As filed with the Securities and Exchange File No. 33-59749
Commission on April 18, 2000 File No. 811-8582
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
POST-EFFECTIVE AMENDMENT NO. 11 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment to
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Variable Annuity Account I of Aetna Insurance Company of America
Aetna Insurance Company of America
5100 West Lemon Street, Suite 213, Tampa, Florida 33609
Depositor's Telephone Number, including Area Code (860) 273-4686
Julie E. Rockmore, Counsel
Aetna Insurance Company of America
151 Farmington Avenue, TS31, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
|_| immediately upon filing pursuant to paragraph (b) of Rule 485
|X| on May 1, 2000 pursuant to paragraph (b) of Rule 485
<PAGE>
VARIABLE ANNUITY ACCOUNT I
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
FORM N-4 LOCATION - PROSPECTUS DATED
ITEM NO. PART A (PROSPECTUS) MAY 1, 2000
1 Cover Page.......................... Cover Page
2 Definitions......................... Not Applicable
3 Synopsis............................ Contract Overview; Fee Table
4 Condensed Financial Information..... Condensed Financial
Information; Appendix IV -
Condensed Financial Information
5 General Description of Registrant,
Depositor, and Portfolio Companies.. Other Topics - The Company;
Variable Annuity Account I;
Appendix III - Description of
Underlying Funds
6 Deductions and Expenses............. Fees
7 General Description of Variable
Annuity Contracts................... Contract Overview; Other Topics
8 Annuity Period...................... The Income Phase
9 Death Benefit....................... Death Benefit
10 Purchases and Contract Value........ Purchase and Rights; Your
Account Value
11 Redemptions......................... Right to Cancel
12 Taxes............................... Taxation
13 Legal Proceedings................... Other Topics - Legal Matters
and Proceedings
14 Table of Contents of the
Statement of Additional
Information......................... Contents of the Statement of
Additional Information
<PAGE>
LOCATION - STATEMENT OF
FORM N-4 PART B (STATEMENT OF ADDITIONAL INFORMATION
ITEM NO. ADDITIONAL INFORMATION) DATED MAY 1, 2000
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 Offering and Purchase of
Offered............................ Contracts
20 Underwriters....................... Offering and Purchase of
Contracts
21 Calculation of Performance Data.... Performance Data; Average
Annual Total Return Quotations
22 Annuity Payments................... Income Phase Payments
23 Financial Statements............... Financial Statements
Part C (Other Information)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
Contract Prospectus - May 1, 2000
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The Funds
o Aetna Ascent VP
o Aetna Balanced VP, Inc.
o Aetna Income Shares d/b/a Aetna Bond VP
o Aetna Crossroads VP
o Aetna Growth VP
o Aetna Variable Fund d/b/a Aetna Growth and Income VP
o Aetna Index Plus Large Cap VP
o Aetna International VP
o Aetna Legacy VP
o Aetna Variable Encore Fund d/b/a Aetna Money Market VP
o Aetna Real Estate Securities VP*
o Aetna Small Company VP
o Aetna Technology VP
o Aetna Value Opportunity VP
o Calvert Social Balanced Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Equity-Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Growth Portfolio
o Fidelity Variable Insurance Products Fund (VIP) High Income Portfolio
o Fidelity Variable Insurance Products Fund (VIP) Overseas Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Asset Manager Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Contrafund[RegTM]
Portfolio
o Fidelity Variable Insurance Products Fund II (VIP II) Index 500 Portfolio
o Janus Aspen Aggressive Growth Portfolio
o Janus Aspen Balanced Portfolio
o Janus Aspen Flexible Income Portfolio
o Janus Aspen Growth Portfolio
o Janus Aspen Worldwide Growth Portfolio
o MFS Global Governments Series
o MFS Total Return Series
o Oppenheimer Aggressive Growth Fund/VA
o Oppenheimer Global Securities Fund/VA
o Oppenheimer Main Street Growth and Income Fund/VA
o Oppenheimer Strategic Bond Fund/VA
o Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
PPI MFS Value Equity Portfolio)
o Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
o Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
o Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
o Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
The Contracts. The contracts described in this prospectus are group or
individual "Aetna Marathon Plus" deferred variable annuity contracts issued by
Aetna Insurance Company of America (the Company, we, us). They are issued to
you, the contract holder, as either a nonqualified deferred annuity; a qualified
individual retirement annuity (IRA) under section 408(b) of the Internal Revenue
Code of 1986, as amended (Tax Code); a qualified Roth IRA under section 408A of
the Tax Code; or as a qualified contract for use with certain employer sponsored
retirement plans.
Prior to May 1, 1998, the contracts were available as tax deferred annuities as
described under section 401(a) of the Tax Code.
The contracts are not available as SIMPLE IRAs under Tax Code section 408(p).
- --------------------------------------------------------------------------------
Why Reading this Prospectus Is Important. This prospectus contains facts about
the contracts and their investment options that you should know before
purchasing. This information will help you decide if the contracts are right for
you. Please read this prospectus carefully.
Table of Contents . . . page 3
- --------------------------------------------------------------------------------
Investment Options. The contracts offer variable investment options and fixed
interest options. When we establish your account you instruct us to direct
account dollars to any of the available options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account I (the separate account), a
separate account of the Company. Each subaccount invests in one of the mutual
funds listed on this page. Earnings on amounts invested in a subaccount will
vary depending upon the performance of its underlying fund. You do not invest
directly in or hold shares of the funds.
Risks Associated with Investing in the Funds. The funds in which the subaccounts
invest have various risks. Information about the risks of investing in the funds
is located in the "Investment Options" section on page 11, in Appendix III--
Description of Underlying Funds and in each fund prospectus. Read this
prospectus in conjunction with the fund prospectuses, and retain the
prospectuses for future reference.
Getting Additional Information. You may obtain the May 1, 2000, Statement of
Additional Information (SAI) about the separate account by indicating your
request on your application or calling us at 1-800-238-6219. You may also obtain
an SAI for any of the funds by calling that number. The SEC also makes available
to the public reports and information about the separate account and the funds.
Certain reports and information, including this prospectus and SAI, are
available on the EDGAR Database on the Securities and Exchange Commission (SEC)
web site, www.sec.gov, or at the SEC Public Reference Room in Washington, D.C.
You may call 1-202-942-8090 to get information about the operations of the
Public Reference Room. You may obtain copies of reports and other information
about the separate account and the funds, after paying a duplicating fee, by
sending an e-mail request to [email protected] or by writing to the SEC Public
Reference Section, Washington, D.C. 20549-0102. The SAI table of contents is
listed on page 51 of this prospectus. The SAI is incorporated into this
prospectus by reference.
Additional Disclosure Information. Neither the SEC nor any state securities
commission has approved or disapproved the securities offered through this
prospectus or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense. We do not intend for this
prospectus to be an offer to sell or a solicitation of an offer to buy these
securities in any state that does not permit their sale. We have not authorized
anyone to provide you with information that is different than that contained in
this prospectus.
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund except those made pursuant to standing
instructions (e.g., dollar cost averaging, account rebalancing) in effect prior
to this date. See "Important Information Regarding the Aetna Real Estate
Securities VP Subaccount."
<PAGE>
Prospectus - May 1, 2000 (continued)
- --------------------------------------------------------------------------------
Fixed Interest Options.
> AICA Guaranteed Account (the Guaranteed Account)
> Fixed Account
Except as specifically mentioned, this prospectus describes only the investment
options offered through the separate account. However, we describe the fixed
interest options in appendices to this prospectus. There is also a separate
Guaranteed Account prospectus.
Availability of Options. Some funds or fixed interest options may be unavailable
through your contract or in your state.
Important Information Regarding the Aetna Real Estate Securities VP Subaccount
Subaccount to be Closed to New Investments. Effective May 15, 2000, the Aetna
Real Estate Securities VP subaccount will no longer be available for new
investments. After that date we will only accept deposits into the subaccount
investing in this fund if they are made pursuant to standing instructions (e.g.,
dollar cost averaging, account rebalancing, etc.) in effect before the close of
business on May 12, 2000.
Fund Shares to be Substituted with Shares of Aetna Money Market VP.
Plan of Substitution. On or before September 1, 2000, subject to applicable
regulatory approvals and the requisite vote of shareholders of the applicable
fund, any existing balance in Aetna Real Estate Securities VP will be invested
in (substituted with) shares of Aetna Money Market VP. You will not incur any
fees or charges as a result of the substitution. In addition, on and after
September 1, 2000, all investment allocations then being directed to the Aetna
Real Estate Securities VP subaccount will be redirected to the Aetna Money
Market VP subaccount. We do not believe that the substitution will create any
tax liability.
Transfer Rights. At any time prior to the date of substitution, you may transfer
your accumulated values from funds investing in substituted funds into any other
investment option available under your contract and no transfer fees or other
charges will be imposed. From and after the date of substitution, you may, if
you had values transferred from a subaccount as a result of a substitution,
transfer among any of the remaining investment options in accordance with the
terms of your contract and free of any transfer fees and charges. Any such
transfer will not be counted as one of the free transfers permitted under your
contract, provided that the transfer occurs prior to, or within 90 days after,
the substitution.
Surrender Rights. If you had shares substituted and elect to make a surrender
under the contract (if permitted by applicable tax law) within 30 days after the
date of the substitution, we will waive any early withdrawal charge on amounts
transferred as a result of the substitution. This offer to waive the early
withdrawal charge will not apply to amounts transferred after April 10, 2000
from the other investment options to the Aetna Real Estate Securities VP
subaccount. If you exercise this surrender right, you may incur income tax
liability and a tax penalty. See the "Taxation" section of this prospectus for a
discussion of tax consequences resulting from surrender. You should seek
qualified tax advice before exercising your surrender rights.
These contracts are not deposits with, obligations of or guaranteed by any bank,
nor are they insured by the FDIC. The contracts are subject to investment risk,
including the possible loss of the principal amount of your investment.
<PAGE>
TABLE OF CONTENTS
<TABLE>
- --------------------------------------------------------------
<S> <C>
Contract Overview ........................................ 4
Contract Design
Contract Facts
Questions: Contacting the Company (sidebar)
Sending Forms and Written Requests in Good Order (sidebar)
Sending Additional Purchase Payments (sidebar)
Contract Phases: The Accumulation Phase, The Income Phase
- --------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Fee Table ................................................. 6
Condensed Financial Information ........................... 12
Investment Options ........................................ 12
Transfers Among Investment Options ........................ 14
Purchase and Rights ....................................... 16
Right to Cancel ........................................... 17
Fees ...................................................... 18
Your Account Value ........................................ 23
Withdrawals ............................................... 25
Systematic Distribution Options ........................... 27
Death Benefit ............................................. 28
The Income Phase .......................................... 32
Taxation .................................................. 36
Other Topics .............................................. 46
</TABLE>
The Company -- Variable Annuity Account I -- Contract Distribution -- Payment
of Commissions -- Payment Delay or Suspension -- Performance Reporting --
Voting Rights -- Contract Modifications -- Transfer of Ownership: Assignment --
Involuntary Terminations -- Legal Matters and Proceedings
<TABLE>
<S> <C>
Contents of the Statement of Additional Information ....... 51
Appendix I -- AICA Guaranteed Account ..................... 52
Appendix II -- Fixed Account .............................. 55
Appendix III -- Description of Underlying Funds ........... 56
Appendix IV -- Condensed Financial Information ............ 78
</TABLE>
3
<PAGE>
[BEGIN SIDEBAR]
Questions: Contacting the Company. To answer your questions, contact your sales
representative or write or call the Company's Service Center at:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, CT 06156-1277
1-800-238-6219
Sending Forms and Written Requests in Good Order.
If you are writing to change your beneficiary, request a withdrawal or for any
other purpose, contact us or your sales representative to learn what
information is required for the request to be in "good order." We can only act
upon requests that are received in good order.
Sending Additional Purchase Payments.
Use one of the following addresses when sending additional purchase payments.
If using the U.S. Postal Service:
AICA
Attn: New Business Unit
P.O. Box 30670
Hartford, CT 06150-0670
If using express mail:
Fleet Bank/AICA #30670
Lockbox-CT/EH F03E
99 Founders Plaza, 3rd Floor
East Hartford, CT 06108
Express mail packages should not be sent to the P.O. Box address.
[END SIDEBAR]
Contract Overview
- --------------------------------------------------------------------------------
The following is intended as a summary. Please read each section of this
prospectus for additional detail.
- --------------------------------------------------------------------------------
Contract Design
- --------------------------------------------------------------------------------
The contract described in this prospectus is a group or individual deferred
variable annuity contract. It is intended to be a retirement savings vehicle
that offers a variety of investment options to help meet long-term financial
goals. The term "contract" in this prospectus refers to individual contracts and
to certificates issued under group contracts.
- --------------------------------------------------------------------------------
Contract Facts
- --------------------------------------------------------------------------------
Free Look/Right to Cancel. You may cancel your contract within ten days (some
states require more than ten days) of receipt. See "Right To Cancel."
Death Benefit. Your beneficiary may receive a financial benefit in the event of
your death prior to the income phase. Any death benefit during the income phase
will depend upon the income phase payment option selected. See "Death Benefit"
and "The Income Phase."
Withdrawals. During the accumulation phase you may withdraw all or part of your
account value. Certain fees, taxes and early withdrawal penalties may apply. In
addition, the Tax Code restricts full and partial withdrawals in some
circumstances. See "Withdrawals." Amounts withdrawn from the Guaranteed Account
may be subject to a market value adjustment. See Appendix I.
Systematic Distribution Options. These are made available for you to receive
periodic withdrawals from your account, while retaining the account in the
accumulation phase. See "Systematic Distribution Options."
Fees and Expenses. Certain fees and expenses are deducted from the value of
your contract. See "Fee Table" and "Fees."
Taxation. You will generally not pay taxes on any earnings from the annuity
contract described in this prospectus until they are withdrawn. Tax-qualified
retirement arrangements (e.g., IRAs or 401(a), 403(b) and 457 plans) also defer
payment of taxes on earnings until they are withdrawn. If you are considering
funding a tax-qualified retirement arrangement with an annuity contract, you
should know that the annuity contract does not provide any additional tax
deferral of earnings beyond the tax deferral provided by the tax-qualified
retirement arrangement. However, annuities do provide other features and
benefits which may be valuable to you. You should discuss your decision with
your financial representative.
Taxes will generally be due when you receive a distribution. Tax penalties may
apply in some circumstances. See "Taxation."
4
<PAGE>
- --------------------------------------------------------------------------------
Contract Phases
- --------------------------------------------------------------------------------
I. The Accumulation Phase (accumulating dollars under your contract)
STEP 1: You provide us with your completed application and initial purchase
payment. We establish an account for you and credit that account with your
initial purchase payment.
STEP 2: You direct us to invest your purchase payment in one or more of the
following investment options:
(a) Fixed Interest Options; or
(b) Variable Investment Options. (The variable investment options are the
subaccounts of Variable Annuity Account I. Each one invests in a specific
mutual fund.)
STEP 3: Each subaccount you select purchases shares of its assigned fund.
--------------
Payments to
Your Account
--------------
Step 1
- --------------------------------------------
Aetna Insurance Company of America
- --------------------------------------------
(a) Step 2 (b)
- ---------- --------------------------------
Variable Annuity
Fixed Separate Account I
Interest
Options Variable Investment Options
- ---------- --------------------------------
The Subaccounts
--------------------------------
| |
A | B | Etc.
| |
--------------------------------
Step 3
---------------------
Mutual Mutual
Fund A Fund B
---------------------
II. The Income Phase (receiving income phase payments from your contract)
When you want to begin receiving payments from your contract, you may select
from the options available. The contract offers several income phase payment
options (see "The Income Phase"). In general, you may:
> Receive income phase payments for a specified period of time or for life;
> Receive income phase payments monthly, quarterly, semi-annually or annually;
> Select an income phase option that provides for payments to your beneficiary;
or
> Select income phase payments that are fixed or vary depending upon the
performance of the variable investment options you select.
5
<PAGE>
In this Section:
> Maximum Transaction Fees
> Maximum Fees Deducted from Investments in the Separate Account
> Fees Deducted by the Funds
> Hypothetical Examples
Also see the "Fees" section for:
> How, When and Why Fees are Deducted
> Reduction, Waiver and/or Elimination of Certain Fees
> Premium and Other Taxes
Fee Table
- --------------------------------------------------------------------------------
The tables and examples in this section show the fees that may affect your
account value during the accumulation phase. See "The Income Phase" for fees
that may apply after you begin receiving income phase payments under the
contract. The fees shown do not reflect any premium tax that may apply.
Maximum Transaction Fees
Early Withdrawal Charge (As a percentage of the purchase payments withdrawn.)
<TABLE>
<CAPTION>
Contracts Other Than Roth IRA Contracts
==============================================
Early
Years From Receipt Withdrawal
of Purchase Payment Charge
- ------------------------------- ----------
<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>
<CAPTION>
Roth IRA Contracts(1)
=============================================
Early
Withdrawal
Completed Account Years Charge
- ------------------------------- ----------
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ----------------------------------------------
</TABLE>
Annual Maintenance Fee $30.00(2)
Transfer Charge $0.00(3)
Maximum Fees Deducted from Investments in the Separate Account
Amount During the Accumulation Phase. (Daily deductions, equal to the following
percentages on an annual basis, from amounts invested in the subaccounts.)
> Contracts other than Roth IRA Contracts Issued before May 1, 1998
<TABLE>
<S> <C>
Mortality and Expense Risk Charge 1.25%(4)
Administrative Expense Charge 0.15%
-------
Total Separate Account Expenses 1.40%
=======
</TABLE>
> Roth IRA Contracts and Contracts Issued on or after May 1, 1998
<TABLE>
<S> <C>
Mortality and Expense Risk Charge 1.10%(4)
Administrative Expense Charge 0.15%
--------
Total Separate Account Expenses 1.25%
========
</TABLE>
(1)If the purchase payment is a rollover from another contract issued by us or
one of our affiliates and the early withdrawal charge was waived, the early
withdrawal charge will be based on the number of completed account years since
the date of the initial payment to the former contract.
(2)The annual maintenance fee will be waived if your account value is $50,000 or
greater on the date this fee is due. See "Fees -- Annual Maintenance Fee."
(3)During the accumulation phase, we currently allow you 12 free transfers each
calendar year. We reserve the right to charge $10 for each additional transfer.
We currently do not impose this charge. See "Transfers."
(4)Under certain contracts the mortality and expense risk charge during the
accumulation period may be reduced. See "Fees -- Mortality and Expense Risk
Charge."
6
<PAGE>
Amount During the Income Phase. (Daily deductions, equal to the following
percentages on an annual basis, from amounts invested in the subaccounts.)
> All Contracts
<TABLE>
<S> <C>
Mortality and Expense Risk Charge 1.25%(4)
Administrative Expense Charge 0.00%--0.25%(5)
---------------
Total Separate Account Expenses 1.25%--1.50%
===============
</TABLE>
(4)Under certain contracts the mortality and expense risk charge during the
accumulation period may be reduced. See "Fees -- Mortality and Expense Risk
Charge."
(5)We currently do not deduct an administrative expense charge during the income
phase; however, we reserve the right to deduct a daily charge of not more than
0.25% per year. See "The Income Phase -- Charges Deducted."
7
<PAGE>
Fees Deducted by the Funds
Using this information. The following table shows the investment advisory fees
and other expenses charged annually by each fund. Fund fees are one factor that
impacts the value of a fund share. To learn about additional factors impacting
the share value, refer to the fund prospectus.
How fees are deducted. The fund fees are not deducted from account values.
Instead, they are deducted from the value of the fund shares on a daily basis,
which in turn affects the value of each subaccount that purchases fund shares.
Except as noted below, the following figures are a percentage of the average
net assets of each fund, and are based on figures for the year ended December
31, 1999.
Fund Expense Table
<TABLE>
<CAPTION>
Total Fund Net Fund
Annual Annual
Expenses Expenses
Investment Without Total After
Advisory Other Waivers or Waivers and Waivers or
Fund Name Fees(1) Expenses Reductions Reductions Reductions
- --------- ------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP(2) 0.60% 0.14% 0.74% 0.00% 0.74%
Aetna Balanced VP, Inc. 0.50% 0.09% 0.59% -- 0.59%
Aetna Bond VP 0.40% 0.09% 0.49% -- 0.49%
Aetna Crossroads VP(2) 0.60% 0.14% 0.74% 0.04% 0.70%
Aetna Growth VP(2) 0.60% 0.11% 0.71% 0.00% 0.71%
Aetna Growth and Income VP 0.50% 0.08% 0.58% -- 0.58%
Aetna Index Plus Large Cap VP(2) 0.35% 0.10% 0.45% 0.00% 0.45%
Aetna International VP(2) 0.85% 0.77% 1.62% 0.47% 1.15%
Aetna Legacy VP(2) 0.60% 0.15% 0.75% 0.10% 0.65%
Aetna Money Market VP 0.25% 0.09% 0.34% -- 0.34%
Aetna Real Estate Securities VP(2) 0.75% 0.74% 1.49% 0.54% 0.95%
Aetna Small Company VP(2)) 0.75% 0.13% 0.88% 0.00% 0.88%
Aetna Technology VP(2)(3) 0.95% 0.25% 1.20% 0.05% 1.15%
Aetna Value Opportunity VP(2) 0.60% 0.13% 0.73% 0.00% 0.73%
Calvert Social Balanced Portfolio(4) 0.70% 0.19% 0.89% 0.00% 0.89%
Fidelity VIP Equity-Income Portfolio(5) 0.48% 0.09% 0.57% -- 0.57%
Fidelity VIP Growth Portfolio(5) 0.58% 0.08% 0.66% -- 0.66%
Fidelity VIP High Income Portfolio(5) 0.58% 0.11% 0.69% -- 0.69%
Fidelity VIP Overseas Portfolio(5) 0.73% 0.18% 0.91% -- 0.91%
Fidelity VIP II Asset Manager Portfolio(5) 0.53% 0.10% 0.63% -- 0.63%
Fidelity VIP II Contrafund[RegTM] Portfolio(5) 0.58% 0.09% 0.67% -- 0.67%
Fidelity VIP II Index 500 Portfolio(6) 0.24% 0.10% 0.34% 0.06% 0.28%
Janus Aspen Aggressive Growth Portfolio(7) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Balanced Portfolio(7) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Flexible Income Portfolio(7) 0.65% 0.07% 0.72% 0.00% 0.72%
Janus Aspen Growth Portfolio(7) 0.65% 0.02% 0.67% 0.00% 0.67%
Janus Aspen Worldwide Growth Portfolio(7) 0.65% 0.05% 0.70% 0.00% 0.70%
MFS Total Return Series(8) 0.75% 0.15% 0.90% 0.00% 0.90%
MFS Global Governments Series(9) 0.75% 0.30% 1.05% 0.14% 0.91%
Oppenheimer Aggressive Growth Fund/VA 0.66% 0.01% 0.67% -- 0.67%
Oppenheimer Global Securities Fund/VA 0.67% 0.02% 0.69% -- 0.69%
Oppenheimer Main Street Growth and Income Fund/VA 0.73% 0.05% 0.78% -- 0.78%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78% -- 0.78%
PPI MFS Capital Opportunities Portfolio(10) 0.65% 0.25% 0.90% 0.00% 0.90%
PPI MFS Emerging Equities Portfolio(10) 0.67% 0.13% 0.80% 0.00% 0.80%
PPI MFS Research Growth Portfolio(10) 0.70% 0.15% 0.85% 0.00% 0.85%
PPI Scudder International Growth Portfolio(10) 0.80% 0.20% 1.00% 0.00% 1.00%
PPI T. Rowe Price Growth Equity Portfolio(10) 0.60% 0.15% 0.75% 0.00% 0.75%
</TABLE>
8
<PAGE>
Footnotes to the "Fund Expense Table"
(1) Certain of the fund advisers reimburse the company for administrative costs
incurred in connection with administering the funds as variable funding
options under the contract. These reimbursements are generally paid out of
the Investment Advisory Fees and are not charged to investors.
(2) The investment adviser is contractually obligated through December 31, 2000
to waive all or a portion of its investment advisory fee and/or its
administrative services fee and/or to reimburse a portion of other expenses
in order to ensure that the fund's "Total Fund Annual Expenses Without
Waivers or Reductions" do not exceed the percentage reflected under "Net
Fund Annual Expenses After Waivers or Reductions."
(3) Aetna Technology VP commenced operations on May 1, 2000. Amounts reflected
in "Other Expenses" and "Total Fund Annual Expenses Without Waivers or
Reductions" are estimated amounts for the current fiscal year based on
expenses for comparable funds. Actual expenses may vary from those shown.
(4) "Other Expenses" reflect an indirect fee of 0.03% relating to an expense
offset arrangement with the portfolio's custodian. The amount shown under
Total Waivers and Reductions does not reflect a voluntary reduction of fees
paid indirectly. If this voluntary reduction of fees paid indirectly was
reflected, the amount shown under Net Fund Annual Expenses After Waiver or
Reductions would be 0.86%.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain
funds', or the investment adviser on behalf of certain funds', custodian,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. These credits are not
included under Total Waivers and Reductions. If these credits had been
included, the amounts shown under Net Fund Annual Expenses After Waivers or
Reductions presented in the table would have been 0.56% for Fidelity VIP
Equity-Income Portfolio; 0.65% for Fidelity VIP Growth Portfolio; 0.87% for
Fidelity VIP Overseas Portfolio; 0.62% for Fidelity VIP II Asset Manager
Portfolio; and 0.65% for Fidelity VIP II Contrafund[RegTM] Portfolio.
(6) The investment adviser agreed to reimburse a portion of Fidelity VIP II
Index 500 Portfolio's expenses during the period.
(7) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Aggressive
Growth, Balanced, Growth and Worldwide Growth Portfolios. All expenses are
shown without the effect of expense offset arrangements.
(8) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other Expenses"
shown above do not take into account these expense reductions, and are
therefore higher than the actual expenses of the series. Had these fee
reductions been taken into account, Net Fund Annual Expenses After Waivers
or Reductions would be lower and would equal 0.89% for the series.
(9) The series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. The series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. The "Other Expenses"
shown above do not take into account these expense reductions, and are
therefore higher than the actual expenses of the series. Had these fee
reductions been taken into account, Net Fund Annual Expenses After Waivers
or Reductions would be lower and would equal 0.90% for the series. In
addition, MFS has contractually agreed, subject to reimbursement, to bear
expenses for the series such that the series' actual Other Expenses (which
were 0.29% after taking into account the expense offset arrangement), do
not exceed 0.15% of the average daily net assets of the series during the
current fiscal year. This contractual fee arrangement will continue until
at least May 1, 2001, unless changed with the consent of the board of
trustees which oversees the series.
(10) The investment adviser has agreed to reimburse the portfolios for expenses
and/or waive its fees, so that, through at least April 30, 2001, the
aggregate of each portfolio's expenses will not exceed the combined
investment advisory fees and other expenses shown under the Net Fund Annual
Expenses After Waivers or Reductions column above.
9
<PAGE>
Hypothetical Example: For Contracts Other Than Roth IRA Contracts
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses, the maximum mortality and expense risk
charge of 1.25% annually, an administrative expense charge of 0.15% annually
and an annual maintenance fee of $30 (converted to a percentage of assets equal
to 0.022%). The total annual fund expenses used are those shown in the "Total
Fund Annual Expenses Without Waivers or Reductions" column in the Fund Expense
Table.
- -------------------------------------------------
> These examples are purely hypothetical.
> They should not be considered a
representation of past or future expenses or
expected returns.
> Actual expenses and/or returns may be
more or less than those shown in these
examples.
- -------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
<S> <C> <C>
If you withdraw your entire account If at the end of the periods shown you (1)
value at the end of the periods shown, leave your entire account value invested
you would pay the following expenses, or (2) select an income phase payment
including any applicable early option, you would pay the following
withdrawal charge: expenses (no early withdrawal charge is
reflected):*
</TABLE>
<TABLE>
<CAPTION>
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 Ascent VP $85 $121 $151 $249 $22 $68 $116 $249
Aetna Balanced VP, Inc. $83 $116 $144 $234 $20 $63 $108 $234
Aetna Bond VP $82 $113 $138 $223 $19 $60 $103 $223
Aetna Crossroads VP $85 $121 $151 $249 $22 $68 $116 $249
Aetna Growth VP $84 $120 $150 $246 $22 $67 $114 $246
Aetna Growth and Income VP $83 $116 $143 $233 $20 $63 $108 $233
Aetna Index Plus Large Cap VP $82 $112 $136 $219 $19 $59 $101 $219
Aetna International VP $94 $147 $195 $335 $31 $94 $160 $335
Aetna Legacy VP $85 $121 $152 $250 $22 $68 $116 $250
Aetna Money Market VP $81 $109 $131 $207 $18 $55 $ 95 $207
Aetna Real Estate Securities VP $92 $144 $189 $323 $29 $90 $153 $323
Aetna Small Company VP $86 $125 $158 $263 $23 $72 $123 $263
Aetna Technology VP $89 $135 $174 $295 $26 $81 $139 $295
Aetna Value Opportunity VP $85 $121 $151 $248 $22 $67 $115 $248
Calvert Social Balanced Portfolio $86 $126 $159 $264 $23 $72 $123 $264
Fidelity VIP Equity-Income Portfolio $83 $116 $143 $231 $20 $62 $107 $231
Fidelity VIP Growth Portfolio $84 $119 $147 $241 $21 $65 $112 $241
Fidelity VIP High Income Portfolio $84 $119 $149 $244 $21 $66 $113 $244
Fidelity VIP Overseas Portfolio $86 $126 $160 $266 $24 $73 $124 $266
Fidelity VIP II Asset Manager Portfolio $84 $118 $146 $238 $21 $64 $110 $238
Fidelity VIP II Contrafund[RegTM] Portfolio $84 $119 $148 $242 $21 $65 $112 $242
Fidelity VIP II Index 500 Portfolio $81 $109 $131 $207 $18 $55 $ 95 $207
Janus Aspen Aggressive Growth Portfolio $84 $119 $148 $242 $21 $65 $112 $242
Janus Aspen Balanced Portfolio $84 $119 $148 $242 $21 $65 $112 $242
Janus Aspen Flexible Income Portfolio $84 $120 $150 $247 $22 $67 $115 $247
Janus Aspen Growth Portfolio $84 $119 $148 $242 $21 $65 $112 $242
Janus Aspen Worldwide Growth Portfolio $84 $120 $149 $245 $21 $66 $114 $245
MFS Global Governments Series $88 $130 $167 $280 $25 $77 $131 $280
MFS Total Return Series $86 $126 $159 $265 $23 $72 $124 $265
Oppenheimer Aggressive Growth Fund/VA $84 $119 $148 $242 $21 $65 $112 $242
Oppenheimer Global Securities Fund/VA $84 $119 $149 $244 $21 $66 $113 $244
Oppenheimer Main Street Growth & Income
Fund/VA $85 $122 $153 $253 $22 $69 $118 $253
Oppenheimer Strategic Bond Fund/VA $85 $122 $153 $253 $22 $69 $118 $253
PPI MFS Capital Opportunities Portfolio $86 $126 $159 $265 $23 $72 $124 $265
PPI MFS Emerging Equities Portfolio $85 $123 $154 $255 $22 $69 $119 $255
PPI MFS Research Growth Portfolio $86 $124 $157 $260 $23 $71 $121 $260
PPI Scudder International Growth Portfolio $87 $129 $164 $275 $24 $75 $129 $275
PPI T. Rowe Price Growth Equity Portfolio $85 $121 $152 $250 $22 $68 $116 $250
</TABLE>
- ------------------------
* This example does not apply during the income phase if you select a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case the lump-sum payment
is treated as a withdrawal during the accumulation phase and may be subject
to an early withdrawal charge (refer to Example A).
10
<PAGE>
Hypothetical Example: For Roth IRA Contracts
Account Fees You May Incur Over Time. The following hypothetical examples show
the fees and expenses paid over time if you invest $1,000 in the contract and
assume a 5% annual return on the investment. For the purpose of these examples,
we deducted total annual fund expenses, the maximum mortality and expense risk
charge of 1.10% annually, an administrative expense charge of 0.15% annually
and an annual maintenance fee of $30 (converted to a percentage of assets equal
to 0.022%). The total annual fund expenses used are those shown in the "Total
Fund Annual Expenses Without Waivers or Reductions" column in the Fund Expense
Table.
- ------------------------------------------------
> These examples are purely hypothetical.
> They should not be considered a
representation of past or future expenses or
expected returns.
> Actual expenses and/or returns may be
more or less than those shown in these
examples.
- ------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
<S> <C> <C>
If you withdraw your entire account If at the end of the periods shown you (1)
value at the end of the periods shown, leave your entire account value invested
you would pay the following expenses, or (2) select an income phase payment
including any applicable early option, you would pay the following
withdrawal charge: expenses (no early withdrawal charge is
reflected):*
</TABLE>
<TABLE>
<CAPTION>
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 Ascent VP $56 $ 81 $108 $234 $20 $63 $108 $234
Aetna Balanced VP, Inc. $55 $ 76 $100 $218 $19 $58 $100 $218
Aetna Bond VP $54 $ 73 $ 95 $207 $18 $55 $ 95 $207
Aetna Crossroads VP $56 $ 81 $108 $234 $20 $63 $108 $234
Aetna Growth VP $56 $ 80 $107 $230 $20 $62 $107 $230
Aetna Growth and Income VP $55 $ 76 $100 $217 $19 $58 $100 $217
Aetna Index Plus Large Cap VP $53 $ 72 $ 93 $203 $17 $54 $ 93 $203
Aetna International VP $65 $107 $152 $321 $29 $89 $152 $321
Aetna Legacy VP $56 $ 81 $109 $235 $20 $63 $109 $235
Aetna Money Market VP $52 $ 69 $ 88 $191 $16 $51 $ 88 $191
Aetna Real Estate Securities VP $64 $103 $146 $309 $28 $86 $146 $309
Aetna Small Company VP $58 $ 85 $115 $248 $22 $67 $115 $248
Aetna Technology VP $61 $ 95 $131 $280 $25 $77 $131 $280
Aetna Value Opportunity VP $56 $ 81 $108 $233 $20 $63 $108 $233
Calvert Social Balanced Portfolio $58 $ 85 $116 $249 $22 $68 $116 $249
Fidelity VIP Equity-Income Portfolio $55 $ 76 $ 99 $216 $19 $58 $ 99 $216
Fidelity VIP Growth Portfolio $55 $ 78 $104 $225 $20 $61 $104 $225
Fidelity VIP High Income Portfolio $56 $ 79 $106 $228 $20 $61 $106 $228
Fidelity VIP Overseas Portfolio $58 $ 86 $117 $251 $22 $68 $117 $251
Fidelity VIP II Asset Manager Portfolio $55 $ 77 $103 $222 $19 $60 $103 $222
Fidelity VIP II Contrafund[RegTM] Portfolio $56 $ 79 $105 $226 $20 $61 $105 $226
Fidelity VIP II Index 500 Portfolio $52 $ 69 $ 88 $191 $16 $51 $ 88 $191
Janus Aspen Aggressive Growth Portfolio $56 $ 79 $105 $226 $20 $61 $105 $226
Janus Aspen Balanced Portfolio $56 $ 79 $105 $226 $20 $61 $105 $226
Janus Aspen Flexible Income Portfolio $56 $ 80 $107 $231 $20 $62 $107 $231
Janus Aspen Growth Portfolio $56 $ 79 $105 $226 $20 $61 $105 $226
Janus Aspen Worldwide Growth Portfolio $56 $ 80 $106 $229 $20 $62 $106 $229
MFS Global Governments Series $59 $ 90 $124 $265 $23 $72 $124 $265
MFS Total Return Series $58 $ 86 $116 $250 $22 $68 $116 $250
Oppenheimer Aggressive Growth Fund/VA $56 $ 79 $105 $226 $20 $61 $105 $226
Oppenheimer Global Securities Fund/VA $56 $ 79 $106 $228 $20 $61 $106 $228
Oppenheimer Main Street Growth & Income
Fund/VA $57 $ 82 $110 $238 $21 $64 $110 $238
Oppenheimer Strategic Bond Fund/VA $57 $ 82 $110 $238 $21 $64 $110 $238
PPI MFS Capital Opportunities Portfolio $58 $ 86 $116 $250 $22 $68 $116 $250
PPI MFS Emerging Equities Portfolio $57 $ 83 $111 $240 $21 $65 $111 $240
PPI MFS Research Growth Portfolio $57 $ 84 $114 $245 $21 $66 $114 $245
PPI Scudder International Growth Portfolio $59 $ 89 $121 $260 $23 $71 $121 $260
PPI T. Rowe Price Growth Equity Portfolio $56 $ 81 $109 $235 $20 $63 $109 $235
</TABLE>
- ------------------------
* This example does not apply during the income phase if you select a
nonlifetime income phase payment option with variable payments and take a
lump-sum withdrawal after payments start. In this case the lump-sum payment
is treated as a withdrawal during the accumulation phase and may be subject
to an early withdrawal charge (refer to Example A).
11
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
Understanding Condensed Financial Information. In Appendix IV of this
prospectus, we provide condensed financial information about the Variable
Annuity Account I (the separate account) subaccounts you may invest in through
the contract. The numbers show the year-end unit values of each subaccount from
the time purchase payments were first received in the subaccounts under the
contract.
Investment Options
- --------------------------------------------------------------------------------
The contract offers variable investment options and fixed interest options.
Variable Investment Options. These options are called subaccounts. The
subaccounts are within Variable Annuity Account I (the separate account), a
separate account of the Company. Each subaccount invests in a specific mutual
fund. You do not invest directly in or hold shares of the funds.
> Mutual Fund (fund) Descriptions: We provide brief descriptions of the funds in
Appendix III. Investment results of the funds are likely to differ
significantly and there is no assurance that any of the funds will achieve
their respective investment objectives. Shares of the funds will rise and fall
in value and you could lose money by investing in the funds. Shares of the
funds are not bank deposits and are not guaranteed, endorsed or insured by any
financial institution, the Federal Deposit Insurance Corporation or any other
government agency. Unless otherwise noted, all funds are diversified as
defined under the Investment Company Act of 1940. Refer to the fund
prospectuses for additional information. Fund prospectuses may be obtained,
free of charge, from our Service Center at the address and phone number listed
in "Contract Overview--Questions: Contacting the Company" or by contacting the
SEC Public Reference Room.
Fixed Interest Options. If available in your state, the AICA Guaranteed Account
(the Guaranteed Account) or the Fixed Account. The Guaranteed Account offers
certain guaranteed minimum interest rates for a stated period of time. Amounts
must remain in the Guaranteed Account for specific periods to receive the
quoted interest rates, or a market value adjustment will be applied. The market
value adjustment may be positive or negative. The Fixed Account guarantees
payment of the minimum interest rate specified in the contract. The Fixed
Account is only available in certain states. For a description of these
options, see Appendices I and II and the Guaranteed Account prospectus.
12
<PAGE>
- --------------------------------------------------------------------------------
Selecting Investment Options
o Choose options appropriate for you. Your sales representative can help you
evaluate which investment options may be appropriate for your financial
goals.
o Understand the risks associated with the options you choose. Some
subaccounts invest in funds that are considered riskier than others. Funds
with additional risks are expected to have values that rise and fall more
rapidly and to a greater degree than other funds. For example, funds
investing in foreign or international securities are subject to risks not
associated with domestic investments, and their investment performance may
vary accordingly. Also, funds using derivatives in their investment
strategy may be subject to additional risks.
o Be informed. Read this prospectus, the fund prospectuses, the Guaranteed
Account and Fixed Account appendices and the Guaranteed Account prospectus.
- --------------------------------------------------------------------------------
Limits on Availability of Options. Some funds or fixed interest options may be
unavailable through your contract or in your state. We may add, withdraw or
substitute funds, subject to the conditions in your contract and compliance with
regulatory requirements.
Limits on How Many Investment Options You May Select. Although we reserve the
right to limit the number of investment options you may select during the
accumulation phase, there is currently no limit. The number of investment
options you may select at any time, however, is limited to 18. Each subaccount
and each guaranteed term of the Guarantee Account, or an investment in the Fixed
Account in certain contracts where the Guaranteed Account is not available, is
considered an option.
Limits Imposed by the Underlying Fund. Orders for the purchase of fund shares
may be subject to acceptance by the fund. We reserve the right to reject,
without prior notice, any allocation of a purchase payment to a subaccount if
the subaccount's investment in the corresponding fund is not accepted by the
fund for any reason.
Additional Risks of Investing in the Funds (Mixed and Shared Funding). "Shared
funding" occurs when shares of a fund, which the subaccounts buy for variable
annuity contracts, are also bought by other insurance companies for their
variable annuity contracts.
"Mixed funding" occurs when shares of a fund, which the subaccounts buy for
variable annuity contracts, are bought for variable life insurance contracts
issued by us or other insurance companies.
> Shared--bought by more than one company.
> Mixed--bought for annuities and life insurance.
It is possible that a conflict of interest may arise due to mixed and/or shared
funding, which could adversely impact the value of a fund. For example, if a
conflict of interest occurred and one of the subaccounts withdrew its investment
in a fund, the fund may be forced to sell its securities at disadvantageous
prices, causing its share value to decrease. Each fund's Board of Directors or
Trustees will monitor events to identify any conflicts which may arise and to
determine what action, if any, should be taken to address such conflicts.
13
<PAGE>
Transfers Among Investment Options
- --------------------------------------------------------------------------------
You may transfer amounts among the available subaccounts. During the
accumulation phase we allow you 12 free transfers each calendar year. We reserve
the right to charge $10 for each additional transfer. We currently do not impose
this charge. During the income phase, if approved in your state, transfers are
limited to four per year and allowed only if you select variable payments.
Transfers from the Guaranteed Account are subject to certain restrictions and
may be subject to a market value adjustment. Transfers from the Fixed Account
are subject to certain restrictions, and transfers into the Fixed Account from
any of the other investment options are not allowed. Transfers must be made in
accordance with the terms of your contract.
Transfer Requests. Requests may be made in writing, by telephone or, where
applicable, electronically.
Limits on Frequent Transfers. The contract is not designed to serve as a vehicle
for frequent trading in response to short-term fluctuations in the market. Such
frequent trading can disrupt management of a fund and raise its expenses. This
in turn can have an adverse effect on fund performance. Accordingly,
organizations or individuals that use market-timing investment strategies and
make frequent transfers should not purchase the contract.
We reserve the right to restrict, in our sole discretion and without prior
notice, transfers initiated by a market-timing organization or individual or
other party authorized to give transfer instructions on behalf of multiple
contract holders. Such restrictions could include: (1) not accepting transfer
instructions from an agent acting on behalf of more than one contract holder;
and (2) not accepting preauthorized transfer forms from market timers or other
entities acting on behalf of more than one contract holder at a time.
We further reserve the right to impose, without prior notice, restrictions on
transfers that we determine, in our sole discretion, will disadvantage or
potentially hurt the rights or interests of other contract holders.
Additionally, orders for the purchase of fund shares may be subject to
acceptance by the fund. We reserve the right to reject, without prior notice,
any transfer request to a subaccount if the subaccount's investment in the
corresponding fund is not accepted for any reason.
Value of Your Transferred Dollars. The value of amounts transferred into or out
of subaccounts will be based on the subaccount unit values next determined after
we receive your transfer request in good order at our Service Center, or if you
are participating in the dollar cost averaging or account rebalancing programs,
after your scheduled transfer or reallocation.
Telephone and Electronic Transactions: Security Measures. To prevent fraudulent
use of telephone and electronic transactions (including, but not limited to,
internet transactions), we have established security procedures. These include
recording calls on our toll-free telephone lines and requiring use of a personal
identification number (PIN) to execute transactions. You are responsible for
keeping your PIN and account information confidential. If we fail to follow
reasonable security procedures, we may be liable for losses due to unauthorized
or fraudulent telephone or other electronic transactions. We are not liable for
losses resulting from telephone or electronic instructions we
14
<PAGE>
believe to be genuine. If a loss occurs when we rely on such instructions, you
will bear the loss.
The Dollar Cost Averaging Program. Dollar cost averaging is an investment
strategy whereby you purchase fixed dollar amounts of an investment at regular
intervals, regardless of price. Under this program a fixed dollar amount is
automatically transferred from certain subaccounts, the Guaranteed Account or
Fixed Account to any of the other subaccounts. A market value adjustment will
not be applied to dollar cost averaging transfers from a guaranteed term of the
Guaranteed Account during participation in the dollar cost averaging program. If
such participation is discontinued, we will automatically transfer the remaining
balance in that guaranteed term to another guaranteed term of the same duration,
unless you initiate a transfer into another investment option. In either case a
market value adjustment will apply. See Appendix I for more information about
dollar cost averaging from the Guaranteed Account. If dollar cost averaging is
stopped with respect to amounts invested in the Fixed Account, the remaining
balance will be transferred to the money market subaccount.
Dollar cost averaging neither ensures a profit nor guarantees against loss in a
declining market. You should consider your financial ability to continue
purchases through periods of low price levels. There is no additional charge for
this program and transfers made under this program do not count as transfers
when determining the number of free transfers that may be made each calendar
year. For additional information about this program, contact your sales
representative or call us at the number listed in "Contract Overview--Questions:
Contacting the Company."
In certain states purchase payments allocated to the Fixed Account may require
participation in the dollar cost averaging program.
Dollar cost averaging is not available if you elect to participate in the
account rebalancing program.
The Account Rebalancing Program. Account rebalancing allows you to reallocate
your account value to match the investment allocations you originally selected.
Only account values invested in the subaccounts may be rebalanced. We
automatically reallocate your account value annually (or more frequently as we
allow). Account rebalancing neither ensures a profit nor guarantees against loss
in a declining market. There is no additional charge for this program and
transfers made under this program do not count as transfers when determining the
number of free transfers that may be made each calendar year. You may
participate in this program by completing the account rebalancing section of
your application or by contacting us at the address and/or number listed in
"Contract Overview--Questions: Contacting the Company."
Account rebalancing is not available if you elect to participate in the dollar
cost averaging program.
15
<PAGE>
Purchase and Rights
- --------------------------------------------------------------------------------
How to Purchase
> Individual Contracts. In some states, where group contracts are not available,
you may purchase the contract directly from us by completing an application
and delivering it and your initial purchase payment to us. Upon our approval
we will issue you a contract and set up an account for you under the contract.
> Group Contracts. In most states we have distributors, usually broker-dealers
or banks, who hold the contract as a group contract (see "Distribution"). You
may purchase an interest (or, in other words, participate) in the group
contract by contacting a distributor and completing an application and
delivering it with your initial purchase payment to that distributor. Upon our
approval, we will set up an account for you under the group contract and issue
you a certificate showing your rights under the contract.
> Joint Contracts (generally spouses). For a nonqualified contract, you may
participate in a group contract as a joint contract holder. References to
"contract holder" in this prospectus mean both contract holders under joint
contracts. Tax law prohibits the purchase of qualified contracts by joint
contract holders.
Maximum Issue Age. The maximum issue age for you and the annuitant (if you are
not the annuitant) on the date we establish your account is 90 (age 85 for
those contracts issued in Pennsylvania).
Your Rights Under the Contract
> Individual Contracts. You have all contract rights.
> Group Contracts. The holder of the group contract has title to the contract
and, generally, only the right to accept or reject any modifications to the
contract. You have all other rights to your account under the contract.
> Joint Contracts. Joint contract holders have equal rights under the contract
with respect to their account. All rights under the contract must be exercised
by both joint contract holders with the exception of transfers among
investment options. See the "Death Benefit" section for the rights of the
surviving joint contract holder upon the death of a joint contract holder
prior to the income phase start date.
Purchase Payment Methods. The following purchase payment methods are allowed:
> One lump sump;
> Periodic payments; or
> Transfer or rollover from a pre-existing retirement plan or account.*
We reserve the right to reject any payments to a prospective or existing
account without advance notice.
* In some states an IRA contract can only accept a lump-sum, rollover payment.
16
<PAGE>
Purchase Payment Amounts.
The minimum initial purchase payment amounts are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Nonqualified Qualified
- ---------------------------------------------------------------------
<S> <C> <C>
Minimum Initial Purchase Payment $5,000 $1,500
- ---------------------------------------------------------------------
</TABLE>
Additional purchase payments must be at least $50 (we may change this amount
from time to time). A purchase payment of more than $1,000,000 will be allowed
only with our consent.
Acceptance or Rejection of Your Application. We must accept or reject your
application within two business days of receipt. If the application is
incomplete, we may hold any forms and accompanying purchase payment(s) for five
business days. We may hold purchase payments for longer periods, pending
acceptance of the application, only with your permission. If the application is
rejected, the application and any purchase payments will be returned to you.
Allocating Purchase Payments to the Investment Options. We will allocate your
purchase payments among the investment options you select. Allocations must be
in whole percentages and there may be limits on the number of investment options
you may select. When selecting investment options you may find it helpful to
review the "Investment Options" section.
Right to Cancel
- --------------------------------------------------------------------------------
When and How to Cancel. You may cancel your contract within ten days of receipt
(some states require more than ten days) by returning it to our Service Center
along with a written notice of cancellation.
Refunds. We will issue you a refund within seven days of our receipt of your
contract and written notice of cancellation. Unless your state requires
otherwise or unless you purchased an IRA, your refund will equal the purchase
payments made plus any earnings or minus any losses attributable to those
purchase payments allocated among the subaccounts. In other words, you will bear
the entire investment risk for amounts allocated among the subaccounts during
this period and the amount refunded could be less than the amount paid. If your
state requires or if you purchased an IRA, we will refund all purchase payments
made.
If the purchase payments for your canceled contract came from a rollover from
another contract issued by us or one of our affiliates where an early withdrawal
charge was reduced or eliminated, the purchase payments will be restored to your
prior contract.
17
<PAGE>
Types of Fees
There are four types of fees or deductions that may affect your account.
TRANSACTION FEES
> Early Withdrawal Charge
> Annual Maintenance Fee
> Transfer Charge
FEES DEDUCTED FROM INVESTMENTS IN THE SEPARATE ACCOUNT
> Mortality and Expense Risk Charge
> Administrative Expense Charge
FEES DEDUCTED BY THE FUNDS
> Investment Advisory Fees
> Other Expenses
PREMIUM AND OTHER TAXES
Fees
- --------------------------------------------------------------------------------
The following repeats and adds to information provided in the "Fee Table"
section. Please review both sections for information on fees.
TRANSACTION FEES
Early Withdrawal Charge
Withdrawals of all or a portion of your account value may be subject to a
charge.
Amount. A percentage of the purchase payments that you withdraw. The percentage
will be determined by the early withdrawal charge schedule that applies to your
account.
Early Withdrawal Charge Schedules
<TABLE>
<CAPTION>
Contracts Other Than Roth IRA Contracts
- ------------------------------------------------------
Years From Receipt Early Withdrawal
of Purchase Payment Charge
- ------------------------------------------------------
<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>
<CAPTION>
Roth IRA Contracts(1)
- ------------------------------------------------------
Completed Early Withdrawal
Account Years Charge
- ------------------------------------------------------
<S> <C>
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
- ------------------------------------------------------
</TABLE>
(1) If the purchase payment is a rollover from another contract issued by us or
one of our affiliates and the early withdrawal charge has been waived, the
early withdrawal charge will be based on the number of completed account
years since the date of the initial purchase payment to the former contract.
Purpose. This is a deferred sales charge. It reimburses us for some of the sales
and administrative expenses associated with the contract. If our expenses are
greater than the amount we collect for the early withdrawal charge, we may use
any of our corporate assets, including potential profit that may arise from the
mortality and expense risk charge, to make up any difference.
First In, First Out. The early withdrawal charge is calculated separately for
each purchase payment withdrawn. For purposes of calculating your early
withdrawal charge, we consider that your first purchase payment to the account
(first in) is the first you withdraw (first out).
For example: For contracts other than Roth IRAs, we calculate the early
withdrawal charge based on the number of years since the purchase payment was
received. If your initial purchase payment was made three years ago, we will
deduct an early withdrawal charge equal to 6% of the portion of that purchase
payment withdrawn. The next time you make a withdrawal we will assess the charge
against the portion of the first purchase payment that you did not
18
<PAGE>
withdraw and/or your subsequent purchase payments to your account in the order
they were received.
For Roth IRAs, we calculate the early withdrawal charge based on the number of
completed account years. If three years have elapsed since your initial purchase
payment was made, we will deduct an early withdrawal charge equal to 2% of the
portion of that purchase payment withdrawn. The next time you make a withdrawal
we will assess the charge against the portion of the first purchase payment that
you did not withdraw and/or your subsequent purchase payments to your account in
the order they were received.
Earnings may be withdrawn after all purchase payments have been withdrawn. There
is no early withdrawal charge for withdrawal of earnings.
Free Withdrawals. There is no early withdrawal charge if, during each calendar
year, the amount withdrawn is 10% or less than:
> Your account value as of the last valuation day of the preceding calendar
year or the date of your first purchase payment, whichever is later (if
approved in your state); or
> Your account value on the next valuation day after we receive your withdrawal
request.
The free withdrawal amount will be adjusted for amounts withdrawn under a
systematic distribution option or taken as a required minimum distribution
during the calendar year.
Waiver. The early withdrawal charge is waived for purchase payments withdrawn if
the withdrawal is:
> Used to provide income phase payments to you;
> Paid due to the annuitant's death during the accumulation phase in an amount
up to the sum of purchase payments made, minus the total of all partial
withdrawals, amounts applied to an income phase payment option and deductions
made prior to the annuitant's death;
> Paid upon a full withdrawal where your account value is $2,500 or less and no
part of the account has been withdrawn during the prior 12 months;
> Taken because of the election of a systematic distribution option but, with
respect to the Systematic Withdrawal Option (SWO) and the Life Expectancy
Option (LEO), only to the extent that the amount taken is 10% or less of your
account value on the later of the date we established your account or the most
recent anniversary of that date (see "Systematic Distribution Options");
> Applied as a rollover to certain Roth IRAs issued by us or an affiliate;
> If approved in your state, taken under a qualified contract, when the amount
withdrawn is equal to the minimum distribution required by the Tax Code for
your account calculated using a method permitted under the Tax Code and agreed
to by us (including required minimum distributions using the Estate
Conservation Option (ECO) systematic distribution option); or
> Paid upon termination of your account by us (see "Other Topics -- Involuntary
Terminations").
Nursing Home Waiver. You may withdraw all or a portion of your account value
without an early withdrawal charge if:
> More than one year has elapsed since the account effective date;
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> The withdrawal is requested within three years of the annuitant's admission to
a licensed nursing care facility (in New Hampshire non-licensed facilities are
included); and
> The annuitant has spent at least 45 consecutive days in such nursing care
facility.
We will not waive the early withdrawal charge if the annuitant was in a nursing
care facility on the date we established your account. It will also not apply if
otherwise prohibited by state law.
Annual Maintenance Fee
Maximum Amount. $30.00
When/How. Each year during the accumulation phase we deduct this fee from your
account value. We deduct it on your account anniversary and at the time of full
withdrawal. It is deducted proportionally from each investment option.
Purpose. This fee reimburses us for our administrative expenses related to
the establishment and maintenance of your account.
Elimination. We will not deduct the annual maintenance fee if your account value
is $50,000 or more on the date this fee is to be deducted.
Transfer Charge
Amount. During the accumulation phase we currently allow you 12 free transfers
each calendar year. We reserve the right to charge $10 for each additional
transfer. We currently do not impose this charge.
Purpose. This charge reimburses us for administrative expenses associated with
transferring your dollars among investment options.
FEES DEDUCTED FROM INVESTMENTS IN THE
SEPARATE ACCOUNT
Mortality and Expense Risk Charge
Maximum Amount. During the accumulation phase the amount of this charge depends
upon which contract you purchase. The amount of this charge, on an annual basis,
is equal to the following percentages of your account value invested in the
subaccounts:
<TABLE>
<S> <C>
o Contracts other than Roth IRAs Issued before May 1, 1998 1.25%
o Contracts Issued on or after May 1, 1998, and all Roth IRA Contracts 1.10%
</TABLE>
During the income phase this charge, on an annual basis, is equal to 1.25% of
amounts held in the subaccounts.
When/How. We deduct this charge daily from the subaccounts corresponding to the
funds you select. We do not deduct this charge from any fixed interest option.
Purpose. This charge compensates us for the mortality and expense risks we
assume under the contract.
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> The mortality risks are those risks associated with our promise to make
lifetime income phase payments based on annuity rates specified in the
contract.
> The expense risk is the risk that the actual expenses we incur under the
contract will exceed the maximum costs that we can charge.
If the amount we deduct for this charge is not enough to cover our mortality
costs and expenses under the contract, we will bear the loss. We may use any
excess to recover distribution costs relating to the contract and as a source of
profit. We expect to make a profit from this charge.
Administrative Expense Charge
Maximum Amount. During the accumulation phase the amount of this charge, on an
annual basis, is equal to 0.15% of your account value invested in the
subaccounts. There is currently no administrative expense charge during the
income phase. We reserve the right, however, to charge an administrative expense
charge of up to 0.25% during the income phase.
When/How. If imposed, we deduct this charge daily from the subaccounts
corresponding to the funds you select. We do not deduct this charge from the
fixed interest options. This charge may be assessed during the accumulation
phase or the income phase. If we are currently imposing this charge when you
enter the income phase, the charge will apply to you during the entire income
phase.
Purpose. This charge helps defray our administrative expenses that cannot be
covered by the mortality and expense risk charge described above. This charge
is not intended to exceed the average expected cost of administering the
contract. We do not expect to make a profit from this charge.
REDUCTION OR ELIMINATION OF CERTAIN FEES
When sales of the contract are made to individuals or a group of individuals in
a manner that results in savings of sales or administrative expenses, we may
reduce or eliminate the early withdrawal charge, annual maintenance fee,
mortality and expense risk charge or administrative expense charge. Our decision
to reduce or eliminate any of these fees will be based on one or more of the
following:
> The size and type of group to whom the contract is offered;
> The amount of expected purchase payments;
> A prior or existing relationship with the Company, such as being an employee
or former employee of the Company or one of our affiliates, receiving
distributions or making transfers from other contracts issued by us or one of
our affiliates or transferring amounts held under qualified retirement plans
sponsored by us or one of our affiliates;
> The type and frequency of administrative and sales services provided; or
> The level of annual maintenance fees and early withdrawal charges.
In the case of an exchange of another contract issued by us or one of our
affiliates where the early withdrawal charge has been waived, the early
withdrawal charge for certain contracts offered by this prospectus may be
determined based on the dates purchase payments were received in the prior
contract.
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The reduction or elimination of any of these fees will not be unfairly
discriminatory against any person and will be done according to our rules in
effect at the time the contract is issued. We reserve the right to change these
rules from time to time. The right to reduce or eliminate any of these fees may
be subject to state approval.
FEES DEDUCTED BY THE FUNDS
Maximum Amount. Each fund's advisory fee and expenses are different. They are
set forth in "Fee Table--Fees Deducted by the Funds" and described in more
detail in each fund prospectus.
When/How. A fund's fees and expenses are not deducted from your account value.
Instead, they are reflected in the daily value of fund shares which, in turn,
will affect the daily value of the subaccounts.
Purpose. These fees and expenses help to pay the fund's investment adviser and
operating expenses.
PREMIUM AND OTHER TAXES
Maximum Amount. Some states and municipalities charge a premium tax on
annuities. These taxes currently range from 0% to 4%, depending upon the
jurisdiction.
When/How. We reserve the right to deduct premium taxes from your account value
or from purchase payments to the account at any time, but not before there is a
tax liability under state law. Our current practice is to deduct premium taxes
at the time of a complete withdrawal or, at the commencement of income phase
payments, to reflect the cost of premium taxes in our income phase payment
rates.
In addition, we reserve the right to assess a charge for any federal taxes due
against the separate account. See "Taxation."
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<PAGE>
Your Account Value
- --------------------------------------------------------------------------------
During the accumulation phase your account value at any given time equals:
> The current dollar value of amounts invested in the subaccounts; plus
> The current dollar values of amounts invested in the fixed interest options,
including interest earnings to date.
Subaccount Accumulation Units. When you select a fund as an investment option,
your account dollars invest in "accumulation units" of the Variable Annuity
Account I subaccount corresponding to that fund. The subaccount invests
directly in the fund shares. The value of your interests in a subaccount is
expressed as the number of accumulation units you hold multiplied by an
"Accumulation Unit Value," as described below, for each unit.
Accumulation Unit Value (AUV). The value of each accumulation unit in a
subaccount is called the accumulation unit value or AUV. The AUV varies daily
in relation to the underlying fund's investment performance. The value also
reflects deductions for fund fees and expenses, the mortality and expense risk
charge and the administrative expense charge (if any). We discuss these
deductions in more detail in "Fee Table" and "Fees."
Valuation. We determine the AUV every normal business day after the close of
the New York Stock Exchange. At that time we calculate the current AUV by
multiplying the AUV last calculated by the "net investment factor" of the
subaccount. The net investment factor measures the investment performance of
the subaccount from one valuation to the next.
Current AUV = Prior AUV x Net Investment Factor
Net Investment Factor. The net investment factor for a subaccount between two
consecutive valuations equals the sum of 1.0000 plus the net investment rate.
Net Investment Rate. The net investment rate is computed according to a formula
that is equivalent to the following:
> The net assets of the fund held by the subaccount as of the current valuation;
minus
> The net assets of the fund held by the subaccount at the preceding valuation;
plus or minus
> Taxes or provisions for taxes, if any, due to subaccount operations (with any
federal income tax liability offset by foreign tax credits to the extent
allowed); divided by
> The total value of the subaccount's units at the preceding valuation; minus
> A daily deduction for the mortality and expense risk charge, the
administrative expense charge, if any, and any other fees deducted from
investments in the separate account. See "Fees."
The net investment rate may be either positive or negative.
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<PAGE>
Hypothetical Illustration. As a hypothetical illustration assume that your
initial purchase payment to a qualified contract is $5,000 and you direct us to
invest $3,000 in Fund A and $2,000 in Fund B. Also assume that on the day we
receive the purchase payment the applicable AUVs after the next close of
business of the New York Stock Exchange are $10 for Subaccount A and $20 for
Subaccount B. Your account is credited with 300 accumulation units of
Subaccount A and 100 accumulation units of Subaccount B.
--------------------------------
$5,000 Purchase Payment
--------------------------------
Step 1
- --------------------------------------------
Aetna Insurance Company of America
- --------------------------------------------
Step 2
----------------------------------------
Variable Annuity Account I
----------------------------------------
Subaccount A | Subaccount B | Etc.
300 | 100 |
Accumulation | accumulation |
units | units |
| |
| |
| |
| |
| |
| |
| |
----------------------------------------
Step 3
---------- ----------
Mutual Mutual
Fund A Fund B
---------- ----------
Step 1: You make an initial purchase payment of $5000.
Step 2:
A. You direct us to invest $3,000 in Fund A. The purchase payment purchases 300
accumulation units of Subaccount A ($3,000 divided by the current $10 AUV).
B. You direct us to invest $2,000 in Fund B. The purchase payment purchases 100
accumulation units of Subaccount B ($2,000 divided by the current $20 AUV).
Step 3: The separate account purchases shares of the applicable funds at the
then current market value (net asset value or NAV).
Each fund's subsequent investment performance, expenses and charges, and the
daily charges deducted from the subaccount, will cause the AUV to move up or
down on a daily basis.
Purchase Payments to Your Account. If all or a portion of your initial purchase
payment is directed to the subaccounts, it will purchase subaccount accumulation
units at the AUV next computed after our acceptance of your application as
described in "Purchase and Rights." Subsequent purchase payments or transfers
directed to the subaccounts will purchase subaccount accumulation units at the
AUV next computed following our receipt of the purchase payment or transfer
request in good order. The value of subaccounts may vary day to day.
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<PAGE>
Taxes, Fees and Deductions
Amounts withdrawn may be subject to one or more of the following:
> Early Withdrawal Charge (see "Fees--Early Withdrawal Charge")
> Annual Maintenance Fee (see "Fees--Annual Maintenance Fee")
> Market Value Adjustment for amounts held in the Guaranteed Account (see
Appendix I and the Guaranteed Account prospectus)
> Tax Penalty (see "Taxation")
> Tax Withholding (see "Taxation")
To determine which may apply to you, refer to the appropriate sections of this
prospectus, contact your sales representative or call us at the number listed
in "Contract Overview--Questions: Contacting the Company."
Withdrawals
- --------------------------------------------------------------------------------
You may withdraw all or a portion of your account value at any time during the
accumulation phase. If you participate in the contract through a 403(b) plan,
certain restrictions apply. See "Restrictions on Withdrawals From 403(b) Plan
Accounts."
Steps for Making A Withdrawal
> Select the withdrawal amount.
(1) Full Withdrawal: You will receive, reduced by any required withholding tax,
your account value allocated to the subaccounts, the Guaranteed Account
(plus or minus any applicable market value adjustment) and the Fixed
Account, minus any applicable early withdrawal charge and annual maintenance
fee.
(2) Partial Withdrawal (Percentage or Specified Dollar Amount): You will
receive, reduced by any required withholding tax, the amount you specify,
subject to the value available in your account. However, the amount actually
withdrawn from your account will be adjusted by any applicable early
withdrawal charge and any positive or negative market value adjustment for
amounts withdrawn from the Guaranteed Account. See Appendices I and II and
the Guaranteed Account prospectus for more information about withdrawals
from the Guaranteed Account and the Fixed Account.
> Select investment options. If you do not specify this, we will withdraw
dollars proportionally from each of your investment options.
> Properly complete a disbursement form and deliver it to our Service Center.
Restrictions on Withdrawals From 403(b) Plan Accounts.
Under Section 403(b) contracts the withdrawal of salary reduction contributions
and earnings on such contributions is generally prohibited prior to the
participant's death, disability, attainment of age 59-1/2, separation from
service or financial hardship. See "Taxation."
Calculation of Your Withdrawal. We determine your account value every normal
business day after the close of the New York Stock Exchange. We pay withdrawal
amounts based on your account value as of the next valuation after we receive a
request for withdrawal in good order at our Service Center.
Delivery of Payment. Payments for withdrawal requests will be made in
accordance with SEC requirements. Normally, your withdrawal amount will be sent
no later than seven calendar days following our receipt of your properly-
completed disbursement form in good order.
Reinvesting a Full Withdrawal. Within 30 days after a full withdrawal, if
allowed by law and the contract, you may elect to reinvest all or a portion of
your withdrawal. We must receive any reinvested amounts within 60 days of the
withdrawal. We reserve the right, however, to accept a reinvestment election
received more than 30 days after the withdrawal and accept proceeds received
more than 60 days after the withdrawal. We will credit your account for the
amount reinvested based on the subaccount values next computed following our
receipt of your request and the amount to be reinvested. We will credit the
amount reinvested proportionally for annual maintenance fees and early
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<PAGE>
withdrawal charges imposed at the time of withdrawal. We will deduct from the
amounts reinvested any annual maintenance fee which fell due after the
withdrawal and before the reinvestment. We will reinvest in the same investment
options and proportions in place at the time of withdrawal. The reinvestment
privilege may be used only once. Special rules apply to reinvestments of amounts
withdrawn from the Guaranteed Account (see Appendix I and the Guaranteed Account
prospectus). We will not credit your account for market value adjustments that
we deducted at the time of your withdrawal. Seek competent advice regarding the
tax consequences associated with reinvestment.
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<PAGE>
Features of a Systematic Distribution Option
A systematic distribution option allows you to receive regular payments from
your contract, without moving into the income phase. By remaining in the
accumulation phase, you retain certain rights and investment flexibility not
available during the income phase.
Systematic Distribution Options
- --------------------------------------------------------------------------------
The following systematic distribution options may be available:
> SWO--Systematic Withdrawal Option. SWO is a series of automatic partial
withdrawals from your account based on a payment method you select. Consider
this option if you would like a periodic income while retaining investment
flexibility for amounts accumulated in the account.
> ECO--Estate Conservation Option. ECO offers the same investment flexibility as
SWO, but is designed for those who want to receive only the minimum
distribution that the Tax Code requires each year. Under ECO we calculate the
minimum distribution amount required by law, generally at age 701/2, and pay
you that amount once a year. ECO is not available under nonqualified
contracts. An early withdrawal charge will not be deducted from and a market
value adjustment will not be applied to any part of your account value paid
under an ECO.
> LEO--Life Expectancy Option. LEO provides for annual payments for a number of
years equal to your life expectancy or the life expectancy of you and a
designated beneficiary. It is designed to meet the substantially equal
periodic payment exception to the 10% premature distribution penalty under Tax
Code section 72. See "Taxation."
Other Systematic Distribution Options. We may add additional systematic
distribution options from time to time. You may obtain additional information
relating to any of the systematic distribution options from your sales
representative or by calling us at the number listed in "Contract Overview--
Questions: Contacting the Company."
Systematic Distribution Option Availability. If allowed by applicable law, we
may discontinue the availability of one or more of the systematic distribution
options for new elections at any time and/or to change the terms of future
elections.
Eligibility for a Systematic Distribution Option. To determine if you meet the
age and account value criteria and to assess terms and conditions that may
apply, contact your sales representative or the Company at the number listed in
"Contract Overview--Questions: Contacting the Company."
Terminating a Systematic Distribution Option. You may revoke a systematic
distribution option at any time by submitting a written request to our Service
Center. ECO, once revoked, may not, unless allowed under the Tax Code, be
elected again.
Charges and Taxation. When you elect a systematic distribution option your
account value remains in the accumulation phase and subject to the charges and
deductions described in the "Fees" and "Fee Table" sections. Taking a withdrawal
under a systematic distribution option may have tax consequences. If you are
concerned about tax implications, consult a qualified tax adviser before
electing an option.
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<PAGE>
This section provides information about the death benefit during the
accumulation phase. For death benefit information applicable to the income
phase, see "The Income Phase."
Terms to Understand:
Account Year/Account Anniversary: A period of 12 months measured from the date
we established your account and each anniversary of this date. Account
anniversaries are measured from this date.
Annuitant(s): The person(s) on whose life or life expectancy(ies) the income
phase payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive death benefit
proceeds under the contract.
Claim Date: The date proof of death and the beneficiary's right to receive the
death benefit are received in good order at our Service Center.
Contract Holder (You/Your): The contract holder of an individually owned
contract or the certificate holder of a group contract. The contract holder and
annuitant may be the same person.
Market Value Adjustment: An adjustment that may be made to amounts withdrawn
from the Guaranteed Account. The adjustment may be positive or negative.
Death Benefit
- --------------------------------------------------------------------------------
During the Accumulation Phase
Who Receives Death Benefit Proceeds? If you would like certain individuals or
entities to receive the death benefit when it becomes payable, you may name them
as your beneficiaries. However, if you are a joint contract holder and you die,
the beneficiary will automatically be the surviving joint contract holder. In
this circumstance any other beneficiary you have named will be treated as the
primary or contingent beneficiary, as originally named, of the surviving joint
contract holder. The surviving joint contract holder may change that beneficiary
designation. If you die and no beneficiary exists, the death benefit will be
paid in a lump sum to your estate.
Designating Your Beneficiary. You may designate a beneficiary on your
application or by contacting your sales representative or us as indicated in
"Contract Overview -- Questions: Contacting the Company."
When is a Death Benefit Payable? During the accumulation phase a death benefit
is payable when the contract holder or the annuitant dies. If there are joint
contract holders, the death benefit is payable when either one dies.
Death Benefit Amount
Minimum Guaranteed Death Benefit. If approved in your state, upon the death of
the annuitant the death benefit will be the greater of:
(1) The account value on the claim date; or
(2) The minimum guaranteed death benefit as of the date of death, adjusted for
purchase payments made and any amounts deducted from your account (including
withdrawals, payments made under an income phase payment plan and fees and
expenses) since the date the minimum guaranteed death benefit was
determined.
Determining the Minimum Guaranteed Death Benefit. On the day we establish your
account, the minimum guaranteed death benefit equals the amount of your initial
purchase payment. Thereafter, the minimum guaranteed death benefit is determined
once a year on the account anniversary (until the account anniversary
immediately before the annuitant's 85th birthday) and equals the greater of:
(a) The minimum guaranteed death benefit as last determined, adjusted for any
purchase payments made and any amounts deducted from your account (including
withdrawals, payments made under an income phase payment plan and fees and
expenses) since the date the minimum guaranteed death benefit was
determined; or
(b) Your account value on that account anniversary.
After the annuitant's 85th birthday, the minimum guaranteed death benefit equals
the minimum guaranteed death benefit on the account anniversary immediately
before the annuitant's 85th birthday, adjusted for payments made and any amounts
deducted from your account (including withdrawals, payments made under an income
phase payment plan and fees and expenses) since that account anniversary.
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<PAGE>
Death Benefit Greater than the Account Value. If the minimum guaranteed death
benefit is greater than your account value on the claim date, the amount by
which the death benefit exceeds the account value will be deposited and
allocated to the money market subaccount available under the contract, thereby
increasing the account value available to the beneficiary to an amount equal to
the death benefit.
Prior to the election of a death benefit payment by the beneficiary, the account
value will remain in the account and continue to be affected by the investment
performance of the investment option(s) selected. The beneficiary has the right
to allocate or transfer any amount to any available investment option (subject
to a market value adjustment, as applicable). The amount paid to the beneficiary
will equal the adjusted account value on the day the payment is processed.
Death Benefit Amounts in Certain Cases
If the Contract Holder is not the Annuitant. Under nonqualified contracts only,
the minimum guaranteed death benefit described above will not apply if the
contract holder who is not the annuitant dies. Rather, the death benefit
proceeds will be equal to the account value on the claim date, plus or minus any
market value adjustment. An early withdrawal charge may apply to any full or
partial payment of this death benefit.
If the spousal beneficiary continues the account at the death of the contract
holder who was not also the annuitant, the annuitant will not change and the
minimum guaranteed death benefit will not apply on the death of the spousal
beneficiary. Rather, the death benefit proceeds will equal the account value on
the claim date, plus or minus any market value adjustment, and minus any
applicable early withdrawal charge.
If the Spousal Beneficiary Continues the Account. If the spousal beneficiary
continues the account at the death of the contract holder who was also the
annuitant, the spousal beneficiary becomes the annuitant. In this circumstance
the minimum guaranteed death benefit payable at the death of a spousal
beneficiary shall be determined as described above, except that the initial
minimum guaranteed death benefit will equal the minimum guaranteed death benefit
payable at the death of the original contract holder/annuitant.
Alternative Death Benefit. If the minimum guaranteed death benefit is not
approved in your state, the following death benefit will apply:
Upon the death of the annuitant, the death benefit will be the greatest of:
(1) The total payments made to your account, adjusted for any amounts deducted
from your account (including withdrawals, payments made under an income
phase payment plan and fees and expenses);
(2) The highest account value on any account anniversary until the account
anniversary immediately before the annuitant's 75th birthday or date of
death, whichever is earlier, adjusted for payments made and any amounts
deducted from your account (including withdrawals, payments made under an
income phase payment plan and fees and expenses) since that account
anniversary; or
(3) The account value as of the date of death.
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<PAGE>
Death Benefit Greater than the Account Value. If the alternative death benefit
is greater than the account value as of the date of death, the amount by which
the death benefit exceeds the account value will be deposited and allocated to
the money market subaccount available under the contract, thereby increasing the
account value available to the beneficiary to an amount equal to the death
benefit.
Prior to the election of a death benefit payment by the beneficiary, the account
value will remain in the account and continue to be affected by the investment
performance of the investment option(s) selected. The beneficiary has the right
to allocate or transfer any amount to any available investment option (subject
to a market value adjustment, as applicable). The amount paid to the beneficiary
will equal the adjusted account value on the day the payment is processed.
Death Benefit Amounts in Certain Cases
If the Contract Holder is not the Annuitant. Under nonqualified contracts only
the alternative death benefit described above will not apply if the contract
holder who is not the annuitant dies. Rather, the death benefit proceeds will be
equal to the account value on the date the request for payment is received, plus
or minus any market value adjustment. An early withdrawal charge may apply to
any full or partial payment of this death benefit.
If the spousal beneficiary continues the account at the death of the contract
holder who was not the annuitant, the annuitant will not change and the
alternative death benefit described above will not apply on the death of the
spousal beneficiary. Rather, the death benefit proceeds will equal the account
value on the date the request for payment is received, plus or minus any market
value adjustment, and minus any early withdrawal charge, if approved in your
state. If your state has not approved deduction of an early withdrawal charge in
this situation, then an early withdrawal charge will apply only to payments made
since the death of the original contract holder/annuitant.
If the Spousal Beneficiary Continues the Account. If the spousal beneficiary
continues the account at the death of the contract holder who was also the
annuitant, the spousal beneficiary will become the annuitant. In this
circumstance the death benefit payable at the death of a spousal beneficiary
shall equal the account value on the date the request for payment is received,
plus or minus any market value adjustment and minus any applicable early
withdrawal charge applicable to payments made since the death of the original
contract holder/annuitant.
Guaranteed Account. For amounts held in the Guaranteed Account, see Appendix I
for a discussion of the calculation of the death benefit.
Death Benefit--Methods of Payment
For Qualified Contracts. Under a qualified contract if the annuitant dies the
beneficiary may choose one of the following three methods of payment:
> Apply some or all of the account value, plus or minus any market value
adjustment, to any of the income phase payment options (subject to the Tax
Code distribution rules (see "Taxation--Minimum Distribution Requirements"));
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> Receive, at any time, a lump-sum payment equal to all or a portion of the
account value, plus or minus any market value adjustment; or
> Elect SWO or ECO or LEO (described in "Systematic Distribution Options"),
provided the election would satisfy the Tax Code minimum distribution rules.
Payments from a Systematic Distribution Option. If the annuitant was receiving
payments under a systematic distribution option and died before the Tax Code's
required beginning date for minimum distributions, payments under the
systematic distribution option will stop. The beneficiary, or contract holder
on behalf of the beneficiary, may elect a systematic distribution option
provided the election is permitted under the Tax Code minimum distribution
rules. If the annuitant dies after the required beginning date for minimum
distributions, payments will continue as permitted under the Tax Code minimum
distribution rules, unless the option is revoked.
Distribution Requirements. Subject to Tax Code limitations, a beneficiary may be
able to defer distribution of the death benefit. Death benefit payments must
satisfy the distribution rules in Tax Code Section 401(a)(9). See "Taxation."
For Nonqualified Contracts.
(1) If you die and the beneficiary is your surviving spouse, or if you are a
non-natural person and the annuitant dies and the beneficiary is the
annuitant's surviving spouse, then the beneficiary becomes the successor
contract holder. In this circumstance the Tax Code does not require
distributions under the contract until the successor contract holder's
death.
As the successor contract holder, the beneficiary may exercise all rights
under the account and has the following options:
(a) Continue the contract in the accumulation phase;
(b) Elect to apply some or all of the account value, plus or minus any
market value adjustment, to any of the income phase payment options;
or
(c) Receive at any time a lump-sum payment equal to all or a portion of
the account value, plus or any market value adjustment.
If you die and are not the annuitant, an early withdrawal charge will
apply if a lump sum is elected.
(2) If you die and the beneficiary is not your surviving spouse, he or she may
elect option 1(b) or option 1(c) above (subject to the Tax Code distribution
rules).
In this circumstance the Tax Code requires any portion of the account value,
plus or minus any market value adjustment, not distributed in installments
over the beneficiary's life or life expectancy, beginning within one year of
your death, must be paid within five years of your death. See "Taxation."
(3) If you are a natural person but not the annuitant and the annuitant dies,
the beneficiary may elect option 1(b) or 1(c) above. If the beneficiary does
not elect option 1(b) within 60 days from the date of death, the gain, if
any, will be included in the beneficiary's income in the year the annuitant
dies.
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Payments from a Systematic Distribution Option. If the contract holder or
annuitant dies and payments were made under SWO, payments will stop. A
beneficiary, however, may elect to continue SWO.
Taxation. In general, payments received by your beneficiary after your death are
taxed to the beneficiary in the same manner as if you had received those
payments. Additionally, your beneficiary may be subject to tax penalties if he
or she does not begin receiving death benefit payments within the time-frame
required by the Tax Code. See "Taxation."
We may have used the following terms in prior prospectuses:
Annuity Phase--Income Phase
Annuity Option--Income Phase Payment Option
Annuity Payment--Income Phase Payment
The Income Phase
- --------------------------------------------------------------------------------
During the income phase you stop contributing dollars to your account and start
receiving payments from your accumulated account value.
Initiating Payments. At least 30 days prior to the date you want to start
receiving payments you must notify us in writing of all of the following:
> Payment start date;
> Income phase payment option (see the income phase payment options table in
this section);
> Payment frequency (i.e., monthly, quarterly, semi-annually or annually);
> Choice of fixed, variable or a combination of both fixed and variable
payments; and
> Selection of an assumed net investment rate (only if variable payments are
elected).
Your account will continue in the accumulation phase until you properly initiate
income phase payments. Once an income phase payment option is selected it may
not be changed.
What Affects Payment Amounts? Some of the factors that may affect the amount of
your income phase payments include your age, gender, account value, the income
phase payment option selected, the number of guaranteed payments (if any)
selected and whether you select fixed, variable or a combination of both fixed
and variable payments and, for variable payments, the assumed net investment
rate selected.
Fixed Payments. Amounts funding fixed income phase payments will be held in the
Company's general account. The amount of fixed payments does not vary with
investment performance over time.
Variable Payments. Amounts funding your variable income phase payments will be
held in the subaccount(s) you select. Not all subaccounts available during the
accumulation phase may be available during the income phase. Payment amounts
will vary depending upon the performance of the subaccounts you select. For
variable income phase payments, you must select an assumed net investment rate.
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Assumed Net Investment Rate. If you select variable income phase payments, you
must also select an assumed net investment rate of either 5% or 3 1/2%. If you
select a 5% rate, your first income phase payment will be higher, but subsequent
payments will increase only if the investment performance of the subaccounts you
selected is greater than 5% annually, after deduction of fees. Payment amounts
will decline if the investment performance is less than 5%, after deduction of
fees.
If you select a 3-1/2% rate, your first income phase payment will be lower and
subsequent payments will increase more rapidly or decline more slowly depending
upon changes to the net investment rate of the subaccounts you selected. For
more information about selecting an assumed net investment rate, call us for a
copy of the SAI. See "Contract Overview--Questions: Contacting the Company."
Minimum Payment Amounts. The income phase payment option you select must result
in:
> A first income phase payment of at least $50; or
> Total yearly income phase payments of at least $250.
If your account value is too low to meet these minimum payment amounts, you will
receive one lump-sum payment. Unless prohibited by law, we reserve the right to
increase the minimum payment amount based on increases reflected in the Consumer
Price Index-Urban (CPI-U) since July 1, 1993.
Restrictions on Start Dates and the Duration of Payments. Income phase payments
may not begin during the first account year, or, unless we consent, later than
the later of:
(a) The first day of the month following the annuitant's 85th birthday; or
(b) The tenth anniversary of the last purchase payment made to your account
(fifth anniversary for contracts issued in Pennsylvania).
Income phase payments will not begin until you have selected an income phase
payment option. Failure to select an income phase payment option by the later of
the annuitant's 85th birthday or the tenth anniversary of your last purchase
payment (the fifth anniversary for contracts issued in Pennsylvania) may have
adverse tax consequences. You should consult with a qualified tax adviser if you
are considering either of these courses of action.
For qualified contracts only, income phase payments may not extend beyond:
(a) The life of the annuitant;
(b) The joint lives of the annuitant and beneficiary;
(c) A guaranteed period greater than the annuitant's life expectancy; or
(d) A guaranteed period greater than the joint life expectancies of the
annuitant and beneficiary.
When income phase payments start the age of the annuitant plus the number of
years for which payments are guaranteed may not exceed 95.
See "Taxation" for further discussion of rules relating to income phase
payments.
Charges Deducted. We make a daily deduction for mortality and expense risks from
amounts held in the subaccounts. Therefore, if you choose variable income phase
payments and a nonlifetime income phase payment option, we still make this
deduction from the subaccounts you select, even though we no
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longer assume any mortality risks. We may also deduct a daily administrative
charge from amounts held in the subaccounts. See "Fees."
Death Benefit during the Income Phase. The death benefits that may be available
to a beneficiary are outlined in the "Income Phase Payment Options" table below.
If a lump-sum payment is due as a death benefit, we will make payment within
seven calendar days after we receive proof of death acceptable to us and the
request for the payment in good order at our Service Center. If continuing
income phase payments are elected, the beneficiary may not elect to receive a
lump sum at a future date unless the income phase payment option specifically
allows a withdrawal right. We will calculate the value of any death benefit at
the next valuation after we receive proof of death and a request for payment.
Such value will be reduced by any payments made after the date of death.
Beneficiary Rights. A beneficiary's right to elect an income phase payment
option or receive a lump-sum payment may have been restricted by the contract
holder. If so, such rights or options will not be available to the beneficiary.
Partial Entry into the Income Phase. You may elect an income phase payment
option for a portion of your account dollars, while leaving the remaining
portion invested in the accumulation phase. Whether the Tax Code considers such
payments taxable as income phase payments or as withdrawals is currently
unclear; therefore, you should consult with a qualified tax adviser before
electing this option. The same or different income phase payment option may be
selected for the portion left invested in the accumulation phase.
Taxation. To avoid certain tax penalties, you or your beneficiary must meet the
distribution rules imposed by the Tax Code. Additionally, when selecting an
income phase payment option, the Tax Code requires that your expected payments
will not exceed certain durations. See "Taxation" for additional information.
Income Phase Payment Options.
The following table lists the income phase payment options and accompanying
death benefits available during the income phase. We may offer additional income
phase payment options under the contract from time to time.
Once income phase payments begin the income phase payment option selected may
not be changed.
Terms to understand:
Annuitant(s): The person(s) on whose life expectancy(ies) the income phase
payments are based.
Beneficiary(ies): The person(s) or entity(ies) entitled to receive a death
benefit under the contract.
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Lifetime Payment Options
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Length of Payments: For as long as the annuitant lives. It is possible that only one payment will be
Life Income made if the annuitant dies prior to the second payment's due date.
Death Benefit--None: All payments end upon the annuitant's death.
- --------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as the annuitant lives, with payments guaranteed for your choice
Life Income-- of 5 to 30 years or as otherwise specified in the contract.
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we have made all the
Payments guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the
beneficiary elects to receive a lump-sum payment equal to the present value of the remaining
guaranteed payments.
- --------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives. It is possible that only one payment will
be made if both annuitants die before the second payment's due date.
Continuing Payments: When you select this option you choose for:
Life Income-- (a) 100%, 662/3% or 50% of the payment to continue to the surviving annuitant after the first
Two Lives death; or
(b) 100% of the payment to continue to the annuitant on the second annuitant's death, and 50%
of the payment to continue to the second annuitant on the annuitant's death.
Death Benefit -- None: All payments end upon the death of both annuitants.
- --------------------------------------------------------------------------------------------------------------------------------
Length of Payments: For as long as either annuitant lives, with payments guaranteed from 5 to 30
years or as otherwise specified in the contract.
Life Income -- Continuing Payments: 100% of the payment to continue to the surviving annuitant after the first death.
Two Lives -- Death Benefit -- Payment to the Beneficiary: If both annuitants die before we have made all the
Guaranteed guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the
Payments beneficiary elects to receive a lump-sum payment equal to the present value of the remaining
guaranteed payments.
- --------------------------------------------------------------------------------------------------------------------------------
Life Income -- Length of Payments: For as long as the annuitant lives.
Cash Refund Death Benefit -- Payment to the Beneficiary: Following the annuitant's death we will pay a
Option (limited lump-sum payment equal to the amount originally applied to the income phase payment option
availability -- fixed (less any premium tax) and less the total amount of income payments paid.
payment only)
- --------------------------------------------------------------------------------------------------------------------------------
Life Income-- Two Length of Payments: For as long as either annuitant lives.
Lives--Cash Refund Continuing Payments: 100% of the payment to continue after the first death.
Option (limited Death Benefit -- Payment to the Beneficiary: When both annuitants die we will pay a lump-sum
availability -- fixed payment equal to the amount applied to the income phase payment option (less any premium
payment only) tax) and less the total amount of income payments paid.
- --------------------------------------------------------------------------------------------------------------------------------
Nonlifetime Payment Option
- --------------------------------------------------------------------------------------------------------------------------------
Length of Payments: You may select payments for 5 to 30 years. In certain cases a lump-sum
Nonlifetime-- payment may be requested at any time (see below).
Guaranteed Death Benefit--Payment to the Beneficiary: If the annuitant dies before we make all the
Payments guaranteed payments, we will continue to pay the beneficiary the remaining payments, unless the
beneficiary elects to receive a lump-sum payment equal to the present value of the remaining
guaranteed payments. We will not impose any early withdrawal charge.
- --------------------------------------------------------------------------------------------------------------------------------
Lump-Sum Payment: If the "Nonlifetime--Guaranteed Payments" option is elected with variable payments, you may
request at any time that all or a portion of the present value of the remaining payments be paid in one lump sum.
Any such lump-sum payment will be treated as a withdrawal during the accumulation phase and we will charge any
applicable early withdrawal charge. See "Fees--Early Withdrawal Charge." Lump-sum payments will be sent within seven
calendar days after we receive the request for payment in good order at our Service Center.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Lump-Sum Payments. If a lump-sum payment is available under the
income phase payment options above, the rate used to calculate the present
value of the remaining guaranteed payments is the same rate we used to
calculate the income phase payments (i.e., the actual fixed rate used for fixed
payments or the 3-1/2% or 5% assumed net investment rate used for variable
payments).
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In this Section
INTRODUCTION
CONTRACT TYPE
WITHDRAWALS AND OTHER DISTRIBUTIONS
> Taxation of Distributions
> 10% Penalty Tax
> Withholding for Federal Income Tax Liability
MINIMUM DISTRIBUTION REQUIREMENTS
> Minimum Distribution of Death Benefit Proceeds (Except Nonqualified Contracts)
> Minimum Distribtion of Death Benefit Proceeds (Nonqualified Contracts)
RULES SPECIFIC TO CERTAIN PLANS
> 401(a) Plans
> 403(b) Plans
> 408(b) and 408A IRAs
> 457(b) Plans
TAXATION OF NONQUALIFIED CONTRACTS
TAXATION OF THE COMPANY
When consulting a tax adviser, be certain that he or she has expertise in the
Tax Code sections applicable to your tax concerns.
Taxation
- --------------------------------------------------------------------------------
INTRODUCTION
This section discusses our understanding of current federal income tax laws
affecting the contract. You should keep the following in mind when reading it:
> Your tax position (or the tax position of the beneficiary, as applicable)
determines federal taxation of amounts held or paid out under the contract;
> Tax laws change. It is possible that a change in the future could affect
contracts issued in the past;
> This section addresses federal income tax rules and does not discuss federal
estate and gift tax implications, state and local taxes or any other tax
provisions;
> We do not make any guarantee about the tax treatment of the contract or any
transaction involving the contract; and
> Contract holder means the contract holder of an individually owned contract or
the certificate holder of a group contract.
- --------------------------------------------------------------------------------
We do not intend this information to be tax advice. For advice about the
effect of federal income taxes or any other taxes on amounts held or paid out
under the contract, consult a tax adviser.
- --------------------------------------------------------------------------------
Taxation of Gains Prior to Distribution. You generally will not pay taxes on any
earnings from the annuity contract described in this prospectus until they are
withdrawn. Tax-qualified retirement arrangements under Tax Code sections 401(a),
403(b), 408(b), 408A and 457(b) also generally defer payment of taxes on
earnings until they are withdrawn. (See "Taxation of Distributions" later in
this "Taxation" section for a discussion of how distributions under the various
types of arrangements are taxed.) If you are considering funding one of these
tax-qualified retirement arrangements with an annuity contract, you should know
that the annuity contract does not provide any additional tax deferral of
earnings beyond the tax deferral provided by the tax-qualified retirement
arrangement. However, annuities do provide other features and benefits which may
be valuable to you. You should discuss your decision with your financial
representative.
Additionally, although earnings under the contract are generally not taxed until
withdrawn, the Internal Revenue Service (IRS) has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control over the
assets. In these circumstances income and gains from the separate account
assets would be currently includible in the variable contract owner's gross
income. The Treasury announced that it will issue guidance regarding the extent
to which owners could direct their investments among subaccounts without being
treated as owners of the underlying assets of the separate account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right to
modify the contract as necessary to attempt to prevent the contract holder from
being considered the federal tax owner of a pro rata share of the assets of the
separate account.
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<PAGE>
Diversification. Tax Code section 817(h) requires that in a nonqualified
contract the investments of the funds be "adequately diversified" in accordance
with Treasury Regulations in order for the contract to qualify as an annuity
contract under federal tax law. The separate account, through the funds, intends
to comply with the diversification requirements prescribed by the Treasury in
Reg. Sec. 1.817-5, which affects how the funds' assets may be invested.
CONTRACT TYPE
The contract is designed for use on a non-tax qualified basis as a nonqualified
contract or with certain retirement arrangements that qualify under Tax Code
sections 403(b), 408(b) or 408A. Prior to May 1, 1998, the contract was
available with certain retirement arrangements that qualify under Tax Code
sections 401(a) or 457(b).
Tax Rules. The tax rules vary according to whether the contract is a
nonqualified contract or used with a qualified retirement arrangement. If used
with a qualified retirement arrangement, you need to know the Tax Code section
under which your arrangement qualifies. Contact your plan sponsor, sales
representative or the Company to learn which Tax Code section applies to your
arrangement.
The Contract. Contract holders are responsible for determining that
contributions, distributions and other transactions satisfy applicable laws.
Legal counsel and a tax adviser should be consulted regarding the suitability of
the contract. If the contract is purchased in conjunction with a retirement
plan, the plan is not a part of the contract and we are not bound by the plan's
terms or conditions.
WITHDRAWALS AND OTHER DISTRIBUTIONS
Certain tax rules apply to distributions from the contract. A distribution is
any amount taken from the contract including withdrawals, income phase payments,
rollovers, exchanges and death benefit proceeds.
We report the taxable portion of all distributions to the IRS.
Taxation of Distributions
Nonqualified Contracts. A full withdrawal of a nonqualified contract is taxable
to the extent that the amount received exceeds the investment in the contract. A
partial withdrawal is taxable to the extent that the account value immediately
before the withdrawal exceeds the investment in the contract. In other words, a
partial withdrawal is treated first as a withdrawal of taxable earnings.
For income phase payments a portion of each payment which represents the
investment in the contract is not taxable. An exclusion ratio is calculated to
determine the nontaxable portion.
For fixed income phase payments in general, there is no tax on the portion of
each payment which represents the same ratio that the investment in the contract
bears to the total dollar amount of the expected payments as defined in Tax Code
section 72(c). The entire payment will be taxable once the recipient has
recovered the investment in the contract.
For variable income phase payments, an equation is used to establish a specific
dollar amount of each payment that is not taxed. The dollar amount is
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determined by dividing the investment in the contract by the total number of
expected periodic payments. The entire income phase payment will be taxable
once the recipient has recovered the investment in the contract.
All deferred nonqualified annuity contracts that are issued by the Company (or
its affiliates) to the same contract holder during any calendar year are treated
as one annuity contract for purposes of determining the amount includible in
gross income under Tax Code section 72(e). In addition, the Treasury Department
has specific authority to issue regulations that prevent the avoidance of Tax
Code section 72(e) through the serial purchase of annuity contracts or
otherwise.
401(a) or 403(b) Plans. All distributions from these plans are taxed as received
unless either of the following is true:
> The distribution is rolled over to another plan of the same type or to a
traditional IRA in accordance with the Tax Code; or
> You made after-tax contributions to the plan. In this case, depending upon the
type of distribution, the amount will be taxed according to the rules detailed
in the Tax Code.
408(b) IRAs. All distributions from a traditional IRA are taxed as received
unless either one of the following is true:
> The distribution is rolled over to another traditional IRA or, if the IRA
contains only amounts previously rolled over from a 401(a), 401(k), or 403(b)
plan, the distribution is transferred to another plan of the same type; or
> You made after-tax contributions to the plan. In this case the distribution
will be taxed according to rules detailed in the Tax Code.
408A Roth IRAs. A qualified distribution from a Roth IRA is not taxed when it is
received. A qualified distribution is a distribution:
> Made after the five-taxable year period beginning with the first taxable year
for which a contribution was made; and
> Made after you attain age 59-1/2, die, become disabled as defined in the Tax
Code or for a qualified first-time home purchase.
If a distribution is not qualified, it will be taxable to the extent of the
accumulated earnings. A partial distribution will first be treated as a return
of contributions which is not taxable and then as taxable accumulated earnings.
457(b) Plans. All amounts received under a 457(b) plan are includible in
taxable income when paid or otherwise made available to you or your
beneficiary.
Taxation of Death Benefit Proceeds. In general, payments received by your
beneficiaries after your death are taxed in the same manner as if you had
received those payments.
10% Penalty Tax
Under certain circumstances the Tax Code may impose a 10% penalty tax on the
taxable portion of any distribution from a nonqualified contract or from a
contract used with a 401(a), 403(b), 408(b) or 408A arrangement. The 10%
penalty tax does not apply to a distribution from a 457 plan.
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<PAGE>
Nonqualified Contracts. The 10% penalty tax applies to the taxable portion of a
distribution from a nonqualified annuity unless certain exceptions apply,
including one or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
(d) The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint
life expectancies of you and your beneficiary; or
(e) The distribution is allocable to investment in the contract before August
14, 1982.
401(a) or 403(b) Plans. The 10% penalty tax applies to the taxable portion of a
distribution from a 401(a) or 403(b) plan, unless certain exceptions apply,
including one or more of the following:
(a) You have attained age 59-1/2;
(b) You have become disabled as defined in the Tax Code;
(c) You have died;
(d) You have separated from service with the plan sponsor at or after age 55;
(e) The distribution is rolled over into another plan of the same type or to an
IRA in accordance with the Tax Code;
(f) You have separated from service with the plan sponsor and the distribution
is made in substantially equal periodic payments (at least annually) over
your life or life expectancy or the joint lives or joint life expectancies
of you and your beneficiary; or
(g) The distribution is equal to unreimbursed medical expenses that qualify for
deduction as specified in the Tax Code.
408(b) and 408A IRAs. In general, except for (d), the exceptions for 401(a) and
403(b) plans also apply to distributions from an IRA, including a distribution
from a Roth IRA that is not a qualified distribution or a rollover to a Roth IRA
that is not a qualified rollover contribution. The penalty tax is also waived on
a distribution made from an IRA to pay for health insurance premiums for certain
unemployed individuals or used for a qualified first-time home purchase or for
higher education expenses.
Withholding for Federal Income Tax Liability
Any distributions under the contract are generally subject to withholding.
Federal income tax liability rates vary according to the type of distribution
and the recipient's tax status.
Nonqualified Contracts. Generally, you or a beneficiary may elect not to have
tax withheld from distributions.
401(a) or 403(b) Plans. Generally, distributions from these plans are subject to
a mandatory 20% federal income tax withholding. However, withholding will not be
required if you elect a direct rollover of the distributions or in the case of
certain distributions described in the Tax Code.
408(b) and 408A IRAs. Generally, you or a beneficiary may elect not to have tax
withheld from distributions.
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<PAGE>
457 Plans. All distributions from a 457 plan, except death benefit proceeds, are
subject to mandatory federal income tax withholding as wages. No withholding is
required on payments to beneficiaries.
Non-resident Aliens. If you or your beneficiary is a non-resident alien, then
any withholding is governed by Tax Code section 1441 based on the individual's
citizenship, the country of domicile and treaty status.
MINIMUM DISTRIBUTION REQUIREMENTS
To avoid certain tax penalties, you and any beneficiary must meet the minimum
distribution requirements imposed by the Tax Code. The requirements do not apply
to either nonqualified contracts or Roth IRA contracts, except with regard to
death benefits. These rules may dictate one or more of the following:
> Start date for distributions;
> The time period in which all amounts in your account(s) must be distributed;
or
> Distribution amounts.
Start Date. Generally, you must begin receiving distributions by April 1 of the
calendar year following the calendar year in which you attain age 70-1/2 or
retire, whichever occurs later, unless:
> You are a 5% owner or the contract is an IRA, in which case such distributions
must begin by April 1 of the calendar year following the calendar year in
which you attain age 70-1/2; or
> Under 403(b) plans, if the Company maintains separate records of amounts held
as of December 31, 1986. In this case distribution of these amounts generally
must begin by the end of the calendar year in which you attain age 75 or
retire, if later. However, if you take any distributions in excess of the
minimum required amount, then special rules require that some or all of the
December 31, 1986 balance be distributed earlier.
Time Period. We must pay out distributions from the contract over one of the
following time periods:
> Over your life or the joint lives of you and your beneficiary; or
> Over a period not greater than your life expectancy or the joint life
expectancies of you and your beneficiary.
Amount (457(b) Plans Only). Any distribution from a 457(b) plan, payable over a
period of more than one year, must be made in substantially non-increasing
amounts.
50% Excise Tax. If you fail to receive the minimum required distribution for
any tax year, a 50% excise tax is imposed on the required amount that was not
distributed.
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Minimum Distribution of Death Benefit Proceeds (401(a), 403(b) and 457 Plans
and 408(b) and 408A IRAs)
The following applies to 401(a), 403(b) and 457 plans and 408(b) and 408A IRAs.
Different distribution requirements apply if your death occurs:
> After you begin receiving minimum distributions under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving minimum distributions under the
contract, distributions must be made at least as rapidly as under the method in
effect at the time of your death. Tax Code section 401(a)(9) provides specific
rules for calculating the minimum required distributions at your death. The
rules differ, depending upon:
> Whether your minimum required distribution was calculated each year based on
your single life expectancy or the joint life expectancies of you and your
beneficiary; or
> Whether life expectancy was recalculated.
The rules are complex and any beneficiary should consult with a tax adviser
before electing the method of calculation to satisfy the minimum distribution
requirements.
If your death occurs before you begin receiving minimum distributions under the
contract, your entire balance must be distributed by December 31 of the calendar
year containing the fifth anniversary of the date of your death. For example, if
you die on September 1, 2000, your entire balance must be distributed to the
beneficiary by December 31, 2005. However, if the distributions begin by
December 31 of the calendar year following the calendar year of your death, then
payments may be made over either of the following time-frames:
> Over the life of the beneficiary; or
> Over a period not extending beyond the life expectancy of the beneficiary.
For 457(b) plans, if the beneficiary is not your spouse, the time-frame may not
exceed 15 years.
Start Dates for Spousal Beneficiaries. If the beneficiary is your spouse,
distributions must begin on or before the later of the following:
> December 31 of the calendar year following the calendar year of your death; or
> December 31 of the calendar year in which you would have attained age 70-1/2.
Special Rule for IRA Spousal Beneficiaries. In lieu of taking a distribution
under these rules, a spousal beneficiary may elect to treat the account as his
or her own IRA and defer taking a distribution until his or her age 701/2. 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.
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Minimum Distribution of Death Benefit Proceeds (Nonqualified Contracts)
Death of the Contract Holder. The following requirements apply to nonqualified
contracts at your death. Different distribution requirements apply if your death
occurs:
> After you begin receiving income phase payments under the contract; or
> Before you begin receiving such distributions.
If your death occurs after you begin receiving income phase payments,
distributions must be made at least as rapidly as under the method in effect at
the time of your death.
If your death occurs before you begin receiving income phase payments, your
entire balance must be distributed within five years after the date of your
death. For example, if you die on September 1, 2000, your entire balance must be
distributed by August 31, 2005. However, if distributions begin within one year
of your death, then payments may be made over one of the following time-frames:
> Over the life of the beneficiary; or
> Over a period not extending beyond the life expectancy of the beneficiary.
Spousal Beneficiaries. If the beneficiary is your spouse, the account may be
continued with the surviving spouse as the new contract holder.
Death of Annuitant. If the contract holder is a non-natural person and the
annuitant dies, the same rules apply as outlined above for death of a contract
holder. If the contract holder is a natural person but not the annuitant and the
annuitant dies, the beneficiary must elect an income phase payment option within
60 days of the date of death, or any gain under the contract will be includible
in the beneficiary's income in the year the annuitant dies.
RULES SPECIFIC TO CERTAIN PLANS
401(a) Plans.
Tax Code section 401(a) permits certain 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 contracts to
accumulate retirement savings under the plans.
Assignment or Transfer of Contracts. Adverse tax consequences to the 401(a) plan
and/or to you may result if your beneficial interest in the contract is assigned
or transferred to persons other than:
> A plan participant as a means to provide benefit payments;
> An alternate payer under a qualified domestic relations order in accordance
with Tax Code section 414(p); or
> The Company as collateral for a loan.
Exclusion From Gross Income. The Tax Code imposes a maximum limit on annual
payments to your 401(a) account(s) that may be excluded from gross income. The
employer must calculate this limit under the plan in accordance with Tax Code
section 415. This limit is generally the lesser of 25% of your compensation or
$30,000. Compensation means your compensation from the
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employer sponsoring the plan and, for years beginning after December 31, 1997,
includes any elective deferrals under Tax Code section 402(g) and any amounts
not includible in gross income under Tax Code sections 125 or 457. The limit
applies to your contributions as well as any contributions made by your employer
on your behalf. In addition, payments to your account(s) will be excluded from
your gross income only if the plan meets certain nondiscrimination requirements.
403(b) Plans.
Under Tax Code section 403(b), contributions made by public school systems or
nonprofit healthcare organizations and other Tax Code section 501(c)(3) tax
exempt organizations to purchase annuity contracts for their employees are
generally excludable from the gross income of the employee.
Assignment or Transfer of Contracts. Adverse tax consequences to the plan and/or
to you may result if your beneficial interest in the contract is assigned or
transferred to any person except to an alternate payee under a qualified
domestic relations order in accordance with Tax Code section 414(p) or to the
Company as collateral for a loan.
Exclusions from Gross Income. In order to be excludable from gross income, total
annual contributions made by you and your employer to a 403(b) plan cannot
exceed the lesser of the following limits set by the Tax Code:
> The first limit, under Tax Code section 415, is generally the lesser of 25% of
your compensation or $30,000. Compensation means your compensation from the
employer sponsoring the plan and, for years beginning after December 31, 1997,
includes any elective deferrals under Tax Code section 402(g) and any amounts
not includible in gross income under Tax Code sections 125 or 457;
> The second limit, which is the exclusion allowance under Tax Code section
403(b), is usually calculated according to a formula that takes into account
your length of employment, any pretax contributions you and your employer have
already made under the plan and any pretax contributions to certain other
retirement plans; or
> An additional limit specifically limits your salary reduction contributions to
generally no more than $10,000 annually (subject to indexing). Your own limit
may be higher or lower, depending upon certain conditions
The first two limits apply to your contributions as well as to any contributions
made by your employer on your behalf.
Purchase payments to your account(s) will be excluded from your gross income
only if the plan meets certain nondiscrimination requirements.
Restrictions on Distributions. Tax Code section 403(b)(11) restricts the
distribution under Tax Code section 403(b) contracts of:
(1) Salary reduction contributions made after December 31, 1988;
(2) Earnings on those contributions; and
(3) Earnings during such period on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon your death, attainment of age
59-1/2, separation from service, disability or financial hardship. Income
attributable to salary reduction contributions and credited on or after January
1, 1989, may not be distributed in the case of hardship.
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408(b) and 408A IRAs.
Tax Code section 408(b) permits eligible individuals to contribute to a
traditional IRA on a pre-tax (deductible) basis. Employers may establish
Simplified Employee Pension (SEP) plans and contribute to a traditional IRA
owned by the employee. Tax Code section 408A permits eligible individuals to
contribute to a Roth IRA on an after-tax (nondeductible) basis.
Assignment or Transfer of Contracts. Adverse tax consequences may result if you
assign or transfer your interest in the contract to persons other than your
spouse incident to a divorce.
Eligibility. Eligibility to contribute to a traditional IRA on a pre-tax basis
or to establish a Roth IRA or to roll over or transfer from a traditional IRA to
a Roth IRA depends upon your adjusted gross income.
Rollovers and Transfers. Rollovers and direct transfers are permitted from a
401, 403(a) or a 403(b) arrangement to a traditional IRA. Distributions from
these arrangements are not permitted to be transferred or rolled over to a Roth
IRA. A Roth IRA can accept transfers/rollovers only from a traditional IRA,
subject to ordinary income tax, or from another Roth IRA.
457(b) Plans.
Tax Code section 457(b) provides for certain deferred compensation plans. These
plans may be offered by state governments, local governments, political
subdivisions, agencies, instrumentalities and certain affiliates of such
entities, and non-government tax exempt entities. The plan may permit
participants to specify the form of investment in their deferred compensation
account.
Trust Requirement. 457(b) plans maintained by state or local governments, their
political subdivisions, agencies, instrumentalities and certain affiliates are
required to hold all assets and income of the plan in trust for the exclusive
benefit of plan participants and their beneficiaries. For purposes of meeting
this requirement, custodial accounts and annuity contracts are treated as
trusts.
Contributions Excluded from Gross Income. If your employer's plan is a 457(b)
plan, the Tax Code imposes a maximum limit on annual contributions to your
account(s) that may be excluded from your gross income. For section 457(b) plan
participants, such limit is generally the lesser of $8,000, as adjusted to
reflect changes in the cost of living, or 33% of your includible compensation
(25% of gross compensation).
Restrictions on Distributions. Under a 457(b) plan, amounts may not be made
available to you earlier than (1) the calendar year you attain age 70-1/2; (2)
when you separate from service with the employer; or (3) when you are faced with
an unforeseeable emergency. A 457(b) plan may permit a one-time in-service
distribution if the total amount payable to the participant does not exceed
$5,000 and no amounts have been deferred by the participant during the 2-year
period ending on the date of distribution.
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TAXATION OF NONQUALIFIED CONTRACTS
In General. Tax Code section 72 governs taxation of annuities in general. Under
a nonqualified contract if you are a natural person, you generally are not taxed
on increases in the account value until distribution occurs by withdrawing all
or part of such account value. The taxable portion of a distribution is taxable
as ordinary income.
Non-Natural Holders of a Nonqualified Contract. If you are not a natural person,
a nonqualified contract generally is not treated as an annuity for income tax
purposes and the income on the contract for the taxable year is currently
taxable as ordinary income. Income on the contract is any increase over the year
in the surrender value, adjusted for purchase payments made during the year,
amounts previously distributed and amounts previously included in income. There
are some exceptions to this rule and a non-natural person should consult with
its tax adviser prior to purchasing the contract. A non-natural person exempt
from federal income taxes should consult with its tax adviser regarding
treatment of income on the contract for purposes of the unrelated business
income tax. When the contract holder is not a natural person, a change in
annuitant is treated as the death of the contract holder.
Transfers, Assignments or Exchanges of a Nonqualified Contract. A transfer of
ownership of a nonqualified contract, the designation of an annuitant, payee or
other beneficiary who is not also the contract holder, the selection of certain
annuity dates or the exchange of a contract may result in certain tax
consequences. The assignment, pledge or agreement to assign or pledge any
portion of the account value generally will be treated as a distribution. Anyone
contemplating any such designation, transfer, assignment, selection or exchange
should contact a tax adviser regarding the potential tax effects of such a
transaction.
TAXATION OF THE COMPANY
We are taxed as a life insurance company under the Tax Code. Variable Annuity
Account I is not a separate entity from us. Therefore, it is not taxed
separately as a "regulated investment company" but is taxed as part of the
Company.
We automatically apply investment income and capital gains attributable to the
separate account to increase reserves under the contracts. Because of this,
under existing federal tax law we believe that any such income and gains will
not be taxed to the extent that such income and gains are applied to increase
reserves under the contracts. In addition, any foreign tax credits attributable
to the separate account will be first used to reduce any income taxes imposed on
the separate account before being used by the Company.
In summary, we do not expect that we will incur any federal income tax liability
attributable to the separate account and we do not intend to make any provision
for such taxes. However, changes in federal tax laws and/or their interpretation
may result in our being taxed on income or gains attributable to the separate
account. In this case we may impose a charge against the separate account (with
respect to some or all of the contracts) to set aside provisions to pay such
taxes. We may deduct this amount from the separate account, including from your
account value invested in the subaccounts.
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Other Topics
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The Company
Aetna Insurance Company of America (the Company, we, us) issues the contract
described in this prospectus and is responsible for providing each contract's
insurance and annuity benefits.
We are a stock life insurance company organized under the insurance laws of the
State of Connecticut in 1990 and redomesticated under the insurance laws of the
State of Florida on January 5, 2000. We are an indirect wholly-owned subsidiary
of Aetna Inc.
We are engaged in the business of issuing life insurance and annuities. Our
principal executive offices are located at:
5100 West Lemon Street
Suite 213
Tampa, Florida 33609
Variable Annuity Account I
We established Variable Annuity Account I (the separate account) in 1994 as a
segregated asset account to fund our variable annuity contracts. The separate
account is registered as a unit investment trust under the Investment Company
Act of 1940 (the "40 Act"). It also meets the definition of "separate account"
under the federal securities laws.
The separate account is divided into subaccounts. The subaccounts invest
directly in shares of a pre-assigned fund.
Although we hold title to the assets of the separate account, such assets are
not chargeable with the liabilities of any other business that we conduct.
Income, gains or losses of the separate account are credited to or charged
against the assets of the separate account without regard to other income, gains
or losses of the Company. All obligations arising under the contract are
obligations of the Company.
Contract Distribution
Aetna Life Insurance and Annuity Company (ALIAC), an affiliate of the Company,
serves as the principal underwriter for the securities sold by this prospectus.
ALIAC is registered as a broker-dealer with the SEC and a member of the National
Association of Securities Dealers, Inc. (NASD).
As principal underwriter ALIAC will enter into arrangements with one or more
registered broker-dealers, including at least one affiliate of the Company, to
offer and sell the contracts described in this prospectus. ALIAC may also enter
into these arrangements with banks that may be acting as broker dealers without
separate registration under the Securities Exchange Act of 1934 pursuant to
legal and regulatory exceptions. In this prospectus we refer to the registered
broker-dealers and the banks described above as "distributors." ALIAC and one or
more of our affiliates may also sell the contracts directly. All individuals
offering and selling the contracts must be registered representatives of a
broker-dealer, or employees of a bank exempt from registration under the
Securities Exchange Act of 1934, and must be licensed as insurance agents to
sell variable annuity contracts.
Occasionally ALIAC may enter into arrangements with independent entities to help
find broker-dealers or banks interested in distributing the contract or to
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provide training, marketing and other sales-related functions or administrative
services. ALIAC will reimburse such entities for expenses related to and may pay
fees to such entities in return for these services.
From time to time customers of certain broker-dealers may be offered special
guaranteed rates in connection with the Guaranteed Account offered through the
contract and ALIAC may negotiate different commissions for these broker-dealers.
ALIAC may also contract with independent third party broker-dealers who will act
as wholesalers by assisting us in selecting broker-dealers or banks interested
in acting as distributors. These wholesalers may also provide training,
marketing and other sales related functions for the Company and the distributors
and may provide certain administrative services in connection with the contract.
ALIAC may pay such wholesalers compensation based on payments to contracts
purchased through distributors that they select.
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 for their services based on purchase payments, to the extent
such payments are allowed by applicable securities laws. ALIAC will pay all
costs and expenses related to these services.
Payment of Commissions
Distributors and their registered representatives who sell the contract are paid
commissions and service fees. Pursuant to agreements between ALIAC (as
underwriter) and the distributor, commissions will be paid up to an amount
currently equal to 6.5% of purchase payments or as a combination of a certain
percentage of purchase payments at time of sale and a trail commission as a
percentage of assets. Under the latter arrangement commission payments may
exceed 6.5% of purchase payments over the life of the contract. Some sales
personnel may receive various types of non-cash compensation as special sales
incentives, including trips and educational and/or business seminars. However,
any such compensation will be paid in accordance with NASD rules. In addition,
additional compensation may be paid to the supervisory and other management
personnel of the Company or its affiliates if the overall amount of investments
in funds advised by the Company or its affiliates increases over time.
Commissions, fees and related distribution expenses are paid out of any early
withdrawal charges assessed or out of our general assets, including investment
income and any profit from investment advisory fees and mortality and expense
risk charges. No additional deductions or charges are imposed for commissions
and related expenses.
Payment Delay or Suspension
We reserve the right to suspend or postpone the date of any payment of benefits
or values under any one of the following circumstances:
> On any valuation date when the New York Stock Exchange is closed (except
customary weekend and holiday closings) or when trading on the New York Stock
Exchange is restricted;
> When an emergency exists as determined by the SEC so that disposal of the
securities held in the subaccounts is not reasonably practicable or it is not
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reasonably practicable to fairly determine the value of the subaccount's
assets; or
> During any other periods the SEC may by order permit for the protection of
investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
We may advertise different types of historical performance for the subaccounts
including:
> Standardized average annual total returns; and
> Non-standardized average annual total returns.
Standardized Average Annual Total Returns. We calculate standardized average
annual total returns according to a formula prescribed by the SEC. This shows
the percentage return applicable to $1,000 invested in the subaccounts over the
most recent one, five and ten-year periods. If the investment option was not
available for the full period, we give a history from the date money was first
received in that option under the separate account. Standardized average annual
total returns reflect deduction of all recurring charges during each period
(i.e., mortality and expense risk charges, annual maintenance fees,
administrative expense charges, if any, and any applicable early withdrawal
charges).
Non-Standardized Average Annual Total Returns. We calculate non-standardized
average annual total returns in a similar manner as that stated above, except we
do not include the deduction of any applicable early withdrawal charge. Some
non-standardized returns may also exclude the effect of a maintenance fee. If we
reflected these charges in the calculation, they would decrease the level of
performance reflected by the calculation. Non-standardized returns may also
include performance from the fund's inception date, if that date is earlier than
the one we use for standardized returns.
We may also advertise certain ratings, rankings or other information related to
the Company, the subaccounts or the funds. For further details regarding
performance reporting and advertising, you may request a Statement of Additional
Information (SAI) by calling us at the number listed in "Contract
Overview--Questions: Contacting the Company."
Voting Rights
Each of the subaccounts holds shares in a fund and each is entitled to vote at
regular and special meetings of that fund. Under our current view of applicable
law, we will vote the shares for each subaccount as instructed by persons having
a voting interest in the subaccount. If you are a contract holder under a group
contract, you have a fully vested interest in the contract and may instruct the
group contract holder how to direct the Company to cast a certain number of
votes. We will vote shares for which instructions have not been received in the
same proportion as those for which we received instructions. Each person who has
a voting interest in the separate account will receive periodic reports relating
to the funds in which he or she has an interest, as well as any proxy materials
and a form on which to give voting instructions. Voting instructions will be
solicited by a written communication at least 14 days before the meeting.
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The number of votes (including fractional votes) you are entitled to direct will
be determined as of the record date set by any fund you invest in through the
subaccounts.
> During the accumulation phase the number of votes is equal to the portion of
your account value invested in the fund, divided by the net asset value of one
share of that fund.
> During the income phase the number of votes is equal to the portion of
reserves set aside for the contract's share of the fund, divided by the net
asset value of one share of that fund.
Contract Modifications
We may change the contract as required by federal or state law or as otherwise
permitted in the contract. In addition, we may, upon 30 days' written notice to
the group contract holder, make other changes to a group contract that would
apply only to individuals who become participants under that contract after the
effective date of such changes. If a group contract holder does not agree to a
change, we reserve the right to refuse to establish new accounts under the
contract. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
Transfer of Ownership: Assignment
We will accept assignments or transfers of ownership of a nonqualified contract
or a qualified contract where such assignments or transfers are not prohibited,
with proper notification. The date of any assignment or transfer of ownership
will be the date we receive the notification at our Service Center. An
assignment or transfer of ownership may have tax consequences and you should
consult with a tax adviser before assigning or transferring ownership of the
contract.
An assignment of a contract will only be binding on the Company if it is made in
writing and sent to the Company at our Service Center. We will use reasonable
procedures to confirm that the assignment is authentic, including verification
of signature. If we fail to follow our own procedures, we will be liable for any
losses to you directly resulting from such failure. Otherwise, we are not
responsible for the validity of any assignment. The rights of the contract
holder and the interest of the annuitant and any beneficiary will be subject to
the rights of any assignee we have on our records.
Involuntary Terminations
We reserve the right to terminate any account with a value of $2,500 or less
immediately following a partial withdrawal. However, an IRA may only be closed
out when payments to the contract have not been received for a 24-month period
and the paid-up annuity benefit at maturity would be less than $20 per month. If
such right is exercised, you will be given 90 days' advance written notice. No
early withdrawal charge will be deducted for involuntary terminations. We do not
intend to exercise this right in cases where the account value is reduced to
$2,500 or less solely due to investment performance.
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Legal Matters and Proceedings
We are aware of no material legal proceedings pending which involve the separate
account as a party or which would materially affect the separate account. The
validity of the securities offered by this prospectus has been passed upon by
Counsel to the Company.
In recent years, several life insurance and annuity companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance and annuity pricing and sales practices. A purported class action
complaint was filed in the Circuit Court of Lauderdale County, Alabama on March
28, 2000, by Loretta Shaner against ALIAC, an affiliate of the Company which
serves as principal underwriter for the securities described in this prospectus
(the "Shaner Complaint"). The Shaner Complaint seeks unspecified compensatory
damages from ALIAC and unnamed affiliates of ALIAC. The Shaner Complaint claims
that ALIAC's sale of deferred annuity products for use as investments in
tax-deferred contributory retirement plans (e.g., IRAs) is improper. This
litigation is in the preliminary stages. ALIAC intends to defend the action
vigorously.
The Company is not currently involved in any other material litigation.
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Contents of the Statement of Additional Information
- --------------------------------------------------------------------------------
The Statement of Additional Information (SAI) contains more specific information
on the separate account and the contract, as well as the financial statements of
the separate account and the Company. The following is a list of the contents of
the SAI.
<TABLE>
<S> <C>
General Information and History .................................... 2
Variable Annuity Account I ......................................... 2
Offering and Purchase of Contracts ................................. 3
Performance Data ................................................... 3
General ........................................................... 3
Average Annual Total Return Quotations ............................ 4
Income Phase Payments .............................................. 7
Sales Material and Advertising ..................................... 8
Independent Auditors ............................................... 9
Financial Statements of the Separate Account ....................... S-1
Financial Statements of Aetna Insurance Company of America ......... F-1
</TABLE>
You may request an SAI by calling the Company at the number listed in "Contract
Overview -- Questions: Contacting the Company".
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Appendix I
AICA Guaranteed Account
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The AICA Guaranteed Account (the Guaranteed Account) is a fixed interest option
available during the accumulation phase under the contract. This appendix is
only a summary of certain facts about the Guaranteed Account. Please read the
Guaranteed Account prospectus carefully before investing in this option.
In General. Amounts invested in the Guaranteed Account earn specified interest
rates if left in the Guaranteed Account for specified periods of time. If you
withdraw or transfer those amounts before the specified periods elapse, we may
apply a market value adjustment (described below) which may be positive or
negative.
When deciding to invest in the Guaranteed Account, contact your sales
representative or the Company to learn:
> The interest rate(s) we will apply to amounts invested in the Guaranteed
Account. We change the rate(s) periodically. Be certain you know the rate we
guarantee on the day your account dollars are invested in the Guaranteed
Account. Guaranteed interest rates will never be less than an annual effective
rate of 3%.
> The period of time your account dollars need to remain in the Guaranteed
Account in order to earn the rate(s) You are required to leave your account
dollars in the Guaranteed Account for a specified period of time in order to
earn the guaranteed interest rate(s).
Deposit Period. During a deposit period, we offer a specific interest rate for
dollars invested for a certain guaranteed term. For a specific interest rate and
guaranteed term to apply, account dollars must be invested in the Guaranteed
Account during the deposit period for which that rate and term are offered.
Interest Rates. We guarantee different interest rates, depending upon when
account dollars are invested in the Guaranteed Account. For guaranteed terms one
year or longer, we may apply more than one specified interest rate. The interest
rate we guarantee is an annual effective yield. That means the rate reflects a
full year's interest. We credit interest daily at a rate that will provide the
guaranteed annual effective yield over one year. Guaranteed interest rates will
never be less than an annual effective rate of 3%. The interest rate guarantees
are based on the Company's claims-paying ability.
Guaranteed Terms. The guaranteed term is the period of time account dollars must
be left in the Guaranteed Account in order to earn the guaranteed interest rate.
For guaranteed terms one year or longer, we may offer different rates for
specified time periods within a guaranteed term. We offer different guaranteed
terms at different times. We also may offer more than one guaranteed term of the
same duration with different interest rates. Check with your sales
representative or the Company to learn what terms are being offered. The Company
also reserves the right to limit the number of guaranteed terms or the
availability of certain guaranteed terms.
Fees and Other Deductions. If all or a portion of your account value in the
Guaranteed Account is withdrawn or transferred, you may incur one or more of the
following:
> Market Value Adjustment (MVA)--as described in this appendix and in the
Guaranteed Account prospectus;
> Tax penalties and/or tax withholding--see "Taxation;"
> Early withdrawal charge--see "Fees;" or
> Maintenance fee--see "Fees."
We do not make deductions from amounts in the Guaranteed Account to cover
mortality and expense risks. Rather, we consider these risks when determining
the interest rate to be credited.
Market Value Adjustment (MVA). If your account value is withdrawn or transferred
from the Guaranteed Account before the guaranteed term is completed, an MVA may
apply. The MVA reflects investment value changes caused by changes in interest
rates occurring since the date of deposit. The MVA may be positive or negative.
If interest rates at the time of withdrawal or transfer have increased since the
date of deposit, the value of the investment decreases and the MVA will be
negative. This could result in your receiving less than the amount you
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paid into the Guaranteed Account. If interest rates at the time of withdrawal
or transfer have decreased since the date of deposit, the value of the
investment increases and the MVA will be positive.
MVA Waiver. For withdrawals or transfers from a guaranteed term before the
guaranteed term matures, the MVA may be waived for:
> Transfers due to participation in the dollar cost averaging program;
> Withdrawals taken due to your election of SWO or ECO (described in "Systematic
Distribution Options"), if available;
> Withdrawals for minimum distributions required by the Tax Code and for which
the early withdrawal charge is waived; and
> Withdrawals due to your exercise of the right to cancel your contract
(described in "Right to Cancel").
Death Benefit. When a death benefit is paid under the contract within six months
of the date of death, only a positive aggregate MVA amount, if any, is applied
to the account value attributable to amounts withdrawn from the Guaranteed
Account. This provision does not apply upon the death of a spousal beneficiary
or joint contract holder who continued the account after the first death. If a
death benefit is paid more than six months from the date of death, a positive or
negative aggregate MVA amount, as applicable, will be applied.
Partial Withdrawals. For partial withdrawals during the accumulation phase,
amounts to be withdrawn from the Guaranteed Account will be withdrawn
proportionally from each group of deposits having the same length of time until
the maturity date ("Guaranteed Term Group"). Within a Guaranteed Term Group, the
amount will be withdrawn first from the oldest deposit period, then from the
next oldest and so on until the amount requested is satisfied.
Guaranteed Terms Maturity. As a guaranteed term matures, assets accumulating
under the Guaranteed Account may be (a) transferred to a new guaranteed term,
(b) transferred to other available investment options, or (c) withdrawn. Amounts
withdrawn may be subject to an early withdrawal charge, taxation and, if you are
under age 59-1/2, tax penalties may apply.
If no direction is received from you at our Service Center by the maturity date
of a guaranteed term, the amount from the maturing guaranteed term will be
transferred to a new guaranteed term of a similar length. If the same guaranteed
term is no longer available, the next shortest guaranteed term available in the
current deposit period will be used. If no shorter guaranteed term is available,
the next longer guaranteed term will be used.
If you do not provide instructions concerning the maturity value of a maturing
guaranteed term, the maturity value transfer provision applies. This provision
allows transfers or withdrawals without an MVA if the transfer or withdrawal
occurs during the calendar month immediately following a guaranteed term
maturity date. This waiver of the MVA only applies to the first transaction
regardless of the amount involved in the transaction.
Under the Guaranteed Account each guaranteed term is counted as one funding
option. If a guaranteed term matures and is renewed for the same term, it will
not count as an additional investment option for purposes of any limitation on
the number of investment options.
Subsequent Purchase Payments. Purchase payments received after your initial
purchase payment to the Guaranteed Account will be allocated in the same
proportions as the last allocation, unless you properly instruct us to do
otherwise. If the same guaranteed term(s) are not available, the next shortest
term will be used. If no shorter guaranteed term is available, the next longer
guaranteed term will be used.
Dollar Cost Averaging. The Company may offer more than one guaranteed term of
the same duration and credit one with a higher rate contingent upon use only
with the dollar cost averaging program. If amounts are applied to a guaranteed
term which is credited with a higher rate using dollar cost averaging and the
dollar cost averaging is discontinued, the amounts will be transferred to
another guaranteed term of the same duration and an MVA will apply.
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Transfer of Account Dollars. Generally, account dollars invested in the
Guaranteed Account may be transferred among guaranteed terms offered through
the Guaranteed Account and/or to other investment options offered through the
contract. However, transfers may not be made during the deposit period in which
your account dollars are invested in the Guaranteed Account or for 90 days
after the close of that deposit period. We will apply an MVA to transfers made
before the end of a guaranteed term. The 90-day wait does not apply to (1)
amounts transferred on the maturity date or under the maturity value transfer
provision; (2) amounts transferred from the Guaranteed Account before the
maturity date due to the election of an income phase payment option; (3)
amounts distributed under the ECO or SWO (see "Systematic Distribution
Options") and (4) amounts transferred from an available guaranteed term in
connection with the dollar cost averaging program.
Transfers after the 90-day period are permitted from guaranteed term(s) to other
guaranteed term(s) available during a deposit period or to other available
investment options. Transfers of the Guaranteed Account values on or within one
calendar month of a term's maturity date are not counted as one of the 12 free
transfers of accumulated values in the account.
Reinvesting Amounts Withdrawn from the Guaranteed Account. If amounts are
withdrawn and then reinvested in the Guaranteed Account, we apply the reinvested
amount to the current deposit period. This means the guaranteed annual interest
rate and guaranteed terms available on the date of reinvestment will apply. We
reinvest amounts proportionately in the same way as they were allocated before
withdrawal. Your account value will not be credited for any negative MVA that
was deducted at the time of withdrawal.
The Income Phase. The Guaranteed Account cannot be used as an investment option
during the income phase. However, you may notify us at least 30 days in advance
to elect a fixed or variable payment option and to transfer your Guaranteed
Account dollars to the general account or any of the subaccounts available
during the income phase. Transfers made due to the election of a lifetime income
phase payment option will be subject to only a positive aggregate MVA.
Distribution. Aetna Life Insurance and Annuity Company (ALIAC) is the principal
underwriter of the contract. ALIAC is registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc. From
time to time customers of certain broker-dealers may be offered special
guaranteed rates in connection with the Guaranteed Account offered through the
contract and ALIAC may negotiate different commissions for these broker-dealers.
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Appendix II
Fixed Account
- --------------------------------------------------------------------------------
General Disclosure.
> The Fixed Account is an investment option available during the accumulation
phase under the contracts.
> Amounts allocated to the Fixed Account are held in the Company's general
account which supports insurance and annuity obligations.
> Interests in the Fixed Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended.
> Disclosure in this prospectus regarding the Fixed Account may be subject to
certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of the statements.
> Disclosure in this appendix regarding the Fixed Account has not been reviewed
by the SEC.
> Additional information about this option may be found in the contract.
Interest Rates.
> The Fixed Account guarantees that amounts allocated to this option will earn
the minimum interest rate specified in the contract. We may credit a higher
interest rate from time to time, but the rate we credit will never fall below
the guaranteed minimum specified in the contract. Amounts applied to the Fixed
Account will earn the interest rate in effect at the time money is applied.
Amounts in the Fixed Account will reflect a compound interest rate as credited
by us. The rate we quote is an annual effective yield. Interest rate
guarantees are based on the Company's claims-paying ability.
> Our determination of credited interest rates reflects a number of factors
including mortality and expense risks, interest rate guarantees, the
investment income earned on invested assets and the amortization of any
capital gains and/or losses realized on the sale of invested assets. Under
this option, we assume the risk of investment gain or loss by guaranteeing the
amounts you allocate to this option and promising a minimum interest rate and
income phase payment.
Dollar Cost Averaging. Amounts you invest in the Fixed Account must be
transferred into the other investment options available under the contract over
a period not to exceed 12 months. If you discontinue dollar cost averaging, the
remaining balance amounts in the Fixed Account will be transferred into the
money market subaccount available under the contract, unless you direct us to
transfer the balance into other available options.
Withdrawals. Under certain emergency conditions we may defer payment of any
withdrawal for a period of up to 6 months or as provided by federal law.
Charges. We do not make deductions from amounts in the Fixed Account to cover
mortality and expense risks. We consider these risks when determining the
credited rate. If you make a withdrawal from amounts in the Fixed Account, an
early withdrawal charge may apply. See "Fees."
Transfers. During the accumulation phase you may transfer account dollars from
the Fixed Account to any other available investment option. We may vary the
dollar amount that you are allowed to transfer, but it will never be less than
10% of your account value held in the Fixed Account.
By notifying our Service Center at least 30 days before income phase payments
begin, you may elect to have amounts transferred to one or more of the
subaccounts available during the income phase to provide variable payments.
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Appendix III
Description of Underlying Funds
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The investment results of the mutual funds (funds) are likely to differ
significantly and there is no assurance that any of the funds will achieve their
respective investment objectives. Shares of the funds will rise and fall in
value and you could lose money by investing in the funds. Investments in the
funds are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Except as noted,
all funds are diversified, as defined under the Investment Company Act of 1940.
Aetna Balanced VP, Inc.
Investment Objective
Seeks to maximize investment return, consistent with reasonable safety of
principal by investing in a diversified portfolio of one or more of the
following asset classes: stocks, bonds, and cash equivalents, based on the
investment adviser's judgment of which of those sectors or mix thereof offers
the best investment prospects.
Policies
Under normal market conditions, allocates assets among the following asset
classes: equities such as common and preferred stocks; and debt, such as bonds,
mortgage-related and other asset-backed securities, U.S. Government securities,
and money market instruments. Typically maintains approximately 60% of total
assets in equities and 40% of total assets in debt (including money market
instruments), although those percentages may vary from time to time.
Risks
Principal risks are those generally attributable to stock and bond investing.
The success of the fund's strategy depends on the investment adviser's skill in
allocating fund assets between equities and debt and in choosing investments
within those categories. Risks attributable to stock investing include sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile than stocks of larger companies and can be particularly
sensitive to expected changes in interest rates, borrowing costs and earnings.
Fixed-income investments are subject to the risk that interest rates will rise,
which generally causes bond prices to fall. Also, economic and market conditions
may cause issuers to default or go bankrupt. Values of high-yield bonds are even
more sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Investment Objective
Seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt securities.
It is anticipated that capital appreciation and investment income will both be
major factors in achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in
high-grade corporate bonds, mortgage-related and other asset-backed securities,
and securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. High-grade securities are rated at least A by Standard &
Poor's Corporation (S&P) or Moody's Investors Service, Inc. (Moody's), or if
unrated, considered by the investment adviser to be of comparable quality. May
also invest up to 15% of total assets in high-yield bonds, and up to 25% of
total assets in foreign debt securities.
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Risks
Principal risks are those generally attributable to debt investing, including
increases in interest rates and loss of principal. Generally, when interest
rates rise, bond prices fall. Bonds with longer maturities tend to be more
sensitive to changes in interest rates. For all bonds there is a risk that the
issuer will default. High-yield bonds generally are more susceptible to the risk
of default than higher rated bonds. Prices of mortgage-related securities, in
addition to being sensitive to changes in interest rates, also are sensitive to
changes in the prepayment patterns on the underlying instruments. Foreign
securities have additional risks. Some foreign securities tend to be less liquid
and more volatile than their U.S. counterparts. In addition, accounting
standards and market regulations tend to be less standardized in certain foreign
countries. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Investment Objective
Seeks to maximize total return through investments in a diversified portfolio of
common stocks and securities convertible into common stock. It is anticipated
that capital appreciation and investment income will both be major factors in
achieving total return.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks that the investment adviser believes have significant potential for
capital appreciation or income growth. Tends to emphasize stocks of larger
companies. Also invests assets across other asset classes (including stocks of
small and medium-sized companies, international stock, real estate securities
and fixed income securities). May invest principally in common stocks having
significant potential for capital appreciation, or may purchase common stocks
principally for their income potential through dividends and option writing, or
may acquire securities having a mix of these characteristics.
Risks
Principal risks are those generally attributable to stock investing. These risks
include sudden and unpredictable drops in the value of the market as a whole and
periods of lackluster or negative performance. Although the investment adviser
emphasizes large cap stocks, to the extent the Fund is diversified across asset
classes, it may not perform as well as less diversified funds when large cap
stocks are in favor. Additionally, stocks of medium-sized and smaller companies
tend to be more volatile and less liquid than stocks of larger companies.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Investment Objective
Seeks to provide high current return, consistent with preservation of capital
and liquidity, through investment in high-quality money market instruments.
Policies
Invests only in a diversified portfolio of high-quality fixed income securities
denominated in U.S. dollars, with short remaining maturities. These securities
include U.S. Government securities, such as U.S. Treasury bills and securities
issued or sponsored by U.S. government agencies. They also may include corporate
debt securities, commercial paper, asset-backed securities and certain
obligations of U.S. and foreign banks, each of which must be highly rated by
independent rating agencies or, if unrated, considered by the investment adviser
to be of comparable quality. Maintains a dollar-weighted average portfolio
maturity of 90 days or less.
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Risks
It is possible to lose money by investing in the fund. There is no guaranty the
fund will achieve its investment objective. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
A weak economy, strong equity markets and changes by the Federal Reserve in its
monetary policies all could affect short-term interest rates and therefore the
value and yield of the fund's shares.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Ascent VP
Investment Objective
Seeks to provide capital appreciation.
Policies
Managed for investors seeking capital appreciation who generally have an
investment horizon exceeding 15 years and who have a high level of risk
tolerance. Under normal market conditions, allocates assets among several
classes of equities, fixed-income securities, and money market instruments. The
investment adviser has instituted both a benchmark percentage allocation and a
fund level range allocation for each asset class. Asset allocation may vary from
the benchmark allocation (within the permissible range) based on the investment
adviser's ongoing evaluation of the expected returns and risks of each asset
class relative to other classes. May invest up to 15% of total assets in
high-yield bonds.
The benchmark portfolio is 80% equities and 20% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, when interest rates,
bond prices fall. Economic and market conditions may cause issuers to default or
go bankrupt. Values of high-yield bonds are even more sensitive to economic and
market conditions than other bonds. Prices of mortgage-related securities, in
addition to being sensitive to changes in interest rates, also are sensitive to
changes in the prepayment patterns on the underlying instruments. Foreign
securities have additional risks. Some foreign securities nd to be less liquid
and more volatile than their U.S. counterparts. In addition, accounting
standards and market regulations tend to be less standardized in certain foreign
countries. These risks are usually higher for securities of companies in
emerging markets. Securities of foreign companies may be denominated in foreign
currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses. Hedging strategies intended to reduce this risk may not perform as
expected.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Crossroads VP
Investment Objective
Seeks to provide total return (i.e., income and capital appreciation, both
realized and unrealized).
Policies
Managed for investors seeking a balance between income and capital appreciation
who generally have an investment horizon exceeding ten years and who have a
moderate level of risk tolerance. Under normal market conditions, allocates
assets among several classes of equities, fixed-income securities, and money
market instruments. The investment adviser has instituted both a benchmark
percentage allocation and a fund level range allocation for each asset class.
Asset allocation may vary from the benchmark allocation (within the
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permissible range) based on the investment adviser's ongoing evaluation of the
expected returns and risks of each asset class relative to other classes. May
invest up to 15% of total assets in high-yield bonds.
The benchmark portfolio is 60% equities and 40% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, and declines in the
rents and other income generated by real estate. For bonds, generally, when
interest rates rise, bond prices fall. Economic and market conditions may cause
issuers to default or go bankrupt. Values of high-yield bonds are even more
sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments. Foreign securities have additional risks. Some foreign
securities tend to be less liquid and more volatile than their U.S.
counterparts. In addition, accounting standards and market regulations tend to
be less standardized in certain foreign countries. These risks are usually
higher for securities of companies in emerging markets. Securities of foreign
companies may be denominated in foreign currency. Exchange rate fluctuations
may reduce or eliminate gains or create losses. Hedging strategies intended to
educe this risk may not perform as expected.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Generation Portfolios, Inc.--Aetna Legacy VP
Investment Objective
Seeks to provide total return consistent with preservation of capital.
Policies
Managed for investors primarily seeking total return consistent with capital
preservation who generally have an investment horizon exceeding five years and
who have a low level of risk tolerance. Under normal market conditions,
allocates assets among several classes of equities, fixed-income securities,
and money market instruments. The investment adviser has instituted both a
benchmark percentage allocation and a fund level range allocation for each
asset class. Asset allocation may vary from the benchmark allocation (within
the permissible range) based on the investment adviser's ongoing evaluation of
the expected returns and risks of each asset class relative to other classes.
May invest up to 15% of total assets in high-yield bonds.
The benchmark portfolio is 40% equities and 60% fixed income under neutral
market conditions.
Risks
The success of the fund's strategy depends significantly on the investment
adviser's skill in choosing investments and in allocating assets among the
different investment classes. Principal risks are those generally attributable
to stock and bond investing. For stock investments, risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Stocks of smaller companies tend to be less
liquid and more volatile. Risks associated with real estate securities include
periodic declines in the value of real estate, generally, and declines in the
rents and other income generated by real estate. For bonds, generally, when
interest rates rise, bond prices fall. Economic and market conditions may cause
issuers to default or go bankrupt. Values of high-yield bonds are even more
sensitive to economic and market conditions than other bonds. Prices of
mortgage-related securities, in addition to being sensitive to changes in
interest rates, also are sensitive to changes in the prepayment patterns on the
underlying instruments. Foreign securities have additional risks. Some foreign
securities tend to be less liquid and more volatile than their U.S.
counterparts. In addition, accounting standards and market regulations tend to
be less standardized in certain foreign countries. These risks are usually
higher for securities of companies in emerging markets. Securities of foreign
companies may be denominated in foreign
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currency. Exchange rate fluctuations may reduce or eliminate gains or create
losses. Hedging strategies intended to reduce this risk may not perform as
expected
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Growth VP
Investment Objective
Seeks growth of capital through investment in a diversified portfolio
consisting primarily of common stocks and securities convertible into common
stocks believed to offer growth potential.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock. Tends to emphasize stocks
of larger companies, although may invest in companies of any size. Uses
internally developed quantitative computer models to evaluate the financial
characteristics of approximately 1,000 companies. The investment adviser
analyzes these characteristics in an attempt to identify companies it believes
have strong growth characteristics or demonstrate a positive trend in earnings
estimates, but whose full value is not reflected in the stock price. Focuses on
companies that the investment adviser believes have strong, sustainable and
improving earnings growth, and established market positions in a particular
industry.
Risks
Principal risks are those generally attributable to stock investing. They
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Growth-oriented stocks
typically sell at relatively high valuations as compared to other types of
stocks. If a growth stock does not exhibit the consistent level of growth
expected, its price may drop sharply. Historically, growth-oriented stocks have
been more volatile than value-oriented stocks.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Index Plus Large Cap VP
Investment Objective
Seeks to outperform the total return performance of the Standard & Poor's 500
Composite Index (S&P 500), while maintaining a market level of risk.
Policies
Invests at least 80% of net assets in stocks included in the S&P 500 (other
than Aetna Inc. common stock). The investment adviser attempts to achieve the
objective by overweighting those stocks in the S&P 500 that the investment
adviser believes will outperform the index, and underweighting (or avoiding
altogether) those stocks that the investment adviser believes will underperform
the index. In determining stock weightings, uses internally developed
quantitative computer models to evaluate various criteria, such as the
financial strength of each company and its potential for strong, sustained
earnings growth. At any one time, the fund's portfolio generally includes
approximately 400 of the stocks included in the S&P 500. Although the fund will
not hold all the stocks in the S&P 500, the investment adviser expects that
there will be a close correlation between the performance of the fund and that
of the S&P 500 in both rising and falling markets.
Risks
Principal risks are those generally attributable to stock investing. These
risks include sudden and unpredictable drops in the value of the market as a
whole and periods of lackluster or negative performance. The success of the
fund's strategy depends significantly on the investment adviser's skill in
determining which securities to
Investment Adviser: Aeltus Investment Management, Inc.
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Aetna Variable Portfolios, Inc.--Aetna International VP
Investment Objective
Seeks long-term capital growth primarily though investment in a diversified
portfolio of common stocks principally traded in countries outside of the
United States. The fund will not target any given level of current income.
Policies
Under normal market conditions, invests at least 65% of total assets in
securities principally traded in three or more countries outside of the United
States. These securities may include common stocks as well as securities
convertible into common stock. Diversifies the fund by investing in a mix of
stocks that the investment adviser believes have the potential for long-term
growth, as well as stocks that appear to be trading below their perceived
value. Allocates assets among several geographic regions and individual
countries, investing primarily in those areas that the investment adviser
believes have the greatest potential for growth as well as stable exchange
rates. Invests primarily in established foreign securities markets, although
may invest in emerging markets as well. Uses internally developed quantitative
computer models to evaluate the financial characteristics of over 2,000
companies in an attempt to select companies with long-term sustainable growth
characteristics. Employs currency hedging strategies to protect from adverse
effects on the U.S. dollar.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Stocks of foreign companies
tend to be less liquid and more volatile than their U.S. counterparts.
Accounting standards and market regulations tend to be less standardized in
certain foreign countries, and economic and political climates tend to be less
stable. Stocks of foreign companies may be denominated in foreign currency.
Exchange rate fluctuations may reduce or eliminate gains or create losses.
Hedging strategies intended to reduce this risk may not perform as expected.
Investments in emerging markets are subject to the same risks applicable to
foreign investments generally, although those risks may be increased due to
conditions in such countries.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Real Estate Securities VP
Investment Objective
Seeks maximum total return primarily through investment in a diversified
portfolio of equity securities of real estate companies, the majority of which
are real estate investment trusts (REITs).
Policies
Under normal market conditions, invests at least 65% of total assets in stocks,
convertible securities and preferred stocks of companies principally engaged in
the real estate industry. These companies may invest in, among other things,
shopping malls, healthcare facilities, office parks and apartment communities,
or may provide real estate management and development services. In selecting
investments, uses internally developed quantitative models to forecast the
returns of each security. Evaluates real estate companies based on their
earnings history and long-term growth prospects, analyst estimates of future
earnings, safety and growth in dividends, balance sheet strength and quality of
management. The investment adviser also considers whether the securities appear
to be trading below their real value. Allocates assets among property types and
economic and geographic regions. Attempts to construct the fund's portfolio so
that the overall level of risk is not in excess of its benchmark index, the
National Association of Real Estate Investment Trusts Equity (NAREIT) Index.
Risks
Concentrating in stocks of real estate-related companies presents certain risks
that are more closely associated with investing in real estate directly than
with investing in the stock market generally. Those risks include: periodic
declines in the value of real estate, generally, or in the rents and other
income generated by real estate; periodic over-building, which creates gluts in
the market, as well as changes in laws (such as zoning laws) that impair the
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property rights of real estate owners; adverse developments in the real estate
industry, which may have a greater impact on this fund than on a fund that is
more broadly diversified. Performance also may be adversely affected by sudden
and unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Although the fund is subject to the risks
generally attributable to stock investing, because the fund has concentrated
its assets in one industry it may be subject to more abrupt swings in value
than would a fund that does not concentrate its assets in one industry.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Small Company VP
Investment Objective
Seeks growth of capital primarily through investment in a diversified portfolio
of common stocks and securities convertible into common stocks of companies
with smaller market capitalizations.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock of small capitalization
companies, defined as: the 2,000 smallest of the 3,000 largest U.S. companies
(as measured by market capitalization); all companies not included above that
are included in the Standard & Poor's SmallCap 600 Index or the Russell 2000
Index; and companies with market capitalizations lower than any companies
included in the first two categories. For purposes of the 65% policy, the
largest company in this group in which the fund intends to invest currently has
a market capitalization of approximately $1.5 billion. Invests in stocks that
the investment adviser believes have the potential for long-term growth, as
well as those that appear to be trading below their perceived value. Uses
internally developed quantitative computer models to evaluate financial
characteristics of over 2,000 companies in an attempt to identify companies
whose perceived value is not reflected in the stock price. Considers the
potential of each company to create or take advantage of unique product
opportunities, its potential to achieve long-term sustainable growth and the
quality of its management.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Stocks of smaller companies
carry higher risks than stocks of larger companies. This is because smaller
companies may lack the management experience, financial resources, product
diversification, and competitive strengths of larger companies. In many
instances, the frequency and volume of trading in small cap stocks are
substantially less than of stocks of larger companies. As a result, the stocks
of smaller companies may be subject to wider price fluctuations and/or may be
less liquid. When selling a large quantity of a particular stock, the fund may
have to sell at a discount from quoted prices or may have to make a series of
small sales over an extended period of time due to the more limited trading
volume of smaller company stocks. Stocks of smaller companies can be
particularly sensitive to expected changes in interest rates, borrowing costs
and earnings.
Investment Adviser: Aeltus Investment Management, Inc.
Aetna Variable Portfolios, Inc.--Aetna Technology VP
Investment Objective
Seeks long-term capital appreciation.
Policies
Primarily invests in common stocks and securities convertible into common stock
of companies in the information technology industry sector. These companies
include companies that the subadviser considers to be principally engaged in
the development, production, or distribution of products or services related to
the processing, storage, transmission, or presentation of information or data.
A particular company will be considered to be principally engaged in the
information technology industries if, at the time of investment, the investment
adviser determines
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that at least 50% of the company's assets, gross income, or net profits are
committed to, or derived from, those industries. A company will also be
considered to be principally engaged if the subadviser considers that the
company has the potential for capital appreciation primarily as a result of
particular products, technology, patents, or other market advantages in those
industries. In selecting stocks, the subadviser looks at a company's valuation
relative to its potential long-term growth rate. May look to see whether a
company offers a new or improved product, service or business operation;
whether it has experienced a positive change in its financial or business
condition; whether the market for its goods or services has expanded or
experienced a positive change; and whether there is a potential catalyst for
positive change in the company's business or stock price. May sell a security
if the subadviser determines that the company has become overvalued due to
price appreciation or has experienced a change in its business fundamentals, if
the company's growth rate slows substantially, or if the subadviser believes
that another investment offers a better opportunity.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Stocks of smaller companies
tend to be less liquid and more volatile than stocks of larger companies.
Further, stocks of smaller companies also can be particularly sensitive to
expected changes in interest rates, borrowing costs and earnings. Because the
fund's investments are concentrated in the information technology industries,
the Fund may be subject to more abrupt swings in value than a fund which
invests in a broader range of industries. Investments in information technology
companies may be highly volatile. The fund may experience difficulty in
establishing or closing out positions in these securities at prevailing market
prices. Also, there may be less publicly available information about small
companies or less market interest in their securities as compared to larger
companies, and it may take longer for the prices of the securities to reflect
the full value of their issuers' earnings potential or assets.
Investment Adviser: Aeltus Investment Management, Inc.
Subadviser: Elijah Asset Management, LLC
Aetna Variable Portfolios, Inc.--Aetna Value Opportunity VP
Investment Objective
Seeks growth of capital primarily through investment in a diversified portfolio
of common stocks and securities convertible into common stock.
Policies
Under normal market conditions, invests at least 65% of total assets in common
stocks and securities convertible into common stock. Tends to invest in larger
companies that the investment adviser believes are trading below their
perceived value, although it may invest in companies of any size. The
investment adviser believes that the investment objective can best be achieved
by investing in companies whose stock price has been excessively discounted due
to perceived problems or for other reasons. The investment adviser evaluates
financial and other characteristics of companies, attempting to find those
companies that appear to possess a catalyst for positive change, such as strong
management, solid assets, or market position, rather than those companies whose
stocks are simply inexpensive. The investment adviser looks to sell a security
when company business fundamentals deteriorate or when price objectives are
reached.
Risks
Principal risks are those generally attributable to stock investing which
include sudden and unpredictable drops in the value of the market as a whole
and periods of lackluster or negative performance. Stocks that appear to be
undervalued may never appreciate to the extent expected. Further, because the
prices of value-oriented stocks tend to correlate more closely with economic
cycles than growth-oriented stocks, they generally are more sensitive to
changing economic conditions, such as changes in interest rates, corporate
earnings and industrial production.
Investment Adviser: Aeltus Investment Management, Inc.
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Calvert Social Balanced Portfolio
Investment Objective
Seeks to achieve a competitive total return through an actively managed,
nondiversified portfolio of stocks, bonds, and money market instruments which
offer income and capital growth opportunity and which satisfy the investment
and social criteria for the Portfolio.
Policies
The Portfolio may purchase both common and preferred stocks. Although there is
no predetermined percentage of assets allocated to stocks, bonds, or money
market instruments, the Portfolio will invest at least 25% of its assets in
senior fixed income securities. The Portfolio normally invests in
investment-grade bonds rated in one of the four highest rating categories by
Standard & Poor's Corporation or by Moody's Investors Service, Inc. or, if not
rated, that are determined by the Portfolio's investment adviser to be of
comparable quality. The Portfolio may invest up to 10% of its assets in foreign
securities.
Risks
Since the Portfolio is nondiversified, the value of the shares may be more
susceptible to any single economic, political, or regulatory event than the
shares of a diversified portfolio. Fixed income investments are subject to
interest rate risk. There are also risks involved in investing in foreign
securities. These include currency risks, less publicly available information
about foreign companies, different audit and financial reporting standards, and
less government supervision and regulation.
Investment Adviser: Calvert Asset Management Company, Inc.
Subadviser: NCM Capital Management, Inc.
Fidelity Variable Insurance Products Fund--Equity Income Portfolio
Investment Objective
Seeks reasonable income. Also considers the potential for capital appreciation.
Seeks a yield which exceeds the composite yield on the securities comprising
the S&P 500.
Policies
Normally invests at least 65% of total assets in income-producing equity
securities. May also invest in other types of equity securities and debt
securities, including lower-quality debt securities. May invest in securities
of both foreign and domestic issuers. Emphasis on above-average
income-producing equity securities tends to lead to investments in large cap
"value" stocks. In making investment decisions, the investment adviser relies
on fundamental analysis of each issuer and its potential for success in light
of its current financial condition, its industry position, and economic and
market conditions. May use various techniques, such as buying and selling
futures contracts, to increase or decrease exposure to changing security
prices, or other factors that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. Lower-quality debt securities (those of less than
investment-grade quality) can be more volatile due to increased sensitivity to
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities involve greater risk of default or price changes
due to changes in the credit quality of the issuer. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
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Fidelity Variable Insurance Products Fund--Growth Portfolio
Investment Objective
Seeks capital appreciation.
Policies
Normally invests primarily in common stocks of companies the investment adviser
believes have above-average growth potential. Companies with high growth
potential tend to be companies with higher than average price/
earning (PE) ratios and are often called "growth" stocks. May invest in
securities of both foreign and domestic issuers. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Foreign investments,
especially those in emerging markets, can be more volatile and potentially less
liquid than U.S. investments due to increased risks of adverse issuer,
political, regulatory, market or economic developments. "Growth" stocks tend to
be sensitive to changes in their earnings and more volatile than other types of
stocks.
Investment Adviser: Fidelity Management & Research Company
Fidelity Variable Insurance Products Fund--High Income Portfolio
Investment Objective
Seeks a high level of current income while also considering growth of capital.
Policies
Normally invests at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities. May also invest in non-income producing
securities, including defaulted securities and common stocks. Currently intends
to limit common stocks to 10% of total assets. May invest in securities of both
foreign and domestic issuers. In making investment decisions, the investment
adviser relies on fundamental analysis of each issuer and its potential for
success in light of its current financial condition, its industry position, and
economic and market conditions. May use various techniques, such as buying and
selling futures contracts, to increase or decrease exposure to changing
security prices, interest rates or other factors that affect security values.
Risks
Debt securities have varying levels of sensitivity to changes in interest
rates. In general, the price of a debt security can fall when interest rates
rise. Securities with longer maturities and mortgage securities can be more
sensitive to interest rate changes. The value of equity securities fluctuates
in response to issuer, political, market and economic developments. In the
short term, equity prices can fluctuate dramatically in response to these
developments. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. Lower-quality debt securities (those of less than
investment-grade quality) can be more volatile due to increased sensitivity to
adverse issuer, political, regulatory, market or economic developments.
Lower-quality debt securities involve greater risk of default or price changes
due to changes in the credit quality of the issuer.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity Investments Japan Limited
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Fidelity Variable Insurance Products Fund--Overseas Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Normally invests at least 65% of total assets in foreign securities, primarily
in common stocks. Investments are allocated across countries and regions, with
consideration given to the size of the market in each country and region
relative to the size of the international market as a whole. In making
investment decisions, the investment adviser relies on fundamental analysis of
each issuer and its potential for success in light of its current financial
condition, its industry position, and economic and market conditions. May use
various techniques, such as buying and selling futures contracts, to increase
or decrease exposure to changing security prices or other factors that affect
security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity International Investment Advisors; Fidelity
International Investment Advisors (U.K.) Limited; Fidelity Investments Japan
Limited
Fidelity Variable Insurance Products Fund II--Asset Manager Portfolio
Investment Objective
Seeks high total return with reduced risk over the long term by allocating its
assets among stocks, bonds and short-term instruments.
Policies
Assets are allocated among the following classes, or types, of investments. The
stock class (can range from 30%-70%) includes equity securities of all types.
The bond class (can range from 20%-60%) includes all varieties of fixed-income
securities, including lower-quality debt securities, maturing in more than one
year. The short-term/
money market class (can range from 0%-50%) includes all types of short-term and
money market instruments. Fixed-income securities may be classified in the bond
or short-term/money market class according to interest rate sensitivity as well
as maturity. May also invest in other instruments that do not fall within these
classes. May invest in securities of both foreign and domestic issuers. In
making investment decisions, the investment adviser generally analyzes the
issuer of a security using fundamental factors (e.g., growth potential,
earnings estimates and management) and/or quantitative factors (e.g.,
historical earnings, dividend yield and earnings per share) and evaluates each
security's current price relative to its estimated long-term value. May use
various techniques, such as buying and selling futures contracts, to increase
or decrease exposure to changing security prices, interest rates or other
factors that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate
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changes. Foreign investments, especially those in emerging markets, can be more
volatile and potentially less liquid than U.S. investments due to increased
risks of adverse issuer, political, regulatory, market or economic
developments. Many types of debt securities, including mortgage securities, are
subject to prepayment risk. Securities subject to prepayment are subject to
greater price volatility if interest rates change. Lower-quality debt
securities (those of less than investment-grade quality) can be more volatile
due to increased sensitivity to adverse issuer, political, regulatory, market
or economic developments. Lower-quality debt securities involve greater risk of
default or price changes due to changes in the credit quality of the issuer.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity Investments Money Management, Inc.; Fidelity
Investments Japan Limited
Fidelity Variable Insurance Products Fund II--Contrafund[RegTM] Portfolio
Investment Objective
Seeks long-term capital appreciation.
Policies
Normally invests primarily in common stocks of companies whose value the
investment adviser believes is not fully recognized by the public. May invest
in securities of both foreign and domestic issuers. May tend to buy "growth"
stocks or "value" stocks, or a combination of both types. In making investment
decisions, the investment adviser relies on fundamental analysis of each issuer
and its potential for success in light of its current financial condition, its
industry position, and economic and market conditions. May use various
techniques, such as buying and selling futures contracts, to increase or
decrease exposure to changing security prices, interest rates or other factors
that affect security values.
Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes. Foreign investments, especially those in emerging markets, can be
more volatile and potentially less liquid than U.S. investments due to
increased risks of adverse issuer, political, regulatory, market or economic
developments. "Growth" stocks tend to be sensitive to changes in their earnings
and more volatile than other types of stocks. "Value" stocks can react
differently to issuer, political, market and economic developments than the
market as a whole and other types of stocks. "Value" stocks may not ever
realize their full value.
Investment Adviser: Fidelity Management & Research Company
Subadvisers: Fidelity Management & Research (U.K.) Inc.; Fidelity Management &
Research Far East Inc.; Fidelity Investments Japan Limited
Fidelity Variable Insurance Products Fund II--Index 500 Portfolio
Investment Objective
Seeks investment results that correspond to the total return of common stocks
publicly traded in the United States, as represented by the S&P 500.
Policies
Normally invests at least 80% of assets in common stocks included in the S&P
500. The S&P 500 is a widely recognized, unmanaged index of common stock
prices. Seeks to achieve a 98% or better correlation between its total return
and the total return of the index. May use various techniques, such as buying
and selling futures contracts, to increase or decrease exposure to changing
security prices or other factors that affect security values.
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Risks
The value of equity securities fluctuates in response to issuer, political,
market and economic developments. In the short term, equity prices can
fluctuate dramatically in response to these developments. Debt securities have
varying levels of sensitivity to changes in interest rates. In general, the
price of a debt security can fall when interest rates rise. Securities with
longer maturities and mortgage securities can be more sensitive to interest
rate changes.
An investment in the fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Investment Adviser: Fidelity Management & Research Company
Subadviser: Bankers Trust Company
Janus Aspen Series--Aggressive Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
A nondiversified portfolio that invests primarily in common stocks selected for
their growth potential and normally invests at least 50% of its equity assets
in medium-sized companies. Medium-sized companies are those whose market
capitalizations at the time of investment fall within the range of companies in
the Standard and Poor's (S&P) MidCap 400 Index. The market capitalizations
within the Index will vary, but as of December 31, 1999, they ranged from
approximately $170 million to $37 billion. May at times hold substantial
positions in cash or similar investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. In addition, a nondiversified
portfolio has the ability to take larger positions in a smaller number of
issuers. Because the appreciation or depreciation of a single stock may have a
greater impact on the net asset value of a nondiversified portfolio, its share
price can be expected to fluctuate more than a diversified portfolio.
Performance may also be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities (high-yield/high-risk securities or "junk" bonds) or
companies with relatively small market capitalizations. Smaller or newer
companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Balanced Portfolio
Investment Objective
Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
Policies
Normally invests 40-60% 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. Will normally invest at least 25% of its
assets in fixed-income securities. Assets may shift between the growth and
income components of the Portfolio based on the portfolio manager's analysis of
relevant market, financial and economic conditions. May at times hold
substantial positions in cash or similar investments.
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Risks
Because the Portfolio may invest a significant portion of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. The income component of the
Portfolio's holdings includes fixed-income securities which generally will
decrease in value when interest rates rise. Another risk associated with
fixed-income securities is the risk that an issuer of a bond will be unable to
make principal and interest payments when due (i.e. credit risk). Performance
may also be affected by risks specific to certain types of investments, such as
foreign securities, derivative investments, non-investment grade debt
securities (high-yield/high-risk securities or "junk" bonds) or companies with
relatively small market capitalizations. Smaller or newer companies may suffer
more significant losses as well as realize more substantial growth than larger
or more established issuers. Investments in such companies tend to be more
volatile and somewhat more speculative. Issues associated with investing in
foreign securities include currency risk, political and economic risk,
regulatory risk, market risk and transaction costs. High-yield/high-risk
securities are generally more susceptible to credit risk. They are more
vulnerable to real or perceived economic changes, political changes or other
adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Flexible Income Portfolio
Investment Objective
Seeks to obtain maximum total return, consistent with the preservation of
capital.
Policies
Invests primarily in a wide variety of income-producing securities such as
corporate bonds and notes, government securities and preferred stock. Will
invest at least 80% of its assets in income-producing securities. May own an
unlimited amount of high-yield/high-risk securities ("junk bonds") which may be
a big part of the portfolio. May at times hold substantial positions in cash or
similar investments.
Risks
Because the Portfolio invests substantially all of its assets in fixed-income
securities, it is subject to risks such as credit or default risks or decreased
value due to interest rate increases. Generally, a fixed-income security will
increase in value when interest rates fall and decrease in value when interest
rates rise. Performance may also be affected by risks specific to certain types
of investments, such as foreign securities, derivative investments, non-
investment grade debt securities (high-yield/high-risk securities or "junk"
bonds) or companies with relatively small market capitalizations. Smaller or
newer companies may suffer more significant losses as well as realize more
substantial growth than larger or more established issuers. Investments in such
companies tend to be more volatile and somewhat more speculative. Issues
associated with investing in foreign securities include currency risk,
political and economic risk, regulatory risk, market risk and transaction
costs. High-yield/high-risk securities are generally more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk). They are more vulnerable to real or perceived economic changes,
political changes or other adverse developments specific to the issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Generally invests primarily in common stocks of larger, more established
companies selected for their growth potential, although it can invest in
companies of any size. May at times hold substantial positions in cash or
similar investments.
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Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities
include currency risk, political and economic risk, regulatory risk, market
risk and transaction costs. High-yield/high-risk securities are generally more
dependent on the ability of the issuer to meet interest and principal payments
(i.e., credit risk). They are more vulnerable to real or perceived economic
changes, political changes or other adverse developments specific to the
issuer.
Investment Adviser: Janus Capital Corporation
Janus Aspen Series--Worldwide Growth Portfolio
Investment Objective
Seeks long-term growth of capital in a manner consistent with the preservation
of capital.
Policies
Invests primarily in common stocks of companies of any size throughout the
world. Normally invests in issuers from at least five different countries,
including the United States. May at times invest in fewer than five countries
or even in a single country. May hold substantial positions in cash or similar
investments.
Risks
Because the Portfolio may invest substantially all of its assets in common
stocks, the main risk is that the value of the stocks it holds might decrease
in response to the activities of an individual company or in response to
general market and/or economic conditions. Performance may also be affected by
risks specific to certain types of investments, such as foreign securities,
derivative investments, non-investment grade debt securities (high-yield/
high-risk securities or "junk" bonds) or companies with relatively small market
capitalizations. Smaller or newer companies may suffer more significant losses
as well as realize more substantial growth than larger or more established
issuers. Investments in such companies tend to be more volatile and somewhat
more speculative. Issues associated with investing in foreign securities
include currency risk, political and economic risk, regulatory risk, market
risk and transaction costs. High-yield/high-risk securities are generally more
dependent on the ability of the issuer to meet interest and principal payments
(i.e., credit risk). They are more vulnerable to real or perceived economic
changes, political changes or other adverse developments specific to the
issuer.
Investment Adviser: Janus Capital Corporation
MFS Total Return Series
Investment Objective
Seeks primarily to provide above-average income (compared to a portfolio
invested entirely in equity securities) consistent with the prudent employment
of capital. Its secondary objective is to provide a reasonable opportunity for
growth of capital and income.
Policies
Under normal market conditions, invests at least 40%, but no more than 75%, of
net assets in common stocks and related securities (referred to as equity
securities); bonds, warrants or rights convertible into stock; and depositary
receipts for those securities. Invests at least 25% of net assets in
non-convertible fixed income securities. May vary the percentage of assets
invested in any one type of security (within the limits described above). May
invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities. Generally, seeks to purchase equity
securities that the investment adviser believes are undervalued
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in the market relative to their long-term potential focusing on companies with
relatively large market capitalization (i.e., market capitalizations of $5
billion or more). Fixed income securities include U.S. government securities,
mortgage-backed and asset-backed securities, and corporate bonds. The series
has engaged and may engage in active and frequent trading to achieve its
principal investment strategies.
Risks
In allocating investments, the series could miss attractive investment
opportunities by underweighting markets where there are significant returns,
and could lose value by overweighting markets where there are significant
declines. The value of securities held by the series may decline due to
changing economic, political or market conditions, or disappointing earnings
results. If anticipated events do not occur or are delayed, or if investor
perceptions about undervalued securities do not improve, the market price of
these securities may not rise or may fall. Fixed income securities are subject
to interest rate risk (the risk that when interest rates rise, the prices of
fixed income securities will generally fall) and credit risk (the risk that the
issuer of a fixed income security will not be able to pay principal and
interest when due). Securities with longer maturities are affected more by
interest rate risk. Investing in foreign securities involves risks relating to
political social and economic developments abroad, as well as risks resulting
from the differences between the regulations to which U.S. and foreign issuers
are subject. Fixed income securities traded in the over-the-counter market may
be harder to purchase or sell at a fair price. The inability to purchase or
sell these fixed income securities at a fair price could have a negative impact
on the series' performance. Frequent trading may result in the realization and
distribution to shareholders of higher capital gains as compared to a series
with less active trading policies. Frequent trading also increases transaction
costs, which could detract from the series' performance.
Investment Adviser: Massachusetts Financial Services Company
MFS Global Governments Series
Investment Objective
Seeks to provide income and capital appreciation.
Policies
Under normal market conditions, invests at least 65% of total assets in U.S.
government securities and foreign government securities, including emerging
market governments. May also invest in corporate bonds, including lower rated
bonds, commonly known as junk bonds, which are bonds assigned low credit
ratings by credit rating agencies or which are unrated and considered by the
investment adviser to be comparable to lower rated bonds, and mortgage-backed
and asset-backed securities. May invest in derivative securities. The series is
a non-diversified mutual series. This means that the series may invest a
relatively high percentage of its assets in a small number of issuers. The
series has engaged and may engage in active and frequent trading to achieve its
principal investment strategies.
Risks
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. All of the risks of investing in foreign securities are
heightened by investing in emerging markets countries. In allocating
investments, the series could miss attractive investment opportunities by
underweighting markets where there are significant returns, and could lose
value by overweighting markets where there are significant declines. The value
of securities held by the series may decline due to changing economic,
political or market conditions, or disappointing earnings results. Fixed income
securities are subject to interest rate risk (the risk that when interest rates
rise, the prices of fixed income securities will generally fall) and credit
risk (the risk that the issuer of a fixed income security will not be able to
pay principal and interest when due). Securities with longer maturities are
affected more by interest rate risk. Junk bonds are subject to a substantially
higher degree of credit risk than higher rated bonds. Derivatives may be used
to hedge against an opposite position that the fund also holds. While hedging
can reduce or eliminate losses, it can also reduce or eliminate gains. Gains or
losses from derivative investments may be substantially greater than the
derivative's original cost. Because the series is non-diversified, investing
its assets in a small number of issuers, the series is more susceptible to any
single
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economic, political or regulatory event affecting those issuers than is a
diversified fund. Frequent trading may result in the realization and
distribution to shareholders of higher capital gains as compared to a series
with less active trading policies. Frequent trading also increases transaction
costs, which could detract from the series' performance.
Investment Adviser: Massachusetts Financial Services Company
Oppenheimer Aggressive Growth Fund/VA
Investment Objective
Seeks to achieve long-term capital appreciation by investing in "growth-type"
companies.
Policies
The Fund invests mainly in equity securities, such as common stocks, and can
invest in other securities, such as preferred stocks and convertible securities.
The Fund emphasizes investments in companies that the Manager believes have
significant growth potential. Growth companies can include established companies
entering a growth cycle in their business, as well as newer companies. The Fund
can invest in securities of issuers of all market capitalizations, but currently
focuses on companies with market capitalizations of "mid-cap" issuers (currently
those issuers between $2.5 and $11.5 billion). The Fund can invest in domestic
and foreign companies, although most of its investments are in stocks of U.S.
companies.
Risks
The fund's investments in stocks are subject to changes in their value from a
number of factors. They include stock market movements and events affecting
particular industries. Stocks of growth companies may provide greater
opportunities for capital appreciation, but may be more volatile than other
stocks. The Fund invests mainly in small and medium-size companies, which tend
to have more volatile stock prices than large companies.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Global Securities Fund/VA
Investment Objective
Seeks long-term capital appreciation by investing a substantial portion of its
assets in securities of foreign issuers, "growth-type" companies, cyclical
industries, and special situations which are considered to have appreciation
possibilities.
Policies
Invests mainly in common stocks and can also buy other equity securities,
including preferred stocks and convertible securities. The fund buys securities
of issuers in the U.S. and foreign countries. The fund can invest without limit
in any country, including countries with developed or emerging markets, but
currently emphasizes investments in developed markets. The fund will normally
invest in at least three countries (one of which may be the United States). In
selecting securities for the fund, the fund's portfolio manager looks primarily
for foreign and U.S. companies with high growth potential, using fundamental
analysis of a company's financial statements and management structure, and
analysis of the company's operations and product development, as well as the
industry of which the issuer is part.
Risks
Stocks fluctuate in price, and their short-term volatility at times may be
great. The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, changes in governmental economic or monetary policy in the U.S. or abroad
or other political and economic factors. The fund can use derivatives to seek
increased returns or to try to hedge investment risks. If the issuer of the
derivative does not pay the amount due, the fund can lose money on the
investment.
Investment Adviser: OppenheimerFunds, Inc.
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Oppenheimer Main Street Growth & Income Fund/VA
Investment Objective
Seeks a high total return (which includes growth in the value of its shares as
well as current income) from equity and debt securities.
Policies
Invests mainly in common stocks of U.S. companies, and can also invest in other
equity securities such as preferred stocks and convertible securities. Although
the fund can invest in securities of issuers of all market capitalization
ranges, it currently focuses on companies with large capitalizations. While the
fund can buy foreign securities and debt securities such as bonds and notes,
currently it does not emphasize those investments. The fund can also use hedging
instruments and certain derivative investments to try to manage investment
risks.
Risks
The fund's investments in stocks and bonds are subject to changes in their value
from a number of factors. They include changes in general stock and bond market
movements, or the change in value of particular stocks or bonds because of an
event affecting the issuer. Changes in interest rates can also affect stock and
bond prices. Because the Fund currently focuses its investments in stocks of
U.S. issuers, it will be affected primarily by changes in the U.S. Stock Market.
Investment Adviser: OppenheimerFunds, Inc.
Oppenheimer Strategic Bond Fund/VA
Investment Objective
Seeks a high level of current income principally derived from interest on debt
securities and seeks to enhance such income by writing covered call options on
debt securities.
Policies
Invests mainly in debt securities of issuers in three market sectors: foreign
governments and companies, U.S. government securities, and lower-rated
high-yield securities of U.S. and foreign companies. Under normal market
conditions, the fund invests in each of those three market sectors. However, the
fund is not obligated to do so, and the amount of its assets in each of the
three sectors will vary over time. The fund can invest up to 100% of its assets
in any one sector at any time, if the manager believes that in doing so the fund
can achieve its objective without undue risk. The fund can invest in securities
having short, medium or long-term maturities and may invest without limit in
lower-grade high-yield debt obligations also called "junk bonds." The fund's
foreign investments can include debt securities of issuers in developed markets
as well as emerging markets, which have special risks. The fund can also use
hedging instruments and certain derivative investments to try to enhance income
or try to manage investment risks.
Risks
The fund's investments in debt securities are subject to changes in their value
from a number of factors. They include changes in general bond market movements
in the U.S. and abroad, or the change in value of particular bonds because of an
event affecting the issuer. The fund can focus significant amounts of its
investments in foreign debt securities. Therefore, it will be subject to the
risks that economic, political or other events can have on the values of
securities of issuers in particular foreign countries. These risks are
heightened in the case of emerging market debt securities. Changes in interest
rates can also affect securities prices.
Investment Adviser: OppenheimerFunds, Inc.
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio (formerly
known as PPI MFS Value Equity Portfolio)
Investment Objective
Seeks capital appreciation.
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Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable growth prospects and
attractive valuations based on current and expected earnings or cash flow.
Investments may include securities listed on a securities exchange or traded in
the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign
currency exchange contracts for the purchase or sale of a fixed quantity of a
foreign currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
> Over-the-Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Emerging Markets Risk: Emerging markets are generally defined as countries in
the initial stages of their industrialization cycles with low per capita
income. Investments in emerging markets securities involve all of the risks of
investment in foreign securities, and also have additional risks.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
> Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also increases
transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts, of emerging growth companies. Emerging growth companies are companies
believed to be early in their life cycle and that have the potential to become
major enterprises, or major enterprises whose rates of earnings growth are
expected to accelerate. Investments may include securities listed on a
securities exchange or traded in the over-the-counter markets.
74
<PAGE>
May also invest in foreign securities (including emerging market securities) and
may have exposure to foreign currencies through its investment in these
securities, its direct holdings of foreign currencies or through its use of
foreign currency exchange contracts for the purchase or sale of a fixed quantity
of foreign currency at a future date.
May engage in active and frequent trading to achieve its principal investment
strategies.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security.
> Emerging Growth Risk: The portfolio's performance is particularly sensitive to
changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erratic market movements and
may involve greater risks than investments in other companies.
> Over-the-Counter Risk: Equity securities that are traded over the counter may
be more volatile than exchange listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
> Foreign Markets Risk: Investment in foreign securities involves risks related
to political, social and economic developments abroad. These risks result from
differences between the regulations to which U.S. and foreign issuers and
Markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline if the U.S. dollar strengthens against these currencies
or if foreign governments intervene in the currency markets.
> Emerging Markets Risk: Investments in emerging market securities involve all
the risks of investment in foreign markets. Additionally, markets of emerging
market countries have been more volatile, and involve greater risks, than the
markets of developed countries with more mature economies.
> Active or Frequent Trading Risk: The Portfolio may engage in active and
frequent trading. This may result in higher capital gains as compared to
portfolios with less active trading policies. Frequent trading also increases
transaction costs, which can detract from fund performance.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Investment Objective
Seeks long-term growth of capital and future income.
Policies
Invests primarily (at least 80% of total assets) in common stocks and related
securities, such as preferred stock, convertible securities and depositary
receipts. Focuses on companies believed to have favorable prospects for
long-term growth, attractive valuations based on current and expected earnings
or cash flow, dominant or growing market share and superior management. May
invest in companies of any size. Investments may also include securities traded
on securities exchanges or in the over-the-counter markets.
May invest in foreign securities (including emerging market securities) and may
have exposure to foreign currencies through its investment in these securities,
its direct holdings of foreign currencies or through its use of foreign currency
exchange contracts for the purchase or sale of a fixed quantity of foreign
currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually
75
<PAGE>
invest a high portion of their earnings in their businesses and may lack the
dividends of value companies, which can cushion the security prices in a
declining market.
> Over-the-Counter Risk: Equity securities that are traded over-the-counter may
be more volatile than exchange-listed securities, and the portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline if the U.S. dollar strengthens against these currencies
or if foreign governments intervene in the currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Massachusetts Financial Services Company
Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
Investment Objective
Seeks long-term growth of capital.
Policies
Invests primarily (at least 65% of total assets) in the equity securities of
foreign companies believed to have high growth potential. Normally invests in
securities of at least three different countries other than the U.S. Will
invest in securities in both developed and developing markets. Seeks to invest
in those companies believed to be best able to capitalize on the growth and
changes taking place within and between various regions of the world.
Typically, these are companies with leading or rapidly developing business
franchises, strong financial positions, and high quality management capable of
defining and implementing strategies to take advantage of local, regional or
global markets.
Also may invest in debt securities issued by both U.S. and foreign companies,
including non-investment grade debt securities.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
> Emerging Growth Risk: The portfolio's performance is particularly sensitive to
changes in the value of emerging growth companies. Investments in emerging
growth companies may be subject to more abrupt or erratic market movements and
may involve greater risks than investments in other companies.
> Interest Rate Risk: Investment in debt securities involves risks relating to
interest rate movement. If interest rates go up, the value of debt securities
held by the portfolio will decline.
> Credit Risk: Investment in non-investment grade debt securities involves
credit risk because issuers of non-investment grade securities are more likely
to have difficulty making timely payments of interest or principal.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: Scudder Kemper Investments, Inc.
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<PAGE>
Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
Investment Objective
Seeks long-term capital growth, and secondarily, increasing dividend income.
Policies
Invests primarily (at least 65% of total assets) in the common stocks of a
diversified group of growth companies. Seeks companies that have the ability to
pay increasing dividends through strong cash flows and whose rates of earnings
growth are above average. Also seeks companies with a lucrative niche in the
economy that will give them the ability to sustain earnings momentum even during
times of slow economic growth.
May invest in foreign securities and may have exposure to foreign currencies
through its investment in these securities, its direct holdings of foreign
currencies or through its use of foreign currency exchange contracts for the
purchase or sale of a fixed quantity of foreign currency at a future date.
Risks
Investment in the portfolio is subject to the following risks:
> Market and Company Risk: The value of the securities in which the portfolio
invests may decline due to changing economic, political or market conditions,
or due to the financial condition of the company which issued the security. In
addition, securities of growth companies may be more volatile because such
companies usually invest a high portion of their earnings in their businesses
and may lack the dividends of value companies, which can cushion the security
prices in a declining market.
> Growth Strategy Risk: Growth stock companies usually invest a high portion of
earnings in their business, and they may lack the dividends of value stocks
that can cushion stock prices in a falling market. Also, earnings
disappointments often lead to sharply falling prices because investors buy
growth stocks in anticipation of superior earnings growth.
> Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
> Currency Risk: Exposure to foreign currencies may cause the value of the
portfolio to decline in the event that the U.S. dollar strengthens against
these currencies, or in the event that foreign governments intervene in the
currency markets.
Investment Adviser: Aetna Life Insurance and Annuity Company
Subadviser: T. Rowe Price Associates, Inc.
77
<PAGE>
Appendix IV
Condensed Financial Information
- --------------------------------------------------------------------------------
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the periods in
the four-year period ended December 31, 1999 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1999 are included in
the Statement of Additional Information.
Table I -- For Contracts with Total Separate Account Charges of 1.40%
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
AETNA ASCENT VP
Value at beginning of period $15.409 $14.983 $12.674 $11.003(1)
Value at end of period $17.374 $15.409 $14.983 $12.674
Number of accumulation units outstanding at end of period 74,094 83,798 72,383 91,927
AETNA BALANCED VP, INC.
Value at beginning of period $16.405 $14.228 $11.781 $10.582(2)
Value at end of period $18.376 $16.405 $14.228 $11.781
Number of accumulation units outstanding at end of period 387,565 369,652 314,447 59,639
AETNA BOND VP
Value at beginning of period $11.943 $11.201 $10.489 $10.260(3)
Value at end of period $11.689 $11.943 $11.201 $10.489
Number of accumulation units outstanding at end of period 516,266 500,098 269,675 95,644
AETNA CROSSROADS VP
Value at beginning of period $14.676 $14.054 $12.123 $10.932(1)
Value at end of period $15.949 $14.676 $14.054 $12.123
Number of accumulation units outstanding at end of period 42,322 40,712 29,532 6,330
AETNA GROWTH VP
Value at beginning of period $17.862 $13.158 $10.667(4)
Value at end of period $23.771 $17.862 $13.158
Number of accumulation units outstanding at end of period 156,242 284,771 68,840
AETNA GROWTH AND INCOME VP
Value at beginning of period $18.461 $16.354 $12.769 $10.101(3)
Value at end of period $21.374 $18.461 $16.354 $12.769
Number of accumulation units outstanding at end of period 1,172,637 1,217,448 946,796 299,882
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $18.704 $14.414 $10.919 $10.000(5)
Value at end of period $22.923 $18.704 $14.414 $10.919
Number of accumulation units outstanding at end of period 536,795 654,767 271,628 2,960
AETNA INTERNATIONAL VP
Value at beginning of period $ 9.754 $10.149(6)
Value at end of period $14.554 $ 9.754
Number of accumulation units outstanding at end of period 12,771 1,816
AETNA LEGACY VP
Value at beginning of period $13.825 $13.112 $11.613 $10.601(7)
Value at end of period $14.599 $13.825 $13.112 $11.613
Number of accumulation units outstanding at end of period 94,121 95,815 60,533 8,642
AETNA MONEY MARKET VP
Value at beginning of period $11.335 $10.900 $10.481 $10.151(2)
Value at end of period $11.744 $11.335 $10.900 $10.481
Number of accumulation units outstanding at end of period 2,775,866 2,041,170 1,409,840 799,456
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $ 8.863 $10.115(6)
Value at end of period $ 8.370 $ 8.863
Number of accumulation units outstanding at end of period 4,888 2,217
AETNA SMALL COMPANY VP
Value at beginning of period $13.595 $13.638 $11.313(4)
Value at end of period $17.540 $13.595 $13.638
Number of accumulation units outstanding at end of period 136,571 225,982 188,818
AETNA VALUE OPPORTUNITY VP
Value at beginning of period $15.985 $13.246 $10.856(4)
Value at end of period $18.847 $15.985 $13.246
Number of accumulation units outstanding at end of period 150,268 311,397 67,303
CALVERT SOCIAL BALANCED PORTFOLIO
Value at beginning of period $11.437 $ 9.976 $ 9.824(8)
Value at end of period $12.656 $11.437 $ 9.976
Number of accumulation units outstanding at end of period 12,298 12,288 3,258
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $16.482 $14.974 $11.855 $10.301(3)
Value at end of period $17.279 $16.482 $14.974 $11.855
Number of accumulation units outstanding at end of period 2,597,042 2,792,889 2,292,971 1,000,050
</TABLE>
78
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $18.320 $13.320 $10.940 $9.005(3)
Value at end of period $24.826 $18.320 $13.320 $10.940
Number of accumulation units outstanding at end of period 1,858,232 1,869,306 1,399,424 870,922
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $12.488 $13.238 $11.410 $10.493(9)
Value at end of period $13.317 $12.488 $13.238 $11.410
Number of accumulation units outstanding at end of period 1,086,377 1,196,922 862,284 239,917
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $13.997 $12.590 $11.447 $10.304(9)
Value at end of period $19.684 $13.997 $12.590 $11.447
Number of accumulation units outstanding at end of period 230,681 261,377 237,376 115,487
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $15.754 $13.888 $11.674 $10.539(10)
Value at end of period $17.257 $15.754 $13.888 $11.674
Number of accumulation units outstanding at end of period 388,585 408,019 272,789 104,229
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $18.970 $14.802 $12.093 $10.273(9)
Value at end of period $23.242 $18.970 $14.802 $12.093
Number of accumulation units outstanding at end of period 1,826,356 1,853,911 1,682,029 540,936
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $21.063 $16.646 $12.722 $10.828(9)
Value at end of period $25.027 $21.063 $16.646 $12.722
Number of accumulation units outstanding at end of period 1,838,819 1,953,506 1,375,721 384,282
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $16.729 $12.637 $11.376 $10.988(9)
Value at end of period $37.181 $16.729 $12.637 $11.376
Number of accumulation units outstanding at end of period 950,030 601,047 518,686 242,113
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $19.189 $14.492 $12.038 $10.836(9)
Value at end of period $23.983 $19.189 $14.492 $12.038
Number of accumulation units outstanding at end of period 893,140 927,779 533,138 165,079
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $13.202 $12.272 $11.136 $10.173(10)
Value at end of period $13.226 $13.202 $12.272 $11.136
Number of accumulation units outstanding at end of period 254,250 267,031 163,048 35,326
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $19.704 $14.731 $12.171 $11.002(9)
Value at end of period $27.974 $19.704 $14.731 $12.171
Number of accumulation units outstanding at end of period 1,130,099 807,576 684,113 255,831
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $20.506 $16.131 $13.393 $10.536(3)
Value at end of period $33.250 $20.506 $16.131 $13.393
Number of accumulation units outstanding at end of period 3,017,262 3,185,557 2,772,831 1,030,570
MFS GLOBAL GOVERNMENT SERIES
Value at beginning of period $10.860 $10.207 $10.471 $10.000(11)
Value at end of period $10.440 $10.860 $10.207 $10.471
Number of accumulation units outstanding at end of period 36,450 69,957 52,302 20,479
MFS TOTAL RETURN SERIES
Value at beginning of period $14.432 $13.030 $10.894 $10.000(11)
Value at end of period $14.669 $14.432 $13.030 $10.894
Number of accumulation units outstanding at end of period 833,537 943,853 523,291 108,482
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $13.520 $12.204 $10.516(4)
Value at end of period $24.477 $13.520 $12.204
Number of accumulation units outstanding at end of period 224,632 179,861 65,695
OPPENHEIMER GLOBAL SECURITIES FUND/VA
Value at beginning of period $12.982 $11.539 $10.488(4)
Value at end of period $20.287 $12.982 $11.539
Number of accumulation units outstanding at end of period 115,002 134,449 87,559
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $13.199 $12.785 $10.497(4)
Value at end of period $15.839 $13.199 $12.785
Number of accumulation units outstanding at end of period 650,435 693,695 354,269
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $10.921 $10.764 $10.187(4)
Value at end of period $11.072 $10.921 $10.764
Number of accumulation units outstanding at end of period 285,712 328,546 128,720
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $12.686 $10.152 $10.009(12)
Value at end of period $18.612 $12.686 $10.152
Number of accumulation units outstanding at end of period 473,282 358,518 216,273
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $13.494 $10.554 $10.689(12)
Value at end of period $20.074 $13.494 $10.554
Number of accumulation units outstanding at end of period 2,336,393 2,557,155 2,394,861
</TABLE>
79
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $10.656 $ 8.786 $8.960(12)
Value at end of period $13.032 $10.656 $8.786
Number of accumulation units outstanding at end of period 1,550,656 1,761,234 1,615,395
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $11.640 $ 9.912 $9.791(12)
Value at end of period $18.181 $11.640 $9.912
Number of accumulation units outstanding at end of period 87,650 79,756 2,569
PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $17.406 $13.834 $13.560(12)
Value at end of period $20.993 $17.406 $13.834
Number of accumulation units outstanding at end of period 1,472,258 1,616,748 1,572,718
</TABLE>
(1) Funds were first received in this option during July 1996.
(2) Funds were first received in this option during February 1996.
(3) Funds were first received in this option during January 1996.
(4) Funds were first received in this option during May 1997.
(5) The initial accumulation unit value was established at $10.000 during
September 1996 when the portfolio became available under the option.
(6) Funds were first received in this option during May 1998.
(7) Funds were first received in this option during May 1996.
(8) Funds were first received in this option during December 1997.
(9) Funds were first received in this option during March 1996.
(10) Funds were first received in this option during April 1996.
(11) The initial accumulation unit value was established at $10.000 during May
1996 when the fund became available under the option.
(12) Funds were first received in this option during November 1997.
80
<PAGE>
Condensed Financial Information
- --------------------------------------------------------------------------------
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the periods in
the two-year period ended December 31, 1999 (as applicable), is derived from
the financial statements of the separate account, which have been audited by
KPMG LLP, independent auditors. The financial statements and the independent
auditors' report thereon for the year ended December 31, 1999 are included in
the Statement of Additional Information.
Table II -- For Contracts with Total Separate Account Charges of 1.25%
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
AETNA ASCENT VP
Value at beginning of period $10.059 $10.694(1)
Value at end of period $11.359 $10.059
Number of accumulation units outstanding at end of period 16,116 17,615
AETNA BALANCED VP, INC.
Value at beginning of period $11.312 $10.708(1)
Value at end of period $12.690 $11.312
Number of accumulation units outstanding at end of period 122,860 112,689
AETNA BOND VP
Value at beginning of period $10.606 $10.118(1)
Value at end of period $10.396 $10.606
Number of accumulation units outstanding at end of period 284,700 211,071
AETNA CROSSROADS VP
Value at beginning of period $10.270 $10.504(1)
Value at end of period $11.177 $10.270
Number of accumulation units outstanding at end of period 9,394 18,307
AETNA GROWTH VP
Value at beginning of period $12.977 $11.455(1)
Value at end of period $17.296 $12.977
Number of accumulation units outstanding at end of period 74,875 75,506
AETNA GROWTH AND INCOME VP
Value at beginning of period $11.063 $11.063(1)
Value at end of period $12.827 $11.063
Number of accumulation units outstanding at end of period 474,578 794,335
AETNA INDEX PLUS LARGE CAP VP
Value at beginning of period $12.535 $11.157(1)
Value at end of period $15.387 $12.535
Number of accumulation units outstanding at end of period 208,800 215,324
AETNA INTERNATIONAL VP
Value at beginning of period $9.764 $ 9.851(2)
Value at end of period $14.592 $ 9.764
Number of accumulation units outstanding at end of period 2,511 2,693
AETNA LEGACY VP
Value at beginning of period $10.380 $10.404(1)
Value at end of period $10.978 $10.380
Number of accumulation units outstanding at end of period 29,162 29,301
AETNA MONEY MARKET VP
Value at beginning of period $10.371 $10.097(1)
Value at end of period $10.762 $10.371
Number of accumulation units outstanding at end of period 370,653 319,753
AETNA REAL ESTATE SECURITIES VP
Value at beginning of period $8.872 $ 9.918(1)
Value at end of period $8.392 $ 8.872
Number of accumulation units outstanding at end of period 2,920 2,257
AETNA SMALL COMPANY VP
Value at beginning of period $9.724 $11.126(1)
Value at end of period $12.565 $ 9.724
Number of accumulation units outstanding at end of period 80,258 71,465
AETNA VALUE OPPORTUNITY VP
Value at beginning of period $11.644 $11.097(1)
Value at end of period $13.750 $11.644
Number of accumulation units outstanding at end of period 77,073 110,097
CALVERT SOCIAL BALANCED PORTFOLIO
Value at beginning of period $11.208 $10.596(1)
Value at end of period $12.421 $11.208
Number of accumulation units outstanding at end of period 12,257 11,121
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.806 $10.957(1)
Value at end of period $11.346 $10.806
Number of accumulation units outstanding at end of period 576,813 476,634
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $13.253 $11.094(1)
Value at end of period $17.986 $13.253
Number of accumulation units outstanding at end of period 344,724 307,937
</TABLE>
81
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Value at beginning of period $9.222 $10.292(1)
Value at end of period $9.849 $ 9.222
Number of accumulation units outstanding at end of period 248,198 270,627
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.487 $11.082(1)
Value at end of period $14.771 $10.487
Number of accumulation units outstanding at end of period 57,260 45,606
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Value at beginning of period $11.165 $10.607(1)
Value at end of period $12.248 $11.165
Number of accumulation units outstanding at end of period 117,415 152,533
FIDELITY VIP II CONTRAFUND[RegTM] PORTFOLIO
Value at beginning of period $12.537 $11.136(1)
Value at end of period $15.383 $12.537
Number of accumulation units outstanding at end of period 410,630 353,548
FIDELITY VIP II INDEX 500 PORTFOLIO
Value at beginning of period $12.259 $11.159(1)
Value at end of period $14.589 $12.259
Number of accumulation units outstanding at end of period 738,298 409,685
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.003 $11.125(1)
Value at end of period $28.943 $13.003
Number of accumulation units outstanding at end of period 127,870 47,713
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $12.689 $10.904(1)
Value at end of period $15.883 $12.689
Number of accumulation units outstanding at end of period 325,243 230,693
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $10.599 $10.191(1)
Value at end of period $10.634 $10.599
Number of accumulation units outstanding at end of period 133,860 106,626
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $12.784 $11.091(1)
Value at end of period $18.177 $12.784
Number of accumulation units outstanding at end of period 316,527 178,276
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $11.960 $11.375(1)
Value at end of period $19.422 $11.960
Number of accumulation units outstanding at end of period 554,475 420,428
MFS GLOBAL GOVERNMENT SERIES
Value at beginning of period $10.514 $10.032(2)
Value at end of period $10.123 $10.514
Number of accumulation units outstanding at end of period 885 591
MFS TOTAL RETURN SERIES
Value at beginning of period $10.942 $10.639(1)
Value at end of period $11.139 $10.942
Number of accumulation units outstanding at end of period 289,103 253,311
OPPENHEIMER AGGRESSIVE GROWTH FUND/VA
Value at beginning of period $10.886 $11.304(1)
Value at end of period $19.738 $10.886
Number of accumulation units outstanding at end of period 114,364 88,310
OPPENHEIMER GLOBAL SECURITIES FUND/VA
Value at beginning of period $10.949 $10.941(1)
Value at end of period $17.136 $10.949
Number of accumulation units outstanding at end of period 34,030 29,176
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Value at beginning of period $10.111 $11.377(1)
Value at end of period $12.153 $10.111
Number of accumulation units outstanding at end of period 263,646 232,433
OPPENHEIMER STRATEGIC BOND FUND/VA
Value at beginning of period $10.037 $10.118(1)
Value at end of period $10.191 $10.037
Number of accumulation units outstanding at end of period 106,774 85,477
PPI MFS CAPITAL OPPORTUNITIES PORTFOLIO
Value at beginning of period $12.005 $11.503(1)
Value at end of period $17.640 $12.005
Number of accumulation units outstanding at end of period 145,648 108,102
PPI MFS EMERGING EQUITIES PORTFOLIO
Value at beginning of period $11.797 $11.104(1)
Value at end of period $17.577 $11.797
Number of accumulation units outstanding at end of period 258,892 205,549
</TABLE>
82
<PAGE>
Condensed Financial Information (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
PPI MFS RESEARCH GROWTH PORTFOLIO
Value at beginning of period $11.634 $11.178(1)
Value at end of period $14.250 $11.634
Number of accumulation units outstanding at end of period 154,290 131,761
PPI SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Value at beginning of period $10.995 $11.145(1)
Value at end of period $17.201 $10.995
Number of accumulation units outstanding at end of period 34,698 30,516
PPI T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Value at beginning of period $12.103 $11.120(1)
Value at end of period $14.620 $12.103
Number of accumulation units outstanding at end of period 121,008 120,157
</TABLE>
(1) Funds were first received in this option during May 1998.
(2) Funds were first received in this option during June 1998.
83
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT I
OF
AETNA INSURANCE COMPANY OF AMERICA
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 2000
AETNA 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, 2000.
A free prospectus is available upon request from the local Aetna Insurance
Company of America office or by writing to or calling our Service Center at:
Aetna Financial Services
Annuity Services
151 Farmington Avenue
Hartford, Connecticut 06156-1258
1-800-238-6219
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
Page
General Information and History 2
Variable Annuity Account I 2
Offering and Purchase of Contracts 3
Performance Data 3
General 3
Average Annual Total Return Quotations 4
Income Phase Payments 7
Sales Material and Advertising 8
Independent Auditors 9
Financial Statements of the Separate Account S-1
Financial Statements of Aetna Insurance Company of America F-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Insurance Company of America (the Company, we, us) issues the contracts
described in the prospectus and is responsible for providing each contract's
insurance and annuity benefits. We are a stock life insurance company organized
under the insurance laws of the State of Connecticut in 1990 and redomesticated
under the insurance laws of the State of Florida on January 5, 2000. We are an
indirect wholly-owned subsidiary of Aetna Inc. Our Service Center is located at
151 Farmington Avenue, Hartford, Connecticut 06156. We are engaged in the
business of issuing life insurance and annuities. Our executive offices are
located at 5100 West Lemon Street, Suite 213, Tampa, Florida 33609.
Aetna Life Insurance and Annuity Company (ALIAC), a registered broker-dealer
under the Securities Exchange Act of 1934, serves as the principal underwriter
for the separate account. ALIAC is also a registered investment adviser under
the Investment Advisers Act of 1940.
Other than the mortality and expense risk charge and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the separate account are borne by the Company. See "Fees" in the prospectus. We
receive reimbursement for certain administrative costs from some advisers of the
funds used as funding options under the contract. These fees generally range up
to 0.425%.
The assets of the separate account are held by the Company. The separate account
has no custodian. However, the funds in whose shares the assets of the separate
account are invested each have custodians, as discussed in their respective
prospectuses.
From this point forward, the term "contract(s)" refers only to those offered
through the prospectus.
VARIABLE ANNUITY ACCOUNT I
Variable Annuity Account I is a separate account established by the Company for
the purpose of funding variable annuity contracts issued by the Company. The
separate account is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940, as amended.
Purchase payments to accounts under the contract may be allocated to one or more
of the subaccounts. Each subaccount invests in the shares of only one of the
funds listed below. We may make additions to, deletions from or substitutions of
available investment options as permitted by law and subject to the conditions
of the contract. The availability of the funds is subject to applicable
regulatory authorization. Not all funds are available in all jurisdictions or
under all contracts.
2
<PAGE>
The funds currently available under the contract are as follows:
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Income Shares d/b/a Aetna Bond VP
Aetna Crossroads VP
Aetna Growth VP
Aetna Variable Fund d/b/a Aetna Growth and Income VP
Aetna Index Plus Large Cap VP
Aetna International VP
Aetna Legacy VP
Aetna Variable Encore Fund d/b/a Aetna Money Market VP
Aetna Real Estate Securities VP*
Aetna Small Company VP
Aetna Technology VP
Aetna Value Opportunity VP
Calvert Social Balanced Portfolio
Fidelity Variable Insurance Products (VIP) Equity-Income Portfolio
Fidelity Variable Insurance Products (VIP) Growth
Fidelity Variable Insurance Products (VIP) High Income Portfolio
Fidelity Variable Insurance Products (VIP) Overseas Portfolio
Fidelity Variable Insurance Products II (VIP II) Asset Manager Portfolio
Fidelity Variable Insurance Products II (VIP II) Contrafund[RegTM] Portfolio
Fidelity Variable Insurance Products II (VIP II) Index 500 Portfolio
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
MFS Total Return Series
MFS Global Governments Series
Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Global Securities Fund/VA
Oppenheimer Main Street Growth and Income Fund/VA
Oppenheimer Strategic Bond Fund/VA
Portfolio Partners, Inc. (PPI) MFS Emerging Equities Portfolio
Portfolio Partners, Inc. (PPI) MFS Research Growth Portfolio
Portfolio Partners, Inc. (PPI) MFS Capital Opportunities Portfolio
(formerly PPI MFS Value Equity Portfolio)
Portfolio Partners, Inc. (PPI) Scudder International Growth Portfolio
Portfolio Partners, Inc. (PPI) T. Rowe Price Growth Equity Portfolio
*Effective May 15, 2000, transfers or deposits are not allowed into the
subaccount investing in this fund except those made pursuant to standing
instructions (e.g., dollar cost averaging, account rebalancing) in effect prior
to this date.
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 under the prospectus. ALIAC offers the contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of ALIAC or of other registered broker-dealers who have sales
agreements with ALIAC. The offering of the contracts is continuous. A
description of the manner in which the contracts are purchased can be found in
the prospectus under the sections entitled "Purchase and Rights" and "Your
Account Value."
PERFORMANCE DATA
GENERAL
From time to time we may advertise different types of historical performance for
the subaccounts of the separate account available under the contracts. We may
advertise the "standardized average annual total returns," calculated in a
manner prescribed by the Securities and Exchange Commission (the "standardized
return"), as well as "non-standardized returns," both of which are described
below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial purchase payment of
$1,000 is applied to the various subaccounts under the contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the fund since the
date contributions were first received in the fund under the separate account,
adjusted to reflect the deduction of the maximum recurring charges under the
contracts during each
3
<PAGE>
period (e.g., 1.25% mortality and expense risk charge, $30 annual maintenance
fee, 0.15% administrative charge, and early withdrawal charge of 7% of purchase
payments grading down to 0% after seven years). These charges will be deducted
on a pro rata basis in the case of fractional periods. The annual maintenance
fee is converted to a percentage of assets based on the average account size
under the contracts described in the prospectus. The total return figures shown
below may be different from the actual historical total returns under your
contract because for periods prior to 1994, the subaccount's investment
performance was based on the performance of the underlying fund plus any cash
held by the subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable early withdrawal charge,
and in some advertisements will also exclude the effect of the annual
maintenance fee. The deduction of the early withdrawal charge and the annual
maintenance fee would decrease the level of performance shown if reflected in
these calculations. The non-standardized figures may also include monthly,
quarterly, year-to-date and three-year periods, and may include returns
calculated from the fund's inception date and/or the date contributions were
first received in the fund under the separate account. The non-standardized
returns shown in the tables below reflect the deduction of the maximum recurring
charges under the contract except the early withdrawal charge. The annual
maintenance fee has been deducted for the purposes of calculating the returns.
Investment results of the funds will fluctuate over time, and any presentation
of the subaccounts' total return quotations for any prior period should not be
considered as a representation of how the subaccounts will perform in any future
period. Additionally, the account value upon redemption may be more or less than
your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The tables below reflect the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1999 for the
subaccounts under the contracts. The standardized returns assume the maximum
charges under the contract as described under "General" above. The
non-standardized returns assume the same charges but do not include the early
withdrawal charges.
For the subaccounts funded by the Portfolio Partners portfolios, two sets of
performance returns are shown for each subaccount: one showing performance based
solely on the performance of the Portfolio Partners portfolio from November 28,
1997, the date the portfolio commenced operations; and one quotation based on
(a) performance through November 26, 1997 of the fund it replaced under many
contracts and (b) after November 26, 1997 based on the performance of the
Portfolio Partners portfolio.
For those subaccounts where results are not available for the full calendar
period indicated, performance for such partial periods is shown in the column
labeled "Since Inception." For standardized performance, the "Since Inception"
column shows the average annual return since the date contributions were first
received in the fund under the separate account. For non-standardized
performance, the "Since Inception" column shows the average annual total return
since the fund's inception date.
4
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Date
Contributions
First Received
Under the
STANDARDIZED Separate Account
- ----------------------------------------------------------------------------------------------------------------------------
Since
SUBACCOUNT 1 Year 5 Year 10 Year Inception*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP 4.84% 12.98% 07/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. 4.16% 14.57% 02/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP (9.00%) 1.94% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 1.05% 10.52% 07/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 23.75% 33.18% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP 7.65% 18.44% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 13.96% 27.31% 10/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna International VP 38.76% 21.12% 05/05/1998
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP (1.81%) 7.63% 05/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1) (3.66%) 2.57% 02/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (12.19%) (15.05%) 05/05/1998
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 19.97% 16.93% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 9.63% 21.82% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio 2.89% 10.54% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio (2.52%) 11.78% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 26.01% 26.16% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio (0.84%) 5.35% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 30.77% 17.06% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio 1.85% 12.92% 04/30/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[RegTM] Portfolio 13.92% 22.76% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 10.49% 23.64% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 106.68% 35.67% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 16.22% 22.67% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio (6.85%) 5.92% 04/30/1996
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 32.02% 26.78% 03/29/1996
- ----------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 50.78% 32.67% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
MFS Global Government Series (10.61%) (0.35%) 05/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series (5.49%) 10.08% 05/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA 68.35% 34.48% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA 45.31% 26.90% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 11.59% 14.42% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA (5.73%) 1.12% 05/30/1997
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 36.42% 32.83% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 38.34% 33.48% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging Equities(2) 38.34% 20.13% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 13.72% 17.57% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS
Research Growth(2) 13.72% 7.07% 03/30/1996
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 45.24% 32.73% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 12.15% 21.29% 11/28/1997
- ----------------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price
Growth Equity(2) 12.15% 19.84% 01/31/1996
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
* Reflects performance from the date contributions were first received in
the fund under the separate account.
(1) The current yield for the subaccount for the seven-day period ended
December 31, 1999 (on an annualized basis) was 4.38%. Current yield more
closely reflects current earnings than does total return. The current
yield reflects the deduction of all charges under the contract that are
deducted from the total return quotations shown above except the maximum
7% early withdrawal charge.
(2) The fund first listed was replaced with the applicable Portfolio Partners
portfolio after the close of business on November 26, 1997. The
performance shown is based on the performance of the replaced fund until
November 26, 1997, and the performance of the applicable Portfolio
Partners portfolio after that date. The replaced fund may not have been
available under all contracts. The "Date Contributions First Received
Under the Separate Account" refers to the applicable date for the replaced
fund. If no date is shown, contributions were first received in the
replaced fund under the separate account more than ten years ago.
5
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Fund
Inception
NON-STANDARDIZED Date
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Ascent VP 12.73% 11.07% 14.42% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.(1) 12.00% 15.95% 17.30% 11.67%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP(1) (2.15%) 3.66% 5.80% 6.19%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP 8.66% 9.56% 12.12% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP 33.06% 33.30% 33.33% 12/13/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP(1) 15.76% 18.72% 21.76% 13.89%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP 22.54% 28.03% 28.67% 09/16/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP 49.20% 33.53% 12/22/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP 5.58% 7.91% 9.79% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP(1)(2) 3.59% 3.84% 3.99% 3.83%
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP (5.58%) (8.17%) 12/15/1997
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP 29.00% 19.46% 19.86% 12/27/1996
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP 17.89% 25.03% 25.42% 12/13/1996
- --------------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio(1) 10.64% 14.50% 16.35% 10.47%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income Portfolio(1) 4.82% 13.36% 16.93% 12.88%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio(1) 35.50% 31.39% 27.91% 18.25%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP High Income Portfolio(1) 6.62% 5.27% 9.31% 10.85%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio(1) 40.61% 19.79% 15.71% 9.86%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Asset Manager Portfolio(1) 9.52% 13.90% 13.99% 11.55%
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund[RegTM] Portfolio 22.50% 24.31% 25.95% 01/03/1995
- --------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Index 500 Portfolio 18.81% 25.28% 26.35% 19.38% 08/27/1992
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 122.24% 48.39% 34.31% 32.53% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 24.97% 25.81% 22.92% 18.92% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio 0.16% 5.88% 9.31% 6.97% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 41.95% 31.95% 28.05% 22.53% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 62.13% 35.39% 31.72% 27.88% 09/13/1993
- --------------------------------------------------------------------------------------------------------------------------------
MFS Global Government Series (3.88%) (0.12%) 2.88% 2.59% 06/14/1994
- --------------------------------------------------------------------------------------------------------------------------------
MFS Total Return Series 1.62% 10.41% 13.79% 01/03/1995
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Aggressive Growth Fund/VA(1) 81.02% 30.21% 27.87% 18.59%
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Global Securities Fund/VA 56.25% 28.49% 19.95% 15.14% 11/12/1990
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Main Street Growth & Income Fund/VA 19.99% 17.39% 24.01% 07/05/1995
- --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Bond Fund/VA 1.37% 3.29% 6.72% 4.68% 05/03/1993
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PPI MFS Capital Opportunities Portfolio 46.69% 34.53% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PPI MFS Emerging Equities Portfolio 48.75% 35.17% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Small Cap/PPI MFS Emerging
Equities(3) 48.75% 26.98% 24.51% 18.27%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio 22.28% 19.61% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
American Century VP Capital Appreciation/PPI MFS
Research Growth(3) 22.28% 12.36% 11.58% 9.27%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio 56.18% 34.44% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio 20.60% 23.24% 11/28/1997
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Growth/PPI T. Rowe Price Growth
Equity(3) 20.60% 24.25% 23.58% 18.55%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the discussion preceding the tables for an explanation of the
charges included and methodology used in calculating the standardized and
non-standardized figures. These figures represent historical performance and
should not be considered a projection of future performance.
** Reflects performance from the fund's inception date.
(1) These funds have been in operation for more than ten years.
(2) The current yield for the subaccount for the seven-day period ended
December 31, 1999 (on an annualized basis) was 4.38%. Current yield more
closely reflects current earnings than does total return. The current
yield reflects the deduction of all charges under the contract that are
deducted from the total return quotations shown above. As in the table
above, the maximum 7% early withdrawal charge is not reflected.
(3) The fund first listed was replaced with the applicable Portfolio Partners
portfolio after the close of business on November 26, 1997. The
performance shown is based on the performance of the replaced fund until
November 26, 1997 and the performance of the applicable Portfolio Partners
portfolio after that date. The replaced fund may not have been available
under all contracts. The "Fund Inception Date" refers to the applicable
date for the replaced fund. If no date is shown, the replaced fund has
been in operation for more than ten years.
6
<PAGE>
INCOME PHASE PAYMENTS
When you begin receiving payments under the contract during the income phase
(see "The Income Phase" in the prospectus), the value of your account is
determined using accumulation unit values as of the tenth valuation before the
first income phase payment is due. Such value (less any applicable premium tax)
is applied to provide income phase payments to you in accordance with the income
phase payment option and investment options elected.
The annuity option tables found in the contract show, for each option, the
amount of the first income phase payment for each $1,000 of value applied.
Thereafter, variable income phase payments fluctuate as the annuity unit
value(s) fluctuates with the investment experience of the selected investment
option(s). The first income phase payment and subsequent income phase payments
also vary depending upon the assumed net investment rate selected (3.5% or 5%
per annum). Selection of a 5% rate causes a higher first income phase payment,
but payments will increase thereafter only to the extent that the investment
performance of the subaccounts you selected is greater than 5% annually after
deduction of fees. Income phase payments would decline if the performance was
less than 5%. Use of the 3.5% assumed rate causes a lower first income phase
payment, but subsequent payments would increase more rapidly or decline more
slowly as changes occur in the performance of the subaccounts selected.
When the income phase begins, the annuitant is credited with a fixed number of
annuity units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first income phase payment based on a particular investment
option, and (b) is the then current annuity unit value for that investment
option. As noted, annuity unit values fluctuate from one valuation to the next
(see "Your Account Value" in the prospectus); such fluctuations reflect changes
in the net investment factor for the appropriate subaccount(s) (with a ten
valuation lag which gives the Company time to process income phase payments) and
a mathematical adjustment which offsets the assumed net investment rate of 3.5%
or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the income phase.
EXAMPLE:
Assume that, at the date income phase payments are to begin, there are 3,000
accumulation units credited under a particular contract and that the value of an
accumulation unit for the tenth valuation prior to retirement was $13.650000.
This produces a total value of $40,950.
Assume also that no premium tax is payable and that the annuity table in the
contract provides, for the income phase payment option elected, a first monthly
variable payment of $6.68 per $1000 of value applied; the annuitant's first
monthly income phase payment would thus be $40.950 multiplied by $6.68, or
$273.55.
Assume then that the value of an annuity unit upon the valuation on which the
first income phase payment was due was $13.400000. When this value is divided
into the first monthly payment, the number of annuity units is determined to be
20.414. The value of this number of annuity units will be paid in each
subsequent month.
7
<PAGE>
If the net investment factor with respect to the appropriate subaccount is
1.0015000 as of the tenth valuation preceding the due date of the second monthly
income phase payment, multiplying this factor by .9999058* (to take into account
the assumed net investment rate of 3.5% per annum built into the number of
annuity units determined above) produces a result of 1.0014057. This is then
multiplied by the annuity unit value for the prior valuation (assume such value
to be $13.504376) to produce an annuity unit value of $13.523359 for the
valuation occurring when the second income phase 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
phase payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
take into account such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
We may include hypothetical illustrations in our sales literature that explain
the mathematical principles of dollar cost averaging, compounded interest, tax
deferred accumulation, and the mechanics of variable annuity contracts. We may
also discuss the difference between variable annuity contracts and other types
of savings or investment products such as personal savings accounts and
certificates of deposit.
We may distribute sales literature that compares the percentage change in
accumulation unit values for any of the subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Service, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may categorize the underlying funds in terms of the
asset classes they represent and use such categories in marketing materials for
the contracts. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the separate account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports such as The Wall
Street Journal, Money magazine, USA Today and The VARDS Report.
We may provide in advertising, sales literature, periodic publications or other
materials information on various topics of interest to current and prospective
contract holders. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparison between the contracts and the
characteristics of and market for such financial instruments.
8
<PAGE>
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent
auditors for the separate account and for the Company. The services provided to
the separate account include primarily the examination of the separate account's
financial statements and the review of filings made with the SEC.
9
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT I
Index
<TABLE>
<CAPTION>
Page
<S> <C>
Statement of Assets and Liabilities.....................................S-2
Statement of Operations.................................................S-7
Statements of Changes in Net Assets.....................................S-7
Condensed Financial Information.........................................S-8
Notes to Financial Statements...........................................S-12
Independent Auditors' Report............................................S-24
</TABLE>
S-1
<PAGE>
Variable Annuity Account I
Statement of Assets and Liabilities - December 31, 1999
ASSETS:
Investments, at net asset value: (Note 1)
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
Aetna Ascent VP: 98,549 $ 1,441,978 $ 1,470,348
Aetna Balanced VP, Inc.: 557,539 8,767,974 8,680,876
Aetna Bond VP: 739,056 9,634,497 8,994,313
Aetna Crossroads VP: 56,645 755,380 779,995
Aetna Growth and Income VP: 1,020,890 33,613,864 31,331,110
Aetna Growth VP: 292,478 4,120,278 5,065,711
Aetna Index Plus Large Cap VP: 743,541 13,901,112 15,517,692
Aetna International VP: 13,977 185,060 222,514
Aetna Legacy VP: 147,021 1,844,896 1,836,294
Aetna Money Market VP: 2,727,313 36,358,603 36,587,176
Aetna Real Estate Securities VP: 8,462 73,578 65,413
Aetna Small Company VP: 206,047 2,722,620 3,403,889
Aetna Value Opportunity VP: 237,023 3,577,573 3,891,915
Alger American Funds:
Balanced Portfolio: 107,852 1,131,021 1,679,252
Income and Growth Portfolio: 277,446 3,026,333 4,877,501
Leveraged AllCap Portfolio: 98,150 2,334,799 5,689,755
American Century VP Funds:
Balanced Fund: 56,639 431,564 441,215
International Fund: 201,394 1,363,555 2,517,425
Calvert Social Balanced Portfolio: 141,949 299,835 307,888
Federated Insurance Series:
American Leaders Fund II: 7,049,841 118,900,852 146,777,686
Equity Income Fund II: 1,972,702 25,202,208 32,115,589
Growth Strategies Fund II: 1,943,752 29,249,157 60,023,050
High Income Bond Fund II: 2,647,360 27,752,392 27,108,963
International Equity Fund II: 1,718,847 20,983,632 47,508,933
Prime Money Fund II: 5,198,805 5,198,805 5,198,805
U.S. Government Securities Fund II: 557,235 5,903,292 5,884,407
Utility Fund II: 1,718,542 21,150,847 24,661,073
Fidelity Investments Variable Insurance Product Fund:
Equity-Income Portfolio: 2,000,000 50,284,313 51,420,003
Growth Portfolio: 952,726 36,779,260 52,333,245
High Income Portfolio: 1,495,284 17,961,357 16,911,658
Overseas Portfolio: 196,306 4,027,977 5,386,624
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio: 436,199 7,454,280 8,143,844
Contrafund Portfolio: 1,672,869 34,735,648 48,764,135
Index 500 Portfolio: 339,239 47,264,972 56,791,976
Investment Grade Bond Portfolio: 80,835 979,182 982,952
Janus Aspen Series:
Aggressive Growth Portfolio: 653,778 25,668,610 39,024,034
Balanced Portfolio: 952,218 19,892,640 26,585,922
Flexible Income Portfolio: 419,102 5,053,689 4,786,150
Growth Portfolio: 1,112,231 30,223,126 37,426,575
Worldwide Growth Portfolio: 2,327,732 64,584,136 111,149,183
Lexington Emerging Markets Fund: 69,270 648,653 887,346
Lexington Natural Resources Trust Fund: 55,518 829,326 694,528
</TABLE>
S-2
<PAGE>
Variable Annuity Account I
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<CAPTION>
Net
Shares Cost Assets
------ ---- ------
<S> <C> <C> <C>
MFS Funds:
Global Government Series: 38,832 $ 405,353 $ 389,484
Total Return Series: 870,282 15,042,240 15,447,502
Oppenheimer Funds:
Aggressive Growth Fund/VA: 94,224 6,090,644 7,755,576
Global Securities Fund/VA: 87,285 1,888,593 2,916,182
Main Street Growth & Income Fund/VA: 548,378 11,343,088 13,506,554
Strategic Bond Fund/VA: 855,465 4,315,619 4,251,662
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio: 621,330 37,561,315 51,464,749
PPI MFS Research Growth Portfolio: 1,516,002 16,180,033 22,406,513
PPI MFS Value Equity Portfolio: 209,146 8,139,912 11,454,930
PPI Scudder International Growth Portfolio: 87,523 2,037,148 2,230,964
PPI T. Rowe Price Growth Equity Portfolio: 495,296 22,259,382 32,689,557
------------ ---------------
NET ASSETS $851,576,201 $1,108,440,636
============ ===============
</TABLE>
S-3
<PAGE>
Variable Annuity Account I
Statement of Assets and Liabilities - December 31, 1999 (continued):
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period:
(Notes 1 and 6)
<TABLE>
<S> <C>
Aetna Ascent VP:
Annuity contracts in accumulation .............................................. $ 1,470,348
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation .............................................. 8,680,876
Aetna Bond VP:
Annuity contracts in accumulation .............................................. 8,994,313
Aetna Crossroads VP:
Annuity contracts in accumulation .............................................. 779,995
Aetna Growth and Income VP:
Annuity contracts in accumulation .............................................. 31,151,698
Annuity contracts in payment period ............................................ 179,412
Aetna Growth VP:
Annuity contracts in accumulation .............................................. 5,009,118
Annuity contracts in payment period ............................................ 56,593
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation .............................................. 15,517,692
Aetna International VP:
Annuity contracts in accumulation .............................................. 222,514
Aetna Legacy VP:
Annuity contracts in accumulation .............................................. 1,694,193
Annuity contracts in payment period ............................................ 142,101
Aetna Money Market VP:
Annuity contracts in accumulation .............................................. 36,587,176
Aetna Real Estate Securities VP:
Annuity contracts in accumulation .............................................. 65,413
Aetna Small Company VP:
Annuity contracts in accumulation .............................................. 3,403,889
Aetna Value Opportunity VP:
Annuity contracts in accumulation .............................................. 3,891,915
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation .............................................. 1,679,252
Income and Growth Portfolio:
Annuity contracts in accumulation .............................................. 4,877,501
Leveraged AllCap Portfolio:
Annuity contracts in accumulation .............................................. 5,689,755
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation .............................................. 441,215
International Fund:
Annuity contracts in accumulation .............................................. 2,517,425
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation .............................................. 307,888
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation .............................................. 146,474,824
Annuity contracts in payment period ............................................ 302,862
Equity Income Fund II:
Annuity contracts in accumulation .............................................. 32,004,404
Annuity contracts in payment period ............................................ 111,185
</TABLE>
S-4
<PAGE>
Variable Annuity Account I
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Growth Strategies Fund II:
Annuity contracts in accumulation .................... $ 60,023,050
High Income Bond Fund II:
Annuity contracts in accumulation .................... 27,090,172
Annuity contracts in payment period .................. 18,791
International Equity Fund II:
Annuity contracts in accumulation .................... 47,471,626
Annuity contracts in payment period .................. 37,307
Prime Money Fund II:
Annuity contracts in accumulation .................... 5,198,805
U.S. Government Securities Fund II:
Annuity contracts in accumulation .................... 5,884,407
Utility Fund II:
Annuity contracts in accumulation .................... 24,581,727
Annuity contracts in payment period .................. 79,346
Fidelity Investments Variable Insurance Product Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation .................... 51,420,003
Growth Portfolio:
Annuity contracts in accumulation .................... 52,333,245
High Income Portfolio:
Annuity contracts in accumulation .................... 16,911,658
Overseas Portfolio:
Annuity contracts in accumulation .................... 5,386,624
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation .................... 8,143,844
Contrafund Portfolio:
Annuity contracts in accumulation .................... 48,764,135
Index 500 Portfolio:
Annuity contracts in accumulation .................... 56,791,976
Investment Grade Bond Portfolio:
Annuity contracts in accumulation .................... 982,952
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation .................... 39,024,034
Balanced Portfolio:
Annuity contracts in accumulation .................... 26,585,922
Flexible Income Portfolio:
Annuity contracts in accumulation .................... 4,786,150
Growth Portfolio:
Annuity contracts in accumulation .................... 37,367,199
Annuity contracts in payment period .................. 59,376
Worldwide Growth Portfolio:
Annuity contracts in accumulation .................... 111,093,250
Annuity contracts in payment period .................. 55,933
Lexington Emerging Markets Fund:
Annuity contracts in accumulation .................... 887,346
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation .................... 694,528
MFS Funds:
Global Government Series:
Annuity contracts in accumulation .................... 389,484
</TABLE>
S-5
<PAGE>
Variable Annuity Account I
Statement of Assets and Liabilities - December 31, 1999 (continued):
<TABLE>
<S> <C>
Total Return Series:
Annuity contracts in accumulation ........... $ 15,447,502
Oppenheimer Funds:
Aggressive Growth Fund/VA:
Annuity contracts in accumulation ........... 7,755,576
Global Securities Fund/VA:
Annuity contracts in accumulation ........... 2,916,182
Main Street Growth & Income Fund/VA:
Annuity contracts in accumulation ........... 13,506,554
Strategic Bond Fund/VA:
Annuity contracts in accumulation ........... 4,251,662
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation ........... 51,452,372
Annuity contracts in payment period ......... 12,377
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation ........... 22,406,513
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation ........... 11,377,949
Annuity contracts in payment period ......... 76,981
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation ........... 2,190,372
Annuity contracts in payment period ......... 40,592
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation ........... 32,676,922
Annuity contracts in payment period ......... 12,635
--------------
$1,108,440,636
==============
</TABLE>
See Notes to Financial Statements
S-6
<PAGE>
Variable Annuity Account I
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
------------------
INVESTMENT INCOME:
<S> <C>
Income: (Notes 1, 3 and 5)
Dividends ................................................... $ 48,743,207
Expenses: (Notes 2 and 5)
Valuation period deductions ................................. (13,474,655)
-------------
Net investment income ........................................ $ 35,268,552
-------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ......................................... $ 725,147,683
Cost of investments sold .................................... 655,820,063
-------------
Net realized gain on investments ........................... 69,327,620
-------------
Net unrealized gain on investments: (Note 5)
Beginning of year ........................................... 129,005,870
End of year ................................................. 256,846,161
-------------
Net change in unrealized gain on investments ............... 127,840,291
-------------
Net realized and unrealized gain on investments .............. 197,167,911
-------------
Net increase in net assets resulting from operations ......... $ 232,436,463
=============
</TABLE>
See Notes to Financial Statements
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
---- ----
FROM OPERATIONS:
<S> <C> <C>
Net investment income ................................................... $ 35,268,552 $ 26,010,214
Net realized gain on investments ........................................ 69,327,620 25,517,782
Net change in unrealized gain on investments ............................ 127,840,291 66,477,702
-------------- -------------
Net increase in net assets resulting from operations .................... 232,436,463 118,005,698
-------------- -------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ............................. 20,077,461 168,355,044
Transfer from the Company for mortality guarantee adjustments ........... (11,560) 0
Transfers from the Company's fixed account options ...................... 25,886,558 75,081,637
Redemptions by contract holders ......................................... (61,593,899) (31,854,396)
Annuity Payments ........................................................ (206,606) (83,247)
Other ................................................................... 347,722 1,337,373
-------------- -------------
Net (decrease) increase in net assets from unit transactions (Note 6) .. (15,500,324) 212,836,411
-------------- -------------
Change in net assets .................................................... 216,936,139 330,842,109
NET ASSETS:
Beginning of year ....................................................... 891,504,497 560,662,388
-------------- -------------
End of year ............................................................. $1,108,440,636 $ 891,504,497
============== =============
</TABLE>
See Notes to Financial Statements
S-7
<PAGE>
Variable Annuity Account I
Condensed Financial Information - Year Ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
-------------------------- in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
----------- ------------ --------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP:
AICA I $ 15.409 $ 17.374 12.75% 74,094.2 $ 1,287,288
AICA II 10.059 11.359 12.92% 16,115.9 183,060
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
AICA I 16.405 18.376 12.01% 387,565.2 7,121,786
AICA II 11.312 12.690 12.18% 122,859.8 1,559,090
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
AICA I 11.943 11.689 (2.13%) 516,265.9 6,034,654
AICA II 10.606 10.396 (1.98%) 284,699.5 2,959,659
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
AICA I 14.676 15.949 8.67% 42,322.1 674,993
AICA II 10.270 11.177 8.83% 9,394.2 105,002
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
AICA I 18.461 21.374 15.78% 1,172,636.9 25,064,085
AICA II 11.063 12.827 15.95% 474,578.0 6,087,613
Annuity contracts in payment period 179,412
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
AICA I 17.862 23.771 33.08% 156,242.2 3,714,086
AICA II 12.977 17.296 33.28% 74,875.1 1,295,032
Annuity contracts in payment period 56,593
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
AICA I 18.704 22.923 22.56% 536,794.9 12,304,926
AICA II 12.535 15.387 22.75% 208,799.8 3,212,766
- --------------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
AICA I 9.754 14.554 49.21% 12,771.0 185,874
AICA II 9.764 14.592 49.45% 2,511.0 36,640
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
AICA I 13.825 14.599 5.60% 94,121.1 1,374,066
AICA II 10.380 10.978 5.76% 29,161.9 320,127
Annuity contracts in payment period 142,101
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
AICA I 11.335 11.744 3.61% 2,775,865.5 32,598,385
AICA II 10.371 10.762 3.77% 370,653.2 3,988,791
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
AICA I 8.863 8.370 (5.56%) 4,887.5 40,910
AICA II 8.872 8.392 (5.41%) 2,919.9 24,503
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
AICA I 13.595 17.540 29.02% 136,570.6 2,395,454
AICA II 9.724 12.565 29.22% 80,257.6 1,008,435
- --------------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
AICA I 15.985 18.847 17.90% 150,268.2 2,832,166
AICA II 11.644 13.750 18.09% 77,072.9 1,059,749
- --------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
AICA I 16.412 20.910 27.41% 80,308.9 1,679,252
- --------------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio:
AICA I 19.880 27.923 40.46% 174,676.8 4,877,501
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
AICA I 20.547 36.075 75.57% 157,721.1 5,689,755
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account I
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Value
Per Unit
--------
Beginning End of
of Year Year
- -------------------------------------------------------------------------------
<S> <C> <C>
American Century VP Funds:
Balanced Fund:
AICA I $ 14.709 $ 15.962
- -------------------------------------------------------------------------------
International Fund:
AICA I 15.853 25.642
- -------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
AICA I 11.437 12.656
AICA II 11.208 12.421
- -------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
AICA I 20.639 21.708
Annuity contracts in payment period
- -------------------------------------------------------------------------------
Equity Income Fund II:
AICA I 14.022 16.369
Annuity contracts in payment period
- -------------------------------------------------------------------------------
Growth Strategies Fund II:
AICA I 18.269 31.060
- -------------------------------------------------------------------------------
High Income Bond Fund II:
AICA I 13.547 13.666
Annuity contracts in payment period
- -------------------------------------------------------------------------------
International Equity Fund II:
AICA I 14.682 26.765
Annuity contracts in payment period
- -------------------------------------------------------------------------------
Prime Money Fund II:
AICA I 11.253 11.610
- -------------------------------------------------------------------------------
U.S. Government Securities Fund II:
AICA I 12.284 12.040
- -------------------------------------------------------------------------------
Utility Fund II:
AICA I 17.341 17.388
Annuity contracts in payment period
- -------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund:
Equity-Income Portfolio:
AICA I 16.482 17.279
AICA II 10.806 11.346
- -------------------------------------------------------------------------------
Growth Portfolio:
AICA I 18.320 24.826
AICA II 13.253 17.986
- -------------------------------------------------------------------------------
High Income Portfolio:
AICA I 12.488 13.317
AICA II 9.222 9.849
- -------------------------------------------------------------------------------
Overseas Portfolio:
AICA I 13.997 19.684
AICA II 10.487 14.771
- -------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
AICA I 15.754 17.257
AICA II 11.165 12.248
- -------------------------------------------------------------------------------
Contrafund Portfolio:
AICA I 18.970 23.242
AICA II 12.537 15.383
- -------------------------------------------------------------------------------
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
American Century VP Funds:
Balanced Fund:
AICA I 8.52% 27,642.4 $ 441,215
- ---------------------------------------------------------------------------------------------------------------
International Fund:
AICA I 61.75% 98,174.8 2,517,425
- ---------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
AICA I 10.66% 12,297.6 155,641
AICA II 10.82% 12,257.1 152,247
- ---------------------------------------------------------------------------------------------------------------
Federated Insurance Series:
American Leaders Fund II:
AICA I 5.18% 6,747,543.1 146,474,824
Annuity contracts in payment period 302,862
- ---------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
AICA I 16.74% 1,955,219.8 32,004,404
Annuity contracts in payment period 111,185
- ---------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
AICA I 70.01% 1,932,504.3 60,023,050
- ---------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
AICA I 0.88% 1,982,372.3 27,090,172
Annuity contracts in payment period 18,791
- ---------------------------------------------------------------------------------------------------------------
International Equity Fund II:
AICA I 82.30% 1,773,642.3 47,471,626
Annuity contracts in payment period 37,307
- ---------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
AICA I 3.17% 447,801.6 5,198,805
- ---------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
AICA I (1.99%) 488,753.9 5,884,407
- ---------------------------------------------------------------------------------------------------------------
Utility Fund II:
AICA I 0.27% 1,413,708.9 24,581,727
Annuity contracts in payment period 79,346
- ---------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund:
Equity-Income Portfolio:
AICA I 4.84% 2,597,042.4 44,875,527
AICA II 5.00% 576,813.0 6,544,476
- ---------------------------------------------------------------------------------------------------------------
Growth Portfolio:
AICA I 35.51% 1,858,231.6 46,132,878
AICA II 35.71% 344,724.1 6,200,367
- ---------------------------------------------------------------------------------------------------------------
High Income Portfolio:
AICA I 6.64% 1,086,377.4 14,467,135
AICA II 6.80% 248,198.1 2,444,523
- ---------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
AICA I 40.63% 230,681.4 4,540,849
AICA II 40.85% 57,260.2 845,775
- ---------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
AICA I 9.54% 388,585.3 6,705,729
AICA II 9.70% 117,415.2 1,438,115
- ---------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
AICA I 22.52% 1,826,355.7 42,447,250
AICA II 22.70% 410,630.3 6,316,885
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account I
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Value
Per Unit Increase (Decrease) Units
------------------------ in Value of Outstanding Reserves
Beginning End of Accumulation at End at End
of Year Year Unit of Year of Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Index 500 Portfolio:
AICA I $ 21.063 $ 25.027 18.82% 1,838,818.7 $ 46,020,760
AICA II 12.259 14.589 19.01% 738,297.6 10,771,216
- ---------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
AICA I 12.066 11.772 ( 2.44%) 83,500.0 982,952
- ---------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
AICA I 16.729 37.181 122.25% 950,030.0 35,323,066
AICA II 13.003 28.943 122.59% 127,870.3 3,700,968
- ---------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
AICA I 19.189 23.983 24.98% 893,140.4 21,419,977
AICA II 12.689 15.883 25.17% 325,243.4 5,165,945
- ---------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
AICA I 13.202 13.226 0.18% 254,250.2 3,362,650
AICA II 10.599 10.634 0.33% 133,859.8 1,423,500
- ---------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
AICA I 19.704 27.974 41.97% 1,130,099.4 31,613,802
AICA II 12.784 18.177 42.19% 316,527.3 5,753,397
Annuity contracts in payment period 59,376
- ---------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
AICA I 20.506 33.250 62.15% 3,017,261.9 100,324,119
AICA II 11.960 19.422 62.39% 554,474.5 10,769,131
Annuity contracts in payment period 55,933
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
AICA I 6.399 14.331 123.96% 61,916.4 887,346
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
AICA I 11.047 12.428 12.50% 55,886.3 694,528
- ---------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series:
AICA I 10.860 10.440 ( 3.87%) 36,449.7 380,530
AICA II 10.514 10.123 ( 3.72%) 884.5 8,954
- ---------------------------------------------------------------------------------------------------------------------------
Total Return Series:
AICA I 14.432 14.669 1.64% 833,536.8 12,227,208
AICA II 10.942 11.139 1.80% 289,103.2 3,220,294
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA:
AICA I 13.520 24.477 81.04% 224,632.4 5,498,223
AICA II 10.886 19.738 81.32% 114,364.2 2,257,353
- ---------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA:
AICA I 12.982 20.287 56.27% 115,001.5 2,333,056
AICA II 10.949 17.136 56.51% 34,029.7 583,126
- ---------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA:
AICA I 13.199 15.839 20.00% 650,435.0 10,302,541
AICA II 10.111 12.153 20.20% 263,646.0 3,204,013
- ---------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA:
AICA I 10.921 11.072 1.38% 285,712.3 3,163,507
AICA II 10.037 10.191 1.53% 106,774.1 1,088,155
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
AICA I 13.494 20.074 48.76% 2,336,393.4 46,901,720
AICA II 11.797 17.577 49.00% 258,891.9 4,550,652
Annuity contracts in payment period 12,377
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-10
<PAGE>
Variable Annuity Account I
Condensed Financial Information - Year Ended December 31, 1999 (continued):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Value
Per Unit
--------
Beginning End of
of Year Year
- ----------------------------------------------------------------------
<S> <C> <C>
PPI MFS Research Growth Portfolio:
AICA I $ 10.656 $ 13.032
AICA II 11.634 14.250
- ----------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
AICA I 12.686 18.612
AICA II 12.005 17.640
Annuity contracts in payment period
- ----------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
AICA I 11.640 18.181
AICA II 10.995 17.201
Annuity contracts in payment period
- ----------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
AICA I 17.406 20.993
AICA II 12.103 14.620
Annuity contracts in payment period
- ----------------------------------------------------------------------
Total
======================================================================
<CAPTION>
Increase (Decrease) Units
in Value of Outstanding Reserves
Accumulation at End at End
Unit of Year of Year
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PPI MFS Research Growth Portfolio:
AICA I 22.30% 1,550,655.9 $ 20,207,838
AICA II 22.49% 154,289.8 2,198,675
- --------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
AICA I 46.71% 473,281.8 8,808,785
AICA II 46.94% 145,648.0 2,569,164
Annuity contracts in payment period 76,981
- --------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
AICA I 56.19% 87,649.8 1,593,541
AICA II 56.44% 34,698.3 596,831
Annuity contracts in payment period 40,592
- --------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
AICA I 20.61% 1,472,257.8 30,907,801
AICA II 20.80% 121,007.6 1,769,121
Annuity contracts in payment period 12,635
- --------------------------------------------------------------------------------------------------------
Total $1,108,440,636
========================================================================================================
</TABLE>
<TABLE>
<S> <C>
AICA I Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual Retirement
Annuity contracts issued since June 28, 1995.
AICA II Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual Retirement
Annuity contracts issued since May 1, 1998.
</TABLE>
S-11
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999
1. Summary of Significant Accounting Policies
Variable Annuity Account I (the "Account") is a separate account
established by Aetna Insurance Company of America (the "Company") and is
registered under the Investment Company Act of 1940 as a unit investment
trust. The Account is sold exclusively for use with variable annuity
contracts that may be entitled to tax-deferred treatment under specific
sections of the Internal Revenue Code of 1986, as amended. The Account
commenced operations on June, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Actual results could
differ from these estimates.
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, 1999:
Aetna Ascent VP
Aetna Balanced VP, Inc.
Aetna Bond VP
Aetna Crossroads VP
Aetna Growth and Income VP
Aetna Growth VP
Aetna Index Plus Large Cap VP
Aetna International VP
Aetna Legacy VP
Aetna Money Market VP
Aetna Real Estate Securities VP
Aetna Small Company VP
Aetna Value Opportunity VP
Alger American Funds:
o Balanced Portfolio
o Income and Growth Portfolio
o Leveraged AllCap Portfolio
American Century VP Funds:
o Balanced Fund
o International Fund
Calvert Social Balanced Portfolio
Federated Insurance Series:
o American Leaders Fund II
o Equity Income Fund II
o Growth Strategies Fund II
o High Income Bond Fund II
o International Equity Fund II
o Prime Money Fund II
o U.S. Government Securities Fund II
o Utility Fund II
Fidelity Investments Variable Insurance Products Fund:
o Equity-Income Portfolio
o Growth Portfolio
o High Income Portfolio
o Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
o Asset Manager Portfolio
o Contrafund Portfolio
o Index 500 Portfolio
o Investment Grade Bond Portfolio
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Flexible Income Portfolio
o Growth Portfolio
o Worldwide Growth Portfolio
Lexington Emerging Markets Fund
Lexington Natural Resources Trust Fund
MFS Funds:
o Global Government Series
o Total Return Series
Oppenheimer Funds:
o Aggressive Growth Fund/VA
o Global Securities Fund/VA
o Main Street Growth & Income Fund/VA
o Strategic Bond Fund/VA
Portfolio Partners, Inc. (PPI):
o PPI MFS Emerging Equities Portfolio
o PPI MFS Research Growth Portfolio
o PPI MFS Value Equity Portfolio
o PPI Scudder International Growth Portfolio
o PPI T. Rowe Price Growth Equity Portfolio
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.
S-12
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
d. Annuity Reserves
Annuity reserves held in the Account 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.
2. Valuation Period Deductions
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. Dividend Income
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the 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 year ended December 31, 1999 aggregated
$744,897,637 and $725,147,683.
S-13
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statement of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $98,284 ($19,735) $288,231 $299,859
- ----------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 1,102,491 (112,293) 1,339,384 1,334,254
- ----------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 565,203 (124,557) 4,914,083 5,033,164
- ----------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 46,967 (11,032) 151,762 147,343
- ----------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 5,394,486 (397,991) 71,789,245 72,446,745
- ----------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 240,808 (73,267) 5,576,554 4,492,326
- ----------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 687,527 (212,657) 13,983,564 11,767,428
- ----------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 21,556 (2,872) 214,026 179,764
- ----------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 103,555 (23,286) 388,909 368,608
- ----------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 1,245,921 (452,053) 210,012,432 209,644,140
- ----------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 3,335 (1,811) 691,011 670,678
- ----------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 41,212 (44,330) 3,822,179 3,235,119
- ----------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation 182,092 (58,833) 5,626,230 4,830,502
- ----------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 104,509 (21,150) 117,830 76,479
- ----------------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation 230,961 (57,179) 741,176 525,475
- ----------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 276,111 (60,243) 617,519 281,778
- ----------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 65,109 (6,375) 163,077 155,590
- ----------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 0 (26,431) 358,184 261,500
- ----------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 29,419 (3,758) 22,965 22,532
- ----------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ($11,628) ($75,022) $28,369 $103,391 $170,312
- --------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 5,130 (36,287) (87,098) (50,811) 944,517
- --------------------------------------------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation (119,081) (118,794) (640,184) (521,390) (199,825)
- --------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 4,419 (178) 24,615 24,793 65,147
- --------------------------------------------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation (657,500) (2,149,960) (2,282,754) (132,794) 4,206,201
- --------------------------------------------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 1,084,228 784,306 945,433 161,127 1,412,896
- --------------------------------------------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 2,216,136 1,257,214 1,616,580 359,366 3,050,372
- --------------------------------------------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 34,262 2,750 37,455 34,705 87,651
- --------------------------------------------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 20,301 (6,294) (8,602) (2,308) 98,262
- --------------------------------------------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 368,292 215,976 228,573 12,597 1,174,757
- --------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 20,333 (4,325) (8,166) (3,841) 18,016
- --------------------------------------------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation 587,060 487,449 681,270 193,821 777,763
- --------------------------------------------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation 795,728 623,324 314,342 (308,982) 610,005
- --------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 41,351 303,599 548,231 244,632 369,342
- --------------------------------------------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation 215,701 776,309 1,851,167 1,074,858 1,464,341
- --------------------------------------------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 335,741 1,364,191 3,354,956 1,990,765 2,542,374
- --------------------------------------------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 7,487 41,409 9,649 (31,760) 34,461
- --------------------------------------------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 96,684 228,000 1,153,870 925,870 996,123
- --------------------------------------------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 433 5,430 8,053 2,623 28,717
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statement of Operations (continued):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds
Period from
Dividends Deductions Sales
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation $15,147,294 ($ 2,131,371) $ 13,419,022
- --------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 814,064 (421,048) 3,515,537
- --------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 0 (596,338) 3,338,262
- --------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 2,476,236 (408,532) 4,570,928
- --------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 798,535 (434,267) 2,883,792
- --------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 245,672 (76,271) 5,000,204
- --------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 317,095 (90,658) 1,654,760
- --------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,914,787 (359,395) 2,936,845
- --------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 2,429,608 (751,656) 22,950,321
- --------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 4,436,638 (616,924) 6,409,422
- --------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 1,667,722 (250,431) 4,415,632
- --------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 165,653 (61,642) 23,789,913
- --------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 576,382 (109,793) 1,653,501
- --------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 1,641,692 (601,503) 7,124,702
- --------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 792,073 (720,850) 25,115,115
- --------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 62,932 (16,016) 225,340
- --------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 745,754 (294,919) 107,667,722
- --------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 539,596 (329,857) 6,639,707
- --------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 339,434 (67,386) 1,183,274
- --------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized
Net Gain (Loss)
Cost of Realized -----------
Investments Gain (Loss) Beginning End
Sold on Investments of Year of Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation $ 7,814,229 $5,604,793 $ 38,810,192 $ 27,876,834
- ------------------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 2,542,787 972,750 3,591,859 6,913,381
- ------------------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,771,526 1,566,736 7,028,743 30,773,893
- ------------------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 4,349,704 221,224 1,387,517 (643,429)
- ------------------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 1,785,573 1,098,219 6,385,323 26,525,301
- ------------------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 4,998,888 1,316 1,316 0
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 1,548,456 106,304 441,091 (18,885)
- ------------------------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 2,166,729 770,116 5,787,739 3,510,226
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 19,463,453 3,486,868 3,977,202 1,135,690
- ------------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 4,797,592 1,611,830 7,153,104 15,537,760
- ------------------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 5,346,224 (930,592) (1,709,684) (1,049,699)
- ------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 23,405,277 384,636 131,756 1,357,297
- ------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 1,506,751 146,750 560,341 689,564
- ------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 4,671,234 2,453,468 8,470,707 14,028,487
- ------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 17,772,843 7,342,272 7,949,380 9,526,307
- ------------------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 214,584 10,756 91,234 3,769
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 100,053,997 7,613,725 1,091,568 13,355,423
- ------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 4,272,426 2,367,281 3,925,885 6,693,282
- ------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation 1,191,733 (8,459) (11,388) (267,539)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net Net
Change in Increase (Decrease)
Unrealized in Net Assets
Gain (Loss) Resulting from
on Investments Operations
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation ($ 10,933,358) $ 7,687,358
- -----------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 3,321,522 4,687,288
- -----------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 23,745,150 24,715,548
- -----------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation (2,030,946) 257,982
- -----------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 20,139,978 21,602,465
- -----------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation (1,316) 169,401
- -----------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation (459,976) (127,235)
- -----------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation (2,277,513) 47,995
- -----------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation (2,841,512) 2,323,308
- -----------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 8,384,656 13,816,200
- -----------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 659,985 1,146,684
- -----------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 1,225,541 1,714,188
- -----------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 129,223 742,562
- -----------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 5,557,780 9,051,437
- -----------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,576,927 8,990,422
- -----------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (87,465) (29,793)
- -----------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 12,263,855 20,328,415
- -----------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 2,767,397 5,344,417
- -----------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Annuity contracts in accumulation (256,151) 7,438
- -----------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
5. Supplemental Information to Statement of Operations (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Valuation Proceeds Cost of
Period from Investments
Dividends Deductions Sales Sold
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio:
Annuity contracts in accumulation $204,198 ($363,956) $19,469,244 $13,399,625
- ------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 141,437 (1,108,134) 20,066,248 12,593,996
- ------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation 3,369 (9,310) 307,273 488,538
- ------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 4,893 (11,436) 290,732 339,388
- ------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 41,051 (8,619) 438,014 440,709
- ------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 834,399 (219,911) 4,128,026 3,486,251
- ------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 0 (69,464) 32,152,168 29,938,377
- ------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 93,445 (30,739) 580,959 526,490
- ------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation 141,299 (171,240) 5,240,486 5,262,827
- ------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 271,759 (63,247) 1,488,639 1,572,382
- ------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 390,949 (542,211) 50,081,279 40,350,194
- ------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 39,985 (282,277) 5,283,349 4,170,538
- ------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 239,457 (103,743) 2,663,649 2,210,485
- ------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 70,542 (24,961) 13,302,856 12,403,075
- ------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 715,711 (416,697) 4,342,401 3,189,898
- ------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account I $48,743,207 ($ 13,474,655) $725,147,683 $655,820,063
============================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999
Net Unrealized Net Net
Net Gain (Loss) Change in Increase (Decrease)
Realized ----------- Unrealized in Net Assets
Gain (Loss) Beginning End Gain (Loss) Resulting from
on Investments of Year of Year on Investments Operations
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio:
Annuity contracts in accumulation $6,069,619 $3,305,620 $7,203,450 $3,897,830 $9,807,691
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 7,472,252 9,935,954 46,565,049 36,629,095 43,134,650
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (181,265) (506,254) 238,693 744,947 557,741
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (48,656) (281,919) (134,799) 147,120 91,921
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (2,695) 38,917 (15,868) (54,785) (25,048)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 641,775 1,378,265 405,262 (973,003) 283,260
- ------------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 2,213,791 285,448 1,664,932 1,379,484 3,523,811
- ------------------------------------------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 54,469 72,806 1,027,589 954,783 1,071,958
- ------------------------------------------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation (22,341) (183,690) 2,163,466 2,347,156 2,294,874
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation (83,743) 519 (63,957) (64,476) 60,293
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 9,731,085 6,507,986 13,903,434 7,395,448 16,975,271
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 1,112,811 2,930,826 6,226,480 3,295,654 4,166,173
- ------------------------------------------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 453,164 557,253 3,315,018 2,757,765 3,346,643
- ------------------------------------------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 899,781 50,071 193,816 143,745 1,089,107
- ------------------------------------------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 1,152,503 6,151,086 10,430,175 4,279,089 5,730,606
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account I $69,327,620 $129,005,870 $256,846,161 $127,840,291 $232,436,463
====================================================================================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series' name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund's name changed
to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund's name changed
to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth & Income Fund's name changed to
Oppenheimer Main Street Growth & Income Fund/VA.
(5) - Effective May 1, 1999, Oppenheimer Strategic Bond Fund's name changed to
Oppenheimer Strategic Bond Fund/VA.
S-16
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation $78,549 ($11,628) $103,391
- -------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 990,198 5,130 (50,811)
- -------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 440,646 (119,081) (521,390)
- -------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation 35,935 4,419 24,793
- -------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation 4,996,495 (657,500) (132,794)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation 167,541 1,084,228 161,127
Annuity contracts in payment period
- -------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation 474,870 2,216,136 359,366
- -------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 18,684 34,262 34,705
- -------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 80,269 20,301 (2,308)
Annuity contracts in payment period
- -------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 793,868 368,292 12,597
- -------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 1,524 20,333 (3,841)
- -------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation (3,118) 587,060 193,821
- -------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation 123,259 795,728 (308,982)
- -------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 83,359 41,351 244,632
- -------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation 173,782 215,701 1,074,858
- -------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 215,868 335,741 1,990,765
- -------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 58,734 7,487 (31,760)
- -------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (26,431) 96,684 925,870
- -------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 25,661 433 2,623
- -------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------------------------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP:
Annuity contracts in accumulation ($168,403) $1,468,439 $1,470,348
- ----------------------------------------------------------------------------------------
Aetna Balanced VP, Inc.:
Annuity contracts in accumulation 397,681 7,338,678 8,680,876
- ----------------------------------------------------------------------------------------
Aetna Bond VP:
Annuity contracts in accumulation 982,700 8,211,438 8,994,313
- ----------------------------------------------------------------------------------------
Aetna Crossroads VP:
Annuity contracts in accumulation (70,653) 785,501 779,995
- ----------------------------------------------------------------------------------------
Aetna Growth and Income VP:
Annuity contracts in accumulation (4,172,788) 31,263,322 31,151,698
Annuity contracts in payment period 34,375 179,412
- ----------------------------------------------------------------------------------------
Aetna Growth VP:
Annuity contracts in accumulation (2,450,633) 6,066,474 5,009,118
Annuity contracts in payment period 36,974 56,593
- ----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP:
Annuity contracts in accumulation (2,478,317) 14,945,637 15,517,692
- ----------------------------------------------------------------------------------------
Aetna International VP:
Annuity contracts in accumulation 90,852 44,011 222,514
- ----------------------------------------------------------------------------------------
Aetna Legacy VP:
Annuity contracts in accumulation 83,565 1,628,799 1,694,193
Annuity contracts in payment period 25,668 142,101
- ----------------------------------------------------------------------------------------
Aetna Money Market VP:
Annuity contracts in accumulation 8,960,205 26,452,214 36,587,176
- ----------------------------------------------------------------------------------------
Aetna Real Estate Securities VP:
Annuity contracts in accumulation 7,726 39,671 65,413
- ----------------------------------------------------------------------------------------
Aetna Small Company VP:
Annuity contracts in accumulation (1,141,097) 3,767,223 3,403,889
- ----------------------------------------------------------------------------------------
Aetna Value Opportunity VP:
Annuity contracts in accumulation (2,977,883) 6,259,793 3,891,915
- ----------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (94,149) 1,404,059 1,679,252
- ----------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation (662,264) 4,075,424 4,877,501
- ----------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (487,379) 3,634,760 5,689,755
- ----------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation (150,252) 557,006 441,215
- ----------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (331,144) 1,852,446 2,517,425
- ----------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 13,994 265,177 307,888
- ----------------------------------------------------------------------------------------
</TABLE>
S-17
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation $13,015,923 $5,604,793 ($ 10,933,358)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 393,016 972,750 3,321,522
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation (596,338) 1,566,736 23,745,150
- ---------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 2,067,704 221,224 (2,030,946)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 364,268 1,098,219 20,139,978
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 169,401 1,316 (1,316)
- ---------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 226,437 106,304 (459,976)
- ---------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,555,392 770,116 (2,277,513)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation 1,677,952 3,486,868 (2,841,512)
- ---------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 3,819,714 1,611,830 8,384,656
- ---------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 1,417,291 (930,592) 659,985
- ---------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 104,011 384,636 1,225,541
- ---------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 466,589 146,750 129,223
- ---------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 1,040,189 2,453,468 5,557,780
- ---------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 71,223 7,342,272 1,576,927
- ---------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 46,916 10,756 (87,465)
- ---------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 450,835 7,613,725 12,263,855
- ---------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 209,739 2,367,281 2,767,397
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ---------
from Unit Beginning End
Transactions of Year of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Insurance Series:
American Leaders Fund II:
Annuity contracts in accumulation ($ 8,870,497) $147,843,450 $146,474,824
Annuity contracts in payment period 117,375 302,862
- ----------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (931,269) 28,317,427 32,004,404
Annuity contracts in payment period 42,143 111,185
- ----------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 158,077 35,149,425 60,023,050
- ----------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation (2,819,396) 29,644,378 27,090,172
Annuity contracts in payment period 25,999 18,791
- ----------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (1,739,062) 27,616,968 47,471,626
Annuity contracts in payment period 28,562 37,307
- ----------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 362,815 4,666,589 5,198,805
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation (515,189) 6,526,831 5,884,407
- ----------------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation (1,869,861) 26,418,108 24,581,727
Annuity contracts in payment period 64,831 79,346
- ----------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation (2,084,806) 51,181,501 51,420,003
- ----------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 190,468 38,326,577 52,333,245
- ----------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation (1,677,246) 17,442,220 16,911,658
- ----------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation (464,372) 4,136,808 5,386,624
- ----------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation (729,768) 8,131,050 8,143,844
- ----------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 111,080 39,601,618 48,764,135
- ----------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 1,633,226 46,168,328 56,791,976
- ----------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (207,094) 1,219,839 982,952
- ----------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 8,020,415 10,675,204 39,024,034
- ----------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 511,393 20,730,112 26,585,922
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-18
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio:
Annuity contracts in accumulation $272,048 ($8,459) ($ 256,151)
- -----------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation (159,758) 6,069,619 3,897,830
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation (966,697) 7,472,252 36,629,095
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (5,941) (181,265) 744,947
- -----------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (6,543) (48,656) 147,120
- -----------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation 32,432 (2,695) (54,785)
- -----------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation 614,488 641,775 (973,003)
- -----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation (69,464) 2,213,791 1,379,484
- -----------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation 62,706 54,469 954,783
- -----------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation (29,941) (22,341) 2,347,156
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation 208,512 (83,743) (64,476)
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (151,262) 9,731,085 7,395,448
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (242,292) 1,112,811 3,295,654
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 135,714 453,164 2,757,765
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 45,581 899,781 143,745
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 299,014 1,152,503 4,279,089
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account I $35,268,552 $69,327,620 $127,840,291
===============================================================================================
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31, 1999 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio:
Annuity contracts in accumulation $123,347 $4,655,365 $4,786,150
- -----------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 9,390,049 18,191,718 37,367,199
Annuity contracts in payment period 37,117 59,376
- -----------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation (2,335,260) 70,349,793 111,093,250
Annuity contracts in payment period 0 55,933
- -----------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (297,528) 627,133 887,346
- -----------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (267,199) 869,806 694,528
- -----------------------------------------------------------------------------------------------------
MFS Funds:
Global Government Series: (1)
Annuity contracts in accumulation (351,386) 765,918 389,484
- -----------------------------------------------------------------------------------------------------
Total Return Series:
Annuity contracts in accumulation (1,229,482) 16,393,724 15,447,502
- -----------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund/VA: (2)
Annuity contracts in accumulation 838,692 3,393,073 7,755,576
- -----------------------------------------------------------------------------------------------------
Global Securities Fund/VA: (3)
Annuity contracts in accumulation (220,665) 2,064,889 2,916,182
- -----------------------------------------------------------------------------------------------------
Main Street Growth & Income Fund/VA: (4)
Annuity contracts in accumulation (294,623) 11,506,303 13,506,554
- -----------------------------------------------------------------------------------------------------
Strategic Bond Fund/VA: (5)
Annuity contracts in accumulation (254,540) 4,445,909 4,251,662
- -----------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (2,441,478) 36,930,956 51,452,372
Annuity contracts in payment period 0 12,377
- -----------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (2,059,519) 20,299,859 22,406,513
- -----------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 2,226,423 5,846,092 11,377,949
Annuity contracts in payment period 35,772 76,981
- -----------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation (122,023) 1,263,880 2,190,372
Annuity contracts in payment period 0 40,592
- -----------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (2,635,807) 29,594,758 32,676,922
Annuity contracts in payment period 0 12,635
- -----------------------------------------------------------------------------------------------------
Total Variable Annuity Account I ($15,500,324) $891,504,497 $1,108,440,636
=====================================================================================================
</TABLE>
(1) - Effective May 1, 1999, MFS Worldwide Government Series' name changed to
MFS Global Government Series.
(2) - Effective May 1, 1999, Oppenheimer Aggressive Growth Fund's name changed
to Oppenheimer Aggressive Growth Fund/VA.
(3) - Effective May 1, 1999, Oppenheimer Global Securities Fund's name changed
to Oppenheimer Global Securities Fund/VA.
(4) - Effective May 1, 1999, Oppenheimer Growth & Income Fund's name changed to
Oppenheimer Main Street Growth & Income Fund/VA.
S-19
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Year Ended December 31, 199 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $52,298 $4,383 ($32,081)
- ---------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 909,957 95,814 (129,891)
- ---------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 358,751 99,148 (107,929)
- ---------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 21,126 14,619 (3,602)
- ---------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation 4,340,565 (785,430) (1,018,692)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation (38,465) (69,540) 1,049,101
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (7)
Annuity contracts in accumulation 535,601 654,268 1,150,576
- ---------------------------------------------------------------------------------------
Aetna International VP: (8)
Annuity contracts in accumulation 1,899 (1,435) 2,750
- ---------------------------------------------------------------------------------------
Aetna Legacy VP: (9)
Annuity contracts in accumulation 54,238 13,926 (10,602)
Annuity contracts in payment period
- ---------------------------------------------------------------------------------------
Aetna Money Market VP: (10)
Annuity contracts in accumulation 519,719 313,569 12,594
- ---------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (11)
Annuity contracts in accumulation 1,569 (2,322) (4,325)
- ---------------------------------------------------------------------------------------
Aetna Small Company VP: (12)
Annuity contracts in accumulation (12,813) (676,728) 657,427
- ---------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (13)
Annuity contracts in accumulation 11,224 (47,855) 754,020
- ---------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation 100,972 69,331 178,470
- ---------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation 325,406 145,054 530,428
- ---------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation 97,416 208,592 1,098,573
- ---------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation 72,635 9,574 (2,689)
- ---------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation 99,463 91,984 119,096
- ---------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 17,403 (2,845) 11,262
- ---------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aetna Ascent VP: (1)
Annuity contracts in accumulation $ 359,326 $ 1,084,513 $ 1,468,439
- -----------------------------------------------------------------------------------------
Aetna Balanced VP: (2)
Annuity contracts in accumulation 1,988,879 4,473,919 7,338,678
- -----------------------------------------------------------------------------------------
Aetna Bond VP: (3)
Annuity contracts in accumulation 4,840,848 3,020,620 8,211,438
- -----------------------------------------------------------------------------------------
Aetna Crossroads VP: (4)
Annuity contracts in accumulation 338,325 415,033 785,501
- -----------------------------------------------------------------------------------------
Aetna Growth and Income VP: (5)
Annuity contracts in accumulation 13,277,579 15,483,675 31,263,322
Annuity contracts in payment period 0 34,375
- -----------------------------------------------------------------------------------------
Aetna Growth VP: (6)
Annuity contracts in accumulation 4,256,569 905,783 6,066,474
Annuity contracts in payment period 0 36,974
- -----------------------------------------------------------------------------------------
Aetna Index Plus Large Cap VP: (7)
Annuity contracts in accumulation 8,689,925 3,915,267 14,945,637
- -----------------------------------------------------------------------------------------
Aetna International VP: (8)
Annuity contracts in accumulation 40,797 0 44,011
- -----------------------------------------------------------------------------------------
Aetna Legacy VP: (9)
Annuity contracts in accumulation 769,986 793,678 1,628,799
Annuity contracts in payment period 33,241 25,668
- -----------------------------------------------------------------------------------------
Aetna Money Market VP: (10)
Annuity contracts in accumulation 10,238,451 15,367,881 26,452,214
- -----------------------------------------------------------------------------------------
Aetna Real Estate Securities VP: (11)
Annuity contracts in accumulation 44,749 0 39,671
- -----------------------------------------------------------------------------------------
Aetna Small Company VP: (12)
Annuity contracts in accumulation 1,224,164 2,575,173 3,767,223
- -----------------------------------------------------------------------------------------
Aetna Value Opportunity VP: (13)
Annuity contracts in accumulation 4,650,918 891,486 6,259,793
- -----------------------------------------------------------------------------------------
Alger American Funds:
Balanced Portfolio:
Annuity contracts in accumulation (345,746) 1,401,032 1,404,059
- -----------------------------------------------------------------------------------------
Income and Growth Portfolio:
Annuity contracts in accumulation (693,378) 3,767,914 4,075,424
- -----------------------------------------------------------------------------------------
Leveraged AllCap Portfolio:
Annuity contracts in accumulation (689,303) 2,919,482 3,634,760
- -----------------------------------------------------------------------------------------
American Century VP Funds:
Balanced Fund:
Annuity contracts in accumulation (179,238) 656,724 557,006
- -----------------------------------------------------------------------------------------
International Fund:
Annuity contracts in accumulation (505,703) 2,047,606 1,852,446
- -----------------------------------------------------------------------------------------
Calvert Social Balanced Portfolio:
Annuity contracts in accumulation 206,857 32,500 265,177
- -----------------------------------------------------------------------------------------
</TABLE>
S-20
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $1,652,978 $2,847,387 ($596,181)
- -----------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 2,262,813 2,162,435 4,540,000
- -----------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 1,252,399 (115,300) (2,387,859)
- -----------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 179,349 147,542 48,533
- -----------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 438,313 20,301 312,500
- -----------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 1,107,754 1,967,856 5,167,185
- -----------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 492,578 2,528,925 5,045,517
- -----------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation 55,271 9,533 28,134
- -----------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation 6,222,251 1,619,186 11,237,298
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation (203,953) 221,389 2,875,619
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 1,231,912 432,856 2,649,733
- -----------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 387,085 262,932 (467,855)
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation (330,715) 487,183 4,543,111
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 149,040 0 1,316
- -----------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 16,106 119,456 216,175
- -----------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 1,080,011 377,474 1,366,279
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation (115,274) 2,566,801 405,622
- -----------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 421,237 494,384 3,179,750
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation $12,941,401 $ 34,335,916 $ 51,181,501
- -------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 10,721,202 18,640,127 38,326,577
- -------------------------------------------------------------------------------------------------------------
High Income Portfolio:
Annuity contracts in accumulation 7,278,178 11,414,802 17,442,220
- -------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Annuity contracts in accumulation 772,708 2,988,676 4,136,808
- -------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Product Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation 3,571,525 3,788,411 8,131,050
- -------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Annuity contracts in accumulation 6,461,571 24,897,252 39,601,618
- -------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Annuity contracts in accumulation 15,200,754 22,900,554 46,168,328
- -------------------------------------------------------------------------------------------------------------
Investment Grade Bond Portfolio:
Annuity contracts in accumulation (314,286) 1,441,187 1,219,839
- -------------------------------------------------------------------------------------------------------------
Insurance Management Series:
American Leaders Fund II:
Annuity contracts in accumulation 14,814,848 114,050,410 147,843,450
Annuity contracts in payment period 16,832 117,375
- -------------------------------------------------------------------------------------------------------------
Equity Income Fund II:
Annuity contracts in accumulation 12,524,130 12,942,385 28,317,427
Annuity contracts in payment period 0 42,143
- -------------------------------------------------------------------------------------------------------------
Growth Strategies Fund II:
Annuity contracts in accumulation 6,249,006 24,585,918 35,149,425
- -------------------------------------------------------------------------------------------------------------
High Income Bond Fund II:
Annuity contracts in accumulation 3,527,318 25,944,158 29,644,378
Annuity contracts in payment period 16,739 25,999
- -------------------------------------------------------------------------------------------------------------
International Equity Fund II:
Annuity contracts in accumulation 2,840,676 20,105,275 27,616,968
Annuity contracts in payment period 0 28,562
- -------------------------------------------------------------------------------------------------------------
Prime Money Fund II:
Annuity contracts in accumulation 757,047 3,759,186 4,666,589
- -------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund II:
Annuity contracts in accumulation 530,017 5,645,077 6,526,831
- -------------------------------------------------------------------------------------------------------------
Utility Fund II:
Annuity contracts in accumulation 2,535,912 21,104,322 26,418,108
Annuity contracts in payment period 18,941 64,831
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation 1,263,440 6,554,615 10,675,204
- -------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Annuity contracts in accumulation 8,908,355 7,726,386 20,730,112
- -------------------------------------------------------------------------------------------------------------
</TABLE>
S-21
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
6. Supplemental Information to Statements of Changes in Net Assets (continued):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Net Change in
Net Realized Unrealized
Investment Gain (Loss) Gain (Loss)
Income on Investments on Investments
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio:
Annuity contracts in accumulation $189,921 $77,190 ($43,522)
- -----------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 685,730 1,082,289 2,279,102
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 1,500,762 6,416,496 5,202,333
- -----------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation 54,895 (141,767) (203,825)
- -----------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation 57,565 (7,059) (293,131)
- -----------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 137,577 250,935 782,698
- -----------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation (771) 8,093 34,472
- -----------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 1,809 155,613 298,445
- -----------------------------------------------------------------------------------------------
Global Securities Fund:
Annuity contracts in accumulation 124,660 (38,612) 65,980
- -----------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 335,127 (388,568) (320,600)
- -----------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 21,812 (9,887) 7,313
- -----------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation (346,360) 882,018 6,779,827
- -----------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation (234,149) 325,217 3,166,582
- -----------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation (63,228) 243,533 533,057
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation (7,335) 41,054 50,531
- -----------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation (215,920) 336,790 5,719,077
- -----------------------------------------------------------------------------------------------
Total Variable Annuity Account I $26,010,214 $25,517,782 $66,477,702
===============================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 Net
Increase (Decrease) Net Assets
in Net Assets ----------
from Unit Beginning End
Transactions of Year of Year
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income Portfolio:
Annuity contracts in accumulation $2,430,909 $2,000,867 $4,655,365
- ---------------------------------------------------------------------------------------------------
Growth Portfolio:
Annuity contracts in accumulation 4,104,069 10,077,645 18,191,718
Annuity contracts in payment period 0 37,117
- ---------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Annuity contracts in accumulation 12,501,656 44,728,546 70,349,793
- ---------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund:
Annuity contracts in accumulation (312,229) 1,230,059 627,133
- ---------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation (322,903) 1,435,334 869,806
- ---------------------------------------------------------------------------------------------------
MFS Funds:
Total Return Series:
Annuity contracts in accumulation 8,404,056 6,818,458 16,393,724
- ---------------------------------------------------------------------------------------------------
Worldwide Government Series:
Annuity contracts in accumulation 190,257 533,867 765,918
- ---------------------------------------------------------------------------------------------------
Oppenheimer Funds:
Aggressive Growth Fund:
Annuity contracts in accumulation 2,135,488 801,718 3,393,073
- ---------------------------------------------------------------------------------------------------
Global Securities Fund:
Annuity contracts in accumulation 902,520 1,010,341 2,064,889
- ---------------------------------------------------------------------------------------------------
Growth & Income Fund:
Annuity contracts in accumulation 7,350,914 4,529,430 11,506,303
- ---------------------------------------------------------------------------------------------------
Strategic Bond Fund:
Annuity contracts in accumulation 3,041,102 1,385,569 4,445,909
- ---------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. (PPI):
PPI MFS Emerging Equities Portfolio:
Annuity contracts in accumulation 4,339,155 25,276,316 36,930,956
- ---------------------------------------------------------------------------------------------------
PPI MFS Research Growth Portfolio:
Annuity contracts in accumulation 2,849,219 14,192,990 20,299,859
- ---------------------------------------------------------------------------------------------------
PPI MFS Value Equity Portfolio:
Annuity contracts in accumulation 2,972,891 2,195,611 5,846,092
Annuity contracts in payment period 0 35,772
- ---------------------------------------------------------------------------------------------------
PPI Scudder International Growth Portfolio:
Annuity contracts in accumulation 1,154,164 25,466 1,263,880
- ---------------------------------------------------------------------------------------------------
PPI T. Rowe Price Growth Equity Portfolio:
Annuity contracts in accumulation 1,997,336 21,757,475 29,594,758
- ---------------------------------------------------------------------------------------------------
Total Variable Annuity Account I $212,836,411 $560,662,388 $891,504,497
===================================================================================================
</TABLE>
S-22
<PAGE>
Variable Annuity Account I
Notes to Financial Statements - December 31, 1999 (continued):
(1) - Effective May 1, 1998, Aetna Ascent Variable Portfolio's name changed to
Aetna Ascent VP.
(2) - Effective May 1, 1998, Aetna Investment Advisors Fund's name changed to
Aetna Balanced VP.
(3) - Effective May 1, 1998, Aetna Income Shares began doing business under
the name Aetna Bond VP.
(4) - Effective May 1, 1998, Aetna Crossroads Variable Portfolio's name
changed to Aetna Crossroads VP.
(5) - Effective May 1, 1998, Aetna Variable Fund began doing business under
the name Aetna Growth and Income VP.
(6) - Effective May 1, 1998, Aetna Variable Growth Portfolio's name changed to
Aetna Growth VP.
(7) - Effective May 1, 1998, Aetna Variable Index Plus Portfolio's name
changed to Aetna Index Plus Large Cap VP.
(8) - Effective May 1, 1998, Aetna International Portfolio's name changed to
Aetna International VP.
(9) - Effective May 1, 1998, Aetna Legacy Variable Portfolio's name changed to
Aetna Legacy VP.
(10) - Effective May 1, 1998, Aetna Variable Encore Fund began doing business
under the name Aetna Money Market VP.
(11) - Effective May 1, 1998, Aetna Real Estate Securities Portfolio's name
changed to Aetna Real Estate Securities VP.
(12) - Effective May 1, 1998, Aetna Variable Small Company Portfolio's name
changed to Aetna Small Company VP.
(13) - Effective May 1, 1998, Aetna Variable Capital Appreciation Portfolio's
name changed to Aetna Value Opportunity VP.
S-23
<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, 1999, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the
two-year period then ended and condensed financial information for the year
ended December 31, 1999. 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, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of Aetna Insurance Company of America Variable Annuity Account I as of
December 31, 1999, the results of its operations for the year then ended,
changes in its net assets for each of the years in the two-year period then
ended and condensed financial information for the year ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
February 11, 2000
S-24
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ................................... F-2
Financial Statements:
Statements of Income for the Years Ended December 31, 1999,
1998 and 1997 ................................................ F-3
Balance Sheets as of December 31, 1999 and 1998 ............... F-4
Statements of Changes in Shareholder's Equity for the Years
Ended December 31, 1999, 1998 and 1997 ....................... F-5
Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997 ................................................ F-6
Notes to Financial Statements ................................. F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Insurance Company of America:
We have audited the accompanying balance sheets of Aetna Insurance Company of
America as of December 31, 1999 and 1998, 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, 1999. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Hartford, Connecticut
March 22, 2000
F-2
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
------- ------- -----
<S> <C> <C> <C>
Revenues:
Charges assessed against policyholders $ 15.5 $ 11.5 $ 6.1
Net investment income 10.9 10.4 7.1
Net realized capital (losses) gains (0.3) (0.2) 0.1
Other income 1.5 0.6 0.2
------- ------- -----
Total revenue 27.6 22.3 13.5
------- ------- -----
Benefits and expenses:
Current and future benefits 8.0 9.0 6.5
Operating expenses:
Salaries and related benefits 2.4 2.5 1.6
Other 4.5 3.7 2.1
Amortization of deferred policy acquisition costs 4.6 3.9 0.8
------- ------- -----
Total benefits and expenses 19.5 19.1 11.0
------- ------- -----
Income before income taxes and cumulative
effect adjustment 8.1 3.2 2.5
Income taxes 2.7 0.6 0.8
------- ------- -----
Income before cumulative effect adjustments 5.4 2.6 1.7
Cumulative-effect adjustment, net of tax -- -- 0.5
------- ------- -----
Net income $ 5.4 $ 2.6 $ 1.2
======= ======= =====
</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
(Millions, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Assets
Investments:
Debt securities, available-for-sale, at fair value:
(amortized cost: $132.8 and $138.2) $ 128.3 $ 142.3
Equity securities, available-for-sale, at fair value:
Nonredeemable preferred stock (amortized cost: $1.0 and $3.1) 0.9 3.0
Cash and cash equivalents 22.9 16.5
Deferred policy acquisition costs 58.8 59.9
Accrued investment income 2.0 2.1
Premiums due and other receivables 9.0 13.3
Other assets 0.6 0.4
Separate Accounts assets 1,194.6 1,006.5
-------------- --------------
Total assets $ 1,417.1 $ 1,244.0
============== ==============
Liabilities and Shareholder's Equity
Liabilities:
Policyholders' funds left with the Company 138.8 153.2
Other liabilities 6.5 11.8
Due to parent and affiliates 0.5 0.9
Income taxes
Current 0.7 0.1
Deferred 2.6 0.7
Separate Accounts liabilities 1,194.6 1,006.5
-------------- --------------
Total liabilities 1,343.7 1,173.2
-------------- --------------
Shareholder's equity:
Common capital stock, par value $2,000 (1,275 shares authorized,
issued and outstanding) 2.5 2.5
Paid-in capital 62.5 62.5
Accumulated other comprehensive (loss) income (1.6) 1.2
Retained earnings 10.0 4.6
-------------- --------------
Total shareholder's equity 73.4 70.8
-------------- --------------
Total liabilities and shareholder's equity $ 1,417.1 $ 1,244.0
============== ==============
</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
(Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Shareholder's equity, beginning of year $ 70.8 $ 52.2 $ 31.3
Comprehensive income
Net income 5.4 2.6 1.2
Other comprehensive income, net of tax
Unrealized (losses) gains on securities
(($4.3) million, $1.5 million and $0.0
million, pretax) (2.8) 1.0 --
----------- ----------- -----------
Total comprehensive income 2.6 3.6 1.2
----------- ----------- -----------
Capital contributions -- 15.0 20.0
Other changes -- -- (0.3)
----------- ----------- -----------
Shareholder's equity, end of year $ 73.4 $ 70.8 $ 52.2
=========== =========== ===========
</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
(Millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 5.4 $ 2.6 $ 1.2
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Net amortization of discount on debt securities (0.1) (0.1) (0.4)
------- ------- --------
Cash flows provided by operating activities and
net realized capital gains before changes in
assets and liabilities 5.3 2.5 0.8
Net realized capital losses (gains) 0.3 0.2 (0.1)
------- ------- --------
Cash flows provided by operating activities
before changes in assets and liabilities 5.6 2.7 0.7
Changes in assets and liabilities:
Decrease (increase) in accrued investment income 0.1 (0.1) (1.7)
Decrease (increase) in deferred policy acquisition costs 1.1 (14.5) (24.3)
Net change in amounts due to/from parent and affiliates (0.4) 0.9 0.5
Net (decrease) increase in other assets and liabilities (10.1) 9.2 3.4
Net change in income taxes 4.0 2.4 (1.4)
------- ------- --------
Net cash provided by (used for) operating activities 0.3 0.6 (22.8)
------- ------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available-for-sale 34.2 27.8 16.6
Equity securities 2.1 -- --
Investment maturities and repayments of:
Debt securites available-for-sale 17.9 3.4 3.2
Short-term investments -- -- 1.0
Cost of investment purchases in:
Debt securities available-for-sale (47.6) (36.8) (132.8)
Short-term investments -- -- (1.0)
------- ------- --------
Net cash provided by (used for) investing activities 6.6 (5.6) (113.0)
------- ------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 12.8 19.7 84.7
Withdrawal of investment contracts (19.0) (14.3) (5.7)
Capital contribution -- 15.0 20.0
Other, net 5.7 (11.4) (2.5)
------- ------- --------
Net cash (used for) provided by financing activities (0.5) 9.0 96.5
------- ------- --------
Net increase (decrease) in cash and cash equivalents 6.4 4.0 (39.3)
Cash and cash equivalents, beginning of year 16.5 12.5 51.8
------- ------- --------
Cash and cash equivalents, end of year $ 22.9 $ 16.5 $ 12.5
======= ======= ========
Supplemental cash flow information:
Income taxes (received) paid, net $ (1.3) $ (3.3) $ 1.5
======= ======= ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Aetna Insurance Company of America (the "Company") is a provider of financial
services in the United States. 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. ("HOLDCO"). HOLDCO is a wholly
owned subsidiary of Aetna Retirement Services, Inc., whose ultimate parent is
Aetna Inc. ("Aetna").
The Company has one operating segment and all revenue reported by the Company
comes from external customers.
Basis of Presentation
These financial statements have been prepared in conformity with generally
accepted accounting principles. Certain reclassifications have been made to
1998 and 1997 financial information to conform to the 1999 presentation.
Future Application of Accounting Standards
Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk
In October 1998, the American Institute of Certified Public Accountants issued
SOP 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance Risk, which provides guidance on how
to account for all insurance and reinsurance contracts that do not transfer
insurance risk, except for long-duration life and health insurance contracts.
This statement is effective for the Company's financial statements beginning
January 1, 2000. The Company does not expect the adoption of this standard to
have a material effect on its financial position and results of operations.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This standard requires companies to record
all derivatives on the balance sheet as either assets or liabilities and
measure those instruments at fair value. The manner in which companies are to
record gains or losses resulting from changes in the values of those
derivatives depends on the use of the derivative and whether it qualifies for
hedge accounting. As amended by FAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, this standard is effective for the Company's financial
statements beginning January 1, 2001, with early adoption permitted. The impact
of FAS No. 133 on the Company's financial statements will vary based on certain
factors including future interpretative guidance from the FASB, the extent of
the Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. The Company is evaluating the impact of
adoption of this standard and currently does not believe that it will have a
material effect on its financial position and results of operations.
F-7
<PAGE>
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from reported results using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of 90 days or less when purchased.
Investments
Debt and equity securities are classified as available for sale and carried at
fair value. Securities are written down (as realized capital losses) for other
than temporary declines in value. Included in available-for-sale securities are
investments that support experience-rated products.
Experience-rated products are products where the customer, not the Company,
assumes investment (including realized capital gains and losses) and other
risks, subject to, among other things, minimum guarantees. As long as minimum
guarantees are not triggered, the effect of experience- rated products'
investment performance does not impact the Company's results of operations.
Realized and unrealized capital gains and losses on investments supporting
these products are reflected in policyholder's funds left with the Company.
Realized capital gains and losses on all other investments are reflected in the
Company's results of operations. Unrealized capital gains and losses on all
other investments are reflected in shareholder's equity, net of related income
taxes. Purchases and sales of debt and equity securities are recorded on the
trade date.
Fair values for debt and equity securities are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair values are measured utilizing quoted market prices for similar
securities or by using discounted cash flow methods. Cost for mortgage-backed
securities is adjusted for unamortized premiums and discounts, which are
amortized using the interest method over the estimated remaining term of the
securities, adjusted for anticipated prepayments. The Company does not accrue
interest on problem debt securities when management believes the collection of
interest is unlikely.
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Initial
collateral, primarily cash, is required at a rate of 102% of the market value
of a loaned domestic security and 105% of the market value of a loaned foreign
security. The collateral is deposited by the borrower with a lending agent, and
retained and invested by the lending agent according to the Company's
guidelines to generate additional income. The market value of the loaned
securities is monitored on a daily basis with
F-8
<PAGE>
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
additional collateral obtained or refunded as the market value of the loaned
securities fluctuates. At December 31, 1999 and 1998, the Company had no
securities on loan.
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of 91 days to one year,
are considered available-for-sale and are carried at fair value, which
approximates amortized cost.
Deferred Policy Acquisition Costs
Certain costs of acquiring certain insurance business are deferred. These
costs, all of which vary with and are primarily related to the production of
new and renewal business, consist principally of commissions, certain expenses
of underwriting and issuing contracts, and certain agency expenses. For certain
annuity contracts, such costs are amortized in proportion to estimated gross
profits and adjusted to reflect actual gross profits over the life of the
contracts (up to 20 years for annuity and pension contracts.)
Periodically, modifications may be made to deferred annuity contract features,
such as shortening the surrender charge period or waiving the surrender charge,
changing the mortality and expense fees, etc. Unamortized deferred policy
acquisition costs associated with these modified contracts are not written off,
but rather, continue to be associated with the original block of business to
which these costs were previously recorded. Such costs are amortized based on
revised estimates of expected gross profits based upon the contract after the
modification. Unamortized deferred policy acquisition costs related to deferred
annuity products were approximately $58.8 million and $59.9 million as of
December 31, 1999 and 1998, respectively.
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
are not adequate to cover related expenses.
Reserves
Policyholders' funds left with the Company include reserves for deferred
annuity investment contracts and immediate annuities without life contingent
payouts. Reserves on such contracts are equal to cumulative deposits less
charges and withdrawals plus credited interest thereon (rates range from 5.40%
to 7.50% for all years presented), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest. These
reserves also include unrealized gains/losses related to FAS No. 115. Reserves
on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Revenue Recognition
For certain annuity contracts, charges assessed against policyholders' funds
for the cost of insurance, surrender charges, actuarial margin and other fees
are recorded as revenue in charges assessed against policyholders. Other
amounts received for these contracts are reflected as deposits and are not
recorded as revenue. Related policy benefits are recorded in relation to the
associated premiums or gross profit so that profits are recognized over the
expected lives of the contracts.
F-9
<PAGE>
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Separate Accounts
Separate Accounts assets and liabilities generally represent funds maintained
to meet specific investment objectives of contractholders who bear the
investment risk, subject, in some cases, to minimum guaranteed rates.
Investment income and investment gains and losses generally accrue directly to
such contractholders. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company.
Separate Account assets supporting variable options under annuity contracts are
invested, as designated by the contractholder or participant under a contract
(who bears the investment risk subject, in limited cases, to minimum guaranteed
rates) in shares of mutual funds which are managed by an affiliate of the
Company, or other selected mutual funds not managed by the Company or an
affiliate.
Separate Accounts assets are carried at fair value. At December 31, 1999 and
1998, unrealized losses of $(0.8) million and unrealized gains of $1.0 million,
respectively, after taxes, on assets supporting a guaranteed interest option
are reflected in shareholder's equity. Separate Accounts liabilities are
carried at fair value, except for those relating to the guaranteed interest
option. Reserves relating to the guaranteed interest option are maintained at
fund value and reflect interest credited at rates ranging from 3.70% to 12.00%
in 1999 and 3.00% to 8.10% in 1998.
Separate Accounts assets and liabilities are shown as separate captions in the
Balance Sheets. Deposits, investment income and net realized and unrealized
capital gains and losses of the Separate Accounts are not reflected in the
Financial Statements (with the exception of realized and unrealized capital
gains and losses on the assets supporting the guaranteed interest option). The
Statements of Cash Flows do not reflect investment activity of the Separate
Accounts.
Income Taxes
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax
expenses/benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
F-10
<PAGE>
Notes to Financial Statements (continued)
2. Investments
Debt securities available-for-sale at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Millions) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 21.5 $ -- $ 0.3 $ 21.2
- --------------------------------------------------------------------------------------------------------
U.S. corporate securities:
Utilities 5.7 -- 0.2 5.5
Financial 33.3 -- 0.6 32.7
Transportation/capital goods 1.6 -- -- 1.6
Health care/consumer products 12.6 -- 0.9 11.7
Natural resources 14.5 -- 0.7 13.8
Other corporate securities 6.7 -- 0.4 6.3
- --------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 74.4 -- 2.8 71.6
- --------------------------------------------------------------------------------------------------------
Foreign securities:
Government 1.0 -- -- 1.0
Other 9.9 0.1 0.5 9.5
- --------------------------------------------------------------------------------------------------------
Total foreign securities 10.9 0.1 0.5 10.5
- --------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs -- -- -- --
Collateralized mortgage obligations 10.6 -- 0.5 10.1
- --------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 10.6 -- 0.5 10.1
- --------------------------------------------------------------------------------------------------------
Commercial/multifamily mortgage-
backed securities 9.0 -- 0.3 8.7
- --------------------------------------------------------------------------------------------------------
Other asset-backed securities 6.4 -- 0.2 6.2
- --------------------------------------------------------------------------------------------------------
Total debt securities $ 132.8 $ 0.1 $ 4.6 $ 128.3
========================================================================================================
</TABLE>
F-11
<PAGE>
Notes to Financial Statements (continued)
2. Investments (continued)
Debt securities available-for-sale at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Millions) Cost Gain Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 22.6 $ 0.7 $ -- $ 23.3
- --------------------------------------------------------------------------------------------------------
U.S. corporate securities:
Utilities 7.0 0.1 -- 7.1
Financial 37.9 1.2 0.1 39.0
Transportation & capital goods 8.6 0.3 -- 8.9
Healthcare & consumer products 15.3 0.6 -- 15.9
Natural resources 8.6 0.3 -- 8.9
Other corporate securities 0.7 0.2 -- 0.9
- --------------------------------------------------------------------------------------------------------
Total U.S. corporate securities 78.1 2.7 0.1 80.7
- --------------------------------------------------------------------------------------------------------
Foreign securities:
Government 1.1 -- -- 1.1
Other 8.0 0.2 0.3 7.9
- --------------------------------------------------------------------------------------------------------
Total foreign securities 9.1 0.2 0.3 9.0
- --------------------------------------------------------------------------------------------------------
Residential mortgage-backed securities:
Pass-throughs 0.7 -- -- 0.7
Collateralized mortgage obligations 8.7 0.4 -- 9.1
- --------------------------------------------------------------------------------------------------------
Total residential mortgage-backed securities 9.4 0.4 -- 9.8
- --------------------------------------------------------------------------------------------------------
Commercial/multifamily mortgage-
backed securities 10.3 0.3 -- 10.6
- --------------------------------------------------------------------------------------------------------
Other asset-backed securities 8.7 0.2 -- 8.9
- --------------------------------------------------------------------------------------------------------
Total Debt Securities $ 138.2 $ 4.5 $ 0.4 $ 142.3
========================================================================================================
</TABLE>
F-12
<PAGE>
Notes to Financial Statements (continued)
2. Investments (continued)
At December 31, 1999 and 1998 net unrealized (depreciation) appreciation of
$(4.5) million and $4.1 million respectively, on available-for-sale debt
securities included unrealized (losses) gains of $(4.5) million and $3.8
million, respectively, related to experience-rated contracts, which were not
reflected in shareholder's equity but in policyholders' funds left with the
Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1999 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be restructured,
called or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
(Millions) Cost Value
- ---------------------------------------------------------------
<S> <C> <C>
Due to mature:
One year or less $ 9.3 $ 9.3
After one year through five years 49.8 49.0
After five years through ten years 18.2 17.6
After ten years 29.5 27.3
Mortgage-backed securities 19.6 18.9
Other asset-backed securities 6.4 6.2
- ---------------------------------------------------------------
Total $ 132.8 $ 128.3
===============================================================
</TABLE>
At December 31, 1999 and 1998, debt securities carried at $5.6 million and $5.4
million, respectively, were on deposit as required by various state regulatory
agencies.
Investments in equity securities available for sale as of December 31, were as
follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- --------------------------------------------------
<S> <C> <C>
Cost $ 1.0 $ 3.1
Gross unrealized gains -- --
Gross unrealized losses (0.1) (0.1)
- --------------------------------------------------
Fair value $ 0.9 $ 3.0
==================================================
</TABLE>
The Company does not have any investments in a single issuer, other than
obligations of the U.S. government, with a carrying value in excess of 10% of
the Company's shareholder's equity at December 31, 1999.
F-13
<PAGE>
Notes to Financial Statements (continued)
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Carrying Fair Carrying Fair
(Millions) Value Value Value Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1.2 $ 1.3 $ 0.6 $ 0.5
Without a fixed maturity $ 137.6 $ 131.6 $ 152.6 $ 143.8
- ----------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of future cash flows. Such estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument, nor do
they consider the tax impact of the realization of unrealized gains or losses.
In many cases, the fair value estimates cannot be substantiated by comparison
to independent markets, nor can the disclosed value be realized in immediate
settlement of the instrument. In evaluating the Company's management of
interest rate, price and liquidity risks, the fair values of all assets and
liabilities should be taken into consideration, not only those presented above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Investment contract liabilities (included in policyholders' funds left with the
Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable.
Off-Balance-Sheet and Other Financial Instruments
The Company did not have transactions in off-balance-sheet instruments in 1999
or 1998.
F-14
<PAGE>
Notes to Financial Statements (continued)
4. Net Investment Income
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 9.4 $ 9.0 $ 6.0
Nonredeemable preferred stock 0.1 0.3 --
Cash equivalents 0.7 0.7 1.2
Other 0.8 0.6 --
- ------------------------------------------------------------------------
Gross investment income 11.0 10.6 7.2
Less: investment expenses 0.1 0.2 0.1
- ------------------------------------------------------------------------
Net investment income $ 10.9 $ 10.4 $ 7.1
========================================================================
</TABLE>
Net investment income includes amounts allocable to experience-rated
contractholders of $8.6 million, $8.9 million and $7.0 million for the years
ended December 31, 1999, 1998 and 1997, respectively. Interest credited to
contractholders is included in current and future benefits.
5. Dividend Restrictions and Shareholder's Equity
Effective January 5, 2000 the Company changed its state of domicile from
Connecticut to Florida. All dividends paid to shareholders in 2000 must have
prior approval by the Insurance Commissioner of the State of Florida.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus, those amounts
determined in conformity with statutory accounting practices prescribed or
permitted by the Department, which differ in certain respects from generally
accepted accounting principles ("GAAP"). Statutory net income (loss) was $(0.1)
million, $(5.2) million and $0.4 million for the years ended December 31, 1999,
1998 and 1997, respectively. Statutory capital and surplus was $52.5 million
and $53.4 million as of December 31, 1999 and 1998, respectively. The Company
has entered into support agreements with ALIAC under which ALIAC has agreed to
cause the Company to have sufficient capital to meet a certain capital and
surplus level. The Company received no capital contributions relating to these
agreements in 1999. The Company received $15.0 million and $20.0 million from
ALIAC in 1998 and 1997, respectfully.
As of December 31, 1999, the Company does not utilize any statutory accounting
practices which are not prescribed by state regulatory authorities that,
individually or in the aggregate, materially affect statutory capital and
surplus.
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying value
and sale proceeds of specific investments sold.
Net realized capital gains (losses) on debt securities, as reflected in the
Statements of Income for the years ended December 31, 1999, 1998 and 1997 were
$(0.3) million, $(0.2) million and $0.1 million, respectively.
F-15
<PAGE>
Notes to Financial Statements (continued)
6. Capital Gains and Losses on Investment Operations (continued)
Net realized capital (losses) gains of $(1.1) million, $(0.2) million and $0.2
million allocable to experience-rated contracts, were deducted from net
realized capital gains and an offsetting amount was reflected in policyholders'
funds left with the Company in 1999, 1998 and 1997, respectively. Net
unamortized (losses) gains were $(1.0) million and $0.2 million at December 31,
1999 and 1997, respectively. The amounts in 1998 were immaterial.
Proceeds from the sale of available-for-sale debt securities and the related
gross gains and losses (excluding those related to experience rated
contractholders in 1999, 1998 and 1997) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ---------------------------------------------------------
<S> <C> <C> <C>
Proceeds on sales $ 34.2 $ 27.8 $ 16.6
Gross gains 0.2 0.6 0.1
Gross losses 0.5 0.8 --
- ---------------------------------------------------------
</TABLE>
Changes in shareholder's equity related to changes in accumulated other
comprehensive income (unrealized capital gains and losses on securities,
excluding those related to experience-rated contractholders), were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $ (0.3) $ 0.1 --
Equity securities -- (0.1) --
Other (4.1) 1.6
- ----------------------------------------------------------------------------------
Subtotal (4.4) 1.6 --
Increase in deferred income taxes (See Note 7) (1.6) 0.6 --
- ----------------------------------------------------------------------------------
Net change in accumulated other
comprehensive income $ (2.8) $ 1.0 --
==================================================================================
</TABLE>
Net unrealized capital gains (losses) allocable to experience-rated contracts
of $(4.5) million and $3.8 million at December 31, 1999 and 1998, respectively,
are reflected on the Balance Sheets in policyholders' funds left with the
Company and are not included in shareholder's equity.
F-16
<PAGE>
Notes to Financial Statements (continued)
6. Capital Gains and Losses on Investment Operations (continued)
Shareholder's equity included the following accumulated other comprehensive
income, which is net of amounts allocable to experience rated contractholders,
at December 31:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities:
Gross unrealized gains $ 0.1 $ 0.3 $ 0.2
Gross unrealized losses (0.1) -- --
- ------------------------------------------------------------------------------------
-- 0.3 0.2
- ------------------------------------------------------------------------------------
Equity securities:
Gross unrealized gains -- -- --
Gross unrealized losses (0.1) (0.1) --
- ------------------------------------------------------------------------------------
(0.1) (0.1) --
- ------------------------------------------------------------------------------------
Other:
Gross unrealized gains -- 1.9 --
Gross unrealized losses (2.4) (0.3) --
- ------------------------------------------------------------------------------------
(2.4) 1.6 --
- ------------------------------------------------------------------------------------
Less: deferred federal income (benefits) taxes
(see Note 7) (0.9) 0.6 --
- ------------------------------------------------------------------------------------
Net unrealized capital (losses) gains $ (1.6) $ 1.2 $ 0.2
====================================================================================
</TABLE>
Changes in accumulated other comprehensive income related to changes in
unrealized gains (losses) on securities (excluding those related to
experience-rated contractholders) were as follows:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during the period (1) $ (2.9) $ 0.9 $ 0.3
Less: reclassification adjustment for gains and
other items included in net income (2) (0.1) (0.1) 0.3
- ------------------------------------------------------------------------------------
Net unrealized (losses) gains on securities $ (2.8) $ 1.0 $ --
====================================================================================
</TABLE>
(1) Pretax unrealized holding gains (losses) arising during the period were
$(4.5) million, $1.3 million and $0.4 million for 1999, 1998 and 1997,
respectively.
(2) Pretax reclassification adjustments for gains and other items included in
net income were $(0.2) million, $(0.2) million and $0.4 million for 1999,
1998 and 1997, respectively.
F-17
<PAGE>
Notes to Financial Statements (continued)
7. Income Taxes
The Company is included in the consolidated federal income tax return of Aetna
and combined Connecticut state 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 used in the consolidated returns.
Income taxes for the years ended December 31, consist of:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes (benefits):
Federal $ (0.3) $ (1.7) $ 1.2
State -- 0.1 --
Net realized capital gains (losses) (0.4) (0.1) 0.1
- ------------------------------------------------------------------------------
(0.7) (1.7) 1.3
- ------------------------------------------------------------------------------
Deferred taxes (benefits):
Federal 3.1 2.3 (0.4)
Net realized capital gains (losses) 0.3 -- (0.1)
- ------------------------------------------------------------------------------
3.4 2.3 (0.5)
- ------------------------------------------------------------------------------
Total $ 2.7 $ 0.6 $ 0.8
==============================================================================
</TABLE>
Income taxes were different from the amount computed by applying the federal
income tax rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
(Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes and cumulative
effect adjustment $ 8.1 $ 3.2 $ 2.5
Tax rate 35% 35% 35%
- ------------------------------------------------------------------------------
Application of the tax rate 2.8 1.1 0.9
Tax effect of:
Excludable dividends (0.1) (0.5) (0.1)
- ------------------------------------------------------------------------------
Income taxes $ 2.7 $ 0.6 $ 0.8
==============================================================================
</TABLE>
F-18
<PAGE>
Notes to Financial Statements (continued)
7. Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
(Millions) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policyholders' funds left with the Company $ 12.4 $ 16.6
Unrealized gains allocable to experience-rated
contracts -- 1.3
Net unrealized capital losses 2.5 --
Investment losses 0.4 --
Guaranty fund assessments 0.1 0.1
Other 0.5 0.1
- -------------------------------------------------------------------------
Total gross assets 15.9 18.1
- -------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs 16.9 16.9
Unrealized losses allocable to experience-rated
contracts 1.6 --
Net unrealized capital gains -- 1.9
- -------------------------------------------------------------------------
Total gross liabilities 18.5 18.8
- -------------------------------------------------------------------------
Net deferred tax liability $ 2.6 $ 0.7
=========================================================================
</TABLE>
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes.
Management believes that it is more likely than not that the Company will
realize the benefit of the deferred tax assets. The Company expects sufficient
taxable income in the future to realize the deferred tax assets because of the
Company's long-term history of having taxable income, which is projected to
continue.
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1994. Discussions are
being held with the Service with respect to proposed adjustments. Management
believes there are adequate defenses against, or sufficient reserves to provide
for, any such adjustments. The Service has commenced its examinations for the
years 1995 through 1997.
8. Benefit Plans
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC). The benefit plan charges allocated to the Company were $0.4 million and
$0.2 million at December 31, 1999 and 1998, respectively. In 1997 the charges
were immaterial.
F-19
<PAGE>
Notes to Financial Statements (continued)
9. 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 $6.0
million and $10.5 million for the years ended December 31, 1999 and 1998,
respectively, (of which $2.0 million and $5.5 million, respectively, were
capitalized as deferred policy acquisition costs).
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
annual basis, was 1.25% and 1.40% for 1999 and 1998 and 1.40% in 1997, of their
average daily net assets. The amount of compensation and fees received from the
Separate Accounts, included in charges assessed against policyholders, amounted
to $13.5 million, $10.3 million and $5.6 million for the years ended December
31, 1999, 1998 and 1997, respectively.
The Company received no capital contributions in 1999. The Company received
capital contributions of $15.0 million in cash from ALIAC in 1998 and $20.0
million in 1997.
Aeltus, an affiliate of the Company, acts as adviser for the general account
assets. The Company pays Aeltus a fee which, on an annual basis, is .06% of the
average daily net assets under management. The amount of such fees for the
years ended December 31, 1999, 1998 and 1997 amounted to $0.1 million, $0.2
million and $0.1 million, respectively.
10. Commitments and Contingent Liabilities
Commitments
At December 31, 1999 and 1998 the Company had no commitments or contingent
liabilities.
Litigation
The Company is not currently involved in any material litigation.
F-20
<PAGE>
Form No. SAI. 59749-00 AICA Ed. May 2000
<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:
- Statement of Assets and Liabilities as of December 31, 1999
- Statement of Operations for the year ended December 31, 1999
- Statements of Changes in Net Assets for the year ended
December 31, 1999 and 1998
- Condensed Financial Information for the year ended December 31,
1999
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of Depositor:
- Independent Auditors' Report
- Statements of Income for the years ended December 31, 1999, 1998
and 1997
- Balance Sheets for the years ended December 31, 1999 and 1998
- Statements of Changes in Shareholder's Equity for the years ended
December 31, 1999, 1998 and 1997
- Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
- 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) Selling Agreement(1)
(3.2) Principal Underwriting Agreement(2)
(3.3) First Amendment dated January 11, 1996 to Principal
Underwriting Agreement(2)
(4.1) Variable Annuity Contract (G-MP2(5/97))(3)
(4.2) Variable Annuity Contract Certificate (MP2CERT(5/97))(3)
(4.3) Variable Annuity Contract (IMP2(5/97))(3)
(4.4) Variable Annuity Contract (G2-CDA-94(IR))(1)
(4.5) Variable Annuity Contract (G2-CDA-94(NQ))(1)
(4.6) Variable Annuity Contract (G-MP2(5/96))(4)
(4.7) Certificate of Group Annuity Coverage (MP2CERT(5/96))(4)
(4.8) Endorsement (MP2NQEND(4/95))(5)
(4.9) Endorsement (MP2NQCERTEND(4/95))(5)
(4.10) Endorsement (MP2IREND(4/95))(5)
<PAGE>
(4.11) Endorsement (MP2END(9/97)) to Contract G-MP2(5/96) and
Certificate MP2CERT(5/96)(3)
(4.12) Endorsement (IMP2END(9/97)) to Contract G-MP2(5/96) and
Certificate MP2CERT(5/96)(3)
(5) Variable Annuity Contract Application(1)
(6.1) Certificate of Incorporation of Aetna Insurance Company
of America(6)
(6.2) By-laws of Aetna Insurance Company of America(6)
(7) Not Applicable
(8.1) Fund Participation Agreement between Aetna Insurance Company of
America, Aetna Variable Fund, Aetna Variable Encore Fund, Aetna,
Income Shares, Aetna Balanced VP, Inc., Aetna GET Fund, on behalf
of each of its series, Aetna Generation Portfolios, Inc., on
behalf of each of its series, and Aetna Variable Portfolios, Inc.,
on behalf of each of its series and Aeltus Investment Management
dated as of May 1, 1998
(8.2) Amendment No. 1dated as of May 1, 2000 to Fund
Participation Agreement between Aetna Insurance Company
of America, Aetna Variable Fund, Aetna Variable Encore
Fund, Aetna, Income Shares, Aetna Balanced VP, Inc.,
Aetna GET Fund, on behalf of each of its series, Aetna
Generation Portfolios, Inc., on behalf of each of its
series, and Aetna Variable Portfolios, Inc., on behalf of
each of its series and Aeltus Investment Management dated
as of May 1, 1998
(8.3) Service Agreement between Aeltus Investment Management,
Inc. and Aetna Insurance Company of America dated May 1,
1998
(8.4) First Amendment dated as of May 1, 2000 to Service
Agreement between Aeltus Investment Management, Inc. and
Aetna Insurance Company of America dated May 1, 1998
(8.5) Fund Participation Agreement among Aetna Insurance
Company of America, Alger American Fund and Fred Alger
Management, Inc. dated August 30, 1995(7)
(8.6) Fund Participation Agreement among Calvert Responsibly
Invested Balanced Portfolio, Calvert Asset Management
Company, Inc. and Aetna Insurance Company of America
dated December 1, 1997(8)
(8.7) Service Agreement between Calvert Asset Management
Company, Inc. and Aetna Insurance Company of America
dated December 1, 1997(8)
(8.8) Fund Participation Agreement by and among Insurance
Management Series, Federated Advisers and Aetna Insurance
Company of America dated July 1, 1994(9)
(8.9) Fund Participation Agreement among Aetna Insurance
Company of America, Variable Insurance Products Fund and
Fidelity Distributors Corporation dated October 20,
1995(7)
(8.10) First Amendment dated as of May 1, 1997 to Fund Participation
Agreement among Aetna Insurance Company of America, Variable
Insurance Products Fund and Fidelity Distributors Corporation
dated October 20, 1995
<PAGE>
(8.11) Fund Participation Agreement among Aetna Insurance
Company of America, Variable Insurance Products Fund II
and Fidelity Distributors Corporation dated October 20,
1995(7)
(8.12) First Amendment dated as of May 1, 1997 to Fund Participation
Agreement among Aetna Insurance Company of America, Variable
Insurance Products Fund II and Fidelity Distributors Corporation
dated October 20, 1995
(8.13) Fund Participation Agreement among Janus Capital
Corporation, Aetna Insurance Company of America and Janus
Aspen Series dated December 8, 1997(10)
(8.14) Amendment to Fund Participation Agreement made as of October 12,
1998 to Fund Participation Agreement among Janus Capital
Corporation, Aetna Insurance Company of America and Janus Aspen
Series dated December 8, 1997(10)
(8.15) Service Agreement between Janus Capital Corporation and
Aetna Insurance Company of America dated as of December 8,
1997(10)
(8.16) Fund Participation Agreement among Aetna Insurance
Company of America and Lexington Natural Resources Trust
and Lexington Management Corporation dated September 1,
1995(7)
(8.17) Fund Participation Agreement among Aetna Insurance
Company of America, Lexington Emerging Markets Fund, Inc.
and Lexington Management Corporation dated September 1,
1995(7)
(8.18) Fund Participation Agreement among MFS Variable Insurance
Trust, Aetna Insurance Company of America and
Massachusetts Financial Services Company dated April 30,
1996(7)
(8.19) First Amendment dated September 3, 1996 to Fund Participation
Agreement among MFS Variable Insurance Trust, Aetna Insurance
Company of America and Massachusetts Financial Services Company
dated April 30, 1996(11)
(8.20) Second Amendment dated as of May 1, 1998 to Fund Participation
Agreement among MFS Variable Insurance Trust, Aetna Insurance
Company of America and Massachusetts Financial Services Company
dated April 30, 1996 and amended on September 3, 1996
(8.21) Third Amendment effective July 1, 1999 to Fund Participation
Agreement among MFS Variable Insurance Trust, Aetna Insurance
Company of America and Massachusetts Financial Services Company
dated April 30, 1996 and amended on September 3, 1996 and May 1,
1998
(8.22) Fund Participation Agreement between Aetna Insurance
Company of America, Oppenheimer Variable Account Funds
and Oppenheimer Fund, Inc. dated April 1, 1997(4)
(8.23) Service Agreement between Aetna Insurance Company of
America and Oppenheimer Funds, Inc. dated April 1, 1997(4)
(8.24) Fund Participation Agreement among Aetna Insurance
Company of America, TCI Portfolios, Inc. and Investors
Research Corporation dated October 9, 1995(7)
(8.25) Administrative Service Agreement between Aetna Insurance
Company of America and Agency, Inc.(7)
<PAGE>
(9) Opinion and Consent of Counsel
(10) Consent of Independent Auditors
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(5)
(14.1) Powers of Attorney(12)
(14.2) Certificate of Resolution Authorizing Signatures(1)
1. Incorporated by reference to Registration Statement on Form N-4
(File No. 33-59749), as filed on June 1, 1995.
2. Incorporated by reference to Registration Statement on Form S-2
(File No. 333-22723), as filed on March 4, 1997.
3. Incorporated by reference to Post-Effective Amendment No. 6 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on November 26, 1997.
4. Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on April 16, 1997.
5. Incorporated by reference to Post-Effective Amendment No. 8 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on April 17, 1998.
6. Incorporated by reference to Pre-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 333-87131), as filed
on December 15, 1999.
7. Incorporated by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on April 22, 1996.
8. Incorporated by reference to Post-Effective Amendment No. 7 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on February 13, 1998.
9. Incorporated by reference to Post-Effective Amendment No. 5 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on July 29, 1997.
10. Incorporated by reference to Registration Statement on Form N-4
(File No. 333-87131), as filed on September 15, 1999.
11. Incorporated by reference to Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-59749), as filed
on September 16, 1996.
12. Incorporated by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-2 (File No. 333-49581), as filed
on April 4, 2000.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
- ----------------- ------------------------------------
Thomas J. McInerney Director and President
Deborah Koltenuk Vice President, Corporate Controller,
and Assistant Treasurer
Shaun P. Mathews Director and Senior Vice President
Steven A. Haxton Director
David W. O'Leary Director
Catherine H. Smith Director
Jane A. Boyle Corporate Secretary and Counsel
Therese A. Squillacote Vice President and Chief Compliance
Officer
Alastair G. Longley-Cook Vice President and Corporate Actuary
*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 24 of Post-Effective Amendment
No. 38 to the Registration Statement on Form N-1A (File No. 33-41694), as filed
on February 23, 2000.
Item 27. Number of Contract Owners
As of February 29, 2000, there were 15,293 individuals holding interests
in variable annuity contracts funded through Variable Annuity Account I.
Item 28. Indemnification
Florida Statutes chapter 607.0859 governs the indemnification of officers,
directors, employees and agents of a Florida corporation. Section 607.0859(1)
provides that a corporation may indemnify a person who is or was a party to a
proceeding by reason of the fact that the person is or was a director, officer,
employee or agent of the corporation (or in certain other defined circumstances)
against liability (defined as obligations to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to any employee
benefit plan, and expenses actually and reasonably incurred with respect to the
proceeding). Section 607.0859(2) provides
<PAGE>
that a corporation may indemnify a person who was or is a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason that the person is or was connected to the corporation as noted
in subsection (1) against expenses and amounts paid in settlement not exceeding,
in the judgment of the board of directors, the estimated expense of litigating
the proceeding to conclusion, actually and reasonably incurred in connection
with the defense or settlement of such proceeding, including any appeal.
Indemnification under both subsection (1) and (2) is subject to a determination
that the person seeking indemnification has met the standard of conduct set
forth in the applicable subsection. However, pursuant to section 607.0859(3), to
the extent that the person seeking indemnification has been successful in
defense of any proceeding, claim or issue referred to in subsection (1) or (2),
that person shall be indemnified against expenses that he or she actually and
reasonably incurred. Expenses incurred by an officer or director in defending
any such proceeding may be paid in advance of the final disposition of the
proceeding, provided that such person undertakes to repay any such amount if he
or she is ultimately found not to be entitled to indemnification pursuant to
section 607.0850. Expenses incurred by other employees or agents may be advanced
upon such terms and conditions deemed appropriate by the board of directors.
Section 607.0850(4) provides that any indemnification under subsection (1) or
(2), unless made pursuant to a determination by a court, shall be made only as
authorized in the specific case upon a determination that that indemnification
is proper in the circumstances because the party has met the applicable standard
of conduct set forth in subsection (1) or (2). Such determination may be made
(a) by the disinterested directors, pursuant to section 607.0850(4)(a); (b) by a
committee duly designated by the board of directors, pursuant to section
607.0850(4)(b); (c) by independent legal counsel, pursuant to section
607.0850(4)(c); or (d) by the shareholders, pursuant to section 607.0850(4)(d).
The reasonableness of expenses and authorization of indemnification shall be
made in the same manner, except as otherwise required by section 607.0850(5).
The indemnification and advancement of expenses provisions of section 607.0850
are not exclusive, and a corporation may make other or further provisions for
the indemnification or advancement of expenses of parties identified in section
607.0850(1), except as otherwise prohibited by section 607.0850(7).
Indemnification and advancement of expenses may also be ordered by a court of
competent jurisdiction, pursuant to section 607.0850(9). Section 607.0850(12)
specifically authorizes a corporation to procure indemnification insurance on
behalf of an individual who was a director, officer, employer or agent of the
corporation. Consistent with this statute, Aetna Inc. has procured insurance
from Lloyd's of London and several major United States excess insurers for its
directors and officers and the directors and officers of its subsidiary,
including the Depositor.
Item 29. Principal Underwriters
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts as the
principal underwriter, only, for Aetna Variable Encore Fund, Aetna Variable
Fund, Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna Balanced VP,
Inc., (formerly Aetna Investment Advisers Fund, Inc.), Aetna GET Fund and Aetna
Variable Portfolios, Inc. and as the principal underwriter and investment
adviser
<PAGE>
for Portfolio Partners, Inc. (all management investment companies registered
under the Investment Company Act of 1940 (1940 Act)). Additionally, ALIAC also
acts as the principal underwriter and depositor for Variable Life Account B of
ALIAC, Variable Life Account C of ALIAC, Variable Annuity Account B of ALIAC,
Variable Annuity Account C of ALIAC and Variable Annuity Account G of ALIAC
(separate accounts of ALIAC registered as unit investment trusts under the 1940
Act).
(b) Directors and Officers of the Underwriter
Name and Principal
Business Address* Positions and Offices with Underwriter
- ----------------- --------------------------------------
Thomas J. McInerney Director and President
Shaun P. Mathews Director and Senior Vice President
Catherine H. Smith Director
Deborah Koltenuk Vice President, Corporate Controller,
and Assistant Treasurer
Therese M. Squillacote Vice President and Chief Compliance
Officer
Kirk P. Wickman Senior Vice President, General
Counsel and Corporate Secretary
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
(c) Compensation as of December 31, 1999:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- -------------
Aetna Life $1,207,122 $13,687,287
Insurance and
Annuity
Company
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account I.
<PAGE>
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
Service Center of the Depositor 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 is relying upon and complies
with the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 28, 1988 with respect to language
covering withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code, See
American Counsel of Life Insurance; SEC No-Action Letter, [1988 WL
1235221 *13 (S.E.C.)].
(e) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the
<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.
(f) Aetna Insurance Company of America represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, Variable Annuity Account I of Aetna Insurance Company
of America, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment to its Registration
Statement on Form N-4 (File No. 33-59749) and has duly caused this
Post-Effective Amendment to be signed on its behalf in the City of Hartford, and
State of Connecticut, on the 18th day of April, 2000.
VARIABLE ANNUITY ACCOUNT I OF AETNA
INSURANCE COMPANY OF AMERICA
(Registrant)
By: AETNA INSURANCE COMPANY OF AMERICA
(Depositor)
By Thomas J. McInerney*
-------------------------------------------
Thomas J. McInerney
President
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 11 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Thomas J. McInerney* Director and President )
- ---------------------- (principal executive officer) )
Thomas J. McInerney )
)
Deborah Koltenuk* Vice President, Corporate Controller, and ) April
- ---------------------- Assistant Treasurer )
Deborah Koltenuk (principal accounting and financial officer) ) 18, 2000
)
Steven A. Haxton* Director )
- ---------------------- )
Steven A. Haxton )
)
Shaun P. Mathews* Director )
- ---------------------- )
Shaun P. Mathews )
)
David W. O'Leary* Director )
- ---------------------- )
David W. O'Leary )
)
Catherine H. Smith* Director )
- ---------------------- )
Catherine H. Smith )
</TABLE>
By: /s/ J. Neil McMurdie
-----------------------------------------
J. Neil McMurdie
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT I
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
99-B.8.1 Fund Participation Agreement
between Aetna Insurance Company of
America, Aetna Variable Fund, Aetna
Variable Encore Fund, Aetna, Income
Shares, Aetna Balanced VP, Inc.,
Aetna GET Fund, on behalf of each
of its series, Aetna Generation
Portfolios, Inc., on behalf of each
of its series, and Aetna Variable
Portfolios, Inc., on behalf of each
of its series and Aeltus Investment
Management dated as of May 1, 1998
-------------
99-B.8.2 First Amendment dated as of May 1,
2000 to Fund Participation
Agreement between Aetna Insurance
Company of America, Aetna Variable
Fund, Aetna Variable Encore Fund,
Aetna, Income Shares, Aetna
Balanced VP, Inc., Aetna GET Fund,
on behalf of each of its series,
Aetna Generation Portfolios, Inc.,
on behalf of each of its series,
and Aetna Variable Portfolios,
Inc., on behalf of each of its
series and Aeltus Investment
Management dated as of May 1, 1998
-------------
99-B.8.3 Service Agreement between Aeltus
Investment Management, Inc. and
Aetna Insurance Company of America
dated May 1, 1998
-------------
99-B.8.4 Amendment No. 1 dated as of May 1,
2000 to Service Agreement between
Aeltus Investment Management, Inc.
and Aetna Insurance Company of
America dated May 1, 1998
-------------
99-B.8.10 First Amendment dated as of May 1,
1997 to Fund Participation
Agreement among Aetna Insurance
Company of America, Variable
Insurance Products Fund and
Fidelity Distributors Corporation
dated October 20, 1995
-------------
99-B.8.12 First Amendment dated as of May 1,
1997 to Fund Participation Agreement
among Aetna Insurance Company of America,
Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated
October 20, 1995
-------------
<PAGE>
Exhibit No. Exhibit
- ----------- -------
99-B.8.20 Second Amendment dated as of May 1,
1998 to Fund Participation
Agreement among MFS Variable
Insurance Trust, Aetna Insurance
Company of America and
Massachusetts Financial Services
Company dated April 30, 1996 and
amended on September 3, 1996
-------------
99-B.8.21 Third Amendment effective July 1,
1999 to Fund Participation
Agreement among MFS Variable
Insurance Trust, Aetna Insurance
Company of America and
Massachusetts Financial Services
Company dated April 30, 1996 and
amended on September 3, 1996 and
May 1, 1998
-------------
99-B.9 Opinion and Consent of Counsel
-------------
99-B.10 Consent of Independent Auditors
-------------
Exhibit 99-B.8.1
FUND PARTICIPATION AGREEMENT
Aetna Insurance Company of America (the "Company"), and Aetna Variable
Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna Balanced VP, Inc.,
Aetna GET Fund, on behalf of each of its series, Aetna Generation Portfolios,
Inc., on behalf of each of its series, and Aetna Variable Portfolios, Inc., on
behalf of each of its series ("Funds"), and Aeltus Investment Management, Inc.
("Aeltus" or "Adviser") hereby agree to an arrangement whereby the Funds shall
be made available to serve as underlying investment media for Variable Annuity
Contracts ("Contracts") to be issued by the Company.
1. Establishment of Account.
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 (as may be amended from time to time with the mutual
consent of the parties hereto) (the "Accounts"), each of which is a
separate account registered under the Investment Company Act of 1940
(except for such accounts for which no registration is required), 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 management
investment companies available through that Account as underlying
investment media. Selection of a particular investment management company
and changes therein from time to time are made by the participant or
Contract owner, as applicable under a particular Contract.
2. Pricing Information; Orders; Settlement.
(a) Each 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 on
those days on which the Fund calculates its net asset value (a
"Business Day"). Fund shares shall be purchased and redeemed in such
quantity and at such times as determined by the Company to be
necessary to meet the requirements of those Contracts for which the
Fund serves as underlying investment media, provided, however, that
the Board of Directors of the Fund (hereinafter the "Directors")
may, upon reasonable notice to the Company, refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of
shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Directors acting in good faith and in light of
their fiduciary duties under federal and/or any applicable state
laws, necessary in the best interests of the shareholders of such
Fund.
<PAGE>
(b) Each 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 6:30 p.m.
eastern time on such Business Day. The Company will send via
facsimile or electronic transmission to each Fund or its specified
agent orders to purchase and/or redeem Fund shares by 9:30 a.m.
eastern time the following business day. Payment for net purchases
will be wired by the Company to an account designated by the Fund.
(c) Each Fund 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 affiliates of the Company)
by the Company, acting as agent for the Fund, prior to the close of
the Exchange on any given business day will be executed by the Fund
at the net asset value determined as of the close of the Exchange on
such Business Day, provided that the Fund receives written (or
facsimile) notice of such order by 9:30 a.m. eastern time on the
next following 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 the 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, provided that the Fund receives written (or
facsimile) notice of such order by 9:30 a.m. eastern time within two
days following the day of receipt of such order.
(d) Payments for net redemptions of shares of a Fund will be wired by
the Fund to an account designated by the Company. Payments for net
purchases of the Fund will be wired by the Company to an account
designated by the Fund on the same Business Day the Company places
an order to purchase Fund shares. Payments shall be in federal funds
transmitted by wire.
(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. The
Company shall assume responsibility as herein described for any loss
to a Fund caused by a cancellation or correction made to an
Instruction by a Plan Representative or Participant subsequent to
the date as of which such Instruction has been received by the
Company and originally relayed to Aeltus, and the Company will
immediately pay such loss to such Fund upon the Company's receipt of
written notification, with supporting data. Aeltus shall indemnify
and hold the Company harmless, from the effective date of this
Agreement, against any amount the Company is required to pay to
Plans, Plan Representatives, or Participants due to: (i) an
incorrect calculation of a Fund's daily net asset value, dividend
rate, or capital gains distribution rate or (ii) incorrect or
unreasonably late reporting of the daily net asset value deemed
material in accordance with the Fund's error correction policy,
dividend rate, or capital gain
2
<PAGE>
distribution rate, upon written notification by the Company, with
supporting data, to Aeltus.
(f) The Company agrees to purchase and redeem the shares of the Funds
named in this Agreement or in Schedule B hereof in accordance with
the provisions of each Fund's then-current prospectus and statement
of additional information. The Company shall not permit any person
other than a Contract owner or Participant to give instructions to
the Company which would require the Company to redeem or exchange
shares of a Fund. This provision shall not be construed to prohibit
the Company from substituting shares of another fund, as permitted
by law.
3. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by each respective Fund under this
Agreement shall be paid by that Fund, including the cost of
registration of its shares with the Securities and Exchange
Commission (the "SEC") and in states where required. All expenses
incident to performance by each party of its respective duties under
this Agreement shall be paid by that party, unless otherwise
specified in this Agreement.
(b) The Funds or the Adviser shall provide to the Company periodic fund
reports to shareholders and other materials that are required by law
to be sent to Contract owners. In addition, the Funds or the Adviser
shall provide the Company with a sufficient quantity of
prospectuses, statements of additional information and any
supplements to any of these materials, to be used in connection with
the offerings and transactions contemplated by this Agreement. In
addition, the Funds shall provide the Company with a sufficient
quantity of proxy material that is required to be sent to Contract
owners. The Adviser shall be permitted to review and approve the
typeset form of such material prior to such printing provided such
material has been provided by the Adviser to the Company within a
reasonable period of time prior to typesetting.
(c) In lieu of the Funds' or Adviser's providing printed copies of
prospectuses, statements of additional information and any
supplements to any of these materials, and periodic fund reports to
shareholders, the Company shall have the right to request that the
Funds transmit a copy of such materials in an electronic format
(Post Script files), 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.
4. Representations.
The Company agrees that it and its agents shall not, without the written
consent of a Fund or the Adviser, make representations concerning the
Fund, or its shares except those contained in the then current
prospectuses and in current printed sales literature approved by or deemed
approved by the Fund or the Adviser.
3
<PAGE>
5. Termination.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company, the Adviser or with respect to
any Fund, upon sixty days advance written notice to the other
parties;
(b) at the option of the Company, upon one week advance written notice
to the Adviser and to any Fund, if Fund 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, the Adviser or any Fund,
immediately upon institution of formal proceedings against the
broker-dealer or broker-dealers marketing the Contracts, the
Account, the Company, the Fund or the Adviser by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC or any
other regulatory body;
(d) upon the determination of the Accounts to substitute for the shares
of a Fund the shares of another investment company in accordance
with the terms of the applicable Contracts. The Company will give
sixty days written notice to the Fund and the Adviser of any
decision to replace the shares of that Fund;
(e) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(f) if shares of a Fund are not registered, issued or sold in
conformance with Federal law or such law precludes the use of such
shares as an underlying investment medium for Contracts issued or to
be issued by the Company. Prompt notice shall be given by the
appropriate party should such situation occur.
6. Continuation of Agreement.
Termination as the result of any cause listed in Section 5 shall not
affect the Funds' obligation to furnish shares to Contracts then in force
for which such shares serve or may serve as the underlying medium unless
such further sale of Fund shares is prohibited by law or the SEC or other
regulatory body.
7. Advertising Materials; Filed Documents.
(a) Advertising and sales literature with respect to any Fund prepared
by the Company or its agents for use in marketing its Contracts will
be submitted to that Fund or its designee for review before such
material is submitted to any regulatory body for review. No such
material shall be used if the Fund or its designee reasonably
objects
4
<PAGE>
to such use in writing, transmitted by facsimile within two business
days after receipt of such material.
(b) Each Fund will provide additional copies of its financials as soon
as available to the Company and 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. At the Adviser's request, the Company
will provide to the Adviser 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
Accounts promptly after the filing of such document with the SEC or
other regulatory authority.
(c) Each Fund or the Adviser will provide via Excel spreadsheet diskette
format or in electronic transmission to the Company at least
quarterly portfolio information necessary to update Fund profiles
within seven business days following the end of each quarter.
8. Proxy Voting.
(a) The Company shall provide pass-through voting privileges on shares
of a Fund held by the separate accounts to all Contract owners.
(b) The Company will distribute to Contract owners all proxy material
furnished by any Fund and will vote shares of the Fund in accordance
with instructions received from such Contract owners. The Company
and its agents shall not oppose or interfere with the solicitation
of proxies for shares of a Fund held for such Contract owners and
participants.
9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Fund and the
Adviser, and their directors, officers, employees, agents and each
person, if any, who controls any Fund or its 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
5
<PAGE>
Company or its agents, with respect to the sale and distribution of
Contracts for which shares of the Fund are the underlying
investment. The Company will reimburse any legal or other expenses
reasonably incurred by a 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 (i)
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 or (ii) the willful misfeasance, bad faith, or gross
negligence by the Fund or Adviser in the performance of their duties
or the Fund's or Adviser's reckless disregard of obligations or
duties under this Agreement or to the Company, whichever is
applicable. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Fund and the Adviser 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, 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.
Each Fund, as appropriate, 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 the Fund 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 which are in conformity with written materials
furnished to the Fund by the Company specifically for use therein.
(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 9. 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
6
<PAGE>
election to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation.
10. 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, facsimile or registered or certified mail, postage
prepaid, return receipt requested, or recognized overnight courier
service 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: To the Adviser:
Aetna Insurance Company of America Aeltus Investment Management, Inc.
151 Farmington Avenue 242 Trumbull Street
Hartford, Connecticut 06156 Hartford, Connecticut 06103-1205
Attn: Shaun P. Mathews Attn: Daniel F. Wilcox
To any Fund:
151 Farmington Avenue
Hartford, Connecticut 06156
Attn: J. Scott Fox
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.
7
<PAGE>
(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.
(h) It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect.
(i) The terms of this Agreement and the Schedules thereto will be held
confidential by each party except to the extent that either party or
its counsel may deem it necessary to disclose such terms.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers effective as of the 1st day of May, 1998.
AETNA INSURANCE COMPANY OF AMERICA
By: /s/ Shaun P. Mathews
----------------------------------
Name: Shaun P. Mathews
--------------------------------
Title: Senior Vice President
-------------------------------
8
<PAGE>
AETNA VARIABLE FUND
AETNA VARIABLE ENCORE FUND
AETNA INCOME SHARES
AETNA BALANCED VP, INC.
AETNA GET FUND
AETNA GENERATION PORTFOLIOS, INC.
AETNA VARIABLE PORTFOLIOS, INC.
By: /s/Frank J. Litwin
--------------------------------
Name: Frank J. Litwin
------------------------------
Title: Managing Director
------------------------------
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/J. Scott Fox
--------------------------------
Name: J. Scott Fox
------------------------------
Title: Managing Director, Chief Operating Officer
------------------------------------------
9
<PAGE>
Schedule A
(For any future separate accounts - See Section 1)
<PAGE>
Schedule B
Aetna Variable Fund
Aetna Variable Encore Fund
Aetna Income Shares
Aetna Balanced VP, Inc.
Aetna GET Fund
Series B
Series C
Aetna Generation Portfolios, Inc.
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Variable Portfolios, Inc.
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Small Company VP
Aetna Index Plus Large Cap VP
Aetna High Yield VP
Aetna Real Estate Securities VP
Aetna Mid Cap VP
Aetna Index Plus Mid Cap VP
Aetna Index Plus Small Cap VP
Aetna Index Plus Bond VP
Aetna International VP
Exhibit 99-B-8.2
AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT
WHEREAS, Aetna Insurance Company of America ("AICA"), Aeltus Investment
Management, Inc. ("Aeltus") and Aetna Variable Fund, Aetna Variable Encore Fund,
Aetna Income Shares, Aetna Balanced VP, Inc., Aetna Generation Portfolios, Inc.,
on behalf of each of its series, and Aetna Variable Portfolios, Inc., on behalf
of each of its series (the "Funds") have entered into a Fund Participation
Agreement dated May 1, 1998 (the "Agreement").
WHEREAS, AICA, Aeltus and the Funds now desire to amend and restate
Schedule B to the Agreement to include Aetna Technology VP.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained in the Agreement, AICA, Aeltus and the Funds hereby agree:
1. to amend and restate Schedule B to include Aetna
Technology VP effective as of: May 1, 2000.
2. that the Agreement, as modified by this Amendment, is
ratified and confirmed.
IN WITNESS WHEREOF, the undersigned duly authorized officers of AICA,
Aeltus and the Funds have executed this Amendment No. 1 as of the 1st day of
May, 2000.
AETNA INSURANCE COMPANY AETNA VARIABLE FUND
OF AMERICA AETNA VARIABLE ENCORE FUND
AETNA INCOME SHARES
AETNA BALANCED VP, INC.
AETNA GENERATION PORTFOLIOS, INC.
AETNA VARIABLE PORTFOLIOS, INC.
By /s/ Laurie M. LeBlanc By /s/ Frank Litwin
----------------------------------- ----------------------------
Name Laurie M. LeBlanc Name Frank Litwin
Title Pursuant to Delegation of Authority Title Vice President
dated August 12, 1998
AELTUS INVESTMENT MANAGEMENT, INC.
By /s/ J. Scott Fox
-----------------------------------
Name J. Scott Fox
Title Managing Director, Chief
Operating Officer
<PAGE>
SCHEDULE B
(Amended and restated as of May 1, 2000)
Aetna Variable Fund
Aetna Variable Encore Fund
Aetna Income Shares
Aetna Balanced VP Inc.
Aetna Generation Portfolios, Inc.
Aetna Ascent VP
Aetna Crossroads VP
Aetna Legacy VP
Aetna Variable Portfolios, Inc.
Aetna Value Opportunity VP
Aetna Growth VP
Aetna Small Company VP
Aetna Index Plus Large Cap VP
Aetna High Yield VP
Aetna Real Estate Securities VP
Aetna Index Plus Mid Cap VP
Aetna Index Plus Small Cap VP
Aetna Index Plus Bond VP
Aetna International VP
Aetna Technology VP
2
Exhibit 99-B.8.3
SERVICE AGREEMENT
WITH
INVESTMENT ADVISER
AGREEMENT, effective as of May 1, 1998, between Aeltus Investment
Management, Inc. (the "Adviser"), a Connecticut Corporation, and Aetna Insurance
Company of America (the "Company"), a Connecticut corporation, for the provision
of described administrative services by the Company in connection with the sale
of shares of Aetna Variable Fund, Aetna Variable Encore Fund, Aetna Income
Shares, Aetna Balanced VP, Inc., Aetna GET Fund, on behalf of each of its
series, Aetna Generation Portfolios, Inc., on behalf of each of its series, and
Aetna Variable Portfolios, Inc., on behalf of each of its series (the "Funds")
as described in the Fund Participation Agreement dated May 1, 1998, between the
Company, the Funds and the Adviser (the "Fund Participation Agreement").
In consideration of their mutual promises, the Adviser and the Company agree as
follows:
1. The Company agrees to provide the following services to the Adviser:
a. responding to inquiries from owners of, or participants in, the
Company variable annuity or variable life contracts using the Funds
as an investment vehicle ("Contractholders") regarding the services
performed by the Company that relate to the Funds;
b. providing information to Adviser and Contractholders with respect to
Fund shares attributable to Contractholder accounts;
c. communicating directly with Contractholders concerning the Funds'
operations;
d. providing such other similar services as Adviser may reasonably
request pursuant to Adviser's agreement with the Funds to the extent
permitted under applicable federal and state requirements.
2. (a) Administrative services to Contractholders and participants shall be
the responsibility of the Company and shall not be the
responsibility of the Funds or the Adviser. The Adviser recognizes
the Company as the sole shareholder of Fund shares issued under the
Fund Participation Agreement, and that substantial savings will be
derived in administrative expenses, such as significant reductions
in shareholder services, 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, the Adviser agrees to pay to
the Company and the Company agrees to accept as full compensation
for all services rendered hereunder amounts indicated on the
attached Schedule A, with respect to all shares sold through the
Company.
<PAGE>
(b) The parties agree that the Adviser'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.
3. The Company agrees to indemnify and hold harmless the Adviser and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of the
Company under this Agreement or a breach of a material provision of this
Agreement, except to the extent such loss, liability or expense is the
result of the Adviser's misfeasance, bad faith or gross negligence in the
performance of its duties.
4. The Adviser agrees to indemnify and hold harmless the Company and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of the
Adviser under this Agreement or a breach of a material provision under
this Agreement, except to the extent such loss, liability or expense is
the result of the Company's own misfeasance, bad faith or gross negligence
in the performance of its duties.
5. Either party may terminate this Agreement, without penalty, (i) on sixty
(60) days written notice to the other party, for any cause or without
cause, or (ii) on reasonable notice to the other party, if it is not
permissible to continue the arrangement described herein under laws, rules
or regulations applicable to either party or the Funds, or if the
Participation Agreement is terminated.
6. The terms of this arrangement will be held confidential by each party
except to the extent that either party or its counsel may deem it
necessary to disclose this arrangement.
7. This Agreement represents the entire Agreement of the parties on the
subject matter hereof and it cannot be amended or modified except in
writing, signed by the parties. This Agreement may be executed in one or
more separate counterparts, all of which, when taken together, shall
constitute one and the same Agreement.
8. 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,
or recognized overnight courier service to the party to whom they are
directed at the following addresses, or at such other addresses as may be
designated by notice from such party to the other party.
To the Company:
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Shaun P. Mathews
<PAGE>
To the Adviser:
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, Connecticut 06103-1205
Attention: Daniel F. Wilcox
Any notice, demand or other communication given in a manner prescribed in this
Section 8 shall be deemed to have been delivered on receipt.
IN WITNESS WHEREOF, the parties to this Agreement have caused this Agreement to
be executed by their authorized officers as of the day and year first above
written.
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/ J. Scott Fox
---------------------------------------------
Managing Director and Chief Operating Officer
AETNA INSURANCE COMPANY OF AMERICA
By: /s/ Shaun P. Mathews
---------------------------------------
Senior Vice President
Exhibit 99-B.8.4
First Amendment
to
Service Agreement with Investment Advisor
WHEREAS Aeltus Investment Management, Inc. (the "Adviser") and Aetna
Insurance Company of America (the "Company"), have entered into a Service
Agreement effective May 1, 1998, (the "Agreement") for the provision of
administrative services by the Company in connection with the sale of shares of,
among others, Aetna Variable Portfolios, Inc. on behalf of each of its series.
WHEREAS, the Adviser and the Company now desire to amend and restate
Schedule A to the Agreement to include Aetna Variable Portfolios, Inc., series:
Aetna Technology VP.
NOW THEREFORE, the Adviser and the Company hereby agree
1. to amend and restate Schedule A to include Aetna Variable
Portfolios, Inc., series: Aetna Technology VP, effective as of May
1, 2000; and
2. that the Agreement, as modified by this Amendment, is ratified and
confirmed.
IN WITNESS WHEREOF, the parties to the Agreement have caused this
Amendment to be executed by its authorized officers as the 1st day of May, 2000.
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/ J. Scott Fox
---------------------------------------------
J. Scott Fox
Title: Managing Director, Chief Operating Officer
AETNA INSURANCE COMPANY OF AMERICA
By: /s/ Laurie M. LeBlanc
---------------------------------------------
Laurie M. LeBlanc
Title: Pursuant to Delegation of Authority dated
August 12, 1998
<PAGE>
Schedule A
(Amended and restated as of May 1, 2000)
Servicing Fee
<TABLE>
<CAPTION>
Aetna Aetna Aetna
Aetna Money Aetna Balanced Aetna Aetna Crossroads Growth &
Market VP Bond VP VP, Inc. Legacy VP Ascent VP VP Income VP
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12.5 20 25 30 30 30 25 on first $10 billion of average daily net assets
22.5 on next $5 billion of average daily net assets
21.25 over $15 billion of average daily net assets
</TABLE>
Aetna Index Aetna
Plus Large Aetna Value Aetna Small
Cap VP Growth VP Opportunity Company VP
- --------------------------------------------------
17.5 30 30 37.5
<TABLE>
<CAPTION>
Aetna Aetna Real Aetna
Aetna Index Index Estate Aetna Index Aetna
Plus Small Plus Mid Securities International Plus Bond Aetna High Technology
Cap VP Cap VP VP VP VP Yield VP VP
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
20 20 37.5 42.5 15 32.5 22.5
Exhibit 99-B.8.10
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT TO THE FUND PARTICIPATION AGREEMENT (the "First
Amendment") is made and entered into as of the 1st day of May, 1997, by and
among AETNA INSURANCE COMPANY OF AMERICA (the "Company") a Connecticut
corporation, on its own behalf and on behalf of each segregated asset account of
the Company (each an "Account") set forth on Schedule A of the Original
Agreement (defined below), and the VARIABLE INSURANCE PRODUCTS FUND, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (the
"Underwriter"), a Massachusetts corporation.
WITNESSETH
WHEREAS, the Company, the Fund and the Underwriter are parties to a
Participation Agreement dated as of October 20, 1995 (the "Original Agreement");
and
WHEREAS, the Company, the Fund and the Underwriter now desire to modify
the Original Agreement with regard to the Company's ability to redeem Fund
shares.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties agree as follows:
1. The first sentence of Paragraph 10.3 is amended to read as follows:
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, (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"), or (iii) as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act (if and to the
extent that the SEC continues to require the receipt of such an
order or any other order of the SEC in order for the Company to
redeem Fund shares attributable to the Contracts).
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
AETNA INSURANCE COMPANY OF AMERICA
By: /s/ Laurie R. Estes
------------------------------------------
Name: Laura R. Estates
Title: Senior Vice President
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J. Gary Burkhead
------------------------------------------
Name: J. Gary Burkhead
Title: Sr. Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Paul J. Hondros
------------------------------------------
Name: Paul J. Hondros
Title: President
2
Exhibit 99-B.8.12
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT TO THE FUND PARTICIPATION AGREEMENT (the "First
Amendment") is made and entered into as of the 1st day of May, 1997, by and
among AETNA INSURANCE COMPANY OF AMERICA (the "Company") a Connecticut
corporation, on its own behalf and on behalf of each segregated asset account of
the Company (each an "Account") set forth on Schedule A of the Original
Agreement (defined below), and the VARIABLE INSURANCE PRODUCTS FUND II, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (the
"Underwriter"), a Massachusetts corporation.
WITNESSETH
WHEREAS, the Company, the Fund and the Underwriter are parties to a
Participation Agreement dated as of October 20, 1995 (the "Original Agreement");
and
WHEREAS, the Company, the Fund and the Underwriter now desire to modify
the Original Agreement with regard to the Company's ability to redeem Fund
shares.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties agree as follows:
1. The first sentence of Paragraph 10.3 is amended to read as follows:
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, (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"), or (iii) as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act (if and to the
extent that the SEC continues to require the receipt of such an
order or any other order of the SEC in order for the Company to
redeem Fund shares attributable to the Contracts).
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first above written.
AETNA INSURANCE COMPANY OF AMERICA
By: /s/ Laurie R. Estes
------------------------------------------
Name: Laura R. Estates
Title: Senior Vice President
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ J. Gary Burkhead
------------------------------------------
Name: J. Gary Burkhead
Title: Sr. Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Paul J. Hondros
------------------------------------------
Name: Paul J. Hondros
Title: President
Exhibit 99-B.8.20
SECOND AMENDMENT TO
PARTICIPATION AGREEMENT
THIS SECOND AMENDMENT TO THE PARTICIPATION AGREEMENT ("Second Amendment")
is made and entered into as of the 1st day of May, 1998, 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 of the Original Agreement (hereinafter defined) (the
"Accounts") and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation
("MFS").
WITNESSETH
WHEREAS the Trust, the Company and MFS are parties to a Participation
Agreement dated April 30, 1996, as supplemented by First Amendment to
Participation Agreement dated September 3rd, 1996 (collectively the "Original
Agreement"); and
WHEREAS the Trust, the Company and MFS now desire to modify the Original
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties agree as follows:
1. Section 5.2 of the Original Agreement is hereby deleted in its entirety
and replaced with the following:
5.2 The Trust or its designee shall bear all expenses associated with the
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statements and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders, including annual and semi-annual reports; setting in type
and printing the Trust's prospectuses, statements of additional
information, proxy materials and reports to Shareholders, including annual
and semi-annual reports (to the extent provided by and as determined in
accordance with Article III above); preparation and filing of all
statements and notices required by the Trust by any federal or state law
with respect to its Shares; payment of all taxes on the issuance or
transfer of Shares; distribution of the Trust's prospectuses, proxy
materials and reports, including annual and semi-annual reports, to Policy
owners whose Policies are funded by the Shares; and payment of 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.
2. Section 5.3 of the Original Agreement is hereby deleted in its entirety
and replaced with the following:
<PAGE>
5.3 The Company shall bear the expenses of distributing the Shares
prospectuses in connection with new sales of the Policies. 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.
3. Section 5.4 of the Original Agreement is hereby deleted in its entirety
and replaced with the following:
5.4 MFS will quarterly reimburse the Company for 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 .20% 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 owners.
4. The Original Agreement, as supplemented by this Second Amendment, is
ratified and confirmed; and
5. This Second Amendment may be executed in two or more counterparts, which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
AETNA INSURANCE COMPANY OF AMERICA MFS VARIABLE INSURANCE TRUST
By its authorized officer, on behalf of the Portfolios. By
its authorized officer and not
individually,
By: /s/ Shaun P. Mathews By: /s/ Stephen E. Cavan
------------------------------ ---------------------------------
Name: Shaun P. Mathews Name: Stephen E. Cavan
Title: Senior Vice President Title: Secretary
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By its authorized officer,
By: /s/ Jeffrey L. Shames
----------------------------------
Name: Jeffrey L. Shames
Title: Chairman, Chief Executive Officer
Page 2 of 2
Exhibit 99-B.8.21
THIRD AMENDMENT TO PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement made and entered into in April, 1996,
and as amended on September 3, 1996, and May 1, 1998, by and among MFS Variable
Insurance Trust, Aetna Insurance Company of America and Massachusetts Financial
Services Company, the parties do hereby amend Article V, Section 5.4 to read as
follows:
5.4 MFS will quarterly reimburse the Company for 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 0.25% 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 owners.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to the
Participation Agreement to be executed in its name and on its behalf by its duly
authorized representative. The Amendment shall take effect on July 1, 1999.
AETNA INSURANCE COMPANY OF AMERICA
By its authorized officer,
By: /s/ Laurie M. LeBlanc
------------------------------------
Title: Laurie M. LeBlanc
Pursuant to Delegation of Authority
dated August 12, 1998
MFS VARIABLE INSURANCE TRUST,
on behalf of the Portfolios
By its authorized officer,
By: /s/ Jeffrey L. Shames
-------------------------------------
Jeffrey L. Shames
Chairman
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By its authorized officer,
By: /s/ Jeffrey L. Shames
-------------------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
[Aetna logo] Aetna Inc.
Financial Services 151 Farmington Avenue
Hartford, CT 06156-8975
Julie E. Rockmore
Counsel
AFS Law, TS31
April 18, 2000 (860) 273-4686
Fax: (860) 273-0385
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Aetna Insurance Company of America and its Variable Annuity Account I
Post Effective Amendment No. 11 to Registration Statement on Form N-4
Prospectus Title: AICA Marathon Plus - Group and Individual Deferred
Variable Annuity Contracts
File Nos. 33-59749 and 811-8582
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Insurance Company of America, a
Connecticut life insurance company (the "Company"). It is my understanding that
the Company, as depositor, has registered an indefinite amount of securities
(the "Securities") under the Securities Act of 1933 (the "Securities Act") as
provided in Rule 24f-2 under the Investment Company Act of 1940 (the "Investment
Company Act").
In connection with this opinion, I or those for whom I have supervisory
responsibility, have reviewed the N-4 Registration Statement as amended to the
date hereof and this Post-Effective Amendment No. 11. I have also examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, trust records and other instruments I have deemed necessary or
appropriate for the purpose of rendering this opinion. For purposes of such
examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances.
<PAGE>
Based upon the foregoing, and, assuming the Securities are sold in accordance
with the provisions of the prospectus, I am of the opinion that the Securities
being registered will be legally issued and will represent binding obligations
of the Company.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Julie E. Rockmore
- ---------------------
Julie E. Rockmore
Counsel
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 report dated March 22, 2000, relating to the
financial statements of Aetna Insurance Company of America and our report dated
February 11, 2000, relating to the financial statements of Variable Annuity
Account I, which are included in this Post Effective Amendment No. 11 to
Registration Statement (File No. 33-59749) on Form N-4 and to the references to
our firm under the headings "Condensed Financial Information" in the prospectus
and "Independent Auditors" in the statement of additional information.
/s/ KPMG LLP
Hartford, Connecticut
April 18, 2000
