As filed with the Securities and Exchange Registration No. 333-87305
Commission on December 13, 1999 Registration No. 811-2512
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
- --------------------------------------------------------------------------------
Pre-Effective Amendment No. 1 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, TS31, 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, TS31, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
Approximate date of Proposed Public Offering: As soon as practicable after the
effectiveness of this Registration Statement.
It is proposed that this Filing will become effective on December 17, 1999.
<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
5 General Description of Registrant, Depositor,
and Portfolio Companies...................... Other Topics - The Company; Variable Annuity
Account B; Appendix III - Description of
Underlying 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>
Contract Prospectus - December 17, 1999
- --------------------------------------------------------------------------------
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 qualified Individual
Retirement Annuity (IRA), a qualified Roth IRA, a qualified contract under
certain employer sponsored retirement plans, or as a nonqualified deferred
annuity contract.
Why Reading this Prospectus Is Important. This prospectus contains facts about
the contract and its investment options you should know before purchasing. This
information will help you decide if the contract is right for you. Please read
this prospectus carefully.
Table of Contents . . . page 3
Contract Design. The contract described in this prospectus is designed to:
o Help you save for retirement security while receiving beneficial tax
treatment;
o Offer a variety of investment options to help meet long-term financial
goals;
o Provide a death benefit to the beneficiary you designate; and
o Provide payments for life or for a specified period.
Purchase Payments/Premium Bonuses. We credit a premium bonus to your account for
each eligible purchase payment you make. Purchase payments and any corresponding
premium bonuses are allocated to the investment options you select.
Over time, the amount of the premium bonus may be more than offset by the fees
associated with the bonus.
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.
The funds in which the subaccounts invest have various risks. Information about
the risks of investing in the funds is located in the "Investment Option"
section in this prospectus and in each fund prospectus. Read this prospectus in
conjunction with the fund prospectuses, and retain the prospectuses for future
reference.
Fixed Interest Options. o ALIAC Guaranteed Account (the Guaranteed Account)
o 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 variable investment options or fixed interest
options may be unavailable through your contract or in your state.
Getting Additional Information. You may obtain the December 17, 1999, Statement
of Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-238-6219. You may also obtain
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 and may also be obtained,
free of charge, by contacting the SEC Public Reference Room at 202-942-8090. The
SAI table of contents is listed on page 40 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. We have not authorized
anyone to provide you with information that is different than that contained in
this prospectus.
The contract is not a deposit with, obligation of or guaranteed or endorsed by
any bank, nor is it insured by the FDIC. The contract is subject to investment
risk, including the possible loss of the principal amount of your investment.
The Funds
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna International VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Real Estate Securities VP
o Aetna Small Company VP
o AIM V.I. Capital Appreciation Fund
o AIM V.I. Growth Fund
o AIM V.I. Growth and Income Fund
o AIM V.I. Value Fund
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Total Return Series
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Main Street Growth & Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners (PPI) MFS Research Growth Portfolio
o Portfolio Partners (PPI) MFS Value Equity Portfolio
o Portfolio Partners (PPI) Scudder International Growth Portfolio
2
<PAGE>
TABLE OF CONTENTS
Contract Overview 4
o Contract Design -- Contract Facts -- Questions: Contacting the
Company - Sending Forms and Written Requests in Good Order - Sending
Additional Purchase Payments - Contract Phases: The Accumulation
Phase, The Income Phase
Fee Table 7
Condensed Financial Information 13
Investment Options 13
Transfers Among Investment Options 14
Purchase and Rights 15
Premium Bonus 16
Right to Cancel 17
Fees 18
Your Account Value 21
Withdrawals 23
Systematic Distribution Options 24
Death Benefit 25
The Income Phase 27
Taxation 30
Other Topics 37
o The Company -- Variable Annuity Account B -- Contract Distribution --
Payment of Commissions -- Payment Delay or Suspension -- Performance
Reporting -- Voting Rights -- Contract Modifications -- Transfer of
Ownership: Assignment -- Involuntary Terminations -- Legal Matters
and Proceedings -- Year 2000 Readiness
Contents of the Statement of Additional Information 40
Appendix I -- ALIAC Guaranteed Account 41
Appendix II -- Fixed Account 43
Appendix III -- Description of Underlying Funds 44
3
<PAGE>
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 deferred
variable annuity contract. It is intended to be a retirement savings vehicle
that offers a variety of investment options to help meet long-term financial
goals. The term "contract" in this prospectus refers to individual contracts and
to certificates issued under group contracts.
Contract Facts
Premium Bonus. We will credit a premium bonus to your account whenever you make
an eligible purchase payment. Your initial purchase payment is always eligible
for a premium bonus. Thereafter, any withdrawals you make from the contract
reduce dollar-for-dollar the eligibility of subsequent purchase payments for a
premium bonus.
To determine the eligibility of subsequent purchase payments for a premium
bonus, we subtract the sum of your withdrawals from the sum of your purchase
payments. The result equals your net cumulative purchase payments. Next, we
subtract from the net cumulative purchase payment amount the sum of your
previous purchase payments upon which we paid a premium bonus, which results in
the amount of the purchase payment eligible for a premium bonus. See "Premium
Bonus" for an example of the effect of withdrawals on eligibility for a premium
bonus.
The amount of your premium bonus is a certain percentage of the eligible
purchase payment. The particular percentage is determined according to the
following schedule, which is based on three ranges of net cumulative purchase
payments.
Net Cumulative Purchase Payments Premium Bonus Percentage
-------------------------------- ------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
The premium bonus is included in your account value and will be allocated among
the investment options you have selected in the same proportion as the purchase
payment. In certain circumstances, a premium bonus previously credited to your
account will not be included when calculating the death benefit or income phase
payments. See "Premium Bonus," "Death Benefit - Death Benefit Amount" and "The
Income Phase - Premium Bonus." Also, if you exercise your free look privilege
and cancel your contract, the amount refunded to you will not include any
premium bonus. See "Right to Cancel."
Free Look/Right to Cancel. You may cancel your contract within 10 days (some
states require more than 10 days) 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. The amount of the death benefit will
depend on the death benefit option selected, and once a death benefit option is
selected it may not be changed. Each death benefit option has a different
mortality and expense risk charge. See "Fees" and "Death Benefit." Any death
benefit during the income phase will depend upon the income phase payment option
selected. See "The 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 Internal Revenue Code of 1986, as amended (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. See "Fee Table" and "Fees."
- --------------------------------------------------------------------------------
Questions: Contacting the Company. To answer your questions, contact your local
representative or write or call our Home Office at:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1258
1-800-238-6219
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.
Sending Additional Purchase Payments.
Use one of the following addresses when sending additional purchase payments.
If using the U.S. Postal Service:
ALIAC
Attn: New Business Unit
P.O. Box 30670
Hartford, CT 06150-0670
If using express mail:
Fleet Bank/ALIAC #30670
Lockbox - CT/EH F03E
99 Founders Plaza, 3rd Floor
East Hartford, CT 06108
Express mail packages should not be sent to the P.O. Box Address.
- --------------------------------------------------------------------------------
4
<PAGE>
Taxation. You will generally not pay taxes on any earnings from the annuity
contract described in this prospectus until they are withdrawn. Tax-qualified
retirement arrangements (e.g. IRAs or 403(b) plans) also defer payment of taxes
on earnings until they are withdrawn. If you are considering funding a
tax-qualified retirement arrangement with an annuity contract, you should know
that the annuity contract does not provide any additional tax deferral of
earnings beyond the tax deferral provided by the tax-qualified retirement
arrangement. However, annuities do provide other features and benefits which may
be valuable to you. You should discuss your decision with your financial
representative.
Taxes will generally be due when you receive a distribution of earnings. Tax
penalties may apply in some circumstances. See "Taxation."
5
<PAGE>
Contract Phases
I. The Accumulation Phase (accumulating dollars under your contract)
STEP 1: You provide us with your completed application and initial purchase
payment. We establish an account for you and credit that account with your
initial purchase payment and premium bonus.
STEP 2: You direct us to invest your purchase payment and the premium bonus in
one or more of the following investment options:
(a) Fixed Interest Options; or
(b) Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account B. Each one invests in a specific
mutual fund.)
STEP 3: Each subaccount you select purchases shares of its assigned fund.
------------
Payments to
Your Account
------------
Step 1
- --------------------------------------------------------------------------------
Aetna Life Insurance and Annuity Company
- --------------------------------------------------------------------------------
(a) Step 2 (b)
----------- -------------------------------
Fixed Variable Annuity
Interest Account B
Options Variable Investment Options
----------- -------------------------------
The Subaccounts
-------------------------------
A B Etc
-------------------------------
Step 3
---------------------
Mutual Mutual
Fund A Fund B
---------------------
II. The Income Phase (receiving income phase payments from your contract)
When you want to begin receiving payments from your contract, you may select
from the options available. The contract offers several income phase payment
options (see "The Income Phase"). In general, you may:
o Receive income phase payments for a specified period of time or for life;
o Receive income phase payments monthly, quarterly, semi-annually or
annually;
o Select an income phase payment option that provides for payments to your
beneficiary; or
o Select fixed income phase payments or payments that vary based upon the
performance of the variable investment options you select.
6
<PAGE>
Fee Table
- --------------------------------------------------------------------------------
The tables and examples in this section show the fees that may affect your
account value during the accumulation phase. See "The Income Phase" for fees
that may apply after you begin receiving income phase payments under the
contract.
Maximum Transaction Fees
Early Withdrawal Charge. (As a percentage of purchase payments withdrawn.)
- --------------------------------------------------------------------------------
Years From Receipt of Purchase Payment Early Withdrawal Charge
-------------------------------------- -----------------------
Less than 3 8%
3 or more but less than 4 7%
4 or more but less than 5 6%
5 or more but less than 6 5%
6 or more but less than 7 4%
7 or more but less than 8 3%
8 or more 0%
- --------------------------------------------------------------------------------
Annual Maintenance Fee ................................................$30.00(1)
Transfer charge ........................................................$0.00(2)
Maximum Fees Deducted from Investments in the Separate Account
Amount During the Accumulation Phase. (Daily deductions, equal to the following
percentages on an annual basis, from amounts invested in the subaccounts.)
Death Benefit Option I
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.40%
Death Benefit Option II
Mortality and Expense Risk Charge 1.45%
Administrative Expense Charge 0.15%
-----
Total Separate Account Expenses 1.60%
Amount During the Income Phase. (Daily deductions, equal to the following
percentages on an annual basis, from amounts invested in the subaccounts.)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.00% - 0.25%(3)
-------------
Total Separate Account Expenses 1.25% - 1.50%(3)
-------------
- --------------------------------------------------------------------------------
In this Section:
o Maximum Transaction Fees
o Maximum Fees Deducted from Investments in the Separate Account
o Fees Deducted by the Funds
o Hypothetical Examples
Also see the "Fees" section for:
o How, When and Why Fees are Deducted
o Reduction, Waiver and/or Elimination of Certain Fees
o Premium and Other Taxes
In addition to the fees shown in this section, state and municipal premium
taxes may apply.
- --------------------------------------------------------------------------------
7
<PAGE>
(1)The annual 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 "The Income Phase--Charges Deducted."
8
<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 upon figures for the year ended December 31,
1998.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Annual Net Fund Annual
Investment Expenses Without Total Expenses After
Advisory Other Waivers or Waivers and Waivers or
Fees(1) Expenses Reductions Reductions Reductions
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc.(3) 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP(3) 0.40% 0.10% 0.50% -- 0.50%
Aetna Growth VP(2)(3) 0.60% 0.15% 0.75% 0.00% 0.75%
Aetna Growth and Income VP(3) 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2)(3) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna International VP(2)(3) 0.85% 1.22% 2.07% 0.92% 1.15%
Aetna Money Market VP(3) 0.25% 0.09% 0.34% -- 0.34%
Aetna Real Estate Securities VP(2)(3) 0.75% 0.73% 1.48% 0.53% 0.95%
Aetna Small Company VP(2)(3) 0.75% 0.14% 0.89% 0.00% 0.89%
AIM V.I. Capital Appreciation Fund(4) 0.62% 0.05% 0.67% -- 0.67%
AIM V.I. Growth Fund(4) 0.64% 0.08% 0.72% -- 0.72%
AIM V.I. Growth and Income Fund(4) 0.61% 0.04% 0.65% -- 0.65%
AIM V.I. Value Fund(4) 0.61% 0.05% 0.66% -- 0.66%
Fidelity VIP Equity-Income Portfolio(5) 0.49% 0.09% 0.58% 0.00% 0.58%
Fidelity VIP Growth Portfolio(5) 0.59% 0.09% 0.68% 0.00% 0.68%
Fidelity VIP High Income Portfolio(5) 0.58% 0.12% 0.70% 0.00% 0.70%
Fidelity VIP II Contrafund Portfolio(5) 0.59% 0.11% 0.70% 0.00% 0.70%
Janus Aspen Aggressive Growth Portfolio(6) 0.72% 0.03% 0.75% 0.00% 0.75%
Janus Aspen Balanced Portfolio(6) 0.72% 0.02% 0.74% 0.00% 0.74%
Janus Aspen Growth Portfolio(6) 0.72% 0.03% 0.75% 0.07% 0.68%
Janus Aspen Worldwide Growth Portfolio(6) 0.67% 0.07% 0.74% 0.02% 0.72%
MFS Total Return Series(7) 0.75% 0.16% 0.91% 0.00% 0.91%
Oppenheimer Aggressive Growth Fund/VA(4) 0.69% 0.02% 0.71% -- 0.71%
Oppenheimer Main Street Growth & Income Fund/VA(4) 0.74% 0.05% 0.79% -- 0.79%
Oppenheimer Strategic Bond Fund/VA(4) 0.74% 0.06% 0.80% -- 0.80%
PPI MFS Emerging Equities Portfolio(8) 0.68% 0.13% 0.81% 0.00% 0.83%
PPI MFS Research Growth Portfolio(8) 0.70% 0.15% 0.85% -- 0.85%
PPI MFS Value Equity Portfolio(8) 0.65% 0.25% 0.90% -- 0.90%
PPI Scudder International Growth Portfolio(8) 0.80% 0.20% 1.00% -- 1.00%
</TABLE>
9
<PAGE>
Footnotes to the "Fund Expense 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 generally paid out of the
management fees and are not charged to investors. For the AIM Funds, the
reimbursements may be paid out of the fund assets in an amount up to 0.25%
annually. Any such reimbursements paid from the AIM Funds' assets are included
in the "Other Expenses" column.
(2) The investment adviser is contractually obligated through December 31, 1999
to waive all or a portion of its investment advisory fee and/or its
administrative services fee and/or to reimburse a portion of other expenses in
order to ensure that the portfolio's Total Fund Annual Expenses do not exceed
the percentage reflected under Net Fund Annual Expenses After Waivers or
Reductions.
(3) Prior to May 1, 1998, the portfolio's investment adviser provided
administrative services to the portfolio and assumed the portfolio's ordinary
recurring direct costs under an administrative services agreement. After that
date, the portfolio's investment adviser provided administrative services but no
longer assumed all of the portfolio's ordinary recurring direct costs under an
administrative services agreement. The administrative fee is 0.075% on the first
$5 billion in assets and 0.050% on all assets over $5 billion. The "Other
Expenses" shown are not based on actual figures for the year ended December 31,
1998, but reflect the fee payable under the new administrative services
agreement and estimates the portfolio's ordinary recurring direct costs.
(4) Fee waiver/expense reimbursement obligations do not apply to these
portfolios.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or the investment adviser on
behalf of certain funds, have entered into arrangements with their custodian
whereby credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Expenses do not take into account these expense
reductions, and are therefore higher than the actual expenses of the series.
(6) All expenses are stated both with and without contractual waivers and fee
reductions by Janus Capital. Fee reductions for the Aggressive Growth, Balanced,
Growth and Worldwide Growth Portfolios reduce the Management fee to the level of
the corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the Management Fee and then against Other Expenses. Janus
Capital has agreed to continue the other waivers and fee reduction until at
least the next annual renewal of the advisory agreement.
(7) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with its
custodian and dividend disbursing agent. Each series may enter into other such
arrangements and directed brokerage arrangements, which would also have the
effect of reducing the series' expenses. Expenses do not take into account these
expense reductions, and are therefore higher than the actual expenses of the
series.
(8) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2000, the aggregate
of each portfolio's expenses will not exceed the combined investment advisory
fees and other expenses shown under the Net Fund Annual Expenses After Waivers
or Reductions column above. For the Portfolio Partners MFS Emerging Equities
Portfolio, the Total Fund Annual Expenses Without Waivers or Reductions for 1998
were less than the percentage reflected under the Net Annual Fund Expenses After
Waivers or Reductions column. Nevertheless, the investment adviser will waive
fees and/or reimburse expenses if that portfolio's Total Fund Annual Expenses
Without Waivers or Reductions for 1999 exceed the percentage reflected under the
Net Fund Annual Expenses After Waivers or Reductions column.
10
<PAGE>
Hypothetical Example
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 and a 2% premium bonus
in the contract and assume a 5% annual return on the investment. For the purpose
of these examples, we deducted total annual fund expenses and the maximum
charges under the contract (i.e., a mortality and expense risk charge of 1.45%
annually for Death Benefit Option II, an administrative expense charge of 0.15%
annually and a maximum annual maintenance fee of $30 (converted to a percentage
of assets equal to 0.022%)). The total annual fund expenses used are those shown
in the column "Total Annual Expenses Without Waivers or Reductions" in the Fund
Expense Table.
<TABLE>
<CAPTION>
- ----------------------------------------
o These examples are purely
hypothetical.
o They should not be considered a EXAMPLE A EXAMPLE B
representation of past or future
expenses or expected returns. If you withdraw your entire account If at the end of the periods shown you
value at the end of the periods shown, (1) leave your entire account value
o Actual expenses and/or returns may you would pay the following expenses, invested or (2) select an income phase
be more or less than those shown including any applicable early payment option, you would pay the
in these examples. withdrawal charge: following expenses (no early withdrawal
- ---------------------------------------- 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. $96 $134 $166 $260 $23 $71 $121 $260
Aetna Bond VP $95 $131 $161 $250 $22 $68 $116 $250
Aetna Growth VP $98 $139 $174 $276 $25 $75 $129 $276
Aetna Growth and Income VP $96 $134 $166 $259 $23 $70 $120 $259
Aetna Index Plus Large Cap VP $95 $130 $159 $245 $21 $66 $114 $245
Aetna International VP $111 $179 $240 $402 $38 $115 $195 $402
Aetna Money Market VP $94 $126 $153 $233 $20 $63 $108 $233
Aetna Real Estate Securities VP $105 $161 $211 $348 $32 $98 $166 $348
Aetna Small Company VP $99 $143 $182 $290 $26 $80 $136 $290
AIM V.I. Capital Appreciation Fund $97 $137 $170 $268 $24 $73 $125 $268
AIM V.I. Growth Fund $97 $138 $173 $273 $24 $75 $128 $273
AIM V.I. Growth & Income Fund $97 $136 $169 $266 $23 $72 $124 $266
AIM V.I. Value Fund $97 $136 $170 $267 $24 $73 $125 $267
Fidelity VIP Equity-Income Portfolio $96 $134 $166 $259 $23 $70 $120 $259
Fidelity VIP Growth Portfolio $97 $137 $171 $269 $24 $73 $126 $269
Fidelity VIP High Income Portfolio $97 $138 $172 $271 $24 $74 $127 $271
Fidelity VIP II Contrafund Portfolio $97 $138 $172 $271 $24 $74 $127 $271
Janus Aspen Aggressive Growth Portfolio $98 $139 $174 $276 $25 $75 $129 $276
Janus Aspen Balanced Portfolio $98 $139 $174 $275 $24 $75 $129 $275
Janus Aspen Growth Portfolio $98 $139 $174 $276 $25 $75 $129 $276
Janus Aspen Worldwide Growth Portfolio $98 $139 $174 $275 $24 $75 $129 $275
MFS Total Return Series $99 $144 $183 $292 $26 $80 $137 $292
Oppenheimer Aggressive Growth Fund/VA $97 $138 $172 $272 $24 $74 $127 $272
Oppenheimer Main Street Growth & Income
Fund/VA $98 $140 $176 $280 $25 $77 $131 $280
Oppenheimer Strategic Bond Fund/VA $98 $141 $177 $281 $25 $77 $132 $281
PPI MFS Emerging Equities Portfolio $98 $141 $177 $282 $25 $77 $132 $282
PPI MFS Research Growth Portfolio $99 $142 $180 $286 $26 $79 $134 $286
PPI MFS Value Equity Portfolio $99 $144 $182 $291 $26 $80 $137 $291
PPI Scudder International Growth Portfolio $100 $147 $187 $301 $27 $83 $142 $301
</TABLE>
11
<PAGE>
* This example does not apply during the income phase if you select a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal 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).
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<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
As of the date of this prospectus, we had not begun selling the contract and the
subaccounts did not have any assets attributable to the contract. Therefore, no
condensed financial information is presented herein.
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.
o Mutual Fund (fund) Descriptions. We provide brief descriptions of the
funds in Appendix III. Investment results of the funds are likely to
differ significantly and there is no assurance that any of the funds will
achieve their respective investment objectives. Shares of the funds will
rise and fall in value and you could lose money by investing in the funds.
Shares of the funds are not bank deposits and are not guaranteed, endorsed
or insured by any financial institution, the Federal Deposit Insurance
Corporation or any other government agency. Unless otherwise noted, all
funds are diversified as defined under the Investment Company Act of 1940.
Refer to the fund prospectuses for additional information. Fund
prospectuses may be obtained, free of charge, from our Home Office at the
address and phone number listed in "Contract Overview -- Questions:
Contacting the Company" or by contacting the SEC Public Reference Room.
Fixed Interest Options. If available in your state, the ALIAC Guaranteed Account
(the Guaranteed Account) or 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 Company 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.
- --------------------------------------------------------------------------------
Limits on 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 your contract and compliance with
regulatory requirements.
We may disallow investment in a subaccount if fund shares are unavailable to the
separate account or if we judge that further investments in such shares would be
inappropriate for the contract. In addition, we may substitute shares of another
fund for shares already acquired. We reserve the right to do so without proxy
vote.
Limits on How Many Investment Options You May Select. Although there is
currently no limit, we reserve the right to limit the number of investment
options you may select at any one time or during the life of the contract. For
purposes of determining any limit, each subaccount and each guaranteed term of
the Guaranteed Account, or an investment in the Fixed Account in certain
contracts, will be considered an investment 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 a purchase payment or premium bonus 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.
13
<PAGE>
o Shared--bought by more than one company.
o 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
- --------------------------------------------------------------------------------
You may transfer amounts among the available subaccounts. 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. During the income phase, if approved in your state, transfers are
limited to 12 each account year and allowed only if you select variable income
phase payments.
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 transfers into the Fixed Account from
any of the other investment options are not allowed. 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.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or an 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.
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, or, if you are
participating in the dollar cost averaging or account rebalancing program, after
your scheduled transfer or reallocation.
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 and transfers made under this program do not count as transfers
when determining the number of free transfers that may be made each calendar
year. For additional information about this program, contact your local
representative or call us at the number listed in "Contract Overview --
Questions: Contacting the Company."
In certain states, purchase payments and premium bonuses allocated to the Fixed
Account may require participation in the dollar cost averaging program.
14
<PAGE>
Dollar cost averaging is not available if you elect to 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. There is no additional charge for this program and
transfers made under this program do not count as transfers when determining the
number of free transfers that may be made each calendar year. 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: Contacting the Company."
Account rebalancing is not available if you elect to participate in the dollar
cost averaging program.
Purchase And Rights
- --------------------------------------------------------------------------------
How to Purchase
o Individual Contracts. In some states, where group contracts are not
available, you may purchase the contract directly from us by completing an
application and delivering it and your initial purchase payment to us.
Upon our approval we will issue you a contract, set up an account for you
under the contract and credit your account with a premium bonus.
o 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 your initial purchase
payment to that distributor. Upon our approval, we will set up an account
for you under the group contract, issue you a certificate showing your
rights under the contract and credit your account with a premium bonus.
o Joint Contracts (generally spouses). For a nonqualified contract, you may
participate in a group contract as a joint contract holder. References to
"contract holder" in this prospectus mean both contract holders under
joint contracts. Tax law prohibits the purchase of qualified contracts by
joint contract holders.
Maximum Issue Age. The maximum ages for you and the annuitant (if you are not
the annuitant) on the date we establish your account are as follows:
Maximum Issue Age
-----------------
Death Benefit Option I 85
Death Benefit Option II 75
Your Rights Under the Contract.
o Individual Contracts. You have all contract rights.
o 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.
o 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.
Purchase Payment Methods. The following purchase payment methods are allowed:
o One lump sum;
o Periodic payments; or
o Transfer or rollover from a pre-existing retirement plan or account.
We reserve the right to reject any purchase payments to a prospective or
existing account without advance notice.
Purchase Payment Amounts. The minimum initial purchase payment amounts are as
follows:
Non-Qualified: Qualified:*
-------------- -----------
Minimum Initial Purchase Payment $15,000 $1,500
*The Tax Code imposes a maximum limit on annual purchase payments which may
be excluded from your gross income.
Additional purchase payments must be at least $50 (we may change this amount
from time to time). A purchase payment of more than $1,000,000 will be allowed
only with our consent.
The amount of any premium bonus credited to your account is not considered part
of the purchase payment.
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<PAGE>
Reduction of Purchase Payment Amounts. In certain circumstances we may reduce
the minimum initial or additional purchase payment amount we will accept under a
contract. Whether such a reduction is available is based upon consideration of
one or more of the following factors:
o The size and type of the prospective group, if any, to which the reduction
would apply;
o The method and frequency of purchase payments to be made under the
contract; or
o 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 purchase 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 purchase 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 purchase payment(s) for five
business days. We may hold purchase payments for longer periods, pending
acceptance of the application, only with your permission. If the application is
rejected, the application and any purchase payments will be returned to you.
Allocating Purchase Payments to the Investment Options. We will allocate your
purchase payments and any premium bonuses 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.
Premium Bonus
- --------------------------------------------------------------------------------
Premium Bonus. We will credit a premium bonus to your account whenever you make
an eligible purchase payment. Your initial purchase payment is always eligible
for a premium bonus. Thereafter, any withdrawals you make from the contract
reduce dollar-for-dollar the eligibility of subsequent purchase payments for a
premium bonus.
To determine the eligibility of subsequent purchase payments for a premium
bonus, we subtract the sum of your withdrawals from the sum of your purchase
payments. The result equals your net cumulative purchase payments. Next, we
subtract from the net cumulative purchase payment amount the sum of your
previous purchase payments upon which we paid a premium bonus, which results in
the amount of the purchase payment eligible for a premium bonus.
The amount of your premium bonus is a certain percentage of the eligible
purchase payment. The particular percentage is determined according to the
following schedule, which is based on three ranges of net cumulative purchase
payments.
Net Cumulative Premium
Purchase Payments Bonus Percentage
----------------- ----------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
Example: If you make the following purchase payments and withdrawals under a
qualified contract, we will credit premium bonuses to your account, calculated
as follows:
Purchase Premium Bonus
Payment Amount Withdrawal Explanation
- ------- ------ ---------- -----------
$10,000 $200 This entire purchase payment is eligible
for a 2.00% premium bonus. Therefore, a
$200 premium bonus would be credited to
your account ($10,000 multiplied by
2.00%).
$5,000 This withdrawal will reduce the
eligibility of subsequent purchase
payments to receive the premium bonus.
$3,000 $0 This purchase payment is not eligible
for a premium bonus because it is
completely offset by the prior $5,000
withdrawal.
$4,000 $40 The amount of the purchase payment
eligible for the premium bonus is $2,000
(the sum of purchase payments made
reduced by prior withdrawals minus the
sum of purchase payments upon which a
premium bonus has previously been paid).
The premium bonus percentage is 2% based
upon a $12,000 net cumulative purchase
payment amount. Therefore, a $40 premium
bonus would be credited to your account
($2,000 multiplied by 2.00%).
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<PAGE>
$5,000 $200 All of this purchase payment is eligible
for a premium bonus because the prior
withdrawal was completely used to offset
the premium bonuses on the prior two
purchase payments. The premium bonus
percentage is 4% based upon a $17,000
net cumulative purchase payment amount.
Accordingly, a $200 premium bonus would
be credited to your account ($5,000
multiplied by 4%).
This example is intended to illustrate how the premium bonus is calculated; it
does not include the effect of any early withdrawal charge, or market value
adjustment for amounts invested in the guaranteed account, related to any
withdrawals.
The premium bonus is included in your account value and will be allocated among
the investment options you have selected in the same proportion as the purchase
payment. The amount of any premium bonus credited to your account is not
considered part of the purchase payment. Rather, it is considered gain under the
contract.
The amount of the death benefit will not include any premium bonus credited to
your account after or within 12 months of the date of death. See "Death Benefit
- -- Death Benefit Amount." Likewise, any premium bonus credited to your account
within 24 months of electing an income phase payment option will be forfeited
and not included in your account value when calculating the payment amount. See
"The Income Phase -- Premium Bonus." Also, if you exercise your free look
privilege and cancel your contract, the amount refunded to you will not include
any premium bonus. See "Right to Cancel." No premium bonus will be credited on
amounts reinvested following a full withdrawal. See "Withdrawals -- Reinvesting
a Full Withdrawal."
We use a portion of the early withdrawal charge and mortality and expense risk
charge to help recover the cost of providing the premium bonus under the
contract. See "Fees." Under certain circumstances (such as a period of poor
market performance) the cost associated with the premium bonus may exceed the
sum of the premium bonus and any related earnings. You should consider this
possibility before purchasing the contract.
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract 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 and written notice of cancellation. Unless your state requires
otherwise or unless you purchased an IRA, your refund will equal the purchase
payments made plus any earnings or minus any losses attributable to those
purchase 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 purchase payments
made. Any refund will not include any premium bonus credited to your account.
If the purchase 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 purchase payments will be restored to your
prior contract.
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<PAGE>
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 purchase payments that you withdraw.
Early Withdrawal Charge Schedule
- --------------------------------------------------------------------------------
Years From Receipt of Purchase Payment Early Withdrawal Charge
-----------------------
Less than 3 8%
3 or more but less than 4 7%
4 or more but less than 5 6%
5 or more but less than 6 5%
6 or more but less than 7 4%
7 or more but less than 8 3%
8 or more 0%
- --------------------------------------------------------------------------------
Purpose. This is a deferred sales charge. It reimburses us for some of the
sales, administrative and premium bonus expenses associated with the contract.
Our remaining sales, administrative and premium bonus expenses will be covered
by the mortality and expense risk charge described in this section and, to the
extent necessary, our other general assets.
- --------------------------------------------------------------------------------
Types of Fees
There are four types of fees or deductions that may affect your account.
TRANSACTION FEES
o Early Withdrawal Charge
o Annual Maintenance Fee
o Transfer Charge
FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
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
- --------------------------------------------------------------------------------
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<PAGE>
First In, First Out. The early withdrawal charge is calculated separately for
each purchase payment withdrawn. For purposes of calculating your early
withdrawal charge, we consider that your first purchase payment to the account
(first in) is the first you withdraw (first out).
For example: We calculate the early withdrawal charge based upon the number of
years since the purchase payment was received. If your initial purchase payment
was made four years ago, we will deduct an early withdrawal charge equal to 6%
of the portion of that purchase payment withdrawn. The next time you make a
withdrawal we will assess the charge against the portion of the first purchase
payment that you did not withdraw and/or your subsequent purchase payments to
your account in the order they were received.
Earnings (including any premium bonus) may be withdrawn after all purchase
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 of your account value on the later of
the date we established your account or the most recent anniversary of that
date.
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 purchase payments withdrawn if
the withdrawal is:
o Used to provide income phase payments to you;
o Paid due to the annuitant's death during the accumulation phase in an
amount up to the sum of purchase payments made, minus the total of all
partial withdrawals and deductions made prior to the annuitant's death;
o Paid upon 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;
o If approved in your state, 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 us (including required minimum distributions using
the ECO systematic distribution option); or
o Paid upon termination of your account by us (see "Other Topics --
Involuntary Terminations").
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 us for 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 this fee is to be deducted.
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<PAGE>
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 us for administrative expenses associated with
transferring your dollars among investment options.
FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
Maximum Amount. During the accumulation phase the amount of this charge depends
on which death benefit option you select. For Death Benefit Option I, this
charge, on an annual basis, is equal to 1.25% of your account value invested in
the subaccounts. For Death Benefit Option II, this charge, on an annual basis,
is equal to 1.45% of your account value invested in the subaccounts. During the
income phase, this charge, on an annual basis, is equal to 1.25% of amounts held
in the subaccounts.
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 and the expense associated with the premium bonus.
o The mortality risk is the risk associated with our promises to pay the
death benefit available under the contract and to make lifetime income
phase payments based upon annuity rates specified in the contract.
o The expense risk is the risk that the actual expenses we incur under the
contract will exceed the maximum costs that we can charge.
If the amount we deduct for this fee is not enough to cover our mortality and
expense risk costs and premium bonus expenses under the contract, we will bear
the loss. We 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.
Administrative Expense Charge
Maximum Amount. This charge, on an annual basis, is equal to 0.15% of your
account value invested in the subaccounts during the accumulation phase. There
is currently no administrative expense charge during the income phase; however,
we reserve the right to assess an administrative expense charge 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 contract.
We do not expect to make a profit from this fee.
REDUCTION OR ELIMINATION OF CERTAIN FEES
When sales of the contract are made to individuals or a group of individuals in
a manner that results in savings of sales or administrative expenses, we may
reduce or eliminate the early withdrawal charge, annual maintenance fee,
mortality and expense risk charge or administrative expense charge. Our decision
to reduce or eliminate any of these charges will be based on one or more of the
following:
o The size and type of group to whom the contract is issued;
o The amount of expected purchase payments;
o A prior or existing relationship with the Company, such as being an
employee or former employee of the Company or one of our affiliates,
receiving distributions or making transfers from other contracts issued by
us or one of our affiliates, or transferring amounts held under qualified
retirement plans sponsored by us or one of our affiliates;
o The type and frequency of administrative and sales services provided; or
o The level of annual maintenance fee and early withdrawal charges.
The reduction or elimination of any of these charges will not be unfairly
discriminatory against any person and will be done according to our rules in
effect at the time the contract is issued. We reserve the right to change these
rules from time to time. The right to reduce or eliminate any of these charges
may be subject to state approval.
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<PAGE>
FEES DEDUCTED BY THE FUNDS
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.
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 adviser 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 purchase 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 phase
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:
o The current dollar value of amounts invested in the subaccounts; plus
o 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.
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
o The net assets of the fund held by the subaccount as of the current
valuation; minus
o The net assets of the fund held by the subaccount at the preceding
valuation; plus or minus
o 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
o The total value of the subaccount's units at the preceding valuation;
minus
o A daily deduction for the mortality and expense risk charge, the
administrative expense charge (if any) and any other fees deducted from
investments in the separate account. See "Fees."
The net investment rate may be either positive or negative.
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Hypothetical Illustration. As a hypothetical illustration, assume that your
initial purchase payment to a qualified contract is $5,000 and you direct us to
invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we
receive the purchase payment and credit a 2% premium bonus to your account, the
applicable AUV's after the next close of business of the New York Stock Exchange
are $10 for Subaccount A, and $20 for Subaccount B. Your account is credited
with 306 accumulation units of Subaccount A, and 102 accumulation units of
Subaccount B.
Step 1: You make an initial purchase payment of $5000 and we credit your
account with a corresponding 2% ($100) premium bonus.
Step 2:
A. You direct us to invest $3,000 in Fund A. The portion of the premium bonus
related to the amount directed to Fund A is $60 ($3000 multiplied by 2%).
The purchase payment and premium bonus purchase 306 accumulation units of
Subaccount A ($3,060 divided by the $10 AUV).
B. You direct us to invest $2,000 in Fund B. The portion of the premium bonus
related to the amount directed to Fund B is $40 ($2000 multiplied by 2%).
The purchase payment and premium bonus purchase 102 accumulation units of
Subaccount B ($2,040 divided by the $20 AUV).
Step 3: The separate account purchases shares of the applicable funds at the
then current market value.
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.
---------------------------------------------------
$5,000 contribution
---------------------------------------------------
Step 1
---------------------------------------------------
Aetna Life Insurance and Annuity Company
---------------------------------------------------
Step 2
---------------------------------------------------
Variable Annuity Account B
Subaccount A Subaccount B Etc.
306 102
accumulation accumulation
units units
---------------------------------------------------
Step 3
------------------------------------
Fund A Fund B
------------------------------------
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Purchase Payments to Your Account. If all or a portion of initial purchase
payments are directed to the subaccounts, they and the corresponding premium
bonus will purchase subaccount accumulation units at the AUV next computed after
our acceptance of the applicable application as described in "Purchase and
Rights." Any subsequent purchase payment and premium bonus or transfer directed
to the subaccounts will purchase subaccount accumulation units at the AUV next
computed following our receipt of the purchase payment or transfer request. The
value of subaccounts may vary day to day.
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
o 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.
o Select investment options. If you do not specify this, we will withdraw
dollars proportionally from each of your investment options.
o 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. See "Taxation."
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 a properly-completed
disbursement form in good order.
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. We reserve the right, however, 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. No premium bonus will
be credited on amounts reinvested. We will credit the 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. If you withdraw amounts from a series of the Aetna GET Fund and then
elect to reinvest them, we will reinvest them in a GET Fund series then
accepting deposits, if one is available. If one is not available, we will
reallocate your GET amounts among the other investment options in which you
invested, on a pro rata basis. 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.
- --------------------------------------------------------------------------------
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
o Early Withdrawal Charge (see "Fees--Early Withdrawal Charge")
o Maintenance Fee (see "Fees--Maintenance Fee")
o Market Value Adjustment for amounts held in the Guaranteed Account (see
Appendix I and the Guaranteed Account prospectus)
o Tax Penalty (see "Taxation")
o 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: Contacting the Company."
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<PAGE>
Systematic Distribution Options
- --------------------------------------------------------------------------------
The following systematic distribution options may be available:
o SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based upon 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.
o 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.
o 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 Systematic Distribution Options. We may add additional systematic
distribution options from time to time. You may obtain additional information
relating to any of the systematic distribution options from your local
representative or by calling us at the number listed in "Contract Overview --
Contract Questions: Contacting the Company."
Eligibility for a Systematic Distribution Option. 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: Contacting the Company."
Systematic Distribution Option Availability. If allowed by applicable law, we
reserve the right to discontinue the availability of one or all of the
systematic distribution options for new elections at any time, and/or to change
the terms of future elections.
Terminating a Systematic Distribution Option. You may revoke a systematic
distribution option 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 a systematic distribution option, 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 a systematic distribution option may have tax consequences. If you are
concerned about tax implications, consult a qualified tax adviser before
electing an option.
- --------------------------------------------------------------------------------
Features of a Systematic Distribution Option
A systematic distribution option 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.
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<PAGE>
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 beneficiary. 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: Contacting the Company."
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.
Death Benefit Amount
The amount of the death benefit will depend on which death benefit option you
selected when you purchased the contract.
Death Benefit Option I. Upon the death of the annuitant, the death benefit
(which is calculated on the claim date) will be the greater of:
(1) The sum of all purchase payments, plus any premium bonus credited to your
account at least 12 months prior to the date of death, adjusted for
amounts withdrawn or applied to an income phase payment option; or
(2) The account value on the claim date, less any premium bonus credited to
your account after or within 12 months of the date of death.
Death Benefit Option II. Upon the death of the annuitant, the death benefit
(which is calculated on the claim date) will be the greatest of:
(1) The sum of all purchase payments made, plus any premium bonus credited to
your account at least 12 months prior to the date of death, adjusted for
amounts withdrawn or applied to an income phase payment option; or
(2) The account value on the claim date, less any premium bonus credited to
your account after or within 12 months of the date of death; or
(3) The "step-up value" (as described below) on the claim date.
Step-up value. The step-up value is equal to highest account value on the date
we establish your account or any anniversary of that date prior to the
annuitant's 85th birthday or death, whichever is earlier, adjusted for purchase
payments made and amounts withdrawn or applied to an income phase payment option
since the date of the highest account value and less any premium bonus credited
to your account after or within 12 months of the date of death.
Adjustment. For purposes of determining the death benefit, the adjustment for
purchase payments made will be dollar for dollar. The adjustment for amounts
withdrawn or applied to an income phase payment option will be proportionate,
reducing the sum of all purchase payments made and the highest account value in
the same proportion that the account value was reduced on the date of the
withdrawal or application to an income phase payment option.
Death Benefit Greater than the Account Value. Notwithstanding which death
benefit option 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, thereby increasing the account value
available to the beneficiary to an amount equal to the death benefit.
Prior to the election of a method of payment of the death benefit 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). The
amount paid to the beneficiary will equal the adjusted account value on the day
the payment is processed.
- --------------------------------------------------------------------------------
This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income phase
see "The Income Phase."
Terms to Understand:
Account Year/Account Anniversary: A period of 12 months measured from the date
we established your account and each anniversary of this date. 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: 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.
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<PAGE>
Death Benefit Amounts in Certain Cases
If the Contract Holder is the Annuitant and a Spousal Beneficiary Continues the
Account. If the spousal beneficiary continues the account at the death of a
contract holder who was also the annuitant, the spousal beneficiary becomes the
annuitant. The death benefit option in effect at the death of the contract
holder will also apply to the spousal beneficiary, and the death benefit payable
at the spousal beneficiary's death shall be determined under that death benefit
option, except that:
(1) In calculating the sum of all purchase payments, plus any premium bonus
credited to your account at least 12 months prior to the date of death,
adjusted for amounts withdrawn or applied to an income phase payment
option, the account value on the claim date following the original
contract holder's/annuitant's death shall be treated as the spousal
beneficiary's initial purchase payment; and
(2) In calculating the step-up value, the step-up value on the claim date
following the original contract holder's/annuitant's death shall be
treated as the spousal beneficiary's initial step-up value.
If the Contract Holder is not the Annuitant. Under nonqualified contracts only,
the death benefit described under the death benefit options above will not apply
if a contract holder (including a spousal beneficiary who continues the account)
who is not the annuitant dies. In these circumstances, the amount paid will be
equal to the account value on the date the payment is processed, plus or minus
any market value adjustment and minus any premium bonus credited to the account
after or within 12 months of the date of death. An early withdrawal charge may
apply to any full or partial payment of this death benefit.
Because the death benefit in these circumstances equals the account value, plus
or minus any market value adjustment and minus any premium bonus credited to the
account after or within 12 months of the date of death, a contract holder who is
not also the annuitant should seriously consider whether Death Benefit Option II
is suitable for their situation.
If the spousal beneficiary who is the annuitant continues the account at the
death of the contract holder who was not the annuitant, the annuitant will not
change. The death benefit option in effect at the death of the contract holder
will also apply to the spousal beneficiary, and the death benefit payable at the
spousal beneficiary's death shall be determined under that death benefit option.
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 may choose one of the following three methods of payment:
o 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). See "Taxation -- Minimum Distribution
Requirements."
o 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
o 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 a systematic distribution option and died before the Tax Code's
required beginning date for minimum distributions, payments under the systematic
distribution option will stop. The beneficiary, or contract holder on behalf of
the beneficiary, may elect a systematic distribution option 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.
Distribution Requirements. Subject to Tax Code limitations, a beneficiary may be
able to defer distribution of the death benefit. 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
non-natural 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;
or
(c) 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.
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.
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(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 (subject to the Tax Code
distribution rules). See "Taxation - Minimum Distribution Requirements."
(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 being made under a SWO, payments will stop. A
beneficiary, however, may elect to continue the SWO.
Taxation. Your beneficiary may be subject to tax penalties if he or she does not
begin receiving death benefit payments within a time frame required by the Tax
Code. See "Taxation."
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to your account and start
receiving payments from your accumulated account value.
Initiating Income Phase Payments. At least 30 days prior to the date you want to
start receiving income phase payments, you must notify us in writing of all of
the following:
o Payment start date;
o Income phase payment option (see the income phase payment options table in
this section);
o Payment frequency (i.e., monthly, quarterly, semi-annually or annually);
o Choice of fixed, variable or a combination of both fixed and variable
payments; and
o Selection of an assumed net investment rate (only if variable payments are
elected).
Your account will continue in the accumulation phase until you properly initiate
income phase payments. Once an income phase payment option is selected, it may
not be changed.
- --------------------------------------------------------------------------------
We may have used the following terms in prior prospectuses:
Annuity Phase -- Income Phase
Annuity Option -- Income Phase Payment Option
Annuity Payment -- Income Phase Payment
- --------------------------------------------------------------------------------
What Affects Payment Amounts? Some of the factors that may affect the amount of
your income phase payments include your age, your gender, your account value,
the income phase payment option selected, number of guaranteed payments (if any)
selected, whether you select fixed, variable or a combination of both fixed and
variable payments and, for variable payments, the assumed net investment rate
selected.
Fixed Payments. Amounts funding fixed income phase payments will be held in the
Company's general account. The amount of fixed payments does not vary over time.
Variable Payments. Amounts funding your variable income phase payments will be
held in the subaccount(s) you select. Not all subaccounts available during the
accumulation phase may be available during the income phase. Payment amounts
will vary depending upon the performance of the subaccounts you select. For
variable payments, an assumed net investment rate must be selected.
Assumed Net Investment Rate. If you select variable income phase payments, you
must also select an assumed net investment rate of either 5% or 3 1/2%. 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 income phase payment will be lower and
subsequent payments will increase more rapidly or decline more slowly depending
upon changes in the net investment performance 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: Contacting the Company."
Premium Bonus. Any premium bonus credited to your account within 24 months of
electing an income phase payment option will not be included in your account
value when calculating the amount of your income phase payments.
Minimum Payment Amounts. The income phase payment option you select must result
in:
o A first income phase payment of at least $50; or
o Total yearly income phase 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.
Restrictions on Start Dates and the Duration of Payments. Income phase payments
may not begin during the first account year, or,
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unless we consent, later than the later of:
- - (a) The first day of the month following the annuitant's 85th birthday;
or
- - (b) The tenth anniversary of the last purchase payment made to your
account.
- - For qualified contracts only, income phase 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; or
- - (d) A guaranteed period greater than the joint life expectancies of the
annuitant and beneficiary.
When income phase 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 income phase
payments and a nonlifetime income phase 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 income phase 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 in good order at our Home Office. If continuing income phase
payments are elected, the beneficiary may not elect to receive a lump sum at a
future date unless the income phase payment 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.
Taxation. To avoid certain tax penalties, you or your beneficiary must meet the
distribution rules imposed by the Tax Code. Additionally, when selecting an
income phase payment option, the Tax Code requires that your expected payments
will not exceed certain amounts. See "Taxation" for additional information.
Income Phase Payment Options
The following table lists the income phase payment options and accompanying
death benefits available during the income phase. We may offer additional income
phase payment options under the contract from time to time.
Once income phase payments begin, the income phase payment option selected may
not be changed.
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.
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Lifetime Income Phase Payment Options
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Life Income Length of Payments: For as long as the
annuitant lives. It is possible that only one
payment will be made should the annuitant die
prior to the second payment's due date.
Death Benefit--None: All payments end upon the
annuitant's death.
- --------------------------------------------------------------------------------
Life Income -- Length of Payments: For as long as the
Guaranteed Payments annuitant lives, with payments guaranteed for
your choice of 5-30 years or as otherwise
specified in the contract.
Death Benefit--Payment to the Beneficiary: If
the annuitant dies before we have made all the
guaranteed payments, we will continue to pay
the beneficiary the remaining payments. Unless
prohibited by a prior election of the contract
holder, the beneficiary may elect to receive a
lump-sum payment equal to the present value of
the remaining guaranteed payments.
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Life Income -- Two Lives 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:
(a) When you select this option you choose for
100%, 66 2/3% or 50% of the payment to
continue 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.
Death Benefit--None: All payments end upon the
death of both annuitants.
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Life Income -- Two Lives -- Length of Payments: For as long as either
Guaranteed Payments annuitant lives, with payments guaranteed from
5-30 years or as otherwise specified in the
contract.
Continuing Payments: 100% of the payment to
continue after the first death.
Death Benefit--Payment to the Beneficiary: If
both annuitants die before the guaranteed
payments have all been paid, we will continue
to pay the beneficiary the remaining payments.
Unless prohibited by a prior election of the
contract holder, the beneficiary may elect to
receive a lump-sum payment equal to the
present value of the remaining guaranteed
payments.
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Life Income -- Cash Refund Length of Payments: For as long as the
Option (limited availability -- annuitant lives.
fixed payment only) Death Benefit--Payment to the Beneficiary:
Following the annuitant's death, we will pay a
lump sum payment equal to the amount originally
applied to the income phase payment option
(less any premium tax) and less the total
amount of income payments paid.
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Life Income -- Two Lives -- Length of Payments: For as long as either
Cash Refund Option (limited annuitant lives.
availability -- fixed payment Continuing Payments: 100% of the payment to
only) continue after the first death.
Death Benefit--Payment to the Beneficiary: When
both annuitants die, we will pay a lump sum
payment equal to the amount applied to the
income phase payment option (less any premium
tax) and less the total amount of income
payments paid.
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Nonlifetime Income Phase Payment Option
- --------------------------------------------------------------------------------
Nonlifetime -- Guaranteed Length of Payments: You may select payments
Payments for 10 to 30 years. In certain cases a
lump-sum payment may be requested at any time
(see below).
Death Benefit--Payment to the Beneficiary: If
the annuitant dies before we make all the
guaranteed payments, we will continue to pay
the beneficiary the remaining payments. Unless
prohibited by a prior election of the contract
holder, the beneficiary may elect to receive a
lump-sum payment equal to the present value of
the remaining guaranteed payments. We will not
impose any early withdrawal charge.
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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. Any such lump
sum payment will be treated as if it is a withdrawal during the accumulation
phase and may be subject to an 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.
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Calculation of Lump-sum Payments. If a lump-sum payment is available under the
income phase payment options above, the rate used to calculate the present value
of the remaining guaranteed payments is the same rate we used to calculate the
income phase payments (i.e., the actual fixed rate used for fixed payments or
the 3 1/2% or 5% assumed net investment rate used for variable payments).
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Taxation
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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:
o Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the
contract;
o Tax laws change. It is possible that a change in the future could affect
contracts issued in the past;
o 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;
o We do not make any guarantee about the tax treatment of the contract or
transaction involving the contract; and
o 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. You will generally not pay taxes on any
earnings from the annuity contract described in this prospectus until they are
withdrawn. Tax-qualified retirement arrangements under Tax Code sections 408(a),
408(b), 408A and 403(b) also defer payment of taxes on earnings until they are
withdrawn. If you are considering funding one of these tax-qualified retirement
arrangements with an annuity contract, you should know that the annuity contract
does not provide any additional tax deferral of earnings beyond the tax deferral
provided by the tax-qualified retirement arrangement. However, annuities do
provide other features and benefits which may be valuable to you. You should
discuss your decision with your financial representative.
Additionally, although earnings under the contract are generally not taxed until
withdrawn, 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 to be used as a nonqualified deferred annuity,
including contracts offered to a custodian for an Individual Retirement Account
as described in Tax Code section 408(a), and with certain qualified retirement
arrangements under Tax Code sections 403(b), 408(b) or 408A . The Contract is
not available as a SIMPLE IRA under Tax Code Section 408(p).
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.
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In this Section
INTRODUCTION
CONTRACT TYPE
WITHDRAWALS AND OTHER DISTRIBUTIONS
o Taxation of Distributions
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 403(b) Plans
o 408(b) and 408A IRAs
TAXATION OF NONQUALIFIED CONTRACTS
TAXATION OF THE COMPANY
When consulting a tax adviser, be certain that he or she has expertise in the
Tax Code sections applicable to your tax concerns.
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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 phase 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 income phase 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 income phase 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 income phase payment will be taxable once the
recipient has recovered the investment in the contract.
For variable income phase 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 income phase 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:
o The distribution is rolled over to another plan of the same type or to a
traditional IRA in accordance with the Tax Code; or
o You made after-tax contributions to the plan. In this case, depending upon
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:
o 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; or
o You made after-tax contributions to the plan. In this case, the
distribution will be taxed according to rules detailed in the Tax Code.
408A Roth IRA. A qualified distribution from a Roth IRA is not taxed when it is
received. A qualified distribution is a distribution:
o Made after the five-taxable year period beginning with the first taxable
year for which a contribution was made; or
o 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
beneficiary 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; or
(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
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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; or
(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.
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 upon 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:
o Start date for distributions;
o The time period in which all amounts in your account(s) must be
distributed; or
o 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:
o You are a 5% owner or the contract is an IRA, in which case such
distributions must begin by April 1 of the calendar year following the
calendar year in which you attain age 70-1/2; or
o 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:
o Over your life or the joint lives of you and your beneficiary; or
o 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.
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:
o After you begin receiving minimum distributions under the contract; or
o Before you begin receiving such distribution.
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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:
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o Whether your minimum required distribution was calculated each year based
upon your single life expectancy or the joint life expectancies of you and
your beneficiary; or
o 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:
o Over the life of the beneficiary; or
o 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:
o December 31 of the calendar year following the calendar year of your
death; or
o 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 the 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:
o After you begin receiving income phase payments under the contract; or
o Before you begin receiving such distributions.
If your death occurs after you begin receiving income phase 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 income phase 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:
o Over the life of the beneficiary; or
o 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 non-natural 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 income phase payment 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
403(b) Plans
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.
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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:
o 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;
o 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; or
o 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 upon certain
conditions.
The first two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
Purchase 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; and
(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.
408(b) and 408A IRAs
Tax Code section 408(b) permits eligible individuals to contribute to a
traditional 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 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 contract to qualify as an annuity
contract 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.
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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 contract. 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 contract. 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.
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
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The Company
Aetna Life Insurance and Annuity Company (the Company, we, us) issues the
contract 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 and annuities. 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. (NASD).
As principal underwriter, we will enter into arrangements with one or more
registered broker-dealers, including at least one affiliate of the Company, to
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 contract, and may
negotiate different commissions for these broker-dealers.
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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 contract. We may pay such
wholesalers compensation based upon purchase payments to contracts purchased
through distributors that they select.
We may also designate third parties to provide services in connection with the
contract 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 for their services based upon purchase payments, 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 contract commissions and service fees. Distributors will be paid
commissions up to an amount currently equal to 7% of purchase payments or as a
combination of a certain percentage of purchase payments at time of sale and a
trail commission as a percentage of assets. Under the latter arrangement,
commission payments may exceed 7% of purchase 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. However, any such compensation will be paid in accordance
with NASD rules. In addition, we may provide additional compensation to the
Company's supervisory and other management personnel if the overall amount of
investments in funds advised by the Company or its affiliates increases over
time.
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.
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:
o 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;
o 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; or
o 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:
o Standardized average annual total returns; and
o Non-standardized average annual total returns.
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. Standardized average annual
total returns reflect deduction of 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) and currently do not include any premium bonus. To the extent permitted
by applicable law, we may include the premium bonus in standardized average
annual total returns in the future.
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except we
will 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. Non-standardized calculations do not
include the premium bonus.
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: Contacting the Company."
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
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not 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.
o 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.
o 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 or as otherwise
permitted in the contract. 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 adviser 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 purchase 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.
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 on
information technology ("IT") systems and other systems and facilities, such as
telephones, building access control systems and heating and ventilation
equipment ("embedded systems") to conduct its business. The Company also has
business relationships with financial institutions, financial intermediaries,
public utilities and other critical vendors, as well as regulators and
customers, who are themselves reliant on IT and embedded systems to conduct
their businesses.
In 1997, the Company's ultimate parent, Aetna, organized a multi-disciplinary
Year 2000 Project Team, including outside consultants. The Year 2000 Project
Team and Aetna's businesses and subsidiaries, including the Company, have
developed and are currently executing a comprehensive plan designed to make
their mission-critical IT systems and embedded systems Year 2000 ready. Outside
consultants have reviewed Aetna's overall process, plan and progress to date.
Aetna's plan for IT systems consists of five phases: (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 phase for all of its IT systems. Aetna completed the remediation,
testing and approval of substantially all of its IT systems and those of its
subsidiaries, including all of the IT systems of the Company by June 30, 1999.
The costs of these efforts will not affect the separate account.
The Company also faces the risk that one or more of its critical suppliers
("external relationships") will not be able to interact with the Company due to
the third party's inability to resolve its own Year 2000 issues, including those
associated with its own external relationships. The Company, its affiliates and
the mutual funds that serve as investment options for the separate account also
have
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relationships with investment advisers, broker dealers, transfer agents,
custodians or other securities industry participants or other service providers
that are not affiliated with Aetna. The Company has completed its inventory of
external relationships and risk rated each external relationship based upon the
potential business impact, available alternatives and cost of substitution. In
the case of mission-critical suppliers such as certain banks, telecommunications
providers and other utilities, mutual fund companies, IT vendors and financial
market data providers, either Aetna or the Company is engaged in discussions
with the third parties and is attempting to obtain detailed information as to
those parties' Year 2000 plans and state of readiness. A significant portion of
the Company's critical external relationships have informed the Company that
they are not aware of any Year 2000 related reason that they will not be able to
perform their obligations to the Company in all material respects.
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
Variable Annuity Account B
Offering and Purchase of Contract
Performance Data
General
Average Annual Total Return Quotations
Income Phase Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company
You may request an SAI by calling the Company at the number listed in "Contract
Overview -- Questions: Contacting the Company."
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Appendix I
ALIAC Guaranteed Account
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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:
o 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%.
o 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 or more of the
following:
o Market Value Adjustment (MVA) -- as described in this appendix and in the
Guaranteed Account prospectus;
o Tax penalties and/or tax withholding -- see "Taxation";
o Early withdrawal charge--see "Fees"; or
o 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.
MVA Waiver. For withdrawals or transfers from a guaranteed term before the
guaranteed term matures, the MVA may be waived for:
o Transfers due to participation in the dollar cost averaging program;
o Withdrawals taken due to your election of SWO or ECO (described in
"Systematic Distribution Options"), if available; and
o 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
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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 Purchase Payments. Purchase payments received after your initial
purchase 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) 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.
The 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 income phase 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 income phase 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.
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Appendix II
Fixed Account
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General Disclosure.
The Fixed Account is an investment option available during the accumulation
phase under the contract.
o Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
o Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended.
o 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.
o Disclosure in this appendix regarding the Fixed Account has not been
reviewed by the SEC.
o Additional information about this option may be found in the contract.
Interest Rates.
o 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.
o 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 phase 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.
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Appendix III
Description of Underlying Funds
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The investment results of the mutual funds (funds) are likely to differ
significantly and there is no assurance that any of the funds will achieve their
respective investment objectives. Shares of the funds will rise and fall in
value and you could lose money by investing in the funds. Shares of the funds
are not bank deposits and are not guaranteed, endorsed or insured by any
financial institution, the Federal Deposit Insurance Corporation or any other
government agency. Except as noted, all funds are diversified, as defined under
the Investment Company Act of 1940.
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
Under normal market conditions, allocates assets among the following asset
classes: 1) equities such as common and preferred stocks; and 2) debt such as
bonds, mortgage-related and other asset-backed securities, and U.S. Government
securities. Typically maintains approximately 60% of total assets in equities
and 40% of total assets in debt (including money market instruments), although
those percentages may vary from time to time.
Risks
Principal risks are those generally attributable to stock and bond investing.
The success of the fund's strategy depends on the investment adviser's skill in
allocating fund assets between equities and debt and in choosing investments
within those categories. Risks attributable to stock investing include sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile than stocks of larger companies and can be particularly
sensitive to expected changes in interest rates, borrowing costs and earnings.
Fixed-income investments are subject to the risk that interest rates will rise,
which generally causes bond prices to fall. Also, economic and market conditions
may cause issuers to default or go bankrupt. Values of high-yield bonds are even
more sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments.
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.
It is anticipated that capital appreciation and investment income will both be
major factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in
high-grade corporate bonds, mortgage-related and other asset-backed securities,
and securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. High-grade securities are rated at least A by Standard &
Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if
unrated, considered by the investment adviser to be of comparable quality. May
also invest up to 15% of total assets in high-yield bonds, and up to 25% of
total assets in foreign debt securities.
Risks
Principal risks are those generally attributable to debt investing, including
increases in interest rates and loss of principal. Generally, when interest
rates rise, bond prices fall. Bonds with longer maturities tend to be more
sensitive to changes in interest rates. For all bonds there is a risk that the
issuer will default. High-yield bonds generally are more susceptible to the risk
of default than higher rated bonds. Prices of mortgage-related securities, in
addition to being sensitive to changes in interest rates, also are sensitive to
changes in the prepayment patterns on the underlying instruments. Foreign
securities have additional risks. Some foreign securities tend to be less liquid
and more volatile than their U.S. counterparts. In addition, accounting
standards and market regulations tend to be less standardized. These risks are
usually higher for securities of companies in emerging markets. Securities of
foreign companies may be denominated in foreign currency. Exchange rate
fluctuations may reduce or eliminate gains or create losses.
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Investment Adviser: Aeltus Investment Management, Inc.
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
Under normal market conditions, invests at least 65% of total assets in common
stocks that the investment adviser believes have significant potential for
capital or income growth. Tends to emphasize stocks of larger companies. Also
invests assets across other asset classes (including stocks of small and
medium-sized companies, international stock, real estate securities and fixed
income securities).
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. The success of the fund's
strategy also depends significantly on the investment adviser's skill in
allocating assets and in choosing investments within each asset class.
Growth-oriented stocks typically sell at relatively high valuations as compared
to other types of stocks. If a growth stock does not exhibit the level of growth
expected, its price may drop sharply. Historically, growth-oriented stocks have
been more volatile than value-oriented stocks. Although the investment adviser
emphasizes large cap stocks, the fund is more diversified across asset classes
than most other funds with a similar investment objective. Therefore, it may not
perform as well as those funds when large cap stocks are in favor.
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
Invests only in a diversified portfolio of high-quality fixed income securities
denominated in U.S. dollars, with short remaining maturities. These securities
include U.S. Government securities, such as U.S. Treasury bills and securities
issued or sponsored by U.S. government agencies. They also may include corporate
debt securities, finance company commercial paper, asset-backed securities and
certain obligations of U.S. and foreign banks, each of which must be highly
rated by independent rating agencies or, if unrated, considered by the
investment adviser to be of comparable quality. Maintains a dollar-weighted
average portfolio maturity of 90 days or less.
Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. Shares of the fund are not bank
deposits and are not guaranteed, endorsed or insured by any financial
institution, the FDIC or any other government agency.
A weak economy, strong equity markets and changes by the Federal Reserve in its
monetary policies all could affect short-term interest rates and therefore the
value and yield of the fund's shares.
Investment Adviser: Aeltus Investment Management, Inc.
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
Under normal market conditions, invests at least 65% of total assets in common
stocks. Tends to emphasize stocks of larger companies, although may invest in
companies of any size. Focuses on companies that the investment adviser believes
have strong, sustainable and improving earnings growth, and established market
positions in a particular industry.
Risks
Principal risks are those generally attributable to stock investing. They
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Growth-oriented stocks typically
sell at relatively high valuations as compared to other types of stocks. If a
growth stock does not exhibit the consistent level of growth expected, its price
may drop sharply. Historically, growth-oriented stocks have been more volatile
than value-oriented stocks.
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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 the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.
Policies
Invests at least 80% of net assets in stocks included in the S&P 500 (other than
Aetna Inc. common stock). The investment adviser attempts to achieve the
objective by overweighting those stocks in the S&P 500 that the investment
adviser believes will outperform the index, and underweighting (or avoiding
altogether) those stocks that the investment adviser believes will underperform
the index. In determining stock weightings, the portfolio manager uses
quantitative computer models to evaluate various criteria, such as the financial
strength of each company and its potential for strong, sustained earnings
growth. Although the fund will not hold all the stocks in the S&P 500, the
investment adviser expects that there will be a close correlation between the
performance of the fund and that of the S&P 500 in both rising and falling
markets.
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. The success of the fund's
strategy depends significantly on the investment adviser's skill in determining
which securities to overweight, underweight or avoid altogether.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna International VP
Investment Objective
Seeks long-term capital growth primarily through investment in a diversified
portfolio of common stocks principally traded in countries outside of the United
States. The fund will not target any given level of current income.
Policies
Under normal market conditions, invests at least 65% of total assets in
securities principally traded in three or more countries outside of North
America. These securities may include common stocks as well as securities
convertible into common stocks. Invests primarily in established foreign
securities markets, although may invest in emerging markets as well. Employs
currency hedging strategies to protect from adverse effects on the U.S. dollar.
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of foreign companies
present additional risks for U.S. investors, including the following: stocks of
foreign companies tend to be less liquid and more volatile than their U.S.
counterparts; accounting standards and market regulations tend to be less
standardized in certain foreign countries; and economic and political climates
tend to be less stable. Stocks of foreign companies may be denominated in
foreign currency. Exchange rate fluctuations may reduce or eliminate gains or
create losses. A hedging strategy adds to the fund's expenses and may not
perform as expected.
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
Under normal market conditions, invests at least 65% of total assets in stocks,
convertible securities and preferred stocks of companies principally engaged in
the real estate industry. These companies may invest in, among other things,
shopping malls, healthcare facilities, office parks and apartment communities,
or may provide real estate management and development services.
Risks
Concentrating in stocks of real estate-related companies presents certain risks
that are more closely associated with investing in real estate directly than
with investing in the stock market generally. Those risks include: periodic
declines in the value of real estate, generally, or in the rents and other
income generated by real estate; periodic over-building, which creates gluts in
the market, as well as changes in laws (such as zoning laws) that impair the
property rights of real estate owners; adverse developments in the real estate
industry, which may have a greater impact on this fund than a fund that is more
broadly diversified. Performance also may be adversely affected by sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative stock market
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performance. Although the fund is subject to the risks generally attributable to
stock investing, because the fund has concentrated its assets in one industry it
may be subject to more abrupt swings in value than would a fund that does not
concentrate its assets in one industry.
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
Under normal market conditions, invests at least 65% of total assets in common
stocks of small-capitalization companies, defined as: the 2,000 smallest of the
3,000 largest U.S. companies (as measured by market capitalization); all
companies not included above that are included in the Standard & Poor's SmallCap
600 Index or the Russell 2000 Index; and companies with market capitalizations
lower than any companies included in the first two categories. For purposes of
the 65% policy, the largest company in this group in which the fund intends to
invest currently has a market capitalization of approximately $1.5 billion.
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Stocks of smaller companies carry
higher risks than stocks of larger companies. This is because smaller companies
may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In many
instances, the frequency and volume of trading in these stocks is substantially
less than is typical of stocks of larger companies. As a result, the stocks of
smaller companies may be subject to wider price fluctuations or may be less
liquid. When selling a large quantity of a particular stock, the fund may have
to sell at a discount from quoted prices or may have to make a series of small
sales over an extended period of time due to the more limited trading volume of
smaller company stocks. Stocks of smaller companies can be particularly
sensitive to expected changes in interest rates, borrowing costs and earnings.
Investment Adviser: Aeltus Investment Management, Inc.
AIM V.I. Capital Appreciation Fund
Investment Objective
Seeks growth of capital through investment in common stocks, with emphasis on
medium- and small-sized growth companies.
Policies
The portfolio managers focus on companies they believe are likely to benefit
from new or innovative products, services or processes as well as those that
have experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when any of those factors materially changes.
The fund may also invest up to 20% of its total assets in foreign securities.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market instruments, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. This is especially true with respect to common stocks of smaller
companies, whose prices may go up and down more than common stocks of larger,
more-established companies. Also, since common stocks of smaller companies may
not be traded as often as common stocks of larger, more-established companies,
it may be difficult or impossible for the fund to sell securities at a desirable
price.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Growth Fund
Investment Objective
Seeks growth of capital primarily by investing in seasoned and better
capitalized companies considered to have strong earnings momentum.
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Policies
The portfolio managers focus on companies that have experienced above-average
growth in earnings and have excellent prospects for future growth. The portfolio
managers consider whether to sell a particular security when any of those
factors materially changes. The fund may also invest up to 20% of its total
assets in foreign securities.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market instruments, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Growth and Income Fund
Investment Objective
Seeks growth of capital with a secondary objective of current income.
Policies
The fund seeks to meet these objectives by investing at least 65% of its net
assets in income-producing securities, including dividend-paying common stocks
and convertible securities. The portfolio managers purchase securities of
established companies that have long-term above-average growth in earnings and
dividends, and growth companies that they believe have the potential for
above-average growth in earnings and dividends. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential or the capacity to generate income. The fund may also invest
up to 20% of its total assets in foreign securities.
The fund may engage in active and frequent trading of portfolio securities to
achieve its investment objectives. If the fund does trade in this way, it may
incur increased transaction costs and brokerage commissions, both of which can
lower the actual return on your investment.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market instruments, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The values of the convertible securities in which the fund may invest
also will be affected by market interest rates, the risk that the issuer may
default on interest or principal payments and the value of the underlying common
stock into which these securities may be converted. Specifically, since these
types of convertible securities pay fixed interest and dividends, their values
may fall if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Investment Adviser: AIM Advisors, Inc.
AIM V.I. Value Fund
Investment Objective
Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment advisor to be undervalued relative to
the investment advisor's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective.
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Policies
The fund also may invest in preferred stocks and debt instruments that have
prospects for growth of capital. The fund may also invest up to 25% of its total
assets in foreign securities.
The portfolio managers focus on undervalued equity securities of (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 that
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 their assets and where there is reason to expect
realization of this potential in the form of increased equity values. The
portfolio managers consider whether to sell a particular security when they
believe the company no longer fits into any of the above categories.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash,
money market instruments, bonds or other debt securities. As a result, the fund
may not achieve its investment objective.
Risks
The prices of equity securities change in response to many factors, including
the historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market
liquidity.
If the seller of a repurchase agreement in which the fund invests defaults on
its obligation or declares bankruptcy, the fund may experience delays in selling
the securities underlying the repurchase agreement. As a result, the fund may
incur losses arising from decline in the value of those securities, reduced
levels of income and expenses of enforcing its rights.
Investment Adviser: AIM Advisors, Inc.
Fidelity Variable Insurance Products Fund--Equity Income Portfolio
Investment Objective
Seeks reasonable income. Also considers the potential for capital appreciation.
Seeks a yield which exceeds the composite yield on the securities comprising the
S&P 500.
Policies
Normally invests at least 65% of total assets in income-producing equity
securities. May also invest in other types of equity securities and debt
securities, including lower-quality debt securities. May invest in securities of
both foreign and domestic issuers. Emphasis on above-average income-producing
equity securities tends to lead to investments in large cap "value" stocks. In
making investment decisions, the investment adviser relies on fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market conditions.
May use various techniques, such as buying and selling futures contracts, to
increase or decrease exposure to changing security prices, or other factors that
affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can fluctuate
dramatically in response to these developments. Debt securities have varying
levels of sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise. Securities with longer
maturities and mortgage securities can be more sensitive to interest rate
changes. Foreign investments, especially those in emerging markets, can be more
volatile and potentially less liquid than U.S. investments due to increased
risks of adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities (those of less than investment-grade quality) can
be more volatile due to increased sensitivity to adverse issuer, political,
regulatory, market or economic developments. Lower-quality debt securities
involve greater risk of default or price changes due to changes in the credit
quality of the issuer. "Value" stocks can react differently to issuer,
political, market and economic developments than the market as a whole and other
types of stocks. "Value" stocks may not ever realize their full value.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--Growth Portfolio
Investment Objective
Seeks capital appreciation.
Policies
Normally invests primarily in common stocks of companies the investment adviser
believes have above-average growth potential. Companies with high growth
potential tend to be companies with higher than average price/earning (P/E)
ratios and are often called "growth" stocks. May invest in securities of both
foreign and domestic issuers. In making investment decisions, the investment
adviser relies on fundamental analysis of each issuer and its potential for
success in light of its current financial condition, its industry position, and
economic and market conditions. May use various techniques, such as buying and
selling futures contracts, to increase or decrease exposure to changing security
prices, or other factors that affect security values.
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Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can fluctuate
dramatically in response to these developments. Foreign investments, especially
those in emerging markets, can be more volatile and potentially less liquid than
U.S. investments due to increased risks of adverse issuer, political,
regulatory, market or economic developments. "Growth" stocks tend to be
sensitive to changes in their earnings and more volatile than other types of
stocks.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks a high level of current income while also considering growth of capital.
Policies
Normally invests at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities. May also invest in non-income producing
securities, including defaulted securities and common stocks. Currently intends
to limit common stocks to 10% of total assets. May invest in securities of both
foreign and domestic issuers. In making investment decisions, the investment
adviser relies on fundamental analysis of each issuer and its potential for
success in light of its current financial condition, its industry position, and
economic and market conditions. May use various techniques, such as buying and
selling futures contracts, to increase or decrease exposure to changing security
prices, interest rates or other factors that affect security values.
Risks
Debt securities have varying levels of sensitivity to changes in interest rates.
In general, the price of a debt security can fall when interest rates rise.
Securities with longer maturities and mortgage securities can be more sensitive
to interest rate changes. The value of equity securities fluctuates in response
to issuer, political, market and economic developments. In the short term,
equity prices can fluctuate dramatically in response to these developments.
Foreign investments, especially those in emerging markets, can be more volatile
and potentially less liquid than U.S. investments due to increased risks of
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities (those of less than investment-grade quality) can
be more volatile due to increased sensitivity to adverse issuer, political,
regulatory, market or economic developments. Lower-quality debt securities
involve greater risk of default or price changes due to changes in the credit
quality of the issuer.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund II--Contrafund Portfolio
Investment Objective
Seeks long-term capital appreciation.
Policies
Normally invests primarily in common stocks of companies whose value the
investment adviser believes is not fully recognized by the public. May invest in
securities of both foreign and domestic issuers. May tend to buy "growth" stocks
or "value" stocks, or a combination of both types. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, interest rates or other factors
that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can fluctuate
dramatically in response to these developments. Debt securities have varying
levels of sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise. Securities with longer
maturities and mortgage securities can be more sensitive to interest rate
changes. Foreign investments, especially those in emerging markets, can be more
volatile and potentially less liquid than U.S. investments due to increased
risks of adverse issuer, political, regulatory, market or economic developments.
"Growth" stocks tend to be sensitive to changes in their earnings and more
volatile than other types of stocks. "Value" stocks can react differently to
issuer, political, market and economic developments than the market as a whole
and other types of stocks. "Value" stocks may not ever realize their full value.
Investment Adviser: Fidelity Management & Research Company
Janus Aspen Series--Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
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Policies
A nondiversified portfolio that invests primarily in common stocks selected for
their growth potential and normally invests at least 50 percent of its equity
assets in medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies in
the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations
within the Index will vary, but as of December 31, 1998, they ranged from
approximately $142 million to $73 billion. May at times hold substantial
positions in cash or similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. In addition, a nondiversified portfolio has
the ability to take larger positions in a smaller number of issuers. Because the
appreciation or depreciation of a single stock may have a greater impact on the
net asset value of a nondiversified portfolio, its share price can be expected
to fluctuate more than a diversified portfolio. Performance may also be affected
by risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities
(high-yield/high-risk securities or "junk" bonds) or companies with relatively
small market capitalizations. Smaller or newer companies may suffer more
significant losses as well as realize more substantial growth than larger or
more established issuers. Investments in such companies tend to be more volatile
and somewhat more speculative. Issues associated with investing in foreign
securities include currency risk, political and economic risk, regulatory risk,
market risk and transaction costs. 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). They are more vulnerable to real or perceived
economic changes, political changes or other adverse developments specific to
the issuer.
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. Will normally invest at least 25
percent of its assets in fixed-income securities. 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. May at times
hold substantial positions in cash or similar investments.
Risks
Because the Portfolio may invest a significant portion of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. The income component of the Portfolio's
holdings includes fixed-income securities which generally will decrease in value
when interest rates rise. Another risk associated with fixed-income securities
is the risk that an issuer of a bond will be unable to make principal and
interest payments when due (i.e. credit risk). Performance may also be affected
by risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities
(high-yield/high-risk securities or "junk" bonds) or companies with relatively
small market capitalizations. Smaller or newer companies may suffer more
significant losses as well as realize more substantial growth than larger or
more established issuers. Investments in such companies tend to be more volatile
and somewhat more speculative. Issues associated with investing in foreign
securities include currency risk, political and economic risk, regulatory risk,
market risk and transaction costs. High-yield/high-risk securities are generally
more susceptible to credit risk. They are more vulnerable to real or perceived
economic changes, political changes or other adverse developments specific to
the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Generally invests primarily in common stocks of larger, more established
companies selected for their growth potential, although it can invest in
companies of any size. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. Performance may also be affected by risks
specific to certain types of investments, such as foreign securities, derivative
investments,
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non-investment grade debt securities (high-yield/high-risk securities or "junk"
bonds) or companies with relatively small market capitalizations. Smaller or
newer companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk, political
and economic risk, regulatory risk, market risk and transaction costs.
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). They are
more vulnerable to real or perceived economic changes, political changes or
other adverse developments specific to the issuer.
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
Invests primarily in common stocks of companies of any size throughout the
world. 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 or similar
investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease in
response to the activities of an individual company or in response to general
market and/or economic conditions. Performance may also be affected by risks
specific to certain types of investments, such as foreign securities, derivative
investments, non-investment grade debt securities (high-yield/high-risk
securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities include
currency risk, political and economic risk, regulatory risk, market risk and
transaction costs. 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). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
MFS Total Return Series
Investment Objective
Seeks primarily 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.
Policies
Under normal market conditions, invests at least 40%, but no more than 75%, of
net assets in common stocks and related securities (referred to as equity
securities); bonds, warrants or rights convertible into stock; and depositary
receipts for those securities. Invests at least 25% of net assets in
non-convertible fixed income securities. May vary the percentage of assets
invested in any one type of security (within the limits described above).
Generally, seeks to purchase equity securities that the investment adviser
believes are undervalued in the market relative to their long-term potential
focusing on companies with relatively large market capitalization (i.e., market
capitalizations of $5 billion or more). Fixed income securities include U.S.
government securities, mortgage-backed and asset-backed securities, and
corporate bonds.
Risks
In allocating investments, the series could miss attractive investment
opportunities by underweighting markets where there are significant returns, and
could lose value by overweighting markets where there are significant declines.
The value of securities held by the series may decline due to changing economic,
political or market conditions, or disappointing earnings results. If
anticipated events do not occur or are delayed, or if investor perceptions about
undervalued securities do not improve, the market price of these securities may
not rise or may fall. Fixed income securities are subject to interest rate risk
(the risk that when interest rates rise, the prices of fixed income securities
will generally fall) and credit risk (the risk that the issuer of a fixed income
security will not be able to pay principal and interest when due). Securities
with longer maturities are affected more by interest rate risk. Fixed income
securities traded in the over-the-counter market may be harder to purchase or
sell at a fair price. The inability to purchase or sell these fixed income
securities at a fair price could have a negative impact on the series'
performance.
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Investment Adviser: Massachusetts Financial Services Company
Oppenheimer Aggressive Growth Fund/VA
Investment Objective
Seeks to achieve long-term capital appreciation by investing in "growth-type"
companies.
Policies
Invests mainly in equity securities, such as common stocks, preferred stocks and
convertible securities, of issuers in the U.S. and foreign countries. The fund
can invest in any country, including countries with developed or emerging
markets, but currently emphasizes investments in developed markets. As a
fundamental policy, the fund will normally invest in at least four countries
(including the United States). The fund emphasizes investments in securities of
"growth-type" companies. The fund may also invest in cyclical industries and in
"special situations" that the fund's investment manager believes present
opportunities for capital growth. "Special situations" are anticipated
acquisitions, mergers or other unusual developments which, in the opinion of the
manager, will increase the value of an issuer's securities, regardless of
general business conditions or market movements.
Risks
The fund's investments in stocks are subject to changes in their value from a
number of factors. They include changes in general stock market movements, or
the change in value of particular stocks because of an event affecting the
issuer. The fund expects to have substantial amounts of its investments in
foreign securities. Therefore, it will be subject to the risks that economic,
political or other events can have on the values of securities of issuers in
particular foreign countries. Changes in interest rates can also affect stock
prices. Investing in securities with high growth potential, which are often
newer companies having a market capitalization of $200 million or less, involves
substantially greater risks of loss and price fluctuations than larger cap
issuers. Small-cap stock investments also pose certain risks because their
stocks may be less liquid than those of larger issuers.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Main Street Growth & Income Fund/VA
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.
Policies
Invests in equity securities, such as common stocks, preferred stocks and
convertible securities and in debt securities, of issuers in the U.S. and
foreign countries. Although the fund can invest in securities of issues of all
market capitalization ranges, it may focus from time to time on small to medium
capitalization issuers (having a market capitalization of less than $5 billion).
The fund can also use hedging instruments and certain derivative investments to
try to manage investment risks.
Risks
The fund's investments in stocks and bonds are subject to changes in their value
from a number of factors. They include changes in general stock and bond market
movements, or the change in value of particular stocks or bonds because of an
event affecting the issuer. High-yield, lower-grade bonds are subject to greater
credit risks than investment-grade securities. The fund can have significant
amounts of its assets invested in foreign securities. Therefore, it will be
subject to the risks of economic, political or other events that can affect the
values of securities of issuers in particular foreign countries. Changes in
interest rates can also affect stock and bond prices.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund/VA
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 mainly in debt securities of issuers in three market sectors: foreign
governments and companies, U.S. government securities and lower-rated high-yield
securities of U.S. companies. Under normal market conditions, the fund invests
in each of those three market sectors. However, the fund is not obligated to do
so, and the amount of its assets in each of the three sectors will vary over
time. The fund can invest up to 100% of its assets in any one sector at any
time, if the manager believes that in doing so the fund can achieve its
objective without undue risk. The fund's foreign investments can include debt
securities of issuers in developed markets as well as emerging markets, which
have special risks. The fund can also use hedging instruments and certain
derivative investments to try to enhance income or try to manage investment
risks.
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Risks
The fund's investments in debt securities are subject to changes in their value
from a number of factors. They include changes in general bond market movements
in the U.S. and abroad, or the change in value of particular bonds because of an
event affecting the issuer. The fund can focus significant amounts of its
investments in foreign debt securities. Therefore, it will be subject to the
risks that economic, political or other events can have on the values of
securities of issuers in particular foreign countries. These risks are
heightened in the case of emerging market debt securities. Changes in interest
rates can also affect securities prices.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests, under normal market conditions, at least 80% of total assets in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts, of emerging growth companies. Emerging growth companies
are companies believed to be either early in their life cycle but which have the
potential to become major enterprises, or major enterprises whose rates of
earnings growth are expected to accelerate. Investments may include securities
traded in the over-the-counter markets.
May also invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of foreign currency exchange contracts for
the purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the
portfolio invests may decline due to changing economic, political or
market conditions, or due to the financial condition of the company which
issued the security.
o Emerging Growth Risk: The portfolio's performance is particularly
sensitive to changes in the value of emerging growth companies.
Investments in emerging growth companies may be subject to more abrupt or
erratic market movements and may involve greater risks than investments in
other companies.
o Over the Counter Risk: Equity securities that are traded over the counter
may be more volatile than exchange listed securities, and the portfolio
may experience difficulty in purchasing or selling these securities at a
fair price.
o Foreign Markets Risk: Investment in foreign securities involves risks
related to political, social and economic developments abroad. These risks
result from differences between the regulations to which U.S. and foreign
issuers and markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause
the value of the portfolio to decline if the U.S. dollar strengthens
against these currencies or if foreign governments intervene in the
currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners (PPI) MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable prospects for
long-term growth, attractive valuations based on current and expected earnings
or cash flow, dominant or growing market share and superior management. May
invest in companies of any size. Investments may also include securities traded
on securities exchanges or in the over-the-counter markets.
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the
portfolio invests may decline due to changing economic, political or
market conditions, or due to the financial condition of the company which
issued the security. In addition, securities of growth companies may be
more volatile because such companies usually invest a high portion of
their earnings in their businesses
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and may lack the dividends of value companies, which can cushion the
security prices in a declining market.
o Over-the-Counter Risk: Equity securities that are traded over-the-counter
may be more volatile than exchange-listed stocks, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
o Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad.
Other risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause
the value of the portfolio to decline if the U.S. dollar strengthens
against these currencies or if foreign governments intervene in the
currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners (PPI) MFS Value Equity Portfolio
Investment Objectives
Seeks capital appreciation
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
Investments may include securities traded in the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign currency
exchange contracts for the purchase or sale of a fixed quantity of a foreign
currency at a future date.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the
portfolio invests may decline due to changing economic, political or
market conditions, or due to the financial condition of the company which
issued the security. In addition, securities of growth companies may be
more volatile because such companies usually invest a high portion of
their earnings in their businesses and may lack the dividends of value
companies, which can cushion the security prices in a declining market.
o Over the Counter Risk: Equity securities that are traded over the counter
may be more volatile than exchange listed securities, and the portfolio
may experience difficulty in purchasing or selling these securities at a
fair price.
o Foreign Markets Risk: The portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
o Emerging Markets Risk: Emerging markets are generally defined as countries
in the initial stages of their industrialization cycles with low per
capita income. Investments in emerging markets securities involve all of
the risks of investment in foreign securities, and also have additional
risks.
o Currency Risk: The portfolio's exposure to foreign currencies may cause
the value of the portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign
governments intervene in the currency markets.
o Interest Rate Risk: The portfolio's investment in debt securities involves
risks relating to interest rate movement. If interest rates go up, the
value of debt securities held by the portfolio will decline.
o Credit Risk: The portfolio's investment in non-investment grade debt
securities involves credit risk because issuers of non-investment grade
securities are more likely to have difficulty making timely payments of
interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Massachusetts Financial Services Company
Portfolio Partners (PPI) Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in the equity securities of
foreign companies believed to have high growth potential. Normally invests in
securities of at least three different countries other than the U.S. Focuses on
issuers located primarily in Europe, Latin America, and the emerging markets of
the Pacific Basin and Japan, but also may invest in select issues from elsewhere
outside the U.S. Will invest in securities in both developed and developing
markets. Seeks to invest in those companies believed to be best
55
<PAGE>
able to capitalize on the growth and changes taking place within and between
various regions of the world. Typically, these are companies with leading or
rapidly developing business franchises, strong financial positions, and high
quality management capable of defining and implementing strategies to take
advantage of local, regional or global markets.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
o Market and Company Risk: The value of the securities in which the
portfolio invests may decline due to changing economic, political or
market conditions, or due to the financial condition of the company which
issued the security. In addition, securities of growth companies may be
more volatile because such companies usually invest a high portion of
their earnings in their businesses and may lack the dividends of value
companies, which can cushion the security prices in a declining market.
o Foreign Markets Risk: The portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.
o Currency Risk: The portfolio's exposure to foreign currencies may cause
the value of the portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign
governments intervene in the currency markets.
o Emerging Growth Risk: The portfolio's performance is particularly
sensitive to changes in the value of emerging growth companies.
Investments in emerging growth companies may be subject to more abrupt or
erratic market movements and may involve greater risks than investments in
other companies.
o Interest Rate Risk: The portfolio's investment in debt securities involves
risks relating to interest rate movement. If interest rates go up, the
value of debt securities held by the portfolio will decline.
o Credit Risk: The portfolio's investment in non-investment grade debt
securities involves credit risk because issuers of non-investment grade
securities are more likely to have difficulty making timely payments of
interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company; Subadviser:
Scudder Kemper Investments, Inc.
56
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated December 17, 1999
AETNA PREMIUM BONUS 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 December 17, 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 Financial Services
Annuity Services
151 Farmington Avenue
Hartford, Connecticut 06156-1258
1-800-238-6219
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
Page
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
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the Company, we, us, our) issues the
contract described in the prospectus and is responsible for providing each
contract's insurance and annuity benefits. We are a stock life insurance company
which was 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
assets include the business of Aetna Variable Annuity Life Insurance Company
(formerly Participating Annuity Life Insurance Company organized in 1954). Our
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
As of December 31, 1998, the Company and its subsidiary life company had $43
billion invested through its products, including $29 billion in its separate
accounts (of which the Company or an affiliate oversees the management of $21
billion). The Company is ranked among the top 2% of all U.S. life insurance
companies rated by A.M. Best Company 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 "contract" 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.
Purchase 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.
The funds currently available under the contract are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aetna Balanced VP, Inc. Fidelity Variable Insurance Products Fund (VIP ) High Income
Aetna Income Shares d/b/a Aetna Bond VP Portfolio
Aetna Growth VP Fidelity Variable Insurance Products Fund II (VIP II)
Aetna Variable Fund d/b/a Aetna Growth and Income VP Contrafund Portfolio
Aetna Index Plus Large Cap VP Janus Aspen Aggressive Growth Portfolio
Aetna International VP Janus Aspen Balanced Portfolio
Aetna Variable Encore Fund d/b/a Aetna Money Market VP Janus Aspen Growth Portfolio
Aetna Real Estate Securities VP Janus Aspen Worldwide Growth Portfolio
Aetna Small Company VP MFS Total Return Series
AIM V.I. Capital Appreciation Fund Oppenheimer Aggressive Growth Fund/VA
AIM V.I. Growth Fund Oppenheimer Main Street Growth & Income Fund/VA
AIM V.I. Growth and Income Fund Oppenheimer Strategic Bond Fund/VA
AIM V.I. Value Fund Portfolio Partners (PPI) MFS Emerging Equities Portfolio
Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio Partners (PPI) MFS Research Growth Portfolio
Portfolio Portfolio Partners (PPI) MFS Value Equity Portfolio
Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio Portfolio Partners (PPI) Scudder International Growth 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 under the prospectus. We offer the contract 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 contract is continuous. A
description of the manner in which the contract is purchased can be found in the
prospectus under the sections entitled "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 contract. 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 purchase payment of
$1,000 is applied to the various subaccounts under the contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the fund since the
date contributions were first received in the fund under the separate account,
adjusted to reflect the deduction of the maximum recurring charges under the
contract during each period (i.e., 1.45% mortality and expense risk charge for
Death Benefit Option II, $30 annual maintenance fee, 0.15% administrative
charge, and early withdrawal charge of 8% of purchase payments grading down to
0% after 8 years) and currently do not include any premium bonus. 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 contract described in the prospectus.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable early withdrawal charge
and, in some advertisements, will also exclude the effect of the annual
maintenance fee. The deduction of the early withdrawal charge and the annual
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.
Standardized and non-standardized calculations do not currently include the
premium bonus, but to the extent permitted by applicable law, we may include the
premium bonus in the standardized and non-standardized average annual total
returns in the future.
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 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 contract. The standardized returns assume the maximum
charges under the contract as described under "General" above. The
non-standardized returns assume the same charges but do not include the early
withdrawal charge. We may also advertise returns based on lower charges that
apply to contracts under Death Benefit Option I.
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.
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 the average annual total return
since the fund's inception date.
3
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
Date Contributions
First Received
STANDARDIZED Under the Separate
Account
- -----------------------------------------------------------------------------------------------------------------------------------
Since
1 Year 5 Year 10 Year Inception*
SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 7.98% 13.56% 11.29% 06/30/1989
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (0.75%) 4.20% 7.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 28.56% 31.30% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 5.55% 17.05% 14.75%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 22.53% 28.36% 10/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna International VP (11.71%) 05/05/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) (3.41%) 2.82% 4.05%
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (19.35%) 05/06/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP (7.73%) 7.83% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 18.81% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 21.84% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 19.65% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 20.39% 10/02/1998
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio 2.71% 19.23% 12/30/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 30.35% 25.25% 12/30/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio (13.12%) 6.46% 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 20.92% 22.08% 06/30/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 25.16% 16.24% 10/31/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 25.19% 21.42% 01/31/1995
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 26.55% 21.62% 07/29/1994
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 19.87% 25.90% 04/28/1995
- -----------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 3.41% 12.73% 05/31/1996
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA 3.44% 8.67% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA (4.16%) 9.18% 05/30/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA (5.95%) (0.41%) 05/30/1997
===================================================================================================================================
PPI MFS Emerging Equities Portfolio 20.61% 17.27% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 20.61% 12.94% 12.70% 09/30/1993
===================================================================================================================================
PPI MFS Research Growth Portfolio 13.99% 10.59% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research Growth(3) 13.99% 5.73% 7.61% 08/31/1992
===================================================================================================================================
PPI MFS Value Equity Portfolio 17.70% 17.73% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Value Equity(3) 17.70% 14.61% 13.18% 11/30/1992
===================================================================================================================================
PPI Scudder International Growth Portfolio 10.12% 10.55% 11/28/1997
- -----------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder International
Growth(3) 10.12% 8.03% 10.78% 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 3.62%. 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 8% 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 the Separate
Account" refers to the applicable date for the replaced fund.
4
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Fund
NON-STANDARDIZED Inception
Date
- --------------------------------------------------------------------------------------------------------------------------------
Since
1 Year 3 Years 5 Years 10 Years Inception**
SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Balanced VP, Inc. 15.06% 16.25% 14.04% 11.16% 04/03/1989
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) 6.40% 4.94% 4.93% 7.52%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 35.47% 33.20% 12/13/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 12.65% 20.80% 17.46% 14.75%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 29.49% 31.18% 09/16/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 17.01% 19.60% 12/22/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.76% 3.73% 3.59% 4.05%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (14.25%) (10.76%) 12/15/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP (0.53%) 15.33% 12/27/1996
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 17.40% 14.91% 15.37% 16.88% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 32.00% 24.19% 19.51% 18.95% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund 25.66% 22.43% 20.55% 05/02/1994
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 30.31% 21.54% 19.77% 19.97% 05/05/1993
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 9.83% 15.89% 16.87% 13.78%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 37.26% 23.46% 19.79% 17.50%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1) (5.87%) 6.93% 7.05% 9.30%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund Portfolio 27.90% 23.05% 26.59% 01/03/1995
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 32.11% 15.86% 17.43% 19.97% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 32.13% 21.97% 17.20% 17.58% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 33.49% 23.39% 19.47% 18.94% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 26.86% 24.63% 19.37% 22.04% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 10.53% 14.07% 16.83% 01/03/1995
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA(1) 10.56% 12.84% 11.25% 14.13%
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 3.02% 20.52% 24.95% 07/06/1995
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA 1.24% 6.09% 5.11% 5.07% 05/03/1993
================================================================================================================================
PPI MFS Emerging Equities Portfolio 27.59% 23.57% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(3) 27.59% 12.01% 13.43% 19.07%
================================================================================================================================
PPI MFS Research Growth Portfolio 21.03% 16.97% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS Research
Growth(3) 21.03% 2.84% 6.41% 9.47%
================================================================================================================================
PPI MFS Value Equity Portfolio 24.70% 23.87% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Neuberger Berman AMT Growth/PPI MFS Value Equity(3) 24.70% 18.51% 15.07% 12.88%
================================================================================================================================
PPI Scudder International Growth Portfolio 17.18% 17.17% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio Class A/PPI Scudder
International Growth(3) 17.18% 12.37% 8.64% 10.22%
- --------------------------------------------------------------------------------------------------------------------------------
</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 3.62%. 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 8% 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 "The Income Phase" in the prospectus), the value of your account is
determined using the accumulation unit values as of the tenth valuation before
the first income phase payment is due. Such value (less any applicable premium
tax) is applied to provide income phase payments to you in accordance with the
income phase payment option and investment options elected.
The annuity option tables found in the contract show, for each option, the
amount of the first income phase payment for each $1,000 of value applied.
Thereafter, variable income phase payments fluctuate as the annuity unit
value(s) fluctuates with the investment experience of the selected investment
option(s). The first income phase 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 income phase payment, but payments
will increase thereafter only to the extent that the investment performance of
the subaccounts you selected is greater than 5% annually, after deduction of
fees. Income phase payments would decline if the performance was less than 5%.
Use of the 3.5% assumed rate causes a lower first income phase 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 income phase 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 income phase 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 income phase 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 income phase payment option elected, a first monthly
variable payment of $6.68 per $1000 of value applied; the annuitant's first
monthly income phase 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 income phase 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
income phase 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 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 contract. 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 contract and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG 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
Statement of Assets and Liabilities ................................... S-2
Statements of Operations and Changes in Net Assets .................... S-7
Condensed Financial Information ....................................... S-8
Notes to Financial Statements ......................................... S-16
Independent Auditors' Report .......................................... S-36
S-1
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 1,775,905 $ 25,102,742 $ 24,898,190
Aetna Balanced VP: 12,391,167 181,255,533 194,913,051
Aetna Bond VP: 6,915,310 90,585,384 90,313,945
Aetna Crossroads VP: 2,222,763 29,151,210 29,607,202
Aetna Get Fund, Series B: 1,328,751 16,114,148 19,399,768
Aetna Get Fund, Series C: 641,495 6,843,405 9,276,019
Aetna Get Fund, Series D: 8,945,182 89,971,949 89,907,126
Aetna Growth and Income VP: 34,864,532 1,125,170,574 1,110,783,981
Aetna Growth VP: 2,192,686 25,612,305 29,667,044
Aetna High Yield VP: 25,485 269,013 230,386
Aetna Index Plus Large Cap VP: 4,950,434 77,533,729 87,078,142
Aetna Index Plus Mid Cap VP: 30,799 350,678 375,745
Aetna Index Plus Small Cap VP: 98,357 961,535 969,800
Aetna International VP: 132,091 1,535,380 1,530,933
Aetna Legacy VP: 2,841,936 34,924,355 35,154,748
Aetna Money Market VP: 11,204,743 148,567,676 150,002,380
Aetna Real Estate Securities VP: 115,069 1,060,043 981,537
Aetna Small Company VP: 1,445,875 17,304,318 18,492,740
Aetna Value Opportunity VP: 1,296,961 16,956,181 18,689,212
AIM V.I. Funds:
Capital Appreciation Fund: 11,857 279,072 298,792
Growth and Income Fund: 9,329 203,793 221,558
Growth Fund: 11,970 284,519 296,860
Value Fund: 26,818 681,416 703,970
Alger American Funds:
Balanced Portfolio: 476,550 4,602,622 6,185,618
Income & Growth Portfolio: 1,178,638 11,247,924 15,463,737
Leveraged AllCap Portfolio: 486,301 10,438,458 16,971,895
American Century Investments:
Balanced Fund: 567,422 4,244,446 4,732,298
International Fund: 760,004 5,048,080 5,791,227
Calvert Social Balanced Portfolio: 916,276 1,943,153 1,958,082
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 6,927,959 153,249,176 176,108,721
Growth Portfolio: 3,087,069 104,576,368 138,516,768
High Income Portfolio: 4,321,896 54,257,145 49,831,459
Overseas Portfolio: 892,112 17,216,864 17,886,843
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,124,160 18,781,312 20,414,738
Contrafund Portfolio: 6,668,348 127,772,939 162,974,413
Index 500 Portfolio: 1,003,440 116,197,819 141,735,838
Investment Grade Bond Portfolio: 439,478 5,217,593 5,695,641
Insurance Management Series:
American Leaders Fund II: 6,201,568 97,218,342 134,450,002
Equity Income Fund II: 2,025,727 24,690,902 28,664,036
Growth Strategies Fund II: 1,532,692 22,205,952 27,450,515
High Income Bond Fund II: 4,568,474 47,172,964 49,887,731
International Equity Fund II: 1,138,497 13,701,931 17,521,464
Prime Money Fund II: 8,067,320 8,065,097 8,067,320
</TABLE>
S-2
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
U.S. Government Securities II: 1,439,895 $ 15,041,447 $ 16,054,824
Utility Fund II: 1,986,746 23,284,347 30,337,604
Janus Aspen Series:
Aggressive Growth Portfolio: 2,079,332 49,261,924 57,368,774
Balanced Portfolio: 3,210,155 56,987,418 72,228,489
Flexible Income Portfolio: 1,710,899 20,378,246 20,633,439
Growth Portfolio: 2,958,516 57,362,313 69,643,462
Worldwide Growth Portfolio: 8,512,439 210,385,419 247,626,862
Lexington Emerging Markets Fund: 266,212 2,706,082 1,509,423
Lexington Natural Resources Trust Fund: 358,558 5,221,161 3,954,893
MFS Funds:
Total Return Series: 2,104,731 34,302,993 38,137,728
Worldwide Government Series: 185,123 1,911,846 2,014,138
Oppenheimer Funds:
Aggressive Growth Fund: 265,843 10,674,495 11,917,723
Global Securities Fund: 346,765 6,867,095 7,653,101
Growth & Income Fund: 1,718,418 35,629,032 35,193,209
Strategic Bond Fund: 2,558,320 13,050,936 13,098,600
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 2,382,266 112,648,846 132,072,829
PPI MFS Research Growth Portfolio: 7,421,331 77,594,206 88,610,687
PPI MFS Value Equity Portfolio: 738,878 24,196,477 27,966,529
PPI Scudder International Growth Portfolio: 1,049,896 16,732,753 17,596,256
PPI T. Rowe Price Growth Equity Portfolio: 2,148,768 93,956,758 118,848,377
-------------- --------------
NET ASSETS $3,606,761,839 $3,956,568,422
============== ==============
</TABLE>
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and
5)
<TABLE>
<CAPTION>
<S> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ........... $ 24,898,190
Aetna Balanced VP:
Annuity contracts in accumulation ........... 176,154,146
Annuity contracts in payment period ......... 18,758,905
Aetna Bond VP:
Annuity contracts in accumulation ........... 85,100,187
Annuity contracts in payment period ......... 5,213,758
Aetna Crossroads VP:
Annuity contracts in accumulation ........... 28,289,880
Annuity contracts in payment period ......... 1,317,322
Aetna Get Fund, Series B:
Annuity contracts in accumulation ........... 19,399,768
Aetna Get Fund, Series C:
Annuity contracts in accumulation ........... 9,276,019
Aetna Get Fund, Series D:
Annuity contracts in accumulation ........... 89,907,126
Aetna Growth and Income VP:
Annuity contracts in accumulation ........... 955,586,320
Annuity contracts in payment period ......... 155,197,661
Aetna Growth VP:
Annuity contracts in accumulation ........... 28,467,187
Annuity contracts in payment period ......... 1,199,857
</TABLE>
S-3
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Aetna High Yield VP:
Annuity contracts in accumulation ........... $ 230,386
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation ........... 85,248,495
Annuity contracts in payment period ......... 1,829,647
Aetna Index Plus Mid Cap VP:
Annuity contracts in accumulation ........... 375,745
Aetna Index Plus Small Cap VP:
Annuity contracts in accumulation ........... 969,800
Aetna International VP:
Annuity contracts in accumulation ........... 1,528,847
Annuity contracts in payment period ......... 2,086
Aetna Legacy VP:
Annuity contracts in accumulation ........... 32,331,905
Annuity contracts in payment period ......... 2,822,843
Aetna Money Market VP:
Annuity contracts in accumulation ........... 149,772,871
Annuity contracts in payment period ......... 229,509
Aetna Real Estate Securities VP:
Annuity contracts in accumulation ........... 965,259
Annuity contracts in payment period ......... 16,278
Aetna Small Company VP:
Annuity contracts in accumulation ........... 18,295,242
Annuity contracts in payment period ......... 197,498
Aetna Value Opportunity VP:
Annuity contracts in accumulation ........... 18,689,212
AIM V.I. Funds:
Capital Appreciation Fund:
Annuity contracts in accumulation ........... 298,792
Growth and Income Fund:
Annuity contracts in accumulation ........... 221,558
Growth Fund:
Annuity contracts in accumulation ........... 296,860
Value Fund:
Annuity contracts in accumulation ........... 703,970
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation ........... 6,185,618
Income & Growth Portfolio:
Annuity contracts in accumulation ........... 15,463,737
Leveraged AllCap Portfolio:
Annuity contracts in accumulation ........... 16,971,895
American Century Investments:
Balanced Fund:
Annuity contracts in accumulation ........... 4,732,298
International Fund:
Annuity contracts in accumulation ........... 5,791,227
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation ........... 1,958,082
</TABLE>
S-4
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation .................... $ 176,108,721
Growth Portfolio:
Annuity contracts in accumulation .................... 138,516,768
High Income Portfolio:
Annuity contracts in accumulation .................... 49,328,098
Annuity contracts in payment period .................. 503,361
Overseas Portfolio:
Annuity contracts in accumulation .................... 17,886,843
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation .................... 20,414,738
Contrafund Portfolio:
Annuity contracts in accumulation .................... 162,974,413
Index 500 Portfolio:
Annuity contracts in accumulation .................... 141,735,838
Investment Grade Bond Portfolio:
Annuity contracts in accumulation .................... 5,695,641
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation .................... 134,398,144
Annuity contracts in payment period .................. 51,858
Equity Income Fund II:
Annuity contracts in accumulation .................... 28,656,460
Annuity contracts in payment period .................. 7,576
Growth Strategies Fund II:
Annuity contracts in accumulation .................... 27,450,515
High Income Bond Fund II:
Annuity contracts in accumulation .................... 49,887,731
International Equity Fund II:
Annuity contracts in accumulation .................... 17,521,464
Prime Money Fund II:
Annuity contracts in accumulation .................... 8,067,320
U.S. Government Securities II:
Annuity contracts in accumulation .................... 16,054,824
Utility Fund II:
Annuity contracts in accumulation .................... 30,329,937
Annuity contracts in payment period .................. 7,667
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation .................... 57,368,774
Balanced Portfolio:
Annuity contracts in accumulation .................... 72,228,489
Flexible Income Portfolio:
Annuity contracts in accumulation .................... 20,633,439
Growth Portfolio:
Annuity contracts in accumulation .................... 68,058,273
Annuity contracts in payment period .................. 1,585,189
Worldwide Growth Portfolio:
Annuity contracts in accumulation .................... 243,902,115
Annuity contracts in payment period .................. 3,724,747
</TABLE>
S-5
<PAGE>
Variable Annuity Account B
Statement of Assets and Liabilities - December 31, 1998 (continued):
<TABLE>
<CAPTION>
<S> <C>
Lexington Emerging Markets Fund:
Annuity contracts in accumulation ........... $ 1,509,423
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation ........... 3,954,893
MFS Funds:
Total Return Series:
Annuity contracts in accumulation ........... 38,137,728
Worldwide Government Series:
Annuity contracts in accumulation ........... 2,014,138
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation ........... 11,917,723
Global Securities Fund:
Annuity contracts in accumulation ........... 7,653,101
Growth & Income Fund:
Annuity contracts in accumulation ........... 35,193,209
Strategic Bond Fund:
Annuity contracts in accumulation ........... 12,897,019
Annuity contracts in payment period ......... 201,581
Portfolio Partners, Inc (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 131,150,274
Annuity contracts in payment period ......... 922,555
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 88,610,687
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 27,062,849
Annuity contracts in payment period ......... 903,680
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 17,577,310
Annuity contracts in payment period ......... 18,946
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 118,791,854
Annuity contracts in payment period ......... 56,523
--------------
$3,956,568,422
==============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account B
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ............................................................. $ 325,794,651 $ 278,833,116
Expenses: (Notes 2 and 5)
Valuation period deductions ........................................... (42,285,760) (29,243,851)
-------------- --------------
Net investment income .................................................. 283,508,891 249,589,265
-------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ................................................... 1,555,519,398 1,004,789,371
Cost of investments sold .............................................. 1,412,108,865 933,728,508
-------------- --------------
Net realized gain .................................................... 143,410,533 71,060,863
-------------- --------------
Net unrealized gain on investments: (Note 5)
Beginning of year ..................................................... 255,524,506 122,191,053
End of year ........................................................... 349,806,583 255,524,506
-------------- --------------
Net change in unrealized gain ........................................ 94,282,077 133,333,453
-------------- --------------
Net realized and unrealized gain on investments ........................ 237,692,610 204,394,316
-------------- --------------
Net increase in net assets resulting from operations ................... 521,201,501 453,983,581
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................ 489,286,251 571,501,505
Transfers from the Company for mortality guarantee adjustments ......... (906,373) 371,835
Transfers from the Company's fixed account options ..................... 212,914,994 144,526,667
Redemptions by contract holders ........................................ (167,845,102) (82,942,177)
Annuity payments ....................................................... (22,421,712) (16,137,431)
Other .................................................................. 1,896,006 2,327,153
-------------- --------------
Net increase in net assets from unit transactions (Note 5) ........... 512,924,064 619,647,552
-------------- --------------
Change in net assets ................................................... 1,034,125,565 1,073,631,133
NET ASSETS:
Beginning of year ...................................................... 2,922,442,857 1,848,811,724
-------------- --------------
End of year ............................................................ $3,956,568,422 $2,922,442,857
============== ==============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Non-Qualified V $ 15.392 $ 15.855 3.01% 274,115.2 $ 4,346,011
Non-Qualified V (0.75) 15.535 16.082 3.52% 104,608.3 1,682,346
Non-Qualified VII 15.333 15.769 2.84% 1,027,839.2 16,207,554
Non-Qualified VIII 14.947 14.012 (6.26%) (4) 160,746.0 2,252,334
Non-Qualified IX 15.364 15.786 2.75% 1,717.5 27,113
Non-Qualified X 15.422 15.942 3.37% 24,014.0 382,832
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP:
Non-Qualified V 18.989 21.929 15.48% 2,929,719.6 64,245,891
Non-Qualified V (0.75) 19.166 22.244 16.06% 1,798,424.8 40,003,913
Non-Qualified VI 15.962 18.445 15.56% 43,363.3 799,818
Non-Qualified VII 18.653 21.507 15.30% 2,533,501.2 54,487,004
Non-Qualified VIII 14.392 15.212 5.70% (4) 363,744.6 5,533,430
Non-Qualified IX 18.954 21.834 15.19% 30,063.5 656,418
Non-Qualified X 19.016 22.015 15.77% 452,763.7 9,967,686
Non-Qualified XI 15.985 18.517 15.84% 6,799.7 125,910
Non-Qualified XIII 9.555 10.337 8.18% (10) 5,234.6 54,109
Non-Qualified XIV 9.276 10.323 11.29% (8) 17,680.9 182,516
Non-Qualified XV 9.581 10.316 7.67% (10) 9,446.8 97,451
Annuity contracts in payment period 18,758,905
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Non-Qualified V 13.361 14.270 6.80% 1,129,588.7 16,119,085
Non-Qualified V (0.75) 13.486 14.475 7.33% 2,012,308.2 29,127,850
Non-Qualified VI 12.204 13.041 6.86% 51,406.2 670,396
Non-Qualified VII 13.128 13.998 6.63% 1,948,372.8 27,273,239
Non-Qualified VIII 11.367 11.910 4.78% (4) 387,994.7 4,620,903
Non-Qualified IX 13.337 14.208 6.53% 18,429.1 261,845
Non-Qualified X 13.373 14.304 6.96% 452,992.2 6,479,375
Non-Qualified XI 12.214 13.072 7.02% 1,301.4 17,012
Non-Qualified XIII 10.157 10.319 1.59% (9) 16,581.5 171,096
Non-Qualified XIV 10.119 10.305 1.84% (9) 30,948.7 318,914
Non-Qualified XV 10.188 10.298 1.08% (10) 3,930.2 40,472
Annuity contracts in payment period 5,213,758
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Non-Qualified V 14.432 15.095 4.59% 218,648.6 3,300,593
Non-Qualified V (0.75) 14.566 15.312 5.12% 119,245.6 1,825,908
Non-Qualified VII 14.377 15.013 4.42% 1,316,579.2 19,766,357
Non-Qualified VIII 14.044 13.588 (3.25%) (4) 237,468.1 3,226,692
Non-Qualified IX 14.406 15.030 4.33% 457.5 6,876
Non-Qualified X 14.461 15.179 4.97% 10,768.7 163,454
Annuity contracts in payment period 1,317,322
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B:
Non-Qualified V 20.717 24.373 17.65% 737,172.7 17,966,894
Non-Qualified X 20.717 24.373 17.65% 58,790.1 1,432,874
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C:
Non-Qualified V 12.636 15.904 25.86% 92,330.0 1,468,418
Non-Qualified V (0.75) 12.718 16.087 26.49% 468,819.8 7,541,894
Non-Qualified IX 12.613 15.835 25.55% 9,144.7 144,810
Non-Qualified X 12.636 15.904 25.86% 7,601.7 120,897
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D:
Non-Qualified V 9.997 10.062 0.65% (9) 1,577,071.0 15,867,744
Non-Qualified V (0.75) 9.997 10.073 0.76% (9) 614,759.8 6,192,546
Non-Qualified VII 9.997 10.058 0.61% (9) 3,322,479.7 33,416,640
Non-Qualified VIII 9.998 10.067 0.69% (9) 1,277,188.8 12,857,641
Non-Qualified X 10.023 10.062 0.39% (10) 65,946.9 663,527
Non-Qualified XIII 10.004 10.072 0.68% (9) 931,827.7 9,385,656
Non-Qualified XIV 10.000 10.066 0.66% (9) 884,851.1 8,907,146
Non-Qualified XV 10.009 10.063 0.54% (9) 259,978.3 2,616,226
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Growth and Income VP:
Non-Qualified 1964 $ 236.446 $ 267.347 13.07% 958.7 $ 256,298
Non-Qualified V 22.028 24.907 13.07% 9,491,618.9 236,409,291
Non-Qualified V (0.75) 22.233 25.265 13.64% 12,975,484.3 327,821,341
Non-Qualified VI 20.614 23.322 13.14% 1,842,162.9 42,963,821
Non-Qualified VII 22.004 24.839 12.88% 8,999,335.5 223,538,139
Non-Qualified VIII 16.554 16.604 0.30% (4) 1,327,156.5 22,036,585
Non-Qualified IX 21.988 24.800 12.79% 148,050.5 3,671,604
Non-Qualified X 22.060 25.005 13.35% 3,821,349.4 95,552,990
Non-Qualified XI 20.644 23.414 13.42% 46,205.4 1,081,861
Non-Qualified XIII 7.862 9.886 25.74% (9) 125,488.2 1,240,545
Non-Qualified XIV 7.672 9.872 28.68% (9) 55,706.9 549,962
Non-Qualified XV 8.961 9.866 10.10% (10) 47,019.7 463,883
Annuity contracts in payment period 155,197,661
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Non-Qualified V 13.173 17.912 35.98% 140,521.9 2,516,985
Non-Qualified V (0.75) 13.239 18.067 36.47% (1) 428,697.2 7,745,376
Non-Qualified VII 13.158 17.862 35.75% 738,448.8 13,190,361
Non-Qualified VIII 15.809 17.909 13.28% (4) 266,761.0 4,777,514
Non-Qualified IX 15.727 17.834 13.40% (4) 2,088.8 37,253
Non-Qualified XIII 8.387 10.489 25.06% (9) 8,459.9 88,734
Non-Qualified XIV 8.359 10.475 25.31% (9) 8,297.4 86,912
Non-Qualified XV 8.899 10.468 17.63% (10) 2,297.8 24,052
Annuity contracts in payment period 1,199,857
- --------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP:
Non-Qualified V 9.954 9.212 (7.45%) (4) 604.9 5,573
Non-Qualified V (0.75) 9.941 9.244 (7.01%) (5) 24,320.0 224,813
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Non-Qualified V 14.444 18.772 29.96% 527,155.0 9,895,905
Non-Qualified V (0.75) 14.538 18.989 30.62% 1,060,363.0 20,135,153
Non-Qualified VII 14.414 18.704 29.76% 2,252,763.4 42,134,590
Non-Qualified VIII 16.421 18.449 12.35% (4) 609,863.4 11,251,627
Non-Qualified IX 14.418 18.691 29.64% 23,366.8 436,755
Non-Qualified XIII 8.469 10.716 26.53% (9) 31,054.3 332,779
Non-Qualified XIV 8.964 10.702 19.39% (8) 94,255.0 1,008,675
Non-Qualified XV 9.134 10.694 17.08% (9) 4,956.9 53,011
Annuity contracts in payment period 1,829,647
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP:
Non-Qualified V 10.107 10.891 7.76% (4) 17,010.7 185,258
Non-Qualified V (0.75) 9.950 10.928 9.83% (6) 16,206.7 177,112
Non-Qualified IX 8.579 10.872 26.73% (9) 1,230.2 13,375
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP:
Non-Qualified V 9.996 8.815 (11.81%) (4) 55,563.7 489,810
Non-Qualified V (0.75) 9.407 8.846 (5.96%) (5) 53,459.5 472,892
Non-Qualified IX 7.685 8.800 14.51% (8) 806.6 7,098
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Non-Qualified V 10.149 9.765 (3.78%) (4) 35,872.2 350,278
Non-Qualified V (0.75) 10.288 9.798 (4.76%) (5) 28,999.8 284,152
Non-Qualified VII 10.169 9.754 (4.08%) (5) 45,143.4 440,322
Non-Qualified VIII 10.100 9.764 (3.33%) (4) 41,046.6 400,784
Non-Qualified XIII 8.583 9.149 6.59% (10) 587.0 5,371
Non-Qualified XIV 8.497 9.137 7.53% (10) 4,529.2 41,383
Non-Qualified XV 8.663 9.131 5.40% (11) 718.1 6,557
Annuity contracts in payment period 2,086
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Non-Qualified V 13.317 14.064 5.61% 197,741.5 2,781,008
Non-Qualified V (0.75) 13.441 14.266 6.14% 120,311.5 1,716,341
Non-Qualified VII 13.267 13.989 5.44% 1,551,324.4 21,701,727
Non-Qualified VIII 13.073 13.037 (0.28%) (4) 467,027.3 6,088,503
</TABLE>
S-9
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Legacy VP (continued):
Non-Qualified IX $13.292 $14.003 5.35% 1,187.8 $ 16,633
Non-Qualified X 13.343 14.141 5.98% 1,958.3 27,693
Annuity contracts in payment period 2,822,843
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Non-Qualified V 11.930 12.425 4.15% 1,146,661.0 14,247,696
Non-Qualified V (0.75) 12.041 12.604 4.68% 2,102,275.4 26,496,757
Non-Qualified VI 11.642 12.132 4.21% 67,991.9 824,888
Non-Qualified VII 11.850 12.322 3.98% 6,973,165.3 85,923,420
Non-Qualified VIII 10.847 11.141 2.71% (4) 1,221,158.5 13,605,259
Non-Qualified IX 11.908 12.372 3.90% 32,766.7 405,379
Non-Qualified X 11.930 12.425 4.15% 505,775.1 6,284,447
Non-Qualified XI 11.642 12.132 4.21% 49.6 602
Non-Qualified XIII 10.122 10.199 0.76% (9) 103,625.5 1,056,910
Non-Qualified XIV 10.086 10.186 0.99% (8) 44,014.2 448,309
Non-Qualified XV 10.120 10.179 0.58% (10) 47,079.4 479,204
Annuity contracts in payment period 229,509
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Non-Qualified V 10.095 8.873 (12.11%) (4) 17,925.8 159,052
Non-Qualified V (0.75) 9.678 8.903 (8.01%) (5) 23,760.3 211,549
Non-Qualified VII 10.043 8.863 (11.75%) (4) 40,811.5 361,711
Non-Qualified VIII 10.033 8.872 (11.57%) (4) 13,789.3 122,343
Non-Qualified XIII 8.690 8.903 2.45% (10) 10,325.4 91,925
Non-Qualified XIV 8.833 8.891 0.66% (10) 2,081.8 18,509
Non-Qualified XV 8.648 8.885 2.74% (10) 19.2 170
Annuity contracts in payment period 16,278
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Non-Qualified V 13.654 13.633 (0.15%) 91,991.6 1,254,115
Non-Qualified V (0.75) 13.704 13.751 0.34% 90,091.7 1,238,889
Non-Qualified VII 13.638 13.595 (0.32%) 873,315.8 11,872,953
Non-Qualified VIII 15.596 13.631 (12.60%) (4) 272,561.7 3,715,319
Non-Qualified IX 13.320 13.574 1.91% (1) 797.4 10,824
Non-Qualified XIII 8.799 9.357 6.34% (10) 13,537.9 126,679
Non-Qualified XIV 7.219 9.345 29.45% (9) 7,786.6 72,764
Non-Qualified XV 8.739 9.338 6.85% (11) 396.1 3,699
Annuity contracts in payment period 197,498
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Non-Qualified V 13.261 16.030 20.88% 60,870.3 975,730
Non-Qualified V (0.75) 12.632 16.169 28.00% (1) 91,721.6 1,483,031
Non-Qualified VII 13.246 15.985 20.68% 841,077.5 13,444,950
Non-Qualified VIII 15.274 16.028 4.94% (4) 173,741.4 2,784,641
Non-Qualified IX 14.467 15.960 10.32% (3) 53.9 860
- --------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Funds:
Capital Appreciation Fund:
Non-Qualified XIII 7.522 10.245 36.20% (9) 10,912.8 111,802
Non-Qualified XIV 7.914 10.231 29.28% (9) 17,420.4 178,233
Non-Qualified XV 9.078 10.224 12.62% (10) 856.5 8,757
- --------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund:
Non-Qualified XIII 7.948 10.663 34.16% (9) 3,665.9 39,090
Non-Qualified XIV 8.179 10.649 30.20% (9) 9,967.9 106,146
Non-Qualified XV 8.830 10.641 20.51% (9) 7,172.1 76,322
- --------------------------------------------------------------------------------------------------------------------------------
Growth Fund:
Non-Qualified XIII 7.856 10.779 37.21% (9) 11,162.9 120,321
Non-Qualified XIV 8.120 10.764 32.56% (9) 14,904.3 160,430
Non-Qualified XV 9.702 10.757 10.87% (11) 1,497.6 16,109
- --------------------------------------------------------------------------------------------------------------------------------
Value Fund:
Non-Qualified XIII 7.820 10.616 35.75% (9) 27,667.7 293,713
Non-Qualified XIV 8.093 10.601 30.99% (9) 29,485.9 312,592
Non-Qualified XV 9.664 10.594 9.62% (11) 9,218.7 97,665
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Funds:
Balanced Portfolio:
Non-Qualified VII $16.153 $20.946 29.67% 295,306.5 $ 6,185,618
- ----------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio:
Non-Qualified VII 16.902 22.064 30.54% 700,861.1 15,463,737
- ----------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Non-Qualified VII 15.988 24.881 55.62% 682,007.2 16,968,827
Non-Qualified VIII 13.551 18.206 34.35% (4) 168.5 3,068
- ----------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund:
Non-Qualified VII 15.312 17.479 14.15% 270,740.7 4,732,298
- ----------------------------------------------------------------------------------------------------------------------------
International Fund:
Non-Qualified VII 13.782 16.139 17.10% 358,674.4 5,788,553
Non-Qualified VIII 15.241 14.599 (4.21%) (4) 183.2 2,674
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Non-Qualified V 17.779 20.415 14.83% 8,742.2 178,470
Non-Qualified V (0.75) 17.944 20.708 15.40% 35,543.7 736,032
Non-Qualified VII 9.976 11.437 14.65% 34,437.7 393,873
Non-Qualified VIII 10.882 11.456 5.27% (4) 56,713.4 649,707
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Non-Qualified V 15.784 17.400 10.24% 298,921.1 5,201,225
Non-Qualified V (0.75) 15.930 17.650 10.80% 630,681.6 11,131,403
Non-Qualified VII 18.963 20.872 10.07% 6,923,691.7 144,511,703
Non-Qualified VIII 15.151 14.942 (1.38%) (4) 919,970.0 13,746,143
Non-Qualified IX 15.755 17.325 9.97% 6,719.9 116,422
Non-Qualified X 15.784 17.400 10.24% 13,539.3 235,583
Non-Qualified XIII 8.459 9.911 17.17% (9) 48,259.6 478,287
Non-Qualified XIV 8.314 9.897 19.04% (9) 59,608.6 589,966
Non-Qualified XV 9.412 9.891 5.09% (11) 9,907.3 97,989
- ----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 13.904 19.155 37.77% 324,557.7 6,216,774
Non-Qualified V (0.75) 14.034 19.430 38.45% 595,859.4 11,577,298
Non-Qualified VII 19.157 26.348 37.54% 4,154,249.8 109,456,984
Non-Qualified VIII 14.533 17.420 19.87% (4) 600,814.2 10,466,173
Non-Qualified IX 13.879 19.072 37.42% 17,622.0 336,085
Non-Qualified X 13.904 19.155 37.77% 24,195.4 463,454
- ----------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Non-Qualified VII 13.959 13.168 (5.67%) 3,196,920.6 42,096,053
Non-Qualified VIII 13.167 11.798 (10.40%) (4) 530,361.7 6,257,364
Non-Qualified XIII 8.626 8.949 3.74% (10) 40,909.1 366,076
Non-Qualified XIV 8.411 8.936 6.24% (10) 19,660.9 175,698
Non-Qualified XV 8.987 8.930 (0.63%) (11) 48,475.9 432,907
Annuity contracts in payment period 503,361
- ----------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Non-Qualified V 12.381 13.786 11.35% 54,225.5 747,571
Non-Qualified V (0.75) 12.496 13.984 11.91% 141,714.4 1,981,774
Non-Qualified VII 13.682 15.210 11.17% 929,309.5 14,135,208
Non-Qualified VIII 13.796 12.879 (6.65%) (4) 77,430.9 997,217
Non-Qualified IX 12.358 13.727 11.08% 1,826.6 25,073
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Non-Qualified VII 15.679 17.786 13.44% 1,019,122.4 18,126,177
Non-Qualified VIII 13.995 14.783 5.63% (4) 154,808.5 2,288,561
- ----------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Non-Qualified V 15.374 19.735 28.37% 488,102.2 9,632,520
Non-Qualified V (0.75) 15.517 20.018 29.01% 779,941.7 15,612,818
Non-Qualified VII 17.066 21.872 28.16% 5,718,965.7 125,086,950
</TABLE>
S-11
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contrafund Portfolio (continued):
Non-Qualified VIII $15.503 $17.492 12.83% (4) 637,258.2 $ 11,146,870
Non-Qualified IX 15.346 19.649 28.04% 20,906.9 410,809
Non-Qualified X 15.374 19.735 28.37% 14,618.4 288,488
Non-Qualified XIII 8.083 10.535 30.34% (9) 42,196.2 444,543
Non-Qualified XIV 8.746 10.521 20.29% (8) 29,543.1 310,821
Non-Qualified XV 8.946 10.514 17.53% (10) 3,861.0 40,594
- -------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Non-Qualified VII 17.961 22.727 26.54% 5,533,320.3 125,753,551
Non-Qualified VIII 17.227 18.925 9.86% (4) 844,489.5 15,982,287
- -------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Non-Qualified VII 11.597 12.446 7.32% 457,640.6 5,695,641
- -------------------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Non-Qualified VII 20.287 23.528 15.98% 5,705,447.4 134,238,634
Non-Qualified VIII 16.597 16.869 1.64% (5) 9,455.9 159,510
Annuity contracts in payment period 51,858
- -------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Non-Qualified VII 12.305 14.013 13.88% 2,043,618.6 28,656,460
Annuity contracts in payment period 7,576
- -------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Non-Qualified VII 15.777 18.269 15.80% 1,502,535.0 27,450,515
- -------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Non-Qualified VII 14.724 14.910 1.26% 3,345,668.5 49,883,928
Non-Qualified VIII 12.832 12.629 (1.58%) (4) 301.1 3,803
- -------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Non-Qualified VII 11.888 14.719 23.81% 1,190,289.9 17,519,674
Non-Qualified VIII 13.748 13.523 (1.64%) (7) 132.3 1,790
- -------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Non-Qualified VII 11.119 11.503 3.45% 701,312.8 8,067,320
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Non-Qualified VII 11.883 12.614 6.15% 1,272,804.3 16,054,824
- -------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Non-Qualified VII 16.611 18.663 12.35% 1,625,061.9 30,328,887
Non-Qualified VIII 13.786 15.472 12.23% (7) 67.9 1,050
Annuity contracts in payment period 7,667
- -------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Non-Qualified V 15.410 20.433 32.60% 512,154.4 10,464,741
Non-Qualified V (0.75) 15.554 20.726 33.25% 459,709.5 9,528,051
Non-Qualified VII 15.418 20.410 32.38% 1,622,088.6 33,106,814
Non-Qualified VIII 12.108 14.162 16.96% (4) 216,957.5 3,072,646
Non-Qualified IX 15.382 20.345 32.26% 12,305.4 250,348
Non-Qualified X 15.410 20.433 32.60% 24,372.9 498,007
Non-Qualified XIII 7.183 11.042 53.72% (9) 18,317.8 202,268
Non-Qualified XIV 6.858 11.027 60.79% (9) 21,356.2 235,501
Non-Qualified XV 9.497 11.020 16.04% (11) 943.6 10,398
- -------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Non-Qualified V 14.990 19.880 32.62% 334,507.8 6,649,987
Non-Qualified V (0.75) 15.130 20.165 33.28% 241,070.0 4,861,245
Non-Qualified VII 16.692 22.101 32.40% 2,277,803.6 50,341,553
Non-Qualified VIII 15.156 17.569 15.92% (4) 480,187.2 8,436,522
Non-Qualified IX 14.963 19.794 32.29% 7,705.0 152,514
Non-Qualified X 14.990 19.880 32.62% 6,712.2 133,439
Non-Qualified XIII 9.175 10.945 19.29% (9) 114,602.5 1,254,291
Non-Qualified XIV 8.301 10.930 31.67% (9) 27,397.4 299,452
Non-Qualified XV 9.275 10.923 17.77% (8 9,108.3 99,486
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Flexible Income Portfolio:
Non-Qualified V $14.393 $15.509 7.75% 85,516.5 $ 1,326,243
Non-Qualified V (0.75) 14.527 15.731 8.29% 199,466.7 3,137,882
Non-Qualified VII 14.320 15.405 7.58% 855,509.7 13,179,344
Non-Qualified VIII 12.363 12.873 4.13% (4) 221,988.1 2,857,737
Non-Qualified IX 14.367 15.442 7.48% 3,382.6 52,233
Non-Qualified X 14.630 15.509 6.01% (2) 5,158.4 80,000
- -----------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Non-Qualified V 15.414 20.651 33.98% 217,309.5 4,487,701
Non-Qualified V (0.75) 15.558 20.948 34.64% 244,106.5 5,113,454
Non-Qualified VII 18.340 24.532 33.76% 2,097,548.1 51,456,280
Non-Qualified VIII 15.094 17.461 15.68% (4) 281,233.5 4,910,658
Non-Qualified IX 15.386 20.562 33.64% 4,444.5 91,388
Non-Qualified X 15.414 20.651 33.98% 1,027.9 21,226
Non-Qualified XIII 7.907 10.938 38.33% (9) 138,459.2 1,514,405
Non-Qualified XIV 7.596 10.923 43.80% (9) 35,759.3 390,592
Non-Qualified XV 9.157 10.915 19.20% (10) 6,648.3 72,569
Annuity contracts in payment period 1,585,189
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Non-Qualified V 16.745 21.320 27.32% 1,069,704.4 22,805,969
Non-Qualified V (0.75) 16.901 21.626 27.96% 1,346,456.7 29,118,282
Non-Qualified VII 18.910 24.039 27.12% 7,196,142.1 172,985,648
Non-Qualified VIII 16.509 17.358 5.14% (4) 941,812.3 16,347,812
Non-Qualified IX 16.714 21.228 27.01% 28,229.7 599,257
Non-Qualified X 16.745 21.320 27.32% 45,970.7 980,091
Non-Qualified XIII 7.245 9.576 32.17% (9) 63,712.4 610,124
Non-Qualified XIV 8.027 9.563 19.14% (8) 39,601.7 378,723
Non-Qualified XV 8.519 9.557 12.18% (10) 7,974.3 76,209
Annuity contracts in payment period 3,724,747
- -----------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Non-Qualified VII 8.572 6.068 (29.21%) 247,857.1 1,509,423
- -----------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Non-Qualified V 13.896 11.030 (20.62%) 89,735.0 989,787
Non-Qualified V (0.75) 14.025 11.189 (20.22%) 92,175.0 1,031,313
Non-Qualified VII 13.794 10.932 (20.75%) 174,370.9 1,906,192
Non-Qualified IX 13.870 10.982 (20.82%) 752.5 8,264
Non-Qualified X 13.896 11.030 (20.62%) 1,753.1 19,337
- -----------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Non-Qualified VII 13.030 14.432 10.76% 2,203,926.5 31,807,542
Non-Qualified VIII 14.096 14.491 2.80% (4) 400,395.8 5,802,076
Non-Qualified XIII 9.712 10.171 4.73% (10) 11,625.0 118,235
Non-Qualified XIV 9.772 10.157 3.94% (10) 12,838.2 130,398
Non-Qualified XV 9.737 10.150 4.24% (10) 27,534.1 279,477
- -----------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series:
Non-Qualified VII 10.207 10.860 6.40% 156,298.4 1,697,332
Non-Qualified VIII 10.312 10.904 5.74% (4) 29,054.9 316,806
- -----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Non-Qualified VII 12.204 13.520 10.78% 659,693.3 8,919,034
Non-Qualified VIII 14.076 13.556 (3.69%) (4) 211,732.4 2,870,164
Non-Qualified XIII 7.289 9.362 28.44% (9) 730.2 6,837
Non-Qualified XIV 6.300 9.350 48.41% (9) 12,608.6 117,886
Non-Qualified XV 8.309 9.343 12.44% (11) 406.9 3,802
- -----------------------------------------------------------------------------------------------------------------------------
Global Securities Fund:
Non-Qualified V 10.027 10.018 (0.09%) (4) 3,998.3 40,057
Non-Qualified V (0.75) 10.004 10.053 0.49% (6) 9,360.1 94,099
Non-Qualified VII 11.539 12.982 12.51% 465,279.3 6,040,369
Non-Qualified VIII 13.007 13.016 0.07% (4) 113,574.5 1,478,339
Non-Qualified IX 9.378 10.001 6.64% (11) 23.7 237
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund:
Non-Qualified VII $ 12.785 $ 13.199 3.24% 2,014,343.2 $26,587,287
Non-Qualified VIII 14.890 13.234 (11.12%) (4) 602,061.1 7,967,561
Non-Qualified XIII 6.913 9.080 31.35% (9) 27,241.3 247,342
Non-Qualified XIV 6.647 9.067 36.41% (9) 41,656.3 377,715
Non-Qualified XV 8.449 9.061 7.24% (10) 1,468.2 13,304
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Non-Qualified V 9.952 9.895 (0.57%) (4) 3,006.1 29,745
Non-Qualified V (0.75) 10.098 9.929 (1.67%) (6) 625.2 6,208
Non-Qualified VII 10.764 10.921 1.46% 890,900.1 9,729,448
Non-Qualified VIII 11.084 10.950 (1.21%) (4) 254,861.2 2,790,663
Non-Qualified IX 9.889 9.878 (0.11%) (11) 67.2 664
Non-Qualified XIII 9.550 9.823 2.86% (10) 21,480.1 211,003
Non-Qualified XIV 9.566 9.810 2.55% (9) 13,169.1 129,188
Non-Qualified XV 9.768 9.803 0.36% (11) 10.2 100
Annuity contracts in payment period 201,581
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Non-Qualified V 15.219 19.489 28.06% 695,812.6 13,560,945
Non-Qualified V (0.75) 15.361 19.769 28.70% 562,096.7 11,112,279
Non-Qualified VII 14.707 18.803 27.85% 5,270,772.3 99,108,417
Non-Qualified VIII 12.011 12.761 6.24% (4) 509,943.9 6,507,181
Non-Qualified IX 15.192 19.405 27.73% 13,060.2 253,436
Non-Qualified X 15.219 19.489 28.06% 11,330.3 220,821
Non-Qualified XIII 7.999 10.371 29.65% (9) 11,390.8 118,131
Non-Qualified XIV 6.702 10.357 54.54% (9) 13,509.1 139,910
Non-Qualified XV 8.599 10.350 20.36% (10) 12,479.0 129,154
Annuity contracts in payment period 922,555
- ------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Non-Qualified V 12.744 15.481 21.48% 605,270.9 9,370,125
Non-Qualified V (0.75) 12.863 15.703 22.08% 428,785.0 6,733,360
Non-Qualified VI 10.761 13.080 21.55% 8,187.8 107,093
Non-Qualified VII 12.641 15.331 21.28% 4,136,850.6 63,421,168
Non-Qualified VIII 10.102 10.532 4.26% (4) 554,094.8 5,835,838
Non-Qualified IX 12.721 15.414 21.17% 21,363.0 329,290
Non-Qualified X 12.744 15.481 21.48% 148,963.1 2,306,080
Non-Qualified XI 11.698 13.080 11.81% (10) 2,353.6 30,784
Non-Qualified XIII 8.805 10.113 14.86% (10) 4,603.7 46,556
Non-Qualified XIV 9.089 10.099 11.11% (10) 36,362.5 367,223
Non-Qualified XV 8.886 10.092 13.57% (10) 6,259.4 63,170
- ------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Non-Qualified V 21.343 26.713 25.16% 303,746.3 8,114,121
Non-Qualified V (0.75) 21.541 27.097 25.79% 167,064.5 4,526,964
Non-Qualified VII 10.152 12.686 24.96% 881,252.1 11,179,905
Non-Qualified VIII 12.147 12.708 4.62% (4) 214,289.8 2,723,123
Non-Qualified IX 21.304 26.598 24.85% 1,925.9 51,224
Non-Qualified X 21.343 26.713 25.16% 9,947.4 265,731
Non-Qualified XIII 9.507 10.193 7.22% (10) 10,086.1 102,811
Non-Qualified XIV 9.302 10.180 9.44% (10) 9,561.3 97,330
Non-Qualified XV 9.421 10.173 7.98% (11) 161.2 1,640
Annuity contracts in payment period 903,680
- ------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Non-Qualified V 17.903 21.057 17.62% 360,392.4 7,588,700
Non-Qualified V (0.75) 18.070 21.359 18.20% 257,953.3 5,509,651
Non-Qualified VII 9.912 11.640 17.43% 199,291.3 2,319,696
Non-Qualified VIII 11.775 11.659 (0.99%) (4) 107,008.6 1,247,585
Non-Qualified IX 17.870 20.966 17.33% 5,411.2 113,451
Non-Qualified X 17.903 21.057 17.62% 5,244.9 110,442
Non-Qualified XIII 8.553 9.248 8.13% (10) 46,182.0 427,101
Non-Qualified XIV 8.395 9.236 10.02% (9) 25,859.7 238,833
</TABLE>
S-14
<PAGE>
Variable Annuity Account B
Condensed Financial Information - Year Ended December 31, 1998 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PPI Scudder International Growth Portfolio (continued):
Non-Qualified XV $ 8.841 $ 9.229 4.39% (10) 2,367.5 $ 21,851
Annuity contracts in payment period 18,946
- -------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Non-Qualified V 14.400 18.146 26.01% 287,914.4 5,224,616
Non-Qualified V (0.75) 14.534 18.407 26.65% 335,509.9 6,175,728
Non-Qualified VII 18.343 23.078 25.81% 4,440,082.5 102,469,170
Non-Qualified VIII 15.327 16.682 8.84% (4) 272,321.4 4,542,742
Non-Qualified IX 14.374 18.068 25.70% 16,259.0 293,769
Non-Qualified X 14.400 18.146 26.01% 4,729.8 85,829
Annuity contracts in payment period 56,523
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Non-Qualified 1964 Individual contracts issued from December 1, 1964 to March 14, 1967.
Non-Qualified V Group Aetna Plus contracts issued in connection with Deferred
Compensation Plans issued since August 28, 1992.
Non-Qualified VI Certain existing contracts that were converted to ACES, an administrative
system (previously valued under Non-Qualified I).
Non-Qualified VII Certain individual and group contracts issued as non-qualified deferred
annuity contracts or Individual Retirement Annuity contracts issued since
May 4, 1994.
Non-Qualified VIII Certain individual Retirement Annuity contracts issued since May 1, 1998.
Non-Qualified IX Group Aetna Plus contracts issued in connection with Deferred
Compensation Plans having contract modifications effective April 7, 1997.
Non-Qualified X Group Aetna Plus contracts issued in connection with Deferred
Compensation Plans having contract modifications effective May 29, 1997.
Non-Qualified XI Certain contracts previously valued under Non-Qualified VI having
contract modifications effective May 29, 1997.
Non-Qualified XIII Certain individual Retirement Annuity contracts issued since October 1, 1998.
Non-Qualified XIV Certain individual Retirement Annuity contracts issued since September 1, 1998.
Non-Qualified XV Certain individual Retirement Annuity contracts issued since September 1, 1998.
</TABLE>
Notes to Condensed Financial Information:
(1) - Reflects less than a full year of performance activity. Funds were first
received in this option during January 1998.
(2) - Reflects less than a full year of performance activity. Funds were first
received in this option during February 1998.
(3) - Reflects less than a full year of performance activity. Funds were first
received in this option during March 1998.
(4) - Reflects less than a full year of performance activity. Funds were first
received in this option during May 1998.
(5) - Reflects less than a full year of performance activity. Funds were first
received in this option during June 1998.
(6) - Reflects less than a full year of performance activity. Funds were first
received in this option during July 1998.
(7) - Reflects less than a full year of performance activity. Funds were first
received in this option during August 1998.
(8) - Reflects less than a full year of performance activity. Funds were first
received in this option during September 1998.
(9) - Reflects less than a full year of performance activity. Funds were first
received in this option during October 1998.
(10) - Reflects less than a full year of performance activity. Funds were first
received in this option during November 1998.
(11) - Reflects less than a full year of performance activity. Funds were first
received in this option during December 1998.
See Notes to Financial Statements
S-15
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998
1. Summary of Significant Accounting Policies
Variable Annuity Account B (the "Account") is a separate account established
by Aetna Life Insurance and Annuity Company (the "Company") registered under
the Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with variable annuity contracts that may be entitled
to tax-deferred treatment under specific sections of the Internal Revenue
Code of 1986, as amended.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported therein. Although actual results could differ
from these estimates, any such differences are expected to be immaterial to
the net assets of the Account.
a. Valuation of Investments
Investments in the following Funds are stated at the closing net asset value
per share as determined by each Fund on December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Aetna Ascent VP Fidelity Investments Variable Insurance
Aetna Balanced VP Products Fund II:
Aetna Bond VP o Asset Manager Portfolio
Aetna Crossroads VP o Contrafund Portfolio
Aetna GET Fund, Series B o Index 500 Portfolio
Aetna GET Fund, Series C o Investment Grade Bond Portfolio
Aetna GET Fund, Series D Insurance Management Series:
Aetna Growth and Income VP o American Leaders Fund II
Aetna Growth VP o Equity Income Fund II
Aetna High Yield VP o Growth Strategies Fund II
Aetna Index Plus Large Cap VP o High Income Bond Fund II
Aetna Index Plus Mid Cap VP o International Equity Fund II
Aetna Index Plus Small Cap VP o Prime Money Fund II
Aetna International VP o U.S. Government Securities Fund II
Aetna Legacy VP o Utility Fund II
Aetna Money Market VP Janus Aspen Series:
Aetna Real Estate Securities VP o Aggressive Growth Portfolio
Aetna Small Company VP o Balanced Portfolio
Aetna Value Opportunity VP o Flexible Income Portfolio
AIM V.I. Funds: o Growth Portfolio
o Capital Appreciation Fund o Worldwide Growth Portfolio
o Growth and Income Fund Lexington Emerging Markets Fund
o Growth Fund Lexington Natural Resources Trust Fund
o Value Fund MFS Funds:
Alger American Funds: o Total Return Series
o Balanced Portfolio o Worldwide Government Series
o Income & Growth Portfolio Oppenheimer Funds:
o Leveraged AllCap Portfolio o Aggressive Growth Fund
American Century Investments: o Global Securities Fund
o Balanced Fund o Growth & Income Fund
o International Fund o Strategic Bond Fund
Calvert Social Balanced Portfolio Portfolio Partners, Inc. (PPI):
Fidelity Investments Variable Insurance o PPI MFS Emerging Equities Portfolio
Products Fund: o PPI MFS Research Growth Portfolio
o Equity-Income Portfolio o PPI MFS Value Equity Portfolio
o Growth Portfolio o PPI Scudder International Growth Portfolio
o High Income Portfolio o PPI T. Rowe Price Growth Equity Portfolio
o Overseas Portfolio
</TABLE>
S-16
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
determined by specific identification.
c. Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971 Individual
Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity
Mortality tables using various assumed interest rates not to exceed seven
percent. Mortality experience is monitored by the Company. Charges to annuity
reserves for mortality experience are reimbursed to the Company if the
reserves required are less than originally estimated. If additional reserves
are required, the Company reimburses the Account.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to the
Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of each Fund's undistributed net investment income
(distributions in excess of net investment income) and accumulated net
realized gain (loss) on investments is included in net unrealized gain (loss)
in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1998 and December 31,
1997 aggregated $2,351,952,353 and $1,555,519,398; $1,874,026,188 and
$1,004,789,371, respectively.
S-17
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP: (1) $1,192,999 ($314,522) $6,202,187 $5,330,213 $871,974
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP: (2) 31,081,246 (2,098,681) 22,863,897 18,450,097 4,413,800
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP: (3) 5,276,463 (891,202) 45,551,245 43,538,269 2,012,976
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP: (4) 1,150,096 (357,408) 3,956,923 3,518,415 438,508
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series B: 5,018,284 (317,102) 5,046,075 3,579,372 1,466,703
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series C: 1,099,683 (125,657) 4,593,631 3,264,351 1,329,280
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Get Fund, Series D: 375,948 (91,506) 9,290 9,230 60
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5) 194,648,930 (11,627,716) 149,305,243 120,221,169 29,084,074
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP: (6) 57,222 (185,058) 12,683,460 13,031,327 (347,867)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna High Yield VP: (7) 22,406 (865) 33,710 33,668 42
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (8) 3,829,668 (635,743) 17,517,599 14,396,635 3,120,964
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Mid Cap VP: (9) 18,437 (1,287) 73,979 81,147 (7,168)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Small Cap VP: (10) 38,562 (2,372) 124,787 157,822 (33,035)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna International VP: (11) 78,439 (5,821) 5,370,639 5,420,699 (50,060)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP: (12) 1,516,017 (403,303) 5,625,929 5,116,001 509,928
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP: (13) 6,326,910 (1,717,493) 386,526,442 385,568,048 958,394
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (14) 49,524 (4,403) 197,598 223,098 (25,500)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP: (15) 162,321 (180,527) 17,373,472 19,128,504 (1,755,032)
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (16) 205,253 (172,485) 6,514,348 6,609,710 (95,362)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,034,430 ($204,552) ($1,238,982) $3,942,985
$ 20,443,736 $ 24,898,190
- -----------------------------------------------------------------------------------------------------------------
21,131,758 13,657,518 (7,474,240) 6,148,805
150,761,384 176,154,146
12,080,737 18,758,905
- -----------------------------------------------------------------------------------------------------------------
781,718 (271,440) (1,053,158) 12,050,394
69,236,488 85,100,187
3,681,984 5,213,758
- -----------------------------------------------------------------------------------------------------------------
704,161 455,992 (248,169) 8,303,550
20,250,904 28,289,880
69,721 1,317,322
- -----------------------------------------------------------------------------------------------------------------
6,194,743 3,285,620 (2,909,123) (4,718,918)
20,859,924 19,399,768
- -----------------------------------------------------------------------------------------------------------------
2,144,550 2,432,614 288,064 (4,244,458)
10,929,107 9,276,019
- -----------------------------------------------------------------------------------------------------------------
0 (64,824) (64,824) 89,687,448
0 89,907,126
- -----------------------------------------------------------------------------------------------------------------
67,675,837 (14,386,593) (82,062,430) (42,142,027)
892,006,381 955,586,320
130,876,769 155,197,661
- -----------------------------------------------------------------------------------------------------------------
(945,071) 4,054,739 4,999,810 21,924,027
3,210,344 28,467,187
8,566 1,199,857
- -----------------------------------------------------------------------------------------------------------------
0 (38,627) (38,627) 247,430
0 230,386
- -----------------------------------------------------------------------------------------------------------------
1,342,384 9,544,413 8,202,029 44,321,436
28,074,705 85,248,495
165,083 1,829,647
- -----------------------------------------------------------------------------------------------------------------
0 25,068 25,068 340,695
0 375,745
- -----------------------------------------------------------------------------------------------------------------
0 8,264 8,264 958,381
0 969,800
- -----------------------------------------------------------------------------------------------------------------
0 (4,447) (4,447) 1,512,822
0 1,528,847
0 2,086
- -----------------------------------------------------------------------------------------------------------------
556,022 230,393 (325,629) 13,863,127
18,710,015 32,331,905
1,284,593 2,822,843
- -----------------------------------------------------------------------------------------------------------------
1,429,868 1,434,703 4,835 19,490,597
124,939,137 149,772,871
0 229,509
- -----------------------------------------------------------------------------------------------------------------
0 (78,505) (78,505) 1,040,421
0 965,259
0 16,278
- -----------------------------------------------------------------------------------------------------------------
(299,676) 1,188,423 1,488,099 12,670,750
6,059,783 18,295,242
47,346 197,498
- -----------------------------------------------------------------------------------------------------------------
(545,082) 1,733,031 2,278,113 12,561,099
3,912,594 18,689,212
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
S-19
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information of Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AIM V.I. Funds:
Capital Appreciation Fund: $4,806 ($202) $14,985 $12,643 $2,342
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund: 2,713 (267) 23,669 19,935 3,734
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Fund: 9,742 (211) 23,394 19,680 3,714
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Value Fund: 25,024 (535) 56,171 51,027 5,144
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 486,973 (82,216) 1,110,574 897,864 212,710
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Income & Growth Portfolio: 1,467,662 (206,029) 3,272,978 2,151,013 1,121,965
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 631,832 (203,365) 4,222,156 3,043,959 1,178,197
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 593,854 (65,789) 611,313 550,274 61,039
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
International Fund: 390,912 (86,065) 1,137,750 894,619 243,131
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 142,097 (14,682) 869,863 750,607 119,256
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 8,906,937 (2,144,267) 25,370,915 20,727,569 4,643,346
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 11,278,163 (1,400,091) 22,592,809 17,208,859 5,383,950
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 4,692,207 (673,883) 14,109,054 14,587,749 (478,695)
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 1,031,834 (210,954) 48,431,460 47,643,577 787,883
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 1,595,388 (233,627) 3,024,858 2,760,267 264,591
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 6,614,609 (1,728,721) 42,738,053 30,874,729 11,863,324
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 3,204,277 (1,496,826) 30,685,587 22,118,189 8,567,398
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 342,576 (87,927) 1,725,694 1,635,019 90,675
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0 $19,720 $19,720 $272,126
$0 $298,792
- -------------------------------------------------------------------------------------------------------------
0 17,765 17,765 197,613
0 221,558
- -------------------------------------------------------------------------------------------------------------
0 12,342 12,342 271,273
0 296,860
- -------------------------------------------------------------------------------------------------------------
0 22,553 22,553 651,784
0 703,970
- -------------------------------------------------------------------------------------------------------------
691,602 1,582,996 891,394 (979,394)
5,656,151 6,185,618
- -------------------------------------------------------------------------------------------------------------
2,709,055 4,215,812 1,506,757 (2,575,078)
14,148,460 15,463,737
- -------------------------------------------------------------------------------------------------------------
1,540,243 6,533,437 4,993,194 (3,907,972)
14,280,009 16,971,895
- -------------------------------------------------------------------------------------------------------------
462,379 487,853 25,474 (525,510)
4,643,230 4,732,298
- -------------------------------------------------------------------------------------------------------------
361,821 743,148 381,327 (991,033)
5,852,955 5,791,227
- -------------------------------------------------------------------------------------------------------------
59,286 14,930 (44,356) 784,430
971,337 1,958,082
- -------------------------------------------------------------------------------------------------------------
19,807,673 22,859,546 3,051,873 22,941,092
138,709,740 176,108,721
- -------------------------------------------------------------------------------------------------------------
14,584,513 33,940,400 19,355,887 23,497,310
80,401,549 138,516,768
- -------------------------------------------------------------------------------------------------------------
2,722,687 (4,425,686) (7,148,373) 18,153,824
35,217,837 49,328,098
68,542 503,361
- -------------------------------------------------------------------------------------------------------------
460,930 669,980 209,050 3,064,387
13,004,643 17,886,843
- -------------------------------------------------------------------------------------------------------------
1,137,702 1,633,427 495,725 6,549,586
11,743,075 20,414,738
- -------------------------------------------------------------------------------------------------------------
18,201,832 35,201,475 16,999,643 21,398,116
107,827,442 162,974,413
- -------------------------------------------------------------------------------------------------------------
10,882,841 25,538,020 14,655,179 39,819,038
76,986,772 141,735,838
- -------------------------------------------------------------------------------------------------------------
387,160 478,048 90,888 (1,318,753)
6,578,182 5,695,641
- -------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $7,998,351 ($1,792,801) $11,978,535 $7,178,957 $4,799,578
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 129,452 (351,981) 2,362,630 1,928,603 434,027
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 1,440,579 (346,704) 2,791,762 2,071,376 720,386
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 1,568,969 (734,892) 9,316,278 8,463,432 852,846
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 19,289 (235,997) 1,956,908 1,482,907 474,001
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 373,803 (110,555) 7,641,997 7,641,997 0
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 228,386 (196,668) 3,851,945 3,576,274 275,671
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 1,743,305 (392,083) 2,677,845 1,942,231 735,614
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (548,576) 107,425,514 96,362,874 11,062,640
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 2,261,301 (641,284) 6,017,873 4,527,218 1,490,655
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 1,033,461 (191,305) 3,727,543 3,410,925 316,618
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 3,293,173 (683,049) 26,018,237 18,985,226 7,033,011
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 8,111,689 (2,748,458) 78,479,604 56,933,615 21,545,989
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 161,811 (28,458) 724,351 1,074,950 (350,599)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 340,539 (62,444) 2,112,416 2,109,389 3,027
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series: 778,001 (405,501) 3,009,737 2,396,400 613,337
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 17,379 (22,917) 739,420 740,555 (1,135)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund: 152,035 (112,671) 86,439,393 86,664,887 (225,494)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 387,530 (69,872) 10,919,054 11,293,037 (373,983)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 1,054,695 (356,726) 4,266,733 4,140,441 126,292
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$30,111,589 $37,231,660 $7,120,071 ($524,859)
$16,800,911 $134,398,144
48,751 51,858
- -------------------------------------------------------------------------------------------------------------
911,406 3,973,133 3,061,727 5,452,240
19,938,571 28,656,460
0 7,576
- -------------------------------------------------------------------------------------------------------------
3,558,451 5,244,563 1,686,112 1,241,036
22,709,106 27,450,515
- -------------------------------------------------------------------------------------------------------------
3,763,082 2,714,767 (1,048,315) (3,963,730)
53,212,853 49,887,731
- -------------------------------------------------------------------------------------------------------------
938,501 3,819,534 2,881,033 437,110
13,946,028 17,521,464
- -------------------------------------------------------------------------------------------------------------
0 2,223 2,223 271,362
7,530,487 8,067,320
- -------------------------------------------------------------------------------------------------------------
513,199 1,013,377 500,178 2,050,473
13,196,784 16,054,824
- -------------------------------------------------------------------------------------------------------------
5,801,015 7,053,257 1,252,242 695,668
26,302,858 30,329,937
0 7,667
- -------------------------------------------------------------------------------------------------------------
4,594,517 8,106,849 3,512,332 4,958,453
38,383,925 57,368,774
- -------------------------------------------------------------------------------------------------------------
3,462,858 15,241,071 11,778,213 26,193,826
31,145,778 72,228,489
- -------------------------------------------------------------------------------------------------------------
367,565 255,193 (112,372) 9,052,449
10,534,588 20,633,439
- -------------------------------------------------------------------------------------------------------------
5,764,208 12,281,148 6,516,940 12,764,560
40,072,928 68,058,273
645,899 1,585,189
- -------------------------------------------------------------------------------------------------------------
18,210,266 37,241,442 19,031,176 39,032,925
160,658,096 243,902,115
1,995,445 3,724,747
- -------------------------------------------------------------------------------------------------------------
(709,548) (1,196,659) (487,111) (619,636)
2,833,416 1,509,423
------------------------------------------------------------------------------------------------------------
177,872 (1,266,269) (1,444,141) (1,812,452)
6,930,364 3,954,893
- -------------------------------------------------------------------------------------------------------------
1,975,149 3,834,735 1,859,586 16,318,427
18,973,878 38,137,728
- -------------------------------------------------------------------------------------------------------------
(5,937) 102,292 108,229 588,288
1,324,295 2,014,138
- -------------------------------------------------------------------------------------------------------------
133,786 1,243,228 1,109,442 7,306,211
3,688,200 11,917,723
- -------------------------------------------------------------------------------------------------------------
(846) 786,005 786,851 4,241,638
2,680,937 7,653,101
- -------------------------------------------------------------------------------------------------------------
465,927 (435,824) (901,751) 22,581,792
12,688,907 35,193,209
- -------------------------------------------------------------------------------------------------------------
</TABLE>
S-23
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Strategic Bond Fund: $150,955 ($113,793) $1,981,154 $2,006,416 ($25,262)
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 321,152 (1,493,640) 87,290,554 78,385,480 8,905,074
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 18,247 (1,021,049) 37,548,653 34,203,994 3,344,659
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 34,159 (276,002) 13,051,497 11,621,475 1,430,022
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 29,626 (167,735) 136,940,032 134,230,073 2,709,959
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio: 576,750 (1,411,791) 16,657,996 15,110,779 1,547,217
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account B $325,794,651 ($42,285,760) $1,555,519,398 $1,412,108,865 $143,410,533
===================================================================================================================================
</TABLE>
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to
Aetna Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced VP.
(3) - Effective May 1, 1998, Aetna Income Shares' name changed to Aetna Bond VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name changed
to Aetna Crossroads VP.
(5) - Effective May 1, 1998, Aetna Variable Fund's name changed to Aetna Growth
and Income VP.
(6) - Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to
Aetna Growth VP.
(7) - Effective May 1, 1998, Aetna High Yield Portfolio's name changed to Aetna
High Yield VP.
(8) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name changed
to Aetna Index Plus Large Cap VP.
(9) - Effective May 1, 1998, Aetna Index Plus Mid Cap Portfolio's name changed
to Aetna Index Plus Mid Cap VP.
(10) -Effective May 1, 1998, Aetna Index Plus Small Cap Portfolio's name
changed to Aetna Index Plus Small Cap VP.
(11) -Effective May 1, 1998, Aetna International Portfolio's name changed to
Aetna International VP.
(12) -Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(13) -Effective May 1, 1998, Aetna Variable Encore Fund's name changed to Aetna
Money Market VP.
(14) -Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name
changed to Aetna Real Estate Securities VP.
(15) -Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(16) -Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-24
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in in Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($21,173) $47,663 $68,836 $9,925,163
$3,092,701 $12,897,019
0 201,581
- ----------------------------------------------------------------------------------------------------------------
(753,832) 19,423,983 20,177,815 8,869,734
94,796,247 131,150,274
496,447 922,555
- ----------------------------------------------------------------------------------------------------------------
(1,162,926) 11,016,482 12,179,408 8,222,292
65,867,130 88,610,687
- ----------------------------------------------------------------------------------------------------------------
220,662 3,770,053 3,549,391 7,801,278
15,049,606 27,062,849
378,075 903,680
- ----------------------------------------------------------------------------------------------------------------
195,427 863,502 668,075 1,706,168
12,650,163 17,577,310
0 18,946
- ----------------------------------------------------------------------------------------------------------------
1,797,922 24,891,619 23,093,697 4,872,245
90,170,258 118,791,854
0 56,523
- ----------------------------------------------------------------------------------------------------------------
$255,524,506 $349,806,583 $94,282,077 $512,924,064 $2,922,442,857 $3,956,568,422
================================================================================================================
</TABLE>
S-25
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $206,171,606 ($9,508,053) $64,103,032 $51,274,099 $12,828,933
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 4,333,850 (737,718) 12,717,950 11,951,670 766,280
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 4,149,350 (1,373,114) 187,177,845 187,281,193 (103,348)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 20,983,218 (1,660,805) 12,262,658 9,696,803 2,565,855
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 3,422,687 (286,592) 1,109,194 713,521 395,673
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 169,021 (119,214) 963,591 833,090 130,501
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,293,085 (171,542) 2,422,808 2,093,544 329,264
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 1,366,067 (170,121) 1,119,794 921,119 198,675
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 1,122,530 (176,596) 1,280,095 1,125,823 154,272
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Aetna Variable Portfolio, Inc.:
Capital Appreciation Portfolio: 621,617 (11,486) 125,792 110,176 15,616
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 848,691 (9,678) 592,546 560,620 31,926
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Index Plus Portfolio: 1,110,445 (154,416) 2,229,246 1,790,247 438,999
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Small Company Portfolio: 366,132 (19,387) 261,692 230,152 31,540
Annuity contracts in accumulation
Annuity contracts in payment period
- ------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio: 142,299 (73,798) 1,098,365 1,473,706 (375,341)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets -----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$59,979,314 $67,675,837 $7,696,523 $71,233,894
$644,728,031 $892,006,381
89,732,216 130,876,769
- --------------------------------------------------------------------------------------------------------------
379,633 781,718 402,085 (1,964,060)
66,534,546 69,236,488
3,583,489 3,681,984
- --------------------------------------------------------------------------------------------------------------
(540,607) 1,429,868 1,970,475 13,513,776
106,781,998 124,939,137
- --------------------------------------------------------------------------------------------------------------
15,114,435 21,131,758 6,017,323 7,591,834
119,402,212 150,761,384
7,942,484 12,080,737
- --------------------------------------------------------------------------------------------------------------
4,487,610 6,194,743 1,707,133 (712,316)
16,333,339 20,859,924
- --------------------------------------------------------------------------------------------------------------
144,834 2,144,550 1,999,716 (532,193)
9,281,276 10,929,107
- --------------------------------------------------------------------------------------------------------------
276,453 1,034,430 757,977 12,596,284
5,638,668 20,443,736
- --------------------------------------------------------------------------------------------------------------
151,493 704,161 552,668 13,077,636
5,295,700 20,250,904
0 69,721
- --------------------------------------------------------------------------------------------------------------
46,576 556,022 509,446 12,197,969
6,186,987 18,710,015
0 1,284,593
- --------------------------------------------------------------------------------------------------------------
0 (545,082) (545,082) 3,831,929
0 3,912,594
- --------------------------------------------------------------------------------------------------------------
0 (945,071) (945,071) 3,293,042
0 3,210,344
0 8,566
- --------------------------------------------------------------------------------------------------------------
(4,046) 1,342,384 1,346,430 23,512,958
1,985,372 28,074,705
0 165,083
- --------------------------------------------------------------------------------------------------------------
0 (299,676) (299,676) 6,028,520
0 6,059,783
0 47,346
- --------------------------------------------------------------------------------------------------------------
(461,380) 691,602 1,152,982 1,032,718
3,777,291 5,656,151
- --------------------------------------------------------------------------------------------------------------
</TABLE>
S-27
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Funds (continued):
Growth Portfolio: (1) $506,477 ($685,927) $ 78,591,434 $ 64,519,617 $ 14,071,817
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio: 401,543 (156,768) 2,602,037 3,401,714 (799,677)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio: 0 (196,601) 7,570,244 6,461,486 1,108,758
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
MidCap Growth Portfolio: (1) 350,028 (308,858) 49,795,194 45,404,313 4,390,881
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: (2) 2,260,717 (722,118) 118,175,863 114,437,088 3,738,775
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
American Century Investments:
Balanced Fund: 199,265 (58,943) 704,536 619,119 85,417
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund: (3) 725,963 (365,809) 47,909,593 51,060,683 (3,151,090)
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
International Fund: 176,899 (85,324) 4,226,767 3,417,937 808,830
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio: 67,562 (7,128) 212,241 199,799 12,442
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 7,870,976 (1,400,361) 17,887,517 15,251,625 2,635,892
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,159,319 (938,752) 10,659,015 9,711,716 947,299
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio: 1,270,071 (337,944) 4,857,948 4,277,783 580,165
Annuity contracts in accumulation
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 863,493 (164,196) 5,725,552 5,116,905 608,647
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 761,827 (120,783) 1,009,159 904,890 104,269
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 1,931,363 (1,125,088) 13,933,668 10,543,199 3,390,469
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 1,159,193 (771,581) 17,678,295 13,392,232 4,286,063
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio: 277,920 (79,205) 1,100,211 1,085,995 14,216
Annuity contracts in accumulation
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2,349,936 $0 ($2,349,936) ($55,087,434)
$43,545,003 $0
- ------------------------------------------------------------------------------------------------------------
(828,912) 2,709,055 3,537,967 4,693,808
6,471,587 14,148,460
- ------------------------------------------------------------------------------------------------------------
220,810 1,540,243 1,319,433 628,691
11,419,728 14,280,009
- ------------------------------------------------------------------------------------------------------------
682,424 0 (682,424) (23,592,354)
19,842,727 0
- ------------------------------------------------------------------------------------------------------------
(495,260) 0 495,260 (64,524,063)
58,751,429 0
- ------------------------------------------------------------------------------------------------------------
145,325 462,379 317,054 1,109,081
2,991,356 4,643,230
- ------------------------------------------------------------------------------------------------------------
(1,588,390) 0 1,588,390 (43,166,616)
44,369,162 0
- ------------------------------------------------------------------------------------------------------------
375,835 361,821 (14,014) 259,970
4,706,594 5,852,955
- ------------------------------------------------------------------------------------------------------------
(881) 59,286 60,167 241,657
596,637 971,337
- ------------------------------------------------------------------------------------------------------------
5,773,475 19,807,673 14,034,198 43,088,538
72,480,497 138,709,740
- ------------------------------------------------------------------------------------------------------------
3,258,300 14,584,513 11,326,213 8,978,986
57,928,484 80,401,549
- ------------------------------------------------------------------------------------------------------------
814,429 2,722,687 1,908,258 17,156,365
14,709,464 35,217,837
0 68,542
- ------------------------------------------------------------------------------------------------------------
743,689 460,930 (282,759) 2,276,187
9,703,271 13,004,643
- ------------------------------------------------------------------------------------------------------------
484,182 1,137,702 653,520 4,412,778
5,931,464 11,743,075
- ------------------------------------------------------------------------------------------------------------
6,210,754 18,201,832 11,991,078 35,101,002
56,538,618 107,827,442
- ------------------------------------------------------------------------------------------------------------
2,241,040 10,882,841 8,641,801 36,290,926
27,380,370 76,986,772
- ------------------------------------------------------------------------------------------------------------
175,829 387,160 211,331 1,392,243
4,761,677 6,578,182
- ------------------------------------------------------------------------------------------------------------
</TABLE>
S-29
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance Management Series:
American Leaders Fund II: $2,033,587 ($1,272,645) $2,239,581 $1,354,167 $885,414
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II: 52,763 (108,244) 188,614 167,057 21,557
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II: 63,162 (214,573) 650,403 461,919 188,484
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II: 2,232,254 (576,880) 5,856,816 5,388,542 468,274
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
International Equity Fund II: 8,680 (138,835) 787,960 678,156 109,804
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II: 365,689 (107,783) 7,931,948 7,931,971 (23)
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II: 366,225 (147,271) 3,825,499 3,747,648 77,851
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Utility Fund II: 838,523 (291,277) 1,512,321 1,157,193 355,128
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio: 0 (419,040) 19,586,639 19,136,007 450,632
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 786,909 (294,871) 2,053,281 1,687,149 366,132
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 528,359 (93,943) 1,111,581 1,079,357 32,224
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 967,832 (429,682) 2,254,366 1,752,378 501,988
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (4) 62,602 (36,643) 13,023,397 12,927,175 96,222
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 2,077,847 (1,645,928) 21,615,276 15,329,845 6,285,431
Annuity contracts in accumulation
Annuity contracts in payment period
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 2,717 (53,043) 4,235,697 4,177,632 58,065
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 209,099 (85,086) 3,246,699 2,653,024 593,675
Annuity contracts in accumulation
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-30
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8,810,467 $30,111,589 $21,301,122 $ 32,775,129
$61,127,055 $116,800,911
0 48,751
- -----------------------------------------------------------------------------------------------------------
0 911,406 911,406 19,061,089
0 19,938,571
- -----------------------------------------------------------------------------------------------------------
733,393 3,558,451 2,825,058 12,664,797
7,182,178 22,709,106
- -----------------------------------------------------------------------------------------------------------
1,022,582 3,763,082 2,740,500 21,197,568
27,151,137 53,212,853
- -----------------------------------------------------------------------------------------------------------
307,602 938,501 630,899 7,399,890
5,935,590 13,946,028
- -----------------------------------------------------------------------------------------------------------
0 0 0 (471,714)
7,744,318 7,530,487
- -----------------------------------------------------------------------------------------------------------
73,398 513,199 439,801 4,803,969
7,656,209 13,196,784
- -----------------------------------------------------------------------------------------------------------
1,730,892 5,801,015 4,070,123 4,555,867
16,774,494 26,302,858
- -----------------------------------------------------------------------------------------------------------
534,823 4,594,517 4,059,694 2,750,579
31,542,060 38,383,925
- -----------------------------------------------------------------------------------------------------------
373,883 3,462,858 3,088,975 15,424,389
11,774,244 31,145,778
- -----------------------------------------------------------------------------------------------------------
73,395 367,565 294,170 4,626,561
5,147,217 10,534,588
- -----------------------------------------------------------------------------------------------------------
1,093,423 5,764,208 4,670,785 14,123,750
20,884,154 40,072,928
0 645,899
- -----------------------------------------------------------------------------------------------------------
(27,376) 0 27,376 (2,070,168)
1,920,611 0
- -----------------------------------------------------------------------------------------------------------
5,151,123 18,210,266 13,059,143 76,404,357
66,472,691 160,658,096
0 1,995,445
- -----------------------------------------------------------------------------------------------------------
(66,591) (709,548) (642,957) 952,674
2,515,960 2,833,416
- -----------------------------------------------------------------------------------------------------------
538,139 177,872 (360,267) 1,821,159
4,751,784 6,930,364
- -----------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MFS Funds:
Emerging Growth Series: (2) $0 ($232,144) $37,594,997 $34,076,137 $3,518,860
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Research Series: (3) 0 (273,185) 37,686,630 34,109,865 3,576,765
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Total Return Series: 0 (154,993) 689,861 564,440 125,421
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Value Series: (5) 0 (19,996) 4,332,717 3,942,044 390,673
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Worldwide Government Series: 15,502 (12,983) 124,845 123,607 1,238
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers Management Trust -
Growth Portfolio: (5) 741,183 (92,357) 17,383,777 16,347,694 1,036,083
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Capital Appreciation Fund: 0 (13,374) 8,964,190 9,092,515 (128,325)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Global Securities Fund: 0 (12,451) 850,938 802,777 48,161
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Growth & Income Fund: 37,178 (35,759) 188,084 164,087 23,997
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund: 84,234 (10,842) 122,739 121,006 1,733
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. PPI:
PPI MFS Emerging Equities Portfolio: 0 (120,211) 43,880,815 44,111,392 (230,577)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio: 0 (82,490) 37,923,531 37,983,794 (60,263)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio: 0 (16,913) 4,632,658 4,633,034 (376)
Annuity contracts in accumulation
Annuity contracts in payment period
- -------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio: 0 (12,760) 259,410 255,379 4,031
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Portfolio: 0 (115,952) 33,484,569 33,491,822 (7,253)
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: (6) 275,557 (123,791) 16,445,650 14,417,831 2,027,819
Annuity contracts in accumulation
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ------------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($85,796) $0 $85,796 ($12,370,520)
$8,998,008 $0
- ----------------------------------------------------------------------------------------------------------
204,764 0 (204,764) (9,875,328)
6,776,512 0
- ----------------------------------------------------------------------------------------------------------
72,010 1,975,149 1,903,139 12,883,941
4,216,370 18,973,878
- ----------------------------------------------------------------------------------------------------------
935 0 (935) (578,583)
208,841 0
- ----------------------------------------------------------------------------------------------------------
9,304 (5,937) (15,241) 927,866
407,913 1,324,295
- ----------------------------------------------------------------------------------------------------------
(6,666) 0 6,666 (9,934,149)
8,242,574 0
- ----------------------------------------------------------------------------------------------------------
0 133,786 133,786 3,696,113
0 3,688,200
- ----------------------------------------------------------------------------------------------------------
0 (846) (846) 2,646,073
0 2,680,937
- ----------------------------------------------------------------------------------------------------------
0 465,927 465,927 12,197,564
0 12,688,907
- ----------------------------------------------------------------------------------------------------------
0 (21,173) (21,173) 3,038,749
0 3,092,701
- ----------------------------------------------------------------------------------------------------------
0 (753,832) (753,832) 96,397,314
0 94,796,247
0 496,447
- ----------------------------------------------------------------------------------------------------------
0 (1,162,926) (1,162,926) 67,172,809
0 65,867,130
- ----------------------------------------------------------------------------------------------------------
0 220,662 220,662 15,224,308
0 15,049,606
0 378,075
- ----------------------------------------------------------------------------------------------------------
0 195,427 195,427 12,463,465
0 12,650,163
- ----------------------------------------------------------------------------------------------------------
0 1,797,922 1,797,922 88,495,541
0 90,170,258
- ----------------------------------------------------------------------------------------------------------
1,510,449 0 (1,510,449) (12,719,263)
12,050,127 0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
S-33
<PAGE>
Variable Annuity Account B
Notes to Financial Statements - December 31, 1998 (continued):
5. Supplemental Information to Statements of Operations and Changes in Net
Assets (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Variable Annuity Account B $278,833,116 ($29,243,851) $1,004,789,371 $933,728,508 $71,060,863
=========================================================================================================================
</TABLE>
(1) - Effective November 28, 1997, this funds assets were transferred to the PPI
T. Rowe Price Growth Equity Portfolio.
(2) - Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Emerging Equities Portfolio.
(3) - Effective November 28, 1997, this funds assets were transferred to PPI MFS
Research Growth Fund.
(4) - Effective November 28, 1997, this funds assets were transferred to the
Aetna Variable Encore Fund.
(5) - Effective November 28, 1997, this funds assets were transferred to the PPI
MFS Value Equity Portfolio.
(6) - Effective November 28, 1997, this funds assets were transferred to the PPI
Scudder International Growth Portfolio.
S-34
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Net Unrealized Net
Gain (Loss) Net Increase (Decrease) Net Assets
----------- Change in In Net Assets ----------
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$122,191,053 $255,524,506 $133,333,453 $619,647,552 $1,848,811,724 $2,922,442,857
====================================================================================================================
</TABLE>
S-35
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account B:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998. These financial
statements and condensed financial information are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and condensed financial information. Our procedures
included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Life Insurance and Annuity Company Variable Annuity Account B
as of December 31, 1998, the results of its operations and changes in its net
assets for each of the years in the two-year period then ended and condensed
financial information for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/KPMG LLP
Hartford, Connecticut
February 26, 1999
S-36
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996 F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholder's Equity For the Years
Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiary as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiary at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 3, 1999
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Premiums $ 79.4 $ 69.1 $ 84.9
Charges assessed against policyholders 324.3 262.0 197.0
Net investment income 877.6 878.8 852.6
Net realized capital gains 10.4 29.7 17.0
Other income 29.6 38.3 43.6
---------- ---------- ----------
Total revenue 1,321.3 1,277.9 1,195.1
---------- ---------- ----------
Benefits and expenses:
Current and future benefits 714.4 720.4 728.3
Operating expenses 313.2 286.5 275.8
Amortization of deferred policy acquisition costs 106.7 82.8 28.0
Severance and facilities charges -- -- 47.1
---------- ---------- ----------
Total benefits and expenses 1,134.3 1,089.7 1,079.2
---------- ---------- ----------
Income from continuing operations before
income taxes 187.0 188.2 115.9
Income taxes 47.4 50.7 30.7
---------- ---------- ----------
Income from continuing operations 139.6 137.5 85.2
Discontinued Operations, net of tax
Income from operations 61.8 67.8 55.9
Gain on sale 59.0 -- --
---------- ---------- ----------
Net income $ 260.4 $ 205.3 $ 141.1
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Investments:
Debt securities available for sale, at fair value,
(amortized cost: $11,570.3 and $12,912.2) $12,067.2 $13,463.8
Equity securities, at fair value,
Nonredeemable preferred stock (cost: $202.6 and $131.7) 203.3 147.6
Investment in affiliated mutual funds (cost: $96.8 and$78.1) 100.1 83.0
Common stock (cost: $1.0 and $0.2) 2.0 .6
Short-term investments 47.9 95.6
Mortgage loans 12.7 12.8
Policy loans 292.2 469.6
------------ ------------
Total investments 12,725.4 14,273.0
Cash and cash equivalents 608.4 565.4
Short-term investments under securities loan agreement 277.3 --
Accrued investment income 151.6 163.0
Premiums due and other receivables 46.7 51.9
Reinsurance recoverable 2,959.8 11.8
Deferred policy acquisition costs 864.0 1,654.6
Reinsurance loan to affiliate -- 397.2
Deferred tax asset 120.6 --
Other assets 66.6 46.8
Separate accounts assets 29,458.4 22,982.7
------------ ------------
Total assets $47,278.8 $40,146.4
============ ============
Liabilities and Shareholder's Equity
Liabilities:
Future policy benefits $ 3,815.9 $ 3,763.7
Unpaid claims and claim expenses 18.8 38.0
Policyholders' funds left with the Company 11,305.6 11,143.5
------------ ------------
Total insurance reserve liabilities 15,140.3 14,945.2
Payables under securities loan agreement 277.3 --
Other liabilities 793.2 312.8
Income taxes:
Current 279.8 12.4
Deferred -- 72.0
Separate accounts liabilities 29,430.2 22,970.0
------------ ------------
Total liabilities 45,920.8 38,312.4
------------ ------------
Shareholder's equity:
Common stock, par value $50 (100,000 shares authorized;
55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 427.3 418.0
Accumulated other comprehensive income 104.8 92.9
Retained earnings 823.1 1,320.3
------------ ------------
Total shareholder's equity 1,358.0 1,834.0
------------ ------------
Total liabilities and shareholder's equity $47,278.8 $40,146.4
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,834.0 $1,609.5 $1,583.0
Comprehensive income
Net income 260.4 205.3 141.1
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
($18.2 million, $49.9 million and
$(110.6) million, pretax, respectively) 11.9 32.4 (72.0)
---------- ---------- ----------
Total comprehensive income 272.3 237.7 69.1
---------- ---------- ----------
Capital contributions 9.3 -- 10.4
Other changes 1.4 4.1 (49.5)
Common stock dividends (759.0) (17.3) (3.5)
---------- ---------- ----------
Shareholder's equity, end of year $1,358.0 $1,834.0 $1,609.5
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARY
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 260.4 $ 205.3 $ 141.1
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net accretion of discount on investments (29.5) (66.4) (68.0)
Gain on sale of discontinued operations (88.3) -- --
--------- --------- ---------
Cash flows provided by operating activities and net realized capital
gains before changes in assets and liabilities 142.6 138.9 73.1
Net realized capital gains (11.1) (36.0) (19.7)
--------- --------- ---------
Cash flows provided by operating activities before changes in assets
and liabilities 131.5 102.9 53.4
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 11.4 (4.0) 16.5
(Increase) decrease in premiums due and other receivables (16.3) (33.3) 1.6
Decrease (increase) in policy loans 177.4 (70.3) (60.7)
Increase in deferred policy acquisition costs (117.3) (139.3) (174.0)
Decrease in reinsurance loan to affiliate 397.2 231.1 27.2
Net increase in universal life account balances 122.9 157.1 146.6
Decrease in other insurance reserve liabilities (41.8) (120.3) (114.9)
Net (decrease) increase in other liabilities and other assets (50.8) (41.7) 3.1
Increase (decrease) in income taxes 100.4 (31.4) (26.7)
Other, net -- -- 1.1
--------- --------- ---------
Net cash provided by (used for) operating activities 714.6 50.8 (126.8)
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 6,790.2 5,311.3 5,182.2
Equity securities 150.1 103.1 190.5
Mortgage loans 0.3 0.2 8.7
Life business 966.5 -- --
Investment maturities and collections of:
Debt securities available for sale 1,290.3 1,212.7 885.2
Short-term investments 129.9 89.3 35.0
Cost of investment purchases in:
Debt securities available for sale (6,701.4) (6,732.8) (6,534.3)
Equity securities (125.7) (113.3) (118.1)
Other investments (2,725.9) -- --
Short-term investments (81.9) (149.9) (54.7)
Other, net -- -- (17.6)
--------- --------- ---------
Net cash used for investing activities (307.6) (279.4) (423.1)
--------- --------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,571.1 1,621.2 1,579.5
Withdrawals of investment contracts (1,393.1) (1,256.3) (1,146.2)
Capital contribution to Separate Account -- (25.0) --
Return of capital from Separate Account 1.7 12.3 --
Capital contribution from HOLDCO 9.3 -- 10.4
Dividends paid to shareholder (553.0) (17.3) (3.5)
--------- --------- ---------
Net cash (used for) provided by financing activities (364.0) 334.9 440.2
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 43.0 106.3 (109.7)
Cash and cash equivalents, beginning of year 565.4 459.1 568.8
--------- --------- ---------
Cash and cash equivalents, end of year $ 608.4 $ 565.4 $ 459.1
========= ========= =========
Supplemental cash flow information:
Income taxes paid, net $ 48.4 $ 119.6 $ 85.5
========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Aetna Life Insurance and Annuity Company and its wholly owned subsidiary
(collectively, the "Company") are providers of financial services in the
United States. Prior to the sale of the domestic individual life insurance
business on October 1, 1998, the Company had two business segments: financial
services and individual life insurance. On October 1, 1998, the Company sold
its domestic individual life insurance operations to Lincoln National
Corporation ("Lincoln") and accordingly they are now classified as
Discontinued Operations. (Refer to note 2)
Financial services products include annuity contracts that offer a variety of
funding and payout options for individual and employer-sponsored retirement
plans qualified under Internal Revenue Code Sections 401, 403, 408 and 457,
and non-qualified annuity contracts. These contracts may be deferred or
immediate ("payout annuities"). Financial services also include investment
advisory services and pension plan administrative services.
Discontinued Operations include universal life, variable universal life,
traditional whole life and term insurance.
Basis of Presentation
---------------------
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiary, Aetna Insurance Company of
America. Aetna Life Insurance and Annuity Company is a wholly owned
subsidiary of Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly
owned subsidiary of Aetna Retirement Services, Inc. ("ARS"), whose ultimate
parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have been
made to 1997 and 1996 financial information to conform to the 1998
presentation.
New Accounting Standards
------------------------
Disclosures about Segments of an Enterprise and Related Information
As of December 31, 1998, the Company adopted Financial Accounting Standard
("FAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the reporting of
information relating to operating segments. This statement supersedes FAS No.
14, Financial Reporting for Segments of a Business Enterprise, which requires
reporting segment information by industry and geographic area (industry
approach). Under FAS No. 131, operating segments are defined as components of
a company for which separate financial information is available and is used
by management to allocate resources and assess performance (management
approach). The adoption of this statement did not change the composition or
the results of operations of any of the operating segments of the Company,
which are consistent with the management approach.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting for the Costs of Computer Software Developed and Obtained for
Internal Use
On January 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, issued by the American Institute of Certified Public
Accountants ("AICPA"). This statement requires that certain costs incurred in
developing internal use computer software (in process at, and subsequent to
the adoption date) be capitalized, and provides guidance for determining
whether computer software is considered to be for internal use. The Company
amortizes these costs over a period of 3 to 5 years. Previously, the Company
expensed the cost of internal-use computer software as incurred. The adoption
of this statement resulted in a net after-tax increase to the results of
operations of $6.5 million for the year ended December 31, 1998.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board ("FASB") issued FAS
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, that provides accounting and reporting
standards for transfers of financial assets and extinguishments of
liabilities. FAS No. 125 was effective for 1997 financial statements;
however, certain provisions relating to accounting for repurchase agreements
and securities lending were not effective until January 1, 1998. The adoption
of those provisions effective in 1998 did not have a material effect on the
Company's financial position or results of operations.
Future Application of Accounting Standards
------------------------------------------
Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That
Do Not Transfer Insurance Risk
In October 1998, the AICPA issued SOP 98-7, Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk,
which provides guidance on how to account for all insurance and reinsurance
contracts that do not transfer insurance risk, except for long-duration life
and health insurance contracts. This statement is effective for the Company's
financial statements beginning January 1, 2000, with early adoption
permitted. The Company is currently evaluating the impact of the adoption of
this statement and the potential effect on its financial position and results
of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to
record all derivatives on the balance sheet as either assets or liabilities
and measure those instruments at fair value. The manner in which companies
are to record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. This standard is effective for the Company's financial
statements beginning January 1, 2000, with early adoption permitted. The
Company is currently evaluating the impact of adoption of this statement and
the potential effect on its financial position and results of operations.
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments
In December 1997, the AICPA issued SOP 97-3, Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments, which provides guidance
for determining when an insurance or other enterprise should recognize a
liability for guaranty-fund and other insurance-related assessments and
guidance for measuring the liability. This statement is effective for 1999
financial statements with early adoption permitted. The Company does not
expect adoption of this statement to have a material effect on its financial
position or results of operations.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from reported results using those
estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
-----------
Debt and equity securities are classified as available for sale and carried
at fair value. These securities are written down (as realized capital losses)
for other than temporary declines in value. Unrealized capital gains and
losses related to available-for-sale investments, other than amounts
allocable to experience-rated contractholders, are reflected in shareholder's
equity, net of related taxes.
Fair values for debt and equity securities are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for
similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the estimated
remaining term of the securities, adjusted for anticipated prepayments. The
Company does not accrue interest on problem debt securities when management
believes the collection of interest is unlikely.
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value
of a loaned domestic security and 105% of the market value of a loaned
foreign security. The collateral is deposited by the borrower with a lending
agent, and retained and invested by the lending agent according to the
Company's guidelines to generate additional income. The market value of the
loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value of the loaned securities fluctuates.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
At December 31, 1998 and 1997, the Company loaned securities (which are
reflected as invested assets) with a fair value of approximately $277.3
million and $385.1 million, respectively.
Purchases and sales of debt and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds represents an investment in Aetna
managed mutual funds which have been seeded by the Company, and is carried at
fair value.
Mortgage loans and policy loans are carried at unpaid principal balances, net
of impairment reserves. Sales of mortgage loans are recorded on the closing
date.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of 91 days to one year,
are considered available for sale and are carried at fair value, which
approximates amortized cost.
The Company utilizes futures contracts for other than trading purposes in
order to hedge interest rate risk (i.e. market risk, refer to Note 4.)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts allocable to
experience rated contracts are deducted from capital gains and losses with an
offsetting amount reported in future policy benefits. Changes in the fair
value of futures contracts allocable to non-experienced-rated contracts that
qualify as hedges are deferred and recognized as an adjustment to the hedged
asset or liability. Deferred gains or losses on such futures contracts are
amortized over the life of the acquired asset or liability as a yield
adjustment or through net realized capital gains or losses upon disposal of
an asset. Changes in the fair value of futures contracts that do not qualify
as hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying the
hedge, and that high correlation be maintained throughout the hedge period.
If a hedging instrument ceases to be highly correlated with the position
underlying the hedge, hedge accounting ceases at that date and excess gains
or losses on the hedging instrument are reflected in net realized capital
gains or losses.
Included in common stock are warrants which represent the right to purchase
specific securities. Upon exercise, the cost of the warrants is added to the
basis of the securities purchased.
Deferred Policy Acquisition Costs
---------------------------------
Certain costs of acquiring insurance business are deferred. These costs, all
of which vary with and are primarily related to the production of new and
renewal business, consist principally of commissions, certain expenses of
underwriting and issuing contracts, and certain agency expenses. For fixed
ordinary life contracts (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2), such
costs are amortized over expected premium-paying periods (up to 20 years).
For universal life (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2), and
certain annuity contracts,
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
such costs are amortized in proportion to estimated gross profits and
adjusted to reflect actual gross profits over the life of the contracts (up
to 50 years for universal life and up to 20 years for certain annuity
contracts). Deferred policy acquisition costs are written off to the extent
that it is determined that future policy premiums and investment income or
gross profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
-----------------------------
Future policy benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Prior to the sale of the domestic individual life insurance
business on October 1, 1998, (refer to note 2), reserves for universal life
products were equal to cumulative deposits less withdrawals and charges plus
credited interest thereon, plus (less) net realized capital gains (losses)
(which were reflected through credited interest rates). These reserves also
included unrealized capital gains (losses) related to FAS No. 115. As a
result of the sale and transfer of assets supporting the business, reserves
for universal life products will no longer include net realized capital gains
(losses) and unrealized gains (losses) related to FAS No. 115 for the years
ended December 31, 1998 and beyond.
Reserves for immediate annuities with life contingent payouts and traditional
life insurance contracts are for immediate annuities with life
contingent-payouts and traditional life insurance contracts are computed on
the basis of assumed investment yield, mortality, and expenses, including a
margin for adverse deviations. Such assumptions generally vary by plan, year
of issue and policy duration. Reserve interest rates range from 1.50% to
11.25% for all years presented. Investment yield is based on the Company's
experience. Mortality and withdrawal rate assumptions are based on relevant
Aetna experience and are periodically reviewed against both industry
standards and experience.
Because the sale of the domestic individual life insurance business was
substantially in the form of an indemnity reinsurance agreement, the Company
reported an addition to its reinsurance recoverable approximating the
Company's total individual life reserves at the sale date.
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from
3.00% to 8.10% for all years presented) net of adjustments for investment
experience that the Company is entitled to reflect in future credited
interest. These reserves also include unrealized gains/losses related to FAS
No. 115. Reserves on contracts subject to experience rating reflect the
rights of contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
-----------------------------------------------------------------------
For universal life (prior to the sale of the domestic individual life
insurance business to Lincoln on October 1, 1998, refer to Note 2) and
certain annuity contracts, charges assessed against policyholders' funds for
the cost of insurance, surrender charges, actuarial margin and other fees are
recorded as revenue in charges assessed against policyholders. Other amounts
received for these contracts are reflected as deposits and are not recorded
as revenue. Life insurance premiums, other than premiums for universal life
(prior to the sale of the domestic individual life insurance business to
Lincoln on October 1, 1998, refer to Note 2) and certain annuity contracts,
are recorded as premium revenue when due. Related policy benefits are
recorded in relation to the associated premiums or gross profit so that
profits are recognized over the expected lives of the contracts. When annuity
payments with life contingencies begin under contracts that were initially
investment contracts, the accumulated balance in the account is treated as a
single premium for the purchase of an annuity and reflected as an offsetting
amount in both premiums and current and future benefits in the Consolidated
Statements of Income.
Separate Accounts
-----------------
Assets held under variable universal life and variable annuity contracts are
segregated in Separate Accounts and are invested, as designated by the
contractholder or participant under a contract (who bears the investment risk
subject, in some cases, to minimum guaranteed rates) in shares of mutual
funds which are managed by an affiliate of the Company, or other selected
mutual funds not managed by the Company.
As of December 31, 1998, Separate Accounts assets are carried at fair value.
At December 31, 1998, unrealized gains of $10.0 million, after taxes, on
assets supporting a guaranteed interest option are reflected in shareholder's
equity. At December 31, 1997, Separate Account assets supporting the
guaranteed interest option were carried at an amortized cost of $658.6
million (fair value $668.7 million). Separate Accounts liabilities are
carried at fair value, except for those relating to the guaranteed interest
option. Reserves relating to the guaranteed interest option are maintained at
fund value and reflect interest credited at rates ranging from 3.00% to 8.10%
in 1998 and 4.10% to 8.10% in 1997.
Separate Accounts assets and liabilities are shown as separate captions in
the Consolidated Balance Sheets. Deposits, investment income and net realized
and unrealized capital gains and losses of the Separate Accounts are not
reflected in the Consolidated Financial Statements (with the exception of
realized and unrealized capital gains and losses on the assets supporting the
guaranteed interest option). The Consolidated Statements of Cash Flows do not
reflect investment activity of the Separate Accounts.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reinsurance
-----------
The Company utilizes indemnity reinsurance agreements to reduce its exposure
to large losses in all aspects of its insurance business. Such reinsurance
permits recovery of a portion of losses from reinsurers, although it does not
discharge the primary liability of the Company as direct insurer of the risks
reinsured. The Company evaluates the financial strength of potential
reinsurers and continually monitors the financial condition of reinsurers.
Only those reinsurance recoverables deemed probable of recovery are reflected
as assets on the Company's Consolidated Balance Sheets. The majority of the
reinsurance recoverable on the Consolidated Balance Sheets at December 31,
1998 is related to the reinsurance recoverable from Lincoln arising from the
sale of the domestic life insurance business. (Refer to Note 2)
Income Taxes
------------
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting income
reported for financial statement purposes for certain items. Deferred income
tax expenses/benefits result from changes during the year in cumulative
temporary differences between the tax basis and book basis of assets and
liabilities.
2. Discontinued Operations-Individual Life Insurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction was generally in
the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to
policyholders. Insurance reserves ceded as of December 31, 1998 were $2.9
billion. Deferred policy acquisition costs related to the life policies of
$907.9 million were written off against the gain on the sale. Certain
invested assets related to and supporting the life policies were sold to
consummate the life sale, and the Company recorded a reinsurance recoverable
from Lincoln. The transaction resulted in an after-tax gain on the sale of
approximately $117 million, of which $58 million will be deferred and
amortized over approximately 15 years (as profits in the book of business
sold emerge). The remaining portion of the gain was recognized immediately in
net income and was largely attributed to the sale of the domestic life
insurance business for access to the agency sales force and brokerage
distribution channel. The unamortized portion of the gain is presented in
other liabilities on the Consolidated Balance Sheets.
The operating results of the domestic individual life insurance business are
presented as Discontinued Operations. All prior year income statement data
has been restated to reflect the presentation as Discontinued Operations.
Revenues for the individual life segment were $652.2 million, $620.4 million
and $445.7 million for 1998, 1997 and 1996, respectively. Premiums ceded and
reinsurance recoveries made in 1998 totaled $153.4 million and $57.7 million,
respectively.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments
Debt securities available for sale as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1998 (Millions) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 718.9 $ 60.4 $ 0.2 $ 779.1
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 615.2 29.8 4.1 640.9
Financial 2,259.2 94.6 5.6 2,348.2
Transportation/capital goods 580.8 33.0 1.1 612.7
Health care/consumer products 1,328.2 69.8 4.8 1,393.2
Natural resources 254.5 6.9 2.3 259.1
Other corporate securities 261.7 5.8 7.4 260.1
--------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 5,299.6 239.9 25.3 5,514.2
--------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 507.6 30.4 32.9 505.1
Utilities 147.0 32.4 -- 179.4
Other 511.2 14.9 1.8 524.3
--------------------------------------------------------------------------------------------------------------
Total foreign securities 1,165.8 77.7 34.7 1,208.8
--------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 671.9 38.4 2.9 707.4
Collateralized mortgage obligations 1,879.6 119.7 10.4 1,988.9
--------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 2,551.5 158.1 13.3 2,696.3
--------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,114.9 30.9 9.8 1,136.0
Other asset-backed securities 719.3 13.8 0.6 732.5
--------------------------------------------------------------------------------------------------------------
Total debt securities $11,570.3 $580.8 $83.9 $12,067.2
==============================================================================================================
</TABLE>
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
Debt securities available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 (Millions) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government agencies
and authorities $ 1,219.7 $ 74.0 $ 0.1 $ 1,293.6
States, municipalities and political subdivisions 0.3 -- -- 0.3
U.S. corporate securities:
Utilities 521.3 23.5 0.9 543.9
Financial 2,370.7 84.6 1.3 2,454.0
Transportation & capital goods 528.2 33.2 0.1 561.3
Healthcare & consumer products 728.5 27.0 2.6 752.9
Natural resources 143.5 5.5 -- 149.0
Other corporate securities 545.2 27.2 0.1 572.3
--------------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 4,837.4 201.0 5.0 5,033.4
--------------------------------------------------------------------------------------------------------------
Foreign securities:
Government, including political subdivisions 612.5 36.7 23.6 625.6
Utilities 177.5 28.7 -- 206.2
Other 857.9 27.7 42.8 842.8
--------------------------------------------------------------------------------------------------------------
Total foreign securities 1,647.9 93.1 66.4 1,674.6
--------------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 784.4 71.3 2.0 853.7
Collateralized mortgage obligations 2,280.5 137.4 2.0 2,415.9
--------------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 3,064.9 208.7 4.0 3,269.6
--------------------------------------------------------------------------------------------------------------
Commercial/Multifamily mortgage-backed
securities 1,127.8 34.0 0.4 1,161.4
Other asset-backed securities 1,014.2 17.1 0.4 1,030.9
--------------------------------------------------------------------------------------------------------------
Total debt securities $12,912.2 $627.9 $76.3 $13,463.8
==============================================================================================================
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
At December 31, 1998 and 1997, net unrealized appreciation of $496.9 million
and $551.6 million, respectively, on available-for-sale debt securities
included $355.8 million and $429.3 million, respectively, related to
experience-rated contracts, which were not reflected in shareholder's equity
but in insurance reserves.
The amortized cost and fair value of debt securities for the year ended
December 31, 1998 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be
restructured, called, or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
---------------------------------------------------------------
<S> <C> <C>
Due to mature:
One year or less $ 553.5 $ 554.6
After one year through five years 2,619.7 2,692.4
After five years through ten years 1,754.0 1,801.7
After ten years 2,257.4 2,453.7
Mortgage-backed securities 3,666.4 3,832.3
Other asset-backed securities 719.3 732.5
---------------------------------------------------------------
Total $11,570.3 $12,067.2
===============================================================
</TABLE>
At December 31, 1998 and 1997, debt securities carried at $8.8 million and
$8.2 million, respectively, were on deposit as required by regulatory
authorities.
The Company did not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 1998.
Included in the Company's debt securities were residential collateralized
mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Fair Amortized Fair Amortized
(Millions) Value Cost Value Cost
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total residential CMOs (1) $ 1,988.9 $1,879.6 $ 2,415.9 $2,280.5
=======================================================================================================
Percentage of total:
Supporting experience rated products 81.7% 81.6%
Supporting remaining products 18.3% 18.4%
- -------------------------------------------------------------------------------------------------------
100.0% 100.0%
=======================================================================================================
</TABLE>
(1) At December 31, 1998 and 1997, approximately 66% and 73%, respectively, of
the Company's residential CMO holdings were backed by government agencies
such as GNMA, FNMA, FHLMC.
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Investments (continued)
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest rates
resulting in the repayment of principal from the underlying mortgages either
earlier or later than originally anticipated. At December 31, 1998 and 1997,
approximately 2% and 4%, respectively, of the Company's CMO holdings were
invested in types of CMOs which are subject to more prepayment and extension
risk than traditional CMOs (such as interest- or principal-only strips).
Investments in equity securities available for sale as of December 31 were as
follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997
-------------------------------------------------------
<S> <C> <C>
Amortized Cost $300.4 $210.0
Gross unrealized gains 13.1 21.3
Gross unrealized losses 8.1 .1
-------------------------------------------------------
Fair Value $305.4 $231.2
=======================================================
</TABLE>
4. Financial Instruments
Estimated Fair Value
--------------------
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- -----------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 12.7 $ 12.3 $ 12.8 $ 12.4
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,063.9 $ 984.3 $ 1,030.3 $1,005.4
Without a fixed maturity 10,241.7 9,686.2 10,113.2 9,587.5
- -----------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument,
nor do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's
management of interest rate, price and liquidity risks, the fair values of
all assets and liabilities should be taken into consideration, not only those
presented above.
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Financial Instruments (continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
Investment contract liabilities (included in Policyholders' funds left with
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in
paying an amount different than that determined to be payable on demand.
Off-Balance-Sheet and Other Financial Instruments
-------------------------------------------------
Futures Contracts:
Futures contracts are used to manage interest rate risk in the Company's bond
portfolio. Futures contracts represent commitments to either purchase or sell
securities at a specified future date and at a specified price or yield.
Futures contracts trade on organized exchanges and, therefore, have minimal
credit risk. Cash settlements are made daily based on changes in the prices
of the underlying assets. The notional amounts, carrying values and estimated
fair values of the Company's open treasury futures as of December 31, 1998
were $250.9 million, $.1 million, and $.1 million, respectively.
Warrants:
Included in common stocks are warrants which are instruments giving the
Company the right, but not the obligation to buy a security at a given price
during a specified period. The carrying values and estimated fair values of
the Company's warrants to purchase equity securities as of December 31, 1998
were $1.5 million, respectively. The carrying values and estimated fair
values as of December 31, 1997 were $.6 million, respectively.
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Financial Instruments (continued)
Debt Instruments with Derivative Characteristics:
The Company also had investments in certain debt instruments with derivative
characteristics, including those whose market value is at least partially
determined by, among other things, levels of or changes in domestic and/or
foreign interest rates (short- or long-term), exchange rates, prepayment
rates, equity markets or credit ratings/spreads. The amortized cost and fair
value of these securities, included in the debt securities portfolio, as of
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
-----------------------------------------------------------------------------
<S> <C> <C>
Residential collateralized mortgage obligations $1,879.6 $1,988.9
Principal-only strips (included above) 20.2 24.0
Interest-only strips (included above) 17.3 18.0
Other structured securities with derivative
characteristics (1) 87.3 80.6
-----------------------------------------------------------------------------
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk
are based on underlying securities, including fixed income securities
and interest rate swap agreements.
5. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 798.8 $ 814.6 $ 805.3
Nonredeemable preferred stock 18.4 12.9 5.8
Investment in affiliated mutual funds 6.6 3.8 10.8
Mortgage loans 0.6 0.3 0.6
Policy loans 7.2 5.7 6.4
Reinsurance loan to affiliate 2.3 5.5 9.3
Cash equivalents 44.6 38.8 27.1
Other 16.7 9.5 1.8
-----------------------------------------------------------------------------
Gross investment income 895.2 891.1 867.1
Less: investment expenses (17.6) (12.3) (14.5)
-----------------------------------------------------------------------------
Net investment income $ 877.6 $ 878.8 $ 852.6
=============================================================================
</TABLE>
Net investment income includes amounts allocable to experience rated
contractholders of $655.6 million, $673.8 million and $649.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Interest credited
to contractholders is included in current and future benefits.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
6. Dividend Restrictions and Shareholder's Equity
The Company paid $553.0 million and $17.3 million in cash dividends to HOLDCO
in 1998 and 1997, respectively. Additionally, at December 31, 1998, the
Company accrued $206.0 million in dividends. Of the $759.0 million dividends
paid and accrued in 1998, $756.0 million (all of which was approved by the
Insurance Commissioner of the State of Connecticut) was attributable to
proceeds from the sale of the domestic individual life insurance business.
In January 1999, the accrued dividends of $206.0 million were paid by the
Company to HOLDCO. Further dividends to be paid by the Company to HOLDCO
during 1999 will need to be approved by the Insurance Department of the State
of Connecticut (the "Department") prior to payment.
The Department recognizes as net income and shareholder's capital and surplus
those amounts determined in conformity with statutory accounting practices
prescribed or permitted by the Department, which differ in certain respects
from generally accepted accounting principles. Statutory net income was
$148.1 million, $80.5 million and $57.8 million for the years ended December
31, 1998, 1997 and 1996, respectively. Statutory capital and surplus was
$773.0 million and $778.7 million as of December 31, 1998 and 1997,
respectively.
As of December 31, 1998, the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory authorities
that, individually or in the aggregate, materially affect statutory capital
and surplus.
7. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 7.4 $21.1 $ 9.5
Equity securities 3.0 8.6 7.5
----------------------------------------------------------------------------
Pretax realized capital gains $10.4 $29.7 $17.0
============================================================================
After-tax realized capital gains $ 7.3 $19.2 $11.1
============================================================================
</TABLE>
Net realized capital gains of $15.0 million, $83.7 million and $52.5 million
for 1998, 1997 and 1996, respectively, allocable to experience rated
contracts, were deducted from net realized capital gains and an offsetting
amount was reflected in Policyholders' funds left with the Company. Net
unamortized gains were $118.6 million and $120.1 million at December 31, 1998
and 1997, respectively.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Capital Gains and Losses on Investment Operations (continued)
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $6,790.2 $5,311.3 $5,182.2
Gross gains 98.8 23.8 22.1
Gross losses 91.4 2.7 12.6
----------------------------------------------------------------------------
</TABLE>
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities,
excluding those related to experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 18.9 $44.3 $(100.1)
Equity securities (16.1) 5.6 (10.5)
Other 15.4 -- --
-----------------------------------------------------------------------------------
Subtotal 18.2 49.9 (110.6)
Increase (decrease) in deferred income taxes
(Refer to note 8) 6.3 17.5 (38.6)
-----------------------------------------------------------------------------------
Net changes in accumulated other
comprehensive income $ 11.9 $32.4 $ (72.0)
===================================================================================
</TABLE>
Net unrealized capital gains allocable to experience-rated contracts of
$355.8 million at December 31, 1998 are reflected on the Consolidated Balance
Sheets in Policyholders' funds left with the Company and are not included in
shareholder's equity. At December 31, 1997, net unrealized capital gains of
$356.7 million and $72.6 million at December 31, 1997 are reflected on the
Consolidated Balance Sheets in policyholders' funds left with the Company and
future policy benefits, respectively, and are not included in shareholder's
equity.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
income, which are net of amounts allocable to experience-rated
contractholders, at December 31:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized capital gains $157.3 $140.6 $101.7
Gross unrealized capital losses (16.2) (18.4) (23.8)
----------------------------------------------------------------------------------
141.1 122.2 77.9
----------------------------------------------------------------------------------
Equity securities:
Gross unrealized capital gains 13.1 21.2 16.3
Gross unrealized capital losses (8.1) (0.1) (0.8)
----------------------------------------------------------------------------------
5.0 21.1 15.5
----------------------------------------------------------------------------------
Other:
Gross unrealized capital gains 17.1 -- --
Gross unrealized capital losses (1.7) -- --
----------------------------------------------------------------------------------
15.4 -- --
----------------------------------------------------------------------------------
Deferred income taxes (Refer to note 8) 56.7 50.4 32.9
----------------------------------------------------------------------------------
Net accumulated other comprehensive income $104.8 $ 92.9 $ 60.5
==================================================================================
</TABLE>
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the year (1) $38.3 $98.8 $(14.8)
Less: reclassification adjustment for gains and
other items included in net income (2) 26.4 66.4 57.2
-----------------------------------------------------------------------------------
Net unrealized gains (losses) on securities $11.9 $32.4 $(72.0)
===================================================================================
</TABLE>
(1) Pretax unrealized holding gains (losses) arising during the year were
$58.8 million, $152.3 million and ($22.9) million for 1998, 1997 and
1996, respectively.
(2) Pretax reclassification adjustments for gains and other items included
in net income were $40.6 million, $102.4 million and $87.7 million for
1998, 1997 and 1996, respectively.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return, the
combined returns of Connecticut and New York, and the Illinois unitary state
income tax returns of Aetna. Aetna allocates to each member an amount
approximating the tax it would have incurred were it not a member of the
consolidated group, and credits the member for the use of its tax saving
attributes in the consolidated federal income tax return.
Income taxes from continuing operations consist of the following:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ 246.4 $ 28.7 $ 30.0
State 1.3 2.0 2.3
Net realized capital gains 16.8 39.1 24.4
------------------------------------------------------------------------------
264.5 69.8 56.7
------------------------------------------------------------------------------
Deferred taxes (benefits):
Federal (203.2) 9.4 (7.6)
Net realized capital (losses) (13.9) (28.5) (18.4)
------------------------------------------------------------------------------
(217.1) (19.1) (26.0)
------------------------------------------------------------------------------
Total $ 47.4 $ 50.7 $ 30.7
==============================================================================
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income from continuing operations before income taxes for
the following reasons:
<TABLE>
<CAPTION>
(Millions) 1998 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before
income taxes $187.0 $188.2 $115.9
Tax rate 35% 35% 35%
------------------------------------------------------------------------------
Application of the tax rate 65.5 65.9 40.6
Tax effect of:
State income tax, net of federal benefit 0.9 1.3 1.5
Excludable dividends (17.1) (15.6) (10.8)
Other, net (1.9) (0.9) (0.6)
------------------------------------------------------------------------------
Income taxes $ 47.4 $ 50.7 $ 30.7
==============================================================================
</TABLE>
F-23
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 324.1 $415.8
Unrealized gains allocable to experience
rated contracts 124.5 150.1
Investment (gains) losses (0.3) 6.6
Postretirement benefits other than pensions 26.0 26.3
Deferred compensation 38.6 31.2
Restructuring charge 2.9 9.5
Depreciation 1.7 3.9
Sale of individual life 48.9 -
Other 16.0 8.8
------------------------------------------------------------------------
Total gross assets 582.4 652.2
------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 272.7 515.6
Market discount 4.5 5.1
Net unrealized capital gains 181.2 200.5
Pension 3.9 3.6
Other (0.5) (0.6)
------------------------------------------------------------------------
Total gross liabilities 461.8 724.2
------------------------------------------------------------------------
Net deferred tax (asset) liability $(120.6) $ 72.0
========================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. As of December 31, 1998 and 1997, no valuation
allowances were required for unrealized capital gains and losses.
Management believes that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset. The Company expects
sufficient taxable income in the future to realize the net deferred tax asset
because of the Company's long-term history of having taxable income, which is
projected to continue.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that
has not been subject to taxation. As of December 31, 1983, no further
additions could be made to the Policyholders' Surplus Account for tax return
purposes under the Deficit Reduction Act of 1984. The balance in such account
was approximately $17.2 million at December 31, 1998. This amount would be
taxed only under certain conditions.
F-24
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (Continued)
No income taxes have been provided on this amount since management believes
under current tax law the conditions under which such taxes would become
payable are remote.
The Internal Revenue Service (the "Service") has completed examinations of
the consolidated federal income tax returns of Aetna through 1990.
Discussions are being held with the Service with respect to proposed
adjustments. Management believes there are adequate defenses against, or
sufficient reserves to provide for, any such adjustments. The Service has
commenced its examinations for the years 1991 through 1994.
9. Benefit Plans
Aetna has noncontributory defined benefit pension plans covering
substantially all employees. Aetna's accrued pension cost has been allocated
to its subsidiaries, including the Company, under an allocation based on
eligible salaries. Data on a separate company basis regarding the
proportionate share of the projected benefit obligation and plan assets is
not available. The accumulated benefit obligation and plan assets are
recorded by Aetna. As of the measurement date (i.e., September 30), the
accumulated plan assets exceeded accumulated plan benefits. Allocated pretax
charges to operations for the pension plan (based on the Company's total
salary cost as a percentage of Aetna's total salary cost) were $0.8 million,
$2.7 million and $4.3 million for the years ended December 31, 1998, 1997 and
1996, respectively.
In addition to providing pension benefits, Aetna currently provides certain
health care and life insurance benefits for retired employees. A
comprehensive medical and dental plan is offered to all full-time employees
retiring at age 50 with 15 years of service or at age 65 with 10 years of
service. There is a cap on the portion of the cost paid by the Company
relating to medical and dental benefits. Retirees are generally required to
contribute to the plans based on their years of service with Aetna. The costs
to the Company associated with the Aetna postretirement plans for 1998, 1997
and 1996 were $0.9 million, $2.7 million and $1.8 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately $77.7
million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after-tax amount of this transfer (approximately $50.5
million) is reported as a reduction in retained earnings.
The Company, in conjunction with Aetna, has a non-qualified pension plan
covering certain agents. The plan provides pension benefits based on annual
commission earnings. As of the measurement date (i.e., September 30), the
accumulated plan assets exceeded accumulated plan benefits.
The Company, in conjunction with Aetna, also provides certain postretirement
health care and life insurance benefits for certain agents. The costs to the
Company associated with the agents' postretirement plans for 1998, 1997 and
1996 were $1.4 million, $0.6 million and $0.7 million, respectively.
Effective January 1, 1999, the Company, in conjunction with Aetna, changed
the formula for providing pension benefits from the existing final average
pay formula to a cash balance formula,
F-25
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Benefit Plans (continued)
which will credit employees annually with an amount equal to a percentage of
eligible pay based on age and years of service as well as an interest credit
based on individual account balances. The formula also provides for a
transition period until December 1, 2006, which allows certain employees to
receive vested benefits at the higher of the final average pay or cash
balance formula. The changing of this formula will not have a material
effect on the Company's results of operations, liquidity or financial
condition.
Incentive Savings Plan--Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $4.7 million, $4.4 million and $5.4
million in 1998, 1997 and 1996, respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the end
of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1998, 1997
and 1996, were $4.1 million, $2.9 million and $8.1 million, respectively. As
of December 31, 1996, Aetna transferred to the Company approximately $1.1
million of deferred tax benefits related to stock options. This amount is
reported as an increase in retained earnings. In 1998, other changes in
shareholder's equity include an additional increase of $0.7 million
reflecting revisions to the allocation of the deferred tax benefit.
10. Related Party Transactions
Investment Advisory and Other Fees
----------------------------------
In February 1998 and May 1998, Aeltus Investment Management Inc. ("Aeltus"),
an affiliate of the Company, assumed investment advisory services for Aetna
managed mutual funds and variable funds (collectively, the Funds),
respectively. In connection with that assumption of duties, Aeltus entered
into participation agreements with the Company. Participation fees paid to
the Company, from Aeltus, included in charges assessed against policyholders
amounted to $26.9 million for 1998. Prior to assuming investment advisory
services, Aeltus served as subadvisor to the Funds. Since August 1996,
Aeltus has served as advisor for most of the Company's General Account
assets. Fees paid by the Company to Aeltus, included in both charges
assessed against policyholders and net investment income, on an annual
basis, range from 0.06% to 0.55% of the average daily net assets under
management. For the years ended December 31, 1998, 1997 and 1996, the
Company paid $21.7 million, $45.5 million and $16.0 million, respectively,
in such fees.
Prior to February 1998 and May 1998, the Company served as investment
advisor to the Funds. Under the advisory agreements, the funds paid the
Company a daily fee which, on an annual basis, ranged,
F-26
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
depending on the fund, from 0.25% to 0.85% of their average daily net
assets. The Company is also compensated by the Separate Accounts (variable
funds) for bearing mortality and expense risks pertaining to variable life
and annuity contracts. Under the insurance and annuity contracts, the
Separate Accounts pay the Company a daily fee which, on an annual basis is,
depending on the product, up to 2.15% of their average daily net assets. The
amount of compensation and fees received from the Funds and Separate
Accounts, included in charges assessed against policyholders, amounted to
$287.0 million, $271.2 million and $186.6 million in 1998, 1997 and 1996,
respectively.
Reinsurance Transactions
------------------------
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by Aetna
Life prior to 1981 was assumed by the Company. A $6.1 million and a $108.0
million commission, paid by the Company to Aetna Life in 1996 and 1988,
respectively, was capitalized as deferred policy acquisition costs. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance
reserves. Effective January 1, 1997, this agreement was amended to
transition (based on underlying investment rollover in Aetna Life) from a
modified coinsurance to a coinsurance arrangement. As a result of this
change, reserves were ceded to the Company from Aetna Life as investment
rollover occurred and the loan previously established was reduced. The
Company maintained insurance reserves of $574.5 million ($397.2 million
relating to the modified coinsurance agreement and $177.3 million relating
to the coinsurance agreement) as of December 31, 1997 relating to the
business assumed. The fair value of the loan relating to assets held by
Aetna Life was $412.3 million as of December 31, 1997 and was based upon the
fair value of the underlying assets.
Effective October 1, 1998, this agreement was fully transitioned to a
coinsurance arrangement and this business along with the Company's direct
domestic individual non-participating life insurance business was sold to
Lincoln. (Refer to note 2).
The operating results of the domestic individual life business are presented
as Discontinued Operations. Premiums of $336.3 million, $176.7 million and
$25.3 million and current and future benefits of $341.1 million, $183.9
million and $39.5 million, were assumed in 1998, 1997 and 1996,
respectively. Investment income of $17.0 million, $37.5 million and $44.1
million was generated from the reinsurance loan to affiliate for the years
ended December 31, 1998, 1997 and 1996, respectively.
Prior to the sale of the domestic individual life insurance business to
Lincoln on October 1, 1998, the Company's retention limit per individual
life was $2.0 million and amounts in excess of this limit, up to a maximum
of $8.0 million on any new individual life business was reinsured with Aetna
Life on a yearly renewable term basis. Premium amounts related to this
agreement were $2.0 million, $5.9 million and $5.2 million for 1998, 1997
and 1996, respectively. This agreement was terminated effective October 1,
1998.
Effective October 1, 1997, the Company entered into a reinsurance agreement
with Aetna Life to assume amounts in excess of $0.2 million for certain of
its participating life insurance, on a yearly
F-27
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
renewable term basis. Premium amounts related to this agreement were $4.4
million and $0.7 million in 1998 and 1997, respectively. The business
assumed under this agreement was retroceded to Lincoln effective October 1,
1998.
On December 16, 1988, the Company assumed $25.0 million of premium revenue
from Aetna Life for the purchase and administration of a life contingent
single premium variable payout annuity contract. In addition, the Company is
also responsible for administering fixed annuity payments that are made to
annuitants receiving variable payments. Reserves of $87.8 million and $32.5
million were maintained for this contract as of December 31, 1998 and 1997,
respectively.
Capital Transactions
--------------------
The Company received a capital contribution of $9.3 million and $10.4
million in cash from HOLDCO in 1998 and 1996, respectively. The Company
received no capital contributions in 1997.
The Company paid $553.0 million, $17.3 million and 3.5 million in cash
dividends to HOLDCO in 1998, 1997 and 1996, respectively. Additionally, in
1998, the Company accrued $206.0 million in dividends. (Refer to Note 6)
Other
-----
Premiums due and other receivables include $1.6 million and $37.0 million
due from affiliates in 1998 and 1997, respectively. Other liabilities
include $2.2 million and $1.2 million due to affiliates for 1998 and 1997,
respectively.
As of December 31, 1998, Aetna transferred to the Company $0.7 million based
on its decision not to settle state tax liabilities for the years 1998 and
1997. The amount transferred as of December 31, 1997 was $2.5 million. This
amount has been reported as an other change in retained earnings.
Substantially all of the administrative and support functions of the Company
are provided by Aetna and its affiliates. The financial statements reflect
allocated charges for these services based upon measures appropriate for the
type and nature of service provided.
11. Reinsurance
On October 1, 1998, the Company sold its domestic individual life insurance
business to Lincoln for $1 billion in cash. The transaction is generally in
the form of an indemnity reinsurance arrangement, under which Lincoln
contractually assumed from the Company certain policyholder liabilities and
obligations, although the Company remains directly obligated to
policyholders. (Refer to note 2)
Effective January 1, 1998, 90% of the mortality risk on substantially all
individual universal life product business written from June 1, 1991 through
October 31, 1997 was reinsured externally. Beginning November 1, 1997, 90%
of new business written on these products was reinsured externally.
Effective October 1, 1998 this agreement was assigned from the third party
reinsurer to Lincoln.
F-28
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Reinsurance (continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
(Millions) Amount Companies Companies Amount
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
----
Premiums:
Discontinued Operations $166.8 $165.4 $340.6 $342.0
Accident and Health Insurance 16.3 16.3 -- --
Annuities 80.8 2.9 1.5 79.4
------------------------------------------------------------------------------------
Total earned premiums $263.9 $184.6 $342.1 $421.4
====================================================================================
1997
----
Premiums:
Discontinued Operations $ 35.7 $ 15.1 $177.4 $198.0
Accident and Health Insurance 5.6 5.6 -- --
Annuities 67.9 -- 1.2 69.1
------------------------------------------------------------------------------------
Total earned premiums $109.2 $ 20.7 $178.6 $267.1
====================================================================================
1996
----
Premiums:
Discontinued Operations $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
------------------------------------------------------------------------------------
Total earned premiums $125.2 $ 17.5 $ 25.9 $133.6
====================================================================================
</TABLE>
F-29
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information
Prior to October 1, 1998, the Company's operations were reported through two
major business segments: Financial Services and Individual Life Insurance
(now Discontinued Operations). Summarized financial information for the
Company's principal operations was as follows:
<TABLE>
<CAPTION>
(4) (4)
Financial Discontinued
1998 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 433.3 -- -- $ 433.3
Net investment income 877.6 -- -- 877.6
----------------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,310.9 -- -- $ 1,310.9
====================================================================================================
Amortization of deferred policy
acquisition costs $ 106.7 -- -- $ 106.7
----------------------------------------------------------------------------------------------------
Income taxes $ 57.7 $ (10.3) $ 47.4
----------------------------------------------------------------------------------------------------
Operating earnings (1) $ 151.5 -- -- $ 151.5
Unusual items (2) -- -- $ (19.2) (19.2)
Realized capital gains, net of tax 7.3 -- -- 7.3
----------------------------------------------------------------------------------------------------
Income from continuing operations $ 158.8 -- $ (19.2) $ 139.6
Discontinued operations, net of tax:
Income from operations -- $ 61.8 -- 61.8
Gain on sale -- 59.0 -- 59.0
----------------------------------------------------------------------------------------------------
Net income $ 158.8 $ 120.8 $ (19.2) $ 260.4
====================================================================================================
Segment assets $43,458.6 $3,820.2 -- $47,278.8
----------------------------------------------------------------------------------------------------
Expenditures for long-lived assets (3) -- -- $ 5.3 $ 5.3
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings include an after-tax
severance benefit of $1.6 million and after-tax Year 2000 costs of
$20.8 million.
(3) Expenditures of long-lived assets represents additions to property and
equipment not allocable to business segments.
(4) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-30
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1997 (Millions) Services Operations Other Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 369.4 -- -- $ 369.4
Net investment income 878.8 -- -- 878.8
----------------------------------------------------------------------------------------------
Total revenue excluding realized
capital gains $ 1,248.2 -- -- $ 1,248.2
==============================================================================================
Amortization of deferred policy
acquisition costs $ 82.8 -- -- $ 82.8
----------------------------------------------------------------------------------------------
Income taxes $ 50.7 -- -- $ 50.7
----------------------------------------------------------------------------------------------
Operating earnings (1) $ 118.3 -- -- $ 118.3
Realized capital gains, net of tax 19.2 -- -- 19.2
----------------------------------------------------------------------------------------------
Income from continuing operations $ 137.5 -- -- $ 137.5
Discontinued Operations, net of tax:
Income from operations -- $ 67.8 -- 67.8
----------------------------------------------------------------------------------------------
Net Income $ 137.5 $ 67.8 -- $ 205.3
==============================================================================================
Segment assets $36,638.8 $3,507.6 -- $40,146.4
----------------------------------------------------------------------------------------------
Expenditures for long-lived assets (2) -- -- $9.6 $ 9.6
----------------------------------------------------------------------------------------------
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Expenditures for long-lived assets represents additions to property and
equipment not allocable to business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
F-31
<PAGE>
Notes to Consolidated Financial Statements (continued)
12. Segment Information (Continued)
<TABLE>
<CAPTION>
(3) (3)
Financial Discontinued
1996 (Millions) Services Operations Other Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 325.5 -- -- $ 325.5
Net investment income 852.6 -- -- 852.6
-----------------------------------------------------------------------------------------------------
Total revenue excluding realized capital
gains $1,178.1 -- -- $1,178.1
=====================================================================================================
Amortization of deferred policy acquisition
costs $ 28.0 -- -- $ 28.0
-----------------------------------------------------------------------------------------------------
Income taxes $ 35.6 -- $ (4.9) $ 30.7
-----------------------------------------------------------------------------------------------------
Operating earnings (losses) (1) $ 83.2 -- -- $ 83.2
Unusual items (2) -- -- (9.1) (9.1)
Realized capital gains, net of tax: 11.1 -- -- 11.1
-----------------------------------------------------------------------------------------------------
Income from continuing operations $ 94.3 $ (9.1) $ 85.2
Discontinued operations, net of tax
Income from operations -- $55.9 -- 55.9
-----------------------------------------------------------------------------------------------------
Net income (loss) $ 94.3 $55.9 $ (9.1) $ 141.1
=====================================================================================================
</TABLE>
(1) Operating earnings are comprised of net income excluding net realized
capital gains and any unusual items.
(2) Unusual items excluded from operating earnings represent $9.1 million
after-tax corporate facilities and severance charges not directly
allocable to the business segments.
(3) Financial Services products include annuity contracts and Discontinued
Operations include life insurance products. (Refer to Note 1)
13. Commitments and Contingent Liabilities
Commitments
-----------
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a
specified future date and at a specified price or yield. The inability of
counterparties to honor these commitments may result in either higher or
lower replacement cost. Also, there is likely to be a change in the value of
the securities underlying the commitments. At December 31, 1998 and 1997,
the Company had commitments to purchase investments of $68.7 million and
$38.7 million, respectively. The fair value of the investments at December
31, 1998 and 1997 approximated $68.9 million and $39.0 million,
respectively.
Litigation
----------
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-32
<PAGE>
Form No. SAI. 87305-99 ALIAC Ed. December 1999
<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
- Condensed Financial Information for the year ended
December 31, 1998
- 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
(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-99(PB))
(4.2) Variable Annuity Contract Certificate (GMC-VA-99(PB))
(4.3) Endorsement EM-ROTH-99(PB)
(4.4) Endorsement EM-IRA-99(PB)
(4.5) Endorsement EM-TDA-99(PB)
(4.6) Endorsement EGET-00
(5) Not applicable
(6.1) Certificate of Incorporation of Aetna Life Insurance and
Annuity Company(4)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(5)
<PAGE>
(6.3) By-Laws as amended September 17, 1997 of Aetna Life
Insurance and Annuity Company(6)
(7) Not applicable
(8.1) Fund Participation Agreement between Aetna Life Insurance
and Annuity Company and AIM dated June 30, 1998(7)
(8.2) Service Agreement between Aetna Life Insurance and Annuity
Company and AIM effective June 30, 1998(7)
(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(8)
(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(8)
(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(5)
(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(9)
(8.9) Sixth Amendment dated November 6, 1997 to the Fund
Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance
<PAGE>
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(10)
(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(5)
(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(9)
(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(11)
(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(12)
(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(9)
(8.17) Service Contract between Fidelity Distributors Corporation and
Aetna Life Insurance and Annuity Company dated May 2, 1997(8)
(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(8)
<PAGE>
(8.20) Service Agreement between Janus Capital Corporation and Aetna
Life Insurance and Annuity Company dated December 8, 1997(13)
(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 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(7)
(8.23) Fifth Amendment to Fund Participation Agreement by and 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(14)
(8.24) Fund Participation Agreement dated May 1, 1999 between Aetna
Life Insurance and Annuity Company, Mitchell Hutchins Series
Trust, and Mitchell Hutchins Asset Management, Inc.(15)
(8.25) Service Agreement dated May 1, 1999 between Mitchell Hutchins
Asset Management, Inc. and Aetna Life Insurance and Annuity
Company(15)
(8.26) 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)
(8.27) 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
(14.1) Powers of Attorney(17)
(14.2) Authorization for Signatures(3)
1. Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-75986), as filed on April
22, 1996.
2. Incorporated by reference to Registration Statement on Form N-4 (File No.
333-56297), as filed on June 8, 1998.
3. Incorporated by reference to Post-Effective Amendment No. 5 to
Registration Statement on Form N-4 (File No. 33-75986), as filed on April
12, 1996.
4. Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (File No. 33-60477), as filed on April
15, 1996.
<PAGE>
5. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 11, 1997.
6. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-91846), as filed on
October 30, 1997.
7. Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 333-56297), as filed on
August 4, 1998.
8. Incorporated by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form N-4 (File No. 333-56297), as filed on
December 14, 1998.
9. Incorporated by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on
September 29, 1997.
10. Incorporated by reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-4 (File No. 33-75964), as filed on
February 9, 1998.
11. Incorporated by Reference to Post-Effective Amendment No. 7 to
Registration Statement on Form S-6 (File No. 33-75248), as filed on
February 24, 1998.
12. Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-88720), as filed on June
28, 1996.
13. Incorporated by reference to Post-Effective Amendment No. 10 to
Registration Statement on Form N-4 (File No. 33-75992), as filed on
December 31, 1997.
14. Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (File No. 333-56297), as filed on
February 16, 1999.
15. Incorporated by reference to Post-Effective Amendment No. 8 to
Registration Statement on Form N-4 (File No. 333-56297), as filed on June
25, 1999.
16. Incorporated by reference to Post-Effective Amendment No. 27 to
Registration Statement on Form N-4 (File No. 33-34370), as filed on April
16, 1997.
17. Incorporated by reference to Registration Statement on Form N-4 (File
No. 333-87305), as filed on September 17, 1999.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
- ----------------- ------------------------------------
Thomas J. McInerney Director and President
Catherine H. Smith Director, Chief Financial Officer and Senior Vice
President
Shaun P. Mathews Director and Senior Vice President
Deborah Koltenuk Vice President, Corporate Controller, and Assistant
Treasurer
Therese M. Squillacote Vice President and Chief Compliance Officer
Kirk P. Wickman Senior Vice President, General Counsel and Corporate
Secretary
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 26 of Registration Statement on
Form N-4 (File No. 333-56297) as filed on November 23, 1999.
Item 27. Number of Contract Owners
As of October 31, 1999, there were 92,783 individual holders of 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,
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
<PAGE>
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 the 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
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Aetna Life $684,000 $42,930,000
Insurance and
Annuity
Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account B.
Item 30. Location of Accounts and Records
All 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 complies with
the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 28, 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, [1988 WL 235221, *13
(S.E.C.)].
(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 Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333-87305) to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Hartford,
State of Connecticut, on the 13th day of December, 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 Pre-Effective Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ------------------------------- (principal executive officer) )
Thomas J. McInerney )
) December
Catherine H. Smith* Director and Chief Financial Officer ) 13, 1999
- ------------------------------- )
Catherine H. Smith )
)
Shaun P. Mathews* Director )
- ------------------------------- )
Shaun P. Mathews )
)
Deborah Koltenuk* Vice President, Corporate Controller, and )
- ------------------------------- Assistant Treasurer
Deborah Koltenuk
</TABLE>
By: /s/ J. Neil McMurdie
--------------------------------------------------------------
J. Neil McMurdie
*Attorney-in-fact
<PAGE>
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
99-B.4.1 Variable Annuity Contract (GM-VA-99(PB))
------------
99-B.4.2 Variable Annuity Certificate (GMC-VA-99(PB))
------------
99-B.4.3 Endorsement EM-Roth-99(PB)
------------
99-B.4.4 Endorsement EM-IRA-99(PB)
------------
99-B.4.5 Endorsement EM-TDA-99(PB)
------------
99-B.4.6 Endorsement EGET-00
------------
99-B.9 Opinion and Consent of Counsel
------------
99-B.10 Consent of Independent Auditors
------------
99-B.13 Schedule for Computation of Performance Data
------------
EXHIBIT 99-B.4.1
=============================================================
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 238-6219
You may call the toll free number shown above to request
information about this Contract.
Aetna Life Insurance and Annuity Company, a stock company, herein called Aetna,
agrees to pay the benefits stated in this Contract.
Specifications
- --------------------------------------------------------------------------------
Plan
SPECIMEN
- --------------------------------------------------------------------------------
Type of Plan
SPECIMEN
- --------------------------------------------------------------------------------
Contract Holder
SPECIMEN
- --------------------------------------------------------------------------------
Contract No.
SPECIMEN
- --------------------------------------------------------------------------------
Contract Effective Date
SPECIMEN
- --------------------------------------------------------------------------------
This Contract is delivered in [STATE] and is subject to the laws of that
jurisdiction.
The variable features of the Group Contract are described in parts III, IV and
V.
Right to Cancel
================================================================================
The Contract Holder may cancel this Contract within 10 days by returning it to
the agent from whom it was purchased, or to Aetna at the address shown above.
Within seven days of receiving the Contract at its home office, Aetna will
return the amount of Certificate Holder Purchase Payment(s) received, plus any
increase, or minus any decrease, on the amount, if any, allocated to the
Separate Account Subaccount(s).
This page and the pages that follow constitute the entire Contract.
Signed at the home office on the Contract Effective Date.
/s/ Thomas J. McInerney /s/ Kirk P. Wickman
President Secretary
Group Variable, Fixed, or Combination Annuity Contract
Nonparticipating
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT, IF WITHDRAWN
BEFORE THE GUARANTEED TERM MATURITY DATE, MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT. THE MARKET VALUE ADJUSTMENT MAY RESULT IN AN INCREASE OR A DECREASE
IN THE ACCOUNT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED TERM AT THE TIME OF ITS MATURITY.
GM-VA-99(PB)
<PAGE>
Specifications
- --------------------------------------------------------------------------------
Guaranteed There is a minimum guaranteed rate for Purchase Payment(s) held
Rate in the Guaranteed Account. (See Schedule - Accumulation
Period.)
- --------------------------------------------------------------------------------
Deductions from There will be deductions for mortality and expense risk,
the Separate administrative and if applicable other fees.
Account
- --------------------------------------------------------------------------------
Deduction from Purchase Payment(s) may be subject to a deduction for premium
Purchase taxes. (See Section III - Purchase Payment.)
Payment(s)
- --------------------------------------------------------------------------------
Deferred Sales There may be a charge deducted upon withdrawal. (See Schedule -
Charge Accumulation Period.)
The Contract is a legal contract and constitutes the entire legal relationship
between Aetna and the Contract Holder.
READ THIS CONTRACT CAREFULLY. THE CONTRACT SETS FORTH, IN DETAIL, ALL OF THE
RIGHTS AND OBLIGATIONS OF BOTH YOU AND AETNA UNDER THE CONTRACT. THEREFORE, IT
IS IMPORTANT THAT YOU READ THIS CONTRACT CAREFULLY.
Page 2
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option I selected. (See Section IV - Death Benefit Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.25%
-----
Total Separate Account Charges 1.40%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year. Aetna
reserves the right to charge $10 for each subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000 or
more on the date the Maintenance Fee is to be deducted, the Maintenance
Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
------------------------------------------------------------------
Less than 3 years 8%
3 or more but less than 4 years 7%
4 or more but less than 5 years 6%
5 or more but less than 6 years 5%
6 or more but less than 7 years 4%
7 or more but less than 8 3%
8 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I Definitions - "Premium Bonus" for determining
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
85
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option I selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.25%
-----
Total Separate Account Charges 1.40%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year.
Thereafter, Aetna reserves the right to charge $10 for each
subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 2 years 7%
2 or more but less than 3 years 5%
3 or more but less than 4 years 4%
4 or more but less than 5 years 3%
5 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
85
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option II selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.45%
-----
Total Separate Account Charges 1.60%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year. Aetna
reserves the right to charge $10 for each subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 3 years 8%
3 or more but less than 4 years 7%
4 or more but less than 5 years 6%
5 or more but less than 6 years 5%
6 or more but less than 7 years 4%
7 or more but less than 8 3%
8 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
75
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option II selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.45%
-----
Total Separate Account Charges 1.60%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year.
Thereafter, Aetna reserves the right to charge $10 for each
subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
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Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 2 years 7%
2 or more but less than 3 years 5%
3 or more but less than 4 years 4%
4 or more but less than 5 years 3%
5 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
75
See Section I - DEFINITIONS for explanations.
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<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Table of Contents
I. DEFINITIONS PAGE
1.01 Account ............................................ 8
1.02 Account Effective Date ............................. 8
1.03 Account Value ...................................... 8
1.04 Account Year ....................................... 8
1.05 Accumulation Period ................................ 8
1.06 Adjusted Account Value ............................. 8
1.07 Annuitant .......................................... 8
1.08 Annuity Payments ................................... 8
1.09 Annuity Payout Options ............................. 8
1.10 Annuity Period ..................................... 8
1.11 Beneficiary ........................................ 9
1.12 Certificate Holder ................................. 9
1.13 Claim Date ......................................... 9
1.14 Code ............................................... 9
1.15 Contract ........................................... 9
1.16 Contract Holder .................................... 9
1.17 Deferred Sales Charge .............................. 9
1.18 Deposit Period ..................................... 9
1.19 Dollar Cost Averaging .............................. 9
1.20 Fund(s) ............................................ 10
1.21 General Account .................................... 10
1.22 Guaranteed Account ................................. 10
1.23 Guaranteed Rates - Guaranteed Account .............. 10
1.24 Guaranteed Term .................................... 10
1.25 Guaranteed Term(s) Groups .......................... 10
1.26 Maintenance Fee .................................... 10
1.27 Market Value Adjustment (MVA) ...................... 11
1.28 Matured Term Value ................................. 11
1.29 Maturity Date ...................................... 11
1.30 Maturity Value Transfer ............................ 11
1.31 Net Cumulative Purchase Payment .................... 11
1.32 Premium Bonus ...................................... 11
1.33 Purchase Payment(s) ................................ 11
1.34 Reinvestment ....................................... 11
1.35 Separate Account ................................... 12
1.36 Subaccount(s) ...................................... 12
1.37 Systematic Distribution Option ..................... 12
1.38 Transfers .......................................... 12
1.39 Withdrawal Value ................................... 12
1.40 Valuation Date ..................................... 12
II. GENERAL PROVISIONS
2.01 Change of Contract ................................. 12
2.02 Change of Fund(s) .................................. 13
2.03 Nonparticipating Contract .......................... 13
2.04 Payments and Elections ............................. 13
2.05 State Laws ......................................... 13
2.06 Control of Contract ................................ 13
2.07 Designation of Beneficiary ......................... 14
2.08 Misstatements and Adjustments ...................... 14
2.09 Incontestability ................................... 14
2.10 Grace Period ....................................... 14
2.11 Individual Certificates ............................ 14
Page 6
<PAGE>
III. PURCHASE PAYMENT, ACCOUNT VALUE, AND WITHDRAWAL PROVISIONS PAGE
3.01 Purchase Payment ........................................ 14
3.02 Premium Bonus ........................................... 15
3.03 Certificate Holder's Account ............................ 15
3.04 Accumulation Units - Separate Account ................... 15
3.05 Accumulation Unit Value - Separate Account .............. 15
3.06 Net Investment Factor(s) - Separate Account ............. 15
3.07 Market Value Adjustment (MVA) ........................... 16
3.08 Transfer of Account Value from the Subaccount(s) or
Guaranteed Account During the Accumulation Period ....... 17
3.09 Notice to the Certificate Holder ........................ 17
3.10 Loans ................................................... 17
3.11 Systematic Distribution Options ......................... 17
3.12 Liquidation of Withdrawal Value ......................... 18
3.13 Deferred Sales Charge ................................... 18
3.14 Payment of Withdrawal Value ............................. 18
3.15 Payment of Adjusted Account Value ....................... 19
3.16 Reinstatement ........................................... 19
IV DEATH BENEFIT
4.01 Death Benefit Options ................................... 19
4.02 Death Benefit Option I .................................. 19
4.03 Death Benefit Option II ................................. 20
4.04 Options Available to Beneficiary ........................ 21
V. ANNUITY PAYOUT PROVISIONS
5.01 Annuity Payout Options .................................. 22
5.02 Annuity Payment Choices ................................. 23
5.03 Terms of Annuity Payout Options ......................... 23
5.04 Death of Annuitant/Beneficiary .......................... 24
5.05 Annuity Units - Separate Account ........................ 25
5.06 Annuity Unit Value - Separate Account ................... 25
5.07 Annuity Net Return Factor(s) - Separate Account ......... 25
Page 7
<PAGE>
I. DEFINITIONS
================================================================================
1.01 Account:
A record that identifies contract values accumulated on each
Certificate Holder's behalf.
1.02 Account Effective Date:
The date on which an Account is established on a Certificate
Holder's behalf.
1.03 Account Value:
As of the most recent Valuation Date, the Account Value is equal to
the total of the Purchase Payment(s) made to the Account;
(a) Plus any Premium Bonus amount;
(b) Plus or minus the investment experience for the amount, if
any, allocated to one or more of the Subaccounts;
(c) Plus interest added to the amount, if any, allocated to the
Guaranteed Account;
(d) Plus any additional amount deposited to the Account (see
Section IV - Death Benefit);
(e) Less the amount of any Maintenance Fee deducted;
(f) Less any additional fee(s), charges, or taxes, if applicable,
deducted;
(g) Less any amount(s) withdrawn; and
(h) Less amount(s) applied to an Annuity Payout Option.
1.04 Account Year:
A period of twelve months measured from the Account Effective Date
or an anniversary of such Account Effective Date.
1.05 Accumulation Period:
The period during which the Purchase Payment(s) and Premium Bonus
are applied to an Account to provide future Annuity Payment(s).
1.06 Adjusted Account Value:
The Account Value plus or minus the aggregate Market Value
Adjustment (MVA), if applicable, for the amount(s) allocated to the
Guaranteed Account (see Section III - Market Value Adjustment).
1.07 Annuitant:
The person on whose death, during the Accumulation Period, a death
benefit becomes payable and on whose life or life expectancy the
Annuity Payments are based under the Contract.
1.08 Annuity Payment(s):
A series of payments for life, a definite period or a combination of
the two. The Annuity Payments may be variable or fixed in amount or
a combination of both.
1.09 Annuity Payout Options:
The Certificate Holder may choose to receive Annuity Payments under
one of the following options:
(a) For the life of one or two persons;
(b) For a stated period; or
(c) For some combination of (a) and (b).
1.10 Annuity Period:
The period during which Annuity Payments are made.
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<PAGE>
1.11 Beneficiary:
The individual(s) or entity(ies) entitled to receive any death
benefit due under the Contract. Any designated Beneficiary has the
right to name another Beneficiary. If the Account is owned by joint
Certificate Holders, the survivor will be deemed the designated
Beneficiary and any other Beneficiary on record will then be treated
as the primary or contingent Beneficiary, as originally designated,
unless and until changed by the new designated Beneficiary.
1.12 Certificate Holder:
A person who purchases an interest in the Contract as evidenced by a
certificate. Aetna reserves the right to limit ownership to natural
persons. If more than one Certificate Holder owns an Account, each
Certificate Holder will be a joint Certificate Holder. Joint
Certificate Holders have joint ownership rights and both must
authorize exercising any ownership rights unless Aetna allows
otherwise.
1.13 Claim Date:
The date when proof of death and the Beneficiary's entitlement to
the death benefit are received in good order at Aetna's home office.
This is also the date that the excess of the death benefit over the
Account Value, if any, is allocated to the money market fund
available through the Separate Account.
1.14 Code:
The Internal Revenue Code of 1986, as it may be amended from time to
time.
1.15 Contract:
The agreement between Aetna and the Contract Holder.
1.16 Contract Holder:
The entity to which the Contract is issued.
1.17 Deferred Sales Charge:
The charge that is applied to a Purchase Payment(s)upon withdrawal.
This charge may be waived under certain circumstances or after a
certain length of time (see Section III - Deferred Sales Charge).
1.18 Deposit Period:
A day, a calendar week, a calendar month, a calendar quarter, or any
other period of time specified by Aetna during which a Purchase
Payment(s), Transfer(s) and/or Reinvestment(s) may be allocated to
one or more Guaranteed Account Guaranteed Terms. Aetna reserves the
right to shorten or to extend the Deposit Period.
During a Deposit Period, Aetna may offer any number of Guaranteed
Terms and more than one Guaranteed Term of the same duration may be
offered.
1.19 Dollar Cost Averaging:
A program that permits the Certificate Holder to systematically
transfer amounts from one of the available Subaccounts, or an
available Guaranteed Account Guaranteed Term, to one or more of the
Subaccounts. If the Certificate Holder elects a Guaranteed Account
Guaranteed Term available for Dollar Cost Averaging, no MVA applies
to amounts transferred under Dollar Cost Averaging. If Dollar Cost
Averaging from a Guaranteed Account Guaranteed Term is discontinued
before the end of the Dollar Cost Averaging period elected, Aetna
will automatically transfer the balance to a Guaranteed Term of the
same duration and an MVA will apply. The Certificate Holder may
initiate a Transfer to another investment option and an MVA will
apply. If a Guaranteed Term of the same duration is not available,
Aetna will transfer the amount to the Guaranteed Term with the next
shortest duration. If no shorter Guaranteed Term is available, the
next longer Guaranteed Term will be used. Aetna reserves the right
to establish and change terms and conditions governing Dollar Cost
Averaging.
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<PAGE>
1.20 Fund(s):
The open-end registered management investment companies whose shares
are purchased by the Separate Account to fund the benefits provided
by the Contract.
The Funds, and the number of Funds, available during the
Accumulation Period may be different from those available during the
Annuity Period. Aetna reserves the right to limit the number of
Funds available at any one time and to limit the number of
investment options the Certificate Holder may select during the
Accumulation Period and/or during the Annuity Period.
1.21 General Account:
The account holding the assets of Aetna, other than those assets
held in Aetna's separate accounts.
1.22 Guaranteed Account:
A nonunitized separate account, established by Aetna under
Connecticut Law that holds assets for Guaranteed Terms. There are no
discrete units for this account. The Certificate Holder does not
participate in any gain or loss resulting from the performance of
the investments held in the account. Income, gains or losses
realized or unrealized, are gains or losses of Aetna. Aetna
liabilities, except for liabilities under the contract and reserves
required by federal and state law, may not be charged against the
nonunitized separate account.
1.23 Guaranteed Rates - Guaranteed Account:
Aetna will declare the interest rate(s) applicable to a specific
Guaranteed Term at the start of the Deposit Period for that
Guaranteed Term. The rate(s) are guaranteed by Aetna for the period
beginning with the first day of the Deposit Period and ending on the
Maturity Date. Guaranteed Rates are credited beginning with the date
of allocation. The Guaranteed Rates are annual effective yields.
That is, interest is credited daily at a rate that will produce the
Guaranteed Rate over the period of a year. No Guaranteed Rate will
ever be less than the minimum Guaranteed Rate shown on the Schedule
- Accumulation Period.
For Guaranteed Terms of one year or less, one Guaranteed Rate is
credited for the full Guaranteed Term. For longer Guaranteed Terms,
an initial Guaranteed Rate is credited from the date of deposit to
the end of a specified period within the Guaranteed Term. There may
be different Guaranteed Rate(s) declared for subsequent specified
time intervals throughout the Guaranteed Term.
Aetna may offer more than one Guaranteed Term of the same duration
and credit one with a higher rate contingent upon use only with
Dollar Cost Averaging.
1.24 Guaranteed Term:
The period of time specified by Aetna for which a specific
Guaranteed Rate(s) is offered on amounts invested during a specific
Deposit Period. Guaranteed Terms are made available subject to
Aetna's terms and conditions, including, but not limited to, Aetna's
right to restrict allocations to new Purchase Payments (such as by
prohibiting Transfers into a particular Guaranteed Term from any
other Guaranteed Term or from any of the Subaccounts, or by
prohibiting Reinvestment of a Matured Term Value to a particular
Guaranteed Term). More than one Guaranteed Term of the same duration
may be offered within the Contract.
1.25 Guaranteed Term(s) Groups:
All Guaranteed Account Guaranteed Term(s) of the same duration (from
the close of the Deposit Period until the designated Maturity Date).
1.26 Maintenance Fee:
The Maintenance Fee (see Schedule - Accumulation Period) will be
deducted during the Accumulation Period from the Account Value on
each anniversary of the Account Effective Date and upon withdrawal
of the entire Account Value.
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<PAGE>
1.27 Market Value Adjustment (MVA):
An adjustment that may apply to an amount withdrawn or transferred
from a Guaranteed Account Guaranteed Term prior to the end of that
Guaranteed Term. The adjustment reflects the change in the value of
the investment due to changes in interest rates since the date of
deposit and is computed using the formula given. The adjustment is
expressed as a percentage of each dollar being withdrawn (see
Section III- Market Value Adjustment).
1.28 Matured Term Value:
The amount due on a Guaranteed Account Guaranteed Term's Maturity
Date.
1.29 Maturity Date:
The last day of a Guaranteed Account Guaranteed Term.
1.30 Maturity Value Transfer:
During the calendar month following a Guaranteed Account Maturity
Date, the Certificate Holder may notify Aetna's home office in
writing to Transfer or withdraw all or part of the Matured Term
Value, plus accrued interest at the new Guaranteed Rate, from the
Guaranteed Account without an MVA. This provision only applies to
the first such written request received from the Certificate Holder
during this period for any Matured Term Value.
1.31 Net Cumulative Purchase Payment:
The sum of the Purchase Payments minus any amounts withdrawn.
1.32 Premium Bonus:
A percentage of an applicable Purchase Payment (as shown on the
Schedule-Accumulation Period) that is credited to a Certificate
Holder's Account by Aetna. This amount is in addition to the
Purchase Payment.
The amount of Purchase Payment eligible for such Premium Bonus is
equal to the Net Cumulative Purchase Payment amount minus the sum of
Purchase Payments upon which a Premium Bonus has previously been
paid.
1.33 Purchase Payment(s):
The Purchase Payment(s) less premium taxes, if applicable, accepted
by Aetna at its home office. Aetna reserves the right to refuse to
accept any Purchase Payment at any time for any reason. No advance
notice will be given to the Contract Holder or Certificate Holder.
1.34 Reinvestment:
Aetna will mail a notice to the Certificate Holder at least 18
calendar days before a Guaranteed Term's Maturity Date. This notice
will contain the Terms available during current Deposit Periods with
their Guaranteed Rate(s), and projected Matured Term Value. If no
specific direction is given by the Certificate Holder prior to the
Maturity Date, each Matured Term Value will be reinvested in the
current Deposit Period for a Guaranteed Term of the same duration.
If a Guaranteed Term of the same duration is unavailable, each
Matured Term Value will automatically be reinvested in the current
Deposit Period for the next shortest Guaranteed Term available. If
no shorter Guaranteed Term is available, the next longer Guaranteed
Term will be used. Aetna will mail a confirmation statement to the
Certificate Holder the next business day after the Maturity Date.
This notice will state the Guaranteed Term and Guaranteed Rate(s)
which will apply to the reinvested Matured Term Value.
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<PAGE>
1.35 Separate Account:
A separate account that buys and holds shares of the Fund(s).
Income, gains or losses, realized or unrealized, are credited or
charged to the Separate Account without regard to other income,
gains or losses of Aetna. Aetna owns the assets held in the Separate
Account and is not a trustee as to such amounts. The Separate
Account generally is not guaranteed and is held at market value. The
assets of the Separate Account, to the extent of reserves and other
contract liabilities of the Separate Account, shall not be charged
with other Aetna liabilities.
1.36 Subaccount(s):
The portion of the assets of the Separate Account that is allocated
to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
1.37 Systematic Distribution Option:
An option elected by the Certificate Holder during the Accumulation
Period which establishes a schedule of withdrawals to be made
automatically from the Certificate Holder's Account.
1.38 Transfers:
The movement of invested amounts among the available Subaccount(s)
and/or any Guaranteed Account Guaranteed Term made available,
subject to terms and conditions established by Aetna, during the
Accumulation Period or the Annuity Period.
1.39 Withdrawal Value:
The amount payable by Aetna upon the withdrawal of any portion of
the Account Value.
1.40 Valuation Date:
The date and time for which a Subaccount calculates its net asset
value, usually from 4:00 p.m. Eastern time each day the New York
Stock Exchange is open, to 4:00 p.m. the next such business day.
II. GENERAL PROVISIONS
================================================================================
2.01 Change of Contract:
Only an authorized officer of Aetna may change the terms of the
Contract. Aetna will notify the Contract Holder in writing at least
30 days before the effective date of any change. Any change will not
affect the amount or terms of any Annuity Payout Option which begins
before the change.
Aetna may make any change that affects the Market Value Adjustment
(see Section III- Market Value Adjustment) with at least 30 days
advance written notice to the Contract Holder and the Certificate
Holder. Any such change shall become effective for any new
Guaranteed Term and will apply to all present and future Accounts.
Any change that affects any of the following under the Contract will
not apply to Accounts in existence before the effective date of the
change:
(a) Account Value
(b) Guaranteed Rates - Guaranteed Account
(c) Purchase Payment
(d) Withdrawal Value
(e) Transfers
(f) Net Investment Factor(s) - Separate Account (see Section III)
(g) Minimum Guaranteed Interest Rates
(h) Annuity Unit Value - Separate Account (see Section V)
(i) Annuity Payout Options (see Section V).
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<PAGE>
Any change that affects the Annuity Payout Options and the tables
for the Annuity Payout Options may be made:
(a) No earlier than 12 months after the Account Effective Date;
and
(b) No earlier than 12 months after the effective date of any
prior change.
Any Account established on or after the effective date of any change
will be subject to the change. If the Contract Holder does not agree
to any change under this provision, no new Accounts may be
established under the Contract. The Contract may also be changed as
deemed necessary by Aetna to comply with federal or state law.
2.02 Change of Fund(s):
The assets of the Separate Account are segregated by Fund. If the
shares of any Fund are no longer available for investment by the
Separate Account or if, in our judgment, further investment in such
shares should become inappropriate in view of the purpose of the
Contract, Aetna may cease to make such Fund shares available for
investment under the Contract prospectively, or Aetna may substitute
shares of another Fund for shares already acquired. Aetna may also,
from time to time, add additional Funds. Any elimination,
substitution or addition of Funds will be done in accordance with
applicable state and federal securities laws. Aetna reserves the
right to substitute shares of another Fund for shares already
acquired without a proxy vote.
2.03 Nonparticipating Contract:
The Contract Holder, Certificate Holders or Beneficiaries will not
have a right to share in the earnings of Aetna.
2.04 Payments and Elections:
While the Certificate Holder is living, Aetna will pay the
Certificate Holder any Annuity Payments as and when due. After the
Certificate Holder's death, or at the death of the first Certificate
Holder if the Account is owned jointly, any Annuity Payments
required to be made will be paid in accordance with Section III -
Death of Annuitant/Beneficiary. Aetna will determine other payments
and/or elections as of the end of the Valuation Date in which the
request is received at its home office. Such payments will be made
within seven calendar days of receipt at its home office of a
written claim for payment which is in good order, except as provided
in Section III - Payment of Withdrawal Value.
2.05 State Laws:
The Contract and Certificate comply with the laws of the state in
which they are delivered. Any withdrawal, death benefit amount, or
Annuity Payments are equal to or greater than the minimum required
by such laws. Annuity tables for legal reserve valuation shall be as
required by state law. Such tables may be different from annuity
tables used to determine Annuity Payments.
2.06 Control of Contract:
The Contract is between the Contract Holder and Aetna. The Contract
Holder has title to the Contract. Contract Holder rights are limited
to accepting or rejecting Contract modifications. The Certificate
Holder has all other rights to amounts held in his or her Account.
Each Certificate Holder shall own all amounts held in his or her
Account. Each Certificate Holder may make any choices allowed by the
Contract for his or her Account. Choices made under the Contract
must be in writing. If the Account is owned jointly, both joint
Certificate Holders must authorize any Certificate Holder change in
writing. Until receipt of such choices at Aetna's home office, Aetna
may rely on any previous choices made.
The Contract is not subject to the claims of any creditors of the
Contract Holder or the Certificate Holder, except to the extent
permitted by law.
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<PAGE>
The Certificate Holder may assign or transfer his or her rights
under the Contract. Aetna reserves the right not to accept
assignment or transfer to a nonnatural person. Any assignment or
transfer made under the Contract must be submitted to Aetna's home
office in writing and will not be effective until accepted by Aetna.
2.07 Designation of Beneficiary:
Each Certificate Holder shall name his or her Beneficiary and when
designating the Beneficiary may elect to specify in writing the form
of payment to the Beneficiary. Aetna will honor the specified form
of payment to the extent permitted under section 72(s) of the Code.
If the Account is owned jointly, both joint Certificate Holders must
agree in writing to the Beneficiary designated. The Beneficiary may
be changed at any time unless an irrevocable Beneficiary is
designated. Changes to a Beneficiary must be submitted to Aetna's
home office in writing and will not be effective until accepted by
Aetna. We will accept a change of Beneficiary designation after the
date of death and treat such Beneficiary designation as in effect as
of the date of death provided no portion of the death benefit has
been paid. If the Account is owned jointly, at the death of one
joint Certificate Holder, the survivor will be deemed the designated
Beneficiary; any other Beneficiary on record will then be treated as
a primary or a contingent Beneficiary, as originally designated
unless and until changed by the new designated Beneficiary. If a
designated Beneficiary defers taking payment of a death benefit, the
designated Beneficiary has the right to name another Beneficiary.
2.08 Misstatements and Adjustments:
If Aetna finds the age of any Annuitant to be misstated, the correct
facts will be used to adjust payments.
2.09 Incontestability:
After two years, the Contract will be incontestable.
2.10 Grace Period:
The Contract will remain in effect even if Purchase Payments are not
continued except as provided in the Payment of Adjusted Account
Value provision (see Section III - Payment of Adjusted Account
Value).
2.11 Individual Certificates:
Aetna shall issue a certificate to each Certificate Holder. The
certificate will summarize certain provisions of the Contract.
Certificates are for information only and are not a part of the
Contract.
III. PURCHASE PAYMENT, ACCOUNT VALUE, AND WITHDRAWAL PROVISIONS
================================================================================
3.01 Purchase Payment:
This amount is the actual Purchase Payment, less any premium taxes.
Aetna reserves the right to pay premium taxes when due and deduct
the amount from the Account Value when we pay the tax or at a later
date.
Each Purchase Payment will be allocated, as directed by the
Certificate Holder, among:
(a) Guaranteed Account Guaranteed Terms made available, subject to
terms and conditions established by Aetna; and/or
(b) The Subaccount(s) offered through the Separate Account.
For each Purchase Payment, the Certificate Holder shall tell Aetna
the percentage of each Purchase Payment to allocate to any available
Guaranteed Account Guaranteed Term and/or each Subaccount. Unless
different allocation instructions are received for any additional
Purchase Payment, the allocation will be the same as for the initial
Purchase Payment. If the same Guaranteed Term is no longer
available, the Purchase Payment will be allocated to the next
shortest Guaranteed Term available in the current Deposit Period. If
no shorter Guaranteed Term is available, the next longer Guaranteed
Term will be used.
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<PAGE>
3.02 Premium Bonus:
A Premium Bonus of a certain percentage based on Net Cumulative
Purchase Payment(s) will be allocated to the Account. The applicable
percentage is shown on the Schedule - Accumulation Period. The
eligibility for a Premium Bonus is determined in accordance with
Section I - Definitions "Premium Bonus".
The Premium Bonus will not be included in the Account Value and will
be forfeited under the following circumstances:
(a) If the Certificate Holder exercises the right to cancel; or
(b) If the Certificate Holder applies the Adjusted Account Value
(minus any premium tax, if applicable) to any Annuity Payout
Option to the extent that a Premium Bonus has been allocated
within 24 months; or
(c) If the Certificate Holder dies, to the extent that a Premium
Bonus has been allocated after or within 12 months of the date
of death.
The Premium Bonus will be applied pro-rata to each Fund or
Guaranteed Term in the same ratio as the Purchase Payment is
allocated unless otherwise specified.
3.03 Certificate Holder's Account:
Aetna will maintain an Account for each Certificate Holder.
Aetna will declare from time to time the acceptability and the
minimum amount for initial and additional Purchase Payments.
3.04 Accumulation Units - Separate Account:
The portion of the Purchase Payment(s) applied to each Subaccount
under the Separate Account will determine the number of accumulation
units for that Subaccount. This number is equal to the portion of
the Purchase Payment(s) applied to each Subaccount divided by the
accumulation unit value (see Section III - Accumulation Unit Value
Separate Account) for the Valuation Date in which the Purchase
Payment is received in good order at Aetna's home office.
3.05 Accumulation Unit Value - Separate Account:
An accumulation unit value is computed by multiplying the net
investment factor for the current Valuation Date by the accumulation
unit value for the previous Valuation Date. The dollar value of
accumulation units, Separate Account assets, and variable Annuity
Payments may go up or down due to investment gain or loss.
3.06 Net Investment Factor(s) - Separate Account:
The net investment factor is used to measure the investment
performance of a Subaccount from one Valuation Date to the next. The
net investment factor for a Subaccount for any Valuation Date is
equal to the sum of 1.0000 plus the net investment rate. The net
investment rate equals:
(a) The net assets of the Subaccount on the current Valuation
Date; minus
(b) The net assets of the Subaccount on the preceding Valuation
Date; plus or minus
(c) Taxes or provisions for taxes, if any, attributable to the
operation of the Subaccount; divided by
(d) The total value of the Subaccount's accumulation and annuity
units on the preceding Valuation Date; minus
(e) A daily charge for mortality and expense risks, administrative
charges and any other fees deducted from investments in the
Separate Account.
The net investment rate may be either positive or negative.
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3.07 Market Value Adjustment (MVA):
An MVA will apply to any withdrawal from the Guaranteed Account
before the end of a Guaranteed Term when the withdrawal is:
(a) A Transfer (including a Transfer from a Guaranteed Account
Guaranteed Term if Dollar Cost Averaging is discontinued);
except for Transfers under Dollar Cost Averaging, or as
specified in Section I - Maturity Value Transfer;
(b) A full or partial withdrawal (excluding a free withdrawal, see
Section III - Deferred Sales Charge), except for a payment
made:
(1) Under a Systematic Distribution Option to the extent
that it does not exceed 10% of the Account Value in an
Account Year (an MVA will apply to any amount that
exceeds 10% unless such amount is required to meet the
minimum distribution requirements); or
(2) Under a qualified Contract, when the amount withdrawn is
equal to the required minimum distribution for the
Account calculated using a method permitted under the
Code and agreed to by Aetna; or
(c) Due to an election of Annuity Payout Option 1. Only a positive
MVA will apply upon election of Annuity Payout Option 2 or 3
(see Section V - Annuity Payout Options).
Full and partial withdrawals and Transfers made within six months
after the date of the Annuitant's death will be the greater of:
(a) The aggregate MVA amount which is the sum of all market value
adjusted amounts resulting from a withdrawal(s). This total
may be greater or less than the Account Value of those
amounts; or
(b) The applicable portion of the Account Value in the Guaranteed
Account.
After the six-month period, the withdrawal or Transfer will be the
aggregate MVA amount, which may be greater or less than the Account
Value of those amounts.
Market value adjusted amounts will be equal to the amount withdrawn
multiplied by the following ratio:
(1 + i)^(x/365)
-------
(1 + j)^(x/365)
Where:
i is the Deposit Period yield
j is the current yield
x is the number of days remaining in the Guaranteed Term,
computed from Wednesday of the week of withdrawal.
The Deposit Period yield will be determined as follows:
(a) At the close of the last business day of each week of the
Deposit Period, a yield will be computed as the average of the
yields on that day of U.S. Treasury Notes which mature in the
last three months of the Guaranteed Term.
(b) The Deposit Period yield is the average of those yields for
the Deposit Period. If withdrawal is made before the close of
the Deposit Period, it is the average of those yields on each
week preceding withdrawal.
The current yield is the average of the yields on the last business
day of the week preceding withdrawal on the same U.S. Treasury Notes
included in the Deposit Period yield.
In the event that no U.S. Treasury Notes which mature in the last
three months of the Guaranteed Term exist, Aetna reserves the right
to use the U.S. Treasury Notes that mature in the following quarter.
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3.08 Transfer of Account Value from the Subaccount(s) or Guaranteed Account
During the Accumulation Period:
Before an Annuity Payout Option is elected, all or any portion of
the Adjusted Account Value of the Certificate Holder's Account may
be transferred from any Subaccount or Guaranteed Term of the
Guaranteed Account:
(a) To any other Subaccount; or
(b) To any Guaranteed Term of the Guaranteed Account made
available in the current Deposit Period, subject to terms and
conditions specified by Aetna.
Transfer requests can be submitted as a percentage or as a dollar
amount. Aetna may establish a minimum transfer amount. Within a
Guaranteed Term Group, the amount to be withdrawn or transferred
will be withdrawn first from the oldest Deposit Period, then from
the next oldest, and so on until the amount requested is satisfied.
The Certificate Holder may make an unlimited number of Transfers
during the Accumulation Period. The number of free Transfers allowed
by Aetna is shown on the Schedule - Accumulation Period. Additional
Transfers may be subject to a Transfer fee as shown on the Schedule
- Accumulation Period.
Amounts transferred from the Guaranteed Account under the Dollar
Cost Averaging program, or amounts transferred as a Matured Term
Value on or within one calendar month of a Maturity Date are not
subject to any Transfer fee and do not count against the annual
number of free Transfers.
Amounts allocated to Guaranteed Account Guaranteed Terms may not be
transferred to the Subaccounts or to another Guaranteed Term during
a Deposit Period or for 90 days after the close of a Deposit Period
except for:
(a) Matured Term Value(s) during the calendar month following the
Maturity Date;
(b) Amounts applied to an Annuity Payout Option;
(c) Amounts transferred under the Dollar Cost Averaging program;
(d) Amounts distributed under a Systematic Distribution Option;
and
(e) Amounts transferred by Aetna if Dollar Cost Averaging is
discontinued.
3.09 Notice to the Certificate Holder:
The Certificate Holder will receive quarterly statements from Aetna
of:
(a) The value of any amounts held in:
(1) The Guaranteed Account; and
(2) The Subaccount(s) under the Separate Account;
(b) The number of any accumulation units; and
(c) The accumulation unit value.
Such number or values will be as of a specific date no more than 60
days before the date of the notice.
3.10 Loans:
Loans are not available under the Contract.
3.11 Systematic Distribution Options:
Aetna may, from time to time, make one or more Systematic
Distribution Options available during the Accumulation Period. When
a Systematic Distribution Option is elected, Aetna will make
automatic payments from the Certificate Holder's Account.
Any Systematic Distribution Option will be subject to the following
criteria:
(a) Any Systematic Distribution Option will be made available on
the basis of objective criteria consistently applied;
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(b) The availability of any Systematic Distribution Option may be
limited by terms and conditions applicable to the election of
such Systematic Distribution Option; and
(c) Aetna may discontinue the availability of a Systematic
Distribution Option at any time. Except to the extent required
to comply with applicable law, discontinuance of a Systematic
Distribution Option will apply only to future elections and
will not affect Systematic Distribution Options in effect at
the time an option is discontinued.
3.12 Liquidation of Withdrawal Value:
All or any portion of the Account Value may be withdrawn at any
time. Withdrawal requests may be submitted as a percentage of the
Account Value or as a specific dollar amount. Purchase Payment
amounts are withdrawn first, and then the excess value, if any.
Partial withdrawal amounts are withdrawn on a pro rata basis from
the Subaccount(s) and/or the Guaranteed Term(s) Groups of the
Guaranteed Account in which the Account Value is invested. Within a
Guaranteed Term Group, the amount to be withdrawn or transferred
will be withdrawn first from the oldest Deposit Period, then from
the next oldest, and so on until the amount requested is satisfied.
After deduction of the Maintenance Fee, if applicable, the withdrawn
amount shall be reduced by a Deferred Sales Charge, if applicable.
An MVA may apply to amounts withdrawn from the Guaranteed Account.
3.13 Deferred Sales Charge:
The Deferred Sales Charge only applies to the Purchase Payment(s)
portion withdrawn and varies according to the elapsed time since
deposit (see Schedule - Accumulation Period). Purchase Payment
amounts are withdrawn in the same order they were applied.
No Deferred Sales Charge is deducted from any portion of the
Purchase Payment which is paid:
(a) To a Beneficiary due to the Annuitant's death before Annuity
Payments start, up to a maximum of the aggregate Purchase
Payment(s) minus the total of all partial surrenders and
deductions made prior to the Annuitant's date of death;
(b) For an Annuity Payout Option (see Section V - Annuity Payout
Provisions);
(c) For a full withdrawal of the Account where the Account Value
is $2,500 or less and no withdrawals have been taken from the
Account within the prior 12 months;
(d) By Aetna under Section III - Payment of Adjusted Account
Value;
(e) Under a qualified Contract when the amount withdrawn is equal
to the minimum distribution required by the Code for the
Account, either paid under a Systematic Distribution Option or
calculated by the Certificate Holder using a method permitted
under the Code and agreed to by Aetna;
(f) As a withdrawal of up to 10% of the Account Value on the
Account anniversary in any Account Year less any amounts taken
as a Systematic Distribution Option or as a required minimum
distribution as described in (e) above. Aetna reserves the
right to increase the percentage of the free withdrawal
amount. The free withdrawal amount includes any Premium Bonus
amount applied.
3.14 Payment of Withdrawal Value:
Under certain emergency conditions, Aetna may defer payment:
(a) For a period of up to six months (unless not allowed by state
law); or
(b) As provided by federal law.
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3.15 Payment of Adjusted Account Value:
Upon 90 days written notice to the Certificate Holder, Aetna will
terminate any Account if the Account Value becomes less than $2,500
immediately following any partial withdrawal. Aetna does not intend
to exercise this right in cases where an Account is reduced to
$2,500 or less solely due to investment performance. A Deferred
Sales Charge will not be deducted from the Adjusted Account Value,
however, any Premium Bonus applied within 12 months of the
termination will be deducted from the Account Value.
3.16 Reinstatement:
The Certificate Holder may reinstate the proceeds of a full
withdrawal, subject to terms and conditions established by Aetna.
IV. DEATH BENEFIT
================================================================================
4.01 Death Benefit Options:
If the Certificate Holder or Annuitant dies before an Annuity Payout
Option starts, the Beneficiary is entitled to a death benefit. If
the Account is owned jointly, the death benefit applies at the death
of the first joint Certificate Holder to die (see Section IV -
Options Available to Beneficiary). The death benefit option selected
is reflected on the Schedule-Accumulation Period.
4.02 Death Benefit Option I:
The amount of the death benefit is determined as follows:
(a) Death of the Annuitant.
The death benefit calculated as of the Claim Date is the
greater of:
(1) The sum of all Purchase Payment(s) made, adjusted for
amount(s) withdrawn or applied to an Annuity Payout
Option; or
(2) The Account Value on the Claim Date, less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death.
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 fund
available through the Separate Account.This increases
the Account Value available to the Beneficiary to an
amount equal to the death benefit.
The amount paid to the Beneficiary will equal the
Adjusted Account Value on the date the payment request
is processed. This amount may be greater or less than
the amount of the death benefit on the Claim Date. The
Beneficiary may elect a death benefit payment option as
permitted in Section IV - Options Available to
Beneficiary.
(b) Death of the Certificate Holder if the Certificate Holder is
not the Annuitant.
On the Claim Date, the amount of the death benefit equals the
Account Value less any Premium Bonus allocated to the Account
after or within 12 months of the date of death.
The amount paid to the Beneficiary will equal the Adjusted
Account Value on the date the payment request is processed. A
Deferred Sales Charge may apply to any full or partial payment
of the death benefit. The Beneficiary may elect a death
benefit payment option as permitted in Section IV - Options
Available to Beneficiary.
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(c) Death of a spouse who becomes a successor Certificate
Holder/Annuitant.
The amount of the death benefit paid to the Beneficiary at the
death of a successor Certificate Holder/Annuitant is the
greater of the values as described in (a) above except that in
calculating (a)(1), the Account Value on the Claim Date for
the prior Certificate Holder's death is treated as the initial
Purchase Payment.
4.03 Death Benefit Option II:
The amount of the death benefit is determined as follows:
(a) Death of the Annuitant.
The death benefit calculated as of the Claim Date is the
greatest of:
(1) The sum of all Purchase Payment(s) made, adjusted for
amount(s) withdrawn or applied to an Annuity Payout
Option; or
(2) The Account Value on the Claim Date, less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death; or
(3) The "Step-up Value" on the Claim Date less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death.
On the Account Effective Date, the Step-up Value is
equal to the Account Value. Thereafter, on each
anniversary of the Account 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:
(a) The Step-up Value most recently calculated,
adjusted for Purchase Payment(s) made, any Premium
Bonus allocated and amount(s) withdrawn or applied
to an Annuity Payout Option during the prior
Account Year; or
(b) The Account Value on that anniversary of the
Account Effective Date.
On each anniversary of the Account Effective Date after
the Annuitant's 85th birthday, the Step-up Value shall
equal the Step-up Value on the anniversary immediately
preceding the Annuitant's 85th birthday, adjusted for
Purchase Payment(s) made, Premium Bonus allocated and
amounts withdrawn or applied to an Annuity Payout Option
since that anniversary.
On the Claim Date, the Step-up Value shall equal the
Step-up Value on the anniversary of the Account
Effective Date immediately preceding the date of death,
adjusted for Purchase Payment(s) made and amount(s)
withdrawn or applied to an Annuity Payout Option since
that anniversary, less any Premium Bonus allocated to
the Account after or within 12 months of the date of
death.
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 fund available through the Separate Account. This
increases the Account Value available to the Beneficiary to an
amount equal to the death benefit.
The amount paid to the Beneficiary will equal the Adjusted Account
Value on the date the payment request is processed. This amount may
be greater or less than the amount of the death benefit on the Claim
Date. The Beneficiary may elect a death benefit payment option as
permitted in Section IV - Options Available to the Beneficiary.
(b) Death of the Certificate Holder if the Certificate Holder is
not the Annuitant.
On the Claim Date, the amount of the death benefit equals the
Account Value less any Premium Bonus allocated to the Account
after or within 12 months of the date of death.
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The amount paid to the Beneficiary will equal the Adjusted
Account Value on the date the payment request is processed. A
Deferred Sales Charge may apply to any full or partial payment
of the death benefit. The Beneficiary may elect a death
benefit payment option as permitted in Section IV - Options
Available to the Beneficiary.
(c) Death of a spouse who becomes a successor Certificate Holder/
Annuitant.
The amount of the death benefit paid to the Beneficiary at the
death of a successor Certificate Holder/Annuitant is the
greater of the values as described in (a) above except that in
calculating (a)(1), the Account Value on the Claim Date for
the prior Certificate Holder's death is treated as the initial
Purchase Payment.
4.04 Options Available to Beneficiary:
Prior to any election, or until amounts must be otherwise
distributed under this section, the Account Value will be retained
in the Account. The Beneficiary has the right to allocate or
reallocate any amount to any of the available investment options
(subject to an MVA, if applicable). If the Certificate Holder has
specified the form of payment to the Beneficiary, the death benefit
will be paid as elected by the Certificate Holder in the Beneficiary
designation, to the extent permitted by section 72(s) of the Code.
If the Certificate Holder has not specified a form of payment, the
Beneficiary may elect one of the following options.
(a) When the Certificate Holder is the Annuitant or when the
Certificate Holder is a nonnatural person, and the Annuitant
dies:
(1) If the Beneficiary is the surviving spouse, the spousal
Beneficiary will be the successor Certificate Holder and
may exercise all Certificate Holder rights under the
Contract and continue in the Accumulation Period, or may
elect (i) or (ii) below. Under the Code, distributions
from the Account are not required until the spousal
Beneficiary's death. The spousal Beneficiary may elect
to:
(i) Apply some or all of the Adjusted Account Value to
an Annuity Payout Option (see Section V); or
(ii) Receive, at any time, a lump sum payment equal to
the Adjusted Account Value.
(2) If the Beneficiary is other than the surviving spouse,
then options (i) or (ii) above apply. Any portion of the
Adjusted Account Value not applied to an Annuity Payout
Option within one year of the death must be distributed
within five years of the date of death.
(3) If no Beneficiary exists, a lump sum payment equal to
the Adjusted Account Value must be made to the
Annuitant's estate within five years of the date of
death.
(4) If the Beneficiary is an entity, a lump sum payment
equal to the Adjusted Account Value must be made within
five years of the date of death, unless otherwise
permitted by IRS regulation or ruling.
(b) When the Certificate Holder is not the Annuitant and the
Certificate Holder dies:
(1) If the Beneficiary is the Certificate Holder's surviving
spouse, the spousal Beneficiary will be the successor
Certificate Holder and may exercise all Certificate
Holder rights under the Contract and continue in the
Accumulation Period, or may elect (i) or (ii) below.
Under the Code, distributions from the Account are not
required until the spousal Beneficiary's death. The
spousal Beneficiary may elect to:
(i) Apply some or all of the Adjusted Account Value to
an Annuity Payout Option (see Section V); or
(ii) Receive, at any time, a lump sum payment equal to
the Withdrawal Value.
(2) If the Beneficiary is other than the Certificate
Holder's surviving spouse, then options (i) or (ii)
under (1) above apply. Any portion of the death benefit
not applied to an Annuity Payout Option within one year
of the Certificate Holder's death must be distributed
within five years of the date of death.
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(3) If no Beneficiary exists, a lump sum payment equal to
the Withdrawal Value must be made to the Certificate
Holder's estate within five years of the date of death.
(4) If the Beneficiary is an entity, a lump sum payment
equal to the Withdrawal Value must be made within five
years of the date of death, unless otherwise permitted
by IRS regulation or ruling.
(c) When the Certificate Holder is a natural person and not the
Annuitant and the Annuitant dies, the Beneficiary (or the
Certificate Holder if no Beneficiary exists) may elect to:
(1) Apply all or some of the Adjusted Account Value to an
Annuity Payout Option within 60 days of the date of
death; or
(2) Receive a lump sum payment equal to the Adjusted Account
Value.
V. Annuity Payout Provisions
================================================================================
5.01 Annuity Payout Options:
Annuity Payout Option 1 - Payments for a specified period:
Payments are made for the number of years specified by the
Certificate Holder. The number of years must be at least ten and not
more than 30.
Annuity Payout Option 2 - Life income based on the life of one Annuitant:
When this option is elected, the Certificate Holder must choose one
of the following:
(a) Payments cease at the death of the Annuitant;
(b) Payments are guaranteed for a specified period from five to 30
years;
(c) Cash refund: when the Annuitant dies, the Beneficiary will
receive a lump sum payment equal to the amount applied to the
Annuity Payout Option (less any premium tax, if applicable)
less the total amount of Annuity Payments made prior to such
death. This cash refund feature is only available if the total
amount applied to the Annuity Payout Option is allocated to a
fixed Annuity Payments.
Annuity Payout Option 3 - Life income based on the lives of two
Annuitants:
Payments are made for the lives of two Annuitants, one of whom is
designated the primary Annuitant and the other the secondary
Annuitant, and cease when both Annuitants have died. When this
option is elected, the Certificate Holder must also choose one of
the following:
(a) 100% of the payment to continue after the first death;
(b) 66 2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) 100% of the payment to continue after the first death and
payments are guaranteed for a period of five to 30 years;
(e) 100% of the payment to continue at the death of the secondary
Annuitant and 50% of the payment to continue at the death of
the primary Annuitant; or
(f) 100% of the payment continues after the first death with a
cash refund feature. When the primary Annuitant and secondary
Annuitant die, the Beneficiary will receive a lump sum payment
equal to the amount applied to the Annuity Payout Option (less
any premium tax) less the total amount of Annuity Payments
paid prior to such death. This cash refund feature is only
available if the total amount applied to the Annuity Payout
Option is allocated to fixed Annuity Payments.
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If fixed Annuity Payments are chosen under Annuity Payout Option 1,
2 (a) or (b), or 3 (a) or (d), the Certificate Holder may elect, at
the time the Annuity Payout Option is selected, an annual increase
of one, two or three percent compounded annually.
As allowed under applicable state law, Aetna reserves the right to
offer additional Annuity Payout Options.
5.02 Annuity Payment Choices:
The Certificate Holder may tell Aetna to apply the Adjusted Account
Value (minus any premium tax, if applicable,) to any Annuity Payout
Option The first Annuity Payment may not be earlier than one
calendar year after the initial Purchase Payment nor later than the
later of:
(a) The first day of the month following the Annuitant's 85th
birthday; or
(b) The tenth anniversary of the last Purchase Payment. In lieu of
the election of an Annuity Payout Option, the Certificate
Holder may tell Aetna to make a lump sum payment.
When an Annuity Payout Option is chosen, Aetna must also be told if
payments are to be made other than monthly and whether to pay:
(a) Fixed Annuity Payments using the General Account;
(b) Variable Annuity Payments using any of the Subaccount(s)
available under the contract for the Annuity Period; or
(c) A combination of (a) and (b).
If fixed Annuity Payments are chosen, the payment rate for the
option chosen, shown on the tables immediately following, reflects
at least the minimum guaranteed interest rate (see Schedule -
Annuity Period), but may reflect a higher interest rate.
If variable Annuity Payments are chosen, the initial Annuity Payment
for the option elected reflects the Assumed Interest Rate (AIR)
elected (see Schedule - Annuity Period). The Certificate Holder must
allocate specified amounts among the Subaccounts available during
the Annuity Period. Aetna reserves the right to limit the number of
Subaccounts available at one time and to limit the number of
Subaccounts the Certificate Holder may select during the Annuity
Period. Subject to terms and conditions established by Aetna, the
Certificate Holder may transfer all or any portion of the amount
allocated to a Subaccount to another Subaccount. The number of
Transfers allowed each year is shown on Schedule - Annuity Period.
Transfer requests must be submitted as a percentage of the
allocation among the Subaccounts. Aetna reserves the right to
establish a minimum transfer amount. Transfers will be effective as
of the Valuation Date in which Aetna receives a transfer request in
good order at its home office.
5.03 Terms of Annuity Payout Options:
(a) When payments start, the age of the Annuitant plus the number
of years for which payments are guaranteed must not exceed 95.
(b) An Annuity Payout Option may not be elected if the first
payment would be less than $50 or if the total payments in a
year would be less than $250 (less if required by state law).
Aetna reserves the right to increase the minimum first Annuity
Payment amount and the minimum annual Annuity Payment amount
based upon increases reflected in the Consumer Price
Index-Urban, (CPI-U) since July 1, 1993.
(c) If fixed Annuity Payments are chosen Aetna will use the
applicable current rate, based upon actual ages if it will
provide higher fixed Annuity Payments.
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(d) For purposes of calculating the first payment of variable or
guaranteed fixed Annuity Payments based on guaranteed rates,
the primary Annuitant's and secondary Annuitant's adjusted age
will be used. The primary Annuitant's and secondary
Annuitant's adjusted age is his or her age as of the birthday
closest to the Annuity Payments commencement date reduced by
one year for commencement dates occurring during the period of
time from July 1, 1993 through December 31, 1999. The primary
Annuitant's and secondary Annuitant's age will be reduced by
two years for commencement dates occurring during the period
of time from January 1, 2000 through December 31, 2009. The
primary Annuitant's and secondary Annuitant's age will be
reduced by one additional year for Annuity commencement dates
occurring in each succeeding decade.
The attached payment rates for Annuity Payout Options 2 and 3
are based on mortality from 1983 Table a.
(e) Assumed Interest Rate (AIR) is the interest rate used to
determine the amount of the first payment under variable
Annuity Payments as shown on Schedule - Annuity Period. The
Separate Account must earn this rate plus enough to cover the
mortality and expense risks charges (which may include
profit), administrative charges and any other Separate Account
fees if future variable Annuity Payments are to remain level,
(see Schedule - Annuity Period).
(f) Once elected, Annuity Payments cannot be commuted to a lump
sum except for variable Annuity Payments under Annuity Payout
Option 1. If such a lump sum is requested after the start of
payments, it will be treated as a withdrawal and will be
subject to any applicable Deferred Sales Charge (see Section I
- Deferred Sales Charge).
5.04 Death of Annuitant/Beneficiary:
(a) Certificate Holder is the Annuitant: When the Certificate
Holder is the Annuitant and the Annuitant dies under Annuity
Payout Option 1 or 2(b), or both the primary Annuitant and the
secondary Annuitant die under Annuity Payout Option 3(d), any
remaining payments will continue to the Beneficiary, or if
elected by the Beneficiary and not prohibited by the
Certificate Holder in the Beneficiary designation, the present
value of any remaining payments will be paid in one sum to the
Beneficiary. If Annuity Payout Option 3 has been elected and
the Certificate Holder dies, the remaining payments will
continue to the successor payee. If no successor payee has
been designated, the Beneficiary will be treated as the
successor payee. If the Account has joint Certificate Holders,
the surviving joint Certificate Holder will be deemed the
successor payee.
(b) Certificate Holder is not the Annuitant: When the Certificate
Holder is not the Annuitant and the Certificate Holder dies,
any remaining payments will continue to the successor payee.
If no successor payee has been designated, the Beneficiary
will be treated as the successor payee. If the Account has
joint Certificate Holders, the surviving joint Certificate
Holder will be deemed the successor payee.
If the Annuitant dies under Annuity Payout Option 1 or 2(b),
or both the primary Annuitant and secondary Annuitant die
under Annuity Payout Option 3(d), any remaining payments will
continue to the Beneficiary, or if elected by the Beneficiary
and not prohibited by the Certificate Holder in the
Beneficiary designation, the present value of any remaining
payments will be paid in one sum to the Beneficiary. If
Annuity Payout Option 3 has been elected and the Annuitant
dies, the remaining payments will continue to the Certificate
Holder.
(c) No Beneficiary Named/Surviving: If there is no Beneficiary,
the present value of any remaining payments will be paid in
one sum to the Certificate Holder, or if the Certificate
Holder is not living, then to the Certificate Holder's estate.
(d) If the Beneficiary or the successor payee dies while receiving
Annuity Payments, any remaining payments will continue to the
successor Beneficiary/payee or upon election by the successor
Beneficiary/payee, the present value of any remaining payments
will be paid in one sum to the successor Beneficiary/payee. If
no successor Beneficiary/payee has been designated, the
present value of any remaining payments will be paid in one
sum to the Beneficiary's/payee's estate.
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(e) The present value will be determined as of the Valuation Date
in which proof of death acceptable to Aetna and a request for
payment is received at Aetna's home office.
5.05 Annuity Units - Separate Account:
The number of annuity units is based on the amount of the first of
the variable Annuity Payments which is equal to:
(a) The portion of the Account Value applied to pay a variable
Annuity Payments (minus any applicable premium tax); divided
by
(b) 1,000; multiplied by
(c) The payment rate on the tables immediately following, for the
option chosen.
Such amount, or portion, of the variable Annuity Payments will be
divided by the appropriate annuity unit value (see Section V -
Annuity Unit Value - Separate Account) on the tenth Valuation Date
before the due date of the first payment to determine the number of
annuity units. The number of annuity units remains fixed. Each
future payment is equal to the sum of the products of each annuity
unit value multiplied by the appropriate number of annuity units.
The annuity unit value on the tenth Valuation Date prior to the due
date of the payment is used.
5.06 Annuity Unit Value - Separate Account:
For any Valuation Date, an annuity unit value is equal to:
(a) The value for the previous Valuation Date; multiplied by
(b) The annuity net return factor(s) (see Section V - Net Return
Factor(s) - Separate Account) for the Valuation Date;
multiplied by
(c) A factor to reflect the AIR (see Schedule - Annuity Period).
The annuity unit value and the amount of Annuity Payments may go up
or down due to investment gain or loss.
5.07 Net Return Factor(s) - Separate Account:
The net return factor(s) are used to compute all variable Annuity
Payments for any Subaccount.
The net return factor for each Subaccount is equal to 1.0000000 plus
the net return rate.
The net return rate is equal to:
(a) The value of the shares of the Subaccount at the end of a
Valuation Date; minus
(b) The value of the shares of the Subaccount at the start of the
Valuation Date; plus or minus
(c) Taxes (or reserves for taxes) on the Separate Account (if
any); divided by
(d) The total value of the annuity units at the start of the
Valuation Date; minus
(e) A daily charge for mortality and expense risks, which may
include profit, a daily administrative charge and any other
fees deducted from investments in the Separate Account.
A net return rate may be more or less than 0%.
The value of a share of the Subaccount is equal to the net assets of
the Subaccount divided by the number of shares outstanding.
Annuity Payments shall not be changed due to changes in the
mortality or expense results or administrative charges.
Page 25
<PAGE>
OPTION 1: Payments for a Specified Period
- --------------------------------------------------------------------------------
Monthly Amount for Each $1,000*
Rates for a Fixed Annuity with a 3% Guaranteed Interest Rate
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.61 21 $5.32
11 8.86 22 5.15
12 8.24 23 4.99
13 7.71 24 4.84
14 7.26 25 4.71
15 6.87 26 4.59
16 6.53 27 4.47
17 6.23 28 4.37
18 5.96 29 4.27
19 5.73 30 4.18
20 5.51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity with a 3.5% AIR
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.83 21 $5.56
11 9.09 22 5.24
12 8.46 23 5.24
13 7.94 24 5.09
14 7.49 25 4.96
15 7.10 26 4.84
16 6.76 27 4.73
17 6.47 28 4.63
18 6.20 29 4.53
19 5.97 30 4.45
20 5.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity with a 5% AIR
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $10.51 21 $6.33
11 9.77 22 6.17
12 9.16 23 6.02
13 8.64 24 5.88
14 8.20 25 5.76
15 7.82 26 5.65
16 7.49 27 5.54
17 7.20 28 5.45
18 6.94 29 5.36
19 6.71 30 5.28
20 6.51
- --------------------------------------------------------------------------------
* Net of any applicable premium tax deduction
Page 26
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed Option 2(c):
Annuitant life 5 years 10 years 15 years 20 years Cash Refund
Male Female Male Female Male Female Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.27 $3.90 $4.26 $3.90 $4.22 $3.89 $4.17 $3.86 $4.08 $3.82 $4.04 $3.78
51 4.34 3.97 4.33 3.96 4.30 3.95 4.23 3.92 4.14 3.88 4.10 3.84
52 4.43 4.03 4.41 4.03 4.37 4.01 4.30 3.98 4.20 3.93 4.16 3.89
53 4.51 4.10 4.50 4.10 4.45 4.08 4.37 4.04 4.26 3.99 4.23 3.95
54 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04 4.29 4.01
55 4.70 4.25 4.68 4.25 4.62 4.22 4.53 4.18 4.39 4.11 4.37 4.07
56 4.80 4.34 4.78 4.33 4.72 4.30 4.61 4.25 4.45 4.17 4.44 4.13
57 4.91 4.42 4.89 4.41 4.82 4.38 4.69 4.32 4.51 4.23 4.52 4.20
58 5.03 4.52 5.00 4.51 4.92 4.47 4.78 4.40 4.58 4.30 4.61 4.28
59 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.65 4.37 4.69 4.35
60 5.28 4.72 5.25 4.70 5.14 4.66 4.96 4.57 4.71 4.44 4.78 4.43
61 5.43 4.83 5.39 4.81 5.27 4.76 5.06 4.66 4.78 4.51 4.88 4.52
62 5.58 4.95 5.53 4.93 5.39 4.87 5.16 4.75 4.84 4.58 4.98 4.60
63 5.74 5.08 5.69 5.05 5.53 4.98 5.26 4.85 4.90 4.65 5.09 4.70
64 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72 5.20 4.80
65 6.10 5.36 6.03 5.32 5.81 5.22 5.46 5.05 5.02 4.79 5.31 4.90
66 6.30 5.51 6.21 5.47 5.96 5.36 5.56 5.16 5.08 4.86 5.44 5.01
67 6.51 5.67 6.41 5.63 6.12 5.50 5.66 5.26 5.13 4.93 5.56 5.12
68 6.73 5.85 6.62 5.80 6.28 5.65 5.77 5.37 5.18 5.00 5.70 5.24
69 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06 5.84 5.37
70 7.23 6.25 7.07 6.18 6.61 5.97 5.96 5.60 5.27 5.12 5.98 5.51
71 7.51 6.47 7.32 6.39 6.79 6.14 6.05 5.71 5.31 5.18 6.14 5.65
72 7.80 6.71 7.58 6.62 6.96 6.32 6.14 5.83 5.34 5.23 6.30 5.80
73 8.12 6.98 7.85 6.86 7.14 6.50 6.23 5.94 5.37 5.28 6.47 5.96
74 8.46 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32 6.65 6.13
75 8.82 7.57 8.45 7.40 7.50 6.89 6.38 6.14 5.42 5.35 6.83 6.31
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 27
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
- -------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
---------------------------------------------------------------------------------------------------
Male Female Male Female Male Female Male Female Male Female
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.56 $4.20 $4.55 $4.19 $4.51 $4.18 $4.45 $4.15 $4.36 $4.11
51 4.64 4.26 4.62 4.25 4.58 4.24 4.51 4.21 4.42 4.16
52 4.72 4.32 4.70 4.32 4.66 4.30 4.58 4.26 4.48 4.21
53 4.80 4.39 4.79 4.38 4.74 4.36 4.65 4.32 4.53 4.27
54 4.89 4.46 4.87 4.46 4.82 4.43 4.73 4.39 4.59 4.32
55 4.99 4.54 4.97 4.53 4.91 4.50 4.80 4.46 4.65 4.38
56 5.09 4.62 5.07 4.61 5.00 4.58 4.88 4.53 4.72 4.44
57 5.20 4.71 5.17 4.70 5.10 4.66 4.96 4.60 4.78 4.50
58 5.32 4.80 5.29 4.79 5.20 4.75 5.05 4.68 4.84 4.57
59 5.44 4.90 5.41 4.88 5.31 4.84 5.14 4.76 4.91 4.63
60 5.57 5.00 5.53 4.99 5.42 4.93 5.23 4.84 4.97 4.70
61 5.71 5.11 5.67 5.09 5.54 5.03 5.32 4.93 5.03 4.77
62 5.86 5.23 5.81 5.21 5.66 5.14 5.42 5.02 5.09 4.84
63 6.02 5.36 5.97 5.33 5.79 5.25 5.51 5.11 5.16 4.91
64 6.20 5.49 6.13 5.46 5.93 5.37 5.61 5.21 5.21 4.98
65 6.38 5.64 6.31 5.60 6.07 5.49 5.71 5.31 5.27 5.05
66 6.58 5.79 6.49 5.75 6.22 5.63 5.81 5.41 5.32 5.12
67 6.79 5.95 6.69 5.91 6.38 5.76 5.91 5.52 5.38 5.18
68 7.02 6.13 6.89 6.08 6.53 5.91 6.01 5.63 5.42 5.25
69 7.26 6.32 7.11 6.26 6.70 6.06 6.11 5.74 5.47 5.31
70 7.52 6.53 7.35 6.45 6.86 6.23 6.20 5.85 5.51 5.37
71 7.80 6.75 7.59 6.66 7.03 6.39 6.29 5.96 5.54 5.42
72 8.09 6.99 7.85 6.89 7.21 6.57 6.38 6.07 5.57 5.47
73 8.41 7.26 8.12 7.13 7.38 6.75 6.46 6.17 5.60 5.51
74 8.75 7.54 8.41 7.39 7.55 6.94 6.53 6.28 5.63 5.55
75 9.12 7.85 8.71 7.66 7.73 7.13 6.61 6.38 5.65 5.59
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 28
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
- -------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
---------------------------------------------------------------------------------------------------
Male Female Male Female Male Female Male Female Male Female
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $5.48 $5.12 $5.46 $5.11 $5.41 $5.09 $5.34 $5.06 $5.24 $5.01
51 5.55 5.17 5.53 5.17 5.48 5.14 5.40 5.11 5.29 5.05
52 5.63 5.23 5.61 5.23 5.55 5.20 5.46 5.16 5.34 5.10
53 5.71 5.30 5.69 5.29 5.62 5.26 5.53 5.22 5.40 5.15
54 5.80 5.37 5.77 5.36 5.70 5.33 5.60 5.27 5.45 5.20
55 5.89 5.44 5.86 5.43 5.79 5.39 5.67 5.34 5.51 5.25
56 5.99 5.52 5.96 5.51 5.87 5.47 5.74 5.40 5.56 5.31
57 6.10 5.60 6.06 5.59 5.97 5.54 5.82 5.47 5.62 5.37
58 6.21 5.69 6.17 5.67 6.06 5.62 5.90 5.54 5.68 5.42
59 6.33 5.79 6.29 5.77 6.17 5.71 5.98 5.61 5.74 5.48
60 6.46 5.89 6.41 5.87 6.28 5.80 6.06 5.69 5.79 5.55
61 6.60 6.00 6.55 5.97 6.39 5.90 6.15 5.77 5.85 5.61
62 6.75 6.11 6.69 6.08 6.51 6.00 6.24 5.86 5.91 5.67
63 6.91 6.23 6.84 6.20 6.64 6.10 6.33 5.95 5.96 5.73
64 7.09 6.37 7.00 6.33 6.77 6.22 6.42 6.04 6.02 5.80
65 7.27 6.51 7.18 6.46 6.91 6.34 6.52 6.13 6.07 5.86
66 7.47 6.66 7.36 6.61 7.05 6.46 6.61 6.23 6.12 5.92
67 7.68 6.82 7.55 6.76 7.20 6.60 6.70 6.33 6.16 5.99
68 7.91 7.00 7.76 6.93 7.35 6.74 6.80 6.43 6.21 6.04
69 8.15 7.19 7.98 7.11 7.51 6.89 6.89 6.54 6.25 6.10
70 8.41 7.39 8.21 7.30 7.67 7.04 6.97 6.64 6.28 6.15
71 8.69 7.62 8.45 7.51 7.83 7.21 7.06 6.74 6.32 6.20
72 8.99 7.86 8.70 7.73 8.00 7.38 7.14 6.85 6.35 6.25
73 9.31 8.12 8.97 7.97 8.16 7.55 7.21 6.95 6.37 6.29
74 9.65 8.41 9.26 8.23 8.33 7.73 7.29 7.04 6.39 6.33
75 10.02 8.72 9.55 8.50 8.50 7.92 7.35 7.14 6.41 6.36
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 29
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Primary Annuitant is Female and Secondary Annuitant is Male
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e) Option 3(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 50 $3.75 $4.07 $4.26 $3.75 $3.98 $3.72
55 55 3.88 4.25 4.47 3.87 4.06 3.85
55 60 3.99 4.44 4.71 3.98 4.12 3.94
60 55 4.06 4.47 4.71 4.06 4.37 4.02
60 60 4.24 4.71 4.99 4.23 4.47 4.17
60 65 4.38 4.97 5.32 4.38 4.54 4.29
65 60 4.49 5.01 5.32 4.48 4.89 4.39
65 65 4.72 5.33 5.70 4.71 5.02 4.59
65 70 4.93 5.68 6.15 4.91 5.14 4.74
70 65 5.07 5.75 6.17 5.05 5.60 4.87
70 70 5.40 6.21 6.70 5.36 5.79 5.13
70 75 5.69 6.68 7.32 5.62 5.96 5.29
75 70 5.89 6.82 7.40 5.81 6.63 5.48
75 75 6.37 7.45 8.15 6.23 6.92 5.78
75 80 6.78 8.11 8.99 6.54 7.15 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 30
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
Primary Annuitant Is Female and Secondary Annuitant Is Male
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.03 $4.36 $4.55 $4.03 $4.27
55 55 4.16 4.54 4.76 4.15 4.34
55 60 4.27 4.73 5.00 4.26 4.40
60 55 4.34 4.76 5.00 4.34 4.65
60 60 4.51 4.99 5.27 4.50 4.74
60 65 4.66 5.25 5.61 4.65 4.82
65 60 4.76 5.29 5.60 4.75 5.16
65 65 4.99 5.61 5.99 4.98 5.30
65 70 5.19 5.97 6.44 5.17 5.41
70 65 5.34 6.03 6.46 5.31 5.88
70 70 5.67 6.49 6.99 5.62 6.07
70 75 5.95 6.96 7.61 5.87 6.23
75 70 6.16 7.10 7.68 6.07 6.90
75 75 6.64 7.73 8.43 6.48 7.19
75 80 7.04 8.39 9.29 6.79 7.42
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 31
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
Primary Annuitant is Female and Secondary Annuitant is Male
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.93 $5.27 $5.46 $4.93 $5.17
55 55 5.04 5.44 5.66 5.04 5.23
55 60 5.15 5.63 5.91 5.14 5.29
60 55 5.21 5.65 5.89 5.21 5.53
60 60 5.37 5.87 6.16 5.37 5.62
60 65 5.52 6.14 6.51 5.51 5.70
65 60 5.61 6.16 6.49 5.60 6.03
65 65 5.83 6.49 6.87 5.82 6.15
65 70 6.04 6.84 7.34 6.00 6.27
70 65 6.17 6.90 7.33 6.13 6.73
70 70 6.49 7.35 7.87 6.44 6.91
70 75 6.77 7.84 8.51 6.68 7.07
75 70 6.97 7.96 8.56 6.87 7.75
75 75 7.45 8.60 9.33 7.27 8.04
75 80 7.86 9.28 10.20 7.57 8.27
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 32
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Primary Annuitant is Male and Secondary Annuitant is Female
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e) Option 3(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 50 $3.69 $4.05 $4.27 $3.69 $4.13 $3.67
55 55 3.88 4.25 4.47 3.87 4.25 3.85
55 60 4.06 4.47 4.71 4.06 4.36 4.02
60 55 3.99 4.44 4.71 3.98 4.55 3.94
60 60 4.24 4.71 4.99 4.23 4.70 4.17
60 65 4.49 5.01 5.32 4.48 4.85 4.39
65 60 4.38 4.97 5.32 4.38 5.10 4.29
65 65 4.72 5.33 5.70 4.71 5.32 4.59
65 70 5.07 5.75 6.17 5.05 5.54 4.87
70 65 4.93 5.68 6.15 4.91 5.86 4.74
70 70 5.40 6.21 6.70 5.36 6.18 5.13
70 75 5.89 6.82 7.40 5.81 6.49 5.48
75 70 5.69 6.68 7.32 5.62 6.92 5.29
75 75 6.37 7.45 8.15 6.23 7.40 5.78
75 80 7.07 8.34 9.16 6.78 7.85 6.17
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 33
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
Primary Annuitant is Male and Secondary Annuitant is Female
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $3.97 $4.35 $4.56 $3.97 $4.42
55 55 4.16 4.54 4.76 4.15 4.54
55 60 4.34 4.76 5.00 4.34 4.64
60 55 4.27 4.73 5.00 4.26 4.83
60 60 4.51 4.99 5.27 4.50 4.98
60 65 4.76 5.29 5.60 4.75 5.13
65 60 4.66 5.25 5.61 4.65 5.39
65 65 4.99 5.61 5.99 4.98 5.60
65 70 5.34 6.03 6.46 5.31 5.81
70 65 5.19 5.97 6.44 5.17 6.14
70 70 5.67 6.49 6.99 5.62 6.47
70 75 6.16 7.10 7.68 6.07 6.77
75 70 5.95 6.96 7.61 5.87 7.20
75 75 6.64 7.73 8.43 6.48 7.68
75 80 7.33 8.62 9.45 7.02 8.13
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 34
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
Primary Annuitant Is Male and Secondary Annuitant is Female
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.88 $5.26 $5.48 $4.88 $5.34
55 55 5.04 5.44 5.66 5.04 5.43
55 60 5.21 5.65 5.89 5.21 5.53
60 55 5.15 5.63 5.91 5.14 5.73
60 60 5.37 5.87 6.16 5.37 5.86
60 65 5.61 6.16 6.49 5.60 6.01
65 60 5.52 6.14 6.51 5.51 6.28
65 65 5.83 6.49 6.87 5.82 6.47
65 70 6.17 6.90 7.33 6.13 6.67
70 65 6.04 6.84 7.34 6.00 7.03
70 70 6.49 7.35 7.87 6.44 7.33
70 75 6.97 7.96 8.56 6.87 7.62
75 70 6.77 7.84 8.51 6.68 8.08
75 75 7.45 8.60 9.33 7.27 8.55
75 80 8.14 9.49 10.35 7.80 8.98
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 35
<PAGE>
================================================================================
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 238-6219
Group Variable, Fixed, or Combination Annuity Contract
Nonparticipating
================================================================================
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT, IF WITHDRAWN
BEFORE THE GUARANTEED TERM MATURITY DATE, MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT. THE MARKET VALUE ADJUSTMENT MAY RESULT IN AN INCREASE OR A DECREASE
IN THE ACCOUNT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED TERM AT THE TIME OF ITS MATURITY.
GM-VA-99(PB)
EXHIBIT 99-B.4.2
========================================================
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 238-6219
You may call the toll free number shown above to request
information about this Certificate.
Aetna Life Insurance and Annuity Company, a stock
company, herein called Aetna, agrees to pay the benefits
stated in this Certificate.
================================================================================
Certificate of Group To the Certificate Holder:
Annuity Coverage
Aetna certifies that coverage is in force for you under
the stated Group Annuity Contract and Account numbers.
All data shown here is taken from Aetna records and is
based upon information furnished by you.
This Certificate is a summary of the Group Annuity
Contract provisions. It replaces any and all prior
certificates or endorsements issued to you under the
stated Contract and Account numbers. This Certificate is
for information only and is not part of the Contract.
The variable features of the Group Contract are
described in parts III, IV and V.
================================================================================
Right to Cancel You may cancel your Account within 10 days by returning
the Certificate to the agent from whom it was purchased
or to Aetna at the address shown above. Within seven
days of receiving this Certificate at its home office,
Aetna will return the amount of Purchase Payment(s)
received, plus any increase, or minus any decrease, on
the amount, if any, of Purchase Payment(s) allocated to
the Separate Account Subaccount(s).
/s/ Thomas J. McInerney /s/ Kirk P. Wickman
President Secretary
- --------------------------------------------------------------------------------
Contract Holder Group Annuity Contract No.
SPECIMEN SPECIMEN
- --------------------------------------------------------------------------------
Certificate Holder Account No.
SPECIMEN SPECIMEN
SPECIMEN Account Effective Date
SPECIMEN
- --------------------------------------------------------------------------------
Annuitant Name Type of Plan
SPECIMEN SPECIMEN
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT, IF WITHDRAWN
BEFORE THE GUARANTEED TERM MATURITY DATE, MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT. THE MARKET VALUE ADJUSTMENT MAY RESULT IN AN INCREASE OR A DECREASE
IN THE ACCOUNT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED TERM AT THE TIME OF ITS MATURITY.
GMC-VA-99(PB)
<PAGE>
Specifications
- --------------------------------------------------------------------------------
Guaranteed There is a minimum guaranteed rate for Purchase
Rate Payment(s) held in the Guaranteed Account. (See
Schedule - Accumulation Period.)
- --------------------------------------------------------------------------------
Deductions from There will be deductions for mortality and expense
the Separate risk, administrative and if applicable other fees.
Account
- --------------------------------------------------------------------------------
Deduction from Purchase Payment(s) may be subject to a deduction for
Purchase premium taxes. (See Section III - Purchase Payment.)
Payment(s)
- --------------------------------------------------------------------------------
Deferred Sales There may be a charge deducted upon withdrawal. (See
Charge Schedule - Accumulation Period.)
The Contract is a legal contract and constitutes the entire legal relationship
between Aetna and the Contract Holder.
READ THIS CERTIFICATE CAREFULLY. THE CERTIFICATE SETS FORTH, IN DETAIL, ALL OF
THE RIGHTS AND OBLIGATIONS OF BOTH YOU AND AETNA UNDER THE CONTRACT. THEREFORE,
IT IS IMPORTANT THAT YOU READ THIS CERTIFICATE CAREFULLY.
Page 2
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option I selected. (See Section IV - Death Benefit Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.25%
-----
Total Separate Account Charges 1.40%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year. Aetna
reserves the right to charge $10 for each subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 3 years 8%
3 or more but less than 4 years 7%
4 or more but less than 5 years 6%
5 or more but less than 6 years 5%
6 or more but less than 7 years 4%
7 or more but less than 8 3%
8 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I Definitions - "Premium Bonus" for determining
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
85
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option I selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.25%
-----
Total Separate Account Charges 1.40%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year.
Thereafter, Aetna reserves the right to charge $10 for each
subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 2 years 7%
2 or more but less than 3 years 5%
3 or more but less than 4 years 4%
4 or more but less than 5 years 3%
5 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
85
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option II selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.45%
-----
Total Separate Account Charges 1.60%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year. Aetna
reserves the right to charge $10 for each subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 3 years 8%
3 or more but less than 4 years 7%
4 or more but less than 5 years 6%
5 or more but less than 6 years 5%
6 or more but less than 7 years 4%
7 or more but less than 8 3%
8 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
75
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Schedule - Accumulation Period
Death Benefit Option
================================================================================
Death Benefit Option II selected. (See Section IV - Death Benefit
Options.)
Separate Account
================================================================================
Separate Account
Variable Annuity Account B
Charges to Separate Account
A daily charge is deducted from any portion of the Account Value
allocated to the Separate Account. The deduction is the daily
equivalent of the annual effective percentage shown in the following
chart:
Administrative Charge 0.15%
Mortality and Expense Risk Charge 1.45%
-----
Total Separate Account Charges 1.60%
Guaranteed Account
================================================================================
Minimum Guaranteed Rate
3.0% (effective annual rate of return)
Separate Account and Guaranteed Account
================================================================================
Transfers
An unlimited number of Transfers are allowed during the Accumulation
Period. Aetna allows 12 free Transfers in any Account Year.
Thereafter, Aetna reserves the right to charge $10 for each
subsequent Transfer.
Maintenance Fee
The annual Maintenance Fee is $30. If the Account Value is $50,000
or more on the date the Maintenance Fee is to be deducted, the
Maintenance Fee is $0.
Page 3
<PAGE>
Schedule - Accumulation Period (continued)
Separate Account and Guaranteed Account
================================================================================
Deferred Sales Charge
For each withdrawal, the Deferred Sales Charge will be determined as
follows:
Deferred Sales Charge
Length of Time from Receipt of (as percentage of
Purchase Payment (Years) Purchase Payment)
--------------------------------------------------------------------
Less than 2 years 7%
2 or more but less than 3 years 5%
3 or more but less than 4 years 4%
4 or more but less than 5 years 3%
5 years or more 0%
Premium Bonus
Net Premium
Cumulative Purchase Payments Bonus Percentage
--------------------------------------------------------------------
$1,500 to $14,999 2.00%
$15,000 to $2,499,999 4.00%
$2,500,000 or more 5.00%
See Section I - Definitions - "Premium Bonus" to determine
eligibility to receive a Premium Bonus after the initial Purchase
Payment.
Initial Purchase Payment Required
$15,000 ($1,500 qualified plan). Aetna reserves the right to lower
that amount.
Maximum Issue Age of Owner and Annuitant
75
See Section I - DEFINITIONS for explanations.
Page 4
<PAGE>
Schedule - Annuity Period
Separate Account - Variable Annuity Payments
================================================================================
Charges to Separate Account
A daily charge is deducted at an annual effective rate of 1.25% for
mortality and expense risks. The administrative charge is
established upon election of an Annuity Payout Option. This charge
will not exceed 0.25%.
Assumed Interest Rate (AIR)
If variable Annuity Payments are chosen, an AIR of 5.0% may be
elected. If 5.0% is not elected, Aetna will use an AIR of 3.5%.
The AIR factor for 3.5% per year is 0.9999058.
The AIR factor for 5.0% per year is 0.9998663.
If the portion of a variable Annuity Payment for any Subaccount is
not to decrease, the annuity return factor under the Separate
Account for that Subaccount must be:
(a) 4.75% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence if an AIR of 3.5% is chosen; or
(b) 6.25% on an annual basis plus an annual return of up to 0.25%
to offset the administrative charge set at the time Annuity
Payments commence, if an AIR of 5% is chosen.
Transfers
When variable Annuity Payments have been elected, 12 Transfers are
allowed each Account Year among the Subaccounts available during the
Annuity Period. Aetna reserves the right to allow more than 12
Transfers in an Account Year.
General Account - Fixed Annuity Payments
================================================================================
Minimum Guaranteed Interest Rate
3.0% (effective annual rate of return)
See Section I - DEFINITIONS for explanations.
Page 5
<PAGE>
Table of Contents
I. DEFINITIONS PAGE
1.01 Account ............................................... 8
1.02 Account Effective Date ................................ 8
1.03 Account Value ......................................... 8
1.04 Account Year .......................................... 8
1.05 Accumulation Period ................................... 8
1.06 Adjusted Account Value ................................ 8
1.07 Annuitant ............................................. 8
1.08 Annuity Payments ...................................... 8
1.09 Annuity Payout Options ................................ 8
1.10 Annuity Period ........................................ 8
1.11 Beneficiary ........................................... 9
1.12 Certificate Holder .................................... 9
1.13 Claim Date ............................................ 9
1.14 Code .................................................. 9
1.15 Contract .............................................. 9
1.16 Contract Holder ....................................... 9
1.17 Deferred Sales Charge ................................. 9
1.18 Deposit Period ........................................ 9
1.19 Dollar Cost Averaging ................................. 9
1.20 Fund(s) ............................................... 10
1.21 General Account ....................................... 10
1.22 Guaranteed Account .................................... 10
1.23 Guaranteed Rates - Guaranteed Account ................. 10
1.24 Guaranteed Term ....................................... 10
1.25 Guaranteed Term(s) Groups ............................. 10
1.26 Maintenance Fee ....................................... 10
1.27 Market Value Adjustment (MVA) ......................... 11
1.28 Matured Term Value .................................... 11
1.29 Maturity Date ......................................... 11
1.30 Maturity Value Transfer ............................... 11
1.31 Net Cumulative Purchase Payment ....................... 11
1.32 Premium Bonus ......................................... 11
1.33 Purchase Payment(s) ................................... 11
1.34 Reinvestment .......................................... 11
1.35 Separate Account ...................................... 12
1.36 Subaccount(s) ......................................... 12
1.37 Systematic Distribution Option ........................ 12
1.38 Transfers ............................................. 12
1.39 Withdrawal Value ...................................... 12
1.40 Valuation Date ........................................ 12
II. GENERAL PROVISIONS
2.01 Change of Contract .................................... 12
2.02 Change of Fund(s) ..................................... 13
2.03 Nonparticipating Contract ............................. 13
2.04 Payments and Elections ................................ 13
2.05 State Laws ............................................ 13
2.06 Control of Contract ................................... 13
2.07 Designation of Beneficiary ............................ 14
2.08 Misstatements and Adjustments ......................... 14
2.09 Incontestability ...................................... 14
2.10 Grace Period .......................................... 14
2.11 Individual Certificates ............................... 14
Page 6
<PAGE>
III. PURCHASE PAYMENT, ACCOUNT VALUE, AND WITHDRAWAL PROVISIONS PAGE
3.01 Purchase Payment ...................................... 14
3.02 Premium Bonus ......................................... 15
3.03 Certificate Holder's Account .......................... 15
3.04 Accumulation Units - Separate Account ................. 15
3.05 Accumulation Unit Value - Separate Account ............ 15
3.06 Net Investment Factor(s) - Separate Account ........... 15
3.07 Market Value Adjustment (MVA) ......................... 16
3.08 Transfer of Account Value from the Subaccount(s) or
Guaranteed Account During the Accumulation Period ..... 17
3.09 Notice to the Certificate Holder ...................... 17
3.10 Loans ................................................. 17
3.11 Systematic Distribution Options ....................... 17
3.12 Liquidation of Withdrawal Value ....................... 18
3.13 Deferred Sales Charge ................................. 18
3.14 Payment of Withdrawal Value ........................... 18
3.15 Payment of Adjusted Account Value ..................... 19
3.16 Reinstatement ......................................... 19
IV DEATH BENEFIT
4.01 Death Benefit Options ................................. 19
4.02 Death Benefit Option I ................................ 19
4.03 Death Benefit Option II ............................... 20
4.04 Options Available to Beneficiary ...................... 21
V. ANNUITY PAYOUT PROVISIONS
5.01 Annuity Payout Options ................................ 22
5.02 Annuity Payment Choices ............................... 23
5.03 Terms of Annuity Payout Options ....................... 23
5.04 Death of Annuitant/Beneficiary ........................ 24
5.05 Annuity Units - Separate Account ...................... 25
5.06 Annuity Unit Value - Separate Account ................. 25
5.07 Annuity Net Return Factor(s) - Separate Account ....... 25
Page 7
<PAGE>
I. DEFINITIONS
================================================================================
1.01 Account:
A record that identifies contract values accumulated on each
Certificate Holder's behalf.
1.02 Account Effective Date:
The date on which an Account is established on a Certificate
Holder's behalf.
1.03 Account Value:
As of the most recent Valuation Date, the Account Value is equal to
the total of the Purchase Payment(s) made to the Account;
(a) Plus any Premium Bonus amount;
(b) Plus or minus the investment experience for the amount, if
any, allocated to one or more of the Subaccounts;
(c) Plus interest added to the amount, if any, allocated to the
Guaranteed Account;
(d) Plus any additional amount deposited to the Account (see
Section IV - Death Benefit);
(e) Less the amount of any Maintenance Fee deducted;
(f) Less any additional fee(s), charges, or taxes, if applicable,
deducted;
(g) Less any amount(s) withdrawn; and
(h) Less amount(s) applied to an Annuity Payout Option.
1.04 Account Year:
A period of twelve months measured from the Account Effective Date
or an anniversary of such Account Effective Date.
1.05 Accumulation Period:
The period during which the Purchase Payment(s) and Premium Bonus
are applied to an Account to provide future Annuity Payment(s).
1.06 Adjusted Account Value:
The Account Value plus or minus the aggregate Market Value
Adjustment (MVA), if applicable, for the amount(s) allocated to the
Guaranteed Account (see Section III - Market Value Adjustment).
1.07 Annuitant:
The person on whose death, during the Accumulation Period, a death
benefit becomes payable and on whose life or life expectancy the
Annuity Payments are based under the Contract.
1.08 Annuity Payment(s):
A series of payments for life, a definite period or a combination of
the two. The Annuity Payments may be variable or fixed in amount or
a combination of both.
1.09 Annuity Payout Options:
The Certificate Holder may choose to receive Annuity Payments under
one of the following options:
(a) For the life of one or two persons;
(b) For a stated period; or
(c) For some combination of (a) and (b).
1.10 Annuity Period:
The period during which Annuity Payments are made.
Page 8
<PAGE>
1.11 Beneficiary:
The individual(s) or entity(ies) entitled to receive any death
benefit due under the Contract. Any designated Beneficiary has the
right to name another Beneficiary. If the Account is owned by joint
Certificate Holders, the survivor will be deemed the designated
Beneficiary and any other Beneficiary on record will then be treated
as the primary or contingent Beneficiary, as originally designated,
unless and until changed by the new designated Beneficiary.
1.12 Certificate Holder:
A person who purchases an interest in the Contract as evidenced by a
certificate. Aetna reserves the right to limit ownership to natural
persons. If more than one Certificate Holder owns an Account, each
Certificate Holder will be a joint Certificate Holder. Joint
Certificate Holders have joint ownership rights and both must
authorize exercising any ownership rights unless Aetna allows
otherwise.
1.13 Claim Date:
The date when proof of death and the Beneficiary's entitlement to
the death benefit are received in good order at Aetna's home office.
This is also the date that the excess of the death benefit over the
Account Value, if any, is allocated to the money market fund
available through the Separate Account.
1.14 Code:
The Internal Revenue Code of 1986, as it may be amended from time to
time.
1.15 Contract:
The agreement between Aetna and the Contract Holder.
1.16 Contract Holder:
The entity to which the Contract is issued.
1.17 Deferred Sales Charge:
The charge that is applied to a Purchase Payment(s)upon withdrawal.
This charge may be waived under certain circumstances or after a
certain length of time (see Section III - Deferred Sales Charge).
1.18 Deposit Period:
A day, a calendar week, a calendar month, a calendar quarter, or any
other period of time specified by Aetna during which a Purchase
Payment(s), Transfer(s) and/or Reinvestment(s) may be allocated to
one or more Guaranteed Account Guaranteed Terms. Aetna reserves the
right to shorten or to extend the Deposit Period.
During a Deposit Period, Aetna may offer any number of Guaranteed
Terms and more than one Guaranteed Term of the same duration may be
offered.
1.19 Dollar Cost Averaging:
A program that permits the Certificate Holder to systematically
transfer amounts from one of the available Subaccounts, or an
available Guaranteed Account Guaranteed Term, to one or more of the
Subaccounts. If the Certificate Holder elects a Guaranteed Account
Guaranteed Term available for Dollar Cost Averaging, no MVA applies
to amounts transferred under Dollar Cost Averaging. If Dollar Cost
Averaging from a Guaranteed Account Guaranteed Term is discontinued
before the end of the Dollar Cost Averaging period elected, Aetna
will automatically transfer the balance to a Guaranteed Term of the
same duration and an MVA will apply. The Certificate Holder may
initiate a Transfer to another investment option and an MVA will
apply. If a Guaranteed Term of the same duration is not available,
Aetna will transfer the amount to the Guaranteed Term with the next
shortest duration. If no shorter Guaranteed Term is available, the
next longer Guaranteed Term will be used. Aetna reserves the right
to establish and change terms and conditions governing Dollar Cost
Averaging.
Page 9
<PAGE>
1.20 Fund(s):
The open-end registered management investment companies whose shares
are purchased by the Separate Account to fund the benefits provided
by the Contract.
The Funds, and the number of Funds, available during the
Accumulation Period may be different from those available during the
Annuity Period. Aetna reserves the right to limit the number of
Funds available at any one time and to limit the number of
investment options the Certificate Holder may select during the
Accumulation Period and/or during the Annuity Period.
1.21 General Account:
The account holding the assets of Aetna, other than those assets
held in Aetna's separate accounts.
1.22 Guaranteed Account:
A nonunitized separate account, established by Aetna under
Connecticut Law that holds assets for Guaranteed Terms. There are no
discrete units for this account. The Certificate Holder does not
participate in any gain or loss resulting from the performance of
the investments held in the account. Income, gains or losses
realized or unrealized, are gains or losses of Aetna. Aetna
liabilities, except for liabilities under the contract and reserves
required by federal and state law, may not be charged against the
nonunitized separate account.
1.23 Guaranteed Rates - Guaranteed Account:
Aetna will declare the interest rate(s) applicable to a specific
Guaranteed Term at the start of the Deposit Period for that
Guaranteed Term. The rate(s) are guaranteed by Aetna for the period
beginning with the first day of the Deposit Period and ending on the
Maturity Date. Guaranteed Rates are credited beginning with the date
of allocation. The Guaranteed Rates are annual effective yields.
That is, interest is credited daily at a rate that will produce the
Guaranteed Rate over the period of a year. No Guaranteed Rate will
ever be less than the minimum Guaranteed Rate shown on the Schedule
- Accumulation Period.
For Guaranteed Terms of one year or less, one Guaranteed Rate is
credited for the full Guaranteed Term. For longer Guaranteed Terms,
an initial Guaranteed Rate is credited from the date of deposit to
the end of a specified period within the Guaranteed Term. There may
be different Guaranteed Rate(s) declared for subsequent specified
time intervals throughout the Guaranteed Term.
Aetna may offer more than one Guaranteed Term of the same duration
and credit one with a higher rate contingent upon use only with
Dollar Cost Averaging.
1.24 Guaranteed Term:
The period of time specified by Aetna for which a specific
Guaranteed Rate(s) is offered on amounts invested during a specific
Deposit Period. Guaranteed Terms are made available subject to
Aetna's terms and conditions, including, but not limited to, Aetna's
right to restrict allocations to new Purchase Payments (such as by
prohibiting Transfers into a particular Guaranteed Term from any
other Guaranteed Term or from any of the Subaccounts, or by
prohibiting Reinvestment of a Matured Term Value to a particular
Guaranteed Term). More than one Guaranteed Term of the same duration
may be offered within the Contract.
1.25 Guaranteed Term(s) Groups:
All Guaranteed Account Guaranteed Term(s) of the same duration (from
the close of the Deposit Period until the designated Maturity Date).
1.26 Maintenance Fee:
The Maintenance Fee (see Schedule - Accumulation Period) will be
deducted during the Accumulation Period from the Account Value on
each anniversary of the Account Effective Date and upon withdrawal
of the entire Account Value.
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1.27 Market Value Adjustment (MVA):
An adjustment that may apply to an amount withdrawn or transferred
from a Guaranteed Account Guaranteed Term prior to the end of that
Guaranteed Term. The adjustment reflects the change in the value of
the investment due to changes in interest rates since the date of
deposit and is computed using the formula given. The adjustment is
expressed as a percentage of each dollar being withdrawn (see
Section III- Market Value Adjustment).
1.28 Matured Term Value:
The amount due on a Guaranteed Account Guaranteed Term's Maturity
Date.
1.29 Maturity Date:
The last day of a Guaranteed Account Guaranteed Term.
1.30 Maturity Value Transfer:
During the calendar month following a Guaranteed Account Maturity
Date, the Certificate Holder may notify Aetna's home office in
writing to Transfer or withdraw all or part of the Matured Term
Value, plus accrued interest at the new Guaranteed Rate, from the
Guaranteed Account without an MVA. This provision only applies to
the first such written request received from the Certificate Holder
during this period for any Matured Term Value.
1.31 Net Cumulative Purchase Payment:
The sum of the Purchase Payments minus any amounts withdrawn.
1.32 Premium Bonus:
A percentage of an applicable Purchase Payment (as shown on the
Schedule-Accumulation Period) that is credited to a Certificate
Holder's Account by Aetna. This amount is in addition to the
Purchase Payment.
The amount of Purchase Payment eligible for such Premium Bonus is
equal to the Net Cumulative Purchase Payment amount minus the sum of
Purchase Payments upon which a Premium Bonus has previously been
paid.
1.33 Purchase Payment(s):
The Purchase Payment(s) less premium taxes, if applicable, accepted
by Aetna at its home office. Aetna reserves the right to refuse to
accept any Purchase Payment at any time for any reason. No advance
notice will be given to the Contract Holder or Certificate Holder.
1.34 Reinvestment:
Aetna will mail a notice to the Certificate Holder at least 18
calendar days before a Guaranteed Term's Maturity Date. This notice
will contain the Terms available during current Deposit Periods with
their Guaranteed Rate(s), and projected Matured Term Value. If no
specific direction is given by the Certificate Holder prior to the
Maturity Date, each Matured Term Value will be reinvested in the
current Deposit Period for a Guaranteed Term of the same duration.
If a Guaranteed Term of the same duration is unavailable, each
Matured Term Value will automatically be reinvested in the current
Deposit Period for the next shortest Guaranteed Term available. If
no shorter Guaranteed Term is available, the next longer Guaranteed
Term will be used. Aetna will mail a confirmation statement to the
Certificate Holder the next business day after the Maturity Date.
This notice will state the Guaranteed Term and Guaranteed Rate(s)
which will apply to the reinvested Matured Term Value.
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1.35 Separate Account:
A separate account that buys and holds shares of the Fund(s).
Income, gains or losses, realized or unrealized, are credited or
charged to the Separate Account without regard to other income,
gains or losses of Aetna. Aetna owns the assets held in the Separate
Account and is not a trustee as to such amounts. The Separate
Account generally is not guaranteed and is held at market value. The
assets of the Separate Account, to the extent of reserves and other
contract liabilities of the Separate Account, shall not be charged
with other Aetna liabilities.
1.36 Subaccount(s):
The portion of the assets of the Separate Account that is allocated
to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
1.37 Systematic Distribution Option:
An option elected by the Certificate Holder during the Accumulation
Period which establishes a schedule of withdrawals to be made
automatically from the Certificate Holder's Account.
1.38 Transfers:
The movement of invested amounts among the available Subaccount(s)
and/or any Guaranteed Account Guaranteed Term made available,
subject to terms and conditions established by Aetna, during the
Accumulation Period or the Annuity Period.
1.39 Withdrawal Value:
The amount payable by Aetna upon the withdrawal of any portion of
the Account Value.
1.40 Valuation Date:
The date and time for which a Subaccount calculates its net asset
value, usually from 4:00 p.m. Eastern time each day the New York
Stock Exchange is open, to 4:00 p.m. the next such business day.
II. GENERAL PROVISIONS
================================================================================
2.01 Change of Contract:
Only an authorized officer of Aetna may change the terms of the
Contract. Aetna will notify the Contract Holder in writing at least
30 days before the effective date of any change. Any change will not
affect the amount or terms of any Annuity Payout Option which begins
before the change.
Aetna may make any change that affects the Market Value Adjustment
(see Section III- Market Value Adjustment) with at least 30 days
advance written notice to the Contract Holder and the Certificate
Holder. Any such change shall become effective for any new
Guaranteed Term and will apply to all present and future Accounts.
Any change that affects any of the following under the Contract will
not apply to Accounts in existence before the effective date of the
change:
(a) Account Value
(b) Guaranteed Rates - Guaranteed Account
(c) Purchase Payment
(d) Withdrawal Value
(e) Transfers
(f) Net Investment Factor(s) - Separate Account (see Section III)
(g) Minimum Guaranteed Interest Rates
(h) Annuity Unit Value - Separate Account (see Section V)
(i) Annuity Payout Options (see Section V).
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Any change that affects the Annuity Payout Options and the tables
for the Annuity Payout Options may be made:
(a) No earlier than 12 months after the Account Effective Date;
and
(b) No earlier than 12 months after the effective date of any
prior change.
Any Account established on or after the effective date of any change
will be subject to the change. If the Contract Holder does not agree
to any change under this provision, no new Accounts may be
established under the Contract. The Contract may also be changed as
deemed necessary by Aetna to comply with federal or state law.
2.02 Change of Fund(s):
The assets of the Separate Account are segregated by Fund. If the
shares of any Fund are no longer available for investment by the
Separate Account or if, in our judgment, further investment in such
shares should become inappropriate in view of the purpose of the
Contract, Aetna may cease to make such Fund shares available for
investment under the Contract prospectively, or Aetna may substitute
shares of another Fund for shares already acquired. Aetna may also,
from time to time, add additional Funds. Any elimination,
substitution or addition of Funds will be done in accordance with
applicable state and federal securities laws. Aetna reserves the
right to substitute shares of another Fund for shares already
acquired without a proxy vote.
2.03 Nonparticipating Contract:
The Contract Holder, Certificate Holders or Beneficiaries will not
have a right to share in the earnings of Aetna.
2.04 Payments and Elections:
While the Certificate Holder is living, Aetna will pay the
Certificate Holder any Annuity Payments as and when due. After the
Certificate Holder's death, or at the death of the first Certificate
Holder if the Account is owned jointly, any Annuity Payments
required to be made will be paid in accordance with Section III -
Death of Annuitant/Beneficiary. Aetna will determine other payments
and/or elections as of the end of the Valuation Date in which the
request is received at its home office. Such payments will be made
within seven calendar days of receipt at its home office of a
written claim for payment which is in good order, except as provided
in Section III - Payment of Withdrawal Value.
2.05 State Laws:
The Contract and Certificate comply with the laws of the state in
which they are delivered. Any withdrawal, death benefit amount, or
Annuity Payments are equal to or greater than the minimum required
by such laws. Annuity tables for legal reserve valuation shall be as
required by state law. Such tables may be different from annuity
tables used to determine Annuity Payments.
2.06 Control of Contract:
The Contract is between the Contract Holder and Aetna. The Contract
Holder has title to the Contract. Contract Holder rights are limited
to accepting or rejecting Contract modifications. The Certificate
Holder has all other rights to amounts held in his or her Account.
Each Certificate Holder shall own all amounts held in his or her
Account. Each Certificate Holder may make any choices allowed by the
Contract for his or her Account. Choices made under the Contract
must be in writing. If the Account is owned jointly, both joint
Certificate Holders must authorize any Certificate Holder change in
writing. Until receipt of such choices at Aetna's home office, Aetna
may rely on any previous choices made.
The Contract is not subject to the claims of any creditors of the
Contract Holder or the Certificate Holder, except to the extent
permitted by law.
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The Certificate Holder may assign or transfer his or her rights
under the Contract. Aetna reserves the right not to accept
assignment or transfer to a nonnatural person. Any assignment or
transfer made under the Contract must be submitted to Aetna's home
office in writing and will not be effective until accepted by Aetna.
2.07 Designation of Beneficiary:
Each Certificate Holder shall name his or her Beneficiary and when
designating the Beneficiary may elect to specify in writing the form
of payment to the Beneficiary. Aetna will honor the specified form
of payment to the extent permitted under section 72(s) of the Code.
If the Account is owned jointly, both joint Certificate Holders must
agree in writing to the Beneficiary designated. The Beneficiary may
be changed at any time unless an irrevocable Beneficiary is
designated. Changes to a Beneficiary must be submitted to Aetna's
home office in writing and will not be effective until accepted by
Aetna. We will accept a change of Beneficiary designation after the
date of death and treat such Beneficiary designation as in effect as
of the date of death provided no portion of the death benefit has
been paid. If the Account is owned jointly, at the death of one
joint Certificate Holder, the survivor will be deemed the designated
Beneficiary; any other Beneficiary on record will then be treated as
a primary or a contingent Beneficiary, as originally designated
unless and until changed by the new designated Beneficiary. If a
designated Beneficiary defers taking payment of a death benefit, the
designated Beneficiary has the right to name another Beneficiary.
2.08 Misstatements and Adjustments:
If Aetna finds the age of any Annuitant to be misstated, the correct
facts will be used to adjust payments.
2.09 Incontestability:
After two years, the Contract will be incontestable.
2.10 Grace Period:
The Contract will remain in effect even if Purchase Payments are not
continued except as provided in the Payment of Adjusted Account
Value provision (see Section III - Payment of Adjusted Account
Value).
2.11 Individual Certificates:
Aetna shall issue a certificate to each Certificate Holder. The
certificate will summarize certain provisions of the Contract.
Certificates are for information only and are not a part of the
Contract.
III. PURCHASE PAYMENT, ACCOUNT VALUE, AND WITHDRAWAL PROVISIONS
================================================================================
3.01 Purchase Payment:
This amount is the actual Purchase Payment, less any premium taxes.
Aetna reserves the right to pay premium taxes when due and deduct
the amount from the Account Value when we pay the tax or at a later
date.
Each Purchase Payment will be allocated, as directed by the
Certificate Holder, among:
(a) Guaranteed Account Guaranteed Terms made available, subject to
terms and conditions established by Aetna; and/or
(b) The Subaccount(s) offered through the Separate Account.
For each Purchase Payment, the Certificate Holder shall tell Aetna
the percentage of each Purchase Payment to allocate to any available
Guaranteed Account Guaranteed Term and/or each Subaccount. Unless
different allocation instructions are received for any additional
Purchase Payment, the allocation will be the same as for the initial
Purchase Payment. If the same Guaranteed Term is no longer
available, the Purchase Payment will be allocated to the next
shortest Guaranteed Term available in the current Deposit Period. If
no shorter Guaranteed Term is available, the next longer Guaranteed
Term will be used.
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3.02 Premium Bonus:
A Premium Bonus of a certain percentage based on Net Cumulative
Purchase Payment(s) will be allocated to the Account. The applicable
percentage is shown on the Schedule - Accumulation Period. The
eligibility for a Premium Bonus is determined in accordance with
Section I - Definitions "Premium Bonus".
The Premium Bonus will not be included in the Account Value and will
be forfeited under the following circumstances:
(a) If the Certificate Holder exercises the right to cancel; or
(b) If the Certificate Holder applies the Adjusted Account Value
(minus any premium tax, if applicable) to any Annuity Payout
Option to the extent that a Premium Bonus has been allocated
within 24 months; or
(c) If the Certificate Holder dies, to the extent that a Premium
Bonus has been allocated after or within 12 months of the date
of death.
The Premium Bonus will be applied pro-rata to each Fund or
Guaranteed Term in the same ratio as the Purchase Payment is
allocated unless otherwise specified.
3.03 Certificate Holder's Account:
Aetna will maintain an Account for each Certificate Holder.
Aetna will declare from time to time the acceptability and the
minimum amount for initial and additional Purchase Payments.
3.04 Accumulation Units - Separate Account:
The portion of the Purchase Payment(s) applied to each Subaccount
under the Separate Account will determine the number of accumulation
units for that Subaccount. This number is equal to the portion of
the Purchase Payment(s) applied to each Subaccount divided by the
accumulation unit value (see Section III - Accumulation Unit Value
Separate Account) for the Valuation Date in which the Purchase
Payment is received in good order at Aetna's home office.
3.05 Accumulation Unit Value - Separate Account:
An accumulation unit value is computed by multiplying the net
investment factor for the current Valuation Date by the accumulation
unit value for the previous Valuation Date. The dollar value of
accumulation units, Separate Account assets, and variable Annuity
Payments may go up or down due to investment gain or loss.
3.06 Net Investment Factor(s) - Separate Account:
The net investment factor is used to measure the investment
performance of a Subaccount from one Valuation Date to the next. The
net investment factor for a Subaccount for any Valuation Date is
equal to the sum of 1.0000 plus the net investment rate. The net
investment rate equals:
(a) The net assets of the Subaccount on the current Valuation
Date; minus
(b) The net assets of the Subaccount on the preceding Valuation
Date; plus or minus
(c) Taxes or provisions for taxes, if any, attributable to the
operation of the Subaccount; divided by
(d) The total value of the Subaccount's accumulation and annuity
units on the preceding Valuation Date; minus
(e) A daily charge for mortality and expense risks, administrative
charges and any other fees deducted from investments in the
Separate Account.
The net investment rate may be either positive or negative.
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3.07 Market Value Adjustment (MVA):
An MVA will apply to any withdrawal from the Guaranteed Account
before the end of a Guaranteed Term when the withdrawal is:
(a) A Transfer (including a Transfer from a Guaranteed Account
Guaranteed Term if Dollar Cost Averaging is discontinued);
except for Transfers under Dollar Cost Averaging, or as
specified in Section I - Maturity Value Transfer;
(b) A full or partial withdrawal (excluding a free withdrawal, see
Section III - Deferred Sales Charge), except for a payment
made:
(1) Under a Systematic Distribution Option to the extent
that it does not exceed 10% of the Account Value in an
Account Year (an MVA will apply to any amount that
exceeds 10% unless such amount is required to meet the
minimum distribution requirements); or
(2) Under a qualified Contract, when the amount withdrawn is
equal to the required minimum distribution for the
Account calculated using a method permitted under the
Code and agreed to by Aetna; or
(c) Due to an election of Annuity Payout Option 1. Only a positive
MVA will apply upon election of Annuity Payout Option 2 or 3
(see Section V - Annuity Payout Options).
Full and partial withdrawals and Transfers made within six months
after the date of the Annuitant's death will be the greater of:
(a) The aggregate MVA amount which is the sum of all market value
adjusted amounts resulting from a withdrawal(s). This total
may be greater or less than the Account Value of those
amounts; or
(b) The applicable portion of the Account Value in the Guaranteed
Account.
After the six-month period, the withdrawal or Transfer will be the
aggregate MVA amount, which may be greater or less than the Account
Value of those amounts.
Market value adjusted amounts will be equal to the amount withdrawn
multiplied by the following ratio:
(1 + i)^(x/365)
-------
(1 + j)^(x/365)
Where:
i is the Deposit Period yield
j is the current yield
x is the number of days remaining in the Guaranteed Term,
computed from Wednesday of the week of withdrawal.
The Deposit Period yield will be determined as follows:
(a) At the close of the last business day of each week of the
Deposit Period, a yield will be computed as the average of the
yields on that day of U.S. Treasury Notes which mature in the
last three months of the Guaranteed Term.
(b) The Deposit Period yield is the average of those yields for
the Deposit Period. If withdrawal is made before the close of
the Deposit Period, it is the average of those yields on each
week preceding withdrawal.
The current yield is the average of the yields on the last business
day of the week preceding withdrawal on the same U.S. Treasury Notes
included in the Deposit Period yield.
In the event that no U.S. Treasury Notes which mature in the last
three months of the Guaranteed Term exist, Aetna reserves the right
to use the U.S. Treasury Notes that mature in the following quarter.
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3.08 Transfer of Account Value from the Subaccount(s) or Guaranteed Account
During the Accumulation Period:
Before an Annuity Payout Option is elected, all or any portion of
the Adjusted Account Value of the Certificate Holder's Account may
be transferred from any Subaccount or Guaranteed Term of the
Guaranteed Account:
(a) To any other Subaccount; or
(b) To any Guaranteed Term of the Guaranteed Account made
available in the current Deposit Period, subject to terms and
conditions specified by Aetna.
Transfer requests can be submitted as a percentage or as a dollar
amount. Aetna may establish a minimum transfer amount. Within a
Guaranteed Term Group, the amount to be withdrawn or transferred
will be withdrawn first from the oldest Deposit Period, then from
the next oldest, and so on until the amount requested is satisfied.
The Certificate Holder may make an unlimited number of Transfers
during the Accumulation Period. The number of free Transfers allowed
by Aetna is shown on the Schedule - Accumulation Period. Additional
Transfers may be subject to a Transfer fee as shown on the Schedule
- Accumulation Period.
Amounts transferred from the Guaranteed Account under the Dollar
Cost Averaging program, or amounts transferred as a Matured Term
Value on or within one calendar month of a Maturity Date are not
subject to any Transfer fee and do not count against the annual
number of free Transfers.
Amounts allocated to Guaranteed Account Guaranteed Terms may not be
transferred to the Subaccounts or to another Guaranteed Term during
a Deposit Period or for 90 days after the close of a Deposit Period
except for:
(a) Matured Term Value(s) during the calendar month following the
Maturity Date;
(b) Amounts applied to an Annuity Payout Option;
(c) Amounts transferred under the Dollar Cost Averaging program;
(d) Amounts distributed under a Systematic Distribution Option;
and
(e) Amounts transferred by Aetna if Dollar Cost Averaging is
discontinued.
3.09 Notice to the Certificate Holder:
The Certificate Holder will receive quarterly statements from Aetna
of:
(a) The value of any amounts held in:
(1) The Guaranteed Account; and
(2) The Subaccount(s) under the Separate Account;
(b) The number of any accumulation units; and
(c) The accumulation unit value.
Such number or values will be as of a specific date no more than 60
days before the date of the notice.
3.10 Loans:
Loans are not available under the Contract.
3.11 Systematic Distribution Options:
Aetna may, from time to time, make one or more Systematic
Distribution Options available during the Accumulation Period. When
a Systematic Distribution Option is elected, Aetna will make
automatic payments from the Certificate Holder's Account.
Any Systematic Distribution Option will be subject to the following
criteria:
(a) Any Systematic Distribution Option will be made available on
the basis of objective criteria consistently applied;
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(b) The availability of any Systematic Distribution Option may be
limited by terms and conditions applicable to the election of
such Systematic Distribution Option; and
(c) Aetna may discontinue the availability of a Systematic
Distribution Option at any time. Except to the extent required
to comply with applicable law, discontinuance of a Systematic
Distribution Option will apply only to future elections and
will not affect Systematic Distribution Options in effect at
the time an option is discontinued.
3.12 Liquidation of Withdrawal Value:
All or any portion of the Account Value may be withdrawn at any
time. Withdrawal requests may be submitted as a percentage of the
Account Value or as a specific dollar amount. Purchase Payment
amounts are withdrawn first, and then the excess value, if any.
Partial withdrawal amounts are withdrawn on a pro rata basis from
the Subaccount(s) and/or the Guaranteed Term(s) Groups of the
Guaranteed Account in which the Account Value is invested. Within a
Guaranteed Term Group, the amount to be withdrawn or transferred
will be withdrawn first from the oldest Deposit Period, then from
the next oldest, and so on until the amount requested is satisfied.
After deduction of the Maintenance Fee, if applicable, the withdrawn
amount shall be reduced by a Deferred Sales Charge, if applicable.
An MVA may apply to amounts withdrawn from the Guaranteed Account.
3.13 Deferred Sales Charge:
The Deferred Sales Charge only applies to the Purchase Payment(s)
portion withdrawn and varies according to the elapsed time since
deposit (see Schedule - Accumulation Period). Purchase Payment
amounts are withdrawn in the same order they were applied.
No Deferred Sales Charge is deducted from any portion of the
Purchase Payment which is paid:
(a) To a Beneficiary due to the Annuitant's death before Annuity
Payments start, up to a maximum of the aggregate Purchase
Payment(s) minus the total of all partial surrenders and
deductions made prior to the Annuitant's date of death;
(b) For an Annuity Payout Option (see Section V - Annuity Payout
Provisions);
(c) For a full withdrawal of the Account where the Account Value
is $2,500 or less and no withdrawals have been taken from the
Account within the prior 12 months;
(d) By Aetna under Section III - Payment of Adjusted Account
Value;
(e) Under a qualified Contract when the amount withdrawn is equal
to the minimum distribution required by the Code for the
Account, either paid under a Systematic Distribution Option or
calculated by the Certificate Holder using a method permitted
under the Code and agreed to by Aetna;
(f) As a withdrawal of up to 10% of the Account Value on the
Account anniversary in any Account Year less any amounts taken
as a Systematic Distribution Option or as a required minimum
distribution as described in (e) above. Aetna reserves the
right to increase the percentage of the free withdrawal
amount. The free withdrawal amount includes any Premium Bonus
amount applied.
3.14 Payment of Withdrawal Value:
Under certain emergency conditions, Aetna may defer payment:
(a) For a period of up to six months (unless not allowed by state
law); or
(b) As provided by federal law.
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3.15 Payment of Adjusted Account Value:
Upon 90 days written notice to the Certificate Holder, Aetna will
terminate any Account if the Account Value becomes less than $2,500
immediately following any partial withdrawal. Aetna does not intend
to exercise this right in cases where an Account is reduced to
$2,500 or less solely due to investment performance. A Deferred
Sales Charge will not be deducted from the Adjusted Account Value,
however, any Premium Bonus applied within 12 months of the
termination will be deducted from the Account Value.
3.16 Reinstatement:
The Certificate Holder may reinstate the proceeds of a full
withdrawal, subject to terms and conditions established by Aetna.
IV. DEATH BENEFIT
================================================================================
4.01 Death Benefit Options:
If the Certificate Holder or Annuitant dies before an Annuity Payout
Option starts, the Beneficiary is entitled to a death benefit. If
the Account is owned jointly, the death benefit applies at the death
of the first joint Certificate Holder to die (see Section IV -
Options Available to Beneficiary). The death benefit option selected
is reflected on the Schedule-Accumulation Period.
4.02 Death Benefit Option I:
The amount of the death benefit is determined as follows:
(a) Death of the Annuitant.
The death benefit calculated as of the Claim Date is the
greater of:
(1) The sum of all Purchase Payment(s) made, adjusted for
amount(s) withdrawn or applied to an Annuity Payout
Option; or
(2) The Account Value on the Claim Date, less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death.
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 fund
available through the Separate Account.This increases
the Account Value available to the Beneficiary to an
amount equal to the death benefit.
The amount paid to the Beneficiary will equal the
Adjusted Account Value on the date the payment request
is processed. This amount may be greater or less than
the amount of the death benefit on the Claim Date. The
Beneficiary may elect a death benefit payment option as
permitted in Section IV - Options Available to
Beneficiary.
(b) Death of the Certificate Holder if the Certificate Holder is
not the Annuitant.
On the Claim Date, the amount of the death benefit equals the
Account Value less any Premium Bonus allocated to the Account
after or within 12 months of the date of death.
The amount paid to the Beneficiary will equal the Adjusted
Account Value on the date the payment request is processed. A
Deferred Sales Charge may apply to any full or partial payment
of the death benefit. The Beneficiary may elect a death
benefit payment option as permitted in Section IV - Options
Available to Beneficiary.
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(c) Death of a spouse who becomes a successor Certificate
Holder/Annuitant.
The amount of the death benefit paid to the Beneficiary at the
death of a successor Certificate Holder/Annuitant is the
greater of the values as described in (a) above except that in
calculating (a)(1), the Account Value on the Claim Date for
the prior Certificate Holder's death is treated as the initial
Purchase Payment.
4.03 Death Benefit Option II:
The amount of the death benefit is determined as follows:
(a) Death of the Annuitant.
The death benefit calculated as of the Claim Date is the
greatest of:
(1) The sum of all Purchase Payment(s) made, adjusted for
amount(s) withdrawn or applied to an Annuity Payout
Option; or
(2) The Account Value on the Claim Date, less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death; or
(3) The "Step-up Value" on the Claim Date less any Premium
Bonus allocated to the Account after or within 12 months
of the date of death.
On the Account Effective Date, the Step-up Value is
equal to the Account Value. Thereafter, on each
anniversary of the Account 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:
(a) The Step-up Value most recently calculated,
adjusted for Purchase Payment(s) made, any Premium
Bonus allocated and amount(s) withdrawn or applied
to an Annuity Payout Option during the prior
Account Year; or
(b) The Account Value on that anniversary of the
Account Effective Date.
On each anniversary of the Account Effective Date after
the Annuitant's 85th birthday, the Step-up Value shall
equal the Step-up Value on the anniversary immediately
preceding the Annuitant's 85th birthday, adjusted for
Purchase Payment(s) made, Premium Bonus allocated and
amounts withdrawn or applied to an Annuity Payout Option
since that anniversary.
On the Claim Date, the Step-up Value shall equal the
Step-up Value on the anniversary of the Account
Effective Date immediately preceding the date of death,
adjusted for Purchase Payment(s) made and amount(s)
withdrawn or applied to an Annuity Payout Option since
that anniversary, less any Premium Bonus allocated to
the Account after or within 12 months of the date of
death.
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 fund available through the Separate Account. This
increases the Account Value available to the Beneficiary to an
amount equal to the death benefit.
The amount paid to the Beneficiary will equal the Adjusted Account
Value on the date the payment request is processed. This amount may
be greater or less than the amount of the death benefit on the Claim
Date. The Beneficiary may elect a death benefit payment option as
permitted in Section IV - Options Available to the Beneficiary.
(b) Death of the Certificate Holder if the Certificate Holder is
not the Annuitant.
On the Claim Date, the amount of the death benefit equals the
Account Value less any Premium Bonus allocated to the Account
after or within 12 months of the date of death.
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The amount paid to the Beneficiary will equal the Adjusted
Account Value on the date the payment request is processed. A
Deferred Sales Charge may apply to any full or partial payment
of the death benefit. The Beneficiary may elect a death
benefit payment option as permitted in Section IV - Options
Available to the Beneficiary.
(c) Death of a spouse who becomes a successor Certificate Holder/
Annuitant.
The amount of the death benefit paid to the Beneficiary at the
death of a successor Certificate Holder/Annuitant is the
greater of the values as described in (a) above except that in
calculating (a)(1), the Account Value on the Claim Date for
the prior Certificate Holder's death is treated as the initial
Purchase Payment.
4.04 Options Available to Beneficiary:
Prior to any election, or until amounts must be otherwise
distributed under this section, the Account Value will be retained
in the Account. The Beneficiary has the right to allocate or
reallocate any amount to any of the available investment options
(subject to an MVA, if applicable). If the Certificate Holder has
specified the form of payment to the Beneficiary, the death benefit
will be paid as elected by the Certificate Holder in the Beneficiary
designation, to the extent permitted by section 72(s) of the Code.
If the Certificate Holder has not specified a form of payment, the
Beneficiary may elect one of the following options.
(a) When the Certificate Holder is the Annuitant or when the
Certificate Holder is a nonnatural person, and the Annuitant
dies:
(1) If the Beneficiary is the surviving spouse, the spousal
Beneficiary will be the successor Certificate Holder and
may exercise all Certificate Holder rights under the
Contract and continue in the Accumulation Period, or may
elect (i) or (ii) below. Under the Code, distributions
from the Account are not required until the spousal
Beneficiary's death. The spousal Beneficiary may elect
to:
(i) Apply some or all of the Adjusted Account Value to
an Annuity Payout Option (see Section V); or
(ii) Receive, at any time, a lump sum payment equal to
the Adjusted Account Value.
(2) If the Beneficiary is other than the surviving spouse,
then options (i) or (ii) above apply. Any portion of the
Adjusted Account Value not applied to an Annuity Payout
Option within one year of the death must be distributed
within five years of the date of death.
(3) If no Beneficiary exists, a lump sum payment equal to
the Adjusted Account Value must be made to the
Annuitant's estate within five years of the date of
death.
(4) If the Beneficiary is an entity, a lump sum payment
equal to the Adjusted Account Value must be made within
five years of the date of death, unless otherwise
permitted by IRS regulation or ruling.
(b) When the Certificate Holder is not the Annuitant and the
Certificate Holder dies:
(1) If the Beneficiary is the Certificate Holder's surviving
spouse, the spousal Beneficiary will be the successor
Certificate Holder and may exercise all Certificate
Holder rights under the Contract and continue in the
Accumulation Period, or may elect (i) or (ii) below.
Under the Code, distributions from the Account are not
required until the spousal Beneficiary's death. The
spousal Beneficiary may elect to:
(i) Apply some or all of the Adjusted Account Value to
an Annuity Payout Option (see Section V); or
(ii) Receive, at any time, a lump sum payment equal to
the Withdrawal Value.
(2) If the Beneficiary is other than the Certificate
Holder's surviving spouse, then options (i) or (ii)
under (1) above apply. Any portion of the death benefit
not applied to an Annuity Payout Option within one year
of the Certificate Holder's death must be distributed
within five years of the date of death.
Page 21
<PAGE>
(3) If no Beneficiary exists, a lump sum payment equal to
the Withdrawal Value must be made to the Certificate
Holder's estate within five years of the date of death.
(4) If the Beneficiary is an entity, a lump sum payment
equal to the Withdrawal Value must be made within five
years of the date of death, unless otherwise permitted
by IRS regulation or ruling.
(c) When the Certificate Holder is a natural person and not the
Annuitant and the Annuitant dies, the Beneficiary (or the
Certificate Holder if no Beneficiary exists) may elect to:
(1) Apply all or some of the Adjusted Account Value to an
Annuity Payout Option within 60 days of the date of
death; or
(2) Receive a lump sum payment equal to the Adjusted Account
Value.
V. Annuity Payout Provisions
================================================================================
5.01 Annuity Payout Options:
Annuity Payout Option 1 - Payments for a specified period:
Payments are made for the number of years specified by the
Certificate Holder. The number of years must be at least ten and not
more than 30.
Annuity Payout Option 2 - Life income based on the life of one Annuitant:
When this option is elected, the Certificate Holder must choose one
of the following:
(a) Payments cease at the death of the Annuitant;
(b) Payments are guaranteed for a specified period from five to 30
years;
(c) Cash refund: when the Annuitant dies, the Beneficiary will
receive a lump sum payment equal to the amount applied to the
Annuity Payout Option (less any premium tax, if applicable)
less the total amount of Annuity Payments made prior to such
death. This cash refund feature is only available if the total
amount applied to the Annuity Payout Option is allocated to a
fixed Annuity Payments.
Annuity Payout Option 3 - Life income based on the lives of two
Annuitants:
Payments are made for the lives of two Annuitants, one of whom is
designated the primary Annuitant and the other the secondary
Annuitant, and cease when both Annuitants have died. When this
option is elected, the Certificate Holder must also choose one of
the following:
(a) 100% of the payment to continue after the first death;
(b) 66 2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) 100% of the payment to continue after the first death and
payments are guaranteed for a period of five to 30 years;
(e) 100% of the payment to continue at the death of the secondary
Annuitant and 50% of the payment to continue at the death of
the primary Annuitant; or
(f) 100% of the payment continues after the first death with a
cash refund feature. When the primary Annuitant and secondary
Annuitant die, the Beneficiary will receive a lump sum payment
equal to the amount applied to the Annuity Payout Option (less
any premium tax) less the total amount of Annuity Payments
paid prior to such death. This cash refund feature is only
available if the total amount applied to the Annuity Payout
Option is allocated to fixed Annuity Payments.
Page 22
<PAGE>
If fixed Annuity Payments are chosen under Annuity Payout Option 1,
2 (a) or (b), or 3 (a) or (d), the Certificate Holder may elect, at
the time the Annuity Payout Option is selected, an annual increase
of one, two or three percent compounded annually.
As allowed under applicable state law, Aetna reserves the right to
offer additional Annuity Payout Options.
5.02 Annuity Payment Choices:
The Certificate Holder may tell Aetna to apply the Adjusted Account
Value (minus any premium tax, if applicable,) to any Annuity Payout
Option . The first Annuity Payment may not be earlier than one
calendar year after the initial Purchase Payment nor later than the
later of:
(a) The first day of the month following the Annuitant's 85th
birthday; or
(b) The tenth anniversary of the last Purchase Payment. In lieu of
the election of an Annuity Payout Option, the Certificate
Holder may tell Aetna to make a lump sum payment.
When an Annuity Payout Option is chosen, Aetna must also be told if
payments are to be made other than monthly and whether to pay:
(a) Fixed Annuity Payments using the General Account;
(b) Variable Annuity Payments using any of the Subaccount(s)
available under the contract for the Annuity Period; or
(c) A combination of (a) and (b).
If fixed Annuity Payments are chosen, the payment rate for the
option chosen, shown on the tables immediately following, reflects
at least the minimum guaranteed interest rate (see Schedule -
Annuity Period), but may reflect a higher interest rate.
If variable Annuity Payments are chosen, the initial Annuity Payment
for the option elected reflects the Assumed Interest Rate (AIR)
elected (see Schedule - Annuity Period). The Certificate Holder must
allocate specified amounts among the Subaccounts available during
the Annuity Period. Aetna reserves the right to limit the number of
Subaccounts available at one time and to limit the number of
Subaccounts the Certificate Holder may select during the Annuity
Period. Subject to terms and conditions established by Aetna, the
Certificate Holder may transfer all or any portion of the amount
allocated to a Subaccount to another Subaccount. The number of
Transfers allowed each year is shown on Schedule - Annuity Period.
Transfer requests must be submitted as a percentage of the
allocation among the Subaccounts. Aetna reserves the right to
establish a minimum transfer amount. Transfers will be effective as
of the Valuation Date in which Aetna receives a transfer request in
good order at its home office.
5.03 Terms of Annuity Payout Options:
(a) When payments start, the age of the Annuitant plus the number
of years for which payments are guaranteed must not exceed 95.
(b) An Annuity Payout Option may not be elected if the first
payment would be less than $50 or if the total payments in a
year would be less than $250 (less if required by state law).
Aetna reserves the right to increase the minimum first Annuity
Payment amount and the minimum annual Annuity Payment amount
based upon increases reflected in the Consumer Price
Index-Urban, (CPI-U) since July 1, 1993.
(c) If fixed Annuity Payments are chosen Aetna will use the
applicable current rate, based upon actual ages if it will
provide higher fixed Annuity Payments.
Page 23
<PAGE>
(d) For purposes of calculating the first payment of variable or
guaranteed fixed Annuity Payments based on guaranteed rates,
the primary Annuitant's and secondary Annuitant's adjusted age
will be used. The primary Annuitant's and secondary
Annuitant's adjusted age is his or her age as of the birthday
closest to the Annuity Payments commencement date reduced by
one year for commencement dates occurring during the period of
time from July 1, 1993 through December 31, 1999. The primary
Annuitant's and secondary Annuitant's age will be reduced by
two years for commencement dates occurring during the period
of time from January 1, 2000 through December 31, 2009. The
primary Annuitant's and secondary Annuitant's age will be
reduced by one additional year for Annuity commencement dates
occurring in each succeeding decade.
The attached payment rates for Annuity Payout Options 2 and 3
are based on mortality from 1983 Table a.
(e) Assumed Interest Rate (AIR) is the interest rate used to
determine the amount of the first payment under variable
Annuity Payments as shown on Schedule - Annuity Period. The
Separate Account must earn this rate plus enough to cover the
mortality and expense risks charges (which may include
profit), administrative charges and any other Separate Account
fees if future variable Annuity Payments are to remain level,
(see Schedule - Annuity Period).
(f) Once elected, Annuity Payments cannot be commuted to a lump
sum except for variable Annuity Payments under Annuity Payout
Option 1. If such a lump sum is requested after the start of
payments, it will be treated as a withdrawal and will be
subject to any applicable Deferred Sales Charge (see Section I
- Deferred Sales Charge).
5.04 Death of Annuitant/Beneficiary:
(a) Certificate Holder is the Annuitant: When the Certificate
Holder is the Annuitant and the Annuitant dies under Annuity
Payout Option 1 or 2(b), or both the primary Annuitant and the
secondary Annuitant die under Annuity Payout Option 3(d), any
remaining payments will continue to the Beneficiary, or if
elected by the Beneficiary and not prohibited by the
Certificate Holder in the Beneficiary designation, the present
value of any remaining payments will be paid in one sum to the
Beneficiary. If Annuity Payout Option 3 has been elected and
the Certificate Holder dies, the remaining payments will
continue to the successor payee. If no successor payee has
been designated, the Beneficiary will be treated as the
successor payee. If the Account has joint Certificate Holders,
the surviving joint Certificate Holder will be deemed the
successor payee.
(b) Certificate Holder is not the Annuitant: When the Certificate
Holder is not the Annuitant and the Certificate Holder dies,
any remaining payments will continue to the successor payee.
If no successor payee has been designated, the Beneficiary
will be treated as the successor payee. If the Account has
joint Certificate Holders, the surviving joint Certificate
Holder will be deemed the successor payee.
If the Annuitant dies under Annuity Payout Option 1 or 2(b),
or both the primary Annuitant and secondary Annuitant die
under Annuity Payout Option 3(d), any remaining payments will
continue to the Beneficiary, or if elected by the Beneficiary
and not prohibited by the Certificate Holder in the
Beneficiary designation, the present value of any remaining
payments will be paid in one sum to the Beneficiary. If
Annuity Payout Option 3 has been elected and the Annuitant
dies, the remaining payments will continue to the Certificate
Holder.
(c) No Beneficiary Named/Surviving: If there is no Beneficiary,
the present value of any remaining payments will be paid in
one sum to the Certificate Holder, or if the Certificate
Holder is not living, then to the Certificate Holder's estate.
(d) If the Beneficiary or the successor payee dies while receiving
Annuity Payments, any remaining payments will continue to the
successor Beneficiary/payee or upon election by the successor
Beneficiary/payee, the present value of any remaining payments
will be paid in one sum to the successor Beneficiary/payee. If
no successor Beneficiary/payee has been designated, the
present value of any remaining payments will be paid in one
sum to the Beneficiary's/payee's estate.
Page 24
<PAGE>
(e) The present value will be determined as of the Valuation Date
in which proof of death acceptable to Aetna and a request for
payment is received at Aetna's home office.
5.05 Annuity Units - Separate Account:
The number of annuity units is based on the amount of the first of
the variable Annuity Payments which is equal to:
(a) The portion of the Account Value applied to pay a variable
Annuity Payments (minus any applicable premium tax); divided
by
(b) 1,000; multiplied by
(c) The payment rate on the tables immediately following, for the
option chosen.
Such amount, or portion, of the variable Annuity Payments will be
divided by the appropriate annuity unit value (see Section V -
Annuity Unit Value - Separate Account) on the tenth Valuation Date
before the due date of the first payment to determine the number of
annuity units. The number of annuity units remains fixed. Each
future payment is equal to the sum of the products of each annuity
unit value multiplied by the appropriate number of annuity units.
The annuity unit value on the tenth Valuation Date prior to the due
date of the payment is used.
5.06 Annuity Unit Value - Separate Account:
For any Valuation Date, an annuity unit value is equal to:
(a) The value for the previous Valuation Date; multiplied by
(b) The annuity net return factor(s) (see Section V - Net Return
Factor(s) - Separate Account) for the Valuation Date;
multiplied by
(c) A factor to reflect the AIR (see Schedule - Annuity Period).
The annuity unit value and the amount of Annuity Payments may go up
or down due to investment gain or loss.
5.07 Net Return Factor(s) - Separate Account:
The net return factor(s) are used to compute all variable Annuity
Payments for any Subaccount.
The net return factor for each Subaccount is equal to 1.0000000 plus
the net return rate.
The net return rate is equal to:
(a) The value of the shares of the Subaccount at the end of a
Valuation Date; minus
(b) The value of the shares of the Subaccount at the start of the
Valuation Date; plus or minus
(c) Taxes (or reserves for taxes) on the Separate Account (if
any); divided by
(d) The total value of the annuity units at the start of the
Valuation Date; minus
(e) A daily charge for mortality and expense risks, which may
include profit, a daily administrative charge and any other
fees deducted from investments in the Separate Account.
A net return rate may be more or less than 0%.
The value of a share of the Subaccount is equal to the net assets of
the Subaccount divided by the number of shares outstanding.
Annuity Payments shall not be changed due to changes in the
mortality or expense results or administrative charges.
Page 25
<PAGE>
OPTION 1: Payments for a Specified Period
- --------------------------------------------------------------------------------
Monthly Amount for Each $1,000*
Rates for a Fixed Annuity with a 3% Guaranteed Interest Rate
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.61 21 $5.32
11 8.86 22 5.15
12 8.24 23 4.99
13 7.71 24 4.84
14 7.26 25 4.71
15 6.87 26 4.59
16 6.53 27 4.47
17 6.23 28 4.37
18 5.96 29 4.27
19 5.73 30 4.18
20 5.51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity with a 3.5% AIR
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.83 21 $5.56
11 9.09 22 5.24
12 8.46 23 5.24
13 7.94 24 5.09
14 7.49 25 4.96
15 7.10 26 4.84
16 6.76 27 4.73
17 6.47 28 4.63
18 6.20 29 4.53
19 5.97 30 4.45
20 5.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity with a 5% AIR
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $10.51 21 $6.33
11 9.77 22 6.17
12 9.16 23 6.02
13 8.64 24 5.88
14 8.20 25 5.76
15 7.82 26 5.65
16 7.49 27 5.54
17 7.20 28 5.45
18 6.94 29 5.36
19 6.71 30 5.28
20 6.51
- --------------------------------------------------------------------------------
* Net of any applicable premium tax deduction
Page 26
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed Option 2(c):
Annuitant life 5 years 10 years 15 years 20 years Cash Refund
Male Female Male Female Male Female Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.27 $3.90 $4.26 $3.90 $4.22 $3.89 $4.17 $3.86 $4.08 $3.82 $4.04 $3.78
51 4.34 3.97 4.33 3.96 4.30 3.95 4.23 3.92 4.14 3.88 4.10 3.84
52 4.43 4.03 4.41 4.03 4.37 4.01 4.30 3.98 4.20 3.93 4.16 3.89
53 4.51 4.10 4.50 4.10 4.45 4.08 4.37 4.04 4.26 3.99 4.23 3.95
54 4.60 4.18 4.59 4.17 4.54 4.15 4.45 4.11 4.32 4.04 4.29 4.01
55 4.70 4.25 4.68 4.25 4.62 4.22 4.53 4.18 4.39 4.11 4.37 4.07
56 4.80 4.34 4.78 4.33 4.72 4.30 4.61 4.25 4.45 4.17 4.44 4.13
57 4.91 4.42 4.89 4.41 4.82 4.38 4.69 4.32 4.51 4.23 4.52 4.20
58 5.03 4.52 5.00 4.51 4.92 4.47 4.78 4.40 4.58 4.30 4.61 4.28
59 5.15 4.61 5.12 4.60 5.03 4.56 4.87 4.48 4.65 4.37 4.69 4.35
60 5.28 4.72 5.25 4.70 5.14 4.66 4.96 4.57 4.71 4.44 4.78 4.43
61 5.43 4.83 5.39 4.81 5.27 4.76 5.06 4.66 4.78 4.51 4.88 4.52
62 5.58 4.95 5.53 4.93 5.39 4.87 5.16 4.75 4.84 4.58 4.98 4.60
63 5.74 5.08 5.69 5.05 5.53 4.98 5.26 4.85 4.90 4.65 5.09 4.70
64 5.91 5.21 5.85 5.18 5.66 5.10 5.36 4.95 4.96 4.72 5.20 4.80
65 6.10 5.36 6.03 5.32 5.81 5.22 5.46 5.05 5.02 4.79 5.31 4.90
66 6.30 5.51 6.21 5.47 5.96 5.36 5.56 5.16 5.08 4.86 5.44 5.01
67 6.51 5.67 6.41 5.63 6.12 5.50 5.66 5.26 5.13 4.93 5.56 5.12
68 6.73 5.85 6.62 5.80 6.28 5.65 5.77 5.37 5.18 5.00 5.70 5.24
69 6.97 6.04 6.84 5.98 6.44 5.80 5.86 5.49 5.23 5.06 5.84 5.37
70 7.23 6.25 7.07 6.18 6.61 5.97 5.96 5.60 5.27 5.12 5.98 5.51
71 7.51 6.47 7.32 6.39 6.79 6.14 6.05 5.71 5.31 5.18 6.14 5.65
72 7.80 6.71 7.58 6.62 6.96 6.32 6.14 5.83 5.34 5.23 6.30 5.80
73 8.12 6.98 7.85 6.86 7.14 6.50 6.23 5.94 5.37 5.28 6.47 5.96
74 8.46 7.26 8.14 7.12 7.32 6.69 6.31 6.04 5.40 5.32 6.65 6.13
75 8.82 7.57 8.45 7.40 7.50 6.89 6.38 6.14 5.42 5.35 6.83 6.31
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 27
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
- --------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
---------------------------------------------------------------------------------------------------
Male Female Male Female Male Female Male Female Male Female
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $4.56 $4.20 $4.55 $4.19 $4.51 $4.18 $4.45 $4.15 $4.36 $4.11
51 4.64 4.26 4.62 4.25 4.58 4.24 4.51 4.21 4.42 4.16
52 4.72 4.32 4.70 4.32 4.66 4.30 4.58 4.26 4.48 4.21
53 4.80 4.39 4.79 4.38 4.74 4.36 4.65 4.32 4.53 4.27
54 4.89 4.46 4.87 4.46 4.82 4.43 4.73 4.39 4.59 4.32
55 4.99 4.54 4.97 4.53 4.91 4.50 4.80 4.46 4.65 4.38
56 5.09 4.62 5.07 4.61 5.00 4.58 4.88 4.53 4.72 4.44
57 5.20 4.71 5.17 4.70 5.10 4.66 4.96 4.60 4.78 4.50
58 5.32 4.80 5.29 4.79 5.20 4.75 5.05 4.68 4.84 4.57
59 5.44 4.90 5.41 4.88 5.31 4.84 5.14 4.76 4.91 4.63
60 5.57 5.00 5.53 4.99 5.42 4.93 5.23 4.84 4.97 4.70
61 5.71 5.11 5.67 5.09 5.54 5.03 5.32 4.93 5.03 4.77
62 5.86 5.23 5.81 5.21 5.66 5.14 5.42 5.02 5.09 4.84
63 6.02 5.36 5.97 5.33 5.79 5.25 5.51 5.11 5.16 4.91
64 6.20 5.49 6.13 5.46 5.93 5.37 5.61 5.21 5.21 4.98
65 6.38 5.64 6.31 5.60 6.07 5.49 5.71 5.31 5.27 5.05
66 6.58 5.79 6.49 5.75 6.22 5.63 5.81 5.41 5.32 5.12
67 6.79 5.95 6.69 5.91 6.38 5.76 5.91 5.52 5.38 5.18
68 7.02 6.13 6.89 6.08 6.53 5.91 6.01 5.63 5.42 5.25
69 7.26 6.32 7.11 6.26 6.70 6.06 6.11 5.74 5.47 5.31
70 7.52 6.53 7.35 6.45 6.86 6.23 6.20 5.85 5.51 5.37
71 7.80 6.75 7.59 6.66 7.03 6.39 6.29 5.96 5.54 5.42
72 8.09 6.99 7.85 6.89 7.21 6.57 6.38 6.07 5.57 5.47
73 8.41 7.26 8.12 7.13 7.38 6.75 6.46 6.17 5.60 5.51
74 8.75 7.54 8.41 7.39 7.55 6.94 6.53 6.28 5.63 5.55
75 9.12 7.85 8.71 7.66 7.73 7.13 6.61 6.38 5.65 5.59
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 28
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
- --------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
---------------------------------------------------------------------------------------------------
Male Female Male Female Male Female Male Female Male Female
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $5.48 $5.12 $5.46 $5.11 $5.41 $5.09 $5.34 $5.06 $5.24 $5.01
51 5.55 5.17 5.53 5.17 5.48 5.14 5.40 5.11 5.29 5.05
52 5.63 5.23 5.61 5.23 5.55 5.20 5.46 5.16 5.34 5.10
53 5.71 5.30 5.69 5.29 5.62 5.26 5.53 5.22 5.40 5.15
54 5.80 5.37 5.77 5.36 5.70 5.33 5.60 5.27 5.45 5.20
55 5.89 5.44 5.86 5.43 5.79 5.39 5.67 5.34 5.51 5.25
56 5.99 5.52 5.96 5.51 5.87 5.47 5.74 5.40 5.56 5.31
57 6.10 5.60 6.06 5.59 5.97 5.54 5.82 5.47 5.62 5.37
58 6.21 5.69 6.17 5.67 6.06 5.62 5.90 5.54 5.68 5.42
59 6.33 5.79 6.29 5.77 6.17 5.71 5.98 5.61 5.74 5.48
60 6.46 5.89 6.41 5.87 6.28 5.80 6.06 5.69 5.79 5.55
61 6.60 6.00 6.55 5.97 6.39 5.90 6.15 5.77 5.85 5.61
62 6.75 6.11 6.69 6.08 6.51 6.00 6.24 5.86 5.91 5.67
63 6.91 6.23 6.84 6.20 6.64 6.10 6.33 5.95 5.96 5.73
64 7.09 6.37 7.00 6.33 6.77 6.22 6.42 6.04 6.02 5.80
65 7.27 6.51 7.18 6.46 6.91 6.34 6.52 6.13 6.07 5.86
66 7.47 6.66 7.36 6.61 7.05 6.46 6.61 6.23 6.12 5.92
67 7.68 6.82 7.55 6.76 7.20 6.60 6.70 6.33 6.16 5.99
68 7.91 7.00 7.76 6.93 7.35 6.74 6.80 6.43 6.21 6.04
69 8.15 7.19 7.98 7.11 7.51 6.89 6.89 6.54 6.25 6.10
70 8.41 7.39 8.21 7.30 7.67 7.04 6.97 6.64 6.28 6.15
71 8.69 7.62 8.45 7.51 7.83 7.21 7.06 6.74 6.32 6.20
72 8.99 7.86 8.70 7.73 8.00 7.38 7.14 6.85 6.35 6.25
73 9.31 8.12 8.97 7.97 8.16 7.55 7.21 6.95 6.37 6.29
74 9.65 8.41 9.26 8.23 8.33 7.73 7.29 7.04 6.39 6.33
75 10.02 8.72 9.55 8.50 8.50 7.92 7.35 7.14 6.41 6.36
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 29
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Primary Annuitant is Female and Secondary Annuitant is Male
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e) Option 3(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 50 $3.75 $4.07 $4.26 $3.75 $3.98 $3.72
55 55 3.88 4.25 4.47 3.87 4.06 3.85
55 60 3.99 4.44 4.71 3.98 4.12 3.94
60 55 4.06 4.47 4.71 4.06 4.37 4.02
60 60 4.24 4.71 4.99 4.23 4.47 4.17
60 65 4.38 4.97 5.32 4.38 4.54 4.29
65 60 4.49 5.01 5.32 4.48 4.89 4.39
65 65 4.72 5.33 5.70 4.71 5.02 4.59
65 70 4.93 5.68 6.15 4.91 5.14 4.74
70 65 5.07 5.75 6.17 5.05 5.60 4.87
70 70 5.40 6.21 6.70 5.36 5.79 5.13
70 75 5.69 6.68 7.32 5.62 5.96 5.29
75 70 5.89 6.82 7.40 5.81 6.63 5.48
75 75 6.37 7.45 8.15 6.23 6.92 5.78
75 80 6.78 8.11 8.99 6.54 7.15 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 30
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
Primary Annuitant Is Female and Secondary Annuitant Is Male
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.03 $4.36 $4.55 $4.03 $4.27
55 55 4.16 4.54 4.76 4.15 4.34
55 60 4.27 4.73 5.00 4.26 4.40
60 55 4.34 4.76 5.00 4.34 4.65
60 60 4.51 4.99 5.27 4.50 4.74
60 65 4.66 5.25 5.61 4.65 4.82
65 60 4.76 5.29 5.60 4.75 5.16
65 65 4.99 5.61 5.99 4.98 5.30
65 70 5.19 5.97 6.44 5.17 5.41
70 65 5.34 6.03 6.46 5.31 5.88
70 70 5.67 6.49 6.99 5.62 6.07
70 75 5.95 6.96 7.61 5.87 6.23
75 70 6.16 7.10 7.68 6.07 6.90
75 75 6.64 7.73 8.43 6.48 7.19
75 80 7.04 8.39 9.29 6.79 7.42
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 31
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
Primary Annuitant is Female and Secondary Annuitant is Male
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.93 $5.27 $5.46 $4.93 $5.17
55 55 5.04 5.44 5.66 5.04 5.23
55 60 5.15 5.63 5.91 5.14 5.29
60 55 5.21 5.65 5.89 5.21 5.53
60 60 5.37 5.87 6.16 5.37 5.62
60 65 5.52 6.14 6.51 5.51 5.70
65 60 5.61 6.16 6.49 5.60 6.03
65 65 5.83 6.49 6.87 5.82 6.15
65 70 6.04 6.84 7.34 6.00 6.27
70 65 6.17 6.90 7.33 6.13 6.73
70 70 6.49 7.35 7.87 6.44 6.91
70 75 6.77 7.84 8.51 6.68 7.07
75 70 6.97 7.96 8.56 6.87 7.75
75 75 7.45 8.60 9.33 7.27 8.04
75 80 7.86 9.28 10.20 7.57 8.27
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 32
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity with 3% Guaranteed Interest Rate
Primary Annuitant is Male and Secondary Annuitant is Female
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e) Option 3(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 50 $3.69 $4.05 $4.27 $3.69 $4.13 $3.67
55 55 3.88 4.25 4.47 3.87 4.25 3.85
55 60 4.06 4.47 4.71 4.06 4.36 4.02
60 55 3.99 4.44 4.71 3.98 4.55 3.94
60 60 4.24 4.71 4.99 4.23 4.70 4.17
60 65 4.49 5.01 5.32 4.48 4.85 4.39
65 60 4.38 4.97 5.32 4.38 5.10 4.29
65 65 4.72 5.33 5.70 4.71 5.32 4.59
65 70 5.07 5.75 6.17 5.05 5.54 4.87
70 65 4.93 5.68 6.15 4.91 5.86 4.74
70 70 5.40 6.21 6.70 5.36 6.18 5.13
70 75 5.89 6.82 7.40 5.81 6.49 5.48
75 70 5.69 6.68 7.32 5.62 6.92 5.29
75 75 6.37 7.45 8.15 6.23 7.40 5.78
75 80 7.07 8.34 9.16 6.78 7.85 6.17
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 33
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 3.5% AIR
Primary Annuitant is Male and Secondary Annuitant is Female
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $3.97 $4.35 $4.56 $3.97 $4.42
55 55 4.16 4.54 4.76 4.15 4.54
55 60 4.34 4.76 5.00 4.34 4.64
60 55 4.27 4.73 5.00 4.26 4.83
60 60 4.51 4.99 5.27 4.50 4.98
60 65 4.76 5.29 5.60 4.75 5.13
65 60 4.66 5.25 5.61 4.65 5.39
65 65 4.99 5.61 5.99 4.98 5.60
65 70 5.34 6.03 6.46 5.31 5.81
70 65 5.19 5.97 6.44 5.17 6.14
70 70 5.67 6.49 6.99 5.62 6.47
70 75 6.16 7.10 7.68 6.07 6.77
75 70 5.95 6.96 7.61 5.87 7.20
75 75 6.64 7.73 8.43 6.48 7.68
75 80 7.33 8.62 9.45 7.02 8.13
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 34
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity with 5% AIR
Primary Annuitant Is Male and Secondary Annuitant is Female
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed
Primary Secondary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.88 $5.26 $5.48 $4.88 $5.34
55 55 5.04 5.44 5.66 5.04 5.43
55 60 5.21 5.65 5.89 5.21 5.53
60 55 5.15 5.63 5.91 5.14 5.73
60 60 5.37 5.87 6.16 5.37 5.86
60 65 5.61 6.16 6.49 5.60 6.01
65 60 5.52 6.14 6.51 5.51 6.28
65 65 5.83 6.49 6.87 5.82 6.47
65 70 6.17 6.90 7.33 6.13 6.67
70 65 6.04 6.84 7.34 6.00 7.03
70 70 6.49 7.35 7.87 6.44 7.33
70 75 6.97 7.96 8.56 6.87 7.62
75 70 6.77 7.84 8.51 6.68 8.08
75 75 7.45 8.60 9.33 7.27 8.55
75 80 8.14 9.49 10.35 7.80 8.98
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
Page 35
<PAGE>
- --------------------------------------------------------------------------------
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 238-6219
Group Variable, Fixed, or Combination Annuity Certificate
Nonparticipating
- --------------------------------------------------------------------------------
ALL PAYMENTS AND VALUES PROVIDED BY THE GROUP CONTRACT, WHEN BASED ON INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT, IF WITHDRAWN
BEFORE THE GUARANTEED TERM MATURITY DATE, MAY BE SUBJECT TO A MARKET VALUE
ADJUSTMENT. THE MARKET VALUE ADJUSTMENT MAY RESULT IN AN INCREASE OR A DECREASE
IN THE ACCOUNT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED TERM AT THE TIME OF ITS MATURITY.
GMC-VA-99(PB)
EXHIBIT 99-B.4.3
Aetna Life Insurance and Annuity Company
ENDORSEMENT
The Contract and Certificate, if applicable, are hereby endorsed to meet the
qualification requirements for a Roth Individual Retirement Annuity under
Internal Revenue Code ("Code") Section 408A. The following provisions apply and,
in the case of a conflict with any provision in the Contract, this endorsement
controls.
Holder. If this Endorsement is issued with an Individual Contract then "Holder"
will mean "Contract Holder". If this Endorsement is issued with a Group Contract
then "Holder" will mean "Certificate Holder". The Holder and the Annuitant must
be the same person. Joint Holders are not permitted.
Nontransferable/Nonforfeitable. The Contract is nontransferable. The Holder may
not sell, assign, transfer, pledge or use as collateral for a loan or as
security for the performance of an obligation or for any other purpose, his or
her interest in the Contract to any person other than the issuer of the Contract
or to a spouse incident to a divorce under the provisions of Code Section
408(d)(6). The Holder's entire interest in the Contract is nonforfeitable.
Exclusive Benefit. The Account is established for the exclusive benefit of the
Holder or his or her Beneficiary(ies).
Contributions. All contributions must be in cash. Except in the case of a
qualified rollover contribution as defined in Code Section 408A(e), the total
contributions shall not exceed $2,000 for any taxable year. Aetna reserves the
right to not accept a rollover contribution to an existing Contract.
Distributions. The distribution rules of Code Section 401(a)(9)(A) do not apply.
Any periodic payments will be paid only to the Holder.
Section IV - Options Available to Beneficiary is deleted in its entirety. The
death benefit amount is determined in accordance with the provisions of Section
IV - Death Benefit and Section III - Market Value Adjustment. At the death of
the Holder:
(a) If the Holder dies on or after the date distribution of his or her
interest has begun, the remaining portion of such interest, if any, will
continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Holder's death.
(b) If the Holder dies before distribution of his or her interest begins, the
death benefit payable to the Beneficiary will be distributed no later than
December 31 of the calendar year which contains the fifth anniversary of
the date of the Holder's death, except to the extent that an election is
made to receive a distribution in accordance with (i) or (ii) below.
(i) Distributions to the Beneficiary may be made in installments over
the life of the Beneficiary or over a period not extending beyond
the life expectancy of the Beneficiary, commencing no later than
December 31 of the calendar year immediately following the calendar
year in which the Holder died.
(ii) If the Beneficiary is the Holder's surviving spouse, and
distributions are to be made in accordance with (i) above,
distributions must begin on or before the later of December 31 of
the calendar year immediately following the calendar year in which
the Holder died or December 31 of the calendar year in which the
Holder would have attained age 70 1/2.
If the Holder dies before Annuity Payments begin, a spousal Beneficiary may
elect an Annuity Payout Option, a Systematic Distribution Option, a lump sum
payment or to treat the Account as his or her own IRA. The election to treat the
Account as his or her own IRA will be deemed to have been made if such surviving
spouse makes a rollover to or from such Account, or fails to elect to receive a
distribution in accordance with (b) above.
Life expectancy is computed by use of the expected return multiples in Table V
and VI of Section 1.72-9 of the Income Tax Regulations. Life expectancies for
distributions under an Annuity option may not be recalculated.
EM-ROTH-99(PB)
<PAGE>
Annual Reports. Aetna will furnish annual calendar year reports concerning the
status of the Holder's Account.
Termination of Account. Upon 90 days written notice to the Holder, Aetna may
terminate the Holder's Account if no Purchase Payment(s) have been received for
two full consecutive Account Years and the paid-up Annuity Payments at maturity
would be less than $20 per month.
Right to Cancel. The Holder may cancel the Contract or Certificate within 10
days of receiving it by returning it to Aetna or to the person from whom it was
purchased. Within seven days from the cancellation request, Aetna will return
all the Holder's Purchase Payment(s).
If the source of the Purchase Payment(s) was a rollover from a contract issued
by Aetna or one of its affiliates in which the deferred sales charge was waived
or reduced, then the Purchase Payment(s) will be restored to the predecessor
contract.
Section III - Deferred Sales Charge is amended to add the following item (I).
"(I) As a Purchase Payment for a Roth Individual Retirement Annuity, issued by
Aetna or one of its affiliates, that gives credit for time spent in the
predecessor contract in applying the deferred sales charge.
The first paragraph of Section III - Deferred Sales Charge is deleted and
replaced with the following: "The Deferred Sales Charge only applies to the
Purchase Payment(s) portion surrendered (see Schedule - Accumulation Period)".
Endorsed and made a part of the Contract and Certificate, if applicable, as of
the Account Effective Date.
/s/ Thomas J. McInerney
President
Aetna Life Insurance and Annuity Company
EM-ROTH-99(PB)
EXHIBIT 99-B.4.4
Aetna Life Insurance and Annuity Company
ENDORSEMENT
The Contract and Certificate, if applicable, are hereby endorsed to meet the
qualification requirements for a Individual Retirement Annuity under Internal
Revenue Code ("Code") Section 408(b). The following provisions apply and, in the
case of a conflict with any provision in the Contract, this endorsement
controls.
Holder. If this Endorsement is issued with an Individual Contract then "Holder"
will mean "Contract Holder". If this Endorsement is issued with a Group Contract
then "Holder" will mean "Certificate Holder". The Holder and the Annuitant must
be the same person. Joint Holders are not permitted.
Nontransferable/Nonforfeitable. The Contract is nontransferable. The Holder may
not sell, assign, transfer, pledge or use as collateral for a loan or as
security for the performance of an obligation or for any other purpose, his or
her interest in the Contract to any person other than the issuer of the Contract
or to a spouse incident to a divorce under the provisions of Code Section
408(d)(6). The Holder's entire interest in the Contract is nonforfeitable.
Exclusive Benefit. The Account is established for the exclusive benefit of the
Holder or his or her Beneficiary(ies).
Contributions. All contributions must be in cash. Except in the case of a
qualified rollover contribution as permitted by Code Section 402(c), 403(a)(4),
403(b)(8), or 408(d)(3) or a contribution made in accordance with the terms of a
Simplified Employee Pension (SEP) as described in Code Section 408(k), the total
contributions shall not exceed $2,000 for any taxable year.
Distributions. All distributions will be made in accordance with the
requirements of Code Section 401(a)(9). Any periodic payments will be paid only
to the Holder.
Required Beginning Date. No later than the April 1 following the calendar year
in which the Holder attains age 70 1/2, the Holder may elect to receive the
entire interest in a lump sum, or may elect to begin periodic payments under a
systematic distribution option which must be distributed over:
(a) The life of the Holder, or the lives of the Holder and his or her
designated Beneficiary, or
(b) A period certain not extending beyond the life expectancy of the Holder or
the joint and last survivor expectancy of the Holder and his or her
designated Beneficiary.
Periodic payments must be made at intervals of no longer than one year. In
addition, payments made as an annuity must be either nonincreasing or they may
increase only as provided in Section 1.401(a)(9)-1 of the Proposed Income Tax
Regulations.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of section 1.72-9 of the Income Tax Regulations. Life expectancy for
distributions under an Annuity Payout Option may not be recalculated.
Payment of Death Benefit. Section IV - Options Available to Beneficiary is
deleted in its entirety. If the Holder has specified a form of payment to the
Beneficiary, the death benefit will be paid as elected by the Holder in the
Beneficiary designation, to the extent permitted by code Section 401(a)(9). If
the Holder has not specified a form of payment, the Beneficiary may elect
payment of the death benefit amount as provided in this Section. The death
benefit amount is determined in accordance with the provisions of Section IV -
Death Benefit and Section III - Market Value Adjustment. At the death of the
Holder:
(a) If the Holder dies on or after the date distribution of his or her
interest has begun, the remaining portion of such interest, if any, will
continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Certificate Holder's death.
(b) If the Holder dies before distribution of his or her interest begins, the
death benefit payable to the Beneficiary will be distributed no later than
December 31 of the calendar year which contains the fifth anniversary of
the date of the Holder's death, except to the extent that an election is
made to receive a distribution in accordance with (i) or (ii) below.
EM-IRA-99(PB)
<PAGE>
(i) Distributions to the Beneficiary may be made in installments over
the life of the Beneficiary or over a period not extending beyond
the life expectancy of the Beneficiary, commencing no later than
December 31 of the calendar year immediately following the calendar
year in which the Holder died.
(ii) If the Beneficiary is the Holder's surviving spouse, and
distributions are to be made in accordance with (i) above,
distributions must begin on or before the later of December 31 of
the calendar year immediately following the calendar year in which
the Holder died or December 31 of the calendar year in which the
Holder would have attained age 70 1/2.
If the Holder dies before Annuity Payments begin, a spousal Beneficiary may
elect an Annuity Payout Option, a Systematic Distribution Option, a lump sum
payment or to treat the Account as his or her own IRA. The election to treat the
Account as his or her own IRA will be deemed to have been made if such surviving
spouse makes a rollover to or from such Account, or fails to elect to receive a
distribution in accordance with (b) above.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of Section 1.72-9 of the Income Tax Regulations. Life expectancies for
distributions under an Annuity Payout Option may not be recalculated.
Distributions under this section are considered to have begun if distributions
are made on account of the Holder reaching the required beginning date or if
prior to the required beginning date distributions irrevocably commence over a
period permitted and in an Annuity Payout Option acceptable under Section
1.401(a)(9) of the Proposed Income Tax Regulations.
Annual Reports. Aetna will furnish annual calendar year reports concerning the
status of the Holder's Account.
Termination of Account. Upon 90 days written notice to the Holder, Aetna may
terminate the Holder's Account if no Purchase Payment(s) have been received for
two full consecutive Account years and the paid-up Annuity Payments at maturity
would be less than $20 per month.
Right to Cancel. The Holder may cancel the Certificate or Contract, a s
applicable, within 10 days of receiving it by returning it to Aetna or to the
person from whom it was purchased. Within seven days from the cancellation
request, Aetna will return all the Certificate Holder's Purchase Payment(s).
If the source of the Purchase Payment(s) was a rollover from a contract issued
by Aetna or one of its affiliates in which the deferred sales charge was waived
or reduced, then the Purchase Payment(s) will be restored to the predecessor
contract.
The first paragraph of Section III - Deferred Sales Charge is amended to add the
following item(I) "(I)As a Purchase Payment for a Roth Individual Retirement
Annuity, issued by Aetna or one of its affiliates, that gives credit for time
spent in the predecessor contract in applying the deferred sales charge."
Endorsed and made a part of the Contract and Certificate, if applicable, as of
the Account Effective Date.
/s/ Thomas J. McInerney
President
Aetna Life Insurance and Annuity Company
EM-IRA-99(PB)
EXHIBIT 99-B.4.5
Aetna Life Insurance and Annuity Company
ENDORSEMENT
The Contract and Certificate, if applicable, are endorsed in order to meet the
qualification requirements of Section 403(b) of the Internal Revenue Code
("Code") and, if applicable, the Employee Retirement Income Security Act
(ERISA). The following provisions apply and, in the case of a conflict with any
provision in the Contract, this endorsement controls.
Nontransferable. The Contract is nontransferable in accordance with Code Section
401(g). The Contract or any Account may not be sold, assigned, transferred or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose, except pursuant to a qualified domestic
relations order as described in Code Section 414(p).
Holder. If this Endorsement is issued with an Individual Contract then "Holder"
will mean "Contract Holder". If this Endorsement is issued with a Group Contract
then "Holder" will mean "Certificate Holder". The Holder must be the Participant
under a Code Section 403(b) Tax Deferred Annuity program.
Participant. The Participant is the participant under the Code Section 403(b)
Tax Deferred Annuity program on whose behalf the Account is maintained.
Annuitant. The Annuitant is the Participant.
Beneficiary. The Participant shall name a Beneficiary. If the 403(b) program is
subject to ERISA and the Participant is married, the spouse must be named as
Beneficiary of 50% of the Account Value. However, if the Participant has
attained age 35, an alternate Beneficiary may be named for this portion of the
Account provided the Holder furnishes to Aetna a waiver and spousal consent
satisfying the requirements of ERISA Section 205. Any Beneficiary may be named
for the balance of the Account without the consent of the spouse.
Contributions. The Contract will only accept amounts rolled over or transferred
from (1) another contract qualified under Code Section 403(b), or (2) from an
Individual Retirement Account or Annuity qualified under Code Sections 408(a) or
408(b) that contains only amounts previously rolled over from a 403(b) Tax
Deferred Annuity.
Withdrawal Restrictions. In accordance with Code Section 403(b)(11), withdrawals
attributable to Purchase Payments made pursuant to a salary reduction agreement
may be made only after the Participant attains age 59 1/2, separates from
service, dies, becomes totally and permanently disabled (as defined in Code
Section 72(m)(7)) or in the case of hardship (as defined in Treasury
Regulations). In the case of hardship, only Purchase Payments, and not the
earnings, may be withdrawn. These restrictions do not apply to amounts held in a
403(b) Tax Deferred Annuity program as of December 31, 1988. The Contract will
not accept transfers from a Code Section 403(b)(7) custodial account.
Distributions. All distributions from the Account must satisfy the minimum
distribution rules set forth in Code Section 401(a)(9). Any periodic payments
will be paid only to the Holder.
Required Beginning Date. Distributions must generally begin no later than April
1 following the year the Participant attains age 70 1/2 or retires, if later.
The entire value of the Account must be distributed, or distribution must be
made over the life of the Participant, the joint lives of the Participant and
Beneficiary or over a period that does not extend beyond the life expectancy of
the Participant or the joint life expectancies of the Participant and
Beneficiary.
If Aetna maintains separate records of the value as of December 31, 1986, this
value is not required to be taken before December 31 of the year the Participant
attains age 75, or retires if later. If the Certificate Holder takes any
distribution other than the minimum distribution required under Code Section
401(a)(9), Aetna will reduce the December 31, 1986 value by the excess amount
taken.
EM-TDA-99(PB)
<PAGE>
Payment of Death Benefit. Section IV - Options Available to Beneficiary is
deleted in its entirety. If the Participant has specified a form of payment to
the Beneficiary, the death benefit will be paid as elected by the Participant in
the Beneficiary designation, to the extent permitted by Code Section 401(a)(9).
If the Participant has not specified a form of payment, the Beneficiary must
elect payment of the death benefit amount, determined under Section IV - Death
Benefit Options and Section III Market Value Adjustment, in accordance with the
minimum distribution requirements of Code Section 401(a)(9). The Beneficiary may
elect a lump sum payment, or periodic payments under a Systematic Distribution
Option or any of the Annuity Payout Options provided the election satisfies the
Code minimum distribution rules. The Beneficiary may make any investment choices
permitted under the Contract while the Contract remains in the Accumulation
Period.
Death Before Distributions Begin. If the Participant dies before distributions
begin in accordance with the provisions of Code Section 401(a)(9), the entire
value of the Account must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of the Participant's death.
Alternatively, if the Participant has a designated Beneficiary, payments may be
made over the life of the Beneficiary or over a period not extending beyond the
life expectancy of the Beneficiary provided distribution to a non-spouse
Beneficiary begins by December 31 of the calendar year following the calendar
year of the Participant's death.
For a spousal Beneficiary, such payments must begin by the later of December 31
of the calendar year following the calendar year of the Participant's death or
December 31 of the calendar year in which the Participant would have attained
age 70 1/2.
Death After Distributions Begin. If the Participant dies after distributions
begin in accordance with the provisions of Code Section 401(a)(9), payments to
the Beneficiary must be made at least as rapidly as the method of distribution
in effect at the time of the Participant's death. If the minimum distribution
requirements have been met by partial withdrawals based on the Participant's
life expectancy or the joint life expectancies of the Participant and
Beneficiary, death benefit payments to the Beneficiary must also satisfy any
additional requirements of Code Section 401(a)(9).
Spousal Consent. If the Account is subject to ERISA and the Participant does not
die before payments begin, distribution to a married Participant must be in the
form of a "Qualified Joint and Survivor Annuity" unless the Holder furnishes to
Aetna a waiver and spousal consent satisfying the requirements of ERISA Section
205. A "Qualified Joint and Survivor Annuity" is an Annuity Payout Option
payable for the joint lives of the Participant and spouse with at least 50% of
the payment to continue to the surviving spouse after the Participant's death.
If the Account is subject to ERISA, the Annuitant dies before the payments begin
and the Beneficiary is not the current spouse, Aetna will pay 50% of the death
benefit to the current spouse in the form of a "Qualified Preretirement Survivor
Annuity" unless (1) a waiver and spousal consent, satisfying the requirements of
ERISA Section 205, is furnished to Aetna, or (2) a prior spouse is entitled to
all or a portion of the death benefit under a qualified domestic relations order
as described in Code Section 414(p). A "Qualified Preretirement Survivor
Annuity" is an annuity payable for the life of the surviving spouse which can be
purchased by 50% of the Account's Adjusted Current Value.
Annuity Purchase Rates. The gender-based annuity purchase rates following
Section V do not apply. The tables provided in Addendum B should be used with
this endorsement.
Endorsed and made a part of the Contract and the Certificate, if applicable, as
of the Account Effective Date or when the endorsement is approved, whichever is
later.
/s/ Thomas J. McInerney
President
Aetna Life Insurance and Annuity Company
2
<PAGE>
OPTION 1: Payments for a Specified Period
- --------------------------------------------------------------------------------
Monthly Amount for Each $1,000*
Rates for a Fixed Annuity Payment with a 3% Guaranteed Interest Rate
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.61 21 $5.32
11 8.86 22 5.15
12 8.24 23 4.99
13 7.71 24 4.84
14 7.26 25 4.71
15 6.87 26 4.59
16 6.53 27 4.47
17 6.23 28 4.37
18 5.96 29 4.27
19 5.73 30 4.18
20 5.51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity Payment with a 3.5% Assumed Interest Rate
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 $9.83 21 $5.56
11 9.09 22 5.39
12 8.46 23 5.24
13 7.94 24 5.09
14 7.49 25 4.96
15 7.10 26 4.84
16 6.76 27 4.73
17 6.47 28 4.63
18 6.20 29 4.53
19 5.97 30 4.45
20 5.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
First Monthly Amount for Each $1,000*
Rates for a Variable Annuity Payment with a 5% Assumed Interest Rate
- --------------------------------------------------------------------------------
Years Payment Years Payment
- --------------------------------------------------------------------------------
10 10.51 21 6.33
11 9.77 22 6.17
12 9.16 23 6.02
13 8.64 24 5.88
14 8.20 25 5.76
15 7.82 26 5.65
16 7.49 27 5.54
17 7.20 28 5.45
18 6.94 29 5.36
19 6.71 30 5.28
20 6.51
- --------------------------------------------------------------------------------
* Net of any applicable premium tax deduction
3
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity Payment with 3% Guaranteed Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed Option 2(c):
Annuitant life 5 years 10 years 15 years 20 years Cash Refund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $4.05 $4.05 $4.03 $3.99 $3.93 $3.89
51 4.12 4.11 4.09 4.05 3.99 3.94
52 4.19 4.19 4.16 4.11 4.04 4.00
53 4.27 4.26 4.23 4.18 4.10 4.06
54 4.35 4.34 4.31 4.25 4.16 4.12
55 4.44 4.42 4.39 4.32 4.22 4.19
56 4.53 4.51 4.47 4.40 4.29 4.26
57 4.62 4.61 4.56 4.48 4.35 4.33
58 4.72 4.71 4.65 4.56 4.42 4.41
59 4.83 4.81 4.75 4.64 4.49 4.49
60 4.95 4.93 4.86 4.73 4.55 4.57
61 5.07 5.05 4.97 4.83 4.62 4.66
62 5.20 5.17 5.08 4.92 4.69 4.76
63 5.34 5.31 5.20 5.02 4.76 4.85
64 5.49 5.45 5.33 5.12 4.83 4.96
65 5.65 5.61 5.47 5.22 4.89 5.06
66 5.82 5.77 5.61 5.33 4.96 5.18
67 6.01 5.94 5.75 5.44 5.02 5.30
68 6.20 6.13 5.91 5.54 5.08 5.42
69 6.41 6.33 6.07 5.65 5.14 5.56
70 6.64 6.54 6.23 5.76 5.19 5.70
71 6.88 6.76 6.41 5.86 5.24 5.84
72 7.14 7.00 6.59 5.97 5.28 6.00
73 7.43 7.26 6.77 6.06 5.32 6.16
74 7.73 7.53 6.96 6.16 5.35 6.33
75 8.06 7.82 7.14 6.25 5.38 6.51
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
4
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity Payment with 3.5% Assumed Interest Rate
- -------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
50 $4.34 $4.34 $4.31 $4.27 $4.22
51 4.41 4.40 4.38 4.33 4.27
52 4.48 4.47 4.45 4.40 4.32
53 4.56 4.55 4.52 4.46 4.38
54 4.64 4.63 4.59 4.53 4.44
55 4.72 4.71 4.67 4.60 4.50
56 4.81 4.80 4.75 4.67 4.56
57 4.91 4.89 4.84 4.75 4.62
58 5.01 4.99 4.93 4.83 4.69
59 5.12 5.10 5.03 4.92 4.75
60 5.23 5.21 5.13 5.00 4.82
61 5.36 5.33 5.24 5.09 4.88
62 5.49 5.45 5.35 5.19 4.95
63 5.63 5.59 5.47 5.28 5.02
64 5.78 5.73 5.60 5.38 5.08
65 5.94 5.89 5.73 5.48 5.15
66 6.11 6.05 5.87 5.58 5.21
67 6.29 6.22 6.02 5.69 5.27
68 6.49 6.41 6.17 5.79 5.33
69 6.70 6.60 6.33 5.90 5.38
70 6.92 6.81 6.49 6.00 5.43
71 7.17 7.04 6.66 6.10 5.48
72 7.43 7.27 6.84 6.20 5.52
73 7.71 7.53 7.02 6.30 5.55
74 8.02 7.80 7.20 6.39 5.59
75 8.35 8.08 7.38 6.48 5.62
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
5
<PAGE>
Option 2: Life Income Based on the Life of One Annuitant
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity Payment with 5% Assumed Interest Rate
- -------------------------------------------------------------------------------------------------------------------
Option 2(b): Option 2(b): Option 2(b): Option 2(b):
Adjusted Option 2(a): payments payments payments payments
Age of payments for guaranteed guaranteed guaranteed guaranteed
Annuitant life 5 years 10 years 15 years 20 years
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
50 $5.26 $5.25 $5.22 $5.17 $5.11
51 5.33 5.32 5.28 5.23 5.15
52 5.40 5.38 5.34 5.29 5.20
53 5.47 5.45 5.41 5.35 5.26
54 5.54 5.53 5.48 5.41 5.31
55 5.63 5.61 5.56 5.47 5.36
56 5.71 5.69 5.63 5.54 5.42
57 5.80 5.78 5.72 5.61 5.47
58 5.90 5.88 5.81 5.69 5.53
59 6.01 5.98 5.90 5.77 5.59
60 6.12 6.09 6.00 5.85 5.65
61 6.24 6.21 6.10 5.93 5.71
62 6.37 6.33 6.21 6.02 5.77
63 6.51 6.46 6.33 6.11 5.83
64 6.66 6.60 6.45 6.20 5.89
65 6.82 6.75 6.57 6.30 5.95
66 6.99 6.91 6.71 6.39 6.01
67 7.17 7.08 6.85 6.49 6.06
68 7.36 7.27 6.99 6.59 6.12
69 7.57 7.46 7.15 6.69 6.17
70 7.80 7.67 7.30 6.78 6.21
71 8.05 7.89 7.47 6.88 6.25
72 8.31 8.13 7.64 6.97 6.29
73 8.59 8.38 7.81 7.06 6.33
74 8.90 8.64 7.99 7.15 6.36
75 9.23 8.93 8.16 7.23 6.38
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
6
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Fixed Annuity Payment with 3.0% Guaranteed Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ---------------------------
payments
Second- guaranteed
Primary ary 10 years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e) Option 3(f)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 50 $3.69 $4.05 $4.27 $3.69 $4.03 $3.67
55 55 3.88 4.26 4.47 3.87 4.14 3.85
55 60 3.99 4.44 4.71 3.98 4.20 3.94
60 55 3.99 4.44 4.71 3.98 4.42 3.94
60 60 4.24 4.71 4.99 4.23 4.57 4.17
60 65 4.38 4.97 5.32 4.38 4.65 4.29
65 60 4.38 4.97 5.32 4.38 4.93 4.29
65 65 4.72 5.33 5.70 4.71 5.14 4.59
65 70 4.93 5.68 6.15 4.91 5.27 4.74
70 65 4.93 5.68 6.15 4.91 5.66 4.74
70 70 5.40 6.21 6.70 5.36 5.96 5.13
70 75 5.69 6.68 7.32 5.62 6.13 5.29
75 70 5.69 6.68 7.32 5.62 6.67 5.29
75 75 6.37 7.45 8.15 6.23 7.12 5.78
75 80 6.78 8.11 8.99 6.54 7.36 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
7
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity Payment with 3.5% Assumed Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed 10
Primary Secondary years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $3.97 $4.35 $4.56 $3.97 $4.31
55 55 4.16 4.54 4.76 4.15 4.42
55 60 4.27 4.73 5.00 4.26 4.48
60 55 4.27 4.73 5.00 4.26 4.70
60 60 4.51 4.99 5.27 4.50 4.84
60 65 4.66 5.25 5.61 4.65 4.93
65 60 4.66 5.25 5.61 4.65 5.22
65 65 4.99 5.61 5.99 4.98 5.42
65 70 5.19 5.97 6.44 5.17 5.54
70 65 5.19 5.97 6.44 5.17 5.93
70 70 5.67 6.49 6.99 5.62 6.23
70 75 5.95 6.96 7.61 5.87 6.40
75 70 5.95 6.96 7.61 5.87 6.95
75 75 6.64 7.73 8.43 6.48 7.40
75 80 7.04 8.39 9.29 6.79 7.64
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
8
<PAGE>
Option 3: Life Income Based on the Lives of Two Annuitants
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
First Monthly Payment Amount for Each $1,000*
Rates for a Variable Annuity Payment with 5% Assumed Interest Rate
- -------------------------------------------------------------------------------------------------------------------------
Adjusted Ages
- ----------------------------------
payments
guaranteed 10
Primary Secondary years
Annuitant Annuitant Option 3(a) Option 3(b) Option 3(c) Option 3(d) Option 3(e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 50 $4.88 $5.26 $5.48 $4.88 $5.23
55 55 5.04 5.44 5.66 5.04 5.32
55 60 5.15 5.63 5.91 5.14 5.38
60 55 5.15 5.63 5.91 5.14 5.59
60 60 5.37 5.87 6.16 5.37 5.72
60 65 5.52 6.14 6.51 5.51 5.80
65 60 5.52 6.14 6.51 5.51 6.10
65 65 5.83 6.49 6.87 5.82 6.29
65 70 6.04 6.84 7.34 6.00 6.41
70 65 6.04 6.84 7.34 6.00 6.81
70 70 6.49 7.35 7.87 6.44 7.08
70 75 6.77 7.84 8.51 6.68 7.25
75 70 6.77 7.84 8.51 6.68 7.81
75 75 7.45 8.60 9.33 7.27 8.25
75 80 7.86 9.28 10.20 7.57 8.49
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of any applicable premium tax deduction
9
EM-TDA-99(PB)
EXHIBIT 99-B.4.6
ENDORSEMENT
Aetna Life Insurance and Annuity Company
Notwithstanding any provision of the Contract or Certificate to the contrary,
the Contract or Certificate is endorsed to add the following:
Aetna GET Fund ("GET Fund")
Each series of the GET Fund is a separate Fund.
Aetna GET Fund Guarantee
Aetna guarantees that the accumulation unit value for each series of the
GET Fund on its GET Maturity Date will not be less than the accumulation
unit value at the close of business on the last day of its Offering
Period. If necessary, Aetna will transfer funds from its General Account
to the Separate Account to offset any shortfall in the accumulation unit
value on the GET Maturity Date. This Aetna GET Fund Guarantee does not
apply to withdrawals or transfers before the GET Maturity Date.
If the Accumulation Units of a series of the GET Fund are adjusted at any
time during a Guarantee Period, the Aetna GET Fund Guarantee will be
restated. The restated Aetna GET Fund Guarantee will be calculated so that
is equivalent to the original Aetna GET Fund Guarantee for that series.
Aetna GET Fund Guarantee Charge
There is a daily charge during the Guarantee Period for the Aetna GET Fund
Guarantee. For each series this charge is determined prior to the
beginning of the Offering Period. The current daily charge for the Aetna
GET Fund Guarantee will equal an annual rate of 0.75%.
The Aetna GET Fund Guarantee Charge is deducted daily from the Account
Value allocated to the Separate Account and is reflected in Net Investment
Factor.
Aetna GET Fund Offering Period ("Offering Period")
Each series of the GET Fund has a specified Offering Period. The Offering
Period is usually one to three months and is the period during which
amounts may be transferred or deposited into a series of the GET Fund.
Aetna reserves the right to extend an Offering Period or accept transfers
or deposits into a series of the GET Fund after the Offering Period.
Aetna reserves the right to set a minimum amount which may be transferred
or deposited into a series of the GET Fund. Aetna also reserves the right
to set a minimum total asset amount required at the end of an Offering
Period to continue to offer a series of the GET Fund. If the minimum is
not met or if the GET Fund's Board of Trustees determines not to operate
the GET Fund in accordance with its investment objectives and strategies
due to unfavorable market conditions, Aetna reserves the right not to
begin the Guarantee Period. If Aetna exercises its right not to begin a
Guarantee Period, Aetna will send written notice to all who made transfers
or deposits into that series of the GET Fund. The notice will be mailed no
later than 15 calendar days after the end of the Offering Period. Those
who made transfers or deposits into that series of the GET Fund will then
have 45 calendar days from the end of the Offering Period to redirect
amounts in the terminated GET Fund series to one or more of the investment
options available under the Contract. If no election is made by the end of
this 45-day period, at the next Valuation Date Aetna will transfer the
amount in the terminated series of the GET Fund to the money market
Subaccount available under the Contract.
Aetna reserves the right to set a maximum total asset amount for a series
of the GET Fund. If the maximum is met, Aetna reserves the right to set a
date on which it will stop accepting transfers or deposits into that
series of the GET Fund.
Aetna GET Fund Guarantee Period ("Guarantee Period")
Each series of the GET Fund has a specified Guarantee Period. The
Guarantee Period is the period during which the Aetna GET Fund Guarantee
applies. The Guarantee Period ends on the GET Maturity Date.
EGET-00
<PAGE>
Aetna GET Fund Maturity Date ("GET Maturity Date")
The date on which a Guarantee Period ends and units of the series of the
GET Fund are liquidated.
Prior to a GET Maturity Date, Aetna will send written notice of the GET
Maturity Date to all who have amounts invested in that series. Those who
are then invested in the series must inform Aetna of the investment
option(s) into which they want their value of the GET Fund series
transferred. If no election is made, on the GET Maturity Date Aetna will
transfer the value to the series of the GET Fund then accepting transfers
and deposits. If there is no series of the GET Fund then accepting
transfers and deposits, Aetna will transfer the value to the investment
option(s) designated by Aetna in the written notice.
Aetna GET Fund Transfer or Withdrawal
A transfer or withdrawal from a series of the GET Fund before its GET
Maturity Date will be based on the GET Fund accumulation unit value on the
Valuation Date following the date Aetna receives the transfer or
withdrawal request in good order at its home office.
Aetna GET Fund Reinvestment
If a Contract or Certificate is surrendered and thereafter reinstated (if
available under the Contract or Certificate), amounts attributable to the
GET Fund will be reinstated to a series of the GET Fund, if any, that is
then in its Offering Period. If no GET Fund Offering Period is available,
amounts will be reallocated among the other available investment options
in which the Contract or Certificate Holder is invested, on a pro rata
basis.
Endorsed and made a part of the Contract or Certificate, whichever is
applicable, as of the Effective Date.
/s/ Thomas J. McInerney
President
Aetna Life Insurance and Annuity Company
EGET-00
Exhibit 99-B.9
[Aetna Letterhead]
[Aetna Logo]
151 Farmington Avenue
Hartford, CT 06156
Julie E. Rockmore
Counsel
Law Department, TS31
December 13, 1999 Aetna Financial Services
(860) 273-4686
Fax: (860) 273-0385
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account B
Pre-Effective Amendment No. 1 to Registration Statement on Form N-4
File Nos.: 333-87305 and 811-02512
Gentlemen:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I or those for whom I have supervisory
responsibility, have reviewed the N-4 Registration Statement, as amended to the
date hereof, and this Pre-Effective Amendment No. 1. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions
<PAGE>
of the prospectus, I am of the opinion that the Securities being registered will
be legally issued and will represent binding obligations of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Julie E. Rockmore
Julie E. Rockmore
Counsel
Exhibit 99-B.10
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contractholders of Aetna Variable Annuity Account B:
We consent to the use of our report dated February 26, 1999, relating to the
financial statements of the Aetna Variable Annuity Account B and our report
dated February 3, 1999, relating to the consolidated financial statements of
Aetna Life Insurance and Annuity Company, which are included in this
registration Statement on form N-4 (File No. 333-87305) and to the reference to
our firm under the heading "Independent Auditors" in the statement of additional
information.
/s/ KPMG LLP
Hartford, Connecticut
December 13, 1999
EXHIBIT 99-B.13
SCHEDULE FOR COMPUTATION OF TOTAL RETURN CALCULATIONS
TOTAL RETURN CALCULATION (STANDARDIZED)
The standardized rate represents fund performance for the most recent 1-year,
5-year and 10-year periods. The "1-year rate" represents fund performance for
the period January 1, 1998 through December 31, 1998; the "5-year rate" is for
the period January 1, 1994 through December 31, 1998; the "10-year rate" is for
the period January 1, 1988 through December 31, 1998. "Since inception" figures
assume the redemption on December 31, 1977 of values attributable to a $1,000
payment made on the date contributions were first received in the fund under the
separate account.
The formula used in the computation of the total return calculation is as
follows:
Formula
P(1 + T) (n) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value at the end of 1,
5, or 10 year periods (or a fractional
portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5,
or 10 year periods
The Total Returns reflect the deduction of all recurring charges during each
period (.e.g., mortality and expense risk charges, maintenance fees,
administrative charges (if applicable) and deferred sales charges).
TOTAL RETURN CALCULATION (NON-STANDARDIZED)
The non-standardized rate represents fund performance for the most recent
1-year, 3-year, 5-year and 10-year periods. The "1-year rate" represents fund
performance for the period January 1, 1998 through December 31, 1998; the
"3-year rate" is for the period January 1, 1995 through December 31, 1998; the
"5-year rate" is for the period January 1, 1994 through December 31, 1998; and
the "10-year rate" is for the period January 1, 1988 through December 31, 1998.
The non-standardized figures will be calculated in a manner similar to the one
discussed above for the standardized figures, except that non-standardized
figures will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations), and the "since inception" figures assume the redemption on
December 31, 1997 of values attributable to a $1,000 payment made on the
inception dates of the funds.
For an illustration of the Computation of the Total Return Quotations, both
Standardized and Non-Standardized, see attached.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
One Year
Product %
Separate w/out DSC -
Fund Name Account As of Date SA Inc Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Balanced VP, Inc. B 12/31/1998 15.06%
Aetna Bond VP B 12/31/1998 6.40%
Aetna Growth and Income VP B 12/31/1998 12.65%
Aetna Growth VP B 12/31/1998 35.47%
Aetna Index Plus Large Cap VP B 12/31/1998 29.49%
Aetna International VP B 12/31/1998
Aetna Money Market VP B 12/31/1998 3.76%
Aetna Real Estate Securities VP B 12/31/1998
Aetna Small Company VP B 12/31/1998 (0.53%)
AIM V.I. Capital Appreciation Fund B 12/31/1998
AIM V.I. Growth and Income Fund B 12/31/1998
AIM V.I. Growth Fund B 12/31/1998
AIM V.I. Value Fund B 12/31/1998
Fidelity VIP Equity-Income Portfolio B 12/31/1998 9.83%
Fidelity VIP Growth Portfolio B 12/31/1998 37.26%
Fidelity VIP High Income Portfolio B 12/31/1998 (5.87%)
Fidelity VIP II Contrafund Portfolio B 12/31/1998 27.90%
Janus Aspen Series Aggressive Growth Portfolio B 12/31/1998 32.11%
Janus Aspen Series Balanced Portfolio B 12/31/1998 32.13%
Janus Aspen Series Growth Portfolio B 12/31/1998 33.49%
Janus Aspen Series Worldwide Growth Portfolio B 12/31/1998 26.86%
MFS(R)Total Return Series B 12/31/1998 10.53%
Oppenheimer Aggressive Growth Fund/VA B 12/31/1998 10.56%
Oppenheimer Main Street Growth and Income Fund/VA B 12/31/1998 3.02%
Oppenheimer Strategic Bond Fund/VA B 12/31/1998 1.24%
PPI MFS Emerging Equities / Alger Amer Small Cap (3) B 12/31/1998 27.59%
PPI MFS Emerging Equities Portfolio B 12/31/1998 27.59%
PPI MFS Research Growth / Amer Century VP Cap Apprec (4) B 12/31/1998 21.03%
PPI MFS Research Growth Portfolio B 12/31/1998 21.03%
PPI MFS Value Equity / Neuberger Berman AMT Growth (5) B 12/31/1998 24.70%
PPI MFS Value Equity Portfolio B 12/31/1998 24.70%
PPI Scudder International / Scudder VLIF International (6) B 12/31/1998 17.18%
PPI Scudder International Growth Portfolio B 12/31/1998 17.18%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Three Inception
Year Five Year Ten Year Inception One Year Five Year Ten Year Year
Product Product Product Product Product Product Product Product Separate
% w/out % w/out % w/out % w/out % w/ DSC % w/ DSC % w/ DSC % w/ DSC Account
DSC - SA DSC - SA DSC - SA DSC - SA - SA Inc - SA Inc - SA Inc - SA Inc Inception
Inc Date Inc Date Inc Date Inc Date Date Date Date Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16.25% 14.04% 11.29% 7.98% 13.56% 11.29% 06/30/1989
4.94% 4.93% 7.52% (0.75%) 4.20% 7.52% 05/31/1978
20.80% 17.46% 14.75% 5.55% 17.05% 14.75% 05/01/1975
34.87% 28.56% 31.30% 05/30/1997
30.61% 22.53% 28.36% 10/31/1996
(4.03%) (11.71%) 05/05/1998
3.73% 3.59% 4.05% (3.41%) 2.82% 4.05% 09/30/1975
(12.33%) (19.35%) 05/06/1998
12.02% (7.73%) 7.83% 05/30/1997
29.15% 18.81% 10/02/1998
30.06% 19.65% 10/02/1998
32.44% 21.84% 10/02/1998
30.86% 20.39% 10/02/1998
15.89% 19.93% 2.71% 19.23% 12/30/1994
23.46% 25.81% 30.35% 25.25% 12/30/1994
6.93% 7.92% (13.12%) 6.46% 06/30/1995
23.05% 23.03% 20.92% 22.08% 06/30/1995
15.86% 16.96% 25.16% 16.24% 10/31/1994
21.97% 22.20% 25.19% 21.42% 01/31/1995
23.39% 22.14% 26.55% 21.62% 07/29/1994
24.63% 26.68% 19.87% 25.90% 04/28/1995
14.89% 3.41% 12.73% 05/31/1996
12.84% 3.44% 8.67% 05/30/1997
13.33% (4.16%) 9.18% 05/30/1997
4.04% (5.95%) (0.41%) 05/30/1997
12.01% 13.43% 13.16% 20.61% 12.94% 12.70% 09/30/1993
23.57% 20.61% 17.27% 11/28/1997
2.84% 6.41% 7.97% 13.99% 5.73% 7.61% 08/31/1992
16.98% 13.99% 10.59% 11/28/1997
18.51% 15.07% 13.46% 17.70% 14.61% 13.18% 11/30/1992
24.03% 17.70% 17.73% 11/28/1997
12.37% 8.64% 11.07% 10.12% 8.03% 10.78% 08/31/1992
16.94% 10.12% 10.55% 11/28/1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Separate
Fund Sep One Three Five Ten Fund Account
Inception Acct Free DSC Year Year Year Year Inception Inception
Date Charge Out Method DSC DSC DSC DSC DSC DSC
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
04/03/1989 160 10.00% C 8.00% 7.00% 5.00% 0.00% 0.00% 0%
05/15/1973 160 10.00% C 8.00% 7.00% 5.00% 0.00%
05/01/1975 160 10.00% C 8.00% 7.00% 5.00% 0.00%
12/13/1996 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
09/16/1996 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
12/22/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
08/01/1975 160 10.00% C 8.00% 7.00% 5.00% 0.00%
12/15/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
12/27/1996 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
05/05/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 8%
05/02/1994 160 10.00% C 8.00% 7.00% 5.00% 0.00% 6.00% 8%
05/05/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 8%
05/05/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 8%
10/09/1986 160 10.00% C 8.00% 7.00% 5.00% 0.00% 6%
10/09/1986 160 10.00% C 8.00% 7.00% 5.00% 0.00% 6%
09/19/1985 160 10.00% C 8.00% 7.00% 5.00% 0.00% 7%
01/03/1995 160 10.00% C 8.00% 7.00% 5.00% 0.00% 7.00% 7%
09/13/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 6%
09/13/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 7%
09/13/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 6%
09/13/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 7%
01/03/1995 160 10.00% C 8.00% 7.00% 5.00% 0.00% 7.00% 8%
08/15/1986 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8%
07/05/1995 160 10.00% C 8.00% 7.00% 5.00% 0.00% 7.00% 8%
05/03/1993 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5.00% 8%
09/21/1988 160 10.00% C 8.00% 7.00% 5.00% 0.00% 5%
11/28/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
11/20/1987 160 10.00% C 8.00% 7.00% 5.00% 0.00% 4%
11/28/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
09/10/1984 160 10.00% C 8.00% 7.00% 5.00% 0.00% 4%
11/28/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
05/01/1987 160 10.00% C 8.00% 7.00% 5.00% 0.00% 4%
11/28/1997 160 10.00% C 8.00% 7.00% 5.00% 0.00% 8.00% 8%
</TABLE>
