commercial paper (the short-term borrowings of large companies),
and other high-quality, fixed income securities. Invests primarily in: a) money
market instruments that have a maturity at the time of
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purchase, of 397 days or less (762 days or less for U.S. government securities),
and b) debt securities with a longer maturity, if the Fund has the absolute
right to sell such securities back to the issuer for at least the face amount of
the debt obligation within 397 days after the date of purchase. At least 95
percent of total Fund assets are invested in high-quality securities (those
receiving the highest credit rating by any two rating agencies or one if only
one agency has rated the security). May invest up to 25 percent of its assets in
foreign securities.
Risks
Yield will fluctuate with interest rates. The Fund is neither insured nor
guaranteed by the U.S. government. Foreign securities may involve certain
additional risks. Such risks include: currency fluctuations and related currency
conversion costs; less liquidity; price or income volatility; less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies; adverse foreign political and economic developments; different
accounting procedures and auditing standards; and less publicly available
information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Balanced VP (formerly Aetna Investment Advisers Fund)
Investment Objective
Seeks to maximize investment return, consistent with reasonable safety of
principal by investing in a diversified portfolio of one or more of the
following asset classes: stocks, bonds, and cash equivalents.
Policies
Assets are allocated among common and preferred stocks, bonds, U.S.
government securities and derivatives, and money market instruments. May also
invest in when-issued or delayed-delivery securities. Will not invest more than
25 percent of its total assets in high-risk/high-yield securities or "junk
bonds." Will not invest more than 25 percent of its assets in international
securities.
Risks
There can be no assurance that the investment adviser will always allocate
assets to the best performing sectors. The Fund's performance would suffer if a
major proportion of its assets were allocated to stocks in a declining market
or, similarly, if a major portion of its assets were allocated to bonds in a
time of adverse interest rate movement. High risk/high-yield securities involve
additional investment risk. Foreign securities may involve certain additional
risks. Such risks include: currency fluctuations and related currency conversion
costs; less liquidity; price or income volatility; less government supervision
and regulation of foreign stock exchanges, brokers and listed companies; adverse
foreign political and economic developments; different accounting procedures and
auditing standards; and less publicly available information about foreign
issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
Investment Objective
Seeks to provide capital appreciation. Designed for participants who have
an investment horizon exceeding 15 years and a high level of risk tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high quality and present minimal
credit risk.
The benchmark portfolio is 80 percent equities and 20 percent fixed income
under neutral market conditions.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company, while debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. High
risk/high-yield securities have additional credit risks, including lack of
liquidity, greater likelihood of default and increased sensitivity to difficult
economic and corporate developments.
International securities involve currency and other special risks not
present in domestic securities. Real estate securities may be subject to the
same risks associated with direct ownership of real estate.
Investment Adviser: Aeltus Investment Management, Inc.
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Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
Investment Objective
Seeks to provide total return (i.e., income and capital appreciation, both
realized and unrealized). The portfolio is designed for participants who have an
investment horizon exceeding ten years and who have a moderate level of risk
tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high quality and present minimal
credit risk.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company; debt securities may be affected by changes in general
interest rates and in the creditworthiness of the issuer. High risk/high-yield
securities have additional credit risks. International securities involve
currency and other special risks not present in domestic securities. Real estate
securities may be subject to the same risks associated with direct ownership of
real estate.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
Investment Objective
Seeks to provide total return consistent with preservation of capital.
Designed for participants who have an investment horizon exceeding five years
and a low level of risk tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high-quality and present minimal
credit risk. Securities include U.S. government obligations,
certificates of deposit, bankers' acceptances, bank deposits, and
other financial institution obligations.
The benchmark portfolio is 40 percent equities and 60 percent fixed income
under neutral market conditions.
Risks
Equity securities are subject to a decline in the stock market or value of
the issuer; debt securities may be affected by changes in general interest rates
and creditworthiness of the issuer. High risk/high-yield securities have
additional credit risks. International securities involve currency and other
special risks not present in domestic securities. Real estate securities may be
subject to the same risks associated with direct ownership of real estate.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Value Opportunity
(formerly Aetna Variable Capital Appreciation Portfolio)
Investment Objective
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.
Policies
Normally invests at least 65 percent of its net assets in common stocks.
May also purchase securities aside from common stocks. The value of all
non-common stock investments normally represents no more than 35 percent of the
Portfolio's total assets. The Portfolio may invest up to 25 percent of its
assets in foreign securities, buy and sell put and call options on stock indices
and on individual stocks, purchase futures contracts, options contracts, engage
in currency hedging and purchase securities on a "when-issued," delayed-delivery
or forward-commitment basis.
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Risks
Equity securities are subject to a decline in the stock market or in the
value of the issuer, and preferred stocks have price risk and some interest rate
and credit risk. The value of debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. Investments in
securities of foreign issuers or securities denominated in foreign currencies
involve risks not present in domestic markets. Such risks include: currency
fluctuations and related currency conversion costs, less liquidity, price or
income volatility, less government supervision and regulation of foreign stock
exchanges and less publicly available information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
Investment Objective
Seeks growth of capital through investment in a diversified portfolio
primarily of common stocks and securities convertible into common stocks
believed to offer growth potential.
Policies
Normally invests at least 65 percent of its total assets in common stocks
that have potential for capital growth. May also invest in convertible and
nonconvertible preferred stocks. May buy and sell put and call options, and
stock index futures and options. May enter into repurchase agreements with
domestic banks and broker dealers, purchase commercial paper and other
short-term instruments, and invest up to 25 percent of its assets in foreign
securities. Will not invest more than 15 percent of the total value of its
assets in high-risk/high-yield securities or "junk bonds." May invest in
lower-risk derivatives for hedging and other investment purposes.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company and preferred stocks have price risk and some interest rate
and credit risk. Foreign investing involves certain additional risks not present
in U.S. securities. Such risks may include: currency fluctuations and related
currency conversion costs: less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; different accounting procedures and auditing standards; and
less publicly available information about foreign issuers. High risk/high-yield
securities may provide a higher return, but have added risk. Derivatives may
experience greater price swings and may be less liquid than other securities.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio)
Investment Objective
Seeks to outperform the total return performance of publicly traded common
stocks represented by the Standard & Poor's 500 Composite Stock Price Index (S&P
500), an unmanaged stock market index composed of 500 common stocks selected by
the Standard & Poor's Corporation.1
Policies
The Portfolio attempts to be fully invested in common stocks and normally
invests at least 90 percent of its assets in common stocks included in the S&P
500. Portfolio managers will attempt to outperform the S&P 500 by creating a
portfolio that has similar market risk characteristics to the S&P 500, but will
use a disciplined quantitative analysis to identify those stocks having the
greatest likelihood of either outperforming or underperforming the market.
Risks
Because the Portfolio invests in common stocks, it is subject to the
possibility that common stock prices will decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. There is no
assurance that the Portfolio's objectives will be met.
Investment Adviser: Aeltus Investment Management, Inc.
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1 Inclusion of a stock in the S&P 500 in no way implies an opinion by
Standard & Poor's Corporation as to the stock's attractiveness as an
investment. The Portfolio is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
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Aetna Small Company (formerly Aetna Variable Small Company Portfolio)
Investment Objective
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.
Policies
Normally invests at least 65 percent of its total assets in the common
stock of companies with equity market capitalizations at the time of purchase of
$1 billion or less. May also invest in convertible and nonconvertible preferred
stock. The securities of small capitalization companies may be in an early
developmental stage or older companies entering a new stage of growth due to
management changes, new technology, products, or markets. Such companies may
also be undervalued due to poor economic conditions, market decline, or actual
or unanticipated unfavorable developments affecting the companies. May invest in
lower-risk derivatives for hedging and other investment purposes.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company. Although securities of small capitalization companies tend
to offer greater potential for growth than securities of larger, more
established issuers, there are additional risks associated with them. These
include: limited marketability, more abrupt or erratic market movements than
securities of larger capitalization companies, and less publicly available
information about the issuer. These companies may also be dependent on
relatively few products or services, have limited financial resources and lack
of management depth, and may have less of a track record or historical pattern
of performance. Derivatives may experience greater price swings and may be less
liquid than other securities.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna International VP
Investment objective
Seeks long term capital growth, primarily through investment in a diversified
portfolio of common stocks principally traded in countries outside of North
America. The fund will not target any given level of current income.
Policies
Invests at least 65% of its total assets among securities principally traded in
three or more countries outside of North America. The fund will invest primarily
in equity securities, including securities convertible into common stocks. Will
invest in a broad spectrum of companies and industries. Further, from time to
time, the fund may hold up to 10% of its total assets in long-term debt
securities with an S&P or Moody's rating of AA/Aa or above, or, if un-rated, are
considered by Aeltus to be of comparable quality. Additionally the fund may
invest in options, futures, enter into repurchase agreements and engage in
currency hedging.
Risks
Equity securities are subject to a decline in the stock market or in the value
of the company. Investments in foreign securities involve certain additional
risks. Such risks may include: currency fluctuations and related currency
conversion costs; less liquidity; price or income volatility; less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies; adverse foreign economic and political developments; different
accounting procedures and auditing standards, and less publicly available
information about foreign issuers. Derivatives may experience greater price
swings and may be less liquid than other securities.
Investment advisor: Aeltus Investment Management, Inc.
Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are Real Estate Investment Trusts (REITs).
Policies
Normally invests at least 65% of total assets in income-producing equity
securities of publicly-traded companies "principally engaged" in the real estate
industry, including those companies that, at the time of purchase, derive a
significant proportion (at least 50%) of their revenues or profits from real
estate operations or related sources. The fund may invest in convertible
securities and preferred stock. Additionally, the fund may invest in options and
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futures, enter into repurchase agreements, and invest up to 25% of its total
assets in foreign securities. The fund will not invest more than 15% of the
total value of its assets in high-yield bonds.
Risks
There are a number of risk factors to be considered when investing in the Real
Estate Securities Fund. Derivatives may experience greater price swings than
other securities and may be less liquid than other securities. Risks involved in
futures contracts include, but are not limited to: transactions to close out
futures contracts may not be able to be effected at favorable prices; possible
reduction in a fund's total return and yield; possible reduction the value of
the futures instrument, and potential losses in excess of the amount invested in
the futures contracts themselves. Writing call options involves the risk of not
being able to effect closing transactions at favorable prices or to participate
in the appreciation of the underlying securities. Purchasing put options
involves the risk of losing the entire purchase price of the option. High-yield
bonds have additional risks associated with them, including but not limited to:
lack of liquidity; an unpredictable secondary market and a higher risk of
default. Special consideration to an investment in real estate include those
risks associated with the direct ownership of real estate: declines in the value
of real estate, risks related to general and local economic conditions,
over-building and increased competition, increases in property taxes and
operating expenses, changes in zoning laws and other risks particular to this
market. The value of securities of companies which service the real estate
industry may also be affected by such risks.
Investment Adviser: Aeltus Investment Management, Inc.
Calvert Social Balanced Portfolio
(formerly Calvert Responsibly Invested Balanced Portfolio)
Investment Objective
Seeks growth of capital through investment in enterprises that make a
significant contribution to society through their products and services. Seeks
to achieve a total return above the rate of inflation through an actively
managed portfolio of stocks, bonds, and money market instruments selected with a
concern for the social impact of each investment.
Policies
The Portfolio may purchase both common and preferred stocks. Although there
is no predetermined percentage of assets allocated to stocks, bonds, or money
market instruments, the Portfolio will invest a least 25 percent of its assets
in senior fixed income securities. The Portfolio normally invests in
investment-grade bonds rated in one of the four highest rating categories by
Standard & Poor's Corporation or by Moody's Investors Service, Inc. or, if not
rated, that are determined by the Portfolio's investment adviser to be of
comparable quality. The Portfolio may invest up to 10 percent of its assets in
foreign securities.
Risks
Since the Portfolio is nondiversified, the value of the shares may be more
susceptible to any single economic, political, or regulatory event than the
shares of a diversified portfolio. Fixed income investments are subject to
interest rate risk. There are also risks involved in investing in foreign
securities. These include currency risks, less publicly available information
about foreign companies, different audit and financial reporting standards, and
less government supervision and regulation.
Investment Adviser: Calvert Asset Management Company, Inc.
Fidelity VIP Equity-Income Portfolio
Investment Objective
Seeks reasonable income by investing primarily in income-producing equity
securities. Also considers the potential for capital appreciation.
Policies
Seeks to achieve a yield that will beat that of the Standard & Poor's (S&P)
500 Index. The Portfolio normally invests at least 65 percent of its total
assets in income producing common or preferred stock. The remainder of the
Portfolio's assets will tend to be invested in debt obligations,
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many of which are expected to be convertible into common stocks. The Portfolio
may invest the balance in all types of domestic and foreign securities,
including bonds of varying quality. Portfolio managers do not expect to invest
in debt securities of companies that do not have proven earnings or credit.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. The value of
bonds fluctuates based on changes in interest rates and in the credit quality of
the issuer. Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks. These
include political or economic risks, fluctuations in foreign currencies
withholding or other taxes, operational risks, increased regulatory burdens, and
less stringent investor protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP Growth Portfolio
Investment Objective
Seeks capital appreciation by investing in common stock, although the
Portfolio is not limited to any one type of security. May pursue capital
appreciation through the purchase of bonds and preferred stocks.
Policies
Tends to focus on smaller, lesser-known companies in new and emerging areas
of the economy. The Portfolio may, however, pursue growth in larger or
revitalized companies that hold a strong position in the market. These may be
found in mature or declining industries. Companies that have strong growth
potential often have new products, technologies, distribution channels, or other
opportunities. Generally, these domestic and foreign companies tend to be small-
and mid-sized companies that have higher than average price/earnings (P/E)
ratios. A high P/E ratio means that the stock is more expensive than average
relative to the company's earnings. May not invest more than 20 percent of its
assets in any one foreign country.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. The market
prices of stocks with high P/E ratios may be particularly sensitive to economic
market or company news. Foreign securities, foreign currencies, and securities
issued by U.S. entities with substantial foreign operations may involve
additional risks. These include political or economic risks, fluctuations in
foreign currencies, withholding or other taxes, operational risks, increased
regulatory burdens, and less stringent investor protection and disclosure
standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP High Income Portfolio
Investment Objective
Seeks high current income, with capital growth as a secondary
consideration.
Policies
Invests mainly in high-yielding debt securities, with an emphasis on
longer-term, lower-quality fixed income securities. The Portfolio normally
invests at least 65 percent of its assets in these securities. If consistent
with its investment objectives, the Portfolio may also invest in common stocks,
other equity securities, and debt securities that are not currently paying
interest but that are expected to do so in the future. The Portfolio manager
focuses on assembling a portfolio of income-producing securities that it
believes will provide the best tradeoff between risk and return within the range
of securities that are eligible investments for the Portfolio. The Portfolio may
invest up to 50 percent of its total assets in foreign securities, but will not
invest more than 20 percent of its assets in any one foreign country.
Risks
Yield and share price change daily and are based on changes in interest
rates, market conditions, other economic and political news, and on the quality
and maturity of the Portfolio's investments. Lower quality debt securities (also
known as "junk bonds") are considered to have speculative characteristics and
involve greater risk of default or price changes. Foreign securities, foreign
currencies and securities issued by U.S. entities with substantial foreign
operations may involve additional risks. These include political or economic
risks, fluctuations in foreign currencies, withholding or other taxes,
operational risks, increased regulatory burdens, and less stringent investor
protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
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Fidelity VIP Overseas Portfolio
Investment Objective
Seeks long-term growth of capital by investing primarily in securities of
issuers whose principal activities are outside of the U.S.
Policies
Normally invests at least 65 percent of the Portfolio's total assets in
securities of issuers from at least three different countries outside of North
America (the U.S., Canada, Mexico, and Central America). Expects to invest a
majority of its assets in equity securities, but may also invest in debt
securities of any quality. Invests in securities of both developed and emerging
markets. May invest in the securities of any issuer, including companies and
other business organizations as well as governments and government agencies.
Will tend to focus on the equity securities of both large and small companies.
May invest in short-term debt securities and money market instruments for cash
management purposes. When allocating the Portfolio's investments among countries
and regions, the Portfolio Managers consider such factors as governmental
policies, and the outlook for currency relationships. May not invest more than
25 percent of its total assets in any one industry.
Risks
Stock values fluctuate in response to the activities of individual
companies, and general market and economic conditions. International funds have
increased economic and political risks because they are exposed to events and
factors in the various world markets, especially in emerging markets. In
addition, changes in the value of foreign currencies can significantly affect
the Portfolio's share price. The Portfolio seeks to reduce investment risk by
diversifying its holdings among many companies and industries.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Investment Objective
Seeks high total return with reduced risk over the long term.
Policies
Invests in a diverse range of stocks, bonds, short-term, and money market
instruments, issued in the U.S. and abroad. The stock class includes equity
securities of all types. The bond class includes all varieties of fixed income
instruments with maturities of more than three years. The short-term instruments
class includes all types of short-term instruments with remaining maturities of
three years or less. The Portfolio has a neutral mix which represents the way
investments generally will be allocated over the long term. This mix will vary
over short-term periods - within defined ranges - based on the current outlook
for the different markets. May invest up to 50 percent of its total assets in
foreign securities, but will not invest more than 20 percent of its assets in
any one foreign country.
Risks
The Portfolio seeks to reduce its overall risk by diversifying among
different types of investments, but aggressively invests in a wide variety of
security types, including stocks and bonds issued in developed and developing
countries. Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds and
short-term instruments fluctuates based on changes in interest rates and in the
credit quality of the issuer. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Contrafund Portfolio
Investment Objective
Seeks capital appreciation by investing mainly in equity securities of
companies that FMR believes to be undervalued or out of favor.
Policies
Usually invests in common stock and securities convertible into common
stock, but may invest in any type of security that may produce capital
appreciation. Seeks companies that are: 1) unpopular, but that may improve due
to developments such as a change in management, a new product line, or an
improved balance sheet; or 2) recently popular, but temporarily out of favor due
to short-term or one-time factors; or, undervalued compared to other companies
in the same industry. May not invest more than 20 percent of its assets in any
one foreign country, but may have an additional 15 percent invested in
securities of issuers located in any one (but only one) of the following
countries: Australia, Canada, France, Japan, the United Kingdom, or Germany. May
not invest more than 25 percent of its total assets in any one industry.
Risks
Stock values may fluctuate in response to the activities of an individual
company or general market and economic conditions. The Portfolio's
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strategy can lead to investments in small- and medium-sized companies, which
carry more risk than larger ones. Generally, such companies rely on limited
product lines and markets, financial resources or other factors. This may make
them more susceptible to downturns. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks. These include political or economic risks,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and less stringent investor protection and
disclosure standards of foreign markets. Seeks to manage risk by diversifying
its holdings among many companies and industries.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Index 500 Portfolio
Investment Objective
Seeks to match the total return of the S&P 500 while keeping expenses low.
Policies
Normally invests at least 80 percent (65 percent if Portfolio assets are
below $20 million) of the Portfolio's assets in equity securities of companies
that comprise the S&P 500. In seeking a 98 percent or better long-term
correlation of the Portfolio's total return to that of the S&P 500, FMR employs
a "passive" or "indexing" approach and tries to allocate its assets similarly to
those of the index. The Portfolio's composition may not always be identical to
that of the index. If extraordinary circumstances warrant, FMR may exclude a
stock held in the S&P 500 and include a similar stock in its place if doing so
will help the Portfolio achieve its objective. FMR monitors the correlation
between the performance of the Portfolio and the S&P 500 on a regular basis.
Although the Portfolio focuses on common stocks, it may invest in other equity
securities and other types of instruments. The Portfolio may invest up to 50
percent of its assets in foreign securities, but no more than 20 percent of its
assets in any one foreign country.
Risks
Stock values fluctuate in response to the activities of individual
companies, and general market and economic conditions. Foreign securities,
foreign currencies, and securities issued by U.S. entities with substantial
foreign operations may involve additional risks and considerations. These
include risks related to political or economic conditions in foreign countries,
fluctuations in foreign debt currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and potentially less stringent investor
protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Janus Aspen Series Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
A nondiversified portfolio that invests primarily in common stocks of
foreign and domestic companies selected for their growth potential. Normally
invests at least 50 percent of its equity assets in securities issued by
medium-sized companies-those whose market capitalizations fall within the range
of companies in the Standard and Poor's (S&P) Mid Cap 400 Index. May invest, to
a lesser degree, in other types of securities including preferred stocks,
warrants, convertible securities, and debt securities. May invest up to 35
percent of its net assets in high-yield/high-risk debt securities ("junk
bonds"). May at times hold substantial positions in cash equivalents or
interest-bearing securities.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Smaller or newer issuers are
more likely to realize more substantial growth as well as suffer more
significant losses than larger or more established issuers. Investments in such
companies can be both more volatile and more speculative. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory, and market risk factors. High-yield/high-risk
securities are generally more dependent on the ability of the issuer to meet
interest and principal payments (i.e., credit risk). Issuers of high-yield
securities may not be as strong financially as those issuing bonds with higher
credit ratings. They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Balanced Portfolio
Investment Objective
Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
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Policies
Normally invests 40-60 percent of its assets in securities selected
primarily for their growth potential and 40-60 percent of its assets in
securities selected primarily for their income potential. Invests in common
stocks of domestic and foreign companies. May invest to a lesser degree in other
types of securities including preferred stocks, warrants, convertible
securities, and debt securities when the portfolio manager perceives an
opportunity for capital growth. Assets may shift between the growth and income
components of the Portfolio based on the portfolio manager's analysis of
relevant market financial and economic conditions. The portfolio manager
generally takes a "bottom up" approach to building the Portfolio, seeking to
identify individual companies with earnings growth potential that may not be
recognized by the market at large.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Investments in
foreign securities, including those of foreign governments, involve greater
risks than investing in comparable domestic securities. These risks include
currency, political, economic, regulatory and market risk factors. Risk is
reduced through diversification.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Flexible Income Portfolio
Investment Objective
Seeks maximum total return, consistent with the preservation of capital.
Policies
The Portfolio invests at least 80 percent of its assets in income-producing
securities which may include: corporate bonds and notes, preferred stock,
income-producing common stocks, debt securities convertible or exchangeable into
equity securities, and debt securities with the right to acquire equity
securities. May invest to a lesser degree in common stocks, other equity
securities, or debt securities not currently paying dividends or interest. May
purchase securities of any maturity and quality. Average maturity and quality of
its portfolio may vary substantially. May invest without limit in foreign
securities, including those of corporate and government issuers, as well as in
high-yield/high-risk securities. May have substantial holdings of such
securities, as well as in high-yield/high-risk securities (or "junk bonds") are
debt securities rated below investment grade by the primary rating agencies such
as Standard & Poor's and Moody's.
Risks
Foreign investing involves risks that are different in some respects from
investments in securities of U.S. issuers including: economic/political
volatility; less government regulation and supervision of foreign stock
exchanges, brokers and listed companies; and price, interest rate and currency
risk. The value of lower-quality securities generally depends more on the
ability of the issuer to meet interest and principal payments than is true for
higher-quality securities. Issuers of high-yield securities are more vulnerable
to real or perceived economic and political changes or adverse developments
specific to the issuer. In the event of a default, the Portfolio would
experience a reduction of its income and a decline in the market value of the
defaulted securities.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the
preservation of capital.
Policies
Invests in common stocks of companies of any size, although it generally
invests in larger, more established issuers. Invests primarily in stocks of
foreign and domestic companies selected for their growth potential. May at times
hold substantial positions in cash equivalents or interest bearing securities.
May invest to a lesser degree in other types of securities including preferred
stocks, warrants, convertible securities, and debt securities when its portfolio
manager perceives an opportunity for capital growth. Using a "bottom up"
approach to building the Portfolio, the portfolio manager seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large. Securities are generally selected without regard to any
defined industry sector. Securities are selected solely for their capital growth
potential; investment income is not a consideration.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Smaller or newer issuers are
more likely to realize more substantial growth as well as suffer more
significant losses than larger or more established issuers. Investments in such
companies can be both more volatile and more speculative. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory
32
<PAGE>
and market risk factors. Risk is reduced through diversification.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the
preservation of capital.
Policies
A diversified portfolio that invests primarily in common stocks of foreign
and domestic issuers. Invests worldwide in companies and organizations of any
size, regardless of country of organization or place of principal business
activity. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries or
even in a single country. May hold substantial positions in cash equivalents or
interest-bearing securities. May invest to a lesser degree in other types of
securities, including preferred stocks, warrants, convertible securities, and
debt securities, when the portfolio manager perceives an opportunity for growth.
May invest up to 35 percent of net assets in high-yield/high-risk securities
(also called "junk bonds"). May invest without limit in foreign equity and debt
securities.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investment in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These include currency, political,
economic, regulatory and market risk factors. High-yield/high-risk securities
are generally more dependent on the ability of the issuer to meet interest and
principal payments (i.e., credit risk). Issuers of high-yield securities may not
be as strong financially as those issuing bonds with higher credit ratings. They
are more vulnerable to real or perceived economic changes, political changes or
other adverse developments.
Investment Adviser: Janus Capital Corporation
MFS Total Return Series
Investment Objective
Seeks to provide above average income consistent with the prudent
employment of capital; its secondary objective is to provide reasonable
opportunity for growth of capital and income.
Policies
Under normal market conditions, at least 25 percent of the Series' assets
will be invested in fixed income securities, and at least 40 percent (but no
more than 75 percent) of the Series' assets will be invested in equity
securities. The Series invests in a broad list of securities, including
short-term obligations. The list may be diversified not only by companies and
industries, but also by type of security. May vary the percentage of assets
invested in any one type of security depending on the Adviser's interpretation
of economic and money market conditions, fiscal and monetary policy, and
underlying security values. The Series debt investment may consist of both
investment grade securities and securities that are lower rated or unrated
categories (commonly known as "junk bonds"). May hold up to 20 percent of its
assets in foreign securities (including emerging market securities and Brady
Bonds) which are not traded on a U.S. exchange.
Risks
Investing in the securities of foreign issuers generally involves risks not
ordinarily associated with investing in securities of domestic issuers. These
include changes in currency rates, exchange control regulations, governmental
administration or economic or monetary policy (in the U.S. or abroad), or
circumstances in dealing between nations. Other considerations include limited
information about foreign issuers, higher brokerage costs, different accounting
standards, and thinner trading markets.
Investment Adviser: Massachusetts Financial Services Company ("MFS")
MFS World Government Series
Investment Objective
Seeks not only preservation, but also growth of capital, together with
moderate current income.
Policies
The Series seeks to achieve its investment objective through a
professionally managed, internationally diversified portfolio consisting
primarily in debt securities and, to a lesser extent, equity securities. Under
normal circumstances, the Series invests at least 80 percent of its assets in
debt
33
<PAGE>
securities. The Series may invest up to 100 percent (although it generally
expects to invest not more than 80 percent) of its net assets in foreign
securities. At least 65 percent of the Series' assets will be invested in at
least three different countries, one of which may be the U.S., except when the
Adviser believes that investing for temporary defensive purposes is appropriate.
U.S. assets will be invested in high-quality debt securities, and the remainder
of the assets will be diversified among countries where opportunities for total
return are expected to be most attractive. It is currently expected that
investments in foreign countries will be primarily in government securities to
minimize credit risks.
Risks
Investing in securities of foreign issuers generally involves risks not
ordinarily associated with investing in securities of domestic issuers. These
include changes in currency rates, exchange control regulations, governmental
administration or economic or monetary policy (in the U.S. or abroad), or
circumstances in dealing between nations. Other considerations include limited
information about foreign issuers, higher brokerage costs, different accounting
standards, and thinner trading markets.
Investment Adviser: Massachusetts Financial Services Company ("MFS")
Oppenheimer Capital Appreciation Fund
Investment Objective
Seeks to achieve capital appreciation by investing in "growth-type"
companies.
Policies
"Growth-type" companies are believed to have relatively favorable long-term
prospects for increasing demand for their goods or services, or to be developing
new products, services, or markets and normally retain a relatively larger
portion of their earnings for research, development, and investment in capital
assets. The Fund will invest no more than 25 percent of its total assets in
foreign securities or in government securities of any foreign country or in
obligations of foreign banks.
Risks
Stock prices will fluctuate. Additional risk is present in growth-type
investments since the price of the security may decline if the anticipated
development fails to occur. Investing in small, unseasoned companies (those that
have been in operation for less than three years, counting the operations of any
predecessors) may have limited liquidity, and the prices of these securities may
be volatile. Foreign securities markets may be less liquid and more volatile
than markets in the U.S. Risks of foreign securities may include foreign
withholding taxation, changes in currency, less publicly available information,
and differences between domestic and foreign legal, auditing, brokerage and
economic standards.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund
Investment Objective
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.
Policies
Invests a substantial portion of its assets in securities of foreign
issuers, "growth-type" companies (those which, in the opinion of the manager,
have relatively favorable long-term prospects for increasing demand or which
develop new products and retain a significant part of earnings for research and
development), cyclical industries, and special investment situations which are
considered to have appreciation possibilities. May invest in foreign securities
and the relative amount of such investments will change from time to time.
Risks
Stock prices will fluctuate. Foreign securities markets may be less liquid
and more volatile than the markets in the U.S. Risks of foreign securities may
include foreign withholding taxation, changes in currency, less publicly
available information, and differences between domestic and foreign legal,
auditing brokerage and economic standards. Investments in small, unseasoned
companies (those that have been in operation for less than three years, counting
the operations of any predecessors) may have limited liquidity, and the prices
of these securities may be volatile.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Growth & Income Fund
Investment Objective
Seeks a high total return (which includes growth in the value of its shares
as well as current income) from equity and debt securities.
34
<PAGE>
Policies
Invests primarily in equity and debt securities and focuses on all market
capitalization including small to medium capitalization companies. Equity
investments include common stocks, preferred stocks, convertible securities, and
warrants. Debt securities include bonds, participation interests, asset-backed
securities, private label mortgage backed securities and collateralized mortgage
obligations (CMOs), zero coupon securities, and U.S. government obligations. The
proportion of equity and fixed income investments will vary based upon the
manager's evaluation of economic and market trends and perceived relative total
anticipated return from such types of investments. There is no minimum or
maximum percentage of assets that may, at any given time, be invested in either
type of investment. The Fund may invest in foreign securities without limit.
Risks
Changes in overall market movements or interest rates, or factors affecting
a particular industry or issuer can affect the value of the Fund's investments
and their price per share. Equity investments are generally subject to a number
of risks, including the risk that values will fluctuate as a result of changing
expectations for the economy and individual issuers; stocks with small- to
medium-size capitalization may fluctuate more than large capitalization stocks.
Foreign investments are subject to the risk of adverse currency fluctuation and
additional risks and expenses in comparison to U.S. investments.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund
Investment Objective
Seeks a high level of current income principally derived from interest on
debt securities. Seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests principally in lower-rated, high-yield domestic debt securities
(commonly shown as "junk bonds"), U.S. government securities, and foreign
government and corporate debt securities. Under normal circumstances, the Fund's
assets will be invested in each of these three sectors. However, Strategic Bond
Fund may occasionally invest up to 100 percent of its total assets in any one
sector, if, in the manager's judgment, the Fund has the opportunity to seek a
high level of current income without undue risk to principal. Accordingly, the
Fund's investments should be considered speculative. Distributable income will
fluctuate as the Fund's assets are shifted among the three sectors.
Risks
The higher yields and income sought by Strategic Bond Fund are generally
associated with securities in the lower-rating categories of the established
rating services. Such securities are considered speculative and involve greater
risk than lower-yielding, higher-rated fixed income securities, while providing
higher yields than such securities. Lower-rated securities may be less liquid,
and significant losses could be experienced if a substantial number of other
holders of such securities decide to sell at the same time. Issuers of
lower-rated or unrated securities are generally not as financially secure or
creditworthy as issuers of higher-rated securities.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Portfolio's investment
objective.
Policies
Normally invests at least 80 percent of its assets in common stocks of
companies the subadviser believes are in an early phase of their life cycle, but
that have the potential to become major enterprises. Such companies would be
expected to show earnings growth over time well above the growth rate of the
overall economy and inflation and have the products, technologies, management
and market and other opportunities usually necessary to become more widely
recognized as growth companies. Emerging growth companies can be of any size.
The Portfolio may invest in larger or more established companies whose rates of
earnings growth are expected to accelerate because of special factors. The
Portfolio will invest primarily in stocks. To a limited extent, however, it may
seek appreciation in other types of securities such as convertible securities
and warrants, when relative values make such purchases appear attractive, either
as individual issues or as types of securities in certain economic environments.
Up to 25 percent of the Portfolio's net assets may be invested in foreign
issuers.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions.
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<PAGE>
Investing in emerging growth companies involves greater risk than is customarily
associated with investments in more established companies. Such companies may
have limited product lines, markets or financial resources and they may be
dependent on one person's management. In addition, there may be less research
available on many promising small- and medium-sized emerging growth companies,
making it more difficult to find and analyze these companies. The securities of
these companies may have limited marketability and may be subject to more abrupt
or erratic market movements than securities of larger, more established growth
companies or the market averages in general. Foreign investing involves risks
that are different in some respects from investments in the securities of U.S.
issuers. Risks include less availability of information about issuers or foreign
markets, economic and political volatility, and price, interest rate and
currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners MFS Research Growth Portfolio
Investment Objective
Seeks to provide long-term growth of capital and future income.
Policies
Invests a substantial proportion of its assets 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 the
assets may be invested in bonds, short-term obligations, preferred stocks or
common stocks whose principal characteristic is income production rather than
growth. In the case of both growth stocks and income issues, emphasis is placed
on the selection of progressive, well-managed companies. The Portfolio may
invest up to 20 percent of its net assets in foreign securities, including
emerging market securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Investing in
securities of foreign issuers generally involves risks not ordinarily associated
with investing in securities of domestic issuers. These include less
availability of information about issuers or foreign markets, economic and
political volatility, and price, interest rate and currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners MFS Value Equity Portfolio
Investment Objectives
Seeks capital appreciation. Dividend income, if any, is an incidental
consideration.
Policies
While the Portfolio's policy is to invest primarily in common stocks, it
may seek appreciation in other types of securities (such as fixed-income,
convertible bonds, convertible preferred stocks and warrants) when relative
values make such purchases appear attractive, either as individual issues or as
types of securities in certain economic environments. The Portfolio may invest
in high-yield fixed-income (below investment grade), but will invest no more
than 25 percent of its net assets in these securities. The Portfolio may also
invest up to 50 percent (but generally expects to invest not more than 25
percent) of its net assets in foreign securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Lower-rated bonds have
speculated characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher-grade securities. Investing in
securities of foreign issuers generally involves risks not ordinarily associated
with investing in securities of domestic issuers. These include less
availability of information about issuers or foreign markets, economic and
political volatility, and price, interest rate and currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital primarily through diversified holdings of
marketable foreign equity investments.
Policies
Invests in companies, wherever organized, that do business primarily
outside the United States. The Portfolio intends to diversify investments among
several countries and to have represented in its holdings business activities in
not less than three different countries. Does not intend to concentrate
investments in any particular industry. Invests primarily in equity securities
of established companies, listed on foreign exchanges, that
36
<PAGE>
the subadviser believes have favorable characteristics. Although the Portfolio
will consist primarily of equity securities, it may also invest in fixed-income
securities of foreign governments and companies.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investing in foreign securities
may involve a greater degree of risk than investing in domestic securities.
Additional risk factors include the possibility of exchange rate fluctuations,
less publicly available information, more volatile markets, less securities
regulation and less favorable tax provisions.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Scudder, Stevens & Clark, Inc.
Portfolio Partners T. Rowe Price Growth Equity Portfolio
Investment Objective
Seeks long-term growth of capital and, secondly, to increase dividend
income by investing primarily in common stocks of well established growth
companies.
Policies
Under normal market conditions the Portfolio invests primarily in common
stocks issued by a diversified group of growth companies. The companies in which
the Portfolio invests normally (but not always) pay dividends, which are
generally expected to rise in future years as earnings increase. Most of its
assets will be invested in U.S. common stocks. However, the Portfolio may invest
in foreign securities and convertible securities and warrants, when the
subadviser considers such investments consistent with the Portfolio's investment
objective and policies.
The Portfolio generally seeks to invest in securities of companies that
satisfy one or more of several criteria established by the subadviser. For
example, the subadviser generally seeks companies with superior growth in
earnings and cash flow; the ability to sustain earnings momentum even during
economic slowdowns by operating in so-called "fertile fields" (areas where
earnings and dividends can outpace inflation and the overall economy); and the
capability to expand even during times of slow growth. The subadviser generally
favors companies whose profits increase due to economic factors rather than
one-time events such as lower taxes. The Portfolio may engage in strategic
transactions, which may include the use of derivatives.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory and market risk factors. Risk is reduced through
diversification.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: T. Rowe Price Associates, Inc.
37
<PAGE>
PROSPECTUS
================================================================================
The Contracts offered in connection with this Prospectus are the "Aetna Marathon
Plus" group and individual deferred variable annuity contracts ("Contracts")
issued by Aetna Life Insurance and Annuity Company (the "Company"). The
Contracts are offered only in those states where the Contract has been approved
for sale in that state. The Contracts are available as (1) nonqualified deferred
annuity contracts, (2) Individual Retirement Annuities ("IRA") including Roth
IRAs under Sections 408(b) and 408A 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.")
In most states, 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. In certain states, Purchase Payments may be
allocated to the Fixed Account when the Guaranteed Account is not available. The
Subaccounts invest directly in shares of the following Funds:
<TABLE>
<S> <C>
[bullet] Aetna Variable Fund d/b/a [bullet] Fidelity VIP High Income Portfolio
Aetna Growth and Income VP [bullet] Fidelity VIP Overseas Portfolio
[bullet] Aetna Income Shares d/b/a Aetna Bond VP [bullet] Fidelity VIP II Asset Manager Portfolio
[bullet] Aetna Variable Encore Fund d/b/a [bullet] Fidelity VIP II Contrafund Portfolio
Aetna Money Market VP [bullet] Fidelity VIP II Index 500 Portfolio
[bullet] Aetna Balanced VP [bullet] Janus Aspen Aggressive Growth Portfolio
(formerly Aetna Investment Advisers Fund, Inc.) [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Ascent VP [bullet] Janus Aspen Flexible Income Portfolio
(formerly Aetna Ascent Variable Portfolio) [bullet] Janus Aspen Growth Portfolio
[bullet] Aetna Crossroads VP [bullet] Janus Aspen Worldwide Growth Portfolio
(formerly Aetna Crossroads Variable Portfolio) [bullet] MFS Total Return Series
[bullet] Aetna Legacy VP [bullet] MFS World Governments Series
(formerly Aetna Legacy Variable Portfolio) [bullet] Oppenheimer Aggressive Growth Fund
[bullet] Aetna Value Opportunity VP (formerly Oppenheimer Capital Appreciation Fund)
(formerly Aetna Variable Capital Appreciation Portfolio) [bullet] Oppenheimer Global Securities Fund
[bullet] Aetna Growth VP [bullet] Oppenheimer Growth & Income Fund
(formerly Aetna Variable Growth Portfolio) [bullet] Oppenheimer Strategic Bond Fund
[bullet] Aetna Index Plus Large Cap VP [bullet] Portfolio Partners MFS Emerging Equities Portfolio
(formerly Aetna Variable Index Plus Portfolio) [bullet] Portfolio Partners MFS Research Growth Portfolio
[bullet] Aetna Small Company VP [bullet] Portfolio Partners MFS Value Equity Portfolio
(formerly Aetna Variable Small Company Portfolio) [bullet] Portfolio Partners Scudder International Growth Portfolio
[bullet] Aetna International VP [bullet] Portfolio Partners T. Rowe Price Growth Equity Portfolio
[bullet] Aetna Real Estate Securities VP
[bullet] Calvert Social Balanced Portfolio
(formerly Calvert Responsibly Invested Balanced
Portfolio)
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
</TABLE>
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. The Guaranteed Account is described in the
Appendix to this Prospectus, as well as in the Guaranteed Account's prospectus.
The Fixed Account is described in a separate Appendix to this Prospectus. The
availability of the Funds, the Guaranteed Account and the Fixed 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 20 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 SHOULD BE READ IN CONJUNCTION WITH THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE ALIAC GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE RETAINED
FOR FUTURE REFERENCE.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK, NOR
ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
ARE DATED MAY 1, 1998.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
====================================================================================================================================
<S> <C>
DEFINITIONS .............................................................................................. DEFINITIONS - 1
PROSPECTUS SUMMARY ....................................................................................... SUMMARY - 1
FEE TABLE ................................................................................................ FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .......................................................................... AUV HISTORY - 1
THE COMPANY .................................................................................................................... 1
VARIABLE ANNUITY ACCOUNT B ..................................................................................................... 1
INVESTMENT OPTIONS ............................................................................................................. 1
The Funds .................................................................................................................. 1
Credited Interest Option ................................................................................................... 3
Fixed Account .......... ................................................................................................... 3
PURCHASE ....................................................................................................................... 3
Contract Availability ...................................................................................................... 3
Purchasing Interests in the Contract ....................................................................................... 3
Purchase Payments .......................................................................................................... 3
Contract Rights ............................................................................................................ 4
Designations of Beneficiary and Annuitant .................................................................................. 4
Right to Cancel ............................................................................................................ 4
CHARGES AND DEDUCTIONS ......................................................................................................... 4
Daily Deductions from the Separate Account ................................................................................. 4
Mortality and Expense Risk Charge ...................................................................................... 4
Administrative Charge .................................................................................................. 4
Maintenance Fee ............................................................................................................ 5
Reduction or Elimination of Administrative Charge and Maintenance Fee ...................................................... 5
Deferred Sales Charge ...................................................................................................... 5
Reduction or Elimination of the Deferred Sales Charge ...................................................................... 6
Fund Expenses .............................................................................................................. 6
Premium and Other Taxes .................................................................................................... 6
CONTRACT VALUATION ............................................................................................................. 6
Account Value .............................................................................................................. 6
Accumulation Units ......................................................................................................... 6
Net Investment Factor ...................................................................................................... 7
TRANSFERS ...................................................................................................................... 7
Telephone Transfers ....................................................................................................... 7
Dollar Cost Averaging Program .............................................................................................. 7
Account Rebalancing Program ................................................................................................ 8
WITHDRAWALS .................................................................................................................... 8
SYSTEMATIC DISTRIBUTION OPTIONS ................................................................................................ 8
DEATH BENEFIT DURING ACCUMULATION PERIOD ....................................................................................... 9
Death Benefit Amount ....................................................................................................... 9
Death Benefit Payment Options .............................................................................................. 10
Nonqualified Contracts ................................................................................................. 10
Qualified Contracts .................................................................................................... 10
ANNUITY PERIOD ................................................................................................................. 11
Annuity Period Elections ................................................................................................... 11
Partial Annuitization ...................................................................................................... 11
Annuity Options ............................................................................................................ 11
Annuity Payments ........................................................................................................... 12
Charges Deducted During the Annuity Period ................................................................................. 12
Death Benefit Payable During the Annuity Period ............................................................................ 12
TAX STATUS ..................................................................................................................... 13
Introduction ............................................................................................................... 13
Taxation of the Company .................................................................................................... 13
Tax Status of the Contract ................................................................................................. 13
Taxation of Annuity Contracts .............................................................................................. 14
Contracts Used with Certain Retirement Plans ............................................................................... 16
Qualified Contracts in General ............................................................................................. 16
Individual Retirement Annuities and Simplified Employee Pension Plans ...................................................... 17
Withholding ................................................................................................................ 17
MISCELLANEOUS .................................................................................................................. 17
Distribution ............................................................................................................... 17
Delay or Suspension of Payments ............................................................................................ 18
Performance Reporting ...................................................................................................... 18
Voting Rights .............................................................................................................. 18
Modification of the Contract ............................................................................................... 18
Transfers of Ownership; Assignment ......................................................................................... 19
Involuntary Terminations ................................................................................................... 19
Legal Matters and Proceedings .............................................................................................. 19
Year 2000................................................................................................................... 19
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ............................................................................ 20
APPENDIX A--ALIAC GUARANTEED ACCOUNT ........................................................................................... 21
APPENDIX B--FIXED ACCOUNT ...................................................................................................... 23
APPENDIX C--DESCRIPTION OF UNDERLYING FUNDS..................................................................................... 24
</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.
Certificate: The document issued to a Certificate Holder for an Account
established under a group contract.
Certificate Holder (You): A person or entity who purchases an individual
Contract or acquires an interest under a group Contract.
Claim Date: The date when proof of death and the Beneficiary's claim are
received in good order at the Company's Home Office.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
Contract Year: The number of completed years since the date of the first payment
under an individual Contract or to an Account under a group Contract.
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.
Fixed Account: A fixed interest option available in certain states which is
described in an Appendix to this prospectus. Amounts allocated to the Fixed
Account are included in the Account Value.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
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) or 408A.
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 403(b), 408(b), or 408A.
Roth IRA: An Individual Retirement Annuity intended to qualify under Code
Section 408A.
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") including Roth 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 Section 403(b) 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.") If
the Purchase Payment to a Roth IRA is a rollover from a contract issued by the
Company or an affiliate where the deferred sales charge was eliminated or
reduced to facilitate the rollover to this Contract and you exercise your
free look right under this provision, Purchase Payment will be restored to the
contract from which it came.
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 (or the Fixed Account,
in certain states) subject to the limitations described in "Investment Options,"
see page 1. For a complete list of the Funds available under the Contracts, and
a description of the investment objectives of each of the Funds and their
investment advisers, see "Investment Options--The Funds" and Appendix C 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 Appendix A to this Prospectus and the prospectus for the
Guaranteed Account.)
The Fixed Account is an option available under the Contract in certain
states which allows you to earn a fixed rate of interest. (See the Appendix B to
this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), as well as any 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 (or
Fixed Account in certain states). During the Annuity Period and subject to state
approval, if you have elected variable payments, you can make transfers among
the Subaccounts available during the Annuity Period. Currently, during the
Accumulation Period, transfers are without charge. However, the Company reserves
the right to charge up to $10 for each additional transfer if more than 12
transfers are made in a calendar year. Any transfer charge will be applied so
that the amount being transferred will be reduced. Transfers can be requested in
writing or by telephone in accordance with the Company's transfer procedures. If
approved by your state, during the Annuity Period, you can currently make up to
four transfers each calendar year. There is no charge for these transfers.
(Transfers from the Guaranteed Account may be restricted and subject to a market
value adjustment. See Appendix A.)
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. In
a Contract with a Fixed Account, the Fixed Account is only available for dollar
cost averaging from the Fixed Account to the other investment options over a
period not to exceed 12 months. 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 Appendix
A.) The taxable portion of the withdrawal may also be subject to income tax and
a federal tax penalty. (See "Withdrawals.")
The Contract also offers certain Systematic Distribution Options during the
Accumulation Period subject to certain criteria. Some Systematic Distribution
Options are not available in all states and may not be suitable in every
situation. (See "Systematic Distribution Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies)
actually receive a distribution from the Contract. A 10% federal tax penalty may
be imposed on certain withdrawals. Special rules apply to distributions from a
Roth IRA. (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). For Roth IRA Contracts, if the Purchase
Payment is a rollover from another contract issued by the Company or an
affiliate where the deferred sales charge has been waived, the deferred sales
charge is based on the number of completed Contract Years since the date of the
initial payment to the predecessor contract. The Company reserves the right to
not accept any rollover contribution to an existing Contract.
CONTRACTS OTHER THAN ROTH IRA CONTRACTS:
- ---------------------------------------------------------------
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%
- ---------------------------------------------------------------
ROTH IRA CONTRACTS:
- ---------------------------------------------------------------
Deferred Sales
Completed Contract Years Charge Deduction
------------------------ ----------------
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------------------------
<PAGE>
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 ............................ 1.10%(3)
Administrative Charge ........................................ 0.15%
----
Total Subaccount Annual Expenses ............................. 1.25%
During the Annuity Period:
Mortality and Expense Risk Charge ............................ 1.25%
Administrative Charge ........................................ 0.00%(4)
----
Total Subaccount Annual Expenses ............................. 1.25%
(1) The maintenance fee, if applicable, will generally be deducted from each
Account annually and if the full Account Value is withdrawn. The
maintenance fee is waived when the Account Value is $50,000 or more on the
date the maintenance fee is due. The amount shown is the maximum
maintenance fee that can be deducted under the Contract.
(2) During the Accumulation Period we currently allow an unlimited number of
transfers without charge. However, we reserve the right to impose a fee of
$10 for each transfer in excess of 12 per year.
(3) Under certain Contracts the mortality and expense risk charge during the
Accumulation Period may be reduced. See "Charges and Deductions."
(4) We currently do not impose an Administrative Charge during the Annuity
Period. However, we reserve the right to deduct a daily charge of not more
than 0.25% per year from the Subaccounts.
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS (APPLIES TO ALL CONTRACTS)
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, 1997. 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 Growth and Income VP(2)
Aetna Bond VP(2)
Aetna Money Market VP(2)
Aetna Balanced VP(2)
Aetna Ascent VP(2)
Aetna Crossroads VP(2)
Aetna Legacy VP(2)
Aetna Value Opportunity VP(3)
Aetna Growth VP(3)
Aetna Index Plus Large Cap VP(3)
Aetna Small Company VP(3)
Aetna International VP(3)
Aetna Real Estate Securities VP(3)
Calvert Social Balanced Portfolio(4)
Fidelity VIP Equity-Income Portfolio(5)
Fidelity VIP Growth Portfolio(5)
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio(5)
Fidelity VIP II Asset Manager Portfolio(5)
Fidelity VIP II Contrafund Portfolio(5)
Fidelity VIP II Index 500 Portfolio(6)
Janus Aspen Aggressive Growth Portfolio(7)
Janus Aspen Balanced Portfolio(7)
Janus Aspen Flexible Income Portfolio(7)
Janus Aspen Growth Portfolio(7)
Janus Aspen Worldwide Growth Portfolio(7)
MFS Total Return Series(8)
MFS World Governments Series(8)
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio(9)(10)
Portfolio Partners MFS Research Growth Portfolio(9)(10)
Portfolio Partners MFS Value Equity Portfolio(10)
Portfolio Partners Scudder International Growth Portfolio(10)
Portfolio Partners T. Rowe Price Growth Equity Portfolio(10)
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(1) Certain of the 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) For the fiscal year ended December 31, 1997, the Company provided
administrative services to the Fund and assumed the Fund's ordinary
recurring direct costs under an Administrative Services Agreement.
Effective May 1, 1998, the Company will continue to provide administrative
services to the Fund but will no longer assume all of the Fund's ordinary
recurring direct costs under the Administrative Services Agreement. The
"Other Expenses" shown are the actual expenses that would have been charged
to Fund during 1997 in the absence of the Company's assumption of all of
the Fund's ordinary recurring direct costs.
(3) The Portfolios' adviser has agreed to waive a portion of its fee or to
reimburse the Portfolios for certain expenses so that aggregate expenses do
not exceed the following percentage of each Portfolio's net assets: 0.80%
for Growth VP; 0.55% for Index Plus Large Cap VP; 1.15% for International
VP; 0.95% for Real Estate Securities VP and Small Company VP; and 0.80% for
Value Opportunity VP. Without such waiver or reimbursement, aggregate
expenses for the fiscal year ended December 31, 1997 would have been ____%
for Growth VP; ____% for Index Plus Large Cap VP; _____% for Small Company
VP; and ____% for Value Opportunity VP; and are estimated for the current
fiscal year to be; ____% for International VP; and _____% for Real Estate
Securities VP. These waiver/reimbursement arrangements are voluntary and
may be modified or eliminated at any time.
(4) The figures above are based on expenses for fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of % expected
to be incurred in 1998. "Investment Advisory Fees" include a performance
adjustment, which could cause the fee to be as high as % or as low as %,
depending on performance. "Other Expenses" reflect an indirect fee of %
(relating to an expense offset arrangement with the Portfolio's custodian).
Net fund operating expenses after reductions for fees paid indirectly
(again, restated) would be %.
(5) 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 % for Equity-Income Portfolio, % for Growth Portfolio, % for
Overseas Portfolio, % for Asset Manager Portfolio; and % for Contrafund
Portfolio.
(6) 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 %,
% and %, respectively, for Index 500 Portfolio.
(7) 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,
1997. 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 %, % and % for Aggressive Growth
Portfolio; %, % and % for Balanced Portfolio; %,% and % for Growth
Portfolio; and %, % and % 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.
(8) The adviser has agreed to bear expenses for each Series, subject to
reimbursement by each Series, such that each Series' "Other Expenses" shall
not exceed 0.25% of the average daily net assets of the Series during the
current fiscal year. Otherwise, "Other Expenses" for the MFS Total Return
Series and MFS World Governments Series would be % and %, respectively, and
"Total Fund Annual Expenses" would be % and %, 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."
(9) The advisory fee is .70% of the first $500 million in assets and .65% on
the excess.
(10) Each Portfolio's aggregate expenses are limited to the advisory fees and
administrative fees disclosed above through April 30, 1999. Without these
limitations, the aggregate expenses for the current period are estimated to
be as follows: __% for the MFS Emerging Equities Portfolio; __% for the MFS
Research Growth Portfolio: __% for the MFS Value Equity Portfolio; __% for
the Scudder International Growth Portfolio; and __% for the T. Rowe Price
Growth Equity Portfolio.
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to %.
<TABLE>
<CAPTION>
CONTRACTS OTHER THAN ROTH IRA CONTRACTS
EXAMPLE A EXAMPLE B
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods shown, Value, or if you annuitize at the end
you would pay the following expenses, of the periods shown, you would pay
including any applicable deferred sales the following expenses (no deferred charge
charge: sales charge is reflected):*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Aetna Growth and Income VP
Aetna Bond VP
Aetna Money Market VP
Aetna Balanced VP
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna Small Company VP
Aetna International VP
Aetna Real Estate Securities VP
Calvert Social Balanced Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS World Governments Series
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International
Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity
Portfolio
</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>
<TABLE>
<CAPTION>
ROTH IRA CONTRACTS
EXAMPLE C EXAMPLE D
If you withdraw the entire Account If you do not withdraw the Account
Value at the end of the periods Value, or if you annuitize at the
shown, you would pay the following end of the periods shown, you
expenses, including any applicable would pay the following expenses
deferred sales charge: (no deferred sales charge is
reflected):*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Aetna Growth and Income VP
Aetna Bond VP
Aetna Money Market VP
Aetna Balanced VP
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna Small Company VP
Aetna International VP
Aetna Real Estate Securities VP
Calvert Social Balanced Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP Overseas Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS World Governments Series
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth & Income Fund
Oppenheimer Strategic Bond Fund
Portfolio Partners MFS Emerging Equities Portfolio
Portfolio Partners MFS Research Growth Portfolio
Portfolio Partners MFS Value Equity Portfolio
Portfolio Partners Scudder International Growth Portfolio
Portfolio Partners T. Rowe Price Growth Equity Portfolio
</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 - 6
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
(Selected data for accumulation units outstanding throughout each period)
The condensed financial information presented below for the four years ended
December 31, 1997 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>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
AETNA GROWTH AND INCOME VP
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 BOND VP
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 MONEY MARKET VP
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 BALANCED VP
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 VP
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 VP
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 VP
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 INDEX PLUS LARGE CAP VP
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
AETNA VALUE OPPORTUNITY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
AETNA GROWTH VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</TABLE>
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AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
AETNA SMALL COMPANY VP
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
CALVERT SOCIAL BALANCED PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease in value of accumulation units(1)
Numver of accumulation units outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
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
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
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
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
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 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
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 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
OPPENHEIMER AGGRESSIVE GROWTH FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
OPPENHEIMER GLOBAL SECURITIES FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<TABLE>
<S> <C> <C> <C> <C>
1997 1996 1995 1994
OPPENHEIMER GROWTH AND INCOME FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
OPPENHEIMER STRATEGIC BOND FUND
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS MFS VALUE EQUITY PORTFOLIO
Value at beginning of period
Value at end of period Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
PORTFOLIO PARTNERS T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of accumulation units(1)
Number of accumulation units outstanding at end of period
</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 - 5
<PAGE>
- --------------------------------------------------------------------------------
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna 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 obligations of the Company.
INVESTMENT OPTIONS
================================================================================
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the Application. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The Company reserves the right to limit
the number of investment options selected during the Accumulation Period. At
this time there is no limit on the number of investment options selected during
the Accumulation Period, but the number of investment options that may be
selected at any one time by a Certificate Holder is limited to 18. Each
Subaccount and each Guaranteed Term of the same duration, or an investment in
the Fixed Account in certain Contracts where the Guaranteed Account is not
available, 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 Funds are described in Appendix C of this prospectus. More detailed
information may be found in the current prospectus for each Fund offered. The
prospectus for the Fund should be read in conjunction with this prospectus. A
free Fund prospectus is available upon request from the local Company office or
by writing or calling the number listed in the "Inquiries" section of this
Prospectus.
1
<PAGE>
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. 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.
2
<PAGE>
CREDITED INTEREST OPTION
Purchase Payments may be allocated to the ALIAC Guaranteed Account (the
"Guaranteed Account"). Through the Guaranteed Account, we guarantee stipulated
rates of interest for stated periods of time. Amounts must remain in the
Guaranteed Account for specified periods to receive the quoted interest rates,
or a market value adjustment (which may be positive or negative) will be
applied. (See Appendix A.)
FIXED ACCOUNT
In certain states, Purchase Payments may be allocated to the Fixed Account.
Through the Fixed Account we guarantee to pay the minimum interest rate
specified in the Contract. (See Appendix B)
PURCHASE
================================================================================
CONTRACT AVAILABILITY
The Contracts are offered only in those states where the Contract has been
approved for sale in that state. 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,
including Roth IRAs, 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. A Roth IRA Contract is a special form of IRA which
can accept nondeductible annual contributions. Contributions to a Simplified
Employee Pension Plan ("SEP") are not permitted in a Roth IRA Contract. The Roth
IRA Contract can also accept transfers and rollovers, but only from an
Individual Retirement Annuity/Individual Retirement Account, subject to ordinary
income tax, or from another Roth IRA. If the Purchase Payment to a Roth IRA is a
rollover from a contract issued by the Company or an affiliate where the
deferred sales charge was eliminated or reduced and the Contract is canceled
during the free look period, the Purchase Payment will be restored to the
predecessor contract.
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 Pennsylvania).
Joint Certificate Holders. Nonqualified Contracts may be purchased by
spouses as joint Certificate Holders. In Pennsylvania, the joint Certificate
Holders do not need to be spouses. References to "Certificate Holders" in this
Prospectus mean both of the Certificate Holders on joint Accounts. Tax law
prohibits the purchase of Qualified Contracts by joint Certificate Holders.
PURCHASING INTERESTS IN THE CONTRACT
Group Contracts. Groups will generally consist of those eligible
individuals who have established an account with a broker-dealer or bank which
has agreed to act as a Distributor for the Contracts. A group Contract is issued
to the group Contract Holder. Certificate Holders may purchase interests in a
group Contract by submitting an Application. Once the Application is accepted a
Certificate will be issued.
Individual Contracts. Certain states will not allow a group Contract due to
provisions in their insurance laws. In those states, an eligible individual will
submit an Application and will be issued a Contract rather than a Certificate.
Regardless of whether you have purchased an interest in a group Contract or
an individual Contract, the Company must accept or reject the Application within
two business days of receipt. If the Application is incomplete, the Company may
hold any forms and accompanying Purchase Payments for five days. Purchase
Payments may be held for longer periods only with the consent of the Certificate
Holder, pending acceptance of the Application. If the Application is rejected,
the Application and any Purchase Payments will be returned to the Certificate
Holder. However, if the Purchase Payment to a Roth IRA is a rollover from a
contract issued by the Company or an affiliate where the deferred sales charge
was eliminated or reduced and the Contract is canceled during the free look
period, the Purchase Payment will be restored to the predecessor contract.
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
3
<PAGE>
initially be allocated to the Subaccounts or the Guaranteed Account or the Fixed
Account as specified on the Application. Changes in such allocation may be made
in writing or by telephone transfer. Allocations must be in whole percentages,
and there may be limitations on the number of investment options that can be
selected. (See "Investment Options.")
CONTRACT RIGHTS
Under individual Contracts, Certificate Holders have all Contract rights.
Under group Contracts, the group Contract Holder has title to the Contract
and generally only the right to accept or reject any modifications to the
Contract. You have all other rights to your Account under the Contract. However,
under a Nonqualified Contract, if you and the Annuitant are not the same, and
the Annuitant dies first, your rights are automatically transferred to the
Beneficiary. (See "Death Benefit.")
Joint Certificate Holders have equal rights under the Contract and with
respect to their Account. All rights under the Contract must be exercised by
both joint Certificate Holders with the exception of transfers among investment
options, which can be exercised by one joint Certificate Holder after the
Account has been established. See "Death Benefit" regarding the rights of the
surviving joint Certificate Holder upon the death of a joint Certificate Holder
prior to the Annuity Date.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the Beneficiary under the Contract on the
Application. You may also elect to specify the form of payment to be made to the
Beneficiary. Under such plans the participant is generally allowed to designate
a beneficiary under the plan, and the Certificate Holder may direct that we pay
any death proceeds to the plan beneficiary. "Beneficiary" as used in this
Prospectus refers to the person who is ultimately entitled to receive such
proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b)
tax deferred annuity program subject to the Employee Retirement Income Security
Act (ERISA), the spouse of a married participant must be the Beneficiary of at
least 50% of the Account Value. If the married participant is age 35 or older,
the participant may name an alternate Beneficiary provided the participant
furnishes a waiver and spousal consent which meets the requirements of ERISA
Section 205. The participant on whose behalf the Account was established must be
the Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, the
Certificate Holder must be the Annuitant. For Nonqualified Contracts, the
Certificate Holder and the Annuitant, may, but need not, be the same person.
(See "Purchase--Contract Availability.")
RIGHT TO CANCEL
You may cancel the Contract or Certificate without penalty by returning it
to the Company with a written notice of your intent to cancel. In most states,
you have ten days to exercise this "free look" right; some states allow you
longer. Unless state law requires otherwise, the amount you will receive upon
cancellation will reflect the investment performance of the Subaccounts into
which your Purchase Payments were deposited. In some cases this may be more or
less than the amount of your Purchase Payments; therefore, you bear the entire
investment risk for amounts allocated among the Subaccounts during the free look
period. Under Contracts issued as Individual Retirement Annuities, you will
receive a refund of your Purchase Payment. Account Values will be determined as
of the Valuation Date on which we receive your request for cancellation at our
Home Office. If the Purchase Payment to a Roth IRA is a rollover from a contract
issued by the Company or an affiliate where the deferred sales charge was
eliminated or reduced and the Contract is canceled during the free look period,
the Purchase Payment will be restored to the predecessor contract.
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 1.10% 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.
In certain circumstances, the risk of adverse expense experience associated
with this Contract may be reduced. In such event, the mortality and expense risk
charge applicable to that Contract may likewise be reduced. Whether such a
reduction is available will be determined by the Company based upon
consideration of one of the following factors:
(1) the size and composition of the prospective group such as a group made up
of active employees of the Company or its affiliates;
(2) the type and frequency of administrative and sales services provided; and
(3) the level of maintenance fee and deferred sales charges.
Any reduction of the mortality and expense risk charge will not be unfairly
discriminatory against any person. We will make any reduction in the mortality
and expense risk charge according to our own rules in effect at the time the
Contract is issued. We reserve the right to change these rules from time to
time.
If the amount deducted for mortality and expense risks is not sufficient to
cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Charge. During the Accumulation Period, the
4
<PAGE>
Company makes a daily deduction from each of the Subaccounts for an
administrative charge. The charge is equal, on an annual basis, to 0.15% of the
daily net assets of the Subaccounts and compensates the Company for
administrative expenses that exceed revenues from the maintenance fee described
below. The charge is set at a level which does not exceed the average expected
cost of the administrative services to be provided while the Contract is in
force. The Company does not expect to make a profit from this charge.
During the Annuity Period, the Company reserves the right to make a
deduction for the administrative charge of an amount equal, on an annual basis,
to a maximum of 0.25% of the daily net assets of the Subaccounts. There is
currently no administrative charge during the Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective during
the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
The maximum maintenance fee deducted under the Contract is $30. The
maintenance fee will be deducted annually on the anniversary of the Contract
effective date. It is deducted on a pro rata basis from each investment option
in which you have an interest. If your entire Account Value is withdrawn, the
full maintenance fee, if applicable, will be deducted at the time of withdrawal.
The maintenance fee will not be deducted (either annually or upon withdrawal) if
your Account Value is $50,000 or more on the day the maintenance fee is due.
REDUCTION OR ELIMINATION OF ADMINISTRATIVE CHARGE AND MAINTENANCE FEE
The administrative charge and maintenance fee may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in such a manner that results in savings of administrative expenses. The
entitlement to such a reduction will be based on:
(1) the size and type of the group of individuals to whom the Contract is
offered; and
(2) the amount of expected Purchase Payments.
Any reduction or elimination of the administrative charge or maintenance
fees will not be unfairly discriminatory against any person. We will make any
reduction in the administrative charge or annual maintenance fees according to
our own rules in effect at the time the Contract is issued. We reserve the right
to change these rules from time to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account or Fixed
Account and, except for Roth IRAs, is based on the number of years which have
elapsed since the Purchase Payment was made. The deferred sales charge on
withdrawals from a Roth IRA is based on the number of years which have elapsed
from the Account effective date. 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. If the Purchase Payment is a rollover from another contract issued by the
Company or an affiliate where the deferred sales charge has been waived, the
deferred sales charge is based on the number of completed Contract Years since
the date of the initial payment to the predecessor contract. The Company
reserves the right to not accept any rollover contribution to an existing
contract.
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 other than from a Roth IRA, 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 or the Fixed Account will be treated as described in the Appendices
attached to this Prospectus 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.
CONTRACTS OTHER THAN ROTH IRA
- ---------------------------------------------------------------
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%
- ---------------------------------------------------------------
ROTH IRA CONTRACTS
- ---------------------------------------------------------------
Completed Contract Years Deferred Sales
Charge Deduction
----------------
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ---------------------------------------------------------------
A deferred sales charge will not be deducted from any portion of a
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Purchase Payment withdrawn if the withdrawal is:
[bullet] applied to provide Annuity benefits;
[bullet] paid to a Beneficiary due to the Annuitant's death before Annuity
payments start, up to a maximum of the Purchase Payment(s) in the
Account on the Annuitant's date of death;
[bullet] made due to the election of a Systematic Distribution Option (see
"Systematic Distribution Options");
[bullet] if approved by your state, under a Qualified Contract when the amount
withdrawn is equal to the minimum distribution required by the Code for
this Contract calculated using a method permitted under the Code and
agreed to by the Company;
[bullet] paid upon a full withdrawal where the Account Value is $2,500 or less
and no amount has been withdrawn during the prior 12 months; or
[bullet] paid if we close out your Account when the value is less than $2,500
(or other amount required by state law);
[bullet] if the withdrawal is applied as a rollover to certain Roth Individual
Retirement Annuities issued by the Company or an affiliate.
After the first Account Year, you may withdraw all or a portion of your
Purchase Payments without a deferred sales charge, provided that (1) such
withdrawal occurs within three years of the Annuitant's admission to a licensed
nursing care facility (including non-licensed facilities in New Hampshire) and
(2) the Annuitant has spent at least 45 consecutive days in such facility. This
waiver of deferred sales charge does not apply if the Annuitant is in a nursing
care facility at the time the Account is established. It will also not apply if
otherwise prohibited by state law.
The Company does not anticipate that the deferred sales charge will cover
all sales and administrative expenses which it incurs in connection with the
Contract. The difference will be covered by the general assets of the Company
which are attributable, in part, to mortality and expense risk charges under the
Contract described above.
Free Withdrawals. Subject to the restrictions described below, you may
withdraw up to the greater of 10% of your current Account Value or the minimum
distribution amount required by law during each calendar year without imposition
of a deferred sales charge. The free withdrawal amount will be based on the
Account Value calculated on the Valuation Date next following our receipt of
your request for withdrawal and will be adjusted for amounts requested for
distribution under a Systematic Distribution Option, during the calendar year.
If your withdrawal exceeds the applicable free withdrawal allowance, we will
deduct a deferred sales charge on the excess amount. (See Appendix A for a
discussion of withdrawals from the Guaranteed Account.)
REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE
We may reduce or eliminate the deferred sales charge when sales of the
Contracts are made to individuals or a group of individuals in such a manner
that results in savings of sales expenses. The entitlement to such a reduction
in the deferred sales charge will be based on the following:
(1) the size and type of the group of individuals to whom the Contract is
offered;
(2) the amount of expected Purchase Payments; and
(3) whether there is a prior or existing relationship with the Company such as
being an employee of the Company or an affiliate, receiving distributions
or making internal transfers from other contracts issued by the Company, or
making transfers of amounts held under qualified plans sponsored by the
Company or an affiliate. Any reduction or elimination of the deferred sales
charge will be subject to state approval and not be unfairly discriminatory
against any person.
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the 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 or Fixed Account.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of
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that Subaccount for the period between the immediately preceding Valuation Date
and the current Valuation Date. (See "Net Investment Factor" below.) The
Accumulation Unit Value will be affected by the investment performance, expenses
and charges of the applicable Fund and is reduced each day by a percentage that
accounts for the daily assessment of mortality and expense risk charges and the
administrative charge.
Initial Purchase Payments will be credited to your Account at the AUV next
computed following our acceptance of the Application as described under
"Purchasing Interests in the Contract." Each subsequent Purchase Payment (or
amount transferred) received by the Company by the close of business of the New
York Stock Exchange will be credited to your Account at the AUV next computed
following our receipt of your payment or transfer request. The value of an
Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor for
a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current Valuation
Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of the
Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of a maximum of 1.10% 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.) Transfers may be made from the Fixed Account to any of the
investment options available subject to certain restrictions. Amounts may not be
transferred into the Fixed Account from any of the investment options. If
approved by your state, during the Annuity Period, if you have elected a
variable Annuity, you can make transfers only among the Subaccounts available
during the Annuity Period. (See "Annuity Options.") A request for transfer can
be made either in writing or by telephone. (See "Telephone Transfers" below.)
All transfers must be in accordance with the terms of the Contract. Any transfer
will be based on the Accumulation Unit Value next determined after the Company
receives a valid transfer request at its Home Office.
During the Accumulation Period, twelve free transfers are allowed per
calendar year. Thereafter, the Company reserves the right to charge up to $10
for each additional transfer. This charge will be deducted from the gross amount
of the transfer. The Company currently does not impose this charge. Currently,
during the Annuity Period, four transfers are allowed each calendar year.
Telephone Transfers
You automatically have the right to make transfers among Funds by
telephone. We have enacted procedures to prevent abuses of Account transactions
by telephone, including requiring the use of a personal identification number
(PIN) to execute transactions. You are responsible for safeguarding your PIN,
and for keeping Account information confidential. Although the Company's failure
to follow reasonable procedures may result in the Company's liability for any
losses due to unauthorized or fraudulent telephone transfers, the Company will
not be liable for following instructions communicated by telephone which it
reasonably believes to be genuine. Any losses incurred pursuant to actions taken
by the Company in reliance on telephone instructions reasonably believed to be
genuine shall be borne by you. To ensure authenticity, we record calls on the
800 line.
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 or Fixed Account subject to the Company's terms and conditions to any of
the Subaccounts. A market value adjustment will not be applied to dollar cost
averaging transfers from any such Guaranteed Term during participation in the
Dollar Cost Averaging Program. If dollar cost averaging from a Guaranteed Term
is discontinued, the Company will automatically transfer the balance remaining
in the Guaranteed Term from which dollar cost averaging is withdrawn to a
Guaranteed Term of the same duration unless the Certificate Holder initiates a
transfer to another investment option. In either case, a market value adjustment
will apply. If Dollar Cost Averaging is stopped with regard to amounts in the
Fixed Account, the remaining balance in the Fixed Account will be transferred to
the money market fund. There is no additional charge for the Dollar Cost
Averaging Program. (See Appendix A 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
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<PAGE>
Summary, which describes how you can obtain further information.
The Dollar Cost Averaging Program is not available to individuals who have
elected the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your Account
Value automatically reallocated annually to a specified percentage or at other
more frequent intervals as allowed by Aetna under the program. Only Account
Values accumulating in the Subaccounts can be rebalanced. You may participate in
this program by completing the Account Rebalancing section of the Application,
or by sending a written request to the Company at its Home Office. The Account
Rebalancing Program does not ensure a profit nor guarantee against loss in a
declining market.
The Account Rebalancing Program is not available to Certificate Holders who
have elected the Dollar Cost Averaging Program.
WITHDRAWALS
================================================================================
All or a portion of your Account Value may be withdrawn at any time during
the Accumulation Period. Withdrawal restrictions applicable to Section 403(b)
Contracts are described below. To request a withdrawal, you must properly
complete a disbursement form and send it to our Home Office. Payments for
withdrawal requests will be made in accordance with Securities and Exchange
Commission requirements, but normally not later than seven calendar days
following our receipt of a disbursement form. Withdrawals may be subject to a
deferred sales charge (see "Charges and Deductions") and to taxes and to tax
penalties (see "Tax Status"). Roth IRAs provide for a tax-free withdrawal of all
assets in the Account, both contributions and earnings, provided the withdrawal
is not made within the 5-taxable year period beginning with the first tax year
for which a contribution was made, and the distribution is made after attainment
of age 59 1/2, or on account of death or disability, or for a qualified
first-time home purchase
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 Fixed Account or each Subaccount in which your Account is invested,
unless you request otherwise in writing. All amounts paid will be based
on your Account Value as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify.
The tax treatment of withdrawals from each Nonqualified Contract may be
affected if you own other annuity contracts issued by us (or our affiliates)
that were purchased on or after October 21, 1988. (See "Tax Status.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b) Contracts,
the withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
Reinstatement Privilege Following Withdrawal. You may elect to reinstate
all or a portion of the proceeds received from the full withdrawal of your
Account within 30 days after the withdrawal. Reinvested amounts must be received
by the Company within 60 days of the withdrawal. Accumulation Units will be
credited to your Account for the amount reinstated, as well as for any
maintenance fee charged and any portion of any deferred sales charge imposed at
the time of withdrawal. However, any aggregate negative market value adjustment
made to the Guaranteed Account will not be credited. Reinstated amounts will be
reallocated to applicable investment options in the same proportion as they were
allocated at the time of withdrawal.
The number of Accumulation Units credited will be based upon the
Accumulation Unit Value(s) next computed following receipt at our Home Office of
the reinstatement request along with the amount to be reinstated. Any
maintenance fee which falls due after the withdrawal and before the
reinstatement will be deducted from the amount reinstated. The reinstatement
privilege may be used only once and does not apply to a Certificate Holder's
Account that We close out as described in the Section entitled, "Involuntary
Terminations." If you are contemplating reinstatement, you should seek competent
advice regarding the tax consequences associated with this type of transaction.
SYSTEMATIC DISTRIBUTION OPTIONS
================================================================================
The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Systematic
8
<PAGE>
Distribution Options"). To exercise these options, your Account Value must meet
the minimum dollar amount and age criteria applicable to that option.
The Systematic Distribution Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract.
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed forthose who want to receive only
the minimum distribution that the Code requires each year. ECO is
available only under Qualified Contracts. Under ECO, the Company
calculates the minimum distribution amount required by law, and pays
you that amount once a year. (See "Tax Status.") Other Systematic
Distribution Options may be added from time to time. Additional
information relating to any of the Systematic Distribution Options may
be obtained from your local representative or from the Company at its
Home Office.
ECO is not available under the Roth IRA Contract.
If you select one of the Systematic Distribution Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Taking a withdrawal under one of these Systematic Distribution Options may
have tax consequences. Any person concerned about tax implications should
consult a competent tax advisor prior to electing an option.
Once you elect a Systematic Distribution Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is revoked,
no other Systematic Distribution Option may be elected unless permitted by the
Code. The Company reserves the right to discontinue the availability of one or
all of these Systematic Distribution Options for new elections at any time,
and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
================================================================================
A death benefit will be payable to the Beneficiary(ies) if the Certificate
Holder or the Annuitant dies before Annuity payments have commenced. If the
Account is owned jointly, the death benefit applies at the death of the first
joint Certificate Holder. Upon the death of a joint Certificate Holder prior to
the Annuity Date, the surviving Certificate Holder, if any, will become the
designated Beneficiary. Any other Beneficiary designation on record with the
Company at the time of death will be treated as a contingent Beneficiary.
DEATH BENEFIT AMOUNT
If approved by your state, upon the death of the Annuitant, the death
benefit proceeds will be the greater of:
(1) The minimum guaranteed death benefit (described below) as of the date of
death, plus any Purchase Payments made, and less any amount(s) surrendered,
applied to an Annuity option or deducted from the Account, since the
minimum guaranteed death benefit was determined, or
(2) The Account Value on the Claim Date.
The minimum guaranteed death benefit is determined as follows: On the
effective date of the Contract ("Effective Date"), the minimum guaranteed death
benefit equals the amount of the initial Purchase Payment. On each Effective
Date anniversary before the Annuitant reaches age 85, the minimum guaranteed
death benefit is the greater of:
(1) The prior minimum guaranteed death benefit, plus any Purchase Payments
made, and less any amount(s) surrendered, applied to an Annuity option or
deducted from the Account, since the minimum guaranteed death benefit was
previously determined, or
(2) The Account Value on the Effective Date anniversary.
After the Annuitant reaches age 85 the minimum guaranteed death benefit is
equal to the minimum guaranteed death benefit determined on the Effective Date
anniversary immediately preceding the date the Annuitant attained age 85 plus
any Purchase Payments made, and less any amounts surrendered, applied to an
Annuity option or deducted from the Account.
On the Claim Date, if the minimum guaranteed death benefit is greater than
the Account Value, the amount by which the minimum guaranteed death benefit
exceeds the Account Value is allocated to the money market subaccount available
under the Contract. The Beneficiary may elect a death benefit option as
permitted unless the Certificate Holder has specified the form of payment to the
Beneficiary.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the minimum guaranteed death benefit will not apply. The
amount paid on account of the death of the Certificate Holder will be equal to
the Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge. The
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Beneficiary may elect a death benefit option available under the Contract unless
the Certificate Holder has specified the form of payment to the Beneficiary.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was also the Annuitant, the spousal Beneficiary will
become the Annuitant and the minimum guaranteed death benefit will also apply at
the death of the spousal Beneficiary. The initial minimum guaranteed death
benefit equals the Account Value as adjusted for any minimum guaranteed death
benefit payable at the death of the original Certificate Holder/Annuitant.
Thereafter, the minimum guaranteed death benefit is determined as above.
If the spousal Beneficiary continued the Account at the death of the
Certificate Holder who was not also the Annuitant, the Annuitant will not change
and the amount of death benefit proceeds payable upon the spousal Beneficiary's
death will be equal to the Adjusted Account Value on the Claim Date, less any
deferred sales charge.
If the death benefit described above is not approved by your state, the
following death benefit shall apply:
Upon the death of the Annuitant, the guaranteed death benefit proceeds will
be the greatest of:
(1) the total Purchase Payment(s) applied to the Account, minus the sum of all
amounts withdrawn, annuitized or deducted from such Account;
(2) the highest step-up value as of the date of death. The step-up value is
determined on each anniversary of the Effective Date, up to the Annuitant's
75th birthday. Each step-up value is calculated as the Account Value on the
Effective Date anniversary, increased by Purchase Payments applied, and
decreased by partial withdrawals, annuitizations and deductions taken from
the Account since the Effective Date anniversary; or
(3) the Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the Account
Value is determined as of the date of death. Any excess amount will be deposited
and allocated to the money market Subaccount available under the Contract. The
Account Value on the claim date plus any excess amount deposited into the
Account becomes the Certificate Holder's Account Value. The death benefit paid
will equal the Account Value when request for payment is made and no deferred
sales charge applies.
Under Nonqualified Contracts only, if the Certificate Holder is not the
Annuitant and dies, the guaranteed death benefit will not apply. The amount of
death benefit proceeds will be equal to the Adjusted Account Value on the Claim
Date. Full or partial withdrawals may be subject to a deferred sales charge.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was the Annuitant, the amount of the death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date, less any deferred sales charge
applicable to any Purchase Payments made since the death of the Certificate
Holder/Annuitant.
If the spousal Beneficiary continued the Account after the death of the
Certificate Holder who was not the Annuitant, the amount of death benefit
proceeds payable upon the spousal Beneficiary's death will be equal to the
Adjusted Account Value on the Claim Date. Full or partial withdrawals may be
subject to a deferred sales charge in accordance with the usual rules regarding
the deferred sales charge. (See "Deferred Sales Charge.") If this provision was
not approved in your state, the deferred sales charge will apply only to
Purchase Payments made since the death of the Certificate Holder.
For amounts held in the Guaranteed Account, see Appendix A for a discussion
of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below.
If you die and no Beneficiary exists, the death benefit will be paid in a lump
sum to your estate. Prior to any election by the Beneficiary, the Account Value
will remain in the Account and the Account Value will continue to be affected by
the investment performance of the investment option(s) selected. The Beneficiary
has the right to allocate or transfer any amount to any available investment
option (subject to a market value adjustment, as applicable). The Code requires
that distributions begin within a certain time period, as described below. If no
elections are made, no distributions will be made. Failure to commence
distributions within those time periods can result in tax penalties.
Nonqualified Contracts. Under a Nonqualified Contract, if you die, and the
Beneficiary is your surviving spouse, or if you are a nonnatural person and the
Annuitant dies, and the Beneficiary is the Annuitant's surviving spouse, he or
she automatically becomes the successor Certificate Holder. The successor
Certificate Holder may exercise all rights under the Account and (1) continue in
the Accumulation Period; (2) elect to apply some or all of the Adjusted Account
Value to any of the Annuity Options; or (3) receive at any time a lump sum
payment equal to all or a portion of the Adjusted Account Value. If you die and
you are not the Annuitant, any applicable deferred sales charge will be applied
if a lump sum payment is elected. Under the Code, distributions are not required
until the successor Certificate Holder's death.
If you die and the Beneficiary is not your surviving spouse, he or she may
elect option (2) or (3) above. According to the Code, any portion of the
Adjusted Account Value not distributed in installments over the life or life
expectancy beginning within one year of your death, must be paid within five
years of your death. (See "Tax Status of the Contract.")
If you are a natural person but not the Annuitant and the Annuitant dies,
the Beneficiary may elect to apply the Adjusted Account Value to an Annuity
Option within 60 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 includible 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
10
<PAGE>
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 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).
Annuity Payments will not begin until you have selected an Annuity Date and
an Annuity Option. Until a date and option are elected, the Account will
continue in the Accumulation Period.
As of January 1, 1997, the Code generally requires that for Qualified
Contracts, other than IRAs and for five-percent owners in other Qualified
Contracts, minimum annual distributions of the Account Value begin by April 1st
of the calendar year following the calendar year in which a participant attains
age 70-1/2 or retires, whichever occurs later. For IRA depositors and for
five-percent owners, minimum distributions must begin by April 1 of the calendar
year following the calendar year in which the participant attains age 70-1/2. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Systematic Distribution Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
For Roth IRAs, the minimum distribution rules do not apply prior to
your death. You are not required to begin taking minimum annual distributions by
April 1 of the calendar year following the calendar year in which you attain age
70-1/2. The general rule that annuity payments may not extend beyond your
life/life expectancy or beyond the joint lives/joint life expectancies of you
and your beneficiaries does not apply to a Roth IRA. The minimum distribution
rules which apply to the beneficiary at your death and which are described in
the Prospectus continue to apply. The rules differ depending on whether you die
after distributions have begun. At least 30 days prior to the Annuity Date, you
must notify us in writing of the following:
[bullet] the date on which you would like Annuity Payments to begin;
[bullet] the Annuity Option under which you want payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; and
[bullet] the investment option(s) used to provide Annuity Payments (i.e., a
fixed Annuity using the general account or a variable Annuity using any
of the Subaccounts available at the time of annuitization or a
combination of the two).
Once Annuity Payments begin, the Annuity Option may not be changed.
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining 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--
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An annuity paid during the lives of the Annuitant and a second
Annuitant. The Certificate Holder selects an Annuity with 100%, 66% or
50% of the payment to continue after the first death, or an Annuity
with 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
[bullet] Option 5--Life Annuity Based Upon the Lives of Two Annuitants with
Guaranteed Payments--An Annuity with Payments for a minimum of 5-30
years, with 100% of the payment to continue after the first death.
*[bullet] Option 6--Life Annuity Based Upon the Lives of Two Annuitants with a
Cash Refund Feature--An Annuity with 100% of the payment to continue
after the first death with a cash refund feature. Payments are
guaranteed for the amount applied to the Annuity Option. If both
Annuitants die prior to the total payment of the amount applied to the
Annuity Option (less any premium tax), any remaining balance will be
paid in one sum to the Beneficiary. This option is available only when
all payments are as a fixed Annuity.
*(If approved by your state.)
If Option 1 or 4 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 4, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Certificate Holder cannot elect to receive
a lump-sum settlement.
Nonlifetime Annuity Option:
Under the nonlifetime option, payments may be made for generally 5-30
years, as selected by the Certificate Holder. If this option is elected as a
variable Annuity, the Certificate Holder may request that the present value of
all or any portion of the remaining variable payments be paid in one sum.
However, any lump-sum elected before three years of payments have been completed
will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--Deferred Sales Charge.") If the nonlifetime option is elected on a
fixed basis, you cannot elect to receive a lump-sum settlement.
We may also offer additional Annuity Options under your Contract from time
to time. You can call the number listed in the "Inquiries" section of the
Prospectus Summary, to determine which options are available and the terms of
such options. Additional or enhanced options may not be available to those
already receiving Annuity payments.
ANNUITY PAYMENTS
Date Payments Start. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. For
Qualified Contracts only, Annuity Payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and Beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and
Beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on how
you allocate your Account Value between fixed and variable payouts (some options
require that all payments be made on a fixed basis). No election may be made
that would result in the first Annuity Payment of less than $50, or total yearly
Annuity Payments of less than $250 (less if required by state law). If the
Account Value on the Annuity Date is insufficient to elect an option for the
minimum amount specified, a lump-sum payment must be elected. We reserve the
right to increase the minimum first Annuity Payment amount and the minimum
annual Annuity Payment amount based on increases reflected in the Consumer Price
Index-Urban (CPI-U), since July 1, 1993.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3-1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity Payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. Use of the 3-1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. This charge, established when a variable
Annuity Option is elected, will not exceed 0.25% per year of amounts held on a
variable basis. Once established, the charge will be effective during the entire
Annuity Period. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
The death benefit, if any, due when the Annuitant dies after Annuity
Payments have begun, will depend on the terms of the Contract and the Annuity
Option selected. If Option 1 or Option 4 was elected, Annuity Payments will
cease on the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 4.
If Lifetime Option 2 or Option 5 was elected and the death of the Annuitant
under Option 2, or the surviving Annuitant under Option 5, occurs prior to the
end of the guaranteed minimum payment period, we will continue payments to the
Beneficiary unless the Beneficiary elects a lump sum, provided the Certificate
Holder has not prohibited such an election in the Beneficiary designation.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, remaining payments will be paid to the Beneficiary unless the
Beneficiary elects a lump sum, provided the Certificate Holder has not
prohibited such an election in the Beneficiary designation.
When the Annuitant dies after Annuity Payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or
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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
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
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 Sections 403(b),
408(b) or 408A 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. If the Certificate Holder is a non-natural person, the
surviving spouse who is the "designated beneficiary" of the deceased Annuitant
may continue the Account.
If the Certificate Holder is a natural person but not the Annuitant and the
Annuitant dies, if the Beneficiary does not elect an Annuity Option within 60
days of the date of death, the gain, if any, will be includible in the
Beneficiary's income in the year the Annuitant dies.
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The Nonqualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
The discussion under "Taxation of Annuities" below is based on the
assumption that the Contract qualifies as an annuity contract for federal income
tax purposes.
Required Distributions--Qualified Contracts: The Code has required
distribution rules for Section 403(b) 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 70-1/2 or retires, whichever
occurs later. For traditional IRA participants 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. There is no required
distribution date for participants in a Roth IRA. 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 from a traditional IRA 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.
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 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
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.
The minimum distribution rules also apply to beneficiaries under a Roth IRA
and are based on whether the participant dies before or after distribution
begins.
If the participant or beneficiary fails to take the required minimum
distribution for any tax year, a 50% excise tax is imposed on the required
amount that was not distributed.
TAXATION OF ANNUITY CONTRACTS
In General: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Certificate Holder under a Nonqualified
Contract who is a natural person generally is not taxed on increases in the
Account Value until distribution occurs by withdrawing all or part of such
Account Value (e.g., withdrawals or Annuity Payments under the Annuity Option
elected). The taxable portion of a distribution (in the form of a single sum
payment or an Annuity) is taxable as ordinary income.
Non-Natural Holders of a Nonqualified Contract: If the Certificate Holder
is not a natural person, a Nonqualified Contract is not treated as an annuity
for income tax purposes and the "income on the contract" for the taxable year is
currently taxable as ordinary income. "Income on the contract" is any increase
over the year in the Surrender Value, adjusted for Purchase Payments made 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.
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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."
Any "qualified" distribution from a Roth IRA is not includible in gross
income. A "qualified" distribution is any distribution made after the
participant attains age 59-1/2, or on account of the participant's death or
disability, or for a qualified first-time home purchase. A distribution will not
be treated as "qualified" if it is made within the 5-taxable year period
beginning with the first taxable year for which a contribution was made. If a
distribution is not "qualified", the accumulated earnings are includible in
income. The 10% premature distribution penalty will apply to the taxable portion
of the distribution unless one of the exceptions under the Code applies. (See
Section 21 of this Supplement.) A partial distribution will first be treated as
a return of cost basis (i.e. aggregate amount of contributions.)
For Roth IRAs, the minimum distribution rules do not apply prior to the
participant's death. (See "ANNUITY PERIOD" above.)
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 expected number of payments as defined in Code Section 72 (d).;
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, there may be imposed a federal income tax
penalty equal to 10% of the amount treated as taxable income.
In general, there is no penalty tax on distributions from a Nonqualified
Contract: (1) made on or after the date on which the taxpayer attains age
59-1/2; (2) made as a result of the death of the Certificate Holder; (3)
attributable to the taxpayer's total and permanent disability; (4) received in
substantially equal periodic payments (at least annually) over the life or life
expectancy of the taxpayer or the joint lives or joint life expectancies of the
taxpayer and a "designated beneficiary;" or (5) allocable to "investment in the
contract" before August 14, 1982.
If a distribution is made from a Qualified Contract sold in conjunction
with a Section 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 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, except for (d), the same exceptions described in the preceding
paragraph will apply to distributions made from an Individual Retirement
Annuity, including a distribution from a Roth IRA that is not a "qualified
distribution" or a rollover to a Roth IRA that is not a "qualified rollover"
contribution. Beginning January 1, 1997, the penalty tax is also waived on
distributions made from an IRA to pay for health insurance premiums for certain
unemployed individuals. Beginning January 1, 1998, the penalty tax is waived if
the amounts withdrawn are used for a qualified first-time home purchase or for
higher education expenses.
Taxation of Death Benefit Proceeds: Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
Generally, such amounts are includible in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity Payments, as described
above.
Special rules may apply on Nonqualified Contracts. See "Required
Distributions - Nonqualified Contracts."
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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.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
Qualified Contracts in General: The Qualified Contract is designed for use
as a Code Section 408(b) 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
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; 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 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 Code Section 415, is generally
the lesser of 25% of compensation or $30,000. Compensation means compensation
from the participant's employer sponsoring the plan and for years beginning
after December 31, 1997, includes any elective deferrals under Code Section 402
(g) and any amounts not includible in gross income under Code Sections 125 or
457. 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 you and your
employer made to the plan and to certain other retirement plans. These two
limits apply to the participant's contributions as well as to any contributions
made by the employer on behalf of the participant. There is an additional limit
that specifically limits salary reduction contributions to generally no more
than $10,000 annually (subject to indexing); a participant's own limit may be
higher or lower, depending on certain conditions. In addition, Purchase Payments
will be excluded from a participant's gross income only if the Plan meets
certain nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those amounts may only
occur upon death of the participant, attainment of age 59 1/2, separation from
service, total and permanent disability, or financial hardship. In addition,
income attributable to salary reduction contributions may not be distributed in
the case of hardship.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional 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.
Section 408A of the Code permits eligible individuals to contribute to a
Roth IRA on an after-tax (non-deductible) basis.
Distributions from other types of qualified plans are not permitted to be
transferred or rolled over to a Roth IRA. A Roth IRA can accept
transfers/rollovers only from an IRA, subject to ordinary income tax, or from
another Roth IRA.
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 403(b) tax-deferred annuities are subject to
mandatory 20% federal income tax withholding. If the recipient is a non-resident
alien, any withholding will be governed by Code Section 1441 based on the
individual's citizenship, the country of domicile and treaty status. 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
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providing the Distributors with approved marketing material, prospectuses or
other supplies. These parties will also receive payments based on Purchase
Payments for their services, to the extent such payments are allowed by
applicable securities laws. All costs and expenses related to these services
will be paid by the Company.
Payment of Commissions. We pay Distributors and their Registered
Representatives who sell the Contracts commissions and service fees.
Distributors will be paid commissions up to an amount currently equal to 6.0% of
Purchase Payments or as a combination of a certain percentage amount of purchase
payments at time of sale and a trail commission as a percentage of assets. Under
the latter arrangement, commission payments may exceed 6.0% of purchase payments
over the life of the Contract. In limited circumstances, we also pay certain of
these professionals compensation, overrides or reimbursement for expenses
associated with the distribution of the Contract. At times the Company may
offer certain distributors an enhanced commission for a limited period of time.
In addition, some sales personnel may receive various types of non-cash
compensation such as special sales incentives, including trips and educational
and/or business seminars. Supervisory and other management personnel of the
Company may receive compensation that will vary based on the relative
profitability 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 contributions were first received in
the Fund under the Separate Account, 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, and may include
performance from the Fund's inception date.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at shareholders'
meetings of the appropriate Funds(s). The number of votes to which each Contract
Holder may give direction will be determined as of the record date. The number
of votes each Contract Holder is entitled to direct with respect to a particular
Fund during the Accumulation Period equals the portion of the Account Values(s)
of the Contract attributable to that Fund, divided by the net asset value of one
share of that Fund. During the Annuity Period, the number of votes is equal to
the valuation reserve for the portion of the Contract attributable to that Fund,
divided by the net asset value of one share of that Fund. In determining the
number of votes, fractional votes will be recognized. Where the value of the
Contract or valuation reserve relates to more than one Fund, the calculation of
votes will be performed separately for each Fund.
If you are a Certificate Holder under a group Contract, you have a fully
vested (100%) interest in the benefits provided to you under your Account.
Therefore, you may instruct the group Contract Holder how to direct the Company
to cast the votes for the portion or the value of valuation reserve attributable
to your Account. Votes attributable to those Certificate Holders who do not
instruct the group Contract Holder will be cast by the Company in the same
proportion as votes for which instructions have been received by the group
Contract Holder. Votes attributable to individual or group Contract Holders who
do not direct us will be cast by us in the same proportion as votes for which
directions we have received.
You will receive a notice of each meeting of shareholders, together with
any proxy solicitation materials, and a statement of the number of votes
attributable to your Account.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 days written notice to the Contract Holder,
make other changes to group Contracts that would apply only to individuals who
become Certificate Holders under that
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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. 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.
Year 2000
Aetna Inc. (referred to collectively with its subsidiaries and
affiliates as "Aetna"), has developed and is currently executing a plan to make
its computer systems and applications accommodate date-sensitive information
relating to the Year 2000. The plan covers four stages including (i) inventory,
(ii) assessment, (iii) remediation and (iv) testing and certification. Aetna is
currently in the assessment or remediation stages of its plan for the systems
and applications related to the Separate Account, including those relating to
the Company, and Aeltus Investment Management, Inc., the subadviser to most
Aetna affiliated mutual funds. Testing and certification of these systems is
targeted for completion by mid 1999. The costs of these efforts will not affect
the Separate Account.
The Company, its affiliates and the mutual funds that serve as
investment options for the Separate Account also have relationships with
investment advisers, broker dealers, transfer agents, custodians or other
securities industry participants or other service providers that are not
affiliated with Aetna. Aetna is currently examining its relationships with third
parties as part of its Year 2000 plan. While the Company believes that United
States securities industry participants generally are preparing their computer
systems and applications to accommodate Year 2000 date-sensitive information,
preparation by third parties is outside the Company's control. There can be no
assurance that failure of third parties to complete adequate preparations in a
timely manner, and any resulting systems interruptions or other consequences,
would not have an adverse effect, directly or indirectly, on the Separate
Account, including, without limitation, its operation or the valuation of its
assets and units.
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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 A
ALIAC GUARANTEED ACCOUNT
================================================================================
The ALIAC Guaranteed Account (the "Guaranteed Account") is a credited
interest option available during the Accumulation Period under the Contracts.
This Appendix is a summary of the Guaranteed Account and is not intended to
replace the Guaranteed Account prospectus. You should read the accompanying
Guaranteed Account prospectus carefully before investing.
The Guaranteed Account is a credited interest option in which we guarantee
stipulated rates of interest for stated periods of time on amounts directed to
the Guaranteed Account. For guaranteed terms of one year or less, a guaranteed
rate is credited for the full term. For guaranteed rates of greater than one
year (except for those Contracts or Certificates issued in the state of New
York), the initial guaranteed rate is credited from the date of deposit to the
end of a specified period within the guaranteed term. The interest rate
stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. Guaranteed interest rates will never be
less than an annual effective rate of 3%.
During a deposit period, amounts may be applied to any of the available
guaranteed terms. A Guaranteed Term is the period of time specified by the
Company for which a specific Guaranteed Rate or Rates are offered on amounts
invested during a specific Deposit Period. Guaranteed Terms are made available
by the Company subject to the Company's terms and conditions. See the prospectus
for the Guaranteed Account for further details regarding Guaranteed Term. The
Company may offer more than one Guaranteed Term of the same duration and credit
one with a higher rate contingent upon use only with the Dollar Cost Averaging
Program. If amounts are applied to a Guaranteed Term which is credited with a
higher rate using dollar cost averaging and the dollar cost averaging is
discontinued, the amounts will be transferred to another Guaranteed Term of the
same duration and a market value adjustment ("MVA") will apply. The Company also
reserves the right to limit the number of Guaranteed Terms or the availability
of certain Guaranteed Terms. Purchase Payments received after the initial
payment will be allocated in the same proportions as the last allocation, if no
new allocation instructions are received with the Purchase Payment. If the same
guaranteed term(s) are not available, the next shortest term will be used. If no
shorter guaranteed term is available, the next longer guaranteed term will be
used.
Except for transfers from an available Guaranteed Term subject to the
Company's terms and conditions in connection with the Dollar Cost Averaging
Program, withdrawals taken in connection with an Estate Conservation or
Systematic Withdrawal distribution option, and, if approved by your state,
withdrawals for minimum distributions required by the Code for which the
deferred sales charge is waived, withdrawals or transfers from a guaranteed term
before the guaranteed term matures may be subject to an MVA. An MVA reflects the
change in the value of the investment due to changes in interest rates since the
date of deposit. When interest rates increase after the date of deposit, the
value of the investment decreases, and the MVA is negative. Conversely, when
interest rates decrease after the date of deposit, the value of the investment
increases, and the MVA is positive. It is possible that a negative MVA could
result in the Certificate Holder receiving an amount which is less than the
amount paid into the Guaranteed Account.
For partial withdrawals during the Accumulation Period, amounts to be
withdrawn from the Guaranteed Account will be withdrawn on a pro rata basis from
each group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows you to transfer without an MVA to available guaranteed terms of
the
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current deposit period or to other available investment options, or surrender
without an MVA (if applicable, a deferred sales charge is assessed on the
surrendered amount). The provision is available only during the calendar month
immediately following a guaranteed term maturity date and only applies to the
first transaction regardless of the amount involved in the transaction.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a guaranteed term during a deposit period may not be
transferred to any other funding option or to another guaranteed term during
that deposit period or for 90 days after the close of that deposit period. This
does not apply to (1) amounts transferred on the Maturity Date or under the
maturity value transfer provision; (2) amounts transferred from the Guaranteed
Account before the Maturity Date due to the election of an Annuity Option; (3)
amounts distributed under the Estate Conservation or Systematic Withdrawal
Options; and (4) amounts transferred from an available Guaranteed Term in
connection with the Dollar Cost Averaging Program. However, if the Certificate
Holder discontinues the Dollar Cost Averaging Program and the amounts in it are
transferred in accordance with the Company's terms and conditions governing
Guaranteed Terms, an MVA will apply. Transfers after the 90-day period are
permitted from guaranteed term(s) to other guaranteed term(s) available during a
deposit period or to other available investment options. Except for transactions
described in items (1), (3) and (4) above, amounts withdrawn or transferred from
the Guaranteed Account prior to the maturity date will be subject to an MVA.
However, only a positive aggregate MVA will be applied to transfers made due to
annuitization under one of the lifetime Annuity Options described in item (2)
above.
The Company reserves the right to limit the number of investment options
selected during the Accumulation Period. At this time there is no limit on the
number of options selected during the Accumulation Period, but the number of
investment options that may be selected at any one time by a Certificate Holder
presently is limited to 18. Under the Guaranteed Account, each guaranteed term
is counted as one funding option. If a guaranteed term matures, and is renewed
for the same term, it will not count as an additional investment option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. The Guaranteed Account cannot be used as an
investment option during the Annuity Period. Transfers made due to the election
of a lifetime Annuity Option will be subject to only a positive aggregate MVA.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted
amounts calculated due to a withdrawal of amounts) which may be greater or
less than the Account Value of those amounts; or
(2) the applicable portion of the Account Value attributable to the Guaranteed
Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than the
Account Value of those amounts.
DISTRIBUTION
The Company is the principal underwriter of the Contract. The Company is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc.
From time to time, the Company may offer customers of certain
broker-dealers special guaranteed rates in connection with the Guaranteed
Account offered through the Contracts, and may negotiate different commissions
for these broker-dealers.
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APPENDIX B
FIXED ACCOUNT
The Fixed Account is an investment option available during the Accumulation
Period under Contracts offered in certain states. The following summarizes
material information concerning the Fixed Account that is offered as an option
under the Contract. Additional information may be found in your Contract.
Amounts allocated to the Fixed Account are held in the Company's general account
that supports insurance and annuity obligations. Interests in the Fixed Account
have not been registered with the SEC in reliance on exemptions under the
Securities Act of 1933, as amended. Disclosure in this prospectus regarding the
Fixed Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of the statements. Disclosure in this Appendix regarding the Fixed
Account has not been reviewed by the SEC.
Fixed Account
Amounts allocated to this option will earn the minimum guaranteed interest
rate specified in the Contract. The Company may credit a higher interest rate
from time to time. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under this option,
the Company assumes the risk of investment gain or loss by guaranteeing Net
Purchase Payment values and promising a minimum interest rate and Annuity
payment.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account. declared on the date the Purchase
Payment is received in good order at the Company's Home Office. The Fixed
Account is only available in certain states. If a withdrawal is made from the
Fixed Account, a deferred sales charge may apply. Amounts allocated to the Fixed
Account will count as an option for purposes of the 18 investment option limit.
(See the Contract Prospectus).
Dollar Cost Averaging
Amounts invested in the Fixed Account must be transferred into the other
investment options available under the Contract over a period not to exceed 12
months under the Dollar Cost Averaging Program. In the event a Certificate
Holder discontinues dollar cost averaging, the remaining balance in the Fixed
Account will be transferred into the money market fund subaccount unless
directed otherwise.
Mortality and Expense Risk Charges
The Fixed Account will reflect a compound interest rate credited by the
Company. The interest rate quoted is an annual effective yield. The Company
makes no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
Transfers Among Investment Options
Transfers from the Fixed Account to any other available investment option
under the Contract are allowed in each calendar year during the Accumulation
Period. The amount which may be transferred may vary at the Company's
discretion; however, it will never be less than 10% of the amount held under the
Fixed Account.
By giving notice to the Company at its Home Office at least 30 days before
Annuity payments begin, the Certificate Holder may elect to have amounts which
have been accumulated under the Fixed Account transferred to one or more of the
investment options available during the Annuity Period to provide variable
Annuity payments.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as allow provided
by federal law.
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APPENDIX C
DESCRIPTION OF UNDERLYING FUNDS
The investment results of the Funds describes below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Investment Objective
Seeks to maximize total return through investments in a diversified
portfolio of common stocks and securities convertible into common stock. Capital
appreciation and investment income will both be major factors in achieving total
return.
Policies
Invests principally in common stocks and securities convertible into common
stock which the investment adviser believes have significant potential for
capital appreciation and/or investment income. May invest up to 25 percent of
its assets in international equity securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Foreign
securities may involve certain additional risks. Such risks include: currency
fluctuations and related currency conversion costs; less liquidity; price or
income volatility; less government supervision and regulation of foreign stock
exchanges, brokers and listed companies; adverse foreign political and economic
developments; different accounting procedures and auditing standards; and less
publicly available information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Investment Objective
Seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt securities.
Policies
Invests at least 65 percent of its total assets in debt securities. It is
anticipated that the Fund's effective average maturity normally will be between
three and ten years. Usually, at least 70 percent of the Fund's assets are
invested in one or more of the following: a) debt securities or obligations that
are rated at the time of purchase within the four highest categories assigned by
Moody's Investors Service, Inc., Standard & Poor's Corporation, or other rating
agencies, or if not rated, that are considered by the investment adviser to be
of comparable quality; b) securities of the U.S. government, its agencies or
instrumentalities; c) foreign government securities; d) commercial paper and
other short-term investments with a maturity of less than one year; and, e) cash
or cash equivalents. May invest up to 30 percent of its total assets in
high-risk/high-yield securities (often called "junk bonds"). May invest up to 25
percent of its total assets in debt and/or equity international securities.
Risks
The value of debt securities may be affected by changes in general interest
rates. "Junk bonds" tend to offer higher yields than investment-grade bonds, but
additional risks are associated with them. Foreign securities may involve
certain additional risks. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; adverse foreign political and economic developments; different
accounting procedures and auditing standards; and less publicly available
information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Investment Objective
Seeks to provide high current return, consistent with preservation of
capital and liquidity, by investing in high-quality money market instruments.
Policies
Earns interest by investing in short-term debt securities, including
Treasury bills, commercial paper (the short-term borrowings of large companies),
and other high-quality, fixed income securities. Invests primarily in: a) money
market instruments that have a maturity at the time of
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purchase, of 397 days or less (762 days or less for U.S. government securities),
and b) debt securities with a longer maturity, if the Fund has the absolute
right to sell such securities back to the issuer for at least the face amount of
the debt obligation within 397 days after the date of purchase. At least 95
percent of total Fund assets are invested in high-quality securities (those
receiving the highest credit rating by any two rating agencies or one if only
one agency has rated the security). May invest up to 25 percent of its assets in
foreign securities.
Risks
Yield will fluctuate with interest rates. The Fund is neither insured nor
guaranteed by the U.S. government. Foreign securities may involve certain
additional risks. Such risks include: currency fluctuations and related currency
conversion costs; less liquidity; price or income volatility; less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies; adverse foreign political and economic developments; different
accounting procedures and auditing standards; and less publicly available
information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Balanced VP (formerly Aetna Investment Advisers Fund)
Investment Objective
Seeks to maximize investment return, consistent with reasonable safety of
principal by investing in a diversified portfolio of one or more of the
following asset classes: stocks, bonds, and cash equivalents.
Policies
Assets are allocated among common and preferred stocks, bonds, U.S.
government securities and derivatives, and money market instruments. May also
invest in when-issued or delayed-delivery securities. Will not invest more than
25 percent of its total assets in high-risk/high-yield securities or "junk
bonds." Will not invest more than 25 percent of its assets in international
securities.
Risks
There can be no assurance that the investment adviser will always allocate
assets to the best performing sectors. The Fund's performance would suffer if a
major proportion of its assets were allocated to stocks in a declining market
or, similarly, if a major portion of its assets were allocated to bonds in a
time of adverse interest rate movement. High risk/high-yield securities involve
additional investment risk. Foreign securities may involve certain additional
risks. Such risks include: currency fluctuations and related currency conversion
costs; less liquidity; price or income volatility; less government supervision
and regulation of foreign stock exchanges, brokers and listed companies; adverse
foreign political and economic developments; different accounting procedures and
auditing standards; and less publicly available information about foreign
issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Ascent VP (formerly Aetna Ascent Variable Portfolio)
Investment Objective
Seeks to provide capital appreciation. Designed for participants who have
an investment horizon exceeding 15 years and a high level of risk tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high quality and present minimal
credit risk.
The benchmark portfolio is 80 percent equities and 20 percent fixed income
under neutral market conditions.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company, while debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. High
risk/high-yield securities have additional credit risks, including lack of
liquidity, greater likelihood of default and increased sensitivity to difficult
economic and corporate developments.
International securities involve currency and other special risks not
present in domestic securities. Real estate securities may be subject to the
same risks associated with direct ownership of real estate.
Investment Adviser: Aeltus Investment Management, Inc.
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Aetna Crossroads VP (formerly Aetna Crossroads Variable Portfolio)
Investment Objective
Seeks to provide total return (i.e., income and capital appreciation, both
realized and unrealized). The portfolio is designed for participants who have an
investment horizon exceeding ten years and who have a moderate level of risk
tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high quality and present minimal
credit risk.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company; debt securities may be affected by changes in general
interest rates and in the creditworthiness of the issuer. High risk/high-yield
securities have additional credit risks. International securities involve
currency and other special risks not present in domestic securities. Real estate
securities may be subject to the same risks associated with direct ownership of
real estate.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Legacy VP (formerly Aetna Legacy Variable Portfolio)
Investment Objective
Seeks to provide total return consistent with preservation of capital.
Designed for participants who have an investment horizon exceeding five years
and a low level of risk tolerance.
Policies
Invests assets within specified maximum percentage ranges and adjusts the
allocation mix in response to market trends and indicators:
[bullet] Equity securities are chosen on the basis of their potential for
capital appreciation.
[bullet] Fixed income securities may include obligations of the U.S. and
foreign governments as well as obligations of corporations.
[bullet] Money market investments are high-quality and present minimal
credit risk. Securities include U.S. government obligations,
certificates of deposit, bankers' acceptances, bank deposits, and
other financial institution obligations.
The benchmark portfolio is 40 percent equities and 60 percent fixed income
under neutral market conditions.
Risks
Equity securities are subject to a decline in the stock market or value of
the issuer; debt securities may be affected by changes in general interest rates
and creditworthiness of the issuer. High risk/high-yield securities have
additional credit risks. International securities involve currency and other
special risks not present in domestic securities. Real estate securities may be
subject to the same risks associated with direct ownership of real estate.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Value Opportunity
(formerly Aetna Variable Capital Appreciation Portfolio)
Investment Objective
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.
Policies
Normally invests at least 65 percent of its net assets in common stocks.
May also purchase securities aside from common stocks. The value of all
non-common stock investments normally represents no more than 35 percent of the
Portfolio's total assets. The Portfolio may invest up to 25 percent of its
assets in foreign securities, buy and sell put and call options on stock indices
and on individual stocks, purchase futures contracts, options contracts, engage
in currency hedging and purchase securities on a "when-issued," delayed-delivery
or forward-commitment basis.
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Risks
Equity securities are subject to a decline in the stock market or in the
value of the issuer, and preferred stocks have price risk and some interest rate
and credit risk. The value of debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. Investments in
securities of foreign issuers or securities denominated in foreign currencies
involve risks not present in domestic markets. Such risks include: currency
fluctuations and related currency conversion costs, less liquidity, price or
income volatility, less government supervision and regulation of foreign stock
exchanges and less publicly available information about foreign issuers.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Growth VP (formerly Aetna Variable Growth Portfolio)
Investment Objective
Seeks growth of capital through investment in a diversified portfolio
primarily of common stocks and securities convertible into common stocks
believed to offer growth potential.
Policies
Normally invests at least 65 percent of its total assets in common stocks
that have potential for capital growth. May also invest in convertible and
nonconvertible preferred stocks. May buy and sell put and call options, and
stock index futures and options. May enter into repurchase agreements with
domestic banks and broker dealers, purchase commercial paper and other
short-term instruments, and invest up to 25 percent of its assets in foreign
securities. Will not invest more than 15 percent of the total value of its
assets in high-risk/high-yield securities or "junk bonds." May invest in
lower-risk derivatives for hedging and other investment purposes.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company and preferred stocks have price risk and some interest rate
and credit risk. Foreign investing involves certain additional risks not present
in U.S. securities. Such risks may include: currency fluctuations and related
currency conversion costs: less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; different accounting procedures and auditing standards; and
less publicly available information about foreign issuers. High risk/high-yield
securities may provide a higher return, but have added risk. Derivatives may
experience greater price swings and may be less liquid than other securities.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Index Plus Large Cap VP (formerly Aetna Variable Index Plus Portfolio)
Investment Objective
Seeks to outperform the total return performance of publicly traded common
stocks represented by the Standard & Poor's 500 Composite Stock Price Index (S&P
500), an unmanaged stock market index composed of 500 common stocks selected by
the Standard & Poor's Corporation.1
Policies
The Portfolio attempts to be fully invested in common stocks and normally
invests at least 90 percent of its assets in common stocks included in the S&P
500. Portfolio managers will attempt to outperform the S&P 500 by creating a
portfolio that has similar market risk characteristics to the S&P 500, but will
use a disciplined quantitative analysis to identify those stocks having the
greatest likelihood of either outperforming or underperforming the market.
Risks
Because the Portfolio invests in common stocks, it is subject to the
possibility that common stock prices will decline over short or even extended
periods. The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. There is no
assurance that the Portfolio's objectives will be met.
Investment Adviser: Aeltus Investment Management, Inc.
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1 Inclusion of a stock in the S&P 500 in no way implies an opinion by
Standard & Poor's Corporation as to the stock's attractiveness as an
investment. The Portfolio is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
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Aetna Small Company (formerly Aetna Variable Small Company Portfolio)
Investment Objective
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.
Policies
Normally invests at least 65 percent of its total assets in the common
stock of companies with equity market capitalizations at the time of purchase of
$1 billion or less. May also invest in convertible and nonconvertible preferred
stock. The securities of small capitalization companies may be in an early
developmental stage or older companies entering a new stage of growth due to
management changes, new technology, products, or markets. Such companies may
also be undervalued due to poor economic conditions, market decline, or actual
or unanticipated unfavorable developments affecting the companies. May invest in
lower-risk derivatives for hedging and other investment purposes.
Risks
Equity securities are subject to a decline in the stock market or in the
value of the company. Although securities of small capitalization companies tend
to offer greater potential for growth than securities of larger, more
established issuers, there are additional risks associated with them. These
include: limited marketability, more abrupt or erratic market movements than
securities of larger capitalization companies, and less publicly available
information about the issuer. These companies may also be dependent on
relatively few products or services, have limited financial resources and lack
of management depth, and may have less of a track record or historical pattern
of performance. Derivatives may experience greater price swings and may be less
liquid than other securities.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna International VP
Investment objective
Seeks long term capital growth, primarily through investment in a diversified
portfolio of common stocks principally traded in countries outside of North
America. The fund will not target any given level of current income.
Policies
Invests at least 65% of its total assets among securities principally traded in
three or more countries outside of North America. The fund will invest primarily
in equity securities, including securities convertible into common stocks. Will
invest in a broad spectrum of companies and industries. Further, from time to
time, the fund may hold up to 10% of its total assets in long-term debt
securities with an S&P or Moody's rating of AA/Aa or above, or, if un-rated, are
considered by Aeltus to be of comparable quality. Additionally the fund may
invest in options, futures, enter into repurchase agreements and engage in
currency hedging.
Risks
Equity securities are subject to a decline in the stock market or in the value
of the company. Investments in foreign securities involve certain additional
risks. Such risks may include: currency fluctuations and related currency
conversion costs; less liquidity; price or income volatility; less government
supervision and regulation of foreign stock exchanges, brokers and listed
companies; adverse foreign economic and political developments; different
accounting procedures and auditing standards, and less publicly available
information about foreign issuers. Derivatives may experience greater price
swings and may be less liquid than other securities.
Investment advisor: Aeltus Investment Management, Inc.
Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are Real Estate Investment Trusts (REITs).
Policies
Normally invests at least 65% of total assets in income-producing equity
securities of publicly-traded companies "principally engaged" in the real estate
industry, including those companies that, at the time of purchase, derive a
significant proportion (at least 50%) of their revenues or profits from real
estate operations or related sources. The fund may invest in convertible
securities and preferred stock. Additionally, the fund may invest in options and
futures, enter into repurchase agreements, and invest up to 25% of its total
assets in foreign securities. The fund will not invest more than 15% of the
total value of its assets in high-yield bonds.
Risks
There are a number of risk factors to be considered when investing in the Real
Estate Securities Fund. Derivatives may experience greater price swings than
other securities and may be less liquid than other securities. Risks involved in
futures contracts include, but are not limited to: transactions to close out
futures contracts may not be able to be effected at favorable prices; possible
reduction in a fund's total return and yield; possible reduction the value of
the futures instrument, and potential losses in excess of the amount invested in
the futures contracts themselves. Writing call options involves the risk of not
being able to effect closing transactions at favorable prices or to participate
in the appreciation of the underlying securities. Purchasing put options
involves the risk of losing the entire purchase price of the option. High-yield
bonds have additional risks associated with them, including but not limited to:
lack of liquidity; an unpredictable secondary market and a higher risk of
default. Special consideration to an investment in real estate include those
risks associated with the direct ownership of real estate: declines in the value
of real estate, risks related to general and local economic conditions,
over-building and increased competition, increases in property taxes and
operating expenses, changes in zoning laws and other risks particular to this
market. The value of securities of companies which service the real estate
industry may also be affected by such risks.
Investment Adviser: Aeltus Investment Management, Inc.
Calvert Social Balanced Portfolio
(formerly Calvert Responsibly Invested Balanced Portfolio)
Investment Objective
Seeks growth of capital through investment in enterprises that make a
significant contribution to society through their products and services. Seeks
to achieve a total return above the rate of inflation through an actively
managed portfolio of stocks, bonds, and money market instruments selected with a
concern for the social impact of each investment.
Policies
The Portfolio may purchase both common and preferred stocks. Although there
is no predetermined percentage of assets allocated to stocks, bonds, or money
market instruments, the Portfolio will invest a least 25 percent of its assets
in senior fixed income securities. The Portfolio normally invests in
investment-grade bonds rated in one of the four highest rating categories by
Standard & Poor's Corporation or by Moody's Investors Service, Inc. or, if not
rated, that are determined by the Portfolio's investment adviser to be of
comparable quality. The Portfolio may invest up to 10 percent of its assets in
foreign securities.
Risks
Since the Portfolio is nondiversified, the value of the shares may be more
susceptible to any single economic, political, or regulatory event than the
shares of a diversified portfolio. Fixed income investments are subject to
interest rate risk. There are also risks involved in investing in foreign
securities. These include currency risks, less publicly available information
about foreign companies, different audit and financial reporting standards, and
less government supervision and regulation.
Investment Adviser: Calvert Asset Management Company, Inc.
Fidelity VIP Equity-Income Portfolio
Investment Objective
Seeks reasonable income by investing primarily in income-producing equity
securities. Also considers the potential for capital appreciation.
Policies
Seeks to achieve a yield that will beat that of the Standard & Poor's (S&P)
500 Index. The Portfolio normally invests at least 65 percent of its total
assets in income producing common or preferred stock. The remainder of the
Portfolio's assets will tend to be invested in debt obligations,
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many of which are expected to be convertible into common stocks. The Portfolio
may invest the balance in all types of domestic and foreign securities,
including bonds of varying quality. Portfolio managers do not expect to invest
in debt securities of companies that do not have proven earnings or credit.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. The value of
bonds fluctuates based on changes in interest rates and in the credit quality of
the issuer. Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks. These
include political or economic risks, fluctuations in foreign currencies
withholding or other taxes, operational risks, increased regulatory burdens, and
less stringent investor protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP Growth Portfolio
Investment Objective
Seeks capital appreciation by investing in common stock, although the
Portfolio is not limited to any one type of security. May pursue capital
appreciation through the purchase of bonds and preferred stocks.
Policies
Tends to focus on smaller, lesser-known companies in new and emerging areas
of the economy. The Portfolio may, however, pursue growth in larger or
revitalized companies that hold a strong position in the market. These may be
found in mature or declining industries. Companies that have strong growth
potential often have new products, technologies, distribution channels, or other
opportunities. Generally, these domestic and foreign companies tend to be small-
and mid-sized companies that have higher than average price/earnings (P/E)
ratios. A high P/E ratio means that the stock is more expensive than average
relative to the company's earnings. May not invest more than 20 percent of its
assets in any one foreign country.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. The market
prices of stocks with high P/E ratios may be particularly sensitive to economic
market or company news. Foreign securities, foreign currencies, and securities
issued by U.S. entities with substantial foreign operations may involve
additional risks. These include political or economic risks, fluctuations in
foreign currencies, withholding or other taxes, operational risks, increased
regulatory burdens, and less stringent investor protection and disclosure
standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP High Income Portfolio
Investment Objective
Seeks high current income, with capital growth as a secondary
consideration.
Policies
Invests mainly in high-yielding debt securities, with an emphasis on
longer-term, lower-quality fixed income securities. The Portfolio normally
invests at least 65 percent of its assets in these securities. If consistent
with its investment objectives, the Portfolio may also invest in common stocks,
other equity securities, and debt securities that are not currently paying
interest but that are expected to do so in the future. The Portfolio manager
focuses on assembling a portfolio of income-producing securities that it
believes will provide the best tradeoff between risk and return within the range
of securities that are eligible investments for the Portfolio. The Portfolio may
invest up to 50 percent of its total assets in foreign securities, but will not
invest more than 20 percent of its assets in any one foreign country.
Risks
Yield and share price change daily and are based on changes in interest
rates, market conditions, other economic and political news, and on the quality
and maturity of the Portfolio's investments. Lower quality debt securities (also
known as "junk bonds") are considered to have speculative characteristics and
involve greater risk of default or price changes. Foreign securities, foreign
currencies and securities issued by U.S. entities with substantial foreign
operations may involve additional risks. These include political or economic
risks, fluctuations in foreign currencies, withholding or other taxes,
operational risks, increased regulatory burdens, and less stringent investor
protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
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Fidelity VIP Overseas Portfolio
Investment Objective
Seeks long-term growth of capital by investing primarily in securities of
issuers whose principal activities are outside of the U.S.
Policies
Normally invests at least 65 percent of the Portfolio's total assets in
securities of issuers from at least three different countries outside of North
America (the U.S., Canada, Mexico, and Central America). Expects to invest a
majority of its assets in equity securities, but may also invest in debt
securities of any quality. Invests in securities of both developed and emerging
markets. May invest in the securities of any issuer, including companies and
other business organizations as well as governments and government agencies.
Will tend to focus on the equity securities of both large and small companies.
May invest in short-term debt securities and money market instruments for cash
management purposes. When allocating the Portfolio's investments among countries
and regions, the Portfolio Managers consider such factors as governmental
policies, and the outlook for currency relationships. May not invest more than
25 percent of its total assets in any one industry.
Risks
Stock values fluctuate in response to the activities of individual
companies, and general market and economic conditions. International funds have
increased economic and political risks because they are exposed to events and
factors in the various world markets, especially in emerging markets. In
addition, changes in the value of foreign currencies can significantly affect
the Portfolio's share price. The Portfolio seeks to reduce investment risk by
diversifying its holdings among many companies and industries.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Investment Objective
Seeks high total return with reduced risk over the long term.
Policies
Invests in a diverse range of stocks, bonds, short-term, and money market
instruments, issued in the U.S. and abroad. The stock class includes equity
securities of all types. The bond class includes all varieties of fixed income
instruments with maturities of more than three years. The short-term instruments
class includes all types of short-term instruments with remaining maturities of
three years or less. The Portfolio has a neutral mix which represents the way
investments generally will be allocated over the long term. This mix will vary
over short-term periods - within defined ranges - based on the current outlook
for the different markets. May invest up to 50 percent of its total assets in
foreign securities, but will not invest more than 20 percent of its assets in
any one foreign country.
Risks
The Portfolio seeks to reduce its overall risk by diversifying among
different types of investments, but aggressively invests in a wide variety of
security types, including stocks and bonds issued in developed and developing
countries. Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds and
short-term instruments fluctuates based on changes in interest rates and in the
credit quality of the issuer. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Contrafund Portfolio
Investment Objective
Seeks capital appreciation by investing mainly in equity securities of
companies that FMR believes to be undervalued or out of favor.
Policies
Usually invests in common stock and securities convertible into common
stock, but may invest in any type of security that may produce capital
appreciation. Seeks companies that are: 1) unpopular, but that may improve due
to developments such as a change in management, a new product line, or an
improved balance sheet; or 2) recently popular, but temporarily out of favor due
to short-term or one-time factors; or, undervalued compared to other companies
in the same industry. May not invest more than 20 percent of its assets in any
one foreign country, but may have an additional 15 percent invested in
securities of issuers located in any one (but only one) of the following
countries: Australia, Canada, France, Japan, the United Kingdom, or Germany. May
not invest more than 25 percent of its total assets in any one industry.
Risks
Stock values may fluctuate in response to the activities of an individual
company or general market and economic conditions. The Portfolio's
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strategy can lead to investments in small- and medium-sized companies, which
carry more risk than larger ones. Generally, such companies rely on limited
product lines and markets, financial resources or other factors. This may make
them more susceptible to downturns. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks. These include political or economic risks,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and less stringent investor protection and
disclosure standards of foreign markets. Seeks to manage risk by diversifying
its holdings among many companies and industries.
Investment Adviser: Fidelity Management & Research Company
Fidelity VIP II Index 500 Portfolio
Investment Objective
Seeks to match the total return of the S&P 500 while keeping expenses low.
Policies
Normally invests at least 80 percent (65 percent if Portfolio assets are
below $20 million) of the Portfolio's assets in equity securities of companies
that comprise the S&P 500. In seeking a 98 percent or better long-term
correlation of the Portfolio's total return to that of the S&P 500, FMR employs
a "passive" or "indexing" approach and tries to allocate its assets similarly to
those of the index. The Portfolio's composition may not always be identical to
that of the index. If extraordinary circumstances warrant, FMR may exclude a
stock held in the S&P 500 and include a similar stock in its place if doing so
will help the Portfolio achieve its objective. FMR monitors the correlation
between the performance of the Portfolio and the S&P 500 on a regular basis.
Although the Portfolio focuses on common stocks, it may invest in other equity
securities and other types of instruments. The Portfolio may invest up to 50
percent of its assets in foreign securities, but no more than 20 percent of its
assets in any one foreign country.
Risks
Stock values fluctuate in response to the activities of individual
companies, and general market and economic conditions. Foreign securities,
foreign currencies, and securities issued by U.S. entities with substantial
foreign operations may involve additional risks and considerations. These
include risks related to political or economic conditions in foreign countries,
fluctuations in foreign debt currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and potentially less stringent investor
protection and disclosure standards of foreign markets.
Investment Adviser: Fidelity Management & Research Company
Janus Aspen Series Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
A nondiversified portfolio that invests primarily in common stocks of
foreign and domestic companies selected for their growth potential. Normally
invests at least 50 percent of its equity assets in securities issued by
medium-sized companies-those whose market capitalizations fall within the range
of companies in the Standard and Poor's (S&P) Mid Cap 400 Index. May invest, to
a lesser degree, in other types of securities including preferred stocks,
warrants, convertible securities, and debt securities. May invest up to 35
percent of its net assets in high-yield/high-risk debt securities ("junk
bonds"). May at times hold substantial positions in cash equivalents or
interest-bearing securities.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Smaller or newer issuers are
more likely to realize more substantial growth as well as suffer more
significant losses than larger or more established issuers. Investments in such
companies can be both more volatile and more speculative. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory, and market risk factors. High-yield/high-risk
securities are generally more dependent on the ability of the issuer to meet
interest and principal payments (i.e., credit risk). Issuers of high-yield
securities may not be as strong financially as those issuing bonds with higher
credit ratings. They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Balanced Portfolio
Investment Objective
Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
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Policies
Normally invests 40-60 percent of its assets in securities selected
primarily for their growth potential and 40-60 percent of its assets in
securities selected primarily for their income potential. Invests in common
stocks of domestic and foreign companies. May invest to a lesser degree in other
types of securities including preferred stocks, warrants, convertible
securities, and debt securities when the portfolio manager perceives an
opportunity for capital growth. Assets may shift between the growth and income
components of the Portfolio based on the portfolio manager's analysis of
relevant market financial and economic conditions. The portfolio manager
generally takes a "bottom up" approach to building the Portfolio, seeking to
identify individual companies with earnings growth potential that may not be
recognized by the market at large.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Investments in
foreign securities, including those of foreign governments, involve greater
risks than investing in comparable domestic securities. These risks include
currency, political, economic, regulatory and market risk factors. Risk is
reduced through diversification.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Flexible Income Portfolio
Investment Objective
Seeks maximum total return, consistent with the preservation of capital.
Policies
The Portfolio invests at least 80 percent of its assets in income-producing
securities which may include: corporate bonds and notes, preferred stock,
income-producing common stocks, debt securities convertible or exchangeable into
equity securities, and debt securities with the right to acquire equity
securities. May invest to a lesser degree in common stocks, other equity
securities, or debt securities not currently paying dividends or interest. May
purchase securities of any maturity and quality. Average maturity and quality of
its portfolio may vary substantially. May invest without limit in foreign
securities, including those of corporate and government issuers, as well as in
high-yield/high-risk securities. May have substantial holdings of such
securities, as well as in high-yield/high-risk securities (or "junk bonds") are
debt securities rated below investment grade by the primary rating agencies such
as Standard & Poor's and Moody's.
Risks
Foreign investing involves risks that are different in some respects from
investments in securities of U.S. issuers including: economic/political
volatility; less government regulation and supervision of foreign stock
exchanges, brokers and listed companies; and price, interest rate and currency
risk. The value of lower-quality securities generally depends more on the
ability of the issuer to meet interest and principal payments than is true for
higher-quality securities. Issuers of high-yield securities are more vulnerable
to real or perceived economic and political changes or adverse developments
specific to the issuer. In the event of a default, the Portfolio would
experience a reduction of its income and a decline in the market value of the
defaulted securities.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the
preservation of capital.
Policies
Invests in common stocks of companies of any size, although it generally
invests in larger, more established issuers. Invests primarily in stocks of
foreign and domestic companies selected for their growth potential. May at times
hold substantial positions in cash equivalents or interest bearing securities.
May invest to a lesser degree in other types of securities including preferred
stocks, warrants, convertible securities, and debt securities when its portfolio
manager perceives an opportunity for capital growth. Using a "bottom up"
approach to building the Portfolio, the portfolio manager seeks to identify
individual companies with earnings growth potential that may not be recognized
by the market at large. Securities are generally selected without regard to any
defined industry sector. Securities are selected solely for their capital growth
potential; investment income is not a consideration.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Smaller or newer issuers are
more likely to realize more substantial growth as well as suffer more
significant losses than larger or more established issuers. Investments in such
companies can be both more volatile and more speculative. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory
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and market risk factors. Risk is reduced through diversification.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the
preservation of capital.
Policies
A diversified portfolio that invests primarily in common stocks of foreign
and domestic issuers. Invests worldwide in companies and organizations of any
size, regardless of country of organization or place of principal business
activity. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries or
even in a single country. May hold substantial positions in cash equivalents or
interest-bearing securities. May invest to a lesser degree in other types of
securities, including preferred stocks, warrants, convertible securities, and
debt securities, when the portfolio manager perceives an opportunity for growth.
May invest up to 35 percent of net assets in high-yield/high-risk securities
(also called "junk bonds"). May invest without limit in foreign equity and debt
securities.
Risks
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investment in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These include currency, political,
economic, regulatory and market risk factors. High-yield/high-risk securities
are generally more dependent on the ability of the issuer to meet interest and
principal payments (i.e., credit risk). Issuers of high-yield securities may not
be as strong financially as those issuing bonds with higher credit ratings. They
are more vulnerable to real or perceived economic changes, political changes or
other adverse developments.
Investment Adviser: Janus Capital Corporation
MFS Total Return Series
Investment Objective
Seeks to provide above average income consistent with the prudent
employment of capital; its secondary objective is to provide reasonable
opportunity for growth of capital and income.
Policies
Under normal market conditions, at least 25 percent of the Series' assets
will be invested in fixed income securities, and at least 40 percent (but no
more than 75 percent) of the Series' assets will be invested in equity
securities. The Series invests in a broad list of securities, including
short-term obligations. The list may be diversified not only by companies and
industries, but also by type of security. May vary the percentage of assets
invested in any one type of security depending on the Adviser's interpretation
of economic and money market conditions, fiscal and monetary policy, and
underlying security values. The Series debt investment may consist of both
investment grade securities and securities that are lower rated or unrated
categories (commonly known as "junk bonds"). May hold up to 20 percent of its
assets in foreign securities (including emerging market securities and Brady
Bonds) which are not traded on a U.S. exchange.
Risks
Investing in the securities of foreign issuers generally involves risks not
ordinarily associated with investing in securities of domestic issuers. These
include changes in currency rates, exchange control regulations, governmental
administration or economic or monetary policy (in the U.S. or abroad), or
circumstances in dealing between nations. Other considerations include limited
information about foreign issuers, higher brokerage costs, different accounting
standards, and thinner trading markets.
Investment Adviser: Massachusetts Financial Services Company ("MFS")
MFS World Government Series
Investment Objective
Seeks not only preservation, but also growth of capital, together with
moderate current income.
Policies
The Series seeks to achieve its investment objective through a
professionally managed, internationally diversified portfolio consisting
primarily in debt securities and, to a lesser extent, equity securities. Under
normal circumstances, the Series invests at least 80 percent of its assets in
debt
33
<PAGE>
securities. The Series may invest up to 100 percent (although it generally
expects to invest not more than 80 percent) of its net assets in foreign
securities. At least 65 percent of the Series' assets will be invested in at
least three different countries, one of which may be the U.S., except when the
Adviser believes that investing for temporary defensive purposes is appropriate.
U.S. assets will be invested in high-quality debt securities, and the remainder
of the assets will be diversified among countries where opportunities for total
return are expected to be most attractive. It is currently expected that
investments in foreign countries will be primarily in government securities to
minimize credit risks.
Risks
Investing in securities of foreign issuers generally involves risks not
ordinarily associated with investing in securities of domestic issuers. These
include changes in currency rates, exchange control regulations, governmental
administration or economic or monetary policy (in the U.S. or abroad), or
circumstances in dealing between nations. Other considerations include limited
information about foreign issuers, higher brokerage costs, different accounting
standards, and thinner trading markets.
Investment Adviser: Massachusetts Financial Services Company ("MFS")
Oppenheimer Capital Appreciation Fund
Investment Objective
Seeks to achieve capital appreciation by investing in "growth-type"
companies.
Policies
"Growth-type" companies are believed to have relatively favorable long-term
prospects for increasing demand for their goods or services, or to be developing
new products, services, or markets and normally retain a relatively larger
portion of their earnings for research, development, and investment in capital
assets. The Fund will invest no more than 25 percent of its total assets in
foreign securities or in government securities of any foreign country or in
obligations of foreign banks.
Risks
Stock prices will fluctuate. Additional risk is present in growth-type
investments since the price of the security may decline if the anticipated
development fails to occur. Investing in small, unseasoned companies (those that
have been in operation for less than three years, counting the operations of any
predecessors) may have limited liquidity, and the prices of these securities may
be volatile. Foreign securities markets may be less liquid and more volatile
than markets in the U.S. Risks of foreign securities may include foreign
withholding taxation, changes in currency, less publicly available information,
and differences between domestic and foreign legal, auditing, brokerage and
economic standards.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund
Investment Objective
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.
Policies
Invests a substantial portion of its assets in securities of foreign
issuers, "growth-type" companies (those which, in the opinion of the manager,
have relatively favorable long-term prospects for increasing demand or which
develop new products and retain a significant part of earnings for research and
development), cyclical industries, and special investment situations which are
considered to have appreciation possibilities. May invest in foreign securities
and the relative amount of such investments will change from time to time.
Risks
Stock prices will fluctuate. Foreign securities markets may be less liquid
and more volatile than the markets in the U.S. Risks of foreign securities may
include foreign withholding taxation, changes in currency, less publicly
available information, and differences between domestic and foreign legal,
auditing brokerage and economic standards. Investments in small, unseasoned
companies (those that have been in operation for less than three years, counting
the operations of any predecessors) may have limited liquidity, and the prices
of these securities may be volatile.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Growth & Income Fund
Investment Objective
Seeks a high total return (which includes growth in the value of its shares
as well as current income) from equity and debt securities.
34
<PAGE>
Policies
Invests primarily in equity and debt securities and focuses on all market
capitalization including small to medium capitalization companies. Equity
investments include common stocks, preferred stocks, convertible securities, and
warrants. Debt securities include bonds, participation interests, asset-backed
securities, private label mortgage backed securities and collateralized mortgage
obligations (CMOs), zero coupon securities, and U.S. government obligations. The
proportion of equity and fixed income investments will vary based upon the
manager's evaluation of economic and market trends and perceived relative total
anticipated return from such types of investments. There is no minimum or
maximum percentage of assets that may, at any given time, be invested in either
type of investment. The Fund may invest in foreign securities without limit.
Risks
Changes in overall market movements or interest rates, or factors affecting
a particular industry or issuer can affect the value of the Fund's investments
and their price per share. Equity investments are generally subject to a number
of risks, including the risk that values will fluctuate as a result of changing
expectations for the economy and individual issuers; stocks with small- to
medium-size capitalization may fluctuate more than large capitalization stocks.
Foreign investments are subject to the risk of adverse currency fluctuation and
additional risks and expenses in comparison to U.S. investments.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund
Investment Objective
Seeks a high level of current income principally derived from interest on
debt securities. Seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests principally in lower-rated, high-yield domestic debt securities
(commonly shown as "junk bonds"), U.S. government securities, and foreign
government and corporate debt securities. Under normal circumstances, the Fund's
assets will be invested in each of these three sectors. However, Strategic Bond
Fund may occasionally invest up to 100 percent of its total assets in any one
sector, if, in the manager's judgment, the Fund has the opportunity to seek a
high level of current income without undue risk to principal. Accordingly, the
Fund's investments should be considered speculative. Distributable income will
fluctuate as the Fund's assets are shifted among the three sectors.
Risks
The higher yields and income sought by Strategic Bond Fund are generally
associated with securities in the lower-rating categories of the established
rating services. Such securities are considered speculative and involve greater
risk than lower-yielding, higher-rated fixed income securities, while providing
higher yields than such securities. Lower-rated securities may be less liquid,
and significant losses could be experienced if a substantial number of other
holders of such securities decide to sell at the same time. Issuers of
lower-rated or unrated securities are generally not as financially secure or
creditworthy as issuers of higher-rated securities.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital. Dividend and interest income from
portfolio securities, if any, is incidental to the Portfolio's investment
objective.
Policies
Normally invests at least 80 percent of its assets in common stocks of
companies the subadviser believes are in an early phase of their life cycle, but
that have the potential to become major enterprises. Such companies would be
expected to show earnings growth over time well above the growth rate of the
overall economy and inflation and have the products, technologies, management
and market and other opportunities usually necessary to become more widely
recognized as growth companies. Emerging growth companies can be of any size.
The Portfolio may invest in larger or more established companies whose rates of
earnings growth are expected to accelerate because of special factors. The
Portfolio will invest primarily in stocks. To a limited extent, however, it may
seek appreciation in other types of securities such as convertible securities
and warrants, when relative values make such purchases appear attractive, either
as individual issues or as types of securities in certain economic environments.
Up to 25 percent of the Portfolio's net assets may be invested in foreign
issuers.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions.
35
<PAGE>
Investing in emerging growth companies involves greater risk than is customarily
associated with investments in more established companies. Such companies may
have limited product lines, markets or financial resources and they may be
dependent on one person's management. In addition, there may be less research
available on many promising small- and medium-sized emerging growth companies,
making it more difficult to find and analyze these companies. The securities of
these companies may have limited marketability and may be subject to more abrupt
or erratic market movements than securities of larger, more established growth
companies or the market averages in general. Foreign investing involves risks
that are different in some respects from investments in the securities of U.S.
issuers. Risks include less availability of information about issuers or foreign
markets, economic and political volatility, and price, interest rate and
currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners MFS Research Growth Portfolio
Investment Objective
Seeks to provide long-term growth of capital and future income.
Policies
Invests a substantial proportion of its assets 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 the
assets may be invested in bonds, short-term obligations, preferred stocks or
common stocks whose principal characteristic is income production rather than
growth. In the case of both growth stocks and income issues, emphasis is placed
on the selection of progressive, well-managed companies. The Portfolio may
invest up to 20 percent of its net assets in foreign securities, including
emerging market securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Investing in
securities of foreign issuers generally involves risks not ordinarily associated
with investing in securities of domestic issuers. These include less
availability of information about issuers or foreign markets, economic and
political volatility, and price, interest rate and currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners MFS Value Equity Portfolio
Investment Objectives
Seeks capital appreciation. Dividend income, if any, is an incidental
consideration.
Policies
While the Portfolio's policy is to invest primarily in common stocks, it
may seek appreciation in other types of securities (such as fixed-income,
convertible bonds, convertible preferred stocks and warrants) when relative
values make such purchases appear attractive, either as individual issues or as
types of securities in certain economic environments. The Portfolio may invest
in high-yield fixed-income (below investment grade), but will invest no more
than 25 percent of its net assets in these securities. The Portfolio may also
invest up to 50 percent (but generally expects to invest not more than 25
percent) of its net assets in foreign securities.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Lower-rated bonds have
speculated characteristics. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher-grade securities. Investing in
securities of foreign issuers generally involves risks not ordinarily associated
with investing in securities of domestic issuers. These include less
availability of information about issuers or foreign markets, economic and
political volatility, and price, interest rate and currency risk.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Massachusetts Financial Services Company
Portfolio Partners Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital primarily through diversified holdings of
marketable foreign equity investments.
Policies
Invests in companies, wherever organized, that do business primarily
outside the United States. The Portfolio intends to diversify investments among
several countries and to have represented in its holdings business activities in
not less than three different countries. Does not intend to concentrate
investments in any particular industry. Invests primarily in equity securities
of established companies, listed on foreign exchanges, that
36
<PAGE>
the subadviser believes have favorable characteristics. Although the Portfolio
will consist primarily of equity securities, it may also invest in fixed-income
securities of foreign governments and companies.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investing in foreign securities
may involve a greater degree of risk than investing in domestic securities.
Additional risk factors include the possibility of exchange rate fluctuations,
less publicly available information, more volatile markets, less securities
regulation and less favorable tax provisions.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: Scudder, Stevens & Clark, Inc.
Portfolio Partners T. Rowe Price Growth Equity Portfolio
Investment Objective
Seeks long-term growth of capital and, secondly, to increase dividend
income by investing primarily in common stocks of well established growth
companies.
Policies
Under normal market conditions the Portfolio invests primarily in common
stocks issued by a diversified group of growth companies. The companies in which
the Portfolio invests normally (but not always) pay dividends, which are
generally expected to rise in future years as earnings increase. Most of its
assets will be invested in U.S. common stocks. However, the Portfolio may invest
in foreign securities and convertible securities and warrants, when the
subadviser considers such investments consistent with the Portfolio's investment
objective and policies.
The Portfolio generally seeks to invest in securities of companies that
satisfy one or more of several criteria established by the subadviser. For
example, the subadviser generally seeks companies with superior growth in
earnings and cash flow; the ability to sustain earnings momentum even during
economic slowdowns by operating in so-called "fertile fields" (areas where
earnings and dividends can outpace inflation and the overall economy); and the
capability to expand even during times of slow growth. The subadviser generally
favors companies whose profits increase due to economic factors rather than
one-time events such as lower taxes. The Portfolio may engage in strategic
transactions, which may include the use of derivatives.
Risks
Share prices will fluctuate in response to the activities of an individual
company or in response to general market and economic conditions. Historically,
common stocks have provided greater long-term returns and have entailed greater
short-term risks than other investment choices. Investments in foreign
securities, including those of foreign governments, involve greater risks than
investing in comparable domestic securities. These risks include currency,
political, economic, regulatory and market risk factors. Risk is reduced through
diversification.
Investment Adviser: Aetna Life Insurance and Annuity Company;
Sub-adviser: T. Rowe Price Associates, Inc.
37
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1998
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, 1998.
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, 1997, the Company had
$____ billion invested through its products, including $___ billion in its
separate accounts (of which the Company or an affiliate oversees the management
of $___ billion) and $___ billion in its mutual funds offered outside of its
separate accounts. As of December 31, 1997, it ranked among the top __% 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 advisers 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 substitutions 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 Marathon Plus Contract are as follows:
<TABLE>
<S> <C>
Aetna Variable Fund d/b/a/ Aetna Growth and Janus Aspen Aggressive Growth Portfolio
Income VP
Aetna Income Shares d/b/a Aetna Bond VP Janus Aspen Balanced Portfolio
Aetna Variable Encore Fund d/b/a Aetna Money Janus Aspen Flexible Income Portfolio
Market VP
Aetna Balanced VP (formerly Aetna Investment Janus Aspen Growth Portfolio
Advisers Fund, Inc.)
Aetna Ascent VP (formerly Aetna Ascent Variable Janus Aspen Worldwide Growth Portfolio
Portfolio)
Aetna Crossroads VP (formerly Aetna Crossroads MFS Total Return Series
Variable Portfolio)
Aetna Legacy VP (formerly Aetna Legacy Variable MFS World Government Series
Portfolio)
Aetna Value Opportunity VP (formerly Aetna Oppenheimer Capital Appreciation Fund
Variable Capital Appreciation Portfolio)
Aetna Growth VP (formerly Aetna Variable Growth Oppenheimer Global Securities Fund
Portfolio)
Aetna Index Plus Large Cap VP (formerly Aetna Oppenheimer Growth & Income Fund
Variable Index Plus Portfolio)
Aetna Small Company VP (formerly Aetna Oppenheimer Strategic Bond Fund
Variable Small Company Portfolio)
Calvert Social Balanced Portfolio (formerly Calvert Portfolio Partners MFS Emerging Equities
Responsibly Invested Balanced Portfolio) Portfolio
Fidelity VIP Equity-Income Portfolio Portfolio Partners MFS Research Growth
Portfolio
Fidelity VIP Growth Portfolio Portfolio Partners MFS Value Equity Portfolio
Fidelity VIP High Income Portfolio Portfolio Partners Scudder International
Growth Portfolio
Fidelity VIP Overseas Portfolio Portfolio Partners T. Rowe Price Growth
Equity Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP II Index 500 Portfolio
</TABLE>
The Funds currently available under the New York Growth Plus Contracts are as
follows:
Federated American Leaders Fund II
Federated Equity Income Fund II
Federated Fund for U. S. Government Securities II
Federated Growth Strategies Fund II
Federated High Income Bond Fund II
Federated International Equity Fund II
Federated Prime Money Fund II
Federated Utility Fund II
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.
-3-
<PAGE>
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the Prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are Registered
Representatives as defined in the Prospectus. The offering of the Contracts is
continuous. A description of the manner in which Contracts are purchased may be
found in the Prospectus under the sections titled "Purchase" and "Contract
Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as "non-standardized returns,"
both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
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 the
date contributions were first received in the Fund under the Separate Account
and then adjust them to reflect the deduction of the maximum amount recurring
charges under the Contracts during each period (e.g., 1.25% mortality and
expense risk charge, $30.00 maintenance fee, 0.15% administrative charge, and
deferred sales charge of 7% of Purchase Payments grading down to 0% after 7
years). 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 reflected the investment
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, and may include returns calculated from the
Fund's inception date and/or the date contributions were first received in the
Fund under the Separate Account.
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.
-4-
<PAGE>
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables below reflect the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1997 for the
variable investment options under the Contracts issued by the Company. These
returns reflect the maximum charges under the Contract as described under
"General" above; the Company may also advertise returns based on lower charges
that may apply to particular Contracts. 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 the Subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each Subaccount: one showing performance based
solely on the performance of the Portfolio Partners portfolio from November 28,
1997, the date the Portfolio commenced operations; and one quotation based on
(a) performance through November 26, 1997 of the fund it replaced under many
Company contracts and; (b) after November 26, 1997, based on the performance of
the Portfolio Partners portfolio.
For those Subaccounts where results are not available for the full calendar
period indicated, performance for such partial periods is shown in the column
labeled "Since Inception". For standardized performance, the "Since Inception"
column shows the average annual return since the date contributions were first
received in the Fund under the Separate Account. For nonstandardized
performance, the "Since Inception" column shows average annual total return
since the Fund's inception date.
-5-
<PAGE>
<TABLE>
<CAPTION>
TABLE A
- -------------------------------------------------------------------------------------------------------------------------
Date
($30.00 Maintenance Fee) Standardized Contributions
First
Received
Under
Separate
Account
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Five Years Ten Years Since Inception*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP 04/03/89
- -------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP (1)(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP (1) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 10/31/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 12/30/94
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 12/30/94
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 06/30/95
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 01/31/95
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 06/30/95
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 06/30/95
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 01/31/95
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive 10/31/94
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced Portfolio 01/31/95
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible 10/31/94
Income Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth Portfolio 07/29/94
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide 04/28/95
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 05/31/96
- -------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 05/31/96
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
TABLE A (continued)
- -------------------------------------------------------------------------------------------------------------------------
Date
($30.00 Maintenance Fee) Standardized Contributions
First
Received
Under
Separate
Account
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Five Years Ten Years Since Inception*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Portfolio Partners MFS Emerging
Equities Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap
Portfolio/PPI MFS Emerging
Equities Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation Portfolio/PPI -MFS
Research Growth Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value
Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth
Portfolio/PPI-MFS Value Equity
Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder
International Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares/PPI-Scudder
International Growth Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price
Growth Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Growth
Portfolio/PPI-T. Rowe Price
Growth Equity Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included and methodology used in the Standardized and Non-Standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
Fund under the Separate Account.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the fund for the 7-day period ended December 31, 1997
was _____% on a standardized basis.
(3) The fund first listed was replaced with the applicable PPI Portfolio after
the close of business on November 26, 1997. The performance shown is based
on the performance of the replaced fund until November 26, 1997, and the
performance of the applicable PPI Portfolio after that date. The replaced
fund may not have been available under all Contracts. The "Date
Contributions First Received Under Separate Account" refers to the
applicable date for the replaced fund.
-7-
<PAGE>
<TABLE>
<CAPTION>
TABLE A (continued)
- -------------------------------------------------------------------------------------------------------------------------
FUND
($30.00 Maintenance Fee) Non-Standardized INCEPTION
DATE
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Three Years Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1) 05/15/73
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP 04/03/89
- -------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity 12/13/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP (1)(2) 08/01/75
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income (1) 05/01/75
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 12/13/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap 09/16/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 12/27/96
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 10/09/86
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 10/09/86
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income 09/19/85
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 09/06/89
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 01/03/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 08/27/92
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 02/13/87
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive 09/13/93
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible 09/13/93
Income Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide 09/13/93
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 01/03/95
- -------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 06/14/94
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
TABLE A (continued)
- -------------------------------------------------------------------------------------------------------------------------
FUND
($30.00 Maintenance Fee) Non-Standardized INCEPTION
DATE
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Three Years Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Capital 09/15/86
Appreciation Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities 11/12/90
Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 09/06/95
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/03/93
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging 11/28/97
Equities Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap 09/21/88
Portfolio/PPI MFS Emerging
Equities Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research 11/28/97
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
American Century VP Capital 11/20/87
Appreciation Portfolio/PPI -MFS
Research Growth Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value 11/28/97
Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth 09/10/84
Portfolio/PPI-MFS Value Equity
Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder 11/28/97
International Growth
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio 05/01/87
Class A Shares/PPI-Scudder
International Growth Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe 11/28/97
Price Growth Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Growth 01/09/89
Portfolio/PPI-T. Rowe Price
Growth Equity Portfolio (3)
- -------------------------------------------------------------------------------------------------------------------------
</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.
** Reflects performance from the Fund's inception date.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the fund for the 7-day period ended December 31,
1997 was _____% on a standardized basis.
(3) The fund first listed was replaced with the applicable PPI Portfolio after
the close of business on November 26, 1997. The performance shown is
based on the performance of the replaced fund until November 26, 1997, and
the performance of the applicable PPI Portfolio after that date. The
replaced fund may not have been available under all Contracts. The "Funds
Inception Date" refers to the applicable date for the replaced fund.
-9-
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Contracts or Certificates Issued in New York
- -------------------------------------------------------------------------------------------------------------------------
Date
($30.00 Maintenance Fee) Standardized Contributions
First Received
Under Separate
Account
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Three Years Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP 04/03/89
- -------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 08/31/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP (1)(2) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income (1) N/A
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap 10/31/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Federated Equity Income Fund II 02/28/97
- -------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II(3) 11/30/94
- -------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 09/30/94
- -------------------------------------------------------------------------------------------------------------------------
Federated American Leaders 09/30/94
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated Fund for US Gov't 09/30/94
Securities II
- -------------------------------------------------------------------------------------------------------------------------
Federated Growth Strategies 10/02/95
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond 09/30/94
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated International 05/31/95
Equity Fund II
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 12/30/94
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 12/30/94
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income 06/30/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 01/31/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 06/30/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 06/30/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas 01/31/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive 10/31/94
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced 01/31/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible 10/31/94
Income Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth 07/29/94
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide 04/28/95
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 05/31/96
- -------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 05/31/96
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
TABLE B (continued)
- -------------------------------------------------------------------------------------------------------------------------
Date
($30.00 Maintenance Fee) Standardized Contributions
First Received
Under Separate
Account
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Three Years Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Capital Appreciation 05/30/97
Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities 05/30/97
Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/30/97
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging
Equities Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap
Portfolio/PPI MFS Emerging
Equities Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation Protfolio/PPI-MFS
Research Growth Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value
Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman AMT Growth
Portfolio/PPI-MFS Value Equity
Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder
International Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares/PPI-Scudder
International Growth Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe Price
Growth Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Growth
Portfolio/PPI-T. Rowe Price
Growth Equity Portfoli (4)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included and methodology used in the Standardized and Non-Standardized
figures. These figures represent historical performance and should not be
considered a projection of future performance.
* Reflects performance from the date contributions were first received in the
Fund under the Separate Account.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the fund for the 7-day period ended December 31, 1997
was _____% on a standardized basis.
(3) The current yield for the Fund for the 7-day period ended December 31, 1997
was _____% on a standardized basis.
(4) The fund first listed was replaced with the applicable PPI Portfolio after
the close of business on November 26, 1997. The performance shown is based
on the performance of the replaced fund until November 26, 1997, and the
performance of the applicable PPI Portfolio after that date. The replaced
fund may not have been available under all Contracts. The "Date
Contributions First Received Under Separate Account" refers to the
applicable date for the replaced fund.
-11-
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Contracts or Certificates Issued in New York
- -------------------------------------------------------------------------------------------------------------------------
FUND
($30.00 Maintenance Fee) Non-Standardized INCEPTION
DATE
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (1) 05/15/73
- -------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP 04/03/89
- -------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 07/05/95
- -------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity 12/13/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 08/01/75
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income (1) 05/01/75
- -------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 12/13/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap 09/16/96
- -------------------------------------------------------------------------------------------------------------------------
Aetna Small Company 12/27/96
- -------------------------------------------------------------------------------------------------------------------------
Federated Equity Income Fund II 01/02/97
- -------------------------------------------------------------------------------------------------------------------------
Federated Prime Money Fund II (3) 11/18/94
- -------------------------------------------------------------------------------------------------------------------------
Federated Utility Fund II 02/10/94
- -------------------------------------------------------------------------------------------------------------------------
Federated American Leaders 02/10/94
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated Fund for US Gov't 03/28/94
Securities II
- -------------------------------------------------------------------------------------------------------------------------
Federated Growth Strategies 10/02/95
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond 03/01/94
Fund II
- -------------------------------------------------------------------------------------------------------------------------
Federated International 05/08/95
Equity Fund II
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 10/09/86
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 10/09/86
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income 09/19/85
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 09/06/89
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 01/03/95
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 08/27/92
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas 02/13/87
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Aggressive 09/13/93
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Balanced 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Flexible 09/13/93
Income Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Growth 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Worldwide 09/13/93
Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Contracts or Certificates Issued in New York
- -------------------------------------------------------------------------------------------------------------------------
FUND
($30.00 Maintenance Fee) Non-Standardized INCEPTION
DATE
- -------------------------------------------------------------------------------------------------------------------------
Subaccount One Year Five Years Ten Years Since Inception**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS Total Return Series 01/03/95
- -------------------------------------------------------------------------------------------------------------------------
MFS World Governments Series 06/14/94
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Capital 09/15/86
Appreciation Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities 11/12/90
Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income 09/06/95
Fund
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/03/93
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS 11/28/97
Emerging Equities Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap 09/21/88
Portfolio/PPI MFS Emerging
Equities Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS 11/28/97
Research Growth Portfolio
- -------------------------------------------------------------------------------------------------------------------------
American Century VP Capital 11/20/87
Appreciation Portfolio/PPI-MFS
Research Growth Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value 11/28/97
Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Neuberger&Berman AMT Growth 09/10/84
Portfolio/PPI-MFS Value Equity
Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder 11/28/97
International Growth
Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Scudder International 05/01/87
Portfolio Class A
Shares/PPI-Scudder
International Growth Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners T. Rowe 11/28/97
Price Growth Equity Portfolio
- -------------------------------------------------------------------------------------------------------------------------
Alger American Growth 01/09/89
Portfolio/PPI-T. Rowe Price
Growth Equity Portfolio (4)
- -------------------------------------------------------------------------------------------------------------------------
</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.
** Reflects performance from the Fund's inception date.
(1) These Funds have been available through the Separate Account for more than
ten years.
(2) The current yield for the fund for the 7-day period ended December 31, 1997
was _____% on a standardized basis.
(3) The current yield for the Fund for the 7-day period ended December 31, 1997
was _____% on a non-standardized basis.
(4) The fund first listed was replaced with the applicable PPI Portfolio after
the close of business on November 26, 1997. The performance shown is based
on the performance of the replaced fund until November 26, 1997, and the
performance of the applicable PPI Portfolio after that date. The replaced
fund may not have been available under all Contracts. The "Fund Inception
Date" refers to the applicable date for the replaced fund.
-13-
<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.
-14-
<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 categorize the underlying Funds in terms of the
asset classes they represent and use categories in marketing materials for the
Contracts. 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.
-15-
<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, 1997
- Statements of Operations and Changes in Net Assets for the years
ended December 31, 1997 and 1996
- 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, 1997, 1996 and 1995
- Consolidated Balance Sheets as of December 31, 1997 and 1996
- Consolidated Statements of Changes in Shareholder's Equity for
the years ended December 31, 1997, 1996 and 1995
- Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
- Notes to Consolidated Financial Statements
*To be filed by amendment
(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) Selling Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(3.3) Federated Broker Dealer Agreement (9/2/94)(4)
(4.1) Variable Annuity Contract G-CDA-97(NY)(5)
(4.2) Variable Annuity Contract Certificate GMCC-97(NY) to Contract
G-CDA-97(NY)(5)
(4.3) Variable Annuity Contract G-MP1(5/97)(6)
(4.4) Variable Annuity Contract Certificate MP1CERT(5/97)(6)
(4.5) Variable Annuity Contract I-MP1(5/97)(6)
(4.6) Variable Annuity Contract G-MP1(5/96)(7)
(4.7) Variable Annuity Contract Certificate MP1CERT(5/96)(7)
<PAGE>
(4.8) Variable Annuity Contract I-MP1(5/96)(7)
(4.9) Variable Annuity Contract G-CDA-96(NY)(7)
(4.10) Variable Annuity Contract Certificate GMCC-96(NY)(7)
(4.11) 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)(8)
(4.12) Variable Annuity Contracts and Certificates G-CDA-IC(IR/NY),
GMCC-IC(IR/NY), G-CDA-IC(NQ/NY), and GMCC-IC(NQ/NY)(9)
(4.13) Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.14) Endorsements MP1QP(5/97) and I-MP1QP(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.15) Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.16) Endorsements MP1DC(5/97) and I-MP1DC(5/97) to Contract
G-MP1(5/96) and Certificate MP1CERT(5/96)(7)
(4.17) Endorsement G-MP1IRA(11/96) to Contract G-CDA-96(NY) and
Certificate GMCC-96(NY)(7)
(4.18) Endorsement I-MP1END(9/97) to Contract I-MP1(5/96)(6)
(4.19) Endorsement E1-MPROTH-97 to Contract G-MP1(5/97)(5)
(4.20) Endorsement EI1MPROTH-97 to Contract I-MP1(5/97)(5)
(4.21) Endorsement MP1IRA(11/97) to Contract G-MP1(5/97)(5)
(4.22) Endorsement I-MP1IRA(11/97) to Contract I-MP1(5/97)(5)
(4.23) Endorsement MP1END(9/97) to Contract G-MP1(5/97)
and Certificate MP1CERT(5/97)(10)
(4.24) Endorsement I-MP1END(9/97) to Contract I-MP1(5/97)(10)
(4.25) Endorsement MPNQEND(4/95) to Contract G-CDA-IC (NQ)
(4.26) Endorsement MPIREND(4/95) to Contract G-CDA-IC (IR)
(4.27) Endorsement IMPNQEND(4/95) to Contract I-CDA-IC (NQ/MP)
(4.28) Endorsement IMPIREND(4/95) to Contract I-CDA-IC (IR/MP)
(4.29) Endorsement MPNQCERTEND(4/95) to Certificate GMCC-IC (NQ)
(4.30) Endorsement MPIRCERTEND(4/95) to Certificate GMCC-IC (IR)
(4.31) Contract Schedule I Accumulation Period (G-MP1(11/97)-5) to
Group Contract (G-MP1(5/97))(5)
(4.32) Contract Schedule I Accumulation Period (I-MP1(11/97)-5) to
Individual Contract (I-MP1(5/97))(5)
(5.1) Variable Annuity Contract Application MPAPPNY(1/96)(5)
(5.2) Variable Annuity Contract Application (300-MAR-IB)(11)
(5.3) Variable Annuity Contract Application (710.6.13)(11)
(6.1) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company(12)
<PAGE>
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(13)
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance
and Annuity Company(14)
(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 among Calvert Responsibly
Invested Balanced Portfolio, Calvert Asset Management Company,
Inc. and Aetna Life Insurance and Annuity Company dated
December 1, 1997(15)
(8.3) Service Agreement between Calvert Asset Management Company,
Inc. and Aetna Life Insurance and Annuity Company dated
December 1, 1997(15)
(8.4) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company, Insurance Management Series and Federated
Advisors dated July 1, 1994(16)
(8.5) Fund Participation Agreement 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(13)
(8.6) Fifth Amendment, dated as of May 1, 1997, to the Fund
Participation Agreement 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(6)
(8.7) Sixth Amendment dated November 6, 1997 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated February 1, 1994 and
<PAGE>
amended on December 15, 1994, February 1, 1995, May 1, 1995,
January 1, 1996, March 1, 1996 and May 1, 1997(17)
(8.8) 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(13)
(8.9) Fifth Amendment, dated as of May 1, 1997, to the 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(6)
(8.10) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(18)
(8.11) Amendment dated January 1, 1997 to Service Agreement between
Aetna Life Insurance and Annuity Company and Fidelity
Investments Institutional Operations Company dated as of
November 1, 1995(6)
(8.12) Fund Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(19)
(8.13) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(19)
(8.14) 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)
(8.15) 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)
(8.16) Fund Participation Agreement among MFS Variable Insurance
Trust, Aetna Life Insurance and Annuity Company and
Massachusetts Financial Services Company(7)
(8.17) 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(20)
(8.18) 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(16)
(8.19) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Oppenheimer Variable Annuity Account Funds
and Oppenheimer Funds, Inc. dated March 11, 1997(16)
(8.20) Service Agreement between Oppenheimer Funds, Inc. and Aetna
Life Insurance and Annuity Company dated March 11, 1997(16)
(8.21) 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)
(8.22) Administrative Service Agreement between Aetna Life Insurance
and Annuity Company and Agency, Inc.(2)
(9) Opinion and Consent of Counsel*
(10) Consent of Independent Auditors*
(11) Not applicable
<PAGE>
(12) Not applicable
(13) Schedule for Computation of Performance Data(20)
(14) Not applicable
(15.1) Powers of Attorney(21)
(15.2) Authorization for Signatures(3)
* To be filed by Amendment
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 (Accession No. 0000950146-96-000563).
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 (Accession No. 0000912057-96-006805).
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 (Accession No. 0000912057-96-006383).
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 (Accession No. 0000950109-95-003265).
5. Incorporated by reference to Post-Effective Amendment No. 32 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on December 16, 1997 (Accession No. 0000950146-97-001918).
6. Incorporated by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on September 29, 1997 (Accession No. 0000950146-97-001485).
7. 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 (Accession No. 0000950146-97-000226).
8. 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.
9. 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 19, 1995 (Accession No. 0000950109-95-003821).
10. Incorporated by reference to Post-Effective Amendment No. 33 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on February 12, 1998 (Accession No. 0000950146-98-000194).
11. Incorporated by reference to Post-Effective Amendment No. 29 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on August 18, 1997 (Accession No. 0000950146-97-001290).
12. 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 (Accession No. 0000950146-96-000534).
<PAGE>
13. 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 (Accession No. 0000950146-97-000159).
14. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-91846), as filed
electronically on October 30, 1997 (Accession No. 0000950146-97-001589).
15. Incorporated by reference to Post-Effective Amendment No. 8 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
February 19, 1998 (Accession No. 0000950146-98-000248).
16. Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement on Form N-4 (File No. 33-34370), as filed
electronically on April 16, 1997 (Accession No. 0000950146-97-000617).
17. Incorporated by reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 9, 1998 (Accession No. 0000950146-98-000179).
18. 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 (Accession No. 0000928389-96-000136).
19. Incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (File No. 33-75992), as filed
electronically on December 31, 1997 (Accession No. 0000950146-97-001982).
20. 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 (Accession No. 0000912057-96-020393).
21. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form S-6 (File No. 333-27337), as filed electronically on
December 9, 1996 (Accession No. 0000950146-97-001872).
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
Thomas J. McInerney Director and President
Timothy A. Holt Director, Senior Vice President and
Chief Financial Officer
J. Scott Fox Director and Senior Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Senior Vice President
Thomas P. Waldron Director
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 Corporate 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.
16 to the Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 9, 1998 (Accession No. 0000950146-98-000179).
Item 27. Number of Contract Owners
As of December 31, 1997, there were 61,284 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,
<PAGE>
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 investment adviser, only, for Aetna Series Fund, Inc., and
the principal underwriter and investment adviser for Portfolio
Partners, Inc., Aetna Variable Encore Fund, Aetna Variable Fund, 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)). Effective May 1, 1998,
Aetna will no longer be the investment adviser for Aetna Series Fund,
Inc., Aetna Variable Encore Fund, Aetna Variable Fund, Aetna Generation
Portfolios, Inc., Aetna Income Shares, Aetna Investment Advisers Fund,
Inc., Aetna GET Fund, and Aetna Variable Portfolios, Inc. 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 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.
<PAGE>
(c) Compensation as of December 31, 1997*:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
Aetna Life $ $
Insurance and
Annuity
Company
* To be filed by amendment.
** 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;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
<PAGE>
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) The Company hereby represents that it 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 has duly caused this Post-Effective Amendment 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 27th day of February, 1998.
VARIABLE ANNUITY ACCOUNT B OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Depositor)
By: Thomas J. McInerney*
----------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 34 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
Thomas J. McInerney* Director and President )
- ------------------------------------ (principal executive officer) )
Thomas J. McInerney
)
Timothy A. Holt* Director, Senior Vice President and Chief )
- ----------------------------------- Financial Officer )
Timothy A. Holt
February 27,
J. Scott Fox* Director ) 1998
- ------------------------------------
J. Scott Fox )
)
John Y. Kim* Director )
- ------------------------------------
John Y. Kim )
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Shaun P. Mathews* Director )
- ------------------------------------
Shaun P. Mathews )
)
Thomas P. Waldron* Director )
- ------------------------------------
Thomas P. Waldron )
)
Deborah Koltenuk* Vice President and Treasurer, Corporate Controller )
- ------------------------------------
Deborah Koltenuk )
By: /s/ Julie E. Rockmore
------------------------------------------
Julie E. Rockmor
e
*Attorney-in-Fact
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
<S> <C> <C>
Exhibit No. Exhibit Page
99-B.1 Resolution of the Board of Directors of Aetna Life Insurance and Annuity *
Company establishing Variable Annuity Account B
99-B.3.1 Selling Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and Related Selling Agreement *
99-B.3.3 Federated Broker Dealer Agreement (9/2/94) *
99-B.4.1 Variable Annuity Contract G-CDA-97(NY) *
99-B.4.2 Variable Annuity Contract Certificate GMCC-97(NY) to Contract G-CDA-97(NY) *
99-B.4.3 Variable Annuity Contract G-MP1(5/97) *
99-B.4.4 Variable Annuity Contract Certificate MP1CERT(5/97) *
99-B.4.5 Variable Annuity Contract I-MP1(5/97) *
99-B.4.6 Variable Annuity Contract G-MP1(5/96) *
99-B.4.7 Variable Annuity Contract Certificate MP1CERT(5/96) *
99-B.4.8 Variable Annuity Contract I-MP1(5/96) *
99-B.4.9 Variable Annuity Contract G-CDA-96(NY) *
99-B.4.10 Variable Annuity Contract Certificate GMCC-96(NY) *
99-B.4.11 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)
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.4.12 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.4.13 Endorsements MP1IRA(5/97) and I-MP1IRA(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.14 Endorsements MP1QP(5/97) and I-MP1QP(5/97) to Contract *
G-MP1(5/96) and Certificate MP1CERT(5/96)
99-B.4.15 Endorsements MP1TDA(5/97) and I-MP1TDA(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.16 Endorsements MP1DC(5/97) and I-MP1DC(5/97) to Contract G-MP1(5/96) and *
Certificate MP1CERT(5/96)
99-B.4.17 Endorsement G-MP1IRA(11/96)) to Contract *
G-CDA-96(NY) and Certificate GMCC-96(NY)
99-B.4.18 Endorsement I-MP1END(9/97) to Contract I-MP1(5/96) *
99-B.4.19 Endorsement E1-MPROTH-97 to Contract G-MP1(5/97) *
99-B.4.20 Endorsement EI1MPROTH-97 to Contract I-MP1(5/97) *
99-B.4.21 Endorsement MP1IRA(11/97) to Contract G-MP1(5/97) *
99-B.4.22 Endorsement I-MP1IRA(11/97) to Contract I-MP1(5/97) *
99-B.4.23 Endorsement MP1END(9/97) to Contract G-MP1(5/97) and Certificate *
MP1CERT(5/97)
99-B.4.24 Endorsement I-MP1END(9/97) to Contract I-MP1(5/97) *
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.4.25 Endorsement MPNQEND(4/95) to Contract G-CDA-IC (NQ)
-----------------
99-B.4.26 Endorsement MPIREND(4/95) to Contract G-CDA-IC (IR)
-----------------
99-B.4.27 Endorsement IMPNQEND(4/95) to Contract I-CDA-IC (NQ/MP)
-----------------
99.B.4.28 Endorsement IMPIREND(4/95) to Contract I-CDA-IC (IR/MP)
-----------------
99-B.4.29 Endorsement MPNQCERTEND(4/95) to Certificate GMCC-IC (NQ)
-----------------
99-B.4.30 Endorsement MPIRCERTEND(4/95) to Certificate GMCC-IC (IR)
-----------------
99-B.4.31 Contract Schedule I Accumulation Period (G-MP1(11/97)-5) to Group Contract *
(G-MP1(5/97))
99-B.4.32 Contract Schedule I Accumulation Period (I-MP1(11/97)-5) to Individual *
Contract (I-MP1(5/97))
99-B.5.1 Variable Annuity Contract Application MPAPPNY(1/96) *
99-B.5.2 Variable Annuity Contract Application (300-MAR-IB) *
99-B.5.3 Variable Annuity Contract Application (710.6.13) *
99-B.6.1 Certificate of Incorporation of Aetna Life Insurance and Annuity Company *
99-B.6.2 Amendment of Certificate of Incorporation of Aetna Life Insurance and *
Annuity Company
99-B.6.3 By-Laws as amended September 17, 1997 of Aetna Life Insurance and Annuity *
Company
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 as of March 31, 1995
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.2 Fund Participation Agreement among Calvert Responsibly Invested
Balanced Portfolio, Calvert Asset Management Company, Inc. and
Aetna Life Insurance and Annuity Company dated December 1, 1997 *
99-B.8.3 Service Agreement between Calvert Asset Management Company, Inc.
and Aetna Life Insurance and Annuity Company dated December 1,
1997 *
99-B.8.4 Fund Participation Agreement by and among Aetna Life Insurance and Annuity *
Company, Insurance Management Series and Federated Advisors dated
July 1, 1994
99-B.8.5 Fund Participation Agreement 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
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.6 Fifth Amendment, dated as of May 1, 1997, to the Fund *
Participation Agreement 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.8.7 Sixth Amendment dated November 6, 1997 to the Fund Participation *
Agreement 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, March 1,
1996 and May 1, 1997
99-B.8.8 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.8.9 Fifth Amendment, dated as of May 1, 1997, to the 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-8.10 Service Agreement between Aetna Life Insurance and Annuity Company and *
Fidelity Investments Institutional Operations Company dated as of
November 1, 1995
99-B.8.11 Amendment dated January 1, 1997 to Service Agreement between Aetna Life *
Insurance and Annuity Company and Fidelity Investments Institutional
Operations Company dated as of November 1, 1995
99-B.8.12 Fund Participation Agreement among Janus Aspen Series and Aetna Life *
Insurance and Annuity Company and Janus Capital Corporation dated December
8, 1997
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.13 Service Agreement between Janus Capital Corporation and Aetna Life Insurance *
and Annuity Company dated December 8, 1997
99-B.8.14 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.8.15 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.8.16 Fund Participation Agreement among MFS Variable Insurance Trust,
Aetna Life Insurance and Annuity Company and Massachusetts
Financial Services Company *
99-B.8.17 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.8.18 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.8.19 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Oppenheimer Variable Annuity Account Funds and Oppenheimer
Funds, Inc. dated March 11, 1997
99-B.8.20 Service Agreement between Oppenheimer Funds, Inc. and Aetna Life Insurance *
and Annuity Company dated March 11, 1997
99-B.8.21 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Investors Research Corporation and TCI Portfolios, Inc. dated July
29, 1992 and amended December 22, 1992 and June 1, 1994
99-B.8.22 Administrative Service Agreement between Aetna Life Insurance and Annuity *
Company and Agency, Inc.
99-B.9 Opinion and Consent of Counsel **
99-B.10 Consent of Independent Auditors **
99-B.13 Schedule for Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
* Incorporated by reference
** To be filed by amendment
</TABLE>
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
Add the following to Section I, General Definitions:
Dollar Cost Averaging - A program that permits the Certificate Holder to
systematically transfer amounts from any of the Funds and the one-year MG
Account Guaranteed Term to any of the Funds by completing the appropriate
section of the enrollment form or a Dollar Cost Averaging election form.
Delete Section 1.06, Beneficiary, and replace it with the following:
1.06 Beneficiary - The individual or estate entitled to receive any
payment from the Account upon the death of the Annuitant, or if
the Certificate Holder is different from the Annuitant, upon the
death of the Certificate Holder. 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.
Delete Section 1.07, Certificate Holder, and replace it with the following:
1.07 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. Joint Certificate
Holders have joint ownership rights and both must authorize
exercising any ownership rights unless Aetna allows otherwise. If
the Account is owned by a nonnatural person, the death benefit
will be paid at the death of the Annuitant.
Delete Section 1.21, Market Value Adjustment, and replace it with the following.
1.21 Market Value Adjustment - An adjustment that may apply to an
amount withdrawn or transferred from an MG 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
MPNQEND(4/95)
<PAGE>
formula given in 3.06. The adjustment is expressed as a percentage
of each dollar withdrawn or transferred.
Delete Section 2.04, Payments and Elections, and replace it with the following:
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 remaining 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.
Delete Section 2.06, Control of Contract, and replace it with the following:
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 Certificate Holder
choices allowed under this Contract. Certificate Holder choices
made under this Contract must be in writing. If the Account is
owned jointly both joint 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 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.
Delete Section 2.07, Designation of Beneficiary, and replace it with the
following:
2.07 Designation of Beneficiary - Each Certificate Holder shall name
his or her 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
2
<PAGE>
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.
Delete the first two paragraphs of Section 3.06, Market Value Adjustment, and
replace them with the following:
3.06 Market Value Adjustment - Except as noted below, an MVA will apply
to a withdrawal from the MG Account before the end of a Guaranteed
Term when the withdrawal is:
(a) A Transfer; except for Transfers from the one-year MG Account
Guaranteed Term under the Dollar Cost Averaging program or, as
specified in 1.23, MG Account 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 (see 3.10); or
(c) An election of Annuity option 2 (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 MG Account.
Delete Section 3.07, Transfer of Current Value from the Funds or MG Account, and
replace them with the following:
3.07 Transfer of Current Value from the Funds or MG Account - 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 Guaranteed Term of the MG Account:
(a) To any other Fund; or
(b) To an Guaranteed Term of the MG Account available in the
current Deposit Period.
Transfer requests can be submitted as a percentage or as a dollar
amount. Aetna may establish a minimum transfer amount. Within a
Guaranteed Term Group, the amount to be surrendered to transferred
will be withdrawn first from the oldest Deposit Period, then from
the next oldest, and so on until the amount requested is
satisfied.
3
<PAGE>
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 MG Account under the Dollar Cost
Averaging program, or amounts transferred as a Matured Term Value
on or within one calendar month of the Term's Maturity Date, do
not count against the annual Transfer limit.
Amounts applied to Guaranteed Terms of the MG 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) a Matured Term Value(s) during the calendar
month following the Term's Maturity Date and (2) amounts
transferred from the one-year MG Account Guaranteed Term under the
Dollar Cost Averaging program.
Delete the first paragraph in Section 3.10, Systematic Withdrawal Option (SWO),
and replace it with the following:
3.10 Systematic Withdrawal Option (SWO) - A distribution option under
which a portion of the Account's Current Value will be
automatically 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 advisor prior to requesting this distribution option. Aetna
will not be responsible for any adverse tax consequences due to
receiving SWO payments.
Delete Section 3.11, Death Benefit Amount, and replace it with the following:
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 less than 75 years of age: The guaranteed
death benefit is the greatest of:
(1) The sum of all Net 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;
4
<PAGE>
(2) The highest step-up value as of the date of death. 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 in the Account and allocated to
the 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 Annuitant age 75 or greater: The death benefit amount
is the greatest of:
(1) The sum of all Net 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 prior to the Certificate
Holder'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 in the Account and allocated to
the 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.
(c) Death of 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).
(d) At the death of a surviving spouse Beneficiary who continued
the Account in his or her own name, the death benefit amount
is equal to the Account's Current
5
<PAGE>
Value less any applicable Surrender Fee on the amount of any
Purchase Payment(s) made since the death of the Certificate
Holder.
Delete Section 3.12, Death Benefit Options available to Beneficiary, and replace
it with the following:
3.12 Death Benefit Options available to Beneficiary - Prior to any
election, or until amounts must be otherwise distributed under
this section, the Account's Current Value will be retained in the
Account. The Beneficiary has the right to allocate or reallocate
any amount to any available investment option (subject to an MVA
if applicable). The following options are available to the
Beneficiary:
(a) When the Certificate Holder is the Annuitant: If the
Certificate Holder/Annuitant dies, and:
(1) If the Beneficiary is the Certificate Holder's surviving
spouse, the Beneficiary may exercise all Certificate
Holder rights under the Contract and continue in the
Accumulation Period, or may elect (i), (ii), or (iii)
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, 3 or 4 (see 4.07);
(ii) Apply some or all of the Adjusted Current Value to
Annuity option 1 (see 4.07); or
(iii) Receive, at any time, a lump sum payment equal to
the Account's Adjusted Current Value.
(2) If the Beneficiary is other than the Certificate Holder's
surviving spouse, then options (i), (ii), or (iii) under
(1) above apply. Any portion of the Adjusted Current Value
not applied to Annuity option 2, 3, or 4 within one year
of the Certificate Holder's 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 will be made to the Certificate
Holder's estate.
(b) When the Certificate Holder is not the Annuitant and the
Certificate Holder dies, and:
(1) If the Beneficiary is the Certificate Holder's surviving
spouse, the Beneficiary may exercise all Certificate
Holder rights under the Contract and continue in
6
<PAGE>
the Accumulation Period, or may elect (i), (ii), or (iii)
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, 3 or 4 (see 4.07);
(ii) Apply some or all of the Surrender Value to Annuity
option 1 (see 4.07); or
(iii) Receive, at any time, a lump sum payment equal to
the Account's Surrender Value.
(2) If the Beneficiary is other than the Certificate Holder's
surviving spouse, then options (i), (ii), or (iii) under
(1) above apply. Any portion of the Adjusted Current Value
not applied to Annuity Option 2, 3, or 4 within one year
of the Certificate Holder's death, must be distributed
within five years of the date of death.
(3) If no Beneficiary exists, a lump sum payment equal to the
Surrender Value will be made to the Certificate Holder's
estate.
(c) When the Certificate Holder is not the Annuitant and the
Annuitant dies: The Beneficiary must elect Annuity option 2,
3, or 4 within 60 days of the date of death or the gain, if
any, will be includable in the Beneficiary's income in the tax
year in which the Annuitant dies.
Delete Section 3.13, Liquidation of Surrender Value, and replace it with the
following:
3.13 Liquidation of Surrender Value - All or any portion of the
Account's Current Value may be surrendered at any time. Surrender
requests can be submitted as a percentage of the Account's Current
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 MG 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 MWA may apply to amounts surrendered from the MG
Account.
7
<PAGE>
Delete subsection (a) of Section 4.03, Death of Annuitant/Beneficiary, and
replace it with the following:
4.03 Death of Annuitant/Beneficiary: (a) Certificate Holder is
Annuitant: When the Certificate Holder is the Annuitant and the
Annuitant dies under option 2 or 3, or both the Annuitant and the
second Annuitant die under option 4(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 payments
remaining will continue to the Beneficiary. If option 4 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 Holders, the surviving
joint Certificate Holder will be deemed the successor payee.
Delete the first paragraph of subsection (b) of Section 4.03, Death of
Annuitant/Beneficiary, and replace it with the following:
(b) Certificate Holder is Not Annuitant: When the Certificate Holder
is not the Annuitant and the Certificate Holder dies, the
remaining payments under options 2, 3 or 4 will continue to the
successor payee. If no successor payees has been designated, the
Beneficiary will be treated as the successor payee. If the Account
has joint Certificate Holders, the surviving joint Certificate
Holder will be deemed the successor payee.
Endorsed and made part of the Certificate on the Effective Date of the Contract.
/s/ Dan Kearney
President
Aetna Life Insurance and Annuity Company
8
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
Add the following to Section I General Definitions:
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 by completing
the appropriate section of the enrollment form or a Dollar Cost
Averaging election form.
Delete Section 1.21, Market Value Adjustment, and replace it with the following.
1.21 Market Value Adjustment - An adjustment that may apply to an
amount 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 withdrawn or
transferred.
Delete the first two paragraphs of Section 3.06, Market Value Adjustment, and
replace it with the following:
3.06 Market Value Adjustment - Except as noted below, there will be
an MVA for a withdrawal from the AG Account before the end of
a Guaranteed Term when the withdrawal is due to:
(a) A Transfer; except for Transfers from the one-year AG
Account Guaranteed Term under the Dollar Cost
Averaging program or, as specified in AG Account
Matured Term Value Transfer;
(b) A full or partial surrender (including a 10% free
withdrawal under 3.16), except for a partial
withdrawal under the Systematic Withdrawal Option
(see 3.11); or
(c) An election of Annuity option 2 (see 4.09).
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.
MPIREND(4/95)
<PAGE>
Delete 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 -
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 Guaranteed Term of the AG
Account:
(a) To any other Fund; or
(b) To a Guaranteed Term of the AG Account available in
the current Deposit Period.
Transfer requests can be submitted as a percentage or as a
dollar amount. Aetna may establish a minimum transfer amount.
Within a Guaranteed Term Group, the amount to be surrendered
to 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 the 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) a Matured Term Value(s)
during the calendar month following the Term's Maturity Date
and (2) amounts transferred from the one-year AG Account
Guaranteed Term under the Dollar Cost Averaging program.
Delete the first paragraph in Subsection 3.11(a), Estate Conservation Option
(ECO), and replace it with the following:
(a) Estate Conservation Option (ECO) - A distribution option under
which a portion of the Account's Current Value will be
surrendered automatically and distributed each year. ECO
payments will be calculated based on the Account's full
Current Value. The distributed amount will be withdrawn pro
rata from each investment option used under the Account. A
Surrender Fee will not be deducted from any portion of the
Current Value which is paid as a distribution under ECO.
Certificate Holders should consult their tax advisor prior to
requesting this distribution option. Aetna will not be
responsible for any adverse tax consequences due to receiving
ECO payments.
Delete the first paragraph in Subsection 3.11(b), Systematic Withdrawal Option
(SWO), and replace it with the following:
2
<PAGE>
(b) Systematic Withdrawal Option (SWO) - A distribution option
under which a portion of the Account's Current Value will be
surrendered automatically and distributed each year. SWO
payments will be calculated based on the Account's full
Current Value. The distributed amount will be withdrawn pro
rata from each investment option used 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 advisor prior to
requesting this distribution option. Aetna will not be
responsible for any adverse tax consequences due to receiving
SWO payments.
Delete Section 3.12, Death Benefit Amount, and replace it with the following:
3.12 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. 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 Certificate Holder/Annuitant less than 75
years of age: The guaranteed death benefit is the
greatest of:
(1) The sum of all Net 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. 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 in the Account and allocated to the 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 Certificate Holder/Annuitant age 75 or
greater: The death benefit amount is the greatest of:
(1) The sum of all Net 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 prior to the
Certificate Holder's 75th birthday. A
step-up value is determined on each
anniversary of the Effective Date.
3
<PAGE>
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 in the Account and allocated to the 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.
(c) At the death of a surviving spouse Beneficiary who
continued the Account in his or her own name, the
death benefit amount is equal to the Account's
Current Value less any applicable Surrender Fee on
the amount of any Purchase Payment(s) made since the
death of the Certificate Holder.
Delete Section 3.15, Liquidation of Surrender Value, and replace it with the
following:
3.15 Liquidation of Surrender Value - All or any portion of the
Account's Current Value may be surrendered at any time.
Surrender requests can be submitted as a percentage of the
Account's Current 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 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.
Endorsed and made part of this Contract on the Effective Date of the Contract.
/s/ Dan Kearney
President
Aetna Life Insurance and Annuity Company
4
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
Add the following to Section I, General Definitions:
Dollar Cost Averaging - A program that permits the Contract Holder to
systematically transfer amounts from any of the Funds and the one-year
AG Account Guaranteed Term to any of the Funds by completing the
appropriate section of the enrollment form or a Dollar Cost Averaging
election form.
Delete Section 1.05, Beneficiary, and replace it with the following:
1.05 Beneficiary - The individual or estate entitled to receive any
payment from the Contract upon the death of the Annuitant, or
if the Contract Holder is different from the Annuitant, upon
the death of the Contract Holder. If the Contract is held by
joint Contract Holders, the survivor will be deemed the
designated Beneficiary and any other Beneficiary on record
will be treated as the contingent Beneficiary.
Delete Section 1.08, Contract Holder, and replace it with the following:
1.08 Contract Holder - A person who purchases an interest in this
Contract. Aetna reserves the right to limit ownership to
natural persons. If more than one Contract Holder owns an
Contract, each Contract Holder will be a joint Contract
Holder. Any joint Contract Holder must be the spouse of the
other joint Contract Holder. The Contract Holder has all
right, title and interest under the Contract. Joint Contract
Holders have joint ownership rights and both must authorize
exercising any ownership rights unless Aetna allows otherwise.
If the Contract is owned by a nonnatural person, the death
benefit will be paid at the death of the Annuitant.
Delete Section 1.19, Market Value Adjustment, and replace it with the following:
1.19 Market Value Adjustment - An adjustment that may apply to an
amount 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 withdrawn or
transferred.
Delete Section 2.04, Payments and Elections, and replace it with the following:
IMPNQEND(4/95)
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2.04 Payments and Elections - While the Contract Holder is living,
Aetna will pay the Contract Holder any Annuity payments as and
when due. After the Contract Holder's death, or at the death
of the first Contract Holder if the Contract is owned jointly,
any Annuity payments remaining 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 3.14.
Delete Section 2.06, Control of Contract, and replace it with the following:
2.06 Control of Contract - This is a Contract between the Contract
Holder and Aetna. The Contract Holder has all rights, title
and interest for amounts held in his or her Contract. Choices
made under this Contract must be made in writing. If the
Contract is jointly owned, both joint Contract Holders must
authorize any Contract 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, except to the extent permitted by law.
The Contract 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 under the Contract must be submitted to
Aetna's Home Office in writing and will not be effective until
accepted by Aetna.
Delete Section 2.07, Designation of Beneficiary, and replace it with the
following:
2.07 Designation of Beneficiary - Each Contract Holder shall name
his or her Beneficiary. If the Contract is owned jointly, both
joint Contract 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.
Delete the first two paragraphs of Section 3.05, Market Value Adjustment, and
replace them with the following:
3.05 Market Value Adjustment - Except as noted below, an MVA will
apply to a withdrawal from the AG Account before the end of a
Guaranteed Term when the withdrawal is due to:
(a) A Transfer; except for Transfers from the one-year AG
Account Guaranteed Term under the Dollar Cost
Averaging program or, as specified in AG Account
Matured Term Value Transfer;
(b) A full or partial surrender (including a 10% free
withdrawal under 3.13), except for a partial
withdrawal under the Systematic Withdrawal Option
(see 3.09); or
(c) An election of Annuity option 2 (see 4.07).
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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.
Delete Section 3.06, Transfer of Current Value from the Funds or AG Account, and
replace them with the following:
3.06 Transfer of Current Value from the Funds or AG Account -
Before an Annuity option is elected, all or any portion of the
Adjusted Current Value of the Contract Holder's Contract may
be transferred from any Fund or Guaranteed Term of the AG
Account:
(a) To any other Fund; or
(b) To a Guaranteed Term of the AG Account available in the
current Deposit Period.
Transfer requests can be submitted as a percentage or as a
dollar amount. Aetna may establish a minimum transfer amount.
Within a Guaranteed Term Group, the amount to be surrendered
to 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 Contract 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 the 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) a Matured Term Value(s)
during the calendar month following, the Term's Maturity Date
and (2) amounts transferred from the one-year AG Account
Guaranteed Term under the Dollar Cost Averaging program.
Delete the first paragraph in Section 3.09, Systematic Withdrawal Option (SWO),
and replace it with the following:
3.09 Systematic Withdrawal Option (SWO) - A distribution option
under which a portion of the Contract's Current Value will be
automatically surrendered and distributed each year. SWO
payments will be calculated on the Contract's full Current
Value. The
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distributed amount is withdrawn pro rata from each
investment option under the Contract. A Surrender Fee will not
be deducted from any portion of the Current Value which is
paid as a distribution under SWO. Contract Holders should
consult their tax advisor prior to requesting this
distribution option. Aetna will not be responsible for any
adverse tax consequences due to receiving SWO payments.
Delete Section 3.10, Death Benefit Amount, and replace it with the following:
3.10 Death Benefit Amount - If the Contract Holder or Annuitant
dies before Annuity payments start, the Beneficiary is
entitled to a death benefit under the Contract. If the
Contract is owned jointly, the death benefit is paid at the
death of the first joint Contract 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 less than 75 years of age: The
guaranteed death benefit is the greatest of:
(1) The sum of all Net Purchase Payment(s) made
to the Contract (as of the date of death)
minus the sum of all amounts surrendered,
applied to an Annuity, or deducted from the
Contract;
(2) The highest step-up value as of the date of
death. A step-up value is determined on each
anniversary of the Effective Date. Each
step-up value is calculated as the
Contract'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 Contract's Current Value as of the date of
death.
The excess, if any, of the guaranteed death benefit
value over the Contract's Current Value is determined
as of the date of death. Any excess amount will be
deposited in the Contract and allocated to the Aetna
Variable Encore Fund as of the claim date. The
Current Value on the claim date, plus any excess
amount deposited, becomes the Contract's Current
Value.
(b) Death of Annuitant age 75 or greater: The death benefit
amount is the greatest of:
(1) The sum of all Net Purchase Payment(s) made
to the Contract (as of the date of death)
minus the sum of all amounts surrendered,
applied to an Annuity, or deducted from the
Contract;
(2) The highest step-up value prior to the Contact
Holder's 75th birthday. A step-up value is determined
on each anniversary of the Effective Date. Each step-
up value is calculated as the Contract's Current
Value on the
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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 Contract's Current Value as of the date of death.
The excess, if any, of the guaranteed death benefit
value over the Contract's Current Value is determined
as of the date of death. Any excess amount will be
deposited in the Contract and allocated to the Aetna
Variable Encore Fund as of the claim date. The
Current Value on the claim date, plus any excess
amount deposited, becomes the Contract's Current
Value.
(c) Death of Contact Holder if the Contract Holder is not
the Annuitant: The death benefit amount is the
Contract's 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).
(d) At the death of a surviving spouse Beneficiary who
continued the Contract in his or her own name, the
death benefit amount is equal to the Contract's
Current Value less any applicable Surrender Fee on
the amount of any Purchase Payment(s) made since the
death of the Contract Holder.
Delete Section 3.11, Death Benefit Options available to Beneficiary, and replace
it with the following:
3.11 Death Benefit Options available to Beneficiary - Prior to any
election, or until amounts must be otherwise distributed under
this section, the Contract's Current Value will be retained in
the Contract. The Beneficiary has the right to allocate or
reallocate any amount to any available investment option
(subject to an MVA if applicable). The following options are
available to the Beneficiary:
(a) When the Contract Holder is the Annuitant: If the Contract
Holder/Annuitant dies, and:
(1) If the Beneficiary is the Contract Holder's
surviving spouse, the Beneficiary may exercise all
Contract Holder rights under the Contract and
continue in the Accumulation Period, or may elect
(i), (ii), or (iii) below. Under the Code,
distributions from the Contract 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, 3 or 4
(see 4.07);
(ii) Apply some or all of the Adjusted Current
Value to Annuity option 1 (see 4.07); or
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<PAGE>
(iii) Receive, at any time, a lump sum
payment equal to the Contract's
Adjusted Current Value.
(2) If the Beneficiary is other than the Contract
Holder's surviving spouse, then options (i), (ii), or
(iii) under (1) above apply. Any portion of the
Adjusted Current Value not applied to Annuity option
2, 3, or 4 within one year of the Contract Holder's
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 will be made to the
Contract Holder's estate.
(b) When the Contract Holder is not the Annuitant and the
Contract Holder dies, and:
(1) If the Beneficiary is the Contract Holder's
surviving spouse, the Beneficiary may exercise all
Contract Holder rights under the Contract and continue
in the Accumulation Period, or may elect (i), (ii), or
(iii) below.
Under the Code, distributions from the
Contract 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, 3 or 4 see 4.07);
(ii) Apply some or all of the Surrender
Value to Annuity option 1 (see 4.07); or
(iii) Receive, at any time, a lump sum payment equal
to the Contract's Surrender Value.
(2) If the Beneficiary is other than the Contract
Holder's surviving spouse, then options (i), (ii), or
(iii) under (1) above apply. Any portion of the
Adjusted Current Value not applied to Annuity Option
2, 3, or 4 within one year of the Contract Holder's
death, must be distributed within five years of the
date of death.
(3) If no Beneficiary exists, a lump sum payment equal to
the Surrender Value will be made to the Contract
Holder's estate.
(c) When the Contract Holder is not the Annuitant and the
Annuitant dies: The Beneficiary must elect Annuity
option 2, 3, or 4 within 60 days of the date of death
or the gain, if any, will be includable in the
Beneficiary's income in the tax year in which the
Annuitant dies.
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Delete Section 3.12, Liquidation of Surrender Value, and replace it with the
following:
3.12 Liquidation of Surrender Value - All or any portion of the
Contract's Current Value may be surrendered at any time.
Surrender requests can be submitted as a percentage of the
Current 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.
Delete subsection (a) of Section 4.03, Death of Annuitant/Beneficiary, and
replace it with the following:
4.03 Death of Annuitant/Beneficiary: (a) Contract Holder is
Annuitant: When the Contract Holder is the Annuitant and the
Annuitant dies under option 2 or 3, or both the Annuitant and
the second Annuitant die under option 4(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
payments remaining will continue to the Beneficiary. If option
4 has been elected and the Contract 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 Contract has joint Contract
Holders, the surviving joint Contract Holder will be deemed
the successor payee.
Delete the first paragraph of subsection (b) of Section 4.03, Death of
Annuitant/Beneficiary, and replace it with the following:
(b) Contract Holder is Not Annuitant: When the Contract Holder
is not the Annuitant and the Contract Holder dies, the
remaining payments under options 2, 3 or 4 will continue to
the successor payee. If no successor payees has been
designated, the Beneficiary will be treated as the successor
payee. If the Contract has joint Contract Holders, the
surviving joint Contract Holder will be deemed the successor
payee.
Endorsed and made part of the Contract on the Effective Date of the Contract.
/s/ Dan Kearney
President
AETNA LIFE INSURANCE AND ANNUITY COMPANY
7
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
Add the following to Section I General Definitions:
Dollar Cost Averaging - A program that permits the Contract Holder to
systematically transfer amounts from any of the Funds and the one-year
AG Account Guaranteed Term to any of the Funds by completing the
appropriate section of the enrollment form or a Dollar Cost Averaging
election form.
Delete Section 1.19, Market Value Adjustment, and replace it with the following:
1.19 Market Value Adjustment - An adjustment that may apply to an
amount 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 3.05. The adjustment is
expressed as a percentage of each dollar withdrawn or
transferred.
Delete the first two paragraphs of Section 3.05, Market Value Adjustment, and
replace it with the following:
3.05 Market Value Adjustment - Except as noted below, there will be
an MVA for a withdrawal from the AG Account before the end of
a Guaranteed Term when the withdrawal is due to:
(a) A Transfer; except for Transfers from the one-year AG
Account Guaranteed Term under the Dollar Cost
Averaging program or, as specified in AG Account
Matured Term Value Transfer;
(b) A full or partial surrender (including a 10% free
withdrawal under 3.15), except for a partial
withdrawal under the Systematic Withdrawal Option
(see 3.10); or
(c) An election of Annuity option 2 (see 4.09).
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
IMPIREND(4/95)
<PAGE>
(b) The applicable portion of the Current Value in the AG
Account.
Delete Section 3.06, Transfer of Current Value from the Funds or AG Account, and
replace it with the following:
3.06 Transfer of Current Value from the Funds or AG Account -
Before an Annuity option is elected, all or any portion of the
Adjusted Current Value of the Contract may be transferred from
any Fund or Guaranteed Term of the AG Account:
(a) To any other Fund; or
(b) To a Guaranteed Term of the AG Account available in the
current Deposit Period.
Transfer requests can be submitted as a percentage or as a
dollar amount. Aetna may establish a minimum transfer amount.
Within a Guaranteed Term Group, the amount to be surrendered
to 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 Contract 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 the 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) a Matured Term Value(s)
during the calendar month following the Term's Maturity Date
and (2) amounts transferred from the one-year AG Account
Guaranteed Term under the Dollar Cost Averaging program.
Delete the first paragraph in Subsection 3.10(a), Estate Conservation Option
(ECO), and replace it with the following:
(a) Estate Conservation Option (ECO) - A distribution Option under
which a portion of the Current Value will be surrendered
automatically and distributed each year. ECO payments will be
calculated based on the Contract's full Current Value. The
distributed amount will be withdrawn pro rata from each
investment option used under the Contract. A Surrender Fee
will not be deducted from any portion of the Current Value
which is paid as a distribution under ECO. Contract Holders
should consult their tax advisor prior to requesting this
distribution option. Aetna will not be responsible for any
adverse tax consequences due to receiving ECO payments.
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<PAGE>
Delete the first paragraph in Subsection 3.10(b), Systematic Withdrawal Option
(SWO), and replace it with the following:
(b) Systematic Withdrawal Option (SWO) - A distribution option
under which a portion of the Current Value will be surrendered
automatically and distributed each year. SWO payments will be
calculated based on the Contract's full Current Value. The
distributed amount will be withdrawn pro rata from each
investment option used under the Contract. A Surrender Fee
will not be deducted from any portion of the Current Value
which is paid as a distribution under SWO. Contract Holders
should consult their tax advisor prior to requesting this
distribution option. Aetna will not be responsible for any
adverse tax consequences due to receiving SWO payments.
Delete Section 3.11, Death Benefit Amount, and replace it with the following:
3.11 Death Benefit Amount - If the Contract Holder or Annuitant
dies before Annuity payments start, the Beneficiary is
entitled to a death benefit under the Contract. 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 Contract Holder/Annuitant less than 75 years
of age: The guaranteed death benefit is the greatest
of:
(1) The sum of all Net Purchase Payment(s) made
to the Contract (as of the date of death)
minus the sum of all amounts surrendered,
applied to an Annuity, or deducted from the
Contract;
(2) The highest step-up value as of the date of
death. A step-up value is determined on each
anniversary of the Effective Date. Each
step-up value is calculated as the
Contract'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 Contract's Current Value as of the date
of death.
The excess, if any, of the guaranteed death benefit
value over the Contract's Current Value is determined
as of the date of death. Any excess amount will be
deposited in the Contract and allocated to the Aetna
Variable Encore Fund as of the claim date. The
Current Value on the claim date, plus any excess
amount deposited, becomes the Contract's Current
Value.
(b) Death of Contract Holder/Annuitant age 75 or greater:
The death benefit amount is the greatest of:
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(1) The sum of all Net Purchase Payment(s) made
to the Contract (as of the date of death)
minus the sum of all amounts surrendered,
applied to an Annuity, or deducted from the
Contract;
(2) The highest step-up value prior to the
Contract Holder's 75th birthday. A step-up
value is determined on each anniversary of
the Effective Date. Each step-up value is
calculated as the Contract'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 Contract's Current Value as of the date
of death.
The excess, if any, of the guaranteed death benefit
value over the Contract's Current Value is determined
as of the date of death. Any excess amount will be
deposited in the Contract and allocated to the Aetna
Variable Encore Fund as of the claim date. The
Current Value on the claim date, plus any excess
amount deposited, becomes the Contract's Current
Value.
(c) At the death of a surviving spouse Beneficiary who
continued the Contract in his or her own name, the
death benefit amount is equal to the Contract's
Current Value less any applicable Surrender Fee on
the amount of any Purchase Payment(s) made since the
death of the Contract Holder.
Delete Section 3.14, Liquidation of Surrender Value, and replace it with the
following:
3.14 Liquidation of Surrender Value - All or any portion of the
Contract's Current Value may be surrendered at any time.
Surrender requests can be submitted as a percentage of the
Current 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 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.
Endorsed and made part of this Contract on the Effective Date of the Contract.
/s/ Dan Kearney
President
AETNA LIFE INSURANCE AND ANNUITY COMPANY
4
Aetna Life Insurance and Annuity Company
Endorsement
This Certificate is endorsed as follows.
Add the following to Section I, General Definitions:
Dollar Cost Averaging - A program that permits the Certificate Holder to
systematically transfer amounts from any of the Funds and the one-year MG
Account Guaranteed Term to any of the Funds by completing the appropriate
section of the enrollment form or a Dollar Cost Averaging election form.
Deleted Section 1.06, Beneficiary, and replace it with the following:
1.06 Beneficiary - The individual or estate entitled to receive any
payment from the Account upon the death of the Annuitant, or if
the Certificate Holder is different from the Annuitant, upon the
death of the Certificate Holder. 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.
Delete Section 1.07, Certificate Holder, and replace it with the following:
1.07 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. Joint Certificate
Holders have joint ownership rights and both must authorize
exercising any ownership rights unless Aetna allows otherwise. If
the Account is owned by a nonnatural person, the death benefit
will be paid at the death of the Annuitant.
Delete Section 1.21, Market Value Adjustment, and replace it with the following:
1.21 Market Value Adjustment - An adjustment that may apply to an amount
withdrawn or transferred from an MG 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 withdrawn or transferred.
Delete Section 2.04, Payments and Elections, and replace it with the following:
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
MPNQCERTEND(4/95)
<PAGE>
Annuity payments remaining 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.
Delete Section 2.06, Control of Contract, and replace it with the following:
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 Certificate Holder
choices allowed under this Contract. Certificate Holder choices
made under this Contract must be in writing. If the Account is
owned jointly both joint 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 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.
Delete Section 2.07, Designation of Beneficiary, and replace it with the
following:
2.07 Designation of Beneficiary - Each Certificate Holder shall name his
or her 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.
Delete the first two paragraphs of Section 3.06, Market Value Adjustment, and
replace them with the following:
3.06 Market Value Adjustment - Except as noted below, an MVA will apply to
a withdrawal from the MG Account before the end of a Guaranteed Term
when the withdrawal is:
(a) A Transfer; except for Transfers from the one-year MG Account
Guaranteed Term under the Dollar Cost Averaging program or, as
specified in 1.23, MG Account 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 (see 3.10); or
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(c) An election of Annuity option 2 (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 MG Account.
Delete Section 3.07, Transfer of Current Value from the Funds or MG Account, and
replace them with the following:
3.07 Transfer of Current Value from the Funds or MG Account - 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 Guaranteed Term of the MG Account:
(a) To any other Fund; or
(b) To a Guaranteed Term of the MG Account available in the
current Deposit Period.
Transfer requests can be submitted as a percentage or as a dollar
amount. Aetna may establish a minimum transfer amount. Within a
Guaranteed Term Group, the amount to be surrendered to 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 MG Account under the Dollar Cost
Averaging program, or amounts transferred as a Matured Term Value
on or within one calendar month of the Term's Maturity Date, do
not count against the annual Transfer limit.
Amounts applied to Guaranteed Terms of the MG 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) a Matured Term Value(s) during the calendar
month following the Term's Maturity Date and (2) amounts
transferred from the one-year MG Account Guaranteed Term under the
Dollar Cost Averaging program.
Delete the first paragraph in Section 3.10, Systematic Withdrawal Option (SWO),
and replace it with the following:
3.10 Systematic Withdrawal Option (SWO) - A distribution option under
which a portion of the Account's Current Value will be automatically
surrendered and distributed each year. SWO payments will be
calculated on the Account's full Current Value. The distributed
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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 advisor prior to
requesting this distribution option. Aetna will not be responsible
for any adverse tax consequences due to receiving SWO payments.
Delete Section 3.11, Death Benefit Amount, and replace it with the following:
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 less than 75 years of age: The guaranteed
death benefit is the greatest of:
(1) The sum of all Net 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. 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 in the Account and
allocated to the 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 Annuitant age 75 or greater: The death benefit amount
is the greatest of:
(1) The sum of all Net 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 prior to the Certificate
Holder'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
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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 in the Account and
allocated to the 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.
(c) Death of 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).
(d) At the death of a surviving spouse Beneficiary who
continued the Account in his or her own name, the death
benefit amount is equal to the Account's Current Value
less any applicable Surrender Fee on the amount of any
Purchase Payment(s) made since the death of the
Certificate Holder.
Delete Section 3.12, Death Benefit Options available to Beneficiary, and replace
it with the following:
3.12 Death Benefit Options available to Beneficiary - Prior to any
election, or until amounts must be otherwise distributed
under this section, the Account's Current Value will be
retained in the Account. The Beneficiary has the right to
allocate or reallocate any amount to any available
investment option (subject to an MVA if applicable). The
following options are available to the Beneficiary:
(a) When the Certificate Holder is the Annuitant: If the
Certificate Holder/Annuitant dies, and:
(1) If the Beneficiary is the Certificate Holder's
surviving spouse, the Beneficiary may exercise all
Certificate Holder rights under the Contract and
continue in the Accumulation Period, or may elect
(i), (ii), or (iii) 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, 3 or 4 (see 4.07);
(ii) Apply some or all of the Adjusted Current Value
to Annuity option 1 (see 4.07); or
(iii) Receive, at any time, a lump sum payment equal
to the Account's Adjusted Current Value.
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(2) If the Beneficiary is other than the Certificate
Holder's surviving spouse, then options (i), (ii), or
(iii) under (1) above apply. Any portion of the
Adjusted Current Value not applied to Annuity option
2, 3, or 4 within one year of the Certificate
Holder's 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 will be made to the
Certificate Holder's estate.
(b) When the Certificate Holder is not the Annuitant and the
Certificate Holder dies, and:
(1) If the Beneficiary is the Certificate Holder's
surviving spouse, the Beneficiary may exercise all
Certificate Holder rights under the Contract and
continue in the Accumulation Period, or may elect
(i), (ii), or (iii) 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, 3 or 4 (see 4.07);
(ii) Apply some or all of the Surrender Value to
Annuity option 1 (see 4.07); or
(iii) Receive, at any time, a lump sum payment equal
to the Account's Surrender Value.
(2) If the Beneficiary is other than the Certificate
Holder's surviving spouse, then options (i), (ii), or
(iii) under (1) above apply. Any portion of the
Adjusted Current Value not applied to Annuity Option
2, 3, or 4 within one year of the Certificate
Holder's death, must be distributed within five years
of the date of death.
(3) If no Beneficiary exists, a lump sum payment equal to
the Surrender Value will be made to the Certificate
Holder's estate.
(c) When the Certificate Holder is not the Annuitant and the
Annuitant dies: The Beneficiary must elect Annuity option
2, 3, or 4 within 60 days of the date of death or the
gain, if any, will be includable in the Beneficiary's
income in the tax year in which the Annuitant dies.
Delete Section 3.13, Liquidation of Surrender Value, and replace it with the
following:
3.13 Liquidation of Surrender Value - All or any portion of the Account's
Current Value may be surrendered at any time. Surrender requests
can be submitted as a percentage of the Account's Current 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
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withdrawn on a pro rata basis from the Fund(s) and/or the Guaranteed
Term(s) Groups of the MG 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 MG
Account.
Delete subsection (a) of Section 4.03, Death of Annuitant/Beneficiary, and
replace it with the following:
4.03 Death of Annuitant/Beneficiary: (a) Certificate Holder is Annuitant:
When the Certificate Holder is the Annuitant and the Annuitant
dies under option 2 or 3, or both the Annuitant and the second
Annuitant die under option 4(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 payments
remaining will continue to the Beneficiary. If option 4 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 Holders, the surviving
joint Certificate Holder will be deemed the successor payee.
Delete the first paragraph of subsection (b) of Section 4.03, Death of
Annuitant/Beneficiary, and replace it with the following:
(b) Certificate Holder is Not Annuitant: When the Certificate
Holder is not the Annuitant and the Certificate Holder
dies, the remaining payments under options 2, 3 or 4 will
continue to the successor payee. If no successor payees
has been designated, the Beneficiary will be treated as
the successor payee. If the Account has joint Certificate
Holders, the surviving joint Certificate Holder will be
deemed the successor payee.
Endorsed and made part of the Certificate on the Effective Date of the Contract.
/s/ Dan Kearney
President
Aetna Life Insurance and Annuity Company
7
Aetna Life Insurance and Annuity Company
Endorsement
This Certificate is endorsed as follows.
Add the following to Section I General Definitions:
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 by completing the appropriate
section of the enrollment form or a Dollar Cost Averaging election form.
Delete Section 1.21, Market Value Adjustment, and replace it with the following:
1.2 Market Value Adjustment - An adjustment that may apply to an amount
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 withdrawn or transferred.
Delete the first two paragraphs of Section 3.06, Market Value Adjustment, and
replace it with the following:
3.06 Market Value Adjustment - Except as noted below, there will be an MVA
for a withdrawal from the AG Account before the end of a
Guaranteed Term when the withdrawal is due to:
(a) A Transfer; except for Transfers from the one-year AG Account
Guaranteed Term under the Dollar Cost Averaging program or, as
specified in AG Account Matured Term Value Transfer;
(b) A full or partial surrender (including a 10% free withdrawal
under 3.16), except for a partial withdrawal under the
Systematic Withdrawal Option (see 3.10); or
(c) An election of Annuity option 2 (see 4.09).
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.
MPIRCERTEND (4/95)
<PAGE>
Delete 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 - 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 Guaranteed Term of the AG Account:
(a) To any other Fund; or
(b) To an Guaranteed Term of the AG Account available in the
current Deposit Period.
Transfer requests can be submitted as a percentage or as a dollar
amount. Aetna may establish a minimum transfer amount. Within a
Guaranteed Term Group, the amount to be surrendered to 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 the 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) a Matured Term Value(s) during the calendar
month following the Term's Maturity Date and (2) amounts
transferred from the one-year AG Account Guaranteed Term under the
Dollar Cost Averaging program.
Delete the first paragraph in Subsection 3.11(a), Estate Conservation Option
(ECO), and replace it with the following:
(a) Estate Conservation Option (ECO) - A distribution option under
which a portion of the Account's Current Value will be surrendered
automatically and distributed each year. ECO payments will be
calculated based on the Account's full Current Value. The
distributed amount will be withdrawn pro rata from each investment
option used under the Account. A Surrender Fee will not be
deducted from any portion of the Current Value which is paid as a
distribution under ECO. Certificate Holders should consult their
tax advisor prior to requesting this distribution option. Aetna
will not be responsible for any adverse tax consequences due to
receiving ECO payments.
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Delete the first paragraph in Subsection 3.11(b), Systematic Withdrawal Option
(SWO), and replace it with the following:
(b) Systematic Withdrawal Option (SWO) - A distribution option under
which a portion of the Account's Current Value will be
surrendered automatically and distributed each year. SWO
payments will be calculated based on the Account's full Current
Value. The distributed amount will be withdrawn pro rata from
each investment option used 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 advisor prior to requesting this distribution
option. Aetna will not be responsible for any adverse tax
consequences due to receiving SWO payments.
Delete Section 3.12, Death Benefit Amount, and replace it with the following:
3.12 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. 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 Certificate Holder/Annuitant less than 75 years of
age: The guaranteed death benefit is the greatest of:
(1) The sum of all Net 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. 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 in the Account and
allocated to the 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 Certificate Holder/Annuitant age 75 or greater: The
death benefit amount is the greatest of:
(1) The sum of all Net 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;
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(2) The highest step-up value prior to the Certificate
Holder'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 in the Account and
allocated to the 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.
(c) At the death of a surviving spouse Beneficiary who continued
the Account in his or her own name, the death benefit amount
is equal to the Account's Current Value less any applicable
Surrender Fee on the amount of any Purchase Payment(s) made
since the death of the Certificate Holder.
Delete Section 3.15, Liquidation of Surrender Value, and replace it with the
following:
3.15 Liquidation of Surrender Value - All or any portion of the Account's
Current Value may be surrendered at any time. Surrender requests
can be submitted as a percentage of the Account's Current 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 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.
Endorsed and made part of this Certificate on the Effective Date of the
Certificate.
/s/ Dan Kearney
President
Aetna Life Insurance and Annuity Company
4
