<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY
151 FARMINGTON AVENUE, HARTFORD, CONNECTICUT 06156
1-800-531-4547
VARIABLE ANNUITY ACCOUNT G
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
PROSPECTUS DATED MAY 6, 1996
MULTI VEST-REGISTERED TRADEMARK- PLAN -- AN INDIVIDUAL DEFERRED VARIABLE ANNUITY
This Prospectus describes the individual deferred variable annuity contract
("Contract") originally issued by Confederation Life Insurance and Annuity
Company ("Confederation"). The Contract allows tax-deferred capital accumulation
and provides future fixed income for retirement or other long-term purposes by
allowing Purchase Payments to be allocated on a variable basis, a fixed basis or
a combination of both.
On August 12, 1994 Confederation was placed in rehabilitation by the Fulton
County, Georgia Superior Court and ceased sales of new Contracts and acceptance
of additional Purchase Payments. On October 2, 1995, Aetna Life Insurance and
Annuity Company ("Aetna", "the Company", "we", "our", or "us") assumed the
existing in-force Contracts in accordance with an Assumption Reinsurance
Agreement which was approved by the Fulton County, Georgia Superior Court in
connection with the rehabilitation of Confederation. Contract owners will look
to Aetna instead of Confederation to fulfill the terms of their Contracts.
Aetna does not intend to resume sales of new Contracts; additional Purchase
Payments may continue to be made under existing Contracts subject to certain
limitations. See "The Contract -- Purchase Payments and Allocating Your Purchase
Payments."
This Prospectus is intended to describe the Contract provisions relating to the
variable funding options and the fees and expenses that may be charged in
connection with Purchase Payments allocated to Variable Annuity Account G of
Aetna Life Insurance and Annuity Company (the "Separate Account"). Information
with respect to the fixed funding option is included in the Appendix to this
Prospectus.
There are currently eight Subaccounts in the Separate Account. Each Subaccount
invests in a corresponding portfolio of the Oppenheimer Variable Account Funds:
the Oppenheimer Money Fund; the Oppenheimer High Income Fund; the Oppenheimer
Bond Fund; the Oppenheimer Capital Appreciation Fund; the Oppenheimer Growth
Fund; the Oppenheimer Multiple Strategies Fund; the Oppenheimer Global
Securities Fund; and the Oppenheimer Strategic Bond Fund. Each Fund has distinct
investment objectives and policies which are described in the accompanying
prospectus for the Oppenheimer Variable Account Funds. See "Facts About Aetna,
The Separate Account and The Oppenheimer Variable Account Funds."
This Prospectus sets forth the basic information about the Separate Account that
a prospective investor should know before investing. Additional information
about the Separate Account is contained in a Statement of Additional Information
("SAI") dated May 6, 1996, which has been filed with the Securities and Exchange
Commission ("SEC"). The Table of Contents of the SAI is found in this
Prospectus. An SAI is available at no charge by indicating your request on the
prospectus receipt or by calling 1-800-531-4547.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
DEFINITIONS................................................. 1
SUMMARY..................................................... 3
FEE TABLE................................................... 4
CONDENSED FINANCIAL INFORMATION............................. 6
FINANCIAL STATEMENTS........................................ 7
FACTS ABOUT AETNA, THE SEPARATE ACCOUNT, AND THE OPPENHEIMER
VARIABLE ACCOUNT FUNDS.................................... 7
The Company............................................... 7
Variable Annuity Account G................................ 7
The Oppenheimer Variable Account Funds and Investment
Adviser.................................................. 7
THE CONTRACT................................................ 8
Parties to the Contract................................... 8
Purchase Payments and Allocating Your Purchase Payments... 9
Value of the Accumulation Account and Unit Value.......... 9
Allocation Changes........................................ 10
Transfers................................................. 10
Dollar Cost Averaging..................................... 10
Questions................................................. 11
CHARGES AND DEDUCTIONS...................................... 11
Surrender Charges......................................... 11
Mortality and Expense Risk Charge......................... 12
Administration Fee........................................ 12
Annual Contract Fee....................................... 12
State Taxes............................................... 12
Other Taxes............................................... 12
Fund Expenses............................................. 12
DISTRIBUTIONS UNDER THE CONTRACT............................ 13
Withdrawals............................................... 13
Systematic Withdrawal..................................... 13
Surrender................................................. 13
Death Proceeds............................................ 14
Payment................................................... 14
ANNUITY BENEFIT............................................. 14
Annuitization............................................. 14
Partial Annuity Benefit................................... 14
Annuity Date.............................................. 15
Annuity Options........................................... 15
Income Payments........................................... 15
FEDERAL TAX MATTERS......................................... 16
Introduction.............................................. 16
Aetna's Tax Status........................................ 16
Taxation of Annuity Contracts in General.................. 16
Qualified Contracts....................................... 17
Other Tax Considerations.................................. 17
DISTRIBUTION OF THE CONTRACT................................ 18
MISCELLANEOUS............................................... 18
Voting Rights............................................. 18
Changes in the Contract................................... 18
Incontestability.......................................... 18
Nonparticipating.......................................... 18
Assignment................................................ 18
Annual Contract Report.................................... 19
Misstatement of Age or Sex................................ 19
Telephone Transfers....................................... 19
Legal Proceedings......................................... 19
Legal Matters............................................. 19
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION......... 19
APPENDIX A -- THE FIXED ACCOUNT............................. Appendix-1
</TABLE>
i
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DEFINITIONS
ACCUMULATION ACCOUNT AND VALUE OF THE ACCUMULATION ACCOUNT: The Accumulation
Account is the account to which Net Purchase Payments are credited. The Value of
the Accumulation Account refers to the combined value of your Contract in all of
the Subaccounts of the Separate Account and the Fixed Account.
AETNA: We, our, us, Aetna Life Insurance and Annuity Company.
ANNUITANT: The person on whose life the Income Payments are based and the person
you designate to receive Income Payments.
ANNUITY DATE: The date on which the Annuity Option becomes effective.
ANNUITY VALUE: The Value of the Accumulation Account on the Annuity Date less
the Annual Contract Fee for the then current Contract Year and any applicable
State Taxes.
BENEFICIARY: The person designated by you to receive benefits in the event of
your death prior to the Annuity Date or to receive any remaining guaranteed
payments under an Income Option in the event of the death of the Annuitant after
the Annuity Date.
CODE: The Internal Revenue Code of 1986, as amended.
CONFEDERATION: Confederation Life Insurance and Annuity Company.
CONTRACT: The individual deferred variable annuity described in this Prospectus.
CONTRACT DATE: The date the Contract becomes effective.
CONTRACT YEAR: Each 12-month period starting the same day and month as the
Contract Date.
FIXED ACCOUNT: A part of our General Account consisting of assets, from
Contracts such as the one described in this Prospectus, which are not allocated
to the Separate Account. See Appendix A.
FUND: A portfolio of Oppenheimer Variable Account Funds in which assets of a
corresponding Subaccount are invested.
GENERAL ACCOUNT: Our corporate assets other than those segregated in any
separate account established by us.
HOME OFFICE: Our principal executive offices located at 151 Farmington Avenue,
Hartford, Connecticut 06156
INCOME PAYMENT: The amount we pay to an Annuitant at regular intervals under an
Annuity Option.
NON-QUALIFIED CONTRACTS: Contracts other than Qualified Contracts.
OPPENHEIMER VARIABLE ACCOUNT FUNDS: The Oppenheimer Variable Account Funds, a
diversified, open-end management investment company (mutual fund) in which the
Separate Account invests.
PURCHASE PAYMENT AND NET PURCHASE PAYMENT: A Purchase Payment is a premium paid
to us as consideration for the benefits provided by this Contract. A Net
Purchase Payment is that portion of each Purchase Payment which is credited to
the Accumulation Account after the deduction for State Taxes, if any.
QUALIFIED CONTRACTS: Contracts purchased by plans that qualify for special
federal income tax treatment or plans which are intended to qualify for special
federal income tax treatment under Code sections 401(a) and 403(b) or Contracts
purchased by individuals for their individual retirement accounts under Code
section 408.
SEC: The Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account G of Aetna Life Insurance and Annuity
Company, established and maintained for the investment of the portion of Net
Purchase Payments from contracts such as the one described in this Prospectus,
which are not allocated to the Fixed Account.
STATE TAXES: Premium taxes imposed by certain jurisdictions on Purchase Payments
when received, or on values withdrawn, surrendered or annuitized.
SUBACCOUNT: A division of the Separate Account to which Net Purchase Payments
may be allocated. Each Subaccount invests in shares of a Fund.
SURRENDER: A request for the Surrender Value which terminates the Contract.
SURRENDER CHARGE: A contingent deferred sales load which may be charged in the
event of a Withdrawal or Surrender.
1
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SURRENDER VALUE: The Value of the Accumulation Account less any applicable
Surrender Charges and State Taxes, and the Annual Contract Fee for the current
Contract Year.
TRANSFER: The reallocation of all or a portion of the value in one Subaccount or
the Fixed Account to another Subaccount or the Fixed Account.
UNIT AND UNIT VALUE: A standard of measurement used to determine your value in
each Subaccount prior to the Annuity Date. Each Subaccount has a distinct Unit
Value which may vary from one Valuation Period to the next.
VALUATION DATE: Each day that both the New York Stock Exchange and Aetna Life
Insurance and Annuity Company are open for business.
VALUATION PERIOD: The period of time between two consecutive Valuation Dates,
starting from the close of business (4:00 pm Eastern Time) on one Valuation Date
and ending on the close of business on the next Valuation Date.
WE, OUR, US: Aetna Life Insurance and Annuity Company or Aetna.
WITHDRAWAL: The surrender of a portion of the Value of the Accumulation Account.
YOU AND YOUR: The purchaser and Owner of the Contract.
1940 ACT: The Investment Company Act of 1940, as amended.
2
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SUMMARY
The following is a brief summary of some of the important features of the
Contract described in this Prospectus. Reference should be made to the body of
this Prospectus for more detailed information. Appendix A describes the fixed
funding option available under your Contract.
THE CONTRACT
The Contract allows tax-deferred capital accumulation and provides future fixed
income payments beginning on a date you choose. The amount of your future fixed
income will be based on the investment experience of the assets underlying the
Contract during the accumulation period. See "The Contract."
PURCHASE PAYMENTS
Additional Purchase Payments of at least $100 may be made at any time prior to
the Annuity Date. However, you are under no obligation to make additional
Purchase Payments. See "The Contract -- Purchase Payments and Allocating Your
Purchase Payments."
WITHDRAWALS AND SURRENDERS
Prior to the Annuity Date, you may make unlimited Withdrawals or Surrender your
Contract for the Surrender Value. See "Distributions Under the Contract" and
"Appendix A -- The Fixed Account." You may be subject to a penalty tax for an
early withdrawal. See "Federal Tax Matters -- Other Tax Considerations --
Penalty Tax on Certain Distributions."
SURRENDER CHARGES
A Surrender Charge may apply on the amounts withdrawn or surrendered. See
"Charges and Deductions -- Surrender Charges."
TAXES AND WITHHOLDING
Purchase Payment and investment results of your Accumulation Account are
generally not taxable until distributed. Withholding for income tax may be
imposed on certain withdrawals. See "Federal Tax Matters."
CHARGES AND DEDUCTIONS
Certain charges and deductions are associated with the Contracts, for example,
State Taxes, annual contract fee, mortality and expense risk charge and
administrative fee. The Funds are also subject to certain fees and expenses. See
"Fee Table;" "Charges and Deductions."
ANNUITY PAYMENTS
The Contract is an annuity which provides for a series of fixed Income Payments.
You may choose the date Income Payments begin, subject to some limitations. The
amount of and the length of Income Payments will be based, in part, on the
Annuity Option selected. See "Annuity Benefit."
DEATH BENEFITS
Death proceeds are paid to your Beneficiary in the event of your death and you
have not annuitized all your Accumulation Account. See "Annuity Benefit." If
death occurs prior to age 85, the death proceeds will never be less than the sum
of Purchase Payments received less: prior Withdrawals, applicable Surrender
Charges on prior Withdrawals and values applied to the Partial Annuity Benefit.
Every five years, we will adjust the death proceeds to reflect increases in your
Accumulation Account Value. If death occurs on or after age 85 the death
proceeds will equal the value of the Accumulation Account. See "Distributions
Under the Contract -- Death Proceeds."
3
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FEE TABLE
The Fee Table is provided to assist you in understanding the various charges and
deductions that you will bear directly or indirectly. The Fee Table reflects
expenses under the Contract and of both the Separate Account and the Oppenheimer
Variable Account Funds. The Fee Table does not include possible State Taxes. See
"Charges and Deductions" in this Prospectus and "How the Funds are Managed" in
the prospectus for the Oppenheimer Variable Account Funds.
OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PERCENTAGE OF
PURCHASE PAYMENT
-------------------
<S> <C>
Sales Load at Time of Purchase 0%
Deferred sales load when Purchase Payment withdrawn or surrendered
NUMBER OF YEARS(1)
- -------------------------------------------------------------------------------------
1 6%
2 6%
3 5%
4 4%
5 3%
Thereafter 0%
Charge for Transfer None
</TABLE>
(1) Surrender Charges are based upon the number of years between the date
Purchase Payments are deemed to have been received and the date they are
withdrawn or surrendered. Purchase Payments received prior to October 2,
1995, are deemed to have been received on the date of your initial Purchase
Payment. Additional Purchase Payments received after October 2, 1995 will be
deemed to be received on the date we actually receive them.
<TABLE>
<S> <C>
ANNUAL CONTRACT FEE $30
SEPARATE ACCOUNT ANNUAL EXPENSES
<CAPTION>
PERCENTAGE OF AVERAGE
ACCUMULATION ACCOUNT
VALUE ALLOCATED TO
SEPARATE ACCOUNT
---------------------
<S> <C>
Mortality and Expense Risk Charge................................ 1.25%
Administrative Fee............................................... 0.10%
------
Total Separate Account Annual Expenses........................... 1.35%
------
------
</TABLE>
FUND ANNUAL CHARGES AND EXPENSES
(AS PERCENTAGE OF THE AVERAGE ACCOUNT VALUE)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES EXPENSES EXPENSES(1)
------------- ----------- -------------
<S> <C> <C> <C>
Oppenheimer Money Fund 0.45% 0.06% 0.51%
Oppenheimer High Income Fund 0.75% 0.06% 0.81%
Oppenheimer Bond Fund 0.75% 0.05% 0.80%
Oppenheimer Capital Appreciation Fund 0.74% 0.04% 0.78%
Oppenheimer Growth Fund 0.75% 0.04% 0.79%
Oppenheimer Multiple Strategies Fund 0.74% 0.03% 0.77%
Oppenheimer Global Securities Fund 0.74% 0.15% 0.89%
Oppenheimer Strategic Bond Fund 0.75% 0.10% 0.85%
</TABLE>
(1) Does not reflect expenses related to the Contract or Separate Account.
4
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HYPOTHETICAL EXAMPLES
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
A. If you surrender your Contract at the end of the applicable period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Fund $ 81 $ 105 $ 130 $ 225
High Income 84 114 146 256
Bond Fund 84 114 145 255
Capital Appreciation Fund 84 113 144 253
Growth Fund 84 114 145 254
Multiple Strategies 84 113 144 252
Global Securities Fund 85 117 150 264
Strategic Bond Fund 85 115 148 260
</TABLE>
B. If you do not surrender your Contract or if you annuitize, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Fund $ 20 $ 60 $ 104 $ 225
High Income 23 70 119 256
Bond Fund 22 69 119 255
Capital Appreciation Fund 22 69 118 253
Growth Fund 22 69 118 254
Multiple Strategies 22 68 117 252
Global Securities Fund 23 72 123 264
Strategic Bond Fund 23 71 121 260
</TABLE>
For the purpose of calculating the expenses in the above examples, we have
converted the $30 Annual Contract Fee to a 0.064% annual asset charge based on
the average size of Contracts. Converted in this way, the Annual Contract Fee
(on a percentage basis) would be higher for smaller Contracts and lower for
larger Contracts.
5
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CONDENSED FINANCIAL INFORMATION*
ACCUMULATION UNIT VALUES
The condensed financial information presented below for the periods ended
September 30, 1995 and December 31, 1995 was derived from the financial
statements of the Separate Account which were audited by KPMG Peat Marwick LLP,
independent auditors. The condensed financial information presented below for
the year ended December 31, 1994 and prior were derived from the financial
statements of the Separate Account, which financial statements were audited by
other auditors. The financial statements as of September 30, 1995 and December
31, 1995 and for the periods from January 1, 1995 to September 30, 1995 and
October 1, 1995 to December 31, 1995 and the independent auditors' reports
thereon, are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
1/1/95 10/1/95
THROUGH THROUGH
1990(1) 1991(2) 1992 1993(3) 1994 9/30/95 12/31/95
--------- ---------- ---------- ------------ ------------ --------- ---------
MONEY FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit Value
at beginning of period......... $10.00 $10.23 $10.72 $10.99 $11.19 $11.51 $11.87
at end of period............... $10.23 $10.72 $10.99 $11.19 $11.51 $11.87 $12.00
Accumulation Units outstanding... 11,496.99 278,364.11 823,485.65 1,304,423.04 2,665,713.00 1,526,060 1,445,120
HIGH INCOME FUND
Accumulation Unit Value
at beginning of period......... $10.00 $10.00 $11.80 $13.73 $17.11 $16.35 $18.66
at end of period............... $10.00 $11.80 $13.73 $17.11 $16.35 $18.66 $19.42
Accumulation Units outstanding... -- 133,655.43 546,212.32 2,010,341.54 1,978,010.00 2,018,023 1,996,764
BOND FUND
Accumulation Unit Value
at beginning of period......... $10.00 $10.00 $11.07 $11.63 $12.97 $12.55 $13.96
at end of period............... $10.00 $11.07 $11.63 $12.97 $12.55 $13.96 $14.49
Accumulation Units outstanding... -- 132,312.74 610,765.61 1,414,173.21 1,445,364.00 1,31,477 1,289,495
CAPITAL APPRECIATION FUND
Accumulation Unit Value
at beginning of period......... $10.00 $10.07 $15.37 $17.50 $21.98 $20.04 $25.16
at end of period............... $10.07 $15.37 $17.50 $21.98 $20.04 $25.16 $26.21
Accumulation Units outstanding... 3,511.36 163,873.92 718,400.83 1,662,361.45 2,402,122.00 2,183,166 2,192,369
GROWTH FUND
Accumulation Unit Value
at beginning of period......... $10.00 $10.13 $12.54 $14.17 $15.00 $14.94 $19.40
at end of period............... $10.13 $12.54 $14.17 $15.00 $14.94 $19.40 $20.14
Accumulation Units outstanding... 6,615.78 119,618.09 563,151.08 1,700,812.71 2,083,816.00 2,299,776 2,313,184
MULTIPLE STRATEGIES FUND
Accumulation Unit Value
at beginning of period......... $10.00 $10.11 $11.72 $12.60 $14.42 $13.95 $16.42
at end of period............... $10.11 $11.72 $12.60 $14.42 $13.95 $16.42 $16.70
Accumulation Units outstanding... 59.11 184,581.48 832,976.24 2,947,594.19 3,598,828.00 3,320,340 3,267,185
GLOBAL SECURITIES FUND
Accumulation Unit Value
at beginning of period......... -- $10.00 $10.55 $9.67 $16.25 $15.11 $15.89
at end of period............... -- $10.55 $9.67 $16.25 $15.11 $15.89 $15.24
Accumulation Units outstanding... -- 202,907.57 657,073.46 2,260,855.75 3,590,803.00 3,267,722 3,088,121
STRATEGIC BOND FUND
Accumulation Unit Value
at beginning of period......... -- -- -- $10.00 $10.33 $9.81 $10.75
at end of period............... -- -- -- $10.33 $9.81 $10.75 $11.16
Accumulation Units outstanding... -- -- -- 956,346.22 1,556,820.00 1,387,889 1,410,417
</TABLE>
(1) Period from April 1, 1990 to December 31, 1990.
(2) For Global Securities Fund only, period from March 1, 1991 (inception) to
December 31, 1991.
(3) For Strategic Bond Fund only, period from May 1, 1993 (inception) to
December 31, 1993.
* The condensed financial information was prepared by Confederation.
Confederation issued and administered the Contracts funded by the Separate
Account prior to the assumption reinsurance of the Contracts and the
transfer of the Separate Account to Aetna on October 2, 1995. See "Facts
About Aetna, The Separate Account and The Oppenheimer Variable Account
Funds."
6
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FINANCIAL STATEMENTS
The Financial Statements for Aetna and the Separate Account are in the Statement
of Additional Information.
FACTS ABOUT AETNA, THE SEPARATE ACCOUNT AND
THE OPPENHEIMER VARIABLE ACCOUNT FUNDS
THE COMPANY
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of the
Contract, and as such, it is responsible for providing the insurance and annuity
benefits under the Contract. The Company is a stock life insurance company
organized under the insurance laws of the State of Connecticut in 1976. Through
a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance
Company (formerly Participating Annuity Life Insurance Company, an Arkansas life
insurance company organized in 1954). The Company is engaged in the business of
issuing life insurance policies and variable annuity contracts in all states of
the United States. The Company's principal executive offices are located at 151
Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.,
which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly owned subsidiary of Aetna Life and Casualty Company, a
diversified financial services company.
VARIABLE ANNUITY ACCOUNT G
The Separate Account was originally established by Confederation pursuant to the
laws of the State of Georgia on December 15, 1988. On August 12, 1994
Confederation was placed in rehabilitation by the Fulton County, Georgia
Superior Court and ceased sales of new Contracts and acceptance of additional
Purchase Payments under existing in-force Contracts. The rehabilitator of
Confederation (the "Rehabilitator") sought proposals for the acquisition of
Confederation's stock, assets or liabilities which would provide superior
benefits to Confederation's estate, including Confederation's policyholders. On
May 3, 1995 the Rehabilitator and Aetna entered into an Assumption Reinsurance
Agreement pursuant to which Confederation would transfer to Aetna and Aetna
would assume and accept from Confederation the liabilities arising under the
Contracts and the assets funding the Contracts, including the Separate Account.
Pursuant to the Assumption Reinsurance Agreement, the Separate Account was
transferred intact to Aetna on October 2, 1995 and re-established by us as
Variable Annuity Account G of Aetna Life Insurance and Annuity Company pursuant
to the laws of the State of Connecticut. The Separate Account is a unit
investment trust registered with the SEC under the 1940 Act and it meets the
definition of a "separate account" under Federal securities laws. This does not
involve any supervision by the SEC of the management or investment policies or
practices of the Separate Account.
Although Aetna holds title to the assets of the Separate Account, such assets
are not chargeable with liabilities arising out of any other business we may
conduct. Income, gains or losses of the Separate Account are credited to or
charged against the assets of the Separate Account without regard to other
income, gains or losses of the Company. As a result, the investment performance
of the Separate Account is entirely independent of the investment performance of
the General Account or any other separate account maintained by us. All
obligations of Aetna arising under the Contracts are its general corporate
obligations.
The Separate Account currently has eight Subaccounts: the Money Fund; the High
Income Fund; the Bond Fund; the Capital Appreciation Fund; the Growth Fund; the
Multiple Strategies Fund; the Global Securities Fund; and the Strategic Bond
Fund.
THE OPPENHEIMER VARIABLE ACCOUNT FUNDS AND INVESTMENT ADVISER
Currently, each Subaccount of the Separate Account invests exclusively in
corresponding portfolios of the Oppenheimer Variable Account Funds (each
portfolio a "Fund"). The Oppenheimer Variable Account Funds was first organized
as a Massachusetts business trust in 1984. The Oppenheimer Variable Account
Funds was registered with the SEC as a diversified, open-end management
investment company under the 1940 Act. OppenheimerFunds, Inc. is the Investment
Adviser ("Adviser") of the Oppenheimer Variable Account Funds. The Adviser is
owned by Oppenheimer Acquisition Corp., a holding company owned in part by
senior management of the Adviser and ultimately controlled by Massachusetts
Mutual Life Insurance Company. Additional information on each Fund can be found
in the Oppenheimer Variable Account Funds prospectus.
The investment objectives and policies of the eight Funds of the Oppenheimer
Variable Account Funds are summarized below.
OPPENHEIMER MONEY FUND -- seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and maintenance of
liquidity. An investment in this Fund is neither insured nor guaranteed by the
U.S. Government, and there is no assurance that this Fund will be able to
maintain a stable net asset value of $1.00 per share.
7
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OPPENHEIMER HIGH INCOME FUND -- seeks a high level of current income from
investment in high yield fixed-income securities, including unrated or high risk
securities in the lower rating categories, commonly known as "junk bonds," which
are subject to a greater risk of loss of principal and nonpayment of interest
than higher-rated securities. These securities may be considered speculative.
OPPENHEIMER BOND FUND -- primarily seeks a high level of current income from
investment in high yield fixed-income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, this Fund seeks
capital growth when consistent with its primary objective.
OPPENHEIMER CAPITAL APPRECIATION FUND -- seeks to achieve capital appreciation
by investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND -- seeks to achieve capital appreciation by investing in
securities of well-known established companies.
OPPENHEIMER MULTIPLE STRATEGIES FUND -- seeks a total investment return (which
includes current income from and capital appreciation on the value of its
investments) from common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
OPPENHEIMER GLOBAL SECURITIES FUND -- seeks long-term capital appreciation by
investing a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations which are
considered to have appreciation possibilities. Current income is not an
objective. These securities may be considered speculative.
OPPENHEIMER STRATEGIC BOND FUND -- seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance such
income by writing covered call options on debt securities. The Fund intends to
invest principally in (a) foreign government and corporate debt securities, (b)
U.S. Government securities, and (c) lower-rated high yield domestic debt
securities, commonly known as "junk bonds," which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
These securities may be considered speculative.
There is no assurance that a Fund will achieve its investment objectives. You
bear the full investment risk of an investment in a Fund. Additional information
concerning each Fund, its potential risks and its fees and expenses can be found
in the accompanying current prospectus for the Oppenheimer Variable Account
Funds. Additional copies of the Oppenheimer Variable Account Funds Prospectus
may be obtained by writing or calling our Home Office. You should read the
Oppenheimer Variable Account Funds Prospectus before making any decision to
allocate monies to a Subaccount.
RESOLVING MATERIAL CONFLICTS
Because the Oppenheimer Variable Account Funds offers shares to the separate
accounts of other insurance companies and may offer shares to our other separate
accounts, a material conflict may arise between the interests of the Separate
Account and one or more other separate accounts investing in the Oppenheimer
Variable Account Funds. The Board of Trustees of the Oppenheimer Variable
Account Funds has agreed to monitor events in order to identify any material
conflicts and to determine what action, if any, should be taken in response. We
will take all steps we believe are necessary to protect the Separate Account.
CHANGES AND SUBSTITUTIONS OF FUNDS
We reserve the right to add or eliminate a Fund and substitute shares held
by a Subaccount for another portfolio of the Oppenheimer Variable Account Funds
or for another registered open-end management investment company as permitted by
the 1940 Act. To the extent required by the 1940 Act, substitutions of shares
attributable to your interest in a Subaccount will not be made until you have
been notified of the change.
If deemed to be in the best interests of persons having voting rights under the
Contracts and subject to any approvals that may be required under applicable
law, the Separate Account may be: (1) operated as a management company under the
1940 Act, or any other form permitted by law; (2) deregistered under the 1940
Act in the event such registration is no longer required; (3) combined with one
or more other separate accounts; or (4) changed in other respects.
THE CONTRACT
The Contract described in this Prospectus is an individual deferred variable
annuity which was established with an initial Purchase Payment and allows for
additional Purchase Payments if you so choose.
PARTIES TO THE CONTRACT
OWNER
As the purchaser of the Contract, you may exercise all rights and privileges
provided in the Contract, subject to any rights that you, as Owner, may convey
to an irrevocable beneficiary. Joint ownership is not allowed.
ANNUITANT
The Annuitant is the person you designate to receive Income Payments and on
whose life these payments are based. At the time you elect an Annuity Option,
you may elect to name a joint Annuitant. See "Annuity Benefit -- Annuity
Options."
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BENEFICIARY
The Beneficiary is the person you designate to receive the death proceeds.
See "Distributions Under the Contract -- Death Proceeds." If no Beneficiary is
living at that time, the death proceeds are payable to your estate. If the
Annuitant dies after the Annuity Date, the Beneficiary is the person who will
receive any remaining guaranteed payments under an Annuity Option. If no
Beneficiary is living at that time, the remaining guaranteed payments are
payable to the estate of the Annuitant.
CHANGE OF ANNUITANT OR BENEFICIARY
Prior to the Annuity Date, you may change the Annuitant or Beneficiary by
submitting a written request to our Home Office. After the Annuity Date only a
change of Beneficiary may be made. Any change will become effective on the date
you sign the request. However, any change will be subject to any payment or
other action taken by us before we record the change. If the Owner is not a
natural person, under current Federal tax law, the Surrender Value must be
distributed upon any change of the Annuitant or the death of the Annuitant. See
"Federal Tax Matters."
PURCHASE PAYMENTS AND ALLOCATING YOUR PURCHASE PAYMENTS
No new Contracts are being issued. You may make additional Purchase Payments
under the Contract prior to the date all your Accumulation Account has been
annuitized. Additional Purchase Payments must be at least $100. There is no
limit on the number of additional Purchase Payments you may make. Each
additional Purchase Payment will be subject to our requirements at that time. We
reserve the right to modify the requirements.
If imposed by the state or municipality in which you reside, State Taxes will be
deducted from each Purchase Payment and the remaining amount is known as the Net
Purchase Payment. See "Charges and Deductions -- State Taxes." Allocations to
the funding options of additional Net Purchase Payments will be made based upon
your allocation instructions in your application unless we receive a written
notice with new instructions. See "The Contract -- Allocation Changes."
Additional Net Purchase Payments will be credited to the Accumulation Account on
the Valuation Date the Purchase Payment is received at our Home Office.
Under our bank draft investing program, additional Purchase Payments may also be
made by monthly drafts against your financial institution checking account. To
authorize these drafts, you must complete and return to us a special bank draft
authorization form which may be obtained from our Home Office.
All Purchase Payments on Qualified Contracts must comply with applicable
provisions of the Code and your retirement plan, if any. Additional Purchase
Payments commingled in an individual retirement annuity with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should consult your tax advisor.
VALUE OF THE ACCUMULATION ACCOUNT AND UNIT VALUE
The total value of your Contract, known as the Value of the Accumulation
Account, equals your value in all the Subaccounts plus your value in the Fixed
Account. Generally, if the net asset value of a Fund increases or decreases, so
does the value in the corresponding Subaccount. The Accumulation Account
reflects the total of all increases and decreases in the Subaccounts in which
you have an interest. Your value in any given Subaccount is determined by
multiplying the Unit Value for the Subaccount by the number of Units you own.
If you allocate amounts to a Subaccount, Aetna will purchase shares of the
corresponding Fund on behalf of the Subaccount and hold those shares in the
Subaccount. We will credit your Accumulation Account with Units of the
Subaccount. The number of Units will be determined by dividing the amount
allocated to the Subaccount by the Unit Value of the Subaccount for the
Valuation Period during which the amount was allocated.
The Unit Value in each Subaccount was initially set at $10. Thereafter, the Unit
Value for each Subaccount at the end of any Valuation Period is calculated by
multiplying the Unit Value at the end of the prior Valuation Period by the net
investment factor of the Subaccount for the then current Valuation Period.
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The net investment factor for each Subaccount for any Valuation Period is equal
to (A / B) - C,
where
A is the net result of:
(1) the net asset value per share of the Fund shares held in the Subaccount,
determined at the end of the current Valuation Period; plus
(2) the per share amount of any dividend and capital gains distributions
made by the Fund if the "ex-dividend" date occurs during the current
Valuation Period; plus or minus
(3) a charge or credit, if any, for taxes.
B is the net result of:
(1) the net asset value per share of the Fund shares held in the Subaccount
determined as of the end of the immediately preceding Valuation Period;
plus or minus
(2) a charge or credit, if any, for taxes.
C represents a daily deduction for the Mortality and Expense Risk Charge and the
Administration Fee of .0037%. The Mortality and Expense Risk Charge and the
Administration Fee are equal to an annual rate of 1.35% of the daily asset value
of the Subaccount. This percentage represents a 1.25% charge for the mortality
and expense risk assumed, and a .10% charge for the Administration Fee. The
daily deduction can result in a decrease of the Unit Value even if the Fund's
net asset value per share increases. See "Charges and Deductions."
The net investment factor may be greater or less than one. Therefore, the Unit
Value for a Subaccount may increase or decrease from one Valuation Period to the
next Valuation Period.
ALLOCATION CHANGES
You may change the allocation of additional Net Purchase Payments among the
Subaccounts and the Fixed Account. There is no limit to the number of changes
you may make to your allocations. Allocations must be in whole percentages of
not less than 10%. The sum of the amounts which may be allocated to the Fixed
Account over the life of the Contract is limited to $250,000. See "Appendix A --
The Fixed Account."
TRANSFERS
Prior to the Annuity Date, you may make unlimited Transfers among the
Subaccounts and into and out of the Fixed Account subject to certain rules. See
"Appendix A -- The Fixed Account." There are presently no fees for Transfers nor
are any taxes due. However, we reserve the right to charge a fee for Transfers
in excess of 12 per Contract Year or to limit the number of Transfers to 12 per
Contract Year.
Transfers may be made by written request. Transfers may also be made by
telephone, providing telephone transfers have been specifically authorized. To
make telephone Transfers, call 1-800-531-4547. Telephone Transfers into or out
of the Fixed Account are not permitted. Transfer requests must be received at
our Home Office prior to 4:00 pm Eastern Time in order to be processed on the
same Valuation Date. We reserve the right to reject telephone or written
requests submitted in bulk on behalf of ten or more Contracts and to otherwise
limit, deny or terminate telephone transfers. See "Miscellaneous -- Telephone
Transfers."
The minimum amount which may be transferred at any one time is the lesser of
$500 or your interest in the Fixed Account or the Subaccount from which the
Transfer is made. Under our Dollar Cost Averaging program, however, the minimum
amount for Transfers is $50 per Subaccount. See "The Contract -- Dollar Cost
Averaging." The sum of the amount which can be allocated to the Fixed Account
over the life of the Contract is limited to $250,000. See "Appendix A -- The
Fixed Account."
DOLLAR COST AVERAGING
Our Dollar Cost Averaging program, allows you to regularly transfer amounts from
the Money Fund Subaccount to one or more other Subaccounts. This results in the
purchase of more Units when the Unit Value is low and fewer Units when the Unit
Value is high. Therefore, the purchase of Units under Dollar Cost Averaging in a
rising or falling market will result in your average cost per Unit being less
than the average price per Unit.
For example, assume that you request $60 per month be transferred from the Money
Fund Subaccount to the Growth Fund Subaccount. The following table illustrates
the effect of Dollar Cost Averaging over a four-month period.
<TABLE>
<CAPTION>
TRANSFER UNIT VALUE
MONTH AMOUNT ("PRICE") UNITS PURCHASED
- --------- ----------- --------------- ---------------
<S> <C> <C> <C>
1 $ 60 $ 2 30
2 60 3 20
3 60 4 15
4 60 5 12
</TABLE>
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<PAGE>
The average price per Unit for these purchases is the sum of the prices divided
by the number of monthly Transfers ($14 DIVIDED BY 4), which equals $3.50. The
average cost per Unit that you would pay for these purchases is the total amount
transferred divided by the total number of Units purchased ($240 DIVIDED BY 77),
which equals $3.12. The table is illustrative only and not representative of
past or future results.
Under our Dollar Cost Averaging program we will automatically transfer an amount
you specify from your value of the Money Fund Subaccount into other Subaccounts
on a monthly basis. Each Transfer to a Subaccount must be at least $50.00. At
the time you elect to participate in the Dollar Cost Averaging program, the
value of your Money Fund Subaccount must be equal to at least 12 monthly
Transfers. Transfers to the Fixed Account are not permitted under the Dollar
Cost Averaging program.
After we process your request we will Transfer the amount from your value of the
Money Fund Subaccount to the Subaccount or Subaccounts you select on the
fifteenth day of each calendar month or if the fifteenth is not a Valuation
Date, the next Valuation Date. There is no charge for this program. You may
discontinue the monthly Transfers by sending a written request to us.
There is no guarantee that the Dollar Cost Averaging program will result in
Contract values that equal or exceed any Payments made or any other advantage or
benefit.
QUESTIONS
Owner inquiries about the Contract or any procedures should be addressed to:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
All communications must include the Contract number and the names of the Owner
and the Annuitant.
CHARGES AND DEDUCTIONS
SURRENDER CHARGES
We do not deduct sales charges from Purchase Payments at the time of investment.
However, a Surrender Charge, as described below, may be assessed against
Withdrawals or a Surrender. The Surrender Charge covers certain expenses
incurred relating to the sale of the Contract including commissions to
registered representatives and promotional expenses.
Surrender Charges are based upon the number of years between the date Purchase
Payments are deemed received and the date they are Withdrawn or Surrendered:
(a) Purchase Payments made prior to October 2, 1995 (the day Aetna assumed
the Contract) are deemed to have been received on the date of receipt of
your initial Purchase Payment.
(b) Purchase Payments received by us after October 2, 1995 are deemed
received on the date we actually receive the Purchase Payment.
The Surrender Charge is a percentage of the amount of each Purchase Payment
withdrawn or surrendered and equals:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE
PAYMENT DEEMED RECEIVED CHARGE
- --------------------------- -----------
<S> <C>
1 6%
2 6%
3 5%
4 4%
5 3%
Thereafter 0%
</TABLE>
No Surrender Charge is imposed against:
(a) That portion of a Surrender which does not exceed 10% of current Value
of the Accumulation Account, providing that there has been no prior
Withdrawal in the same Contract Year.
(b) That portion of your first Withdrawal in a Contract Year which does not
exceed 10% of the current Value of the Accumulation Account.
(c) Any portion of the Accumulation Account which is applied under the
Partial Annuity Benefit. See "Annuity Benefit -- Partial Annuity
Benefit."
(d) Withdrawals made under our Systematic Withdrawal Program. See
"Distributions Under the Contract -- Systematic Withdrawal."
(e) The Value of the Accumulation Account upon Annuitization.
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<PAGE>
(f) Any amounts withdrawn or surrendered in excess of Purchase Payments.
(g) Any distribution made as the result of the death of the Owner.
Purchase Payments will be deemed to be withdrawn or surrendered in the order in
which they were deemed received. All Withdrawals and Surrenders will be deducted
first from Purchase Payments and then from amounts in excess of Purchase
Payments.
In the case of a Withdrawal, the Surrender Charge is deducted from the
Accumulation Account as an additional withdrawal. In the event that your request
for a Withdrawal specifies the Subaccounts and/or the Fixed Account from which
the Withdrawal is to be made, the Surrender Charge will be deducted equally from
such Subaccounts and/or the Fixed Account. Otherwise, the Surrender Charge will
be deducted proportionally based on your value in each Subaccount. If you
Surrender your Contract, the Surrender Charge is deducted from the total amount
to be paid to you.
MORTALITY AND EXPENSE RISK CHARGE
Aetna deducts a Mortality and Expense Risk Charge from your value in each
Subaccount equal to, on an annual basis, 1.25% of the daily asset value of which
approximately .95% is attributable to mortality risks and approximately .30% is
attributable to expense risk. The mortality risks assumed by the Company arise
from its contractual obligations (i) to make annuity payments after the Annuity
Date for the life of the Annuitant(s), and (ii) to provide the death benefit
that may be higher than the value of the Accumulation Account. The expense risk
assumed by the Company is that the costs of administering the Contracts and the
Separate Account will exceed the amount recovered from the Administrative Fee.
The Mortality and Expense Risk Charge may be used to cover distribution expenses
of the Contracts because we do not believe the Surrender Charge will be
sufficient. See "Charges and Deductions -- Surrender Charges." This charge is
guaranteed by the Company and cannot be increased.
ADMINISTRATION FEE
A daily charge is deducted from your value in each Subaccount equal to, on an
annual basis, .10% of the daily asset value. This fee is intended only to
reimburse us for administrative expenses. We do not expect to recover an amount
in excess of our accumulated expenses through the deduction of the
Administration Fee. We reserve the right to change this fee in the future.
ANNUAL CONTRACT FEE
On each Contract anniversary on or before the Annuity Date we will deduct a
$30.00 Annual Contract Fee for the previous Contract Year from your Accumulation
Account. The fee is intended to partially reimburse us for costs of maintaining
the Contracts, the Separate Account and the Fixed Account. If the Contract is
surrendered or annuitized, we will deduct the Annual Contract Fee at the time of
Surrender or Annuitization for the current Contract Year. The deduction will be
made pro rata from your value in each Subaccount and the Fixed Account. The
Annual Contract Fee is not expected to result in a profit to Aetna. We guarantee
that this charge will not be increased.
STATE TAXES
State Taxes are taxes imposed by certain jurisdictions: (i) at the time Purchase
Payments are received; (ii) from values applied to an Annuity Option; or (iii)
from Withdrawals or Surrenders. We will deduct State Taxes when we determine the
tax is due.
These taxes currently range from 0 to 3.5%. The amount of any such tax will
depend on, among other things, your state of residence, and the status of Aetna
and the insurance laws of that state. These taxes are subject to change and your
tax advisor should be consulted for current information.
OTHER TAXES
We do not expect to incur any Federal or state income tax liability attributable
to investment income or capital gains retained as part of the reserves under the
Contracts. Based upon these expectations, no charge is being made currently to
the Separate Account for Federal or state income taxes which may be attributable
to the Separate Account.
We will periodically review the need for a charge to the Separate Account for
Federal or state income taxes. Such a charge may be made in future years for any
Federal or state income taxes incurred by us with respect to the Separate
Account or for the economic effect of any such taxes. In the event that we
should incur Federal or state income taxes attributable to investment income or
capital gains retained as part of the reserves under the Contract, the
Accumulation Account of the Contract would be correspondingly adjusted for any
provision or charge for such taxes.
Under present laws, we incur state and local taxes (in addition to the State
Taxes described above), in several states. At present, we do not charge for
these. Charges for such taxes may be made in the future.
FUND EXPENSES
The value of the assets in the Separate Account will reflect the value of the
Funds as well as the fees and expenses of each Fund. A complete description of
the expenses and deductions for each Fund is found in the accompanying
Oppenheimer Variable Account Funds prospectus.
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<PAGE>
DISTRIBUTIONS UNDER THE CONTRACT
WITHDRAWALS
Prior to the Annuity Date, you may request a Withdrawal from any portion or all
of your Accumulation Account subject to any Surrender Charges or any required
tax withholding or penalty. You may be subject to a penalty tax for an early
withdrawal. See "Charges and Deductions -- Surrender Charges;" "Federal Tax
Matters -- Other Tax Considerations -- Penalty Tax on Certain Distributions."
Withdrawals must be made by written request. Your Withdrawal request may specify
the amount of the withdrawal or surrender to be deducted from each Subaccount or
from the Fixed Account; otherwise we will withdraw the amount requested pro rata
from your value in each Subaccount and the Fixed Account. The minimum amount
which can be withdrawn is the lesser of $500 or your value in the Subaccounts
specified or the Fixed Account. The maximum amount which may be withdrawn from
the Fixed Account is limited. See "Appendix A -- The Fixed Account."
Except for New York residents, we reserve the right to consider any Withdrawal
that would reduce the Value of the Accumulation Account to less than $2,000 to
be a request for Surrender. In this event, the Surrender Value will be paid to
you and the Contract will terminate. See "Distributions Under the Contract --
Surrender Value."
SYSTEMATIC WITHDRAWAL
To the extent permitted by your plan and the Code, under the Systematic
Withdrawal program, you may make regularly scheduled Withdrawals from your
Accumulation Account. See "Federal Tax Matters." To elect a Systematic
Withdrawal, your value of your Accumulation Account must have been at least
$12,000. You may not elect this program if you have taken a prior Withdrawal
during the same Contract Year. The program allows you to prearrange the
Withdrawal of a specified dollar amount of at least $100 per Withdrawal, on a
monthly, quarterly or semi-annual payment basis. The maximum amount that may be
withdrawn each Contract Year is 10% of the Value of the Accumulation Account as
of the previous year end. Surrender Charges are not imposed on Withdrawals under
this program. See "Charges and Deductions -- Surrender Charges." While you are
receiving Systematic Withdrawals, you may not elect to make additional Purchase
Payments under our bank draft investing program or to allocated amounts to the
Subaccounts under our Dollar Cost Averaging program. See "The Contract --
Purchase Payments and Allocating Your Purchase Payments; -- Dollar Cost
Averaging."
Systematic Withdrawals will begin on the first scheduled Withdrawal date
selected by you following the date we process your request. You should receive
Withdrawal payments by the fifteenth (15th) of the applicable month. Withdrawals
will be deducted pro rata from your value in each Subaccount and the Fixed
Account.
You may modify or discontinue your Systematic Withdrawal program at any time by
sending a written request to us. We reserve the right to discontinue or modify
the Systematic Withdrawal program by providing you with 30 days' prior written
notice. Such discontinuation would not affect any Systematic Withdrawal program
you currently have in effect. We also reserve the right to assess a processing
fee for the program although we do not currently do so.
All parties to the Contract are cautioned that the rights of any person to
implement the Systematic Withdrawal program under Qualified Contracts may be
subject to the terms and conditions of the applicable provisions of the Code and
of the retirement plan, if any, regardless of the terms and conditions of the
Qualified Contract.
SURRENDER
Prior to the Annuity Date, you may Surrender the Contract for the Surrender
Value subject to any Surrender Charges or required tax withholding or penalty.
See "Charges and Deductions -- Surrender Charges" and "Federal Tax Matters --
Other Tax Considerations." You must submit a written request for Surrender and
return the Contract to us. The Surrender Value will be based on the Unit Values
at the end of the Valuation Period during which the Surrender request is
received.
You may receive the Surrender Value as a lump sum payment or apply it under one
of the Annuity Options. See "Annuity Benefit -- Annuity Options." No Surrender
Charge will be imposed on any amount being surrendered which is applied under an
Annuity Option. See "Charges and Deductions -- Surrender Charges."
SURRENDER VALUE
The Surrender Value of your Contract varies each day depending on the
investment results of the Subaccounts you have selected. We cannot guarantee any
minimum amount of Surrender Value except for any amount you have allocated to
the Fixed Account.
The Surrender Value is equal to the value of your Accumulation Account minus
Surrender Charges and State Taxes, if any, and the Annual Contract Fee for the
current Contract Year. See "Charges and Deductions."
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DEATH PROCEEDS
Death proceeds are paid to your Beneficiary in the event any amounts remain in
your Accumulation Account at the time of your death because you have not applied
all your Accumulation Account to one or more Annuity Options.
If you die prior to age 85, the death proceeds are equal to the greatest of: (i)
the sum of your Purchase Payments less prior Withdrawals, applicable Surrender
Charges on prior Withdrawals, and values applied to the Partial Annuity Benefit;
(ii) the Value of the Accumulation Account; or (iii) the last established
adjusted death benefit described below, plus Purchase Payments, and less
Withdrawals, applicable Surrender Charges on Withdrawals and values applied to
the Partial Annuity Benefit occurring since the last adjusted death benefit was
established. The adjusted death benefit will be established every five years
starting with the fifth Contract anniversary and will equal the Value of the
Accumulation Account on that Contract anniversary.
If you die on or after age 85, the death proceeds are equal to the Value of the
Accumulation Account.
If you commit suicide within two years from the date of issue and prior to the
Annuity Date, the death proceeds are equal to the Value of the Accumulation
Account.
The death proceeds are calculated on the earlier of: (i) the date we receive
proof of death and the Beneficiary makes an election as to an Annuity Option or
a lump sum payment; or (ii) 60 days after our receipt of proof of death. See
"Distributions Under the Contract -- Payment."
The Beneficiary may elect to receive the death proceeds under any Annuity Option
or as a lump sum payment. See "Annuity Benefit -- Annuity Options." If the
Beneficiary does not elect an Annuity Option or a lump sum payment within 60
days after we have received proof of death, proceeds will be paid in a series of
Income Payments, for as long as the Beneficiary is living, with payments
guaranteed for ten years. However, if the life expectancy of the Beneficiary as
of the date of your death is less than ten years, the death proceeds will be
paid in a series of Income Payments for as long as the Beneficiary is living,
with payments guaranteed for five years.
If the Contract is a Non-Qualified Contract and your spouse is the Beneficiary,
your spouse can elect to receive either the death proceeds or assume Contract
ownership and continue the Contract as if you had not died. See "Federal Tax
Matters."
PAYMENT
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Separate Account will usually occur within seven days from the date we receive a
request in good order. We may be permitted to defer such payment if: (i) the New
York Stock Exchange is closed for other than usual weekends or holidays, or
trading on the Exchange is otherwise restricted; (ii) an emergency exists as
defined by the SEC or the SEC requires that trading be restricted; or (iii) the
SEC permits a delay for protection of Owners.
We may defer payment of any Withdrawal or Surrender from the Fixed Account for
up to six months from the date we receive your written request.
Because you assume the investment risk with respect to amounts allocated to the
Separate Account and because certain Surrenders are subject to the Surrender
Charge, the total amount paid upon Surrender of the Contract may be more or less
than the total Purchase Payments made.
ANNUITY BENEFIT
ANNUITIZATION
Annuitization allows you to apply some or all of your Accumulation Account to an
Annuity Option that will provide a series of fixed Income Payments. The date an
Annuity Option becomes effective is the Annuity Date for that option. If you
elect a partial annuity you will have more than one Annuity Date.
PARTIAL ANNUITY BENEFIT
After the first Contract Year you may withdraw a portion of your Accumulation
Account, free of Surrender Charge, to purchase a single premium immediate
annuity issued by us or one of our affiliates. The value is withdrawn as of the
Annuity Date. The remaining portion of your Accumulation Account continues to
accumulate in the Fixed Account and the Subaccounts you have selected. The
Partial Annuity Benefit cannot be elected by residents of New York.
The Partial Annuity Benefit must be elected in writing and the minimum amount
which may be annuitized is $10,000. You may not elect the Partial Annuity
Benefit if it will reduce the value of your Accumulation Account to less than
$2,000, or if the annual Income Payment would be less than $100. Unless you
specify otherwise, we will withdraw the annuitized amount pro
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<PAGE>
rata from your Accumulation Account Value in each Subaccount and the Fixed
Account. The maximum amount that may be withdrawn from the Fixed Account each
calendar year to apply to a Partial Annuity Benefit is limited. See "Appendix A
- -- The Fixed Account."
ANNUITY DATE
Unless elected otherwise, the Annuity Date for any amounts not previously
annuitized will be the later of the 10th Contract anniversary or the Contract
anniversary nearest the 65th birthday of the Annuitant. All amounts must be
annuitized by the Contract anniversary nearest the 85th birthday of the
Annuitant.
You may change the Annuity Date by written request at least 30 days before both
the previously selected Annuity Date and the new Annuity Date. Without our
approval, the new Annuity Date cannot be earlier than the tenth Contract
anniversary if the Annuitant's age is 75 years or less on the Contract Date or
later than the Contract anniversary nearest the Annuitant's 85th birthday. In
addition, for Qualified Contracts, certain provisions of your retirement plan
and/or the Code may further restrict your choice of an Annuity Date. See
"Federal Tax Matters."
ANNUITY OPTIONS
The Annuity Value will be paid in the form of a fixed annuity according to the
Annuity Option you choose. Federal income tax laws may restrict the availability
of certain Annuity Options for certain Qualified Contracts. See "Federal Tax
Matters." Upon commencement of Income Payments you are not permitted to change
your Annuity Option.
In the event that you have not chosen an Annuity Option, we will make Income
Payments to the Annuitant during the lifetime of the Annuitant with payments
guaranteed for ten years.
Option 1. Annuity Certain -- We will make equal payments to the Annuitant for a
guaranteed term which cannot be less than five years nor more than 30 years. If
the Annuitant dies before the end of the guaranteed term, payments will continue
to be made to the Beneficiary for the duration of the guaranteed term.
Option 2. Life Only or Life with Term Certain -- We will make equal payments to
the Annuitant during the lifetime of the Annuitant. An election may be made to
guarantee payments for a term of 10 or 20 years. If the Annuitant dies before
the end of any guaranteed term, payments will continue to the Beneficiary for
the duration of that term. If no guaranteed term is selected, payments will be
made only while the Annuitant is living. Therefore, it is possible that only one
payment will be made if the Annuitant dies before the second payment.
Option 3. Joint and Survivor Annuity -- We will make payments to the Annuitant
or joint Annuitant while either of them is living. A joint Annuitant must be
named at the time this option is chosen. The age and sex of both the Annuitant
and joint Annuitant will be used to determine payments. If one Annuitant dies,
payments will continue to the surviving Annuitant. Payments will cease upon the
death of the Annuitant last to die. Therefore, it is possible that only one
payment will be made if both Annuitants die before the second payment.
In addition to these options, you may choose any other Annuity Option agreed
upon by us.
INCOME PAYMENTS
Income Payments will be based upon the Annuity Option selected, the age and sex
of an Annuitant when payments begin, the frequency of payments and any scheduled
changes in the amount of Income Payments.
At the time an Annuity Option becomes effective, we will require proof of the
age and sex of the Annuitant and any joint Annuitant. The age used to calculate
payments under an Annuity Option will be the Annuitant's age as of the
Annuitant's nearest birthday on the Annuity Date. From time to time, we may
require proof that the Annuitant or Beneficiary is living when payment is
contingent upon the survival of such person.
At the time the Annuity Option commences, payments will be calculated on a fixed
basis using the greater of: (i) the rates guaranteed in the Contract; or (ii)
more favorable rates which we then offer to this class of Contracts.
You may elect payments to be made to the Annuitant on an annual, semi- annual,
quarterly or monthly basis, provided each payment is at least $100. If the value
of your Accumulation Account is less than $2,000 or your payment on an annual
basis is less than $100, we will pay the Annuity Value as a single sum. Such
payment will be in full settlement and will terminate this Contract.
15
<PAGE>
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. This
summary does not address all of the tax consequences of ownership of a Contract
or of distributions under a Contract. You should consult your tax advisor in
order to understand the tax consequences of any transaction. This summary is
based upon our understanding of the existing federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No representation is made
as to the likelihood of the continuation of the existing federal income tax laws
or of their current interpretation by the Internal Revenue Service.
Additionally, no attempt has been made to consider any applicable state or other
laws.
This summary assumes that Qualified Contracts are used to provide benefits to
individual participants under certain retirement plans which qualify for special
federal income tax treatment under sections 219, 401, 403 or 408 of the Code.
The ultimate effects of federal income taxes on the Value of the Accumulation
Account, on Income Payments, and on the economic benefits provided to you, the
Annuitant, or the Beneficiary under the Contract depend on the type of
retirement plan under which a Contract is purchased, on the tax and employment
status of the individual concerned, and on our tax status.
AETNA'S TAX STATUS
Aetna is taxed as a life insurance company under Part 1 of Subchapter L of the
Code. Because the Separate Account is not a separate entity, and its operations
form a part of Aetna's business, the Separate Account will not be taxed
separately.
Investment income and net capital gains realized on the sale or exchange of the
assets of the Separate Account will be reinvested and taken into account in
determining the Unit Value. Under existing federal income tax laws, the
investment income and net capital gains of the Separate Account will not be
taxed to the extent that these items are retained as part of the reserves under
the Contract. However, if Aetna incurs any federal income taxes attributable to
the Separate Account, we reserve the right to make a charge to the Separate
Account for the payment of such taxes.
TAXATION OF ANNUITY CONTRACTS IN GENERAL
INCREASES IN THE ACCUMULATION ACCOUNT
Section 72 of the Code governs the taxation of annuity contracts. An Owner
who is a natural person generally is not taxed on increases in the Accumulation
Account until some form of distribution occurs. The assignment, pledge, or
agreement to assign or pledge any portion of the Accumulation Account, or the
application of a portion of your Accumulation Account to the Partial Annuity
Benefit, generally will be treated as a distribution to you. The taxable portion
of such a distribution is taxed as ordinary income.
If an Owner is not a natural person, then the Owner generally must include in
gross income any increase in the excess of the value of the Contract over the
Owner's "investment in the Contract" during the taxable year. Certain exceptions
to this rule may apply and should be discussed with your tax advisor.
DISTRIBUTIONS RECEIVED PRIOR TO THE ANNUITY DATE
Amounts received before the Annuity Date pursuant to a Withdrawal or
Surrender under a Non-Qualified Contract generally are treated as taxable income
to the extent that the value of the Contract immediately before the Withdrawal
exceeds the "investment in the Contract" at that time. Any additional amount
withdrawn is not taxable. In the case of a Withdrawal or Surrender under a
Qualified Contract a portion of the amount received is taxable based on the
ratio of the "investment in the Contract" to the individual's balance in the
retirement plan, which is generally the value of the Contract.
The "investment in the Contract" generally equals the total amount of any
Purchase Payments made by or on behalf of an individual under a Contract that
were not excluded from the gross income of the individual. For Qualified
Contracts, the "investment in the Contract" will often be zero.
INCOME PAYMENTS
In general, there is no tax on that portion of each Income Payment which
represents the same ratio that the "investment in the Contract" bears to the
total expected value of the Income Payments for the term of the payments. After
the "investment in the Contract" is recovered, the full amount of additional
Income Payments, if any, is taxable.
DEATH PROCEEDS
Death proceeds which are distributed in a lump sum are taxed in the same
manner as the proceeds of a Surrender of the Contract. Death proceeds
distributed under an annuity option are taxed in the same manner as Income
Payments.
In order for a Non-Qualified Contract to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code generally requires the
Contract to provide that (a) if the Owner dies on or after the Annuity Date but
prior to the
16
<PAGE>
time the entire interest in the Contract has been distributed, the remaining
interest must be distributed at least as rapidly as under the method of
distribution being used as of the date of the death of the Owner; and (b) if the
Owner dies prior to the Annuity Date, the death proceeds must be distributed
within five years after the date of the death of the Owner. These rules do not
apply, however, where the surviving spouse of the Owner is the designated
beneficiary under the Contract, and thus is treated under section 72(s) of the
Code as a successor Owner of the Contract. The Non-Qualified Contracts are
intended to comply with the requirements of section 72(s), and will be modified
if necessary to ensure compliance with any future interpretations of section
72(s).
QUALIFIED CONTRACTS
The Qualified Contract is designed for use with several types of retirement
plans. Special favorable tax treatment is available for Qualified Contracts,
although the tax rules applicable to such Contracts vary according to the type
of plan and the terms and conditions of the plan. Adverse tax consequences may
result from: (i) contributions to Qualified Contracts in excess of specified
limits; (ii) distributions from Qualified Contracts prior to age 59 1/2 (subject
to certain exceptions); (iii) failure to make distributions from Qualified
Contracts that conform to specified minimum distribution rules; (iv) the receipt
of aggregate distributions from Qualified Contracts in excess of a specified
annual amount; and (v) other circumstances.
Aetna makes no attempt to provide more than general information about plans
which qualify for special federal income tax treatment under the Code. Owners
and participants under retirement plans, as well as Annuitants and
Beneficiaries, are cautioned that the rights of any person to any benefits under
Qualified Contracts may be subject to the terms and conditions of the retirement
plans themselves, regardless of the terms and conditions of the Qualified
Contract issued in connection with such plans. Purchasers of Qualified Contracts
for use with any retirement plan should consult their legal counsel and tax
advisor regarding the suitability of a Qualified Contract for their retirement
plan.
(a) Section 403(b) Plans. Under section 403(b) of the Code, payments
made by public school systems and certain tax-exempt organizations to
purchase annuity contracts for their employees are excludable from the gross
income of the employee, subject to certain limitations. However, these
payments may be subject to FICA (Social Security) taxes.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual
retirement program known as an Individual Retirement Annuity or "IRA".
Individual Retirement Annuities are subject to complex limitations on the
amounts which may be contributed and deducted and on the times when
distributions may commence. In addition, distributions from certain other
types of retirement plans may be rolled over into an Individual Retirement
Annuity on a tax-deferred basis.
(c) Corporate Pension and Profit-Sharing Plans and H.R 10 Plans.
Sections 401(a) and 403(a) of the Code permit employers to establish various
types of retirement plans for employees, and permit self-employed
individuals to establish retirement plans for themselves and their employees
which qualify for special federal income tax treatment. These retirement
plans may permit the purchase of the Qualified Contracts to provide benefits
under the plans.
OTHER TAX CONSIDERATIONS
PENALTY TAX ON CERTAIN DISTRIBUTIONS
In the case of any taxable distribution from a Non-Qualified Contract, there
may be a penalty tax equal to 10% of the taxable amount of the distribution. In
general, however, this penalty tax does not apply to distributions: (1) made on
or after the date on which the Owner attains age 59 1/2; (2) made as a result of
death or disability of the Owner; or (3) received in substantially equal
periodic payments as a life annuity. Other tax penalties may apply to certain
distributions under a Qualified Contract.
TRANSFERS OF OWNERSHIP OR BENEFITS
A transfer of ownership of a Contract, or the designation of an Annuitant or
other Beneficiary who is not also the Owner may result in tax consequences to
the Owner, Annuitant, or Beneficiary that are not discussed herein. Owners
contemplating such a transfer or assignment should contact their tax advisors
with respect to the potential tax effects of such transactions.
MULTIPLE CONTRACTS
Non-Qualified Contracts that are issued by Aetna (or one of our affiliates)
to the same Owner during any calendar year may be treated as one annuity
contract for purposes of determining the amount includible in gross income. Any
person considering the purchase of more than one annuity contract should consult
their tax advisor.
SECTION 1035
Section 1035 of the Code provides that no gain or loss shall be recognized
on the exchange of an annuity contract for another. Special rules and procedures
apply to exchanges subject to section 1035. You should consult your tax advisor
as to how to proceed if you intend to take advantage of the tax benefits
provided for exchanges under section 1035.
17
<PAGE>
INVESTOR CONTROL
It is possible that regulations or other administrative guidance will be
issued concerning the extent to which owners may direct their investments to
particular divisions of a separate account without being treated for tax
purposes as the owners of the assets in such divisions. Aetna reserves the right
to modify the Contracts, as necessary, to prevent the Owner from being treated
as owning the assets in the Subaccounts.
INCOME TAX WITHHOLDING
Distributions are generally subject to withholding for the federal income
tax liability of the recipient at rates which vary according to the type of
distribution and the tax status of the recipient. However, for distributions
which are not "eligible rollover distributions" under Qualified Contracts, the
recipient may elect not to have withholding apply. "Eligible rollover
distributions" under Qualified Contracts are subject to withholding unless they
are transferred directly to an eligible individual retirement account, qualified
retirement plan, or section 403(b) plan.
DISTRIBUTION OF THE CONTRACT
Aetna Life Insurance and Annuity Company is the principal underwriter of the
Contracts. Third party broker-dealers may also serve as distributors. Aetna is
registered as a broker-dealer with the SEC and is a member of the National
Association of Securities Dealers, Inc. Although Aetna does not intend to offer
or sell any new Contracts, additional Purchase Payments will continue to be
accepted under existing in-force Contracts. Aetna may enter into contracts with
various broker/dealers to assist in accepting additional Purchase Payments. The
compensation paid by Aetna for this service is not anticipated to be greater
than 6.5% of Purchase Payments made.
MISCELLANEOUS
VOTING RIGHTS
As previously stated, all of the assets of the Separate Account are shares of a
corresponding portfolio of the Oppenheimer Variable Account Funds held in the
Subaccounts of the Separate Account. Based on our view of present applicable
law, we will vote the Fund shares held in the Separate Account at meetings of
shareholders in accordance with instructions received from Owners having an
interest in the Subaccount. However, if the 1940 Act or any related regulations
should be amended, or if present interpretations change, and we determine that
we are permitted to vote the Fund shares in our own right, we may elect to do
so.
You hold a voting interest in each Fund in which you have value in the
corresponding Subaccount. The number of Fund shares which are attributable to
you is determined by dividing your value in a particular Subaccount by the net
asset value of one Fund share. The number of votes which you have a right to
cast will be determined as of the record date established by each Fund.
We will solicit voting instructions by mail prior to the shareholder meetings.
Each person having a voting interest in a Subaccount will be sent proxy
material, reports and other materials relating to the appropriate Funds. If we
do not receive your instructions prior to the meeting, your shares as well as
any shares not attributable to Owners will be voted in the same proportion as
the instructions received from all Owners providing timely instructions.
CHANGES IN THE CONTRACT
Generally, we may not change or amend the Contract without the consent of the
Owner, except as expressly provided in the Contract. However, we may change or
amend the Contract to ensure that the Contract complies with any state law,
federal law or the Code.
INCONTESTABILITY
The Contract is incontestable.
NONPARTICIPATING
The Contract is nonparticipating. No dividends are payable and the Contract will
not share in the profits or surplus earnings of Aetna.
ASSIGNMENT
During the lifetime of the Annuitant, the Owner of any Non-Qualified Contract
may assign the Contract. An assignment is a transfer of all or some of the
Contract rights and privileges to another person. A change of Owner is an
absolute assignment.
18
<PAGE>
Generally, a Qualified Contract may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation unless permitted by your qualified retirement plan
or by laws relevant to your Qualified Contract.
No assignment of a Contract will be binding on us unless made in writing and
sent to us at our Home Office. The Company will use reasonable procedures to
confirm that the assignment is authentic, including verification of signature.
If the Company fails to follow its procedures, it would be liable for any losses
to you directly resulting from the failure. Otherwise, we are not responsible
for the validity of any assignment. The rights of the Owner and the interest of
the Annuitant and any Beneficiary will be subject to the rights of any assignee
of record.
ANNUAL CONTRACT REPORT
Prior to the Annuity Date we will mail you quarterly reports showing:
(1) the Value of any amounts held in,
(a) the Fixed Account; and
(b) the Subaccounts under the Separate Account;
(2) the number of any Subaccount Units; and
(3) the Subaccounts Unit Value.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, the benefits payable
under the Contract will be adjusted to those that the Accumulation Value would
have purchased based on the correct age and sex. Any overpayments or
underpayments we make as a result of such misstatement will be respectively
charged against or credited to the Income Payments to be made so as to adjust
for any overpayment or underpayment. Sex is not a factor when annuity payments
are based on unisex annuity payment rate tables.
TELEPHONE TRANSFERS
You automatically have the right to make transfers among the Subaccounts and the
Fixed Account by telephone. Aetna has enacted reasonable procedures to prevent
abuses of transactions by telephone. The procedures include requiring the use of
a personal identification number (PIN) in order to execute transactions and to
ensure authenticity, the Company records all calls on the 800 line. You are
responsible for safeguarding your PIN, and for keeping your Accumulation Account
information confidential. If Aetna fails to follow these procedures it would be
liable for any losses to you resulting from the failure.
LEGAL PROCEEDINGS
We and our Board of Directors know of no material legal proceedings pending to
which the Separate Account is a party or which would materially affect the
Separate Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed upon
by Susan E. Bryant, Esq., Counsel to the Company.
CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this Prospectus. The following is the Table
of Contents for that statement.
<TABLE>
<S> <C>
General Information and History
Variable Annuity Account G
Offering and Purchase of Contracts
Independent Auditors
Financial Statements of CLIAC Separate Account A
Financial Statements of Variable Annuity Account G
Financial Statements of Aetna Life Insurance and Annuity Company
</TABLE>
19
<PAGE>
APPENDIX A
THE FIXED ACCOUNT
Net Purchase Payments and Transfers allocated to the Fixed Account become part
of our General Account. As a result of exemptive and exclusionary provisions of
the Federal securities laws, interests in the Fixed Account have not been
registered under the Securities Act of 1933 ("1933 Act") nor is the Fixed
Account an Investment Company under the 1940 Act. Accordingly, neither the Fixed
Account nor any interest in the Fixed Account will generally be subject to
either the 1933 Act or the 1940 Act. Disclosure regarding the General Account
and the Fixed Account Option, however, may be subject to generally applicable
provisions of the federal securities laws regarding the accuracy and
completeness of the statements. The SEC has not reviewed the disclosures in this
Prospectus which relate to the Fixed Account.
The Fixed Account option guarantees an interest rate for one year from the date
amounts are allocated or transferred to the Fixed Account. At the end of each
year, the current rate will be guaranteed for the next one year period. The
guaranteed rate will never be less than 4.5% annually.
The guaranteed one year rate will be based upon Aetna's investment income earned
on invested assets and the amortization of any capital gains and/or losses
realized on the sale of invested assets. We assume the risk of investment gains
or losses by guaranteeing the one year rate, while you bear the risk that the
guaranteed one year rate may not exceed 4.5%.
Some states require that any balance you maintain in the Fixed Account be at
least $2,000.
TRANSFERS, WITHDRAWALS OR SURRENDERS
You may make Withdrawals or Surrenders from the Fixed Account subject to
Surrender Charges or any required tax withholding or penalty. See "Charges and
Deductions -- Surrender Charges;" "Federal Tax Matters." You may also make
transfers into or out of the Fixed Account.
The minimum amount which you may Withdraw or Transfer from the Fixed Account is
the lesser of $500 or your value in the Fixed Account. The maximum amount which
you may Withdraw, Transfer or apply to the Partial Annuity Benefit each calendar
year is limited to 25% of your value of the Fixed Account. If any request for a
Withdrawal, Transfer, or exercise of the Partial Annuity Benefit would reduce
your value in the Fixed Account to less than $2,000, you have the right to
increase your request to include the balance. We may defer payment of any
Withdrawal or Surrender from the Fixed Account for up to six months from the
date we receive your written request.
There is no limit on the number of Transfers into the Fixed Account. However,
the sum of the amounts which can be allocated to and transferred into the Fixed
Account over the life of the Contract is limited to $250,000. We reserve the
right to change this limit.
Appendix-1
<PAGE>
VARIABLE ANNUITY ACCOUNT G
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 6, 1996
Individual Variable Annuity Contracts originally issued by
Confederation Life Insurance and Annuity Company
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account G (the
"Separate Account") dated May 6, 1996.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Page
----
General Information and History. . . . . . . . . . . . . . . . . . . . 1
Variable Annuity Account G . . . . . . . . . . . . . . . . . . . . . . 1
Offering and Purchase. . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements of CLIAC Separate Account A . . . . . . . . . . . A-1
Financial Statements of Variable Annuity Account G . . . . . . . . . . S-1
Financial Statements of Aetna Life Insurance and Annuity Company . . . F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Life Insurance and Annuity Company (the "Company") is a stock life
insurance company which was organized under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1995, the Company
managed over $22 billion of assets, and as of December 31, 1994, it ranked among
the top 2% of all U.S. life insurance companies by size. The Company is a
wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a
wholly owned subsidiary of Aetna Retirement Services, Inc. and an indirect
wholly owned subsidiary of Aetna Life and Casualty Company, a diversified
financial services company. The Company is engaged in the business of issuing
life insurance policies and annuity contracts in all states of the United
States. The Company's Home Office is located at 151 Farmington Avenue,
Hartford, Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934.
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus.
The assets of the Separate Account are held by the Company. The Separate
Account has no custodian. However, the Funds in whose shares the assets of the
Separate Account are invested have a custodian, as discussed in their
prospectus.
VARIABLE ANNUITY ACCOUNT G
Variable Annuity Account G (the "Separate Account") is a separate account
originally established by Confederation Life Insurance and Annuity Company as
CLIAC Separate Account A under the laws of the state of Georgia and was re-
established by the Company pursuant to the laws of the state of Connecticut in
connection with the intact transfer of CLIAC Separate Account A. The Separate
Account funds the Contract. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended. The assets of the Separate Account
will be invested exclusively in shares of the Funds described in the Prospectus.
Purchase Payments made under the Contract may be allocated to one or more of the
variable investment options listed below. The Company may make additions to or
deletions from available investment options as permitted by law. The
availability of the Funds is subject to applicable regulatory authorization.
1
<PAGE>
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Global Securities Fund
Oppenheimer Growth Fund
Oppenheimer High Income Fund
Oppenheimer Money Fund
Oppenheimer Multiple Strategies Fund
Oppenheimer Strategic Bond Fund
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectus and statement of additional information for the Funds.
OFFERING AND PURCHASE
The Company is both the Depositor and the principal underwriter for the
securities sold by the prospectus. Although the Company no longer offers the
individual deferred variable annuity contracts, existing holders of in-force
contracts may make additional deposits.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are
the independent auditors for the Company and the Separate Account. KPMG Peat
Marwick LLP performs annual audits of the financial statements of the Company
and its Separate Accounts, including Variable Annuity Account G. The reports
of KPMG Peat Marwick LLP on the financial statements of CLIAC Separate Account
A and Variable Annuity Account G for the periods ended September 30, 1995
and December 31, 1995, respectively, are included herein.
2
<PAGE>
CLIAC SEPARATE ACCOUNT A
Financial Statements
September 30, 1995
(With Independent Auditors' Report Thereon)
A-1
<PAGE>
CLIAC SEPARATE ACCOUNT A
Table of Contents
September 30, 1995
Page
----
Independent Auditors' Report A-3
Audited Financial Statements:
Statement of Assets and Liabilities A-4
Statement of Operations for the period from January 1, 1995
to September 30, 1995 A-6
Statements of Changes in Net Assets for the period from January 1, 1995
to September 30, 1995 and the year ended December 31, 1994 A-7
Notes to Financial Statements A-8
A-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying statement of assets and liabilities of CLIAC
Separate Account A as of September 30, 1995, and the related statements of
operations and changes in net assets for the period from January 1, 1995 to
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statement of changes in net assets
of CLIAC Separate Account A for the year ended December 31, 1994 was audited by
other auditors whose report dated May 3, 1995, expressed an unqualified opinion
on that statement.
We conducted our audit 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. Our procedures
included confirmation of securities owned as of September 30, 1995, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in note 1 to the financial statements, the Company's ultimate
parent was put into rehabilitation on August 12, 1994. As discussed in note 8
to the financial statements, the Company entered into an Assumption Reinsurance
Agreement on May 3, 1995 and this agreement was closed on October 2, 1995.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CLIAC Separate Account A at
September 30, 1995, the results of its operations and the changes in its net
assets for the period from January 1, 1995 to September 30, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
April 26, 1996
A-3
<PAGE>
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Confederation Life Insurance and Annuity Company:
We have audited the accompanying statement of assets and liabilities of CLIAC
Separate Account A as of December 31, 1994, and the related statements of
operations and changes in net assets for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. The statement of changes in net assets of CLIAC Separate
Account A for the year ended December 31, 1993 was audited by other auditors
whose report dated January 17, 1994, expressed an unqualified opinion on that
statement.
We conducted our audit 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.
Our procedures included confirmation of securities owned as of December 31,
1994, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CLIAC Separate Account A at
December 31, 1994, the results of its operations and the changes in net
assets for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company's ultimate
parent was put into rehabilitation on August 12, 1994. Additionally, as
discussed in note 8 to the financial statements the Company entered into a
Proposed Assumption Reinsurance Agreement.
Coopers & Lybrand
Atlanta, Georgia
May 3, 1995
A-3
<PAGE>
CLIAC SEPARATE ACCOUNT A
Statement of Assets and Liabilities
September 30, 1995
<TABLE>
<CAPTION>
Capital Global
Money Appreciation Securities
Fund Bond Fund Fund Fund
Combined Subaccount Subaccount Subaccount Subaccount
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investments at net asset value:
Oppenheimer Money Fund -
18,082,764 shares at $1 per share
(cost $18,082,764) $ 18,082,764 18,082,764 - - -
Oppenheimer Bond Fund -
1,585,939 shares at $11.56 per
share (cost $17,985,508) 18,333,451 - 18,333,451 - -
Oppenheimer Capital Appreciation
Fund - 1,678,069 shares at $32.74
per share (cost $44,443,415) 54,939,919 - - 54,939,919 -
Oppenheimer Global Securities
Fund - 3,332,017 shares at $15.58
per share (cost $53,123,666) 51,912,880 - - - 51,912,880
Oppenheimer Growth Fund -
1,973,706 shares at $22.60 per
share (cost $36,596,218) 44,605,745 - - - -
Oppenheimer High Income Fund -
3,596,865 shares at $10.47 per share
(cost $37,310,886) 37,659,189 - - - -
Oppenheimer Multiple Strategies
Fund - 3,785,174 shares at $14.40
per share (cost $51,797,075) 54,506,479 - - - -
Oppenheimer Strategic Bond Fund -
3,108,154 shares at $4.80 per
share (cost $14,875,490) 14,919,140 - - - -
------------ ------------ ------------ ------------ ------------
Total investments
(cost $274,215,022) $ 294,959,567 18,082,764 18,333,451 54,939,919 51,912,880
------------ ------------ ------------ ------------ ------------
<CAPTION>
High Multiple
Growth Income Strategies Strategic
Fund Fund Fund Bond Fund
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Investments at net asset value:
Oppenheimer Money Fund -
18,082,764 shares at $1 per share
(cost $18,082,764) - - - -
Oppenheimer Bond Fund -
1,585,939 shares at $11.56 per
share (cost $17,985,508) - - - -
Oppenheimer Capital Appreciation
Fund - 1,678,069 shares at $32.74
per share (cost $44,443,415) - - - -
Oppenheimer Global Securities
Fund - 3,332,017 shares at $15.58
per share (cost $53,123,666) - - - -
Oppenheimer Growth Fund -
1,973,706 shares at $22.60 per
share (cost $36,596,218) 44,605,745 - - -
Oppenheimer High Income Fund -
3,596,865 shares at $10.47 per share
(cost $37,310,886) - 37,659,189 - -
Oppenheimer Multiple Strategies
Fund - 3,785,174 shares at $14.40
per share (cost $51,797,075) - - 54,506,479 -
Oppenheimer Strategic Bond Fund -
3,108,154 shares at $4.80 per
share (cost $14,875,490) - - - 14,919,140
------------ ------------ ------------ ------------
Total investments
(cost $274,215,022) 44,605,745 37,659,189 54,506,479 14,919,140
------------ ------------ ------------ ------------
</TABLE>
(Continued)
See Notes to Financial Statements.
A-4
<PAGE>
CLIAC SEPARATE ACCOUNT A
Statement of Assets and Liabilities, Continued
September 30, 1995
<TABLE>
<CAPTION>
Capital Global
Money Appreciation Securities
Fund Bond Fund Fund Fund
Combined Subaccount Subaccount Subaccount Subaccount
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total investments (carried
forward from page 2)
(cost $274,215,022) $ 294,959,567 18,082,764 18,333,451 54,939,919 51,912,880
Other assets:
Dividends receivable 37,711 37,711 - - -
Contract holders' funds receivable from
Oppenheimer 325,632 14,971 8,006 41,420 53,124
------------ ----------- ------------ ------------ ------------
Total assets $ 295,322,910 18,135,446 18,341,457 54,981,339 51,966,004
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
Liabilities:
Distributions payable to sponsor
(note 7) 325,632 14,971 2,037 47,388 53,719
------------ ----------- ------------ ------------ ------------
Total liabilities 325,632 14,971 2,037 47,388 53,719
------------ ----------- ------------ ------------ ------------
Net assets (note 4) $ 294,997,278 18,120,475 18,339,420 54,933,951 51,912,285
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
Total units 1,526,060 1,313,477 2,183,166 3,267,722
Unit value 11.87 13.96 25.16 15.89
Net assets held for the benefit
of contract holders $ 294,997,278 18,120,475 18,339,420 54,933,951 51,912,285
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
<CAPTION>
High Multiple
Growth Income Strategies Strategic
Fund Fund Fund Bond Fund
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total investments (carried
forward from page 2)
(cost $274,215,022) 44,605,745 37,659,189 54,506,479 14,919,140
Other assets:
Dividends receivable - - - -
Contract holders' funds receivable from
Oppenheimer 44,887 125,868 36,076 1,280
------------ ----------- ------------ ------------
Total assets 44,650,632 37,785,057 54,542,555 14,920,420
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Liabilities:
Distributions payable to sponsor
(note 7) 44,887 125,868 36,076 686
------------ ----------- ------------ ------------
Total liabilities 44,887 125,868 36,076 686
------------ ----------- ------------ ------------
Net assets (note 4) 44,605,745 37,659,189 54,506,479 14,919,734
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Total units 2,299,776 2,018,023 3,320,340 1,387,889
Unit value 19.40 18.66 16.42 10.75
Net assets held for the benefit
of contract holders 44,605,745 37,659,189 54,506,479 14,919,734
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
See Notes to Financial Statements
A-5
<PAGE>
CLIAC SEPARATE ACCOUNT A
Statement of Operations
Period from January 1, 1995 to September 30, 1995
<TABLE>
<CAPTION>
Capital Global
Money Appreciation Securities
Fund Bond Fund Fund Fund
Combined Subaccount Subaccount Subaccount Subaccount
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividends $11,356,476 1,024,766 882,634 249,563 1,319,558
Mortality, expense and administrative
charges to Sponsor (note 2) 2,895,609 248,354 191,620 482,272 519,381
----------- ---------- ----------- ----------- -----------
Net investment income (loss) 8,460,867 776,412 691,014 (232,709) 800,177
----------- ---------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) on investments (3,476,826) - (379,456) (1,735,749) (1,998,600)
Net unrealized appreciation on invest-
ments 36,076,753 - 1,692,417 13,015,588 3,603,421
----------- ---------- ----------- ----------- -----------
Net realized and unrealized gain
on investments 32,599,927 - 1,312,961 11,279,839 1,604,821
----------- ---------- ----------- ----------- -----------
Net increase in net assets resulting
from operations $41,060,794 776,412 2,003,975 11,047,130 2,404,998
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
<CAPTION>
High Multiple
Growth Income Strategies Strategic
Fund Fund Fund Bond Fund
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net investment income:
Dividends 891,081 2,756,733 3,352,181 879,960
Mortality, expense and administrative
charges to Sponsor (note 2) 387,117 373,459 540,125 153,281
----------- ---------- ----------- -----------
Net investment income (loss) 503,964 2,383,274 2,812,056 726,679
----------- ---------- ----------- -----------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) on investments 1,805,422 (1,098,097) 486,030 (556,376)
Net unrealized appreciation on invest-
ments 7,620,209 3,598,154 5,347,259 1,199,705
----------- ---------- ----------- -----------
Net realized and unrealized gain
on investments 9,425,631 2,500,057 5,833,289 643,329
----------- ---------- ----------- -----------
Net increase in net assets resulting
from operations 9,929,595 4,883,331 8,645,345 1,370,008
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
A-6
<PAGE>
CLIAC SEPARATE ACCOUNT A
Statements of Changes in Net Assets
Period from January 1, 1995 to September 30, 1995
and the year ended December 31, 1994
<TABLE>
<CAPTION>
Capital Global
Money Appreciation Securities
Fund Bond Fund Fund Fund
Combined Subaccount Subaccount Subaccount Subaccount
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net assets at January 1, 1994 $218,520,781 14,599,271 18,347,967 36,545,820 36,730,134
Changes from operations:
Net investment income (loss) 11,717,110 902,083 864,048 4,284,222 138,591
Net realized gain (loss) on invest-
ments 7,600,329 - (62,693) (1,039,088) 8,020,371
Net unrealized appreciation
(depreciation) on investments (31,643,373) - (1,400,706) (6,989,991) (12,784,269)
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations (12,325,934) 902,083 (599,351) (3,744,857) (4,625,307)
Net increase (decrease) from unit
transactions (note 5) 73,971,127 15,181,001 390,703 15,337,569 22,152,212
----------- ---------- ----------- ----------- -----------
Total increase (decrease)
in net assets 61,645,193 16,083,084 (208,648) 11,592,712 17,526,905
----------- ---------- ----------- ----------- -----------
Net assets at December 31, 1994 280,165,974 30,682,355 18,139,319 48,138,532 54,257,039
Changes from operations:
Net investment income (loss) 8,460,867 776,412 691,014 (232,709) 800,177
Net realized gain (loss) on invest-
ments (3,476,826) - (379,456) (1,735,749) (1,998,600)
Net unrealized appreciation
on investments 36,076,753 - 1,692,417 13,015,588 3,603,421
----------- ---------- ----------- ----------- -----------
Net increase in net assets resulting
from operations 41,060,794 776,412 2,003,975 11,047,130 2,404,998
Net increase (decrease) from unit
transactions (note 5) (26,229,490) (13,338,292) (1,803,874) (4,251,711) (4,749,752)
----------- ---------- ----------- ----------- -----------
Total increase (decrease) in
net assets 14,831,304 (12,561,880) 200,101 6,795,419 (2,344,754)
----------- ---------- ----------- ----------- -----------
Net assets at September 30, 1995 $294,997,278 18,120,475 18,339,420 54,933,951 51,912,285
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
<CAPTION>
High Multiple
Growth Income Strategies Strategic
Fund Fund Fund Bond Fund
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net assets at January 1, 1994 25,507,541 34,406,839 42,501,824 9,881,385
Changes from operations:
Net investment income (loss) (96,829) 2,674,062 2,071,707 879,226
Net realized gain (loss) on invest-
ments 598,027 (487,728) 1,016,180 (444,740)
Net unrealized appreciation
(depreciation) on investments (661,312) (3,875,999) (4,741,933) (1,189,163)
----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations (160,114) (1,689,665) (1,654,046) (754,677)
Net increase (decrease) from unit
transactions (note 5) 5,784,782 (376,710) 9,355,870 6,145,700
----------- ---------- ----------- -----------
Total increase (decrease)
net assets 5,624,668 (2,066,375) 7,701,824 5,391,023
----------- ---------- ----------- -----------
Net assets at December 31, 1994 31,132,209 32,340,464 50,203,648 15,272,408
Changes from operations:
Net investment income (loss) 503,964 2,383,274 2,812,056 726,679
Net realized gain (loss) on invest-
ments 1,805,422 (1,098,097) 486,030 (556,376)
Net unrealized appreciation
on investments 7,620,209 3,598,154 5,347,259 1,199,705
----------- ---------- ----------- -----------
Net increase in net assets resulting
from operations 9,929,595 4,883,331 8,645,345 1,370,008
Net increase (decrease) from unit
transactions (note 5) 3,543,941 435,394 (4,342,514) (1,722,682)
----------- ---------- ----------- -----------
Total increase (decrease) in
net assets 13,473,536 5,318,725 4,302,831 (352,674)
----------- ---------- ----------- -----------
Net assets at September 30, 1995 44,605,745 37,659,189 54,506,479 14,919,734
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
A-7
<PAGE>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
September 30, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
CLIAC Separate Account A (the "Separate Account" or "Separate Account A")
is a separate account of Confederation Life Insurance and Annuity
Company (a stock life insurance company) (the "Sponsor"), a wholly
owned subsidiary of Confederation Financial Holdings, Inc. ("CFH"). CFH
is a wholly owned subsidiary of Confederation Life Insurance
Company (U.S.) in Rehabilitation ("CLIC U.S."), an estate formed
from the U.S. division of Confederation Life Insurance Company of
Canada ("CLIC Canada") which is a mutual company incorporated under
the laws of Canada. The Separate Account was established for the
purpose of funding variable annuity contracts issued by the
Sponsor. The Separate Account became registered as a unit
investment trust under the Investment Company Act of 1940, as
amended, during 1990, and recorded its first policy sale on
August 23, 1990.
Currently, the Separate Account has eight Subaccounts, each of which
invests exclusively in shares of the corresponding Portfolios of the
Oppenheimer Variable Account Funds (the "Oppenheimer Funds"): the
Oppenheimer Money Fund, the Oppenheimer Bond Fund, the Oppenheimer
Capital Appreciation Fund, the Oppenheimer Global Securities Fund, the
Oppenheimer Growth Fund, the Oppenheimer High Income Fund, the
Oppenheimer Multiple Strategies Fund and the Oppenheimer Strategic Bond
Fund. The contractholder may allocate all or part of the initial
premium and additional premiums, if any, to one or more Subaccounts of
the Separate Account or to the Sponsor's General Account. The Sponsor's
General Account consists of all assets owned by the Sponsor other than
those in the Separate Account.
CLIC Canada was placed in liquidation on August 11, 1994 by the Office of
the Superintendent of Financial Institutions, the federal regulator of
insurance companies in Canada. CLIC U.S. was placed under
rehabilitation pursuant to the laws of the State of Michigan on
August 12, 1994 by the Circuit Court for the County of Ingham, State
of Michigan. The Sponsor was placed under rehabilitation pursuant
to the laws of the State of Georgia on September 12, 1994 by the
Superior Court for the County of Fulton, State of Georgia.
While net assets of the Separate Account do not inure to the benefit of
creditors of the Sponsor, the Sponsor, however, remains responsible to
pay certain policy benefits that may exist in excess of available
Separate Account net assets. The Sponsor's liabilities in this regard,
however, have been transferred to another insurance company as a result
of the reinsurance agreement discussed in note 8.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that effect amounts reported therein. Although actual results could
differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Separate Account.
A-8
<PAGE>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
INVESTMENTS
The investments in the Oppenheimer Funds are stated at the closing
market values per share on September 30, 1995. Investment
transactions are recorded on the trade date. The difference between
the cost and current market value of investments owned is recorded
as an unrealized gain or loss on investments. Realized gains and
losses are calculated on a "first-in, first-out" basis.
DIVIDENDS
Dividends are recorded on the ex-dividend date and reflect the daily
dividends declared by the Oppenheimer Funds from their accumulated
net investment income. Dividends paid to the Separate Account are
automatically reinvested in shares of the Oppenheimer Funds.
FEDERAL INCOME TAXES
Operations of the Separate Account form a part of, and are taxed with,
operations of the Sponsor, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the Separate
Account's net investment income and the net realized gain on
investments.
(2) MORTALITY, EXPENSE AND ADMINISTRATIVE (M, E AND A) CHARGES TO SPONSOR
MORTALITY AND EXPENSE RISK CHARGE
A daily charge, equal to, on an annual basis, 1.25% of the daily net asset
value is deducted from each Subaccount to compensate the Sponsor for
certain mortality and expense risks assumed. The mortality risk
arises from the Sponsor's obligation to make income payments
regardless of how long all annuitants may live. The expense risk
assumed by the Sponsor is the risk that actual administrative costs
will exceed the amount recovered through the administrative charges.
ADMINISTRATIVE EXPENSE CHARGE
A daily charge, equal to, on an annual basis, .10% of the daily net asset
value is deducted from each Subaccount to reimburse the Sponsor for
administrative expenses.
(3) SURRENDER CHARGES AND ANNUAL CONTRACT FEE
SURRENDER CHARGES
There are no sales expenses deducted from premiums at the time premiums
are paid. If a contract has not been in force for six years, upon
surrender or for certain withdrawals, a surrender charge is deducted
from the proceeds. Surrender charges may be decreased or waived on
contracts meeting certain restrictions as determined by the Sponsor.
ANNUAL CONTRACT FEE
An annual contract fee of $30 is deducted on each contract anniversary
date, and on any day the contract is surrendered, if such surrender
occurs on any day other than the contract anniversary date. Annual
contract fees of $174,510 were assessed for the period from
January 1, 1995 to September 30, 1995.
(Continued)
A-9
<PAGE>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
(4) NET ASSETS
Net assets at September 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
Unrealized Accumulated
Appreciation Realized Net
Accumulated Accumulated (Depreciation) Gain (Loss) Assets at
Unit M, E and A Investment on on September 30,
Transactions Charges Income Investments Investments 1995
------------ ------- ------ ----------- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Money Fund $ 16,009,626 (951,517) 3,062,366 - - 18,120,475
Bond Fund 15,601,002 (658,266) 3,180,818 347,943 (132,077) 18,339,420
Capital Appreciation Fund 40,191,383 (1,428,019) 5,820,372 10,496,504 (146,289) 54,933,951
Global Securities Fund 45,378,958 (1,538,669) 2,220,935 (1,210,786) 7,061,847 51,912,285
Growth Fund 32,820,644 (1,060,726) 1,565,874 8,009,527 3,270,426 44,605,745
High Income Fund 30,156,094 (1,191,910) 8,884,554 348,303 (537,852) 37,659,189
Multiple Strategies Fund 43,739,930 (1,640,883) 7,559,595 2,709,404 2,138,433 54,506,479
Strategic Bond Fund 14,078,717 (391,908) 2,114,009 43,650 (924,734) 14,919,734
------------ ------------ ----------- ------------ ------------ ------------
$ 237,976,354 (8,861,898) 34,408,523 20,744,545 10,729,754 294,997,278
------------ ------------ ----------- ------------ ------------ ------------
------------ ------------ ----------- ------------ ------------ ------------
</TABLE>
(5) SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
The following table represents a summary of changes from unit transactions
for the period from January 1, 1995 to September 30, 1995:
<TABLE>
<CAPTION>
Units Amount
----- ------
<S> <C> <C>
Money Fund Subaccount:
Contract purchases - $ -
Net transfers in (out) (688,516) (8,056,294)
Terminated contracts, partial withdrawals, transfers
to annuity reserves, surrender charges and annual
contract fees (451,137) (5,281,998)
----------- -----------
(1,139,653) (13,338,292)
----------- -----------
Bond Fund Subaccount:
Contract purchases - -
Net transfers in (out) 9,640 78,721
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (141,527) (1,882,595)
----------- -----------
(131,887) (1,803,874)
----------- -----------
Capital Appreciation Fund Subaccount:
Contract purchases - -
Net transfers in (out) (83,978) (1,285,303)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (134,978) (2,966,408)
----------- -----------
(218,956) (4,251,711)
----------- -----------
</TABLE>
(Continued)
A-10
<PAGE>
<TABLE>
<CAPTION>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
Units Amount
----- ------
<S> <C> <C>
Global Securities Fund Subaccount:
Contract purchases 1,282 $ 18,996
Net transfers in (out) (113,392) (1,565,934)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (210,971) (3,202,814)
----------- -----------
(323,081) (4,749,752)
----------- -----------
Growth Fund Subaccount:
Contract purchases - -
Net transfers in (out) 390,495 6,587,820
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (174,535) (3,043,879)
----------- -----------
215,960 3,543,941
----------- -----------
High Income Fund Subaccount:
Contract purchases 1,318 23,150
Net transfers in (out) 214,578 3,509,955
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (175,883) (3,097,711)
----------- -----------
40,013 435,394
----------- -----------
Multiple Strategies Fund Subaccount:
Contract purchases 180 2,724
Net transfers in (out) 75,057 1,037,490
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (353,725) (5,382,728)
----------- -----------
(278,488) (4,342,514)
----------- -----------
Strategic Bond Fund Subaccount:
Contract purchases - -
Net transfers in (out) (29,323) (315,280)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (139,608) (1,407,402)
----------- -----------
(168,931) (1,722,682)
----------- -----------
Net decrease from unit transactions (26,229,490)
-----------
- -----------
</TABLE>
(Continued)
A-11
<PAGE>
<TABLE>
<CAPTION>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
The following table represents a summary of changes from unit transactions
for the year ended December 31, 1994:
Units Amount
----- ------
<S> <C> <C>
Money Fund Subaccount:
Contract purchases 1,231,953 $ 13,833,776
Net transfers in (out) 694,945 7,786,795
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (565,631) (6,439,570)
----------- -----------
1,361,267 15,181,001
----------- -----------
Bond Fund Subaccount:
Contract purchases 392,024 5,010,896
Net transfers in (out) (191,031) (2,453,777)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (170,684) (2,166,416)
----------- -----------
30,309 390,703
----------- -----------
Capital Appreciation Fund Subaccount:
Contract purchases 786,343 16,467,380
Net transfers in (out) 155,730 2,983,796
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (205,287) (4,113,607)
----------- -----------
736,786 15,337,569
----------- -----------
Global Securities Fund Subaccount:
Contract purchases 1,617,697 26,321,335
Net transfers in (out) 30,940 1,175,688
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (326,197) (5,344,811)
----------- -----------
1,322,440 22,152,212
----------- -----------
Growth Fund Subaccount:
Contract purchases 544,155 8,081,139
Net transfers in (out) 57,059 1,001,872
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (220,059) (3,298,229)
----------- -----------
381,155 5,784,782
----------- -----------
</TABLE>
(Continued)
A-12
<PAGE>
<TABLE>
<CAPTION>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
Units Amount
----- ------
<S> <C> <C>
High Income Fund Subaccount:
Contract purchases 675,940 11,560,250
Net transfers in (out) (493,851) (8,193,583)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (222,576) (3,743,377)
----------- -----------
(40,487) (376,710)
----------- -----------
Multiple Strategies Fund Subaccount:
Contract purchases 1,388,798 19,810,754
Net transfers in (out) (206,727) (2,890,043)
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (532,934) (7,564,841)
----------- -----------
649,137 9,355,870
----------- -----------
Strategic Bond Fund Subaccount:
Contract purchases 695,751 7,049,660
Net transfers in (out) 21,216 253,994
Terminated contracts, partial withdrawals, transfers to
annuity reserves, surrender charges and annual
contract fees (115,960) (1,157,954)
----------- -----------
601,007 6,145,700
----------- -----------
Net increase from unit transactions $73,971,127
-----------
-----------
</TABLE>
(6) PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and the aggregate proceeds
from investments sold for the period from January 1, 1995 to
September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Aggregate Aggregate
Cost of Proceeds
Purchases from Sales
--------- ----------
<S> <C> <C>
Money Fund Subaccount $ 34,306,368 $ 47,677,567
Bond Fund Subaccount 6,061,712 7,864,951
Capital Appreciation Fund Subaccount 18,785,915 22,997,481
Global Securities Fund Subaccount 11,797,255 16,534,938
Growth Fund Subaccount 13,147,749 9,601,687
High Income Fund Subaccount 14,768,826 14,219,875
Multiple Strategies Fund Subaccount 5,735,960 10,078,170
Strategic Bond Fund Subaccount 4,739,544 6,462,226
----------- -----------
$ 109,343,329 $ 135,436,895
----------- -----------
----------- -----------
(Continued)
</TABLE>
A-13
<PAGE>
CLIAC SEPARATE ACCOUNT A
Notes to Financial Statements
(7) RELATED PARTY TRANSACTIONS
As of September 30, 1995, Separate Account A has recorded distributions
Payable to Sponsor in the accompanying statement of assets and
liabilities for funds requested from Oppenheimer for redemptions which
have not been transferred to the Sponsor for distribution.
(8) ASSUMPTION REINSURANCE AGREEMENT
On May 3, 1995, the Sponsor entered into an Assumption Reinsurance
Agreement with Aetna Life Insurance and Annuity Company ("ALIAC")
under which ALIAC would assume liability through reinsurance for all
of the Sponsor's separate account policies as well as those individual
life and GIC policyholders who elected to be reinsured (subject to the
approval of the various states) and subject to the fulfillment of
certain other closing conditions. This assumption reinsurance
transaction was closed on October 2, 1995, effective October 1, 1995.
Thereafter the Separate Account A became Variable Annuity Account G of
ALIAC.
A-14
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT G
INDEX
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . S-2
Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . S-4
Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . S-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . S-7
Condensed Financial Information. . . . . . . . . . . . . . . . . . . . . . S-8
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account G:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account G (the "Account")
as of December 31, 1995, and the related statement of operations, changes in
net assets and condensed financial information for the three month period
then ended. These financial statements and condensed financial information
are the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements and condensed financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
condensed financial information are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Aetna Life Insurance and Annuity Company Variable Annuity
Account G as of December 31, 1995, the results of its operations, changes in its
net assets and condensed financial information for the three-month period then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
S-2
<PAGE>
VARIABLE ANNUITY ACCOUNT G
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at net asset value: (Note 1)
Oppenheimer Funds:
Bond Fund; 1,578,109 shares at $11.84 per share (cost $18,298,189) . . . . . . . . . . . . . . . . . . $ 18,684,805
Capital Appreciation Fund; 1,679,506 shares at $34.21 per share (cost $53,696,171) . . . . . . . . . . 57,455,911
Global Securities Fund; 3,138,236 shares at $15.00 per share (cost $48,454,302). . . . . . . . . . . . 47,073,537
Growth Fund; 1,978,591 shares at $23.55 per share (cost $44,373,516) . . . . . . . . . . . . . . . . . 46,595,829
High Income Fund; 3,647,214 shares at $10.63 per share (cost $38,240,750). . . . . . . . . . . . . . . 38,769,887
Money Fund; 17,297,463 shares at $1.00 per share (cost $17,297,463). . . . . . . . . . . . . . . . . . 17,297,463
Multiple Strategies Fund; 3,750,568 shares at $14.55 per share (cost $53,749,217). . . . . . . . . . . 54,570,762
Strategic Bond Fund; 3,206,173 shares at $4.91 per share (cost $15,416,608). . . . . . . . . . . . . . 15,742,309
Dividend Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,623
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $296,236,126
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Net assets represented by: ACCUMULATION
UNIT
UNITS VALUE
<S> <C> <C> <C>
Reserves for annuity contracts in accumulation period:
OPPENHEIMER FUNDS:
BOND FUND: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,289,495.0 $14.490 $18,684,805
CLIAC I
CAPITAL APPRECIATION FUND. . . . . . . . . . . . . . . . . . . . . . . . . 2,192,368.9 26.207 57,455,911
CLIAC I
GLOBAL SECURITIES FUND:. . . . . . . . . . . . . . . . . . . . . . . . . . 3,088,121.2 15.243 47,073,537
CLIAC I
GROWTH FUND: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,313,184.3 20.144 46,595,829
CLIAC I
HIGH INCOME FUND:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,996,763.9 19.416 38,769,887
CLIAC I
MONEY FUND:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445,120.8 12.001 17,343,086
CLIAC I
MULTIPLE STRATEGIES FUND . . . . . . . . . . . . . . . . . . . . . . . . . 3,267,185.2 16.703 54,570,762
CLIAC I
STRATEGIC BOND FUND: . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,410,416.7 11.161 15,742,309
------------
CLIAC I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $296,236,126
------------
------------
</TABLE>
See Notes to Financial Statements.
S-3
<PAGE>
VARIABLE ANNUITY ACCOUNT G
STATEMENT OF OPERATIONS - Three Month Period Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Oppenheimer Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . $310,788
Oppenheimer High Income Fund . . . . . . . . . . . . . . . . . . . . . . 1,065,009
Oppenheimer Money Fund . . . . . . . . . . . . . . . . . . . . . . . . . 311,101
Oppenheimer Multiple Strategies Fund . . . . . . . . . . . . . . . . . . 557,388
Oppenheimer Strategic Bond Fund. . . . . . . . . . . . . . . . . . . . . 283,293
----------
Total investment income. . . . . . . . . . . . . . . . . . . . . . . . 2,527,579
Valuation period deductions (Note 2) . . . . . . . . . . . . . . . . . . . (1,006,867)
----------
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,520,712
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales. . . . . . . . . . . . . . . . . . . . . . . . . . . $27,617,465
Cost of investments sold . . . . . . . . . . . . . . . . . . . . . . . . 27,564,734
-----------
Net realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . 52,731
Net unrealized gain on investments:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 0
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,664,287
-----------
Net unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . 6,664,287
----------
Net realized and unrealized gain on investments. . . . . . . . . . . . . . 6,717,018
----------
Net increase in net assets resulting from operations . . . . . . . . . . . 8,237,730
----------
----------
</TABLE>
See Notes to Financial Statements.
S-4
<PAGE>
VARIABLE ANNUITY ACCOUNT G
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . . $1,520,712
Net realized and unrealized gain on investments. . . . . . 6,717,018
-----------------
Net increase in net assets resulting from operations . . 8,237,730
-----------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payment . . . . . . . . 295,637,163
Sales and administrative charges deducted by
the Company . . . . . . . . . . . . . . . . . . . . . . (98,694)
-----------------
Variable annuity contract purchase payments. . . . . . . . 295,538,469
Transfers to the Company's fixed account options . . . . . (265,956)
Redemptions by contract holders. . . . . . . . . . . . . . (4,878,071)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . (2,396,046)
-----------------
Net increase in net assets from unit transactions. . . . 287,998,396
-----------------
Change in net assets . . . . . . . . . . . . . . . . . . . 296,236,126
NET ASSETS:
Beginning of period. . . . . . . . . . . . . . . . . . . . 0
-----------------
End of period. . . . . . . . . . . . . . . . . . . . . . . $296,236,126
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
S-5
<PAGE>
VARIABLE ANNUITY ACCOUNT G
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account G ("Account") is registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with the individual deferred variable annuity contracts
originally issued by Confederation Life Insurance and Annuity Company. The
Contract allows tax-deferred capital accumulation under specific sections
of the Internal Revenue Code of 1986, as amended. The account commenced
operations on October 2, 1995.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. VALUATION OF INVESTMENTS
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1995:
Oppenheimer Funds:
- Bond Fund
- Capital Appreciation Fund
- Global Securities Fund
- Growth Fund
- High Income Fund
- Money Fund
- Multiple Strategies Fund
- Strategic Bond Fund
b. OTHER
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
d. ANNUITY RESERVES
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the 83a table, the 83GAM table or a blend of
the 83a and 83GAM tables, using the assumed interest rate chosen by the
annuitant, not to exceed seven percent. Mortality experience is monitored
by the Company. Charges to annuity reserves for mortality experience are
reimbursed to the Company if the reserves required are less than originally
estimated. If additional reserves are required, the Company reimburses the
Account.
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
S-6
<PAGE>
VARIABLE ANNUTIY ACCOUNT G
NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued)
3. DIVIDEND INCOME
On an annual basis, the Funds distribute substantially all of their
taxable income and net realized capital gains to their shareholders.
Distributions to the Account are automatically reinvested in shares of the
Funds. The Account's proportionate share of each Fund's undistributed net
investment income and accumulated net realized gain on investments is
included in net unrealized gain in the Statement of Operations.
4. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments other than
short-term investments for the three month period ended December 31, 1995
aggregated $317,090,950 and $27,617,465, respectively.
5. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
S-7
<PAGE>
VARIABLE ANNUITY ACCOUNT G
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - OCTOBER 2, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Value at Value at Increase/Decrease
Beginning End in Value of
of Period of Period Accumulation Unit
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
OPPENHEIMER FUNDS:
BOND FUND:
CLIACI 13.96 14.49 3.80%
CAPITAL APPRECIATION FUND:
CLIACI 25.16 26.21 4.17%
GLOBAL SECURITIES FUND:
CLIACI 15.89 15.24 (4.09)%
GROWTH FUND:
CLIACI 19.40 20.14 3.81%
HIGH INCOME FUND:
CLIACI 18.66 19.42 4.07%
MONEY FUND:
CLIACI 11.87 12.00 1.10%
MULTIPLE STRATEGIES FUND:
CLIACI 16.42 16.70 1.71%
STRATEGY BOND FUND:
CLIACI 10.75 11.16 3.81%
</TABLE>
S-8
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report..................................... F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993.............................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994... F-4
Consolidated Statements of Changes in Shareholder's Equity for
the Years Ended
December 31, 1995, 1994 and 1993.............................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.............................. F-6
Notes to Consolidated Financial Statements....................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994,
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, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, 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.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 6, 1996
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premiums............................................. $ 130.8 $ 124.2 $ 82.1
Charges assessed against policyholders............... 318.9 279.0 251.5
Net investment income................................ 1,004.3 917.2 911.9
Net realized capital gains........................... 41.3 1.5 9.5
Other income......................................... 42.0 10.3 9.5
-------- -------- --------
Total revenue...................................... 1,537.3 1,332.2 1,264.5
-------- -------- --------
Benefits and expenses:
Current and future benefits.......................... 915.3 854.1 818.4
Operating expenses................................... 318.7 235.2 207.2
Amortization of deferred policy acquisition costs.... 43.3 26.4 19.8
-------- -------- --------
Total benefits and expenses........................ 1,277.3 1,115.7 1,045.4
-------- -------- --------
Income before federal income taxes..................... 260.0 216.5 219.1
Federal income taxes................................. 84.1 71.2 76.2
-------- -------- --------
Net income............................................. $ 175.9 $ 145.3 $ 142.9
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Balance Sheets
(millions)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
- -------------------------------------------------------
Investments:
Debt securities, available for sale:
(amortized cost: $11,923.7 and $10,577.8)........... $12,720.8 $10,191.4
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $51.3 and
$43.3)............................................ 57.6 47.2
Investment in affiliated mutual funds (cost: $173.4
and $187.1)....................................... 191.8 181.9
Common stock (cost: $6.9 at December 31, 1995)..... 8.2 --
Short-term investments............................... 15.1 98.0
Mortgage loans....................................... 21.2 9.9
Policy loans......................................... 338.6 248.7
Limited partnership.................................. -- 24.4
--------- ---------
Total investments................................ 13,353.3 10,801.5
Cash and cash equivalents.............................. 568.8 623.3
Accrued investment income.............................. 175.5 142.2
Premiums due and other receivables..................... 37.3 75.8
Deferred policy acquisition costs...................... 1,341.3 1,164.3
Reinsurance loan to affiliate.......................... 655.5 690.3
Other assets........................................... 26.2 15.9
Separate Accounts assets............................... 10,987.0 7,420.8
--------- ---------
Total assets..................................... $27,144.9 $20,934.1
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
- -------------------------------------------------------
Liabilities:
Future policy benefits............................... $ 3,594.6 $ 2,912.7
Unpaid claims and claim expenses..................... 27.2 23.8
Policyholders' funds left with the Company........... 10,500.1 8,949.3
--------- ---------
Total insurance reserve liabilities.............. 14,121.9 11,885.8
Other liabilities.................................... 259.2 302.1
Federal income taxes:
Current............................................ 24.2 3.4
Deferred........................................... 169.6 233.5
Separate Accounts liabilities........................ 10,987.0 7,420.8
--------- ---------
Total liabilities................................ 25,561.9 19,845.6
--------- ---------
--------- ---------
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)................ 132.5 (189.0)
Retained earnings.................................... 1,040.1 867.1
--------- ---------
Total shareholder's equity....................... 1,583.0 1,088.5
--------- ---------
Total liabilities and shareholder's equity..... $27,144.9 $20,934.1
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's equity, beginning of year................ $ 1,088.5 $ 1,246.7 $ 990.1
Net change in unrealized capital gains (losses)........ 321.5 (303.5) 113.7
Net income............................................. 175.9 145.3 142.9
Common stock dividends declared........................ (2.9) -- --
--------- --------- ---------
Shareholder's equity, end of year...................... $ 1,583.0 $ 1,088.5 $ 1,246.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 175.9 $ 145.3 $ 142.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income.............. (33.3) (17.5) (11.1)
Decrease (increase) in premiums due and other
receivables....................................... 25.4 1.3 (5.6)
Increase in policy loans........................... (89.9) (46.0) (36.4)
Increase in deferred policy acquisition costs...... (177.0) (105.9) (60.5)
Decrease in reinsurance loan to affiliate.......... 34.8 27.8 31.8
Net increase in universal life account balances.... 393.4 164.7 126.4
Increase in other insurance reserve liabilities.... 79.0 75.1 86.1
Net increase in other liabilities and other
assets............................................ 15.0 53.9 7.0
Decrease in federal income taxes................... (6.5) (11.7) (3.7)
Net accretion of discount on bonds................. (66.4) (77.9) (88.1)
Net realized capital gains......................... (41.3) (1.5) (9.5)
Other, net......................................... -- (1.0) 0.2
---------- ---------- ----------
Net cash provided by operating activities........ 309.1 206.6 179.5
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale................. 4,207.2 3,593.8 473.9
Equity securities.................................. 180.8 93.1 89.6
Mortgage loans..................................... 10.7 -- --
Limited partnership................................ 26.6 -- --
Investment maturities and collections of:
Debt securities available for sale................. 583.9 1,289.2 2,133.3
Short-term investments............................. 106.1 30.4 19.7
Cost of investment purchases in:
Debt securities.................................... (6,034.0) (5,621.4) (3,669.2)
Equity securities.................................. (170.9) (162.5) (157.5)
Short-term investments............................. (24.7) (106.1) (41.3)
Mortgage loans..................................... (21.3) -- --
Limited partnership................................ -- (25.0) --
---------- ---------- ----------
Net cash used for investing activities........... (1,135.6) (908.5) (1,151.5)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment
contracts........................................... 1,884.5 1,737.8 2,117.8
Withdrawals of investment contracts.................. (1,109.6) (948.7) (1,000.3)
Dividends paid to shareholder........................ (2.9) -- --
---------- ---------- ----------
Net cash provided by financing activities........ 772.0 789.1 1,117.5
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents... (54.5) 87.2 145.5
Cash and cash equivalents, beginning of year........... 623.3 536.1 390.6
---------- ---------- ----------
Cash and cash equivalents, end of year................. $ 568.8 $ 623.3 $ 536.1
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Income taxes paid, net............................... $ 90.2 $ 82.6 $ 79.9
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business segments,
financial services and life insurance.
The financial services products include individual and group annuity contracts
which offer a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify under Internal Revenue Code
Sections 401, 403, 408 and 457, and individual and group non-qualified annuity
contracts. These contracts may be immediate or deferred and are offered
primarily to individuals, pension plans, small businesses and employer-sponsored
groups in the health care, government, education (collectively "not-for-profit"
organizations) and corporate markets. Financial services also include pension
plan administrative services.
The life insurance products include 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.
BASIS OF PRESENTATION
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a
wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a
wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two
subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna
Investment Services, Inc. ("AISI"), which were previously reported in the
consolidated financial statements were distributed in the form of dividends to
ARSI in December of 1995. The impact to the Company's financial statements of
distributing these dividends was immaterial.
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 1994 and 1993 financial
information to conform to the 1995 presentation.
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.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
CASH AND CASH EQUIVALENT
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.
INVESTMENTS
Debt Securities
At December 31, 1995 and 1994, 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.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Limited Partnership
The Company's limited partnership investment was carried at the amount invested
plus the Company's share of undistributed operating results and unrealized gains
(losses), which approximates fair value. The Company disposed of the limited
partnership during 1995.
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 10.00%. 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 6.38% in 1995 and
4.00% to 5.85% in 1994. For all other fixed options, the interest credited
ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994.
Reserves for fixed annuity contracts in the annuity period and for future
amounts due under settlement options are computed actuarially using the 1971
Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table,
the
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1983 Group Annuity Mortality Table and, in some cases, mortality improvement
according to scales G and H, 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 $322.2 million for 1995 (fair value
$343.9 million) and $149.7 million for 1994 (fair value $146.3 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 both 1995
and 1994. 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.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS
Investments in debt securities available for sale as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies and corporations... $ 539.5 $ 47.5 $ -- $ 587.0
Obligations of states and political
subdivisions................................ 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial.................................. 2,764.4 110.3 2.1 2,872.6
Utilities.................................. 454.4 27.8 1.0 481.2
Other...................................... 2,177.7 159.5 1.2 2,336.0
--------- ---------- ----- ---------
Total U.S. Corporate securities............ 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government................................. 316.4 26.1 2.0 340.5
Financial.................................. 534.2 45.4 3.5 576.1
Utilities.................................. 236.3 32.9 -- 269.2
Other...................................... 215.7 15.1 -- 230.8
--------- ---------- ----- ---------
Total Foreign securities................... 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Residential pass-throughs.................. 556.7 99.2 1.8 654.1
Residential CMOs........................... 2,383.9 167.6 2.2 2,549.3
--------- ---------- ----- ---------
Total Residential mortgage-backed
securities................................ 2,940.6 266.8 4.0 3,203.4
Commercial/Multifamily mortgage-backed
securities.................................. 741.9 32.3 0.2 774.0
--------- ---------- ----- ---------
Total Mortgage-backed securities........... 3,682.5 299.1 4.2 3,977.4
Other asset-backed securities................ 961.2 35.5 0.5 996.2
--------- ---------- ----- ---------
Total debt securities available for sale..... $11,923.7 $811.6 $14.5 $12,720.8
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
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 asset-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>
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of
$797.1 million and $(386.4) million, respectively, on available for sale debt
securities included $619.1 million and $(308.6) million, respectively, related
to experience-rated contractholders, which were not included in shareholder's
equity.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities for the year ended December
31, 1995 are shown below by contractual maturity. Actual maturities may differ
from contractual maturities because securities may be restructured, called, or
prepaid.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
(MILLIONS)
<S> <C> <C>
Due to mature:
One year or less..................................... $ 348.8 $ 351.1
After one year through five years.................... 2,100.2 2,159.5
After five years through ten years................... 2,516.0 2,663.4
After ten years...................................... 2,315.0 2,573.2
Mortgage-backed securities........................... 3,682.5 3,977.4
Other asset-backed securities........................ 961.2 996.2
--------- ---------
Total................................................ $11,923.7 $12,720.8
--------- ---------
--------- ---------
</TABLE>
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities, is
deposited by the borrower with a lending agent, and retained and invested by the
lending agent to generate additional income for the Company. The market value of
the loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value fluctuates. At December 31, 1995, the
Company had loaned securities (which are reflected as invested assets on the
Consolidated Balance Sheets) with a market value of approximately $264.5
million.
At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0
million, respectively, were on deposit as required by regulatory authorities.
The valuation reserve for mortgage loans was $3.1 million at December 31, 1994.
There was no valuation reserve for mortgage loans at December 31, 1995. The
carrying value of non-income producing investments was $0.1 million and $0.2
million at December 31, 1995 and 1994, respectively.
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
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, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED
DEBT SECURITIES COST FAIR VALUE
---------- ----------
(MILLIONS)
<S> <C> <C>
General Electric Corporation........................... $ 314.9 $ 329.3
General Motors Corporation............................. 273.9 284.5
Associates Corporation of North America................ 230.2 239.1
Society National Bank.................................. 203.5 222.3
Ciesco, L.P............................................ 194.9 194.9
Countrywide Funding.................................... 171.2 172.7
Baxter International................................... 168.9 168.9
Time Warner............................................ 158.6 166.1
Ford Motor Company..................................... 156.7 162.6
</TABLE>
The portfolio of debt securities at December 31, 1995 and 1994 included $662.5
million and $318.3 million, respectively, (5% and 3%, respectively, of the debt
securities) 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.
The increase in below investment grade securities is the result of a change in
investment strategy, which has reduced the Company's holdings in residential
mortgage-back securities and increased the Company's holdings in corporate
securities. Residential mortgage-back securities are subject to higher
prepayment risk and lower credit risk, while corporate securities earning a
comparable yield are subject to higher credit risk and lower prepayment risk. We
expect the percentage of below investment grade securities will increase in
1996, but we expect that the overall average quality of the portfolio of debt
securities will remain at AA-. Of these below investment grade assets, $14.5
million and $31.8 million, at December 31, 1995 and 1994, 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 $2.5 billion and $2.6 billion at
December 31, 1995 and 1994, respectively. 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, 1995
and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings
consisted of sequential and planned amortization class debt securities which are
subject to less prepayment and extension risk than other CMO instruments. At
December 31, 1995 and 1994, approximately 81% and 82%, respectively, 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.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
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, 1995 and 1994, approximately 3% and 4%, 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 was
mitigated somewhat by offsetting positions in IOs. During dramatic increases in
interest rates, IOs would generate more future payments than originally
anticipated.
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 somewhat by holding offsetting
positions in POs. During dramatic decreases in interest rates POs would generate
future cash flows much quicker than originally anticipated.
Investments in available for sale equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------ ---------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
1995
Equity Securities................ $231.6 $ 27.2 $ 1.2 $ 257.6
------ ----- --- ----------
1994
Equity Securities................ $230.5 $ 6.5 $ 7.9 $ 229.1
------ ----- --- ----------
</TABLE>
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
$61.1 million, $(29.1) million and $(54.8) million for the years ended December
31, 1995, 1994, and 1993, 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
$7.3 million and $(50.7) million at the end of December 31, 1995 and 1994,
respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt securities
are included in net realized capital gains (losses) and amounted to $3.1
million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million
and $(91.5) million were allocable to experience-rated contractholders, for the
years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were
primarily related to writedowns of interest-only mortgage-backed securities to
their fair value.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Net realized capital gains (losses) on investments, net of amounts allocated to
experience-rated contracts, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $32.8 $ 1.0 $ 9.6
Equity securities...................................... 8.3 0.2 0.1
Mortgage loans......................................... 0.2 0.3 (0.2)
----- ----- ------
Pretax realized capital gains.......................... $41.3 $ 1.5 $ 9.5
----- ----- ------
After-tax realized capital gains....................... $25.8 $ 1.0 $ 6.2
----- ----- ------
</TABLE>
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses
of $11.8 million, $25.6 million and $23.7 million were realized from the sales
of investments in debt securities in 1995, 1994 and 1993, 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:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $255.9 $ (242.1) $164.3
Equity securities...................................... 27.3 (13.3) 10.6
Limited partnership.................................... 1.8 (1.8) --
------ -------- ------
285.0 (257.2) 174.9
Deferred federal income taxes (See Note 6)............. (36.5) 46.3 61.2
------ -------- ------
Net change in unrealized capital gains (losses)........ $321.5 $ (303.5) $113.7
------ -------- ------
------ -------- ------
</TABLE>
Net unrealized capital gains (losses) allocable to experience-rated contracts of
$515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and
$(47.7) million at December 31, 1994 are reflected on the Consolidated Balance
Sheet in Policyholders' Funds Left With the Company and Future Policy Benefits,
respectively, and are not included in shareholder's equity.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Shareholder's equity included the following unrealized capital gains (losses),
which are net of amounts allocable to experience-rated contractholders, at
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Debt securities
Gross unrealized capital gains....................... $179.3 $ 27.4 $ 164.3
Gross unrealized capital losses...................... (1.3) (105.2) --
------ ------- -------
178.0 (77.8) 164.3
Equity securities
Gross unrealized capital gains....................... 27.2 6.5 12.0
Gross unrealized capital losses...................... (1.2) (7.9) (0.1)
------ ------- -------
26.0 (1.4) 11.9
Limited Partnership
Gross unrealized capital gains....................... -- -- --
Gross unrealized capital losses...................... -- (1.8) --
------ ------- -------
Deferred federal income taxes (See Note 6)............. 71.5 108.0 61.7
------ ------- -------
Net unrealized capital gains (losses).................. $132.5 $(189.0) $ 114.5
------ ------- -------
------ ------- -------
</TABLE>
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $ 891.5 $823.9 $828.0
Preferred stock........................................ 4.2 3.9 2.3
Investment in affiliated mutual funds.................. 14.9 5.2 2.9
Mortgage loans......................................... 1.4 1.4 1.5
Policy loans........................................... 13.7 11.5 10.8
Reinsurance loan to affiliate.......................... 46.5 51.5 53.3
Cash equivalents....................................... 38.9 29.5 16.8
Other.................................................. 8.4 6.7 7.7
-------- ------ ------
Gross investment income................................ 1,019.5 933.6 923.3
Less investment expenses............................... (15.2) (16.4) (11.4)
-------- ------ ------
Net investment income.................................. $1,004.3 $917.2 $911.9
-------- ------ ------
-------- ------ ------
</TABLE>
Net investment income includes amounts allocable to experience-rated
contractholders of $744.2 million, $677.1 million and $661.3 million for the
years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to
contractholders is included in Current and Future Benefits.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
The amount of dividends that may be paid to the shareholder in 1996 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$70.0 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 $70.0 million, $64.9 million and $77.6
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Statutory shareholder's equity was $670.7 million and $615.0 million as of
December 31, 1995 and 1994, respectively.
At December 31, 1995 and 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.
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.
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:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -------
(MILLIONS)
<S> <C> <C> <C>
Current taxes (benefits):
Income from operations............................... $82.9 $78.7 $ 87.1
Net realized capital gains........................... 28.5 (33.2) 18.1
----- ----- -------
111.4 45.5 105.2
----- ----- -------
Deferred taxes (benefits):
Income from operations............................... (14.4) (8.0) (14.2)
Net realized capital gains........................... (12.9) 33.7 (14.8)
----- ----- -------
(27.3) 25.7 (29.0)
----- ----- -------
Total................................................ $84.1 $71.2 $ 76.2
----- ----- -------
----- ----- -------
</TABLE>
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
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:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Income before federal income taxes..................... $260.0 $216.5 $219.1
Tax rate............................................... 35% 35% 35%
------ ------ ------
Application of the tax rate............................ 91.0 75.8 76.7
------ ------ ------
Tax effect of:
Excludable dividends................................. (9.3) (8.6) (8.7)
Tax reserve adjustments.............................. 3.9 2.9 4.7
Reinsurance transaction.............................. (0.5) 1.9 (0.2)
Tax rate change on deferred liabilities.............. -- -- 3.7
Other, net........................................... (1.0) (0.8) --
------ ------ ------
Income tax expense................................... $ 84.1 $ 71.2 $ 76.2
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Insurance reserves................................... $290.4 $211.5
Net unrealized capital losses........................ -- 136.3
Unrealized gains allocable to experience-rated
contracts........................................... 216.7 --
Investment losses not currently deductible........... 7.3 15.5
Postretirement benefits other than pensions.......... 7.7 8.4
Other................................................ 32.0 28.3
------ ------
Total gross assets..................................... 554.1 400.0
Less valuation allowance............................... -- 136.3
------ ------
Deferred tax assets, net of valuation.................. 554.1 263.7
Deferred tax liabilities:
Deferred policy acquisition costs.................... 433.0 385.2
Unrealized losses allocable to experience-rated
contracts........................................... -- 108.0
Market discount...................................... 4.4 3.6
Net unrealized capital gains......................... 288.2 --
Other................................................ (1.9) 0.4
------ ------
Total gross liabilities................................ 723.7 497.2
------ ------
Net deferred tax liability............................. $169.6 $233.5
------ ------
------ ------
</TABLE>
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
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. As of December 31, 1995, no valuation allowance was required for
unrealized capital gains and losses. The reversal of the valuation allowance had
no impact on net income in 1995.
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, 1995. 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 challenges. The Service has commenced its examinations for
the years 1987 through 1990.
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
Projected Unit Credit 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 1993 through 1995, 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 1993 through
1995, 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.
The cost to the Company associated with the Aetna postretirement plans for 1995,
1994 and 1993 were $1.4 million, $1.0 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.
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
7. BENEFIT PLANS (CONTINUED)
The cost to the Company associated to the agents' postretirement plans for 1995,
1994 and 1993 were $0.8 million, $0.7 million and $0.6 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 $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993,
respectively.
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 with the Aetna stock plans for 1995,
1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively.
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 .25% 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
$128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993,
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 $655.5 million and $690.3 million as of
December 31, 1995 and 1994, 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 $663.5 million and $630.3 million as of December 31,
1995 and 1994, respectively, and is based upon the fair value of the underlying
assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current
and future benefits of $43.0 million, $43.8 million and $55.4 million were
assumed in 1995, 1994 and 1993, respectively.
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Investment income of $46.5 million, $51.5 million and $53.3 million was
generated from the reinsurance loan to affiliate in 1995, 1994 and 1993,
respectively. Net income of approximately $18.4 million, $25.1 million and $13.6
million resulted from this agreement in 1995, 1994 and 1993, respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company also is
responsible for administering fixed annuity payments that are made to annuitants
receiving variable payments. Reserves of $28.0 million and $24.2 million were
maintained for this contract as of December 31, 1995 and 1994, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement with
Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0
million on any new individual life business, on a yearly renewable term basis.
Premium amounts related to this agreement were $3.2 million, $1.3 million and
$0.6 million for 1995, 1994 and 1993, respectively.
The Company received no capital contributions in 1995, 1994 or 1993.
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
Premiums due and other receivables include $5.7 million and $27.6 million due
from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4
million and $27.9 million due to affiliates for 1995 and 1994, 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.
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.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
9. REINSURANCE (CONTINUED)
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)
<S> <C> <C> <C> <C>
1995
Premiums:
Life Insurance....................................... $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance........................ 7.5 7.5 -- --
Annuities............................................ 82.1 -- 0.5 82.6
--------- ----- ----- ---------
Total earned premiums................................ $ 118.4 $ 16.1 $ 28.5 $ 130.8
--------- ----- ----- ---------
--------- ----- ----- ---------
1994
Premiums:
Life Insurance....................................... $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance........................ 9.3 9.3 -- --
Annuities............................................ 69.9 -- 0.2 70.1
--------- ----- ----- ---------
Total earned premiums................................ $ 106.5 $ 15.3 $ 33.0 $ 124.2
--------- ----- ----- ---------
--------- ----- ----- ---------
1993
Premiums:
Life Insurance....................................... $ 22.4 $ 5.6 $ 33.3 $ 50.1
Accident and Health Insurance........................ 12.9 12.9 -- --
Annuities............................................ 31.3 -- 0.7 32.0
--------- ----- ----- ---------
Total earned premiums................................ $ 66.6 $ 18.5 $ 34.0 $ 82.1
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3
Short-term investments.................................... 15.1 15.1 98.0 98.0
Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4
Equity securities......................................... 257.6 257.6 229.1 229.1
Limited partnership....................................... -- -- 24.4 24.4
Mortgage loans............................................ 21.2 21.9 9.9 9.9
Liabilities:
Investment contract liabilities:
With a fixed maturity................................... 989.1 1,001.2 826.7 833.5
Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
</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.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
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.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS)
During 1995, the Company received $0.4 million for writing call options on
underlying securities. As of December 31, 1995 there were no option contracts
outstanding.
At December 31, 1995, the Company had a forward swap agreement with a notional
amount of $100.0 million and a fair value of $0.1 million.
The Company did not have transactions in derivative instruments in 1994.
The Company also holds investments in certain debt and equity securities with
derivative characteristics (i.e., 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 $13.4 billion
investment portfolio, as of December 31, 1995 was as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
(MILLIONS) COST VALUE
----------- -----------
<S> <C> <C>
Collateralized mortgage obligations......................... $ 2,383.9 $ 2,549.3
Principal-only strips (included above)...................... 38.7 50.0
Interest-only strips (included above)....................... 10.7 20.7
Structured Notes (1)........................................ 95.0 100.3
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
11. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
the value of the securities underlying the commitments. At December 31, 1995,
the Company had commitments to purchase investments of $31.4 million. The fair
value of the investments at December 31, 1995 approximated $31.5 million. There
were no outstanding forward commitments at December 31, 1994.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or December 31, 1994 which were beyond the ordinary course of
business. The Company is involved in lawsuits arising, for the most part, in the
ordinary course of its business operations as an insurer.
12. SEGMENT INFORMATION
The Company's operations are reported through two major business segments: Life
Insurance and Financial Services.
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Financial services........................................ $ 1,129.4 $ 946.1 $ 892.8
Life insurance............................................ 407.9 386.1 371.7
----------- ----------- -----------
Total revenue............................................. $ 1,537.3 $ 1,332.2 $ 1,264.5
----------- ----------- -----------
Income before federal income taxes:
Financial services........................................ $ 158.0 $ 119.7 $ 121.1
Life insurance............................................ 102.0 96.8 98.0
----------- ----------- -----------
Total income before federal income taxes.................. $ 260.0 $ 216.5 $ 219.1
----------- ----------- -----------
Net income:
Financial services........................................ $ 113.8 $ 85.5 $ 86.8
Life insurance............................................ 62.1 59.8 56.1
----------- ----------- -----------
Net income.................................................. $ 175.9 $ 145.3 $ 142.9
----------- ----------- -----------
Assets under management, at fair value:
Financial services........................................ $ 23,224.3 $ 17,785.2 $ 16,600.5
Life insurance............................................ 2,698.1 2,171.7 2,175.5
----------- ----------- -----------
Total assets under management............................. $ 25,922.4 $ 19,956.9 $ 18,776.0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT G
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
FORM NO. 61897(S)-2 ALIAC ED. MAY 1996
