As filed with the Securities and Exchange Registration No. 333-56297
Commission on February 25, 1999 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 5 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 3, 1999 pursuant to paragraph (a)(1) of Rule 485
-------
<PAGE>
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4
ITEM NO. PART A (PROSPECTUS) LOCATION - PROSPECTUS
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Definitions.......................................... Not Applicable
3 Synopsis............................................. Contract Overview; Fee Table
4 Condensed Financial Information...................... Condensed Financial Information; Appendix IV
Condensed Financial Information
5 General Description of Registrant, Depositor, and
Portfolio Companies.................................. Other Topics - The Company; Variable Annuity
Account B; Appendix III The Funds
6 Deductions and Expenses.............................. Fees
7 General Description of Variable Annuity Contracts.... Contract Overview
8 Annuity Period....................................... The Income Phase
9 Death Benefit........................................ Death Benefit
10 Purchases and Contract Value......................... Purchase and Rights; Your Account Value
11 Redemptions.......................................... Your Right to Cancel; Systematic Distribution Options
12 Taxes................................................ Taxation
13 Legal Proceedings.................................... Other Topics - 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 OF
ITEM NO. ADDITIONAL INFORMATION) 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 Contract
20 Underwriters......................................... Offering and Purchase of Contract
21 Calculation of Performance Data...................... Performance Data; Average Annual Total Return Quotations
22 Annuity Payments..................................... Income Phase 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>
VARIABLE ANNUITY ACCOUNT B
Aetna Life Insurance and Annuity Company
Supplement Dated May 3, 1999
to May 3, 1999 Prospectus
GENERAL DESCRIPTION OF GET E
Series E of the Aetna GET Fund (GET E) is an investment option that may be
available during the accumulation phase of the contract. Aetna Life Insurance
and Annuity Company (the Company, we, our) makes a guarantee, as described
below, when you direct money into GET E. Aeltus Investment Management, Inc. is
the investment adviser to GET E.
We will offer GET E shares only during its offering period, which is scheduled
to run from June 15, 1999 through the close of business on September 14, 1999.
GET E may not be available under your contract, your plan or in your state.
Please read the GET E prospectus for a more complete description of GET E,
including its charges and expenses.
INVESTMENT OBJECTIVE OF GET E
GET E seeks to achieve maximum total return, without compromising a targeted
minimum rate of return, by participating in favorable equity market performance
during its guarantee period. GET E's guarantee period runs from September 15,
1999 through September 14, 2004.
THE GET FUND GUARANTEE
The guarantee period for GET E will end on September 14, 2004, which is GET E's
maturity date. We guarantee that the value of an accumulation unit of the GET E
subaccount under the contract on the maturity date (as valued after the close
of business on September 14, 2004), will not be less than its value as
determined after the close of business on the last day of the offering period.
If the value on the maturity date is lower than it was on the last day of the
offering period, we will transfer funds from our general account to the GET E
subaccount to make up the difference.
If you withdraw or transfer funds from GET E before the maturity date, we will
process the transactions at the actual unit value next determined after we
receive your order. The guarantee will not apply to these amounts or to amounts
deducted as a maintenance fee, if applicable.
MATURITY DATE
Before the maturity date, we will send a notice to each contract holder who has
invested amounts in GET E. This notice will remind you that the maturity date
is approaching and that you must choose other investment options for your GET E
amounts. If you do not make a choice, on the maturity date we will transfer
your GET E amounts to another available series of the GET Fund that is
accepting deposits. If no GET Fund Series is available, we will transfer the
account value to the fund or funds designated by Aetna.
INCOME PHASE
GET E is not available during the income phase. You should not select this
option if you wish to begin income payments or to make other withdrawals or
transfers before the maturity date. You must transfer your GET E account value
to another available investment option before you may elect an income phase
payment option.
REINVESTMENT
Some contracts allow you to reinvest all or a portion of the proceeds after a
full withdrawal. If you withdraw amounts from GET E and then elect to reinvest
them, we will reinvest them in a GET Fund series that is then accepting
deposits, if one is available. If one is not available, we will reallocate your
GET E amounts among the other investment options in which you were invested, on
a pro rata basis.
<PAGE>
The following information supplements the Fee Table contained in the
prospectus:
FEES DEDUCTED FROM YOUR INVESTMENTS IN THE SUBACCOUNTS
In addition to the amounts currently listed under the heading "Fee Table" in
the prospectus, we will make a daily deduction of a GET Guarantee Charge, equal
on an annual basis to the percentage shown below, from the amounts allocated to
the GET E investment option:
<TABLE>
<S> <C>
GET E Guarantee Charge (deducted daily during the Guarantee Period) ..... 0.50%
Maximum Total Separate Account Expenses .................................. 1.90%(1)
</TABLE>
(1) The total separate account expenses that apply to your contract may be
lower. Please refer to the "Fee Table" section of your prospectus.
The following information supplements the Fund Expense Table contained in the
prospectus
Aetna GET Fund Series E Annual Expenses
(As a percentage of the average net assets)
<TABLE>
<CAPTION>
Investment Total Fund Annual Expenses
Advisory Fees(1) Other Expenses(2) (after expense reimbursement)(3)
---------------- ----------------- -------------------------------
<S> <C> <C> <C>
Aetna GET Fund Series E 0.60% 0.15% 0.75%
</TABLE>
For more information regarding expenses paid out of assets of the fund, see the
GET E prospectus.
The following information supplements the Hypothetical Examples contained in
the prospectus.
- -----------------------
(1) The Investment Advisory Fee will be 0.25% during the offering period. An
annual management fee of 0.60% will apply during the guarantee period.
(2) "Other Expenses" include an annual fund administrative fee of 0.075% of the
average daily net assets of GET E and any additional direct fund expenses.
(3) The adviser is contractually obligated through December 31, 2000 to waive
all or a portion of its investment advisory fee and/or its administrative
fee and/or to reimburse a portion of the fund's other expenses in order to
ensure that the Fund's Total Fund Annual Expenses do not exceed 0.75% of the
fund's average daily net assets.
<PAGE>
Hypothetical Examples--Aetna GET Fund Series E
The following hypothetical example shows the fees and expenses paid over time
if you invest $1,000 in the GET E investment option under the contract (until
GET E's maturity date) and a 5% annual return on the investment.(1)
<TABLE>
<CAPTION>
Example A Example B
--------- ---------
o This example is purely If you withdrew your entire account If at the end of the periods shown
hypothetical. value at the end of the periods you (1) leave your entire account
o It should not be considered a shown, you would pay the following value invested or (2) select an
representation of past or future expenses, including any applicable income phase payment option, you
expenses or expected returns. early withdrawal charge: would pay the following expenses
o Actual expenses and/or (no early withdrawal charge is
returns may be more or less reflected):*
than those shown in this
example.
1 year 3 years 5 years 1 year 3 years 5 years
-------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Aetna GET Fund Series E $ $ $ $ $ $
</TABLE>
- -----------------------
(1) The examples shown above reflect an annual mortality and expense risk charge
of 1.25%, an annual contract administrative expense charge of 0.15%, an
annual GET E guarantee charge of 0.50%, a $30 annual maintenance fee that
has been converted to a percentage of assets equal to .xxx%, and all charges
and expenses of the GET E Fund. Example A reflects an early withdrawal
charge of 7% of the account value at the end of year 1, 6% at the end of
year 3, and 4% at the end of year 5. (The expenses that you would pay under
your contract may be lower. Please refer to the "Fee Table" section of your
prospectus.)
* This example does not apply if during the income phase, you select a
nonlifetime payment option with variable payments and a lump-sum withdrawal
within three years after payments start. In this case, the lump sum payment
is treated as a withdrawal during the accumulation phase and may be subject
to an early withdrawal charge (refer to Example A).
X.GETERETAIL-99
<PAGE>
Contract Prospectus - May 3, 1999
- --------------------------------------------------------------------------------
The Funds
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Aetna Growth VP
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna International VP
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Aetna Real Estate Securities VP
Aetna Small Company VP
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I Growth and Income Fund
AIM V.I. Value Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Fidelity VIP II Contrafund Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
[Mitchell Hutchins Series Trust Growth & Income Portfolio]
[Mitchell Hutchins Series Trust Tactical Allocation Portfolio]
[Mitchell Hutchins Series Trust Small Cap Portfolio]
Oppenheimer Aggressive Growth 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
The Contract. The contract described in this prospectus is a group or
individual deferred variable annuity contract issued by Aetna Life Insurance
and Annuity Company (the Company, we, us). It is issued as either a
nonqualified deferred annuity, including contracts offered to a custodian for
an Individual Retirement Account as described in Section 408(a) of the Internal
Revenue Code of 1986, as amended (Tax Code); a qualified individual retirement
annuity (IRA); a qualified Roth IRA; or as a qualified contract for use with
certain employer sponsored retirement plans.
The Contract is not available as a SIMPLE IRA under Tax Code Section 408(p).
- --------------------------------------------------------------------------------
Why Reading this Prospectus Is Important This prospectus contains facts about
the contract you should know before purchasing. Read this prospectus carefully.
If you purchase the contract, retain this prospectus for future reference.
Table of Contents . . . page 3
- --------------------------------------------------------------------------------
Contract Design. The contract described in this prospectus is designed to:
> Help you save for retirement security while receiving beneficial tax treatment
> Offer a variety of investment options to help meet long-term financial goals
> Provide a death benefit to the beneficiary you designate
> Provide payments for life or for a specified period
Investment Options. The contract offers variable investment options and fixed
interest options. When we establish your account you instruct us to direct
account dollars to any of the available options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account), a
separate account of the Company. Each subaccount invests in one of the mutual
funds listed on this page. Earnings on amounts invested in a subaccount will
vary depending upon the performance of its underlying fund. You do not invest
directly in or hold shares of the funds.
Risks associated with investing in the Funds. Information about the risks of
investing in the funds is located in the "Investment Option" section in this
prospectus and in each fund prospectus. Retain the fund prospectuses for future
reference.
Fixed Interest Options.
> ALIAC Guaranteed Account (the Guaranteed Account)
> Fixed Account
Except as specifically mentioned, this prospectus describes only the investment
options offered through the separate account. However, we describe the fixed
interest options in appendices to this prospectus. There is also a separate
Guaranteed Account prospectus.
Availability of Options. Some funds or fixed interest options may be
unavailable through your contract or in your state.
Getting Additional Information. You may obtain the May 3, 1999, Statement of
Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-531-4547. You may also
obtain
<PAGE>
Prospectus - May 3, 1999 (continued)
- --------------------------------------------------------------------------------
an SAI for any of the funds by calling that number. This prospectus, the SAI
and other information about the separate account are posted on the Securities
and Exchange Commission (SEC) web site, http://www.sec.gov. The SAI table of
contents is listed on page 54 of this prospectus. The SAI is incorporated into
this prospectus by reference.
Additional Disclosure Information. Neither the SEC nor any state securities
commission has approved or disapproved the securities offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. We do not intend for this
prospectus to be an offer to sell or a solicitation of an offer to buy these
securities in any state that does not permit their sale.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
- -------------------------------------------------------------
Contract Overview ....................................... 4
Contract Design
Contract Facts
Contract Phases: The Accumulation Phase, The Income Phase
Questions: Contacting the Company
Sending Requests in Good Order
- --------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Fee Table .................................. 7
Condensed Financial Information ............ 16
Investment Options ......................... 16
Transfers Among Investment Options ......... 17
Purchase and Rights ........................ 19
Right to Cancel ............................ 21
Transfers Between Option Packages .......... 22
Fees ....................................... 23
Your Account Value ......................... 27
Withdrawals ................................ 30
Systematic Distribution Options ............ 32
Death Benefit .............................. 33
The Income Phase ........................... 37
Taxation ................................... 41
Other Topics ............................... 49
</TABLE>
The Company -- Variable Annuity Account B -- Contract Distribution -- Payment
Delay or Suspension -- Performance Reporting -- Voting Rights -- Contract
Modifications -- Transfer of Ownership: Assignment -- Involuntary Terminations
- -- Legal Matters and Proceedings -- Year 2000 Readiness
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ......... 54
Appendix I -- ALIAC Guaranteed Account ...................... 55
Appendix II -- Fixed Account ................................ 58
Appendix III -- Description of Underlying Funds ............. 59
Appendix IV -- Condensed Financial Information .............. 74
</TABLE>
3
<PAGE>
[begin callout box]
Questions. Contact your local representative or write or call our Home Office
at:
Aetna Retirement Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1277
1-800-531-4547
Sending Forms and Written Requests in Good Order.
If you are writing to change your beneficiary, request a withdrawal, or for any
other purpose, contact your local representative or the Company to learn what
information is required for the request to be in "good order." We can only act
upon requests that are received in good order.
[end callout box]
Contract Overview
- --------------------------------------------------------------------------------
The following is intended as a summary. Please read each section of this
prospectus for additional detail.
- --------------------------------------------------------------------------------
Contract Design
- --------------------------------------------------------------------------------
The contract described in this prospectus is a group or individual variable
annuity contract. It is intended to be a retirement savings vehicle that
receives beneficial tax treatment and offers a variety of investment options to
help meet long-term financial goals.
- --------------------------------------------------------------------------------
Contract Facts
- --------------------------------------------------------------------------------
Option Packages: There are three option packages available under the contract.
You select an option package at the time of application. Each option package is
distinct. See "Option Packages." The differences are summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Option Package I Option Package II Option Package III
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortality and
Expense Risk
Charge(1): 0.80% 1.10% 1.25%
- -----------------------------------------------------------------------------------------------
Death Benefit(2) The greater of: The greatest of: The greatest of:
on Death of the (1) The sum of (1) The sum of (1) The sum of
Annuitant(3): all payments all payments all payments
made, adjusted made, adjusted made, adjusted
for amounts for amounts for amounts
withdrawn or withdrawn or withdrawn or
applied to an applied to an applied to an
income phase income phase income phase
payment as of payment as of payment as of
the claim date; or the claim date; or the claim date; or
(2) The account (2) The account (2) The account
value on the value on the value on the
claim date claim date; or claim date; or
(3) The "step-up (3) The "step-up
value" on the value" on the
claim date claim date; or
(4) The "roll-up
value" on the
claim date
- -----------------------------------------------------------------------------------------------
Minimum Initial Non- Non- Non-
Payment/Account Qualified: Qualified: Qualified: Qualified: Qualified: Qualified:
Value(4): $15,000 $1,500 $5,000 $1,500 $5,000 $1,500
- -----------------------------------------------------------------------------------------------
Free 10% of your account 10% of your account 10% of your account
Withdrawals(5): value each account value each account value each account
year, non-cumulative. year, non-cumulative. year, cumulative to
a maximum 30%.
- -----------------------------------------------------------------------------------------------
Nursing Home
Waiver -- Waiver
of Early With- Not available Available Available
drawal Charge(5):
-----------------------------------------------------------------------------------------------
</TABLE>
(1)See "Fee Table" and "Fees."
(2)See "Death Benefit."
(3)When a contract holder is not the annuitant, the amount of the death benefit
is not the same as shown above under each option package. See "Death
Benefit." A contract holder who is not the annuitant should seriously
consider whether option packages II and III are suitable for their
circumstances.
(4)See "Purchase and Rights."
(5)See "Fees."
4
<PAGE>
Transferability. You may transfer from one option package to another. See
"Transfers Between Option Packages."
> Transfers must occur on an account anniversary
> A written request for the transfer must be received by us within 60 days of an
account anniversary
> Initial payment minimums need to be met
Free Look/Right to Cancel: You may cancel your contract within 10 days (or
longer if required by state law) of receipt. See "Right to Cancel."
Death Benefit: Your beneficiary may receive a financial benefit in the event of
your death prior to the income phase. Benefits during the income phase depend
upon the payment option selected. See "Death Benefit" and "Income Phase."
Withdrawals: During the accumulation phase, you may withdraw all or part of
your account value. Certain fees, taxes and early withdrawal penalties may
apply. In addition, the Tax Code restricts full and partial withdrawals in some
circumstances. See "Withdrawals." Amounts withdrawn from the Guaranteed Account
may be subject to a market value adjustment. See Appendix I.
Systematic Distribution Options: These are made available for you to receive
periodic withdrawals from your account, while retaining the account in the
accumulation phase. See "Systematic Distribution Options."
Fees and Expenses: Certain fees and expenses are deducted from the value of
your contract. The fees and expenses deducted may vary depending upon the
option package you select. See "Fee Table" and "Fees."
Taxation: The contract is designed to help defer taxes while saving for
retirement. Taxes will generally be due when you receive a distribution from
amounts accumulated. Tax penalties may apply in some circumstances. See
"Taxation."
5
<PAGE>
- --------------------------------------------------------------------------------
Contract Phases
- --------------------------------------------------------------------------------
I. The Accumulation Phase (accumulating dollars)
[typeset representation of graphic]
STEP 1: You provide us with Payments to
your completed application Your Account
and initial payment. We Step 1
establish an account for you.
STEP 2: You direct us to invest
your payments in one or more Aetna Life Insurance and Annuity Company
of the following:
(a) Fixed Interest Options (a) Step 2 (b)
(b) Variable Investment Fixed Variable Annuity
Options (The variable Interest Account B
investment options are the Options
subaccounts of Variable Variable Investment Options
Annuity Account B. Each
one invests in a specific The Subaccounts
mutual fund.) A B Etc.
STEP 3: Each subaccount you select Step 3
purchases shares of its
assigned fund. Mutual Mutual
Fund A Fund B
II. The Income Phase When [end graphic]
you want to begin receiving
payments from your contract,
you may select from the options available. The contract offers several payment
options (see "Income Phase"). In general, you may:
> Receive payments for a specified period of time or for life
> Receive payments monthly, quarterly, semi-annually or annually
> Select an option that provides for payments to beneficiaries
> Select fixed payments or payments that vary based on the performance of the
variable investment options you select.
6
<PAGE>
[begin callout box]
In this Section:
> Maximum Transaction Fees
> Maximum Fees Deducted from Investments in the Subaccounts
> Fund Fees
> Examples of Fee Deductions
See the "Fees" section for:
> How, When and Why Fees are Deducted
> Reduction, Waiver and/or Elimination of Certain Fees
[end callout box]
Fee Table
- --------------------------------------------------------------------------------
The tables and examples in this section show the fees that may affect your
account value during the accumulation phase. See "Income Phase" for fees that
may apply after you begin receiving payments under the contract.
Transaction Fees
Early Withdrawal Charge. This is a deferred sales charge. It is a percentage of
the payments that you withdraw. The percentage will be determined by the early
withdrawal charge that applies to your account. In certain cases this charge
may not apply to all or a portion of your withdrawal. See "Fees--Early
Withdrawal Charge" for additional information.
<TABLE>
<CAPTION>
Contracts Other Than Roth IRA Contracts: Roth IRA Contracts:
- ------------------------------------------ ----------------------------------------
Early Early
Years From Receipt Withdrawal Completed Account Withdrawal
of Payment Charge Years Charge
- ---------------------------- ------------- --------------------------- ------------
<S> <C> <C> <C>
Less than 2 7% Less than 1 5%
2 or more but less than 4 6% 1 or more but less than 2 4%
4 or more but less than 5 5% 2 or more but less than 3 3%
5 or more but less than 6 4% 3 or more but less than 4 2%
6 or more but less than 7 3% 4 or more but less than 5 1%
7 or more 0% 5 or more 0%
</TABLE>
Maximum Annual Maintenance Fee....................................... $30.00(1)
Transfer charge....................................................... $0.00(2)
Fees Deducted from Investments in the Subaccounts
Maximum Amount During the Accumulation Phase
(Daily deductions equal to the given percentage on an annual basis)
> Option Package I--
Mortality and Expense Risk Charge 0.80%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 0.95%
> Option Package II--
Mortality and Expense Risk Charge 1.10%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.25%
> Option Package III--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.40%
Maximum Amount During the Income Phase
(Daily deductions equal to the given percentage on an annual basis)
> All Option Packages--
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.00%(3)
-----
Total Separate Account Expenses 1.25%
(1)The maintenance fee will be waived if your account value is $50,000 or
greater on the date this fee is due.
(2)During the accumulation phase, we currently allow you 12 free transfers each
account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge. See "Transfers" for
additional information.
(3)We currently do not deduct an administrative expense charge during the income
phase; however, we reserve the right to deduct a daily charge of not more
than 0.25% per year. See "Income Phase--Charges Deducted."
7
<PAGE>
Fees Deducted by the Funds
Using this information. The following table shows the investment advisory fees
and other expenses charged annually by each fund. Fund fees are one factor that
impacts the value of a fund share. To learn more about additional factors
impacting the share value, refer to the fund prospectus.
How fees are deducted. The fund fees are not deducted from account values.
Instead, they are deducted from the value of the fund shares on a daily basis,
which in turn affects the value of each subaccount that purchases fund shares.
Except as noted below, the following figures are a percentage of the average
net assets of each fund, and are based on figures for the year ended December
31, 1998.
Fund Expense Table
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(before expense (before expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------ ----------------- ----------------
<S> <C> <C> <C>
Aetna Balanced VP, Inc. (2)
Aetna Bond VP (2)
Aetna Growth VP (2)
Aetna Growth and Income VP (2)
Aetna Index Plus Large Cap VP (2)
Aetna International VP (2)
Aetna Money Market VP (2)
Aetna Real Estate Securities VP (2)
Aetna Small Company VP (2)
AIM V.I. Capital Appreciation Fund (2)
AIM V.I. Growth Fund (2)
AIM V.I. Growth and Income Fund (2)
AIM V.I. Value Fund (2)
Fidelity VIP Equity-Income Portfolio (2)
Fidelity VIP High Income Portfolio (2)
Fidelity VIP II Contrafund Portfolio (2)
Janus Aspen Aggressive Growth Portfolio (2)
Janus Aspen Balanced Portfolio (2)
Janus Aspen Growth Portfolio (2)
Janus Aspen Worldwide Growth Portfolio (2)
MFS Total Return Series (2)
[Mitchell Hutchins Series Trust Growth & Income Portfolio (2) ]
[Mitchell Hutchins Series Trust Tactical Allocation Portfolio (2) ]
[Mitchell Hutchins Series Trust Small Cap Portfolio (2) ]
Oppenheimer Aggressive Growth Fund (2)
Oppenheimer Growth & Income Fund (2)
Oppenheimer Strategic Bond Fund (2)
Portfolio Partners MFS Emerging Equities Portfolio (2)
Portfolio Partners MFS Research Growth Portfolio (2)
Portfolio Partners MFS Value Equity Portfolio (2)
Portfolio Partners Scudder International Growth Portfolio (2)
</TABLE>
8
<PAGE>
Footnotes to the "Fees Deducted by the Funds" Table
(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) [Footnote text, as applicable will be filed by 485(b) amendment.]
9
<PAGE>
Hypothetical Example: Option Package I -- For Contracts Other than ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
10
<PAGE>
Hypothetical Example: Option Package I -- For Contracts Issued as ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
11
<PAGE>
Hypothetical Example: Option Package II -- For Contracts Other than ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
12
<PAGE>
Hypothetical Example: Option Package II -- For Contracts Issued as ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
13
<PAGE>
Hypothetical Example: Option Package III -- For Contracts Other than ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
14
<PAGE>
Hypothetical Example: Option Package III -- For Contracts Issued as ROTH IRAs
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract,
assuming a 5% annual return on the investment. For the purpose of these
examples, we converted the $30 maximum annual maintenance fee to a percentage
of assets equal to 0.019%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
> These examples are purely hypothetical --------------------------------------- --------------------------------------
> They should not be considered a If you withdraw your entire account If at the end of the periods shown you
representation of past or future expenses value at the end of the periods shown, (1) leave your entire account value
or expected returns you would pay the following expenses, invested or (2) select an income phase
> Actual expenses and/or returns may be including any applicable early payment option, you would pay the
more or less than those shown in these withdrawal charge: following expenses (no early with-
examples drawal charge is reflected):*
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------- --------- --------- ---------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. $ $ $ $ $ $ $ $
Aetna Bond VP $ $ $ $ $ $ $ $
Aetna Growth VP $ $ $ $ $ $ $ $
Aetna Growth and Income VP $ $ $ $ $ $ $ $
Aetna Index Plus Large Cap VP $ $ $ $ $ $ $ $
Aetna International VP $ $ $ $ $ $ $ $
Aetna Money Market VP $ $ $ $ $ $ $ $
Aetna Real Estate Securities VP $ $ $ $ $ $ $ $
Aetna Small Company VP $ $ $ $ $ $ $ $
AIM V. I. Capital Appreciation Fund $ $ $ $ $ $ $ $
AIM V. I. Growth Fund $ $ $ $ $ $ $ $
AIM V. I. Growth and Income Fund $ $ $ $ $ $ $ $
AIM V. I. Value Fund $ $ $ $ $ $ $ $
Fidelity VIP Equity-Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP High Income Portfolio $ $ $ $ $ $ $ $
Fidelity VIP II Contrafund Portfolio $ $ $ $ $ $ $ $
Janus Aspen Aggressive Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Balanced Portfolio $ $ $ $ $ $ $ $
Janus Aspen Growth Portfolio $ $ $ $ $ $ $ $
Janus Aspen Worldwide Growth Portfolio $ $ $ $ $ $ $ $
MFS Total Return Series $ $ $ $ $ $ $ $
[Mitchell Hutchins Series Trust Growth
& Income Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Tactical
Allocation Portfolio $ $ $ $ $ $ $ $ ]
[Mitchell Hutchins Series Trust Small Cap
Portfolio $ $ $ $ $ $ $ $ ]
Oppenheimer Aggressive Growth 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 $ $ $ $ $ $ $ $
</TABLE>
- -----------------
* This example does not apply during the income phase if you selected a
nonlifetime payment option with variable payments and take a lump-sum
withdrawal within three years after payments start. In this case, the lump
sum payment is treated as a withdrawal during the accumulation phase and may
be subject to an early withdrawal charge (refer to Example A).
15
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix IV of this
prospectus, we provide condensed financial information about the Variable
Annuity Account B (the separate account) subaccounts you may invest in through
the contract. The numbers show the year-end unit values of each subaccount from
the time payments were first received in the subaccounts under the contract.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and fixed interest options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account B (the separate account), a
separate account of the Company. Each subaccount invests in a specific mutual
fund. You do not invest directly in or hold shares of the funds.
> Mutual Fund (fund) Descriptions. We provide brief descriptions of the funds in
Appendix III. Refer to the fund prospectuses for additional information.
Fixed Interest Options. The ALIAC Guaranteed Account (the Guaranteed Account)
and, if available in your state, the Fixed Account. The Guaranteed Account
offers certain guaranteed minimum interest rates for a stated period of time.
Amounts must remain in the Guaranteed Account for specific periods to receive
the quoted interest rates, or a market value adjustment will be applied. The
market value adjustment may be positive or negative. The Fixed Account
guarantees payment of the minimum interest rate specified in the contract. The
Fixed Account is only available in certain states. For a description of these
options see Appendices I and II and the Guaranteed Account prospectus.
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your Aetna representative can help you
evaluate which investment options may be appropriate for your financial
goals.
o Understand the risks associated with the options you choose. Some subaccounts
invest in funds that are considered riskier than others. Funds with
additional risks are expected to have values that rise and fall more rapidly
and to a greater degree than other funds. For example: Funds investing in
foreign or international securities are subject to additional risks not
associated with domestic investments, and their performance may vary
accordingly. Also, funds using derivatives in their investment strategy may
be subject to additional risks.
o Be informed. Read this prospectus, the fund prospectuses, the Guaranteed
Account and Fixed Account appendices and the Guaranteed Account prospectus.
- --------------------------------------------------------------------------------
Availability of Options. Some funds or fixed interest options may be
unavailable through your contract or in your state. We may add, withdraw or
substitute funds, subject to the conditions in the contract and compliance with
regulatory requirements.
16
<PAGE>
Limits on How Many Investment Options You May Select. Although we reserve the
right to limit the number of investment options you may select during the
accumulation phase, there is currently no limit. The number of investment
options you may select at any one time, however, is limited to 18. Each
subaccount and each guaranteed term of the Guaranteed Account, or an investment
in the Fixed Account in certain contracts, is considered an option.
Limits Imposed by the Underlying Fund. Orders for the purchase of fund shares
may be subject to acceptance by the fund. We reserve the right to reject,
without prior notice, any allocation of payments to a subaccount if the
subaccount's investment in the corresponding fund is not accepted by the fund
for any reason.
Additional Risks of Investing in the Funds (Mixed and Shared Funding)
"Shared funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are also bought by other insurance companies for
their variable annuity contracts.
"Mixed funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are bought for variable life insurance contracts
issued by the Company or other insurance companies.
> Shared--bought by more than one company
> Mixed--bought for annuities and life insurance
It is possible that a conflict of interest may arise due to mixed and/or shared
funding, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the subaccounts withdrew its
investment in a fund, the fund may be forced to sell its securities at
disadvantageous prices, causing its share value to decrease. Each fund's Board
of Directors or Trustees will monitor events to identify any conflicts which
may arise and to determine what action, if any, should be taken to address such
conflicts.
Transfers Among Investment Options
- --------------------------------------------------------------------------------
During the accumulation phase, you may transfer amounts among the available
subaccounts. Transfers from the Guaranteed Account are subject to certain
restrictions and may be subject to a market value adjustment. Transfers from
the Fixed Account are subject to certain restrictions and we reserve the right
to restrict transfers from any investment option into the Fixed Account. During
the income phase, transfers are limited to four per year and allowed only if
you select variable payments. Transfers must be made in accordance with the
terms of your contract.
Transfer Requests. Requests may be made in writing, by telephone or, where
applicable, electronically.
Limits on Frequent Transfers. The contract is not designed to serve as a
vehicle for frequent trading in response to short-term fluctuations in the
market. Such frequent trading can disrupt management of a fund and raise its
expenses. This in turn can have an adverse effect on fund performance.
Accordingly, organizations or individuals that use market-timing investment
strategies and make frequent transfers should not purchase the contract.
17
<PAGE>
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders. Such restrictions could include: (1) Not accepting transfer
instructions from an agent acting on behalf of more than one contract holder;
and (2) not accepting preauthorized transfer forms from market timers or other
entities acting on behalf of more than one contract holder at a time.
We further reserve the right to impose, without prior notice, restrictions on
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders.
Additionally, orders for the purchase of fund shares may be subject to
acceptance by the fund. We reserve the right to reject, without prior notice,
any transfer request to a subaccount if the subaccount's investment in the
corresponding fund is not accepted for any reason.
Charges for Transfers. During the accumulation phase, we allow you 12 free
transfers each account year. We reserve the right to charge $10 for each
additional transfer. We currently do not impose this charge.
Value of Your Transferred Dollars. The value of amounts transferred into or out
of subaccounts will be based upon the subaccount unit values next determined
after we receive your transfer request at our Home Office.
Telephone Transfers: Security Measures. To prevent fraudulent use of telephone
transactions, we have established security procedures. These include recording
calls on our toll-free telephone lines and requiring use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable security procedures, we may be liable for losses due to unauthorized
or fraudulent telephone transactions. We are not liable for losses resulting
from telephone instructions we believe to be genuine. If a loss occurs when we
rely on such instructions, you will bear the loss.
The Dollar Cost Averaging Program. Dollar cost averaging is an investment
strategy whereby you purchase fixed dollar amounts of an investment at regular
intervals, regardless of price. Under this program a fixed dollar amount is
automatically transferred from certain subaccounts, the Guaranteed Account or
Fixed Account to any of the other subaccounts. A market value adjustment will
not be applied to dollar cost averaging transfers from a guaranteed term of the
Guaranteed Account during participation in the dollar cost averaging program.
If such participation is discontinued, we will automatically transfer the
remaining balance in that guaranteed term to another guaranteed term of the
same duration, unless you initiate a transfer into another investment option.
In either case, a market value adjustment will apply. See Appendix I for more
information about dollar cost averaging from the Guaranteed Account. If dollar
cost averaging is stopped with respect to amounts invested in the Fixed
Account, the remaining balance will be transferred to the money market
subaccount.
Dollar cost averaging neither ensures a profit nor guarantees against loss in a
declining market. You should consider your financial ability to continue
purchases through periods of low price levels. There is no additional charge
for this program. For additional information about this program, contact your
local representative or call us at the number listed in "Contract Overview--
Questions."
18
<PAGE>
In certain states, premiums allocated to the Fixed Account may require
participation in the dollar cost averaging program.
Dollar cost averaging is not available if you elect a Systematic Distribution
Option or participate in the account rebalancing program.
The Account Rebalancing Program. Account rebalancing allows you to reallocate
your account value to match the investment allocations you originally selected.
Only account values invested in the subaccounts may be rebalanced. We
automatically reallocate your account value annually (or more frequently as we
allow). Account rebalancing neither ensures a profit nor guarantees against
loss in a declining market. You may participate in this program by completing
the account rebalancing section of your application, or by contacting us at the
address and/or number listed in "Contract Overview--Questions."
Account rebalancing is not available if you elect to participate in the dollar
cost averaging program.
Purchase And Rights
- --------------------------------------------------------------------------------
How to Purchase
> Individual Contracts. In some states, where group contracts are not available,
you may purchase the contract directly from the Company by completing and
returning an application. Upon our approval we will issue you a contract and
set up an account for you under the contract.
> Group Contracts. In most states we have distributors, usually broker/dealers
or banks, who hold the contract as a group contract. (See "Distribution") You
may purchase an interest (or, in other words, participate) in the group
contract by contacting a distributor and completing an application and
delivering it with payment to that distributor. Upon our approval, we will set
up an account for you under the group contract and issue you a certificate
showing your rights under the contract.
> Joint Contracts (generally spouses). For a nonqualified contract, you may
participate in a group contract as a joint contract holder. References to
"contract holders" in this prospectus means both contract holders under joint
contracts. The Tax Law prohibits the purchase of qualified contracts by joint
contract holders.
The maximum issue age for the annuitant on the date we issue the contract is
90.
Your Rights Under the Contract
> Individual Contracts. You have all contract rights.
> Group Contracts. The holder of the group contract 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.
> Joint Contracts. Joint contract holders have equal rights under the contract
with respect to their account. All rights under the contract must be exercised
by both joint contract holders with the exception of transfers among
investment options. See the "Death Benefit" section for the rights of the
surviving joint contract holder upon the death of a joint contract holder
prior to the income phase start date.
19
<PAGE>
Payment Methods. The following payment methods are allowed:
> One lump sum
> Periodic payments
> Transfer or rollover from a pre-existing retirement plan or account*
We reserve the right to reject any payments to a prospective or existing
account without advance notice.
*In some states, an IRA contract can only accept a lump sum, rollover payment.
Payment Amounts.
The minimum initial payment depends upon the option package selected at issue.
<TABLE>
<CAPTION>
Option Option Option
Package I Package II Package III
-------------------------- -------------------------- -------------------------
Minimum
Initial Non- Non- Non-
Payment Qualified: Qualified:* Qualified: Qualified:* Qualified: Qualified:*
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
$15,000 $1,500 $5,000 $1,500 $5,000 $1,500
</TABLE>
*The Tax Code imposes a maximum limit on annual payments which may be excluded
from your gross income.
Any additional payments must be at least $1,000 or at least $50 per month as
paid by electronic funds transfer. (We may change these amounts from time to
time.) A payment of more than $1,000,000 will be allowed only with our consent.
Reduction of Payment Amounts. In certain circumstances we may reduce the
minimum initial or additional payment amount we will accept under a contract.
Whether such a reduction is available is based upon consideration of each of
the following factors:
> The size and type of the prospective group, if any, to which the reduction
would apply
> The method and frequency of payments to be made under the contract
> The amount of compensation to be paid to distributors and their registered
representative on each purchase payment
Any reduction of the minimum initial or additional payment amount will not be
unfairly discriminatory against any person. We will make any such reduction
according to our own rules in effect at the time the payment is received. We
reserve the right to change these rules from time to time.
Acceptance or Rejection of Your Application. We must accept or reject your
application within two business days of receipt. If the application is
incomplete, we may hold any forms and accompanying payment(s) for five days.
Payments may be held for longer periods only with your consent, pending
acceptance of the application. If the application is rejected, the application
and any payments will be returned to you.
Allocating Payments to the Investment Options. We will allocate your payments
among the investment options you select. Allocations must be in whole
percentages and there may be limits on the number of investment options you may
select. When selecting investment options, you may find it helpful to review
the "Investment Options" section.
20
<PAGE>
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract or certificate within ten
days of receipt (some states allow longer) by returning it to our Home Office
along with a written notice of cancellation.
Refunds. We will issue you a refund within seven days of our receipt of your
contract or certificate and written notice of cancellation. Unless your state
requires otherwise or unless you purchased an IRA, your refund will equal the
payments made plus any earnings or minus any losses attributable to those
payments allocated among the subaccounts. In other words, you will bear the
entire investment risk for amounts allocated among the subaccounts during this
period and the amount refunded could be less than the amount paid. If your
state requires or if you purchased an IRA, we will refund all payments made.
If the payments for your canceled contract came from a rollover from another
contract issued by us or one of our affiliates where an early withdrawal charge
was reduced or eliminated, the payments will be restored to your prior
contract.
21
<PAGE>
Transfers Between Option Packages
- --------------------------------------------------------------------------------
You may transfer from one option package to another.
> Transfers must occur on an account anniversary
> A written request for the transfer must be received by us within 60 days of an
account anniversary
> The following initial payment minimums need to be met
<TABLE>
<CAPTION>
Transfers to Transfers to
Option Package I Option Packages II or III
--------------------------- --------------------------
Minimum Initial Non- Non-
Payment/Account Value Qualified: Qualified: Qualified: Qualified:
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$15,000 $1,500 $5,000 $1,500
</TABLE>
> You will receive a new contract schedule page upon transfer
> Only one option package may be in effect at any time
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Transfers to Transfers to Transfers to
Option Package I Option Package II Option Package III
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Death Benefit(1): Death Benefit(1): Death Benefit(1):
o The sum of all payments o The sum of all payments o The sum of all payments
made, adjusted for made, adjusted for made, adjusted for
amounts withdrawn or amounts withdrawn or amounts withdrawn or
applied to an income applied to an income applied to an income
phase payment as of the phase payment as of the phase payment as of the
claim date claim date claim date
o The "step-up value" o If transferring from o If transferring from
under option packages option package I, the option package I, the
II and III will terminate "step-up value" will be "step-up value" will be
on the new schedule calculated beginning calculated beginning
effective date on the new schedule on the new schedule
o The "roll-up value" effective date effective date
under option package o If transferring from o If transferring from
III will terminate on the option package III, the option package II, the
new schedule effective "step-up value" will "step-up value" will
date continue to be calculated continue to be calculated
from the date calculated from the date calculated
under option package III under option package II
o The "roll-up value" under o The "roll-up value" will
option package III will be calculated beginning
terminate on the new on the new schedule
schedule effective date effective date
- ---------------------------------------------------------------------------------------------
Nursing Home Waiver(2): Nursing Home Waiver(2): Nursing Home Waiver(2):
o The availability of the o If transferring from o If transferring from
Nursing Home Waiver option package I, the option package I, the
-- Waiver of Early waiting period under the waiting period under
Withdrawal Charge will Nursing Home Waiver the Nursing Home
terminate on the new will begin to be Waiver will begin to be
schedule effective date measured from the new measured from the new
schedule effective date schedule effective date
o If transferring from o If transferring from
option package III, the option package II, the
waiting period will have waiting period will have
been satisfied on the new been satisfied on the new
schedule effective date schedule effective date
- ---------------------------------------------------------------------------------------------
Free Withdrawals(3): Free Withdrawals(3): Free Withdrawals(3):
o If transferring from o If transferring from o The cumulative to 30%
option package III, any option package III, any available free withdrawal
available free withdrawal available free withdrawal amount will begin to be
amount in excess of 10% amount in excess of 10% calculated as of the new
will be lost as of the new will be lost as of the new schedule effective date
schedule effective date schedule effective date
- ---------------------------------------------------------------------------------------------
</TABLE>
(1)See "Death Benefit."
(2)See "Fees--Nursing Home Waiver."
(3)See "Fees--Free Withdrawals."
22
<PAGE>
[begin callout box]
Types of Fees
There are four types of fees that may affect your account.
TRANSACTION FEES
o Early Withdrawal Charge
o Annual Maintenance Fee
o Transfer Charge
FEES DEDUCTED FROM
INVESTMENTS IN THE
SUBACCOUNTS
o Mortality and Expense
Risk Charge
o Administrative Expense
Charge
FEES DEDUCTED BY THE FUNDS
o Investment Advisory Fees
o Other Expenses
PREMIUM AND OTHER
TAXES
[end callout box]
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. Please review both sections for information on fees.
TRANSACTION FEES
Early Withdrawal Charge
Withdrawals of all or a portion of your account value may be subject to a
charge.
Amount: A percentage of the amount that you withdraw. The percentage will be
determined by the early withdrawal charge schedule that applies to your
account.
Early Withdrawal Charge Schedules
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Contracts Other Than Roth IRA Contracts: Roth IRA Contracts:
- -----------------------------------------------------------------------------------
Early Early
Years From Receipt Withdrawal Completed Account Withdrawal
of Payment Charge Years* Charge
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 2 7% Less than 1 5%
2 or more but less than 4 6% 1 or more but less than 2 4%
4 or more but less than 5 5% 2 or more but less than 3 3%
5 or more but less than 6 4% 3 or more but less than 4 2%
6 or more but less than 7 3% 4 or more but less than 5 1%
7 or more 0% 5 or more 0%
- -----------------------------------------------------------------------------------
</TABLE>
*If a payment to a Roth IRA is a rollover from another contract issued by us or
an affiliate of ours and the early withdrawal charge has been waived, the early
withdrawal charge is based upon the number of completed years since the date of
the initial payment to the former contract.
Purpose: This is a deferred sales charge. It reimburses us for some of the
sales and administrative expenses associated with the contract. Our remaining
sales and administrative expenses will be covered by our general assets which
are attributable in part to the mortality and expense risk charge described in
this section.
First In, First Out. The early withdrawal charge is calculated separately for
each payment withdrawn. For purposes of calculating your early withdrawal
charge, we consider that your first payment to the account (first in) are also
the dollars you first withdraw (first out).
For example: For contracts other than a Roth IRA, we calculate the early
withdrawal charge based upon the number of years since the payment was
received. If your initial payment was made three years ago, we will deduct an
early withdrawal charge equal to 6% of the portion of that payment withdrawn.
The next time you make a withdrawal we will assess the charge against the
portion of the first payment that you did not withdraw and/or your subsequent
payments to your account in the order they were received.
For Roth IRAs, we will calculate the early withdrawal charge based upon the
number of completed account years. If your initial payment was made three years
ago, we will deduct an early withdrawal charge equal to 2% of the portion of
that payment withdrawn. For both non-Roth IRAs and Roth IRAs, the next time you
make a withdrawal we will assess the charge against the portion of the first
payment that you did not withdraw and/or your subsequent payments to your
account in the order they were received.
23
<PAGE>
Earnings may be withdrawn after all payments have been withdrawn. There is no
early withdrawal charge for withdrawal of earnings.
Free Withdrawals. There is no early withdrawal charge if, during each account
year, the amount withdrawn is 10% or less than your current account value on
the date the withdrawal request is received at our Home Office. Under option
package III, any unused percentage of the 10% free withdrawal amount shall
carry forward into successive account years, up to a maximum 30% of your
account value.
The free withdrawal amount will be adjusted for amounts withdrawn under a
systematic distribution option or taken as a required minimum distribution
during the account year.
Waiver: The early withdrawal charge is waived for payments withdrawn if the
withdrawal is based upon any of the following:
> Used to provide payments to you during the income phase
> Paid due to the annuitant's death during the accumulation phase in an amount
up to the sum of payments made, minus the total of all partial withdrawals,
amounts applied to an income phase payment and deductions made prior to the
annuitant's death.
> Paid on a full withdrawal where your account value is $2,500 or less and no
part of the account has been withdrawn during the prior 12 months
> Taken because of the election of a systematic distribution option (See
"Systematic Distribution Options")
> Applied as a rollover to certain Roth IRAs issued by us or an affiliate
> Taken under a qualified contract, when the amount withdrawn is equal to the
minimum distribution required by the Tax Code for your account calculated
using a method permitted under the Tax Code and agreed to by the Company
> Paid upon termination of your account by us (see "Other Topics -- Involuntary
Terminations")
Reduction or Elimination: We may reduce or eliminate the early withdrawal
charge if we anticipate savings on our administrative expenses due to any one
of the following:
> The size and type of group to whom the contract is offered
> The amount of expected payments
> A prior or existing relationship with the Company such as being an employee of
the Company or any affiliate, receiving distributions or making transfers from
other contracts issued by us, or transferring amounts held under qualified
retirement plans sponsored by us or one of our affiliates
We will not unfairly discriminate against any person if we reduce or eliminate
the early withdrawal charge. Any reduction or elimination of this fee will be
subject to state approval.
Nursing Home Waiver: Under option packages II and III, you may withdraw all or
a portion of your account value without an early withdrawal charge if:
> More than one account year has elapsed since the schedule effective date
> The withdrawal is requested within three years of the annuitant's admission to
a licensed nursing care facility (in Oregon there is no three year limitation
period and in New Hampshire non-licensed facilities are included)
> The annuitant has spent at least 45 consecutive days in a licensed nursing
care facility
24
<PAGE>
We will not waive the early withdrawal charge if the annuitant was in a nursing
care facility for at least one day during the two week period immediately
preceding or following the schedule effective date. It will also not apply if
otherwise prohibited by state law.
Annual Maintenance Fee
Maximum Amount: $30.00
When/How: Each year during the accumulation phase we deduct this fee from your
account value. We deduct it on your account anniversary and at the time of full
withdrawal. It is deducted proportionally from each investment option.
Purpose: This fee reimburses our administrative expenses relating to the
establishment and maintenance of your account.
Elimination: We will not deduct the annual maintenance fee if your account
value is $50,000 or more on the date the annual maintenance fee is deducted.
Reduction or Elimination: We may reduce or eliminate the annual maintenance
fee. Factors we consider reflect differences in our level of administrative
costs and services, such as:
> The size and type of the group to whom the contract is offered
> The amount of expected payments
We will not unfairly discriminate against any person if we reduce or eliminate
the annual maintenance fee. Any reduction or elimination of this fee will be
done according to our own rules in effect at the time a contract is issued. We
reserve the right to change these rules from time to time.
Transfer Charge
Amount: During the accumulation phase, we currently allow you 12 free transfers
each account year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge.
Purpose: This fee reimburses the Company for administrative expenses associated
with transferring your dollars among investment options.
FEES DEDUCTED FROM THE SUBACCOUNTS
Mortality and Expense Risk Charge
Maximum Amount: This charge, on an annual basis, is equal to the following
percentages of your account value invested in the subaccounts:
<TABLE>
<CAPTION>
Option Package I Option Package II Option Package III
- ------------------ ------------------- -------------------
<S> <C> <C>
0.80% 1.10% 1.25%
</TABLE>
When/How: We deduct this fee daily from the subaccounts corresponding to the
funds you select. We do not deduct this fee from any fixed interest option.
Purpose: This fee compensates us for the mortality and expense risks we assume
under the contract.
> The mortality risk is the risk associated with our promise to make lifetime
payments based on annuity rates specified in the contract.
> The expense risk is the risk that the actual expenses we incur under the
contracts will exceed the maximum costs that we can charge.
25
<PAGE>
If the amount we deduct for this fee is not enough to cover our mortality costs
and expenses under the contract, we will bear the loss. You may use any excess
to recover distribution costs relating to the contract and as a source of
profit. We expect to make a profit from this fee.
Reduction: We will reduce this fee based upon consideration of one or more of
the following:
> The size and type of the group to whom the contract is offered
> The type and frequency of administrative and sales services provided
> The level of annual maintenance fee and early withdrawal charges
We will not unfairly discriminate against any person if we reduce the mortality
and expense risk charge. Any reduction or elimination of his fee will be done
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.
Administrative Expense Charge
Maximum Amount: This charge is equal to the following percentages of your
account value invested in the subaccounts during the accumulation phase:
<TABLE>
<CAPTION>
Option Package I Option Package II Option Package III
- ------------------ ------------------- -------------------
<S> <C> <C>
0.15% 0.15% 0.15%
</TABLE>
There is currently no administrative expense charge during the income phase,
however, we reserve the right to charge an administrative expense fee of up to
0.25% during the income phase.
When/How: If imposed, we deduct this fee daily from the subaccounts
corresponding to the funds you select. We do not deduct this fee from the fixed
interest options. This charge may be assessed during the accumulation phase or
the income phase. If we are imposing this fee when you enter the income phase,
the fee will apply to you during the entire income phase.
Purpose: This fee helps defray our administrative expenses that cannot be
covered by the mortality and expense risk charges described above. The charge
is not intended to exceed the average expected cost of administering the
contracts. We do not expect to make a profit from this fee.
Reduction or Elimination: We may reduce or eliminate the administrative expense
charge. Factors we consider reflect differences in our level of administrative
costs and services, such as:
> The size and type of the group to whom the contract is offered
> The amount of expected payments
We will not unfairly discriminate against any person if we reduce or eliminate
the administrative expense charge. Any reduction or elimination of this fee
will be done according to our rules in effect at the time a contract is issued.
We reserve the right to change these rules from time to time.
FUND EXPENSES
Maximum Amount: Each fund's advisory fee and expenses are different. They are
set forth in "Fee Table--Fees Deducted by the Funds" and described in more
detail in each fund prospectus.
26
<PAGE>
When/How: The fund fees are not deducted from your account value. Instead, fund
expenses are reflected in the daily value of fund shares, which in turn will
affect the daily value of the subaccounts.
Purpose: These expenses help to pay the fund investment advisor and operating
expenses.
PREMIUM AND OTHER TAXES
Maximum Amount: Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon
jurisdiction.
When/How: We reserve the right to deduct premium taxes from your account value
or from payments to the account at any time, but not before there is a tax
liability under state law. Our current practice is to deduct premium taxes at
the time of a complete withdrawal or the commencement of income payments. We
will not deduct any municipal premium tax of 1% or less, but we reserve the
right to reflect such an expense in our annuity purchase rates.
In addition, the Company reserves the right to assess a charge for any federal
taxes due against the separate account. See "Taxation."
Your Account Value
- --------------------------------------------------------------------------------
During the accumulation phase, your account value at any given time equals:
> The current dollar value of amounts invested in the subaccounts; plus
> The current dollar values of amounts invested in the fixed interest options,
including interest earnings to date
Subaccount Accumulation Units. When a fund is selected as an investment option,
your account dollars invest in "accumulation units" of the Variable Annuity
Account B subaccount dedicated to that fund. The subaccount invests directly in
the fund shares. The value of your interests in a subaccount is expressed as
the number of accumulation units you hold multiplied by an "Accumulation Unit
Value," as described below, for each unit.
Accumulation Unit Value (AUV). The value of each accumulation unit in a
subaccount is called the accumulation unit value or AUV. The AUV varies daily
in relation to the underlying fund's investment performance. The value also
reflects deductions for fund fees and expenses, the mortality and expense risk
charge, and the administrative charge (if any). We discuss these deductions in
more detail in "Fee Table" and "Fees."
Valuation. We determine the AUV every business day after the close of the New
York Stock Exchange. At that time, we calculate the current AUV by multiplying
the AUV last calculated by the "net investment factor" of the subaccount. The
net investment factor measures the investment performance of the subaccount
from one valuation to the next.
Current AUV = Prior AUV x Net Investment Factor
Net Investment Factor. The net investment factor for a subaccount between two
consecutive valuations equals the sum of 1.0000 plus the net investment rate.
27
<PAGE>
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
> The net assets of the fund held by the subaccount as of the current valuation;
minus
> The net assets of the fund held by the subaccount at the preceding valuation;
plus or minus
> Taxes or provisions for taxes, if any, due to subaccount operations (with any
federal income tax liability offset by foreign tax credits to the extent
allowed); divided by
> The total value of the subaccount's units at the preceding valuation; minus
> A daily deduction for the mortality and expense risk charge and the
administrative expense charge (if any). See "Fees."
The net investment rate may be either positive or negative.
28
<PAGE>
Hypothetical Illustration. As a hypothetical illustration, assume that an
investor contributes $5,000 to his account and directs us to invest $3,000 in
Fund A and $2,000 in Fund B. After receiving the contribution and following the
next close of business of the New York Stock Exchange, the applicable AUV's are
$10 for Subaccount A, and $25 for Subaccount B. The investor's account is
credited with 300 accumulation units of Subaccount A, and 80 accumulation units
of Subaccount B.
Step 1: An investor contributes $5000 [typeset representation of graphic]
$5,000 contribution
Step 2: Step 1
A. He directs us to invest
$3,000 in Fund A. His Aetna Life Insurance and Annuity Company
dollars purchase 300
accumulation units of Step 2
Subaccount A ($3,000
divided by the current Variable Annuity Account B
$10 AUV).
B. He directs us to invest Subaccount A Subaccount B Etc.
$2,000 in Fund B. His 300 80
dollars purchase 80 accumulation accumulation
accumulation units of units units
Subaccount B ($2,000
divided by the current
$25 AUV).
Step 3: The separate Step 3
account then purchases
shares of the applicable Fund A Fund B
funds at the current
market value (NAV).
The fund's subsequent
investment performance,
expenses and charges, and
the daily charges deducted
from the subaccount, will
cause the AUV to move up or down on a daily basis.
[end graphic]
Payments to Your Account. If all or a portion of initial payments are directed
to the subaccounts, they will purchase subaccount accumulation units at the AUV
next computed after our acceptance of the applicable application or
participation forms as described in "Purchase." Subsequent payments or
transfers directed to the subaccounts will purchase subaccount accumulation
units at the AUV next computed following our receipt of the payment or transfer
request. The value of subaccounts may vary day to day.
29
<PAGE>
[begin callout box]
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
> Early Withdrawal Charge
(see "Fees--Early
Withdrawal Charge")
> Maintenance Fee (see
"Fees--Maintenance Fee")
> Market Value Adjustment
for amounts held in the
Guaranteed Account (see
Appendix I and the
Guaranteed Account
prospectus)
> Tax Penalty (see
"Taxation")
> Tax Withholding (see
"Taxation")
To determine which may
apply, refer to the appropriate
sections of this prospectus,
contact your local
representative or call us at the
number listed in "Contract
Overview--Questions."
[end callout box]
Withdrawals
- --------------------------------------------------------------------------------
You may withdraw all or a portion of your account value at any time during the
accumulation phase. If you participate in the contract through a 403(b) plan,
certain restrictions apply. See "Restrictions on Withdrawals From 403(b) Plan
Accounts."
Steps for Making A Withdrawal
> Select the withdrawal amount
1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Account
(plus or minus any applicable market value adjustment) and the Fixed
Account, minus any applicable early withdrawal charge and annual
maintenance fee.
2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify,
subject to the value available in your account. However, the amount
actually withdrawn from your account will be adjusted by any applicable
early withdrawal charge for amounts withdrawn from the subaccounts, the
Guaranteed Account and/or the Fixed Account, and any positive or negative
market value adjustment for amounts withdrawn from the Guaranteed Account.
See Appendices I and II and the Guaranteed Account prospectus for more
information.
> Select investment options. If you do not specify this, we will withdraw
dollars proportionally from each of your investment options
> Properly complete a disbursement form and deliver it to our Home Office
Restrictions on Withdrawals From 403(b) Plan Accounts
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.
Calculation of Your Withdrawal. We determine your account value every normal
business day after the close of the New York Stock Exchange. We pay withdrawal
amounts based upon your account value as of the next valuation after we receive
a request for withdrawal in good order at our Home Office.
Delivery of Payment. Payments for withdrawal requests will be made in
accordance with SEC requirements. Normally, your withdrawal amount will be sent
no later than seven calendar days following our receipt of your properly-
completed disbursement form.
Reinvesting a Full Withdrawal. Within 30 days after a full withdrawal, if
allowed by law and the contract, you may elect to reinvest all or a portion of
your withdrawal. We must receive reinvested amounts within 60 days of the
withdrawal; however, we reserve the right to accept a reinvestment election
received more than 30 days after the withdrawal and accept proceeds received
more than 60 days after the withdrawal. We will credit the account for the
amount reinvested based upon the subaccount values next computed following our
receipt of your request and the amount to be reinvested. We will credit the
30
<PAGE>
amount reinvested proportionally for maintenance fees and early withdrawal
charges imposed at the time of withdrawal. We will deduct from the amounts
reinvested any maintenance fee which fell due after the withdrawal and before
the reinvestment. We will reinvest in the same investment options and
proportions in place at the time of withdrawal. The reinvestment privilege may
be used only once. Special rules apply to reinvestments of amounts withdrawn
from the Guaranteed Account (see Appendix I and the Guaranteed Account
prospectus). We will not credit your account for market value adjustments that
we deducted at the time of your withdrawal. Seek competent advice regarding the
tax consequences associated with reinvestment.
31
<PAGE>
[begin callout box]
Features of a Systematic Distribution Option (SDO)
A SDO allows you to receive regular payments from your contract, without moving
into the income phase. By remaining in the accumulation phase, you retain
certain rights and investment flexibility not available during the income
phase.
[end callout box]
Systematic Distribution Options
- --------------------------------------------------------------------------------
The following SDOs may be available:
> SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on a payment method you select. Consider
this option if you would like a periodic income while retaining investment
flexibility for amounts accumulated under the account.
> ECO--Estate Conservation Option. ECO offers the same investment flexibility as
SWO, but is designed for those who want to receive only the minimum
distribution that the Tax Code requires each year.
Under ECO, we calculate the minimum distribution amount required by law,
generally at age 70-1/2, and pay you that amount once a year. ECO is not
available under nonqualified contracts. An early withdrawal charge will not be
deducted from and a market
value adjustment will not be applied to any part of your account value paid
under an ECO.
> LEO--Life Expectancy Option. LEO provides for annual payments for a number of
years equal to your life expectancy or the life expectancy of you and a
designated beneficiary. It is designed to meet the substantially equal
periodic payment exception to the 10% premature distribution penalty under Tax
Code section 72. See "Taxation."
Other SDOs We may add additional SDOs from time to time. You may obtain
additional information relating to any of the SDOs from your local
representative or by calling us at the number listed in "Contract Overview--
Contract Questions."
Eligibility for an SDO. To determine if you meet the age and account value
criteria and to assess terms and conditions that may apply, contact your local
representative or the Company at the number listed in "Contract Overview--
Questions."
SDO Availability. If allowed by applicable law, we reserve the right to
discontinue the availability of one or all of the SDOs for new elections at any
time, and/or to change the terms of future elections.
Terminating an SDO. You may revoke an SDO at any time by submitting a written
request to our Home Office. ECO, once revoked, may not, unless allowed under
the Tax Code, be elected again.
Charges and Taxation. When you elect an SDO, your account value remains in the
accumulation phase and subject to the charges and deductions described in the
"Fees" and "Fee Table" sections. Taking a withdrawal under an SDO may have tax
consequences. If you are concerned about tax implications, consult a qualified
tax advisor before electing an option.
32
<PAGE>
[begin callout box]
This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income
phase see "Income Phase."
Terms to Understand:
Account Year/Account Anniversary: A period of 12 months measured from the date
we established your account and each 12 month period thereafter. Account
anniversaries are measured from this date.
Annuitant: The person(s) on whose life or life expectancy(ies) the income phase
payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
Claim Date: The date proof of death and the beneficiary's right to receive the
death benefit are received in good order at our Home Office.
Contract Holder (You/Your): The contract holder of an individually owned
contract or the certificate holder of a group contract. The contract holder and
annuitant may be the same person.
Schedule Effective Date: The date an option package and benefits become
effective. Thereafter, the initial schedule effective date equals the date we
established your account. Thereafter, this date can occur only on an account
anniversary.
[end callout box]
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives the Death Benefit? If you would like certain individuals or
entities to receive the death benefit when it becomes payable, you may name
them as your beneficiaries. However, if you are a joint contract holder and you
die, the beneficiary will automatically be the surviving joint contract holder.
In this circumstance, any other beneficiary you named will be treated as the
primary or contingent beneficiary, as originally named, of the surviving joint
contract holder. The surviving joint contract holder may change the beneficiary
designation. If you die and no beneficiary exists, the death benefit will be
paid in a lump sum to your estate.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your local representative or calling us at the
number listed in "Contract Overview--Questions."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when the contract holder or the annuitant dies. If there are joint
contract holders, the death benefit is payable when either one dies.
Prior to the election of a death benefit payment by the beneficiary, the
account value will remain in the account and 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).
Death Benefit Amount
The death benefit depends upon the option package in effect on the date the
annuitant dies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Option Package I Option Package II Option Package III
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Death Benefit The greater of: The greatest of: The greatest of:
on Death of (1) The sum of (1) The sum of (1) The sum of
the Annuitant: all payments all payments all payments
made, adjusted made, adjusted made, adjusted
for amounts for amounts for amounts
withdrawn or withdrawn or withdrawn or
applied to an applied to an applied to an
income phase income phase income phase
payment as of the payment as of the payment as of
claim date; or claim date; or the claim date; or
(2) The account (2) The account (2) The account
value on the value on the value on the
claim date claim date; or claim date; or
(3) The "step-up (3) The "step-up
value" (as value" (as
described below) described below)
on the claim date on the claim
date; or
(4) The "roll-up
value" (as
described below)
on the claim date
- --------------------------------------------------------------------------------
</TABLE>
Step-up Value. On the schedule effective date, the step-up value is equal to
the greater of:
> The account value; or
33
<PAGE>
> The step-up value, if any, calculated on the account anniversary prior to the
schedule effective date, adjusted for payments made and amounts withdrawn or
applied to an income phase payment option during the prior account year
Thereafter, once each year on the anniversary of the schedule effective date
until the anniversary immediately preceding the annuitant's 85th birthday or
death, whichever is earlier, the step-up value is equal to the greater of:
> The step-up value most recently calculated, adjusted for payments made and
amounts withdrawn or applied to an income phase payment option during the
prior account year; or
> The account value on that anniversary of the schedule effective date
On each anniversary of the schedule effective date after the annuitant's 85th
birthday, the step-up value shall be equal to the step-up value on the
anniversary immediately preceding the annuitant's 85th birthday, adjusted for
payments made and amounts withdrawn or applied to an income phase payment
option since that anniversary.
On the claim date, the step-up value shall equal the step-up value on the
anniversary of the schedule effective date immediately preceding the
annuitant's death, adjusted for payments made and amounts withdrawn or applied
to an income phase payment option since that anniversary.
Roll-up Value. On the schedule effective date, the roll-up value is equal to
the account value. Thereafter, once each year on the anniversary of the
schedule effective date until the anniversary immediately preceding the
annuitant's 76th birthday or death, whichever is earlier, the roll-up value is
equal to the roll-up value most recently calculated multiplied by a factor of
1.05, adjusted for payments made and amounts withdrawn or applied to an income
phase payment option during the prior account year. The roll-up value may not
exceed 200% of the account value on the schedule effective date, adjusted for
payments made and amounts withdrawn or applied to an income phase payment
option since that date.
On each anniversary of the schedule effective date after the annuitant's 76th
birthday, the roll-up value shall be equal to the roll-up value on the
anniversary immediately preceding the annuitant's 76th birthday, adjusted for
payments made and amounts withdrawn or applied to an income phase payment
option since that anniversary. On the claim date, the roll-up value shall equal
the roll-up value on the anniversary of the schedule effective date immediately
preceding the annuitant's death, adjusted for payments made and amounts
withdrawn or applied to an income phase payment option since that anniversary.
Adjustment. For purposes of determining the death benefit, the adjustment for
payments made and amounts withdrawn or applied to an income phase payment
option will increase or reduce the sum of all payments made, step-up value
and/or roll-up value in the same proportion that the account value was
increased or reduced on the date of the payment, withdrawal or application to
an income phase payment option.
Death Benefit Greater than the Account Value. Notwithstanding which option
package is selected, on the claim date, if the amount of the death benefit is
greater than the account value, the amount by which the death benefit exceeds
the account value will be deposited and allocated to the money market
subaccount available under the contract.
34
<PAGE>
Death Benefit Amounts in Certain Cases
If the Contract Holder is not the Annuitant. Under nonqualified contracts only,
if the contract holder who is not the annuitant dies, the death benefit
described above under option packages I, II and III will not apply. Rather, the
amount paid will be equal to the account value on the date the payment is
processed, plus or minus any market value adjustment. An early withdrawal
charge may apply to any full or partial payment of this death benefit.
If the spousal beneficiary continues the account at the death of the contract
holder who was not the annuitant, the annuitant will not change and the death
benefit described above under option packages I, II and III will not apply.
Rather, the death benefit on the spousal beneficiary's death will equal the
account value on the date the payment is processed plus or minus any market
value adjustment, and minus any applicable early withdrawal charge.
If a Spousal Beneficiary Continues the Account. If the spousal beneficiary
continues the account at the death of the contract holder who was also the
annuitant, the spousal beneficiary becomes the annuitant. The option package in
effect at the death of the contract holder will also apply to the spousal
beneficiary, unless later changed by the spousal beneficiary.
The amount of the death benefit payable at the death of a spousal beneficiary
who continues the account shall be determined under the option package in
effect and as described above, except that:
(1) In calculating the sum of all payments made, adjusted for amounts withdrawn
or applied to an income phase payment as of the claim date, the account
value on the claim date of the original contract holder's/
annuitant's death shall be treated as the initial payment
(2) In calculating the "step-up value", the "step-up value" on the claim date
of the original contract holder's/annuitant's death shall be the initial
"step-up value"
(3) In calculating the "roll-up value", the "roll-up value" on the claim date
of the original contract holder's/annuitant's death shall be the initial
"roll-up value"
Because the death benefit equals the account value, plus or minus any market
value adjustment, in this situation, a contract holder who is not also the
annuitant should seriously consider whether option packages II or III are
suitable for their circumstances.
Guaranteed Account. For amounts held in the Guaranteed Account, see Appendix I
for a discussion of the calculation of the death benefit.
Death Benefit--Methods of Payment
For Qualified Contracts. Under a qualified contract, if the annuitant dies the
beneficiary has the following three options:
> Apply some or all of the account value, plus or minus any market value
adjustment, to any of the income phase payment options (subject to the Tax
Code distribution rules)
> Receive, at any time, a lump sum payment equal to all or a portion of the
account value, plus or minus any market value adjustment, or
> Elect SWO, ECO or LEO (described in "Systematic Distribution Options"),
provided the election would satisfy the Tax Code minimum distribution rules
Payments from a Systematic Distribution Option. If the annuitant was receiving
payments under SWO, ECO or LEO and died before the Tax Code's required
35
<PAGE>
beginning date for minimum distributions, payments under SWO, ECO or LEO will
stop. The beneficiary, or contract holder on behalf of the beneficiary, may
elect SWO, ECO or LEO provided the election is permitted under the Tax Code
minimum distribution rules. If the annuitant dies after the required beginning
date for minimum distributions, payments will continue as permitted under the
Tax Code minimum distribution rules, unless the option is revoked.
Other Payment Option. Subject to Tax Code limitations, you may leave your
account value invested in the contract.
Taxation. Death benefit payments must satisfy the distribution rules in Tax
Code Section 401(a)(9). See "Taxation."
For Nonqualified Contracts.
1) 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, then the beneficiary becomes the successor
contract holder.
As the successor contract holder, the beneficiary may exercise all rights
under the account and has the following options:
(a) Continue the contract in the accumulation phase
(b) Elect to apply some or all of the account value, plus or minus any
market value adjustment, to any of the income phase payment options
(c) Receive at any time a lump-sum payment equal to all or a portion of the
account value, plus any market value adjustment. If you die and are not
the annuitant, an early withdrawal charge will apply if a lump sum is
elected.
In this circumstance, the Tax Code does not require distributions under the
contract until the successor contract holder's death.
2) If you die and the beneficiary is not your surviving spouse, he or she may
elect option 1(b) or option 1(c) above.
In this circumstance, the Tax Code requires any portion of the account
value, plus or minus any market value adjustment, not distributed in
installments over the beneficiary's life or life expectancy, beginning
within one year of your death, must be paid within five years of your
death. See "Taxation."
3) If you are a natural person but not the annuitant and the annuitant dies,
the beneficiary may elect option 1(b) or 1(c) above. If the beneficiary
does not elect option 1(b) within 60 days from the date of death, the gain,
if any, will be included in the beneficiary's income in the year the
annuitant dies.
Payments from a Systematic Distribution Option. If the contract holder or
annuitant dies and payments were made under SWO, payments will stop. A
beneficiary, however, may elect to continue SWO.
Taxation. Your beneficiary(ies) may be subject to tax penalties if they do not
begin receiving death benefit payments within a time frame required by the Tax
Code. See "Taxation."
36
<PAGE>
[begin callout box]
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Payment Option
Annuity Payment--Income Phase Payment
[end callout box]
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to the account and start
receiving payments from your accumulated account value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments, you must notify us in writing of all of the following:
> Start date
> Payment option (see the payment options table in this section)
> Payment frequency (i.e., monthly, quarterly, semi-annually or annually)
> Choice of fixed or variable payments
> Selection of an assumed net investment rate (only if variable payments are
elected)
The account will continue in the accumulation phase until you properly initiate
payments. Once a payment option is selected, it may not be changed.
What Affects Payment Amounts? Some of the factors that may affect payment
amounts include: Your age, your gender, your account value, the payment option
selected, number of guaranteed payments (if any) selected, and whether you
select variable or fixed payments.
Fixed Payments. Amounts funding fixed payments will be held in the Company's
general account. Fixed payment amounts do not vary over time.
Variable Payments. Amounts funding your variable income payments will be held
in the subaccount(s) you select. Payment amounts will vary depending upon the
performance of the subaccounts you select. For variable payments, an assumed
net investment rate must be selected.
You may also select a combination of both fixed and variable payments.
Assumed Investment Rate. For variable payments, an assumed net investment rate
must be selected. If you select a 5% rate, your first payment will be higher,
but subsequent payments will increase only if the investment performance of the
subaccounts you selected is greater than 5% annually, after deduction of fees.
Payment amounts will decline if the investment performance is less than 5%,
after deduction of fees.
If you select a 3-1/2% rate, your first payment will be lower and subsequent
payments will increase more rapidly or decline more slowly depending upon
changes to the net investment rate of the subaccounts you selected. For more
information about selecting an assumed net investment rate, call us for a copy
of the SAI. See "Contract Overview--Questions."
Minimum Payment Amounts. The payment option you select must result in:
> A first payment of at least $50, or
> total yearly payments of at least $250
If your account value is too low to meet these minimum payment amounts, you
will receive one lump sum payment. Unless prohibited by law, we reserve the
right to increase the minimum payment amount based upon increases reflected in
the Consumer Price Index-Urban (CPI-U), since July 1, 1993.
37
<PAGE>
Restrictions on Start Dates and the Duration of Payments. Payments may not
begin during the first account year, 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 payment made to your account
For qualified contracts only, payments may not extend beyond:
(a) The life of the annuitant
(b) The joint lives of the annuitant and beneficiary
(c) A guaranteed period greater than the annuitant's life expectancy
(d) A guaranteed period greater than the joint life expectancies of the
annuitant and beneficiary
When payments start, the age of the annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
See "Taxation" for further discussion of rules relating to income phase
payments.
Charges Deducted. We make a daily deduction for mortality and expense risks
from amounts held in the subaccounts. Therefore, if you choose variable
payments and a nonlifetime payment option, we still make this deduction from
the subaccounts you select, even though we no longer assume any mortality
risks. We may also deduct a daily administrative charge from amounts held in
the subaccounts. See "Fees."
Death Benefit during the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the payment option table below. If a lump-sum
payment is due as a death benefit, we will make payment within seven calendar
days after we receive proof of death acceptable to us and the request for the
payment at our Home Office. If the continuing payments are elected, the
beneficiary may not elect to receive a lump sum at a future date unless the
option specifically allows a withdrawal right. We will calculate the value of
any death benefit at the next valuation after we receive proof of death and a
request for payment. Such value will be reduced by any payments made after the
date of death.
Beneficiary Rights. A beneficiary's right to elect an income phase payment
option or receive a lump sum payment may have been restricted by the contract
holder. If so, such rights or options will not be available to the beneficiary.
Partial Entry into the Income Phase. You may elect a payment option for a
portion of your account dollars, while leaving the remaining portion invested
in the accumulation phase. Whether the Tax Code considers such payments taxable
as income phase payments or as withdrawals is currently unclear; therefore, you
should consult with a qualified tax adviser before electing this option.
Taxation. To avoid certain tax penalties, you or your beneficiary must meet the
distribution rules imposed by the Tax Code. Additionally, when selecting a
payment option, the Tax Code requires that your expected payments will not
exceed certain amounts. See "Taxation" for additional information.
38
<PAGE>
Payment Options.
The following pages list the payment plan options and accompanying death
benefits available during the income phase. We may offer additional payment
options under the contract from time to time.
Once income phase payments begin, you may not change the payment option
selected.
Terms to understand:
Annuitant: The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary: The person(s) or entity(ies) entitled to receive a death benefit.
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lifetime Payment Options
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be
Life Income made should the annuitant die prior to the second payment's due date.
Death Benefit--None: All payments end upon the annuitant's death.
- ------------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice
Life Income-- of 5-30 years or as otherwise specified in the contract.
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Payments guaranteed payments, we will pay the beneficiary a lump-sum (unless otherwise requested) equal
to the present value of the remaining guaranteed payments.
- ------------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made should both annuitants die before the second payment's due date.
Continuing Payments:
Life Income-- a) When you select this option you choose for 100%, 66-2/3% or 50% of the payment to continue
Two Lives to the surviving annuitant after the first death; or
b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment will continue to the second annuitant on the annuitant's death.
- ------------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed from 5-30
Life Income -- years or as otherwise specified in the contract.
Two Lives -- Continuing Payments: 100% of the payment to continue after the first death.
Guaranteed Death Benefit--Payment to the Beneficiary: If both annuitants die before the guaranteed
Payments payments have all been paid, we will pay the beneficiary a lump sum (unless otherwise requested)
equal to the present value of the remaining guaranteed payments.
- ------------------------------------------------------------------------------------------------------------------------------------
Life Income-- Length of Payments: For as long as the annuitant lives.
Cash Refund Death Benefit--Payment to the Beneficiary: Following the annuitant's death, we will pay a lump
Option (limited sum payment equal to the amount originally applied to the payment option (less any premium
availability -- tax) and less the total amount of income payments paid.
fixed payment
only)
- ------------------------------------------------------------------------------------------------------------------------------------
Life Income-- Length of Payments: For as long as either annuitant lives.
Two Lives--Cash Continuing Payments: 100% of the payment to continue after the first death.
Refund Option Death Benefit--Payment to the Beneficiary: When both annuitants die, we will pay a lump sum
(limited payment equal to the amount applied to the payment option (less any premium tax) and less the
availability--fixed total amount of income payments paid.
payment only)
- ------------------------------------------------------------------------------------------------------------------------------------
Nonlifetime Payment Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Length of Payments: You may select payments for 5 to 30 years. In certain cases a lump-sum
Nonlifetime-- payment may be requested at any time (see below).
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the
Payments guaranteed payments, we will pay the beneficiary a lump-sum (unless otherwise requested) equal
to the present value of the remaining guaranteed payments, and we will not impose any early
withdrawal charge.
- ------------------------------------------------------------------------------------------------------------------------------------
Lump-sum Payment: If the "Nonlifetime--Guaranteed Payments" option is elected with variable payments, you may request at any time
that all or a portion of the present value of the remaining payments be paid in one lump-sum. A lump-sum elected before three years
of payments have been completed will be treated as a withdrawal during the accumulation phase and we will charge any applicable
early withdrawal charge. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven calendar days after we
receive the request for payment in good order at the Home Office
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
[begin callout box]
In this Section
INTRODUCTION
CONTRACT TYPE
WITHDRAWALS AND OTHER
DISTRIBUTIONS
o Taxation of Distributions
o Taxation of Death Benefits
o 10% Penalty Tax
o Withholding for Federal Income Tax Liability
MINIMUM DISTRIBUTION
REQUIREMENTS
o 50% Excise Tax
o Minimum Distribution of Death Benefit Proceeds (Except
Nonqualified Contracts)
o Minimum Distribution of Death Benefit Proceeds (Nonqualified
Contracts)
RULES SPECIFIC TO CERTAIN
PLANS
o Tax Code Section 403(b) Plan
o Tax Code Section 408(b) and 408A IRAs
TAXATION OF
NONQUALIFIED CONTRACTS
TAXATION OF THE COMPANY
[end callout box]
Taxation
- --------------------------------------------------------------------------------
INTRODUCTION
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the contract
> Tax laws change. It is possible that a change in the future could affect
contracts issued in the past
> This section addresses federal income tax rules and does not discuss federal
estate and gift tax implications, state and local taxes or any other tax
provisions
> We do not make any guarantee about the tax treatment of the contract or
transaction involving the contract
> Contract holder means the contract holder of an individually owned contract or
the certificate holder of a group contract
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the
effect of federal income taxes or any other taxes on amounts held or paid out
under the contract, consult a tax adviser.
- --------------------------------------------------------------------------------
Taxation of Gains Prior to Distribution. 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. In these circumstances, income and gains from the separate account
assets would be includible in the variable contract owner's gross income. The
Treasury announced that it will issue guidance regarding the extent to which
owners could direct their investments among subaccounts without being treated
as owners of the underlying assets of the separate account. It is possible that
the Treasury's position, when announced, may adversely affect the tax treatment
of existing contracts. The Company reserves the right to modify the Contract as
necessary to attempt to prevent a contract holder from being considered the
federal tax owner of a pro rata share of the assets of the separate account.
CONTRACT TYPE
The Contract is designed for use on a non-tax qualified basis as a nonqualified
contract or with certain retirement arrangements that qualify under Tax Code
sections 403(b), 408(b) or 408A.
Tax Rules. The tax rules vary according to whether the contract is a
nonqualified contract or used with a retirement arrangement. If used with a
retirement arrangement, you need to know the Tax Code section under which your
arrangement qualifies. Contact your plan sponsor, local representative or the
Company to learn which Tax Code section applies to your arrangement.
The Contract. Contract holders are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability
of the contract. If the contract is purchased in conjunction with a retirement
plan, the plan is not a part of the contract and we are not bound by the plan's
terms or conditions.
41
<PAGE>
WITHDRAWALS AND OTHER DISTRIBUTIONS
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income payments,
rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
Nonqualified Contracts. A full withdrawal of a nonqualified contract is taxable
to the extent that the amount received exceeds the investment in the contract.
A partial withdrawal is taxable to the extent that the account value
immediately before the withdrawal exceeds the investment in the contract. In
other words, a partial withdrawal is treated first as a withdrawal of taxable
earnings.
For annuity payments, a portion of each payment which represents the investment
in the contract is not taxable. An exclusion ratio is calculated to determine
the nontaxable portion.
For fixed annuity payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the investment in the contract
bears to the total dollar amount of the expected payments as defined in Tax
Code section 72(d). The entire annuity payment will be taxable once the
recipient has recovered the investment in the contract.
For variable annuity payments, an equation is used to establish 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. The entire annuity payment will be taxable once the
recipient has recovered the investment in the contract.
All deferred nonqualified annuity contracts that are issued by the Company (or
its affiliates) to the same contract holder during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in gross income under Tax Code section 72(e). In addition, the
Treasury Department has specific authority to issue regulations that prevent
the avoidance of Tax Code section 72(e) through the serial purchase of annuity
contracts or otherwise.
403(b) Plans. All distributions from these plans are taxed as received unless
either of the following is true:
> The distribution is rolled over to another plan of the same type or to a
traditional IRA in accordance with the Tax Code
> You made after-tax contributions to the plan. In this case, depending on the
type of distribution, the amount will be taxed according to the rules detailed
in the Tax Code
408(b) IRA. All distributions from a traditional IRA are taxed as received
unless either one of the following is true:
> The distribution is rolled over to another traditional IRA or, if the IRA
contains only amounts previously rolled over from a 401(a), 401(k), or 403(b)
plan, to another plan of the same type
> You made after-tax contributions to the plan. In this case, the distribution
will be taxed according to rules detailed in the Tax Code
42
<PAGE>
408A Roth IRA. A qualified distribution from a Roth IRA is not taxed when it
is received. A qualified distribution is a distribution:
> Made after the five-taxable year period beginning with the first taxable year
for which a contribution was made
> Made after you attain age 59-1/2 die, become permanently and totally disabled,
or for a qualified first-time home purchase
If a distribution is not qualified, the accumulated earnings are taxable. A
partial distribution will first be treated as a return of contributions which
is not taxable.
Taxation of Death Benefit Proceeds
In general, payments received by your beneficiaries after your death are taxed
in the same manner as if you had received those payments.
10% Penalty Tax
Under certain circumstances, the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract or from a
contract used with a 403(b), 408(b) or 408A arrangement.
Nonqualified Contract. The 10% penalty tax applies to the taxable portion of a
distribution from a nonqualified annuity unless one or more of the following
have occurred:
(a) The taxpayer has attained age 59-1/2
(b) The taxpayer has become totally and permanently disabled
(c) The contract holder has died
(d) The distribution is made 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 beneficiary
(e) The distribution is allocable to investment in the contract before August
14, 1982
403(b) Plan. The 10% penalty tax applies to the taxable portion of a
distribution from a 403(b) plan, unless one or more of the following have
occurred:
(a) You have attained age 59-1/2
(b) You have become totally and permanently disabled
(c) You have died
(d) You have separated from service with the plan sponsor at or after age 55
(e) The distribution is rolled over into another plan of the same type or to an
IRA in accordance with the Tax Code
(f) The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint
life expectancies of your and your beneficiary. Also, you must have
separated from service with the plan sponsor
(g) The distribution is equal to unreimbursed medical expenses that qualify for
deduction as specified in the Tax Code.
IRA. In general, except for (d), the exceptions for 403(b) plans also apply to
distributions from an IRA, 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. The penalty tax is also waived on a distribution made
from an IRA to pay for health insurance premiums for certain unemployed
individuals or used for qualified first-time home purchase or for higher
education expenses.
43
<PAGE>
Withholding for Federal Income Tax Liability
Any distributions under the contract are generally subject to withholding.
Federal income tax liability rates vary according to the type of distribution
and the recipient's tax status.
Nonqualified Contract. Generally, you or a beneficiary may elect not to have
tax withheld from distributions.
403(b) Plans. Generally, distributions from these plans are subject to a
mandatory 20% federal income tax withholding. However, you or a beneficiary may
elect not to have tax withheld from certain distributions.
408(b) and 408A IRAs. Generally, you or a beneficiary may elect not to have tax
withheld from distributions.
Non-resident Aliens. If you or your beneficiary is a non-resident alien, then
any withholding is governed by Tax Code section 1441 based on the individual's
citizenship, the country of domicile and treaty status.
MINIMUM DISTRIBUTION REQUIREMENTS
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. The requirements do not
apply to either nonqualified contracts or Roth IRA contracts, except with
regard to death benefits. These rules may dictate one or more of the following:
> Start date for distributions
> The time period in which all amounts in your account(s) must be distributed
> Distribution amounts
Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner or the contract is an IRA, in which case such distributions
must begin by April 1st of the calendar year following the calendar year in
which you attain age 70-1/2
> Under 403(b) plans, if the Company maintains separate records of amounts held
as of December 31, 1986. In this case, distribution of these amounts generally
must begin by the end of the calendar year in which you attain age 75 or
retire, if later. However, if you take any distributions in excess of the
minimum required amount, then special rules require that some or all of the
December 31, 1986 balance be distributed earlier
Time Period. We must pay out distributions from the contract over one of the
following time periods:
> Over your life or the joint lives of you and your beneficiary
> Over a period not greater than your life expectancy or the joint life
expectancies of you and your beneficiary
50% Excise Tax
If you fail to receive the minimum required distribution for any tax year, a
50% excise tax is imposed on the required amount that was not distributed.
44
<PAGE>
Minimum Distribution of Death Benefit Proceeds
(Except Nonqualified Contracts)
The following applies to 403(b), 408(b) and 408A plans. Different distribution
requirements apply if your death occurs:
> After you begin receiving minimum distributions under the contract
> Before you begin receiving such distributions.
If your death occurs after you begin receiving minimum distributions under the
contract, distributions must be made at least as rapidly as under the method in
effect at the time of your death. Tax Code section 401(a)(9) provides specific
rules for calculating the minimum required distributions at your death. The
rules differ, dependent upon:
> Whether your minimum required distribution was calculated each year based on
your single life expectancy or the joint life expectancies of you and your
beneficiary
> Whether life expectancy was recalculated
The rules are complex and any beneficiary should consult with a tax adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
If your death occurs before you begin receiving minimum distributions under the
contract, your entire balance must be distributed by December 31 of the
calendar year containing the fifth anniversary of the date of your death. For
example, if you die September 1, 1999, your entire balance must be distributed
to the beneficiary by December 31, 2004. However, if the distribution begins by
December 31 of the calendar year following the calendar year of your death,
then payments may be made in either of the following timeframes:
> Over the life of the beneficiary
> Over a period not extending beyond the life expectancy of the beneficiary
Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse, the
distribution must begin on or before the later of the following:
> December 31 of the calendar year following the calendar year of your death
> December 31 of the calendar year in which you would have attained age 70-1/2
Special Rule for IRA Spousal Beneficiaries. 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.
Minimum Distribution of Death Benefit Proceeds
(Nonqualified Contracts)
Death of Contract Holder. The following requirements apply to nonqualified
contracts at the death of the contract holder. Different distribution
requirements apply if you are the contract holder and your death occurs:
(a) After you begin receiving annuity payments under the contract
(b) Before you begin receiving such distributions
45
<PAGE>
If your death occurs after you begin receiving annuity payments, distribution
must be made at least as rapidly as under the method in effect at the time of
your death.
If your death occurs before you begin receiving annuity payments, your entire
balance must be distributed within five years after the date of your death. For
example, if you die on September 1, 1999, your entire balance must be
distributed by August 31, 2004. However, if the distribution begins within one
year of your death, then payments may be made in one of the following
time-frames:
> Over the life of the beneficiary
> Over a period not extending beyond the life expectancy of the beneficiary
Spousal Beneficiaries. If the beneficiary is your spouse, the account may be
continued with the surviving spouse as the new contract holder.
Death of Annuitant. If the contract holder is a nonnatural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder. If the contract holder is a natural person but not the annuitant and
the annuitant dies, the beneficiary must elect an annuity option within 60 days
of the date of death, or any gain under the contract will be includible in the
beneficiary's income in the year the annuitant dies.
RULES SPECIFIC TO CERTAIN PLANS
Tax Code Section 403(b) Plan
Under Tax Code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Tax Code section 501(c)(3) tax
exempt organizations to purchase annuity contracts for their employees are
generally excludable from the gross income of the employee.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan
and/or to you may result if your beneficial interest in the contract is
assigned or transferred to any person except to an alternate payee under a
qualified domestic relations order in accordance with Tax Code section 414(p)
or to the Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income,
total annual contributions made by you and your employer to a 403(b) plan
cannot exceed the lesser of the following limits set by the Tax Code:
> The first limit, under Tax Code section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the plan and, for years beginning after December 31, 1997,
includes any elective deferrals under Tax Code section 402(g) and any amounts
not includible in gross income under Tax Code sections 125 or 457.
> The second limit, which is the exclusion allowance under Tax Code section
403(b), is usually calculated according to a formula that takes into account
your length of employment, any pretax contributions you and your employer have
already made under the plan, and any pretax contributions to certain other
retirement plans.
> These two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
46
<PAGE>
> An additional limit specifically limits your salary reduction contributions to
generally no more than $10,000 annually (subject to indexing). Your own limit
may be higher or lower, depending on certain conditions.
Payments to your account(s) will be excluded from your gross income only if the
plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Tax Code section 403(b)(11) restricts the
distribution under Tax Code section 403(b) contracts of:
(1) Salary reduction contributions made after December 31, 1988
(2) Earnings on those contributions
(3) Earnings during such period on amounts held as of December 31, 1988
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability, or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989 may not be distributed in the case of hardship.
Taxation of Gains Prior to Distribution. Generally no amounts accumulated under
the 403(b) contract will be taxable prior to the time of actual distribution.
However, the IRS has stated in published rulings that a variable contract
owner, including participants under Tax Code section 403(b) plans, will be
considered the owner of separate account assets if the contract owner possesses
incidents of investment control over the assets. In these circumstances, income
and gains from the separate account assets would be currently includible in the
variable contract owner's gross income.
The Treasury announced that it will issue guidance regarding the extent to
which owners could direct their investments among subaccounts without being
treated as owners of the underlying assets of the separate account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right
to modify the contract as necessary to attempt to prevent the contract holder
from being considered the federal tax owner of a pro rata share of the assets
of the separate account.
Tax Code Section 408(b) and 408A IRAs
Tax Code section 408(b) permits eligible individuals to contribute to a
traditional Individual Retirement Annuity (IRA) on a pre-tax (deductible)
basis. Employers may establish Simplified Employee Pension (SEP) plans and
contribute to a traditional IRA owned by the employee. Tax Code section 408A
permits eligible individuals to contribute to a Roth IRA on an after-tax
(nondeductible) basis.
Assignment or transfer of contracts. Adverse tax consequences may result if you
assign or transfer your interest in the contract to persons other than your
spouse incident to a divorce.
Eligibility. Eligibility to contribute to a traditional IRA on a pre-tax basis
or to establish a Roth IRA or to roll over or transfer from a traditional IRA
to a Roth IRA depends upon your adjusted gross income.
Rollovers and Transfers. Rollovers and direct transfers are permitted from a
401, 403(a) or a 403(b) arrangement to a traditional IRA. Distributions from
these arrangements are not permitted to be transferred or rolled over to a
47
<PAGE>
Roth IRA. A Roth IRA can accept transfers/rollovers only from a traditional
IRA, subject to ordinary income tax, or from another Roth IRA.
TAXATION OF NONQUALIFIED CONTRACTS
In General. Tax Code section 72 governs taxation of annuities in general. A
contract 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. The taxable portion of a
distribution is taxable as ordinary income.
Non-Natural Holders of a Nonqualified Contract. If the contract holder is not a
natural person, a nonqualified contract generally 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 contract holder is not a natural
person, a change in annuitant is treated as the death of the contract holder.
Diversification. Tax Code section 817(h) requires that in a nonqualified
contract 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.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee or
other beneficiary who is not also the contract 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.
Anyone contemplating any such designation, transfer, assignment, selection, or
exchange should contact a tax adviser regarding the potential tax effects of
such a transaction.
TAXATION OF THE COMPANY
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Separate Account B is not a separate entity from us. Therefore, it is not taxed
separately as a "regulated investment company", but is taxed as part of the
Company.
We automatically apply investment income and capital gains attributable to the
separate account to increase reserves under the contracts. Because of this,
under existing federal tax law we believe that any such income and gains will
not be taxed to the extent that such income and gains are applied to increase
reserves under the contracts. In addition, any foreign tax credits attributable
to the separate account will be first used to reduce any income taxes imposed
on the separate account before being used by the Company.
48
<PAGE>
In summary, we do not expect that we will incur any federal income tax
liability attributable to the separate account and we do not intend to make any
provision for such taxes. However, changes in federal tax laws and/or their
interpretation may result in our being taxed on income or gains attributable to
the separate account. In this case, we may impose a charge against the separate
account (with respect to some or all of the contracts) to set aside provisions
to pay such taxes. We may deduct this amount from the separate account,
including from your account value invested in the subaccounts.
Other Topics
- --------------------------------------------------------------------------------
The Company
Aetna Life Insurance and Annuity Company (the Company, we, us) issues the
contracts described in this prospectus and is responsible for providing each
contract's insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1976 and an indirect wholly-owned subsidiary of Aetna
Inc. Through a merger our operations include the business of Aetna Variable
Annuity Life Insurance Company (formerly known as Participating Annuity Life
Insurance Company, an Arkansas life insurance company organized in 1954).
We are engaged in the business of issuing life insurance policies and variable
annuity contracts. Our principal executive offices are located at:
151 Farmington Avenue
Hartford Connecticut 06156
Variable Annuity Account B
We established Variable Annuity Account B (the "separate account") in 1976 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940 (the "40 Act"). It also meets the definition of "separate account"
under the federal securities laws.
The separate account is divided into subaccounts. These subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
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 contract are
obligations of the Company.
Contract Distribution
We serve as the principal underwriter for the securities sold by this
prospectus. We are registered as a broker-dealer with the SEC and a member of
the National Association of Securities Dealers, Inc.
As principal underwriter, we will enter into arrangements with one or more
registered broker-dealers, including at least one affiliate of the Company, to
49
<PAGE>
offer and sell the contract described in this prospectus. We may also enter
into these arrangements 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. In this prospectus, we refer to the registered
broker-dealers and the banks described above as "distributors." We and one or
more of our affiliates may also sell the contract directly. All individuals
offering and selling the contract must be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must be licensed as insurance agents to
sell variable annuity contracts.
Occasionally, we may enter into arrangements with independent entities to help
find broker-dealers or banks interested in distributing the contract or to
provide training, marketing and other sales-related functions, or
administrative services. We will reimburse such entities for expenses related
to and may pay fees to such entities in return for these services.
We 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.
We may also contract with independent third party broker-dealers who will act
as wholesalers by assisting us in selecting broker-dealers or banks interested
in acting as distributors. These wholesalers may also provide training,
marketing and other sales related functions and the distributors and may
provide certain administrative services in connection with the contracts. We
may pay such wholesalers compensation based on payments to contracts purchased
through distributors that they select.
We may also designate third parties to provide services in connection with the
contracts such as reviewing applications for completeness and compliance with
insurance requirements and providing the distributors with approved marketing
material, prospectuses or other supplies. These parties will also receive
payments based upon payments for their services, to the extent such payments
are allowed by applicable securities laws. We will pay all costs and expenses
related to these services.
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 7% of
payments or as a combination of a certain percentage of payments at time of
sale and a trail commission as a percentage of assets. Under the latter
arrangement, commission payments may exceed 7% of payments over the life of the
contract. Some sales personnel may receive various types of non-cash
compensation as special sales incentives, including trips and educational
and/or business seminars. Supervisory and other management personnel of the
Company may receive compensation that will vary based on the funding options
you select. This variance may be based upon the profitability to the Company of
funding options that 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
early withdrawal 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.
50
<PAGE>
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under any one of the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary weekend and holiday closings) or when trading on the New York Stock
Exchange is restricted
> When an emergency exists as determined by the SEC so that disposal of the
securities held in the subaccounts is not reasonably practicable or it is not
reasonably practicable to fairly determine the value of the subaccount's
assets
> During any other periods 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
We may advertise different types of historical performance for the subaccounts
including:
> Standardized average annual total returns
> Non-standardized average annual total returns
We may also advertise certain ratings, rankings or other information related to
the Company, the subaccounts or the funds. For further details regarding
performance reporting and advertising you may request an SAI by calling us at
the number listed in "Contract Overview--Questions."
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in the subaccounts over the
most recent one, five and 10-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account. We include all recurring
charges during each period (i.e., mortality and expense risk charges, annual
maintenance fees, administrative expense charges, if any, and any applicable
early withdrawal charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except
we do not include the deduction of any applicable early withdrawal charge. Some
non-standardized returns may also exclude the effect of a maintenance fee. If
we reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier
than the one we use for standardized returns.
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons
having a voting interest in the separate account. If you are a contract holder
under a group contract, you have a fully vested interest in the contract and
may instruct the group contract holder how to direct the Company to cast a
certain number of votes. We will vote shares for which instructions have not
51
<PAGE>
been received in the same proportion as those for which we received
instructions. Each person who has a voting interest in the separate account
will receive periodic reports relating to the funds in which he or she has an
interest, as well as any proxy materials and a form on which to give voting
instructions. Voting instructions will be solicited by a written communication
at least 14 days before the meeting.
The number of votes (including fractional votes) you are entitled to direct
will be determined as of the record date set by any fund you invest in through
the subaccounts.
> During the accumulation phase the number of votes is equal to the portion of
your account value invested in the fund, divided by the net asset value of one
share of that fund.
> During the income phase the number of votes is equal to the portion of
reserves set aside for the contract's share of the fund, divided by the net
asset value of one share of that fund.
Contract Modifications
We may change the contract as required by federal or state law. In addition, we
may, upon 30 days' written notice to the group contract holder, make other
changes to a group contract that would apply only to individuals who become
participants under that contract after the effective date of such changes. If a
group contract holder does not agree to a change, we reserve the right to
refuse to establish new accounts under the contract. Certain changes will
require the approval of appropriate state or federal regulatory authorities.
Transfer of Ownership: Assignment
We will accept assignments or transfers of ownership of a nonqualified contract
or a qualified contract where such assignments or transfers are not prohibited,
with proper notification. The date of any assignment or transfer of ownership
will be the date we receive the notification at our Home Office. An assignment
or transfer of ownership may have tax consequences and you should consult with
a tax advisor before assigning or transferring ownership of the contract.
An assignment of a contract will only be binding on the Company if it is made
in writing and sent to the Company at our Home Office. We will use reasonable
procedures to confirm that the assignment is authentic, including verification
of signature. If we fail to follow our own procedures, we will be liable for
any losses to you directly resulting from such failure. Otherwise, we are not
responsible for the validity of any assignment. The rights of the contract
holder and the interest of the annuitant and any beneficiary will be subject to
the rights of any assignee we have on our records.
Involuntary Terminations
We reserve the right to terminate any account with a value of $2,500 or less
immediately following a partial withdrawal. However, an IRA may only be closed
out when payments to the contract 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 early withdrawal charge will be deducted for involuntary terminations. We do
not intend to exercise this right in cases where the account value is reduced
to $2,500 or less solely due to investment performance.
52
<PAGE>
Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the
separate account or the Company as 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 Readiness
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as "Aetna"), is dependent
upon computer systems and applications to conduct its business. Aetna has
developed and is currently executing a comprehensive risk-based plan designed
to make its mission-critical information technology ("IT") systems and embedded
systems Year 2000 ready. The plan for IT systems covers five stages including
(i) assessment, (ii) remediation, (iii) testing, (iv) implementation and (v)
Year 2000 approval. At year end 1997, Aetna, including the Company, had
substantially completed the assessment stage. The remediation of mission-
critical IT systems was completed by year end 1998. Testing of all mission-
critical IT systems is underway with Year 2000 approval 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, including the Company, has initiated communication with its
critical external relationships to determine the extent to which Aetna may be
vulnerable to such parties' failure to resolve their own Year 2000 issues.
Aetna and the Company have assessed and are prioritizing responses in an
attempt to mitigate risks with respect to the failure of these parties to be
Year 2000 ready. 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.
53
<PAGE>
Contents of the Statement of Additional Information
- --------------------------------------------------------------------------------
The Statement of Additional Information (SAI) contains more specific
information on the separate account and the contract, as well as the financial
statements of the separate account and the Company. The following is a list of
the contents of the SAI.
General Information and History.............................................2
Variable Annuity Account B..................................................2
Offering and Purchase of Contract...........................................3
Performance Data............................................................3
General...................................................................3
Average Annual Total Return Quotations....................................3
Income Phase Payments.......................................................4
Sales Material and Advertising..............................................5
Independent Auditors........................................................6
Financial Statements of the Separate Account..............................S-1
Financial Statements of Aetna Life Insurance and Annuity Company..........F-1
54
<PAGE>
Appendix I
ALIAC Guaranteed Account
- --------------------------------------------------------------------------------
The ALIAC Guaranteed Account (the Guaranteed Account) is a fixed interest
option available during the accumulation phase under the contract. This
appendix is only a summary of certain facts about the Guaranteed Account.
Please read the Guaranteed Account prospectus carefully before investing in
this option.
In General. Amounts invested in the Guaranteed Account earn specified interest
rates if left in the Guaranteed Account for specified periods of time. If you
withdraw or transfer those amounts before the specified periods elapse, we may
apply a market value adjustment (described below) which may be positive or
negative.
When deciding to invest in the Guaranteed Account, contact your representative
or the Company to learn:
> The interest rate(s) we will apply to amounts invested in the Guaranteed
Account
We change the rate(s) periodically. Be certain you know the rate we
guarantee on the day your account dollars are invested in the Guaranteed
Account. Guaranteed interest rates will never be less than an annual
effective rate of 3%.
> The period of time your account dollars need to remain in the Guaranteed
Account in order to earn the rate(s)
You are required to leave your account dollars in the Guaranteed Account for
a specified period of time in order to earn the guaranteed interest rate(s).
Deposit Period. During a deposit period, we offer a specific interest rate for
dollars invested for a certain guaranteed term. For a specific interest rate
and guaranteed term to apply, account dollars must be invested in the
Guaranteed Account during the deposit period for which that rate and term are
offered.
Interest Rates. We guarantee different interest rates, depending upon when
account dollars are invested in the Guaranteed Account. For guaranteed terms
one year or longer, we may apply more than one specified interest rate. The
interest rate we guarantee is an annual effective yield. That means the rate
reflects a full year's interest. We credit interest daily at a rate that will
provide the guaranteed annual effective yield over one year. Guaranteed
interest rates will never be less than an annual effective rate of 3%.
Guaranteed Terms. The guaranteed term is the period of time account dollars
must be left in the Guaranteed Account in order to earn the guaranteed interest
rate. For guaranteed terms one year or longer, we may offer different rates for
specified time periods within a guaranteed term. We offer different guaranteed
terms at different times. We also may offer more than one guaranteed term of
the same duration with different interest rates. Check with your representative
or the Company to learn what terms are being offered. The Company also reserves
the right to limit the number of guaranteed terms or the availability of
certain guaranteed terms.
Fees and Other Deductions. If all or a portion of your account value in the
Guaranteed Account is withdrawn or transferred, you may incur one of more of
the following:
> Market Value Adjustment (MVA)--as described in this appendix and in the
Guaranteed Account prospectus
> Tax penalties and/or tax withholding--see "Taxation"
> Early withdrawal charge--see "Fees"
> Maintenance fee--see "Fees"
We do not make deductions from amounts in the Guaranteed Account to cover
mortality and expense risks. Rather, we consider these risks when determining
the interest rate to be credited.
Market Value Adjustment (MVA). If your account value is withdrawn or
transferred from the Guaranteed Account before the guaranteed term is
completed, an MVA may apply. The MVA reflects investment value changes caused
by changes in interest rates occurring since the date of deposit. The MVA may
be positive or negative.
If interest rates at the time of withdrawal or transfer have increased since
the date of deposit, the value of the investment decreases and the MVA will be
negative. This could result in your receiving less than the amount you paid
into the Guaranteed Account. If interest rates at the time of withdrawal or
transfer have decreased since the date of deposit, the value of the investment
increases and the MVA will be positive.
55
<PAGE>
MVA Waiver. For withdrawals or transfers from a guaranteed term before the
guaranteed term matures, the MVA may be waived for:
> Transfers due to participation in the dollar cost averaging program
> Withdrawals taken due to your election of SWO or ECO (described in "Systematic
Distribution Options), if available
> Withdrawals for minimum distributions required by the Tax Code and for which
the early withdrawal charge is waived
Death Benefit. When a death benefit is paid under the contract within six
months of the date of death, only a positive aggregate MVA amount, if any, is
applied to the account value attributable to amounts withdrawn from the
Guaranteed Account. This provision does not apply upon the death of a spousal
beneficiary or joint contract holder who continued the account after the first
death. If a death benefit is paid more than six months from the date of death,
a positive or negative aggregate MVA amount, as applicable, will be applied.
Partial Withdrawals. For partial withdrawals during the accumulation phase,
amounts to be withdrawn from the Guaranteed Account will be withdrawn
proportionally 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.
Guaranteed Terms Maturity. 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 an early withdrawal charge, taxation and,
if you are under age 59-1/2, tax penalties may apply.
If no direction is received from you at our Home Office by the maturity date of
a guaranteed term, the amount from the maturing guaranteed term will be
transferred to a new guaranteed term of a similar length. 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 transfers or withdrawals without an MVA if the transfer or withdrawal
occurs during the calendar month immediately following a guaranteed term
maturity date. This waiver of the MVA only applies to the first transaction
regardless of the amount involved in the transaction.
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 for purposes of any limitation on
the number of investment options.
Subsequent Payments. Payments received after your initial payment to the
Guaranteed Account will be allocated in the same proportions as the last
allocation, unless you properly instruct us to do otherwise. 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.
Dollar Cost Averaging. 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 an MVA will apply.
Transfer of Account Dollars. Generally, account dollars invested in the
Guaranteed Account may be transferred among guaranteed terms offered through
the Guaranteed Account, and/or to other investment options offered through the
contract. However, transfers may not be made during the deposit period in which
your account dollars are invested in the Guaranteed Account or for 90 days
after the close of that deposit period. We will apply an MVA to transfers made
before the end of a guaranteed term. The 90 day wait 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 income phase payment option; (3)
56
<PAGE>
amounts distributed under the ECO or SWO (See "Systematic Distribution
Options;" and (4) amounts transferred from an available guaranteed term in
connection with the dollar cost averaging program.
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. 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.
Reinvesting Amounts Withdrawn from the Guaranteed Account. If amounts are
withdrawn and then reinvested in the Guaranteed Account, we apply the
reinvested amount to the current deposit period. This means the guaranteed
annual interest rate and guaranteed terms available on the date of reinvestment
will apply. We reinvest amounts proportionately in the same way as they were
allocated before withdrawal. Your account value will not be credited for any
negative MVA that was deducted at the time of withdrawal.
Income Phase. The Guaranteed Account cannot be used as an investment option
during the income phase. However, you may notify us at least 30 days in advance
to elect a fixed or variable payment option and to transfer your Guaranteed
Account dollars to the general account or any of the subaccounts available
during the income phase. Transfers made due to the election of a lifetime
payment option will be subject to only a positive aggregate MVA.
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.
57
<PAGE>
Appendix II
Fixed Account
- --------------------------------------------------------------------------------
General Disclosure.
> The Fixed Account is an investment option available during the accumulation
phase under the contract
> Amounts allocated to the Fixed Account are held in the Company's general
account which 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 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
>Additional information about this option may be found in the contract
Interest Rates.
> The Fixed Account guarantees that amounts allocated to this option will earn
the minimum interest rate specified in the contract. We may credit a higher
interest rate from time to time, but the rate we credit will never fall below
the guaranteed minimum specified in the contract. Amounts applied to the Fixed
Account will earn the interest rate in effect at the time money is applied.
Amounts in the Fixed Account will reflect a compound interest rate as credited
by us. The rate we quote is an annual effective yield
> Our 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, we assume the risk
of investment gain or loss by guaranteeing the amounts you allocate to this
option and promising a minimum interest rate and income phase payment
Dollar Cost Averaging. Amounts you invest in the Fixed Account must be
transferred into the other investment options available under the contract over
a period not to exceed 12 months. If you discontinue dollar cost averaging, the
remaining balance amounts in the Fixed Account will be transferred into the
money market subaccount available under the contract, unless you direct us to
transfer the balance into other available options.
Withdrawals. Under certain emergency conditions, we may defer payment of any
withdrawal for a period of up to 6 months or as provided by federal law.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate. If you make a withdrawal from amounts in the Fixed Account, an
early withdrawal charge may apply. See "Fees."
Transfers. During the accumulation phase, you may transfer account dollars from
the Fixed Account to any other available investment option. We may vary the
dollar amount that you are allowed to transfer, but it will never be less than
10% of your account value held in the Fixed Account.
By notifying the Home Office at least 30 days before income payments begin, you
may elect to have amounts transferred to one or more of the subaccounts
available during the income phase to provide variable payments.
58
<PAGE>
Appendix III
Description of Underlying Funds
- --------------------------------------------------------------------------------
Aetna Balanced VP, Inc.
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, based on the
investment adviser's judgment of which of those sectors or mix thereof offers
the best investment prospects.
Policies
Assets are allocated among common and preferred stocks, bonds, U.S. Government
securities and derivatives, and money market instruments. The Fund may also
invest in when-issued or delayed-delivery securities. The Fund generally will
maintain at least 25 percent of its total assets in fixed income 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-yield bonds 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 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
The Fund will invest at least 65 percent of its total assets in debt
securities. It is anticipated that the portfolio's effective average maturity
will normally be between three and ten years. The Fund will normally invest at
least 70 percent of its assets 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, or guaranteed by, the U.S. Government, its agencies or instrumentalities;
c) marketable securities or obligations of, or guaranteed by, foreign
governments; d) commercial paper and other short-term investments having a
maturity of less than one year that are considered by the investment adviser to
be investment grade; and, e) cash or cash equivalents. May invest up to 30
percent of its total assets in high-yield bonds. May invest up to 25 percent of
its total assets in foreign debt and/or equity securities.
Risks
The value of debt securities may be affected by changes in general interest
rates. High-yield 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.
59
<PAGE>
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. It is
anticipated that capital appreciation and investment income will both be major
factors in achieving total return.
Policies
The Fund will invest principally in common stocks and securities convertible
into common stock that the investment adviser believes have significant
potential for capital appreciation and/or investment income. May invest up to
25 percent of its total assets in foreign equity securities. The Fund may
invest in nonconvertible preferred stocks, debt securities, rights and
warrants; the Fund may maintain a reserve of cash and high-grade, short-term
debt securities and the Fund may purchase securities on a when-issued or
delayed-delivery basis.
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 account 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, through investment in high-quality money market instruments.
Policies
The fund will Invest primarily in: a) money market instruments that have a
maturity at the time of 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 fact 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 total 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.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government.
Investment Adviser: Aeltus Investment Management, Inc.
60
<PAGE>
Aetna Variable Portfolios, Inc.--Aetna Growth VP
Investment Objective
Seeks growth of capital through investment in a diversified portfolio 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 significant 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 and
invest up to 25 percent of its total assets in foreign securities. Will not
invest more than 15 percent of the total value of its assets in high-yield
bonds.
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; adverse foreign political and economic developments;
different accounting procedures and auditing standards; and less publicly
available information about foreign issuers. High-yield bonds 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 Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
Investment Objective
Seeks to outperform the total return performance of publicly traded common
stocks represented in the Standard & Poor's 500 Composite Stock Price Index
(S&P 500).
Policies
The Portfolio attempts to be fully invested in common stocks and normally
invests at least 90 percent of its assets in certain common stocks represented
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.
Aetna Variable Portfolios, Inc.--Aetna International VP
Investment Objective
Seeks long-term capital growth primarily though investment in a diversified
portfolio of common stocks principally traded in countries outside of the
United States. The Portfolio will not target any given level of current income.
Policies
Invests at least 65 percent of its total assets among securities principally
traded in three or more countries outside of North America. The Portfolio will
invest primarily in equity securities, including securities convertible into
stocks. The Portfolio will invest in a broad spectrum of companies and
industries. Further, from time to time, the Portfolio may
61
<PAGE>
hold up to 10 percent of its total assets in long-term debt securities with an
S&P or Moody's rating of AA/Aa or above, or, if unrated, are considered by the
investment adviser to be of comparable quality. Additionally, the Portfolio 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 Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities issued by real estate companies, the majority of
which are real estate investment trusts (REITs).
Policies
Normally invests at least 65 percent 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 percent) of their revenues or
profits from real estate operations or related services. The Portfolio may
invest in convertible securities and preferred stock. Additionally, the
Portfolio may invest in options and futures, enter into repurchase agreements,
and invest up to 25 percent of its total assets in foreign securities. The
Portfolio will not invest more than 15 percent 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 Real
Estate Securities VP. 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.
Aetna Variable Portfolios, Inc.--Aetna Small Company VP
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
62
<PAGE>
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.
AIM V.I. Capital Appreciation Fund
Investment Objective
Seeks capital appreciation through investments in common stocks, with emphasis
on medium-sized and smaller emerging growth companies.
Policies
AIM will be particularly interested in companies that are likely to benefit
from new and innovative products, services or processes that should enhance
such companies' prospects for future growth in earnings. Any income received
from securities held by the Fund will be incidental. The Fund's portfolio is
primarily comprised of securities of two basic categories of companies: (1)
"core" companies, which AIM considers to have experienced above-average and
consistent long-term growth in earnings and to have excellent prospects for
outstanding future growth, and (2) "earnings acceleration" companies which AIM
believes are currently enjoying a dramatic increase in profits.
Risks
There is no guarantee that the Fund's objective will be met. The market prices
of many of the securities purchased and held by the Fund may fluctuate widely.
Investing in equity securities of small- and medium-sized companies may involve
greater risk than associated with investing in more established companies.
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 credit risk. The
Fund may invest in convertible securities, which may be subject to redemption
at the option of the issuer at a price established in the convertible
security's governing instrument. The Fund may invest in foreign securities.
Investments in securities of foreign issuers or foreign securities involve
risks not present in domestic markets, including: currency fluctuations and
related currency conversion costs, political instability, expropriation or
confiscatory taxation and limited liquidity; regulatory risk due to less
stringent government regulations, accounting and auditing processes; and market
risk due to a lesser trade volume than is generally expected of domestic
markets.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Growth Fund
Investment Objective
Seeks growth of capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM to have strong
earnings momentum. Current income will not be an important criterion of
investment selection, and any such income should be considered incidental.
63
<PAGE>
Policies
The Fund's portfolio is primarily comprised of securities of two basic
categories: (1) "core" companies, which Aim considers to have experienced
above-average and consistent long-term growth in earnings and to have excellent
prospects for outstanding future growth, and (2) "earnings acceleration"
companies which Fund management believes are currently enjoying a dramatic
increase in profits.
Risks
There is no guarantee that the Fund will achieve its objective. Because the
Fund 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 prices generally rise, and
periods when prices generally decline. The Fund may invest in convertible
securities, which may be subject to redemption at the option of the issuer at a
price established in the convertible security's governing instrument. The Fund
may invest in foreign securities. Investments in foreign securities involve
risks not present in domestic markets, including: currency fluctuations and
related currency conversion costs, political and economical risk due to less
stringent government regulations, accounting and auditing processes; and market
risk due to a lesser trade volume than is generally expected of domestic
markets.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Growth and Income Fund
Investment Objective
Seeks growth of capital, with current income as a secondary objective. Although
the amount of the Fund's current income will vary from time to time, it is
anticipated that the current income realized by the Fund will generally be
greater than that realized by mutual funds whose sole objective is growth of
capital.
Policies
The Fund seeks to achieve its objective by generally investing at least 65% if
its net assets in stocks of companies believed by management to have the
potential for above-average growth in revenues and earnings. The Fund generally
will also invest at least 80% of its assets in securities which pay income to
the Fund.
Risks
There is no guarantee that the Fund will achieve its objective. Equity
securities are subject to a decline in the stock market or in the value of the
issuer. The U.S. stock market tends to be cyclical, with periods when stock
prices generally rise and periods when prices generally decline. The value of
debt securities may be affected by changes in general interest rates and in the
creditworthiness of the issuer. The Fund may invest in convertible securities,
which may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. The Fund may
invest in foreign securities. Investments in securities of foreign issuers or
in foreign securities involve risks not present in domestic markets, including:
currency fluctuation and related currency conversion costs, political and
economic risk due to social or political instability, expropriation or
confiscatory taxation and limited liquidity; regulatory risk due to less
stringent government regulations, accounting and auditing processes; and market
risk due to a lesser trade volume than is generally expected of domestic
markets.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Value Fund
Investment Objective
To achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or projected
earnings of the companies issuing the securities, or relative to the current
market values of assets owned by the companies issuing the securities, or
relative to the equity market, generally.
64
<PAGE>
Policies
Income as the secondary objective would be satisfied principally from the
income generated by the common stocks, convertible bonds and convertible
preferred stocks that make up the Fund's portfolio. The Fund may also acquire
preferred stocks and debt instruments having prospects for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is in four
categories: (1) out of favor cyclical growth companies; (2) established growth
companies that are undervalued compared to historical relative valuation
parameters; (3) companies where there is early but tangible evidence of
improving prospects which are not yet reflected in the price of the company's
equity securities; and (4) companies whose equity securities are selling at
prices that do not reflect the current market value of its assets and where
there is no reason to expect realization of this potential in the form of
increased equity values. The Fund may invest up to 15% of its net assets in
securities which are illiquid, and may invest up to 25% of its assets in
foreign securities.
Risks
Investment in equity securities involves certain risks. Equity securities offer
no guaranteed return, and prices will fluctuate. During certain market
conditions, purchases and sales of futures contracts may not completely offset
a decline or rise in the value of the Fund's portfolio. In the futures market,
it may not always be possible to execute a buy or sell order at the desired
price, or to close out an open position due to market conditions, limits on
open positions and/or daily price fluctuations. Unanticipated price movements
in a futures contract may result in a loss substantially greater than the
Fund's initial investment in the contract. Limitations on the resale of
illiquid securities may have an adverse affect on their marketability, which
may prevent the Fund from disposing of them promptly at reasonable prices.
Investment in foreign securities carries the following primary risks: Currency
risks due to changing currency exchange rates; political and social risk due to
political/social instability and other factors; regulatory risk due to less
stringent regulation and government supervision of foreign issuers; and market
risks whereby foreign securities may be less liquid and more volatile due to
lower trading volume and higher transactions costs.
Investment Adviser: AIM Advisors, Inc.
Fidelity Investments Variable Insurance Products Fund--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 equity securities. The Portfolio has the flexibility,
however, to invest the balance in all types of domestic and foreign securities,
including bonds. 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
65
<PAGE>
Fidelity Investments Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated, fixed income securities, while also considering
growth of capital.
Policies
Invests primarily in all types of income-producing debt securities, preferred
stocks, and convertible 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.
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
Fidelity Investments Variable Insurance Products Fund II--Contrafund Portfolio
Investment Objective
Seeks maximum total return over the long term by investing mainly in securities
of companies whose value the investment adviser believes is not fully
recognized by the public.
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 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 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
66
<PAGE>
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.
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--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
67
<PAGE>
Policies
Invests in common stocks of companies of any size, although it generally
invests in larger, more established issuers. Invests primarily in stocks of
domestic and foreign 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 new 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. 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 of 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 (compared to a portfolio invested
entirely in equity securities) consistent with the prudent employment of
capital. Its secondary objective is to provide a reasonable opportunity for
growth of capital and income.
68
<PAGE>
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
graded 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")
[Mitchell Hutchins Series Trust Growth and Income Portfolio
Investment Objective
Has an investment objective of current income and capital growth.
Policies
Invests at least 65% of its total assets in dividend-paying equity securities
believed to have the potential for rapid earnings growth. The adviser follows a
disciplined investment process that relies on a proprietary model to identify
stocks providing a combination of value and momentum. The portfolio may invest
up to 35% of its total assets in equity securities not meeting the model
criteria, as well as in U.S. government bonds, corporate bonds and money market
instruments, including up to 10% of its total assets in convertible securities
rated below investment grade but no lower than B by S&P or Moody's (commonly
known as "junk bonds"). The portfolio may invest up to 25% of its total assets
in U.S. dollar-denominated equity securities and bonds of foreign issuers that
are traded on recognized U.S. exchanges or in the U.S. OTC market. The
portfolio may invest up to 10% of its net assets in illiquid securities.
Risks
[To be filed by amendment]
Investment Adviser: Mitchell Hutchins Asset Management Inc.]
[Mitchell Hutchins Series Trust Tactical Allocation Portfolio
Investment Objective
Has in investment objective of total return, consisting of long-term capital
appreciation and current income.
Policies
Follows a proprietary model that uses a systematic investment strategy that
allocates its investments between an equity portion designed to track the
performance of the S&P 500 Composite Stock Price Index ("S&P 500 Index") and a
fixed income portion that generally will be comprised of either five-year U.S.
Treasury notes or 30-day U.S. Treasury bills. The portfolio seeks to achieve
total return during all economic and financial market cycles, with lower
volatility than that of the S&P 500 Index. The portfolio may invest up to 15%
of its net assets in illiquid securities.
69
<PAGE>
Risks
[To be filed by amendment]
Investment Adviser: Mitchell Hutchins Asset Management Inc.]
[Mitchell Hutchins Series Trust Small Cap Portfolio
Investment Objective
Has an investment objective of long-term capital appreciation.
Policies
Invests, under normal circumstances, at least 65% of its total assets in equity
securities of small capitalization ("small cap") companies, which are defined
as companies having market capitalization of up to $1 billion. The adviser
follows a disciplined investment process that relies on a proprietary model to
identify stocks providing a combination of value and momentum. The portfolio may
invest up to 35% of its total assets inequity securities of companies that are
larger than small cap companies, as well as in U.S. government bonds, corporate
bonds and money market instruments, including up to 10% of its total assets in
convertible bonds rated below investment grade but no lower than B by S&P or
Moody's (commonly known as "junk bonds"). The portfolio may invest up to 25% of
its total assets in U.S. dollar-denominated equity securities and bonds of
foreign issuers that are traded on recognized U.S. exchanges or in the U.S. OTC
market. The portfolio may invest up to 15% of its net assets in illiquid
securities.
Risks
[To be filed by amendment]
Investment Adviser: Mitchell Hutchins Asset Management Inc.]
Oppenheimer Aggressive Growth 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 United States. 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 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.
70
<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
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 and 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 known 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 to provide 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 sub-adviser 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
71
<PAGE>
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 or basic changes in the economic environment. 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. 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 re 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 Annuity company; Sub-adviser:
Massachusetts Financial Services Company
Portfolio Partners MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests at least 65 percent of its total assets in 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 ands 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 a consideration
incidental to the Portfolio's objective of capital appreciation.
Policies
While the Portfolio's policy is to invest at least 65 percent of its total
assets in common stocks, it may seek appreciation 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 fix-income (below investment grade), but
will invest no more than 25 percent of its net assets in these securities. The
Portfolio may also invest
72
<PAGE>
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 of issuers of 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 a diversified portfolio of
marketable foreign equity investments.
Policies
Invests in companies, wherever organized, that do business primarily outside
the United State. 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 the sub-adviser
believed 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 change 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 Kemper Investments, Inc.
73
<PAGE>
Appendix IV
Condensed Financial Information
- --------------------------------------------------------------------------------
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for the period ended
December 31, 1998, is derived from the financial statements of the separate
account, which have been audited by ___________, independent auditors. The
financial statements and the independent auditors' report thereon for the year
ended December 31, 1998 are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
0.95% Total Charges 1.25% Total Charges 1.40% Total Charges
--------------------- --------------------- --------------------
1998 1998 1998
--------------------- --------------------- --------------------
<S> <C> <C> <C>
AETNA BALANCED VP, INC.
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 BOND 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
AETNA GROWTH AND INCOME 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 INDEX PLUS LARGE CAP 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 INTERNATIONAL 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 MONEY MARKET 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 REAL ESTATE SECURITIES 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 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
AIM V.I. CAPITAL APPRECIATION 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
AIM V.I. 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
AIM V.I. 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
</TABLE>
74
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges 1.25% Total Charges 1.40% Total Charges
--------------------- --------------------- --------------------
1998 1998 1998
--------------------- --------------------- --------------------
<S> <C> <C> <C>
AIM V.I. VALUE 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
FIDELITY VIP EQUITY-INCOME 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
FIDELITY VIP HIGH INCOME 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
FIDELITY VIP II CONTRAFUND 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
JANUS ASPEN AGGRESSIVE 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
JANUS ASPEN 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
JANUS ASPEN 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
JANUS ASPEN WORLDWIDE 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
MFS TOTAL RETURN SERIES
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 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 GROWTH & 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
</TABLE>
75
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
0.95% Total Charges 1.25% Total Charges 1.40% Total Charges
--------------------- --------------------- --------------------
1998 1998 1998
--------------------- --------------------- --------------------
<S> <C> <C> <C>
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
</TABLE>
- -----------------
(1) The above figures are calculated by subtracting the beginning accumulation
unit value from the ending accumulation unit value, and dividing the
result by the beginning accumulation unit value. These figures do not
reflect the early withdrawal charge or the annual maintenance fee, if any.
Inclusion of these charges would reduce the investment results shown.
76
<PAGE>
- -------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- -------------------------------------------------------------------------------
Statement of Additional Information dated May 3, 1999
AETNA VARIABLE ANNUITY
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 3, 1999.
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. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History.......................................... 2
Variable Annuity Account B............................................... 2
Offering and Purchase of Contract........................................ 3
Performance Data......................................................... 3
General............................................................. 3
Average Annual Total Return Quotations.............................. 3
Income Phase Payments.................................................... 6
Sales Material and Advertising........................................... 6
Independent Auditors..................................................... 7
Financial Statements of the Separate Account............................. S-1
Financial Statements of Aetna Life Insurance and Annuity Company......... F-1
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company," we, us, our) 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). The Company is an indirect wholly owned
subsidiary of Aetna Inc. The Company is engaged in the business of issuing life
insurance policies and annuity contracts. Our Home Office is located at 151
Farmington Avenue, Hartford, Connecticut 06156.
As of December 31, 1998, 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. The Company is ranked
among the top _% of all U.S. life insurance companies based on assets as of
December 31, 1997.
In addition to serving as the principal underwriter and the depositor for the
separate account, the Company is a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. We provide 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 charge and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the separate account are borne by the Company. See "Fees" in the prospectus. We
receive reimbursement for certain administrative costs from some advisers of the
funds used as funding options under the contract. These fees generally range up
to 0.425%.
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.
From this point forward, the term "contracts" refers only to those offered
through the prospectus.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B 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.
Payments to accounts 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. We 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.
The funds currently available under the contract are as follows:
<TABLE>
<S> <C>
Aetna Balanced VP, Inc. Janus Aspen Aggressive Growth Portfolio
Aetna Income Shares d/b/a Aetna Bond VP Janus Aspen Balanced Portfolio
Aetna Growth VP Janus Aspen Growth Portfolio
Aetna Variable Fund d/b/a Aetna Growth and Income VP Janus Aspen Worldwide Growth Portfolio
Aetna Index Plus Large Cap VP MFS Total Return Series
Aetna International VP Mitchell Hutchins Series Trust Growth & Income Portfolio
Aetna Variable Encore Fund d/b/a Aetna Money Market VP Mitchell Hutchins Series Trust Tactical Allocation Portfolio
Aetna Real Estate Securities VP Mitchell Hutchins Series Trust Small Cap Portfolio
Aetna Small Company VP Oppenheimer Aggressive Growth Fund
AIM V.I. Capital Appreciation Fund Oppenheimer Growth & Income Fund
AIM V.I. Growth Fund Oppenheimer Strategic Bond Fund
AIM V.I Growth and Income Fund Portfolio Partners MFS Emerging Equities Portfolio
AIM V.I. Value Fund Portfolio Partners MFS Research Growth Portfolio
Fidelity VIP Equity-Income Portfolio Portfolio Partners MFS Value Equity Portfolio
Fidelity VIP High Income Portfolio Portfolio Partners Scudder International Growth Portfolio
Fidelity VIP II Contrafund Portfolio
</TABLE>
Complete descriptions of each of the funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the funds.
2
<PAGE>
OFFERING AND PURCHASE OF CONTRACT
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. We offer the contracts through life insurance
agents licensed to sell variable annuities who are registered representatives of
the Company or of other registered broker-dealers who have sales agreements with
the Company. The offering of the contracts is continuous. A description of the
manner in which the contracts are purchased can be found in the prospectus under
the sections titled "Purchase and Rights" and "Your Account Value."
PERFORMANCE DATA
GENERAL
From time to time, we may advertise different types of historical performance
for the subaccounts of the separate account available under the contracts. We
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 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 recurring charges under
the contracts during each period (i.e., option package III: 1.25% mortality and
expense risk charge, $30 maintenance fee, 0.15% administrative charge, and early
withdrawal 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 will be lower than the standardized figures for
option packages I and II because of the lower mortality and expense risk charge
under those option packages (0.80% and 1.10% respectively). We may also
advertise standardized returns and non-standardized returns using the fees and
charges applicable to option packages I and II.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable early withdrawal charge,
and in some advertisements will also exclude the effect of the maintenance fee.
The deduction of the early withdrawal charge and the maintenance fee 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. The non-standardized returns shown in the tables below reflect
the deduction of the maximum recurring charges under the contract except the
early withdrawal charge (i.e., option package III: 1.25% mortality and expense
risk charge, $30 maintenance fee, and 0.15% administrative charge). We may also
advertise returns based on lower charges that may apply to contracts under
option packages I and II.
Investment results of the funds will fluctuate over time, and any presentation
of the subaccounts' total return quotations for any prior period should not be
considered as a representation of how the subaccounts will perform in any future
period. Additionally, the contract value and/or account value upon redemption
may be more or less than your original cost.
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, 1998 for the
subaccounts under the contracts. The standardized returns assume the maximum
charges under the contract (i.e., option package III) as described under
"General" above. The non-standardized returns assume the same charges but do not
include the early withdrawal charges. We may also advertise returns based on
lower charges that may apply to particular contracts under option packages I and
II.
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
contracts and; (b) after November 26, 1997, based on the performance of the
Portfolio Partners portfolio.
3
<PAGE>
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 non-standardized
performance, the "Since Inception" column shows average annual total return
since the fund's inception date.
<TABLE>
<CAPTION>
----------------------------------------------------------------
Date
Contributions
STANDARDIZED First Received
Under the
Separate Account
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 06/30/1989
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 10/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 05/05/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP 05/06/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 12/30/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 10/31/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 01/31/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 07/29/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 04/28/1995
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 05/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging 09/30/1993
Equities(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio Partners MFS
Research Growth(3) 08/31/1992
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/Portfolio Partners MFS Value Equity(3) 11/30/1992
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners Scudder
International Growth(3) 08/31/1992
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the table for an explanation of the
charges included and methodology used in calculating 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 subaccount for the seven-day period ended
December 31, 1998 (on an annualized basis) was _____%. Current yield more
closely reflects current earnings than does total return. The current yield
reflects the deduction of all charges under the contract that are deducted
from the total return quotations shown above except the maximum 7% early
withdrawal charge.
(3) The fund first listed was replaced with the applicable Portfolio Partners
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 Portfolio Partners 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.
4
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- ------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 04/03/1989
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1)
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 12/13/1996
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1)
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 09/16/1996
- ------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 12/22/1997
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP 12/15/1997
- ------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 12/27/1996
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 05/02/1994
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 05/05/1993
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1)
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1)
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 01/03/1995
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 09/13/1993
- ------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 01/03/1995
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund (1)
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Growth & Income Fund 07/06/1995
- ------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund 05/03/1993
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Emerging Equities Portfolio 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/Portfolio Partners MFS Emerging
Equities(3)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Research Growth Portfolio 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/Portfolio
Partners MFS Research Growth(3)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners MFS Value Equity Portfolio 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/Portfolio Partners MFS
Value Equity(3)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners Scudder International Growth Portfolio 11/28/1997
- ------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/Portfolio Partners
Scudder International Growth(3)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the table for an explanation of the
charges included and methodology used in calculating 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 in operation for more than ten years.
(2) The current yield for the subaccount for the seven-day period ended
December 31, 1998 (on an annualized basis) was _____%. Current yield more
closely reflects current earnings than does total return. The current yield
reflects the deduction of all charges under the contract that are deducted
from the total return quotations shown above. As in the table above, the
maximum 7% early withdrawal charge is not reflected.
(3) The fund first listed was replaced with the applicable Portfolio Partners
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 Portfolio Partners 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. If no date is shown, the replaced fund has been in operation
for more than ten years.
5
<PAGE>
INCOME PHASE PAYMENTS
When you begin receiving payments under the contract during the income phase
(see "Income Phase" in the prospectus), the value of your account is determined
using accumulation unit values as of the tenth valuation before the first
payment is due. Such value (less any applicable premium tax) is applied to
provide payments to you in accordance with the payment option and investment
options elected.
The annuity option tables found in the contract show, for each option, the
amount of the first payment for each $1,000 of value applied. Thereafter,
variable 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 payments will increase thereafter only to the extent that the
investment performance of the subaccounts you selected is greater than 5%
annually. Payments would decline if the performance was less than 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 performance
of the subaccounts selected.
When the income phase 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 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 to the next (see "Your Account
Value" in the prospectus); such fluctuations reflect changes in the net
investment factor for the appropriate subaccount(s) (with a ten valuation lag
which gives the Company time to process 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 income phase.
EXAMPLE:
Assume that, at the date payments are to begin, there are 3,000 accumulation
units credited under a particular contract and that the value of an accumulation
unit for the tenth valuation 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 payment option elected, a first monthly variable
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 upon the valuation 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 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 (assume such value to be $13.504376)
to produce an annuity unit value of $13.523359 for the valuation occurring when
the second payment is due. The second monthly payment is then determined by
multiplying the number of annuity units by the current annuity unit value, or
20.414 times $13.523359, which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
We may include hypothetical illustrations in our sales literature that explain
the mathematical principles of dollar cost averaging, compounded interest, tax
deferred accumulation, and the mechanics of variable annuity contracts. We may
also discuss the difference between variable annuity contracts and other types
of savings or investment products such as personal savings accounts and
certificates of deposit.
6
<PAGE>
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
Service, 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 such 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 such as The Wall
Street Journal, Money magazine, USA Today and The VARDS Report.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to current and prospective
contract holders. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparison between the contracts and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the separate account and for the Company. The services
provided to the separate account include primarily the examination of the
separate account's financial statements and the review of filings made with the
SEC.
7
<PAGE>
FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT
VARIABLE ANNUITY ACCOUNT B
Index
<TABLE>
<S> <C>
Statement of Assets and Liabilities.........................................
Statements of Operations and Changes in Net Assets..........................
Notes to Financial Statements...............................................
Independent Auditors' Report................................................
</TABLE>
[To be filed by 485(b) amendment.]
S-1
<PAGE>
FINANCIAL STATEMENTS OF AETNA LIFE INSURANCE AND ANNUITY COMPANY
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report.................................................
Consolidated Financial Statements:...........................................
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996....................................
Consolidated Balance Sheets as of December 31, 1998 and 1997............
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1998, 1997 and 1996................
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................................
Notes to Consolidated Financial Statements..............................
</TABLE>
[To be filed by 485(b) amendment.]
F-1
<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, 1998
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1998 and 1997
- 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, 1998, 1997 and 1996
- Consolidated Balance Sheets as of December 31, 1998 and 1997
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
- 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) Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(3)
(4.1) Variable Annuity Contract (GM-VA-98)(2)
(4.2) Variable Annuity Contract Certificate (GMC-VA-98)(2)
(4.3) Endorsement (EVAGET98) to Variable Annuity Contract GM-VA-98
and Variable Annuity Contract Certificate GMC-VA-98(4)
(5) Variable Annuity Contract Application(9.5.89-6(9/98))(5)
(6.1) Certificate of Incorporation of Aetna Life Insurance and Annuity
Company(6)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(7)
<PAGE>
(6.3) By-Laws as amended September 17, 1997 of Aetna Life Insurance
and Annuity Company(8)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and AIM dated June 30, 1998(5)
(8.2) Service Agreement between Aetna Life Insurance and Annuity
Company and AIM effective June 30, 1998(5)
(8.3) Fund Participation Agreement by and among Aetna Life Insurance
and Annuity Company and Aetna Variable Fund, Aetna Variable
Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna
GET Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, Aetna Variable
Portfolios, Inc. on behalf of each of its series, and Aeltus
Investment Management, Inc. dated as of May 1, 1998(2)
(8.4) Amendment dated November 9, 1998 to Fund Participation Agreement
by and among Aetna Life Insurance and Annuity Company and Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of
its series, Aetna Variable Portfolios, Inc. on behalf of each of
its series, and Aeltus Investment Management, Inc. dated as of
May 1, 1998(9)
(8.5) Service Agreement between Aeltus Investment Management, Inc. and
Aetna Life Insurance and Annuity Company in connection with the
sale of shares of Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna Income Shares, Aetna Balanced VP, Inc., Aetna GET
Fund on behalf of each of its series, Aetna Generation
Portfolios, Inc. on behalf of each of its series, and Aetna
Variable Portfolios, Inc. on behalf of each of its series dated
as of May 1, 1998(2)
(8.6) Amendment dated November 4, 1998 to Service Agreement between
Aeltus Investment Management, Inc. and Aetna Life Insurance and
Annuity Company in connection with the sale of shares of Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares,
Aetna Balanced VP, Inc., Aetna GET Fund on behalf of each of its
series, Aetna Generation Portfolios, Inc. on behalf of each of
its series and Aetna Variable Portfolios, Inc. on behalf of each
of its series dated as of May 1, 1998(9)
(8.7) 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(7)
(8.8) 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(10)
<PAGE>
(8.9) 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(11)
(8.10) Seventh Amendment dated as of May 1, 1998 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, May 1, 1997 and November 6, 1997(2)
(8.11) 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(7)
(8.12) 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(10)
(8.13) Sixth Amendment dated as of January 20, 1998 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, March 1, 1996 and May 1, 1997(12)
(8.14) Seventh Amendment dated as of May 1, 1998 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, March 1, 1996, May 1, 1997 and January 20, 1998(2)
(8.15) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(11)
(8.16) 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(10)
(8.17) Service Contract between Fidelity Distributors Corporation and
Aetna Life Insurance and Annuity Company dated May 2, 1997(9)
(8.18) Fund Participation Agreement among Janus Aspen Series and
Aetna Life Insurance and Annuity Company and Janus Capital
Corporation dated December 8, 1997(13)
(8.19) Amendment dated October 12, 1998 to Fund Participation Agreement
among Janus Aspen Series and Aetna Life Insurance and Annuity
Company and Janus Capital Corporation dated December 8, 1997(9)
<PAGE>
(8.20) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(14)
(8.21) Fund Participation Agreement among MFS Variable Insurance Trust,
Aetna Life Insurance and Annuity Company and Massachusetts
Financial Services Company dated April 30, 1996, and amended on
September 3, 1996, March 14, 1997 and November 28, 1997(2)
(8.22) Fourth Amendment dated May 1, 1998 to the Fund Participation
Agreement by and among MSF Variable Insurance Trust, Aetna Life
Insurance and Annuity Company and Massachusetts Financial
Services Company dated April 30, 1996, and amended on September
3, 1996, March 14, 1997 and November 28, 1997(5)
(8.23) Fifth Amendment to Fund Participation Agreement by and among MSF
Variable Insurance Trust, Aetna Life Insurance and Annuity
Company and Massachusetts Financial Services Company dated April
30, 1996, and amended on September 3, 1996, March 14, 1997 and
November 28, 1997(15)
(8.24) Form of Fund Participation Agreement between Aetna and Mitchell
Hutchins*
(8.25) Fund Participation Agreement dated March 11, 1997 between Aetna
Life Insurance and Annuity Company and Oppenheimer Variable
Annuity Account Funds and Oppenheimer Funds, Inc.(16)
(8.26) Service Agreement effective as of March 11, 1997 between
Oppenheimer Funds, Inc. and Aetna Life Insurance and Annuity
Company(16)
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(5)
(14) Not applicable
(15.1) Powers of Attorney
(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 Registration Statement on Form N-4 (File No.
333-56297), as filed electronically on June 8, 1998 (Accession No.
0000950146-98-000983).
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. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
September 14, 1998 (Accession No. 0000950146-98-001574).
5. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
August 4, 1998 (Accession No. 0000950146-98-001283).
<PAGE>
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996 (Accession No. 0000950146-96-000534).
7. 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).
8. 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).
9. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
December 14, 1998 (Accession No. 0000950146-98-002092).
10. 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).
11. 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).
12. Incorporated by Reference to Post-Effective Amendment No. 7 to Registration
Statement on Form S-6 (File No. 33-75248), as filed electronically on
February 24, 1998 (Accession No. 0000950146-98-000267).
13. 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).
14. 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).
15. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-56297), as filed electronically on
February 16, 1999 (Accession No. 0000950146-99-000248).
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).
<PAGE>
Item 25. Directors and Officers of the Depositor
- ------------------------------------------------
<TABLE>
<CAPTION>
Name and Principal
Business Address* Positions and Offices with Depositor
- ----------------- ------------------------------------
<S> <C>
Thomas J. McInerney Director and President
Shaun P. Mathews Director and Senior Vice President
Catherine H. Smith Director, Chief Financial Officer and Senior Vice President
Deborah Koltenuk Vice President, Treasurer and Corporate Controller
Therese M. Squillacote Vice President and Chief Compliance Officer
Kirk P. Wickman Vice President, General Counsel and Corporate Secretary
</TABLE>
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor
- -------------------------------------------------------------------------
or Registrant
- -------------
Incorporated herein by reference to Item 26 to Post-Effective Amendment No.
2 to Registration Statement on Form N-4 (File No. 333-56297), as filed
electronically on December 14, 1998 (Accession No. 0000950146-98-002092).
Item 27. Number of Contract Owners
- ----------------------------------
As of January 31, 1999, there were 76,690 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account B.
Item 28. Indemnification
- ------------------------
Section 21 of Public Act No. 97-246 of the Connecticut General Assembly (the
"Act") provides that a corporation may provide indemnification of or advance
expenses to a director, officer, employee or agent only as permitted by Sections
33-770 to 33-778, inclusive, of the Connecticut General Statutes, as amended by
Sections 12 to 20, inclusive, of this Act. Reference is hereby made to Section
33-771(e) of the Connecticut General Statutes ("CGS") regarding indemnification
of directors and Section 33-776(d) of CGS 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, except to the extent that their certificate of incorporation expressly
provides otherwise, indemnify their directors, officers,
<PAGE>
employees and agents against "liability" (defined as the obligation to pay a
judgment, settlement, penalty, fine, including an excise tax assessed with
respect to an employee benefit plan, or reasonable expenses incurred with
respect to a proceeding) when (1) a determination is made pursuant to Section
33-775 that the party seeking indemnification has met the standard of conduct
set forth in Section 33-771 or (2) a court has determined that indemnification
is appropriate pursuant to Section 33-774. Under Section 33-775, the
determination of and the authorization for indemnification are made (a) by the
disinterested directors, as defined in Section 33-770(3); (b) by special
counsel; (c) by the shareholders; or (d) in the case of indemnification of an
officer, agent or employee of the corporation, by the general counsel of the
corporation or such other officer(s) as the board of directors may specify.
Also, Section 33-772 provides that a corporation shall 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
he was a director of the corporation. In the case of a proceeding by or in the
right of the corporation or with respect to conduct for which the director,
officer, agent or employee was adjudged liable on the basis that he received a
financial benefit to which he was not entitled, indemnification is limited to
reasonable expenses incurred in connection with the proceeding against the
corporation to which the individual was named a party.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who was a director, officer, employer or
agent of the corporation. Consistent with the statute, Aetna Inc. has procured
insurance from Lloyd's of London and several major United States excess insurers
for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor.
Item 29. Principal Underwriter
- ------------------------------
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) also
acts as the principal underwriter, only, for Aetna Variable Encore
Fund, Aetna Variable Fund, Aetna Generation Portfolios, Inc., Aetna
Income Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment
Advisers Fund, Inc.), Aetna GET Fund, and Aetna Variable Portfolios,
Inc. and as principal underwriter and investment adviser for Portfolio
Partners, Inc. (all management investment companies registered under
the Investment Company Act of 1940 (1940 Act)). Additionally, Aetna
acts as the principal underwriter and depositor for Variable Life
Account B of Aetna, Variable Annuity Account C of Aetna and Variable
Annuity Account G of Aetna (separate accounts of Aetna registered as
unit investment trusts under the 1940 Act). Aetna is also the principal
underwriter for Variable Annuity 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, 1998: *
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation**
- ----------- ----------- ------------- ----------- --------------
<S> <C> <C>
Aetna Life Insurance $_________ $_________
and Annuity Company
</TABLE>
* 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) [Paragraph] 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. 333-56297) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hartford,
State of Connecticut, on the 25th day of February, 1999.
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. 5 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ------------------------------------- (principal executive officer) )
Thomas J. McInerney )
)
Catherine H. Smith* Director and Chief Financial Officer ) February
- ------------------------------------- )
Catherine H. Smith ) 25, 1999
)
Shaun P. Mathews* Director )
- ------------------------------------- )
Shaun P. Mathews )
)
Deborah Koltenuk* Vice President, Treasurer and Corporate Controller )
- ------------------------------------- )
Deborah Koltenuk )
</TABLE>
By: /s/ J. Neil McMurdie
------------------------------
J. Neil McMurdie
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C> <C>
99-B.9 Opinion and Consent of Counsel *
99-B.10 Consent of Independent Auditors *
99-B.15.1 Powers of Attorney __________
</TABLE>
*To be filed by amendment
EXHIBIT 99-B.15.1
POWER OF ATTORNEY
I, the undersigned Director and President of Aetna Life Insurance and Annuity
Company, hereby constitute and appoint Julie E. Rockmore, Kirk P. Wickman and J.
Neil McMurdie and each of them individually, my true and lawful attorneys, with
full power to them and each of them to sign for me, and in my name and in the
capacities indicated below, any and all amendments, to the Registration
Statements listed below filed with the Securities and Exchange Commission under
the Securities Act of 1933 and the Investment Company Act of 1940:
Registration Statements filed under the Securities Act of 1933:
<TABLE>
<S> <C> <C> <C>
2-52448 33-75960 33-75998 333-49593
2-52449 33-75962 33-75996 333-49599
33-02339 33-75964 33-76000 333-56297
33-34370 33-75966 33-76002 333-72079
33-34583 33-75968 33-76004
33-42555 33-75970 33-76018
33-60477 33-75972 33-76024
33-61897 33-75974 33-76026
33-62473 33-75976 33-79118
333-01107 33-75978 33-79122
33-63611 33-75980 33-81216
33-64277 33-75982 33-87642
33-64331 33-75984 33-87932
33-75248 33-75986 33-88720
33-75954 33-75988 33-88722
33-75956 33-75990 33-88724
33-75958 33-75992 33-89858
333-15817 33-75994 33-91846
333-24645 333-09515 333-27337
</TABLE>
Registration Statements filed under the Investment Company Act of 1940:
811-2512 811-2513 811-4536 811-5906
hereby ratifying and confirming on this 18th day of February, 1999, my signature
as it may be signed by my said attorneys to any such Registration Statements and
any and all amendments thereto.
Signature/Title
---------------
/s/ Thomas J. McInerney
---------------------------
Thomas J. McInerney
Director and President
(Principal Executive Officer)
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director of Aetna Life Insurance and Annuity Company, hereby
constitute and appoint Julie E. Rockmore, Kirk P. Wickman and J. Neil McMurdie
and each of them individually, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name and in the capacity
indicated below, any and all amendments, to the Registration Statements listed
below filed with the Securities and Exchange Commission under the Securities Act
of 1933 and the Investment Company Act of 1940:
Registration Statements filed under the Securities Act of 1933:
<TABLE>
<S> <C> <C> <C>
2-52448 33-75960 33-75998 333-49593
2-52449 33-75962 33-75996 333-49599
33-02339 33-75964 33-76000 333-56297
33-34370 33-75966 33-76002 333-72079
33-34583 33-75968 33-76004
33-42555 33-75970 33-76018
33-60477 33-75972 33-76024
33-61897 33-75974 33-76026
33-62473 33-75976 33-79118
333-01107 33-75978 33-79122
33-63611 33-75980 33-81216
33-64277 33-75982 33-87642
33-64331 33-75984 33-87932
33-75248 33-75986 33-88720
33-75954 33-75988 33-88722
33-75956 33-75990 33-88724
33-75958 33-75992 33-89858
333-15817 33-75994 33-91846
333-24645 333-09515 333-27337
</TABLE>
Registration Statements filed under the Investment Company Act of 1940:
811-2512 811-2513 811-4536 811-5906
hereby ratifying and confirming on this 18th day of February, 1999, my signature
as it may be signed by my said attorneys to any such Registration Statements and
any and all amendments thereto.
Signature/Title
---------------
/s/ Shaun P. Mathews
-------------------------
Shaun P. Mathews
Director
<PAGE>
POWER OF ATTORNEY
I, the undersigned Director and Chief Financial Officer of Aetna Life Insurance
and Annuity Company, hereby constitute and appoint Julie E. Rockmore, Kirk P.
Wickman and J. Neil McMurdie and each of them individually, my true and lawful
attorneys, with full power to them and each of them to sign for me, and in my
name and in the capacities indicated below, any and all amendments, to the
Registration Statements listed below filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940:
Registration Statements filed under the Securities Act of 1933:
<TABLE>
<S> <C> <C> <C>
2-52448 33-75960 33-75998 333-49593
2-52449 33-75962 33-75996 333-49599
33-02339 33-75964 33-76000 333-56297
33-34370 33-75966 33-76002 333-72079
33-34583 33-75968 33-76004
33-42555 33-75970 33-76018
33-60477 33-75972 33-76024
33-61897 33-75974 33-76026
33-62473 33-75976 33-79118
333-01107 33-75978 33-79122
33-63611 33-75980 33-81216
33-64277 33-75982 33-87642
33-64331 33-75984 33-87932
33-75248 33-75986 33-88720
33-75954 33-75988 33-88722
33-75956 33-75990 33-88724
33-75958 33-75992 33-89858
333-15817 33-75994 33-91846
333-24645 333-09515 333-27337
</TABLE>
Registration Statements filed under the Investment Company Act of 1940:
811-2512 811-2513 811-4536 811-5906
hereby ratifying and confirming on this 18th day of February, 1999, my signature
as it may be signed by my said attorneys to any such Registration Statements and
any and all amendments thereto.
Signature/Title
---------------
/s/ Catherine H. Smith
------------------------------------
Catherine H. Smith
Director and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
I, the undersigned Vice President, Treasurer and Corporate Controller of Aetna
Life Insurance and Annuity Company, hereby constitute and appoint Julie E.
Rockmore, Kirk P. Wickman and J. Neil McMurdie and each of them individually, my
true and lawful attorneys, with full power to them and each of them to sign for
me, and in my name and in the capacities indicated below, any and all
amendments, to the Registration Statements listed below filed with the
Securities and Exchange Commission under the Securities Act of 1933 and the
Investment Company Act of 1940:
Registration Statements filed under the Securities Act of 1933:
<TABLE>
<S> <C> <C> <C>
2-52448 33-75960 33-75998 333-49593
2-52449 33-75962 33-75996 333-49599
33-02339 33-75964 33-76000 333-56297
33-34370 33-75966 33-76002 333-72079
33-34583 33-75968 33-76004
33-42555 33-75970 33-76018
33-60477 33-75972 33-76024
33-61897 33-75974 33-76026
33-62473 33-75976 33-79118
333-01107 33-75978 33-79122
33-63611 33-75980 33-81216
33-64277 33-75982 33-87642
33-64331 33-75984 33-87932
33-75248 33-75986 33-88720
33-75954 33-75988 33-88722
33-75956 33-75990 33-88724
33-75958 33-75992 33-89858
333-15817 33-75994 33-91846
333-24645 333-09515 333-27337
</TABLE>
Registration Statements filed under the Investment Company Act of 1940:
811-2512 811-2513 811-4536 811-5906
hereby ratifying and confirming on this 18th day of February, 1999, my signature
as it may be signed by my said attorneys to any such Registration Statements and
any and all amendments thereto.
Signature/Title
---------------
/s/ Deborah Koltenuk
--------------------------------------------------
Deborah Koltenuk
Vice President, Treasurer and Corporate Controller
