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AETNA INSURANCE COMPANY OF AMERICA
Service Unit, 151 Farmington Avenue, Hartford, Connecticut 06156
Telephone: 1-800-531-4547
VARIABLE ANNUITY ACCOUNT I
Prospectus Dated: October 11, 1995
MARATHON PLUS(SM)
This Prospectus describes the Marathon Plus variable deferred annuity contract
("Contracts") issued by Aetna Insurance Company of America (the "Company"). The
Contracts allow individuals to accumulate values and elect payment of annuity
benefits on a fixed or a variable basis. Group Contracts are offered to certain
broker-dealers which have agreed to act as Distributors of the Contracts. (See
"Contract Purchase -- Distribution.") Individuals who have established accounts
with those broker-dealers are eligible to participate in the Contract.
Individual Contracts are offered only in those states where the group Contracts
are not authorized for sale.
The Contracts described in this Prospectus are (a) nonqualified deferred
annuity contracts, and (b) contracts which may be available for use under
Section 408(b) of the Internal Revenue Code of 1986, as amended (the "Code") as
Individual Retirement Annuities. See "Contract Purchase -- Purchase" and "Tax
Status."
The securities offered in this Prospectus are distributed through Aetna Life
Insurance and Annuity Company, an affiliate of the Company, as the Underwriter,
and by registered broker-dealers selected by it as Distributors. See "Contract
Purchase -- Distribution."
Purchase Payments received under the Contracts on behalf of persons
participating under group Contracts or individual Contract owners
(collectively, "Certificate Holders") will be allocated at the Certificate
Holder's direction to variable funding options or to a credited interest option
for accumulation of values for the Certificate Holder's Account. Amounts
allocated to the variable funding options will be deposited in Variable Annuity
Account I (the "Separate Account"), a separate account of the Company, for
investment in the variable funding options. The value of the Certificate
Holder's Account will vary to reflect the performance of the variable funding
options selected, and may be more or less than Purchase Payments made under the
Contract.
This Prospectus is intended to describe the Contract provisions relating to the
variable funding options (the "Funds") and the fees and expenses that may be
charged in connection with investment in the Separate Account. Information with
respect to the credited interest option, the AICA Guaranteed Account (the
"Guaranteed Account"), is included in the Appendix to this Prospectus and in
the prospectus for the Guaranteed Account which should accompany this
Prospectus. The Guaranteed Account is offered only in those jurisdictions where
it has been qualified for sale.
The Funds currently available through the Separate Account under the Contract
described in this Prospectus are as follows:
<TABLE>
<S> <C>
. Aetna Variable Fund . Fidelity Index 500 Portfolio
. Aetna Income Shares . Fidelity Growth Portfolio
. Aetna Variable Encore Fund . Fidelity Overseas Portfolio
. Aetna Investment Advisers Fund, Inc. . IMS -- Equity Growth and Income Fund
. Aetna Ascent Variable Portfolio . IMS -- Utility Fund
. Aetna Crossroads Variable Portfolio . IMS -- U.S. Government Bond Fund
. Aetna Legacy Variable Portfolio . IMS -- Corporate Bond Fund
. Alger American Balanced Portfolio . Janus Aspen Aggressive Growth Portfolio
. Alger American Income and Growth Portfolio . Janus Aspen Balanced Portfolio
. Alger American Growth Portfolio . Janus Aspen Flexible Income Portfolio
. Alger American MidCap Growth Portfolio . Janus Aspen Growth Portfolio
. Alger American Leveraged AllCap Portfolio . Janus Aspen Short-Term Bond Portfolio
. Alger American Small Capitalization Portfolio . Janus Aspen Worldwide Growth Portfolio
. Fidelity Asset Manager Portfolio . Lexington Emerging Markets Fund
. Fidelity Equity-Income Portfolio . Lexington Natural Resources Trust
. Fidelity Contrafund Portfolio . TCI International
. Fidelity High Income Portfolio . TCI Growth
. Fidelity Investment Grade Bond Portfolio . TCI Balanced
</TABLE>
The availability of the above Funds is subject to applicable regulatory
authorization. Not all Funds are available in all jurisdictions or under all
Contracts.
This Prospectus sets forth concisely the information about the Contracts and
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 October 11, 1995, as supplemented from
time to time, which has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The Table of Contents for the SAI is
contained in this Prospectus. An SAI may be obtained without charge by calling
1-800-531-4547.
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE FUNDS
AND THE GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR
FUTURE REFERENCE.
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THE SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUSES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THE PROSPECTUSES, IN CONNECTION
WITH THE OFFERS OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
The Company has filed a registration statement (the "Registration Statement")
with the SEC under the Securities Act of 1933 relating to the Contracts offered
by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement and its exhibits. Reference is hereby made to such
Registration Statement, including exhibits, for further information relating to
the Company and the Contracts. The Registration Statement and its exhibits may
be inspected and copied at the public reference facilities of the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
2
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TABLE OF CONTENTS
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Page
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GLOSSARY OF SPECIAL TERMS.................................................. 4
PROSPECTUS SUMMARY......................................................... 6
FEE TABLE.................................................................. 8
PERFORMANCE DATA........................................................... 12
THE COMPANY................................................................ 13
VARIABLE ANNUITY ACCOUNT I................................................. 13
THE FUNDS.................................................................. 13
Fund Investment Advisers.................................................. 17
Mixed and Shared Funding.................................................. 18
Fund Additions and Limitations............................................ 18
CONTRACT PURCHASE
Purchase.................................................................. 18
Purchase Payments......................................................... 18
Designations of Beneficiary and Annuitant................................. 19
Distribution.............................................................. 19
CERTIFICATE HOLDER'S ACCOUNT VALUES
Accumulation Units........................................................ 20
Net Investment Factor..................................................... 20
CONTRACT RIGHTS
Right to Cancel........................................................... 21
Rights Under the Contract and Account..................................... 21
Transfers Among Investment Options........................................ 21
Dollar Cost Averaging Program............................................. 22
Account Rebalancing Program............................................... 22
Withdrawals............................................................... 22
Reinstatement Privilege Following Withdrawal.............................. 23
CHARGES AND DEDUCTIONS
General................................................................... 24
Maintenance Fee........................................................... 24
Mortality and Expense Risk Charges........................................ 24
Administrative Expense Charge............................................. 24
Transfer Fees............................................................. 24
Deferred Sales Charge..................................................... 25
</TABLE>
<TABLE>
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Fund Expenses............................................................. 26
Premium Tax............................................................... 26
Commissions and Distribution Expenses..................................... 26
ADDITIONAL WITHDRAWAL OPTIONS
General................................................................... 27
Estate Conservation Option................................................ 27
Systematic Withdrawal Option.............................................. 28
ANNUITY PERIOD
Annuity Period Elections.................................................. 28
Annuity Options........................................................... 29
DEATH BENEFIT
General................................................................... 31
Death Benefit Amount...................................................... 31
Nonqualified Flexible Premium Contract.................................... 32
IRA Rollover Contract..................................................... 34
TAX STATUS
Introduction.............................................................. 35
Taxation of the Company................................................... 35
Tax Status of the Contract................................................ 36
Taxation of Annuities..................................................... 37
IRA Rollover Contracts.................................................... 38
Withholding............................................................... 39
Possible Changes in Taxation.............................................. 39
Other Tax Consequences.................................................... 39
MISCELLANEOUS
Voting Rights............................................................. 39
Modification of the Contract.............................................. 40
Inquiries................................................................. 40
Telephone Transfers....................................................... 40
Transfer of Ownership; Assignment......................................... 41
Legal Proceedings......................................................... 41
Legal Matters............................................................. 41
STATEMENT OF ADDITIONAL INFORMATION -- TABLE OF CONTENTS................... 42
APPENDIX -- AICA Guaranteed Account........................................ 43
</TABLE>
3
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GLOSSARY OF SPECIAL TERMS
As used in this Prospectus, the following terms have the meanings shown:
ACCUMULATION PERIOD: The period during which one or more Net Purchase Payments
applied to a Certificate Holder's Account are invested to fund future annuity
payments.
ACCUMULATION UNIT: A measure of the net investment results for each variable
investment option during the Accumulation Period. The Accumulation Units for
the applicable Funds are used to calculate the portion of the Certificate
Holder's Account attributable to the Separate Account during the Accumulation
Period.
ADJUSTED ACCOUNT VALUE: For any Valuation Period, the Certificate Holder's
Account Value plus or minus the Certificate Holder's aggregate Guaranteed
Account market value adjustment, if applied during that period.
ANNUITANT: The natural person on whose life the Annuity benefit under a
Contract is based.
ANNUITY: A series of payments for life, for a definite period or a combination
of the two.
ANNUITY DATE: The date on which Annuity payments commence under an Annuity
Option.
ANNUITY OPTIONS: Annuity payment methods available during the Annuity Period.
ANNUITY PERIOD: The period of time during which Annuity payments are made.
ANNUITY UNIT: A measure of the net investment results for each variable
investment option selected during the Annuity Period. Annuity Units are used to
calculate the amount of each variable Annuity payment.
BENEFICIARY: The person entitled to receive any death benefit under a Contract.
CERTIFICATE: The document issued to a Certificate Holder for a Certificate
Holder's Account established under a group Contract.
CERTIFICATE HOLDER (YOU, YOUR): A person who purchases or acquires an interest
under a group Contract or who purchases an individual Contract. A Certificate
Holder's spouse may have an interest in the same Certificate Holder's Account
as a Joint Certificate Holder. References to "Certificate Holders" in this
Prospectus mean both of the Certificate Holders on Joint Accounts. Aetna
reserves the right to limit ownership to natural persons.
CERTIFICATE HOLDER'S ACCOUNT: A record established for each Certificate Holder
to maintain values under a Contract.
CERTIFICATE HOLDER'S ACCOUNT VALUE: As of any Valuation Period, the dollar
value of all amounts accumulated in a Certificate Holder's Account, including
the value of the Accumulation Units, Guaranteed Account and amounts deposited
pursuant to the guaranteed death benefit.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY: Aetna Insurance Company of America.
CONTRACTS: Group variable deferred annuity contracts offered as Nonqualified
Flexible Premium Contracts and Individual Retirement Annuity (IRA) Rollover
Contracts. Individual variable deferred annuity contracts are offered in
certain states.
DISTRIBUTOR(S): The registered broker-dealer(s) which have entered into selling
agreements with the Underwriter to distribute interests in the Contracts. The
Underwriter may also serve as a Distributor.
4
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EFFECTIVE DATE: The date on which a Contract or Certificate is issued to a
Certificate Holder.
FUNDS: The open-end management investment companies offered as variable funding
options for the investment of assets of the Separate Account under the
Contracts.
GENERAL ACCOUNT: The account into which all Company assets not held in a
separate account are deposited. The General Account is subject to all
liabilities of the Company.
GROUP CONTRACT HOLDER: The entity to which a group Contract is issued.
GUARANTEED ACCOUNT: The AICA Guaranteed Account, a credited interest option
offered as a funding option under the Contract, guaranteeing specified rates of
interest for specified periods of time.
HOME OFFICE: The principal executive offices of the Company, located at 151
Farmington Avenue, Hartford, Connecticut 06156.
INDIVIDUAL CONTRACT HOLDER: A person who has purchased an individual variable
annuity Contract (also referred to as "Certificate Holder"). A Contract
Holder's spouse may have an interest in the same Contract Holder's Account as a
Joint Contract Holder. Aetna reserves the right to limit ownership to natural
persons.
INDIVIDUAL RETIREMENT ANNUITY (IRA) ROLLOVER CONTRACT: An individual or group
variable deferred annuity Contract established to accept Purchase Payments
consisting of rollover amounts previously accumulated under an Individual
Retirement Account or Annuity or a plan qualified under Code Section 401 or
403. These Contracts are intended to qualify under Code Section 408(b).
MARKET VALUE ADJUSTMENT: An amount deducted or added to amounts withdrawn early
from the Guaranteed Account to reflect changes in the market value of the
investment since the date of deposit. See the Appendix and the prospectus for
the Guaranteed Account for a discussion of how the market value adjustment is
actually calculated.
NET PURCHASE PAYMENT: The Purchase Payment less premium taxes, if applicable.
NONQUALIFIED FLEXIBLE PREMIUM CONTRACT: An individual or group variable
deferred annuity Contract established to accept one or more Purchase Payments
to supplement an individual's retirement income, or to provide an alternative
investment option under an Individual Retirement Account qualified under Code
Section 408(a).
PURCHASE PAYMENT: The gross payment made to a Certificate Holder's Account
pursuant to the terms of a Contract. The Company reserves the right to refuse
to accept any Purchase Payment at any time for any reason.
SEC: Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account I, an account whose assets are
segregated from other assets of the Company. The Separate Account holds shares
of the Funds acquired as variable funding options under the Contracts. The
Company holds title to the assets held in the Separate Account.
SURRENDER VALUE: The amount payable upon the withdrawal of all or any portion
of a Certificate Holder's Account Value.
UNDERWRITER: The registered broker-dealer which contracts with other registered
broker-dealers on behalf of the Separate Account to offer and sell the
Contracts. Aetna Life Insurance and Annuity Company will serve as Underwriter
for the Contracts.
VALUATION PERIOD: The period of time for which a Fund determines its net asset
value, usually from 4:15 p.m. Eastern time each day the New York Exchange is
open for trading until 4:15 p.m. the next such business day.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of the
State of Connecticut to measure voting rights during the Annuity Period. It
also measures the value of a commutation right under the "Payments of a Stated
Period of Time" nonlifetime Annuity option when elected on a variable basis.
VARIABLE ANNUITY CONTRACT: An annuity contract providing for the accumulation
of values and for Annuity payment, which vary in amount based on investment
results.
5
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PROSPECTUS SUMMARY
CONTRACTS OFFERED
The Contracts described in this Prospectus are group variable deferred annuity
Contracts and, where required by state law, individual variable deferred
annuity Contracts. The Nonqualified Flexible Premium Contract is designed to
accept one or more Purchase Payments. The Individual Retirement Annuity
Rollover Contract is designed to accept rollovers from Individual Retirement
Accounts or Annuities or plans qualified under Code Sections 401 or 403. For
the Nonqualified Flexible Premium Contract, the minimum initial Purchase
Payment amount is $5,000. Additional Purchase Payments of at least $2,500 may
be made to a Nonqualified Flexible Premium Contract. The minimum initial
Purchase Payment amount for the Individual Retirement Annuity Rollover
Contract is $10,000. Subsequent Purchase Payments will be accepted if they are
rollovers of amounts previously accumulated under an Individual Retirement
Annuity or Account or a plan qualified under Code Section 401 or 403. (See
"Contract Purchase -- Purchase.")
Under the group Contract, individuals may be enrolled as Certificate Holders
and the Company will maintain a Certificate Holder's Account for each
Certificate Holder. Under an individual Contract, the owner will be an
individual. (In either case, the individual is referred to as "Certificate
Holder" or "you.") Under the Contract, Certificate Holders have certain
rights. (See "Contract Rights.")
Joint Certificate Holders are allowed, except for Contracts acquired by
individuals for purposes of establishing an Individual Retirement Annuity
under Sections 408(a) or 408(b) of the Code. A Joint Certificate Holder must
be the spouse of the other Joint Certificate Holder.
We offer the following Contracts as described below:
1. Nonqualified Flexible Premium Contracts and IRA Rollover Contracts to
NASD Firms.
2. IRA Rollover Contracts to employers who sponsor Individual Retirement
Annuity Plans for their employees.
3. Nonqualified Flexible Premium Contracts to custodians or trustees of
Code Section 408(a) Individual Retirement Accounts, to employers who
offer deferred annuities to their employees and to entities which make
contributions to annuities for their customers.
4. Nonqualified Flexible Premium Contracts and IRA Rollover Contracts to
individuals when required in certain states.
A group Contract is issued to the Group Contract Holder once we receive a
completed master application form. A Certificate Holder establishes an account
under a group Contract by completing an enrollment form and any other required
forms. Certificate Holder enrollment form(s), along with the Purchase Payment,
are submitted to the Company by the Distributor. Upon acceptance, a
Certificate is issued for each Certificate Holder under the group Contract. In
those states where an individual Contract is offered, an individual applies
for a Contract by completing an individual Contract application and submitting
it with the Purchase Payment to the Distributor. "Contract Purchase" in this
Prospectus describes the process of establishing a Certificate Holder's
Account.
WITHDRAWAL
You may redeem all or a portion of your Certificate Holder's Account Value
during the Accumulation Period by completing the Company's withdrawal request
form. Amounts withdrawn may be subject to a deferred sales charge or
maintenance fee. (See "Charges and Deductions.") The maximum deferred sales
charge that could be assessed on a full or partial withdrawal is 7% of each
Net Purchase Payment withdrawn. Amounts withdrawn from the Guaranteed Account
may be subject to a Market Value Adjustment. (See the Appendix.) A 10% federal
penalty tax may also be imposed on the taxable portion paid to you upon
withdrawal and certain amounts may be withheld for tax purposes. (See "Tax
Status -- Taxation of Annuities.")
6
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GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death of
the Annuitant, under certain circumstances, the Certificate Holder's Account
Value may be adjusted upward. (See "Death Benefit.")
CONTRACT CHARGES
Certain charges are associated with these Contracts; for example, mortality
and expense risk charges, administrative expense charges, transfer fees, fund
expenses, maintenance fees and premium taxes. See "Charges and Deductions" for
a complete explanation of these charges.
SEPARATE ACCOUNT
Variable Annuity Account I (the "Separate Account") is a separate account
established by the Company and is registered as a unit investment trust under
the Investment Company Act of 1940 ("1940 Act"). Assets of the Separate
Account attributable to the Contract are invested in shares of one or more of
the Funds. (See "Variable Annuity Account I" and "The Funds" in this
Prospectus.)
During each calendar year, you may change the allocation of future Net
Purchase Payments and/or transfer account values among the funding options
available under the Contract. However, you may not make allocations or
transfers to new funding options if the total number of funding options you
have selected would exceed 18 since the time that you acquired an interest in
the Contract. Each variable funding option and each guaranteed term of the
Guaranteed Account selected counts as one option, even if you no longer have
amounts allocated to that option. See "Transfers Among Investment Options."
FREE LOOK PROVISION
The Certificate Holder may cancel the Certificate Holder's Account no later
than ten days after receiving the Contract or Certificate, whichever is
applicable, (or as otherwise allowed by state law) by returning it to us or to
the Distributor from whom it was purchased along with a written notice of
cancellation. Unless applicable state law requires otherwise, the amount the
Certificate Holder of a Nonqualified Flexible Premium Contract will receive
upon cancellation under this provision may reflect the investment performance
of the Purchase Payments deposited in the Separate Account while invested. In
certain cases, this may be less than the amount of the Purchase Payments. For
IRA Rollover Contracts, we will refund the Purchase Payment. (See "Contract
Rights -- Right to Cancel.")
7
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FEE TABLE
(Based on year ended December 31, 1994)
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CONTRACT HOLDERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT WILL BE BORNE, DIRECTLY OR INDIRECTLY,
UNDER THE CONTRACT. THE INFORMATION LISTED REFLECTS THE CHARGES DEDUCTED UNDER
THE CONTRACT, AS WELL AS THE FEES AND EXPENSES DEDUCTED FROM THE FUNDS.
ADDITIONAL INFORMATION REGARDING THE CHARGES AND DEDUCTIONS ASSESSED UNDER THE
CONTRACT CAN BE FOUND UNDER "CHARGES AND DEDUCTIONS" IN THIS PROSPECTUS.
CHARGES AND EXPENSES SHOWN DO NOT TAKE INTO ACCOUNT PREMIUM TAXES THAT MAY BE
APPLICABLE.
TRANSACTION EXPENSES
- --------------------
DEFERRED SALES CHARGE (as a percentage of each Net Purchase Payment
deposited)/(1)/
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<CAPTION>
LENGTH OF TIME SINCE NET PURCHASE PAYMENT MADE DEDUCTION
---------------------------------------------- ---------
<S> <C>
Less than 2 years 7%
2 years or more but less than 4 years 6%
4 years or more but less than 5 years 5%
5 years or more but less than 6 years 4%
6 years or more but less than 7 years 3%
7 years or more 0%
Annual Maintenance Fee/(2)/ $30.00
Transfers/(3)/ $ 0.00
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
- --------------------------------
Daily deductions are made from the Current Value of an Account or individual
Contract held in the variable options. The deduction is the daily equivalent
of the annual effective percentage shown in the following chart:
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During the Accumulation Period:
Mortality and Expense Risk Fees 1.25%
Administrative Expense Charge 0.15%
-----
Total Separate Account Annual Expenses 1.40%
=====
During the Annuity Period:
Mortality and Expense Risk Fees 1.25%
Administrative Expense Charge/(4)/ 0.00%
-----
Total Separate Account Annual Expenses 1.25%
=====
</TABLE>
/(1)/ Referred to in the Contracts as a "surrender fee." See "Deferred Sales
Charge" for a description of the deferred sales charge and instances in
which this charge may be waived.
/(2)/ The maintenance fee is waived when the Current Value of the Account or
individual Contract is $50,000 or more on the date the maintenance fee is
due. See "Maintenance Fee" in this prospectus.
/(3)/ The Company currently allows an unlimited number of transfers without
charge. However, we reserve the right to impose a fee of $10 for each
transfer in excess of 12 per year. See "Transfers Among Investment
Options" in this Prospectus.
/(4)/ The Company does not currently impose an Administrative Expense Charge
during the Annuity Period. We do, however, reserve the right to deduct a
daily charge of not more than 0.25% per year from amounts held under the
variable Annuity options.
8
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MUTUAL FUND ANNUAL EXPENSES
- ---------------------------
(As a percentage of average net assets, except where otherwise noted, based on
figures for the year ended December 31, 1994.)
<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL FUND
ADVISORY FEES/(1)/ EXPENSES/(2)/ ANNUAL EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
------------------ -------------- ---------------
<S> <C> <C> <C>
Aetna Variable Fund 0.25% 0.05% 0.30%
Aetna Income Shares 0.25% 0.08% 0.33%
Aetna Variable Encore Fund 0.25% 0.07% 0.32%
Aetna Investment Advisers Fund, Inc. 0.25% 0.07% 0.32%
Aetna Ascent Variable Portfolio/(3)/ 0.50% 0.20% 0.70%
Aetna Crossroads Variable Portfolio/(3)/ 0.50% 0.20% 0.70%
Aetna Legacy Variable Portfolio/(3)/ 0.50% 0.20% 0.70%
Alger American Balanced Portfolio 0.75% 0.33% 1.08%
Alger American Income and Growth Portfolio 0.63% 0.12% 0.75%
Alger American MidCap Growth Portfolio 0.80% 0.17% 0.97%
Alger American Leveraged AllCap
Portfolio/(3)(4)/ 0.85% 0.94% 1.79%
Alger American Small Cap Portfolio 0.85% 0.11% 0.96%
Alger American Growth Portfolio 0.75% 0.11% 0.86%
Fidelity High Income Portfolio 0.61% 0.10% 0.71%
Fidelity Equity-Income Portfolio/(5)/ 0.52% 0.06% 0.58%
Fidelity Growth Portfolio/(5)/ 0.62% 0.07% 0.69%
Fidelity Overseas Portfolio 0.77% 0.15% 0.92%
Fidelity Investment Grade Bond Portfolio 0.46% 0.21% 0.67%
Fidelity Asset Manager Portfolio/(5)/ 0.72% 0.08% 0.80%
Fidelity Index 500 Portfolio/(6)/ 0.00% 0.28% 0.28%
Fidelity Contrafund Portfolio/(3)/ 0.62% 0.27% 0.89%
IMS Equity Growth and Income Fund/(7)/ 0.00% 0.85% 0.85%
IMS Utility Fund/(7)/ 0.00% 0.85% 0.85%
IMS U.S. Government Bond Fund/(7)/ 0.00% 0.80% 0.80%
IMS Corporate Bond Fund/(7)/ 0.00% 0.80% 0.80%
Janus Aspen Aggressive Growth Portfolio/(8)/ 0.77% 0.28% 1.05%
Janus Aspen Balanced Portfolio/(8)/ 0.83% 0.74% 1.57%
Janus Aspen Flexible Income Portfolio/(8)/ 0.30% 0.70% 1.00%
Janus Aspen Growth Portfolio/(8)/ 0.66% 0.22% 0.88%
Janus Aspen Short-Term Bond Portfolio/(8)/ 0.00% 0.65% 0.65%
Janus Aspen Worldwide Growth Portfolio/(8)/ 0.69% 0.49% 1.18%
Lexington Emerging Markets Fund/(9)/ 0.85% 0.45% 1.30%
Lexington Natural Resources Trust 1.00% 0.55% 1.55%
TCI Growth/(10)/ 1.00% 0.00% 1.00%
TCI Balanced Portfolio/(10)/ 1.00% 0.00% 1.00%
TCI International Portfolio/(10)/ 1.50% 0.00% 1.50%
</TABLE>
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/(1)/ Certain of the unaffiliated Fund managers or their affiliates reimburse
the Company for administrative costs incurred in connection with
administering the Funds as variable funding options. These reimbursements
are generally based on a percentage of assets under management and may be
paid out of the managers' advisory fees. These amounts are not charged to
the Funds or Contract Holders, but are paid from other assets of the Fund
Managers or their affiliates.
9
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/(2)/ A mutual fund's "Other Expenses" are operating costs of the Fund. The
expenses are factored into the Fund's net asset value and are not
deducted from the Contract Value.
/(3)/ These funds have only limited operating history and therefore the
expenses are estimated for the current fiscal year.
/(4)/ This figure does not include 0.75% that is attributable to Interest
Expense.
/(5)/ A portion of the brokerage commission the Fund paid was used to reduce
its expenses. Without this reduction, total operating expenses would
have been 0.60% for the Equity-Income Portfolio, 0.70% for the Growth
Portfolio and 0.81% for the Asset Manager Portfolio.
/(6)/ The Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent reimbursement, investment advisory fees, other expenses
and total expenses would have been 0.28%, 0.53% and 0.81%, respectively.
/(7)/ The Fund's Adviser has agreed to waive all or a portion of its advisory
fee and reimburse certain expenses so that the total annual expenses for
the IMS Equity Growth and Income Fund and the IMS Utility Fund would not
exceed 0.85% of average net assets, and the total annual expenses for
the IMS U.S. Government Bond Fund and the IMS Corporate Bond Fund would
not exceed 0.80% of average net assets. Without this waiver and
reimbursement, the maximum advisory fees and the maximum total annual
expenses for the Funds, respectively, would have been 0.75% and 25.96%
for the IMS Equity Growth and Income Fund, 0.75% and 55.43% for the IMS
Utility Fund, 0.60% and 33.35% for the IMS U.S. Government Bond Fund,
and 0.60% and 10.42% for the IMS Corporate Bond Fund. The Adviser can
terminate this voluntary waiver or reimbursement of expenses at any time
at its sole discretion.
/(8)/ The expense figures shown are net of certain expense waivers from Janus
Capital Corporation. Without such waivers, the Investment Advisory Fees,
Other Expenses and Total Fund Annual Expenses for the Portfolios for the
fiscal year ended December 31, 1994 would have been: 1.00%, 0.28% and
1.28%, respectively, for Janus Aspen Aggressive Growth Portfolio; 1.00%,
0.74% and 1.74%, respectively, for Janus Aspen Balanced Portfolio;
0.65%, 0.70% and 1.35%, respectively, for Janus Aspen Flexible Income
Portfolio; 1.00%, 0.22% and 1.22%, respectively, for Janus Aspen Growth
Portfolio; 0.65%, 0.75% and 1.40%, respectively, for Janus Aspen
Short-Term Bond Portfolio; and 1.00%, 0.49% and 1.49%, respectively, for
Janus Aspen Worldwide Growth Portfolio.
/(9)/ The Fund's investment adviser has agreed to reimburse the Fund so that
the total expenses of the Fund (excluding taxes, brokerage, and
extraordinary expenses) will not exceed an annual rate of 1.30% of the
Fund's average net assets. Without this agreement, it is estimated that
the Fund's Investment Advisory Fee, Total Other Expenses and Total Fund
Annual Expenses would have been 0.85%, 5.43% and 6.28%, respectively.
/(10)/ The Portfolios'/investment)adviser pays all expenses of the Portfolios
except brokerage commissions, taxes, interest fees and expenses of the
non-interested directors (including counsel fees) and extraordinary
expenses.
10
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
- -----------------------------------
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, you would have paid the following
expenses on a $1,000 investment:/(1)/
<TABLE>
<CAPTION>
For a complete If no withdrawal is
withdrawal at the end made, or if the
of the applicable Certificate Holder
time period: annuitizes*:
1 year 3 years 1 year 3 years
------ ------- ------ -------
<S> <C> <C> <C> <C>
Aetna Variable Fund $81 $110 $18 $56
Aetna Income Shares $81 $111 $18 $57
Aetna Variable Encore Fund $81 $110 $18 $57
Aetna Investment Advisers Fund, Inc. $81 $110 $18 $57
Aetna Ascent Variable Portfolio $85 $122 $22 $69
Aetna Crossroads Variable Portfolio $85 $122 $22 $69
Aetna Legacy Variable Portfolio $85 $122 $22 $69
Alger American Balanced Portfolio $89 $133 $26 $80
Alger American Income and Growth Portfolio $86 $124 $23 $70
Alger American MidCap Growth Portfolio $88 $130 $25 $77
Alger American Leveraged AllCap Portfolio $96 $155 $33 $101
Alger American Small Cap Portfolio $88 $130 $25 $76
Alger American Growth Portfolio $87 $127 $24 $73
Fidelity Equity-Income Portfolio $84 $118 $21 $65
Fidelity Growth Portfolio $85 $122 $22 $68
Fidelity Overseas Portfolio $87 $129 $24 $75
Fidelity Asset Manager Portfolio $86 $125 $23 $72
Fidelity High Income Portfolio $85 $122 $22 $69
Fidelity Investment Grade Bond Portfolio $85 $121 $22 $68
Fidelity Index 500 Portfolio $81 $109 $18 $56
Fidelity Contrafund Portfolio $87 $128 $24 $74
IMS Equity Growth and Income Fund $87 $127 $24 $73
IMS Utility Fund $87 $127 $24 $73
IMS U.S. Government Bond Fund $86 $125 $23 $72
IMS Corporate Bond Fund $86 $125 $23 $72
Janus Aspen Aggressive Growth Portfolio $89 $133 $26 $79
Janus Aspen Balanced Portfolio $94 $148 $31 $95
Janus Aspen Flexible Income Portfolio $88 $131 $25 $78
Janus Aspen Growth Portfolio $87 $127 $24 $74
Janus Aspen Short-Term Bond Portfolio $85 $120 $22 $67
Janus Aspen Worldwide Growth Portfolio $90 $137 $27 $83
Lexington Emerging Markets Fund $91 $140 $28 $87
Lexington Natural Resources Trust $94 $148 $31 $94
TCI Growth $88 $131 $25 $78
TCI Balanced $88 $131 $25 $78
TCI International $93 $146 $30 $92
</TABLE>
/(1)/ The illustration reflects the $30.00 maintenance fee as an annual charge
of 0.090% of assets.
* If a nonlifetime variable annuity option is selected, and a lump sum
settlement is requested within three years after annuity payments start,
the lump sum payment will be treated as a withdrawal during the
Accumulation Period and will be subject to any deferred sales charge that
would then apply.
11
<PAGE>
PERFORMANCE DATA
From time to time, the Company may advertise different types of historical
performance for the variable funding options of the Separate Account available
under the Contracts described in this Prospectus. The Company may advertise the
"standardized average annual total returns" of the variable funding options,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
return," as described below.
"Standardized average annual total returns" are computed according to a formula
in which a hypothetical investment of $1,000 is applied to the variable funding
options under the Contract and then related to the ending redeemable values
over the most recent one, five and ten-year periods (or since inception if less
than 10 years). Standardized return will be determined by dividing the increase
or decrease in the value of an Accumulation Unit by the Accumulation Unit Value
at the beginning of the period. Standardized returns will reflect the deduction
of all recurring charges during each period (e.g., mortality and expense risk
charges, the annual maintenance fee, the administrative expense charge and any
applicable deferred sales charge). These charges will be deducted on a pro rata
basis in the case of fractional periods. The maintenance fee will be converted
to a percentage of assets based on the estimated average account size under the
Contract.
"Non-standardized return" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
a three-year period.
For Funds that were in existence prior to the date that the Fund became
available under the Contract, the performance data will show the investment
performance that such Fund would have achieved (reduced by the applicable
charges) had it been available under the Contract for the period quoted.
The Company may distribute sales literature that compares the percentage change
in Accumulation Unit values for any of the Funds to established market indexes
such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Averages or to the change in values of other management investment companies
that have investment objectives similar to the Fund being compared.
The Company may publish in advertisements and reports to Certificate Holders
the ratings and other information assigned to us by one or more independent
rating organizations such as A.M. Best Company, Duff & Phelps, Standard &
Poor's Corporation and Moody's Investors Service, Inc. The purpose of the
ratings is to reflect the Company's financial strength and/or claims-paying
ability. We may also quote ranking services, such as Morningstar's Variable
Annuity/Life Performance Report, and Lipper's Variable Insurance Products
Performance Analysis Service (VIPPAS), which rank variable annuity or life
subaccounts or their underlying funds by performance and/or investment
objective. From time to time, we will quote articles from newspapers and
magazines or other publications or reports including, but not limited to, The
Wall Street Journal, Money magazine, USA Today and The VARDS Report.
12
<PAGE>
THE COMPANY
Aetna Insurance Company of America, the depositor for Variable Annuity Account
I, is a stock life insurance company organized in 1990 under the insurance laws
of the State of Connecticut and is a wholly owned subsidiary of Aetna Life
Insurance and Annuity Company ("ALIAC"). ALIAC is a wholly owned subsidiary of
Aetna Life and Casualty Company and was organized in 1976 under the insurance
laws of the State of Connecticut. Between 1990 and December 31, 1994, all of
the Company's income and expense was related to investment activity on its own
behalf. Together, the Aetna companies constitute one of the nation's largest
diversified financial services organizations. The Company's Home Office is
located at 151 Farmington Avenue, Hartford, Connecticut 06156.
VARIABLE ANNUITY ACCOUNT I
Variable Annuity Account I is a separate account established by the Company in
1994 under the insurance laws of the State of Connecticut. The Separate Account
was formed for the purpose of segregating assets attributable to the variable
portions of variable annuity contracts, including the Contracts, from our other
assets. The Separate Account is registered as a unit investment trust under the
1940 Act, and meets the definition of "separate account" under the federal
securities laws.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities arising out of any other business
which the Company may conduct. Income, gains or losses of the Separate Account,
realized or unrealized, are credited to or charged against the assets of the
Separate Account without regard to other income, gains or losses of the
Company. All obligations of the Company arising under the Contracts are general
corporate obligations of the Company.
THE FUNDS
Assets of the Separate Account attributable to the Contracts may be invested in
shares of one or more of the following management investment companies you
select. Except as noted below, all of the Funds are diversified as defined in
the Investment Company Act of 1940. The availability of the Funds listed below
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Contracts.
. AETNA VARIABLE FUND seeks to maximize total return through investments
in a diversified portfolio of common stocks and securities convertible
into common stocks.
. AETNA INCOME SHARES seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.
. AETNA VARIABLE ENCORE FUND seeks to provide high current return,
consistent with preservation of capital and liquidity, through
investment in high-quality money market instruments. An investment in
the Fund is neither insured nor guaranteed by the U.S. Government.
. AETNA INVESTMENT ADVISERS FUND, INC. seeks to maximize investment return
consistent with reasonable safety of principal by investing in one or
more of the following asset classes: stocks, bonds and cash equivalents
based on the Company's judgment of which of those sectors or mix thereof
offers the best investment prospects.
. AETNA GENERATION PORTFOLIOS, INC. -- AETNA ASCENT VARIABLE PORTFOLIO
seeks to provide capital appreciation by allocating its investments
among equities and fixed income securities. Aetna Ascent is managed for
investors who generally have an investment horizon exceeding 15 years,
and who have a high level of risk tolerance. See the Fund's prospectus
for a discussion of the risks involved.
13
<PAGE>
. AETNA GENERATION PORTFOLIOS, INC. -- AETNA CROSSROADS VARIABLE PORTFOLIO
seeks to provide total return (i.e., income and capital appreciation,
both realized and unrealized) by allocating its investments among
equities and fixed income securities. Aetna Crossroads is managed for
investors who generally have an investment horizon exceeding 10 years
and who have a moderate level of risk tolerance.
. AETNA GENERATION PORTFOLIOS, INC. -- AETNA LEGACY VARIABLE PORTFOLIO
seeks to provide total return consistent with preservation of capital by
allocating its investments among equities and fixed income securities.
Aetna Legacy is managed for investors who generally have an investment
horizon exceeding five years and who have a low level of risk tolerance.
. ALGER AMERICAN BALANCED PORTFOLIO seeks current income and long-term
capital appreciation by investing in common stocks and fixed income
securities, with emphasis on income-producing securities which appear to
have some potential for capital appreciation.
. ALGER AMERICAN INCOME AND GROWTH PORTFOLIO seeks a high level of
dividend income to the extent consistent with prudent investment
management by investing primarily in dividend paying equity securities.
Capital appreciation is a secondary objective of the Portfolio.
. ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with total market capitalization --
present market value per share multiplied by the total number of shares
outstanding -- of $1 billion or greater. Income is a consideration in the
selection of investments but is not an investment objective.
. ALGER AMERICAN MIDCAP GROWTH PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies with total market
capitalization between $750 million and $3.5 billion. Income is a
consideration in the selection of investments but is not an investment
objective of the Portfolio.
. ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities. Income is a consideration in the selection of
investments but is not an investment objective of the Portfolio. The
Portfolio may engage in leveraging (up to 33 1/3% of its assets) and
options and futures transactions, which are deemed to be speculative and
which may cause the Portfolio's net asset value to fluctuate.
. ALGER AMERICAN SMALL CAP PORTFOLIO seeks long-term capital appreciation
by investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with total market capitalization of
less than $1 billion. Small capitalization stocks offer great potential
for growth but there are additional market and business risks associated
with them. (See the Portfolio's prospectus for a discussion of these
risks.)
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND -- EQUITY-INCOME
PORTFOLIO seeks reasonable income by investing primarily in income-
producing equity securities. In choosing these securities, the Fund will
also consider the potential for capital appreciation.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND -- GROWTH
PORTFOLIO seeks to achieve capital appreciation by investing primarily in
common stock, although the Fund is not limited to any one type of
security.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND -- HIGH INCOME
PORTFOLIO seeks to obtain a high level of current income by investing
primarily in high-yielding, lower-rated, fixed income securities, while
also considering growth of capital. Lower-rated corporate debt
obligations are commonly known as "junk bonds" or "high yield, high risk
bonds" and involve significant degree of risk (see the Fund's prospectus
for a discussion of the risk factors involved in investing in lower-rate
corporate debt obligations).
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND -- OVERSEAS
PORTFOLIO seeks long-term growth of capital primarily through investments
in foreign securities (at least 65% from at
14
<PAGE>
least three countries outside of North America). International investments
such as these involve greater risks than U.S. investments.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II -- ASSET
MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II -- CONTRAFUND
PORTFOLIO seeks maximum total return over the long term by investing its
assets mainly in equity securities of companies that are under valued or
out-of-favor.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II -- INDEX 500
PORTFOLIO seeks to provide investment results that correspond to the
total return of common stocks publicly traded in the United States by
duplicating the composition and total return of the Standard & Poor's 500
Composite Stock Price Index.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II -- INVESTMENT
GRADE BOND PORTFOLIO seeks as high a level of current income as is
consistent with the preservation of capital by investing in a broad range
of investment-grade fixed-income securities.
. INSURANCE MANAGEMENT SERIES -- EQUITY GROWTH AND INCOME FUND seeks to
achieve long-term growth of capital and to provide income. The IMS Equity
Growth and Income Fund pursues its investment objectives by investing,
under normal circumstances, at least 65% of its total assets in common
stock of "blue-chip" companies. "Blue-chip" companies generally are top-
quality, established growth companies which, in the opinion of the
Adviser, Federated Advisers, meet certain criteria.
. INSURANCE MANAGEMENT SERIES -- UTILITY FUND seeks to achieve high current
income and moderate capital appreciation by investing primarily in a
professionally managed and diversified portfolio of equity and debt
securities of utility companies. Under normal market conditions, the IMS
Utility Fund will invest at least 65% of its total assets in securities
of utility companies.
. INSURANCE MANAGEMENT SERIES -- U.S. GOVERNMENT BOND FUND seeks to provide
current income. The IMS U.S. Government Bond Fund pursues its investment
objective by investing at least 65% of the value of its total assets in
securities issued or guaranteed as to payment of principal and interest
by the U.S. government, its agencies or instrumentalities.
. INSURANCE MANAGEMENT SERIES -- CORPORATE BOND FUND seeks high current
income by investing primarily in a diversified portfolio of
professionally managed fixed income securities. The fixed-income
securities in which the Fund intends to invest are lower-rated corporate
debt obligations. Lower-rated corporate debt obligations are commonly
known as "junk bonds" or "High Yield, High Risk Bonds" and involve
significant degree of risk (see the funds' prospectus for a discussion of
the risk factors involved in investing in lower-rated corporate debt
obligations). Some of the fixed income securities may involve equity
features. Capital growth will be considered, but only when consistent
with the investment objective of high current income.
. JANUS ASPEN SERIES -- AGGRESSIVE GROWTH PORTFOLIO is a non-diversified
portfolio that seeks long-term growth of capital by emphasizing
investments in common stock of companies with a market capitalization
between $1 billion and $5 billion.
. JANUS ASPEN SERIES -- BALANCED PORTFOLIO seeks both long-term growth of
capital and current income. The Portfolio is designed for investors who
want to participate in the equity markets through a more moderate
investment than a pure growth fund. Investments in income-producing
securities are intended to result in a portfolio that provides a more
consistent total return than may be attainable through investing solely
in growth stocks. The Portfolio is not designed for investors who desire
a consistent level of income.
. JANUS ASPEN SERIES -- FLEXIBLE INCOME PORTFOLIO seeks to maximize total
return, consistent with preservation of capital, from a combination of
current income and capital appreciation.
15
<PAGE>
Flexible Income Portfolio invests in all types of income-producing
securities and may have substantial holdings of debt securities rated
below investment grade ("high yield/high risk securities"), also commonly
known as junk bonds. These securities involve certain risks, and investors
should read carefully the risk disclosure in the portfolio's prospectus.
. JANUS ASPEN SERIES -- GROWTH PORTFOLIO seeks long-term growth of capital
by investing primarily in a diversified portfolio of common stocks of a
large number of issuers of any size. The Portfolio generally emphasizes
issuers with large market capitalizations.
. JANUS ASPEN SERIES -- SHORT-TERM BOND PORTFOLIO seeks as high a level of
current income as is consistent with preservation of capital by investing
primarily in short- and intermediate-term fixed income securities. The
Portfolio will normally maintain a dollar-weighted average portfolio
maturity of less than three years, but not to exceed five years depending
upon its portfolio manager's opinion of prevailing market, financial and
economic conditions.
. JANUS ASPEN SERIES -- WORLDWIDE GROWTH PORTFOLIO seeks long-term growth
of capital by investing primarily in common stocks of companies of
foreign and domestic issuers of any size. The portfolio normally invests
in issuers from at least five different countries including the United
States. International investments involve risks not present in U.S.
Securities.
. LEXINGTON EMERGING MARKETS FUND seeks long-term growth of capital
primarily through investment in equity securities of companies domiciled
in, or doing business in emerging countries and emerging markets.
. LEXINGTON NATURAL RESOURCES TRUST is a non-diversified portfolio that
seeks long-term growth of capital through investment primarily in common
stocks of companies which own or develop natural resources and other
basic commodities or that supply goods and services to such companies.
The Fund may invest up to 25% of its total assets in foreign securities.
Foreign investing involves risks that differ from those involved in
domestic investing. See the Fund's prospectus for a discussion of these
risks.
. TCI PORTFOLIOS, INC. -- TCI GROWTH seeks capital growth by investing in
common stocks (including securities convertible into common stocks) and
other securities that meet certain fundamental and technical standards of
selection and, in the opinion of TCI Growth's management, have better
than average potential for appreciation. TCI Growth tries to stay fully
invested in such securities, regardless of the movement of prices
generally. The Portfolio may invest in foreign securities. Foreign
investing involves risks that differ from those involved in domestic
investing. See the Portfolio's prospectus for a discussion of these
risks.
. TCI PORTFOLIOS, INC. -- TCI BALANCED seeks capital growth and current
income. It seeks capital growth by investing in 60% common stocks
(including securities convertible into common stocks) and other
securities that meet certain fundamental and technical standards of
selection and, in the opinion of TCI Balanced's management, have better-
than-average potential for appreciation. Management intends to maintain
approximately 40% of the Portfolio's assets in fixed income securities.
. TCI PORTFOLIOS, INC. -- TCI INTERNATIONAL seeks capital growth by
investing primarily in an internationally diversified portfolio of common
stocks that are considered by management to have prospects for
appreciation. The Fund will invest primarily in securities of issuers
located in countries with developed economies.
There is no assurance that the Funds will achieve their investment objectives.
Certificate Holders and Contract Holders bear the full investment risk of
investments in the Funds selected.
Some of the above funds may use instruments known as derivatives as part of
their investment strategies as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of
leverage in connection with derivatives can also increase risk of losses. See
the prospectus for the Funds for a discussion of the risks associated with an
investment in those funds.
16
<PAGE>
More comprehensive information, including a discussion of potential risks, is
found in the current prospectus for each Fund which is distributed with and
must accompany this Prospectus. Contract Holders and Certificate Holders should
read the accompanying prospectuses carefully before investing. Additional
prospectuses and the Statements of Additional Information for this Prospectus
and each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed on the cover of this Prospectus.
FUND INVESTMENT ADVISERS
The following identifies the investment adviser and the subadviser, if any, for
each Fund.
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
---- ------------------
<S> <C>
Aetna Variable Fund Aetna Life Insurance and
Annuity Company (ALIAC)
Aetna Income Shares ALIAC
Aetna Variable Encore Fund ALIAC
Aetna Investment Advisers Fund, Inc. ALIAC
Aetna Ascent Variable Portfolio ALIAC
Aetna Crossroads Variable Portfolio ALIAC
Aetna Legacy Variable Portfolio ALIAC
Alger Balanced Portfolio Fred Alger Management, Inc.
Alger Income and Growth Portfolio Fred Alger Management, Inc.
Alger MidCap Growth Portfolio Fred Alger Management, Inc.
Alger Leveraged AllCap Portfolio Fred Alger Management, Inc.
Alger Small Cap Portfolio Fred Alger Management, Inc.
Alger Growth Portfolio Fred Alger Management, Inc.
Fidelity High Income Portfolio Fidelity Management & Research Company
Fidelity Equity-Income Portfolio Fidelity Management & Research Company
Fidelity Growth Portfolio Fidelity Management & Research Company
Fidelity Overseas Portfolio Fidelity Management & Research Company
Fidelity Investment Grade Bond Portfolio Fidelity Management & Research Company
Fidelity Asset Manager Portfolio Fidelity Management & Research Company
Fidelity Index 500 Portfolio Fidelity Management & Research Company
Fidelity Contrafund Portfolio Fidelity Management & Research Company
IMS Equity Growth and Income Fund Federated Advisers
IMS Utility Fund Federated Advisers
IMS U.S. Government Bond Fund Federated Advisers
IMS Corporate Bond Fund Federated Advisers
Janus Aggressive Growth Portfolio Janus Capital Corporation
Janus Balanced Portfolio Janus Capital Corporation
Janus Flexible Income Portfolio Janus Capital Corporation
Janus Growth Portfolio Janus Capital Corporation
Janus Short-Term Bond Portfolio Janus Capital Corporation
Janus Worldwide Growth Portfolio Janus Capital Corporation
Lexington Emerging Markets Fund Lexington Management Corporation
Lexington Natural Resources Trust Lexington Management Corporation*
TCI Growth Investors Research Corporation
TCI Balanced Investors Research Corporation
TCI International Investors Research Corporation
</TABLE>
* Market Systems Research Advisors, Inc. serves as the sub-adviser for the
Lexington Natural Resources Trust.
17
<PAGE>
MIXED AND SHARED FUNDING
Shares of the Funds are sold to us for funding variable annuities. The Funds
may be sold to other companies for the same purpose. This is referred to as
"shared funding." Shares of the Funds may also be used for funding variable
life insurance policies through variable life separate accounts sponsored by us
or by third parties. This is referred to as "mixed funding."
It is conceivable that, in the future, it may be disadvantageous for variable
annuity separate accounts and variable life separate accounts of the same or of
an unaffiliated insurance company to invest in these Funds simultaneously,
since the interests of the contract holders or policy owners or insurance
companies may differ. Each Fund's Board of Trustees or Directors has agreed to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate
accounts might withdraw its investment in a Fund. This might force that Fund to
sell portfolio securities at disadvantageous prices.
FUND ADDITIONS AND LIMITATIONS
We may, from time to time, add additional mutual funds as eligible variable
funding options under the Contracts. No more than 18 different investment
choices may be made over the life of the Certificate. See "Transfers Among
Investment Options."
The Company's current policy is to allow only the Aetna Variable Fund, Aetna
Income Shares and Aetna Investment Advisers Fund, Inc. to be used as variable
investment options during the Annuity Period. See "Annuity Period Elections."
CONTRACT PURCHASE
PURCHASE
The Contract application must be completed by the prospective Group Contract
Holder and sent, together with the Purchase Payment, if any, to the Distributor
or directly to the Company at its Home Office. A Certificate Holder establishes
an Account under a group contract by completing an enrollment form and any
other required forms. The Distributor will deliver any application or
enrollment form to the Company for review, acceptance or rejection.
Contracts may be purchased by spouses as Joint Certificate Holders. Tax law
prohibits the purchase of Individual Retirement Annuities by Joint Certificate
Holders. (See "Contract Rights.")
The Company must accept or reject an application or enrollment form within two
business days of its receipt. If the application or enrollment form is
incomplete, the Company may hold it and any accompanying Purchase Payment for
five days. Purchase Payments may be held for longer periods only with the
consent of the Certificate Holder, pending acceptance of the application or
enrollment form. If the application or enrollment form is accepted, a Contract
will be issued to the Certificate Holder or the Purchase Payment will be
accepted. Any Purchase Payment accompanying the application or enrollment form,
or received prior to acceptance of the application or enrollment form, will be
invested as of the date of acceptance. If the application or enrollment form is
rejected, the application or enrollment form and any Purchase Payments will be
returned to the Certificate Holder.
You may cancel the Contract within 10 days of receiving it. See "Contract
Rights -- Right to Cancel" for more information.
PURCHASE PAYMENTS
Each Purchase Payment accepted by us that is to be invested in the variable
funding options will be deposited in the Separate Account as set forth under
"Certificate Holder's Account Values."
18
<PAGE>
You may elect to have each Net Purchase Payment accumulate (a) on a variable
basis invested in shares of one or more of the Funds; (b) under the credited
interest option; or (c) in a combination of any of the available investment
options. Net Purchase Payments must be allocated in terms of whole percentages,
and may not be invested in more than 18 investment options over the life of the
Certificate. See "Transfers Among Investment Options." For subsequent Purchase
Payments, if no allocation instructions are received with the Purchase Payment,
the allocation will be the same as that indicated on the original enrollment
form or application. If the same term is not available under the credited
interest option, the next shortest will be used. If no shorter term is
available, the next longer Guaranteed Term will be used.
For the Nonqualified Flexible Premium Contract the minimum initial Purchase
Payment is $5,000. Additional Purchase Payments to a Nonqualified Flexible
Premium Contract must be at least $2,500. Subsequent payments may be sent
through the Group Contract Holder, the Distributor or may be sent to the
Marathon Service Unit at the Company's Home Office. Subsequent payments will be
credited as of the end of the Valuation Period during which it is received at
the Company's Home Office. The minimum initial Purchase Payment for the
Individual Retirement Annuity Rollover Contract (IRA) is $10,000. Subsequent
Purchase Payments will be accepted if they are rollovers of amounts previously
accumulated under an Individual Retirement Annuity or Account or a plan
qualified under Code Section 401 or 403. A Purchase Payment of more than
$500,000 is allowed only with our consent. The maximum issue age for the
Annuitant is 90.
Additional Purchase Payments are subject to the terms and conditions published
by us at the time of the subsequent payment. We reserve the right to limit the
total dollar amount accepted from a Certificate Holder. We also reserve the
right to reject any Purchase Payment to a prospective or existing Certificate
Holder's Account without advance notice.
Each Nonqualified Flexible Premium Contract must be aggregated with other
annuity contracts and/or accounts under a Contract purchased by you from us
(and our affiliates) in any calendar year on or after October 21, 1988 for
purposes of determining the taxable portion of payments. (See "Tax Status --
Tax Status of Distributions.")
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
For both Nonqualified Flexible Premium Contracts and IRA Rollover Contracts,
you designate the Beneficiary on the enrollment form or application for an
individual Contract.
The Beneficiary may be entitled to exercise certain rights and receive certain
payments under the Contract in the event of the Certificate Holder's death. You
may change the Beneficiary at any time by submitting a written notice to the
Company's Home Office. The change will not be effective until accepted by the
Company. For an IRA Rollover Contract, you must be the Annuitant. For
Nonqualified Flexible Premium Contracts, you may (but need not) select a
different person as the Annuitant. See "Contract Rights -- Rights Under the
Contract and Account" if you are not the Annuitant.
DISTRIBUTION
Aetna Life Insurance and Annuity Company ("ALIAC") will serve as Underwriter
for the securities sold by this Prospectus. ALIAC is registered as a broker-
dealer with the SEC and is a member of the National Association of Securities
Dealers, Inc. (NASD). As Underwriter, ALIAC will contract with one or more
registered broker-dealers ("Distributors") to offer and sell the Contracts.
ALIAC and one or more of its affiliates may also sell the Contracts directly.
All registered representatives of the Distributors must also be licensed as
insurance agents to sell Variable Annuity Contracts.
ALIAC may also contract with independent third party broker-dealers who will
act as wholesalers by assisting ALIAC in finding broker-dealers interested in
acting as Distributors for the Contracts. These
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wholesalers may also provide training, marketing and other sales related
functions for ALIAC and other Distributors and may provide certain
administrative services to ALIAC in connection with the Contracts. ALIAC may
pay such wholesalers compensation based on Purchase Payments for the Contracts
purchased through Distributors selected by the wholesaler.
ALIAC may also designate third parties to provide services in connection with
the Contracts such as reviewing applications for completeness and compliance
with insurance requirements and providing the Distributors with approved
marketing material, prospectuses or other supplies. These parties will also
receive payments based on Purchase Payments for their services, to the extent
such payments are allowed by applicable securities laws. All costs and expenses
related to these services will be paid by ALIAC.
CERTIFICATE HOLDER'S ACCOUNT VALUES
ACCUMULATION UNITS
A Purchase Payment that is directed to one or more of the Funds is deposited in
the Separate Account and credited to the Certificate Holder's Account in the
form of Accumulation Units for each Fund selected. The number of Accumulation
Units credited is determined by dividing the applicable portion of the Purchase
Payment by that Contract's Accumulation Unit value of the appropriate Fund. The
Accumulation Unit value used is that next-computed following the date on which
a Purchase Payment is received at the Company's Home Office, unless the
application or enrollment form has not been accepted. In that event, Purchase
Payments will be credited at the Accumulation Unit Value next determined after
acceptance of the application or enrollment form. The value of Accumulation
Units attributable to the Funds will be affected by the investment performance,
expenses and charges of those Funds. Generally, if the net asset value of the
fund increases, so does the Accumulation Unit value; however, performance of
the Separate Account is reduced by charges and deductions under the Contract.
Accumulation Units are valued separately for each Fund. Therefore, if you elect
to have a Net Purchase Payment invested in a combination of Funds, you will
have Accumulation Units credited from more than one Fund. The value of the
Certificate Holder's Account as of the most recent Valuation Period, is
determined by adding the value of any Accumulation Units attributed to the
Fund(s) you have selected to the value of any amounts invested in the
Guaranteed Account.
NET INVESTMENT FACTOR
The value of a Fund's Accumulation Unit for any Valuation Period is calculated
by multiplying the Fund's Accumulation Unit value for the immediately preceding
Valuation Period by the net investment factor of the appropriate investment
option for the current period.
The net investment factor is calculated separately for each Fund in which
assets of the Separate Account are invested. It is determined by adding
1.0000000 to the net investment rate.
The net investment rate equals (a) the value of Fund shares held by the
Separate Account at the end of a Valuation Period, minus (b) the value of Fund
shares held by the Separate Account at the beginning of a Valuation Period,
plus or minus (c) taxes or provision for taxes, if any, attributable to the
operation of the Separate Account, divided by (d) the value of the Accumulation
and Annuity Units for the Fund at the beginning of the Valuation Period, minus
(e) a daily charge at the annual effective rate of 1.25% for mortality and
expense risks, and a daily administrative expense charge at the annual
effective rate of 0.15% during the Accumulation Period and up to 0.25% during
the Annuity Period. The net investment rate may be more or less than zero.
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CONTRACT RIGHTS
RIGHT TO CANCEL
The Group or Individual Contract Holder may cancel the Contract no later than
ten days after receiving it (or as otherwise allowed by state law) by returning
it to us or to the Distributor from whom it was purchased along with a written
notice of cancellation. A Certificate Holder may cancel his or her Certificate
Holder's Account under a group Contract no later than ten days after receiving
the Certificate (or as otherwise allowed by state law) by returning it to us or
to the Distributor from whom it was purchased along with a written notice of
cancellation. We will send a refund not later than seven calendar days after we
receive the Contract or Certificate and the written notice at our Home Office.
Unless the applicable state law requires a refund of the Purchase Payments, for
Nonqualified Flexible Premium Contracts, we will refund the Purchase Payments
plus any increase or minus any decrease in the value attributable to the
Purchase Payments allocated to the variable option(s). For IRA Rollover
Contracts, we will refund the Purchase Payment.
RIGHTS UNDER THE CONTRACT AND ACCOUNT
The Group Contract Holder has title to the Contract and only the right to
accept or reject any modifications to the Contract. You have all other rights
to your Certificate Holder's Account under the Contract. However, under a
Nonqualified Flexible Premium Contract, if you and the Annuitant are not the
same, and the Annuitant dies first, a different provision applies. In this
case, your rights are automatically transferred to the Beneficiary. (See "Death
Benefit.")
Two individuals may have an interest in the same Certificate Holder's Account
as Joint Certificate Holders. See "Contract Purchase." Joint Certificate
Holders have equal rights under the Contract and with respect to their
Certificate Holder's Account. On the death of a Joint Certificate Holder prior
to the Annuity Date, the surviving Certificate Holder may retain all ownership
rights under the Contract or elect to have the proceeds distributed. See "Death
Benefits." All rights under the Contract must be exercised by both Joint
Certificate Holders with the exception of transfers among investment options;
at the Company's discretion, one Joint Certificate Holder can select additional
investment options after the Account has been established.
Loans are not allowed under this Contract.
TRANSFERS AMONG INVESTMENT OPTIONS
We currently allow unlimited transfers of accumulated amounts to available
investment options during the Accumulation Period without charge; however, we
reserve the right to charge $10 for each transfer after the first 12 in any
calendar year. During each calendar year, you may change the allocation of
future Net Purchase Payments and/or transfer account values among the
investment options available under the Contract. However, you may not make
allocations or transfers to new investment options if the total number of
investment options you have selected from the time you purchased a Contract or
Certificate would exceed 18. Each variable funding option selected (as
described on pages 13-16 under "The Funds") and each guaranteed term of the
Guaranteed Account selected (as described in the Appendix to the Prospectus)
counts as one investment option for the purposes of this limit, even if you no
longer have amounts allocated to that investment option. Amounts transferred
must be at least $500. If the transfer is from the Guaranteed Account before a
maturity date, the amount transferred will be subject to a Market Value
Adjustment (except, where state regulatory approval has been received, for
transfers made from the one-year Guaranteed Term in connection with the Dollar
Cost Averaging program). Any transfer to or from the Funds will be based on the
Accumulation Unit value next determined after we receive a valid request at our
Home Office. During the Annuity Period, transfers are not available.
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DOLLAR COST AVERAGING PROGRAM
Dollar Cost Averaging is a system for investing a fixed amount of money at
regular intervals over a period of time. It is based on the economic fact that
buying a variably priced item with a constant sum of money at fixed intervals
affords the buyer the opportunity to automatically buy more of that item when
prices are low and less of it when prices are high, thus reducing the average
cost per item. Dollar Cost Averaging does not ensure a profit nor guarantee
against loss in a declining market. Certificate Holders should consider their
financial ability to continue purchases through periods of low price levels.
The Dollar Cost Averaging Program permits Certificate Holders to systematically
transfer amounts from any of the variable funding options and the one-year
Guaranteed Account Term to any of the variable funding options. Where state
regulatory approval has been received, a Market Value Adjustment will not be
applied to dollar cost averaging transfers from the one-year Guaranteed Term.
Consult your representative to determine whether the waiver is approved in your
state. (See the Appendix for a discussion of the restrictions related to Dollar
Cost Averaging from the Guaranteed Account.)
You must have an Account Value of at least $5,000 to participate in the Dollar
Cost Averaging Program. The minimum amount that may be transferred into a
particular variable funding option is $50. DCA can be elected at any time
during the Accumulation Period by completing the DCA section of the application
or by completing a DCA Election Form available from the Company at its Home
Office. All DCA transfers will be made on the 15th of each month (or the next
Valuation Period, if applicable). Any transfer made under the DCA program will
not be counted for purposes of any transfer limitations imposed under the
Contract. A Certificate Holder may terminate the DCA program at any time. The
Company reserves the right to modify or terminate the DCA program at any time.
Dollar Cost Averaging is not available to individuals who have elected the
Systematic Withdrawal Option or the Account Rebalancing Program (described
below).
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows Certificate Holders to have portions of
their Account Value automatically reallocated on the Anniversary of the
Effective Date to a specified percentage. Only Account Values accumulating in
the variable funding options can be rebalanced. Certificate Holders may
participate in this program by completing the Account Rebalancing Section of
the Contract Application, or by requesting the service in writing from the
Company's Home Office. Reallocations under the Account Rebalancing Program will
not be counted for purposes of any transfer limitations imposed under the
Contract.
Account Rebalancing is not available to Certificate Holders who have elected
the Dollar Cost Averaging Program.
Account Rebalancing does not ensure a profit nor guarantee against loss in a
declining market.
WITHDRAWALS
You may withdraw all or a portion of the Certificate Holder's Account Value
during the Accumulation Period by properly completing a disbursement form
provided by us and sending it to our Home Office. Withdrawal request forms are
available from us and from the Distributors. The following types of withdrawal
may be requested:
. Full Withdrawal: The Adjusted Account Value minus any applicable deferred
sales charge and maintenance fee due.
. Partial Withdrawal (Percentage): The percentage of the Adjusted Account
Value requested minus any applicable deferred sales charge.
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. Partial Withdrawal (Specific Dollar Amount): The dollar amount requested.
The amount actually withdrawn from the Certificate Holder's Account may
be greater or less than the dollar amount requested to allow for payment
of any applicable deferred sales charge and any applicable Market Value
Adjustment.
We will pay all amounts based on the Certificate Holder's Account Value next
computed after the request is received in the Home Office or a later date, if
specified. For any partial withdrawal, amounts are withdrawn on a pro rata
basis from all variable funding options. (For treatment of amounts withdrawn
from the Guaranteed Account, see the Appendix.)
Taxes or tax penalties may be due on the amount withdrawn. (See "Tax Status --
Taxation of Annuities.")
We reserve the right to close out, upon 90 days written notice, any Certificate
Holder's Account with a value of $2,500 or less immediately following a partial
withdrawal. A deferred sales charge will not be deducted in this event. The
Company does not intend to exercise this right in cases where the Certificate
Holder's Account Value is reduced to $2,500 or less solely due to investment
performance.
Payments for withdrawal requests will be made in accordance with SEC
requirements, but normally not later than seven calendar days after we receive
a properly completed withdrawal form in our Home Office or within seven
calendar days of the date the withdrawal form may specify. Payments may be
delayed for: (a) any period in which the New York Stock Exchange ("Exchange")
is closed (other than customary weekend and holiday closings) or in which
trading on the Exchange is restricted; (b) any period in which an emergency
exists where disposal of securities held by the Funds is not reasonably
practicable or it is not reasonably practicable for the value of the assets of
the Funds to be fairly determined; or (c) such other periods as the SEC may by
order permit for the protection of Certificate Holders. The conditions under
which restricted trading or an emergency exists will be determined by the rules
and regulations of the SEC.
The tax treatment of withdrawals from each Nonqualified Flexible Premium
Contract may be affected if you own other annuity contracts or accounts issued
by us (or our affiliates) that were purchased on or after October 21, 1988.
(See "Tax Status -- Tax Status of Distributions.")
REINSTATEMENT PRIVILEGE FOLLOWING WITHDRAWAL
You may elect to reinstate all or a portion of the proceeds received from the
full withdrawal of the Certificate Holder's Account within 30 days after the
withdrawal. Accumulation Units will be credited to the Certificate Holder's
Account for the amount reinstated, as well as for any maintenance fee charged
and any portion of any deferred sales charge imposed at the time of withdrawal.
However, any aggregate negative Market Value Adjustment made to the Guaranteed
Account will not be credited. Reinstated amounts will be reallocated to the
applicable investment options in the same proportion as they were allocated at
the time of withdrawal.
The number of Accumulation Units credited will be based upon the Accumulation
Unit value(s) next computed following receipt at our Home Office of the
reinstatement request along with the amount to be reinstated. Any maintenance
fee which falls due after the withdrawal and before the reinstatement will be
deducted from the amount reinstated. The reinstatement privilege may be used
only once and does not apply to Certificate Holder's Accounts that we close
out. If you are contemplating reinstatement, you should seek competent advice
regarding the tax consequences associated with this type of a transaction.
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CHARGES AND DEDUCTIONS
GENERAL
This section describes the maximum charges that we may deduct for maintenance
fees, administrative expenses, sales-related expenses and transfer fees. A
description of mortality and expense risk charges and Fund expenses is also
included.
MAINTENANCE FEE
We will deduct an annual maintenance fee of $30 from the Certificate Holder's
Account Value during the Accumulation Period. This fee is to reimburse us for
some administrative expenses relating to the establishment and maintenance of
the Certificate Holder's Account. We will deduct the fee on the anniversary of
the Certificate Holder's Account's Effective Date (or, if this is not a
business day that the New York Stock Exchange is open, on the next business
day). The fee is also deducted upon withdrawal of the entire Certificate
Holder's Account. The fee is deducted proportionately from each investment
option selected under the Contract by liquidating a portion of amounts held in
those options.
We will not deduct a maintenance fee (either annually or upon withdrawal) if
the Certificate Holder's Account Value is $50,000 or more on the day the
maintenance fee is due.
MORTALITY AND EXPENSE RISK CHARGES
We make a daily deduction from the Separate Account variable portion of the
Certificate Holder's Account Value for mortality and expense risks (insurance
charges). The deduction, equal to the annual effective rate of 1.25% per year,
is made as part of the calculation of Accumulation Unit and Annuity Unit
value(s).
The mortality risk charge is to compensate us for the risks we assume (a) for
the guaranteed death benefit and (b) for our promise to make lifetime payments
according to Annuity rates specified in the Contract. The expense risk charge
is to compensate us for the risk that actual expenses for costs incurred under
the Contract will exceed the maximum costs that can be charged under the
Contract. We hope to profit from the daily deduction for mortality and expense
risks. Any such profit, as well as any other profit realized by us, would be
available for any proper corporate purpose, including, but not limited to,
payment of sales and distribution expenses.
ADMINISTRATIVE EXPENSE CHARGE
During the Accumulation Period, we deduct a daily charge of 0.15% per year
from the Separate Account portion of the Certificate Holder's Account Value.
The deduction is made as part of the calculation of Accumulation Unit Values.
This charge is to reimburse us for expenses we incur for administering the
Contract. We do not intend to profit from this charge. The administrative
expense charge is a percentage of the variable portion of the Certificate
Holder's Account Value; therefore, there may be no relationship between the
amount so deducted and the amount of expenses attributable to the Certificate
Holder's Account.
An administrative expense charge may be established upon the start of a
variable Annuity Option. This charge will not exceed 0.25% per year, deducted
on a daily basis from any variable portion of the Annuity Option. The
deduction is made as part of the calculation of Annuity Unit Values. Through
April 30, 1996, this charge is guaranteed to be 0%. Once an Annuity Option is
elected, and an administrative expense charge has been established, we will
not change the charge.
TRANSFER FEES
For each Certificate Holder's Account unlimited transfers are currently
allowed without charge during the Accumulation Period. We reserve the right to
charge $10 for each transfer in excess of 12 during a
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calendar year. If we do assess the fee, it will be deducted from the
Certificate Holder's Account Value. Transfers are not allowed during the
Annuity Period.
DEFERRED SALES CHARGE
You may withdraw the Adjusted Account Value of your Certificate Holder's
Account at any time during the Accumulation Period; however, a deferred sales
charge (referred to in the Contract as a surrender fee) may be deducted so that
we may recover some of our sales expenses.
The charge only applies to the Net Purchase Payment (not to any associated
changes in value), and gradually decreases generally by 1% so that seven years
after the date the Net Purchase Payment was made, the charge associated with
that payment is 0%. To satisfy a partial withdrawal, the deferred sales charge
is calculated as if Net Purchase Payments are withdrawn in the same order they
were applied to the Certificate Holder's Account (i.e., the oldest Net Purchase
Payment will be exhausted, then the next oldest and so on if a partial
withdrawal is requested). Partial withdrawals from the Guaranteed Account will
be treated as described in the Appendix and in its prospectus. Withdrawals are
charged first against Net Purchase Payments, then against any increases in
value. The deferred sales charge for each Net Purchase Payment is determined by
multiplying the Net Purchase Payment withdrawn by the appropriate percentage,
depending on the number of years completed since the Net Purchase Payment was
made, as shown in the table below. The total charge will be the sum of the
charges applicable for all of the Net Purchase Payments withdrawn.
<TABLE>
<CAPTION>
LENGTH OF TIME SINCE
NET PURCHASE PAYMENT MADE DEDUCTION
------------------------- ---------
<S> <C>
Less than 2 years 7%
2 years or more but less than 4 years 6%
4 years or more but less than 5 years 5%
5 years or more but less than 6 years 4%
6 years or more but less than 7 years 3%
7 years or more 0%
</TABLE>
We will not deduct a deferred sales charge from any Net Purchase Payment
withdrawn that is:
(a) Applied to provide Annuity benefits;
(b) Paid to a Beneficiary due to the Annuitant's death before Annuity
payments start, up to a maximum of the Net Purchase Payment(s) in the
Certificate Holder's Account on the Annuitant's date of death;
(c) Withdrawn under the Systematic Withdrawal Option (SWO) or the Estate
Conservation Option (ECO);
(d) Withdrawn after the Annuitant has spent at least 45 consecutive days in
a licensed nursing care facility, but within three years of admission
to a licensed nursing care facility (in New Hampshire only, the
facility does not have to be licensed). This waiver does not apply if
you or the Annuitant are in a nursing care facility at the time the
Certificate Holder's Account is established or is admitted to a
licensed nursing care facility within one year of that time. It will
also not apply if prohibited by state law; or
(e) Paid due to the full withdrawal of the Certificate Holder's Account for
which the value is $2,500 or less and no withdrawals have been made in
the prior 12 months; or
(f) Paid, at least 12 months after the date of the first Purchase Payment
to the Certificate Holder's Account in an amount of 10% or less of the
Certificate Holder's Account Value. This applies to the first partial
or full withdrawal made each calendar year. The 10% amount will be
calculated using the Certificate Holder's Account Value on the date the
request is received in
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good order at the Home Office. If a withdrawal is made that exceeds 10%,
the applicable deferred sales charge on the amount over 10% and any
applicable Market Value Adjustment will be deducted from the Certificate
Holder's Account Value. This provision may not be exercised if SWO is
elected; or
(g) Paid if we close out the Certificate Holder's Account. (See "Contract
Rights -- Withdrawals.")
In the instances cited in the above paragraphs, no deferred sales charge is
deducted. However, the amount withdrawn may be subject to the 10% federal
penalty tax. (See "Tax Status -- Tax Status of Distributions.") A Market Value
Adjustment may also apply to amounts withdrawn from the Guaranteed Account.
Based on our actuarial determination, we do not anticipate that the deferred
sales charge will cover all sales and administrative expenses that we will
incur in connection with the Contract.
FUND EXPENSES
Each Fund has an investment adviser which charges a management or investment
advisory fee for its services. These fees are based on each Fund's average net
assets, and are deducted from the assets of each Fund and paid to the
investment adviser. The Fee Table sets forth the management fee and other
expenses of each Fund for 1994. (See "The Funds -- Fund Investment Advisers"
for a list of the Funds' investment advisers.)
Most expenses incurred in the operations of each Fund are borne by that Fund.
Fund advisers may reimburse the Funds that they advise for some or all of these
expenses. For further details on each Fund's expenses, you should read the
accompanying prospectus for each Fund and the Fee Table in this Prospectus.
PREMIUM TAX
Several states and municipalities impose a premium tax on Purchase Payments
either when made or when an Annuity option is elected. Currently such taxes
range up to 4%. Ordinarily, any state premium tax will be deducted from the
Certificate Holder's Account Value when it is applied to an Annuity option.
However, we reserve the right to deduct state premium tax at any time from the
Purchase Payment(s) or from the Certificate Holder's Account Value at any time,
but no earlier than when we have a tax liability under state law.
Any municipal premium tax assessed at a rate in excess of 1% will be deducted
from the Purchase Payment(s) or from the amount applied to an Annuity option
based on our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
COMMISSIONS AND DISTRIBUTION EXPENSES
Commissions will be paid to broker-dealers who sell the Contracts. Broker-
dealers will be paid commissions up to an amount currently equal to 6.5% of
Purchase Payments. Pursuant to agreements between the Underwriter (ALIAC) and
the broker-dealer, commissions may be paid as a combination of a certain
percentage amount at the time of sale and a trail commission of up to 0.40% of
assets due to Purchase Payments (which, when combined, could exceed 6.5% of
Purchase Payments).
Other than the mortality and expense risk charge and the administrative charge,
all expenses incurred in the operations of the Separate Account are borne by
the Company.
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ADDITIONAL WITHDRAWAL OPTIONS
GENERAL
We offer two withdrawal options that are not considered Annuity options: the
Estate Conservation Option ("ECO") and the Systematic Withdrawal Option
("SWO"). These options are available if your Account Value is at least $25,000
at the time of election and you are at least age 70 1/2 for ECO or 59 1/2 for
SWO. ECO is available only for amounts in an IRA Rollover Contract, and not for
amounts under a Nonqualified Flexible Premium Contract. Under SWO, you receive
a series of partial withdrawals from your Account based on the payment method
you select. It is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulating under the Contract. ECO offers
the same investment flexibility as SWO, but is designed for those who want to
receive only the minimum distribution that the Code requires each year. Under
ECO, the Company calculates the minimum distribution amount required by law and
pays you that amount once a year.
Amounts withdrawn for ECO and SWO will be deducted from the Contract in the
same manner as for any other withdrawals during the Accumulation Period except
that no deferred sales charge will be applied. Additionally, where state
regulatory approval has been received, no market value adjustment will be
applied to amounts distributed under an ECO or SWO election. (See your
representative to determine whether the waiver is approved in your state.) (See
"Contract Rights -- Withdrawals During Accumulation Period" and "Charges and
Deductions -- Deferred Sales Charge.")
Since ECO and SWO are not Annuity options, the Certificate Holder's Account
retains all the rights and obligations available during the Accumulation
Period, as described in this Prospectus, and is subject to all Accumulation
Period Contract charges. We reserve the right to discontinue the availability
of these withdrawal options and to change the terms for future elections.
Once elected, you or your spousal beneficiary may revoke the applicable
option(s) at any time, by submitting a written request to our Home Office. Any
revocation will apply only to the amounts not yet paid. Once ECO or SWO is
revoked, it may not be elected again.
SWO is different from ECO in the following ways: (1) SWO payments are made for
a fixed dollar amount, fixed time period or fixed percentage whereas ECO
payments vary in dollar amount and can continue indefinitely during your
lifetime; (2) generally, SWO payments will be higher than expected ECO
payments; and (3) ECO is available only for amounts in an Individual Retirement
Annuity Contract, whereas SWO is available under both Individual Retirement
Annuity Contracts and Nonqualified Flexible Premium Contracts. You should
carefully assess your future income needs when considering the election of
these withdrawal options.
You should consult your tax adviser prior to electing one of these options due
to the potential for adverse tax consequences. The Company will not be
responsible for adverse tax consequences incurred by a Certificate Holder due
to their receipt of SWO payments.
For a discussion of the consequences if you or your Beneficiary dies after SWO
or ECO has been elected, see "Death Benefit."
ESTATE CONSERVATION OPTION
The first distribution may not be made before the calendar year in which the
Certificate Holder attains age 70 1/2. ECO is available only for amounts in an
Individual Retirement Annuity Contract.
We will calculate and distribute an annual amount using the recalculation
method contained in the Code's minimum distribution regulations. You specify
the month you want to receive the distributions and they will be mailed for
receipt by the 15th of that month each year. The annual distribution is
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<PAGE>
determined each year by dividing the Certificate Holder's Account Value by a
life expectancy factor from tables designated by the Internal Revenue Service
("IRS"). The factor will be based on either your life expectancy or the joint
life expectancy of you and your Beneficiary and will be redetermined for each
calendar year's distribution. The Certificate Holder's Account Value to be used
in this calculation is the Certificate Holder's Value on the December 31st of
the year prior to the year in which the ECO payment is being made. This
calculation will be changed, if necessary, to conform to changes in the Code or
applicable regulations.
SYSTEMATIC WITHDRAWAL OPTION
SWO payments are available on a monthly, quarterly, semiannual or annual basis
and are mailed for receipt by the 15th of the month. Under the Specified
Percentage method, payments will be made until you reach age 70 1/2, or if
elected by your spouse as a Beneficiary, until you would have reached age 70
1/2. You may not make any election that would result in a payment of less than
$500.
You may elect one of the following methods of distribution:
(a) Specified Payment -- payments of a designated dollar amount. The dollar
amount chosen cannot be greater than 10% of the Certificate Holder's
Account Value. The Company may require a minimum payment amount.
(b) Specified Period -- payments for a designated time period. Each annual
distribution is determined by dividing the Certificate Holder's Account
Value by the number of years remaining in the elected period. The
Certificate Holder's Account Value used in this calculation is the
Certificate Holder's Account Value on the December 31st of the year
prior to the year for which the payment is being made. For payments
made more often than annually, the annual payment result (calculated
above) is divided by the number of payments due each year. The
specified period must be at least 10 years but, for IRA Rollover
Contracts, not greater than your life expectancy factor.
(c) Specified Percentage -- payments of a designated percentage. The
specified percentage chosen cannot be greater than 10% of the
Certificate Holder's Account Value. The percentage elected may be
changed every six months. Each annual distribution is determined by
multiplying the Certificate Holder's Account Value by the percentage
chosen. The value used in this calculation is the value on the December
31st of the year prior to the year for which the payment is being made.
For payments made more often than annually, the annual payment result
(calculated above) is divided by the number of the payments due each
year.
Note: For an IRA Rollover Contract, the annual minimum SWO distribution, or
maximum SWO time period, as you direct, will be determined by a life expectancy
factor from tables designated by the IRS. Under both the Specified Payment and
Specified Period payment methods, a higher amount will be paid in any year, if
required under the Code's minimum distribution rules. For the initial
distribution year, we will calculate the amount paid based on your single life
expectancy determined from Table V of Section 1.72-9 of the Income Tax
Regulations. For each year thereafter, we will use the life expectancy for the
previous year reduced by one.
ANNUITY PERIOD
ANNUITY PERIOD ELECTIONS
You must notify us in writing of the Annuity Date and Annuity option elected.
The Certificate Holder's Account will continue in the Accumulation Period until
the Annuity Date. Once Annuity Payments start, the Annuity Date and Annuity
Option cannot be changed. Payments may not begin earlier than one year after
purchase, or later than the later of: (a) the first day of the month following
the Annuitant's 85th birthday, or (b) the tenth anniversary of the last
Purchase Payment. As required by the Code,
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distributions from an IRA Rollover Contract must begin no later than April 1 of
the calendar year after the calendar year in which you attain age 70 1/2. (This
distribution requirement can be satisfied with annuity payments or ECO.)
At least 30 days before the Annuity Date, you must notify us in writing to
elect or change (a) the date on which Annuity payments are to begin, (b) the
Annuity option, (c) whether the payments are to be made monthly, quarterly,
semiannually or annually, and (d) the investment option(s) to be used to
provide Annuity payments (i.e., a fixed annuity using the general account,
Aetna Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc.,
or any combination thereof). No other Funds may currently be used as investment
options during the Annuity Period. Once Annuity Payments begin, the Annuity
Option may not be changed, nor may transfers be made among funding options.
Annuity payments are based on the Annuitant's adjusted age (and joint
Annuitant's if elected), the payment rate for the Selected Annuity option, and
the amount applied to the Annuity Option. The Annuitant's adjusted age is his
or her age as of the birthday closest to the date of the first Annuity payment,
reduced by one year for Annuity start dates occurring during the period from
July 1, 1993 through December 31, 1999. The Annuitant's age (and joint
Annuitant's, if applicable) will be reduced by two years for Annuity start
dates occurring during the period from January 1, 2000 through December 31,
2009. The Annuitant's adjusted age (and joint Annuitant's, if applicable) will
be reduced by one additional year for Annuity start dates in each succeeding
decade.
If Annuity payments are elected on a variable basis, the first and subsequent
Annuity payments will also depend on the assumed net investment rate (3 1/2%
annually, unless a 5% annual rate is elected). Use of the 3 1/2% assumed rate
causes a lower first payment, but subsequent payments would increase more
rapidly or decline more slowly as changes occur in the net investment rate. A
5% rate causes a higher first payment, but Annuity payments will increase
thereafter only to the extent that the net investment rate exceeds 5% annually.
Annuity payments would decline if the rate were below 5%. The first Annuity
payment determines the number of Annuity Units into which Accumulation Units
are converted on the Annuity Date. Annuity Unit Values are calculated like
Accumulation Unit Values except that they also take into account a factor
reflecting the assumed net investment rate. The dollar value of Annuity Unit
Values and Annuity Payments may go up or down due to investment performance.
No election may be made that would result in a first Annuity payment of less
than $50 or total yearly Annuity payments of less than $250 (less if required
by state law). If the Certificate Holder's Account Value on the Annuity start
date is insufficient to elect an option for the minimum amount specified, a
lump-sum payment must be elected. We reserve the right to increase the minimum
first Annuity payment amount and the minimum annual Annuity payment amount
based on increases reflected in the Consumer Price Index-Urban (CPI-U), since
July 1, 1993.
For IRA Rollover Contracts, in determining the amount of Annuity payments, we
must satisfy the minimum distribution incidental death benefit rule described
in IRS regulations. This rule assures that any death benefits payable are
incidental to the primary purpose of the Contract, which is to provide you with
retirement benefits. The amount to be distributed under this rule is determined
based on your age and tables contained in the IRS regulations.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
ANNUITY OPTIONS
LIFETIME:
(a) Life Annuity -- an Annuity with payments guaranteed to the date of the
Annuitant's death. This option may be elected with payments guaranteed
for a minimum of 5, 10, 15 or 20 years.
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Because it provides a specified minimum number of Annuity payments, the
election of a guaranteed payment period results in somewhat lower
payment than if a Life Annuity with no specified number of guaranteed
payments had been elected.
(b) Life Income Based Upon the Lives of Two Payees -- An Annuity will be
paid during the lives of the Annuitant and a second Annuitant. Payments
will continue until both Annuitants have died. When this option is
chosen, a choice must be made of:
(i) 100% of the payment to continue after the first death;
(ii) 66 2/3% of the payment to continue after the first death;
(iii) 50% of the payment to continue after the first death;
(iv) Payments for a minimum of 120 months, with 100% of the payment to
continue after the first death; or
(v) 100% of the payment to continue at the death of the second Annuitant
and 50% of the payment to continue at the death of the Annuitant.
Because (iv) provides a specified minimum number of Annuity payments,
the election of the guaranteed payment period results in somewhat lower
payments.
Payments under any lifetime Annuity option will be determined without regard to
the sex of the Annuitant(s). Such Annuity payments will be based solely on the
age of the Annuitant(s).
If a lifetime option is elected without a guaranteed minimum payment period, it
is possible that only one Annuity payment will be made if the Annuitant under
(a), or the surviving Annuitant under (b), (i), (ii), (iii) or (v), should die
prior to the due date of the second Annuity payment.
Once lifetime Annuity payments begin, you cannot elect to receive a lump-sum
settlement or change elections.
NONLIFETIME:
(a) Payments for a Stated Period of Time -- an Annuity with payments to be
made for five to 30 years, as selected. If this option is elected on a
variable basis, you may request at any time during the payment period
that the present value of all or any portion of the remaining variable
payments be paid in one sum. If elected on a fixed basis, you cannot
elect to receive a lump-sum settlement. However, any lump sum elected
before three years of payments have been completed will be treated as a
withdrawal during the Accumulation Period and any applicable deferred
sales charge will be assessed. (See "Charges and Deductions -- Deferred
Sales Charge.") Once an Annuity option is elected on either a variable
or fixed basis, you cannot change elections.
(b) Payment of Interest -- interest payments will be made to your
Beneficiary on all or a portion of the amount payable upon your death
prior to your electing an Annuity Option and allocated to this option.
Amounts under this option are held in our general account. Your
Beneficiary may withdraw any amount held under this option or direct
that any or all of the amount be applied to an Annuity Option.
We make a daily deduction for mortality and expense risks from any amounts held
on a variable basis. (See "Charges and Deductions -- Mortality and Expense Risk
Charges.") Therefore, electing the nonlifetime option on a variable basis will
result in a deduction being made even though we assume no mortality risk.
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We may also deduct a daily administrative charge from amounts held under the
variable options. The charge, established when a variable Annuity Option is
elected, will not exceed 0.25% per year of amounts held on a variable basis.
Once established the charge will be effective during the entire Annuity
Period.
In addition to the Annuity Options described, we may offer you and other
payees optional methods of payment.
DEATH BENEFIT
GENERAL
The following section provides information about determining the death benefit
amount, should you or the Annuitant die during the Accumulation Period.
Additional information is given for IRA Rollover Contracts and Nonqualified
Flexible Premium Contracts regarding the rights available and who receives
them in case of the death of you or the Annuitant. In many cases, the rights
available will depend on whether the Beneficiary is your spouse.
In many of the scenarios described below, a deadline is given for receiving
distributions equal to the Certificate Holder's Account Value. According to
the Code, the required amount must be distributed by the deadline given. If
not, the IRS will deem the Beneficiary to be in "constructive receipt" of the
amount, and the Beneficiary may be subject to a penalty tax in addition to any
other income tax due on the amount.
Upon the death of a Joint Certificate Holder prior to the Annuity Date, the
surviving Certificate Holder, if any, will be the designated beneficiary. Any
other beneficiary designation on record with the Company at the time of death
will be treated as a contingent beneficiary, and payments will be made to such
beneficiary only upon the death of the surviving Certificate Holder. Upon the
death of an Annuitant who is not a Certificate Holder, the Death Benefit
Amount will be paid to the beneficiary designated.
Note: We will not allow Annuity payments to a Beneficiary to extend beyond the
Beneficiary's life or any period certain greater than the Beneficiary's life
expectancy.
DEATH BENEFIT AMOUNT
If the Annuitant (or for the Nonqualified Flexible Premium Contract, you or
the Annuitant) dies before Annuity payments start, the Beneficiary is entitled
to a death benefit. The excess, if any, of the amount of the guaranteed death
benefit over the Certificate Holder's Account Value is determined as of the
date of death. Any excess amount will be deposited to the Certificate Holder's
Account and allocated to Aetna Variable Encore Fund as of the claim date. The
Certificate Holder's Account Value on the claim date plus any excess amount
deposited, becomes the Certificate Holder's Account Value. The claim date is
the date when we receive valid proof of death and the Beneficiary's claim at
our Home Office.
For Nonqualified Flexible Premium Contracts, the death benefit value is
determined as described in items (a), (b), (c) and (d) below. For IRA Rollover
Contracts, the death benefit value is determined as described in items (a),
(b) and (d) below.
(a) Death of Certificate Holder/Annuitant (for IRA Rollover Contracts) or
death of Annuitant (for Nonqualified Flexible Premium Contracts) less
than 75 years of age: The guaranteed death benefit value is the
greatest of:
(1) The Net Purchase Payment(s) made to the Certificate Holder's
Account minus the sum of all amounts withdrawn, applied to an
Annuity, or deducted from the Certificate Holder's Account;
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(2)(i) In jurisdictions where regulatory approval has been received, the
highest step-up value as of the date of death. A step-up value
is determined on each anniversary of the Effective Date. Each
step-up value is calculated as the Certificate Holder's Account
Value on the Effective Date anniversary, increased by the amount
of any Purchase Payment(s) made, and decreased by the amount of
any partial withdrawals and/or amounts applied to an Annuity
Option since the Effective Date anniversary;
(ii) In jurisdictions where regulatory approval for (a)(2)(i) above
has NOT been received, the value will be the step-up value as
of the date of death, minus the total of all partial
withdrawals, amounts applied to an Annuity and deductions made
from the Certificate Holder's Account since determination of
the step-up value. The step-up value is the Certificate
Holder's Account Value on the most recent seventh year
anniversary of the date the Net Purchase Payment was applied.
(3) The Certificate Holder's Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the
Certificate Holder's Account Value is determined as of the date of
death. Any excess amount will be deposited and allocated to Aetna
Variable Encore Fund as of the claim date. The Certificate Holder's
Account Value on the claim date plus any excess amount deposited
becomes the Certificate Holder's Account Value.
(b) Death of Certificate Holder/Annuitant (for IRA Rollover Contracts) or
death of Annuitant (for Nonqualified Flexible Premium Contracts) age 75 or
greater: The death benefit is the greatest of:
(1) The Net Purchase Payments made to the Certificate Holder's Account
minus the sum of all amounts withdrawn, applied to an Annuity, or
deducted from the Certificate Holder's Account;
(2) The highest step-up value as of the Participant's 75th birthday.
The step-up value is calculated as described in (a)(2)(i) above. In
jurisdictions where regulatory approval for (a)(2)(i) has not been
received, the value will be the step-up value as of the
Participant's 75th birthday, determined as described in (a)(2)(ii)
above;
(3) The Certificate Holder's Account Value as of the date of death.
(c) Death of the Certificate Holder if the Certificate Holder is not the
Annuitant (Nonqualified Flexible Premium Contracts only): The death
benefit amount is the Adjusted Account Value on the Claim Date. A
deferred sales charge may apply to any full or partial withdrawal. (See
"Charges and Deductions -- Deferred Sales Charge.")
(d) Death of a Spousal Beneficiary: In the case of a spousal beneficiary
who continued the Account in his or her own name, the death benefit
shall be equal to the Certificate Holder's Account Value, less any
applicable deferred sales charge on any Purchase Payment(s) made after
we receive proof of death.
For amounts held in the Guaranteed Account: The death benefit, if paid within
six months of the date of the Annuitant's death, is the greater of the
Certificate Holder's Account Value or the aggregate market value adjusted (MVA)
amount. If paid after the six-month period, the death benefit will be the
aggregate Market Value Adjustment amount. The aggregate Market Value Adjustment
amount may be more or less than the Certificate Holder's Account Value.
DEATH BENEFIT OPTIONS AVAILABLE TO BENEFICIARY UNDER A NONQUALIFIED FLEXIBLE
PREMIUM CONTRACT
Under a Nonqualified Flexible Premium Contract, prior to any election, the
Certificate Holder's Account Value will remain in the Certificate Holder's
Account and the Certificate Holder's Account Value will
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continue to be affected by the investment performance of the investment
option(s) selected. The Beneficiary has the right to allocate or transfer any
amount to any available investment options (subject to a Market Value
Adjustment, as applicable). The Code requires that distributions begin within a
certain time period as described below; failure to commence distribution within
those time periods can result in tax penalties. The following options are
available to the Beneficiary:
(a) When you are the Annuitant and you die:
(1) If the Beneficiary is the surviving spouse, the Beneficiary will
become the successor Certificate Holder. The successor Certificate
Holder may exercise all Certificate Holder rights under the Contract
and continue in the Accumulation Period, or may elect (i), (ii), or
(iii) below. Under the Code, distributions are not required until the
successor Certificate Holder's death. The Beneficiary may:
(i) Apply some or all of the Adjusted Account Value to any of the
Annuity options. The amount of payout will depend on the annuity
option elected and the investment option(s) used to provide such
payments. The proceeds are taxed in the same manner as annuity
payments. See "Tax Status."
(ii) Elect to have some or all of the Adjusted Account Value
deposited in the Company's general account, earning the then-
current interest rate which may be changed from time to time.
The Beneficiary may elect to receive monthly, quarterly,
semiannual or annual interest payments. The balance on deposit
can be withdrawn at any time or applied to any Annuity option.
The principal amount is guaranteed, but interest payments may
vary; or
(iii) Request, at any time, a lump-sum payment equal to all or a
portion of the Adjusted Account Value.
Under (ii) and (iii) above, payments are taxed as surrenders as they
are received.
(2) If the Beneficiary is not your surviving spouse, he or she may
exercise all Contract or Certificate Holder rights and continue in the
Accumulation Period or may elect option (i), (ii), or (iii) under (1)
above. According to the Code, any portion of the Adjusted Account
Value not applied to an Annuity option (other than the Nonlifetime
Payment of Interest) within one year of your death, must be paid
within five years after your death.
(3) If no Beneficiary exists, a lump-sum payment equal to the Adjusted
Account Value will be made to your estate.
Note: If SWO has been elected, SWO payments to the Beneficiary may be
continued, unless the Beneficiary elects otherwise. Any payments elected must
be made at least as frequently as those made prior to your death.
(b) When you are not the Annuitant and you die:
(1) If the Beneficiary is your surviving spouse, he or she will become the
successor Certificate Holder. The successor Certificate Holder may
exercise all your rights under the Contract and continue in the
Accumulation Period, or may elect (i), (ii), or (iii) below. Under the
Code, distributions are not required until the successor Certificate
Holder's death. The Beneficiary may elect to:
(i) Apply some or all of the Adjusted Account Value to any of the
Annuity options. The amount of payout will depend on the annuity
option elected and the investment option(s) used to provide such
payments. The proceeds are taxed in the same manner as annuity
payments;
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(ii) Elect to have some or all of the Surrender Value deposited in
the Company's general account, earning the then-current interest
rate which may be changed from time to time. The Beneficiary may
elect to receive monthly, quarterly, semiannual or annual interest
payments. The balance on deposit can be withdrawn at any time or
applied to any Annuity option. The principal amount is guaranteed,
but interest payments may vary; or
(iii) Request, at any time, a lump-sum payment equal to all or a
portion of the Surrender Value.
Under (ii) and (iii) above, payments are taxed as surrenders as they
are received.
(2) If the Beneficiary is not your surviving spouse, he or she may
elect option (i), (ii), or (iii) under (1) above. According to the Code,
any portion of the Adjusted Account Value not applied to one of the
Annuity options (other than the Nonlifetime Payment of Interest) within
one year of your death and must be paid within five years after your
death. This amount will be subject to a deferred sales charge, if
applicable.
(3) If no Beneficiary exists, a lump-sum payment equal to the Surrender
Value will be made to your estate.
Note: If SWO has been elected, the payments to the Beneficiary may be
continued, unless the Beneficiary elects otherwise. Any payments elected must
be made at least as frequently as those made prior to your death.
(c) When you are not the Annuitant and the Annuitant dies: the Beneficiary
must elect an Annuity option (see "Annuity Options") other than the
Nonlifetime Payment of Interest within 60 days of the date of death.
DEATH BENEFIT OPTIONS AVAILABLE TO BENEFICIARY UNDER AN IRA ROLLOVER CONTRACT
Under an IRA Rollover Contract, prior to any election, the Certificate
Holder's Account Value will be retained in the Certificate Holder's Account
and the Certificate Holder's Account Value will continue to be affected by the
investment performance of the investment option(s) selected. Under the Code,
distributions must begin within a certain time period. If no elections are
made, no distributions will be made. Failure to commence distributions within
the time periods stated below can result in tax penalties. The following
options are available to the Beneficiary:
(a) If the Beneficiary is your surviving spouse, he or she may exercise all
rights under the Contract and continue in the Accumulation Period, or
may elect (1), (2), or (3) below. Under the Code, distributions are not
required until December 31st of the year in which you would have
attained age 70 1/2. The Beneficiary may elect to:
(1) Apply some or all of the Adjusted Account Value to the Annuity
options. The amount of payout will depend on the annuity option
elected and the investment option(s) used to provide such payments;
(2) Elect to have some or all of the Adjusted Account Value deposited in
the Company's general account, earning the then-current interest rate
which may be changed from time to time. The Beneficiary may elect to
receive monthly, quarterly, semiannual or annual interest payments.
The balance on deposit can be withdrawn at any time, or applied to any
Annuity option. The principal amount is guaranteed, but interest
amounts may vary; or
(3) Receive, at any time, a lump-sum payment equal to all or any portion
of the Adjusted Account Value.
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In general, regardless of the method of payment, payments received by
your Beneficiaries after your death are taxed in the same manner as if
you had received those payments. See "Tax Status."
Note: If ECO is in effect when you die, your surviving spouse can elect to
continue receiving ECO payments if a joint life expectancy was chosen.
Otherwise, your surviving spouse must receive a lump-sum payment of the
Adjusted Account Value. If SWO is in effect and you die before your required
beginning date for minimum distributions the SWO payments will stop and your
surviving spouse may elect (1), (2) or (3) above. If SWO is in effect and you
die after your required beginning date for minimum distributions, your
surviving spouse can elect to continue SWO payments. Otherwise, your spouse
must elect to receive a lump sum payment equal to the Adjusted Account Value.
(b) If the Beneficiary is other than your surviving spouse, and ECO is not
in effect when you die, he or she may exercise all rights under the
Certificate Holder's Account and continue in the Accumulation Period or
may elect option (1), (2), or (3) under (a) above. Any portion of the
Adjusted Account Value that is not applied to an Annuity Option (other
than the Nonlifetime Payment of Interest) by December 31st of the year
following the year of your death must be distributed by December 31st
of the year containing the fifth anniversary of your date of death.
Note: If ECO or SWO is in effect when you die, the Beneficiary must receive an
automatic and immediate lump-sum payment of the Adjusted Account Value.
(c) If no Beneficiary exists, a lump-sum payment equal to the Adjusted
Account Value will be made to your estate.
TAX STATUS
INTRODUCTION
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all
of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of the
current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
The Nonqualified Flexible Premium Contract is purchased on a non-tax qualified
basis. The IRA Rollover Contract is purchased and used in connection with
certain arrangements entitled to special income tax treatment under section 408
of the Code. The ultimate effect of federal income taxes on the amounts held
under a Contract, on Annuity Payments, and on the economic benefit to the
Certificate Holder, the Annuitant, or the Beneficiary may depend on the tax
status of the individual concerned.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, and its operation
forms a part of the Company, it will not be taxed
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separately as a "regulated investment company" under Subchapter M of the Code
or as any other Separate entity. Investment income and capital gains are
automatically applied to increase reserves under the Contracts. Under existing
federal income tax law, the Company believes that the Separate Account
investment income and net capital gains will not be taxed to the extent that
such income and gains are applied to increase the reserves under the
Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the
Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with
respect to some or all Contracts) in order to set aside provisions to pay such
taxes.
TAX STATUS OF THE CONTRACT
DIVERSIFICATION: Section 817(h) of the Code requires that with respect to
Nonqualified Flexible Premium Contracts, the investments of the Funds be
"adequately diversified" in accordance with Treasury Regulations in order for
the Contracts to qualify as annuity contracts under federal tax law. The
Separate Account, through the Funds, intends to comply with the
diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5,
which affects how the Funds' assets may be invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In these circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of
investment control over the assets. The ownership rights under the contract
are similar to, but different in certain respects from those described by the
IRS in rulings in which it was determined that contract owners were not owners
of separate account assets. For example, a Certificate Holder has additional
flexibility in allocating premium payments and account values. In addition,
the number of funds provided under the Contract is significantly greater than
the number of funds offered in contracts on which rulings have been issued.
These differences could result in a Certificate Holder being treated as the
owner of a pro rata portion of the assets of the Separate Account. The Company
reserves the right to modify the Contract as necessary to attempt to prevent a
Certificate Holder from being considered the owner of a pro rata share of the
assets of the Separate Account.
REQUIRED DISTRIBUTION: In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires nonqualified
contracts to provide that (a) if any Certificate Holder dies on or after the
annuity date but prior to the time the entire interest in the Contract has
been distributed, the remaining portion of such interest will be distributed
at least as rapidly as under the method of distribution being used as of the
date of such owner's death; and (b) if any Certificate Holder dies prior to
the annuity date, the entire interest in the Contract will be distributed
within five years after the date of such Certificate Holder's death. These
requirements will be considered satisfied as to any portion of a Certificate
Holder's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
Certificate Holder's death. The "designated beneficiary" refers to a natural
person designated by the Certificate Holder as a Beneficiary and to whom
ownership of the contract passes by reason of death. However, if the
"designated beneficiary" is the surviving spouse of the deceased Certificate
Holder, the contract may be continued with the surviving spouse as the new
Certificate Holder.
The Nonqualified Flexible Premium Contracts contain provisions which are
intended to comply with the requirements of section 72(s) of the Code,
although no regulations interpreting these requirements have
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yet been issued. The Company intends to review such provisions and modify them
if necessary to assure that they comply with the requirements of Code section
72(s) when clarified by regulation or otherwise. Other rules may apply to IRA
Rollover Contracts.
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL: Section 72 of the Code governs taxation of annuities in general.
The Company believes that a Certificate Holder who is a natural person
generally is not taxed on increases in the Contract Value until distribution
occurs by withdrawing all or part of such Contract Value (e.g., withdrawals or
Annuity payments under the Annuity Option elected). The assignment, pledge, or
agreement to assign or pledge any portion of the Value generally will be
treated as a distribution. The taxable portion of a distribution (in the form
of a single sum payment or an annuity) is taxable as ordinary income.
The following discussion generally applies to a Contract owned by a natural
person.
WITHDRAWALS: In the case of a withdrawal under an IRA Rollover Contract,
including withdrawals under SWO or ECO, the amount taxable is generally based
on the ratio of the "investment in the contract" to Contract Value. The
"investment in the contract" generally equals the amount of any nondeductible
Purchase Payments paid by or on behalf of any individual less any amount
received previously which was excludable from gross income. For an IRA Rollover
Contract, the "investment in the contract" can be zero. Special tax rules may
be available for certain distributions from an IRA Rollover Contract.
With respect to Nonqualified Flexible Premium Contracts, partial withdrawals,
including withdrawals under SWO, are generally treated as taxable income to the
extent that the Contract Value immediately before the withdrawal exceeds the
"investment in the contract" at that time. The Contract Value immediately
before a withdrawal may have to be increased by any positive market value
adjustment (MVA) that results from such a withdrawal. There is, however, no
definitive guidance on the proper tax treatment of MVAs in these circumstances,
and a Certificate Holder should contact a competent tax advisor with respect to
the potential tax consequences of any MVA that arises as a result of a partial
withdrawal.
Full withdrawals of a Nonqualified Flexible Premium Contract are treated as
taxable income to the extent that the amount received exceeds the "investment
in the contract."
ANNUITY PAYMENTS: Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Contract Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
Fixed Annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable. If Annuity payments cease as a result
of an Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding deductibility of the
unrecovered amount.
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PENALTY TAX: In the case of a distribution pursuant to a Nonqualified Flexible
Premium Contract, there may be imposed a federal income tax penalty equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty tax on distributions: (1) made on or after the date on which the
taxpayer attains age 59 1/2; (2) made as a result of death or disability of a
Certificate Holder; (3) received in substantially equal periodic payments as a
life annuity or a joint and survivor annuity for the lives or life expectancies
of the Certificate Holder and a "designated beneficiary." Other tax penalties
may apply to certain distributions pursuant to an IRA Rollover Contract.
TAXATION OF DEATH BENEFIT PROCEEDS: Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
Generally, such amounts are includible in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity payments, as described
above.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF THE CONTRACT: A transfer of ownership
of a Contract, the designation of an Annuitant, Payee or other Beneficiary who
is not also a Certificate Holder, the selection of certain Annuity Dates, or
the exchange of a Contract may result in certain tax consequences that are not
discussed herein. Anyone contemplating any such designation, transfer,
assignment, selection, or exchange should contact a competent tax adviser with
respect to the potential tax effects of such a transaction. An IRA Rollover
Contract may not be assigned.
MULTIPLE CONTRACTS: All deferred nonqualified annuity contracts that are issued
by the Company (or its affiliates) to the same owner during any calendar year
are treated as one annuity contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. In addition, the
Treasury Department has specific authority to issue regulations that prevent
the avoidance of section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract
and separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
IRA ROLLOVER CONTRACTS
IN GENERAL: The qualified contract is designed for use as an Individual
Retirement Annuity. The tax rules applicable to participants and beneficiaries
in Individual Retirement Annuities are complex. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances.
INDIVIDUAL RETIREMENT ANNUITIES: Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity or Individual Retirement Account, each
hereinafter referred to as an "IRA." Also, distributions from certain other
types of qualified plans may be "rolled over" on a tax-deferred basis into an
IRA. The sale of a contract for use with an IRA may be subject to special
disclosure requirements of the Internal Revenue Service. Purchasers of a
Contract for use with IRAs will be provided with supplemental information
required by the Internal Revenue Service or other appropriate agency. Such
purchasers will have the right to revoke their purchase within 7 days of the
earlier of the establishment of the IRA or their purchase. A Contract issued in
connection with an IRA will be amended as necessary to conform to the
requirements of the Code. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRAs.
The Internal Revenue Service has not reviewed the Contract for qualification as
an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
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WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. For example, one such proposal would
have changed the tax treatment of nonqualified annuities that did not have
"substantial life contingencies" by taxing income as it is credited to the
annuity. Although as of the date of this prospectus Congress is not actively
considering any legislation regarding the taxation of annuities, there is
always the possibility that the tax treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the change).
OTHER TAX CONSEQUENCES
As noted, above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect the Company's understanding of
the current law and the law may change. Federal estate and gift tax
consequences of ownership or receipt of distributions under the Contract depend
on the individual circumstances of each Certificate Holder or recipient of a
distribution. A competent tax adviser should be consulted for further
information.
MISCELLANEOUS
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at shareholders'
meetings of the appropriate Fund(s). The number of votes to which each Contract
Holder may give direction will be determined as of the record date. The number
of votes each Contract Holder is entitled to direct with respect to a
particular Fund during the Accumulation Period equals the portion of the
Certificate Holder's Account Value(s) of the Contract attributable to that
Fund, divided by the net asset value of one share of that Fund. During the
Annuity Period, the number of votes is equal to the Valuation Reserve for the
portion of the Contract attributable to that Fund, divided by the net asset
value of one share of that Fund. In determining the number of votes, fractional
votes will be recognized. Where the value of the Contract or Valuation Reserve
relates to more than one Fund, the calculation of votes will be performed
separately for each Fund.
If you are a Certificate Holder under a group Contract, you have a fully vested
(100%) interest in the benefits provided to you under your Certificate Holder's
Account. Therefore, you may instruct the group Contract Holder how to direct
the Company to cast the votes for the portion of the value or Valuation Reserve
attributable to your Certificate Holder's Account. Votes attributable to those
Certificate Holders who do not instruct the group Contract Holder will be cast
by the Company in the same proportion as votes for which instructions have been
received by the group Contract Holder. Votes attributable to individual or
group Contract Holders who do not direct us will be cast by us in the same
proportion as votes for which directions we have received.
You will receive a notice of each meeting of shareholders, together with any
proxy solicitation materials, and a statement of the number of votes
attributable to your Certificate Holder's Account.
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MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to the limitations described below, by notifying the Contract Holder in
writing 30 days before the effective date of the change. The following Contract
provisions are considered material by the Company and cannot be changed without
the approval of appropriate state or federal regulatory authorities:
(a) transfers among investment options;
(b) notification to the Contract Holder;
(c) conditions governing payments of surrender values;
(d) terms of Annuity Options;
(e) death benefit payments; and
(f) contract charges
In addition, changes to the items listed below will apply only to new
Certificate Holders Accounts established under a group Contract, or individual
Contracts issued after the effective date of the change:
(a) the Annuity Options;
(b) the contractual promise that no deduction will be made from the
Purchase Payment for sales or administrative expenses;
(c) increasing the deferred sales charges;
(d) increasing the mortality and expense risk charges;
(e) increasing the administrative charge;
(f) the right to make transfers; and
(g) the Guaranteed Account Guaranteed Rate.
Modification of items (b) through (e) above specifically require authorization
by the SEC to the extent that the proposed charges are not currently authorized
by existing orders issued to us by the SEC.
If the group Contract Holder has not accepted the proposed change at the time
the amendment becomes effective, no new Certificate Holder's Accounts may be
opened under the group Contract.
No modification may affect any Annuity beginning before the effective date of
the change unless deemed necessary for the Contract to comply with the
requirements of the Code or other laws and regulations affecting the Contract.
INQUIRIES
You may direct inquiries by writing directly to us at the address shown on the
cover page of this prospectus or by calling 1-800-531-4547.
TELEPHONE TRANSFERS
You automatically have the right to make transfers among Funds by telephone.
The Company has enacted procedures to prevent abuses of Certificate Holder's
Account transactions by telephone. The procedures include requiring the use of
a personal identification number (PIN) in order to execute transactions. You
are responsible for safeguarding your PIN, and for keeping your Account
information confidential. If the Company fails to follow these procedures it
would be liable for any losses to your Certificate Holder's Account resulting
from the failure. To ensure authenticity, the Company records all calls on the
800 line.
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TRANSFER OF OWNERSHIP; ASSIGNMENT
Assignments or transfers of ownership of an IRA Rollover Contract are not
allowed except as permitted under Code Section 408(d)(6), coincident to a
divorce. We will accept assignments or transfers of ownership of a Nonqualified
Flexible Premium Contract, with proper notification. The date of any such
transfer will be the date we receive the notification at our Home Office. Refer
to "Tax Status of Distributions" for general tax information. If you are
contemplating a transfer of ownership or assignment you should consult a tax
adviser due to the potential for tax liability.
LEGAL PROCEEDINGS
We 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.
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STATEMENT OF ADDITIONAL INFORMATION -- TABLE OF CONTENTS
The following items are the contents of the Statement of Additional
Information:
<TABLE>
<S> <C>
General Information and History............................................. 2
Variable Annuity Account I.................................................. 2
Offering and Purchase of Contracts.......................................... 3
Performance Data............................................................ 3
General................................................................... 3
Average Annual Total Return Quotations.................................... 4
Annuity Payments............................................................ 5
Dollar-Cost Averaging....................................................... 7
Sales Material.............................................................. 7
Independent Auditors........................................................ 7
Financial Statements of the Company......................................... F-1
</TABLE>
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APPENDIX
AICA GUARANTEED ACCOUNT
THE AICA GUARANTEED ACCOUNT ("GUARANTEED ACCOUNT") IS A GUARANTEED INTEREST
OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS DESCRIBED
IN THIS PROSPECTUS. SINCE THE GUARANTEED ACCOUNT IS A FUNDING OPTION UNDER THE
CONTRACT, YOU SHOULD READ THE ACCOMPANYING GUARANTEED ACCOUNT PROSPECTUS
CAREFULLY BEFORE INVESTING. THIS APPENDIX IS INTENDED AS A SUMMARY DESCRIPTION
OF THE GUARANTEED ACCOUNT AND IS NOT INTENDED AS A REPLACEMENT FOR THE
GUARANTEED ACCOUNT PROSPECTUS.
The Guaranteed Account is a guaranteed interest option for which we guarantee
stipulated rates of interest for stated periods of time on amounts applied to
the Guaranteed Account. For guaranteed terms of one year or less, a guaranteed
rate is credited for the full term. For guaranteed rates of greater than one
year, the initial guaranteed rate is credited from the date of deposit to the
end of a specified period within the guaranteed term. The interest rate
stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield over the period of one year. Guaranteed interest rates
will never be less than an annual effective rate of 3%.
During the deposit period, amounts may be applied to any of the available
guaranteed terms. Purchase Payments received after the initial payment will be
allocated in the same proportions as the last allocation, if no new allocation
instructions are received with the Purchase Payment. For amounts allocated to
the Guaranteed Account, if the same guaranteed term(s) are not available, the
next shortest term will be used. If no shorter guaranteed term is available,
the next longer guaranteed term will be used.
WITHDRAWALS
Except for withdrawals taken from the one-year Guaranteed Term in connection
with the Dollar Cost Averaging Program and withdrawals taken in connection with
an Estate Conservation or Systematic Withdrawal distribution option (where
state regulatory approval has been received), withdrawals or transfers from a
guaranteed term before the guaranteed term matures may be subject to a market
value adjustment ("MVA"). An MVA reflects the change in the value of the
investment due to changes in interest rates since the date of deposit. When
interest rates increase after the date of deposit, the value of the investment
decreases, and the MVA is negative. Conversely, when interest rates decrease
after the date of deposit, the value of the investment increases, and the MVA
is positive. It is possible that a negative MVA could result in you receiving
an amount that is less than the amount you allocated to the Guaranteed Account.
For partial withdrawals during the Accumulation Period, amounts to be withdrawn
from the Guaranteed Account will be withdrawn on a pro rata basis from each
group of deposits having the same length of time until the Maturity Date
("Guaranteed Term Group"). Within a Guaranteed Term Group, the amount will be
withdrawn first from the oldest Deposit Period, then from the next oldest, and
so on until the amount requested is satisfied.
MATURITY OF A GUARANTEED TERM
As a guaranteed term matures, assets accumulating under the Guaranteed Account
may be (a) transferred to a new guaranteed term, (b) transferred to any other
available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to a deferred sales charge. If no direction is received by the Company
at its Home Office by the maturity date of a guaranteed term, the amount from
the maturing guaranteed term will be transferred to the current deposit period
for a similar length guaranteed term. If the same guaranteed term is no longer
available the next shortest guaranteed term
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available in the current deposit period will be used. If no shorter guaranteed
term is available, the next longer guaranteed term will be used.
If you do not provide instruction concerning the maturity value of a maturing
guaranteed term, the maturity value transfer provision applies. This provision
allows you to transfer without an MVA to available guaranteed terms of the
current deposit period or to other available investment options, or surrender
without an MVA (if applicable, a deferred sales charge is assessed on the
surrendered amount). The provision is available only during the calendar month
immediately following a guaranteed term maturity date and only applies to the
first transaction regardless of the amount involved in the transaction.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a guaranteed term during a deposit period may not be
transferred to any other funding option or to another guaranteed term during
that deposit period or for 90 days after the close of that deposit period. This
does not apply to (1) amounts transferred on the Maturity Date or under the
maturity value transfer provision; (2) amounts transferred from the Guaranteed
Account before the Maturity Date due to the election of an Annuity option; (3)
amounts transferred from the one-year Guaranteed Term in connection with the
Dollar Cost Averaging Program; and (4) amounts distributed under the Estate
Conservation or Systematic Withdrawal distribution. Transfers after the 90-day
period are permitted from guaranteed term(s) to other guaranteed term(s)
available during a deposit period or to other available investment options.
Except for transactions described in items (1), (3) and (4) above, amounts
withdrawn or transferred from the Guaranteed Account prior to the maturity date
will be subject to a Market Value Adjustment. These waivers are subject to
regulatory approval and may not be available in all states. See your
representative to determine whether the waiver is approved in your state.
Transfers of Guaranteed Account values on or within one calendar month of a
term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Certificate Holder's Account.
The Certificate Holder may select a maximum of 18 different investment options
over the lifetime of the Contract. Under the Guaranteed Account, each
guaranteed term is counted as one investment option. If a guaranteed term
matures, and is renewed for the same term, it will not count as an additional
investment option.
DEATH BENEFIT
Full and partial withdrawals and transfers made from the Guaranteed Account
within six months after the date of the Annuitant's death will be the greater
of:
(a) The aggregate MVA amount (i.e., the sum of all market value adjusted
amounts calculated due to a withdrawal of amounts). This total may be
greater or less than the Certificate Holder's Account Value of those
amounts; or
(b) The applicable portion of the Certificate Holder's Account Value
attributable to the Guaranteed Account.
After the six-month period, the surrender or transfer amount will be
adjusted for the aggregate MVA amount, which may be greater or less than
the Certificate Holder's Account Value of those amounts.
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By notifying us at our Home Office at least 30 days before the Annuity Date,
you may elect to have amounts which have been accumulating under the Guaranteed
Account transferred to Aetna Variable Fund, Aetna Income Shares, Aetna
Investment Advisers Fund, Inc., or any combination thereof, to provide variable
Annuity payments. (The Guaranteed Account cannot be used as an investment
option during the Annuity Period.) Transfers made due to the election of a
lifetime Annuity Option will be subject to only a positive aggregate MVA.
REINSTATEMENT PRIVILEGE
Any amounts reinstated to the Guaranteed Account will be applied to the
available guaranteed terms of the current deposit period in the same proportion
as they were at the time of surrender. If a guaranteed term of the same time to
maturity is not available in the current deposit period, the funds will be
reinvested in a guaranteed term having the next shortest time to maturity. Any
negative MVA amount applied to a surrender is not included in the
reinstatement.
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