As filed with the Securities and Exchange Commission on January 17, 1996
Registration No. 33-64331
-----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 71-0294708
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
151 Farmington Avenue
Hartford, Connecticut 06156
(203) 273-7834
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Susan E. Bryant, Esquire
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
(203) 273-7834
(Name, address including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ X ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
=============================================================================
Title of Proposed Proposed
each class Amount maximum maximum Amount of
of securities to be offering price aggregate registration
to be registered Registered per unit offering price fee
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Interests under
modified
guaranteed deferred
annuity contracts...$58,000,000 * $58,000,000 $20,000^
=============================================================================
* The securities being registered are not issued in predetermined amounts or
units.
^ Registration fee of $20,000 paid on November 16, 1995.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
<TABLE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Cross Reference Sheet pursuant to
Regulation S-K, Item 501(b)
<CAPTION>
Form S-2 Item Number Caption In Prospectus
<S> <C>
1. Forepart of the Registration Statement and Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Cover Page
of Prospectus
3. Summary Information, Risk Factors and Summary Information;
Ratio of Earnings to Fixed Charges Description of Contracts;
Financial Statements
4. Use of Proceeds Investments
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of Contracts
9. Description of Securities to be Registered Description of Contracts
10. Interests and Named Experts and Counsel Experts
11. Information with Respect to the Registrant Appendix B and C
12. Incorporation of Certain Information by Incorporation of Certain
Reference Documents by Reference
13. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE>
P R O S P E C T U S
AETNA LIFE INSURANCE AND ANNUITY COMPANY
AETNA MULTI-RATE ANNUITY
151 Farmington Avenue
Hartford, Connecticut 06156
This Prospectus describes certain modified guaranteed deferred annuity
contracts offered by Aetna Life Insurance and Annuity Company ("Company"). The
contracts are issued as individual or group contracts and allow you to earn
interest and accumulate amounts on a tax deferred basis. The funds you
accumulate can be used to provide annuity payments or other benefits.
Individual contracts may be purchased directly or as a rollover
Individual Retirement Annuity. Group contracts may be purchased for both
qualified and non-qualified plans. Interests under a group contract will be
evidenced by the issuance to you of a separate certificate. Individual
contracts and certificates under group contracts are both referred to herein
as the "Contract." This Prospectus should be read thoroughly before you
purchase a Contract.
A minimum single purchase payment of at least $10,000 must accompany the
application for a Contract. Under the Contracts, the Company sets various
rates of interest ("Guaranteed Rate") that are paid for varying periods
("Guaranteed Period"). You choose the Guaranteed Period for which you would
like to invest, and at the end of that Guaranteed Period you may reinvest
your accumulated funds in another Guaranteed Period. Information concerning
available Guaranteed Periods and Guaranteed Rates may be obtained by calling
1-800-531-4547.
You may withdraw all or part of your accumulated funds at any time.
Withdrawals prior to the end of a Guaranteed Period may be subject to a Market
Value Adjustment and a surrender fee. Upon a full withdrawal, you could
therefore receive less than your purchase payment.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------
<PAGE>
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK,
NOR ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
----------------------
The date of this Prospectus is ______________, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 ("Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports and other information
concerning the Company may be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material also can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus includes as Appendix B and C, respectively, a copy of the
Company's annual report on Form 10-K for the year ended December 31, 1994, and
a copy of the Company's latest quarterly report on Form 10-Q. Reference is
made to those reports for a description of the Company and its business,
including financial statements.
The Company intends to deliver to holders of outstanding Contracts
account statements at least annually and such other periodic reports as may be
required by law, but it is not anticipated that any such reports will include
periodic financial statements or information concerning the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1994, and all reports filed by the Company pursuant to Sections 13(a) or 15(d)
of the Exchange Act since December 31, 1994, including all quarterly reports
on Form 10-Q, are incorporated by reference. The Company's annual report on
Form 10-K for the year ended December 31, 1994 and the quarterly report on
Form 10-Q for the quarter ended September 30, 1995 have been included herein.
The Company's annual report on Form 10-K includes independently audited
financial statements as of December 31, 1994. Interim financial statements of
the Company are contained in the Company's Form 10-Q quarterly reports.
Where any document or part thereof is incorporated by reference in
this Prospectus and not delivered herewith, the Company will undertake to
provide without charge to each person, including any beneficial owner to whom
a Prospectus is delivered, upon written or oral request, a copy of any and all
of the information that has been incorporated by reference in this Prospectus.
Any request for such information should be addressed to Aetna Life Insurance
and Annuity Company, 151 Farmington Ave., Hartford, Connecticut 06156.
2
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
SUMMARY INFORMATION...................................................... 5
SPECIAL TERMS............................................................ 7
Current Value.......................................................... 7
Annuitant.............................................................. 7
Annuity Date........................................................... 8
Annuity Option......................................................... 8
Beneficiary............................................................ 8
Guaranteed Period...................................................... 8
Guaranteed Rate........................................................ 8
In Writing............................................................. 8
You.................................................................... 8
DESCRIPTION OF CONTRACTS................................................. 9
The Application Process................................................ 9
Free Look.............................................................. 9
The Accumulation Period................................................ 10
Guaranteed Periods and Guaranteed Rates.............................. 10
Your Choices at the end of a Guaranteed Period....................... 11
Withdrawals and Surrenders........................................... 12
The Market Value Adjustment.......................................... 16
Premium Taxes........................................................ 16
Maintenance Fees..................................................... 17
Death Benefit........................................................ 17
Death Benefit Options Available to Your Beneficiary.................. 17
Annuity Period......................................................... 18
Selecting an Annuity Date............................................ 18
Annuity Payments..................................................... 18
Annuity Options...................................................... 19
Payment Upon Death After Annuity Payments Begin...................... 20
INVESTMENTS.............................................................. 20
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES........................ 21
AMENDMENT OF THE CONTRACTS............................................... 22
DISTRIBUTION OF THE CONTRACTS............................................ 22
FEDERAL INCOME TAXES..................................................... 23
The Company............................................................ 23
Taxes You or Others Pay - Non-Qualified Contracts...................... 23
Accumulation Period.................................................. 23
Annuity Payments..................................................... 23
Withdrawals Before the Annuity Date.................................. 24
Penalty For Premature Withdrawals and Payments....................... 24
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Partial Annuitization................................................ 24
Distribution-At-Death Rules.......................................... 24
Certain Tax-Free Exchanges........................................... 25
Taxes You or Other Pay - Qualified Contracts........................... 25
Contracts Purchased As A Rollover Individual Retirement Annuity...... 25
Withholding on Eligible Rollover Distributions....................... 26
Qualified Pension, Profit-Sharing Plans, or Annuity Plans............ 26
Tax Sheltered Annuities.............................................. 26
Withholding of Taxes................................................. 27
See Your Own Tax Adviser............................................. 27
LEGAL MATTERS............................................................ 27
EXPERTS.................................................................. 27
FURTHER INFORMATION...................................................... 28
INQUIRIES................................................................ 28
APPENDIX A: Calculating A Market Value Adjustment
APPENDIX B: Form 10-K For Fiscal Year Ended December 31, 1994
APPENDIX C: Form 10-Q For Quarter Ended September 30, 1995
4
<PAGE>
SUMMARY INFORMATION
The Contract is an annuity contract issued to you by the Company that
allows you to invest and accumulate funds while deferring taxes on the
interest you earn.
You make a single purchase payment for a Contract. The minimum purchase
payment is $10,000. You may make larger payments, or you may buy more than one
Contract. Purchase payments over $1,000,000 require the Company's prior
approval. Your purchase payment earns interest at fixed rates that the Company
guarantees will not change during certain fixed periods. The interest rates
that we guarantee are called Guaranteed Rates, and the fixed periods during
which these rates are guaranteed are called Guaranteed Periods.
When you purchase a Contract, you select the Guaranteed Period you want
from among those the Company then offers. Except as described below, your
purchase payment will earn interest at the Guaranteed Rate for the duration of
the Guaranteed Period you select. Guaranteed Periods always start on the first
business day of the month. During the period of time between the date your
purchase payment is credited and the start of the Guaranteed Period you
select, your purchase payment earns interest at the Guaranteed Rate applicable
to the Guaranteed Period you selected. The Guaranteed Rates offered will never
be less than the minimum guaranteed interest rate stated in the Contract. The
Company offers Guaranteed Periods of one to 10 years. You may divide your
single purchase payment among any of the various Guaranteed Periods that we
offer, but you must invest at least $1,000 in any single Guaranteed Period
selected.
Except for Contracts issued in the State of New York, for Guaranteed
Periods of greater than one year more than one Guaranteed Rate may be
applicable during a Guaranteed Period. For example, a Guaranteed Period of
five years may apply one Guaranteed Rate for the first year, a different
Guaranteed Rate for the next two years, and a third Guaranteed Rate for the
last two years.
At the end of any Guaranteed Period, you can elect to reinvest the
current value of your Contract in another Guaranteed Period then available,
withdraw all or part of your current value, or choose to start your annuity
payments, subject to certain restrictions. The Company will notify you at
least 18 days before the end of any Guaranteed Period in which you have
current value. If you make no election, the current value of your Contract
automatically will be reinvested for a Guaranteed Period equal to the one just
completed, or if not available, the next shortest Guaranteed Period then
available. If no such shorter Guaranteed Period is available, the next longest
Guaranteed Period will be used.
THE COMPANY'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO
GUARANTEED RATES TO BE DECLARED. THE COMPANY CANNOT PREDICT NOR CAN THE
COMPANY GUARANTEE WHAT THE GUARANTEED RATES WILL BE FOR FUTURE GUARANTEED
PERIODS UNTIL SUCH RATES ARE DECLARED. (See "Guaranteed Periods and Guaranteed
Rates.")
You may withdraw all or part of your Contract's current value at anytime.
However, such withdrawals may be subject to a surrender fee, a Market Value
Adjustment, a deduction for premium taxes and maintenance fees, and/or federal
income taxes and tax penalties. Except as described below, a surrender fee is
imposed on any amount of your purchase payment withdrawn
5
<PAGE>
during the first seven years of your Contract. For purposes of this fee it is
assumed that you are withdrawing all or a portion of your purchase payment
first, not your earnings. The amount of the surrender fee is initially 7%, and
declines periodically thereafter to 0% after the seventh year. The surrender
fee is not applicable to any amounts withdrawn at the end of a Guaranteed
Period if appropriate notice has been given. The surrender fee is also not
applicable to any amounts used to provide annuity payments.
After you own your Contract for one year, you are entitled to one Special
Withdrawal per year, up to a maximum amount equal to 10% of the current value
of your Contract at the time of your withdrawal. Also, if the current value of
your Contract exceeds $25,000, you can arrange a program of Systematic
Withdrawals, which allows you to withdraw specified amounts or percentages of
your Contract's current value or to withdraw amounts over specified time
periods that you determine. Similarly, for Contracts purchased as Individual
Retirement Annuities, if you are at least age 70 1/2 and the current value of
your Contract exceeds $25,000, you can arrange a program of annual withdrawals
through the Estate Conservation Option, which is designed to provide annual
payments in an amount equal to the minimum distribution that is required to be
withdrawn each year under the federal tax laws. Surrender fees do not apply to
Special Withdrawals, Systematic Withdrawals or withdrawals under the Estate
Conservation Option or the Nursing Home Waiver, but such withdrawals may be
subject to taxes, penalties and withholding taxes. (See "Federal Income
Taxes.")
A Market Value Adjustment is an adjustment applied to any amounts you
withdraw prior to the end of your Guaranteed Period. The Market Value
Adjustment may increase or decrease the amount of your withdrawal. The Market
Value Adjustment reflects the change in value of your investment in a
Guaranteed Period due to changes in interest rates since the start of that
Guaranteed Period. Generally, when interest rates decrease, the value of your
investment increases, and the Market Value Adjustment amount is positive.
Conversely, when interest rates increase, the value of your investment
decreases, and the Market Value Adjustment amount is negative. If interest
rates increase significantly, upon the withdrawal of the current value of your
Contract before the end of the Guaranteed Period, the amount you receive could
be less than the amount you invested at the start of the Guaranteed Period.
The amount of the Market Value Adjustment is determined by using the formula
described in Appendix A. The Market Value Adjustment does not apply to
Systematic Withdrawals or withdrawals under the Estate Conservation Option,
but it is applicable to Special Withdrawals and withdrawals under the Nursing
Home Waiver. The Market Value Adjustment also does not apply to amounts
withdrawn at the end of your Guaranteed Period, if appropriate notice has been
given.
Under certain emergency conditions, the Company may defer payment of any
withdrawal, including surrenders, for a period not exceeding six months from
the date of receipt of a withdrawal or surrender request.
You choose when you want your annuity payments to start. Your annuity
payments can start anytime after the first year of your Contract, upon your
selection of an annuity option. You may use all or part of the current value
of your Contract to provide annuity payments. If your
6
<PAGE>
annuity payments start before the end of your Guaranteed Period, a Market
Value Adjustment may be applied to any amounts used to start annuity payments.
The annuity option you select also determines the number, amount and frequency
of your annuity payments. Your annuity payments can be for a fixed period of
time, for your life, for the life of another person you select, or for the
joint lives of you and another person.
The Contract also provides a death benefit, which is paid if you or the
annuitant die before your annuity payments start. The amount of the death
benefit equals the current value of your Contract, provided that the death
benefit is paid within six months of the death of the annuitant. If paid after
six months of the date of death of the annuitant, or if paid upon your death
and you are not the annuitant, the death benefit equals the current value of
your Contract as adjusted by any applicable Market Value Adjustment.
Additionally, if you die and you are not the annuitant, the death benefit
payable will be subject to a surrender fee, if applicable. In certain
circumstances, your beneficiary or joint holder may have the option to
continue the Contract rather than receiving the death benefit.
The Company currently pays all state and local premium taxes on your
Contract when due. The Company recovers applicable taxes paid on your behalf
by deducting an appropriate amount from the current value of your Contract
when annuity payments start, or earlier upon surrender of your Contract.
Currently, such taxes range up to 3.5% of the amount of current value of the
Contract used for annuity payments. The Company reserves the right to deduct
premium taxes at any time from your purchase payment or from the current value
of your Contract based upon the Company's determination of when such tax is
due.
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated
meanings:
Current Value
As of any given date, your purchase payment plus interest credited, less
any amount withdrawn or used to provide annuity payments. The Current Value
will also reflect any deduction for premium taxes, in the event such taxes are
deducted from your purchase payment, and any deduction for maintenance fees,
if such fees are applicable.
Annuitant
The person whose life is measured for purposes of the duration of annuity
payments or the payment of the death benefit. This individual is designated by
you in your application. Prior to the Annuity Date you may request In Writing
to change the designated Annuitant, but any such change is only effective if
approved by the Company.
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Annuity Date
The date your annuity payments start under an annuity option you elect.
This date may be any time after the first year of your Contract, and will be
the later of the Annuitant's 85th birthday, or the tenth anniversary of your
purchase payment, unless you elect otherwise.
Annuity Option
The method you select for your annuity payments to be made.
Beneficiary
The person(s) entitled to receive any payment from the Contract upon your
death, the death of the Annuitant if not you, or the death of a joint holder,
as applicable. This person is designated by you in your application. If a
joint holder dies, the surviving joint holder will be deemed the designated
Beneficiary, and any other Beneficiary on record will be treated as the
contingent Beneficiary.
Guaranteed Period
The period for which Guaranteed Rates are credited.
Guaranteed Rate
The interest rate that we guarantee to pay during Guaranteed Periods.
In Writing
A written form satisfactory to the Company and received at its offices
addressed to: Aetna Life Insurance and Annuity Company, 151 Farmington Avenue,
Hartford, Connecticut 06156.
You
The person who owns and holds the Contract. You may have a joint holder,
but only if such joint holder is your spouse. With respect to a group
contract, "you" refers to the person or persons who has or have been issued a
certificate under the group contract. Where there are joint holders of the
Contract, each must join in making any request or election or to take any
action pursuant to the Contract.
8
<PAGE>
DESCRIPTION OF CONTRACTS
The Application Process
To begin the application process, you must submit a completed application
and your purchase payment to the Company for approval. The minimum purchase
payment is $10,000. The Company retains the right to limit the amount of the
maximum purchase payment, and all purchase payments over $1,000,000 require
the Company's approval. You may not make any additional purchase payments
under an existing Contract. However, additional Contracts may be purchased by
eligible persons at the then prevailing Guaranteed Rates and terms.
The Company will accept or reject an application within two business days
of its receipt. If the application is incomplete, the Company may hold it and
any accompanying purchase payment for five days. A purchase payment may be
held for longer periods only with your consent, pending acceptance of the
application. If the application is accepted, a Contract will be issued to you.
If the application is rejected, the application and any purchase payment will
be returned to you.
If your application is properly completed and accepted by the Company,
your purchase payment becomes part of the Company's general assets and is
credited to an account established for you. The Company will confirm the
crediting of your purchase payment In Writing within five business days of
receipt of your properly completed application. You start earning interest on
your purchase payment beginning on the effective date of your Contract, which
is the date your purchase payment is credited.
A Contract may be purchased as a rollover Individual Retirement Annuity
by transferring amounts previously accumulated (rollover amounts) under
another Individual Retirement Annuity or an Individual Retirement Account
under Section 408 of the Internal Revenue Code of 1986 ("Tax Code"), or a
retirement plan qualified under Section 401 or 403 of the Tax Code. Certain
qualified and non-qualified plans may also purchase a Contract. (See Appendix
A.)
The Company reserves the right to reject an application and, in such
case, any purchase payment will be returned to you without interest. The
Company will deliver your Contract within a reasonable time after receipt and
acceptance of your properly completed application and purchase payment.
Free Look
You may cancel your Contract within ten days of receiving it (or as
otherwise provided by state law) by giving Aetna written notice and returning
your Contract. Upon cancellation, the Company will return your purchase
payment to you within seven days after it receives your notice of
cancellation.
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The Accumulation Period
Guaranteed Periods and Guaranteed Rates
In your application you select the Guaranteed Period you want from among
those Guaranteed Periods the Company then offers. Your purchase payment earns
interest at the Guaranteed Rate applicable to that Guaranteed Period.
Guaranteed Periods always start on the first business day of the month. During
the period of time between the date your purchase payment is credited and the
start of the Guaranteed Period you selected, your purchase payment earns
interest at the Guaranteed Rate applicable to the Guaranteed Period you
selected. The Company offers Guaranteed Periods ranging in duration from one
to 10 years. You may divide your single purchase payment among any of the
various Guaranteed Periods that we offer, but you must invest at least $1,000
in any single Guaranteed Period selected, and not less than $10,000 in all
Guaranteed Periods selected. Except for Contracts issued in the State of New
York, for Guaranteed Periods of greater than one year more than one Guaranteed
Rate may be applicable during one Guaranteed Period. For example, a Guaranteed
Period of five years may apply one Guaranteed Rate for the first year, a
different Guaranteed Rate for the next two years, and a third Guaranteed Rate
for the last two years.
All Guaranteed Rates are stated in terms of effective annual rate of
return; that is, a Guaranteed Rate reflects a full year's interest. Interest
you earn is credited daily at a rate that will provide the guaranteed
effective rate of return over the period of one year assuming reinvestment of
all interest earned. Guaranteed Rates will never be less than the minimum
guaranteed interest rate stated in the Contract. The Company reserves the
right to offer, from time to time, Guaranteed Rates to prospective investors
that are higher than those offered to current Contract owners with respect to
Guaranteed Periods of the same duration.
The example below shows how interest will be credited to you during each
Guaranteed Period. The hypothetical interest rate used in this example is
illustrative only and is not intended to predict future Guaranteed Rates to be
offered under the Contract. Actual Guaranteed Rates offered may be more or
less than those shown. The example assumes no withdrawals of any amount during
the entire seven year Guaranteed Period illustrated. Accordingly, the example
does not give effect to any surrender fee, Market Value Adjustment, deduction
for premium taxes and maintenance fees, or federal income taxes or possible
tax penalties. (See "Withdrawals and Surrenders," "The Market Value
Adjustment," and "Premium Taxes," below, and "Federal Income Taxes.")
<TABLE>
Example of Interest Crediting at the Guaranteed Rate
<S> <C>
Purchase Payment: $20,000
Guaranteed Period: 7 years
Guaranteed Rate: 6.00% per annum
</TABLE>
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The Guaranteed Rate is applied in this example by using the following
formula: 1 + the Guaranteed Rate = 1.06.
Current Value at end of Contract Year 1 = $21,200.00 ($20,000.00 x 1.06)
Current Value at end of Contract Year 2 = $22,472.00 ($21,200.00 x 1.06)
Current Value at end of Contract Year 3 = $23,820.32 ($22,472.00 x 1.06)
Current Value at end of Contract Year 4 = $25,249.54 ($23,820.32 x 1.06)
Current Value at end of Contract Year 5 = $26,764.51 ($25,249.54 x 1.06)
Current Value at end of Contract Year 6 = $28,370.38 ($26,764.51 x 1.06)
Current Value at end of Guaranteed Period = $30,072.61 ($28,370.38 x 1.06)
Total Interest Credited in Guaranteed Period = $10,072.61 ($30,072.61 - $20,000)
Current Value at end of Guaranteed Period = $30,072.61 ($20,000.00 + $10,072.61)
The Company will determine the Guaranteed Rates it offers periodically at
its sole discretion. The Company has no specific formula for determining the
rate of interest that it will declare as future Guaranteed Rates. The
determination of Guaranteed Rates will reflect interest rates available on the
types of debt instruments in which the Company intends to invest the proceeds
attributable to the Contracts. (See "Investments.") The Company's management
will also consider various other factors in determining Guaranteed Rates for a
given Guaranteed Period, such as regulatory and tax requirements, sales
commissions and administrative expenses, general economic trends, and
competitive factors. The Company's management will make the final
determination as to Guaranteed Rates to be offered. The Company cannot predict
nor guarantee future levels of guaranteed interest rates above a contractually
guaranteed minimum rate nor guarantee what rates will be offered in the
future.
Your Choices at the end of a Guaranteed Period
At least 18 days prior to the end of a Guaranteed Period under your
Contract, the Company will send you a notice that your Guaranteed Period is
about to end. At the end of your Guaranteed Period, you can do three things
with the amount you have accumulated for that Guaranteed Period: (1) reinvest
all or part of it in another Guaranteed Period; (2) withdraw all or part of
it; or (3) use all or part of it to start your annuity payments. These choices
also can be used in combination. For example, you could withdraw part of the
amount you have accumulated, and reinvest the balance; or reinvest part, and
use the balance to start annuity payments. Each of
11
<PAGE>
these choices has certain consequences, which you should consider carefully.
(See "Withdrawals and Surrenders," below, and "Annuity Period" and "Federal
Income Taxes.")
Once you decide what you want to do with the Current Value for that
Guaranteed Period, you must advise the Company of your decision In Writing by
completing an election form. To be effective, your completed election form
must be received by the Company In Writing at least five days prior to the end
of the Guaranteed Period to which it applies. If you decide you want to
reinvest the Current Value of your Contract for a Guaranteed Period of the
same duration as the one just ending, you need not take any action.
IF THE COMPANY DOES NOT RECEIVE YOUR PROPERLY COMPLETED ELECTION FORM IN
TIME, OR IF NO FORM IS RECEIVED, YOUR Current Value WILL BE AUTOMATICALLY
REINVESTED FOR A Guaranteed Period EQUAL TO THE Guaranteed Period JUST ENDED.
If no such Guaranteed Period is then being offered, the Guaranteed Period with
the next shortest duration will be used. If no such shorter Guaranteed Period
is available, the next longest Guaranteed Period will be used. Your Current
Value will then earn interest at the Guaranteed Rate applicable to the
Guaranteed Period automatically selected for you. The Company will mail a
confirmation statement to you the next business day after the completion of
your just ended Guaranteed Period advising you of the new Guaranteed Period
and Guaranteed Rate.
Withdrawals and Surrenders
General
At any time prior to the time your annuity payments start, you may
surrender all or part of the Current Value of your Contract. Partial
surrenders are referred to in this Prospectus as "withdrawals." If, after any
withdrawal, the Current Value of your contract is less than $2,500, the
Company may terminate your Contract upon 90 days notice and refund the
remaining balance to you. If you withdraw all your Current Value, you must
surrender your Contract. To make a partial withdrawal or to surrender your
Contract, you must properly complete a withdrawal request or surrender form
provided by the Company, and submit it to the Company In Writing. All
withdrawals and any surrender may be subject to a surrender fee, a Market
Value Adjustment, a deduction for premium taxes and maintenance fees, and
federal income taxes and tax penalties. All applicable fees and deductions are
deducted from the amount of your withdrawal in accordance with the terms of
your Contract. Any Market Value Adjustment applicable to your withdrawal or
surrender may either increase or decrease the amount paid to you. (See "Market
Value Adjustment," below.) Accordingly, if you request that you receive a
specific dollar amount upon withdrawal, the amount actually withdrawn from
your Contract may be more or less than the requested dollar amount. The
Company will, upon request, inform you in advance of the amount payable upon a
withdrawal or surrender. Amounts withdrawn are withdrawn on a pro rata basis
from each of the Guaranteed Periods under the Contract.
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Fees Applicable to Withdrawals and Surrenders
Upon any withdrawal or surrender, a surrender fee of up to 7% may be
deducted from the amount withdrawn, depending on the length of time that has
passed since your initial purchase payment was credited. The surrender fee
only applies to the amount of your purchase payment withdrawn, but for
purposes of this fee it is assumed that you are withdrawing all or a portion
of your purchase payment first, not your earnings. This assumption, however,
does not apply for tax purposes. (See "Federal Income Taxes.") The chart below
indicates the percentage fee applied to amounts you withdraw.
------------------------------------------------------------------------------
Surrender Fee
Years since initial
payment credited: 0 1 2 3 4 5 6 7
Fee as a percentage
of payment withdrawn: 7% 7% 6% 6% 5% 4% 2% 0%
------------------------------------------------------------------------------
The surrender fee and Market Value Adjustment are waived and not
applicable to any amounts withdrawn at the end of a Guaranteed Period,
provided that five days prior to the end of that Guaranteed Period we receive
notice of the withdrawal In Writing. The surrender fee and Market Value
Adjustment, however, remain applicable to any amount you reinvest for another
Guaranteed Period. For purposes of applying the surrender fee, all time
periods are measured from the date your initial purchase payment is credited,
even if you reinvest all or part of your Current Value in another Guaranteed
Period. Once the surrender fee declines to 0%, it is no longer applicable,
regardless of how long you own your Contract.
For example, assume that the first Guaranteed Period you select is for 5
years. Further assume that at the end of this 5 year Guaranteed Period, you
decide to reinvest the Current Value of your Contract for another Guaranteed
Period of 4 years. Assume you then make a withdrawal (but not a Special
Withdrawal, as described below) during the second year of the new Guaranteed
Period. Because six years have passed since your purchase payment was
credited, you would pay a 2% surrender fee, even though you could have
withdrawn all or part of the Current Value of your Contract at the end of the
first 5 year Guaranteed Period without paying a surrender fee. However, if you
make a withdrawal during the third year of the new Guaranteed Period, or
anytime thereafter, you would pay no surrender fee, because seven years would
have passed since your purchase payment was credited.
If you surrender your Contract and the Current Value is less than $2,500,
the surrender fee will be waived, provided you have not withdrawn any amounts
within the prior 12 months. The surrender fee is also waived if the Company
terminates your Contract because its Current Value is less than $2,500. In
both cases, a Market Value Adjustment will be applied, and a deduction will be
made for any premium taxes and maintenance fees, if applicable.
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Special Withdrawals
After you own your Contract for one year, you have the opportunity to
make one Special Withdrawal per year without paying a surrender fee. The
maximum amount of the Special Withdrawal equals 10% of the Current Value of
your Contract at the time the Company receives your withdrawal request In
Writing. This opportunity is only available for the first withdrawal of each
year, and all subsequent withdrawals during that year will be subject to the
surrender fee, even if you did not withdraw the full 10% with your first
withdrawal. If your first withdrawal for the year is in excess of 10% of the
Current Value of your Contract, only the excess amount is subject to a
surrender fee. A Market Value Adjustment is applicable to any amounts that you
withdraw, and you also may be required to pay taxes and tax penalties. (See
"Federal Income Taxes.")
The Systematic Withdrawal Option
If the Current Value of your Contract exceeds $25,000, you can elect a
program of automated partial withdrawals through the Systematic Withdrawal
Option ("SWO"). SWO allows you to withdraw either a specified amount or a
percentage of your Contract's value, or to withdraw amounts over a specified
time period that you determine, within certain limits described in your
Contract. SWO payments can be made on a monthly or quarterly basis, and the
amount of each payment is determined by dividing the designated annual amount
by the number of payments due each calendar year. SWO payments are withdrawn
pro rata from each of the Guaranteed Periods under your Contract.
SWO is available under three payment methods: the specified percentage
method, the specified payment method, and the specified period method. The
terms and conditions applicable to each of these payment methods are described
in your Contract.
If you elect SWO under a Contract purchased as a rollover Individual
Retirement Annuity, and under the Tax Code you are required each year to
withdraw a minimum distribution amount, if the SWO payment for any year is
less than the minimum required distribution, the SWO payment will be increased
to an amount equal to the minimum distribution amount.
If you participate in SWO, you may not utilize a Special Withdrawal to
make additional withdrawals from your Contract. Once elected, SWO may be
cancelled at anytime by submitting a request In Writing to the Company. Once
cancelled, SWO may not be elected again by you or your spousal Beneficiary.
The Company reserves the right to change the terms of SWO for future elections
and to discontinue the availability of this option upon notice. The Company
also reserves the right to establish the date when you may first elect SWO.
Surrender fees and the Market Value Adjustment do not apply to
withdrawals received under SWO, but you may be required to pay taxes and tax
penalties on any amounts that you withdraw. (See "Federal Income Taxes.")
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The Estate Conservation Option
If you are at least age 70 1/2 and the Current Value of your Contract
exceeds $25,000, you can arrange a program of annual partial withdrawals
through the Estate Conservation Option ("ECO"). ECO is available only for
Contracts purchased as a rollover Individual Retirement Annuity, and is
designed to provide annual payments in an amount equal to the minimum
distribution that is required to be withdrawn each year under the Tax Code.
ECO payments are withdrawn pro rata from each of the Guaranteed Periods under
your Contract. The Company will, upon request, inform you in advance of the
amount payable under ECO.
Surrender fees do not apply to withdrawals received under ECO, and the
Market Value Adjustment also is not applicable. You will be required to pay
taxes on any amounts that you withdraw. (See "Federal Income Taxes.")
If you participate in ECO, you may not utilize a Special Withdrawal to
make additional withdrawals from your Contract. Once elected, ECO may be
cancelled at anytime by submitting a request In Writing to the Company. Once
cancelled, ECO may not be elected again until 36 months have elapsed. The
Company reserves the right to change the terms of ECO for future elections and
to discontinue the availability of this option upon notice.
The Nursing Home Waiver
The Nursing Home Waiver provides that if you have owned your Contract for
over one year, and the Annuitant has spent at least 45 consecutive days in a
licensed nursing care facility, then the surrender fee will be waived if you
withdraw or surrender any portion of the Current Value of your Contract within
three years of the Annuitant's admission to such licensed nursing care
facility. The Market Value Adjustment applies to withdrawals and surrenders
under the Nursing Home Waiver, and you also may be required to pay taxes and
tax penalties on any amounts that you withdraw. (See "Federal Income Taxes.")
The Nursing Home Waiver may not be available in all states and does not apply
if the Annuitant was in a licensed nursing care facility when you purchased
your Contract.
Payment Upon Withdrawal or Surrender
Under certain emergency conditions, the Company may defer payment of any
withdrawal or surrender for a period not exceeding six months from date of
receipt of a withdrawal or surrender request.
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The Market Value Adjustment
The amount payable upon a withdrawal or surrender before the end of a
Guaranteed Period may be increased or decreased by the application of the
Market Value Adjustment. When applicable, the Market Value Adjustment is
applied to the amount withdrawn or surrendered. If your annuity payments start
before the end of your Guaranteed Period, a Market Value Adjustment may be
applied to any amounts used to start annuity payments. The Market Value
Adjustment will not be applied to Systematic Withdrawals or to withdrawals
under the Estate Conservation Option. The Market Value Adjustment also does
not apply to amounts withdrawn at the end of your Guaranteed Period, if
appropriate notice has been given.
The Market Value Adjustment reflects the change in the value of your
investment due to changes in interest rates since the start of the Guaranteed
Period under your Contract. When interest rates increase, the value of your
investment decreases and the Market Value Adjustment amount is negative.
Conversely, when interest rates decrease, the value of your investment
increases, and the Market Value Adjustment amount is positive. Because a
Market Value Adjustment can be positive or negative, it may increase or
decrease the amount of your withdrawal before the end of a Guaranteed Period.
The Company imposes a Market Value Adjustment for several reasons. Upon
withdrawal of money from your Contract, the Company may need to liquidate
certain assets or use existing cash flow that would otherwise be available to
invest at current interest rates. The assets that are liquidated may be sold
at a profit or a loss, depending upon market conditions. This profit or loss
could affect the determination of Guaranteed Rates. (See "Guaranteed Periods
and Guaranteed Rates," above.) To lessen this impact, certain withdrawals are
subject to a Market Value Adjustment.
For an explanation of how the Market Value Adjustment is calculated, see
Appendix A.
Premium Taxes
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 3.5% of either your purchase
payment or the amount accumulated in your Contract that you use for annuity
payments. The Company initially will pay all state-imposed premium or similar
taxes applicable to your Contract. These taxes will be deducted from the
amounts that you use for annuity payments immediately prior to the time your
annuity payments begin. If you surrender your Contract, or at your death your
Beneficiary elects to receive a lump sum distribution, a charge will be
deducted for any premium taxes paid on your behalf for which the Company has
not been reimbursed. The Company reserves the right to deduct premium taxes at
any time from your purchase payment or from the Current Value of your Contract
based upon the Company's determination of when such tax is due. In the event
that premium taxes are deducted from your purchase payment, the amount
invested in a Guaranteed Period will be equal to the amount of your purchase
payment reduced by any applicable premium tax.
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Maintenance Fees
Prior to the time your annuity payments start, an annual maintenance fee
may be deducted from the Current Value of your Contract on each anniversary of
your Contract's effective date and upon the surrender of your Contract. The
terms and conditions under which the maintenance fee may be deducted are
stated in your Contract.
Death Benefit
In your application to purchase a Contract, you will select a
Beneficiary. If you or the Annuitant die before annuity payments begin, a
death benefit will be paid to your Beneficiary in accordance with the terms of
your Contract. If a joint holder dies, the surviving joint holder will be
deemed the designated Beneficiary, and any other Beneficiary on record will be
treated as the contingent Beneficiary. If the Contract holder is not a natural
person, the death benefit will be payable at the death of the Annuitant or
upon any change of the Annuitant.
The amount of the death benefit equals the Current Value of your
Contract, provided that the death benefit is paid within six months of the
death of the Annuitant. If the death benefit is paid after six months of the
date of death of the Annuitant, or if paid upon your death and you are not the
Annuitant, it equals the Current Value of your contract as adjusted by any
applicable Market Value Adjustment. Additionally, if you die and you are not
the Annuitant, the death benefit payable will be subject to a surrender fee,
if applicable. The death benefit is calculated as of the date of receipt of
notification In Writing of due proof of death and the Beneficiary's claim. In
certain circumstances, your Beneficiary or joint holder may have the option to
continue the Contract rather than receiving the death benefit.
You may change the Beneficiary you previously designated at any time by
submitting notice In Writing to the Company. The change will not be effective
until received and recorded by the Company.
Death Benefit Options Available to Your Beneficiary
If you die before annuity payments begin, or, if the Contract holder is
not a natural person and the Annuitant dies before annuity payments begin, any
Beneficiary under the Contract who is an individual has several options for
receiving payment of the death benefit. The death benefit may be paid in one
lump sum payment, or all or part of such amounts may be used to start annuity
payments using the Annuity Options available under the Contract. Unless the
designated Beneficiary is your spouse, all death benefits paid as a lump sum
must be distributed within five years of the date of death. If the Beneficiary
elects to receive a lump sum payment, a charge will be deducted for any
premium taxes paid on your behalf for which the Company has not been
reimbursed. A spousal Beneficiary also may elect to exercise all rights under
the Contract.
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If you are an individual who is not the Annuitant, and the Annuitant
dies, your Beneficiary may elect either to apply all of the death benefit
amount to any Annuity Option available under the Contract within 60 days of
the date of death, or to receive such amount as a lump sum payment.
Annuity Period
Selecting an Annuity Date
You select the Annuity Date for your Contract, which is the date you want
your annuity payments to start under an Annuity Option that you select. This
date may be any time after the first year of your Contract, and will be the
later of the Annuitant's 85th birthday or the tenth anniversary of your
purchase payment, unless you elect otherwise.
You can change your Annuity Date by notifying the Company In Writing at
least 30 days before your annuity payments are to begin.
Regardless of your Annuity Date, your annuity payments will not begin
until you have selected an Annuity Option. Failure to select an Annuity Option
on your Annuity Date, or postponement of the Annuity Date past the later of
the Annuitant's 85th birthday or the tenth anniversary of your purchase
payment, may have adverse tax consequences. You should consult with a
qualified tax adviser if you are considering either of these courses of
action.
Annuity Payments
You may apply all or a portion of the Current Value of your Contract to
provide annuity payments. Annuity payments are made to you unless you request
otherwise. You can request that we send annuity payments to any person you
name, or have the payments deposited directly in any bank account. After your
death, we will send any annuity payments still due to the Beneficiary you have
selected. You may be required to pay taxes on portions of the annuity payments
you receive. (See "Federal Income Taxes.")
Annuity payments are made monthly unless you request that annuity
payments be made quarterly, semi-annually or annually. You may change your
request In Writing at any time. The amount of each annuity payment depends on
how much of your Current Value, less applicable premium taxes, you use to
start your annuity payments, and the Annuity Option that you elect. No
election may be made that would result in a first annuity payment of less than
$50 or total yearly annuity payments of less than $250. If the amount you have
accumulated in your Contract as of the Annuity Date is insufficient to elect
an Annuity Option for the minimum amount specified, you will receive a lump
sum payment. After any two full consecutive years, measured from the
anniversary of the effective date of your Contract, and upon 90 days notice to
you, the Company may terminate a rollover Individual Retirement Annuity
Contract if the paid-up benefit at maturity
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would be less than $20 per month. Instead of electing annuity payments, you
may request that the Company make a lump sum payment. No surrender fee will be
applied to any amounts used to start annuity payments, although a Market Value
Adjustment may be applicable.
Annuity Options
You can elect to have your annuity payments made:
(1) for the life of your designated Annuitant or joint Annuitant;
(2) for the life of the Annuitant but guaranteed for a minimum of 5,
10, 15 or 20 years;
(3) for the life of two Annuitants; or
(4) for a stated period of time (10 to 30 years).
You must notify the Company In Writing of the Annuity Option elected at
least 30 days prior to the Annuity Date. You may change your election at any
time up to 30 days before your annuity payments start. If your annuity
payments start before the end of your Guaranteed Period, a Market Value
Adjustment will be applied to any amounts used to start annuity payments. If
the Annuity Option selected is one of the first three listed above (i.e., a
lifetime annuity), only a positive Market Value Adjustment will be applied.
Once you elect for annuity payments to begin, you may not elect to instead
receive a lump sum payment.
If you choose an annuity for life but guaranteed for a minimum number of
years, when the annuity payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95.
Additionally, federal income tax requirements currently applicable to
Individual Retirement Annuities provide that the period of years guaranteed
may not be any greater than the joint life expectancies of the payee and his
or her designated Beneficiary.
Further, if you choose an annuity for the life of two Annuitants, annuity
payments will continue until both Annuitants have died. When this Annuity
Option is chosen, you must choose one of the following:
(1) 100% of the payment to continue after the first death;
(2) 66 2/3% of the payment to continue after the first death;
(3) 50% of the payment to continue after the first death;
(4) Payments for a minimum of 120 months, with 100% of the payment
to continue after the first death; or
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(5) 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
Payment Upon Death After Annuity Payments Begin
Upon the death of either the Annuitant or the surviving joint Annuitant
after annuity payments start, the amount payable, if any, to your Beneficiary
depends on the Annuity Option currently in force. Any amounts payable must be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
If you die after annuity payments start and you are not the Annuitant,
any remaining payments will continue to be made to your Beneficiary at least
as rapidly as under the method of distribution in effect at your death.
INVESTMENTS
Purchase payments received under the Contracts and allocated to
Guaranteed Periods will be invested by the Company under the laws of the State
of Connecticut. You have no priority claims on, or participation in the
performance of, such assets. All such assets are the property of the Company
and available to meet the guarantees under the Contracts and the general
obligations of the Company.
The assets of the Company will be invested in accordance with the
requirements established by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state, and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, and certain other investments.
The Company has no specific formula for establishing the Guaranteed Rates
for the Guaranteed Periods. The Company expects the rates to be influenced by,
but not necessarily correspond to, the yields on the fixed income securities
to be acquired with amounts that are allocated to the Guaranteed Periods at
the time that the Guaranteed Rates are established.
The Company intends to invest in assets which, in the aggregate, have
characteristics, especially cash flow patterns, reasonably related to the
characteristics of the liabilities. Various immunization techniques will be
used to achieve the objective of close aggregate matching of assets and
liabilities. The Company will primarily invest in investment-grade fixed
income securities including:
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o Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
United States Government.
o Debt securities that are rated, at the time of purchase, within the
four highest grades assigned by Moody's Investors Services, Inc.
(Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or
BBB) or any other nationally recognized rating service.
o Other debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies and of corporations,
which obligations, although not rated by Moody's, Standard & Poor's,
or other nationally recognized rating firms, are deemed by the
Company's management to have an investment quality comparable to
securities which may be purchased as stated above.
o Commercial paper, cash or cash equivalents, and other short-term
investments having a maturity of less than one year which are
considered by the Company's management to have investment quality
comparable to securities which may be purchased as stated above.
In addition, the Company may invest in futures and options. Financial
futures and related options thereon and options on securities are purchased
solely for nonspeculative hedging purposes. In the event the securities prices
are anticipated to decline, the Company may sell a futures contract or
purchase a put option on futures or securities to protect the value of
securities it holds. Similarly, if securities prices are expected to rise, the
Company may purchase a futures contract or a call option thereon against
anticipated positive cash flow or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE COMPANY'S INVESTMENT STRATEGY, THE
COMPANY IS NOT OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE CONTRACTS
ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS MAY BE REQUIRED BY CONNECTICUT
AND OTHER STATE INSURANCE LAWS, NOR WILL THE GUARANTEED RATES THE COMPANY
ESTABLISHES NECESSARILY RELATE TO THE INVESTMENT PERFORMANCE THE COMPANY
EXPERIENCES.
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES
You have the sole and absolute power to exercise all rights and
privileges under the Contract, except as otherwise provided by the Contract.
Your rights under the Contract may be assigned or transferred. The Company
will not be bound by an assignment unless and until notice of such assignment
is submitted In Writing and such assignment is accepted by
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the Company. The Company assumes no responsibility for the validity or effect
of any assignment. The Company reserves the right not to accept any assignment
or transfer to a nonnatural person. In some cases, an assignment may have
adverse tax consequences. You should consult a tax adviser regarding the
consequences of an assignment.
AMENDMENT OF THE CONTRACTS
Only an authorized officer of the Company may change the terms of the
Contract. The Company will notify you In Writing of any such change. The
Company reserves the right to modify the Contract to meet the requirements of
applicable state or federal laws or regulations.
DISTRIBUTION OF THE CONTRACTS
The Company will serve as the underwriter of the Contracts being offered
by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. ("NASD"). As underwriter, the Company will
contract with one or more other registered broker-dealers who are NASD members
("Distributors") to offer and sell the Contracts. Sales compensation paid to
Distributors will not exceed 6 1/2 percent of the purchase payment made for a
Contract. Alternatively, the Company may pay asset-based sales compensation
annually to Distributors that will not exceed 1 1/4 percent of the assets held
under a Contract. At its discretion, the Company may also pay sales
compensation to Dealers based on both a percentage of the purchase payment and
the assets held annually under a Contract. The Company and one or more
affiliates may also sell the Contracts directly. All registered
representatives of the Distributors must also be licensed as insurance agents
to sell the Contracts.
The Company may also contract with independent third party broker-dealers
who will act as wholesalers by assisting the Company in finding broker-dealers
interested in acting as Distributors for the Company. These wholesalers may
also provide training, marketing and other sales related functions for the
Company and the Distributors and may provide certain administrative services
to the Company in connection with the Contracts. The Company may pay such
wholesalers compensation based on purchase payments for the Contracts
purchased through Distributors selected by the wholesaler.
The Company may also designate third parties to provide services in
connection with the Contracts such as reviewing applications for completeness
and compliance with insurance requirements and providing the Distributors with
approved marketing material, prospectuses or other supplies. These parties
will also receive payments based on purchase payments for their services, to
the extent such payments are allowed by applicable securities
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laws and NASD rules. All costs and expenses related to these services will be
paid by the Company.
FEDERAL INCOME TAXES
The Company
The Company is taxed as a life insurance company under the Tax Code. The
assets underlying the Contracts will be owned by the Company. The income
earned on such assets will be the Company's income.
The Company assumes no responsibility for determining whether a
particular individual retirement annuity plan satisfies the applicable
requirements of the Tax Code or whether a particular person is eligible for
such a plan.
Taxes You or Others Pay - Non-Qualified Contracts
Non-qualified Contracts are those used other than in connection with a
rollover Individual Retirement Annuity or tax-favored retirement program such
as an employee benefit plan.
Accumulation Period
The Contracts are considered annuity contracts under Section 72 of the
Tax Code. Currently, no Federal income tax is payable on increases in the
value of the Contract (such as interest credited to you) until payments are
made to you or another payee under such Contract. However, a Contract owned
other than by a natural person is not generally an annuity for tax purposes
and any increase in value thereunder is currently taxable as ordinary income.
Annuity Payments
Annuity payments are in part taxable to you or another payee as ordinary
income, and in part nontaxable. The nontaxable portion of each annuity payment
is that portion of your purchase payment returned to you. This nontaxable
portion is determined by dividing the "investment in the contract" (generally,
your purchase payment with certain adjustments) by the amount of "expected
return" during the time that periodic payments are to be made, and then
multiplying by the amount of the payment. The balance of the annuity payment
is taxable.
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Withdrawals Before the Annuity Date
Partial withdrawals prior to the Annuity Date, other than those used to
provide annuity payments, and total surrenders at any time, will be taxable to
you as ordinary income to the extent that the Contract's Current Value exceeds
your "investment in the contract" at that time. For tax purposes, it is
assumed that you are withdrawing all or a portion of your earnings first, not
your purchase payment.
If you assign or pledge any part of your Current Value, the value so
pledged or assigned is treated like a withdrawal for tax purposes. Transfer of
ownership without full and adequate consideration is treated for income tax
purposes as a taxable surrender of the Contract. Transfers between spouses or
incident to divorce are not subject to this rule.
Penalty For Premature Withdrawals and Payments
In addition to being included in ordinary income, the taxable portion of
any withdrawal or payment made before you reach age 59 1/2 may be subject to a
10 percent penalty tax. The penalty tax does not apply to, among other things,
payments made on account of your death or becoming disabled, or to payments
made in substantially equal periodic payments, not less than annually, over
the life (or life expectancy) of the payee or over the joint lives (or life
expectancies) of the payee and a designated Beneficiary.
Partial Annuitization
Prior to the Annuity Date, you may withdraw a portion of your Account
Value and use it to provide annuity payments, while leaving the remaining
portion of your Account Value invested in one or more Guaranteed Periods. The
Tax Code and the regulations thereunder do not specifically address the tax
treatment applicable to payments provided pursuant to the exercise of this
type of option. The Company takes the position that payments provided pursuant
to this option are taxable as annuity payments, and not as a withdrawal.
However, because the tax treatment of such payments is currently unclear, you
should consult with a qualified tax adviser if you are considering a partial
annuitization of your Contract.
Distribution-At-Death Rules
In order to be treated for tax purposes as a non-qualified annuity
Contract, a non-qualified Contract must provide the following two distribution
rules: (a) if you die on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remainder of your interest
will be distributed at least as quickly as the method in effect on your death;
and (b) if you die before the Annuity Date, your entire interest must
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generally be distributed within five years after the date of death, or if the
interest is payable to a designated Beneficiary, such interest must be
annuitized over the life of that Beneficiary or a period not extending beyond
the life expectancy of that Beneficiary, beginning within one year after the
date of death. A "designated Beneficiary" is any individual designated as a
Beneficiary by you. If the designated Beneficiary is your spouse, the Contract
(together with the deferral of tax on the accrued and future income
thereunder) may be continued in the name of the spouse.
Where the holder of the Contract is not an individual, the primary
Annuitant is considered the owner, solely for the purpose of the
distribution-at-death rules. The primary Annuitant is the individual the
events in whose life are of primary importance in affecting the timing and
payment under a Contract. In addition, when the holder of the Contract is not
an individual, a change in the primary Annuitant is treated as the death of
the holder of the Contract.
Certain Tax-Free Exchanges
Section 1035 of the Tax Code provides generally that no gain or loss will
be recognized under the exchange of a life insurance, endowment or annuity
contract for an annuity contract. Thus, a properly completed exchange from one
of these types of products into a Contract pursuant to the special annuity
contract exchange form the Company provides for this purpose is not generally
a taxable event under the Tax Code, and the investment in the Contract will be
the same as in the exchanged product.
Because of the complexity of these and other tax aspects in connection
with an exchange, a tax adviser should be consulted before any exchange is
made.
Taxes You or Others Pay - Qualified Contracts
Contracts may also be used with several types of tax-favored retirement
programs, such as a rollover Individual Retirement Annuity or an employee
benefit plan. The tax rules applicable to participants in such programs vary
according to the type of program and the terms and conditions of the program
itself.
Contracts Purchased As A Rollover Individual Retirement Annuity
The Contract may be purchased as a rollover Individual Retirement
Annuity, by transferring amounts previously accumulated (rollover amounts)
under another Individual Retirement Annuity, an Individual Retirement Account
(as defined by the Tax Code), or a retirement plan qualified under Sections
401 or 403 of the Tax Code.
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For Contracts purchased as a rollover Individual Retirement Annuity, the
Tax Code requires that minimum distributions must begin no later than April 1
of the year following the year in which you attain age 70 1/2. When payments
under an Individual Retirement Annuity Contract are made in the form of an
annuity, or in a single sum such as on surrender of the Contract or by
withdrawal, the entire payment is generally taxed as ordinary income. As in
the case of non-qualified Contracts, certain distributions, such as those made
prior to your reaching 59 1/2, may be subject to a 10% penalty.
Withholding on Eligible Rollover Distributions
If you wish to rollover your entire Current Value to or from a rollover
Individual Retirement Annuity, you should have it paid directly to the
successor plan. Otherwise, your distribution will be subject to 20%
withholding. Consult a qualified tax adviser before taking such a
distribution.
Qualified Pension, Profit-Sharing Plans, or Annuity Plans
Sections 401(a) and 403(a) of the Tax Code permit corporate employers and
self-employed individuals to establish various types of retirement plans for
employees. Such retirement plans may permit the purchase of Contracts to
provide benefits thereunder. The plan trustee must be the Contract holder and
Beneficiary of Contracts used in such plans. The Tax Code contains
requirements with respect to commencement of minimum distributions and
premature withdrawals similar to those applicable to rollover Individual
Retirement Annuities.
Tax Sheltered Annuities
Tax Code Section 403(b) permits the purchase of Contracts by employees of
public schools and certain charitable, educational and scientific
organizations described in Tax Code Section 501(c)(3). These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the Contract. The
amount of contributions to the Contract used in connection with Tax Code
Section 403(b) is limited to certain maximums imposed by the Tax Code.
Furthermore, the Tax Code sets forth additional restrictions governing such
items as transferability, distributions, non-discrimination and withdrawals.
The Tax Code contains requirements with respect to commencement of minimum
distributions and premature withdrawals similar to those applicable to
rollover Individual Retirement Annuities.
26
<PAGE>
Withholding of Taxes
The Company is obligated to withhold taxes from certain payments unless
the recipient elects otherwise. The withholding rate varies depending upon the
nature and the amount of the distribution. The Company will notify you or
another payee in advance of the first payment of his or her right to elect out
of withholding and furnish a form on which the election may be made. Any
election must be received by the Company In Writing in advance of the payment
in order to avoid withholding.
See Your Own Tax Adviser
The above description of Federal income tax consequences of owning a
Contract and of the qualified retirement plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. The tax
rules applicable to the Contracts and to tax qualified plans are extremely
complex and often difficult to understand. Anything less than full compliance
with the applicable rules, all of which are subject to change from time to
time, can have adverse tax consequences. The taxation of an Annuitant or other
payee has become so complex and confusing that great care must be taken to
avoid adverse tax consequences. For further information you should consult a
qualified tax adviser.
LEGAL MATTERS
The validity of the interests under the Contracts offered hereby has been
passed upon for the Company by Susan E. Bryant, Esq.
EXPERTS
The consolidated financial statements of the Company and related
consolidated financial statement schedules as of December 31, 1994 and 1993,
and for each of the years in the three-year period ended December 31, 1994,
have been incorporated by reference and included herein in reliance upon the
reports of KMPG Peat Marwick LLP, independent auditors, incorporated by
reference and appearing herein and upon the authority of said firm as experts
in accounting and auditing.
The reports of KPMG Peat Marwick LLP on the above-mentioned consolidated
financial statements and related consolidated financial statement schedules
refer to a change in 1993 in the Company's methods of accounting for certain
investments in debt and equity securities and reinsurance contracts, and a
change in 1992 in the Company's methods of accounting for income taxes and
postretirement benefits other than pensions.
27
<PAGE>
FURTHER INFORMATION
This Prospectus does not contain all of the information contained in the
registration statement of which the Prospectus is a part, and certain portions
of the registration statement have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The information so
omitted may be obtained from the offices of the Commission, as set forth under
"Available Information," upon payment of the prescribed fee.
INQUIRIES
You may direct inquiries by writing directly to us at the address shown
on the cover page of this Prospectus or by calling 1-800-531-4547.
28
<PAGE>
APPENDIX A
CALCULATING A MARKET VALUE ADJUSTMENT
The Market Value Adjustment Formula
The mathematical formula used to determine the Market Value Adjustment
is:
x
(1 + i) ---
------- 365
(1 + j)
Where:
i is the Deposit Period Yield;
j is the Current Yield; and
x is the number of days remaining (computed from Wednesday of the
week of withdrawal) in the Guaranteed Period.
Explanation of the Market Value Adjustment Formula
The Market Value Adjustment essentially involves a comparison of two
yields: the yield available at the start of the current Guaranteed Period of
your Contract (the "Deposit Period Yield") and the yield currently available
(the "Current Yield"). An adjustment is needed to reflect the period of time
remaining in the Guaranteed Period of your contract.
The Market Value Adjustment Amount depends on the relationship of the
Deposit Period Yield of U.S. Treasury Notes that mature in the last quarter of
the Guaranteed Period, to the Current Yield of such U.S. Treasury Notes at the
time of withdrawal. In general, if the Current Yield is the lesser of the two,
the Market Value Adjustment will decrease the amount withdrawn from the
Contract to satisfy the withdrawal request; if the Current Yield is the higher
of the two, the Market Value Adjustment will increase the amount withdrawn
from the Contract to satisfy the withdrawal request. As a result of the Market
Value Adjustment imposed, the amount withdrawn or transferred from the
Contract prior to the Maturity Date may be less than the amount paid into the
Contract.
To determine the Deposit Period Yield and the Current Yield, certain
information must be obtained about the prices of outstanding U.S. Treasury
issues. This information may be found each business day in publications such
as The Wall Street Journal. This newspaper publishes the yield-to-maturity
percentages for all Treasury Notes as of the preceding business day. These
percentages are used in determining the Deposit Period Yield and the Current
Yield for the Market Value Adjustment calculation.
1
<PAGE>
Deposit Period Yield
Determining the Deposit Period Yield in the Market Value Adjustment
calculation involves consideration of interest rates prevailing at the start
of the Guaranteed Period from which the withdrawal will be made. First,
identify the Treasury Notes that mature in the last three months of the
Guaranteed Period. Then, list the yield-to-maturity percentages of these
Treasury Notes for the last business day of each week in the Deposit Period.
Average these percentages to determine the Deposit Period Yield.
For example, if the Guaranteed Period matures in May 1998, use the
Treasury Notes that mature in March, April, and May 1998. Then, if the start
of the Guaranteed Period from which the withdrawal will be made is May 1995,
the yield-to-maturity percentages of the above Treasury Notes on May 5, 1995,
May 12, 1995, May 19, 1995, and May 26, 1995 are averaged. This averaged
figure (shown as a percentage) is the Deposit Period Yield.
Current Yield
To determine the Current Yield, use the same Treasury Notes identified
for the Deposit Period Yield: Treasury Notes that mature in the last three
months of the Guaranteed Period. However, the yield-to-maturity percentages
used are those for the last business day of the week preceding the withdrawal.
Average these percentages to determine the Current Yield.
The following are examples of Market Value Adjustment ("MVA")
calculations using several hypothetical Deposit Period Yields and Current
Yields. These examples do not include the effect of any surrender fee that may
be assessed under the Contract upon withdrawal.
EXAMPLE 1
Assumptions:
i, the Deposit Period Yield, is 8%
j, the Current Yield, is 10%
x, the number of days remaining (computed from Wednesday of the week
of withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= 1.08 ---
---- 365
1.10
= .9545
2
<PAGE>
In this example the Deposit Period Yield of 8% is less than the Current
Yield of 10%, therefore, the Market Value Adjustment is less than 1. The
amount withdrawn from the Guaranteed Period is multiplied by this Market Value
Adjustment.
If a withdrawal or transfer of a stated percentage is requested, the
value withdrawn from a Guaranteed Period will reflect the deduction of the
negative Market Value Adjustment Amount. However, if a withdrawal or transfer
request of a specific dollar amount is requested, the amount withdrawn from a
Guaranteed Period will be increased to compensate for the negative Market
Value Annuity Amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $2,095.34 withdrawal from the Guaranteed Period.
Assumptions:
i, the Deposit Period Yield, is 5%
j, the Current Yield, is 6%
x, the number of days remaining (computed from Wednesday of the week
of withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= 1.05 ---
---- 365
1.06
= .9762
In this example the Deposit Period Yield of 5% is less than the Current
Yield of 6%, therefore, the Market Value Adjustment is less than 1. The amount
withdrawn from the Guaranteed Period is multiplied by this Market Value
Adjustment.
If a withdrawal or transfer of a stated percentage is requested, the
value withdrawn from a Guaranteed Period will reflect the deduction of the
negative Market Value Adjustment Amount. However, if a withdrawal or transfer
request of a specific dollar amount is requested, the amount withdrawn from a
Guaranteed Period will be increased to compensate for the negative Market
Value Adjustment Amount. For example, a withdrawal request to receive a check
for $2,000 would result in a $2,048.76 withdrawal from the Guaranteed Period.
3
<PAGE>
EXAMPLE II
Assumptions:
i, the Deposit Period Yield, is 10%
j, the Current Yield, is 8%
x, the number of days remaining (computed from Wednesday of the week
of withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= (1.10) ---
------ 365
(1.08)
= 1.0477
In this example the Deposit Period Yield of 10% is greater than the
Current Yield of 8%, therefore, the Market Value Adjustment is greater than 1.
The amount withdrawn from the Guaranteed Period is multiplied by this Market
Value Adjustment.
If a withdrawal or transfer of a stated percentage is requested, the
value withdrawn from a Guaranteed Period will reflect the addition of the
positive Market Value Adjustment Amount. However, if a withdrawal or transfer
request of a specific dollar amount is requested, the amount withdrawn from a
Guaranteed Period will be decreased to reflect the positive Market Value
Adjustment Amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $1,908.94 withdrawal from the Guaranteed Period.
Assumptions:
i, the Deposit Period Yield, is 5%
j, the Current Yield, is 4%
x, the number of days remaining (computed from Wednesday of the week
of withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= (1.05) ---
------ 365
(1.04)
= 1.0246
4
<PAGE>
In this example the Deposit Period Yield of 5% is greater than the
Current Yield of 4%, therefore, the Market Value Adjustment is greater than 1.
The amount withdrawn from the Guaranteed Period is multiplied by this Market
Value Adjustment.
If a withdrawal or transfer of a stated percentage is requested, the
value withdrawn from a Guaranteed Period will reflect the addition of the
positive Market Value Adjustment Amount. However, if a withdrawal or transfer
request of a specific dollar amount is requested, the amount withdrawn from a
Guaranteed Period will be decreased to reflect the positive Market Value
Adjustment Amount. For example, a withdrawal request to receive a check for
$2,000 would result in a $1,951.98 withdrawal from the Guaranteed Period.
5
<PAGE>
APPENDIX B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
The registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
For the fiscal year ended December 31, 1994 Commission file number 33-23376
Aetna Life Insurance and Annuity Company
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 71-0294708
-----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
-----------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (203) 273-0978
---------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ___X___ No _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
[X]
As of February 28, 1995 there were 55,000 shares of common stock outstanding,
par value $50 per share, all of which shares were held by Aetna Life and
Casualty Company.
Documents Incorporated by Reference
Certain portions of the registrant's S-1 Registration Statements filed in
April 1994, September 1994, December 1994 and March 1995 and Aetna Life and
Casualty Company's 1994 Proxy Statement filed in March 1994 are incorporated
by reference into Part IV of this report.
(1)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND
SUBSIDIARIES (A wholly owned subsidiary of Aetna
Life and Casualty Company)
Annual Report For 1994 on Form 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business**.................................................... 3
Item 2. Properties**.................................................. 10
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders*
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 10
Item 6. Selected Financial Data*
Item 7. Management's Analysis of the Results of Operations**.......... 11
Item 8. Financial Statements.......................................... 18
Item 9. Disagreements on Accounting and Financial Disclosure.......... 48
PART III
Item 10. Directors and Executive Officers of the Registrant*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K...................................... 48
Index to Consolidated Financial Statement Schedules...................... 50
Signatures............................................................... 55
Power of Attorney........................................................ 56
** Item prepared in accordance with General Instruction J(2) of Form 10-K.
* Omitted pursuant to General Instruction J(2) of Form 10-K.
(2)
<PAGE>
PART I
Item 1. Business
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized in 1976 under the insurance laws of Connecticut. Aetna Life
Insurance and Annuity Company, together with its four wholly owned
subsidiaries, Aetna Insurance Company of America, Systematized Benefits
Administrators, Inc., Aetna Private Capital, Inc. and Aetna Investment
Services, Inc., is herein called the "Company". The Company is a wholly owned
subsidiary of Aetna Life and Casualty Company ("Aetna") which, with Aetna's
subsidiaries, constitutes one of the largest insurance/financial services
organizations in the United States based on its assets at December 31, 1994.
The Company's Home Office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
The Company markets a variety of life insurance, retirement and other savings
and investment products including individual and group annuities, financial
services and mutual funds. The Company's products are designed for
individuals, pension plans, small businesses and employer-sponsored groups.
Effective December 31, 1994, the Company's operations, which previously were
reported in total, will now be reported through two major business segments:
Life Insurance and Financial Services, to better reflect the way the
businesses are managed. Prior period amounts have been reclassified for
comparative purposes.
Life Insurance Segment
The Company markets most types of life insurance including universal life,
variable universal life, interest-sensitive whole life, and term insurance.
These products are offered primarily to individuals, small businesses,
employer-sponsored groups and executives of Fortune 2000 companies.
These products are marketed by independent agents and brokers, career agents
and registered representatives of selected broker-dealers.
The Company's universal life insurance product accounted for approximately 98%
of life insurance sales in 1994. The Company's in-force block of insurance
includes a sizable block of traditional ordinary life insurance originally
written by an affiliate, Aetna Life Insurance Company ("Aetna Life"), and
transferred to the Company via a reinsurance agreement in 1988 (see Note 8 of
the Notes to the Consolidated Financial Statements). This closed book of
business contributed 36% of the life insurance segment earnings in 1994.
Life insurance products typically require high costs to acquire business.
Retention, an important driver of profitability, is encouraged through product
features. For example, universal and interest-sensitive whole life insurance
contracts typically impose a surrender charge on policyholder balances
withdrawn in the first seven to twenty years of the contract life. The period
of time and level of the charge vary by product. In addition, more favorable
credited rates and policy loan terms may be offered after policies have been
in force for more than ten years. To also encourage retention, life insurance
agents are typically paid renewal commissions or service fees.
(3)
<PAGE>
The environment for life insurance products is highly competitive. The
Company's sales have increased in a flat industry environment as the Company
has differentiated itself from others in the industry by offering competitive
products, quality service, and excellent financial strength.
Reserves for universal life and interest-sensitive whole life products (which
are all experience-rated) are equal to cumulative deposits less withdrawals
and charges, plus credited interest thereon, plus/less net realized capital
gains/losses (which the Company reflects through credited rates on an
amortized basis). These reserves also reflect unrealized capital gains/losses
related to Financial Accounting Standard ("FAS") No. 115 (see Note 1 of the
Notes to the Consolidated Financial Statements). Reserves for all other fixed
individual life contracts are computed on the basis of assumed investment
yield, mortality, morbidity and expenses (including a margin for adverse
deviation), which generally vary by plan, year of issue and policy duration.
These reserves are computed amounts that, with additions from premiums to be
received, and with interest on such reserves compounded annually at assumed
rates, are expected to be sufficient to meet the Company's policy obligations
in the event of an insured's death or other withdrawal requests.
Reinsurance arrangements with affiliated and non-affiliated insurance
companies are utilized to limit exposure to losses in excess of predetermined
amounts per individual life. The Company's retention limit per individual life
is $2.0 million (see Notes 8 and 9 of the Notes to the Consolidated Financial
Statements).
(4)
<PAGE>
Life Insurance in Force and Other Statistical Data*
The following table summarizes changes in individual life insurance in force
before deductions for reinsurance ceded to other companies for the years
indicated:
<TABLE>
<CAPTION>
(millions, except as noted below) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and additions:
Direct:
Permanent............................. $ 3,369.4 $ 2,767.0 $ 3,011.9
Term.................................. 559.9 237.2 87.5
Assumed:
Term.................................. -- -- --
-----------------------------------------------
Total.............................. $ 3,929.3 $ 3,004.2 $ 3,099.4
===============================================
Terminations:
Direct:
Surrenders and Conversions............ $ 1,316.4 $ 1,632.6 $ 1,753.2
Lapses................................ 860.9 816.7 947.1
Other................................. 170.0 170.6 210.9
Assumed:
Surrenders and Conversions........... 59.4 80.3 95.3
Lapses................................ 303.9 376.2 532.5
Other................................. 57.9 55.1 69.8
-----------------------------------------------
Total.............................. $ 2,768.5 $ 3,131.5 $ 3,608.8
===============================================
In force:
Direct:
Permanent............................. $ 30,563.0 $29,507.1 $ 29,253.1
Term.................................. 1,621.3 1,095.2 964.9
Assumed:
Permanent............................. 1,244.8 1,344.9 1,456.9
Term.................................. 1,433.0 1,754.1 2,153.7
-----------------------------------------------
Total.............................. $34,862.1 $33,701.3 $33,828.6
===============================================
Number of direct policies in force (thousands)... 445.9 439.1 440.0
===============================================
Average size of direct policy in force (thousands) $ 72.2 $ 69.7 $ 68.7
===============================================
* Only nonparticipating business is written by the Company.
</TABLE>
(5)
<PAGE>
Financial Services Segment
The Company markets and services individual and group annuity contracts which
offer a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify for tax deferral under
sections 401(k), 403(b), 408, and 457 of the Internal Revenue Code. These
contracts may be immediate or deferred. These products are offered primarily
to individuals, pension plans, small businesses and employer-sponsored groups
in the healthcare, government, education (collectively "not-for-profit"
organizations) and corporate markets. The Company also offers individual and
group non-qualified tax deferred annuity products and life insurance
supplemental contracts. In addition, the Company writes structured settlements
of certain liabilities. The Company acts as an investment adviser for its
affiliated mutual funds (a retail fund - Aetna Series Fund, Inc. and variable
products funds - Aetna Variable Fund, Aetna Income Shares, Aetna Variable
Encore Fund, Aetna Investment Advisers Fund, Aetna Get Fund, Series B) and
receives advisory fees for its investment management services. The Company
also receives from the Aetna Series Fund, Inc. service fees for providing
administrative and shareholder services and distribution fees for promoting
sales of the Adviser Class shares (see Note 8 of the Notes to the Consolidated
Financial Statements).
Pension products are sold through pension professionals, stock brokers and
third party administrators who work closely with salaried field office
employees. Annuity products and mutual funds are distributed primarily through
dedicated career agents and registered life brokers.
As with the Life Insurance segment, product retention is a key driver of
profitability. To encourage retention annuity contracts typically impose a
surrender charge on policyholder balances withdrawn in the first five to ten
years of the contract. The period of time and level of the charge vary by
product. A new approach being incorporated into recent annuity product designs
replaces the surrender charge with a requirement that withdrawals be spread
over a period of years for fixed account options. These contracts typically
offer more favorable credited rates and policy loan terms after policies have
been in force for more than ten years. Tax penalties on annuity distributions
prior to age 59 1/2 provide an additional disincentive to premature surrenders
of annuity balances, but do not impede transfers of those balances to other
insurance carriers.
In the pension and annuity markets, competition arises from other insurance
companies, banks, mutual funds and other investment managers. The Financial
Services segment has become more competitive and customers' retirement needs
have become more diverse and sophisticated. The Company has responded to this
need with new investment choices and more flexible product features.
(6)
<PAGE>
Reserves for limited payment contracts (immediate annuities with life
contingent payout) are computed on the basis of assumed investment yield,
mortality, morbidity and expenses (including a margin for adverse deviation),
which generally vary by plan, year of issue and policy duration. Reserves for
investment contracts include deferred annuities and immediate annuities
without life contingent payouts. Reserves for deferred annuities are equal to
cumulative deposits, less withdrawals and charges, plus credited interest
thereon. Reserves for immediate annuities without life contingencies are
computed amounts that, and with interest on such reserves compounded annually
at assumed rates are expected to be sufficient to meet the Company's policy
obligations. Of those investment contracts which are experience-rated, the
reserves also reflect net realized capital gains/losses (which the Company
reflects through credited rates on an amortized basis) and unrealized capital
gains/losses related to FAS 115.
The following table summarizes assets under management for the principal
customer groups of the Financial Services segment. Amounts reflected exclude
unrealized gains (losses) of $(337.7) million and $646.2 million at December
31, 1994 and 1993, respectively, related to market value adjustments required
under FAS 115. See Management's Analysis of the Results of Operations and Note
1 for further discussion on assets under management and FAS 115, respectively.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(Millions) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate pensions $ 3,221.1 $ 2,886.2 $ 2,404.3
Not-for-profit organizations 10,025.7 9,087.1 8,070.8
Individuals 4,882.8 3,981.0 3,169.2
-------------------------------------------------------
Total $ 18,129.6 $ 15,954.3 $ 13,644.3
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Deposits, which are not included in premiums or revenue under FAS No. 97 ("FAS
97"), are shown in the following table for the years indicated:
--------------------------------------------------------------------------------------------------
(Millions) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate pensions $ 886.7 $ 705.6 $ 585.8
Not-for-profit organizations 1,093.3 1,107.8 876.6
Individuals 1,081.3 715.5 434.9
-------------------------------------------------------
Total $ 3,061.3 $ 2,528.9 $ 1,897.3
- ---------------------------------------------------------------------------------------------------
</TABLE>
General Account Investments
Consistent with the nature of the contract obligations involved in the
Company's operations, the majority of the general account assets are invested
in long-term, debt securities such as corporate debt securities,
mortgage-backed securities and government securities. It is management's
objective that the portfolios be of high quality while achieving competitive
investment yields and returns. Investment portfolios generally match the
duration of the insurance liabilities they support. The general account of the
Company has been segmented to improve the asset/liability matching process.
The duration of investments is monitored and security purchases and sales are
executed with the objective of having adequate funds available to satisfy the
Company's maturing liabilities.
(7)
<PAGE>
Please see Investments on pages 16 and 17 of the Management's Analysis of the
Results of Operations for a further discussion of investments. For information
concerning, see Notes 2 and 3 of the Notes to Consolidated Financial
Statements.
Other Matters
Regulation
The insurance business of the Company is subject to comprehensive and detailed
regulation and supervision throughout the United States. The laws of the
various jurisdictions establish supervisory agencies with broad authority to
regulate, among other things, the granting of licenses to transact business,
trade practices, agent licensing, policy forms, underwriting and claims
practices, reserve adequacy, insurer solvency, the maximum interest rates that
can be charged on life insurance policy loans and the minimum rates that must
be provided for accumulation of surrender values, the form and content of
required financial statements and the type and amounts of investments
permitted. The Company is required to file detailed reports with supervisory
agencies in each of the jurisdictions in which it does business, and its
operations and accounts are subject to examination by such agencies at regular
intervals.
Although the federal government does not directly regulate the business of
insurance, many federal laws do affect the business. Existing or recently
proposed federal laws that may significantly affect or would affect, if
passed, the insurance business cover such matters as employee benefits,
removal of barriers preventing banks from engaging in the insurance and mutual
fund businesses, the taxation of insurance companies, and the tax treatment of
insurance products.
Several states, including Connecticut, regulate affiliated groups of insurers
such as the Company and its affiliates under insurance holding company
statutes. Under such laws, intercorporate transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial position of the Company making the transfer. Changes in control
also are regulated under these laws. As a Connecticut-domiciled insurance
company, the Company is subject to comprehensive regulation under the
Connecticut insurance laws and by the Connecticut Insurance Department.
In recent years, state insurance regulators have introduced and continue to
work on changes in statutory accounting practices and other initiatives to
strengthen solvency regulation. The National Association of Insurance
Commissioners (NAIC) has adopted risk-based capital ("RBC") standards for life
insurers. The RBC formula is a regulatory tool designed to identify weakly
capitalized companies by comparing the adjusted surplus to the required
surplus, which reflects the risk profile of the Company (RBC ratio). Within
certain ratio changes, regulators have increasing authority to take action as
the RBC ratio decreases. There are four levels of regulatory action ranging
from requiring insurers to submit a comprehensive plan to the state insurance
commissioner to when the state insurance commissioner places the insurer under
regulatory control. The Company's RBC ratio at December 31, 1994 was
significantly above the levels which would require regulatory action.
(8)
<PAGE>
The NAIC also is considering several other solvency related regulations
including the development of a model investment law and amendments to the
model insurance holding company law which would limit types and amounts of
insurance company investments. In addition, in recent years there has been
growing interest among certain members of Congress concerning possible federal
roles in the regulation of the insurance industry. Because these other
initiatives are in a preliminary stage, management cannot assess the potential
impact of their adoption on the Company.
Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
policyholder or claimant losses under policies issued by companies which
become insolvent. The after tax charges to earnings for guaranty fund
obligations for the years ended December 31, 1994, 1993 and 1992 were $0.9
million, $0.9 million and $5.3 million, respectively. The amounts ultimately
assessed may differ from the amounts charged to earnings thus far because such
assessments may not be made for several years and will depend upon the final
outcome of regulatory proceedings.
The Company provides a variety of products and services to employee benefit
plans that are covered by the Employee Retirement Income Security Act of 1974
("ERISA"). In December 1993, in a case involving an employee benefit plan and
an insurance company, the United States Supreme Court ruled that assets in the
insurance company's general account that were attributable to the
non-guaranteed portion of a group pension contract issued to the plan were
"plan assets" for purposes of ERISA and that the insurance company was an
ERISA fiduciary with respect to those assets. In reaching its decision, the
Court declined to follow a 1975 Department of Labor ("DOL") interpretive
bulletin that had suggested that insurance company general account assets were
not plan assets. The Company and other insurers are seeking clarification from
the DOL of the effects, if any, of the decision on their businesses.
Management is not currently able to predict how the decision will ultimately
affect its business.
Aetna Life Insurance and Annuity Company is regulated by the Securities and
Exchange Commission ("SEC") and some state securities regulators as a
broker-dealer and investment adviser. Systematized Benefits Administrators,
Inc. and Aetna Investment Services, Inc., two of the Company's wholly owned
subsidiaries, are regulated by the SEC, the National Association of Securities
Dealers, Inc. and some state regulators as broker-dealers. The Company's
variable products involve investments through Separate Accounts, some of which
are registered as investment companies with the SEC, as are the retail mutual
funds and the variable mutual funds offered by the Company. Additionally,
interests in some of the Separate Accounts, the retail mutual funds, the
variable product mutual funds and certain other products used as funding
vehicles for the Company's variable products are registered with the SEC.
Shares of the retail mutual funds are also registered with the fifty state
securities regulators.
Miscellaneous
According to the Fortune Service 500, as of December 31, 1993, the Company
ranked 19th and 22nd among all United States domiciled life insurance
companies based upon total assets and premium income, respectively. As of
December 31, 1994, the Company had approximately 1,600 employees.
The Company's rating at February 7, 1995 by A.M. Best was A++ (Superior), the
highest classification.
(9)
<PAGE>
Management believes that the Company's computer facilities, systems and
related procedures are adequate to meet its business needs. The Company's data
processing systems and backup and security policies, practices and procedures
are regularly evaluated by the Company's management and internal auditors and
are modified as considered necessary.
The Company is not dependent upon any single customer and no single customer
accounted for more than 10% of revenue in 1994. In addition, neither segment
of the Company's business is dependent upon a single customer or a few
customers, the loss of which would have a significant impact on the segment.
Item 2. Properties
The Company occupies office space which is owned or leased by Aetna Life
Insurance Company or other affiliates. Expenses associated with these offices
are allocated on a direct and indirect basis to the Company and the other
subsidiaries of Aetna.
Item 3. Legal Proceedings
The Company and its Board of Directors know of no material legal proceedings
pending to which the Company is a party or which would materially affect the
Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of the Company's outstanding shares are owned by its parent company,
Aetna. For the years ended 1994, 1993 and 1992, the Company did not pay
dividends to Aetna.
The amount of dividends which may be paid by the Company to Aetna without
prior approval by the Insurance Commissioner of the State of Connecticut is
subject to various restrictions. Based upon these restrictions, the Company is
permitted a maximum of $70.9 million in dividend distributions in 1995.
(10)
<PAGE>
Item 7. Management's Analysis of the Results of Operations
Consolidated Results of Operations: Operating Summary
<TABLE>
<CAPTION>
Operating Summary (millions) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums $ 124.2 $ 82.1 $ 72.5
Charges assessed against policyholders 279.0 251.5 235.4
Net investment income 917.2 911.9 848.1
Net realized capital gains 1.5 9.5 13.4
Other income 10.3 9.5 6.7
-----------------------------------------------------------------------------------------------------------------
Total revenue 1,332.2 1,264.5 1,176.1
-----------------------------------------------------------------------------------------------------------------
Current and future benefits 852.4 806.4 761.6
Operating expenses 227.2 201.3 213.5
Amortization of deferred policy acquisition costs 36.1 37.7 32.9
-----------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,115.7 1,045.4 1,008.0
-----------------------------------------------------------------------------------------------------------------
Income before federal income taxes 216.5 219.1 168.1
Federal income taxes 71.2 76.2 54.9
-----------------------------------------------------------------------------------------------------------------
Income before cumulative effect adjustments 145.3 142.9 113.2
Cumulative effect adjustments, net of tax:
Change in accounting for income taxes - - 22.8
Change in accounting for postretirement benefits other than pensions - - (13.2)
-----------------------------------------------------------------------------------------------------------------
Net income $ 145.3 $ 142.9 $ 122.8
=================================================================================================================
------------------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1) Fully guaranteed $ 323.0 $ 194.9 $ 261.1
Experience-rated 1,134.2 1,207.9 1,028.1
Non-guaranteed 1,913.1 1,385.9 863.0
----------------------------------------------------------------------
Total $ 3,370.3 $ 2,788.7 $ 2,152.2
------------------------------------------------------------------------------------------------------------------------
Assets under management: (2) Fully guaranteed $ 2,542.6 $ 2,428.1 $ 2,306.6
Experience-rated 9,201.3 9,241.5 7,416.3
Non-guaranteed 8,223.2 7,111.0 5,894.5
----------------------------------------------------------------------
Total $19,967.1 $18,780.6 $15,617.4
------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
(2) Under FAS 115, included above are net unrealized gains (losses) of
$(386.4) million and $747.1 million at December 31, 1994 and 1993,
respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Overview
The Company's adjusted earnings (after-tax) follow (in millions):
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 145.3 $ 142.9 $ 113.2
Less:
Net realized capital gains 1.0 6.2 8.8
----------------------------------------------------
Adjusted earnings $ 144.3 $ 136.7 $ 104.4
====================================================
</TABLE>
The Company's adjusted earnings increased 6% in 1994 following a 31% increase
in 1993. The improvement in 1994 adjusted earnings reflected an increase in
charges assessed against policyholders, primarily due to an increase in the
volume of business in force, partially offset by increases in operating
expenses, primarily related to the implementation of a new annuity contract
administration system. The improvement in 1993 adjusted earnings reflected
increased investment income, primarily due to the increase in assets under
management, partially offset by a downward trend in investment yields on newly
invested assets. The 1993 increase also reflected lower operating expenses due
to prior restructurings.
(11)
<PAGE>
Assets under management, excluding FAS 115, at December 31, 1994 of $20.3
billion, were 12.9% above 1993 levels, following a 15.4% increase in 1993. The
$20.3 billion includes $2.6 billion of fully guaranteed investment options,
$9.5 billion of experience-rated investment options and $8.2 billion in
non-guaranteed investment options. The Company's contracts typically impose
surrender fees which decline over the duration of the contract. Assets held
under experience rated general account options have transfer and withdrawal
limitations. Withdrawals from the fully guaranteed accumulation options prior
to maturity include an adjustment intended to reflect the estimated fair value
of the assets supporting the contract at the time of withdrawal. Approximately
90% and 91% of assets under management allowed for contractholder withdrawal,
54% and 53% of which are subject to market value adjustments or deferred
surrender charges at December 31, 1994 and 1993, respectively.
Segment Results
Life Insurance Segment
<TABLE>
<CAPTION>
Operating Summary (millions) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums $ 54.0 $ 50.1 $ 53.7
Charges assessed against policyholders 152.4 142.1 139.3
Net investment income 171.3 172.7 165.6
Net realized capital gains 0.1 0.4 1.0
Other income 8.3 6.4 4.0
-----------------------------------------------------------------------------------------------------------------
Total revenue 386.1 371.7 363.6
-----------------------------------------------------------------------------------------------------------------
Current and future benefits 214.2 194.3 194.3
Operating expenses 58.3 58.2 75.5
Amortization of deferred policy acquisition costs 16.8 21.2 19.2
-----------------------------------------------------------------------------------------------------------------
Total benefits and expenses 289.3 273.7 289.0
-----------------------------------------------------------------------------------------------------------------
Income before federal income taxes 96.8 98.0 74.6
Federal income taxes 37.0 41.9 29.0
-----------------------------------------------------------------------------------------------------------------
Income before cumulative effect adjustments $ 59.8 $ 56.1 $ 45.6
=================================================================================================================
------------------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1) Fully guaranteed - - -
Experience-rated $ 280.6 $ 237.4 $ 236.7
Non-guaranteed 28.4 22.4 18.2
----------------------------------------------------------------------
Total $ 309.0 $ 259.8 $ 254.9
------------------------------------------------------------------------------------------------------------------------
Assets under management: (2) Fully guaranteed $ 636.7 $ 670.1 $ 683.7
Experience-rated 1,458.4 1,440.4 1,232.2
Non-guaranteed 80.1 69.6 57.2
----------------------------------------------------------------------
Total $ 2,175.2 $ 2,180.1 $ 1,973.1
------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Under FAS 97, universal life and interest-sensitive whole life deposits are not included in premiums or revenue.
(2) Under FAS No. 115, included above are net unrealized gains (losses) of $(48.7) million and $100.9 million at December
31, 1994 and 1993, respectively.
</FN>
</TABLE>
Adjusted earnings in the Life Insurance segment (after-tax) follow (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 59.8 $ 56.1 $ 45.6
Less:
Net realized capital gains 0.1 0.3 0.6
----------------------------------------------------
Adjusted earnings $ 59.7 $ 55.8 $ 45.0
====================================================
</TABLE>
(12)
<PAGE>
Adjusted earnings in 1994 of $59.7 million increased 7% over the prior year
adjusted earnings of $55.8 million. The improvement in 1994 adjusted earnings
reflected higher business in force offset in part by lower net investment
income. Adjusted earnings in 1993 increased 24% to $55.8 million when compared
to 1992 adjusted earnings of $44.9 million. The 1993 adjusted earnings
improvement primarily reflected a reduction of operating expenses,
attributable to savings from past restructurings.
Premiums, related to term and whole life insurance, increased by 8% in 1994
following a 7% decrease in 1993. Deposits, related to universal life and
interest-sensitive whole life insurance, grew by 19% and 2% in 1994 and 1993,
respectively. The increase in premiums and deposits in 1994 reflected strong
first year sales and retention.
Charges assessed against policyholders for universal life and
interest-sensitive whole life insurance increased 7% in 1994 and 2% in 1993
reflecting an increase in the volume of business in force.
Net investment income decreased by 1% in 1994 following a 4% increase in 1993
reflecting the downward trend in the net investment yield on the Company's
portfolio of investments, offset by the increase in universal life assets
under management.
Current and future benefits increased 10% in 1994 and were flat in 1993. The
increase in 1994 reflected higher mortality related to universal life
insurance. This resulted in lower amortization of deferred policy acquisition
costs which decreased by 21% in 1994. Amortization of deferred policy
acquisition costs increased 10% in 1993 reflecting the increase in the
business in force.
The 1994 operating expenses of $58.3 million is level with the 1993 operating
expenses of $58.2 million, reflecting continued savings from previous
restructurings. Operating expenses decreased by 23% in 1993, also attributable
to savings associated with previous restructurings.
Assets under management, excluding FAS 115, at December 31, 1994 of $2.2
billion, were 6.9% above 1993 levels, following a 5.3% increase in 1993. The
$2.2 billion includes $0.6 billion of fully guaranteed investment options,
$1.5 billion of experience-rated investment options and $0.1 billion in
non-guaranteed investment options.
Outlook
Universal life sales through traditional channels (managing general agents and
regional brokers) are expected to continue to be strong in 1995. ALIAC will
also focus on the sale of life products through non-traditional distribution
channels (banks). ALIAC is also exploring attaining growth through
acquisitions of blocks of business.
(13)
<PAGE>
Financial Services Segment
<TABLE>
<CAPTION>
Operating Summary (millions) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums $ 70.2 $ 32.0 $ 18.8
Charges assessed against policyholders 126.6 109.4 96.1
Net investment income 745.9 739.2 682.5
Net realized capital gains 1.4 9.1 12.4
Other income 2.0 3.1 2.7
Total revenue 946.1 892.8 812.5
Current and future benefits 638.2 612.1 567.3
Operating expenses 168.9 143.1 138.0
Amortization of deferred policy acquisition costs 19.3 16.5 13.7
Total benefits and expenses 826.4 771.7 719.0
Income before federal income taxes 119.7 121.1 93.5
Federal income taxes 34.2 34.3 25.9
Income before cumulative effect adjustments $ 85.5 $ 86.8 $ 67.6
- -------------------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1) Fully guaranteed $ 323.0 $ 194.9 $ 261.1
Experience-rated 853.6 970.5 791.4
Non-guaranteed 1,884.7 1,363.5 844.8
----------------------------------------------------------------------
Total $ 3,061.3 $ 2,528.9 $ 1,897.3
- -------------------------------------------------------------------------------------------------------------------------
Assets under management: (2) Fully guaranteed $ 1,905.9 $ 1,758.0 $ 1,622.9
Experience-rated 7,742.9 7,801.1 6,184.1
Non-guaranteed 8,143.1 7,041.4 5,837.3
----------------------------------------------------------------------
Total $17,791.9 $16,600.5 $13,644.3
------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
(2) Under FAS 115, included above are net unrealized gains (losses) of
$(337.7) million and $646.2 million at December 31, 1994 and 1993,
respectively.
</FN>
</TABLE>
Adjusted earnings in the Financial Services segment (after-tax) follow (in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Income before cumulative effect adjustments $ 85.5 $ 86.8 $ 67.6
Less:
Net realized capital gains 0.9 5.9 8.2
-------------------------------------------------
Adjusted earnings $ 84.6 $ 80.9 $ 59.4
=================================================
</TABLE>
Adjusted earnings in 1994 increased 5% in 1994 to $84.6 million following a
36% increase in 1993. The 1994 improvement reflected an increase in assets
under management offset in part by an 18% increase in operating expenses. The
1993 improvement in adjusted earnings reflected an increase in assets under
management.
Premiums, related to annuity contracts containing life contingencies,
increased by 119% in 1994, following a 70% increase in 1993, reflecting an
increase in structured settlement sales. Deposits, related to annuity
contracts not containing life contingencies, reflected a 21% increase in 1994
following a 33% increase in 1993. Deposits in 1994 included the $205 million
acquisition of a block of primarily individual annuity business from an
unaffiliated insurer.
Charges assessed against policyholders for certain annuity contracts increased
by 16% and 14% in 1994 and 1993, respectively, reflecting the increase in
assets under management.
(14)
<PAGE>
Net investment income in 1994 increased 1% to $745.9 million following a 8%
increase in 1993, reflecting the increase in assets under management offset by
a downward trend in the net investment yield on the Company's portfolio of
investments.
Current and future benefits increased by 4% and 8% in 1994 and 1993,
respectively. Amortization of deferred acquisition costs increased by 17% and
20% in 1994 and 1993, respectively. These increases reflected the increase in
assets under management.
Operating expenses increased by 18% in 1994 and 4% in 1993. The 1994 increase
reflected expenses associated with the implementation of a new contract
administration system.
Assets under management, excluding FAS 115, at December 31, 1994 of $18.1
billion were 13.7% above 1993 levels, following a 17.0% increase in 1993. The
$18.1 billion includes $2.0 billion of fully guaranteed investment options,
$8.0 billion of experience-rated investment options and $8.1 billion in
non-guaranteed investment options.
Outlook
Sales through traditional channels (primarily career agents, consultants and
third party administrators) are expected to continue to be strong in 1995.
ALIAC intends to increase its focus on the sale of non-qualified products
through the non-traditional distribution channels (banks and broker/dealers).
ALIAC is also exploring attaining growth through additional acquisitions of
blocks of business.
Results in 1994 and 1993 included costs to implement a new contract
administration system. Additional costs will continue to be incurred as
implementation continues and enhancements are made to realize the full
potential of the new system. The primary benefit of the system is that it
enables ALIAC to offer both new products through product development
flexibility and a large array of investment fund options to customers, which
is necessary to remain competitive in an expanding marketplace.
(15)
<PAGE>
General Account Investments
The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive after-tax rate of return. The
duration of these investments is monitored, and investment purchases and sales
are executed with the objective of having adequate funds available to satisfy
the Company's maturing liabilities. The risks associated with investments
supporting experience-rated products are assumed by those customers subject
to, among other things, certain minimum guarantees.
<TABLE>
<CAPTION>
(Millions) 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities $ 10,191.4 $ 10,531.0
Equity securities
Non-redeemable preferred stock 47.2 45.9
Investment in affiliated mutual funds 181.9 126.7
Short-term investments 98.0 22.6
Mortgage loans 9.9 10.1
Policy loans 248.7 202.7
Limited partnership 24.4 --
--------------------------------
Total Investments 10,801.5 10,939.0
Cash and cash equivalents 623.3 536.1
--------------------------------
Total Investments and Cash and Cash Equivalents $ 11,424.8 $ 11,475.1
================================
</TABLE>
Debt Securities
At December 31, 1994 and 1993, the Company's carrying value of investments in
debt securities were $10.2 billion and $10.5 billion, 94% and 96%,
respectively, of total general account invested assets. At December 31, 1994
and 1993, $8.0 billion and $8.3 billion, 78% and 79%, respectively, of total
debt securities supported experience-rated products.
It is management's objective that the portfolio of debt securities be of high
quality and be well-diversified by market sector. The debt securities in the
Company's portfolio are generally rated by external rating agencies, and if
not externally rated, are rated by the Company on a basis believed to be
comparable to that used by rating agencies. The average quality rating of the
Company's bond portfolio was AA at December 31, 1994 and 1993.
Debt Security Quality Debt Securities Investments by Market Sector
Ratings 12/31/94 12/31/94
---------------------- -------------------------------------------------
AAA 56.7% U.S. Corporate Securities 34.2%
AA 8.3 Residential Mortgage-Backed Securities 32.1
A 23.3 U.S. Treasuries/Agencies 12.9
BBB 8.5 Foreign Securities 9.7
BB 2.5 Other Loan-Backed Securities 6.7
B 0.7 Commercial/Multifamily Mortgage-
Backed Securities 4.0
Other 0.4
(16)
<PAGE>
In 1994, the percentage of residential mortgage-backed securities was
significantly reduced as a result of changes in their risk and return
characteristics and to better diversify the risk profile of the Company's
assets. Investments in U.S. Corporate, U.S. Treasuries/Agencies, other
loan-backed, and commercial/multifamily mortgage-backed securities all
increased.
Other loan-backed securities (securities backed by auto loans, credit card
receivables, etc.) and commercial/multifamily mortgage-backed securities
(securitized pools of mortgages) are predominantly AAA rated, and are not
subject to the prepayment risk of residential mortgage-backed securities.
Outlook
In 1995, the Company expects to reduce the percentage of its portfolio
invested in Treasuries and Cash Equivalents, maintain the percentage invested
in residential mortgage-backs, and increase the percentage invested in
corporates, U.S. dollar denominated foreigns, and securitized pools of
commercial and multifamily mortgages. The overall average quality rating of
the Company's portfolio and its average duration is not expected to change
significantly.
It is expected that the net investment yield on the Company's portfolio of
investments will trend upwards in 1995, assuming current interest rates do not
significantly decrease. There is no assurance that this upward trend will
continue.
(17)
<PAGE>
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements
Index
Page
Independent Auditors' Report 19
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992 20
Consolidated Balance Sheets as of December 31, 1994
and 1993 21
Consolidated Statements of Shareholder's Equity for
the Years Ended December 31, 1994, 1993 and 1992 22
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992 23
Notes to Consolidated Financial Statements 24
(18)
<PAGE>
Independent Auditor's Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1994 and
1993, 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, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aetna Life
Insurance and Annuity Company and Subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its methods of accounting for certain investments in debt and
equity securities and reinsurance contracts. In 1992, the Company changed its
method of accounting for income taxes and postretirement benefits other than
pensions.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 7, 1995
(19)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
Consolidated Statements of Income
(millions)
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Revenue:
Premiums $ 124.2 $ 82.1 $ 72.5
Charges assessed against policyholders 279.0 251.5 235.4
Net investment income 917.2 911.9 848.1
Net realized capital gains 1.5 9.5 13.4
Other income 10.3 9.5 6.7
--------- --------- ---------
Total revenue 1,332.2 1,264.5 1,176.1
--------- --------- ---------
Benefits and expenses:
Current and future benefits 852.4 806.4 761.6
Operating expenses 227.2 201.3 213.5
Amortization of deferred policy acquisition costs 36.1 37.7 32.9
--------- --------- ---------
Total benefits and expenses 1,115.7 1,045.4 1,008.0
--------- --------- ---------
Income before federal income taxes and cumulative
effect adjustments 216.5 219.1 168.1
Federal income taxes 71.2 76.2 54.9
--------- --------- ---------
Income before cumulative effect adjustments 145.3 142.9 113.2
Cumulative effect adjustments, net of tax:
Change in accounting for income taxes 22.8
- -
Change in accounting for postretirement benefits
other than pensions (13.2)
- -
--------- --------- ---------
Net income $ 145.3 $ 142.9 $ 122.8
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
(20)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(millions)
December 31,
------------------------------
1994 1993
------------------------------
<S> <C> <C>
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $10,577.8 and $9,783.9) $10,191.4 $10,531.0
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $43.3 and $38.3) 47.2 45.9
Investment in affiliated mutual funds (cost: $187.2 and $122.4) 181.9 126.7
Short-term investments 98.0 22.6
Mortgage loans 9.9 10.1
Policy loans 248.7 202.7
Limited partnership 24.4 -
---------- ----------
Total investments 10,801.5 10,939.0
Cash and cash equivalents 623.3 536.1
Accrued investment income 142.2 124.7
Premiums due and other receivables 75.8 67.0
Deferred policy acquisition costs 1,172.0 1,061.0
Reinsurance loan to affiliate 690.3 711.0
Other assets 15.9 12.6
Separate Accounts assets 7,420.8 6,684.3
---------- ----------
Total assets $20,941.8 $20,135.7
========== ==========
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
Future policy benefits $ 2,968.1 $ 2,741.8
Unpaid claims and claim expenses 23.8 27.2
Policyholders' funds left with the Company 8,901.6 9,003.9
---------- ----------
Total insurance liabilities 11,893.5 11,698.7
Other liabilities 302.1 229.7
Federal income taxes:
Current 3.4 40.6
Deferred 233.5 161.5
Separate Accounts liabilities 7,420.8 6,684.3
---------- ----------
Total liabilities 19,853.3 18,889.0
---------- ----------
Shareholder's equity:
Common capital stock, par value $50 (100,000 shares
authorized; 55,000 shares issued and outstanding) 2.8 2.8
Paid-in capital 407.6 407.6
Net unrealized capital gains (losses) (189.0) 114.5
Retained earnings 867.1 721.8
---------- ----------
Total shareholder's equity 1,088.5 1,246.7
---------- ----------
Total liabilities and shareholder's equity $20,941.8 $20,135.7
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
(21)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholder's Equity
(millions)
Years Ended
December 31,
------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $1,246.7 $ 990.1 $ 867.4
Net change in unrealized capital gains (losses) (303.5) 113.7 (0.1)
Net income 145.3 142.9 122.8
--------- --------- ---------
Shareholder's equity, end of year $1,088.5 $1,246.7 $ 990.1
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
(22)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(millions)
Years Ended
December 31,
------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 145.3 $ 142.9 $ 122.8
Cumulative effect adjustments - - (9.6)
Increase in accrued investment income (17.5) (11.1) (8.7)
(Increase) decrease in premiums due and other receivables 1.3 (5.6) (19.9)
Increase in policy loans (46.0) (36.4) (32.4)
Increase in deferred policy acquisition costs (96.5) (60.5) (60.8)
Decrease in reinsurance loan to affiliate 27.8 31.8 37.8
Net increase in universal life account balances 164.7 126.4 130.8
Increase in other insurance reserve liabilities 65.7 86.1 20.5
Net increase in other liabilities and other assets 53.9 7.0 20.2
Decrease in federal income taxes (11.7) (3.7) (11.8)
Net accretion of discount on bonds (77.9) (88.1) (75.2)
Net realized capital gains (1.5) (9.5) (13.4)
Other, net (1.0) 0.2 (0.2)
--------- --------- ---------
Net cash provided by operating activities 206.6 179.5 100.1
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of :
Debt securities available for sale 3,593.8 473.9 543.3
Equity securities 93.1 89.6 50.6
Investment maturities and collections of:
Debt securities available for sale 1,289.2 2,133.3 1,179.2
Short-term investments 30.4 19.7 5.0
Cost of investment purchases in:
Debt securities (5,621.4) (3,669.2) (2,612.2)
Equity securities (162.5) (157.5) (63.0)
Short-term investments (106.1) (41.3) (5.0)
Limited partnership (25.0) - -
--------- --------- ---------
Net cash used for investing activities (908.5) (1,151.5) (902.1)
--------- --------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,737.8 2,117.8 1,619.6
Withdrawals of investment contracts (948.7) (1,000.3) (767.7)
--------- --------- ---------
Net cash provided by financing activities 789.1 1,117.5 851.9
--------- --------- ---------
Net increase in cash and cash equivalents 87.2 145.5 49.9
Cash and cash equivalents, beginning of year 536.1 390.6 340.7
--------- --------- ---------
Cash and cash equivalents, end of year $ 623.3 $ 536.1 $ 390.6
========= ========= =========
Supplemental cash flow information:
Income taxes paid, net $82.6 $ 79.9 $ 54.0
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
(23)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance
Company of America, Systematized Benefits Administrators, Inc., Aetna
Private Capital, Inc. and Aetna Investment Services, Inc. (collectively,
the "Company"). Aetna Life Insurance and Annuity Company is a wholly
owned subsidiary of Aetna Life and Casualty Company ("Aetna").
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. Intercompany transactions
have been eliminated. Certain reclassifications have been made to 1993
and 1992 financial information to conform to the 1994 presentation.
The Company offers a wide range of life insurance products and annuity
contracts with variable and fixed accumulation and payout options. The
Company also provides investment advisory and other services to
affiliated mutual funds.
Accounting Changes
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard
("FAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which requires the classification of debt securities into
three categories: "held to maturity", which are carried at amortized
cost; "available for sale", which are carried at fair value with changes
in fair value recognized as a component of shareholder's equity; and
"trading", which are carried at fair value with immediate recognition in
income of changes in fair value.
Initial adoption of this standard resulted in a net increase of $106.8
million, net of taxes of $57.5 million, to net unrealized gains in
shareholder's equity. These amounts exclude gains and losses allocable to
experience-rated (including universal life) contractholders. Adoption of
FAS No. 115 did not have a material effect on deferred policy acquisition
costs.
(24)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts
During 1993, the Company adopted FAS No. 113, Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts,
retroactive to January 1, 1993. Reinsurance recoverables (previously
reported as a reduction in insurance reserve liabilities) and reinsurance
receivables and ceded unearned premiums are included in premiums due and
other receivables. The adoption of FAS No. 113 did not have a material
impact on the Company's 1993 Consolidated Financial Statements.
Accounting for Income Taxes
The Company adopted FAS No. 109, Accounting for Income Taxes, in 1992,
retroactive to January 1, 1992. A cumulative effect benefit of $22.8
million related to the adoption of this standard is reflected in the 1992
Consolidated Statement of Income.
Postretirement Benefits Other Than Pensions
FAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, required that employers accrue the cost and recognize the
liability for providing non-pension benefits to retired employees and
agents. Aetna and the Company implemented FAS No. 106 in 1992,
retroactive to January 1, 1992 on the immediate recognition basis. The
cumulative effect charge for all Aetna employees was reflected in Aetna's
1992 Statement of Income. A cumulative effect charge of $13.2 million,
net of taxes of $7.1 million, related to the adoption of this standard
for Company agents is reflected in the Company's 1992 Consolidated
Statement of Income.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of ninety days or less when
purchased.
(25)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
Investments
Debt Securities
At December 31, 1994 and 1993, all of the Company's debt securities are
classified as available for sale and carried at fair value. These
securities are written down (as realized losses) for other than temporary
decline in value. Unrealized gains and losses related to these
securities, after deducting amounts allocable to experience-rated
contractholders and related taxes, are reflected in shareholder's equity.
Fair values for debt securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are
not available, fair values are measured utilizing quoted market prices
for similar securities or by using discounted cash flow methods. Cost for
mortgage-backed securities is adjusted for unamortized premiums and
discounts, which are amortized using the interest method over the
estimated remaining term of the securities, adjusted for anticipated
prepayments.
Purchases and sales of debt securities are recorded on the trade date.
Equity Securities
Equity securities are classified as available for sale and carried at
fair value based on quoted market prices or dealer quotations. Equity
securities are written down (as realized losses) for other than temporary
declines in value. Unrealized gains and losses related to such securities
are reflected in shareholder's equity. Purchases and sales are recorded
on the trade date.
The investment in affiliated mutual funds represents an investment in the
Aetna Series Fund, Inc., a retail mutual fund which has been seeded by
the Company, and is carried at fair value.
Mortgage Loans and Policy Loans
Mortgage loans and policy loans are carried at unpaid principal balances
net of valuation reserves, which approximates fair value, and are
generally secured. Purchases and sales of mortgage loans are recorded on
the closing date.
Limited Partnership
The Company's limited partnership investment is carried at the amount
invested plus the Company's share of undistributed operating results and
unrealized gains (losses), which approximates fair value.
(26)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
Short-Term Investments
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with an original maturity of over ninety
days and less than one year, are considered available for sale and are
carried at fair value, which approximates amortized cost.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business have been deferred. These
costs, all of which vary with and are primarily related to the production
of new business, consist principally of commissions, certain expenses of
underwriting and issuing contracts and certain agency expenses. For fixed
ordinary life contracts, such costs are amortized over expected
premium-paying periods. For universal life and certain annuity contracts,
such costs are amortized in proportion to estimated gross profits and
adjusted to reflect actual gross profits. These costs are amortized over
twenty years for annuity pension contracts, and over the contract period
for universal life 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 would not be adequate to
cover related losses and expenses.
Insurance Reserve Liabilities
The Company's liabilities include reserves related to fixed ordinary
life, fixed universal life and fixed annuity contracts. Reserves for
future policy benefits for fixed ordinary life contracts are computed on
the basis of assumed investment yield, assumed mortality, withdrawals and
expenses, including a margin for adverse deviation, which generally vary
by plan, year of issue and policy duration. Reserve interest rates range
from 2.25% to 10.50%. Assumed 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.
Reserves for fixed universal life (included in Future Policy Benefits)
and fixed deferred annuity contracts (included in Policyholders' Funds
Left With the Company) are equal to the fund value. The fund value is
equal to cumulative deposits less charges plus credited interest thereon,
without reduction for possible future penalties assessed on premature
withdrawal. For guaranteed interest options, the interest credited ranged
from 4.00% to 5.85% in 1994 and 4.00% to 7.68% in 1993. For all other
fixed options, the interest credited ranged from 5.00% to 7.50% in 1994
and 5.00% to 9.25% in 1993.
(27)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
Reserves for fixed annuity contracts in the annuity period and for future
amounts due under settlement options are computed actuarially using the
Progressive Annuity Table (modified), the Annuity Table for 1949, the
1971 Individual Annuity Mortality Table, the 1971 Group Annuity Mortality
Table, the 1983 Individual Annuity Mortality Table and the 1983 Group
Annuity Mortality Table, at assumed interest rates ranging from 3.5% to
9.5%. Reserves relating to contracts with life contingencies are included
in Future Policy Benefits. For other contracts, the reserves are
reflected in Policyholders' Funds Left With the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
Premiums are recorded as revenue when due for fixed ordinary life
contracts. Charges assessed against policyholders' funds for cost of
insurance, surrender charges, actuarial margin and other fees are
recorded as revenue for universal life and certain annuity contracts.
Policy benefits and expenses are recorded in relation to the associated
premiums or gross profit so as to result in recognition of profits over
the expected lives of the contracts.
Separate Accounts
Assets held under variable universal life, variable life and variable
annuity contracts are segregated in Separate Accounts and are invested,
as designated by the contractholder or participant under a contract, in
shares of Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore
Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna
Series Fund Inc., which are managed by the Company or other selected
mutual funds not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option which is offered
through a Separate Account. The assets of the Separate Account supporting
the guaranteed interest option are carried at an amortized cost of $149.7
million for 1994 (fair value $146.3 million) and $31.2 million for 1993
(fair value $33.3 million), since the Company bears the investment risk
where the contract is held to maturity. Reserves relating to the
guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.5% to 8.38% in 1994 and from 4%
to 9.45% in 1993. 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 (losses)
of the Separate Accounts are not reflected in the Consolidated Statements
of Income (with the exception of realized capital gains (losses) on the
sale of assets supporting the guaranteed interest option). The
Consolidated Statements of Cash Flows do not reflect investment activity
of the Separate Accounts.
Federal 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 benefits result from changes during the year in
cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
(28)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Investments in debt securities available for sale as of December 31, 1994
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- --------- ------------
(millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S government agencies and
Corporations $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9
Obligations of states and political
subdivisions 37.9 1.2 -- 39.1
U.S. Corporate securities:
Financial 2,216.9 3.8 109.4 2,111.3
Utilities 100.1 -- 7.9 92.2
Other 1,344.3 6.0 67.9 1,282.4
----------- --------- --------- ------------
Total U.S. Corporate securities 3,661.3 9.8 185.2 3,485.9
Foreign securities:
Government 434.4 1.2 33.9 401.7
Financial 368.2 1.1 23.0 346.3
Utilities 204.4 2.5 9.5 197.4
Other 46.3 0.8 1.5 45.6
----------- --------- --------- ------------
Total Foreign securities 1,053.3 5.6 67.9 991.0
Residential mortgage-backed securities:
Residential pass-throughs 627.1 81.5 5.0 703.6
Residential CMOs 2,671.0 32.9 139.4 2,564.5
----------- --------- --------- ------------
Total Residential mortgage-
backed securities 3,298.1 114.4 144.4 3,268.1
Commercial/Multifamily mortgage-
backed securities 435.0 0.2 21.3 413.9
----------- --------- --------- ------------
Total Mortgage-backed securities 3,733.1 114.6 165.7 3,682.0
Other loan-backed securities 696.1 0.2 16.8 679.5
----------- --------- --------- ------------
Total debt securities available for sale $ 10,577.8 $ 133.4 $ 519.8 $ 10,191.4
=========== ========= ========= ============
</TABLE>
(29)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in debt securities available for sale as of December 31, 1993
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- --------- ------------
(millions)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S government agencies and
corporations $ 827.2 $ 19.4 $ 6.6 $ 840.0
Obligations of states and political
subdivisions 0.5 -- -- 0.5
U.S. Corporate securities:
Financial 983.3 49.2 0.7 1,031.8
Utilities 141.2 12.4 -- 153.6
Other 704.3 51.6 2.3 753.6
----------- --------- --------- ------------
Total U.S. Corporate securities 1,828.8 113.2 3.0 1,939.0
Foreign securities:
Government 289.1 31.7 0.5 320.3
Financial 365.8 18.5 0.9 383.4
Utilities 206.2 28.9 0.1 235.0
Other 30.4 1.3 0.8 30.9
----------- --------- --------- ------------
Total Foreign securities 891.5 80.4 2.3 969.6
Residential mortgage-backed securities:
Residential pass-throughs 1,125.0 218.1 1.7 1,341.4
Residential CMOs 4,868.7 318.1 1.1 5,185.7
----------- --------- --------- ------------
Total Residential mortgage-
backed securities 5,993.7 536.2 2.8 6,527.1
Commercial/Multifamily mortgage-
backed securities 193.0 13.4 0.8 205.6
----------- --------- --------- ------------
Total Mortgage-backed securities 6,186.7 549.6 3.6 6,732.7
Other loan-backed securities 49.2 0.2 0.2 49.2
----------- --------- --------- ------------
Total debt securities available for sale $ 9,783.9 $ 762.8 $ 15.7 $ 10,531.0
=========== ========= ========= ============
</TABLE>
(30)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1994 and 1993, net unrealized appreciation (depreciation)
of $(386.4) million and $747.1 million, respectively, on available for
sale debt securities included $(308.6) million and $582.8 million,
respectively, related to experience-rated contractholders, which were not
included in shareholder's equity.
The amortized cost and fair value of debt securities for the year ended
December 31, 1994 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may
be restructured, called, or prepaid.
Amortized Fair
Cost Value
---------------------------
(millions)
Due to mature:
One year or less................. $ 103.9 $ 103.5
After one year through five years 1,965.6 1,920.0
After five years through ten years 2,371.3 2,207.0
After ten years............................. 1,707.8 1,599.4
Mortgage-backed securities........ 3,733.1 3,682.0
Other loan-backed securities......... 696.1 679.5
----------- -----------
Total........................ $ 10,577.8 $ 10,191.4
=========== ===========
At December 31, 1994 and 1993, debt securities carried at $7.0 million
and $7.3 million, respectively, were on deposit as required by regulatory
authorities.
The valuation reserve for mortgage loans was $3.1 million and $4.2
million at December 31, 1994 and 1993, respectively. The carrying value
of non-income producing investments was $0.2 million and $34.3 million at
December 31, 1994 and 1993, respectively.
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, 1994 are as follows:
Amortized Fair
Debt Securities Cost Value
---------------------------
(millions)
General Electric Capital Corporation $ 264.9 $ 252.1
General Motors Corporation 167.8 161.7
Society National Bank 152.8 143.7
Ford Motor Company 144.7 142.3
Associates Corporation of North America 132.9 131.1
First Deposit Master Trust 1994-1A 114.9 112.1
(31)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
The portfolio of debt securities at December 31, 1994 and 1993 included
$318 million and $329 million, respectively, (3% of the debt securities
for both years) of investments that are considered "below investment
grade". "Below investment grade" securities are defined to be securities
that carry a rating below BBB-/Baa3, by Standard & Poors/Moody's Investor
Services, respectively. Of these below investment grade assets, $32
million and $39 million, at December 31, 1994 and 1993, respectively,
were investments that were purchased at investment grade, but whose
ratings have since been downgraded.
Included in residential mortgage-back securities are collateralized
mortgage obligations ("CMOs") with carrying values of $2.6 billion and
$5.2 billion at December 31, 1994 and 1993, respectively. The $2.6
billion decline in CMOs from December 31, 1993 to December 31, 1994 was
related primarily to sales and principal repayments. CMO sales of $1.6
billion resulted in net realized capital gains of $35 million of which
$23 million was allocated to experience-rated contracts. The Company's
CMO exposure was reduced as a result of changes in their risk and return
characteristics and to better diversify the risk profile of the Company's
assets. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates whereby the CMOs would be subject to repayments of principal
earlier or later than originally anticipated. At December 31, 1994 and
1993, approximately 85% and 93%, respectively, of the Company's CMO
holdings consisted of sequential and planned amortization class ("PAC")
debt securities which are subject to less prepayment and extension risk
than other CMO instruments. At December 31, 1994 and 1993, approximately
82% of the Company's CMO holdings were collateralized by residential
mortgage loans, on which the timely payment of principal and interest was
backed by specified government agencies (e.g., GNMA, FNMA, FHLMC).
If due to declining interest rates, principal was to be repaid earlier
than originally anticipated, the Company could be affected by a decrease
in investment income due to the reinvestment of these funds at a lower
interest rate. Such prepayments may result in a duration mismatch between
assets and liabilities which could be corrected as cash from prepayments
could be reinvested at an appropriate duration to adjust the mismatch.
Conversely, if due to increasing interest rates, principal was to be
repaid slower than originally anticipated, the Company could be affected
by a decrease in cash flow which reduces the ability to reinvest expected
principal repayments at higher interest rates. Such slower payments may
result in a duration mismatch between assets and liabilities which could
be corrected as available cash flow could be reinvested at an appropriate
duration to adjust the mismatch.
At December 31, 1994 and 1993, 4% and 3%, respectively, of the Company's
CMO holdings consisted of interest-only strips (IOs) or principal-only
strips (POs). IOs receive payments of interest and POs receive payments
of principal on the underlying pool of mortgages. The risk inherent in
holding POs is extension risk related to dramatic increases in interest
rates whereby the future payments due on POs could be repaid much slower
than originally anticipated. The extension risks inherent in holding POs,
PACs and sequentials was mitigated by purchasing offsetting positions in
IOs. During dramatic increases in interest rates, IOs would generate more
future payments than originally anticipated.
(32)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
The risk inherent in holding IOs is prepayment risk related to dramatic
decreases in interest rates whereby future IO cash flows could be much
less than originally anticipated and in some cases could be less than the
original cost of the IO. The risks inherent in IOs are mitigated by
holding offsetting positions in PO's, PACs, and sequentials. During
dramatic decreases in interest rates POs, PACs and sequentials would
generate future cash flows much quicker than originally anticipated.
In 1993, due to declining interest rates and prepayments on the
underlying pool of mortgages, the amortized cost on IO's was written down
by $85.4 million. IO writedowns of $4.7 million, net of $80.7 million
allocated to experience-rated contracts, were reflected in 1993 net
realized capital gains (losses). In 1994, due to increasing interest
rates, unrealized gains on IO's increased from $0.5 million at December
31, 1993 to $17.8 million at December 31, 1994. Conversely, unrealized
gains on POs decreased from $36.7 million at December 31, 1993 to $5.3
million at December 31, 1994. 1994 net realized gains (losses) included
net gains of $10.0 million as a result of sales of IOs and POs (including
amounts allocated to experience-rated contractholders).
The Company did not use derivative instruments (ie.,futures, forward
contracts, interest swaps, etc.)for hedging or any other purposes in 1994
or 1993.
The Company does hold investments in certain debt and equity securities
with derivative characteristics (ie., including the fact that their
market value is at least partially determined by, among other things,
levels of or changes in interest rates, prepayment rates, equity markets
or credit ratings/spreads).
The amortized cost and fair value of these securities, included in the
$10.8 billion investment portfolio, as of December 31, 1994 was as
follows:
Amortized Fair
(Millions) Cost Value
---------------------------
(millions)
Collateralized mortgage obligations (including
interest-only and principal-only strips) $ 2,671.0 $ 2,564.5
Treasury and agency strips:
Principal 20.7 21.6
Interest 104.2 90.2
Mandatorily convertible preferred stock 12.1 11.6
(33)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
----------- ---------- --------- ------------
(millions)
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
1994
-------------------------------------------------------------------------------------------------------------------
Equity Securities $ 230.5 $ 6.5 $ 7.9 $ 229.1
-------------------------------------------------------------------------------------------------------------------
1993
-------------------------------------------------------------------------------------------------------------------
Equity Securities $ 160.7 $ 12.0 $ 0.1 $ 172.6
-------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994 and 1993, 91% of outstanding policy loans had fixed
interest rates. The fixed interest rates for annuity policy loans ranged
from 1% to 3% for individual annuity policies in both 1994 and 1993. The
fixed interest rates for individual life policy loans ranged from 5% to
8% in 1994 and 6% to 8% in 1993. The remaining outstanding policy loans
had variable interest rates averaging 8% in 1994 and 1993. Investment
income from policy loans was $11.5 million, $10.8 million and $9.5
million in 1994, 1993 and 1992, respectively.
Off-Balance Sheet Financial Instruments
At December 31, 1993, the Company had $149.0 million in outstanding
forward commitments to purchase mortgage-backed securities at a specified
future date and at a specified price or yield. These instruments involve
elements of market risk whereby future changes in market prices may make
a financial instrument less valuable. However, the difference between the
fair value at which the commitments can be settled, and the contractual
value of these securities, was immaterial at December 31, 1993. There
were no outstanding forward commitments at December 31, 1994.
There were no material concentrations of off-balance sheet financial
instruments at December 31, 1994 and 1993.
3. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between proceeds
received from investments sold or prepaid, and amortized cost. Net
realized capital gains as reflected in the Consolidated Statements of
Income are after deductions for net realized capital gains (losses)
allocated to experience-rated contracts of $(29.1) million, $(54.8)
million and $36.1 million for the years ended December 31, 1994, 1993,
and 1992, respectively. Net realized capital gains (losses) allocated to
experience-rated contracts are deferred and subsequently reflected in
credited rates on an amortized basis. Net unamortized gains (losses),
reflected as a component of Policyholders' Funds Left With the Company,
were $(50.7) million and $(16.5) million at the end of December 31, 1994
and 1993, respectively.
(34)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
3. Capital Gains and Losses on Investment Operations (Continued)
Changes to the mortgage loan valuation reserve and writedowns on debt
securities are included in net realized capital gains (losses) and
amounted to $1.1 million and $(98.5) million, of which $0.8 million and
$(91.5) million were allocable to experience-rated contractholders, for
the years ended December 31, 1994 and 1993, respectively. There were no
changes to the valuation reserve or writedowns in 1992. The 1993 losses
were primarily related to writedowns of interest-only mortgage-backed
securities to their fair value.
Net realized capital gains (losses) on investments, net of amounts
allocated to experience-rated contracts, were as follows:
1994 1993 1992
---- ---- ----
(millions)
Debt securities $ 1.0 $ 9.6 $ 12.9
Equity securities 0.2 .1 0.5
Mortgage loans 0.3 (0.2) -
------- ------- --------
Pretax realized capital gains $ 1.5 $ 9.5 $ 13.4
======= ======= ========
After-tax realized capital gains $ 1.0 $ 6.2 $ 8.8
======= ======= ========
Gross gains of $26.6 million, $33.3 million and $13.9 million and gross
losses of $25.6 million, $23.7 million and $1.0 million were realized
from the sales of investments in debt securities in 1994, 1993 and 1992,
respectively.
Changes in unrealized capital gains (losses), excluding changes in
unrealized capital gains (losses) related to experience-rated contracts,
for the years ended December 31, were as follows:
1994 1993 1992
---- ---- ----
(millions)
Debt securities $(242.1) $ 164.3 $ -
Equity securities (13.3) 10.6 (0.1)
Limited partnership (1.8) - -
-------- -------- --------
(257.2) 174.9 (0.1)
Deferred federal income taxes (See Note 6) 46.3 61.2 -
-------- -------- --------
Net change in unrealized capital gains (losses) $(303.5) $ 113.7 $ (0.1)
======== ======== ========
(35)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
3. Capital Gains and Losses on Investment Operations (Continued)
The net change in unrealized capital gains (losses) on debt securities in
1994 and 1993 resulted from the adoption of FAS No. 115. For the year
ended December 31, 1992, debt securities were carried at amortized cost.
The unrecorded net appreciation for debt securities carried at amortized
cost (including amounts allocable to experience-rated contracts) amounted
to $612.4 million at December 31, 1992.
Net unrealized capital gains (losses) allocable to experience-rated
contracts of $(308.6)million and $582.8 million at December 31, 1994 and
1993, respectively, are not included in shareholder's equity. These
amounts are reflected on the Consolidated Balance Sheet in policyholders'
funds left with the Company.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience-rated
contractholders, at December 31:
1994 1993 1992
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $ 27.4 $ 164.3 $ -
Gross unrealized capital losses (105.2) - -
-------- -------- --------
(77.8) 164.3 -
Equity securities
Gross unrealized capital gains 6.5 12.0 2.0
Gross unrealized capital losses (7.9) (0.1) (0.7)
-------- -------- --------
(1.4) 11.9 1.3
Limited Partnership
Gross unrealized capital gains - - -
Gross unrealized capital losses (1.8) - -
-------- -------- --------
(1.8) - -
Deferred federal income taxes (See Note 6) 108.0 61.7 0.5
-------- -------- --------
Net unrealized capital gains (losses) $(189.0) $ 114.5 $ 0.8
======== ======== ========
(36)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1994 1993 1992
------- ------- -------
(millions)
Debt securities $ 823.9 $ 828.0 $ 763.7
Preferred stock 3.9 2.3 2.8
Investment in affiliated mutual funds 5.2 2.9 3.2
Mortgage loans 1.4 1.5 1.8
Policy loans 11.5 10.8 9.5
Reinsurance loan to affiliate 51.5 53.3 56.7
Cash equivalents 29.5 16.8 16.6
Other 6.7 7.7 6.4
---------- ---------- ----------
Gross investment income 933.6 923.3 860.7
Less investment expenses (16.4) (11.4) (12.6)
---------- ---------- ----------
Net investment income $ 917.2 $ 911.9 $ 848.1
========== ========== ==========
Net investment income includes amounts allocable to experience-rated
contractholders of $677.1 million, $661.3 million and $604.0 million for
the years ended December 31, 1994, 1993 and 1992, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The amount of dividends that may be paid to the shareholder in 1995
without prior approval by the Insurance Commissioner of the State of
Connecticut is $70.9 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity 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 $70.9
million, $77.6 million and $62.5 million for the years ended December 31,
1994, 1993 and 1992, respectively. Statutory shareholder's equity was
$615.0 million and $574.4 million as of December 31, 1994 and 1993,
respectively.
As of December 31, 1994, the Company does not utilize any statutory
accounting practices which are not prescribed by insurance regulators
that, individually or in the aggregate, materially affect statutory
shareholder's equity.
(37)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
6. Federal Income Taxes
The Company is included in the consolidated federal income tax return 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 return.
As discussed in Note 1, the Company adopted FAS No. 109 as of January 1,
1992 resulting in a cumulative effect benefit of $22.8 million.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was
enacted which resulted in an increase in the federal corporate tax rate
from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA
resulted in an increase in the deferred tax liability of $3.4 million at
date of enactment, which is included in the 1993 deferred tax expense.
Components of income tax expense (benefits) were as follows:
1994 1993 1992
------- ------- -------
(millions)
Current taxes (benefits):
Income from operations $ 78.7 $ 87.1 $ 68.0
Net realized capital gains (33.2) 18.1 18.1
-------- -------- --------
45.5 105.2 86.1
-------- -------- --------
Deferred taxes (benefits):
Income from operations (8.0) (14.2) (17.7)
Net realized capital gains 33.7 (14.8) (13.5)
-------- -------- --------
25.7 (29.0) (31.2)
-------- -------- --------
Total $ 71.2 $ 76.2 $ 54.9
======== ======== ========
(38)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
6. Federal Income Taxes (Continued)
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the
following reasons:
1994 1993 1992
------- ------- -------
(millions)
Income before federal income taxes $216.5 $219.1 $168.1
Tax rate 35% 35% 34%
-------- -------- --------
Application of the tax rate 75.8 76.7 57.2
-------- -------- --------
Tax effect of:
Excludable dividends (8.6) (8.7) (6.4)
Tax reserve adjustments 2.9 4.7 5.1
Reinsurance transaction 1.9 (0.2) (0.5)
Tax rate change on deferred liabilities - 3.7 -
Other, net (0.8) - (0.5)
-------- -------- --------
Income tax expense $ 71.2 $ 76.2 $ 54.9
======== ======== ========
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities under FAS No. 109 at December 31,
1994 and 1993 are presented below:
1994 1993
-------- --------
(millions)
Deferred tax assets:
Insurance reserves $ 211.5 $ 195.4
Net unrealized capital losses 136.3 -
Investment losses not currently deductible 15.5 31.2
Postretirement benefits other
than pensions 8.4 8.6
Impairment reserves - 7.9
Other 28.3 19.3
-------- --------
Total gross assets 400.0 262.4
Less valuation allowance 136.3 -
-------- --------
Deferred tax assets net of valuation 263.7 262.4
Deferred tax liabilities:
Deferred policy acquisition costs 385.2 355.2
Unrealized losses allocable to
experience-rated contracts 108.0 -
Market discount 3.6 5.4
Net unrealized capital gains - 61.7
Other 0.4 1.6
-------- --------
Total gross liabilities 497.2 423.9
-------- --------
Net deferred tax liability $ 233.5 $ 161.5
======== ========
(39)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
6. Federal Income Taxes (Continued)
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. At December 31, 1994, $81.0 million of net
unrealized capital losses were reflected in shareholder's equity without
deferred tax benefits. For federal income tax purposes, capital losses
are deductible only against capital gains in the year of sale or during
the carryback and carryforward periods (three and five years,
respectively). Due to the expected full utilization of capital gains in
the carryback period and the uncertainty of future capital gains, a
valuation allowance of $28.3 million related to the net unrealized
capital losses has been reflected in shareholder's equity. In addition,
$308.6 million of net unrealized capital losses related to
experience-rated contracts are not reflected in shareholder's equity
since such losses, if realized, are allocable to contractholders.
However, the potential loss of tax benefits on such losses is the risk of
the Company and therefore would adversely affect the Company rather than
the contractholder. Accordingly, an additional valuation allowance of
$108.0 million has been reflected in shareholder's equity as of December
31, 1994. Any reversals of the valuation allowance are contingent upon
the recognition of future capital gains in the Company's federal income
tax return or a change in circumstances which causes the recognition of
the benefits to become more likely than not. Non-recognition of the
deferred tax benefits on net unrealized losses described above had no
impact on net income for 1994, but has the potential to adversely affect
future results if such losses are realized.
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, 1994.
This amount would be taxed only under certain conditions. No income taxes
have been provided on this amount since management believes the
conditions under which such taxes would become payable are remote.
The Internal Revenue Service ("Service") has completed examinations of
the consolidated federal income tax returns of Aetna through 1986.
Discussions are being held with the Service with respect to proposed
adjustments. However, management believes there are adequate defenses
against, or sufficient reserves to provide for, such adjustments. The
Service has commenced its examinations for the years 1987 through 1990.
(40)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
7. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
non-contributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service
and average annual compensation (measured over sixty consecutive months
of highest earnings in a 120 month period). Contributions are determined
using the Entry Age Normal Cost Method and, for qualified plans subject
to ERISA requirements, are limited to the amounts that are currently
deductible for tax reporting purposes. The accumulated benefit obligation
and plan assets are recorded by Aetna. The accumulated plan assets exceed
accumulated plan benefits. There has been no funding to the plan for the
years 1992 through 1994, and therefore, no expense has been recorded by
the Company.
Agent Pension Plans - The Company, in conjunction with Aetna, has a
non-qualified pension plan covering certain agents. The plan provides
pension benefits based on annual commission earnings. The accumulated
plan assets exceed accumulated plan benefits. There has been no funding
to the plan for the years 1992 through 1994, and therefore, no expense
has been recorded by the Company.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna also provides certain postretirement health care and life
insurance benefits, subject to certain caps, for retired employees.
Medical and dental benefits are offered to all full-time employees
retiring at age 50 with at least 15 years of service or at age 65 with at
least 10 years of service. Retirees are required to contribute to the
plans based on their years of service with Aetna.
Aetna implemented FAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions in 1992 on the immediate recognition basis.
The cumulative effect charge for all Aetna employees was reflected in
Aetna's 1992 Statement of Income. Prior to the adoption of FAS No. 106,
the cost of postretirement benefits was charged to operations as payments
were made. The accumulated benefit obligation and plan assets are
recorded by Aetna. Accumulated postretirement benefits exceed plan
assets.
The cost to the Company associated with the Aetna postretirement plans
for 1994, 1993 and 1992 were $1.0 million, $0.8 million and $0.8 million,
respectively.
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postemployment health care and life insurance
benefits for certain agents. The impact of recognizing the liability for
agent costs was a cumulative effect adjustment of $13.2 million (net of
deferred taxes of $6.8 million) and is reported in the 1992 Consolidated
Statement of Income.
The cost to the Company associated to the agents' postretirement plans
for 1994, 1993 and 1992 were $0.7 million, $0.6 million and $0.7 million,
respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments,
are matched, up to 5% of compensation, by Aetna. Pretax charges to
operations for the incentive savings plan were $3.3 million, $3.1 million
and $2.8 million in 1994, 1993 and 1992, respectively.
(41)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
7. Benefit Plans (Continued)
Stock Plans - Aetna has a stock incentive plan that provides for stock
options and deferred contingent common stock or cash awards to certain
key employees. Aetna also has a stock option plan under which executive
and middle management employees of Aetna may be granted options to
purchase common stock of Aetna at the market price on the date of grant
or, in connection with certain business combinations, may be granted
options to purchase common stock on different terms. The cost to the
Company associated to the Aetna stock plans for 1994 and 1993 was $2.3
million, $0.4 million, respectively. The cost for 1992 was immaterial.
8. Related Party Transactions
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable life and annuity contracts.
Under the insurance contracts, the Separate Accounts pay the Company a
daily fee which, on an annual basis, ranges, depending on the product,
from .70% to 1.80% of their average daily net assets. The Company also
receives fees from the variable life and annuity mutual funds and The
Aetna Series Fund for serving as investment adviser. Under the advisory
agreements, the Funds pay the Company a daily fee which, on an annual
basis, ranges, depending on the fund, from .25% to 1.00% of their average
daily net assets. The advisory agreements also call for the variable
funds to pay their own administrative expenses and for The Aetna Series
Fund to pay certain administrative expenses. The Company also receives
fees (expressed as a percentage of the average daily net assets) from The
Aetna Series Fund for providing administration shareholder services and
promoting sales. The amount of compensation and fees received from the
Separate Accounts and Funds, included in Charges Assessed Against
Policyholders, amounted to $104.6 million, $93.6 million and $80.5
million in 1994, 1993 and 1992, respectively. The Company may waive
advisory fees at its discretion.
The Company may, from time to time, make reimbursements to a Fund for
some or all of its operating expenses. Reimbursement arrangements may be
terminated at any time without notice.
Since 1981, all domestic individual non-participating life insurance of
Aetna and its subsidiaries has been issued by the Company. Effective
December 31, 1988, the Company entered into a reinsurance agreement with
Aetna Life Insurance Company ("Aetna Life") in which substantially all of
the non-participating individual life and annuity business written by
Aetna Life prior to 1981 was assumed by the Company. A $108.0 million
commission, paid by the Company to Aetna Life in 1988, was capitalized as
deferred policy acquisition costs. The Company maintained insurance
reserves of $690.3 million and $711.0 million as of December 31, 1994 and
1993, respectively, relating to the business assumed. In consideration
for the assumption of this business, a loan was established relating to
the assets held by Aetna Life which support the insurance reserves. The
loan is being reduced in accordance with the decrease in the reserves.
The fair value of this loan was $630.3 million and $685.8 million as of
December 31, 1994 and 1993, respectively, and is based upon the fair
value of the underlying assets. Premiums of $32.8 million, $33.3 million
and $36.8 million and current and future benefits of $43.8 million, $55.4
million and $47.2 million were assumed in 1994, 1993 and 1992,
respectively.
(42)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
8. Related Party Transactions (Continued)
Investment income of $51.5 million, $53.3 million and $56.7 million was
generated from the reinsurance loan to affiliate in 1994, 1993 and 1992,
respectively. Net income of approximately $25.1 million, $13.6 million
and $21.7 million resulted from this agreement in 1994, 1993 and 1992,
respectively.
On December 16, 1988, the Company assumed $25.0 million of premium
revenue from Aetna Life for the purchase and administration of a life
contingent single premium variable payout annuity contract. In addition,
the Company also is responsible for administering fixed annuity payments
that are made to annuitants receiving variable payments. Reserves of
$24.2 million and $27.8 million were maintained for this contract as of
December 31, 1994 and 1993, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement
with Aetna Life to reinsure amounts in excess of this limit, up to a
maximum of $8.0 million on any new individual life business, on a yearly
renewable term basis. Premium amounts related to this agreement for 1994,
1993 and 1992 were immaterial.
Effective December 31, 1992, the Company entered into an assumption
reinsurance agreement with Aetna Life to reinsure a block of
approximately 3,500 life contingent, period certain and deferred lump sum
annuities (totaling $175.5 million in premium) issued by the Company to
Aetna Casualty to fund its obligations under structured settlement
agreements. The negotiated price recognized the sale of future profits
and included consideration to ALIAC for the continued administration of
the reinsured contracts on behalf of, and in the name of, Aetna Life.
The Company received no capital contributions in 1994, 1993 or 1992.
Premiums due and other receivables include $27.6 million and $9.8 million
due from affiliates in 1994 and 1993, respectively. Other liabilities
include $27.9 million and $26.1 million due to affiliates for 1994 and
1993, respectively.
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial
statements reflect allocated charges for these services based upon
measures appropriate for the type and nature of service provided.
(43)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
9. 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 following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 8 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
-------- --------- --------- ---------
(millions)
1994
----
<S> <C> <C> <C> <C>
Premiums:
Life Insurance $ 25.8 $ 6.0 $ 32.8 $ 52.6
Accident and Health Insurance 10.8 9.3 - 1.5
Annuities 69.9 - 0.2 70.1
----------------------------------------------
Total earned premiums $ 106.5 $ 15.3 $ 33.0 $ 124.2
==============================================
1993
----
Premiums:
Life Insurance $ 20.9 $ 5.6 $ 33.3 $ 48.6
Accident and Health Insurance 14.4 12.9 - 1.5
Annuities 31.3 - 0.7 32.0
----------------------------------------------
Total earned premiums $ 66.6 $ 18.5 $ 34.0 $ 82.1
==============================================
1992
----
Premiums:
Life Insurance $ 20.8 $ 5.2 $ 36.8 $ 52.4
Accident and Health Insurance 15.1 13.7 - 1.4
Annuities 18.4 - 0.3 18.7
----------------------------------------------
Total earned premiums $ 54.3 $ 18.9 $ 37.1 $ 72.5
==============================================
</TABLE>
(44)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
10. Financial Instruments
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------- ----------------------------
(millions)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 623.3 $ 623.3 $ 536.1 $ 536.1
Short-term investments 98.0 98.0 22.6 22.6
Debt securities 10,191.4 10,191.4 10,531.0 10,531.0
Equity securities 229.1 229.1 172.6 172.6
Limited partnership 24.4 24.4 - -
Mortgage loans 9.9 9.9 10.1 10.1
Liabilities:
Investment contract liabilities:
With a fixed maturity 826.7 833.5 733.3 795.6
Without a fixed maturity 8,074.9 7,870.4 8,196.4 8,099.3
</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 expected 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 and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company
in estimating the fair value of the above financial instruments:
Short-term instruments: Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices are not available, the
carrying amounts reported in the Consolidated Balance Sheets approximates
fair value. Short-term instruments have a maturity date of one year or
less and include cash and cash equivalents, and short-term investments.
Debt and equity securities: Fair values are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are
not available, fair value is estimated by using quoted market prices for
similar securities or discounted cash flow methods.
(45)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
10. Financial Instruments (Continued)
Mortgage loans: Fair value is 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.
The fair value estimate of mortgage loans of lower quality, including
problem and restructured loans, is based on the estimated fair value of
the underlying collateral.
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.
(46)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Notes to Consolidated Financial Statements (Continued)
11. Segment Information
Effective December 31, 1994, the Company's operations, which previously
were reported in total, will now be reported through two major business
segments: Life Insurance and Financial Services. The Life Insurance
segment markets most types of life insurance including universal life,
interest-sensitive whole life, and term insurance. These products are
offered primarily to individuals, small businesses, employer-sponsored
groups and executives of Fortune 2000 companies. The Financial Services
segment markets and services individual and group annuity contracts which
offer a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify for tax deferral under
sections 401(k) for corporations, 403(b) for hospitals and educational
institutions, 408 for individual retirement accounts, and 457 for state
and local governments and tax exempt healthcare organizations (the
"deferred compensation market"), of the Internal Revenue Code. These
contracts may be immediate or deferred. These products are offered
primarily to individuals, pension plans, small businesses and
employer-sponsored groups.
Summarized financial information for the Company's principal operations
was as follows:
<TABLE>
<CAPTION>
(Millions) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Life insurance $ 386.1 $ 371.7 $ 363.6
Financial services 946.1 892.8 812.5
-----------------------------------------------
Total revenue $ 1,332.2 $ 1,264.5 $ 1,176.1
--------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes and cumulative effect adjustments:
Life insurance $ 96.8 $ 98.0 $ 74.6
Financial services 119.7 121.1 93.5
-----------------------------------------------
Total income from continuing operations before
income taxes and cumulative effect adjustments $ 216.5 $ 219.1 $ 168.1
--------------------------------------------------------------------------------------------------
Net income:
Life insurance $ 59.8 $ 56.1 $ 45.6
Financial services 85.5 86.8 67.6
-----------------------------------------------
Income before cumulative effect adjustments $ 145.3 $ 142.9 $ 113.2
--------------------------------------------------------------------------------------------------
Cumulative effect adjustments - - 9.6
-----------------------------------------------
Net income $ 145.3 $ 142.9 $ 122.8
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
(Millions) 1994 1993 1992
<S> <C> <C> <C>
Assets under management, at fair value:
Life insurance $ 2,175.2 $ 2,180.1 $ 1,973.1
Financial services 17,791.9 16,600.5 13,644.3
--------------------------------------------------------------------------------------------------
Total assets under management $19,967.1 $18,780.6 $15,617.4
--------------------------------------------------------------------------------------------------
</TABLE>
(47)
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
None. PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements. See Item 8 on Page 18.
2. Financial statement schedules. See Index to Financial Statement
Schedules on Page 50.
3. Exhibits:
3(a) Certificate of Incorporation
Incorporated herein by reference to post-effective
amendment No. 58 to Registration Statement on Form N-4
(File No. 2-52449) as filed with the SEC on February 28,
1994.
3(b) By-Laws
Incorporated herein by reference to post-effective
amendment No. 58 to Registration Statement on Form N-4
(File No. 2-52449) as filed with the SEC on February 28,
1994.
4 Instruments Defining the Rights of Security Holders,
Including Indentures
Incorporated herein by reference to Form S-1, File No.
33-42555, as amended, originally filed with the Securities
and Exchange Commission on January 4, 1989 and most
recently amended on April 5, 1991.
Incorporated herein by reference to Form S-1, File No.
33-34583, as amended, originally filed with the Securities
and Exchange Commission on January 4, 1989 and most
recently amended on April 13, 1993.
Incorporated herein by reference to Form N-4, File No.
2-52448, as amended, most recently on February 28, 1994.
Incorporated herein by reference to Form N-4, File No.
33-34370, as amended, most recently on March 1, 1994.
Incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registration Statement on Form N-4, File No.
33-76018, filed on April 25, 1994.
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-81216, filed on July 6, 1994.
Incorporated herein by reference to Registration Statement
Form N-4, File No. 33-88722, filed on January 20, 1995.
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-75954, filed on February 23,
1995.
(48)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
4 Instruments Defining the Rights of Security Holders,
Including Indentures (Continued)
Incorporated herein by reference to Post-Effective
Amendment No. 3 to Registration Statement on Form N-4, File
No. 33-75996, filed on February 23, 1995.
Incorporated herein by reference to Post-Effective
Amendment No. 2 to Registration Statement on Form N-4, File
No. 33-75956, filed on February 23, 1995.
Incorporated herein by reference to Post-Effective
Amendment No. 60 to Registration Statement on Form N-4,
File No. 2-52449, filed on February 24, 1995.
Incorporated herein by reference to Post-Effective
Amendment No. 1 to Registration Statement on Form N-4, File
No. 33-75988, filed on February 27, 1995.
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-75976, filed on February 28, 1995.
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-75984 filed on February 28, 1995.
Incorporated herein by reference to Post-Effective
Amendment No. 1 to Registration Statement on Form N-4, File
No. 33-79122, filed on March 2, 1995.
Incorporated herein by reference to Registration Statement
on Form S-6, File No. 33-75248, filed on February 10, 1994.
Incorporated herein by reference to Form S-6, File No.
33-2339, as amended, most recently on February 18, 1994.
Incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registration Statement on Form S-6, File No.
33-76004, filed on April 29, 1994.
10 Material Contracts (Management contracts / compensatory
plans or arrangements)
* The 1984 Stock Option Plan of Aetna Life and Casualty
Company and the amendments thereto; incorporated by
reference to Aetna Life and Casualty Company's 1992 Form
10-K, filed on March 17, 1993. Commission File Number
1-5704
* Aetna Life and Casualty Company's Supplemental Incentive
Savings Plan; incorporated by reference to Aetna Life and
Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
Commission File Number 1-5704
* Aetna Life and Casualty Company's Supplemental Pension
Benefit Plan; incorporated by reference to Aetna Life and
Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
Commission File Number 1-5704
(50)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
10 Material Contracts (Management contracts / compensatory
plans or arrangements) (Continued)
* Aetna Life and Casualty Company's 1986 Management
Incentive Plan; incorporated by reference to Aetna Life and
Casualty Company's 1992 Form 10-K, as amended effective
February 25, 1994. Commission File Number 1-5704
* Aetna Life and Casualty Company's 1994 Stock Incentive
Plan; incorporated by reference to 1994 Proxy Statement of
Aetna Life and Casualty Company filed on March 18, 1994.
Fund Participation Agreements between ALIAC and Lexington
Emerging Markets Fund, Inc. and Lexington Management
Corporation - Incorporated by reference to Post- Effective
Amendment No. 15 to Registration Statement on Form N-4,
File No. 33-34370, filed on April 19, 1994.
Fund Participation Agreements between ALIAC and Alger
American Fund and Fred Alger Management, Inc., Calvert
Asset Management Company, Lexington Management Corporation,
and Neuberger & Berman Advisors Management Trust -
Incorporated by reference to Pre-Effective Amendment No. 1
to Registration Statement on Form N-4, File No. 33-75996,
filed on April 21, 1994.
Fund Participation Agreements between ALIAC and Franklin
Advisors, Inc. - Incorporated by reference to Pre-Effective
Amendment No. 1 to Registration Statement on Form N-4, File
No. 33-75990, filed on April 25, 1994.
Fund Participation Agreements between ALIAC and Fidelity
Distributors Corporation - Incorporated by reference to
Pre-Effective Amendment No. 1 to Registration Statement on
Form N-4, File No. 33-75978, filed on April 25, 1994.
Fund Participation Agreements between ALIAC and Janus Aspen
Series - Incorporated by reference to Registration
Statement on Form N-4, File No. 33-75960, filed on August
9, 1994.
Fund Participation Agreements between ALIAC and Scudder
Variable Life Investment Fund, and TCI Portfolios, Inc. -
Incorporated by reference to Registration Statement on Form
N-4, File No. 33-88720, filed on January 20, 1995.
* Management contract or compensatory plan or arrangement
21 Subsidiaries of the Registrant
Incorporated by reference to Exhibit 24C to Registration
Statement on Form N-4 (File Number 33-88720) filed on
January 20, 1995.
(51)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(Continued)
24 Power of Attorney
Filed herein immediately after Signature page.
Exhibits other than these listed are omitted because they are not
required or not applicable.
(b) Reports on Form 8-K.
None.
(52)
<PAGE>
Independent Auditor's Report
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company
Under date of February 7, 1995, we reported on the consolidated balance sheets
of Aetna Life Insurance and Annuity Company and Subsidiaries as of December
31, 1994 and 1993, 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, 1994, as included herein. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related financial statement schedules as listed in the
accompanying index. These consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statement schedules based on our
audits.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its methods of accounting for certain investments in debt and
equity securities and reinsurance contracts. In 1992, the Company changed its
method of accounting for income taxes and postretirement benefits other than
pensions.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 7, 1995
(53)
<PAGE>
APPENDIX C
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period Commission file
ended September 30, 1995 number 33-23376
------------------------ ---------------
Aetna Life Insurance and Annuity Company
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 71-0294708
-----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
-----------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0978
---------------------
None
-----------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Title of Class at October 31, 1995
- -------------- -------------------
Common Stock,
par value $50 55,000
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Quarterly Report For Period Ended September 30, 1995 on Form 10-Q
TABLE OF CONTENTS
-----------------
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income.............................. 3
Consolidated Balance Sheets.................................... 4
Consolidated Statements of Changes in Shareholder's Equity..... 5
Consolidated Statements of Cash Flows.......................... 6
Condensed Notes to Consolidated Financial Statements........... 7
Independent Auditors' Review Report............................ 8
Item 2. Management's Analysis of the Results of Operations........... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 14
Item 6. Exhibits and Reports on Form 8-K.............................. 14
Signatures............................................................ 15
(2)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
Consolidated Statements of Income
(millions)
<CAPTION>
3 Months Ended September 30, 9 Months Ended September 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Premiums $24.1 $26.7 $94.8 $79.2
Charges assessed against policyholders 80.2 70.6 231.1 207.0
Net investment income 250.1 224.1 732.0 684.9
Net realized capital gains 8.3 3.4 19.3 5.3
Other income 7.5 1.0 30.0 3.9
-------- -------- -------- --------
Total revenue 370.2 325.8 1,107.2 980.3
Benefits and expenses:
Current and future benefits 230.2 206.6 677.1 621.1
Operating expenses 74.3 54.5 222.9 166.7
Amortization of deferred policy acquisition costs 6.9 11.9 27.3 31.7
-------- -------- -------- --------
Total benefits and expenses 311.4 273.0 927.3 819.5
Income before federal income taxes 58.8 52.8 179.9 160.8
Federal income taxes 19.6 16.0 58.8 51.4
-------- -------- -------- --------
Net income $39.2 $36.8 $121.1 $109.4
======== ======== ======== ========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(3)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
Consolidated Balance Sheets
(millions)
<CAPTION>
September 30, December 31,
Assets 1995 1994
- ------ ---- ----
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $11,540.8 and $10,577.8) $11,999.5 $10,191.4
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $54.8 and $43.3) 61.5 47.2
Investment in affiliated mutual funds (cost: $213.9 and $187.1) 241.7 181.9
Common stock (cost: $5.7 at September 30, 1995) 7.6 --
Short-term investments 16.6 98.0
Mortgage loans 5.6 9.9
Policy loans 305.7 248.7
Limited partnership 24.6 24.4
----------- -----------
Total investments 12,662.8 10,801.5
Cash and cash equivalents 506.4 623.3
Accrued investment income 171.8 142.2
Premiums due and other receivables 54.5 75.8
Deferred policy acquisition costs 1,283.1 1,172.0
Reinsurance loan to affiliate 659.4 690.3
Other assets 21.2 15.9
Separate Accounts assets 9,931.9 7,420.8
----------- -----------
Total assets $25,291.1 $20,941.8
=========== ===========
Liabilities and Shareholder's Equity
- ------------------------------------
Liabilities:
- -----------
Future policy benefits $3,247.2 $2,920.4
Unpaid claims and claim expenses 22.9 23.8
Policyholders' funds left with the Company 10,132.7 8,949.3
----------- -----------
Total insurance reserve liabilities 13,402.8 11,893.5
Other liabilities 261.4 302.1
Federal income taxes:
Current 17.6 3.4
Deferred 167.6 233.5
Separate Accounts liabilities 9,931.9 7,420.8
----------- -----------
Total liabilities 23,781.3 19,853.3
----------- -----------
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 407.6 407.6
Net unrealized capital gains (losses) 111.2 (189.0)
Retained earnings 988.2 867.1
----------- -----------
Total shareholder's equity 1,509.8 1,088.5
----------- -----------
Total liabilities and shareholder's equity $25,291.1 $20,941.8
=========== ===========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(4)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<CAPTION>
9 Months Ended September 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Shareholder's equity, beginning of period $1,088.5 $1,246.7
Net change in unrealized capital gains (losses) 300.2 (224.1)
Net income 121.1 109.4
---------- ----------
Shareholder's equity, end of period $1,509.8 $1,132.0
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(5)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
<TABLE>
Consolidated Statements of Cash Flows
(millions)
9 Months Ended September 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $121.1 $109.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (29.6) (9.8)
Decrease in premiums due and other receivables 28.1 12.4
Increase in policy loans (57.0) (31.3)
Increase in deferred policy acquisition costs (111.1) (52.7)
Decrease in reinsurance loan to affiliate 30.9 21.0
Net increase in universal life account balances 164.0 110.2
Increase in other insurance reserve liabilities 10.6 14.1
Net (increase) decrease in other liabilities and other assets (17.2) 23.3
Increase in federal income taxes (3.6) (17.7)
Net accretion of discount on debt securities (48.9) (62.0)
Net realized capital gains (19.3) (5.3)
------ -----
Net cash provided by operating activities 68.0 111.6
------ -----
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 3,276.2 2,976.0
Equity securities 130.5 87.4
Investment maturities and collections of:
Debt securities available for sale 420.7 1,134.0
Short-term investments 95.6 16.2
Cost of investment purchases in:
Debt securities available for sale (4,581.6) (4,460.5)
Equity securities (170.2) (159.2)
Short-term investments (14.2) (87.5)
Limited partnership -- (25.0)
------ -----
Net cash used for investing activities (843.0) (518.6)
------ -----
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,461.9 1,328.6
Withdrawals of investment contracts (803.8) (705.3)
------ -----
Net cash provided by financing activities 658.1 623.3
------ -----
Net (decrease) increase in cash and cash equivalents (116.9) 216.3
Cash and cash equivalents, beginning of period 623.3 536.1
------ -----
Cash and cash equivalents, end of period $506.4 $752.4
------ -----
Supplemental cash flow information:
Income taxes paid, net $62.4 $69.1
------ -----
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
(6)
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Life and Casualty Company)
Condensed Notes to Consolidated Financial Statements
1. Basis of Presentation
---------------------
The consolidated financial statements include Aetna Life Insurance and
Annuity Company and its wholly owned subsidiaries, Aetna Insurance
Company of America, Systematized Benefits Administrators, Inc., Aetna
Private Capital, Inc. and Aetna Investment Services, Inc. (collectively,
the "Company"). Aetna Life Insurance and Annuity Company is a wholly
owned subsidiary of Aetna Life and Casualty Company ("Aetna").
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1994 financial information to
conform to 1995 presentation. These interim statements necessarily rely
heavily on estimates including assumptions as to annualized tax rates.
In the opinion of management, all adjustments necessary for a fair
statement of results for the interim periods have been made. All such
adjustments are of a normal recurring nature.
2. Federal Income Taxes
--------------------
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. During the nine months ended September 30,
1995, the Company moved from a net unrealized capital loss position of
$189.0 million at December 31, 1994, to a net unrealized capital gain
position of $111.2 million at September 30, 1995, primarily due to
decreases in interest rates. As a result, all valuation allowances
previously established related to deferred tax assets on these capital
losses were reversed, which had no impact on net income for the three
and nine months ended September 30, 1995.
(7)
<PAGE>
Independent Auditors' Review Report
-----------------------------------
The Board of Directors
Aetna Life Insurance and Annuity Company:
We have reviewed the accompanying condensed consolidated balance sheet of
Aetna Life Insurance and Annuity Company and Subsidiaries as of September 30,
1995, and the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 1995 and 1994, and the
related condensed consolidated statements of changes in shareholder's equity
and cash flows for the nine-month periods then ended. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Aetna Life Insurance and Annuity
Company and Subsidiaries as of December 31, 1994, and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 7,
1995, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1994, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
October 26, 1995
(8)
<PAGE>
Item 2. Management's Analysis of the Results of Operations
<TABLE>
Consolidated Results of Operations: Operating Summary
- -----------------------------------------------------
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
Operating Summary (millions) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $ 24.1 $ 26.7 $ 94.8 $ 79.2
Charges assessed against policyholders 80.2 70.6 231.1 207.0
Net investment income 250.1 224.1 732.0 684.9
Net realized capital gains 8.3 3.4 19.3 5.3
Other income 7.5 1.0 30.0 3.9
- -----------------------------------------------------------------------------------------------------------
Total revenue 370.2 325.8 1,107.2 980.3
- -----------------------------------------------------------------------------------------------------------
Current and future benefits 230.2 206.6 677.1 621.1
Operating expenses 74.3 54.5 222.9 166.7
Amortization of deferred policy acquisition costs 6.9 11.9 27.3 31.7
- -----------------------------------------------------------------------------------------------------------
Total benefits and expenses 311.4 273.0 927.3 819.5
- -----------------------------------------------------------------------------------------------------------
Income before federal income taxes 58.8 52.8 179.9 160.8
Federal income taxes 19.6 16.0 58.8 51.4
- -----------------------------------------------------------------------------------------------------------
Net income $ 39.2 $ 36.8 $ 121.1 $ 109.4
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1)
Fully guaranteed $ 232.5 $ 178.9 $ 805.7 $ 531.8
Experience-rated 262.6 278.0 821.7 894.0
Non-guaranteed 471.8 320.5 1,189.7 1,021.7
---------------------------------------------------------
Total $ 966.9 $ 777.4 $ 2,817.1 $ 2,447.5
===========================================================================================================
Assets under management: (2)
Fully guaranteed $ 3,269.8 $ 2,559.8
Experience-rated 10,393.7 9,103.1
Non-guaranteed 10,608.5 7,646.2
----------------------
Total $ 24,272.0 $ 19,309.1
===========================================================================================================
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
(2) Under FAS 115, included above are net unrealized capital gains of
$458.7 million and net unrealized capital losses of $232.1 million at
September 30, 1995 and 1994, respectively.
</FN>
</TABLE>
<TABLE>
Overview
The Company's adjusted earnings (after-tax) follow (in millions):
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 39.2 $ 36.8 $ 121.1 $ 109.4
Less:
Net realized capital gains 5.4 2.2 12.5 3.5
---------------------------------------------------------
Adjusted earnings $ 33.8 $ 34.6 $ 108.6 $ 105.9
=========================================================
</TABLE>
The Company's adjusted earnings for the nine months ended September 30, 1995
increased 3% when compared with the same period a year ago, while third quarter
of 1995 adjusted earnings reflected a 2% decrease when compared to the third
quarter of 1994.
Third quarter and year-to-date results in 1995 reflected an increase in
charges assessed against policyholders and net investment income related to the
growth in assets under management offset by an increase in operating expenses.
The increase in operating expenses primarily reflects continued business
growth. Operating expenses for the nine months ended September 30, 1995 also
include increased costs associated with the implementation of a new contract
administration system.
(9)
<PAGE>
Segment Results
<TABLE>
Life Insurance Segment
- ----------------------
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
Operating Summary (millions) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $ 8.3 $ 12.5 $ 33.5 $ 37.3
Charges assessed against policyholders 41.5 38.8 122.9 113.3
Net investment income 44.3 41.7 129.7 128.4
Net realized capital gains 1.5 .2 1.1 .5
Other income 1.3 1.0 4.3 3.5
--------------------------------------------------------------------------------------------------------
Total revenue 96.9 94.2 291.5 283.0
--------------------------------------------------------------------------------------------------------
Current and future benefits 54.8 52.5 149.1 155.9
Operating expenses 13.4 14.4 44.5 45.2
Amortization of deferred policy acquisition costs 5.1 5.8 23.0 13.6
--------------------------------------------------------------------------------------------------------
Total benefits and expenses 73.3 72.7 216.6 214.7
--------------------------------------------------------------------------------------------------------
Income before federal income taxes 23.6 21.5 74.9 68.3
Federal income taxes 9.2 8.0 29.1 25.3
--------------------------------------------------------------------------------------------------------
Net income $ 14.4 $ 13.5 $ 45.8 $ 43.0
==============================================================================================================
- --------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1)
Experience-rated $ 70.4 $ 68.7 $ 235.4 $ 199.6
Non-guaranteed 9.6 6.4 29.5 19.0
----------------------------------------------------------------
Total $ 80.0 $ 75.1 $ 264.9 $ 218.6
==============================================================================================================
Assets under management: (2)
Fully guaranteed $ 603.4 $ 621.1
Experience-rated 1,703.3 1,428.9
Non-guaranteed 117.0 77.5
----------------------------------------------------------------
Total $ 2,423.7 $ 2,127.5
==============================================================================================================
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
(2) Under FAS 115, included above are net unrealized capital gains of $63.0
million and net unrealized capital losses of $23.0 million at September 30,
1995 and 1994, respectively.
</FN>
</TABLE>
<TABLE>
Adjusted earnings in the Life Insurance segment (after-tax) follow (in
millions):
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 14.4 $ 13.5 $ 45.8 $ 43.0
Less:
Net realized capital gains 1.0 .2 .7 .4
-------------------------------------------------------
Adjusted earnings $ 13.4 $ 13.3 $ 45.1 $ 42.6
=======================================================
</TABLE>
Adjusted earnings for the nine months ended September 30, 1995 increased 6%
when compared with the same period a year ago, while third quarter of 1995
adjusted earnings remained level when compared to the third quarter of 1994.
Third quarter and year-to-date results in 1995 reflected an increase in the
volume of business in force as a result of strong sales over the past year.
Charges assessed against policyholders for universal life and
interest-sensitive whole life insurance increased 7% and 8% for the three and
nine months ended September 30, 1995, respectively, when compared with the same
periods a year ago reflecting an increase in the volume of business in force.
(10)
<PAGE>
Net investment income increased 6% and 1% for the three and nine months
ended September 30, 1995, respectively, when compared with the same periods a
year ago reflecting an increase in universal life assets under management
partially offset by the lower net investment yield on the Company's portfolio
of investments.
Current and future benefits decreased 4% for the nine months ended September
30, 1995 when compared with the same period a year ago reflecting improved
mortality experience related to universal life insurance. Current and future
benefits for the three months ended September 30, 1995 increased 4% reflecting
unfavorable mortality experience when compared with the same period a year ago.
<TABLE>
Financial Services Segment
- --------------------------
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
Operating Summary (millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums $ 15.8 $ 14.2 $ 61.3 $ 41.9
Charges assessed against policyholders 38.7 31.8 108.2 93.7
Net investment income 205.8 182.4 602.3 556.5
Net realized capital gains 6.8 3.2 18.2 4.8
Other income 6.2 - 25.7 .4
------------------------------------------------------------------------------------------------------
Total revenue 273.3 231.6 815.7 697.3
------------------------------------------------------------------------------------------------------
Current and future benefits 175.4 154.1 528.0 465.2
Operating expenses 60.9 40.1 178.4 121.5
Amortization of deferred policy acquisition costs 1.8 6.1 4.3 18.1
------------------------------------------------------------------------------------------------------
Total benefits and expenses 238.1 200.3 710.7 604.8
------------------------------------------------------------------------------------------------------
Income before federal income taxes 35.2 31.3 105.0 92.5
Federal income taxes 10.4 8.0 29.7 26.1
------------------------------------------------------------------------------------------------------
Net income $ 24.8 $ 23.3 $ 75.3 $ 66.4
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
Deposits not included in premiums above: (1)
Fully guaranteed $ 232.5 $ 178.9 $ 805.7 $ 531.8
Experience-rated 192.2 209.3 586.3 694.4
Non-guaranteed 462.2 314.1 1,160.2 1,002.7
------------------------------------------------------------
Total $ 886.9 $ 702.3 $ 2,552.2 $ 2,228.9
================================================================================================================
Assets under management: (2)
Fully guaranteed $ 2,666.4 $ 1,938.7
Experience-rated 8,690.4 7,674.2
Non-guaranteed 10,491.5 7,568.7
--------------------------
Total $21,848.3 $17,181.6
================================================================================================================
<FN>
(1) Under FAS 97, certain deposits are not included in premiums or revenue.
(2) Under FAS 115, included above are net unrealized capital gains of
$395.7 million and net unrealized capital losses of $209.1 million at
September 30, 1995 and 1994, respectively.
</FN>
</TABLE>
<TABLE>
Adjusted earnings in the Financial Services segment (after-tax) follow (in
millions):
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 24.8 $ 23.3 $ 75.3 $ 66.4
Less:
Net realized capital gains 4.4 2.0 11.8 3.1
-----------------------------------------------------------
Adjusted earnings $ 20.4 $ 21.3 $ 63.5 $ 63.3
===========================================================
</TABLE>
(11)
<PAGE>
Effective January 1, 1995 the Company assumed responsibility for two service
organizations, a record keeping service organization and a payment and retiree
administration service organization, with year-to-date combined adjusted losses
of $(.4) million. As a result, other income and operating expenses reflect
variances of $8.5 million and $9.0 million for the three months ended September
30, 1995, and $28.3 million and $28.8 million for the nine months ended
September 30, 1995. The results of these organizations were previously
reported by an affiliate.
Adjusted earnings for the nine months ended September 30, 1995 remained
level when compared with the same period a year ago, while the third quarter of
1995 adjusted earnings reflected a 4% decrease when compared to the third
quarter of 1994. Third quarter and year-to-date results in 1995 reflected an
increase in charges assessed against policyholders and net investment income,
primarily due to an increase in assets under management, offset by increases in
operating expenses.
Charges assessed against policyholders for annuity contracts increased 22%
and 16% for the three and nine months ended September 30, 1995, respectively,
when compared with the same periods a year ago, reflecting the increase in
assets under management.
Net investment income increased 13% for the three months ended September 30,
1995 when compared with the same period a year ago, reflecting the increase in
assets under management and the higher net investment yield on the Company's
portfolio of investments. Net investment income increased 8% for the nine
months ended September 30, 1995 when compared with the same period a year ago,
reflecting the increase in assets under management partially offset by the
lower net investment yield on the Company's portfolio of investments.
Operating expenses for the three and nine months ended September 30, 1995,
excluding the impact of moving the two service organizations into the Company
as discussed above, increased by 29% and 23% when compared to the same periods
a year ago. The increase in operating expenses primarily reflects continued
business growth. Operating expenses for the nine months ended September 30,
1995 also include increased costs associated with the implementation of a new
contract administration system.
General Account Investments
- ---------------------------
The Company's investment strategies and portfolios are intended to match the
duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. The duration of
these investments is monitored, and investment purchases and sales are executed
with the objective of having adequate funds available to satisfy the Company's
maturing liabilities. The risks associated with investments supporting
experience-rated products are assumed by those customers subject to, among
other things, certain minimum guarantees.
(12)
<PAGE>
The Company's invested assets were comprised of the following, net of
impairment reserves:
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities $ 11,999.5 $ 10,191.4
Equity securities:
Non-redeemable preferred stock 61.5 47.2
Investment in affiliated mutual funds 241.7 181.9
Common stock 7.6 -
Short-term investments 16.6 98.0
Mortgage loans 5.6 9.9
Policy loans 305.7 248.7
Limited partnership 24.6 24.4
-----------------------------
Total Investments 12,662.8 10,801.5
Cash and cash equivalents 506.4 623.3
-----------------------------
Total Investments and Cash and Cash Equivalents $ 13,169.2 $ 11,424.8
==========================================================================================
</TABLE>
At September 30, 1995 and December 31, 1994, the Company's carrying value of
investments in debt securities were $12.0 billion and $10.2 billion, 95% and
94%, respectively, of total general account invested assets. At September 30,
1995 and December 31, 1994, $9.2 billion and $8.0 billion, 77% and 78%,
respectively, of total debt securities supported experience-rated products.
It is management's objective that the portfolio of debt securities be of
high quality and be well-diversified by market sector. The debt securities in
the Company's portfolio are generally rated by external rating agencies, and,
if not externally rated, are rated by the Company on a basis believed to be
similar to that used by the rating agencies. The average quality rating of the
Company's debt security portfolio was AA- at September 30, 1995 and AA at
December 31, 1994.
<TABLE>
Debt Securities Quality Ratings
at September 30, 1995
- ---------------------------------
<S> <C>
AAA 47.0%
AA 11.4
A 24.1
BBB 12.6
BB 3.8
B 1.1
--------
100.0%
========
</TABLE>
<TABLE>
Debt Securities Investments by Market Sector
at September 30, 1995
- ------------------------------------------------------------
<S> <C>
U.S. Corporate Securities 43.7%
Residential Mortgage-Backed Securities 27.5
Foreign Securities - U.S. Dollar Denominated 11.0
Asset-Backed Securities 6.3
Commercial/Multifamily Mortgage-Backed Securities 5.6
U.S. Treasuries/Agencies 5.4
Other .5
--------
100.0%
========
</TABLE>
(13)
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its Board of Directors know of no material legal proceedings
pending to which the Company is a party or which would materially affect the
Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
None.
(14)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
November 10, 1995 By /s/ Eugene M. Trovato
------------------- ------------------------
(Date) Eugene M. Trovato
Vice President and Controller
(Chief Accounting Officer)
(15)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the offering is
set forth in the table below.
SEC registration fee $ 20,000
Printing $ 25,000
Legal fees and expenses $ 50,000
Accounting fees and expenses $ 5,000
Miscellaneous $ 500
_______
Total $ 100,500
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is hereby made to the Connecticut General Statues ("C.G.S."),
Section 33-320a, regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents, and
certain other defined individuals against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses actually incurred in connection
with proceedings against the corporation. The corporation's obligation to
provide such indemnification does not apply unless (1) the individual is
successful on the merits in the defense of any such proceeding; or (2) a
determination is made (by a majority of the board of directors not a party to
the proceeding by written consent; by independent legal counsel selected by a
majority of the directors not involved in the proceeding; or by a majority of
the shareholders not involved in the proceeding) that the individual acted in
good faith and in the best interests of the corporation; or (3) the court,
upon application by the individual, determines in view of all the
circumstances that such person is reasonably entitled to be indemnified.
C.G.S. 33-320a provides an exclusive remedy; a Connecticut corporation
cannot indemnify a director or officer to an extent either greater or less
than that authorized by the statute, e.g., pursuant to its certificate of
incorporation, bylaws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared by the corporation with the insured individuals on an
agreed basis.
II-1
<PAGE>
Consistent with the statute, Aetna Life and Casualty has procured
insurance from Lloyd's of London and several major United States excess
insurers for the directors and officers of itself and its subsidiaries which
supplements the indemnification rights provided by C.G.S. 33-320a to the
extent such coverage does not violate public policy.
ITEM 16. EXHIBITS
Exhibit
Number Description of Exhibits
(4)(a) Form of Group Annuity Contract (Form No. G1-MGA-95)^
(4)(b) Form of Individual Annuity Contract (Form No. I1-MGA-95)
(5) Opinion as to Legality
(10) Material contracts are listed under Exhibit 10 in the Company's Form
10-K for the fiscal year ended December 31, 1994, which is included
in the Prospectus as Appendix B. Each of the Exhibits so listed is
incorporated by reference as indicated in the Form 10-K.
(15) Letter dated November 16, 1995 from KPMG Peat Marwick LLP regarding
use of its reports dated April 27, July 27, and October 26, 1995,
included in the Form 10-Q quarterly reports of the Company for the
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995,
respectively.^
(23)(a) Consent of Independent Auditors^
(23)(b) Consent of Counsel (see Exhibit 5)
(24) Powers of Attorney (included on signature page)^
Exhibits other than these listed are omitted because they are not
required or are not applicable.
^ Previously filed with this Registration Statement File No. 33-64331
on November 16, 1995.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material changes to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) Insofar as indemnification for liabilities 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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford, State of Connecticut, on
January 17, 1996.
Aetna Life Insurance and Annuity Company
By Daniel P. Kearney*
---------------------
Daniel P. Kearney
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Daniel P. Kearney* Director and President January 17, 1996
--------------------- (principal executive officer)
Daniel P. Kearney
David E. Bushong* Acting Chief Financial Officer January 17, 1996
--------------------- (principal financial officer)
David E. Bushong
Eugene M. Trovato* Vice President, Controller January 17, 1996
---------------------
Eugene M. Trovato
James C. Hamilton* Director January 17, 1996
----------------------
James C. Hamilton
Gary G. Benanav* Director January 17, 1996
--------------------
Gary G. Benanav
Christopher J. Burns* Director January 17, 1996
------------------------
Christopher J. Burns
Laura R. Estes* Director January 17, 1996
------------------
Laura R. Estes
II-4
<PAGE>
John Y. Kim* Director January 17, 1996
---------------
John Y. Kim
Shaun P. Mathews* Director January 17, 1996
---------------------
Shaun P. Mathews*
Scott A. Striegel* Director January 17, 1996
---------------------
Scott A. Striegel
/s/Susan E. Bryant
-------------------
Susan E. Bryant
*Attorney-in-Fact
II-5
[AETNA LOGO]
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 531-4547
A STOCK COMPANY
Aetna Life Insurance and Annuity Company, herein
called Aetna, agrees to pay the benefits stated
in this Contract.
Specifications
------------------------------------------------------------------------
Plan AETNA MULTI-RATE ANNUITY
------------------------------------------------------------------------
Type of Plan SINGLE PREMIUM MODIFIED GUARANTEED DEFERRED ANNUITY
------------------------------------------------------------------------
Contract Holder(s) ANY INDIVIDUAL
------------------------------------------------------------------------
Contract No. SPECIMEN
------------------------------------------------------------------------
Effective Date DECEMBER 1, 1995
------------------------------------------------------------------------
This Contract is Delivered in YOUR STATE and is Subject to the Laws of that
Jurisdiction
Right to Cancel
------------------------------------------------------------------------
The Contract Holder may cancel this Contract within 10 days of receiving it by
returning this Contract along with a written notice to Aetna at the above
address or to the agent from whom it was purchased. Within 7 days after it
receives the notice of cancellation and this Contract at its Home Office,
Aetna will return the entire consideration paid.
Signed at the Home Office on the Effective Date.
/s/Dan Kearney /s/Susan Schechter
President Secretary
Individual Single Premium Modified Guaranteed Deferred Annuity Contract
Nonparticipating
THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A
MARKET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR DECREASE IN THE
CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED PERIOD AT THE TIME OF ITS MATURITY.
I1-MGA-95
<PAGE>
Specifications
------------------------------------------------------------------------
Guaranteed There is a guaranteed interest rate for the Purchase
Interest Rate Payment held in the AMG Account. (See Contract
Schedule I).
Deduction from
Purchase The Purchase Payment may be subject to a deduction
Payment for premium taxes, if applicable. (See 3.01.)
Surrender There may be a charge deducted upon surrender. (See
Fee Contract Schedule 1).
This Contract is a legal contract and constitutes the entire legal
relationship between Aetna and the Contract Holder.
READ THIS CONTRACT CAREFULLY. This Contract sets forth, in detail, all of the
rights and obligations of both you and Aetna. IT IS THEREFORE IMPORTANT THAT
YOU READ THIS CONTRACT CAREFULLY.
2
I1-MGA-95
<PAGE>
Contract Schedule I
Accumulation Period
ALIAC Modified Guaranteed Account (AMG Account)
Minimum Guaranteed [3.0%]
Interest Rate:
(effective annual rate of return)
Maintenance Fee: The annual Maintenance Fee is [$0.] [If
the Current Value is [$50,000] or more
on the date the Maintenance Fee is to
be deducted, the Maintenance Fee is
$0.]
Annuity Date: The Annuity Date will be the later of
the date the Annuitant reaches age [85]
or the [10th] anniversary of the
Purchase Payment.
Minimum Purchase [$10,000.]
Payment:
Maximum Purchase Purchase Payments exceeding
Payment: [$1,000,000] must be approved by Aetna.
Minimum Guaranteed Period [$1,000.]
Allocation Amount:
Maximum Age of [90.] If there are joint Contract
Certificate Holder at Issue: Holders, the age of the oldest Contract
Holder cannot exceed [90.]
Surrender Fee: Length of Time from Surrender Fee
Contract Effective (Percentage of Net
Date (Years) Purchase Payment
Withdrawn)
Less than 1 year 7%
1 year but less than 2 7%
2 years but less than 3 6%
3 years but less than 4 6%
4 years but less than 5 5%
5 years but less than 6 4%
6 years but less than 7 2%
7 years or more 0%
After seven years have elapsed from the
contract effective date, the Surrender
Fee will no longer be assessed.
Special Withdrawal: The percentage may not be greater than
[10%].
Systematic Withdrawal The specified payment or specified
Option (SWO): percentage may not be greater than
[10%].
3
I1-MGA-95
<PAGE>
Contract Schedule II
Annuity Period
Fixed Annuity
Minimum Guaranteed [3.0%]
Interest Rate
(effective annual rate of
return):
See 1. GENERAL DEFINITIONS for explanations.
4
I1-MGA-95
<PAGE>
TABLE OF CONTENTS
Page
I. GENERAL DEFINITIONS
------------------------------------------------------------------------
1.01 ACCUMULATION PERIOD...............................................7
1.02 ADJUSTED CURRENT VALUE............................................7
1.03 ANNUITANT.........................................................7
1.04 ANNUITY...........................................................7
1.05 ANNUITY DATE......................................................7
1.06 BENEFICIARY.......................................................7
1.07 CODE..............................................................7
1.08 CONTRACT..........................................................7
1.09 CONTRACT HOLDER...................................................7
1.10 CURRENT VALUE.....................................................7
1.11 DEPOSIT PERIOD....................................................7
1.12 ENTIRE CONTRACT...................................................7
1.13 FIXED ANNUITY.....................................................7
1.14 GENERAL ACCOUNT...................................................8
1.15 GUARANTEED RATES - AMG ACCOUNT....................................8
1.16 GUARANTEED PERIOD.................................................8
1.17 GUARANTEED PERIOD GROUPS..........................................8
1.18 MAINTENANCE FEE...................................................8
1.19 ALIAC MODIFIED GUARANTEED ACCOUNT (AMG ACCOUNT)...................8
1.20 MARKET VALUE ADJUSTMENT (MVA).....................................9
1.21 MATURED PERIOD VALUE..............................................9
1.22 MATURITY DATE.....................................................9
1.23 NET PURCHASE PAYMENT..............................................9
1.24 NONUNITIZED SEPARATE ACCOUNT......................................9
1.25 PURCHASE PAYMENT..................................................9
1.26 REINVESTMENT......................................................9
1.27 SURRENDER VALUE..................................................10
5
I1-MGA-95
<PAGE>
II. GENERAL PROVISIONS
------------------------------------------------------------------------
2.01 CHANGE OF CONTRACT...............................................10
2.02 NONPARTICIPATING CONTRACT........................................10
2.03 PAYMENTS AND ELECTIONS...........................................10
2.04 STATE LAWS.......................................................10
2.05 CONTROL OF CONTRACT..............................................10
2.06 DESIGNATION OF BENEFICIARY.......................................11
2.07 MISSTATEMENTS AND ADJUSTMENTS....................................11
2.08 INCONTESTABILITY.................................................11
III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS
------------------------------------------------------------------------
3.01 NET PURCHASE PAYMENT.............................................11
3.02 MARKET VALUE ADJUSTMENT..........................................12
3.03 NOTICE TO THE CONTRACT HOLDER....................................13
3.04 LOANS............................................................13
3.05 SYSTEMATIC WITHDRAWAL OPTION (SWO)...............................13
3.06 DEATH BENEFIT AMOUNT.............................................14
3.07 DEATH BENEFIT OPTIONS AVAILABLE TO BENEFICIARY...................15
3.08 LIQUIDATION OF SURRENDER VALUE...................................16
3.09 SURRENDER FEE....................................................16
3.10 PAYMENT OF SURRENDER VALUE.......................................16
3.11 PAYMENT OF ADJUSTED CURRENT VALUE................................17
IV. ANNUITY PROVISIONS
------------------------------------------------------------------------
4.01 CHOICES TO BE MADE...............................................17
4.02 TERMS OF ANNUITY OPTIONS.........................................17
4.03 DEATH OF ANNUITANT/ BENEFICIARY..................................18
4.04 ANNUITY OPTIONS..................................................18
6
I1-MGA-95
<PAGE>
I. GENERAL DEFINITIONS
------------------------------------------------------------------------
1.01 Accumulation Period: The period during which the Net
Purchase Payment is applied to the
Contract to provide future Annuity
payment(s).
1.02 Adjusted Current Value: The Current Value of a Contract plus or
minus any aggregate AMG Account MVA, if
applicable. (see 1.20)
1.03 Annuitant: The person named by the Contract Holder
whose life is measured for purposes of
the guaranteed death benefit and the
duration of Annuity payments under this
Contract. Subject to Aetna's approval,
the Annuitant may be changed by the
Contract Holder by notifying Aetna in
writing prior to the Annuity Date of
this Contract.
1.04 Annuity: Payment of an income:
(a) For the life of one or two
persons;
(b) For a stated period; or
(c) For some combination of (a)
and (b).
1.05 Annuity Date: The date on which Annuity payments
begin under an Annuity option elected
by the Contract Holder. (see 4.01). The
Annuity Date is shown on Contract
Schedule I. The Contract Holder may
change this date by notifying Aetna at
least 30 days prior to the Annuity
Date.
1.06 Beneficiary: The person(s) entitled to receive death
benefits under the terms of this
Contract.
1.07 Code: The Internal Revenue Code of 1986, as
it may be amended from time to time.
1.08 Contract: This agreement between Aetna and the
Contract Holder.
1.09 Contract Holder: The entity to which the Contract is
issued. Joint Contract Holders must be
spouses.
1.10 Current Value: The Net Purchase Payment plus any
interest credited; less all Maintenance
Fees deducted, any amounts surrendered
and any amounts applied to an Annuity.
1.11 Deposit Period: A calendar week, a calendar month, a
calendar quarter, or any other period
of time specified by Aetna during which
the Net Purchase Payment and
Reinvestments are accepted into the AMG
Account for one or more Guaranteed
Periods. Aetna reserves the right to
extend the Deposit Period.
1.12 Entire Contract: The Contract, all attached pages and
any subsequent endorsements make up the
Entire Contract.
1.13 Fixed Annuity: An Annuity with payments that do not
vary in amount based on investment
performance.
7
I1-MGA-95
<PAGE>
1.14 General Account: The account holding the assets of
Aetna, other than those assets held in
Aetna's separate accounts.
1.15 Guaranteed Rates - Aetna will declare the interest rate
AMG Account: applicable for each Guaranteed Period
at the start of the Deposit Period for
that applicable Guaranteed Period. The
rate(s) are guaranteed by Aetna for
that Deposit Period and the ensuing
Guaranteed Period(s). The Guaranteed
Rates are effective annual rates of
return. That is, interest is credited
daily at a rate that will produce the
Guaranteed Interest Rate over the
period of a year. No Guaranteed Rate
will ever be less than the Minimum
Guaranteed Interest Rate shown on
Contract Schedule I.
For Guaranteed Periods of one year or
less, one Guaranteed Rate is credited
for the full Guaranteed Period. For
longer Guaranteed Periods, an initial
Guaranteed Rate is credited from the
date of deposit to the end of a
specified period within the Guaranteed
Period. There may be different
Guaranteed Rate(s) declared at the
beginning of the Deposit Period for
subsequent specified time intervals
throughout the Guaranteed Period.
1.16 Guaranteed Period: The period of time for which Guaranteed
Rates are guaranteed on the Net
Purchase Payment and Reinvestments made
during a current Deposit Period. Such
period begins on the day following the
close of the Deposit Period and ends on
the designated Maturity Date.
Guaranteed Periods are offered at
Aetna's discretion for various lengths
of time ranging up to and including ten
(10) years.
During a Deposit Period, Aetna may make
available any number of Guaranteed
Periods. The Contract Holder may
allocate the Net Purchase Payment or
Reinvestment into any or all of the
available Guaranteed Periods.
1.17 Guaranteed Period All Guaranteed Periods with the same
Groups: length of time from the close of the
Deposit Period until the designated
Maturity Date.
1.18 Maintenance Fee: The Maintenance Fee, if any (see
Contract Schedule I), will be deducted
during the Accumulation Period on each
anniversary of the date the Contract is
established and upon surrender of the
entire Contract.
1.19 ALIAC Modified An accumulation option where Aetna
Guaranteed Account guarantees rate(s) of interest for
(AMG Account): specified periods of time. All assets
of Aetna, including amounts in the
Nonunitized Separate Account, are
available to meet the guarantees under
the AMG Account.
8
I1-MGA-95
<PAGE>
1.20 Market Value Adjustment (MVA): An adjustment that may apply to the
amount withdrawn from a Guaranteed
Period prior to the end of that
Guaranteed Period. The adjustment
reflects the change in the value of the
investment due to changes in interest
rates since the date of deposit and is
computed using the formula given in
3.02. The adjustment is expressed as a
percentage or a factor of each dollar
being withdrawn. 1.21 Matured Period
Value: The amount payable on Guaranteed
Period's Maturity Date.
1.22 Maturity Date: The last day of a Guaranteed Period.
1.23 Net Purchase Payment: The Purchase Payment less premium
taxes, as applicable.
1.24 Nonunitized Separate A separate account set up by Aetna
Account: under Title 38, Section 38a-433, of the
Connecticut General Statutes, that
holds assets for AMG Account Guaranteed
Periods. There are no discrete units
for the AMG Account. The Contract
Holder does not participate in the
investment gain or loss from the assets
held in the Nonunitized Separate
Account. Such gain or loss is borne
entirely by Aetna. The assets held in
the AMG Account may be chargeable with
liabilities arising out of any other
business of Aetna.
1.25 Purchase Payment: Payment accepted by Aetna at its Home
Office. Aetna reserves the right to
refuse to accept any Purchase Payment
at any time for any reason.
1.26 Reinvestment: Aetna will notify the Contract Holder
of the approaching Maturity Date at
least 18 calendar days prior to the end
of any Guaranteed Period. If no
specific direction is given by the
Contract Holder prior to the Maturity
Date, each Matured Period Value will be
reinvested on the Maturity Date for a
Guaranteed Period of the same duration.
If a Guaranteed Period of the same
duration is unavailable, each Matured
Period Value will automatically be
reinvested on the Maturity Date for the
next shortest Guaranteed Period
available. If no shorter Guaranteed
Period is available, the next longer
Guaranteed Period will be used. Aetna
will mail a confirmation statement to
the Contract Holder the next business
day after the Maturity Date.
At any time prior to the Maturity Date,
the Contract Holder may request in
writing a reinvestment of the Matured
Period Value in a different Guaranteed
Period(s) or a surrender of all or a
part of the Matured Period Value
without an MVA or Surrender Fee. Such
request will be executed on the
Maturity Date. If reinvesting in a
different Guaranteed Period(s), all or
part of the Matured Period Value will
be reinvested in the elected Guaranteed
Period(s) at the then prevailing
rate(s). This provision only applies to
a written request from the Contract
Holder received at Aetna's Home Office
in good order at least five (5) days
prior to the Maturity Date.
9
I1-MGA-95
<PAGE>
1.27 Surrender Value: The amount payable by Aetna upon the
surrender of all or any portion of the
Contract.
II. GENERAL PROVISIONS
------------------------------------------------------------------------
2.01 Change of Contract: Only an authorized officer of Aetna may
change the terms of this Contract.
Aetna reserves the right to modify this
Contract to meet the requirements of
applicable state and federal laws or
regulations. Aetna will notify the
Contract Holder in writing of any
changes.
2.02 Nonparticipating Contract: Contract Holders or Beneficiaries will
not have a right to share in the
earnings of Aetna.
2.03 Payments and Elections: While the Contract Holder is living,
Aetna will pay any Annuity payments as
and when due. After the Contract
Holder's death, or at the death of the
first Contract Holder if the Contract
is owned jointly, any Annuity payments
will be paid in accordance with 4.03.
Aetna will make any other payments
within seven (7) calendar days of
receipt of a written request for
payment, which is in good order, at its
Home Office, except as provided in
3.10.
2.04 State Laws: The Contract complies with the laws of
the state in which it is delivered. Any
surrender, death, or Annuity payments
are equal to or greater than the
minimum required by such laws. Annuity
tables for legal reserve valuation
shall be as required by state law. Such
tables may be different from Annuity
tables used to determine Annuity
payments.
2.05 Control of Contract: This is a Contract between the Contract
Holder and Aetna. The Contract Holder
has all rights, title and interest in
amounts held in this Contract.
Choices made under this Contract must
be in writing. If the Contract is owned
jointly, both Contract Holders must
authorize any choices in writing. Until
receipt of such choices at Aetna's Home
Office, Aetna may rely on any previous
choices made.
The Contract is not subject to the
claims of any creditors of the Contract
Holder, except to the extent permitted
by law. The Contract Holder may assign
or transfer his or her rights under the
Contract. Aetna reserves the right not
to accept assignment or transfer to a
nonnatural person. Any assignment or
transfer made must be submitted to
Aetna's Home Office in writing and will
not be effective until accepted by
Aetna. Aetna assumes no responsibility
for the validity of any assignment.
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<PAGE>
2.06 Designation of Beneficiary: The Contract Holder shall name his or
her Beneficiary. The Beneficiary may be
changed at any time. Changes to a
Beneficiary must be submitted to
Aetna's Home Office in writing and will
not be effective until received and
recorded by Aetna.
2.07 Misstatements and Adjustments: If Aetna finds the age of any Annuitant
to be misstated, the correct facts will
be used to adjust payments.
2.08 Incontestability: Aetna will not contest this Contract
from its effective date.
III. PURCHASE PAYMENT, CURRENT VALUE, AND SURRENDER PROVISIONS
------------------------------------------------------------------------
3.01 Net Purchase Payment: This amount is the actual Purchase
Payment less any applicable premium
tax. Aetna reserves the right to deduct
any premium tax at any time from the
Purchase Payment or from the Contract
Holder's Current Value.
The Contract Holder shall tell Aetna
the allocation percentage of the Net
Purchase Payment to be applied to each
of the available Guaranteed Periods
during the current Deposit Period(s).
The minimum amount that may be
allocated to any Guaranteed Period is
shown on Contract Schedule l.
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<PAGE>
3.02 Market Value Adjustment: There will be an MVA for any withdrawal
before the end of a Guaranteed Period
when the withdrawal is due to:
(a) Any full or partial surrender, but
not for a partial withdrawal under
the Systematic Withdrawal Option
(see 3.05); or
(b) Payment made to a Beneficiary as a
death benefit during the
Accumulation Period, but not
payment made within six months of
the date of the Annuitant's death
(see 3.06); or
(c) An election of an Annuity option.
Only a positive MVA, if any, will
apply upon election of option 2 or
3 (see 4.04).
Market value adjusted amounts will be
equal to the amount withdrawn
multiplied by the following ratio:
x
---
365
(1 + i)
----------------
x
---
365
(1 + j)
Where:
i is the Deposit Period Yield
j is the Current Yield
x is the number of days remaining,
(computed from Wednesday of the week
of withdrawal) in the Guaranteed
Period.
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 Period.
(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 Period exist,
Aetna reserves the right to use the
U.S. Treasury Notes that mature in the
following quarter.
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<PAGE>
3.03 Notice to the Contract The Contract Holder will receive
Holder: statements at least annually from Aetna
showing the value of any amounts held
in the AMG Account.
Such values will be as of a specific
date no more than 60 days before the
date of the notice.
3.04 Loans: Loans are not available under this
Contract.
3.05 Systematic Withdrawal The Contract Holder may elect a
Option (SWO): distribution option under which a
portion of the Current Value will
automatically be surrendered and
distributed each year. SWO payments
will be calculated based on the
Contract's full Current Value. The
distributed amount is withdrawn pro
rata from each Guaranteed Period(s). A
Surrender Fee will not be deducted from
any portion of the Current Value which
is paid as a distribution under SWO.
Contract Holders should consult their
tax adviser prior to requesting this
distribution option.
(a) Amount of Distribution: The
Contract Holder may elect one of
the three payment methods
described below.
(1) Specified Payment: Payments
of a designated dollar
amount. The annual amount may
not be greater than the
percentage shown on Contract
Schedule I times the Current
Value at time of election.
This annual dollar amount
will remain constant. At its
discretion, Aetna may require
a minimum initial payment
amount;
(2) Specified Period: Payments
which are made over a period
of time which must be at
least 10 years. The annual
amount paid each year is
calculated by dividing the
Current Value as of December
31 of the prior year by the
number of payment years
remaining; or
(3) Specified Percentage: Payment
of a designated percentage
which cannot be greater than
the percentage shown on
Contract Schedule I. The
percentage may be changed by
written request. Aetna
reserves the right to limit
the number of times the
percentage may be changed.
The annual amount is
calculated by multiplying the
Current Value as of December
31 of the year prior to the
payment by the designated
percentage.
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<PAGE>
3.05 Systematic Withdrawal Payments upon the Contract Holder's or
Option (SWO): Annuitant's death will be made to the
(Cont'd) Beneficiary in the manner described in
3.07.
(b) Minimum Initial Current Value: At
its discretion, Aetna may require
a minimum initial Current Value
for election of this option. If
after election of this option the
Current Value is insufficient to
make a scheduled SWO payment,
Aetna will distribute the entire
balance.
(c) Date of Distribution: The Contract
Holder shall specify the initial
distribution date. As elected by
the Contract Holder, SWO payments
will be made on a monthly or
quarterly basis unless Aetna
allows otherwise. If SWO payments
are made more frequently than
annually, the designated annual
amount is divided by the number of
payments due each calendar year.
Subsequent distributions will be
made on the 15th of any month or
such other date as Aetna may
designate or allow.
(d) Election and Revocation: SWO may
be elected by submitting a
completed and signed election form
to Aetna's Home Office. Aetna
reserves the right to establish
the date when SWO may first be
elected by a Contract Holder. Once
elected, this option may be
revoked by the Contract Holder or
spousal Beneficiary, if elected
after the Contract Holder's death,
by submitting a written request to
Aetna at its Home Office. Any
revocation will apply only to
amounts not yet paid. SWO may be
elected only once by the Contract
Holder or by the spousal
Beneficiary.
3.06 Death Benefit Amount: If the Contract Holder or Annuitant
dies before Annuity payments start, the
Beneficiary is entitled to a death
benefit under the Contract. If the
Contract is owned jointly, the death
benefit is paid at the first death of
either of the joint Contract Holders.
If the Contract is held by joint
Contract Holders, the survivor will be
deemed the designated Beneficiary and
any other Beneficiary on record will be
treated as the contingent Beneficiary.
If the Contract Holder is a nonnatural
person, the death benefit will be
payable at the death of the Annuitant.
If paid within 6 months of the date of
the Annuitant's death, the death
benefit will be the Current Value of
the Contract. Otherwise, the death
benefit will be the Adjusted Current
Value determined as of the claim date.
The claim date is the date when proof
of death and the Beneficiary's claim
are received in good order at Aetna's
Home Office.
When the Contract Holder dies and the
Contract Holder is not the Annuitant,
the death benefit payable will be
subject to a Surrender Fee, if
applicable.
14
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<PAGE>
3.07 Death Benefit Options Prior to any election, or until amounts
available to Beneficiary: must be otherwise distributed under
this section, the Current Value will be
retained in the Contract. The following
options are available to the
Beneficiary:
(a) When the Contract Holder dies or
if the Contract Holder is not a
natural person, when the Annuitant
dies:
(1) If the Beneficiary is the
Contract Holder's surviving
spouse, the Beneficiary may
exercise all Contract Holder
rights under the Contract and
continue in the Accumulation
Period, or may elect (i) or
(ii) below. Distributions
from the Contract are not
required until the spousal
Beneficiary's death. The
spousal Beneficiary may elect
to:
(i) Apply some or all of the
death benefit amount to
an Annuity option 1, 2
or 3 (see 4.04); or
(ii) Receive, at any time, a
lump sum payment equal
to the death benefit
amount.
(2) If the Beneficiary is an
individual who is not the
Contract Holder's surviving
spouse, then options (i) or
(ii) under (1) above apply.
Any portion of the death
benefit amount not applied to
Annuity option 1, 2 or 3
within one year of the
Contract Holder's death, must
be distributed within five
years of the date of death.
(3) If the Beneficiary is not a
natural person, then only
option (ii) under (1) above
applies.
(4) If no Beneficiary has been
designated, a lump sum
payment equal to the death
benefit amount will be made
to the Contract Holder's
estate.
(b) If the Contract Holder is a
natural person but is not the
Annuitant, and the Annuitant dies,
the Beneficiary may elect either
to apply the death benefit amount
to Annuity option 1, 2 or 3 within
60 days of the Annuitant's date of
death, or to receive a lump sum
payment.
15
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<PAGE>
3.08 Liquidation of Surrender All or any portion of the Contract's
Value: Current Value may be surrendered at any
time prior to the Annuity Date.
Surrender requests can be submitted as
a percentage of the Contract value or
as a specific dollar amount. Net
Purchase Payment amounts are withdrawn
first, and then the excess value, if
any. For any partial surrender, amounts
are withdrawn on a pro rata basis from
the Guaranteed Period(s) Groups of the
AMG Account in which the Current Value
is invested. Within a Guaranteed Period
Group, the amount to be surrendered
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
and any Premium Tax, if applicable, the
surrendered amount shall be reduced by
a Surrender Fee, if applicable. An MVA
may apply to amounts surrendered.
3.09 Surrender Fee: The Surrender Fee only applies to the
Net Purchase Payment portion
surrendered and varies according to the
elapsed time from the Contract
effective date (see Contract Schedule
I).
No Surrender Fee is deducted from any
portion of the Current Value which is
paid:
(a) To a Beneficiary due to the
Annuitant's death before Annuity
payments start (see 3.06);
(b) As a premium for an Annuity option
1, 2 or 3 under this Contract (see
4.04);
(c) As a distribution under the SWO
provision (see 3.05);
(d) At least 12 months after the date
of the Purchase Payment, in an
amount equal to or less than the
special withdrawal percentage
shown on Contract Schedule l times
the current value at the time of
the withdrawal. This applies to
the first surrender request,
partial or full, in a calendar
year. The Current Value is
calculated as of the date the
surrender request is received in
good order at Aetna's Home Office.
This waiver is not available to
the Contract Holder while SWO is
in effect;
(e) For a full surrender of the
Contract where the Current Value
is $2,500 or less and no
surrenders have been taken from
the Contract within the prior 12
months; or
(f) Upon withdrawal of any Matured
Period Value; or
(g) By Aetna under 3.11.
3.10 Payment of Surrender Under certain emergency conditions, as
Value: allowed by law, Aetna may defer payment
for a period of up to 6 months.
16
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<PAGE>
3.11 Payment of Adjusted Upon 90 days' written notice to the
Current Value: Contract Holder, Aetna will terminate
any Contract if the Current Value
becomes less than $2,500 immediately
following any partial surrender. A
Surrender Fee will not be deducted from
the Adjusted Current Value.
IV. ANNUITY PROVISIONS
------------------------------------------------------------------------
4.01 Choices to be Made: The Contract Holder may tell Aetna to
apply any portion of the Adjusted
Current Value (minus any premium tax)
for an Annuity under option 1, 2 or 3
(see 4.04). The first Annuity payment
may not be earlier than twelve months
after the Purchase Payment At least 30
days prior to the Annuity Date, the
Contract Holder must tell Aetna which
Annuity option is elected. Annuity
payments will be made monthly, unless
the Contract Holder elects otherwise in
writing.
In lieu of the election of an Annuity,
the Contract Holder may elect a lump
sum payment.
The Annuity purchase rate for the
option chosen reflects the Minimum
Guaranteed Interest Rate (see Contract
Schedule II), but may reflect a higher
interest rate.
4.02 Terms of Annuity 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 option may not be
elected if the first payment would
be less than $50 or if the total
payments in a year would be less
than $250 (less if required by
state law). Aetna reserves the
right to increase the minimum
first Annuity payment amount and
the annual minimum Annuity payment
amount based upon increases
reflected in the Consumer Price
Index-Urban, (CPI-U) since July 1,
1993.
(c) If an Annuity under option 1, 2 or
3 is chosen and a larger payment
would result from applying the
Surrender Value to a current Aetna
single premium immediate Annuity,
Aetna will make the larger
payment.
(d) For purposes of calculating the
guaranteed first payment of an
Annuity, the Annuitant's and
second Annuitant's adjusted age
will be used. The Annuitant's and
second Annuitant's adjusted age is
his or her age as of the birthday
closest to the Annuity
commencement date reduced by one
year for Annuity commencement
dates occurring during the period
of time through December 31, 1999.
17
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<PAGE>
4.02 Terms of Annuity Options The Annuitant's and second Annuitant's
(Cont'd) age will be reduced by two years for
Annuity commencement dates occurring
during the period of time from January
1, 2000 through December 31, 2009. The
Annuitant's and second Annuitant's age
will be reduced by one additional year
for Annuity commencement dates
occurring in each succeeding decade.
The Annuity purchase rates for options
2 and 3 are based on mortality from
1983 Table a.
(e) Once elected, an Annuity option
may not be revoked and Annuity
payments cannot be commuted to a
lump sum.
4.03 Death of Annuitant/ If the Annuitant dies after Annuity
Beneficiary: payments have begun, the death benefit,
if any, will be payable to the
Beneficiary as specified in the Annuity
option elected. Death benefits will be
paid at least as rapidly as under the
method of distribution in effect at the
or Annuitant's death.
If the Contract Holder who is not the
Annuitant dies after Annuity payments
have begun, any remaining payments
under the Annuity option elected will
be made to the Beneficiary at least as
rapidly as under the method of
distribution in effect at the Contract
Holder's death.
If the Contract is held by joint
Contract Holders, the survivor will be
deemed the designated Beneficiary and
any other Beneficiary on record will be
treated as the contingent Beneficiary.
Aetna will require proof of death.
4.04 Annuity Options: Option 1 -- Payments for a Stated
Period of Time -- An Annuity will be
paid for the number of years chosen.
The number of years must be at least 10
and not more than 30.
If a nonspouse Beneficiary elects this
option at the death of the Contract
Holder, the period selected may not
extend beyond the Beneficiary's life
expectancy.
Option 2 -- Life Income -- An Annuity
will be paid for the life of the
Annuitant, if also chosen, Aetna will
guarantee payments for 60, 120, 180, or
240 months.
Option 3 -- Life Income Based upon the
Lives of Two Annuitants -- An Annuity
will be paid during the lives of the
Annuitant and a second Annuitant.
Payments will continue until both
Annuitants have died. When this option
is chosen, one of the following choices
must be made:
(a) 100% of the payment to continue
after the first death;
(b) 66 2/3% of the payment to continue
after the first death;
18
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<PAGE>
4.04 Annuity Options: (c) 50% of the payment to continue
(Cont'd) after the first death;
(d) Payments for a minimum of 120
months with 100% of the payment to
continue after the first death; or
(e) 100% of the payment to continue at
the death of the second Annuitant
and 50% of the payment to continue
at the death of the Annuitant.
Other Options -- Aetna may make other
options available as allowed by the
laws of the state in which the Contract
is delivered.
19
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<PAGE>
<TABLE>
OPTION 1
Payments for a Stated Period of Time
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
<CAPTION>
Guaranteed Monthly Quarterly Semi-Annual Annual
Years Rate Payment Payment Payment Payment
<S> <C> <C> <C> <C> <C>
5 3.00% 17.91 53.59 106.78 211.99
6 3.00% 15.14 45.30 90.27 179.22
7 3.00% 13.16 39.39 78.49 155.83
8 3.00% 11.68 34.96 69.66 138.31
9 3.00% 10.53 31.52 62.81 124.69
10 3.00% 9.61 28.77 57.33 113.82
11 3.00% 8.86 26.52 52.85 104.93
12 3.00% 8.24 24.65 49.13 97.54
13 3.00% 7.71 23.08 45.98 91.29
14 3.00% 7.26 21.73 43.29 85.95
15 3.00% 6.87 20.56 40.96 81.33
16 3.00% 6.53 19.54 38.93 77.29
17 3.00% 6.23 18.64 37.14 73.74
18 3.00% 5.96 17.84 35.56 70.59
19 3.00% 5.73 17.13 34.14 67.78
20 3.00% 5.51 16.50 32.87 65.26
21 3.00% 5.32 15.92 31.72 62.98
22 3.00% 5.15 15.40 30.68 60.92
23 3.00% 4.99 14.92 29.74 59.04
24 3.00% 4.84 14.49 28.88 57.33
25 3.00% 4.71 14.09 28.08 55.76
26 3.00% 4.59 13.73 27.36 54.31
27 3.00% 4.47 13.39 26.68 52.97
28 3.00% 4.37 13.08 26.06 51.74
29 3.00% 4.27 12.79 25.49 50.60
30 3.00% 4.18 12.52 24.95 49.53
</TABLE>
20
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<PAGE>
<TABLE>
OPTION 2
Life Income
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
Payments Guaranteed for a Stated Period of Months
<CAPTION>
Adjusted Age
of None 60 120 180 240
Annuitant
<S> <C> <C> <C> <C> <C>
50 $4.05 $4.05 $4.03 $3.99 $3.93
51 4.12 4.11 4.09 4.05 3.99
52 4.19 4.19 4.16 4.11 4.04
53 4.27 4.26 4.23 4.18 4.10
54 4.35 4.34 4.31 4.25 4.16
55 4.44 4.42 4.39 4.32 4.22
56 4.53 4.51 4.47 4.40 4.29
57 4.62 4.61 4.56 4.48 4.35
58 4.72 4.71 4.65 4.56 4.42
59 4.83 4.81 4.75 4.64 4.49
60 4.95 4.93 4.86 4.73 4.55
61 5.07 5.05 4.97 4.83 4.62
62 5.20 5.17 5.08 4.92 4.69
63 5.34 5.31 5.20 5.02 4.76
64 5.49 5.45 5.33 5.12 4.83
65 5.65 5.61 5.47 5.22 4.89
66 5.82 5.77 5.61 5.33 4.96
67 6.01 5.94 5.75 5.44 5.02
68 6.20 6.13 5.91 5.54 5.08
69 6.41 6.33 6.07 5.65 5.14
70 6.64 6.54 6.23 5.76 5.19
71 6.88 6.76 6.41 5.86 5.24
72 7.14 7.00 6.59 5.97 5.28
73 7.43 7.26 6.77 6.06 5.32
74 7.73 7.53 6.96 6.16 5.35
75 8.06 7.82 7.14 6.25 5.38
</TABLE>
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
11
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<PAGE>
<TABLE>
OPTION 3
Life Income for Two Payees
Amount of First Monthly Payment for Each $1,000
After Deduction of any Charge for Premium Taxes
Rates for a Fixed Annuity with Guaranteed Interest Rate of 3.0%
<CAPTION>
Adjusted Ages
Annuitant Second Annuitant Option 3a Option 3b Option 3c Option 3d Option 3e
--------- ---------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
55 50 $3.69 $4.05 $4.27 $3.69 $4.03
55 55 3.88 4.25 4.47 3.87 4.14
55 60 3.99 4.44 4.71 3.98 4.42
60 55 3.99 4.44 4.71 3.98 4.42
60 60 4.24 4.71 4.99 4.23 4.57
60 65 4.38 4.97 5.32 4.38 4.93
65 60 4.38 4.97 5.32 4.38 4.93
65 65 4.72 5.33 5.70 4.71 5.14
65 70 4.93 5.68 6.15 4.91 5.66
70 65 4.93 5.68 6.15 4.91 5.66
70 70 5.40 6.21 6.70 5.36 5.96
70 75 5.69 6.68 7.32 5.62 6.67
75 70 5.69 6.68 7.32 5.62 6.67
75 75 6.37 7.45 8.15 6.23 7.12
75 80 6.78 8.11 8.99 6.54 8.13
--------- ---------------- --------- --------- --------- --------- ---------
</TABLE>
Rates are based on mortality from 1983 Table a. The rates do not differ by sex.
Rates for ages not shown will be provided on request and will be computed
on a basis consistent with the rates in the above tables.
22
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<PAGE>
[AETNA LOGO]
Aetna Life Insurance and Annuity Company
Home Office: 151 Farmington Avenue
Hartford, Connecticut 06156
(800) 531-4547
Individual Single Premium Modified Guaranteed Deferred Annuity Contract
Nonparticipating
THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA. APPLICATION OF A
MARKET VALUE ADJUSTMENT MAY RESULT IN EITHER AN INCREASE OR DECREASE IN THE
CURRENT VALUE. THE MARKET VALUE ADJUSTMENT FORMULA DOES NOT APPLY TO A
GUARANTEED PERIOD AT THE TIME OF ITS MATURITY.
12-MGA-95
<PAGE>
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
No Surrender Fee is deducted from any portion of the Adjusted Current Value
which is paid if the Annuitant has spent at least 45 consecutive days in a
licensed nursing care facility and all of the following conditions are met:
(1) more than twelve months have elapsed since the date the Contract was
issued; and
(2) the surrender is requested within 3 years of the Annuitant's admission to
a licensed nursing care facility.
This waiver does not apply if the Annuitant was in a nursing care facility at
the time the Contract was issued.
A Licensed Nursing Care Facility is an institution licensed by the state in
which it is located to provide skilled nursing care, intermediate nursing care
or custodial nursing care. Aetna will require proof of confinement in a form
satisfactory to Aetna.
/s/Dan Kearney
President
Aetna Life Insurance and Annuity Company
EI1-MGANH-95-1
<PAGE>
Aetna Life Insurance and Annuity Company
Endorsement
This Contract is endorsed as follows.
The following provisions apply to a Contract which qualifies as an Individual
Retirement Annuity under Internal Revenue Code (Code) Section 408(b). In the
case of a conflict with any provision in the Contract, the provisions of this
Endorsement control.
1. The Contract Holder and the Annuitant must be the same person. Joint
Contract Holders are not permitted.
2. This Contract is not transferable. The Contract 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.
3. The Contract Holders entire interest in the Contract is nonforfeitable.
4. This Contract is established for the exclusive benefit of the Contract
Holder or his or her Beneficiary(ies).
5. The Purchase Payment under this Contract must be a cash rollover amount
under Code Section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3). Aetna may
require verification that a rollover amount qualifies as such under the
Code. Payments to Simplified Employee Pension plans and annual deductible
and nondeductible contributions to Individual Retirement Annuities are not
accepted under the Contract.
6. The entire interest of the Contract Holder will be distributed, or begin
to be distributed, no later than the first day of April following the
calendar year in which the Contract Holder attains age 70 1/2 (required
beginning date), over:
(a) The life of the Contract Holder, or the lives of the Contract Holder
and his or her designated Beneficiary, or
(b) A period certain not extending beyond the life expectancy of the
Contract Holder or the joint and last survivor expectancy of the
Contract Holder and his or her designated Beneficiary.
Payments must be made in periodic payments at intervals of no longer than
one year. In addition, payments must be either nonincreasing or they may
increase only as provided in Question and Answer F-3 of Section
1.401(a)(9)-1 of the Proposed Income Tax Regulations.
All distributions made hereunder shall be made in accordance with the
requirements of Section 401(a)(9) of the Code, including the incidental
death benefit requirements of Section 401(a)(9)(G) of the Code, and the
regulations thereunder, including the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
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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 Option may not be
recalculated.
7. If distributions are to be made under the Systematic Withdrawal Option
(SWO) after the required beginning date, a higher amount will be
distributed in any year if required under the minimum distribution
requirements of the Code. The minimum amount to be distributed each year,
beginning with the first calendar year for which distributions are
required and then for each succeeding calendar year, shall not be less
than the quotient obtained by dividing the Current Value as of December 31
of the prior year by the lesser of (1) the applicable life expectancy or
(2) if the Contract Owner's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Question and
Answer 4 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations.
For purposes of this determination, life expectancy for the initial
distribution year will be calculated based on the applicable life
expectancy from Table V or VI of Section 1.72-9 of the Income Tax
Regulations. Distributions for any subsequent year shall be calculated
based on such life expectancy reduced by one for each calendar year which
has elapsed since the calendar year life expectancy was first calculated.
8. During the Accumulation Period, the Contract Holder may elect the Estate
Conservation Option (ECO) to receive automatic annual withdrawals of the
minimum distribution required under the Code. The annual distribution
amount will be determined by dividing the Current Value as of December 31
of the prior year by the lesser of (1) the applicable life expectancy
recalculated each year in accordance with Question and Answer E-8 of
Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations, or (2) if
the Contract Holder's spouse is not the designated Beneficiary, the
applicable divisor determined from the table set forth in Question and
Answer 4 of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations.
For purposes of this determination, life expectancy for the initial
distribution year will be calculated based on the applicable life
expectancy from Table V or VI of Section 1.72-9 of the Income Tax
Regulations.
Aetna will not impose a Surrender Fee on any portion of the Current Value
which is paid as an ECO distribution. The Surrender Fee will apply to any
additional amounts withdrawn while ECO is in effect.
The Contract Holder may elect ECO beginning with the year he or she turns
age 70 1/2, but not earlier than 12 months after receipt of the Purchase
Payment, by submitting a properly completed election form to Aetna's Home
Office. Aetna may require a minimum initial Current Value for the election
of ECO.
The Contract Holder, or a spousal Beneficiary if ECO is elected after the
Contract Holder's death, may revoke ECO at any time by submitting a
written request to Aetna's Home Office. If ECO is revoked, it may not
begin again until 36 months have elapsed.
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9. At the death of the Contract Holder:
(a) If the Contract Holder dies on or after 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 Contract Holder's
death;
(b) If the Contract 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 Contract Holder's
death except to the extent that an election is made to receive
distribution under an Annuity option 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 Contract Holder died.
(ii) If the Beneficiary is the Contract 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 Contract Holder died or December 31 of the calendar
year in which the Contract Holder would have attained age 70
1/2.
A spousal Beneficiary may elect an Annuity option, SWO, ECO, a lump sum
payment or treat the Contract as his or her own IRA. An election to treat
the Contract as his or her own will be deemed to have been made if such
surviving spouse makes a rollover to or from such Contract, or fails to
elect any of the above provisions.
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 option may not be
recalculated.
Distributions under this section are considered to have begun if
distributions are made on account of the Contract 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 option acceptable under Section 1.401(a)(9) of the Proposed Income
Tax Regulations.
If SWO or ECO is in effect and the Contract Holder dies before the
required beginning date for minimum distributions, payments will cease and
the Beneficiary may claim the death benefit in accordance with the terms
of this Section.
If SWO or ECO is in effect and the Contract Holder dies after the required
beginning date for minimum distributions, the Beneficiary may elect to
continue payments, if permitted by Section 1.401(a)(9) of the Proposed
Income Tax Regulations, or may claim the death benefit in accordance with
the terms of this Section.
10. Aetna will furnish annual calendar year reports concerning the status of
the Contract.
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11. After two full consecutive Contract years, and upon 90 days written notice
to the Contract Holder, Aetna may terminate the Contract if the paid-up
Annuity benefit at maturity would be less than $20 per month.
/s/Dan Kearney
President
Aetna Life Insurance and Annuity Company
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[AETNA LOGO]
151 Farmington Avenue
Hartford, CT 06156-3124
Susan E. Bryant
Counsel
Law and Regulatory Affairs, RE4C
(203)273-7834
Fax: (203)273-0356
January 17, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Life Insurance and Annuity Company
Registration Statement on Form S-2 File No. 33-64331
Prospectus Title: Aetna Multi-Rate Annuity
Dear Sirs:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I have
represented the Company in connection with the registration of interests in
the Aetna Multi-Rate Annuity (the "Aetna Multi-Rate Annuity") under the
Securities Act of 1933, as amended. In connection with such representation, I
have reviewed the Form S-2 Registration Statement as filed on November 16,
1995, Pre-Effective Amendment No. 1 filed on December 6, 1995, and this
Pre-Effective Amendment No. 2, relating to such annuity, including the
prospectus, and relevant proceedings of the Board of Directors.
Based upon this review, and assuming the securities registered by the Company
are issued in accordance with the provisions of the prospectus, I am of the
opinion that the securities, when issued, will have been validly issued, and
will constitute a legal and binding obligation of the Company.
I further consent to the use of this opinion as an exhibit to the Registration
Statement and to my being named under the caption "Legal Matters" therein.
Sincerely,
/s/Susan E. Bryant
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Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
