<PAGE>
As filed with the Securities and Exchange File No. 33-59749
Commission, April 22, 1996 File No. 811-8582
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Variable Annuity Account I of Aetna Insurance Company of America
(EXACT NAME OF REGISTRANT)
Aetna Insurance Company of America
(NAME OF DEPOSITOR)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Depositor's Telephone Number, including Area Code (860) 273-7834
Susan E. Bryant, Counsel
Aetna Insurance Company of America
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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It is proposed that this filing will become effective:
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__X__ on May 1, 1996 pursuant to paragraph (a)(3) of Rule 485 (Request
for acceleration has been made).
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
The Registrant filed a Rule 24f-2 Notice for fiscal year ended December 31, 1995
on February 29, 1996.
<PAGE>
VARIABLE ANNUITY ACCOUNT I
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a)
<TABLE>
<CAPTION>
Form N-4
Item No. PART A (PROSPECTUS) Location
- -------- ---------
<S> <C> <C>
1 Cover Page . . . . . . . . . . . . . . . . . . . Cover Page
2 Definitions. . . . . . . . . . . . . . . . . . . Definitions
3 Synopsis or Highlights . . . . . . . . . . . . . Prospectus Summary; Fee Table
4 Condensed Financial Information. . . . . . . . . Condensed Financial Information
5 General Description of Registrant,
Depositor, and Portfolio Companies . . . . . . . The Company; Variable Annuity
Account I; the Funds
6 Deductions . . . . . . . . . . . . . . . . . . . Charges and Deductions
7 General Description of Variable Annuity
Contracts. . . . . . . . . . . . . . . . . . . . Contract Rights; Miscellaneous
8 Annuity Period . . . . . . . . . . . . . . . . . Annuity Period
9 Death Benefit. . . . . . . . . . . . . . . . . . Death Benefit
10 Purchases and Contract Value . . . . . . . . . . Purchase;
Determining Contract Value
11 Redemptions. . . . . . . . . . . . . . . . . . . Contract Rights - Withdrawals;
Right to Cancel
12 Taxes. . . . . . . . . . . . . . . . . . . . . . Tax Status
13 Legal Proceedings. . . . . . . . . . . . . . . . Miscellaneous - Legal
Proceedings
14 Table of Contents of the Statement of
Additional Information . . . . . . . . . . . . . Statement of Additional
Information - Table of Contents
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-4
Item No. PART B (STATEMENT OF ADDITIONAL Location
- --------- INFORMATION --------
<S> <C> <C>
15 Cover Page . . . . . . . . . . . . . . . . . . . Cover page
16 Table of Contents. . . . . . . . . . . . . . . . Table of Contents
17 General Information and History. . . . . . . . . General Information and History
18 Services . . . . . . . . . . . . . . . . . . . . General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered . . . . . . Offering and Purchase of Contracts
20 Underwriters . . . . . . . . . . . . . . . . . . Offering and Purchase of Contracts
21 Calculation of Performance Data. . . . . . . . . Performance Data; Average Annual
Total Return Quotations
22 Annuity Payments . . . . . . . . . . . . . . . . Annuity Payments
23 Financial Statements . . . . . . . . . . . . . . Financial Statements
</TABLE>
PART C (OTHER INFORMATION)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus describes the "Aetna Marathon Plus" group and individual
deferred variable annuity contracts ("Contracts") issued by Aetna Insurance
Company of America (the "Company"). The Contracts are available as (1)
nonqualified deferred annuity contracts, (2) Individual Retirement Annuities
under Section 408(b) of the Internal Revenue Code, or (3) qualified contracts
issued in connection with certain employer sponsored retirement plans.
(Availability of Contracts of the type identified in items (2) and (3) may be
subject to state regulatory approval.) In most states, group Contracts are
offered to certain broker-dealers or banks which have agreed to act as
Distributors of the Contracts. Individuals who have established accounts with
those broker-dealers or banks are eligible to participate in the Contract.
Individual Contracts are offered only in those states where the group Contracts
are not authorized for sale. (See "Purchase.")
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 or banks selected by it as Distributors. (See
"Purchase.")
The Contracts provide that contributions may be allocated to the AICA Guaranteed
Account (the "Guaranteed Account"), a credited interest option, or to one or
more of the Subaccounts of Variable Annuity Account I, a separate account of the
Company. The Subaccounts invest directly in shares of the following Funds:
- Aetna Variable Fund - Fidelity VIP Overseas Portfolio
- Aetna Income Shares - Fidelity VIP II Asset Manager
- Aetna Variable Encore Fund Portfolio
- Aetna Investment Advisers Fund, - Fidelity VIP II Contrafund
Inc. Portfolio
- Aetna Ascent Variable Portfolio - Fidelity VIP II Index 500 Portfolio
- Aetna Crossroads Variable Portfolio - Fidelity VIP II Investment Grade
- Aetna Legacy Variable Portfolio Bond Portfolio
- Alger American Balanced Portfolio - Janus Aspen Aggressive Growth
- Alger American Growth Portfolio Portfolio
- Alger American Income and Growth - Janus Aspen Balanced Portfolio
Portfolio - Janus Aspen Flexible Income
- Alger American Leveraged AllCap Portfolio
Portfolio - Janus Aspen Growth Portfolio
- Alger American MidCap Growth - Janus Aspen Short-Term Bond
Portfolio Portfolio
- Alger American Small Cap Portfolio - Janus Aspen Worldwide Growth
- Federated American Leaders Fund II Portfolio
- Federated Fund for U.S. Government - Lexington Emerging Markets Fund,
Securities II Inc.
- Federated High Income Bond Fund II - Lexington Natural Resources Trust
- Federated Utility Fund II - MFS Emerging Growth Series
- Fidelity VIP Equity-Income - MFS Research Series
Portfolio - MFS Total Return Series
- Fidelity VIP Growth Portfolio - MFS World Governments Series
- Fidelity VIP High Income Portfolio - TCI Balanced (a Twentieth Century
fund)
- TCI Growth (a Twentieth Century
fund)
- TCI International (a Twentieth
Century fund)
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. The Guaranteed Account is described in the
Appendix to this Prospectus, as well as in the Guaranteed Account's prospectus.
The availability of the Funds and the Guaranteed Account is subject to
applicable regulatory authorization; not all options may be available in all
jurisdictions or under all Contracts. (See "Investment Options.")
This Prospectus provides investors with the information about the Separate
Account that they should know before investing in the Contracts. Additional
information about the Separate Account is contained in a Statement of Additional
Information ("SAI") which is available at no charge. The SAI has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents for the SAI is printed on page 24 of this Prospectus. An
SAI may be obtained by indicating the request on your application or enrollment
form or by calling the number listed under the "Inquiries" section of the
Prospectus Summary.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE AICA GUARANTEED ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND
RETAINED FOR FUTURE REFERENCE.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK, NOR
ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1996.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DEFINITIONS........................................................... DEFINITIONS - 1
PROSPECTUS SUMMARY.................................................... SUMMARY - 1
FEE TABLE............................................................. FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION....................................... AUV HISTORY - 1
THE COMPANY........................................................... 1
VARIABLE ANNUITY ACCOUNT I............................................ 1
INVESTMENT OPTIONS.................................................... 1
The Funds......................................................... 1
Credited Interest Option.......................................... 5
PURCHASE.............................................................. 5
Contract Availability............................................. 5
Purchasing Interests in the Contract.............................. 6
Purchase Payments................................................. 6
Contract Rights................................................... 6
Designations of Beneficiary and Annuitant......................... 6
Right to Cancel................................................... 7
CHARGES AND DEDUCTIONS................................................ 7
Daily Deductions from the Separate Account........................ 7
Mortality and Expense Risk Charge............................ 7
Administrative Charge........................................ 7
Maintenance Fee................................................... 8
Deferred Sales Charge............................................. 8
Fund Expenses..................................................... 9
Premium and Other Taxes........................................... 9
CONTRACT VALUATION.................................................... 9
Account Value..................................................... 9
Accumulation Units................................................ 9
Net Investment Factor............................................. 9
TRANSFERS............................................................. 10
Dollar Cost Averaging Program..................................... 10
Account Rebalancing Program....................................... 10
WITHDRAWALS........................................................... 10
ADDITIONAL WITHDRAWAL OPTIONS......................................... 11
DEATH BENEFIT DURING ACCUMULATION PERIOD.............................. 12
Death Benefit Amount.............................................. 12
Death Benefit Payment Options..................................... 12
ANNUITY PERIOD........................................................ 13
Annuity Period Elections.......................................... 13
Partial Annuitization............................................. 14
Annuity Options................................................... 14
Annuity Payments.................................................. 14
Charges Deducted During the Annuity Period........................ 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Death Benefit Payable During the Annuity Period................... 15
TAX STATUS............................................................ 15
Introduction...................................................... 15
Taxation of the Company........................................... 16
Tax Status of the Contract........................................ 16
Taxation of Annuity Contracts..................................... 17
Contracts Used with Certain Retirement Plans...................... 19
MISCELLANEOUS......................................................... 21
Distribution...................................................... 21
Delay or Suspension of Payments................................... 21
Performance Reporting............................................. 22
Voting Rights..................................................... 22
Modification of the Contract...................................... 22
Transfers of Ownership; Assignment................................ 22
Involuntary Terminations.......................................... 23
Legal Matters and Proceedings..................................... 23
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................... 24
APPENDIX--AICA GUARANTEED ACCOUNT..................................... 25
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following terms are defined as they are used in this Prospectus:
ACCOUNT: A record that identifies contract values accumulated on each
Certificate Holder's behalf during the Accumulation Period.
ACCOUNT VALUE: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
ACCOUNT YEAR: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of each Subaccount before annuity
payments begin.
ADJUSTED ACCOUNT VALUE: The Account Value, plus or minus the aggregate market
value adjustment for amounts allocated to the Guaranteed Account.
ANNUITANT: The person on whose life or life expectancy the annuity payments are
based.
ANNUITY: A series of payments for life, a definite period or a combination of
the two.
ANNUITY DATE: The date on which annuity payments begin.
ANNUITY PERIOD: The period during which annuity payments are made.
ANNUITY UNIT: A measure of the value of each Subaccount selected during the
Annuity Period.
BENEFICIARY(IES): The person or persons who are entitled to receive any death
benefit proceeds. Under Nonqualified Contracts, Individual Retirement Annuities
and Section 403(b) Contracts, Beneficiary refers to the beneficiary named under
the Contract. Under Qualified Contracts sold in conjunction with 401(a) or 457
Plans, Beneficiary refers to the beneficiary under the plan.
CERTIFICATE: The document issued to a Certificate Holder for an Account
established under a group contract.
CERTIFICATE HOLDER (YOU): A person or entity who purchases an individual
Contract or acquires an interest under a group Contract. For Nonqualified
Contracts, we reserve the right to limit ownership to natural persons.
COMPANY (WE, US): Aetna Insurance Company of America.
CONTRACT: The group and individual deferred, variable annuity contracts offered
by this Prospectus.
DISTRIBUTOR(S): The registered broker-dealer(s), or banks that may be acting as
broker-dealers without separate registration under the Securities Exchange Act
of 1934, which have entered into selling agreements with the Company to offer
and sell the Contracts. The Company may also serve as a Distributor.
FUND(S): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
GROUP CONTRACT HOLDER: The entity to which a group Contract is issued.
HOME OFFICE: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
INDIVIDUAL CONTRACT HOLDER: A person or entity who has purchased an individual
variable annuity contract (also referred to as a "Certificate Holder"). For
Nonqualified Contracts, we reserve the right to limit ownership to natural
persons.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY: An individual or group variable deferred annuity
intended to qualify under Code Section 408(b).
NONQUALIFIED CONTRACT: A contract established 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(S): The gross payment(s) made to the Company under an Account.
QUALIFIED CONTRACTS: Contracts available for use with plans entitled to special
federal income tax treatment under Code Sections 401(a), 403(b), 408(b) or 457.
REGISTERED REPRESENTATIVE: The individual who is registered with a broker-dealer
acting as Distributor to offer and sell securities, or who is an employee of a
bank acting as Distributor that is exempt from broker-dealer registration under
the Securities Exchange Act of 1934. Registered Representatives must also be
licensed as insurance agents to sell variable annuity contracts.
SEPARATE ACCOUNT: Variable Annuity Account I, a separate account established for
the purpose of funding variable annuity contracts issued by the Company.
SUBACCOUNT(S): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
SURRENDER VALUE: The amount payable upon the withdrawal of all or any portion of
an Account Value.
UNDERWRITER: The registered broker-dealer which contracts with other registered
broker-dealers, or with banks exempt from broker-dealer registration, to offer
and sell the Contracts. Aetna Life Insurance and Annuity Company will serve as
Underwriter.
VALUATION DATE: The date and time at which the value of the Subaccount is
calculated. Currently, this calculation occurs at the close of business of the
New York Stock Exchange on any normal business day, Monday through Friday, that
the New York Stock Exchange is open.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACTS OFFERED
The Contracts described in this Prospectus are group and individual deferred
variable annuity contracts issued by Aetna Insurance Company of America (the
"Company"). The purpose of the Contract is to accumulate values and to provide
benefits upon retirement. The Contracts are currently available for (1)
individual nonqualified purchases; (2) Individual Retirement Annuities; and (3)
purchases made in conjunction with employer sponsored retirement plans under
Sections 401(a), 403(b) or 457 of the Code. (Availability of Contracts of the
type identified in items (2) and (3) may be subject to state regulatory
approval. See "Purchase.")
In most states, group Contracts are offered to certain broker-dealers or
banks which have agreed to act as Distributors of the Contracts. Individuals who
have established accounts with those broker-dealers or banks are eligible to
participate in the Contract. Individual Contracts are offered only in those
states where the group Contracts are not authorized for sale. Joint Certificate
Holders are allowed only on Nonqualified Contracts. A joint Certificate Holder
must be the spouse of the other joint Certificate Holder. In Pennsylvania, the
joint Certificate Holders do not need to be spouses. References to "Certificate
Holders" in this Prospectus mean both of the Certificate Holders on joint
Accounts.
CONTRACT PURCHASE
You may purchase an interest in the Contract by completing an application or
enrollment form and submitting it to the Company. Purchase Payments can be
applied to the Contract either through a lump-sum payment or through ongoing
contributions. (See "Purchase.")
FREE LOOK PERIOD
You may cancel the Contract or Certificate within 10 days after you receive
it (or longer if required by state law) by returning it to the Company along
with a written notice of cancellation. Unless state law requires otherwise, the
amount you will receive upon cancellation will reflect the investment
performance of the Subaccounts into which your Purchase Payments were deposited.
In some cases this may be more or less than the amount of your Purchase
Payments. Under a Contract issued as an Individual Retirement Annuity, you will
receive a refund of your Purchase Payment. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account I, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows investment
in any or all of the Subaccounts, as well as in the Guaranteed Account described
below. For a complete list of the Funds available under the Contracts, and a
description of the investment objectives of each of the Funds and their
investment advisers, see "Investment Options--The Funds" in this Prospectus, as
well as the prospectuses for each of the Funds.
The Guaranteed Account is the credited interest option available under the
Contract which allows you to earn a fixed rate of interest, if held for the
guaranteed term. (See the Appendix to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), as well as any annual maintenance fee,
transfer fees and premium and other taxes. The Funds also incur certain fees and
expenses which are deducted directly from the Funds. A deferred sales charge may
apply upon a full or partial withdrawal of the Account Value. (See the Fee Table
and "Charges and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Guaranteed Account.
Currently transfers are without charge. However, the Company reserves the
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
right to charge up to $10 if more than 12 transfers are made in a calendar year.
Transfers can be requested in writing or by telephone in accordance with the
Company's transfer procedures. (Transfers from the Guaranteed Account may be
restricted and subject to a market value adjustment. See the Appendix.)
The Company also offers a Dollar Cost Averaging Program and an Account
Rebalancing Program. The Dollar Cost Averaging Program permits the automatic
transfer of amounts from any of the Subaccounts and the one-year Guaranteed
Account term to any of the other Subaccounts on a monthly or quarterly basis.
The Account Rebalancing Program allows Certificate Holders to have portions of
their Account Value automatically reallocated annually to a specified
percentage. (See "Transfers.")
WITHDRAWALS
All or a part of the Account Value may be withdrawn prior to the Annuity
Date by properly completing a disbursement form and sending it to the Company.
Certain charges may be assessed upon withdrawal. Amounts withdrawn from the
Guaranteed Account may be subject to a market value adjustment. (See the
Appendix.) The taxable portion of the withdrawal may also be subject to income
tax and a federal tax penalty. (See "Withdrawals.")
The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional Withdrawal
Options are not available in all states and may not be suitable in every
situation. (See "Additional Withdrawal Options.")
GUARANTEED DEATH BENEFIT
These Contracts contain a guaranteed death benefit feature. Upon the death
of the Annuitant, the Account Value may be increased under certain
circumstances. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to the
Beneficiary depending upon the terms of the Contract and the Annuity Option
selected. (See "Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, you may elect to begin receiving Annuity Payments.
Annuity Payments can be made on either a fixed, variable or combination fixed
and variable basis. If a variable payout is selected, the payments will continue
to vary with the investment performance of the Subaccount(s) selected. The
Company reserves the right to limit the number of Subaccounts that may be
available during the Annuity Period. (See "Annuity Period.")
TAXES
Earnings are not generally taxed until you or your Beneficiary(ies) actually
receive a distribution from the Contract. A 10% federal tax penalty may be
imposed on certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
<TABLE>
<S> <C>
- Write to: Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156-5996
Attention: Customer Service
- Call Customer Service: 1-800-531-4547 (for automated transfers or changes
in the allocation of
Account Values, call: 1-800-262-3862)
</TABLE>
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SUMMARY - 2
<PAGE>
FEE TABLE
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- --------------------------------------------------------------------------------
This Fee Table describes the various charges and expenses associated with the
Contract. No sales charge is paid upon purchase of the Contract. All costs that
are borne directly or indirectly under the Subaccounts and Funds are shown
below. Some expenses may vary as explained under "Charges and Deductions." The
charges and expenses shown below do not include premium taxes that may be
applicable. For more information regarding expenses paid out of assets of a
particular Fund, see the Fund's prospectus.
DIRECT CHARGES. These charges are deducted directly from the Account Value. They
include:
DEFERRED SALES CHARGE. The deferred sales charge is deducted as a
percentage of each Purchase Payment withdrawn. The amount of the deferred
sales charge is calculated as follows:
<TABLE>
<CAPTION>
DEFERRED
SALES
YEARS FROM RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
</TABLE>
<TABLE>
<S> <C>
ANNUAL MAINTENANCE FEE.................................................................... $ 30.00
The maintenance fee will generally be deducted annually from each Account. The maintenance
fee is waived when the Account Value is $50,000 or more on the date the maintenance fee is
due. The amount shown is the MAXIMUM maintenance fee that can be deducted under the
Contract.
TRANSFER CHARGE........................................................................... $ 0.00
We currently allow 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.
</TABLE>
INDIRECT CHARGES. Each Subaccount pays these expenses out of its assets. The
charges are reflected in the Subaccount's daily Accumulation Unit Value and are
not charged directly to an Account. They include:
DURING THE ACCUMULATION PERIOD:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25%
ADMINISTRATIVE CHARGE..................................................................... 0.15%
---------
TOTAL SUBACCOUNT ANNUAL EXPENSES.......................................................... 1.40%
---------
---------
</TABLE>
DURING THE ANNUITY PERIOD:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25%
ADMINISTRATIVE CHARGE..................................................................... 0.00%
---------
We currently do not impose an Administrative Charge during the Annuity Period. However, we
reserve the right to deduct a daily charge of not more than 0.25% per year from the
Subaccounts.
TOTAL SUBACCOUNT ANNUAL EXPENSES.......................................................... 1.25%
---------
---------
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of average
net assets and, except where otherwise indicated, are based on figures for the
year ended December 31, 1995. A Fund's "Other Expenses" include operating costs
of the Fund. These expenses are reflected in the Fund's net asset value and are
not deducted from the Account Value.
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY TOTAL
FEES(1) OTHER EXPENSES ANNUAL
(AFTER EXPENSE (AFTER EXPENSE FUND
REIMBURSEMENT) REIMBURSEMENT) EXPENSES
-------------- -------------- -----------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.25% 0.06% 0.31%
Aetna Income Shares(2) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund,
Inc.(2) 0.25% 0.08% 0.33%
Aetna Ascent Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Crossroads Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Legacy Variable Portfolio(2) 0.50% 0.15% 0.65%
Alger American Balanced Portfolio 0.75% 0.25% 1.00%
Alger American Growth Portfolio 0.75% 0.10% 0.85%
Alger American Income and Growth
Portfolio 0.63% 0.12% 0.75%
Alger American Leveraged AllCap
Portfolio(3) 0.85% 0.71% 1.56%
Alger American MidCap Growth Portfolio 0.80% 0.10% 0.90%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Federated American Leaders Fund II(4) 0.00% 0.85% 0.85%
Federated Fund for U.S. Government
Securities II(4) 0.00% 0.80% 0.80%
Federated High Income Bond Fund II(4) 0.00% 0.80% 0.80%
Federated Utility Fund II(4) 0.00% 0.85% 0.85%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP High Income Portfolio(5) 0.60% 0.11% 0.71%
Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91%
Fidelity VIP II Asset Manager
Portfolio(5) 0.71% 0.08% 0.79%
Fidelity VIP II Contrafund
Portfolio(5) 0.61% 0.11% 0.72%
Fidelity VIP II Index 500 Portfolio(6) 0.00% 0.28% 0.28%
Fidelity VIP II Investment Grade Bond
Portfolio 0.45% 0.14% 0.59%
Janus Aspen Aggressive Growth
Portfolio(7) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio(7) 0.82% 0.55% 1.37%
Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07%
Janus Aspen Growth Portfolio(7) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond
Portfolio(7) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth
Portfolio(7) 0.68% 0.22% 0.90%
Lexington Emerging Markets Fund,
Inc.(8) 0.85% 0.90% 1.75%
Lexington Natural Resources Trust 1.00% 0.47% 1.47%
MFS Emerging Growth Series(9) 0.75% 0.25% 1.00%
MFS Research Series(9) 0.75% 0.25% 1.00%
MFS Total Return Series(9) 0.75% 0.25% 1.00%
MFS World Governments Series(9) 0.75% 0.25% 1.00%
TCI Balanced(10) 1.00% 0.00% 1.00%
TCI Growth(10) 1.00% 0.00% 1.00%
TCI International(10) 1.50% 0.00% 1.50%
</TABLE>
- --------------------------
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2)As of May 1, 1996, the Company will provide administrative services to the
Fund and will assume the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not based
on figures for the year ended December 31, 1995, but reflect the fee payable
under this Agreement.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(3)The Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent such reimbursement, the other expenses and total expenses of
the Fund would have been 3.07% and 3.92%, respectively. The Adviser can
terminate this voluntary waiver at any time in its sole discretion.
(4)The management fee for each of the Funds has been reduced to reflect a
voluntary waiver of the management fee. The Adviser can terminate this
voluntary waiver at any time in its sole discretion. The maximum management
fee for each of the Funds is as follows: 0.60%--High Income Bond Fund II and
the Fund for U.S. Government Securities II; and 0.75%--American Leaders Fund
II and Utility Fund II.
The total operating expenses of each of the Funds, absent the voluntary
waiver of the management fee and the voluntary reimbursement of certain
other operating expenses, would have been: 2.21% for the American Leaders
Fund II; 5.61% for the Fund for U.S. Government Securities II; 4.20% for the
High Income Bond Fund II; and 3.09% for the Utility Fund II.
(5)A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.71% for the High Income Portfolio; 0.81% for the Asset Manager Portfolio;
and 0.73% for the Contrafund Portfolio.
(6)The Fund's expenses were voluntarily reduced by the Fund's investment
adviser. Absent reimbursement, the management fee, other expenses and total
expenses would have been 0.28%, 0.19% and 0.47%, respectively, for the Index
500 Portfolio.
(7)The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth,
and Worldwide Growth Portfolios reduce the management fee to the level of
the corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, the Management Fee, Other Expenses and Total
Fund Annual Expenses would have been 0.82%, 0.11%, and 0.93% for Aggressive
Growth Portfolio; 1.00%, 0.55%, 1.55% for Balanced Portfolio; 0.85%, 0.13%
and 0.98% for Growth Portfolio; 0.65%, 0.72% and 1.37% for Short-Term Bond
Portfolio; and 0.87%, 0.22% and 1.09% for Worldwide Growth Portfolio;
respectively. Janus Capital may modify or terminate the waivers or
reductions at any time upon 90 days' notice to the Portfolio's Board of
Trustees.
(8)The Fund's investment adviser has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage, and
extraordinary expenses, but including management fees and operating
expenses) to an annual rate of 1.75% of the Fund's average net assets
through April 30, 1997. Without this agreement, the Fund's Investment
Advisory Fee, Total Other Expenses and Total Fund Annual Expenses would have
been 0.85%, 3.24% and 4.09% for the most recent fiscal year.
(9)The Adviser has agreed to bear, subject to reimbursement, expenses for each
of the Funds such that each Fund's aggregate operating expenses shall not
exceed, on an annualized basis, 1.00% of the average daily net assets of the
Funds from November 2, 1994 through December 31, 1996; 1.25% of the average
daily net assets of the Funds from January 1, 1997 through December 31,
1998; and 1.50% of the average daily net assets of the Funds from January 1,
1999 through December 31, 2004; provided, however, that this obligation may
be terminated or revised at any time. Absent this expense arrangement,
"Other Expenses" for the MFS Emerging Growth Series, MFS Research Series and
MFS Total Return Series would have been 2.16%, 3.15% and 2.02%,
respectively, and "Total Annual Fund Expenses" would have been 2.91%, 3.90%
and 2.77%, respectively.
The Adviser has agreed to bear, subject to reimbursement, until December 31,
2004, expenses of the World Governments Series such that the Fund's
aggregate expenses do not exceed 1.00%, on an annualized basis, of its
average daily net assets. Absent this expense arrangement, "Other Expenses"
and "Total Annual Fund Expenses" for the Fund would have been 1.24% and
1.99%, respectively.
(10)The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
- --------------------------------------------------------------------------------
FEE TABLE - 3
<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.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $30.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.020%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
-------------------------------------- -------------------------------------
IF YOU WITHDRAW THE ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW THE ACCOUNT
VALUE AT THE END OF THE PERIODS SHOWN, VALUE, OR IF YOU ANNUITIZE AT THE END
YOU WOULD PAY THE FOLLOWING EXPENSES, OF THE PERIODS SHOWN, YOU WOULD PAY
INCLUDING ANY APPLICABLE DEFERRED THE FOLLOWING EXPENSES (NO DEFERRED
SALES CHARGE: SALES CHARGE IS REFLECTED):*
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $ 90 $108 $129 $204 $18 $54 $ 94 $204
Aetna Income Shares $ 90 $108 $130 $206 $18 $55 $ 95 $206
Aetna Variable Encore Fund $ 90 $109 $131 $208 $18 $56 $ 96 $208
Aetna Investment Advisers Fund, Inc. $ 90 $108 $130 $206 $18 $55 $ 95 $206
Aetna Ascent Variable Portfolio $ 93 $118 $147 $240 $21 $65 $111 $240
Aetna Crossroads Variable Portfolio $ 93 $118 $147 $240 $21 $65 $111 $240
Aetna Legacy Variable Portfolio $ 93 $118 $147 $240 $21 $65 $111 $240
Alger American Balanced Portfolio $ 96 $129 $164 $276 $25 $75 $129 $276
Alger American Growth Portfolio $ 95 $125 $157 $262 $23 $71 $122 $262
Alger American Income and Growth
Portfolio $ 94 $121 $152 $250 $22 $68 $116 $250
Alger American Leveraged AllCap
Portfolio $102 $146 $192 $330 $30 $92 $157 $330
Alger American MidCap Growth Portfolio $ 95 $126 $159 $266 $24 $72 $124 $266
Alger American Small Cap Portfolio $ 96 $127 $160 $268 $24 $73 $125 $268
Federated American Leaders Fund II $ 95 $124 $157 $261 $23 $71 $122 $261
Federated Fund for U.S. Government
Securities II $ 94 $123 $154 $255 $23 $69 $119 $255
Federated High Income Bond Fund II $ 94 $123 $154 $255 $23 $69 $119 $255
Federated Utility Fund II $ 95 $124 $157 $261 $23 $71 $122 $261
Fidelity VIP Equity-Income Portfolio $ 93 $117 $145 $236 $21 $64 $109 $236
Fidelity VIP Growth Portfolio $ 94 $120 $149 $245 $22 $66 $114 $245
Fidelity VIP High Income Portfolio $ 94 $120 $150 $246 $22 $67 $114 $246
Fidelity VIP Overseas Portfolio $ 95 $126 $160 $267 $24 $73 $125 $267
Fidelity VIP II Asset Manager Portfolio $ 94 $123 $154 $254 $22 $69 $118 $254
Fidelity VIP II Contrafund Portfolio $ 94 $120 $150 $247 $22 $67 $115 $247
Fidelity VIP II Index 500 Portfolio $ 90 $107 $128 $201 $17 $54 $ 92 $201
Fidelity VIP II Investment Grade Bond
Portfolio $ 92 $116 $144 $234 $20 $63 $108 $234
Janus Aspen Aggressive Growth Portfolio $ 95 $125 $157 $262 $23 $71 $122 $262
Janus Aspen Balanced Portfolio $100 $140 $183 $312 $28 $87 $147 $312
Janus Aspen Flexible Income Portfolio $ 97 $131 $168 $283 $25 $78 $133 $283
Janus Aspen Growth Portfolio $ 94 $122 $153 $253 $22 $69 $118 $253
Janus Aspen Short-Term Bond Portfolio $ 94 $120 $149 $245 $22 $66 $114 $245
Janus Aspen Worldwide Growth Portfolio $ 95 $126 $159 $266 $24 $72 $124 $266
Lexington Emerging Markets Fund, Inc. $103 $151 $202 $348 $32 $98 $166 $348
Lexington Natural Resources Trust $101 $143 $188 $321 $29 $89 $152 $321
MFS Emerging Growth Series $ 96 $129 $164 $276 $25 $75 $129 $276
MFS Research Series $ 96 $129 $164 $276 $25 $75 $129 $276
MFS Total Return Series $ 96 $129 $164 $276 $25 $75 $129 $276
MFS World Governments Series $ 96 $129 $164 $276 $25 $75 $129 $276
TCI Balanced $ 96 $129 $164 $276 $25 $75 $129 $276
TCI Growth $ 96 $129 $164 $276 $25 $75 $129 $276
TCI International $101 $144 $189 $324 $30 $90 $154 $324
</TABLE>
- --------------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start, since 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. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE PERIOD ENDED
DECEMBER 31, 1995 IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE
ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP,
INDEPENDENT AUDITORS. THE FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED
DECEMBER 31, 1995 AND THE INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN
THE STATEMENT OF ADDITIONAL INFORMATION.
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
AETNA VARIABLE FUND
Value at beginning of period $10.000(2)
Value at end of period $10.406
Increase (decrease) in value of accumulation unit(1) 4.06%
Number of accumulation units outstanding at end of
period 0
AETNA INCOME SHARES
Value at beginning of period $10.000(2)
Value at end of period $10.270
Increase (decrease) in value of accumulation unit(1) 2.70%
Number of accumulation units outstanding at end of
period 0
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.000(2)
Value at end of period $10.089
Increase (decrease) in value of accumulation unit(1) 0.89%
Number of accumulation units outstanding at end of
period 0
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $10.000(2)
Value at end of period $10.375
Increase (decrease) in value of accumulation unit(1) 3.75%
Number of accumulation units outstanding at end of
period 0
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.402
Increase (decrease) in value of accumulation unit(1) 4.02%
Number of accumulation units outstanding at end of
period 0
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.349
Increase (decrease) in value of accumulation unit(1) 3.49%
Number of accumulation units outstanding at end of
period 0
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.315
Increase (decrease) in value of accumulation unit(1) 3.15%
Number of accumulation units outstanding at end of
period 0
ALGER AMERICAN BALANCED PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.863
Increase (decrease) in value of accumulation unit(1) (1.37)%
Number of accumulation units outstanding at end of
period 0
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.790
Increase (decrease) in value of accumulation unit(1) (2.10)%
Number of accumulation units outstanding at end of
period 3,750
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.605
Increase (decrease) in value of accumulation unit(1) (3.95)%
Number of accumulation units outstanding at end of
period 0
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.129
Increase (decrease) in value of accumulation unit(1) 1.29%
Number of accumulation units outstanding at end of
period 0
ALGER AMERICAN MIDCAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $9.668
Increase (decrease) in value of accumulation unit(1) (3.32)%
Number of accumulation units outstanding at end of
period 0
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.541
Increase (decrease) in value of accumulation unit(1) (4.59)%
Number of accumulation units outstanding at end of
period 3,750
FEDERATED AMERICAN LEADERS FUND II
Value at beginning of period $10.000(2)
Value at end of period $11.378
Increase (decrease) in value of accumulation unit(1) 13.78%
Number of accumulation units outstanding at end of
period 1,444,344
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Value at beginning of period $10.000(3)
Value at end of period $10.521
Increase (decrease) in value of accumulation unit(1) 5.21%
Number of accumulation units outstanding at end of
period 150,860
FEDERATED HIGH INCOME BOND FUND II
Value at beginning of period $10.000(3)
Value at end of period $10.576
Increase (decrease) in value of accumulation unit(1) 5.76%
Number of accumulation units outstanding at end of
period 302,293
FEDERATED UTILITY FUND II
Value at beginning of period $10.000(4)
Value at end of period $11.238
Increase (decrease) in value of accumulation unit(1) 12.38%
Number of accumulation units outstanding at end of
period 451,294
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.521
Increase (decrease) in value of accumulation unit(1) 5.21%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.674
Increase (decrease) in value of accumulation unit(1) (3.26)%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.149
Increase (decrease) in value of accumulation unit(1) 1.49%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.255
Increase (decrease) in value of accumulation unit(1) 2.55%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.332
Increase (decrease) in value of accumulation unit(1) 3.32%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.111
Increase (decrease) in value of accumulation unit(1) 1.11%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.506
Increase (decrease) in value of accumulation unit(2) 5.06%
Number of accumulation units outstanding at end of
period 0
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.277
Increase (decrease) in value of accumulation unit(1) 2.77%
Number of accumulation units outstanding at end of
period 0
JANUS ASPEN AGGRESSIVE GROWTH
Value at beginning of period $10.000(2)
Value at end of period $10.688
Increase (decrease) in value of accumulation unit(1) 6.88%
Number of accumulation units outstanding at end of
period 0
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.509
Increase (decrease) in value of accumulation unit(1) 5.09%
Number of accumulation units outstanding at end of
period 0
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.344
Increase (decrease) in value of accumulation unit(1) 3.44%
Number of accumulation units outstanding at end of
period 0
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.422
Increase (decrease) in value of accumulation unit(1) 4.22%
Number of accumulation units outstanding at end of
period 0
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.161
Increase (decrease) in value of accumulation unit(1) 1.61%
Number of accumulation units outstanding at end of
period 0
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.527
Increase (decrease) in value of accumulation unit(1) 5.27%
Number of accumulation units outstanding at end of
period 0
LEXINGTON EMERGING MARKETS FUND, INC.
Value at beginning of period $10.000(2)
Value at end of period $ 9.748
Increase (decrease) in value of accumulation unit(1) (2.52)%
Number of accumulation units outstanding at end of
period 2,550
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.000(2)
Value at end of period $10.546
Increase (decrease) in value of accumulation unit(1) 5.46%
Number of accumulation units outstanding at end of
period 0
TCI BALANCED
Value at beginning of period $10.000(2)
Value at end of period $10.202
Increase (decrease) in value of accumulation unit(1) 2.02%
Number of accumulation units outstanding at end of
period 0
TCI GROWTH
Value at beginning of period $10.000(2)
Value at end of period $ 9.746
Increase (decrease) in value of accumulation unit(1) (2.54)%
Number of accumulation units outstanding at end of
period 0
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
TCI INTERNATIONAL
Value at beginning of period $10.000(2)
Value at end of period $10.261
Increase (decrease) in value of accumulation unit(1) 2.61%
Number of accumulation units outstanding at end of
period 0
</TABLE>
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1995, when
the Fund became available under the Contract.
(3) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during July 1995, when
the Fund became available under the Contract.
(4) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during June 1995, when
the Fund became available under the Contract.
- --------------------------------------------------------------------------------
AUV HISTORY - 5
<PAGE>
THE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aetna Insurance Company of America (the "Company"), the depositor of
Variable Annuity Account I, is the issuer of the Contract, and as such, it is
responsible for providing the insurance and annuity benefits under the Contract.
The Company is a wholly owned subsidiary of Aetna Life Insurance and Annuity
Company ("ALIAC"). ALIAC is a wholly owned subsidiary of Aetna Retirement
Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement
Services, Inc. and an indirect wholly owned subsidiary of Aetna Life and
Casualty Company. The Company's principal executive offices are located at 151
Farmington Avenue, Hartford, Connecticut 06156.
VARIABLE ANNUITY ACCOUNT I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company established Variable Annuity Account I (the "Separate Account")
in 1994 as a segregated asset account for the purpose of funding its variable
annuity contracts. The Separate Account is registered as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"), and meets the
definition of "separate account" under federal securities laws. The Separate
Account is divided into "subaccounts" which do not invest directly in stocks,
bonds or other investments. Instead, each Subaccount buys and sells shares of a
corresponding Fund.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities of any other business conducted by
the Company. Income, gains or losses of the Separate Account are credited to or
charged against the assets of the Separate Account without regard to other
income, gains or losses of the Company. All obligations arising under the
Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FUNDS
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the application or enrollment form. In turn, the Subaccounts
invest in the corresponding Funds at net asset value.
The availability of Funds may be subject to regulatory authorization. In
addition, the Company may add or withdraw Funds, as permitted by applicable law.
Not all Funds may be available in all jurisdictions or under all Contracts.
Subject to state regulatory approval, if the shares of any Fund should no
longer be available for investment by the Separate Account or if in the judgment
of the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contract, we may cease to make such Fund shares
available for investment under the Contract prospectively. The Company may,
alternatively, substitute shares of another Fund for shares already acquired.
The Company reserves the right to substitute shares of another Fund for shares
already acquired without a proxy vote. Any elimination, substitution or addition
of Funds will be done in accordance with applicable state and federal securities
laws.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
- -AETNA VARIABLE FUND seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into common
stock.(1)
- -AETNA INCOME SHARES seeks to maximize total return, consistent with reasonable
risk, through investments in a diversified portfolio consisting primarily of
debt securities.(1)
- -AETNA VARIABLE ENCORE FUND seeks to provide high current return, consistent
with preservation of capital and liquidity, through investment in high-quality
- --------------------------------------------------------------------------------
1
<PAGE>
money market instruments. An investment in the Fund is neither insured nor
guaranteed by the U.S. Government.(1)
- -AETNA INVESTMENT ADVISERS FUND, INC. is a managed fund which 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.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks to
provide capital appreciation by allocating its investments among equities and
fixed income securities. The Portfolio is managed for investors who generally
have an investment horizon exceeding 15 years, and who have a high level of
risk tolerance.(1)
- -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. The Portfolio is managed for investors who generally have an
investment horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
- -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. The Portfolio is
managed for investors who generally have an investment horizon exceeding five
years and who have a low level of risk tolerance.(1)
- -ALGER AMERICAN FUND--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.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities. The Portfolio primarily invests in equity securities of
companies which have a market capitalization of $1 billion or greater.(2)
- -ALGER AMERICAN FUND--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.(2)
- -ALGER AMERICAN FUND--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.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN MIDCAP GROWTH PORTFOLIO seeks long-term
capital appreciation. Except during temporary defensive periods, the Portfolio
invests at least 65% of its total assets in equity securities of companies
that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the S&P MidCap 400
Index, updated quarterly. The S&P MidCap 400 Index is designed to track the
performance of medium capitalization companies. As of March 31, 1996, the range
of market capitalization of these companies was $153 million to $8.9
billion.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks
long-term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the Russell 2000
Growth Index, updated quarterly. The Russell 2000 Growth Index is designed to
track the performance of small capitalization companies. As of March 31, 1996,
the range of market capitalization of these companies was $20 million to $3.0
billion.(2)
- -FEDERATED INSURANCE SERIES--FEDERATED AMERICAN LEADERS FUND II (FORMERLY IMS
EQUITY GROWTH & INCOME FUND) seeks to achieve long-term growth of capital and
to provide income. The Fund pursues its investment objective 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 meet certain
criteria.(3)
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- -FEDERATED INSURANCE SERIES--FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
(FORMERLY IMS U.S. GOVERNMENT BOND FUND) seeks to provide current income. The
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.(3)
- -FEDERATED INSURANCE SERIES--FEDERATED HIGH INCOME BOND FUND II (FORMERLY IMS
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 (commonly known as "junk bonds" or "high yield, high
risk bonds" which involve significant degree of risk). (See the Fund's
prospectus for a discussion of the risk factors involved in investing in
lower-rated corporate debt obligations).(3)
- -FEDERATED INSURANCE SERIES--FEDERATED UTILITY FUND II (FORMERLY IMS 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 Fund will invest at least 65% of its total assets in securities
of utility companies.(3)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME PORTFOLIO
seeks reasonable income by investing primarily in income-producing equity
securities. In selecting investments, the Fund also considers the potential for
capital appreciation.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO seeks
capital appreciation by investing mainly in common stocks, although its
investments are not restricted to any one type of security.(4)
- -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-rated corporate debt obligations).(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS PORTFOLIO seeks
long-term growth by investing mainly in foreign securities (at least 65% of the
Fund's total assets in securities of issuers from at least three countries
outside of North America).(4)
- -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 domestic and foreign stocks, bonds and short-term
fixed-income instruments.(4)
- -FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND PORTFOLIO
seeks maximum total return over the long term by investing mainly in equity
securities of companies that are undervalued or out-of-favor.(4)
- -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 Composite Index of 500
Stocks.(4)
- -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.(4)
- -JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO is a NONDIVERSIFIED portfolio
that seeks long-term growth of capital. The Portfolio pursues its investment
objective by normally investing at least 50% of its equity assets in securities
issued by medium-sized companies. Medium-sized companies are those whose market
capitalizations fall within the range of companies in the S & P MidCap 400
Index, which as of December 29, 1995 included companies with capitalizations
between approximately $118 million and $7.5 billion, but which is expected to
change on a regular basis.(5)
- -JANUS ASPEN SERIES--BALANCED PORTFOLIO seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by investing 40%-60% of its assets
in securities selected primarily for their growth potential and 40%-60% of its
assets in securities selected primarily for their income potential.(5)
- -JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO seeks to obtain maximum total
return, consistent with
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<PAGE>
preservation of capital. Total return is expected to result from a combination
of current income and capital appreciation. The Portfolio invests in all types
of income producing securities and may have substantial holdings of debt
securities rated below investment grade (e.g., junk bonds).(5)
- -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing in common stocks of companies of any size.(5)
- -JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO seeks as high a level of current
income as is consistent with preservation of capital. The portfolio pursues its
investment objective by investing primarily in short-and intermediate-term
fixed income securities.(5)
- -JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of
capital in a manner consistent with preservation of capital. The Portfolio
pursues its investment objective primarily through investments in common stocks
of foreign and domestic issuers.(5)
- -LEXINGTON EMERGING MARKETS FUND, INC. 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. Investments in
emerging markets involve risks not present in domestic markets. See the Fund's
prospectus for information on risks inherent in this investment.(6)
- -LEXINGTON NATURAL RESOURCES TRUST is a NONDIVERSIFIED 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
supply goods and services to such companies.(6)
- -MFS EMERGING GROWTH SERIES seeks to provide long-term growth of capital by
investing primarily (i.e., at least 80% of its assets under normal
circumstances) in common stocks of companies that MFS believes are early in
their life cycle but which have the potential to become major enterprises
(emerging growth companies). Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital.(7)
- -MFS RESEARCH SERIES seeks to provide long-term growth of capital and future
income by allocating the Series' assets to industry groups (e.g.,
pharmaceuticals, retail and computer software). A substantial proportion of the
Series' assets will be invested in the common stocks or securities convertible
into common stocks of companies believed to possess better than average
prospects for long-term growth. A smaller proportion of its assets may be
invested in bonds, short-term obligations, preferred stocks or common stocks
whose principal characteristic is income production rather than growth.(7)
- -MFS TOTAL RETURN SERIES seeks to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. Its secondary objective is to provide reasonable
opportunity for growth of capital and income. Under normal market conditions,
at least 25% of the Total Return Series' assets will be invested in fixed
income securities, and at least 40% and no more than 75% of the Series' assets
will be invested in equity securities.(7)
- -MFS WORLD GOVERNMENT SERIES seeks not only preservation, but also growth of
capital, together with moderate current income. The Series seeks to achieve its
objective through a professionally managed, internationally diversified
portfolio consisting primarily of debt securities and to a lesser extent equity
securities. Consistent with its investment objective and policies, the Series
may invest up to 100% (and generally expects to invest not more than 80%) of
its net assets in foreign securities which are not traded on a U.S.
exchange.(7)
- -TCI PORTFOLIOS, INC.--TCI BALANCED (a Twentieth Century fund) seeks capital
growth and current income. It seeks capital growth by investing in
approximately 60% of the Portfolio's assets 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
the Fund's management, have better-than-average potential for appreciation.
Management intends to maintain approximately 40% of the Portfolio's assets in
fixed income securities.(8)
- -TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century fund) seeks capital
growth. The Fund seeks to achieve its objective by investing in common stocks
(including securities convertible into common stocks) and other securities that
meet certain fundamental and
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4
<PAGE>
technical standards of selection and, in the opinion of the Fund's investment
manager, have better than average potential for appreciation.(8)
- -TCI PORTFOLIOS, INC.--TCI INTERNATIONAL (a Twentieth Century fund) 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.(8)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company
(2) Fred Alger Management, Inc.
(3) Federated Advisers
(4) Fidelity Research & Management Company
(5) Janus Capital Corporation
(6) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. serves as the subadviser for the Lexington Natural Resources
Trust
(7) Massachusetts Financial Services Company ("MFS")
(8) Investors Research Corporation
RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The use
of certain derivatives may involve high risk of volatility to a Fund, and the
use of leverage in connection with such derivatives can also increase risk of
losses. Some of the Funds may also invest in foreign or international securities
which involve greater risks than U.S. investments.
More comprehensive information, including a discussion of potential risks,
is found in the respective Fund prospectuses which accompany this Prospectus.
You should read the Fund prospectuses and consider carefully, and on a
continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives.
CONFLICTS OF INTEREST (MIXED AND SHARED FUNDING). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
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 contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to identify
any material irreconcilable conflicts which might arise and to determine what
action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTION
Purchase Payments may be allocated to the AICA Guaranteed Account (the
"Guaranteed Account"). Through the Guaranteed Account, we guarantee stipulated
rates of interest for stated periods of time. Amounts must remain in the
Guaranteed Account for specified periods to receive the quoted interest rates,
or a market value adjustment (which may be positive or negative) will be
applied. (See the Appendix.)
PURCHASE
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CONTRACT AVAILABILITY
The Contracts are offered as (1) nonqualified deferred annuity contracts;
(2) Individual Retirement Annuities; or (3) Qualified Contracts used in
conjunction with certain employer sponsored retirement plans. Individual
Retirement Annuities are currently available as rollovers, and may permit
ongoing contributions, subject to state regulatory approval. Additionally,
availability of the Qualified Contracts described under item (3) is subject to
state regulatory approval.
Eligible persons seeking to invest and accumulate money for retirement can
purchase individual interests in group Contracts, or, where required by state
law, they may purchase individual Contracts. In most states, group Contracts are
offered to certain broker-dealers which have agreed to act as distributors of
the Contracts, and individual accounts are established by the Company for each
Certificate Holder. In some states, an individual Contract will be owned by the
Certificate Holder. In both cases, a Certificate Holder's interest in the
Contract is known as his or her "Account."
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5
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The maximum issue age for the Annuitant is 90 (age 85 for those Contracts
issued in the state of Pennsylvania).
JOINT CERTIFICATE HOLDERS. Nonqualified Contracts may be purchased by
spouses as joint Certificate Holders. In Pennsylvania, the joint Certificate
Holders do not need to be spouses. References to "Certificate Holders" in this
Prospectus mean both of the Certificate Holders on joint Accounts. Tax law
prohibits the purchase of Qualified Contracts by joint Certificate Holders.
PURCHASING INTERESTS IN THE CONTRACT
GROUP CONTRACTS. Groups will generally consist of those eligible
individuals who have established an Account with a broker-dealer or bank which
has agreed to act as a Distributor for the Contracts. The Contract application
must be completed by the prospective group Contract Holder and sent to the
Company at its Home Office. Once we approve the Contract application, a group
Contract is issued to the group Contract Holder. Certificate Holders may
purchase interests in a group Contract by submitting an enrollment form. Once
the enrollment form is accepted a Certificate will be issued.
INDIVIDUAL CONTRACTS. Certain states will not allow a group Contract due to
provisions in their insurance laws. In those states where individual Contracts
are offered, eligible persons will submit an individual application to the
Company. In those states, an individual will be issued a Contract rather than a
Certificate.
Regardless of whether you have purchased a group or individual Contract, the
Company must accept or reject the application or enrollment form within two
business days of receipt. If these items are incomplete, the Company may hold
any forms and accompanying Purchase Payments 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 rejected, the application or enrollment form and any Purchase
Payments will be returned to the Certificate Holder.
PURCHASE PAYMENTS
You may make Purchase Payments under the Contract in one lump sum, through
periodic payments or as a transfer from a pre-existing plan.
The minimum initial Purchase Payment amount is $5,000 for Nonqualified
Contracts and $1,500 for Qualified Contracts. Additional Purchase Payments made
to an existing Contract must be at least $1,000 and are subject to the terms and
conditions published by us at the time of the subsequent payment. A Purchase
Payment of more than $1,000,000 will be allowed only with the Company's consent.
We also reserve the right to reject any Purchase Payment to a prospective or
existing Account without advance notice.
For Qualified Contracts the Code imposes a maximum limit on annual Purchase
Payments which may be excluded from a participant's gross income. (See "Tax
Status.")
ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be
allocated to the Subaccounts or the Guaranteed Account as specified on the
application or enrollment form. Changes in such allocation may be made in
writing or by telephone transfer. Allocations must be in whole percentages, and
there may be limitations on the number of investment options that can be
selected during the Accumulation Period. (See "Transfers.")
CONTRACT RIGHTS
Under individual Contracts, Certificate Holders have all Contract rights.
Under group Contracts, the group Contract Holder has title to the Contract
and generally only the right to accept or reject any modifications to the
Contract. You have all other rights to your Account under the Contract. However,
under a Nonqualified 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.")
Joint Certificate Holders have equal rights under the Contract and with
respect to their 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
Benefit.") All rights under the Contract must be exercised by both joint
Certificate Holders with the exception of transfers among investment options; at
our discretion, one joint Certificate Holder can select additional investment
options or change investment options after the Account has been established.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
You generally designate the beneficiary under the Contract on the
application or enrollment form. However,
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6
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for Qualified Contracts issued in conjunction with a Code Section 401(a)
qualified pension or profit sharing plan or a Code Section 457 deferred
compensation plan, the employer or trustee must be both the Certificate Holder
and the beneficiary under the Contract, and the participant on whose behalf the
Account was established must be the Annuitant. Under such plans the participant
is generally allowed to designate a beneficiary under the plan, and the
Certificate Holder may direct that we pay any death proceeds to the plan
beneficiary. "Beneficiary" as used in this Prospectus refers to the person who
is ultimately entitled to receive such proceeds.
For Qualified Contracts issued in conjunction with a Code Section 403(b) tax
deferred annuity program subject to the Employee Retirement Income Security Act
(ERISA), the spouse of a married participant must be the Beneficiary of at least
50% of the Account Value. If the married participant is age 35 or older, the
participant may name an alternate Beneficiary provided the participant furnishes
a waiver and spousal consent which meets the requirements of ERISA Section 205.
The participant on whose behalf the Account was established must be the
Annuitant.
For Qualified Contracts issued as an Individual Retirement Annuity, you must
be the Annuitant. For Nonqualified Contracts, you may (but need not) select a
different person as the Annuitant. (See "Purchase-Contract Availability.")
RIGHT TO CANCEL
You may cancel the Contract or Certificate without penalty by returning it
to the Company with a written notice of your intent to cancel. In most states,
you have ten days to exercise this right; some states allow you longer. Unless
state law requires otherwise, the amount you will receive upon cancellation will
reflect the investment performance of the Subaccounts into which your Purchase
Payments were deposited. In some cases this may be more or less than the amount
of your Purchase Payments; therefore, you bear the entire investment risk for
amounts allocated among the Subaccounts during the free look period. Under
Contracts issued as Individual Retirement Annuities, you will receive a refund
of your Purchase Payment. Account Values will be determined as of the Valuation
Date on which we receive your request for cancellation at our Home Office.
CHARGES AND DEDUCTIONS
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DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily deduction from
each of the Subaccounts for the mortality and expense risk charge. The charge is
equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts
and compensates the Company for the assumption of the mortality and expense
risks under the Contract. The mortality risks are those assumed for our promise
to make lifetime payments according to annuity rates specified in the Contract.
The expense risk is the risk that the actual expenses for costs incurred under
the Contract will exceed the maximum costs that can be charged under the
Contract.
If the amount deducted for mortality and expense risks is not sufficient to
cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
ADMINISTRATIVE CHARGE. During the Accumulation Period, the Company makes a
daily deduction from each of the Subaccounts for an administrative charge. The
charge is equal, on an annual basis, to 0.15% of the daily net assets of the
Subaccounts and compensates the Company for administrative expenses that exceed
revenues from the maintenance fee described below. The charge is set at a level
which does not exceed the average expected cost of the administrative services
to be provided while the Contract is in force. The Company does not expect to
make a profit from this charge.
During the Annuity Period, the Company reserves the right to make a
deduction for the administrative charge of an amount equal, on an annual basis,
to a maximum of 0.25% of the daily net assets of the Subaccounts. There is
currently no administrative charge during the Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective during
the entire Annuity Period.
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<PAGE>
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value. The maintenance fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Accounts.
The maximum maintenance fee deducted under the Contract is $30. The
maintenance fee will be deducted on a pro rata basis from each investment option
in which you have an interest. If your entire Account Value is withdrawn, the
full maintenance fee will be deducted at the time of withdrawal. The maintenance
fee will not be deducted (either annually or upon withdrawal) if your Account
Value is $50,000 or more on the day the maintenance fee is due.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of Purchase
Payments withdrawn from the Subaccounts and the Guaranteed Account and is based
on the number of years which have elapsed since the Purchase Payment was made.
The deferred sales charge for each Purchase Payment is determined by multiplying
the Purchase Payment withdrawn by the appropriate percentage, in accordance with
the schedule set forth in the tables below.
Withdrawals are taken first against Purchase Payments, then against any
increase in value. However, the deferred sales charge only applies to the
Purchase Payment (not to any associated changes in value). To satisfy a partial
withdrawal, the deferred sales charge is calculated as if the Purchase Payments
are withdrawn from the Subaccounts in the same order they were applied to the
Account. Partial withdrawals from the Guaranteed Account will be treated as
described in the Appendix and the prospectus for the Guaranteed Account. The
total charge will be the sum of the charges applicable for all of the Purchase
Payments withdrawn.
<TABLE>
<CAPTION>
DEFERRED
SALES
YEARS SINCE RECEIPT OF CHARGE
PURCHASE PAYMENT DEDUCTION
- ---------------------------------------- ---------
<S> <C>
Less than 2 7%
2 or more but less than 4 6%
4 or more but less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more 0%
</TABLE>
A deferred sales charge will not be deducted from any portion of a Purchase
Payment withdrawn if the withdrawal is:
- - applied to provide Annuity benefits;
- - paid to a Beneficiary due to the Annuitant's death before Annuity Payments
start, up to a maximum of the Purchase Payment(s) in the Account on the
Annuitant's date of death;
- - made due to the election of an Additional Withdrawal Option (see "Additional
Withdrawal Options");
- - paid upon a full withdrawal where the Account Value is $2,500 or less and no
amount has been withdrawn during the prior 12 months; or
- - paid if we close out your Account when the value is less than $2,500.
After the first Account Year, you may withdraw all or a portion of your
Purchase Payments without a deferred sales charge, provided that (1) such
withdrawal occurs within three years of the Annuitant's admission to a licensed
nursing care facility (including non-licensed facilities in New Hampshire) and
(2) the Annuitant has spent at least 45 consecutive days in such facility. This
waiver of deferred sales charge does not apply if the Annuitant is in a nursing
care facility at the time the Account is established. It will also not apply if
otherwise prohibited by state law.
The Company does not anticipate that the deferred sales charge will cover
all sales and administrative expenses which it incurs in connection with the
Contract. The difference will be covered by the general assets of the Company
which are attributable, in part, to mortality and expense risk charges under the
Contract described above.
FREE WITHDRAWALS. At least 12 months after the date the first Purchase
Payment is applied to your Account, you
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may withdraw up to 10% of your current Account Value during each calendar year
without imposition of a deferred sales charge. The free withdrawal applies only
to the first partial or full withdrawal in each calendar year. The free
withdrawal amount will be based on the Account Value calculated on the Valuation
Date next following our receipt of your request for withdrawal. If your
withdrawal exceeds the applicable free withdrawal allowance, we will deduct a
deferred sales charge on the excess amount. (See the Appendix for a discussion
of withdrawals from the Guaranteed Account.) This provision may not be exercised
if you have elected the Systematic Withdrawal Option or Estate Conservation
Option. (See "Additional Withdrawal Options.")
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. Ordinarily, any state premium tax will be
deducted from the Account Value when it is applied to an Annuity Option.
However, we reserve the right to deduct state premium tax from the Purchase
Payment(s) or from the Account Values 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.
CONTRACT VALUATION
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ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in the Guaranteed Account.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative charge.
Initial Purchase Payments will be credited to your Account as described
under "Purchasing Interests in the Contract." Each subsequent Purchase Payment
(or amount transferred) will be credited to your Account at the AUV computed on
the next Valuation Date following our receipt of your payment or transfer
request. The value of an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of a
Subaccount from one Valuation Date to the next. The net investment factor for a
Subaccount for any valuation period is equal to the sum of 1.0000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current Valuation
Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding Valuation
Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of the
Subaccount;
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(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units on the preceding Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for mortality and
expense risks, and an administrative charge of 0.15% during the Accumulation
Period and up to 0.25% during the Annuity Period (currently 0% during the
Annuity Period).
The net investment rate may be either positive or negative.
TRANSFERS
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At any time prior to the Annuity Date, you can transfer amounts held under
your Account from one Subaccount to another. Transfers from the Guaranteed
Account may be subject to certain restrictions and to a market value adjustment.
(See the Appendix.) A request for transfer can be made either in writing or by
telephone. The telephone transfer privilege is available automatically; no
special election is necessary. All transfers must be in accordance with the
terms of the Contract.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options. Twelve free transfers are allowed per calendar
year. Thereafter, the Company reserves the right to charge up to $10 for each
additional transfer. The Company currently does not impose this charge. The
total number of investment options that you may select during the Accumulation
Period may be limited, as set forth on your application or enrollment form. Any
transfer will be based on the Accumulation Unit Value next determined after the
Company receives a valid transfer request at its Home Office. Transfers are
currently not available during the Annuity Period; however, they may become
available during the second half of 1996. (See "Annuity Options.")
DOLLAR COST AVERAGING PROGRAM
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's 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. The Dollar Cost Averaging Program permits the transfer of
amounts from any of the variable funding options and the one-year Guaranteed
Term to any of the variable investment options. A market value adjustment will
not be applied to dollar cost averaging transfers from the one-year Guaranteed
Term. (See the Appendix for a discussion of the restrictions and features
attributable to the Guaranteed Account.)
Dollar cost averaging does not ensure a profit nor guarantee against loss in
a declining market. You should consider your financial ability to continue
purchases through periods of low price levels. For additional information,
please refer to the "Inquiries" section of the Prospectus Summary, which
describes how you can obtain further information.
The Dollar Cost Averaging Program is not available to individuals who have
elected an Additional Withdrawal Option or the Account Rebalancing Program.
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows you to have portions of your Account
Value automatically reallocated annually to a specified percentage. Only Account
Values accumulating in the Subaccounts can be rebalanced. You may participate in
this program by completing the Account Rebalancing section of the application or
enrollment form, or by sending a written request to the Company at its Home
Office.
The Account Rebalancing Program is not available to Certificate Holders who
have elected the Dollar Cost Averaging Program, and the Account Rebalancing
Program does not ensure a profit nor guarantee against loss in a declining
market.
WITHDRAWALS
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All or a portion of your Account Value may be withdrawn at any time during
the Accumulation Period, subject to the withdrawal restrictions under Section
403(b) Contracts described below. To request a withdrawal, you must properly
complete a disbursement form and send it to our Home Office. Payments for
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withdrawal requests will be made in accordance with SEC requirements, but
normally not later than seven calendar days following our receipt of a
disbursement form.
Withdrawals may be requested in one of the following forms:
- -FULL WITHDRAWAL OF AN ACCOUNT: The amount paid for a full withdrawal will be
the Adjusted Account Value minus any applicable deferred sales charge and
maintenance fee due.
- -PARTIAL WITHDRAWALS: (Percentage): The amount paid will be the percentage of
the Adjusted Account Value requested minus any applicable deferred sales
charge.
- -PARTIAL WITHDRAWALS: (Specified Dollar Amount): The amount paid will be the
dollar amount requested. However, the amount withdrawn from your Account will
equal the amount you request plus any applicable deferred sales charge and plus
or minus any applicable market value adjustment.
For any partial withdrawal, the value of the Accumulation Units canceled
will be withdrawn proportionately from the Guaranteed Account or each Subaccount
in which your Account is invested, unless you request otherwise in writing. All
amounts paid will be based on your Account Value as of the next Valuation Date
after we receive a request for withdrawal at our Home Office, or on such later
date as the disbursement form may specify. Taxes or tax penalties may be due on
the amount withdrawn. (See "Tax Status.")
The tax treatment of withdrawals from each Nonqualified Contract may be
affected if you own other annuity contracts issued by us (or our affiliates)
that were purchased on or after October 21, 1988. (See "Tax Status.")
WITHDRAWAL RESTRICTIONS FROM 403(B) PLANS. Under Section 403(b) Contracts,
the withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
ADDITIONAL WITHDRAWAL OPTIONS
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The Company offers certain withdrawal options under the Contract that are
not considered Annuity Options ("Additional Withdrawal Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
- -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from
your Account based on a payment method you select. It is designed for those who
want a periodic income while retaining investment flexibility for amounts
accumulated under a Contract.
- -ECO--ESTATE CONSERVATION OPTION. ECO offers the same investment flexibility as
SWO but is designed for those who want to receive only the minimum distribution
that the Code requires each year. ECO is only available under Qualified
Contracts. Under ECO, the Company calculates the minimum distribution amount
required by law, generally at age 70 1/2, and pays you that amount once a year.
(See "Tax Status.")
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Additional Withdrawal Options, you will retain all
of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Once you elect an Additional Withdrawal Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is revoked,
it may not be elected again, nor may any other Additional Withdrawal Option be
elected unless permitted by the Code. The Company reserves the right to
discontinue the availability of one or all of these Additional Withdrawal
Options at any time, and/or to change the terms of future elections.
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DEATH BENEFIT DURING ACCUMULATION PERIOD
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A death benefit will be payable to the Beneficiary(ies) if the Certificate
Holder or the Annuitant dies before annuity payments have commenced. Upon the
death of a joint Certificate Holder prior to the Annuity Date, the surviving
Certificate Holder, if any, will become the designated Beneficiary. Any other
Beneficiary designation on record with the Company at the time of death will be
treated as a contingent Beneficiary.
The amount of death benefit proceeds will be determined as of the date of
death. Under some circumstances, the amount of the death benefit is guaranteed,
as described below.
DEATH BENEFIT AMOUNT
Upon the death of the Annuitant, the death benefit proceeds will be the
greatest of:
(1) the total Purchase Payment(s) applied to the Account, minus the sum of all
amounts withdrawn, annuitized or deducted from such Account;
(2) the highest step-up value as of the date of death. The step-up value is
determined on each anniversary of the Effective Date, up to the Annuitant's
75th birthday. Each step-up value is calculated as the Account Value on the
Effective Date anniversary, increased by Purchase Payments applied, and
decreased by partial withdrawals, annuitizations and deductions taken from
the Account since the Effective Date anniversary; or
(3) the Account Value as of the date of death.
The excess, if any, of the guaranteed death benefit value over the Account
Value is determined as of the date of death. Any excess amount will be deposited
and allocated to the Aetna Variable Encore Fund Subaccount. The Account Value on
the claim date plus any excess amount deposited into the Account becomes the
Certificate Holder's Account Value. The claim date is the date we receive valid
proof of death and the Beneficiary's claim at our Home Office.
Upon the death of a spousal Beneficiary who continued the Account in his or
her own name, the amount of the death benefit proceeds will be equal to the
Adjusted Account Value, less any deferred sales charge applicable to any
Purchase Payments made after we receive proof of death.
Under Nonqualifed Contracts only, if the Certificate Holder is not the
Annuitant and dies, the amount of death benefit proceeds will be equal to the
Adjusted Account Value on the claim date. Full or partial withdrawals may be
subject to a deferred sales charge.
For amounts held in the Guaranteed Account, see the Appendix for a
discussion of the calculation of death benefit proceeds.
DEATH BENEFIT PAYMENT OPTIONS
Death benefit proceeds may be paid to the Beneficiary as described below. If
you die and no Beneficiary exists, the death benefit will be paid in a lump sum
to your estate. Prior to any election, the Account Value will remain in the
Account and the Account Value will continue to be affected by the investment
performance of the investment option(s) selected. The Beneficiary has the right
to allocate or transfer any amount to any available investment option (subject
to a market value adjustment, as applicable). The Code requires that
distributions begin within a certain time period, as described below. If no
elections are made, no distributions will be made. Failure to commence
distribution within those time periods can result in tax penalties.
NONQUALIFIED CONTRACTS. Under a Nonqualified Contract, if you die, or if
you are a nonnatural person and the Annuitant dies, and the Beneficiary is your
surviving spouse, he or she automatically becomes the successor Certificate
Holder. The successor Certificate Holder may exercise all rights under the
Account and (1) continue in the Accumulation Period; (2) elect to apply some or
all of the Adjusted Account Value to any of the Annuity Options; or (3) receive
at any time a lump sum payment equal to all or a portion of the Adjusted Account
Value. If you die and you are not the Annuitant, any applicable deferred sales
charge will be applied if a lump sum is elected. Under the Code, distributions
are not required until the successor Certificate Holder's death.
If you die and the Beneficiary is not your surviving spouse, he or she may
elect option (2) or (3) above. According to the Code, any portion of the
Adjusted Account Value not distributed in installments over the life or life
expectancy beginning within one year of your death, must be paid within five
years of your death. (See "Tax Status of the Contract.")
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If you are a natural person but not the Annuitant and the Annuitant dies,
the Beneficiary may elect to apply the Adjusted Account Value to an Annuity
Option within 60 days or to receive a lump sum payment equal to the Adjusted
Account Value, subject to state regulatory approval. If the Beneficiary does not
elect an Annuity Option within 60 days of the date of death, the gain, if any,
will be includable in the Beneficiary's income in the year the Annuitant dies.
If SWO is in effect, payments will cease at the Certificate Holder's or
Annuitant's death. A Beneficiary, however, may elect to continue SWO.
QUALIFIED CONTRACTS. Under a Qualified Contract, the death benefit is paid
at the death of the participant, who is the Annuitant under the Contract. The
Beneficiary has the following options: (1) apply some or all of the Adjusted
Account Value to any of the Annuity Options, subject to the distribution rules
in Code Section 401(a)(9), or (2) receive at any time a lump sum payment equal
to all or a portion of the Adjusted Account Value. If the Account was
established in conjunction with a Section 401(a) qualified pension or profit
sharing plan or a Section 457 deferred compensation plan, payment will be made,
as directed by the Certificate Holder, to either the Certificate Holder or to
the plan beneficiary.
If ECO or SWO is in effect and the participant dies before the required
beginning date for minimum distributions, payments will cease. A Beneficiary, or
the Certificate Holder on behalf of a plan Beneficiary, may elect ECO or SWO
provided the election would satisfy the Code minimum distribution rules.
If ECO or SWO is in effect and the participant dies after the required
beginning date for minimum distributions, payments will continue as permitted
under the Code minimum distribution rules, unless the option is revoked.
Death benefit payments must satisfy the distribution rules in Code Section
401(a)(9). (See "Tax Status of the Contract.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
You must notify us in writing of the date you want Annuity Payments to start
(the "Annuity Date") and the Annuity Option elected. Payments may not begin
earlier than one year after purchase, or, unless we consent, later than the
later of (a) the first day of the month following the Annuitant's 85th birthday,
or (b) the tenth anniversary of the last Purchase Payment (fifth anniversary for
Contracts issued in Pennsylvania).
Annuity Payments will not begin until you have selected an Annuity Date and
an Annuity Option. Until a date and option are elected, the Account will
continue in the Accumulation Period.
The Code generally requires that for Qualified Contracts, minimum annual
distributions of the Account Value must begin by April 1st of the calendar year
following the calendar year in which a participant attains age 70 1/2. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.")
For Nonqualified Contracts, failure to select an Annuity Option and an Annuity
Date, or postponement of the Annuity Date past the Annuitant's 85th birthday or
tenth anniversary of your last Purchase Payment may have adverse tax
consequences. You should consult with a qualified tax adviser if you are
considering such a course of action.
At least 30 days prior to the Annuity Date, you must notify us in writing of
the following:
- - the date on which you would like Annuity Payments to begin;
- - the Annuity Option under which you want payments to be calculated and paid;
- - whether the payments are to be made monthly, quarterly, semi-annually or
annually; and
- - the investment option(s) used to provide Annuity Payments (i.e., a fixed
Annuity using the general account or a variable Annuity using any of the
Subaccounts available at the time of annuitization). As of the date of this
Prospectus, Aetna Variable Fund, Aetna Income Shares and Aetna Investment
Advisers Fund, Inc. are the only Subaccounts available; however, additional
Subaccounts may be available under some Annuity Options in the future. ("See
Annuity Options.")
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Annuity Payments will not begin until you have selected an Annuity Option.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once Annuity Payments begin, the Annuity Option may not be
changed, nor may transfers currently be made among the investment option(s)
selected. (See "Annuity Options" below for more information about transfers
during the Annuity Period.)
PARTIAL ANNUITIZATION
You may elect an Annuity Option with respect to a portion of your Account
Value, while leaving the remaining portion of your Account Value invested in the
Accumulation Period. The Code and the regulations thereunder do not specifically
address the tax treatment applicable to payments provided pursuant to the
exercise of this option. The Company takes the position that payments provided
pursuant to this option are taxable as annuity payments, and not as a
withdrawal. However, because the tax treatment of such payments is currently
unclear, you should consult with a qualified tax adviser if you are considering
a partial annuitization of your Account.
ANNUITY OPTIONS
You may choose one of the following Annuity Options:
LIFETIME ANNUITY OPTIONS:
- -OPTION 1--Life Annuity--An annuity with payments ending on the Annuitant's
death.
- -OPTION 2--Life Annuity with Guaranteed Payments-- An annuity with payments
guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may
offer at the time of annuitization.
- -OPTION 3--Life Income Based Upon the Lives of Two Annuitants--An Annuity will
be paid during the lives of the Annuitant and a second Annuitant, with 100%,
66 2/3% or 50% of the payment to continue after the first death, or 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.
- -OPTION 4--Life Income Based Upon the Lives of Two Annuitants--An annuity with
payments for a minimum of 120 months, with 100% of the payment to continue
after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity Payments begin, the Certificate Holder cannot elect to receive
a lump-sum settlement.
NONLIFETIME ANNUITY OPTION:
Under the nonlifetime option, payments may be made for generally 5-30 years,
as selected. If this option is elected on a variable basis, the Certificate
Holder 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.
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.") If the nonlifetime option is elected on a
fixed basis, you cannot elect to receive a lump-sum settlement.
We may also offer additional Annuity Options under your Contract from time
to time. Later in 1996, subject to state regulatory approval, the Company
expects to offer additional Annuity Options and enhanced versions of the Annuity
Options listed above. These additional Annuity Options and enhanced versions of
the existing options will have additional Subaccounts available and will allow
transfers between Subaccounts during the Annuity Period. Please refer to the
Contract or Certificate, or call the number listed in the "Inquiries" section of
the Prospectus Summary, to determine which options are available and the terms
of such options. It is not expected that these additional or enhanced options
will be made available to those who have already commenced receiving Annuity
Payments.
ANNUITY PAYMENTS
DATE PAYOUTS START. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. For
Qualified Contracts only, Annuity Payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and
Beneficiary.
AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on how
you allocate your Account Value between fixed and variable payouts. No election
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may be made that would result in the first Annuity Payment of less than $50, or
total yearly Annuity Payments of less than $250 (less if required by state law).
If the Account Value on the Annuity 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.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3 1/2% or 5% per annum). Selection of 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% on an annualized basis. Annuity Payments
would decline if the rate were below 5%. 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. (See the
Statement of Additional Information for further discussion on the impact of
selecting an assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. This 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. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE
ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant
under Option 2, or the surviving Annuitant under Option 4, occurs prior to the
end of the guaranteed minimum payment period, we will pay to the Beneficiary in
a lump sum, unless otherwise requested, the present value of the guaranteed
annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the Beneficiary (unless otherwise requested), and no deferred sales charge
will be imposed.
If the Annuitant dies after Annuity Payments have begun and if there is a
death benefit payable under the Annuity Option elected, the remaining value must
be distributed to the Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment.
TAX STATUS
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any contract or
transaction involving a Contract.
The Contract may be purchased on a non-tax qualified basis ("Nonqualified
Contract") or purchased and used in connection with certain retirement
arrangements entitled to special income tax treatment under Section 401(a),
403(b), 408(b) or 457 of the Code ("Qualified Contracts"). The ultimate effect
of federal income taxes on the amounts held under a Contract, on Annuity
Payments, and on the economic benefit to the Contract Holder, Certificate Holder
or Beneficiary may
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depend upon the tax status of the individual concerned. Any person concerned
about these tax implications should consult a competent tax adviser before
initiating any transaction.
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, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized 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 realized 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 interpretation 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 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 addition, 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 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 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 DISTRIBUTIONS--NONQUALIFIED CONTRACTS: 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 in effect
at the time of the Certificate Holder'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 Account may be continued with the surviving spouse as the new
Certificate Holder.
The Nonqualifed 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 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.
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The discussion under "Taxation of Annuities" below is based on the
assumption that the Contract qualifies as an annuity contract for federal income
tax purposes.
REQUIRED DISTRIBUTIONS--QUALIFIED CONTRACTS: The Code has required
distribution rules for Section 401(a), 403(b) and 457 Plans and Individual
Retirement Annuities. Distributions must generally begin by April 1 of the
calendar year following the calendar year in which the participant attains age
70 1/2. For governmental or church 401(a), 403(b) or 457 plans, distributions
must begin by April 1 of the calendar year following the calendar year the
participant attains age 70 1/2 or retires, whichever occurs later. Under 403(b)
plans, if the Company maintains separate records, distribution of amounts held
as of December 31, 1986 must generally begin by the end of the calendar year in
which the participant attains age 75 (or retires, if later, for governmental or
church plans). However, special rules require that some or all of the balance be
distributed earlier if any distributions are taken in excess of the minimum
required amount.
To comply with these provisions, distributions must be in a form and amount
sufficient to satisfy the minimum distribution and minimum distribution
incidental death benefit rules specified in Section 401(a) (9) of the Code. In
general, annuity payments must be distributed over the participant's life or the
joint lives of the participant and beneficiary, or over a period not greater
than the participant's life expectancy or the joint life expectancies of the
participant and beneficiary. Also, any distribution under a Section 457 Plan
payable over a period of more than one year must be made in substantially
nonincreasing amounts.
If the participant dies on or after the required beginning date for minimum
distributions, distributions to the beneficiary must be made at least as rapidly
as the method of distribution in effect at the time of the participant's death.
However, if the required minimum distribution is calculated each year based on
the participant's single life expectancy or the joint life expectancies of the
participant and beneficiary, the regulations for Code Section 401(a)(9) provide
specific rules for calculating the required minimum distributions at the
participant's death. For example, if ECO was elected with the calculation based
on the participant's single life expectancy, and the life expectancy is
recalculated each year, the recalculated life expectancy becomes zero in the
calendar year following the participant's death and the entire remaining
interest must be distributed to the beneficiary by December 31 of the year
following the participant's death. However, a spousal beneficiary, other than
under a Section 457 Plan, has certain rollover rights which can only be
exercised in the year of the participant's death. The rules are complex and the
participant should consult a tax adviser before electing the method of
calculation to satisfy the minimum distribution requirements.
If the participant dies before the required beginning date for minimum
distributions, the entire interest must be distributed by December 31 of the
calendar year containing the fifth anniversary of the date of the participant's
death. Alternatively, payments may be made over the life of the beneficiary or
over a period not extending beyond the life expectancy of the beneficiary, not
to exceed 15 years for a non-spousal beneficiary under a Section 457 Plan,
provided the distribution begins to a non-spouse beneficiary by December 31 of
the calendar year following the calendar year of the participant's death. If
payments are made to a spousal beneficiary, distributions must begin by the
later of December 31 of the calendar year following the calendar year of the
death or December 31 of the calendar year in which the participant would have
attained age 70 1/2.
An exception applies for a spousal beneficiary under an Individual
Retirement Annuity. In lieu of taking a distribution under these rules, a
spousal Beneficiary may elect to treat the Account as his or her own IRA and
defer taking a distribution until his or her age 70 1/2. The surviving spouse is
deemed to have made such an election if the surviving spouse makes a rollover to
or from the Account or fails to take a distribution within the required time
period.
If the participant or beneficiary fails to take the required minimum
distribution for any tax year, a 50% excise tax is imposed on the required
amount that was not distributed.
TAXATION OF ANNUITY CONTRACTS
IN GENERAL: Section 72 of the Code governs taxation of annuities in
general. The Company believes that a Certificate Holder under a Nonqualified
Contract who is a natural person generally is not taxed on increases in the
Account Value until distribution occurs by withdrawing all or part of such
Account Value (e.g., withdrawals or Annuity Payments under the Annuity
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Option elected). The taxable portion of a distribution (in the form of a single
sum payment or an Annuity) is taxable as ordinary income.
NON-NATURAL HOLDERS OF A NONQUALIFIED CONTRACT: If the Certificate Holder is
not a natural person, a Nonqualified Contract is not treated as an annuity for
income tax purposes and the "income on the contract" for the taxable year is
currently taxable as ordinary income. "Income on the contract" is any increase
over the year in the Surrender Value, adjusted for amounts previously
distributed and amounts previously included in income. There are some exceptions
to the rule and a non-natural person should consult with its tax adviser prior
to purchasing this Contract. A non-natural person exempt from federal income
taxes should consult with its tax adviser regarding treatment of "income on the
contract" for purposes of the unrelated business income tax.
The following discussion generally applies to Qualified Contracts or
Nonqualified Contracts owned by a natural person.
WITHDRAWALS: In the case of a withdrawal under a Qualified Contract,
including withdrawals under SWO or ECO, the amount taxable is generally based on
the ratio of the "investment in the contract" to Account 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 a Qualified Contract, the
"investment in the contract" can be zero. Special tax rules may be available for
certain distributions from a Qualified Contract.
With respect to Nonqualified Contracts, partial withdrawals, including
withdrawals under SWO, are generally treated as taxable income to the extent
that the Account Value immediately before the withdrawal exceeds the "investment
in the contract" at that time. The Account 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 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 Account 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.
PENALTY TAX: In the case of a distribution pursuant to a Nonqualified
Contract, or a Qualified Contract other than a Qualified Contract sold in
conjunction with a Code Section 457 Plan, there may be imposed a federal income
tax penalty equal to 10% of the amount treated as taxable income.
In general, there is no penalty tax on distributions from a Nonqualified
Contract: (1) made on or after the date on which the taxpayer attains age
59 1/2; (2) made as a result of the death of the Certificate Holder; (3)
attributable to the taxpayer's total and permanent disability; (4) received in
substantially equal periodic payments (at least annually) over the life or life
expectancy of the taxpayer or the joint lives or joint life expectancies of the
taxpayer and a "designated beneficiary"; or (5) allocable to "investment in the
contract" before August 14, 1982.
If a distribution is made from a Qualified Contract sold in conjunction with
a Section 401(a) Plan or Section 403(b) Plan, the penalty tax will not apply on
distribution made when the participant (a) attains age
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59 1/2, (b) becomes permanently and totally disabled, (c) dies, (d) separates
from service with the plan sponsor at or after age 55, (e) rolls over the
distribution amount to another plan of the same type in accordance with the
terms of the Code, or (f) takes the distributions in substantially equal
periodic payments (at least annually) over his or her life or life expectancy or
the joint lives or joint life expectancies of the participant and plan
beneficiary, provided the participant has separated from service with the plan
sponsor. In addition, the penalty tax does not apply for the amount of a
distribution equal to unreimbursed medical expenses incurred by the participant
that qualify for deduction as specified in the Code. The Code may impose other
penalty taxes in other circumstances.
In general, the same exceptions described in the preceding paragraph will
apply to distributions made from an Individual Retirement Annuity. However, the
exceptions for separation from service under (d) above and unreimbursed medical
expenses will not apply.
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. The assignment, pledge, or agreement to assign or pledge any
portion of the Account Value generally will be treated as a distribution. The
assignment or transfer of ownership of a Qualified Contract generally is not
allowed. 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.
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.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
QUALIFIED CONTRACTS IN GENERAL
The Qualified Contract is designed for use as an Individual Retirement
Annuity or as a Contract used in connection with certain employer sponsored
retirement plans. The tax rules applicable to participants and beneficiaries in
Qualified Contracts 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.
The Company makes no attempt to provide more than general information about
use of the Contracts with the various types of retirement plans. Participants
and beneficiaries under Qualified Contracts may be subject to the terms and
conditions of the retirement plans themselves, in addition to the terms and
conditions of the Contract issued in connection with such plans. Some retirement
plans are subject to distribution and other requirements that are not
incorporated in the provisions of the Contracts. Purchasers are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts satisfy applicable laws, and should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
SECTION 457 PLANS
Code Section 457 provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. These plans are
subject to
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various restrictions on contributions and distributions. The plans may permit
participants to specify the form of investment for their deferred compensation
account. In general, all investments are owned by the sponsoring employer and
are subject to the claims of the general creditors of the employer. Depending on
the terms of the particular plan, the employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations. In
general, all amounts received under a Section 457 plan are taxable and
reportable to the IRS as taxable income. Also, all amounts except death benefit
proceeds are subject to federal income tax withholding as wages. If we make
payments directly to a participant on behalf of the employer as owner, we will
withhold federal taxes (and state taxes, if applicable).
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from the participant's gross income. Such limit is generally the lesser
of $7,500 or 33 1/3% of the participant's includible compensation (25% of gross
compensation).
SECTION 401(A) PLANS
Section 401(a) permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish various types of retirement plans for themselves and for their
employees. These retirement plans may permit the purchase of the Contract to
accumulate retirement savings under the plans. Adverse tax consequences to the
plan, to the participant or to both may result if this Contract is assigned or
transferred to an individual except to a participant as a means to provide
benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a participant's gross income. Such limit must be calculated under
the Plan by the employer in accordance with Section 415 of the Code. This limit
is generally the lesser of 25% of the participant's compensation or $30,000. In
addition, Purchase Payments will be excluded from a participant's gross income
only if the Section 401(a) Plan meets certain nondiscrimination requirements.
All distributions will be taxed as they are received unless the distribution
is rolled over to another plan of the same type or to an individual retirement
annuity/account ("IRA") in accordance with the Code, or unless the participant
has made after-tax contributions to the plan, which are not taxed upon
distribution. The Code has specific rules that apply, depending on the type of
distribution received, if after-tax contributions were made.
In general, payments received by a beneficiary after the participant's death
are taxed in the same manner as if the participant had received those payments,
except that a limited death benefit exclusion may apply.
SECTION 403(B) PLANS
Under Section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by the participant and his or her employer cannot exceed either of two
limits set by the Code. The first limit, under Section 415, is generally the
lesser of 25% of includible compensation or $30,000. The second limit, which is
the exclusion allowance under Section 403(b), is usually calculated according to
a formula that takes into account the participant's length of employment and any
pretax contributions to certain other retirement plans. These two limits apply
to the participant's contributions as well as to any contributions made by the
employer on behalf of the participant. There is an additional limit that
specifically limits salary reduction contributions to generally no more than
$9,500 annually (subject to indexing); a participant's own limit may be higher
or lower, depending on certain conditions. In addition, Purchase Payments will
be excluded from a participant's gross income only if the Plan meets certain
nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b) contracts
of: (1) salary reduction contributions made after December 31, 1988; (2)
earnings on those contributions; and (3) earnings during such period on amounts
held as of December 31, 1988. Distribution of those amounts may only occur upon
death of the participant, attainment of age 59 1/2, separation from service,
total and permanent disability, or financial hardship. In addition, income
attributable to salary reduction contributions may not be distributed in the
case of hardship.
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INDIVIDUAL RETIREMENT ANNUITIES AND
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity,
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. Employers may establish Simplified Employee Pension (SEP) Plans and
contribute to an IRA owned by the employee. Purchasers of a Qualified Contract
for use with IRAs will be provided with supplemental information required by the
Internal Revenue Service. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRAs.
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 may be provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions from Section 401(a) Plans and Section 403(b) tax-deferred
annuities are subject to mandatory 20% federal income tax withholding. We will
report to the IRS the taxable portion of all distributions.
MISCELLANEOUS
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DISTRIBUTION
Aetna Life Insurance and Annuity Company ("ALIAC") will serve as the
Principal Underwriter for the securities sold by this Prospectus. ALIAC is
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") and is a member of the National Association of Securities Dealers, Inc.
("NASD"). As Underwriter, the Company will contract with one or more registered
broker-dealers, or with banks that may be acting as broker-dealers without
separate registration under the Securities Exchange Act of 1934 pursuant to
legal and regulatory exceptions ("Distributors") to offer and sell the
Contracts. The Company and one or more of its affiliates may also sell the
Contracts directly. All individuals offering and selling the Contracts must
either be registered representatives of a broker-dealer, or employees of a bank
exempt from registration under the Securities Exchange Act of 1934, and 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 or banks
interested in acting as Distributors for the Contracts. These 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.
PAYMENT OF COMMISSIONS. Commissions will be paid to Distributors who sell
the Contracts. Distributors will be paid commissions up to an amount currently
equal to 6.5% of Purchase Payments. Pursuant to agreements between the
Underwriter and the Distributor, 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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DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or is not reasonably practicable for
the value of the Subaccount's assets; or (c) during such other periods as the
SEC may by order permit for the protection of investors. The conditions under
which restricted trading or an emergency exists shall be determined by the rules
and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative charge and any applicable deferred sales charge).
"Non-standardized returns" 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
monthly, quarterly, year-to-date and three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at shareholders'
meetings of the appropriate Funds(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 Account Values(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 Account.
Therefore, you may instruct the group Contract Holder how to direct the Company
to cast the votes for the portion or the value of valuation reserve attributable
to your 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 Account.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 days written notice to the Contract Holder,
make other changes to group Contracts that would apply only to individuals who
become Certificate Holders under that Contract after the effective date of such
changes. If the Contract Holder does not agree to a change, no new Certificate
Holders will be covered under the Contract. Certain changes will require the
approval of appropriate state or federal regulatory authorities.
TRANSFERS OF OWNERSHIP; ASSIGNMENT
Assignments or transfers of ownership of a Qualified Contract generally are
not allowed except as permitted under the Code, incident to a divorce. The
prohibition
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does not apply to a Qualified Contract sold in conjunction with (1) a Section
457 deferred compensation plan, or (2) a Section 401(a) plan where the Contract
is owned by a trustee. We will accept assignments or transfers of ownership of a
Nonqualified Contract or a Qualified Contract where assignments or transfers of
ownership are not prohibited, 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" 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.
No assignment of a Contract will be binding on us unless made in writing and
sent to us at our Home Office. The Company will use reasonable procedures to
confirm that the assignment is authentic, including verification of signature.
If the Company fails to follow its procedures, it would be liable for any losses
to you directly resulting from the failure. Otherwise, we are not responsible
for the validity of any assignment. The rights of the Certificate Holder and the
interest of the Annuitant and any Beneficiary will be subject to the rights of
any assignee of record.
INVOLUNTARY TERMINATIONS
We reserve the right to terminate any Account with a value of $2,500 or less
immediately following a partial withdrawal. However, an Individual Retirement
Annuity may only be closed out when Purchase Payments have not been received for
a 24-month period and the paid-up annuity benefit at maturity would be less than
$20 per month. If such right is exercised, you will be given 90 days advance
written notice. No deferred sales charge will be deducted for involuntary
terminations. The Company does not intend to exercise this right in cases where
the Account Value is reduced to $2,500 or less solely due to investment
performance.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. 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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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
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The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements of
the Separate Account and the Company. A list of the contents of the SAI is set
forth below:
General Information and History
Variable Annuity Account I
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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APPENDIX
AICA GUARANTEED ACCOUNT
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THE AICA GUARANTEED ACCOUNT (THE "GUARANTEED ACCOUNT") IS A CREDITED
INTEREST OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS.
THIS APPENDIX IS A SUMMARY OF THE GUARANTEED ACCOUNT AND IS NOT INTENDED TO
REPLACE THE GUARANTEED ACCOUNT PROSPECTUS. YOU SHOULD READ THE ACCOMPANYING
GUARANTEED ACCOUNT PROSPECTUS CAREFULLY BEFORE INVESTING.
The Guaranteed Account is a credited interest option in which we guarantee
stipulated rates of interest for stated periods of time on amounts directed to
the Guaranteed Account. A guaranteed rate is credited for the full 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 for one year. Guaranteed interest rates will
never be less than an annual effective rate of 3%.
During a 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. 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.
Except for transfers 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, 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 the
Certificate Holder receiving an amount which is less than the amount paid into
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.
As a Guaranteed Term matures, assets accumulating under the Guaranteed
Account may be (a) transferred to a new Guaranteed Term, (b) transferred to
other available investment options, or (c) withdrawn. Amounts withdrawn may be
subject to 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 available in the current deposit
period will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a
maturing guaranteed term, the maturity value transfer provision applies. This
provision allows 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.
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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. However, only a positive aggregate
MVA will be applied to transfers made due to annuitization under one of the
lifetime Annuity Options described in item (2) above.
The Certificate Holder may select a maximum of 18 different investment
options during the Accumulation Period. Under the Guaranteed Account, each
guaranteed term is counted as one funding option. If a guaranteed term matures,
and is renewed for the same term, it will not count as an additional investment
option.
Transfers of the Guaranteed Account values on or within one calendar month
of a term's maturity date are not counted as one of the 12 free transfers of
accumulated values in the Account.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts that have been accumulating under the
Guaranteed Account transferred to one or more of the Subaccounts available
during the Annuity Period. 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.
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:
(1) the aggregate MVA amount (i.e., the sum of all market value adjusted amounts
calculated due to a withdrawal of amounts) which may be greater or less than
the Account Value of those amounts; or
(2) the applicable portion of the 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
Account Value of those amounts.
- --------------------------------------------------------------------------------
26
<PAGE>
VARIABLE ANNUITY ACCOUNT I
OF
AETNA INSURANCE COMPANY OF AMERICA
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
AICA Marathon Plus
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for Variable Annuity Account
I (the "Separate Account") dated May 1, 1996.
A free prospectus is available upon request from the local Aetna Insurance
Company of America office or by writing to or calling:
Aetna Insurance Company of America
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the Prospectus.
TABLE OF CONTENTS
Page
----
General Information and History............................ 1
Variable Annuity Account I................................. 1
Offering and Purchase of Contracts......................... 2
Performance Data........................................... 2
General................................................. 2
Average Annual Total Return Quotations.................. 3
Annuity Payments........................................... 5
Sales Material and Advertising............................. 6
Independent Auditors....................................... 7
Financial Statements of the Separate Account............... S-1
Financial Statements of the Company........................ F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Insurance Company of America (the "Company") is a stock life insurance
company which was organized under the insurance laws of the State of
Connecticut in 1990. The Company is a wholly owned subsidiary of Aetna Life
Insurance and Annuity Company ("ALIAC"), an indirect wholly owned subsidiary of
Aetna Life and Casualty Company. AICA's Home Office is located at 151
Farmington Avenue, Hartford, Connecticut 06156.
ALIAC, a registered broker-dealer under the Securities Exchange Act of 1934,
serves as the principal underwriter for Account I. ALIAC is also a
registered investment adviser under the Investment Advisers Act of 1940.
Other than the mortality and expense risk charges and administrative charge
described in the prospectus, all expenses incurred in the operations of the
Separate Account are borne by the Company. See "Charges and Deductions" in the
prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options
under the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate
Account has no custodian. However, the Funds in whose shares the assets of
the Separate Account are invested each have custodians, as discussed in their
respective prospectuses.
VARIABLE ANNUITY ACCOUNT I
Variable Annuity Account I (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity
contracts issued by the Company. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940, as amended. The assets of each of the
Subaccounts of the Separate Account will be invested exclusively in shares of
the Funds described in the Prospectus. Purchase Payments made under the
Contract may be allocated to one or more of the Subaccounts. The Company may
make additions to or deletions from available investment options as permitted
by law. The availability of the Funds is subject to applicable regulatory
authorization. Not all Funds are available in all jurisdictions or under all
Contracts. The Funds currently available under the Contract are as follows:
1
<PAGE>
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity VIP Overseas Portfolio
Aetna Income Shares Fidelity VIP II Asset Manager Portfolio
Aetna Variable Encore Fund Fidelity VIP II Contrafund Portfolio
Aetna Investment Advisers Fund, Inc. Fidelity VIP II Index 500 Portfolio
Aetna Ascent Variable Portfolio Fidelity VIP II Investment Grade Bond Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Aggressive Growth Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Balanced Portfolio
Alger American Balanced Portfolio Janus Aspen Flexible Income Portfolio
Alger American Growth Portfolio Janus Aspen Growth Portfolio
Alger American Income and Growth Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American Leveraged AllCap Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American MidCap Growth Portfolio Lexington Emerging Markets Fund, Inc.
Alger American Small Cap Portfolio Lexington Natural Resources Trust
Federated American Leaders Fund II MFS Emerging Growth Series
Federated Fund for U.S. Government Securities II MFS Research Series
Federated High Income Bond Fund II MFS Total Return Series
Federated Utility Fund II MFS World Governments Series
Fidelity VIP Equity-Income Portfolio TCI Balanced
Fidelity VIP Growth Portfolio TCI Growth
Fidelity VIP High Income Portfolio TCI International
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is the depositor and ALIAC is the principal underwriter for the
securities sold by the prospectus. ALIAC offers the Contracts through life
insurance agents licensed to sell variable annuities who are Registered
Representatives as defined in the prospectus. The offering of the Contracts
is continuous. A description of the manner in which Contracts are purchased
may be found in the prospectus under the sections titled "Purchase" and
"Contract Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as non-standardized returns,
both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods
(or fractional periods thereof). The standardized figures reflect the
deduction of all recurring charges during
2
<PAGE>
each period (e.g., mortality and expense risk charges, maintenance fees,
administrative charges, and deferred sales charges). These charges will be
deducted on a pro rata basis in the case of fractional periods. The
maintenance fee is converted to a percentage of assets based on the average
account size under the Contracts described in the Prospectus.
The non-standardized figures will be calculated in a similar manner, except
that they 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 monthly,
quarterly, year-to-date and three-year periods.
If a Fund was in existence prior to the date it became available under the
Contract, standardized and non-standardized total returns may include periods
prior to such date. These figures are calculated by adjusting the actual
returns of the Fund to reflect the charges that would have been assessed
under the Contract had that Fund been available under the Contract during
that period.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will
perform in any future period. Additionally, the Account Value upon
redemption may be more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED
The tables shown below reflect the average annual standardized and
non-standardized total return quotation figures for the periods ended
December 31, 1995 for the Subaccounts available under the Contract. For
those Subaccounts where results are not available for the full calendar
period indicated, the percentage shown is an average annual return since
inception (denoted with an asterisk).
<TABLE>
<CAPTION>
FUND
INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED DATE
- -----------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 21.25% 11.49% 12.11% 30.38% 10.22% 11.91% 12.11% 04/30/75
Aetna Income Shares 8.41% 7.82% 8.37% 16.57% 6.13% 8.31% 8.37% 06/01/78
Aetna Variable Encore Fund (2.77%) 2.59% 4.76% 4.55% 2.96% 3.22% 4.76% 09/01/75
Aetna Investment Advisers Fund, Inc. 16.65% 9.85% 8.94%* 25.43% 10.10% 10.31% 9.17%* 06/23/89
Aetna Ascent Variable Portfolio 2.02%* n/a n/a 9.70%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 0.98%* n/a n/a 8.58%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 0.02%* n/a n/a 7.55%* n/a n/a n/a 07/03/95
Alger American Balanced Portfolio 17.93% 6.69% 6.57%* 26.81% 8.34% 7.22% 6.86%* 09/05/89
Alger American Growth Portfolio 24.21% 19.56% 17.53%* 33.56% 17.27% 19.85% 17.64%* 01/08/89
Alger American Income and Growth
Portfolio 22.65% 10.64% 8.46%* 31.88% 9.06% 11.08% 8.46%* 11/14/88
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FUND
INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED DATE
- -----------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alger American Leveraged AllCap
Portfolio 59.98%* n/a n/a 72.03%* n/a n/a n/a 01/25/95
Alger American MidCap Growth
Portfolio 32.45% 25.90%* n/a 42.42% 27.13%* n/a n/a 04/30/93
Alger American Small Cap Portfolio 32.32% 18.58% 20.88%* 42.28% 14.41% 18.89% 20.88%* 09/21/88
Federated American Leaders Fund II 22.59% 11.69%* n/a 31.82% 14.58%* n/a n/a 02/10/94
Federated Fund for U.S. Government
Securities II (0.28%) 1.44%* n/a 7.23% 4.90%* n/a n/a 03/28/94
Federated High Income Bond Fund II 10.28% 3.71%* n/a 18.59% 6.95%* n/a n/a 03/01/94
Federated Utility Fund II 13.81% 5.17%* n/a 22.38% 8.27%* n/a n/a 02/10/94
Fidelity VIP Equity-Income
Portfolio 23.86% 19.31% 11.79%* 33.19% 17.91% 19.61% 11.79%* 10/22/86
Fidelity VIP Growth Portfolio 24.11% 18.76% 13.35%* 33.46% 15.68% 19.07% 13.35%* 11/07/86
Fidelity VIP High Income Portfolio 10.68% 16.91% 9.89% 19.02% 11.06% 17.24% 9.89% 10/11/85
Fidelity VIP Overseas Portfolio 0.56% 6.06% 5.84%* 8.13% 13.67% 6.60% 5.84%* 02/13/87
Fidelity VIP II Asset Manager
Portfolio 7.23% 10.73% 9.44%* 15.30% 8.47% 11.17% 9.68%* 09/06/89
Fidelity VIP II Contrafund
Portfolio 28.03%* n/a n/a 37.67%* n/a n/a n/a 01/03/95
Fidelity VIP II Index 500
Portfolio 25.79% 12.69%* n/a 35.26% 13.38% 13.82%* n/a 08/27/92
Fidelity VIP II Investment Grade
Bond Portfolio 7.57% 7.16% 7.38%* 15.67% 6.28% 7.68% 7.38%* 12/05/88
Janus Aspen Aggressive Growth
Portfolio 16.89% 24.34%* n/a 25.69% 25.96%* n/a n/a 09/13/93
Janus Aspen Balanced Portfolio 14.42% 10.32%* n/a 23.03% 12.29%* n/a n/a 09/13/93
Janus Aspen Flexible Income
Portfolio 13.56% 6.10%* n/a 22.11% 8.20%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 19.35% 11.70%* n/a 28.33% 13.64%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond
Portfolio 0.43% 0.85%* n/a 7.99% 3.12%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth
Portfolio 16.78% 17.18%* n/a 25.57% 18.97%* n/a n/a 09/13/93
Lexington Emerging Markets Fund,
Inc. (11.93%) (7.60%)* n/a (5.30%)* (3.82%)* n/a n/a 03/31/94
Lexington Natural Resources Trust 7.15% 3.84%* n/a 15.22% 5.40% 4.75%* n/a 10/14/91
MFS Emerging Growth Series 8.51%* n/a n/a 16.68%* n/a n/a n/a 07/24/95
MFS Research Series 2.24%* n/a n/a 9.94%* n/a n/a n/a 07/26/95
MFS Total Return Series 16.89%* n/a n/a 25.69%* n/a n/a n/a 01/03/95
MFS World Governments Series 4.87% 4.19%* n/a 12.76% 8.07%* n/a n/a 06/14/94
TCI Balanced 11.05% 7.59%* n/a 19.41% 7.95% 8.29%* n/a 05/01/91
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FUND
INCEPTION
($30 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED DATE
- -----------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCI Growth 20.20% 13.01% 11.44%* 29.25% 11.06% 13.40% 11.44%* 11/20/87
TCI International 2.88% (0.78%)* n/a 10.62% 2.95%* n/a n/a 05/01/94
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined
using Accumulation Unit values as of the tenth Valuation Date before the
first Annuity payment is due. Such value (less any applicable premium tax) is
applied to provide an Annuity in accordance with the Annuity and investment
options elected.
The Annuity option tables found in the Contract show, for each form of
Annuity, the amount of the first Annuity payment for each $1,000 of value
applied. Thereafter, variable Annuity payments fluctuate as the Annuity Unit
value(s) fluctuates with the investment experience of the selected investment
option(s). The first payment and subsequent payments also vary depending on
the assumed net investment rate selected (3.5% or 5% per annum). Selection of
a 5% rate causes a higher first payment, but Annuity payments will increase
thereafter only to the extent that the net investment rate increases by more
than 5% on an annual basis. Annuity payments would decline if the rate failed
to increase by 5%. Use of the 3.5% assumed rate causes a lower first payment,
but subsequent payments would increase more rapidly or decline more slowly as
changes occur in the net investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed
number of Annuity Units (which does not change thereafter) in each of the
designated investment options. This number is calculated by dividing (a) by
(b), where (a) is the amount of the first Annuity payment based on a
particular investment option, and (b) is the then current Annuity Unit value
for that investment option. As noted, Annuity Unit values fluctuate from one
Valuation Date to the next; such fluctuations reflect changes in the net
investment factor for the appropriate Subaccount(s) (with a ten Valuation
Date lag which gives the Company time to process Annuity payments) and a
mathematical adjustment which offsets the assumed net investment rate of 3.5%
or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of
an Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
5
<PAGE>
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be
20.414. The value of this number of Annuity Units will be paid in each
subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the
assumed net investment rate of 3.5% per annum built into the number of
Annuity Units determined above) produces a result of 1.0014057. This is then
multiplied by the Annuity Unit value for the prior Valuation Date (assume
such value to be $13.504376) to produce an Annuity Unit value of $13.523359
for the Valuation Date on which the second payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor
to neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature
that explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable
annuity contracts and other types of savings or investment products,
including, but not limited to, personal savings accounts and certificates of
deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the
Subaccount being compared.
We may publish in advertisements and reports, the ratings and other
information assigned to us by one or more independent rating organizations
such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and
Moody's Investors Services, Inc. The purpose of the ratings is to reflect our
financial strength and/or claims-paying ability. We may also quote ranking
services such as Morningstar's Variable Annuity/Life Performance Report and
Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS),
which rank variable annuity or life Subaccounts or their underlying funds by
performance and/or investment objective. 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.
The Company may provide in advertising, sales literature, periodic
publications or other materials information on various topics of interest to
current and prospective Certificate Holders. These topics
6
<PAGE>
may include the relationship between sectors of the economy and the economy
as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar
cost averaging, asset allocation, constant ratio transfer and account
rebalancing), the advantages and disadvantages of investing in tax-deferred
and taxable investments, customer profiles and hypothetical purchase and
investment scenarios, financial management and tax and retirement planning,
and investment alternatives to certificates of deposit and other financial
instruments, including comparison between the Contracts and the
characteristics of and market for such financial instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are
the independent auditors for the Separate Account and for the Company. The
services provided to the Separate Account include primarily the examination
of the Separate Account's financial statements and the review of filings made
with the SEC.
7
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT I
Index
Independent Auditors' Report ........................................ S-2
Statement of Assets and Liabilities ................................. S-3
Statement of Operations ............................................. S-4
Statement of Changes in Net Assets .................................. S-5
Notes to Financial Statements ....................................... S-6
Condensed Financial Information ..................................... S-8
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Aetna Insurance Company of America and
Contract Owners of Variable Annuity Account I:
We have audited the accompanying statement of assets and liabilities of Aetna
Insurance Company of America Variable Annuity Account I (the "Account") as of
December 31, 1995, the related statements of operations, changes in
net assets and condensed financial information for the period from June 28, 1995
(commencement of operations) to December 31, 1995. These financial statements
and condensed financial information are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements and condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Aetna Insurance Company of America Variable Annuity Account I as
of December 31, 1995, the results of its operations, changes in its net assets
and condensed financial information for the period from June 28, 1995
(commencement of operations) to December 31, 1995 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
S-2
<PAGE>
VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Alger American Fund - Alger American Growth Portfolio; 1,178 shares at $31.16
per share (cost $37,014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,711
Alger American Fund - Alger American Small Capitalization Portfolio; 908 shares at $39.41
per share (cost $36,820). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,778
Insurance Management Series:
Corporate Bond Fund; 326,565 shares at $9.79 per share (cost $3,149,232). . . . . . . . . . 3,197,071
Equity Growth and Income Fund; 1,283,918 shares at $12.80 per share (cost $15,562,208). . . 16,434,144
Growth Stock Fund; 18,192 shares at $10.30 per share (cost $183,184). . . . . . . . . . . . 187,382
International Stock Fund; 297,202 shares at $10.35 per share (cost $2,998,905). . . . . . . 3,076,039
Prime Money Fund; 4,106,739 shares at $1.00 per share (cost $4,106,739) . . . . . . . . . . 4,106,739
U.S. Government Bond Fund; 154,253 shares at $10.29 per share (cost $1,554,283) . . . . . . 1,587,267
Utility Fund; 459,803 shares at $11.03 per share (cost $4,739,101). . . . . . . . . . . . . 5,071,628
Lexington Emerging Markets Fund; 2,650 shares at $9.38 per share (cost $24,122) . . . . . . . 24,857
------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,757,616
------------
------------
</TABLE>
Net assets represented by:
<TABLE>
<CAPTION>
ACCUMULATION
UNIT
UNITS VALUE
----- -----
<S> <C> <C> <C>
Reserves for annuity contracts in accumulation period:
ALGER AMERICAN FUND - ALGER AMERICAN GROWTH PORTFOLIO:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750.0 $ 9.790 $36,711
ALGER AMERICAN FUND - ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750.0 9.541 35,778
INSURANCE MANAGEMENT SERIES:
CORPORATE BOND FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,293.1 10.576 3,197,071
EQUITY GROWTH AND INCOME FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,444,344.1 11.378 16,434,144
GROWTH STOCK FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,233.2 10.277 187,382
INTERNATIONAL STOCK FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,714.2 10.229 3,076,039
PRIME MONEY FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403,430.4 10.180 4,106,739
U.S. GOVERNMENT BOND FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,859.6 10.521 1,587,267
UTILITY FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,294.0 11.238 5,071,628
LEXINGTON EMERGING MARKETS FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550.0 9.748 24,857
------------
$33,757,616
------------
------------
</TABLE>
See Notes to Financial Statements.
S-3
<PAGE>
VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS - Period from June 28, 1995 to December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Insurance Management Series - Corporate Bond Fund $82,004
Insurance Management Series - Equity Growth and Income Fund 97,734
Insurance Management Series - Prime Money Fund 73,433
Insurance Management Series - U.S. Government Bond Fund 30,057
Insurance Management Series - Utility Fund 60,615
Lexington Emerging Markets Fund 242
-----------
Total investment income ........................................................ 344,085
Valuation period deductions (Note 2)............................................... (129,615)
-----------
Net investment income.............................................................. 214,470
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales ............................................................. $1,768,297
Cost of investments sold ........................................................ 1,764,665
----------
Net realized gain .............................................................. 3,632
Net unrealized gain on investments:
Beginning of period ............................................................. 0
End of period ................................................................... 1,366,008
----------
Net unrealized gain ............................................................ 1,366,008
-----------
Net realized and unrealized gain on investments ................................... 1,369,640
-----------
Net increase in net assets resulting from operations .............................. $1,584,110
-----------
-----------
</TABLE>
See Notes to Financial Statements.
S-4
<PAGE>
VARIABLE ANNUITY ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 28, 1995 TO
DECEMBER 31, 1995
-----------------
<S> <C>
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . $214,470
Net realized and unrealized gain on investments. . . . . 1,369,640
-----------
Net increase in net assets resulting from operations . 1,584,110
-----------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments. . . . . . . 29,890,036
Transfers to the Company's fixed account options . . . . 2,369,036
Redemptions by contract holders. . . . . . . . . . . . . (100,005)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 14,439
-----------
Net increase in net assets from unit transactions. . . 32,173,506
-----------
Change in net assets . . . . . . . . . . . . . . . . . . 33,757,616
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . 0
-----------
End of period. . . . . . . . . . . . . . . . . . . . . . $33,757,616
-----------
-----------
</TABLE>
See Notes to Financial Statements.
S-5
<PAGE>
Page 1
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account I ("Account") is a separate account established by
Aetna Insurance Company of America ("Company") and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with annuity contracts that may be entitled to
tax-deferred treatment under specific sections of the Internal Revenue Code
of 1986, as amended. The account commenced operations on June 28, 1995.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. VALUATION OF INVESTMENTS
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1995:
Alger American Funds:
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
Insurance Management Series:
Corporate Bond Fund
Equity Growth and Income Fund
Growth Fund
International Stock Fund
Prime Money Fund
U.S. Government Bond Fund
Utility Fund
Lexington Emerging Markets Fund
b. OTHER
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the total
operations of the Company which is taxed as a life insurance company under
the Internal Revenue Code of 1986, as amended.
d. ANNUITY RESERVES
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the 83a and 83GAM tables using various
assumed interest rates. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional reserves are required, the Company reimburses the Account.
S-6
<PAGE>
Page 2
NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued)
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. DIVIDEND INCOME
On an annual basis, the Funds distribute substantially all of their
taxable income and realized capital gains to their shareholders.
Distributions to the Account are automatically reinvested in shares of the
Funds. The Account's proportionate share of each Fund's undistributed net
investment income and accumulated net realized gain on investments is
included in net unrealized gain in the Statement of Operations.
4. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments other than
short-term investments for the period from June 28, 1995 to December 31,
1995 aggregated $34,156,273 and $1,768,297, respectively.
5. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
S-7
<PAGE>
Variable Annuity Account I
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JUNE 28, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Increase
(Decrease)
Value at Value at in Value of
Beginning End Accumulation
of Period of Period Unit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALGER AMERICAN FUND - ALGER AMERICAN
GROWTH PORTFOLIO:
AICA I . . . . . . . . . . . . . . . . . . . . . . . $10.000 $9.790 (2.10%) (3)
- -------------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUND - ALGER AMERICAN
SMALL CAPITALIZATION PORTFOLIO:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $9.541 (4.59%) (3)
- -------------------------------------------------------------------------------------------------------------------------------
INSURANCE MANAGEMENT SERIES:
CORPORATE BOND FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $10.576 5.76% (2)
- -------------------------------------------------------------------------------------------------------------------------------
EQUITY GROWTH AND INCOME FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $11.378 13.78% (3)
- -------------------------------------------------------------------------------------------------------------------------------
GROWTH STOCK FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $10.277 2.77% (4)
- -------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $10.229 2.29% (2)
- -------------------------------------------------------------------------------------------------------------------------------
PRIME MONEY FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $10.180 1.80% (2)
- -------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT BOND FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $10.521 5.21% (2)
- -------------------------------------------------------------------------------------------------------------------------------
UTILITY FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $11.238 12.38% (1)
- -------------------------------------------------------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS FUND:
AICA I . . . . . . . . . . . . . . . . . . . . . . $10.000 $9.748 (2.52%) (3)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AICA I Certain individual and group contracts issued as non-qualified
deferred annuity contracts or Individual Retirement Annuity contracts
issued since June 28, 1995.
1 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during June 1995
when the Fund became available under the contract.
2 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during July 1995
when the Fund became available under the contract.
3 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during October 1995
when the Fund became available under the contract.
4 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during November 1995
when the Fund became available under the contract.
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
Financial Statements
Index
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report..................................... F-2
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993................................ F-3
Balance Sheets as of December 31, 1995 and 1994.................. F-4
Statements of Changes in Shareholder's Equity for
the Years Ended December 31, 1995, 1994 and 1993................ F-5
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.......................... F-6
Notes to Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors of
Aetna Insurance Company of America:
We have audited the accompanying balance sheets of Aetna Insurance Company of
America as of December 31, 1995 and 1994, and the related statements of income,
changes in shareholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted auditing principles.
As discussed in Note 1 to the financial statements, in 1993 the Company changed
its methods of accounting for certain investments in debt and equity securities.
KPMG Peat Marwick
Hartford, Connecticut
March 20, 1996
F-2
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenue:
Net investment income................................ $721.0 $619.3 $560.0
Realized capital gains............................... 8.3 -- --
Charges assessed against policyholders............... 132.7 -- --
------ ------ ------
Total revenue...................................... 862.0 619.3 560.0
Expenses:
Operating expenses................................... 605.2 83.0 79.5
------ ------ ------
Total expenses..................................... 605.2 83.0 79.5
Income before federal income taxes..................... 256.8 536.3 480.5
Federal income taxes................................. 88.9 187.7 168.2
------ ------ ------
Net income............................................. $167.9 $348.6 $312.3
------ ------ ------
------ ------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
- -------------------------------------------------------
Investments:
Debt securities available for sale:
(amortized cost $7,953.0 and $7,043.9).............. $ 8,187.4 $ 6,906.5
Cash and cash equivalents.............................. 4,044.2 4,732.7
Accrued investment income.............................. 112.6 91.5
Deferred policy acquisition costs...................... 2,066.4 --
Deferred tax asset..................................... 467.6 0.4
Other assets........................................... 0.8 5.1
Separate Accounts assets............................... 43,810.0 --
--------- ---------
Total assets....................................... $58,689.0 $11,736.2
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
- -------------------------------------------------------
<S> <C> <C>
Liabilities:
Due to parent and affiliates......................... $ 174.6 $ 10.5
Other liabilities.................................... 1,932.6 21.0
Federal income taxes--Current........................ 638.8 29.4
Separate Accounts liabilities........................ 43,810.0 --
--------- ---------
Total liabilities.................................. 46,556.0 60.9
--------- ---------
Shareholder's equity:
Common capital stock, par value $2,000 (1,275 shares
authorized, issued and outstanding)................. 2,550.0 2,550.0
Paid-in capital...................................... 7,550.0 7,550.0
Net unrealized capital gains (losses)................ 152.4 (137.4)
Retained earnings.................................... 1,880.6 1,712.7
--------- ---------
Total shareholder's equity......................... 12,133.0 11,675.3
--------- ---------
Total liabilities and shareholder's equity....... $58,689.0 $11,736.2
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's equity, beginning of period.............. $11,675.3 $11,584.2 $11,151.8
Net change in unrealized capital gains (losses)........ 289.8 (257.5) 120.1
Net income............................................. 167.9 348.6 312.3
--------- --------- ---------
Shareholder's equity, end of period.................... $12,133.0 $11,675.3 $11,584.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- -------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 167.9 $ 348.6 $ 312.3
Adjustments to reconcile net income to net cash
provided by operating activities:...................
Decrease (increase) in accrued investment income... (21.1) -- 46.3
Increase in deferred policy acquisition costs...... (2,066.4) -- --
Net change in amounts due to/from parent and
affiliates........................................ 164.1 (79.2) 184.9
Net increase (decrease) in other assets and
liabilities....................................... 1,915.9 1.2 (76.0)
Increase (decrease) in federal income taxes........ 60.2 (138.9) 50.2
Net amortization of premium on debt securities..... 22.2 88.1 78.4
---------- -------- ----------
Net cash provided by operating activities........ 242.8 219.8 596.1
---------- -------- ----------
Cash Flows from Investing Activities:
Investment maturities and collection of:
Debt securities available for sale................. 3,000.0 -- 2,290.0
Short-term investments............................. 500.0 -- --
Cost of investment purchases in:
Debt securities available for sale................. (3,939.2) -- (2,452.8)
Short-term investments............................. (492.1) -- --
---------- -------- ----------
Net cash used for investing activities........... (931.3) -- (162.8)
---------- -------- ----------
Net (decrease) increase in cash and cash equivalents... (688.5) 219.8 433.3
Cash and cash equivalents, beginning of period......... 4,732.7 4,512.9 4,079.6
---------- -------- ----------
Cash and cash equivalents, end of period............... $ 4,044.2 $4,732.7 $ 4,512.9
---------- -------- ----------
Supplemental cash flow information:
Income taxes paid, net............................... $ 28.7 $ 326.6 $ 118.0
---------- -------- ----------
---------- -------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of Connecticut. The Company
is a wholly owned subsidiary of Aetna Life Insurance and Annuity Company
("ALIAC"). ALIAC is a wholly owned subsidiary of Aetna Retirement Services, Inc.
("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company
("Aetna"). During the second quarter of 1995, the Company began marketing and
servicing variable and market value adjusted annuities through the Company's
Separate Accounts to individuals in the qualified and non-qualified markets.
BASIS OF PRESENTATION
These financial statements have been prepared in conformity with generally
accepted accounting principles. Certain reclassifications have been made to 1994
and 1993 financial information to conform to 1995 presentation.
ACCOUNTING CHANGES
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires the classification of debt securities into three categories: "held to
maturity", which are carried at amortized cost; "available for sale", which are
carried at fair value with changes in fair value recognized as a component of
shareholder's equity; and "trading", which are carried at fair value with
immediate recognition in income of changes in fair value.
Initial adoption of this standard resulted in a net increase of $120.1 thousand,
net of taxes of $64.6 thousand, to net unrealized gains in shareholder's equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of ninety days or less when purchased.
INVESTMENTS
At December 31, 1995 and 1994, all of the Company's debt securities are
classified as available for sale and carried at fair value. These securities are
written down (as realized losses) for other than temporary decline in value.
Unrealized gains and losses related to these securities, after deducting related
taxes, are reflected in shareholder's equity. Fair values for debt securities
are based on quoted market prices or dealer quotations. Purchases and sales of
debt securities are recorded on the trade date.
F-7
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring insurance business have been deferred. These costs,
all of which vary with and are primarily related to the production of new
business, consist principally of commissions, certain expenses of underwriting
and issuing contracts and certain agency expenses. Such costs are amortized in
proportion to estimated gross profits and adjusted to reflect actual gross
profits and are amortized over twenty years. Deferred policy acquisition costs
are written off to the extent that it is determined that future policy premiums
and investment income or gross profits would not be adequate to cover related
losses and expenses.
CHARGES ASSESSED AGAINST POLICYHOLDERS
Charges assessed against policyholders' funds for surrender charges, actuarial
margin and other fees are recorded as revenue when earned.
SEPARATE ACCOUNTS
Assets held under variable annuity contracts are segregated in Separate Accounts
and are invested, as designated by the contractholder, in shares of mutual funds
that are managed by ALIAC or other selected mutual funds not managed by ALIAC.
Separate Accounts assets and liabilities are carried at fair value except for
those relating to a guaranteed interest option which is offered through a
Separate Account. The assets of the Separate Account supporting the guaranteed
interest option are carried at an amortized cost of $10.1 million for 1995 (fair
value of $9.3 million), since the Company bears the investment risk where the
contract is held to maturity. Reserves relating to the guaranteed interest
option are maintained at fund value and reflect interest credited at rates
ranging from 4.65% to 6.0% in 1995. Separate Accounts assets and liabilities are
shown as separate captions in the Balance Sheets. Deposits, investment income
and net realized and unrealized capital gains (losses) of the Separate Accounts
are not reflected in the Statements of Income (with the exception of realized
capital gains (losses) on the sale of assets supporting the guaranteed interest
option). The Statements of Cash Flows do not reflect investment activity of the
Separate Accounts.
FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax benefits
result from changes during the year in cumulative temporary differences between
the tax basis and book basis of assets and liabilities.
2. INVESTMENTS
Investments in debt securities available for sale were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(THOUSANDS) COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1995
U.S. Treasury securities................... $7,953.0 $237.4 $ 3.0 $8,187.4
-------- ---------- ---------- --------
-------- ---------- ---------- --------
1994
U.S. Treasury securities................... $7,043.9 $ 4.2 $141.6 $6,906.5
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
F-8
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities for the year ended December
31, 1995 are shown below by contractual maturity. Actual maturities may differ
from contractual maturities because securities may be restructured, called or
prepaid.
<TABLE>
<CAPTION>
AMORTIZED FAIR
(THOUSANDS) COST VALUE
-------- --------
<S> <C> <C>
Due to mature:
One year or less..................................... $2,526.1 $2,526.0
After one year through five years.................... 5,426.9 5,661.4
-------- --------
Total................................................ $7,953.0 $8,187.4
-------- --------
-------- --------
</TABLE>
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities, is
deposited by the borrower with a lending agent, and retained and invested by the
lending agent to generate additional income for the Company. The market value of
the loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value fluctuates. At December 31, 1995, the
Company had no securities out on loan.
At December 31, 1995 and 1994, debt securities carried at $4.4 million and $3.9
million, respectively, were on deposit as required by various state regulatory
agencies.
3. CAPITAL GAINS AND LOSSES ON INVESTMENTS
Realized capital gains or losses are the difference between proceeds received
from investments sold or prepaid, and amortized cost. Net realized capital gain
on debt securities, as reflected in the Statements of Income for the year ended
December 31, 1995, were $8.3 thousand. For the years ended December 31, 1994 and
1993 there were no realized capital gains or losses.
Unrealized capital gains (losses) on investments carried at fair value, net of
related taxes, reflected in shareholder's equity, were as follows for December
31:
<TABLE>
<CAPTION>
(THOUSANDS) 1995 1994
------ --------
<S> <C> <C>
Debt securities
Gross unrealized gains............................... $237.4 $ 4.2
Gross unrealized losses.............................. (3.0) (141.6)
------ --------
234.4 (137.4)
Deferred federal income taxes (See Note 6)............. 82.0 --
------ --------
Net unrealized capital gains (losses).................. $152.4 $ (137.4)
------ --------
------ --------
</TABLE>
F-9
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(THOUSANDS) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Debt securities........................................ $457.5 $414.1 $425.7
Cash equivalents....................................... 261.1 205.2 135.3
Other.................................................. 2.4 -- --
Gross investment income................................ 721.0 619.3 561.0
Less investment expenses............................... -- -- 1.0
------ ------ ------
Net investment income.................................. $721.0 $619.3 $560.0
------ ------ ------
------ ------ ------
</TABLE>
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The amount of dividends that may be paid to the shareholder in 1996 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$958.0 thousand.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity those amounts determined in
conformity with statutory accounting practices prescribed or permitted by the
Department, which differ in certain respects from generally accepted accounting
principles ("GAAP"). Statutory net income was $378.9 thousand, $348.1 thousand
and $312.3 thousand for the years ended December 31, 1995, 1994 and 1993,
respectively. Statutory shareholder's equity was $12.1 million and $11.8 million
as of December 31, 1995 and 1994, respectively.
As of December 31, 1995 and 1994, the Company does not utilize any statutory
accounting practices which are not prescribed by insurance regulators that,
individually or in the aggregate, materially affect statutory shareholder's
equity.
6. FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
Aetna allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the member
for the use of its tax saving attributes in the consolidated return.
Components of income tax expense (benefits) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Income from operations............................... $ 635.2 $188.1 $168.2
Net realized capital gains........................... 2.9 -- --
-------- ------ ------
638.1 188.1 168.2
-------- ------ ------
Deferred tax benefit:
Income from operations............................... (549.2) (.4) --
-------- ------ ------
Total................................................ $ 88.9 $187.7 $168.2
-------- ------ ------
-------- ------ ------
</TABLE>
F-10
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
6. FEDERAL INCOME TAXES (CONTINUED)
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the following
reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Income before federal income taxes..................... $256.8 $536.3 $480.5
Tax rate............................................... 35% 35% 35%
------- ------- -------
Application of the tax rate.......................... $ 89.9 $187.7 $168.2
Other, net............................................. (1.0) -- --
------- ------- -------
Income tax expense................................... $ 88.9 $187.7 $168.2
------- ------- -------
------- ------- -------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
-------- -----
(THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net unrealized capital losses........................ $ -- $48.1
Insurance reserves................................... 1,054.6 --
Other, net........................................... -- .4
-------- -----
Total gross assets..................................... 1,054.6 48.5
Less valuation allowance............................... -- 48.1
-------- -----
Deferred tax assets, net of valuation 1,054.6 .4
Deferred tax liabilities:
Deferred policy acquisition costs.................... 496.4 --
Net unrealized capital gains......................... 82.0 --
Other................................................ 8.6 --
-------- -----
Total gross liabilities................................ 587.0 --
-------- -----
Net deferred tax asset............................... $ 467.6 $ .4
-------- -----
-------- -----
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. At December 31, 1994, $137.4 thousand of net unrealized
capital losses were reflected in shareholder's equity without deferred tax
benefits. As of December 31, 1995, no valuation allowance was required for
unrealized capital gains and losses. The reversal of the valuation allowance had
no impact on net income in 1995. Management believes that it is more likely than
not that the Company will realize the benefit of the net deferred tax asset.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1986. Discussions are
being held with the Service with respect to proposed adjustments. However,
management believes there are adequate defenses against, or sufficient reserves
to provide for, such challenges. The Service has commenced its examinations for
the years 1987 through 1990.
F-11
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
7. BENEFIT PLANS
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC). The following is a discussion of benefit plans as they apply to ALIAC.
The charges to operations of the Company for the utilization of these employee's
during 1995 were immaterial. There were no charges to operations of the Company
during 1994 and 1993 for the benefit plans described below.
Employee Pension Plans--ALIAC, in conjunction with Aetna, has non-contributory
defined benefit pension plans covering substantially all employees. The plans
provide pension benefits based on years of service and average annual
compensation (measured over sixty consecutive months of highest earnings in a
120 month period). Contributions are determined using the Projected Unit Credit
Method and, for qualified plans subject to ERISA requirements, are limited to
the amounts that are currently deductible for tax reporting purposes. The
accumulated benefit obligation and plan assets are recorded by Aetna. The
accumulated plan assets exceed accumulated plan benefits.
Agent Pension Plans--ALIAC, in conjunction with Aetna, has a non-qualified
pension plan covering certain agents. The plan provides pension benefits based
on annual commission earnings. The accumulated plan assets exceed accumulated
plan benefits.
Employee Postretirement Benefits--In addition to providing pension benefits,
Aetna also provides certain postretirement health care and life insurance
benefits, subject to certain caps, for retired employees. Medical and dental
benefits are offered to all full-time employees retiring at age 50 with at least
15 years of service or at age 65 with at least 10 years of service. Retirees are
required to contribute to the plans based on their years of service with Aetna.
AGENT POSTRETIREMENT BENEFITS--ALIAC, in conjunction with Aetna, also provides
certain postemployment health care and life insurance benefits for certain
agents.
INCENTIVE SAVINGS PLAN--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested in
common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna.
STOCK PLANS--Aetna has a stock incentive plan that provides for stock options
and deferred contingent common stock or cash awards to certain key employees.
Aetna also has a stock option plan under which executive and middle management
employees of Aetna may be granted options to purchase common stock of Aetna at
the market price on the date of grant or, in connection with certain business
combinations, may be granted options to purchase common stock on different
terms.
8. RELATED PARTY TRANSACTIONS
Substantially all of the administrative and support functions of the Company are
provided by Aetna and its affiliates. The financial statements reflect allocated
charges, at cost, for these services based upon measures appropriate for the
type and nature of service provided. Total charges allocated to the Company,
including rent, salaries and other administrative expenses, were $350.0 thousand
and $1.0 thousand for the years ended December 31, 1995 and 1993, respectively.
There were no charges in 1994.
The Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable annuity contracts. Under the insurance
contracts, the Separate Accounts pay the Company a daily fee which, on an
F-12
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (continued)
December 31, 1995, 1994 and 1993
8. RELATED PARTY TRANSACTIONS (CONTINUED)
annual basis, is 1.40% of their average daily net assets. The amount of
compensation and fees received from the Separate Accounts, charges assessed
against policyholders, amounted to $132.7 thousand for the year ended December
31, 1995. There were no charges assessed against policyholders for the years
ended December 31, 1994 and 1993.
9. ESTIMATED FAIR VALUE
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
CARRYING FAIR CARRYING FAIR
(THOUSANDS) VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............................ $4,044.2 $4,044.2 $4,732.7 $4,732.7
Debt securities...................................... 8,187.4 8,187.4 6,906.5 6,906.5
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains or
losses. In evaluating the Company's management of interest rate and liquidity
risk, the fair values of all assets and liabilities should be taken into
consideration, not only those above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
DEBT SECURITIES: Fair values are based on quoted market prices or dealer
quotations.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS)
The Company did not have transactions in derivative instruments in 1995 or 1994.
10. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 1995 and 1994 the Company had no commitments or contingent
liabilities.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or 1994 which were beyond the ordinary course of business.
F-13
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT I
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA INSURANCE COMPANY OF AMERICA
FORM NO. 59749(S)-2 AICA ED. MAY 1996
<PAGE>
VARIABLE ANNUITY ACCOUNT I
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account I:
- Independent Auditors' Report
- Statement of Assets and Liabilities as of December 31,
1995
- Statement of Operations for the period June 28, 1995
through December 31, 1995
- Statement of Changes in Net Assets for the period June
28, 1995 through December 31, 1995
- Notes to Financial Statements
Financial Statements of Depositor:
- Independent Auditors' Report
- Statement of Income for the years ended December 31,
1995, 1994 and 1993
- Balance Sheets for the year ended December 31, 1995 and
1994
- Statements of Changes in Shareholder's Equity for the
years ended December 31, 1995, 1994 and 1993
- Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
- Notes to Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Insurance
Company of America establishing Variable Annuity Account
I(1)
(2) Not Applicable
(3.1) Form of Selling Agreement(1)
(3.2) Form of Principal Underwriting Agreement(1)
(4.1) Form of Variable Annuity Contract (G2-CDA-94(IR))(1)
(4.2) Form of Variable Annuity Contract (G2-CDA-94(NQ))(1)
(5) Form of Variable Annuity Contract Application(1)
(6) Certificate of Incorporation and By-Laws of Depositor(1)
(7) Not Applicable
(8.1) Fund Participation Agreement among Aetna Insurance Company
of America, Alger American Fund and Fred Alger Management,
Inc. dated August 30, 1995
(8.2) Fund Participation Agreements among Aetna Insurance Company
of America, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated October 20, 1995
<PAGE>
(8.3) Fund Participation Agreement among Aetna Insurance Company
of America, Variable Insurance Products Fund II and Fidelity
Distributors Corporation dated October 20, 1995
(8.4) Fund Participation Agreement between Aetna Insurance Company
of America and Janus Aspen Series dated October 3, 1995
(8.5) Fund Participation Agreement among Aetna Insurance Company
of America and Lexington Natural Resources Trust and
Lexington Management Corporation dated September 1, 1995
(8.6) Fund Participation Agreement among Aetna Insurance Company
of America, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation dated September 1, 1995
(8.7) Form of Fund Participation Agreement among MFS Variable
Insurance Trust, Aetna Insurance Company of America and
Massachusetts Financial Services Company
(8.8) Fund Participation Agreement among Aetna Insurance Company
of America, TCI Portfolios, Inc. and Investors Research
Corporation dated October 9, 1995
(8.9) Form of Administrative Service Agreement between Aetna
Insurance Company of America and Agency, Inc.
(9) Opinion of Counsel(2)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(1)
(14) Not applicable
(15.1) Power of Attorney(1)
(15.2) Certificate of Resolution Authorizing Signatures(1)
(27) Financial Data Schedule
1. Incorporated by reference to Registration Statement on Form N-4 (File No.
33-59749), as filed electronically on June 1, 1995.
2. Incorporated by reference to Registrant's 24f-2 Notice for the fiscal year
ended December 31, 1995, as filed electronically on February 29, 1996.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal
Business Address* Positions and Offices with Depositor
- ------------------ ------------------------------------
Daniel P. Kearney Director and President
James C. Hamilton Director, Vice President, Treasurer &
Alternate Qualified Actuary
Shaun P. Mathews Director and Senior Vice President
Scott A. Striegel Director and Senior Vice President
Maria F. McKeon Corporate Secretary and Counsel
*The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Incorporated herein by reference to Item 26 of Post-Effective Amendment
No. 5 to Registration Statement on Form N-4 (File No. 33-75986) filed
electronically on April 12, 1996, and supplemented by Post-Effective
Amendment No. 6 to Registration Statement on Form N-4 (File No. 33-75986),
filed electronically on April 22, 1996.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 1996, there were 1,134 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account I.
ITEM 28. INDEMNIFICATION
Reference is hereby made to Section 33-320a of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents, and
certain other defined individuals against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification does not apply unless (1) the individual is successful on
the merits in the defense of any such proceeding; or (2) a determination is made
(by a majority of the board of directors not a party to the proceeding by
written consent; by independent legal counsel selected by a majority of the
directors not involved in the proceeding; or by a majority of the shareholders
not involved in the proceeding) that the individual acted in good faith and in
the best interests of the corporation; or (3) the court, upon application by the
individual, determines in view of all the circumstances that such person is
reasonably entitled to be indemnified.
<PAGE>
C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut
corporation cannot indemnify a director or officer to an extent either greater
or less than that authorized by the statute, e.g., pursuant to its certificate
of incorporation, bylaws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Consistent with the statute, Aetna Life and Casualty Company has procured
insurance from Lloyd's of London and several major United States excess insurers
for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor, which supplements the indemnification
rights provided by C.G.S. Section 33-320a to the extent such coverage does not
violate public policy.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Aetna Life Insurance and Annuity Company ("ALIAC") is the principal
underwriter for Variable Annuity Account I. In addition to serving as
the principal underwriter for the Registrant, ALIAC also acts as the
principal underwriter for Variable Life Account B and Variable Annuity
Accounts B, C and G (separate accounts of ALIAC registered as unit
investment trusts). Additionally, ALIAC is the investment adviser for
Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund,
Aetna Investment Advisers Fund, Inc., Aetna GET Fund, Aetna Series
Fund, Inc. and Aetna Generation Portfolios, Inc. ALIAC is also the
depositor of Variable Life Account B and Variable Annuity Accounts B,
C and G.
(b) Directors and Officers of the Underwriter
Name and Principal
Business Address* Positions and Offices with Underwriter
- ------------------ --------------------------------------
Daniel P. Kearney Director and President
Timothy A. Holt Director, Senior Vice President and
Chief Financial Officer
Christopher J. Burns Director and Senior Vice President
Laura R. Estes Director and Senior Vice President
Gail P. Johnson Director and Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President
<PAGE>
Name and Principal
Business Address* Positions and Offices with Underwriter
- ------------------ --------------------------------------
Glen Salow Director and Vice President
Creed R. Terry Director and Vice President
Eugene M. Trovato Vice President and Treasurer, Corporate
Controller
Zoe Baird Senior Vice President and General
Counsel
Diane Horn Vice President and Chief Compliance
Officer
Susan E. Schechter Corporate Secretary and Counsel
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
(c) Not applicable
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All records concerning contract owners of Variable Annuity Account I are
located at the home office of the Registrant as follows:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
ITEM 31. MANAGEMENT SERVICES
Not applicable
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered
by a prospectus which is part of this registration statement on Form
N-4, a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) The Company hereby represents that it will rely upon and comply with
the provisions of Paragraphs (1) through (4) of the SEC Staff's No-
Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer
Binder] Fed. SEC. L. Rep. (CCH) PARA 78,904 at 78,532 (November 22,
1988).
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
<PAGE>
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended and the Investment
Company Act of 1940, the Registrant, Variable Annuity Account I of Aetna
Insurance Company of America, and has duly caused this Post-Effective Amendment
No. 1 to Registration Statement on Form N-4 (File No. 33-59749) to be signed on
its behalf in the City of Hartford, and State of Connecticut, on the 22nd day
of April, 1996.
VARIABLE ANNUITY ACCOUNT I OF AETNA INSURANCE
COMPANY OF AMERICA
(REGISTRANT)
By:AETNA INSURANCE COMPANY OF AMERICA
(DEPOSITOR)
By Daniel P. Kearney*
----------------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, as amended, this Post-Effective
Amendment No. 1 to Registration Statement on Form N-4 (File No. 33-59749) has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
Daniel P. Kearney* Director and President )
- ------------------------ (principal executive officer) )
Daniel P. Kearney )
James C. Hamilton* Director, Vice President and Treasurer )
- ------------------------ (principal accounting and financial officer ) April
James C. Hamilton ) 22, 1996
Shaun P. Mathews* Director )
- ----------------------- )
Shaun P. Mathews )
)
Scott A. Striegel* Director )
- ----------------------- )
Scott A. Striegel )
By: /s/ Julie E. Rockmore
-------------------------------------
Julie E. Rockmore
*Attorney-in-Fact
</TABLE>
<PAGE>
VARIABLE ANNUITY ACCOUNT I
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<C> <S> <C>
24(b)(1) Resolution of the Board of Directors of Aetna Insurance
Company of America establishing Variable Annuity Account I *
24(b)(3.1) Form of Selling Agreement *
24(b)(3.2) Form of Principal Underwriting Agreement *
24(b)(4.1) Form of Variable Annuity Contract (G2-CDA-94(IR)) *
24(b)(4.2) Form of Variable Annuity Contract (G2-CDA-94(NQ)) *
24(b)(5) Form of Variable Annuity Contract Application *
24(b)(6) Certificate of Incorporation and By-Laws of Depositor *
24(b)(8.1) Fund Participation Agreement among Aetna Insurance Company
of America, Alger American Fund and Fred Alger Management,
Inc. dated August 30, 1995 --------
24(b)(8.2) Fund Participation Agreements among Aetna Insurance Company
of America, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated October 20, 1995 --------
24(b)(8.3) Fund Participation Agreement among Aetna Insurance
Company of America, Variable Insurance Products Fund II and Fidelity
Distributors Corporation dated October 20, 1995 --------
24(b)(8.4) Fund Participation Agreement between Aetna Insurance
Company of America and Janus Aspen Series dated October 3,
1995 --------
24(b)(8.5) Fund Participation Agreement among Aetna Insurance Company
of America and Lexington Natural Resources Trust and
Lexington Management Corporation dated September 1, 1995 --------
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<C> <S> <C>
24(b)(8.6) Fund Participation Agreement among Aetna Insurance Company
of America, Lexington Emerging Markets Fund, Inc. and
Lexington Management Corporation dated September 1, 1995 --------
24(b)(8.7) Form of Fund Participation Agreement among MFS Variable
Insurance Trust, Aetna Insurance Company of America and
Massachusetts Financial Services Company --------
24(b)(8.8) Fund Participation Agreement among Aetna Insurance Company
of America, TCI Portfolios, Inc. and Investors Research
Corporation dated October 9, 1995 --------
24(b)(8.9) Form of Administrative Service Agreement between Aetna
Insurance Company of America and Agency, Inc. --------
24(b)(9) Opinion of Counsel *
24(b)(10.1) Consent of Independent Auditors --------
24(b)(10.2) Consent of Counsel --------
24(b)(13) Computation of Performance Data *
24(b)(15.1) Powers or Attorney *
24(b)(15.2) Certificate of Resolution Authorizing Signatures *
27 Financial Data Schedule --------
</TABLE>
*Incorporated by reference
<PAGE>
FUND PARTICIPATION AGREEMENT
Aetna Insurance Company of America (the "Company") and Alger American Fund
("Alger") and its investment adviser, Fred Alger Management, Inc. ("Alger
Management") hereby agree to an arrangement whereby all the Portfolios of Alger
American Fund, including but not limited to Alger American Small Capitalization
Portfolio, Alger American Growth Portfolio, Alger American Balanced Portfolio,
Alger American Income & Growth Portfolio, Alger American MidCap Growth Portfolio
and Alger American Leveraged AllCap Portfolio (the "Fund") shall be made
available to serve as underlying investment media for Variable Annuity or
Variable Life Contracts ("Contracts") to be issued by the Company, subject to
the following provisions:
1. ESTABLISHMENT OF ACCOUNTS; AVAILABILITY OF FUNDS.
(a) The Company represents that it has established Variable Annuity
Account I and may establish such other accounts as may be set
forth in Schedule A attached hereto and as may be amended from
time to time (the "Accounts"), each of which is a separate
account under Connecticut Insurance law, and has registered or
will register each of the Accounts (except for such Accounts for
which no such registration is required) as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"),
to serve as an investment vehicle for the Contracts. Each
Contract provides for the allocation of net amounts received by
the Company to an Account for investment in the shares of one of
more specified open-end investment ("Funds") available through
that Account as underlying investment media. Selection of a
particular Fund and changes therein from time to time are made by
the participant or Contract owner, as applicable under a
particular Contract.
(b) Alger and Alger Management represent and warrant that the
investments of the Fund will at all times be adequately
diversified within the meaning of Section 817(h) of the Internal
Revenue Service Code of 1986, as amended (the "Code"), and the
Regulations thereunder, and that at all times while this
agreement is in effect, all beneficial interests will be owned by
one or more insurance companies or by any other party permitted
under Section 1.817-5(f)(3) of the Regulations promulgated under
the Code.
2. MARKETING AND PROMOTION.
The Company agrees to make every reasonable effort to market its Contracts,
whether directly or through its affiliates. It will use its best efforts to
cause equal emphasis and promotion to be given to shares of the Fund relative to
other Funds available through the Accounts. In marketing and administering its
Contracts, the Company and its affiliates will comply with all applicable State
and Federal laws.
<PAGE>
3. PRICING INFORMATION; ORDERS; SETTLEMENT.
(a) Alger will make shares available to be purchased by the Company,
and will accept redemption orders from the Company, on behalf of
each Account at the net asset value applicable to each order.
Fund shares shall be purchased and redeemed in such quantity and
at such time determined by the Company to be necessary to meet
the requirements of those Contracts for which the Funds serve as
underlying investment media.
(b) Alger will provide to the Company closing net asset value,
dividend and capital gain information at the close of trading
each day that the New York Stock Exchange (the "Exchange") is
open (each such day, a "business day"), and in no event later
than 7:00 p.m. Eastern time on such business day. Alger shall be
liable to the Company for the costs incurred in making a Contract
owner's or a participant's account whole if such costs are a
result of Alger's failure to provide timely or correct net asset
values. The Company will send via facsimile transmission to
Alger or its specified agent orders to purchase and/or redeem
Fund shares by 10:00 a.m. Eastern Time the following business
day. Payment for net purchases will be wired by the Company to a
custodial account designated by Alger to coincide with the order
for shares of the Fund.
(c) Alger hereby appoints the Company as its agent for the limited
purpose of accepting purchase and redemption orders for Fund
shares relating to the Contracts from Contract owners or
participants. Orders from Contract owners or participants
received from any distributor of the Contracts (including Aetna
Investment Services, Inc., an affiliate of the Company) by the
Company, acting as agent for Alger, prior to the close of the
Exchange on any given business day will be executed by Alger at
the net asset value determined as of the close of the Exchange on
such business day. Any orders received by the Company acting as
agent on such day but after the close of the Exchange will be
executed by Alger at the net asset value determined as of the
close of the Exchange on the next business day following the day
of receipt of such order.
(d) Payments for net redemptions of shares of the Funds will be wired
by Alger from the Alger custodial account to an account
designated by the Company.
(e) Each party has the right to rely on information or confirmations
provided by the other party (or by any affiliate of the other
party), and shall not be liable in the event that an error is a
result of any misinformation supplied by the other party. If a
mistake is caused in supplying such information or confirmations,
which results in a reconciliation with incorrect information, the
amount required to make a Contract owner's or a Participant's
account whole shall be borne by the party providing the incorrect
information.
2
<PAGE>
4. EXPENSES.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by Alger under this Agreement shall
be paid by Alger, including the cost of registration of Alger
shares with the Securities and Exchange Commission (the "SEC")
and in states where required.
(b) Alger shall distribute to the Company its proxy material,
periodic fund reports to shareholders and other material that are
required by law to be sent to Contract owners. In addition,
Alger shall provide the Company with a sufficient quantity of its
prospectuses to be used in connection with the offerings and
transactions contemplated by this Agreement. Subject to
subsection (c) below, the cost of preparing and printing such
materials shall be paid by Alger, and the cost of distributing
such material shall be paid by the Company.
(c) In lieu of Alger's providing printed copies of prospectuses and
periodic fund reports to shareholders, the Company shall have the
right to request that Alger provide a copy of such materials in
an electronic format, which the Company may use to have such
materials printed together with similar materials of other
Account funding media that the Company or any distributor will
distribute to existing or prospective Contract owners or
participants. In that event Alger shall reimburse the Company
for the same proportion of the total printing expense for such
materials as the number of pages in each such printed document
provided by Alger bears to the total number of pages in such
printed document.
5. REPRESENTATIONS.
The Company agrees that it and its agents shall not, without the written
consent of Alger, make representations concerning Alger or its shares except
those contained in the then current prospectuses and in current printed sales
literature of Alger.
6. ADMINISTRATION OF ACCOUNTS.
(a) Administrative services to Contract owners and participants shall
be the responsibility of the Company and shall not be the
responsibility of Alger or Alger Management. Alger Management
recognizes the Company as the sole shareholder of Alger shares
issued under this Agreement, and that substantial savings will be
derived in administrative expenses, such as significant
reductions in postage expense and shareholder communications, by
virtue of having a sole shareholder for each of the Accounts
rather than multiple shareholders. In consideration of the
savings resulting from such arrangement, and to compensate the
Company for its costs, Alger Management agrees to pay to the
Company an amount equal to 20 basis points (0.20%) per annum of
the average aggregate amount invested by the Company in the Fund
under this Agreement.
3
<PAGE>
(b) The parties agree that Alger Management's payments to the Company
are for administrative services only and do not constitute
payment in any manner for investment advisory services or for
costs of distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 6, the average
aggregate amount invested by the Company over a one month period
shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held
by the Company) on each business day during the month and
dividing by the total number of business days during each month.
(d) Alger will calculate the reimbursement of administrative expenses
at the end of each calendar quarter and will make such
reimbursement to the Company within 30 days thereafter. The
reimbursement check will be accompanied by a statement showing
the calculation of the monthly amounts payable by Alger
Management and such other supporting data as may be reasonably
requested by the Company.
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Alger, upon three months
advance written notice to the other;
(b) at the option of the Company, upon one week advance written
notice to Alger, if Alger shares are not available for any reason
to meet the requirement of Contracts as determined by the
Company. Reasonable advance notice of election to terminate
shall be furnished by Company;
(c) at the option of either the Company or Alger, immediately upon
institution of formal proceedings against the broker-dealer or
broker-dealers marketing the Contracts, the Account, the Company,
Alger or Alger Management by the National Association of
Securities Dealers, Inc. (the "NASD"), the SEC or any other
regulatory body;
(d) upon the requisite vote of Contract owners or participants having
an interest in the Fund, to substitute for the Fund's shares the
shares of another investment company in accordance with the terms
of the applicable Contracts. The Company will give 60 days
written notice to Alger of any proposed vote to replace the
Funds' shares;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if Fund shares are not registered, issued or sold in conformance
with Federal law or such law precludes the use of Fund shares as
an underlying investment medium for
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<PAGE>
Contracts issued or to be issued by the Company. Prompt notice shall
be given by either party should such situation occur.
8. CONTINUATION OF AGREEMENT.
Termination as the result of any cause listed in Section 7 shall not affect
Alger's obligation to furnish its shares to Contracts then in force for which
its shares serve or may serve as the underlying medium unless such further sale
of Fund shares is proscribed by law or the SEC or other regulatory body.
9. ADVERTISING MATERIALS; FILED DOCUMENTS.
(a) Advertising and sales literature with respect to the Fund
prepared by the Company or its agents for use in marketing its
Contracts will be submitted to Alger for review before such
material is submitted to any regulatory body for review.
(b) Alger will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of
additional information, annual and semi-annual reports, proxy
statements and all amendments or supplements to any of the above
that relate to the Fund promptly after the filing of such
document with the SEC or other regulatory authorities. The
Company will provide to Alger at least one complete copy of all
registration statements, prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements,
and all amendments or supplements to any of the above that relate
to the Account promptly after the filing of such document with
the SEC or other regulatory authority.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges on Fund
shares held by registered separate accounts to all Contract
owners and participants to the extent the SEC continues to
interpret the 1940 Act as requiring such privileges. The Company
shall provide pass-through voting privileges on Fund shares held
by unregistered separate accounts to all Contract owners.
(b) The Company will distribute to Contract owners and participants,
as appropriate, all proxy material furnished by Alger and will
vote Fund shares in accordance with instructions received from
such Contract owners and participants. If and to the extent
required by law, the Company, with respect to each group Contract
and in each Account, shall vote Fund shares for which no
instructions have been received in the same proportion as shares
for which such instructions have been received. The Company and
its agents shall not oppose or interfere with the solicitation of
proxies for Fund shares held for such Contract owners and
participants.
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<PAGE>
11. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Alger and each
of its directors, officers, employees, agents and each person, if
any, who controls the Fund or its investment adviser within the
meaning of the Securities Act of 1933 (the "1933 Act") against
any losses, claims, damages or liabilities to which the Fund or
any such director, officer, employee, agent, or controlling
person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectus or sales
literature of the Company, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or arise out of or as a result of
conduct, statements or representations (other than statements or
representations contained in the prospectuses or sales literature
of the Fund) of the Company or its agents, with respect to the
sale and distribution of Contracts for which Fund shares are the
underlying investment. The Company will reimburse any legal or
other expenses reasonably incurred by the Fund or any such
director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or
prospectus in conformity with written materials furnished to the
Company by the Fund specifically for use therein. This indemnity
agreement will be in addition to any liability which Company may
otherwise have.
(b) Alger and Alger Management agrees to indemnify and hold harmless
the Company and its directors, officers, employees, agents and
each person, if any, who controls the Company within the meaning
of the 1933 Act against any losses, claims, damages or
liabilities to which the Company or any such director, officer,
employee, agent or controlling person may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, prospectuses or sales literature of the Fund or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
material fact required to be stated therein or necessary to make
the statements therein not misleading. Alger will reimburse any
legal or other expenses reasonably incurred by the Company or any
such director, officer, employee, agent, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that Alger will
not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon
Registration Statement or prospectuses which are in conformity
with written materials furnished to Alger by the Company
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<PAGE>
specifically for use therein. This indemnity agreement will be in
addition to any liability which Alger or Alger Management may
otherwise have.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this
Section 11. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish to,
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party
to such indemnified party of its election to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Alger on December 30, 1988 with the
SEC and the order issued by the SEC in response thereto (the
"Shared Funding Exemptive Order"). The Company has reviewed the
conditions to the requested relief set forth in such application
for exemptive relief. As set forth in such application, the
Board of Directors of Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between
the interests of the contractholders of all separate accounts
("Participating Companies") investing in the Fund. An
irreconcilable material conflict may arise for a variety of
reasons, including: (i) an action by any state insurance
regulatory authority; (ii) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative
letter, or any similar actions by insurance, tax or securities
regulatory authorities; (iii) an administrative or judicial
decision in any relevant proceeding; (iv) the manner in which
the investments of any portfolio are being managed; (v) a
difference in voting instructions given by variable annuity
contractholders and variable life insurance contractholders; or
(vi) a decision by an insurer to disregard the voting
instructions of contractholders. The Board shall promptly inform
the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Shared
Funding Exemptive Order by providing the Board with all
information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever
contractholder voting instructions are disregarded.
7
<PAGE>
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict
exists with regard to contractholder investments in a Fund, the
Board shall give prompt notice to all Participating Companies.
If the Board determines that the Company is responsible for
causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as
determined by a majority of the disinterested Board members),
take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may
include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the
Fund and reinvesting such assets in a different investment
medium or submitting the question of whether such
segregation should be implemented to a vote of all affected
contractholders and as appropriate, segregating the assets
of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners
of one or more Participating Companies) that votes in favor
of such segregation, or offering to the affected
contractholders the option of making such a change; and/or
(ii) establishing a new registered management investment company
or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting
instructions and said decision represents a minority position or
would preclude a majority vote by all of its contractholders
having an interest in the Fund, the Company at its sole cost, may
be required, at the Board's election, to withdraw an Account's
investment in the Fund and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members
of the Board.
(e) For the purpose of this Section 12, a majority of the
disinterested Board members shall determine whether or not any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will Alger be required to establish a
new funding medium for any Contract. The Company shall not be
required by this Section 12 to establish a new funding medium for
any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners or participants materially
adversely affected by the irreconcilable material conflict.
13. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally,
but only by an instrument in writing signed by all parties
hereto.
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<PAGE>
(b) NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or
sent by telex, telecopier or registered or certified mail,
postage prepaid, return receipt requested, to the party or
parties to whom they are directed at the following addresses, or
at such other addresses as may be designated by notice from such
party to all other parties.
To the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, Counsel
To Alger American Fund or Fred Alger Management, Inc.:
Alger American Fund
75 Maiden Lane
New York, NY 10038
Attention: Gregory S. Duch
Any notice, demand or other communication given in a manner prescribed in
this subsection (b) shall be deemed to have been delivered on receipt.
(c) SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
agreement, and any party hereto may execute this Agreement by
signing any such counterpart.
(e) SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(f) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and
supersedes all prior agreement and understandings relating to the
subject matter hereof.
(g) GOVERNING LAW. This Agreement shall be governed and interpreted
in accordance with the laws of the State of Connecticut.
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<PAGE>
14. LIMITATION ON LIABILITY OF TRUSTEES, ETC.
This agreement has been executed on behalf of the Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The obligations
of this Agreement shall be binding upon the assets and property of the Fund only
and shall not be binding upon any trustee, officer or shareholder of the fund
individually.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of this ___ day of ______________, 1995.
AETNA INSURANCE COMPANY OF AMERICA
By:
---------------------------------------
Name: Shaun P. Mathews
Title: Sr. Vice President
ALGER AMERICAN FUND
By:
---------------------------------------
Name:
Title:
FRED ALGER MANAGEMENT, INC.
By:
---------------------------------------
Name:
Title:
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<PAGE>
PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
AND
AETNA INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the ___ day of ___________,
1995 by and among AETNA INSURANCE COMPANY OF AMERICA, (hereinafter the
"Company"), a Connecticut corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
annuity contracts under the 1933 Act (except for such contracts for which no
registration is required); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act (except for such Accounts for which no
registration is required); and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extend permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I.
SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:00 a.m.
2
<PAGE>
Boston time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2 The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4 The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5 The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt by the
Fund; provided that the Fund receives notice of such request for redemption on
the next following Business Day.
1.6 The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts of the Company (the "Contracts")
shall be invested in the Fund, in such other Funds advised by the Adviser as may
be mutually agreed to in writing by the parties hereto, or in the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of all the Portfolios of
the Fund; or (b) the Company gives the Fund and the Underwriter 45 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the
3
<PAGE>
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement (a list of such funds
appearing on Schedule C to this Agreement); or (d) the Fund or Underwriter
consents to the use of such other investment company.
1.7 The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10 The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall make such
net asset value per share available by 7 p.m. Boston time. The Fund shall be
liable to the Company for the costs incurred in making a contract owner's or
participant's account whole if such costs are a result of the Fund's failure to
provide timely or correct net asset values.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act or are exempt from registration
thereunder; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 38a-433 of
the
4
<PAGE>
Connecticut Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Connecticut and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4 The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5 The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Connecticut and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Connecticut to the extent required to perform this
Agreement.
5
<PAGE>
2.7 The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Connecticut and all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Connecticut and any applicable state and federal securities laws.
2.10 The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individual/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less $2
million. The aforesaid includes coverage for larceny and embezzlement is issued
by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III.
PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1 The Fund will provide to the Company each year, at the Fund's
cost, such number of prospectuses and Statements of Additional Information as
are actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
3.2 If the Company takes camera-ready file or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed
6
<PAGE>
as follows. The number of prospectuses and Statements of Additional Information
actually distributed to existing Contract owners by the Company will be
multiplied by the Fund's actual per-unit cost of printing the documents.
3.3 The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
3.4 The Underwriter shall provide the Company (at the Company's
expense) with as many additional copies of the Fund's current prospectus as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a final copy of the new
prospectus as set in type at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
3.5 The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospectus owner who requests such Statement.
3.6 The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.7 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate account participating in the Fund
calculates voting privileges in a manner consistent with the
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standards set forth on Schedule B attached hereto and incorporated herein by
this reference, which standards will also be provided to the other Participating
Insurance Companies.
3.8 The Fund will comply with all provision of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the Securities and Exchange Commission's interpretation of
the requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV.
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4 The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to
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<PAGE>
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V.
FEES AND EXPENSES
5.1 The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale.
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<PAGE>
The Fund shall bear the expenses for the cost of registration and qualification
of the Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, the provision of prospectuses and statements of
additional information to the Company for the Company's existing contract
owners, proxy materials and reports, setting the prospectus in type, setting in
type and printing the proxy materials and reports to shareholders (including the
costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of printing and distributing
the Fund's prospectus to prospective owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to existing Contract
owners.
ARTICLE VI.
DIVERSIFICATION
6.1 The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
ARTICLE VII.
POTENTIAL CONFLICTS
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information
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<PAGE>
reasonably necessary for the Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Board whenever contract owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
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<PAGE>
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII.
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are used based upon an untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus for
the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or
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<PAGE>
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature of the Fund not supplied by the Company,
or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
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<PAGE>
8.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and;
(i) arise out of or are used based upon an untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in
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<PAGE>
the Registration Statement or prospectus for the Fund or
in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
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<PAGE>
notice of such service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Underwriter to such party of the Underwriter's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will
not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a) The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the "
Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and;
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance,
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<PAGE>
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Company, the Fund, the
Underwriter or each Account, whichever is applicable.
8.3(c) The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d) The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX.
APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X.
TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
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(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the
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<PAGE>
written notice specified in Section 1.6(b) hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however, any termination under this
Section 10.1(h) shall be effective forty-five (45) days
after the notice specified in Section 1.6(b) was given.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
19
<PAGE>
ARTICLE XI.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Conveyor RTA1
Hartford, Connecticut 06156
Attention: Drew Lawton
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII.
MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.1 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
20
<PAGE>
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitations the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as soon
as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP), as
soon as practical and in any event within 45 days after the
end of each quarterly period;
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to
stockholders;
21
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(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
AETNA INSURANCE COMPANY OF AMERICA
By its authorized officer,
By:
----------------------
Title:
----------------------
Date
----------------------
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By:
----------------------
Title:
----------------------
Date:
----------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:
----------------------
Title:
----------------------
Date:
----------------------
22
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS
NAME OF SEPARATE ACCOUNT DATE ESTABLISHED BY BOARD OF DIRECTORS
VARIABLE ANNUITY ACCOUNT I May 31, 1994
23
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
24
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folder notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signature on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
25
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be NOT RECEIVED for the purposes
of vote tabulation. Any Cards that have "kicked out" (e.g., mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to
sort the Cards as they first arrive into categories depending upon
their vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the
tabulations stated in terms of a percentage and the number of SHARES.)
Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form of each
Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes,
Fidelity Legal will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
26
<PAGE>
SCHEDULE C
Sponsors of other investment companies currently available under variable
annuities or variable life insurance issued by the Company:
Alger
Federated Investors
Janus
Lexington
Twentieth Century Investors
27
<PAGE>
Exhibit 8.3
PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
AND
AETNA INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the ___ day of ___________,
1995 by and among AETNA INSURANCE COMPANY OF AMERICA, (hereinafter the
"Company"), a Connecticut corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincoporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is dividend into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the Federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
annuity contracts under the 1933 Act (except for such contracts for which no
registration is required); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act (except for such Accounts for which no
registration is required); and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts such
as each Account as net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I.
SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2 The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission
2
<PAGE>
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4 The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5 The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6 The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund and in accordance with the
provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts of the Company (the "Contracts")
shall be invested in the Fund, in such other Funds advised by the Adviser as may
be mutually agreed to in writing by the parties hereto, or in the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of all the Portfolios of
the fund; or (b) the Company gives the Fund the Underwriter 45 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contacts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7 The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
3
<PAGE>
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital
gains distributions payable on the Fund's shares. The Company hereby elects to
receive all such income dividends and capital gain distributions as are payable
on the Portfolio shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distribution in cash. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
1.10 The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall make such net asset value
per share available by 7 p.m. Boston time. The Fund shall be liable to the
Company for the costs incurred in making a contract owner's or participant's
account whole if such costs are a result of the Fund's failure to provide timely
or correct net asset values.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act or are exempt from registration thereunder; that
the Contracts will be issued and sold in compliance in all material respects
with all applicable Federal and State laws and that the sale of the Contracts
shall comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established each Account prior to any issuance
or sale thereof as a segregated asset account under Section 38a-433 of the
Connecticut Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Connecticut and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its share under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
4
<PAGE>
2.3 The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4 The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund as adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are no interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Connecticut and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Connecticut to the extent required to perform this
Agreement.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Connecticut and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Connecticut and any applicable state and federal securities laws.
5
<PAGE>
2.10 The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$2 million. The foresaid includes coverage for larceny and embezzlement is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III.
PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
3.2 If the Company takes camera-ready file or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing Contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3.3 The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
3.4 The Underwriter shall provide the Company (at the Company's expense)
with as many additional copies of the Fund's current prospectus as the Company
may reasonably request. If requested by the Company in lieu thereof, the Fund
shall provide such documentation (including a final copy of the new prospectus
as set in type at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus for the Fund is amended) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document (such printing to be at
the Company's expense).
3.5 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state
6
<PAGE>
that such Statement is available from the Fund), and the Underwriter (or the
Fund), at its expense, shall print and provide such Statement free of charge to
the Company and to any owner of a Contract or prospectus owner who requests such
Statement.
3.6 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.7 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate account participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.8 The Fund will comply with all provision of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the Securities and Exchange Commission's interpretation of
the requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV.
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the
7
<PAGE>
Contracts other than the information or representations contained in the
registration statement or prospectus for the Fund shares, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording., videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(I.E., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
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ARTICLE V.
FEES AND EXPENSES
5.1 The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sales. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, the provision of prospectuses and statements of additional
information to the Company for the Company's existing contract owners, proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares.
5.3 The Company shall bear the expenses of printing and distributing
the Fund's prospectus to prospective owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to existing Contract
owners.
ARTICLE VI.
DIVERSIFICATION
6.1 The Fund will at all times invest money from the Contracts in
such a matter as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
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ARTICLE VII.
POTENTIAL CONFLICTS
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented,
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and until the end of that six month period the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
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ARTICLE VIII.
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expense), to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration
Statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature of the Fund not supplied by the Company,
or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement
or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
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<PAGE>
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Section 8.1(b) and 8.1(c) hereof.
8.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statue,
at common law or otherwise,
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<PAGE>
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement or prospectus for the Fund
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund. Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would
14
<PAGE>
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to each Company or the Account,
whichever is applicable.
8.2(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate at its own expense, in the defense thereof. The underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a) The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statue,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements results from the
gross negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement); or
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<PAGE>
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c) The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d) The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX.
APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
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ARTICLE X.
TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the
Fund or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its
sole judgment exercised in good faith, that either the Fund
or the Underwriter has suffered a material adverse change
in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
17
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(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however, any
termination under this Section 10.1(h) shall be effective
forty-five (45) days after the notice specified in Section
1.6(b) was given.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contract"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Aetna Insurance Company of America
151 Farmington Avenue
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<PAGE>
Conveyor RTAI
Hartford, Connecticut 06156
Attention: Drew Lawton
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII.
MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
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12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as
soon as practical and in any event within 90 days after
the end of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP),
as soon as practical and in any event within 45 days after
the end of each quarterly period;
(c) any financial statement, proxy statement, notice of report
of the Company sent to stockholders and/or policyholders,
as soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities
and Exchange Commission or any state insurance regulator,
as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
20
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
AETNA INSURANCE COMPANY OF AMERICA
By its authorized officer,
By:
---------------------
Title:
---------------------
Date:
---------------------
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By:
---------------------
Title:
---------------------
Date:
---------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:
---------------------
Title:
---------------------
Date:
---------------------
21
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS
NAME OF SEPARATE ACCOUNT DATE ESTABLISHED BY BOARD OF DIRECTORS
VARIABLE ANNUITY ACCOUNT I May 31, 1994
22
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call
in the number of Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customer's receipt of a proxy
statement. Underwriter will provide at least one copy of the last
Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but NOT including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signature on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
property, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g., mutilated, illegible) of the procedure
are
24
<PAGE>
"hand verified," i.e., examined as to why they did not complete the system.
Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulation
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form of each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
25
<PAGE>
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 3rd day of October, 1995, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and AETNA INSURANCE COMPANY OF AMERICA, a life
insurance company organized under the laws of the State of Connecticut (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has filed a registration statement with the
Securities and Exchange Commission to register itself as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to register the offer and sale of its shares under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Section 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register (except for such
Contracts for which no such registration is required under applicable law)
certain variable life insurance policies and/or variable annuity contracts under
the 1933 Act (the "Contract"); and
WHEREAS, the Company has registered or will register each Account
(except for such Accounts for which no such registration is required under
applicable law) as a unit investment trust under the 1940 Act; and
<PAGE>
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle of the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
SALE OF TRUST SHARES
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. The Company will
transmit orders from time to time to the Trust for the purchase of shares of the
Portfolios as directed by Contract owners. The Trustees of the Trust (the
"Trustees") may refuse to sell shares of any Portfolio to any person, or suspend
or terminate the offering of shares of any Portfolio if such action is required
by law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interest of the shareholders of such Portfolio.
1.2. The Company shall submit payment for shares of the Portfolios no
later than 12:00 noon New York time on the next Business Day after the Trust
receives the order pursuant to Section 1.1. Payments shall be made in federal
funds transmitted by wire to the Trust. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Securities and Exchange Commission.
1.3. The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company on behalf of an Account at the net asset
value next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for greater period than is permitted by the 1940 Act.
1.4. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certifications will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
2
<PAGE>
1.5. The Trust shall furnish prompt notice to the Company of any
income dividends or capital gain distributions payable on the Trust's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.6. The Trust shall calculate its net asset value on each Business
Day, as defined in Section 1.2. The Trust shall make the net asset value per
share for each Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6 p.m.
New York time. If the Trust makes a material error in calculating or reporting
net asset value per share in accordance with this Section 1.6, the Trust shall
bear the costs incurred in making a contract owner's or a participant's account
whole. For the purpose of this Section 1.6, a material error is deemed to occur
if net asset values per share are not provided by 7 p.m. New York time, or if
costs of $5,000 or more are incurred by the Company due to the Trust's failure
of performance required by this Section. Costs incurred in making any
account(s) whole include the cost of any time, materials or mailings, to be
billed at the rate of $50/hour of labor plus actual expenses; and any costs
associated with purchasing shares at higher net asset values due to the Trust's
failure of performance required by this Section.
1.7. The Trust agrees that its shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Trust Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that Trust shares will be used only for the
purposes of funding Contracts issued from the Accounts listed in Schedule A, as
amended from time to time.
1.8. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
1.9. For the purposes of Sections 1.1 and 1.3, the Trust hereby
appoints the Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders for shares of the Portfolios resulting
from investment in and payments under the Contracts. Receipt of such orders by
the Company shall constitute receipt by the Trust provided that (i) such orders
are received by the Company in good order prior to the time the net asset value
of each Portfolio is priced in accordance with its prospectus and (ii) the Trust
receives notice of such order by 10:00 a.m. New York time on the next following
Business Day, as defined in Section 1.2.
3
<PAGE>
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1. and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2. At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy if its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.3. The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4. The Company agrees and acknowledges that the Trust's adviser,
Janus Capital Corporation ("Janus Capital"), is the sole owner of the name and
mark "Janus" and that all use of any designation comprised in whole or part of
Janus (a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in Section 2.5, the Company shall not use any Janus
Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust
or its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document
4
<PAGE>
with the Securities and Exchange Commission. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee, each piece of sales
literature or other promotional material in which the Trust or its investment
adviser is named, at least fifteen Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
reports of the Trust, Trust-sponsored proxy statements, or in sales literature
or other promotional material approved by the Trust or its designee, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee.
2.7. The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8. So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. If and to the extent required by law,
with respect to each Account, the Company will vote shares of the Trust held by
the Account and for which no timely voting instructions from policyowners are
received as well as shares it owns that are held by that Account, in the same
proportion as those shares for which voting instructions are received. The
Company and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Trust shares held by Contract owners without the
prior written consent of the Trust, which consent may be withheld in the Trust's
sole discretion.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Connecticut and that it has
5
<PAGE>
legally and validly established each Account as a segregated asset account under
such law on the date set forth in Schedule A.
3.2. The Company represents and warrants that (1) it has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts, or, alternatively,
(2) any Account that is not registered is properly exempt from registration as a
unit investment trust in accordance with the provisions of the 1940 Act and may
serve as a segregated investment Account for the Contracts without such
registration.
3.3. The Company represents and warrants that (1) the Contracts will
be registered under the 1933 Act prior to any issuance or sale of the Contracts
or, alternatively (2) the Contracts are properly exempt from registration under
the 1933 Act or will be offered exclusively in transactions that are properly
exempt from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws; and the sale of
the Contracts shall comply in all material respects with state insurance
suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to any issuance or sale
of such shares. The Trust shall amend its registration statement under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall register and qualify its
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Trust.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state
6
<PAGE>
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trustees shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trustee
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions.
4.3. If it is determined by a majority of the Trustees, or a majority
of its disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its expense and to the extent reasonably practicable (as determined
by the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing
the assets allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting the
question of whether or not such segregation should be implemented to a vote of
all affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
7
<PAGE>
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Trust and each of its Trustees, officers, employees and
agents and each
8
<PAGE>
person, if any, who controls the Trust within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Article
V) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in a registration statement or prospectus for the
Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf
of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Company by or on behalf of
the Trust for use in Company Documents or otherwise for
use in connection with the sale of the Contracts or Trust
shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in
Section 5.2(a)) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Trust Documents as defined in Section 5.2(a) or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required
under the terms of this Agreement; or
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(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
5.2. INDEMNIFICATION BY THE TRUST. The Trust agrees to indemnify
and hold harmless the Company and each of its directors, officers, employees
and agents and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as
such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in a registration statement or prospectus for the Trust
(or any amendment or thereto) (collectively, "Trust
Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written
information furnished to the Trust by or on behalf of the
Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares;
or
(b) arise out of or result from statements or representations
(other than statements or representations
contained in and accurately derived from
Company Documents) or wrongful conduct of
the Trust or persons under its control,
with respect to the sale or acquisition of
the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Company Documents or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such statement or omission was made in
reliance upon and accurately derived from written
information furnished to the Company by or on behalf of
the Trust; or
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(d) arise out of or result from any failure by the Trust to
provide the services or furnish the materials required
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Trust.
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reasons of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI.
TERMINATION
6.1. This Agreement may be terminated by either party for any reason
by ninety (90) days advance written notice delivered to the other party.
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6.2. Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust (or any Portfolio) pursuant to the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement, provided that the Company continues to pay the costs set
forth in Section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
If to the Company:
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, RE4C
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
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8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
AETNA INSURANCE
COMPANY OF AMERICA
By:
-------------------------
Name: Shaun P. Mathews
Title: Senior Vice President
JANUS ASPEN SERIES
By:
-------------------------
Name: David C. Tucker
Title: Senior Vice President
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SCHEDULE A
ACCOUNT DATE OF ESTABLISHMENT
Variable Annuity Account I May 31, 1994
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EXHIBIT 8.5
FUND PARTICIPATION AGREEMENT
Aetna Insurance Company of America (the "Company") and Lexington Natural
Resource Trust ("Lexington Fund or the Fund") and its investment adviser,
Lexington Management Corporation ("LMC") hereby agree to an arrangement whereby
shares of the Fund shall be made available to serve as underlying investment
media for Variable Annuity or Variable Life Contracts ("Contracts") to be issued
by the Company.
1. ESTABLISHMENT OF ACCOUNTS: AVAILABILITY OF FUNDS.
(a) The Company represents that it has established Variable Annuity
Account I and may establish such other accounts as may be set forth in Schedule
A attached hereto and as may be amended from time to time (the "Accounts"), each
of which is a separate account under Connecticut Insurance law, and has
registered each of the Accounts (except for such Accounts for which no such
registration is required) as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act") to serve as an investment vehicle for the
Contracts. Each Contract provides for the allocation of net amounts received by
the Company to an Account for investment in the shares of one or more specified
open-end investment companies ("Funds") available through that Account as
underlying investment media. Selection of a particular Fund and changes therein
from time to time are made by the person covered under the Contract
("Participant") or Contract owner, as applicable under a particular Contract.
(b) Lexington Fund and LMC represent and warrant that the investments
of the Fund will at all times be adequately diversified within the meaning of
Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the
"Code"), and the Regulations thereunder, and that all times while this agreement
is in effect, all beneficial interests will be owned by one or more insurance
companies or by any other party permitted under Section 1.817-5(f)(3) of the
Regulations promulgated under the Code.
2. MARKETING AND PROMOTION
The Company agrees to make every reasonable effort to market its
Contracts, whether directly or through its affiliates. It will use its best
efforts to cause equal emphasis and promotion to be given to shares of the Fund
relative to other Funds available through the Accounts. In marketing and
administering the Contracts, the Company and its affiliates will comply with all
applicable State and Federal laws.
3. PRICING INFORMATION: ORDERS: SETTLEMENT.
(a) Lexington Fund will make shares available to be purchased by the
Company, and will accept redemption orders from the Company, on behalf of each
Account at the net asset value applicable to each order. Funds shares shall be
purchased and redeemed in such quantity and at such time determined by the
Company to be
<PAGE>
necessary to meet the requirements of those Contracts for which the Funds serve
as underlying investment media.
(b) Lexington Fund will provide to the Company closing net asset
value, dividend and capital gain information at the close of trading each day
that the New York Stock Exchange (the "Exchange") is open (each such day, a
"business day") and in no event later than 7:00 p.m. Eastern Time on such
business day. Lexington Fund shall be liable to the Company for the costs
incurred in making a contract owner's or a participant's account whole if such
costs are as a result of Lexington Fund's failure to provide timely or correct
net asset values. The Company will send via facsimile transmission to Lexington
Fund or its specified agent orders to purchase and/or redeem Fund shares by
10:00 a.m. Eastern Time the following business day. Payment for net purchases
will be wired by the Company to a custodial account designated by Lexington Fund
to coincide with the order for shares of the Fund.
(c) Orders from Contract owners or Participants received by the
Company and sent by the Company prior to the close of the Exchange on any given
business day via facsimile transmission to Lexington Fund or its specified agent
by 10:00 a.m., Eastern Time, the following business day will be executed by
Lexington Fund at the net asset value determined as of the close of the Exchange
on such prior business day. Any orders received by the Company after the close
of the Exchange on such prior business day (or not meeting the foregoing
sentence's requirements) will be executed by Lexington Fund at the net asset
value determined as of the close of the Exchange on the next business day
following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be wired
by Lexington Fund from the Lexington Fund custodial account to an account
designated by the Company.
(e) Each party has the right to rely on information or confirmations
provided by the other party and shall not be liable in the event that an error
is a result of any misinformation supplied by the other party. If a mistake is
caused in supplying such information or confirmations, which results in a
reconciliation with incorrect information, the amount required to make a
Contract owner's or a Participant's account whole shall be borne by the party
providing the incorrect information.
4. EXPENSES.
(a) Except as other provided in this Agreement, all expenses incident
to the performance by Lexington Fund under this Agreement shall be paid by
Lexington Fund, including the cost of registration of Lexington Fund shares with
the Securities and Exchange Commission (the "SEC") and in states where required.
(b) Lexington Fund shall distribute to the Company its proxy
material, periodic fund reports to shareholders and other material that are
required by law to be sent to
2
<PAGE>
Contract owners. In addition, Lexington Fund shall provide the Company with a
sufficient quantity of its prospectuses to be used in connection with the
offerings and transactions contemplated by this Agreement. Subject to
subsection (c) below, the cost of preparing and printing such materials shall be
paid by Lexington Fund, and the cost of distributing such material shall be paid
by the Company.
(c) In lieu of Lexington Fund's providing printed copies of
prospectuses and periodic fund reports to shareholders, the Company shall have
the right to request that Lexington Fund provide a copy of such materials in an
electronic format, which the Company may use to have such materials printed
together with similar materials of other Account funding media that the Company
or any distributor will distribute to existing or prospective Contract owners or
participants. In that event Lexington Fund shall reimburse the Company for the
same proportion of the total printing expense for such materials as the number
of pages in each such printed document provided by Lexington Fund bears to the
total number of pages in such printed document.
5. REPRESENTATIONS.
(a) The Company agrees that it and its agents shall not, without the
written consent of Lexington Fund, make representations concerning Lexington
Fund or its shares excepts those contained in the then current prospectuses and
in current printed sales literature of Lexington Fund.
(b) The Company represents and warrants that interests in certain
Contracts are or will be registered under the Securities Act of 1933 ("1933
Act") or are exempt from registration thereunder; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 38a-433 of the General Statutes of Connecticut and
that each Account is or will be registered as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts or is exempt from registration thereunder.
(c) The Company represents that the Contracts are currently treated
as annuity contracts under applicable provisions of the Code and that it will
make every effort to maintain such treatment and that it will notify Lexington
Fund and LMC immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
(d) The Company represents and warrants that all of its directors,
officers, and employees dealing with the money and or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the
3
<PAGE>
Fund in an amount not less than $2 million. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
(e) LMC and Lexington Fund make no representation as to whether any
aspect of the Fund's operations (including, but not limited to, fees and
expenses and investment policies) complies with the insurance laws or
regulations of the various states.
(f) The Lexington Fund represents that it will sell and distribute
Fund shares in accordance with all applicable federal and state securities laws,
including without limitation the 1933 Act, the Securities Exchange Act of 1934,
and the 1940 Act.
(g) Lexington Fund represents it is currently qualified as a
regulated investment company under Subchapter M of the Code and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it ceased to so qualify or
might not so quality in the future.
(h) LMC and Lexington Fund represent and warrant that the Fund's
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of the State
of Connecticut and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the registration statement for its shares under the 1933 Act and 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall also register and qualify its shares for sale in
accordance with the laws of the various rates only if and to the extent deemed
advisable by the Fund or LMC.
(i) Lexington Fund represents that it is lawfully organized and
validly existing under the last of its state of domicile and that it is and will
comply in all materials respects with the 1940 Act.
(j) LMC and Lexington Fund represent and warrant that all of their
respective directors, officers, and employees dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefits of the Fund in an
amount no less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
6. ADMINISTRATION OF ACCOUNTS.
(a) Administrative services to Contract owners and Participants shall
be the responsibility of the Company and shall not be the responsibility of
Lexington Fund or LMC. LMC recognizes the Company as the sole shareholder of
fund shares issued under this Agreement. From time to time, LMC may pay amounts
from its past profits to the
4
<PAGE>
Company for providing certain administrative services for the Fund or for
providing Contract owners with other services that relate to the Fund. These
services may include, among other things, sub-accounting services, answering
inquiries of Contract owners regarding the Fund, transmitting, on behalf of the
fund, proxy statements, annual reports, updated prospectus and other
communications to Contract owners regarding the Fund, and such other related
services as the Fund or a Contract holder may request. In consideration of the
savings resulting from such arrangement, and to compensate the Company for its
costs, LMC agrees to pay to the Company an amount equal to 15 basis points
(0.15%) per annum of the average aggregate amount invested by the Company in the
Fund under this Agreement. Payment of such amounts by LMC will not increase the
fees paid by the Fund or its shareholders.
(b) The parties agree that LMC's payments to the Company are for
administrative services only and do not constitute payment in any manner for
investment advisory services or for costs of distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 6, the average aggregate amount
invested by the Company over a one month period shall be computed by totaling
the Company's aggregate investment (share net asset value multiplied by total
number of shares held by the Company) on each business day during the month and
dividing by the total number of business days during each month.
(d) LMC will calculate the reimbursement of administrative expenses
at the end of each calendar quarter and will make such reimbursement to the
Company within 30 days thereafter. The reimbursement check will be accompanied
by a statement showing the calculation of the monthly amounts payable by LMC and
such other supporting data as may be reasonably requested by the Company.
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Lexington Fund, upon three
months advance written notice to the other;
(b) at the option of the Company, upon one week advance written
notice to Lexington Fund, if Lexington Fund shares are not available for any
reason to meet the requirement of Contracts as determined by the Company.
(c) at the option of either the Company or Lexington Fund,
immediately upon institution of formal proceedings against the broker-dealer or
broker-dealers marketing the Contracts, the Account, the Company, Lexington
Fund or LMC by the National Association of Securities Dealers, Inc. (the
"NASD"), the SEC or any other regulatory body.
5
<PAGE>
(d) upon the requisite vote of Contract owners or Participants having
an interest in the Fund, to substitute for the Fund's shares of another
investment company in accordance with the terms of the applicable Contracts.
The Company will give 60 days written notice to Lexington Fund of any proposed
vote to replace the Fund's shares;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if the Fund's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of Fund shares as an
underlying investment medium for Contracts issued or to be issued by the
Company. Prompt notice shall be given by either party should such situation
occur.
8. CONTINUATION OF AGREEMENT.
Termination as the result of any cause listed in Section 7 shall not
affect Lexington Fund's obligation to furnish its shares to Contracts then in
force for which its shares serve or may serve as the underlying medium unless
such further sale of Fund shares is proscribed by law or the SEC or other
regulatory body.
9. ADVERTISING MATERIALS: FILED DOCUMENTS.
(a) Advertising and sales literature with respect to the Fund
prepared by the Company or its agents for use in marketing its Contracts will be
submitted to Lexington Fund for review before such material is submitted to any
regulatory body for review.
(b) Lexington Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, annual and semiannual reports, proxy statements and all amendments
or supplements to any of the above that relate to the Fund promptly after the
filing of such document with the SEC or other regulatory authorities. The
Company will provide to Lexington Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semiannual reports, proxy statements, and all amendments or
supplements to any of the above that relate to each Account promptly after the
filing of such document with the SEC or other regulatory authority.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges on Fund
shares held by registered separate accounts to all Contract owners and
Participants to the extent the SEC continues to interpret the 1940 Act as
requiring such privileges. The Company shall provide pass-through voting
privileges on fund shares held by unregistered separate accounts to all Contract
owners.
6
<PAGE>
(b) The Company will distribute to Contract owners and participants,
as appropriate, all proxy material furnished by Lexington Fund and will vote
Fund shares in accordance with instructions received from Contract owners and
participants. If and to the extent required by law, the Company, with respect
to each Contract and in each Account shall vote Fund shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for Fund shares held for such
Contract owners and participants.
11. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Lexington Fund
and each of its directors, officers, employees, agents and each person, if any,
who controls the Fund or its investment adviser within the meaning of the
Securities Act of 1933 (the "1933 Act") against any losses, claims, damages or
liabilities to which the Fund or any such director, officer, employee, agent, or
controlling person may become subject, under the 1933 Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, prospectus or
sales literature of the Company, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arise out
of or as a result of conduct, statements or representations (other than
statements or representations contained in the prospectuses or sales literature
of the Fund) of the Company or its agents, with respect to the sale and
distribution of Contracts for which Fund shares are the underlying investment.
The Company will reimburse any legal or other expenses reasonably incurred by
the Fund or any such director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or prospectus in conformity
with written materials furnished to the Company by the Fund specifically for use
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) The Company shall not be liable under this Section 11. to
Lexington Fund, LMC or other parties covered under Section 11.(a) with respect
to any losses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such party (including Lexington Fund and LMC)
as such may arise from such party's willful misfeasance, bad faith, or gross
negligence in the performance of such party's duties or by reason of such
party's reckless disregard of obligations or duties under this Agreement.
(c) Lexington Fund and LMC agree to indemnify and hold harmless the
Company and its directors, officers, employees, agents and each person, if any,
who controls the Company within the meaning of the 1933 Act against any losses,
claims,
7
<PAGE>
damages or liabilities to which the Company or any such director, officer,
employee, agent or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
prospectuses or sales literature of the Fund or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or material fact required to be stated therein or necessary
to make the statements therein not misleading. Lexington Fund will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, employee, agent or controlling person in connection with
investigating or defending such loss, claim, damage or liability rises out of or
is based upon a Registration Statement or prospectuses which are in conformity
with written materials furnished to Lexington Fund by the Company specifically
for use therein. This indemnity agreement will be in addition to any liability
which Lexington Fund or LMC may otherwise have.
(d) Lexington Fund and LMC shall not be liable under this Section 11.
to the Company or other parties covered under Section 11.(c) with respect to
any loses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such party (including the Company) as such may
arise from such party's willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties or by reason of such party's reckless
disregard of obligations or duties under this Agreement.
(e) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omissions to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party will not be liable to such indemnified
party under this Section 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Lexington Fund on March 21, 1994, with the SEC and
the order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in such
application, the Board of Directors of Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the contractholders of all separate accounts ("Participating
8
<PAGE>
Companies") investing in the Fund. an irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state insurance
regulatory authority; (ii) a change in applicable federal or state insurance
tax, or securities laws, or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar actions by insurance,
tax or securities regulatory authorities; (iii) an administrative or judicial
decision in any relevant proceedings; (iv) the manner in which the investments
of any portfolio are being managed; (v) a difference in voting instructions
given by variable annuity contractholders and variable life insurance
contractholders. The Board shall promptly inform the Company if it determines
that an irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the board whenever contractholder voting instructions are
disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists with
regard to contractholder investments in the Fund, the Board shall give prompt
notice to all participating Companies. If the Board determines that the Company
is responsible for causing or creating said conflict, the Company shall at its
sole cost and expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the
Fund and reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a vote of all
affected contractholders and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to the affected contractholders
the option of making such a change; and/or
(ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contractholders having an interest in the Fund, the Company at its
sole cost, may be required, at the Board's election, to withdraw an Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent
9
<PAGE>
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the
disinterested Board members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
Lexington Fund be required to establish a new funding medium for any Contract.
The Company shall not be required by this Section 12 to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners or participants materially adversely affected by
the irreconcilable material conflict.
13. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by telex,
telecopier or registered or certified mail, postage prepaid, return receipt
requested, to the party or parties to whom they are directed at the following
addresses, or at such other addresses as may be designated by notice from such
party to all other parties.
To the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, Esq., RE4C
To Lexington Management Corporation
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Attention: Lisa Curcio, Secretary
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
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(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one agreement, and any
party hereto may execute this Agreement by signing any such counterpart.
(e) SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
(f) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and supersedes all prior
agreement and understandings relating to the subject matter hereof.
(g) GOVERNING LAW. This Agreement shall be governed and interpreted
in accordance with the laws of the State of Connecticut.
14. LIMITATION ON LIABILITY OF TRUSTEES, ETC.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund.
The obligations of this Agreement that pertain to the Fund shall only be
binding upon the assets and property of the Fund and shall not be binding
upon any individual trustee, officer or shareholder of the Fund. This
provision shall not affect the obligations or liabilities of LMC under this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by
their duly authorized officers as of this _______ day of ___________, 1995.
AETNA INSURANCE COMPANY OF AMERICA
By
------------------------------------
Name:
Title:
LEXINGTON MANAGEMENT CORPORATION
By
------------------------------------
Name:
Title:
LEXINGTON NATURAL RESOURCE TRUST
By
------------------------------------
Name:
Title:
11
<PAGE>
FUND PARTICIPATION AGREEMENT
Aetna Insurance Company of America (the "Company") and Lexington Emerging
Markets Fund, Inc. ("Lexington Fund or the Fund") and its investment adviser,
Lexington Management Corporation ("LMC") hereby agree to an arrangement whereby
shares of the Fund shall be made available to serve as underlying investment
media for Variable Annuity or Variable Life Contracts ("Contracts") to be issued
by the Company.
1. ESTABLISHMENT OF ACCOUNTS: AVAILABILITY OF FUNDS.
(a) The Company represents that it has established Variable Annuity
Account I and may establish such other accounts as may be set forth in Schedule
A attached hereto and as may be amended from time to time (the "Accounts"), each
of which is a separate account under Connecticut Insurance law, and has
registered each of the Accounts (except for such Accounts, for which no such
registration is required) as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act") to serve as an investment vehicle for the
Contracts. Each Contract provides for the allocation of net amounts received by
the Company to an Account for investment in the shares of one or more specified
open-end investment companies ("Funds") available through that Account as
underlying investment media. Selection of a particular Fund and changes therein
from time to time are made by the person covered under the Contract
("Participant") or Contract owner, as applicable under a particular Contract.
(b) Lexington Fund and LMC represent and warrant that the investments
of the Fund will at all times be adequately diversified within the meaning of
Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the
"Code"), and the Regulations thereunder, and that all times while this agreement
is in effect, all beneficial interests will be owned by one or more insurance
companies or by any other party permitted under Section 1.817-5(f)(3) of the
Regulations promulgated under the Code.
2. MARKETING AND PROMOTION
The Company agrees to make every reasonable effort to market its
Contracts, whether directly or through its affiliates. It will use its best
efforts to cause equal emphasis and promotion to be given to shares of the Fund
relative to other Funds available through the Accounts. In marketing and
administering the Contracts, the Company and its affiliates will comply with all
applicable State and Federal laws.
3. PRICING INFORMATION: ORDERS: SETTLEMENT.
(a) Lexington Fund will make shares available to be purchased by the
Company, and will accept redemption orders from the Company, on behalf of each
Account at the net asset value applicable to each order. Funds shares shall be
purchased and redeemed in such quantity and at such time determined by the
Company to be
<PAGE>
necessary to meet the requirements of those Contracts for which the Funds serve
as underlying investment media.
(b) Lexington Fund will provide to the Company closing net asset
value, dividend and capital gain information at the close of trading each day
that the New York Stock Exchange (the "Exchange") is open (each such day, a
"business day") and in no event later than 7:00 p.m. Eastern Time on such
business day. Lexington Fund shall be liable to the Company for the costs
incurred in making a contract owner's or a participant's account whole if such
costs are as a result of Lexington Fund's failure to provide timely or correct
net asset values. The Company will send via facsimile transmission to Lexington
Fund or its specified agent orders to purchase and/or redeem Fund shares by
10:00 a.m. Eastern Time the following business day. Payment for net purchases
will be wired by the Company to a custodial account designated by Lexington Fund
to coincide with the order for shares of the Fund.
(c) Orders from Contract owners or Participants received by the
Company and sent by the Company prior to the close of the Exchange on any given
business day via facsimile transmission to Lexington Fund or its specified agent
by 10:00 a.m., Eastern Time, the following business day will be executed by
Lexington Fund at the net asset value determined as of the close of the Exchange
on such prior business day. Any orders received by the Company after the close
of the Exchange on such prior business day (or not meeting the foregoing
sentence's requirements) will be executed by Lexington Fund at the net asset
value determined as of the close of the Exchange on the next business day
following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be wired
by Lexington Fund from the Lexington Fund custodial account to an account
designated by the Company.
(e) Each party has the right to rely on information or confirmations
provided by the other party and shall not be liable in the event that an error
is a result of any misinformation supplied by the other party. If a mistake is
caused in supplying such information or confirmations, which results in a
reconciliation with incorrect information, the amount required to make a
Contract owner's or a Participant's account whole shall be borne by the party
providing the incorrect information.
4. EXPENSES.
(a) Except as other provided in this Agreement, all expenses incident
to the performance by Lexington Fund under this Agreement shall be paid by
Lexington Fund, including the cost of registration of Lexington Fund shares with
the Securities and Exchange Commission (the "SEC") and in states where required.
(b) Lexington Fund shall distribute to the Company its proxy
material, periodic fund reports to shareholders and other material that are
required by law to be sent to
2
<PAGE>
Contract owners. In addition, Lexington Fund shall provide the Company with a
sufficient quantity of its prospectuses to be used in connection with the
offerings and transactions contemplated by this Agreement. Subject to
subsection (c) below, the cost of preparing and printing such materials shall be
paid by Lexington Fund, and the cost of distributing such material shall be paid
by the Company.
(c) In lieu of Lexington Fund's providing printed copies of
prospectuses and periodic fund reports to shareholders, the Company shall have
the right to request that Lexington Fund provide a copy of such materials in an
electronic format, which the Company may use to have such materials printed
together with similar materials of other Account funding media that the Company
or any distributor will distribute to existing or prospective Contract owners or
participants. In that event Lexington Fund shall reimburse the Company for the
same proportion of the total printing expense for such materials as the number
of pages in each such printed document provided by Lexington Fund bears to the
total number of pages in such printed document.
5. REPRESENTATIONS.
(a) The Company agrees that it and its agents shall not, without the
written consent of Lexington Fund, make representations concerning Lexington
Fund or its shares excepts those contained in the then current prospectuses and
in current printed sales literature of Lexington Fund.
(b) The Company represents and warrants that interests in certain
Contracts are or will be registered under the Securities Act of 1933 ("1933
Act") or are exempt from registration thereunder; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 38a-433 of the General Statutes of Connecticut and
that each Account is or will be registered as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts or is exempt from registration thereunder.
(c) The Company represents that the Contracts are currently treated
as annuity contracts under applicable provisions of the Code and that it will
make every effort to maintain such treatment and that it will notify Lexington
Fund and LMC immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
(d) The Company represents and warrants that all of its directors,
officers, and employees dealing with the money and or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the
3
<PAGE>
Fund in an amount not less than $2 million. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
(e) LMC and Lexington Fund make no representation as to whether any
aspect of the Fund's operations (including, but not limited to, fees and
expenses and investment policies) complies with the insurance laws or
regulations of the various states.
(f) The Lexington Fund represents that it will sell and distribute
Fund shares in accordance with all applicable federal and state securities laws,
including without limitation the 1933 Act, the Securities Exchange Act of 1934,
and the 1940 Act.
(g) Lexington Fund represents it is currently qualified as a
regulated investment company under Subchapter M of the Code and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it ceased to so qualify or
might not so quality in the future.
(h) LMC and Lexington Fund represent and warrant that the Fund's
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of the State
of Connecticut and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the registration statement for its shares under the 1933 Act and 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall also register and qualify its shares for sale in
accordance with the laws of the various rates only if and to the extent deemed
advisable by the Fund or LMC.
(i) Lexington Fund represents that it is lawfully organized and
validly existing under the last of its state of domicile and that it is and will
comply in all materials respects with the 1940 Act.
(j) LMC and Lexington Fund represent and warrant that all of their
respective directors, officers, and employees dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefits of the Fund in an
amount no less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
6. ADMINISTRATION OF ACCOUNTS.
(a) Administrative services to Contract owners and Participants shall
be the responsibility of the Company and shall not be the responsibility of
Lexington Fund or LMC. LMC recognizes the Company as the sole shareholder of
fund shares issued under this Agreement. From time to time, LMC may pay amounts
from its past profits to the
4
<PAGE>
Company for providing certain administrative services for the Fund or for
providing Contract owners with other services that relate to the Fund. These
services may include, among other things, sub-accounting services, answering
inquiries of Contract owners regarding the Fund, transmitting, on behalf of the
fund, proxy statements, annual reports, updated prospectus and other
communications to Contract owners regarding the Fund, and such other related
services as the Fund or a Contract holder may request. In consideration of the
savings resulting from such arrangement, and to compensate the Company for its
costs, LMC agrees to pay to the Company an amount equal to 15 basis points
(0.15%) per annum of the average aggregate amount invested by the Company in the
Fund under this Agreement. Payment of such amounts by LMC will not increase the
fees paid by the Fund or its shareholders.
(b) The parties agree that LMC's payments to the Company are for
administrative services only and do not constitute payment in any manner for
investment advisory services or for costs of distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 6, the average aggregate amount
invested by the Company over a one month period shall be computed by totaling
the Company's aggregate investment (share net asset value multiplied by total
number of shares held by the Company) on each business day during the month and
dividing by the total number of business days during each month.
(d) LMC will calculate the reimbursement of administrative expenses
at the end of each calendar quarter and will make such reimbursement to the
Company within 30 days thereafter. The reimbursement check will be accompanied
by a statement showing the calculation of the monthly amounts payable by LMC and
such other supporting data as may be reasonably requested by the Company.
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Lexington Fund, upon three
months advance written notice to the other;
(b) at the option of the Company, upon one week advance written
notice to Lexington Fund, if Lexington Fund shares are not available for any
reason to meet the requirement of Contracts as determined by the Company.
(c) at the option of either the Company or Lexington Fund,
immediately upon institution of formal proceedings against the broker-dealer or
broker-dealers marketing the Contracts, the Account, the Company, Lexington Fund
or LMC by the National Association of Securities Dealers, Inc. (the "NASD"), the
SEC or any other regulatory body.
5
<PAGE>
(d) upon the requisite vote of Contract owners or Participants having
an interest in the Fund, to substitute for the Fund's shares of another
investment company in accordance with the terms of the applicable Contracts.
The Company will give 60 days written notice to Lexington Fund of any proposed
vote to replace the Fund's shares;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if the Fund's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of Fund shares as an
underlying investment medium for Contracts issued or to be issued by the
Company. Prompt notice shall be given by either party should such situation
occur.
8. CONTINUATION OF AGREEMENT.
Termination as the result of any cause listed in Section 7 shall not
affect Lexington Fund's obligation to furnish its shares to Contracts then in
force for which its shares serve or may serve as the underlying medium unless
such further sale of Fund shares is proscribed by law or the SEC or other
regulatory body.
9. ADVERTISING MATERIALS: FILED DOCUMENTS.
(a) Advertising and sales literature with respect to the Fund
prepared by the Company or its agents for use in marketing its Contracts will be
submitted to Lexington Fund for review before such material is submitted to any
regulatory body for review.
(b) Lexington Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, annual and semiannual reports, proxy statements and all amendments
or supplements to any of the above that relate to the Fund promptly after the
filing of such document with the SEC or other regulatory authorities. The
Company will provide to Lexington Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semiannual reports, proxy statements, and all amendments or
supplements to any of the above that relate to each Account promptly after the
filing of such document with the SEC or other regulatory authority.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges on Fund
shares held by registered separate accounts to all Contract owners and
participants to the extent the SEC continues to interpret the 1940 Act as
requiring such privileges. The Company shall provide pass-through voting
privileges on Fund shares held by unregistered separate accounts to all Contract
owners.
6
<PAGE>
(b) The Company will distribute to Contract owners and participants,
as appropriate, all proxy material furnished by Lexington Fund and will vote
Fund shares in accordance with instructions received from Contract owners and
participants. If and to the extent required by law, the Company, with respect
to each Contract and in each Account shall vote Fund shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for Fund shares held for such
Contract owners and participants.
11. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Lexington Fund
and each of its directors, officers, employees, agents and each person, if any,
who controls the Fund or its investment adviser within the meaning of the
Securities Act of 1933 (the "1933 Act") against any losses, claims, damages or
liabilities to which the Fund or any such director, officer, employee, agent, or
controlling person may become subject, under the 1933 Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, prospectus or
sales literature of the Company, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arise out
of or as a result of conduct, statements or representations (other than
statements or representations contained in the prospectuses or sales literature
of the Fund) of the Company or its agents, with respect to the sale and
distribution of Contracts for which Fund shares are the underlying investment.
The Company will reimburse any legal or other expenses reasonably incurred by
the Fund or any such director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or prospectus in conformity
with written materials furnished to the Company by the Fund specifically for use
therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) The Company shall not be liable under this Section 11. to
Lexington Fund, LMC or other parties covered under Section 11.(a) with respect
to any losses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such party (including Lexington Fund and LMC)
as such may arise from such party's willful misfeasance, bad faith, or gross
negligence in the performance of such party's duties or by reason of such
party's reckless disregard of obligations or duties under this Agreement.
(c) Lexington Fund and LMC agree to indemnify and hold harmless the
Company and its directors, officers, employees, agents and each person, if any,
who controls the Company within the meaning of the 1933 Act against any losses,
claims,
7
<PAGE>
damages or liabilities to which the Company or any such director, officer,
employee, agent or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
prospectuses or sales literature of the Fund or arise out of or are based upon
the omission or the alleged omission to state therein a material fact required
to be stated therein or material fact required to be stated therein or necessary
to make the statements therein not misleading. Lexington Fund will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, employee, agent or controlling person in connection with
investigating or defending such loss, claim, damage or liability rises out of or
is based upon a Registration Statement or prospectuses which are in conformity
with written materials furnished to Lexington Fund by the Company specifically
for use therein. This indemnity agreement will be in addition to any liability
which Lexington Fund or LMC may otherwise have.
(d) Lexington Fund and LMC shall not be liable under this Section 11.
to the Company or other parties covered under Section 11.(c) with respect to
any loses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such party (including the Company) as such may
arise from such party's willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties or by reason of such party's reckless
disregard of obligations or duties under this Agreement.
(e) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omissions to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party will not be liable to such indemnified
party under this Section 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Lexington Fund on March 21, 1994, with the SEC and
the order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in such
application, the Board of Directors of Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the contractholders of all separate accounts ("Participating
8
<PAGE>
Companies") investing in the Fund. an irreconcilable material conflict may
arise for a variety of reasons, including: (i) an action by any state insurance
regulatory authority; (ii) a change in applicable federal or state insurance
tax, or securities laws, or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar actions by insurance,
tax or securities regulatory authorities; (iii) an administrative or judicial
decision in any relevant proceedings; (iv) the manner in which the investments
of any portfolio are being managed; (v) a difference in voting instructions
given by variable annuity contractholders and variable life insurance
contractholders. The Board shall promptly inform the Company if it determines
that an irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the board whenever contractholder voting instructions are
disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists with
regard to contractholder investments in the Fund, the Board shall give prompt
notice to all participating Companies. If the Board determines that the Company
is responsible for causing or creating said conflict, the Company shall at its
sole cost and expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the
Fund and reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a vote of all
affected contractholders and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to the affected contractholders
the option of making such a change; and/or
(ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contractholders having an interest in the Fund, the Company at its
sole cost, may be required, at the Board's election, to withdraw an Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent
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<PAGE>
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the
disinterested Board members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
Lexington Fund be required to establish a new funding medium for any Contract.
The Company shall not be required by this Section 12 to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners or participants materially adversely affected by
the irreconcilable material conflict.
13. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by telex,
telecopier or registered or certified mail, postage prepaid, return receipt
requested, to the party or parties to whom they are directed at the following
addresses, or at such other addresses as may be designated by notice from such
party to all other parties.
To the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie E. Rockmore, Esq., RE4C
To Lexington Management Corporation
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Attention: Lisa Curcio, Secretary
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
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(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one agreement, and any
party hereto may execute this Agreement by signing any such counterpart.
(e) SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
(f) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto and supersedes all prior
agreement and understandings relating to the subject matter hereof.
(g) GOVERNING LAW. This Agreement shall be governed and interpreted
in accordance with the laws of the State of Connecticut.
14. LIMITATION ON LIABILITY OF TRUSTEES, ETC.
This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement that pertain to the Fund shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
individual trustee, officer or shareholder of the Fund. This provision shall
not affect the obligations or liabilities of LMC under this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by
their duly authorized officers as of this _______ day of ___________, 1995.
AETNA INSURANCE COMPANY OF AMERICA
By
------------------------------------
Name:
Title:
LEXINGTON MANAGEMENT CORPORATION
By
------------------------------------
Name:
Title:
LEXINGTON EMERGING MARKETS FUND, INC.
By
------------------------------------
Name:
Title:
11
<PAGE>
FORM OF PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
AETNA INSURANCE COMPANY OF AMERICA
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of April 1996, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), AETNA INSURANCE COMPANY OF AMERICA, a Connecticut corporation (the
"Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Aetna Life Insurance and Annuity Company, the underwriter for the
variable annuity and the variable life policies, is registered as a broker-
dealer with the SEC under the 1934 Act and is a member in good standing of the
NASD; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; PROVIDED
that the Trust receives notice of such orders by 9:30 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading
and on which the Trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with
the Trust and MFS (the "Participating Insurance Companies") and their
separate accounts, qualified pension and retirement plans and MFS or its
affiliates. The Trust and MFS will not sell Trust shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Articles III and VII of this Agreement is in
effect to govern such sales. The Company will not resell the Shares except
to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy holders on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company
and the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of
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<PAGE>
Section 1.1. hereof. In the event of net redemptions, the Trust shall pay
the redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from the Trust will be recorded in an appropriate title for
the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on a
Portfolio's Shares in additional Shares of that Portfolio. The Trust shall
notify the Company of the number of Shares so issued as payment of such
dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value or dividend or capital
gain distribution information, the Trust shall make an adjustment to the
number of shares purchased or redeemed for the Accounts to reflect the
correct net asset value per share or dividend or capital gain distribution.
Any material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), that it will maintain such treatment and
that it will notify the Trust or MFS immediately upon having a reasonable
basis for believing that the Policies have ceased to be so treated or that
they might not be so treated in the future.
2.3. The Company represents and warrants that Aetna Life Insurance and
Annuity Company, the underwriter for the variable annuity and the variable
life policies, is a member in good standing of the
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<PAGE>
NASD and is a registered broker-dealer with the SEC. The Company
represents and warrants that the Company and Aetna Life Insurance and
Annuity Company will sell and distribute such policies in accordance in all
material respects with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under the
1940 Act. The Trust shall amend the registration statement for its Shares
under the 1933 Act and the 1940 Act from time to time as required in order
to effect the continuous offering of its Shares. The Trust shall register
and qualify the Shares for sale in accordance with the laws of the various
states only if and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Trust and MFS represent that the Trust and the Underwriter will
sell and distribute the Shares in accordance in all material respects with
all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear the
cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED,
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<PAGE>
however, that the Company shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to
owners of existing Policies not funded by the Shares. In the event that
the Company requests that the Trust or its designee provides the Trust's
prospectus in a "camera ready" or diskette format, the Trust shall be
responsible for providing the prospectus in the format in which it or MFS
is accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (E.G., typesetting expenses), and
the Company shall bear the expense of adjusting or changing the format to
conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser who
requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been received
in the same proportion as the Shares of such Portfolio for
which instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts holding Shares calculates voting privileges
in the manner required by the Mixed and Shared Funding Exemptive Order.
The Trust and MFS will notify the Company of any changes of interpretations
or amendments to the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least three (3) Business Days
prior to its use. No such
-5-
<PAGE>
material shall be used if the Trust, MFS, or their respective designees
reasonably objects to such use within three (3) Business Days after receipt
of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning the
Trust or any other such entity in connection with the sale of the Policies
other than the information or representations contained in the registration
statement, prospectus or statement of additional information for the
Shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or
in reports or proxy statements for the Trust, or in sales literature or
other promotional material approved by the Trust, MFS or their respective
designees, except with the permission of the Trust, MFS or their respective
designees. The Trust, MFS or their respective designees each agrees to
respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure
that information concerning the Trust, MFS or any of their affiliates which
is intended for use only by brokers or agents selling the Policies (I.E.,
information that is not intended for distribution to Policy holders or
prospective Policy holders) is so used, and neither the Trust, MFS nor any
of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company or its designee agrees to respond to any request for approval on a
prompt and timely basis. The parties hereto agree that this Section 4.4.
is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the
Policies, or to the Trust or its Shares, prior to or contemporaneously
with the filing of such document with the SEC or other regulatory
authorities. The Company and the Trust shall also each promptly inform
the other or the results of any examination by the SEC (or other
regulatory authorities) that relates to the Policies, the Trust or its
Shares, and the party that was the subject of the examination shall
provide the other party with a copy of relevant portions of any
"deficiency letter" or other correspondence or written report regarding any
such examination.
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio, and
of any material change in the Trust's registration statement, particularly
any change resulting in change to the registration statement or prospectus
or statement of additional information for any Account. The Trust and MFS
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement, in an orderly manner.
The Trust and MFS will make
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<PAGE>
reasonable efforts to attempt to have changes affecting Policy prospectuses
become effective simultaneously with the annual updates for such
prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution and Shareholder servicing expenses, then, subject to obtaining
any required exemptive orders or regulatory approvals, the Trust may make
payments to the Company or to the underwriter for the Policies if and in
amounts agreed to by the Trust in writing. Each party, however, shall, in
accordance with the allocation of expenses specified in Articles III and V
hereof, reimburse other parties for expense initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses
of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports to Policy owners. The
Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional information;
and the cost of preparing, printing and distributing annual individual
account statements for Policy owners as required by state insurance laws.
5.4. MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Policy owners of
shares of the Portfolios in the Trust, equal to 0.15% per annum of the
aggregate net assets of the Trust attributable to such Policy owners. In
no event shall such fee be paid by the Trust, its shareholders or by the
Policy holders.
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<PAGE>
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio will
meet the diversification requirements of Section 851 of the Code ("Section
851 Diversification Requirements") and Section 817(h)(1) of the Code and
Treas. Reg. 1.817-5 relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts ("Section
817(h)(1) Diversification Requirements"), as they may be amended from time
to time (and any revenue rulings, revenue procedures, notices, and other
published announcements of the Internal Revenue Service interpreting these
sections) (collectively, "Diversification Requirements"). In the event
that any Portfolio is not so diversified at the end of any applicable
quarter, the Trust and MFS will make every effort to adequately diversify
the Portfolio so as to achieve compliance within the grace periods afforded
by Treas. Reg. 1.817-5 and Section 851(d) of the Code (the "Grace
Periods"). In the event that any Portfolio is not so diversified at the
end of any applicable Grace Period, the Trust or MFS will promptly notify
the Company of such non-diversification, such notification to be provided
in no event later than 20 days after the end of the applicable Grace
Period.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth
in the Trust's exemptive application pursuant to which the SEC has granted
the Mixed and Shared Funding Exemptive Order by providing the Board, as it
may reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is aware
to the Board including, but not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregard.
The Company also agrees that, if a material irreconcilable conflict arises,
it will at its own cost and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees) remedy such
conflict up to and including (a) withdrawing the assets allocable to some
or all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to)
another Portfolio of the Trust, or submitting to a vote of all affected
contract owners whether to withdraw assets from the Trust or any Portfolio
and reinvesting such assets in a different investment medium and, as
appropriate, segregating the assets attributable to any appropriate group
of contract owners that votes in favor of such segregation, or offering to
any of the affected contract owners the option of segregating the assets
attributable to their contracts or policies, and (b) establishing a new
registered management investment company and segregating the assets
underlying the Policies, unless a majority of Policy owners materially
adversely affected by the conflict have voted to decline the offer to
establish a new registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
determines that any proposed action does not adequately remedy any material
irreconcilable conflict, the Company will withdraw from investment in the
Trust each of the Accounts designated by the disinterested trustees and
terminate this Agreement within six (6) months after the Board informs the
Company in
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<PAGE>
writing of the foregoing determination; PROVIDED, however, that such
withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shares funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATIION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS,
any affiliates of MFS, and each of their respective directors/trustees,
officers and each person, if any, who controls the Trust or MFS within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including reasonable counsel
fees) to which an Indemnified Party may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Policies or contained in the
Policies or sales literature or other promotional material
for the Policies (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
commission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading PROVIDED that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Company or its designee by or on behalf of the Trust
or MFS for use in the registration statement, prospectus or
statement of additional information for the Policies or in
the Policies or sales literature or other promotional
material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Trust not supplied by the Company or this
designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Trust, or any amendment thereof or
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<PAGE>
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Trust) or expenses
(including reasonable counsel fees) to which any Indemnified Party may
become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of
the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading,
PROVIDED that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Trust, MFS, the Underwriter or their respective
designees by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Trust or in sales literature
or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statement or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by the Trust, MFS,
the Underwriter or any of their respective designees or
persons under their respective control and on which any such
entity has reasonably relied) or wrongful conduct of the
Trust or persons under its control, with respect to the sale
or distribution of the Policies or Shares; or
(c) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or
arise out of or result from any other material breach of
this Agreement by the Trust; or
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<PAGE>
(d) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(e) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy owner, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of commencement of action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under
this section. In case any such action is brought against any Indemnified
Party, and it notified the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such Indemnified Party. After notice from the indemnifying
party of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified Party under
this section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
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<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing,
the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or
6e-3(T) under the 1940 Act. Prompt notice of the election
to terminate for such cause and an explanation of such cause
shall be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body regarding the Trust's or MFS' duties under
this Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt
of any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio
Shares had been selected to serve as the underlying
investment media. The Company will give thirty (30) days'
prior written notice to the Trust of the Date of any
proposed vote or other action taken to replace the Shares;
or
(f) termination by either the Trust or MFS by written notice to
the Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment
exercised in
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<PAGE>
good faith, that the Company has suffered a material adverse
change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(g) termination by the Company by written notice to the Trust
and MFS, if the Company shall determine, in its sole
judgment exercised in good faith, that the Trust or MFS has
suffered a material adverse change in this business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and conditions of
this Agreement, for all Policies in effect on the effective date of
termination of this Agreement (the "Existing Policies"), except as
otherwise provided under Article VII of this Agreement. Specifically,
without limitation, the owners of the Existing Policies shall be permitted
to transfer or reallocate investment under the Policies, redeem investments
in any Portfolio and/or invest in the Trust upon the making of additional
purchase payments under the Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
AETNA INSURANCE COMPANY OF AMERICA
151 Farmington Avenue
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<PAGE>
Hartford, Connecticut 06156
Attn: Drew E. Lawton
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and
liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon
the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations of
each Portfolio hereunder shall be several and not joint, in accordance with
its proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
AETNA INSURANCE COMPANY OF AMERICA
By its authorized officer,
By: _______________________________
Title: ____________________________
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,
By: _______________________________
A. Keith Brodkin, Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: _______________________________
Arnold D. Scott
Senior Executive Vice President
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<PAGE>
As of April__, 1996
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NAME OF SEPARATE
ACCOUNT AND DATE POLICIES FUNDED PORTFOLIOS
ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE ANNUITY ACCOUNT I VARIABLE ANNUITY WORLD GOVERNMENT SERIES
(EST. MAY 31, 1994) EMERGING GROWTH SERIES
TOTAL RETURN SERIES
RESEARCH SERIES
- ----------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Exhibit 8.8
FUND PARTICIPATION AGREEMENT
Aetna Insurance Company of America (the "Company") and TCI Portfolios,
Inc. ("TCIP") and its investment adviser, Investors Research Corporation
("Investors Research") hereby agree to an arrangement whereby shares of TCI
Growth, TCI Balanced and TCI International Equity (the "Funds") shall be
made available to serve as underlying investment media for individual and
group variable annuity contracts ("Contracts") to be offered to the public
by the Company, subject to provisions set forth in this Agreement:
1. ESTABLISHMENT OF ACCOUNTS; AVAILABILITY OF FUNDS.
(a) The Company represents and warrants that it has established Variable
Annuity Account I pursuant to Connecticut insurance law and may
establish such other accounts as may be set forth in Schedule A
attached hereto and as may be amended from time to time (the
"Accounts") to serve as the underlying investment vehicle for the
Contracts. The Company further represents and warrants that each Account
is registered as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act") or is exempt from the registration
requirements of that 1940 Act. Each Contract provides for the allocation
of net amounts received by the Company to separate series of an Account
for investment in the shares of one of more specified investment
companies selected among those companies available through the Account
to act as underlying investment media. Selection of a particular
investment company is made by the participant or Contract owner, as
applicable under a particular Contract, who may change such selection
from time to time in accordance with the terms of the applicable
Contract.
(b) Investors Research represents and warrants that the investments of
each of the Funds will at all times be adequately diversified within
the meaning of Section 817(h) of the Internal Revenue Service Code
of 1986, as amended (the "Code"), and the regulations thereunder, and
that at all times while this Agreement is in effect, all beneficial
interests in each of the Funds will be owned by one or more insurance
companies or by any other party permitted under Section 1.817-5(f)(3)
of the Regulations promulgated under the Code.
2. MARKETING AND PROMOTION.
The Company agrees to make every reasonable effort to market its Contracts.
It will use its best efforts to give equal emphasis and promotion to shares
of the Funds as is given to other underlying investments of the Account. In
marketing and administering its Contracts, the Company will comply with all
applicable state and Federal laws.
<PAGE>
3. PRICING INFORMATION; ORDERS; SETTLEMENT.
(a) TCIP will make shares available to be purchased by the Company on
behalf of the Accounts at the net asset value applicable to each order.
Fund shares shall be purchased and redeemed in such quantity and at such
time determined by the Company to be necessary to meet the requirements
of those Contracts for which the Funds serve as underlying investment
media.
(b) Investors Research will provide to the Company closing net asset
value, dividend and capital gain information at the close of trading
each day that the New York Stock Exchange (the "Exchange") is open
(each such day, a "business day") by 7:00 p.m. Eastern Time on
such business day. Investors Research shall be liable to the Company for
the costs incurred in making a contract owner's or a participant's
account whole if such costs are as a result of Investors Research's
failure to provide timely or correct net asset values. The Company will
send via facsimile or other electronic transmission acceptable to
Investors Research or its specified agent orders to purchase and/or
redeem Fund shares by 10:00 a.m. Eastern Time the following business
day. Payment for net purchases will be wired by the Company to a
custodial account designated by TCIP to coincide with the order for
shares of the Funds.
(c) TCIP hereby appoints the Company as its agent for the limited
purpose of accepting purchase and redemption orders for Fund shares from
Contract owners or participants. Orders from Contract owners or
participants received by the Company acting as agent for TCIP prior to
the close of the Exchange on any given business day (currently 4:00 p.m.
Eastern time) will be executed by TCIP at the net asset value determined
as of the close of the Exchange on such business day. Any orders
received by the Company acting as agent on such day but after the close
of the Exchange will be executed by TCIP at the net asset value
determined as of the close of the Exchange on the next business day
following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Funds will be wired by
TCIP from the custodial account to an account designated by the Company.
(e) The Company covenants and agrees that all orders for the purchase or
redemption of Fund shares accepted and transmitted by it hereunder on
any business day will be based upon instructions that it received from
Contract owners or participants in proper form prior to the close of
regular trading on the Exchange on that business day. The Company shall
maintain records to enable it to demonstrate compliance with the
requirements under this Section 3.
(f) As used in this Agreement, the phrase "other electronic transmission
acceptable to Investors Research" includes the use of remote computer
terminals located at the premises of the Company, its agents or
affiliates, which terminals may be linked electronically to the computer
system of Investors Research, its agent or affiliates
2
<PAGE>
(hereinafter, "Remote Computer Terminals"). The Company covenants and
agrees that all orders for the purchase or redemption of Fund shares
transmitted to TCIP, whether by telecopy or other electronic transmission
acceptable to Investors Research, shall be sent by or under the authority
and direction of a person designated by the Company as being duly
authorized to act on behalf of the owner of the Accounts. Investors
Research shall be entitled to rely on the existence of such authority and
to assume that any person transmitting Orders for the purchase,
redemption or transfer of Fund shares on behalf of the Company is
"an appropriate person" as used in Section 8-308 and 8-404 of the
Uniform Commercial Code or his "authorized agent" as used in Section
8-308(f)(3) of the Uniform Commercial Code with respect to the
transmission of instructions regarding Fund shares on behalf of the owner
of such Fund shares. SHOULD THE COMPANY AND INVESTORS RESEARCH AGREE TO
USE REMOTE COMPUTER TERMINALS, the Company shall maintain the
confidentiality of all passwords and security procedures issued,
installed or otherwise put in place, ALL TO BE AGREED UPON AT A FUTURE
DATE, with respect to the use of Remote Computer Terminals and assumes
full responsibility for the security therefor. The Company further agrees
to be solely responsible for the accuracy, propriety and consequences of
all data transmitted to Investors Research by the Company by telecopy or
other electronic transmission acceptable to Investors Research; PROVIDED
HOWEVER, THAT INVESTORS RESEARCH IS OBLIGATED TO MAKE INQUIRY TO THE
COMPANY BEFORE PROCESSING ANY INCOMPLETE OR AMBIGUOUS INSTRUCTION,
INCLUDING ANY FACSIMILE INSTRUCTION NOT DATED OR SIGNED.
(g) Notwithstanding the above, any order received by Investors Research
after 10:00 a.m. on any business day, and any purchase order for
which payments is not received on the business day next following the
anticipated price date, shall be executed at the net asset value next
calculated following receipt of the order, for late orders, or following
receipt of payment, for late payments, as the case may be.
4. EXPENSES.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by TCIP and Investors Research under this
Agreement shall be paid by Investors Research or TCIP, including the
cost of registration of TCIP's shares with the Securities and Exchange
Commission (the "SEC") and in states where required.
(b) Investors Research shall distribute to the Company TCIP proxy
materials, periodic fund reports to shareholders and other materials
that are required by law to be sent to Contract owners. In addition,
Investors Research shall provide the Company with a sufficient quantity
of TCIP prospectuses to be used in connection with the offerings and
transactions contemplated by this Agreement. Subject to subsection (c)
below, the cost of preparing and printing such materials shall be paid
by Investors Research, and the cost of distributing such materials shall
be paid by the Company; PROVIDED, HOWEVER, that at any time Investors
Research reasonably deems the usage of such materials to be excessive,
it may request that the Company pay the cost of printing (including
press time and paper) of any additional copies of such materials
requested by the Company.
3
<PAGE>
(c) In lieu of Investors Research providing printed copies of TCIP
prospectuses and periodic fund reports to shareholders, the Company
shall have the right to request that Investors Research provide to the
Company a copy of such materials in an electronic format, which the
Company will use to have such materials printed together with similar
materials of other Account funding media that the Company will
distribute to Contract owners or participants. In that event, Investors
Research shall reimburse the Company for the same proportion of the
total printing expense for such materials as the number pages in each
such printed document provided by TCIP bears to the total number of
pages in such printed document.
5. REPRESENTATIONS.
The Company and its agents shall not, without the written consent of
Investors Research, make representations concerning TCIP or its shares except
those contained in the then current prospectuses and in current printed sales
literature of TCIP.
6. ADMINISTRATION OF ACCOUNTS.
(a) Administrative services to Contract owners and participants shall be
the responsibility of the Company and shall not be the responsibility
of TCIP or Investors Research. TCIP and Investors Research recognize
the Company as the sole shareholder of TCIP shares issued under this
Agreement. TCIP and Investors Research further recognize that they will
derive a substantial savings in administrative expense, such as
significant reductions in postage expense and shareholder communications
and recordkeeping, by virtue of having a sole shareholder for each of
the Accounts rather than multiple shareholders. In consideration of the
administrative savings resulting from such arrangement, and to
compensate the Company for administrative service costs, Investors
Research agrees to pay to the Company an amount equal to 20 basis points
(0.20%) per annum of the average aggregate amount invested by the
Company under this Agreement.
(b) The parties understand that Investors Research customarily pays, out
of its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract
owners and participants. The parties agree that Investors Research's
payments to the Company, like Investors Research's payments to its
affiliated corporation, are for administrative services only and do not
constitute payment in any manner for investment advisory services or
for costs of distribution.
(c) For the purposes of computing the administrative fee reimbursement
contemplated by this Section 6, the average aggregate amount invested
by the Company over a one month period shall be computed by totaling
the Company's aggregate investment (share net asset value multiplied
by total number of shares held by the
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Company) on each business day during the month and dividing the
total number of business days during such month.
(d) Investors Research will calculate the reimbursement of
administrative expense at the end of each calendar quarter and
will make such reimbursement to the Company within 30 days thereafter.
The reimbursement check will be accompanied by a statement showing the
calculation of the monthly amounts payable by Investors Research and
such other supporting data as may be reasonably requested by the
Company.
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Investors Research upon six
months' advance written notice to the other;
(b) at the option of the Company if TCIP shares are not available for
any reason to meet the requirement of Contracts as determined by the
Company. Reasonable advance notice of election to terminate shall be
furnished by Company;
(c) at the option of either the Company or Investors Research, upon
institution of formal proceedings against the broker-dealer or
broker-dealers marketing the Contracts, the Account, the Company, or
TCIP by the National Association of Securities Dealers, Inc. (the
"NASD"), the SEC or any other regulatory body;
(d) upon termination of the Management Agreement between TCIP and
Investors Research. Notice of such termination shall be promptly
furnished to the Company. This subsection (d) shall not be deemed to
apply if contemporaneously with such termination a new contract of
substantially similar terms is entered into between TCIP and Investors
Research;
(e) upon requisite vote of Contract owners or participants having an
interest in TCIP to substitute for TCIP's shares the shares of another
investment company in accordance with the terms of Contracts for which
TCIP's shares had been selected to serve as the underlying investment
medium. The Company will give 60 days' written notice to TCIP of any
proposed vote to replace the Funds' shares;
(f) upon assignment of this Agreement unless made with the written
consent of all other parties hereto;
(g) if TCIP's shares are not registered, issued or sold in conformance
with Federal law or such law precludes the use of Fund shares as an
underlying investment medium of Contracts issued or to be issued by the
Company. Prompt notice shall be given by either party should such
situation occur.
8. CONTINUATION OF AGREEMENT.
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Termination as the result of any cause listed in Section 7 shall not affect
TCIP's obligation to furnish its shares to Contracts then in force for which
its shares serve or may serve as the underlying medium unless such further sale
of Fund shares is proscribed by law or the SEC or other regulatory body.
9. ADVERTISING MATERIALS; FIELD DOCUMENTS.
(a) Advertising and literature with respect to TCIP prepared by the
Company or its agents for use in marketing its Contracts will be
submitted to Investors Research for review before such material is
submitted to the SEC or NASD for review.
(b) Investors Research will provide to the Company at least one
complete copy of all registration statements, prospectuses, statements
of additional information, annual and semi-annual reports, proxy
statements and all amendments or supplements to any of the above that
relate to the Funds promptly after the filing of such document with the
SEC or other regulatory authorities. The Company will provide to
Investors Research at least one complete copy of all registration
statement, prospectuses, statements of additional information, annual
and semi-annual reports, proxy statements, and all amendments or
supplements to any of the above that relate to the Account promptly
after the filing of such document with the SEC or other regulatory
authority.
10. PROXY VOTING.
(a) With respect to fund shares held by the registered separate
accounts, the Company shall provide pass-through voting privileges to
all Contract owners and participants so long as the SEC continues to
interpret the 1940 Act as requiring such privileges. It shall be the
responsibility of the Company to assure that it and the separate
accounts of the other Participating Companies (as defined in Section
12(a) below) participating in any Fund calculate voting privileges in a
consistent manner.
(b) The Company will distribute to Contract owners and participants, as
appropriate, all proxy material furnished by TCIP and will vote shares
in accordance with instructions received from such Contract owners and
participants. If and to the extent required by law, the Company shall
vote TCIP shares for which no instructions have been received in the
same proportion as shares for which such instructions have been
received. The Company and its agents shall not oppose or interfere with
the solicitation of proxies for TCIP shares held for such Contract
owners and participants.
11. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless TCIP and Investors
Research and each of their respective directors, officers, employees,
agents and each
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person, if any, who controls TCIP or Investors Research
within the meaning of the Securities Act of 1933 (the "1933 Act")
against any losses, claims, damages or liabilities to which TCIP, or
Investors Research or any such director, officer, employee, agent, or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in
respect hereof) arise out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or sales literature of the Company or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or arise out of or as a
result of conduct, statements or representations (other than statements
or representations contained in the prospectuses or sales literature of
TCIP) of the Company or its agents, with respect to the sale and
distribution of Contracts for which TCI Growth, TCI Balanced or TCI
International Equity shares are the underlying investment. The Company
will reimburse any legal or other expenses reasonably incurred by TCIP,
Investors Research or any such director, officer, employee, agent,
investment adviser, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or prospectus in
conformity with written materials furnished to the Company by TCIP
specifically for use therein. This indemnity agreement will be in
addition to any liability which Company may otherwise have.
(b) Investors Research agrees to indemnify and hold harmless the Company
and each of its directors, officers, employees, agents and each person,
if any, who controls the Company within the meaning of the 1933 Act
against any losses, claims damages or liabilities to which the Company
or such director, officer, employee, agent or controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, prospectuses
or sales literature of the Funds or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or material fact required to be stated
therein or necessary to make the statements therein not misleading.
Investors Research will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, employee, agent,
or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that
Investors Research will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission or alleged omission made in such
Registration Statement or prospectuses in conformity with written
materials furnished to TCIP by the Company specifically for use therein.
This indemnity agreement will be in addition to any liability which
Investors Research may otherwise have.
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(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise
than under this Section 11. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to,
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
this Section 11. For any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by TCIP on December 21, 1987, with the SEC
and the order issued by the SEC in response thereto (the "Shared
Funding Exemptive Order"). The Company has reviewed the conditions
to the requested relief set forth in such application for exemptive
relief. As set forth in such application, the Board of Directors of
TCIP (the "Board") will monitor TCIP for the existence of any
material irreconcilable conflict between the interests of the
contractholders of all separate accounts ("Participating Companies")
investing in TCIP. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state insurance
regulatory authority; (ii) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar actions by insurance, tax or securities regulatory authorities;
(iii) an administrative or judicial decision in any relevant proceeding;
(iv) the manner in which the investments of any portfolio are being
managed; (v) a difference in voting instructions given by variable
annuity contractholders and variable life insurance contractholders; or
(vi) a decision by an insurer to disregard the voting instructions of
contractholders. The Board shall promptly inform the Company if it
determines that an irreconcilable material conflict exists and the
implication thereof.
(b) The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by
providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Board whenever
contractholder voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with
regard to
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contractholder investments in a Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that the Company is responsible for causing or creating said conflict,
the Company shall at its sole cost and expense, and to the extent
reasonably practicable (as determine by a majority of the disinterested
Board members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may include
but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the
Fund and reinvesting such assets in a different investment medium
or submitting the question of whether such segregation should be
implemented to a vote of all affected contractholders and as
appropriate, segregating the assets of any appropriate group (i.e,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Companies) that votes
in favor of such segregation, or offering to the affected
contractholders the option of making such a change; and/or
(ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contractholder voting
instructions and said decision represents a minority position or would
preclude a majority vote by all of its contractholders having an
interest in TCIP, the Company at its sole cost, may be required, at the
Board's election, to withdraw an Account's investment in TCIP and
terminate this Agreement; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 13, a majority of the disinterested
Board members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no
event will TCIP be required to establish a new funding medium for any
Contract. The Company shall not be required by this Section 13 to
establish a new funding medium for any Contract if an offer to do so has
been declined by vote of a majority of the Contract owners or
participants materially adversely affected by the irreconcilable
material conflict.
13. MISCELLANEOUS.
(a) AMENDMENT AND WAIVER. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharge or terminated orally, but only
an instrument in writing signed by all parties hereto.
(b) NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by
telex, telecopier or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to
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whom they are directed at the following addresses, or at such other
addresses as may be designated by notice from such party to
all other parties.
To the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Julie Rockmore, Counsel
To TCIP or Investors Research:
TCIP Portfolios, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Patrick A. Looby
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
(d) COUNTERPARTS. This agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
agreement, and any party hereto may execute this Agreement by signing
any such counterpart.
(e) SEVERABILITY. In case any one or more of the provisions contained
in this agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or
impaired thereby.
(f) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties hereto and supersedes all prior
agreement and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of the 9th day of October, 1995.
AETNA INSURANCE COMPANY OF AMERICA
By__________________________________
Name:
Title:
INVESTORS RESEARCH CORPORATION
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By__________________________________
Name:
Title:
TCI PORTFOLIOS, INC.
By__________________________________
Name:
Title:
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<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement ("Agreement") is made by and between AETNA INSURANCE COMPANY OF
AMERICA ("AICA"), an insurance corporation organized and existing under the laws
of the State of Connecticut, with its principal place of business at 151
Farmington Avenue, Hartford, Connecticut, 06156; and
AGENCY, INC., a licensed insurance agency.
WITNESSETH
WHEREAS, AICA wishes to offer and sell group and individual nonqualified and
Individual Retirement Annuity ("IRA") combination fixed and variable annuity
contracts (hereinafter known collectively as "Contracts") to the customers of,
BROKER 1, a Broker-Dealer and member of National Association of Securities
Dealers, Inc. ("NASD") and a licensed insurance agency, through BROKER 1 and
through BROKER 2, who is a Broker-Dealer and a member of the NASD, and through
licensed insurance agents; and
WHEREAS, AICA has entered into a Selling Agreement with BROKER 2 and BROKER 1 in
respect of the offer and sale of Contracts; and
WHEREAS, AICA wishes to retain AGENCY to assist AICA, BROKER 2 and BROKER 1 for
the purpose of providing the administrative services needed to support the
marketing and distribution of Contracts; and
WHEREAS, AGENCY wishes to provide such administrative services to AICA, BROKER 2
and BROKER 1;
NOW, THEREFORE, in consideration of mutual promises contained herein, the
parties do hereby agree as follows:
SECTION 1. DEFINITIONS
When used in this Agreement, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1. BROKER-DEALER: "Broker-Dealer" shall mean an entity which is registered as
a Broker-Dealer with the Securities and Exchange Commission and applicable state
jurisdictions and is a member firm of the NASD.
1.2 EFFECTIVE DATE: "Effective Date" shall mean the date on which this
Agreement is executed by AICA.
<PAGE>
1.3 CERTIFICATE: "Certificate" shall mean the document that may be required
under state insurance law evidencing that an account has been established under
a group contract.
1.4 GROUP CONTRACT: "Group Contract" shall mean those contracts described in
Schedule A attached hereto which is made a part of this Agreement.
1.5 INDIVIDUAL CONTRACT: "Individual Contract" shall mean those contracts
described in Schedule B attached hereto which is made part of this Agreement.
1.6 PURCHASE PAYMENT: "Purchase Payment" shall mean payment(s) accepted by
AICA at its Home Office under the Contracts.
1.7 REGISTERED REPRESENTATIVE: "Registered Representative" shall mean an
individual registered as an agent of a Broker-Dealer possessing the NASD and
state securities registrations necessary to offer and sell Marathon Plus Group
and Individual Contracts, who is also licensed as an insurance agent, and who is
appointed by AICA.
1.8 TERMINATION DATE: "Termination Date" shall mean the day 30 calendar days
after the day AICA or AGENCY provides notice of termination in the manner set
forth in Sections 6.4 or 6.5; however, in the event AICA terminates for cause in
accordance with Section 6.2, "Termination Date" is the date of the written
notice given by AICA.
SECTION 2. COMPENSATION
2.1 COMPENSATION FOR SERVICES: Subject to all terms and conditions of this
Agreement, AICA will pay to AGENCY compensation, as described in Schedule B
attached hereto and made a part of this Agreement, in consideration for the
administrative and support services provided by AGENCY pursuant to Section 7
herein. AICA shall provide monthly to AGENCY a detailed account of all payments,
reductions and amounts due AGENCY from AICA. The payments due under this
Section shall be paid monthly.
2.2 AICA reserves the right to reject any application for an Individual
Contract or Certificate from BROKER 1 or BROKER 2 and to refuse to accept any
Purchase Payment at any time for any reason, or to rescind any Individual
Contract or Certificate without incurring a liability to AGENCY for any
compensation. In the event of a rejection or rescission, AGENCY will repay to
AICA all sums paid AGENCY under Section 2.1 in respect of such Certificate or
Individual Contract.
2.3 FULL COMPENSATION: The compensation described in Section 2.1 shall
constitute full compensation to AGENCY for all administrative and support
services provided and expenses incurred in respect of the marketing and
distribution of Contracts by BROKER 2 and BROKER 1.
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2.4 ADVANCES AND INDEBTEDNESS: AICA reserves the right to deduct any amount it
determines is owed by AGENCY from any compensation from AICA due AGENCY. This
right includes, but is not limited to:
a) Advances;
b) Compensation previously paid for deposits received by AICA and later
returned or credited for any reason;
c) Any overpayment of compensation;
d) Any amount due AICA under Section 8.6 of this Agreement.
If the offset of compensation due hereunder does not eliminate the amount owed
by AGENCY under this Section 2.4, the balance due AICA shall be paid by AGENCY
to AICA on demand and, if not so paid, shall be a debt of AGENCY which interest
shall be charged at eight percent (8%) per annum. AICA shall have all rights of
a creditor to collect amounts owed it by AGENCY.
SECTION 3. LIMITATIONS OF AUTHORITY
3.1 LIMITATIONS ON AUTHORITY: Nothing contained herein shall be construed as a
grant of any authority to AGENCY or any of its officers, employees, agents or
representatives to engage in the solicitation, offer or sale of Contracts or any
other securities of AICA. Further, AGENCY understands and agrees that it may
not and shall not engage in the solicitation, offer or sale of Contracts or any
other AICA securities. Further, AGENCY shall have no authority on behalf of
AICA to directly or indirectly through any person:
a) Alter the Certificates or Individual Contracts;
b) Waive or modify any terms, conditions or limitations of the
Certificates, Individual Contracts, underwriting rules, grant permits,
special rates, or interest rates, or make endorsements;
c) Incur any indebtedness or liability, or expend or contract for the
expenditure of the funds of AICA; or
d) Adjust or settle any claim or commit AICA with respect thereto, or bind
AICA or any of its affiliates in any way.
AICA reserves the right to suspend, withdraw or modify the Group and Individual
Contracts and Certificates, to change the terms or conditions of the offering of
Group and Individual Contracts and Certificates, to introduce new contracts, or
to remedy defects in the interpretation or administration of the Group and
Individual Contracts and Certificates.
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3.2 AGENCY is not authorized to receive any money on AICA's behalf or in
connection with the sale or solicitation of any Group or Individual Contracts or
Certificates.
3.3 ASSIGNMENT: Neither this Agreement nor any benefits to accrue hereunder
shall be assigned or transferred by any party, in whole or in part, without the
prior written consent of AICA. Notwithstanding the foregoing, AICA may assign
its rights and obligations hereunder in connection with the sale or reinsurance
to a third party of all or substantially all of the Group and Individual
Contracts.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF AICA: AICA represents and warrants to
AGENCY as follows:
a) It is a life insurance company organized under the laws of the State of
Connecticut.
b) It has obtained all applicable required federal and state approvals and
registrations for the sale of Contracts, or is otherwise exempt
therefrom.
c) It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder.
4.2 REPRESENTATIONS AND WARRANTIES OF AGENCY: AGENCY represents and warrants
to AICA as follows:
a) It is licensed as an insurance agency
b) It, or a designated principal, has and shall maintain during the term
of this Agreement all applicable state insurance licenses in all
jurisdictions where Group Contracts, Individual Contracts and
Certificates will be sold or solicited.
c) it is a corporation organized, existing and in good standing under the
laws of the State of ______ and is qualified to do business as a
corporation in all jurisdictions where it is or will be doing business.
d) It has full power and authority to enter into this Agreement and to
carry out its duties and obligations hereunder;
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SECTION 5. CUSTOMER CONFIDENTIALITY
5.1 CONFIDENTIALITY: AGENCY agrees that the names and addresses and all other
information regarding all customers and prospective customers of AICA and all
AICA proprietary information which may come to the attention of AGENCY or any
organization or person affiliated with AGENCY as a result of this Agreement, are
confidential. Without the prior written consent of AICA, such information shall
not be used or provided to others by AGENCY or any organization or person
affiliated with AGENCY, for any purpose whatsoever, except as may be necessary
in connection with the Group and Individual Contracts covered by this Agreement,
or if such disclosure is required by state or federal regulatory authorities.
It is understood and agreed that this Section 5.1 shall not apply with respect
to information about AICA customers and prospective customers that AGENCY
possesses through other arrangements and agreements. This Section 5.1 shall
survive termination of this Agreement.
SECTION 6. TERMINATION OF AGREEMENT
6.1 It is expressly understood by the parties hereto that AICA's obligation to
pay any compensation prior to the Termination Date of this Agreement, and the
obligation of AGENCY to repay any compensation to AICA, shall survive the
termination of this Agreement.
6.2 TERMINATION FOR CAUSE BY AICA: AICA may terminate this Agreement at any
time for cause by giving written notice to AGENCY. For purposes of this
Section, "cause" includes solely the following acts or omissions:
a) Revocation, suspension, refusal to renew, or other loss of any
insurance license by AGENCY.
b) Imposition of any fine, penalty, suspension, or other sanction against
AGENCY or any of its principals by any federal, state, or foreign
securities or insurance regulatory authority.
c) Failure by AGENCY to perform its responsibilities under this Agreement.
d) Breach by AGENCY of any of the representations and warranties set forth
in Section 4 of this Agreement.
e) Breach by AGENCY of any material term of this Agreement and the failure
to cure such breach within 30 days of the earlier of discovery or
notification by AICA, provided that, if such breach would constitute
activities that, if made known to regulatory authorities, could result
in a regulatory sanction described in (a) or (b) above, AICA may
terminate this Agreement irrespective of any cure.
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f) Any criminal act by AGENCY or any of its principals which, in AICA's
opinion, materially affects AGENCY's ability to perform any of its
duties under this Agreement.
g) Filing of a petition in bankruptcy, the reorganization under bankruptcy
laws, or filing of an agreement providing for execution payment of
debts of AGENCY. The dissolution, sale, change of ownership, or any
substantial reorganization of AGENCY, which, in AICA's opinion, affects
AGENCY's ability to perform any of its duties under this Agreement.
h) Failure by AGENCY to cooperate and participate in any complaint,
charge, or other proceeding to the extent requested by AICA.
i) Knowing or intentionally making false or misleading statements about
AICA or its products by AGENCY, its principals, agents, or employees.
j) Fraud by AGENCY, or the creation of liability for AICA due to
misfeasance or malfeasance by AGENCY.
6.3 CONSEQUENCES OF TERMINATION FOR CAUSE: If the Agreement is terminated for
cause under Section 6.2, AICA shall owe no liquidated or other damages to AGENCY
under this Agreement
6.4 TERMINATION WITHOUT CAUSE BY AICA: AICA may terminate this Agreement at any
time without cause by giving 90 days advance written notice to AGENCY. If AICA
terminates this Agreement without cause, AICA shall not owe AGENCY any further
compensation or damages, liquidated or otherwise.
6.5 TERMINATION WITHOUT CAUSE BY AGENCY: AGENCY may terminate this Agreement
by giving 90 days advance written notice to AICA. If AGENCY terminates this
Agreement without cause, AGENCY shall not owe liquidated damages to AICA and
AICA shall not owe AGENCY further compensation, or damages, liquidated or
otherwise.
6.6 RETURN OF MATERIALS: Upon any termination, AGENCY shall promptly return
all AICA records, supplies and materials to AICA and shall cease all activities
under this Agreement on behalf of AICA. AICA shall promptly return all AGENCY
materials.
SECTION 7. SERVICES
7.1 AGENCY agrees to perform the administrative services and duties necessary
to support the marketing, sale and retention of the Group and Individual
Contracts and Certificates, including the provision of services to BROKER 2,
BROKER 1, and Registered Representatives during the term of this Agreement.
AGENCY may provide
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such services directly or, with the prior written approval of AICA, through
consultants or subsidiaries. These services shall include, but are not limited
to:
a) SUBMITTING LICENSING AND REGISTRATION INFORMATION. AGENCY shall assist
in gathering the information and forms required in connection with the
appointment of licensed insurance agents and shall forward such
information and forms to AICA in good order. AICA shall reimburse
AGENCY for all fees incurred in appointing the insurance agents.
b) SERVICING OF REGISTERED REPRESENTATIVES. AGENCY shall provide
technical and administrative assistance to the Registered
Representatives of BROKER 1 and BROKER 2, and their administrative
staff where required, in connection with the solicitation, offer and
sale and/or the servicing of the Group and Individual Contracts and
Certificates.
c) REVIEW OF APPLICATION & ENROLLMENT FORMS. AGENCY shall process and
forward to AICA only those applications and enrollment forms which
conform to AICA's underwriting rules and which are in "good order" and
are submitted by properly licensed, registered and appointed Registered
Representatives. AGENCY shall deliver applications and enrollment
forms, and any initial deposit received therewith, to AICA within one
business day following receipt by AGENCY of said applications and
forms. Within 4 days of receipt by AGENCY of any application or
enrollment form that is not in "good order," or such later time as
allowed by the applicant, AGENCY shall either forward said application
or enrollment form to AICA if revised to "good order" or return same to
the Registered Representative to remedy any deficiencies.
d) ENFORCE UNDERWRITING RULES. AGENCY shall, in reviewing any enrollment
or application forms, enforce and build into its processing system all
pertinent ALIAC underwriting rules as provided to AGENCY by AICA.
These underwriting rules may be changed by AICA upon 30 days advanced
written notice to AGENCY. AICA, in its sole discretion, may grant an
exception to any underwriting rule. AICA's agreement to any exception
must be communicated to AGENCY in writing.
e) SUPERVISE EMPLOYEES. AGENCY shall supervise and be fully responsible
for the activities of all of its employees and agents who perform
services under this Agreement.
f) DESIGN OF PROMOTIONAL MATERIALS. AGENCY shall assist AICA in creating
the design and content of marketing and sales literature and materials
used to retain the Group and Individual Contracts.
g) DISTRIBUTION OF PROMOTIONAL MATERIALS. AGENCY shall coordinate the
distribution of marketing and sales literature and materials used to
retain the
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Group and Individual Contracts. AGENCY agrees to use only such
literature and materials that have been approved in writing by AICA
and, if required, filed with and approved by the NASD.
h) EDUCATION/TRAINING. Subject to AICA's review and approval, AGENCY
shall conduct product training programs to provide Registered
Representatives with the information necessary for the sale of
Contracts. Such training shall cover the basic requirements of the
nonqualified annuity and Individual Retirement Annuity business,
standards for submitting business to AICA, AICA's concerns with respect
to the sale of Contracts, and any other matter which AICA deems
appropriate for the training of Registered Representatives to sell
Contracts, including AICA's standards with respect to sales practices.
All literature materials and manuals used in training Registered
Representatives shall be reviewed and approved by AICA.
i) DEVELOPMENT OF DATA BASE OF REGISTERED REPRESENTATIVE SALES ACTIVITY
AND VOLUME OF SALES. AGENCY shall create and maintain a data base to
monitor Registered Representative sales activity and volume of
production. This data base will be made available to AICA as
requested.
j) MARKETING AND SALES MATERIAL SUPPLIES. AGENCY shall maintain
sufficient supplies of marketing and sales literature and retention
materials as provided by AICA to satisfy the needs of the Registered
Representatives selling Group and Individual Contracts and/or
soliciting Certificates. AGENCY shall notify AICA of any literature
shortages or requirements in sufficient time to allow AICA to replenish
or create the needed material.
k) RECORD KEEPING; RIGHT OF INSPECTION. AGENCY and AICA agree to keep the
necessary records, as required by applicable state and federal laws and
acceptable business practices, and to render the necessary assistance
to one another for the accurate and timely preparation of such records.
AICA, its representatives or the representatives of any regulatory body
with jurisdiction, shall, during normal business hours and upon
reasonable notice, have access to any record maintained by AGENCY
regarding Group and Individual Contracts and Certificates or
compensation paid relating to such contracts for purposes of reviewing
or copying in the event of a routine internal compliance audit,
regulatory audit, or compliance or regulatory problem, or for
inspection of records AGENCY maintains with respect to any AICA
contract. AGENCY, during normal business hours an upon reasonable
notice, shall have access to any records maintained by AICA accounting
for Purchase Payments and surrenders, and related commissions. This
section shall survive termination of this Agreement.
l) PROCEDURES. AGENCY and its employees, representatives, agents,
subsidiaries and consultants shall follow AICA procedures, as
determined by AICA from
8
<PAGE>
time to time, regarding forms, applications and other such matters as
may arise with respect to providing administrative services to support
the marketing and distribution of Contracts.
m) POLICYHOLDER SERVICE. AGENCY shall keep an inventory of policyholder
service forms in order to fulfill supply requests from Registered
Representatives. AICA shall be the primary source of policyholder
service, but AGENCY shall, when appropriate and not prohibited by any
law or regulation, assist in facilitating and expediting policyholder
service.
n) DISCLOSURE INFORMATION. AGENCY will provide, in writing and on a
timely basis, any information requested by AICA with respect to AICA's
obligation to provide full and fair disclosure to potential or existing
customers of the Group and Individual Contracts and for any
prospectuses, registration statements or other documents which may be
required to be filed or maintained by any federal or state laws or
regulations.
SECTION 8. GENERAL
8.1 ADMINISTRATIVE INQUIRIES/CUSTOMER COMPLAINTS: Each party will immediately
notify the other of any regulatory or administrative investigation or inquiry,
claim or judicial proceeding which may affect the Group or Individual Contracts
or Certificates marketed or the services rendered under this Agreement. Each
party will immediately notify the other of receipt of any customer complaint or
grievance concerning the marketing or servicing of the Group or Individual
Contracts or Certificates. Within five (5) business days after receipt by any
party of notice of such investigation, inquiry, claim or judicial proceeding or
customer complaint, as specified above, that party will notify the other by
forwarding a copy of all documents received in connection with the matter and
will communicate to the others all additional information necessary to provide a
complete understanding of the matter. AGENCY shall cooperate and assist AICA,
which will investigate and respond to all such inquiries, grievances and
complaints as AICA, in its sole discretion, deems appropriate. AICA reserves the
right to make a financial settlement with a particular customer in response to
such customer's allegation of an error, omission or wrongdoing by AGENCY. AICA
will notify AGENCY of any such settlement and, upon such notice, AGENCY shall
reimburse AICA for the amount of the settlement in the manner described in
Section 2.4
8.2 INDEPENDENT CONTRACTOR STATUS: In the performance of all responsibilities
under this Agreement, the relationship of AGENCY to AICA is that of an
independent contractor and none other. Nothing contained herein shall be
construed as establishing an employment, joint venture, or partnership
relationship between AGENCY and AICA.
8.3 WAIVER: Any party hereto may waive its right to require performance by any
other party of any provision of this Agreement. If any party hereto does so
waive, it may require performance at a later time. If any party hereto waives
the breach of any provision
9
<PAGE>
of this Agreement by another party, the waiving party retains the right to
require performance of that provision, and such waiver shall not be construed to
waive subsequent breaches of that provision or any breaches of any other
provision.
8.4 MODIFICATION: No party hereto shall be bound by any promise, agreement,
understanding or representation relative to the subject matter of this
Agreement, unless the same is made by an instrument in writing, signed by an
officer of each party, which expresses by its terms an intention to modify this
Agreement. Any such amendment agreed to in writing shall be made a part of this
Agreement.
8.5 INDEMNIFICATION BY AICA: AICA shall defend, indemnify and hold harmless
AGENCY, its directors, officers and employees against any losses, liabilities,
claims, damages, or expenses, or action with respect to these, arising out of or
in connection with this Agreement to which AGENCY may become subject (including
all costs of investigating, disputing, or defending any such claim or action)
insofar as such losses, liabilities, claims, damages or expenses arise out of or
result from errors, omissions, negligence, fraud, bad faith, or willful
misfeasance or unauthorized acts
1) by AICA or any officer, director, employee, or agent appointed,
utilized or employed by AICA or
2) by any employee, agent or representative of AICA who acts with the
authorization, recommendation or consent of AICA.
8.6 INDEMNIFICATION BY AGENCY: AICA shall defend, indemnify and hold harmless
AICA, its affiliated companies, their directors, officers, and employees,
against any losses, liabilities, claims, damages or expenses, or actions with
respect to these, arising out of or in connection with this Agreement to which
AICA may become subject (including all costs of investigating, disputing or
defending any such claim or action) insofar as such losses, liabilities, claims,
damages and expenses arise out of or result from errors, omissions, negligence,
fraud, bad faith or willful misfeasance or unauthorized acts
a) by AGENCY, or any officer, director, employee, consultant or agent
utilized or employed by AGENCY, or
b) by any employee, agent, consultant, or representative who acts with the
authorization, recommendation, or consent of AGENCY.
8.7 NOTICE OF ACTION: After receipt by an indemnified party of notice of the
commencement of any action with respect to which a claim will be made against an
indemnifying party, such indemnified party shall notify the indemnifying party
promptly in writing of the commencement of the action. The failure to so notify
the indemnifying party shall not relieve the indemnifying party from any
liability which it may otherwise have to any indemnified party except and to the
extent the indemnifying party is prejudiced thereby. In any such action where
the indemnified party has given the notice described in
10
<PAGE>
this Section 8.7, the indemnifying party shall be entitled to participate in
and, to the extent that it shall wish, jointly assume defense of the action with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party). After
notice to such indemnified party that the indemnifying party has elected to
assume defense of the action, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense other than reasonable costs of
investigation.
8.8. NOTICES: Any notice required by or given in connection with this Agreement
shall be in writing. Notice shall be deemed to be given on the date of service
if served personally on the party to whom notice is to be given, or on the date
of mailing if sent by registered or certified mail, postage prepaid, to the
addresses set forth below, or to any other address as such party may designate
in writing:
Notice to AGENCY: [Name]
Notice to ALIAC: Aetna Insurance Company of America
Annuity Operations
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Compliance Officer
8.9 CONTROLLING LAW: This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
8.10 DISPUTE RESOLUTION: If any dispute arises out of this Agreement or its
termination, all parties will use their best efforts to resolve the dispute
informally, including, if desired by all parties, referring the dispute to a
mutually acceptable mediator. In the event that informal resolution is not
achieved, the dispute will be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
8.11 SEVERABILITY: If any portion or all of any Section or Sections, or any
application thereof, shall become invalid, illegal, or unenforceable for any
reason, the remainder of this Agreement and any other application of such
provision shall not be affected thereby.
8.12 HEADINGS: The headings and titles of paragraphs contained in this
agreement are for convenience only and have no effect upon the construction or
interpretation of any part of this Agreement.
8.13 COUNTERPARTS: This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
11
<PAGE>
8.14 EXECUTION: This Agreement shall first be executed by AGENCY and shall not
be effective until thereafter accepted and executed by AICA at which time it
shall be effective.
8.15 ENTIRE AGREEMENT: This Agreement constitutes the entire agreement of the
parties and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties, and there
are no warranties, representations and/or agreement between the parties in
conjunction with the subject matter hereof except as set forth in this
Agreement.
IN WITNESS WHEREOF, the parties of this Agreement have caused it to be executed.
AETNA INSURANCE COMPANY OF AMERICA
By
-----------------------------------
Title
--------------------------------
Date
---------------------------------
STATE OF CONNECTICUT )
ss. Hartford
COUNTY OF HARTFORD )
On this, the _____ day of ____________, 1995, before me, _______________, the
undersigned officer, personally appeared _____________, who acknowledged himself
to be the __________________ of Aetna Insurance Company of America, a
corporation, and that he, as such ___________, being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation by himself as __________________.
IN WITNESS WHEREOF, I hereunto set my hand.
-------------------------------------------
12
<PAGE>
AGENCY, INC.
By
-----------------------------------
Title
--------------------------------
Date
---------------------------------
STATE OF )
ss.
COUNTY OF )
On this, the _____ day of ____________, 1995, before me, _______________, the
undersigned officer, personally appeared _____________, who acknowledged himself
to be the __________________ of AGENCY, Inc., a corporation, and that he, as
such ___________, being authorized so to do, executed the foregoing instrument
for the purposes therein contained, by signing the name of the corporation by
himself as __________________.
13
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Insurance Company of America
and Contract Owners of Variable Annuity Account I:
We consent to the use of our reports dated February 16, 1996 and March 20, 1996
included herein and to the references to our Firm under the captions "Condensed
Financial Information" in the Prospectus and "Independent Auditors" in the
Statement of Additional Information.
Our report dated March 20, 1996 refers to a change in 1993 in the Company's
method of accounting for certain investments in debt and equity securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 22, 1996
<PAGE>
151 Farmington Avenue SUSAN E. BRYANT
Hartford, CT 06156 Counsel
Law and Regulatory Affairs, RE4C
(860) 273-7834
Fax: (860) 273-8340
April 22, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Variable Annuity Account I of Aetna Insurance Company of America
Post-Effective Amendment No. 1 to the Registration Statement on Form N-4
FILE NOS. 33-59749 AND 811-8582
Gentlemen:
As Counsel of Aetna Insurance Company of America (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1996 (incorporated herein
by reference to the 24f-2 Notice for the fiscal year ended December 31, 1995
filed on behalf of Variable Annuity Account I of Aetna Insurance Company of
America on February 29, 1996) as an exhibit to this Post-Effective Amendment
No. 1 to the Registration Statement on Form N-4 (File No. 33-59749) and to my
being named under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Insurance Company of America
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-28-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 32,391,608
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