[Arrow] Multi-Rate Prospectus Dated:
Annuity May 1, 1996
(MGA)
[Aetna logo]
Aetna Insurance Company
of America
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AETNA MULTI-RATE ANNUITY
Aetna Insurance Company of America
151 Farmington Avenue
Hartford, Connecticut 06156
This Prospectus describes certain single purchase payment modified guaranteed
deferred annuity contracts offered by Aetna Insurance Company of America
("Company"). The contracts are issued as individual or group contracts and
allow you to earn interest and accumulate amounts on a tax deferred basis.
The amounts you accumulate can be used to provide annuity payments or other
benefits.
Individual contracts may be purchased directly or as a rollover Individual
Retirement Annuity. Group contracts may be purchased for both qualified and
non-qualified plans. Interests under a group contract will be evidenced by
the issuance to you of a separate certificate. Individual contracts and
certificates under group contracts are both referred to herein as the
"Contract." This Prospectus should be read thoroughly before you purchase a
Contract.
A minimum single purchase payment of at least $10,000 must accompany the
application for a Contract. Under the Contracts, the Company sets various
rates of interest ("Guaranteed Rates") that are paid for varying periods
("Guaranteed Periods"). You choose the Guaranteed Period for which you would
like to invest. At the end of that Guaranteed Period, you may reinvest your
accumulated funds in another Guaranteed Period. Information concerning
available Guaranteed Periods and Guaranteed Rates may be obtained by calling
1-800-531-4547.
You may withdraw all or part of your accumulated funds at any time.
Withdrawals prior to the end of a Guaranteed Period may be subject to a
Market Value Adjustment and a surrender fee. Upon a full withdrawal, you
could, therefore, receive less than your purchase payment.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.
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THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED BY ANY BANK,
NOR ARE THEY INSURED BY THE FDIC; THEY ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE CONTRACTS ARE NOT OFFERED FOR SALE IN THE STATE OF NEW YORK.
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The date of this Prospectus is May 1, 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("Exchange Act"), and, in accordance therewith, files
periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information concerning the
Company may be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material also
can be obtained by mail from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
This Prospectus is accompanied by a copy of the Company's annual report on
Form 10-K for the year ended December 31, 1995. Reference is made to Form
10-K for a description of the Company and its business, including financial
statements.
The Company intends to deliver to holders of outstanding Contracts account
statements at least annually and such other periodic reports as may be
required by law, but it is not anticipated that any such reports will include
periodic financial statements or information concerning the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's latest Annual Report on Form 10-K, filed with the Commission
pursuant to Section 15(d) of the Exchange Act, is incorporated by reference
into this Prospectus and must accompany this Prospectus. The Form 10-K
contains additional information about the Company, including certified
financial statements for the Company's latest fiscal year. No other reports
have been filed by the Company pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by that Form 10-K.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference in the
Registration Statement of which this Prospectus forms a part other than
exhibits to such documents unless such exhibits are specifically incorporated
by reference into such documents. Requests should be directed to Aetna
Insurance Company of America, 151 Farmington Avenue, Hartford, Connecticut
06156, telephone (800) 531-4547.
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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 2
SPECIAL TERMS 4
SUMMARY INFORMATION 5
DESCRIPTION OF CONTRACTS 7
The Application Process 7
Free Look 7
The Accumulation Period 7
Guaranteed Periods and Guaranteed Rates 7
Your Choices at the End of a Guaranteed Period 8
Withdrawals and Surrenders 8
General 8
The Market Value Adjustment 9
Fees Applicable to Withdrawals 9
Special Withdrawals 10
The Systematic Withdrawal Option 10
The Estate Conservation Option 10
The Nursing Home Waiver 11
Payment Upon Withdrawal or Surrender 11
Charges and Deductions 11
Premium Taxes 11
Maintenance Fees 11
Death Benefit 11
Death Benefit Options Available to Your Beneficiary 11
Annuity Period 12
Selecting an Annuity Date 12
Annuity Payments 12
Annuity Options 12
Payment Upon Death After Annuity Payments Begin 13
INVESTMENTS 13
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES 14
AMENDMENT OF THE CONTRACTS 14
DISTRIBUTION OF THE CONTRACTS 14
FEDERAL INCOME TAXES 14
The Company 14
Taxes You or Others Pay--Non-Qualified Contracts 15
Accumulation Period 15
Annuity Payments 15
Non-Natural Holders of a Non-Qualified Contract 15
Withdrawals Before the Annuity Date 15
Penalty For Premature Withdrawals and Payments 15
Partial Annuitization 15
Distribution-At-Death Rules 16
Certain Tax-Free Exchanges 16
Taxes You or Others Pay--Qualified Contracts 16
Contracts Purchased As A Rollover Individual Retirement Annuity 16
Withholding on Eligible Rollover Distributions 16
Qualified Pension, Profit-Sharing Plans, or Annuity Plans 16
Tax Sheltered Annuities 16
Withholding of Taxes 17
See Your Own Tax Adviser 17
LEGAL MATTERS 17
EXPERTS 17
FURTHER INFORMATION 17
INQUIRIES 17
APPENDIX A: Calculating A Market Value Adjustment A-1
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated
meanings:
Annuitant: The person whose life is measured for purposes of the duration of
annuity payments or the payment of the death benefit. This individual is
designated by you in your application. Prior to the Annuity Date you may
request In Writing to change the designated Annuitant, but any such change is
only effective if approved by the Company.
Annuity Date: The date your annuity payments start under an annuity option
you elect. This date may be any time after the first year of your Contract,
and will be the later of the Annuitant's 85th birthday, or the tenth
anniversary of your purchase payment, unless you elect otherwise.
Annuity Option: The method you select for your annuity payments to be made.
Beneficiary: The person(s) entitled to receive any payment from the Contract
upon your death, the death of the Annuitant if not you, or the death of a
joint holder, as applicable. This person is designated by you in your
application. If a joint holder dies, the surviving joint holder will be
deemed the designated Beneficiary, and any other Beneficiary on record will
be treated as the contingent Beneficiary.
Current Value: As of any given date, your purchase payment plus interest
credited, less any amount withdrawn or used to provide annuity payments. The
Current Value will also reflect any deduction for premium taxes, in the event
such taxes are deducted from your purchase payment, and any deduction for
maintenance fees, if such fees are applicable.
Guaranteed Period: The period for which Guaranteed Rates are credited.
Guaranteed Rate: The interest rate that we guarantee to pay during Guaranteed
Periods.
In Writing: A written form satisfactory to the Company and received at its
offices addressed to: Aetna Insurance Company of America, 151 Farmington
Avenue, Hartford, Connecticut 06156.
Market Value Adjustment: An adjustment that may be made to the amount
withdrawn from the Contract before the end of the Guaranteed Period. The
adjustment reflects the change in the value of the investment due to changes
in interest rates since the date of deposit and is computed using the formula
given in the Contract. The adjustment is expressed as a percentage of each
dollar being withdrawn.
You: The person who owns and holds the Contract. You may have a joint holder,
but only if such joint holder is your spouse. With respect to a group
contract, "you" refers to the person or persons who has or have been issued a
certificate under the group contract. Where there are joint holders of the
Contract, each must join in making any request or election or to take any
action pursuant to the Contract.
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SUMMARY INFORMATION
The Contract is an annuity contract issued to you by the Company that
allows you to invest and accumulate funds while deferring taxes on the interest
you earn.
You make a single purchase payment for a Contract. The minimum purchase
payment is $10,000. You may make larger payments, or you may buy more than one
Contract. Purchase payments over $1,000,000 require the Company's prior
approval. The interest rates that we guarantee are called Guaranteed Rates, and
the fixed periods during which these rates are guaranteed are called Guaranteed
Periods.
When you purchase a Contract, you select the Guaranteed Period you want
from among those the Company then offers. Except as described below, your
purchase payment will earn interest at the Guaranteed Rate for the duration of
the Guaranteed Period you select. Guaranteed Periods always start on the first
business day of the month. During the period of time between the date your
purchase payment is credited and the start of the Guaranteed Period you select,
your purchase payment earns interest at the Guaranteed Rate applicable to the
Guaranteed Period you selected. The Guaranteed Rates offered will never be less
than the minimum guaranteed interest rate stated in the Contract. Guaranteed
Periods are offered at the Company's discretion for various lengths of time
ranging up to and including twenty years. You may divide your single purchase
payment among any of the various Guaranteed Periods that we offer, but you must
invest at least $1,000 in any single Guaranteed Period selected.
For Guaranteed Periods of greater than one year, more than one Guaranteed
Rate may be applicable during a Guaranteed Period. For example, a Guaranteed
Period of five years may apply one Guaranteed Rate for the first year, a
different Guaranteed Rate for the next two years, and a third Guaranteed Rate
for the last two years.
Prior to the end of any Guaranteed Period, you can elect to reinvest the
current value of your Contract in another Guaranteed Period then available,
withdraw all or part of your current value, or choose to start your annuity
payments, subject to certain restrictions. The Company will notify you at least
18 calendar days before the end of any Guaranteed Period in which you have
current value. If you make no election, the current value of your Contract
automatically will be reinvested for a Guaranteed Period equal to the one just
completed, or if not available, the next shortest Guaranteed Period then
available. If no such shorter Guaranteed Period is available, the next longest
Guaranteed Period will be used.
THE COMPANY'S MANAGEMENT WILL MAKE THE FINAL DETERMINATION AS TO GUARANTEED
RATES TO BE DECLARED. THE COMPANY CANNOT PREDICT NOR CAN THE COMPANY GUARANTEE
WHAT THE GUARANTEED RATES WILL BE FOR FUTURE GUARANTEED PERIODS UNTIL SUCH RATES
ARE DECLARED. (See "Guaranteed Periods and Guaranteed Rates.")
You may withdraw all or part of your Contract's current value at anytime.
However, such withdrawals may be subject to a Market Value Adjustment, surrender
fee, a deduction for premium taxes and maintenance fees, and/or federal income
taxes and tax penalties.
A Market Value Adjustment is an adjustment applied to any amounts you
withdraw prior to the end of your Guaranteed Period. The Market Value Adjustment
may increase or decrease the amount of your withdrawal. The Market Value
Adjustment reflects the change in value of your investment in a Guaranteed
Period due to changes in interest rates since the start of that Guaranteed
Period. Generally, when interest rates decrease, the Market Value Adjustment
amount is positive. Conversely, when interest rates increase, the Market Value
Adjustment amount is negative. If interest rates increase, the amount you
receive upon the withdrawal of the current value of your Contract before the end
of the Guaranteed Period could be less than the amount you invested at the start
of the Guaranteed Period. The amount of the Market Value Adjustment is
determined by using the formula described in Appendix A. The Market Value
Adjustment does not apply to Systematic Withdrawals or withdrawals under the
Estate Conservation Option, but it is applicable to Special Withdrawals and
withdrawals under the Nursing Home Waiver. The Market Value Adjustment also does
not apply to amounts withdrawn at the end of your Guaranteed Period, provided
that five days prior to the end of that Guaranteed Period we receive notice of
the withdrawal In Writing. (See "Market Value Adjustment" and "The Systematic
Withdrawal Option.")
Except as described below, a surrender fee is imposed on any amount of your
purchase payment withdrawn during the first seven years of your Contract. For
purposes of this fee it is assumed that you are withdrawing all or a portion of
your purchase payment first, not your earnings. The amount of the surrender fee
is initially 7%, and declines periodically thereafter to 0% after the seventh
year. The surrender fee is not applicable to any amounts withdrawn at the end of
a Guaranteed Period if appropriate notice has been given. The surrender fee is
also not applicable to any amounts used to provide annuity payments.
After you own your Contract for one year, you are entitled to one Special
Withdrawal per year, up to a maximum amount equal to 10% of the current value of
your Contract at the time of your withdrawal. Also, if the current value of your
Contract meets the minimum dollar amounts established by the Company, you can
arrange a program of Systematic Withdrawals. Systematic Withdrawals allow you to
withdraw specified amounts or percentages of your Contract's current value or to
withdraw amounts
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over specified time periods that you determine. Similarly, for Contracts
purchased as Individual Retirement Annuities, if you are at least age 70-1/2
and the current value of your Contract meets the minimum dollar amounts
established by the Company, you can arrange a program of annual withdrawals
through the Estate Conservation Option. This option is designed to provide
annual payments in an amount equal to the minimum distribution that is
required to be withdrawn each year under the federal tax laws. Surrender fees
do not apply to Special Withdrawals, Systematic Withdrawals or withdrawals
under the Estate Conservation Option or the Nursing Home Waiver, but such
withdrawals may be subject to taxes, penalties and withholding taxes. (See
"Federal Income Taxes.")
Under certain emergency conditions, the Company may defer payment of any
withdrawal, including surrenders, for a period not exceeding six months from the
date of receipt of a surrender request.
You choose when you want your annuity payments to start. Your annuity
payments can start any time after the first year of your Contract, upon your
selection of an annuity option. You may use all or part of the current value of
your Contract to provide annuity payments. If your annuity payments start before
the end of your Guaranteed Period, a Market Value Adjustment may be applied to
any amounts used to start annuity payments. The annuity option you select also
determines the number, amount and frequency of your annuity payments. Your
annuity payments can be for a fixed period of time, for your life, for the life
of another person you select, or for the joint lives of you and another person.
The Contract also provides a death benefit, which is paid if you or the
annuitant die before your annuity payments start. The amount of the death
benefit equals the current value of your Contract, provided that the death
benefit is paid within six months of the death of the annuitant. If paid after
six months of the date of death of the annuitant, or if paid upon your death and
you are not the annuitant, the death benefit equals the current value of your
Contract as adjusted by any applicable Market Value Adjustment. Additionally, if
you die and you are not the annuitant, the death benefit payable will be subject
to a surrender fee, if applicable. In certain circumstances, your beneficiary or
joint holder may have the option to continue the Contract rather than receiving
the death benefit.
The Company currently pays all state and local premium taxes on your
Contract when due. The Company recovers applicable taxes paid on your behalf by
deducting an appropriate amount from the current value of your Contract when
annuity payments start, or earlier upon surrender of your Contract. Currently,
such taxes range up to 3.5% of the amount of current value of the Contract used
for annuity payments. The Company reserves the right to deduct premium taxes at
any time from your purchase payment or from the current value of your Contract
based upon the Company's determination of when such tax is due.
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DESCRIPTION OF CONTRACTS
The Application Process
To begin the application process, you must submit a completed application
and your purchase payment to the Company for approval. The minimum purchase
payment is $10,000. The Company retains the right to limit the amount of the
maximum purchase payment, and all purchase payments over $1,000,000 require the
Company's approval. You may not make any additional purchase payments under an
existing Contract. However, additional Contracts may be purchased by eligible
persons at the then prevailing Guaranteed Rates and terms.
The Company will accept or reject an application within two business days
of its receipt. If the application is incomplete, the Company may hold it and
any accompanying purchase payment for five days. A purchase payment may be
held for longer periods only with your consent, pending acceptance of the
application. If the application is accepted, a Contract will be issued to
you. If the application is rejected, the application and any purchase payment
will be returned to you.
If your application is properly completed and accepted by the Company,
your purchase payment becomes part of the Company's general assets and is
credited to an account established for you. The Company will confirm the
crediting of your purchase payment In Writing within five business days of
receipt of your properly completed application. You start earning interest on
your purchase payment beginning on the effective date of your Contract, which
is the date your purchase payment is credited.
A Contract may be purchased as a rollover Individual Retirement Annuity by
transferring amounts previously accumulated (rollover amounts) under another
Individual Retirement Annuity or an Individual Retirement Account under
Section 408 of the Internal Revenue Code of 1986 ("Tax Code"), or a
retirement plan qualified under Section 401 or 403 of the Tax Code.
The Company reserves the right to reject an application and, in such case,
any purchase payment will be returned to you without interest. The Company
will deliver your Contract within a reasonable time after receipt and
acceptance of your properly completed application and purchase payment.
Free Look
You may cancel your Contract within ten days of receiving it (or as
otherwise provided by state law) by giving Aetna written notice and returning
your Contract. Upon cancellation, the Company will return your purchase payment
to you within seven days after it receives your notice of cancellation.
THE ACCUMULATION PERIOD
Guaranteed Periods and Guaranteed Rates
In your application you select the Guaranteed Period you want from among
those Guaranteed Periods the Company then offers. Your purchase payment earns
interest at the Guaranteed Rate applicable to that Guaranteed Period. Guaranteed
Periods always start on the first business day of the month. During the period
of time between the date your purchase payment is credited and the start of the
Guaranteed Period you selected, your purchase payment earns interest at the
Guaranteed Rate applicable to the Guaranteed Period you selected. Guaranteed
Periods are offered at the Company's discretion for various lengths of time
ranging up to and including twenty years. You may divide your single purchase
payment among any of the various Guaranteed Periods that we offer, but you must
invest at least $1,000 in any single Guaranteed Period selected, and not less
than $10,000 in all Guaranteed Periods selected. For Guaranteed Periods of
greater than one year more than one Guaranteed Rate may be applicable during one
Guaranteed Period. For example, a Guaranteed Period of five years may apply one
Guaranteed Rate for the first year, a different Guaranteed Rate for the next two
years, and a third Guaranteed Rate for the last two years.
All Guaranteed Rates are stated in terms of effective annual rate of
return; that is, a Guaranteed Rate reflects a full year's interest. Interest
you earn is credited daily at a rate that will provide the guaranteed
effective rate of return over the period of one year assuming no surrenders.
Guaranteed Rates will never be less than the minimum guaranteed interest rate
stated in the Contract. The Company reserves the right to offer, from time to
time, Guaranteed Rates to prospective investors that are higher than those
offered to current Contract owners with respect to Guaranteed Periods of the
same duration.
The example below shows how interest will be credited to you during each
Guaranteed Period. The hypothetical interest rate used in this example is
illustrative only and is not intended to predict future Guaranteed Rates to
be offered under the Contract. Actual Guaranteed Rates offered may be more or
less than those shown. The example assumes no withdrawals of any amount
during the entire seven year Guaranteed Period illustrated. Accordingly, the
example does not give effect to any Market Value
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Adjustment, surrender fee, deduction for premium taxes and maintenance fees,
or federal income taxes or possible tax penalties. (See "Withdrawals and
Surrenders," "The Market Value Adjustment," and "Premium Taxes," below, and
"Federal Income Taxes.")
Example of Interest Crediting at the Guaranteed Rate
Purchase Payment: $20,000
Guaranteed Period: 7 years
Guaranteed Rate: 6.00% per annum
The Guaranteed Rate is applied in this example by using the following
formula: 1 + the Guaranteed Rate = 1.06.
Current Value at end of Contract Year 1 = $21,200.00 ($20,000.00 x 1.06)
Current Value at end of Contract Year 2 = $22,472.00 ($21,200.00 x 1.06)
Current Value at end of Contract Year 3 = $23,820.32 ($22,472.00 x 1.06)
Current Value at end of Contract Year 4 = $25,249.54 ($23,820.32 x 1.06)
Current Value at end of Contract Year 5 = $26,764.51 ($25,249.54 x 1.06)
Current Value at end of Contract Year 6 = $28,370.38 ($26,764.51 x 1.06)
Current Value at end of Guaranteed Period = $30,072.61 ($28,370.38 x 1.06)
Total Interest Credited in Guaranteed Period = $10,072.61 ($30,072.61 - $20,000)
The Company will determine the Guaranteed Rates it offers periodically at
its sole discretion. The Company has no specific formula for determining the
rate of interest that it will declare as future Guaranteed Rates. The
determination of Guaranteed Rates will reflect interest rates available on
the types of debt instruments in which the Company intends to invest the
proceeds attributable to the Contracts. (See "Investments.") The Company's
management will also consider various other factors in determining Guaranteed
Rates for a given Guaranteed Period, such as regulatory and tax requirements,
sales commissions and administrative expenses, general economic trends, and
competitive factors. The Company's management will make the final
determination as to Guaranteed Rates to be offered. The Company cannot
predict nor guarantee future levels of guaranteed interest rates above a
contractually guaranteed minimum rate nor guarantee what rates will be
offered in the future.
Your Choices at the End of a Guaranteed Period
At least 18 calendar days prior to the end of a Guaranteed Period under
your Contract, the Company will send you a notice that your Guaranteed Period is
about to end. At the end of your Guaranteed Period, you can do three things with
the amount you have accumulated for that Guaranteed Period: (1) reinvest all or
part of it in another Guaranteed Period; (2) withdraw all or part of it; or (3)
use all or part of it to start your annuity payments. These choices also can be
used in combination. For example, you could withdraw part of the amount you have
accumulated, and reinvest the balance; or reinvest part, and use the balance to
start annuity payments. Each of these choices has certain consequences, which
you should consider carefully. (See "Withdrawals and Surrenders," below, and
"Annuity Period" and "Federal Income Taxes.")
Once you decide what you want to do with the Current Value for that
Guaranteed Period, you must advise the Company of your decision In Writing by
completing an election form. To be effective, your completed election form
must be received by the Company In Writing at least five days prior to the
end of the Guaranteed Period to which it applies. If you decide you want to
reinvest the Current Value of your Contract for a Guaranteed Period of the
same duration as the one just ending, you need not take any action.
IF THE COMPANY DOES NOT RECEIVE YOUR PROPERLY COMPLETED ELECTION FORM IN
TIME, YOUR CURRENT VALUE AT THE END OF THE GUARANTEED PERIOD WILL BE
AUTOMATICALLY REINVESTED FOR A GUARANTEED PERIOD EQUAL TO THE GUARANTEED
PERIOD JUST ENDED. If no such Guaranteed Period is then being offered, the
Guaranteed Period with the next shortest duration will be used. If no such
shorter Guaranteed Period is available, the next longest Guaranteed Period
will be used. Your Current Value will then earn interest at the Guaranteed
Rate applicable to the Guaranteed Period automatically selected for you. The
Company will mail a confirmation statement to you the next business day after
the completion of your just ended Guaranteed Period advising you of the new
Guaranteed Period and Guaranteed Rate.
WITHDRAWALS AND SURRENDERS
General
At any time prior to the time your annuity payments start, you may
surrender all or part of the Current Value of your Contract. If, after any
partial withdrawal, the Current Value of your contract is less than $2,500,
the Company may terminate your Contract upon 90 days notice and refund the
remaining balance to you. If you withdraw all of your Current Value, you must
surrender your Contract. To make a partial or full withdrawal, you must
properly complete a withdrawal request or surrender form provided
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by the Company, and submit it to the Company In Writing. All withdrawals may
be subject to a Market Value Adjustment, a surrender fee, a deduction for
premium taxes and maintenance fees, and federal income taxes and tax
penalties. All applicable fees and deductions are deducted from the amount of
your withdrawal in accordance with the terms of your Contract. Any Market
Value Adjustment applicable to your withdrawal may either increase or
decrease the amount paid to you. (See "Market Value Adjustment," below.)
Accordingly, if you request that you receive a specific dollar amount upon
withdrawal, the amount actually withdrawn from your Contract may be more or
less than the requested dollar amount. The Company will, upon request, inform
you in advance of the amount payable upon a withdrawal. Amounts are withdrawn
on a pro rata basis from each of the Guaranteed Periods under the Contract.
The Market Value Adjustment
The amount payable upon a withdrawal before the end of a Guaranteed Period
may be increased or decreased by the application of the Market Value
Adjustment. When applicable, the Market Value Adjustment is applied to the
amount withdrawn. If your annuity payments start before the end of your
Guaranteed Period, a Market Value Adjustment may be applied to any amounts
used to start annuity payments. The Market Value Adjustment will not be
applied to Systematic Withdrawals, to withdrawals under the Estate
Conservation Option or to a death benefit payable on death of Annuitant if
paid within six months of the Annuitant's death. The Market Value Adjustment
also does not apply to amounts withdrawn at the end of your Guaranteed
Period, provided that five days prior to the end of that Guaranteed Period we
receive notice of the withdrawal In Writing.
The Market Value Adjustment reflects the change in the value of your
investment due to changes in interest rates since the start of the Guaranteed
Period under your Contract. When interest rates increase, the Market Value
Adjustment amount is negative. Conversely, when interest rates decrease, the
Market Value Adjustment amount is positive. Because a Market Value Adjustment
can be positive or negative, it may increase or decrease the amount of your
withdrawal before the end of a Guaranteed Period.
The Company imposes a Market Value Adjustment for several reasons. Upon
withdrawal of money from your Contract, the Company may need to liquidate
certain assets or use existing cash flow that would otherwise be available to
invest at current interest rates. The assets that are liquidated may be sold
at a profit or a loss, depending upon market conditions. This profit or loss
could affect the determination of Guaranteed Rates. (See "Guaranteed Periods
and Guaranteed Rates," above.) To lessen this impact, certain withdrawals are
subject to a Market Value Adjustment.
For an explanation of how the Market Value Adjustment is calculated, see
Appendix A.
Fees Applicable to Withdrawals
Upon any withdrawal, a surrender fee of up to 7% may be deducted from the
amount withdrawn, depending on the length of time that has passed since your
initial purchase payment was credited. The surrender fee only applies to the
amount of your purchase payment withdrawn, but for purposes of this fee it is
assumed that you are withdrawing all or a portion of your purchase payment
first, not your earnings. This assumption, however, does not apply for tax
purposes. (See "Federal Income Taxes.") The chart below indicates the percentage
fee applied to amounts you withdraw.
- --------------------------------------------------------------------------------
Surrender Fee
Years since initial
payment credited: 0 1 2 3 4 5 6 7
Fee as a percentage
of payment withdrawn: 7% 7% 6% 6% 5% 4% 2% 0%
- --------------------------------------------------------------------------------
The surrender fee and Market Value Adjustment are waived and not
applicable to any amounts withdrawn at the end of a Guaranteed Period,
provided that five days prior to the end of that Guaranteed Period we receive
notice of the withdrawal In Writing. The surrender fee and Market Value
Adjustment, however, remain applicable to any amount you reinvest for another
Guaranteed Period. For purposes of applying the surrender fee, all time
periods are measured from the date your initial purchase payment is credited,
even if you reinvest all or part of your Current Value in another Guaranteed
Period. Once the surrender fee declines to 0%, it is no longer applicable,
regardless of how long you own your Contract.
For example, assume that the first Guaranteed Period you select is for 5
years. Further assume that at the end of this 5 year Guaranteed Period, you
decide to reinvest the Current Value of your Contract for another Guaranteed
Period of 4 years. Assume you then make a withdrawal (but not a Special
Withdrawal, as described below) during the second year of the new Guaranteed
Period. Because six years have passed since your purchase payment was
credited, you would pay a 2% surrender fee, even though
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you could have withdrawn all or part of the Current Value of your Contract at
the end of the first 5 year Guaranteed Period without paying a surrender fee.
However, if you make a withdrawal during the third year of the new Guaranteed
Period, or anytime thereafter, you would pay no surrender fee, because seven
years would have passed since your purchase payment was credited.
If you surrender your Contract and the Current Value is less than $2,500,
the surrender fee will be waived, provided you have not withdrawn any amounts
within the prior 12 months. The surrender fee is also waived if the Company
terminates your Contract because its Current Value is less than $2,500. In
both cases, a Market Value Adjustment will be applied, and a deduction will
be made for any premium taxes and maintenance fees, if applicable.
Special Withdrawals
After you own your Contract for one year, you have the opportunity to make
one Special Withdrawal per year without paying a surrender fee unless you
have elected "SWO" or "ECO" described below. The maximum amount of the
Special Withdrawal equals 10% of the Current Value of your Contract at the
time the Company receives your withdrawal request In Writing. This
opportunity is only available for the first withdrawal of each year, and all
subsequent withdrawals during that year will be subject to the surrender fee,
even if you did not withdraw the full 10% with your first withdrawal. If your
first withdrawal for the year is in excess of 10% of the Current Value of
your Contract, only the excess amount is subject to a surrender fee. A Market
Value Adjustment is applicable to any amounts that you withdraw, and you also
may be required to pay taxes and tax penalties. (See "Federal Income Taxes.")
The Systematic Withdrawal Option
If the Current Value of your Contract meets the minimum dollar amounts
established by the Company, you can elect a program of automated partial
withdrawals through the Systematic Withdrawal Option ("SWO"). SWO allows you
to withdraw either a specified amount or a percentage of your Contract's
value, or to withdraw amounts over a specified time period that you
determine, within certain limits described in your Contract. SWO payments can
be made on a monthly or quarterly basis, and the amount of each payment is
determined by dividing the designated annual amount by the number of payments
due each calendar year. SWO payments are withdrawn pro rata from each of the
Guaranteed Periods under your Contract.
SWO is available under three payment methods: the specified percentage
method, the specified payment method, and the specified period method. The
terms and conditions applicable to each of these payment methods are
described in your Contract.
Under a Contract purchased as a rollover Individual Retirement Annuity, if
the SWO payment for any year is less than the minimum required distribution
under the Tax Code, the SWO payment will be increased to an amount equal to
the minimum distribution amount.
If you participate in SWO, you may not utilize a Special Withdrawal to
make additional withdrawals from your Contract. Once elected, SWO may be
canceled at anytime by submitting a request In Writing to the Company.
However, once canceled, SWO may not be elected again by you or your spousal
Beneficiary. The Company reserves the right to change the terms of SWO for
future elections and to discontinue the availability of this option upon
notice. The Company also reserves the right to establish the date when you
may first elect SWO.
The Market Value Adjustment and surrender fees do not apply to withdrawals
received under SWO, but you may be required to pay taxes and tax penalties on
any amounts that you withdraw. (See "Federal Income Taxes.")
The Estate Conservation Option
If your Contract was purchased as a rollover Individual Retirement
Annuity, you are at least age 70-1/2 and the Current Value meets the minimum
dollar amounts established by the Company, you can arrange a program of
annual partial withdrawals through the Estate Conservation Option ("ECO").
ECO is designed to provide annual payments in an amount equal to the minimum
distribution that is required to be withdrawn each year under the Tax Code.
ECO payments are withdrawn pro rata from each of the Guaranteed Periods under
your Contract. The Company will, upon request, inform you in advance of the
amount payable under ECO.
The Market Value Adjustment does not apply to withdrawals received under
ECO, and surrender fees also are not applicable. You will be required to pay
taxes on any amounts that you withdraw. (See "Federal Income Taxes.")
If you participate in ECO, you may not utilize a Special Withdrawal to
make additional withdrawals from your Contract. Once elected, ECO may be
canceled at anytime by submitting a request In Writing to the Company.
However, once canceled, ECO may not be elected again until 36 months have
elapsed. The Company reserves the right to change the terms of ECO for future
elections and to discontinue the availability of this option upon notice.
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The Nursing Home Waiver
The Nursing Home Waiver provides that if you have owned your Contract for
over one year, and the Annuitant has spent at least 45 consecutive days in a
licensed nursing care facility, then the surrender fee will be waived if you
withdraw any portion of the Current Value of your Contract within three years
of the Annuitant's admission to such licensed nursing care facility. The
Market Value Adjustment applies to withdrawals under the Nursing Home Waiver,
and you also may be required to pay taxes and tax penalties on any amounts
that you withdraw. (See "Federal Income Taxes.") The Nursing Home Waiver may
not be available in all states and does not apply if the Annuitant was in a
licensed nursing care facility when you purchased your Contract.
Payment Upon Withdrawal or Surrender
Under certain emergency conditions, the Company may defer payment of any
withdrawal for a period not exceeding six months from date of receipt of a
withdrawal request.
CHARGES AND DEDUCTIONS
Premium Taxes
Several states and local governments impose a premium or similar tax on
annuities. Currently, such taxes range up to 3.5% of either your purchase
payment or the amount accumulated in your Contract that you use for annuity
payments. The Company initially will pay all state-imposed premium or similar
taxes applicable to your Contract. These taxes will be deducted from the
amounts that you use for annuity payments immediately prior to the time your
annuity payments begin. If you surrender your Contract, or at your death your
Beneficiary elects to receive a lump sum distribution, a charge will be
deducted for any premium taxes paid on your behalf for which the Company has
not been reimbursed. The Company reserves the right to deduct premium taxes
at any time from your purchase payment or from the Current Value of your
Contract based upon the Company's determination of when such tax is due. In
the event that premium taxes are deducted from your purchase payment, the
amount invested in a Guaranteed Period will be equal to the amount of your
purchase payment reduced by any applicable premium tax.
Maintenance Fees
Prior to the time your annuity payments start, an annual maintenance fee
may be deducted from the Current Value of your Contract on each anniversary
of your Contract's effective date and upon the surrender of your Contract.
The terms and conditions under which the maintenance fee may be deducted are
stated in your Contract.
DEATH BENEFIT
In your application to purchase a Contract, you will select a Beneficiary.
If you or the Annuitant die before annuity payments begin, a death benefit will
be paid to your Beneficiary in accordance with the terms of your Contract. If a
joint holder dies, the surviving joint holder will be deemed the designated
Beneficiary, and any other Beneficiary on record will be treated as the
contingent Beneficiary. If the Contract holder is not a natural person, the
death benefit will be payable at the death of the Annuitant or upon any change
of the Annuitant.
The amount of the death benefit equals the Current Value of your Contract,
provided that the death benefit is paid within six months of the death of the
Annuitant. If the death benefit is paid after six months of the date of death of
the Annuitant, or if paid upon your death and you are not the Annuitant, it
equals the Current Value of your contract as adjusted by any applicable Market
Value Adjustment. Additionally, if you die and you are not the Annuitant, the
death benefit payable will be subject to a surrender fee, if applicable. The
death benefit is calculated as of the date of receipt of notification In Writing
of due proof of death and the Beneficiary's claim. In certain circumstances,
your Beneficiary or joint holder may have the option to continue the Contract
rather than receiving the death benefit.
You may change the Beneficiary you previously designated at any time by
submitting notice In Writing to the Company. The change will not be effective
until received and recorded by the Company.
Death Benefit Options Available to Your Beneficiary
If you die before annuity payments begin, or, if the Contract holder is
not a natural person and the Annuitant dies before annuity payments begin,
any Beneficiary under the Contract who is an individual has several options
for receiving payment of the death benefit. The death benefit may be paid in
one lump sum payment, or all or part of such amounts may be used to start
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annuity payments using the Annuity Options available under the Contract.
Unless the designated Beneficiary is your spouse, all death benefits paid as
a lump sum must be distributed within five years of the date of death. If the
Beneficiary elects to receive a lump sum payment, a charge will be deducted
for any premium taxes paid on your behalf for which the Company has not been
reimbursed. A spousal Beneficiary also may elect to exercise all rights under
the Contract.
If you are an individual who is not the Annuitant, and the Annuitant dies,
your Beneficiary may elect either to apply all of the death benefit amount to
any Annuity Option available under the Contract within 60 days of the date of
death, or to receive such amount as a lump sum payment.
ANNUITY PERIOD
Selecting an Annuity Date
You select the Annuity Date for your Contract, which is the date you want
your annuity payments to start under an Annuity Option that you select. This
date may be any time after the first year of your Contract, and will be the
later of the Annuitant's 85th birthday or the tenth anniversary of your
purchase payment, unless you elect otherwise.
You can change your Annuity Date by notifying the Company In Writing at
least 30 days before your annuity payments are to begin.
Regardless of your Annuity Date, your annuity payments will not begin
until you have selected an Annuity Option. Failure to select an Annuity
Option on your Annuity Date, or postponement of the Annuity Date past the
later of the Annuitant's 85th birthday or the tenth anniversary of your
purchase payment, may have adverse tax consequences. You should consult with
a qualified tax adviser if you are considering either of these courses of
action.
Annuity Payments
You may apply all or a portion of the Current Value of your Contract to
provide annuity payments. Annuity payments are made to you unless you request
otherwise. You can request that we send annuity payments to any person you
name, or have the payments deposited directly in any bank account. After your
death, we will send any annuity payments still due to the Beneficiary you
have selected. You may be required to pay taxes on portions of the annuity
payments you receive. (See "Federal Income Taxes.")
Annuity payments are made monthly unless you request that annuity payments
be made quarterly, semi-annually or annually. You may change your request In
Writing at any time. The amount of each annuity payment depends on how much
of your Current Value, less applicable premium taxes, you use to start your
annuity payments, and the Annuity Option that you elect. No election may be
made that would result in a first annuity payment of less than $50 or total
yearly annuity payments of less than $250. If the amount you have accumulated
in your Contract as of the Annuity Date is insufficient to elect an Annuity
Option for the minimum amount specified, you will receive a lump sum payment.
After any two full consecutive years, measured from the anniversary of the
effective date of your Contract, and upon 90 days notice to you, the Company
may terminate a rollover Individual Retirement Annuity Contract if the
paid-up benefit at maturity would be less than $20 per month. Instead of
electing annuity payments, you may request that the Company make a lump sum
payment. No surrender fee will be applied to any amounts used to start
annuity payments, although a Market Value Adjustment may be applicable.
Annuity Options
You can elect to have your annuity payments made:
(1) for the life of your designated Annuitant or joint Annuitant;
(2) for the life of the Annuitant but guaranteed for a minimum of 5, 10,
15 or 20 years;
(3) for the life of two Annuitants; or
(4) for a stated period of time (10 to 30 years).
You must notify the Company In Writing of the Annuity Option elected at
least 30 days prior to the Annuity Date. You may change your election at any
time up to 30 days before your annuity payments start. If your annuity
payments start before the end of your Guaranteed Period, a Market Value
Adjustment will be applied to any amounts used to start annuity payments. If
the Annuity Option selected is one of the first three listed above (i.e., a
lifetime annuity), only a positive Market Value Adjustment will be applied.
Once you elect for annuity payments to begin, you may not elect to instead
receive a lump sum payment.
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If you choose an annuity for life but guaranteed for a minimum number of
years, when the annuity payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95.
Additionally, federal income tax requirements currently applicable to
Individual Retirement Annuities provide that the period of years guaranteed
may not be any greater than the joint life expectancies of the payee and his
or her designated Beneficiary.
Further, if you choose an annuity for the life of two Annuitants, annuity
payments will continue until both Annuitants have died. When this Annuity
Option is chosen, you must choose one of the following:
(1) 100% of the payment to continue after the first death;
(2) 66-2/3% of the payment to continue after the first death;
(3) 50% of the payment to continue after the first death;
(4) Payments for a minimum of 120 months, with 100% of the payment to continue
after the first death; or
(5)100% of the payment to continue at the death of the second Annuitant and
50% of the payment to continue at the death of the Annuitant.
Payment Upon Death After Annuity Payments Begin
Upon the death of either the Annuitant or the surviving joint Annuitant
after annuity payments start, the amount payable, if any, to your Beneficiary
depends on the Annuity Option currently in force. Any amounts payable must be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
If you die after annuity payments start and you are not the Annuitant, any
remaining payments will continue to be made to your Beneficiary at least as
rapidly as under the method of distribution in effect at your death.
INVESTMENTS
Purchase payments received under the Contracts and allocated to Guaranteed
Periods will be invested by the Company under the laws of the State of
Connecticut. You have no priority claims on, or participation in the
performance of, such assets. All such assets are the property of the Company
and available to meet the guarantees under the Contracts and the general
obligations of the Company.
The assets of the Company will be invested in accordance with the
requirements established by applicable state laws regarding the nature and
quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified
limits and subject to certain qualifications, in federal, state, and
municipal obligations, corporate bonds, preferred and common stocks, real
estate mortgages, and certain other investments.
The Company has no specific formula for establishing the Guaranteed Rates for
the Guaranteed Periods. The Company expects the rates to be influenced by,
but not necessarily correspond to, the yields on the fixed income securities
to be acquired with amounts that are allocated to the Guaranteed Periods at
the time that the Guaranteed Rates are established.
The Company intends to invest in assets which, in the aggregate, have
characteristics, especially cash flow patterns, reasonably related to the
characteristics of the liabilities. Various immunization techniques will be
used to achieve the objective of close aggregate matching of assets and
liabilities. The Company will primarily invest in investment-grade fixed
income securities including:
(bullet) Securities issued by the United States Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
United States Government.
(bullet) Debt securities that are rated, at the time of purchase, within the
four highest grades assigned by Moody's Investors Services, Inc.
(Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or
BBB) or any other nationally recognized rating organizations.
(bullet) Other debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies and of corporations,
which obligations, although not rated by Moody's, Standard & Poor's,
or other nationally recognized rating organizations, are deemed by
the Company's management to have an investment quality comparable to
securities which may be purchased as stated above.
(bullet) Commercial paper, cash or cash equivalents, and other short-term
investments having a maturity of less than one year which are
considered by the Company's management to have investment quality
comparable to securities which may be purchased as stated above.
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In addition, the Company may invest in futures and options. Financial futures
and related options thereon and options on securities are purchased solely
for nonspeculative hedging purposes. In the event the securities prices are
anticipated to decline, the Company may sell a futures contract or purchase a
put option on futures or securities to protect the value of securities it
holds. Similarly, if securities prices are expected to rise, the Company may
purchase a futures contract or a call option thereon against anticipated
positive cash flow or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE COMPANY'S INVESTMENT STRATEGY,
THE COMPANY IS NOT OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE
CONTRACTS ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS MAY BE REQUIRED BY
CONNECTICUT AND OTHER STATE INSURANCE LAWS, NOR WILL THE GUARANTEED RATES THE
COMPANY ESTABLISHES NECESSARILY RELATE TO THE INVESTMENT PERFORMANCE THE
COMPANY EXPERIENCES.
PARTICIPANT AND BENEFICIARY RIGHTS AND PRIVILEGES
You have the sole and absolute power to exercise all rights and privileges
under the Contract, except as otherwise provided by the Contract. Your rights
under the Contract may be assigned or transferred. The Company will not be
bound by an assignment unless and until notice of such assignment is
submitted In Writing and such assignment is accepted by the Company. The
Company assumes no responsibility for the validity or effect of any
assignment. The Company reserves the right not to accept any assignment or
transfer to a nonnatural person. In some cases, an assignment may have
adverse tax consequences. You should consult a tax adviser regarding the
consequences of an assignment.
AMENDMENT OF THE CONTRACTS
Only an authorized officer of the Company may change the terms of the
Contract. The Company will notify you In Writing of any such change. The
Company reserves the right to modify the Contract to meet the requirements of
applicable state or federal laws or regulations.
DISTRIBUTION OF THE CONTRACTS
Aetna Life Insurance and Annuity Company ("ALIAC"), an affiliate of the
Company, will serve as the underwriter of the securities being sold by this
Prospectus. ALIAC is registered as a broker-dealer with the Securities and
Exchange Commission and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). As underwriter, ALIAC will contract with one or more
other registered broker-dealers who are NASD members ("Distributors") to offer
and sell the Contracts. Sales compensation paid to Distributors will not exceed
6-1/2 percent of the purchase payment made for a Contract. Alternatively, ALIAC
may pay asset- based sales compensation annually to Distributors that will not
exceed 1-1/4 percent of the assets held under a Contract. At its discretion,
ALIAC may also pay sales compensation to Dealers based on both a percentage of
the purchase payment and the assets held annually under a Contract. From time to
time, customers of certain Broker-Dealers and other entities may be offered
special initial Guaranteed Rates and negotiated commissions. ALIAC and one or
more affiliates may also sell the Contracts directly. All registered
representatives of the Distributors must also be licensed as insurance agents to
sell the Contracts.
ALIAC may also contract with independent third party broker-dealers who
will act as wholesalers by assisting ALIAC in finding broker-dealers interested
in acting as Distributors of the Contracts. These wholesalers may also provide
training, marketing and other sales related functions for ALIAC and the
Distributors and may provide certain administrative services to ALIAC in
connection with the Contracts. ALIAC may pay such wholesalers compensation based
on purchase payments for the Contracts purchased through Distributors selected
by the wholesaler.
ALIAC may also designate third parties to provide services in connection
with the Contracts such as reviewing applications for completeness and
compliance with insurance requirements and providing the Distributors with
approved marketing material, prospectuses or other supplies. These parties will
also receive payments based on purchase payments for their services, to the
extent such payments are allowed by applicable securities laws and NASD rules.
All costs and expenses related to these services will be paid by ALIAC.
FEDERAL INCOME TAXES
The Company
The Company is taxed as a life insurance company under the Tax Code. The
assets underlying the Contracts will be owned by the Company. The income
earned on such assets will be the Company's income.
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The Company assumes no responsibility for determining whether a particular
individual retirement annuity plan satisfies the applicable requirements of the
Tax Code or whether a particular person is eligible for such a plan.
Taxes You or Others Pay--Non-Qualified Contracts
Non-qualified Contracts are those used other than in connection with a
rollover Individual Retirement Annuity or tax-favored retirement program such
as an employee benefit plan.
Accumulation Period
The Contracts are considered annuity contracts under Section 72 of the Tax
Code. Currently, no Federal income tax is payable on increases in the value
of the Contract (such as interest credited to you) until payments are made to
you or another payee under such Contract. However, a Contract owned other
than by a natural person is not generally an annuity for tax purposes and any
increase in value thereunder is currently taxable as ordinary income.
Annuity Payments
Annuity payments are in part taxable to you or another payee as ordinary
income, and in part nontaxable. The nontaxable portion of each annuity
payment is that portion of your purchase payment returned to you. This
nontaxable portion is determined by dividing the "investment in the contract"
(generally, your purchase payment with certain adjustments) by the amount of
"expected return" during the time that periodic payments are to be made, and
then multiplying by the amount of the payment. The balance of the annuity
payment is taxable.
Non-Natural Holders of a Non-Qualified Contract
If you are not a natural person, a Non-qualified Contract is not treated
as an annuity for income tax purposes and the "income on the contract" for
the taxable year is currently taxable as ordinary income. "Income on the
contract" is any increase over the year in the amount payable upon the
withdrawal of all or any portion of the Current Value, adjusted for amounts
previously distributed and amounts previously included in income. There are
some exceptions to the rule, and a non-natural person should consult with its
tax adviser prior to purchasing this Contract. A non-natural person exempt
from federal income taxes should consult with its tax adviser regarding
treatment of "income on the contract" for purposes of the unrelated business
income tax.
Withdrawals Before the Annuity Date
Partial withdrawals prior to the Annuity Date, other than those used to
provide annuity payments, and total surrenders at any time, will be taxable
to you as ordinary income to the extent that the Contract's Current Value
exceeds your "investment in the contract" at that time. For tax purposes, it
is assumed that you are withdrawing all or a portion of your earnings first,
not your purchase payment.
If you assign or pledge any part of your Current Value, the value so
pledged or assigned is treated like a withdrawal for tax purposes. Transfer
of ownership without full and adequate consideration is treated for income
tax purposes as a taxable surrender of the Contract. Transfers between
spouses or incident to divorce are not subject to this rule.
The tax treatment of withdrawals from each Contract may be affected if you
own other annuity contracts issued by us (or our affiliates) that were
purchased on or after October 21, 1988. (See the Contract Prospectus.)
Penalty For Premature Withdrawals and Payments
In addition to being included in ordinary income, the taxable portion of
any withdrawal or payment made before you reach age 59-1/2 may be subject to
a 10 percent penalty tax. The penalty tax does not apply to, among other
things, payments made on account of your death or becoming disabled, or to
payments made in substantially equal periodic payments, not less than
annually, over the life (or life expectancy) of the payee or over the joint
lives (or life expectancies) of the payee and a designated Beneficiary.
Partial Annuitization
Prior to the Annuity Date, you may withdraw a portion of your Account
Value and use it to provide annuity payments, while leaving the remaining
portion of your Account Value invested in one or more Guaranteed Periods. The
Tax Code and the regulations thereunder do not specifically address the tax
treatment applicable to payments provided pursuant to the exercise of this
type of option. The Company takes the position that payments provided
pursuant to this option are taxable as annuity payments, and not as a
withdrawal. However, because the tax treatment of such payments is currently
unclear, you should consult with a qualified tax adviser if you are
considering a partial annuitization of your Contract.
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Distribution-At-Death Rules
In order to be treated for tax purposes as a non-qualified annuity
Contract, a non-qualified Contract must provide the following two
distribution rules: (a) if you die on or after the Annuity Date, and before
the entire interest in the Contract has been distributed, the remainder of
your interest will be distributed at least as quickly as the method in effect
on your death; and (b) if you die before the Annuity Date, your entire
interest must generally be distributed within five years after the date of
death, or if the interest is payable to a designated Beneficiary, such
interest must be annuitized over the life of that Beneficiary or a period not
extending beyond the life expectancy of that Beneficiary, beginning within
one year after the date of death. A "designated Beneficiary" is any
individual designated as a Beneficiary by you. If the designated Beneficiary
is your spouse, the Contract (together with the deferral of tax on the
accrued and future income thereunder) may be continued in the name of the
spouse.
Where the holder of the Contract is not an individual, the primary
Annuitant is considered the owner, solely for the purpose of the
distribution-at-death rules. The primary Annuitant is the individual the
events in whose life are of primary importance in affecting the timing and
payment under a Contract. In addition, when the holder of the Contract is not
an individual, a change in the primary Annuitant is treated as the death of
the holder of the Contract.
Certain Tax-Free Exchanges
Section 1035 of the Tax Code provides generally that no gain or loss will
be recognized under the exchange of a life insurance, endowment or annuity
contract for an annuity contract. Thus, a properly completed exchange from
one of these types of products into a Contract pursuant to the special
annuity contract exchange form the Company provides for this purpose is not
generally a taxable event under the Tax Code, and the investment in the
Contract will be the same as in the exchanged product.
Because of the complexity of these and other tax aspects in connection
with an exchange, a tax adviser should be consulted before any exchange is
made.
Taxes You or Others Pay--Qualified Contracts
Contracts may also be used with several types of tax-favored retirement
programs, such as a rollover Individual Retirement Annuity or an employee
benefit plan. The tax rules applicable to participants in such programs vary
according to the type of program and the terms and conditions of the program
itself.
Contracts Purchased As A Rollover Individual Retirement Annuity
The Contract may be purchased as a rollover Individual Retirement Annuity,
by transferring amounts previously accumulated (rollover amounts) under
another Individual Retirement Annuity, an Individual Retirement Account (as
defined by the Tax Code), or a retirement plan qualified under Sections 401
or 403 of the Tax Code.
For Contracts purchased as a rollover Individual Retirement Annuity, the
Tax Code requires that minimum distributions must begin no later than April 1
of the year following the year in which you attain age 70-1/2. When payments
under an Individual Retirement Annuity Contract are made in the form of an
annuity, or in a single sum such as on surrender of the Contract or by
withdrawal, the entire payment is generally taxed as ordinary income. As in
the case of non-qualified Contracts, certain distributions, such as those
made prior to your reaching 59-1/2, may be subject to a 10% penalty.
Withholding on Eligible Rollover Distributions
If you wish to rollover your entire Current Value to or from a rollover
Individual Retirement Annuity, you should have it paid directly to the
successor plan. Otherwise, your distribution will be subject to 20%
withholding. Consult a qualified tax adviser before taking such a
distribution.
Qualified Pension, Profit-Sharing Plans, or Annuity Plans
Sections 401(a) and 403(a) of the Tax Code permit corporate employers and
self-employed individuals to establish various types of retirement plans for
employees. Such retirement plans may permit the purchase of Contracts to
provide benefits thereunder. The plan trustee must be the Contract holder and
Beneficiary of Contracts used in such plans. The Tax Code contains
requirements with respect to commencement of minimum distributions and
premature withdrawals similar to those applicable to rollover Individual
Retirement Annuities.
Tax Sheltered Annuities
Tax Code Section 403(b) permits the purchase of Contracts by employees of
public schools and certain charitable, educational and scientific
organizations described in Tax Code Section 501(c)(3). These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the
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employee receives distributions from the Contract. The amount of
contributions to the Contract used in connection with Tax Code Section 403(b) is
limited to certain maximums imposed by the Tax Code. Furthermore, the Tax Code
sets forth additional restrictions governing 0such items as transferability,
distributions, non-discrimination and withdrawals. The Tax Code contains
requirements with respect to commencement of minimum distributions and premature
withdrawals similar to those applicable to rollover Individual Retirement
Annuities.
Withholding of Taxes
The Company is obligated to withhold taxes from certain payments unless
the recipient elects otherwise. The withholding rate varies depending upon
the nature and the amount of the distribution. The Company will notify you or
another payee in advance of the first payment of his or her right to elect
out of withholding and furnish a form on which the election may be made. Any
election must be received by the Company In Writing in advance of the payment
in order to avoid withholding.
See Your Own Tax Adviser
The above description of Federal income tax consequences of owning a
Contract and of the qualified retirement plans which may be funded by the
Contracts is only a brief summary and is not intended as tax advice. The tax
rules applicable to the Contracts and to tax qualified plans are extremely
complex and often difficult to understand. Anything less than full compliance
with the applicable rules, all of which are subject to change from time to
time, can have adverse tax consequences. The taxation of an Annuitant or
other payee has become so complex and confusing that great care must be taken
to avoid adverse tax consequences. For further information you should consult
a qualified tax adviser.
LEGAL MATTERS
The validity of the interests under the Contracts offered hereby has been
passed upon for the Company by Susan E. Bryant, Esq.
EXPERTS
The financial statements of the Company and related financial statement
schedules as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, have been incorporated by reference
herein to the Company's Form 10-K for the year ended December 31, 1995 upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, and
upon the authority of said firm as experts in accounting and auditing.
The reports of KPMG Peat Marwick LLP on the above-mentioned financial
statements and related financial statement schedules refer to a change in 1993
in the Company's methods of accounting for certain investments in debt and
equity securities.
FURTHER INFORMATION
This Prospectus does not contain all of the information contained in the
registration statement of which the Prospectus is a part, and certain portions
of the registration statement have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The information so
omitted may be obtained from the offices of the Commission, as set forth under
"Available Information," upon payment of the prescribed fee.
INQUIRIES
You may direct inquiries by writing directly to us at the address shown on
the cover page of this Prospectus or by calling 1-800-531-4547.
17
<PAGE>
APPENDIX A
CALCULATING A MARKET VALUE ADJUSTMENT
The Market Value Adjustment Formula
The mathematical formula used to determine the Market Value Adjustment is:
x
(1 + i) ---
------- 365
(1 + j)
Where:
i is the Deposit Period Yield; j is the Current Yield; and x is the number
of days remaining (computed from Wednesday of the week of withdrawal) in the
Guaranteed Period.
Explanation of the Market Value Adjustment Formula
The Market Value Adjustment essentially involves a comparison of two yields:
the yield available at the start of the current Guaranteed Period of your
Contract (the "Deposit Period Yield") and the yield currently available (the
"Current Yield"). An adjustment is needed to reflect the period of time
remaining in the Guaranteed Period of your contract.
The Market Value Adjustment depends on the relationship of the Deposit
Period Yield of U.S. Treasury Notes that mature in the last quarter of the
Guaranteed Period, to the Current Yield of such U.S. Treasury Notes at the
time of withdrawal. In general, if the Current Yield is the lesser of the
two, the Market Value Adjustment will decrease the amount withdrawn from the
Contract to satisfy the withdrawal request; if the Current Yield is the
higher of the two, the Market Value Adjustment will increase the amount
withdrawn from the Contract to satisfy the withdrawal request. As a result of
the Market Value Adjustment imposed, the amount withdrawn from the Contract
prior to the Maturity Date may be less than the amount paid into the
Contract.
To determine the Deposit Period Yield and the Current Yield, certain
information must be obtained about the prices of outstanding U.S. Treasury
issues. This information may be found each business day in publications such
as The Wall Street Journal. This newspaper publishes the yield-to-maturity
percentages for all Treasury Notes as of the preceding business day. These
percentages are used in determining the Deposit Period Yield and the Current
Yield for the Market Value Adjustment calculation.
Deposit Period Yield
Determining the Deposit Period Yield in the Market Value Adjustment
calculation involves consideration of interest rates prevailing at the start
of the Guaranteed Period from which the withdrawal will be made. First, the
Treasury Notes that mature in the last three months of the Guaranteed Period
are identified, and then, the yield-to-maturity percentages of these Treasury
Notes for the last business day of each week in the "Deposit Period" are
determined. The resulting percentages are then averaged to determine the
Deposit Period Yield. The Deposit Period is the period of time during which
the purchase payment or any reinvestment may be made to available Guaranteed
Periods. A Deposit Period may be a month, a calendar quarter, or any other
period of time specified by the Company.
Current Yield
To determine the Current Yield, use the same Treasury Notes identified for
the Deposit Period Yield: Treasury Notes that mature in the last three months
of the Guaranteed Period. However, the yield-to-maturity percentages used are
those for the last business day of the week preceding the withdrawal. Average
these percentages to determine the Current Yield.
The following are examples of Market Value Adjustment ("MVA") calculations
using several hypothetical Deposit Period Yields and Current Yields. These
examples do not include the effect of any surrender fee that may be assessed
under the Contract upon withdrawal.
A-1
<PAGE>
EXAMPLE I
- ---------
Assumptions:
i, the Deposit Period Yield, is 8%
j, the Current Yield, is 10%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= 1.08 ---
---- 365
1.10
= .9545
In this example the Deposit Period Yield of 8% is less than the Current
Yield of 10%, therefore, the Market Value Adjustment is less than 1. The
amount withdrawn from the Guaranteed Period is multiplied by this Market
Value Adjustment.
If a withdrawal of a stated percentage is requested, the value withdrawn
from a Guaranteed Period will reflect the deduction of the negative Market
Value Adjustment amount. However, if a withdrawal request of a specific
dollar amount is requested, the amount withdrawn from a Guaranteed Period
will be increased to compensate for the negative Market Value Adjustment
amount. For example, a withdrawal request to receive a check for $2,000 would
result in a $2,095.34 withdrawal from the Guaranteed Period.
Assumptions:
i, the Deposit Period Yield, is 5%
j, the Current Yield, is 6%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= 1.05 ---
---- 365
1.06
= .9762
In this example the Deposit Period Yield of 5% is less than the Current Yield
of 6%, therefore, the Market Value Adjustment is less than 1. The amount
withdrawn from the Guaranteed Period is multiplied by this Market Value
Adjustment.
If a withdrawal of a stated percentage is requested, the value withdrawn from
a Guaranteed Period will reflect the deduction of the negative Market Value
Adjustment amount. However, if a withdrawal request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Period will be increased to
compensate for the negative Market Value Adjustment amount. For example, a
withdrawal request to receive a check for $2,000 would result in a $2,048.76
withdrawal from the Guaranteed Period.
A-2
<PAGE>
EXAMPLE II
- ----------
Assumptions:
i, the Deposit Period Yield, is 10%
j, the Current Yield, is 8%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= (1.10) ---
------ 365
(1.08)
= 1.0477
In this example the Deposit Period Yield of 10% is greater than the Current
Yield of 8%, therefore, the Market Value Adjustment is greater than 1. The
amount withdrawn from the Guaranteed Period is multiplied by this Market Value
Adjustment.
If a withdrawal of a stated percentage is requested, the value withdrawn from
a Guaranteed Period will reflect the addition of the positive Market Value
Adjustment amount. However, if a withdrawal request of a specific dollar amount
is requested, the amount withdrawn from a Guaranteed Period will be decreased to
reflect the positive Market Value Adjustment amount. For example, a withdrawal
request to receive a check for $2,000 would result in a $1,908.94 withdrawal
from the Guaranteed Period.
Assumptions:
i, the Deposit Period Yield, is 5%
j, the Current Yield, is 4%
x, the number of days remaining (computed from Wednesday of the week of
withdrawal) in the Guaranteed Period, is 927.
x
MVA = (1+i) ---
----- 365
(1+j)
927
= (1.05) ---
------ 365
(1.04)
= 1.0246
In this example the Deposit Period Yield of 5% is greater than the Current
Yield of 4%, therefore, the Market Value Adjustment is greater than 1. The
amount withdrawn from the Guaranteed Period is multiplied by this Market Value
Adjustment.
If a withdrawal of a stated percentage is requested, the value withdrawn from
a Guaranteed Period will reflect the addition of the positive Market Value
Adjustment amount. However, if a withdrawal of a specific dollar amount is
requested, the amount withdrawn from a Guaranteed Period will be decreased to
reflect the positive Market Value Adjustment amount. For example, a withdrawal
request to receive a check for $2,000 would result in a $1,951.98 withdrawal
from the Guaranteed Period.
A-3
<PAGE>
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<PAGE>
[This page intentionally left blank.]
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
The registrant meets the conditions set forth in General Instruction J(1)(a)
and (b) of
Form 10-K and is therefore filing this Form with the reduced disclosure
format.
For the fiscal year ended December 31, 1995
---------------
Commission file number 33-81010
Aetna Insurance Company of America
(Exact name of registrant as specified in its charter)
----------------
Connecticut 06-1286272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (860) 273-0978
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
As of February 29, 1996 there were 1,275 shares of common stock
outstanding, par value $2,000 per share, all of which shares were held by
Aetna Life Insurance and Annuity Company.
---------------
Documents Incorporated by Reference
Certain portions of the Aetna Life and Casualty's 1994 Proxy Statement
filed on March 18, 1994 and its 1992 Form 10-K filed on March 17, 1993 are
incorporated by reference into Part IV of this report.
================================================================================
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Annual Report For 1995 on Form 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C> <C>
Item 1. Business** 3
Item 2. Properties** 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders*
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 4
Item 6. Selected Financial Data*
Item 7. Management's Analysis of the Results of Operations** 5
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 18
Index to Financial Statement Schedules 19
</TABLE>
** Item prepared in accordance with General Instruction J(2) of Form 10-K.
* Omitted pursuant to General Instruction J(2) of Form 10-K.
<PAGE>
PART I
Item 1. Business
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of Connecticut and is a
wholly owned subsidiary of Aetna Life Insurance and Annuity Company ("ALIAC").
ALIAC is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI").
ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"),
which, with Aetna's subsidiaries, constitutes one of the nation's largest
insurance/financial services organizations based on its assets at December 31,
1994. The Company's Home Office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
During the second quarter of 1995, the Company began marketing and
servicing variable and market value adjusted annuities through the Company's
Separate Accounts to individuals in the qualified and non-qualified markets.
The Company's variable annuity products utilize Separate Accounts to
provide contractholders with a vehicle for investments under which the
contractholders assume the investment risks as well as the benefit of
favorable performance. Assets held under these products are invested, as
designated by the contractholder or participant under a contract, in Separate
Accounts, which in turn invest in shares of mutual funds that are managed by
ALIAC or other selected mutual funds which are not managed by ALIAC. The
Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable annuity contracts (acturial margin).
(See Note 8 of the Notes to Financial Statements).
Product retention is a key driver of profitability for annuity products.
To encourage product retention, annuity contracts typically impose a
surrender charge on policyholder balances withdrawn for a period of time
after the contract's inception. The period of time and level of the charge
vary by product. Existing tax penalties on annuity distributions prior to
59 1/2 provide an additional disincentive to premature surrenders of annuity
balances, but do not impede transfers of those balances to products of other
competitors.
Competition arises from other insurance companies, banks, mutual funds and
investment managers. Principal competitive factors are cost, service, product
features, investment options and level of investment performance and the
perceived financial strength of the investment manager or sponsor.
Competition may affect, among other matters, both business growth and the
pricing of the Company's products and services.
Products are distributed through a managed network of banks and
broker/dealers, as well as the distribution force of other ARSI affiliates.
Other Matters
Regulation
The insurance business of the Company is subject to comprehensive,
detailed regulation throughout the United States. The laws of the various
jurisdictions establish supervisory agencies with broad authority to
regulate, among other things, the granting of licenses to transact business,
trade practices, agent licensing, policy forms, underwriting and claims
practices, reserve adequacy, insurer solvency, the maximum interest rates
that can be charged on life insurance policy loans, the minimum rates that
must be provided for accumulation of surrender values, the form and content
of required financial statements and the type and amounts of investments
permitted. The Company is required to file detailed reports with supervisory
agencies in each of the jurisdictions in which it does business, and its
operations and accounts are subject to examination by such agencies at
regular intervals.
Although the federal government does not directly regulate the business of
insurance, many federal laws do affect the business. Existing or recently
proposed federal laws that may significantly affect or would affect, if
passed, the insurance business cover such matters as pensions and other
employee benefits, removal of barriers preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance companies,
and the tax treatment of insurance products.
Material changes in applicable federal and state laws regulations could
adversely affect the Company's business operations, although the Company is
unable to predict whether any such changes will be implemented.
Several states, including Connecticut, regulate affiliated groups of
insurers such as the Company and its affiliates under insurance holding
company statutes. Under such laws, intercorporate asset transfers and
dividend payments from insurance subsidiaries may require prior notice to or
approval of the insurance regulators, depending on the size of such transfers
and payments relative to the financial position of the Company making the
transfer. Changes in control also are regulated under these laws. As a
Connecticut-domiciled insurance company, the Company is subject to
comprehensive regulation under the Connecticut insurance laws and by the
Connecticut Insurance Department.
3
<PAGE>
In recent years, state insurance regulators have been considering changes in
statutory accounting practices and other initiatives to strengthen solvency
regulation. The National Association of Insurance Commissioners (NAIC) has
adopted risk-based capital ("RBC") standards for life insurers. The RBC formula
is a regulatory tool designed to identify weakly capitalized companies by
comparing the company's adjusted surplus to the required surplus, which reflects
the risk profile of the Company (RBC ratio). Within certain ratio changes,
regulators have increasing authority to take action as the RBC ratio decreases.
There are four levels of regulatory action ranging from requiring insurers to
submit a comprehensive plan to the state insurance commissioner to when the
state insurance commissioner places the insurer under regulatory control. The
Company's RBC ratio at December 31, 1995 was significantly above the levels
which would require regulatory action.
The Company's variable products involve investments through Separate
Accounts, some of which are registered as investment companies with the SEC,
as are the variable mutual funds offered by the Company.
The NAIC also is considering several other solvency related regulations
including the development of a model investment law and amendments to the
model insurance holding company law which would limit types and amounts of
investments by insurance companies. In addition, in recent years there has
been growing interest among certain members of Congress concerning possible
federal roles in the regulation of the insurance industry. Because these
other initiatives are in a preliminary stage, management cannot assess the
potential impact of their adoption on the Company.
Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for
certain obligations of insolvent insurance companies to policyholders and
claimants. In each of the years in the three year period ended December 31,
1995, the Company has been assessed nominal guaranty fund assessment fees
attributable to administrative assessments issued to all companies licensed
to do business in a state. Since the Company had written no business prior to
December 31, 1994, no assessments should be received relating to insolvencies
which occurred prior to December 31, 1994.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 ("the Act") provides
a "safe harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the
statement. The Company desires to take advantage of the "safe harbor"
provisions of the Act. Certain information contained herein, particularly the
information appearing under the heading "Outlook" contained in Item
7-Management's Analysis of the Results of Operations, is forward-looking.
Information regarding certain important factors that could cause actual
results of operations or outcomes of other events to differ materially from
any such forward-looking statement appear together with such statement,
and/or elsewhere herein.
Miscellaneous
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC), and receives an expense allocation, at cost, based on the utilization
of these employees.
The Company uses ALIAC's computer facilities. Management believes that
ALIAC's computer facilities, systems and related procedures are adequate to
meet its business needs. ALIAC's data processing systems and backup and
security policies, practices and procedures are regularly evaluated by
ALIAC's management and internal auditors and are modified as considered
necessary.
The Company is not dependent upon any single customer and no single
customer accounted for more than 10% of revenue in 1995.
Item 2. Properties
The Company occupies office space that is owned or leased by Aetna Life
Insurance Company or other affiliates of Aetna. Expenses associated with these
offices are allocated on a direct and indirect basis to the Company and the
other subsidiaries of Aetna.
Item 3. Legal Proceedings
The Company and its Board of Directors know of no material legal proceedings
pending to which the Company is a party or which would materially affect the
Company.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
All of the Company's outstanding shares are owned by its parent company,
ALIAC. For the years ended 1995, 1994 and 1993, the Company did not pay
dividends to ALIAC.
4
<PAGE>
The amount of dividends which may be paid by the Company to ALIAC without
prior approval by the Insurance Commissioner of the State of Connecticut is
subject to various restrictions. Based upon these restrictions, the Company
is permitted a maximum of $958.0 thousand in dividend distributions in 1996.
Item 7. Management's Analysis of the Results of Operations
Results of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
(Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income $ 721.0 $619.3 $560.0
Realized capital gains 8.3 -- --
Charges assessed against
policyholders 132.7 -- --
- ------------------------------------------------------------------------------------------
Total revenue 862.0 619.3 560.0
Operating expenses 605.2 83.0 79.5
- ------------------------------------------------------------------------------------------
Total expenses 605.2 83.0 79.5
- ------------------------------------------------------------------------------------------
Income before federal income taxes 256.8 536.3 480.5
Federal income taxes 88.9 187.7 168.2
- ------------------------------------------------------------------------------------------
Net income $ 167.9 $348.6 $312.3
==========================================================================================
1995 1994 1993
- ------------------------------------------------------------------------------------------
Deposits: Fully guaranteed $12,953.8 $ -- $ --
Non-guaranteed 29,887.6 -- --
--------------------------------------------------
Total $42,841.4 $ -- $ --
- ------------------------------------------------------------------------------------------
Assets under management: Fully guaranteed $10,052.4 $ -- $ --
Non-guaranteed 33,757.6 -- --
--------------------------------------------------
Total $43,810.0 $ -- $ --
- ------------------------------------------------------------------------------------------
</TABLE>
Overview
The Company's adjusted earnings (after-tax) follow (in thousands):
1995 1994 1993
----------------------------
Net income $167.9 $348.6 $312.3
Less:
Net realized capital gains 5.4 -- --
----------------------------
Adjusted earnings $162.5 $348.6 $312.3
============================
The Company's adjusted earnings decreased 53% in 1995 following a 12%
increase in 1994. The decrease in 1995 adjusted earnings reflects higher
operating expenses offset in part by charges assessed against policyholders
attributable to the commencement of the Company's business operations.
Results in 1995 also reflect higher net investment income reflecting a slight
change in asset mix (larger percentage of debt securities versus cash and
cash equivalents) and higher yields on cash equivalents. The improvement in
1994 adjusted earnings when compared to 1993 reflected an increase in net
investment income primarily due to increasing yields on cash equivalents.
5
<PAGE>
Investments
As of December 31, 1995 and 1994, all of the Company's debt securities
were issued by the U. S. Treasury.
(Thousands) 1995 1994
- --------------------------------------------------------------------------------
Debt securities $ 8,187.4 $ 6,906.5
---------------------
Total Investments 8,187.4 6,906.5
Cash and cash equivalents 4,044.2 4,732.7
---------------------
Total Investments, cash and cash
equivalents $12,231.6 $11,639.2
=====================
Outlook
Sales of non-qualified products are expected to significantly exceed 1995
levels as relationships formed with broker/dealers and banks in 1995 build
sales momentum. The Company also intends to expand its retirement planning
capabilities.
Item 8. Financial Statements and Supplementary Data
Financial Statements
Index
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Independent Auditors' Report 7
Financial Statements:
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 8
Balance Sheets as of December 31, 1995 and 1994 9
Statements of Changes in Shareholder's Equity for the Years Ended
December 31, 1995, 1994 and 1993 10
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 11
Notes to Financial Statements 12
</TABLE>
6
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
of Aetna Insurance Company of America:
We have audited the accompanying balance sheets of Aetna Insurance Company of
America as of December 31, 1995 and 1994, and the related statements of
income, changes in shareholder's equity, and cash flows for each of the years
in the three-year period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Insurance Company of
America at December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted auditing principles.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its methods of accounting for certain investments in debt and equity
securities.
KPMG Peat Marwick
Hartford, Connecticut
March 20, 1996
7
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Income
(thousands)
Years Ended December 31,
-------------------------
1995 1994 1993
------ ------ -------
Revenue:
Net investment income $721.0 $619.3 $560.0
Realized capital gains 8.3 -- --
Charges assessed against
policyholders 132.7 -- --
------ ------ -------
Total revenue 862.0 619.3 560.0
Expenses:
Operating expenses 605.2 83.0 79.5
------ ------ -------
Total expenses 605.2 83.0 79.5
Income before federal income taxes 256.8 536.3 480.5
Federal income taxes 88.9 187.7 168.2
------ ------ -------
Net income $167.9 $348.6 $312.3
====== ====== =======
See Notes to Consolidated Financial Statements.
8
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Balance Sheets
(thousands)
<TABLE>
<CAPTION>
December 31,
----------------------
Assets 1995 1994
---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Investments:
Debt securities available for sale:
(amortized cost $7,953.0 and $7,043.9) $ 8,187.4 $ 6,906.5
Cash and cash equivalents 4,044.2 4,732.7
Accrued investment income 112.6 91.5
Deferred policy acquisition costs 2,066.4 --
Deferred tax asset 467.6 0.4
Other assets 0.8 5.1
Separate Accounts assets 43,810.0 --
--------- ----------
Total assets $58,689.0 $11,736.2
========= ==========
Liabilities and Shareholder's Equity
----------------------------------------------------------------------
Liabilities:
Due to parent and affiliates $ 174.6 $ 10.5
Other liabilities 1,932.6 21.0
Federal income taxes--Current 638.8 29.4
Separate Accounts liabilities 43,810.0 --
--------- ----------
Total liabilities 46,556.0 60.9
--------- ----------
Shareholder's equity:
Common capital stock, par value $2,000 (1,275 shares authorized,
issued and outstanding) 2,550.0 2,550.0
Paid-in capital 7,550.0 7,550.0
Net unrealized capital gains (losses) 152.4 (137.4)
Retained earnings 1,880.6 1,712.7
--------- ----------
Total shareholder's equity 12,133.0 11,675.3
--------- ----------
Total liabilities and shareholder's equity $58,689.0 $11,736.2
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Changes in Shareholder's Equity
(thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Shareholder's equity, beginning of period $11,675.3 $11,584.2 $11,151.8
Net change in unrealized capital gains
(losses) 289.8 (257.5) 120.1
Net income 167.9 348.6 312.3
--------- --------- ----------
Shareholder's equity, end of period $12,133.0 $11,675.3 $11,584.2
========= ========= ==========
</TABLE>
10
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Statements of Cash Flows
(thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 167.9 $ 348.6 $ 312.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in accrued investment
income (21.1) -- 46.3
Increase in deferred policy acquisition costs (2,066.4) -- --
Net change in amounts due to/from parent and
affiliates 164.1 (79.2) 184.9
Net increase (decrease) in other assets and
liabilities 1,915.9 1.2 (76.0)
Increase (decrease) in federal income taxes 60.2 (138.9) 50.2
Net amortization of premium on debt securities 22.2 88.1 78.4
--------- -------- ----------
Net cash provided by operating activities 242.8 219.8 596.1
--------- -------- ----------
Cash Flows from Investing Activities:
Investment maturities and collection of:
Debt securities available for sale 3,000.0 -- 2,290.0
Short-term investments 500.0 -- --
Cost of investment purchases in:
Debt securities available for sale (3,939.2) -- (2,452.8)
Short-term investments (492.1) -- --
--------- -------- ----------
Net cash used for investing activities (931.3) -- (162.8)
--------- -------- ----------
Net (decrease) increase in cash and cash
equivalents (688.5) 219.8 433.3
Cash and cash equivalents, beginning of period 4,732.7 4,512.9 4,079.6
--------- -------- ----------
Cash and cash equivalents, end of period $ 4,044.2 $4,732.7 $ 4,512.9
========= ======== ==========
Supplemental cash flow information:
Income taxes paid, net $ 28.7 $ 326.6 $ 118.0
========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Aetna Insurance Company of America (the "Company") is a stock life insurance
company organized in 1990 under the insurance laws of Connecticut. The Company
is a wholly owned subsidiary of Aetna Life Insurance and Annuity Company
("ALIAC"). ALIAC is a wholly owned subsidiary of Aetna Retirement Services, Inc.
("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company
("Aetna"). During the second quarter of 1995, the Company began marketing and
servicing variable and market value adjusted annuities through the Company's
Separate Accounts to individuals in the qualified and non-qualified markets.
Basis of Presentation
These financial statements have been prepared in conformity with generally
accepted accounting principles. Certain reclassifications have been made to
1994 and 1993 financial information to conform to 1995 presentation.
Accounting changes
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard
("FAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which requires the classification of debt securities into three
categories: "held to maturity", which are carried at amortized cost;
"available for sale", which are carried at fair value with changes in fair
value recognized as a component of shareholder's equity; and "trading", which
are carried at fair value with immediate recognition in income of changes in
fair value.
Initial adoption of this standard resulted in a net increase of $120.1
thousand, net of taxes of $64.6 thousand, to net unrealized gains in
shareholder's equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of ninety days or less when purchased.
Investments
At December 31, 1995 and 1994, all of the Company's debt securities are
classified as available for sale and carried at fair value. These securities
are written down (as realized losses) for other than temporary decline in
value. Unrealized gains and losses related to these securities, after
deducting related taxes, are reflected in shareholder's equity. Fair values
for debt securities are based on quoted market prices or dealer quotations.
Purchases and sales of debt securities are recorded on the trade date.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business have been deferred. These
costs, all of which vary with and are primarily related to the production of
new business, consist principally of commissions, certain expenses of
underwriting and issuing contracts and certain agency expenses. Such costs
are amortized in proportion to estimated gross profits and adjusted to
reflect actual gross profits and are amortized over twenty years. Deferred
policy acquisition costs are written off to the extent that it is determined
that future policy premiums and investment income or gross profits would not
be adequate to cover related losses and expenses.
Charges Assessed Against Policyholders
Charges assessed against policyholders' funds for surrender charges,
actuarial margin and other fees are recorded as revenue when earned.
12
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
Separate Accounts
Assets held under variable annuity contracts are segregated in Separate
Accounts and are invested, as designated by the contractholder, in shares of
mutual funds that are managed by ALIAC or other selected mutual funds not
managed by ALIAC. Separate Accounts assets and liabilities are carried at
fair value except for those relating to a guaranteed interest option which is
offered through a Separate Account. The assets of the Separate Account
supporting the guaranteed interest option are carried at an amortized cost of
$10.1 million for 1995 (fair value of $9.3 million), since the Company bears
the investment risk where the contract is held to maturity. Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.65% to 6.0% in 1995. Separate
Accounts assets and liabilities are shown as separate captions in the Balance
Sheets. Deposits, investment income and net realized and unrealized capital
gains (losses) of the Separate Accounts are not reflected in the Statements
of Income (with the exception of realized capital gains (losses) on the sale
of assets supporting the guaranteed interest option). The Statements of Cash
Flows do not reflect investment activity of the Separate Accounts.
Federal Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. The Company is taxed at regular corporate rates after adjusting income
reported for financial statement purposes for certain items. Deferred income
tax benefits result from changes during the year in cumulative temporary
differences between the tax basis and book basis of assets and liabilities.
2. Investments
Investments in debt securities available for sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995 (thousands)
U.S. Treasury securities $7,953.0 $237.4 $ 3.0 $8,187.4
======== ========= ========= =========
1994
U.S. Treasury securities $7,043.9 $ 4.2 $141.6 $6,906.5
======== ========= ========= =========
</TABLE>
The amortized cost and fair value of debt securities for the year ended
December 31, 1995 are shown below by contractual maturity. Actual maturities
may differ from contractual maturities because securities may be
restructured, called or prepaid.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due to mature: (thousands)
One year or less $2,526.1 $2,526.0
After one year through five years 5,426.9 5,661.4
--------- ---------
Total $7,953.0 $8,187.4
========= =========
</TABLE>
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Cash collateral, which is in excess of the market value of the loaned
securities, is deposited by the borrower with a lending agent, and retained
and invested by the lending agent to generate additional income for the
Company. The market value of the loaned securities is monitored on a daily
basis with additional collateral obtained or refunded as the market value
fluctuates. At December 31, 1995, the Company had no securities out on loan.
At December 31, 1995 and 1994, debt securities carried at $4.4 million and
$3.9 million, respectively, were on deposit as required by various state
regulatory agencies.
3. Capital Gains and Losses on Investments
Realized capital gains or losses are the difference between proceeds
received from investments sold or prepaid, and amortized cost. Net realized
capital gain on debt securities, as reflected in the Statements of Income for
the year ended December 31, 1995, were $8.3 thousand. For the years ended
December 31, 1994 and 1993 there were no realized capital gains or losses.
13
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
Unrealized capital gains (losses) on investments carried at fair value, net
of related taxes, reflected in shareholder's equity, were as follows for
December 31:
1995 1994
------ -------
Debt securities (thousands)
Gross unrealized gains $237.4 $ 4.2
Gross unrealized losses (3.0) (141.6)
------ -------
234.4 (137.4)
Deferred federal income taxes (See Note 6) 82.0 --
------ -------
Net unrealized capital gains (losses) $152.4 $(137.4)
====== =======
4. Net Investment Income
Sources of net investment income were as follows:
1995 1994 1993
------ ------ -------
(thousands)
Debt securities $457.5 $414.1 $425.7
Cash equivalents 261.1 205.2 135.3
Other 2.4 -- --
------ ------ -------
Gross investment income 721.0 619.3 561.0
Less investment expenses -- -- 1.0
------ ------ -------
Net investment income $721.0 $619.3 $560.0
====== ====== =======
5. Dividend Restrictions and Shareholder's Equity
The amount of dividends that may be paid to the shareholder in 1996
without prior approval by the Insurance Commissioner of the State of
Connecticut is $958.0 thousand.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity those amounts determined in
conformity with statutory accounting practices prescribed or permitted by the
Department, which differ in certain respects from generally accepted
accounting principles ("GAAP"). Statutory net income was $378.9 thousand,
$348.1 thousand and $312.3 thousand for the years ended December 31, 1995,
1994 and 1993, respectively. Statutory shareholder's equity was $12.1 million
and $11.8 million as of December 31, 1995 and 1994, respectively.
As of December 31, 1995 and 1994, the Company does not utilize any
statutory accounting practices which are not prescribed by insurance
regulators that, individually or in the aggregate, materially affect
statutory shareholder's equity.
6. Federal Income Taxes
The Company is included in the consolidated federal income tax return of
Aetna. Aetna allocates to each member an amount approximating the tax it would
have incurred were it not a member of the consolidated group, and credits the
member for the use of its tax saving attributes in the consolidated return.
14
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
Components of income tax expense (benefits) were as follows:
1995 1994 1993
------- ------ -------
Current tax expense: (thousands)
Income from operations $ 635.2 $188.1 $168.2
Net realized capital gains 2.9 -- --
------- ------ -------
638.1 188.1 168.2
------- ------ -------
Deferred tax benefit:
Income from operations (549.2) (.4) --
------- ------ -------
Total $ 88.9 $187.7 $168.2
======= ====== =======
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the
following reasons:
1995 1994 1993
------- ------ -------
(thousands)
Income before federal income taxes $256.8 $536.3 $480.5
Tax rate 35% 35% 35%
------- ------ -------
Application of the tax rate $ 89.9 $187.7 $168.2
Other, net (1.0) -- --
------- ------ -------
Income tax expense $ 88.9 $187.7 $168.2
======= ====== =======
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1994 are
presented below:
1995 1994
------ -------
Deferred tax assets: (thousands)
Net unrealized capital losses $ -- $48.1
Insurance reserves $1,054.6 --
Other, net -- .4
------ -------
Total gross assets 1,054.6 48.5
Less valuation allowance -- 48.1
------ -------
Deferred tax assets, net of
valuation 1,054.6 .4
Deferred tax liabilities:
Deferred policy acquisition costs 496.4 --
Net unrealized capital gains 82.0 --
Other 8.6 --
------ -------
Total gross liabilities 587.0 --
------ -------
Net deferred tax asset $ 467.6 $ .4
====== =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. At December 31, 1994, $137.4 thousand of net
unrealized capital losses were reflected in shareholder's equity without
deferred tax benefits. As of December 31, 1995, no valuation allowance was
required for unrealized capital gains and losses. The reversal of the
valuation allowance had no impact on net income in 1995. Management believes
that it is more likely than not that the Company will realize the benefit of
the net deferred tax asset.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1986. Discussions
are being held with the Service with respect to proposed adjustments.
However, management believes there are adequate defenses against, or
sufficient reserves to provide for, such challenges. The Service has
commenced its examinations for the years 1987 through 1990.
15
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
7. Benefit Plans
The Company utilizes the employees of Aetna and its affiliates (primarily
ALIAC). The following is a discussion of benefit plans as they apply to
ALIAC. The charges to operations of the Company for the utilization of these
employee's during 1995 were immaterial. There were no charges to operations
of the Company during 1994 and 1993 for the benefit plans described below.
Employee Pension Plans--ALIAC, in conjunction with Aetna, has
non-contributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over sixty consecutive months of
highest earnings in a 120 month period). Contributions are determined using
the Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are currently deductible for
tax reporting purposes. The accumulated benefit obligation and plan assets
are recorded by Aetna. The accumulated plan assets exceed accumulated plan
benefits.
Agent Pension Plans--ALIAC, in conjunction with Aetna, has a non-qualified
pension plan covering certain agents. The plan provides pension benefits
based on annual commission earnings. The accumulated plan assets exceed
accumulated plan benefits.
Employee Postretirement Benefits--In addition to providing pension
benefits, Aetna also provides certain postretirement health care and life
insurance benefits, subject to certain caps, for retired employees. Medical
and dental benefits are offered to all full-time employees retiring at age 50
with at least 15 years of service or at age 65 with at least 10 years of
service. Retirees are required to contribute to the plans based on their
years of service with Aetna.
Agent Postretirement Benefits--ALIAC, in conjunction with Aetna, also
provides certain postemployment health care and life insurance benefits for
certain agents. Incentive Savings Plan--Substantially all employees are
eligible to participate in a savings plan under which designated
contributions, which may be invested in common stock of Aetna or certain
other investments, are matched, up to 5% of compensation, by Aetna.
Stock Plans--Aetna has a stock incentive plan that provides for stock
options and deferred contingent common stock or cash awards to certain key
employees. Aetna also has a stock option plan under which executive and
middle management employees of Aetna may be granted options to purchase
common stock of Aetna at the market price on the date of grant or, in
connection with certain business combinations, may be granted options to
purchase common stock on different terms.
8. Related Party Transactions
Substantially all of the administrative and support functions of the
Company are provided by Aetna and its affiliates. The financial statements
reflect allocated charges, at cost, for these services based upon measures
appropriate for the type and nature of service provided. Total charges
allocated to the Company, including rent, salaries and other administrative
expenses, were $350.0 thousand and $1.0 thousand for the years ended December
31, 1995 and 1993, respectively. There were no charges in 1994.
The Company is compensated by the Separate Accounts for bearing mortality
and expense risks pertaining to variable annuity contracts. Under the
insurance contracts, the Separate Accounts pay the Company a daily fee which,
on an annual basis, is 1.40% of their average daily net assets. The amount of
compensation and fees received from the Separate Accounts, charges assessed
against policyholders, amounted to $132.7 thousand for the year ended
December 31, 1995. There were no charges assessed against policyholders for
the years ended December 31, 1994 and 1993.
16
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
Notes to Financial Statements (Continued)
9. Estimated Fair Value
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
1995 1994
------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
Assets: (thousands)
Cash and cash equivalents $4,044.2 $4,044.2 $4,732.7 $4,732.7
Debt securities 8,187.4 8,187.4 6,906.5 6,906.5
Fair value estimates are made at a specific point in time, based on
available market information and judgments about the financial instrument,
such as estimates of timing and amount of expected future cash flows. Such
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument, nor do they consider the tax impact of the realization
of unrealized gains or losses. In evaluating the Company's management of
interest rate and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company
in estimating the fair value of the above financial instruments:
Debt securities: Fair values are based on quoted market prices or dealer
quotations.
Off-Balance-Sheet Financial Instruments (including Derivative Financial
Instruments)
The Company did not have transactions in derivative instruments in 1995 or
1994.
10. Commitments and Contingent Liabilities
Commitments
At December 31, 1995 and 1994 the Company had no commitments or contingent
liabilities.
Litigation
There were no material legal proceedings pending against the Company as of
December 31, 1995 or 1994 which were beyond the ordinary course of business.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements. See Item 8 on Page 6.
Financial statement schedules. See Index to Financial Statement
2. Schedules on Page 19.
3. Exhibits:
3(a). Certificate of Incorporation
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-80750, as filed with the
Securities and Exchange Commission on June 23, 1994.
3(b). By-Laws
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-80750, as filed with the
Securities and Exchange Commission on June 23, 1994.
4. Instruments Defining the Rights of Security Holders, Including
Indentures (Annuity Contracts)
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-80750, as filed with the
Securities and Exchange Commission on June 23, 1994.
Incorporated herein by reference to Registration Statement
on Form N-4, File No. 33-59749, as filed with the
Securities and Exchange Commission on June 1, 1995.
Incorporated herein by reference to Pre-Effective Amendment
No. 3 to the Registration Statement on Form S-2, File No.
33-63657, as filed with the Securities and Exchange
Commission on October 24, 1994.
10. Material Contracts (Management contracts / compensatory plans or
arrangements)
The 1984 Stock Option Plan of Aetna Life and Casualty
Company and the amendments thereto; incorporated by
reference to Aetna Life and Casualty Company's 1992 Form
10-K, filed on March 17, 1993. (Commission File Number
1-5704)
Aetna Life and Casualty Company's Supplemental Incentive
Savings Plan; incorporated by reference to Aetna Life and
Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
Commission File Number 1-5704
Aetna Life and Casualty Company's Supplemental Pension
Benefit Plan; incorporated by reference to Aetna Life and
Casualty Company's 1992 Form 10-K, filed on March 17, 1993.
Commission File Number 1-5704
Aetna Life and Casualty Company's 1986 Management Incentive
Plan as amended effective February 25, 1994; incorporated
by reference to Aetna Life and Casualty Company's 1993 Form
10-K, filed on March 18, 1994. Commission File Number
1-5704.
Aetna Life and Casualty Company's 1994 Stock Incentive
Plan; incorporated by reference to 1994 Proxy Statement of
Aetna Life and Casualty Company.
25. Power of Attorney
Filed with this Report immediately after Signature page.
27. Financial Data Schedule
Exhibits other than these listed are omitted because they
are not required or not applicable.
(b) Reports on Form 8-K.
None.
18
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
-----
Independent Auditors' Report 20
I. Summary of Investments--Other than Investments in Affiliates as
of December 31, 1995 21
III. Supplementary Insurance Information as of and for the years
ended December 31, 1995, 1994, 1993 22
Schedules other than those listed above are omitted because they are not
required or are not applicable.
19
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Insurance Company of America:
Under date of March 20, 1996, we reported on the balance sheets of Aetna
Insurance Company of America as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholder's equity, and cash flows
for each of the years in the three-year period ended December 31, 1995, as
included herein. In connection with our audits of the aforementioned
financial statements, we also have audited the related financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in Note 1 to the financial statements, in 1993 the Company
changed its methods of accounting for certain investments in debt and equity
securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
March 20, 1996
20
<PAGE>
AETNA INSURANCE COMPANY OF AMERICA
(A wholly owned subsidiary of Aetna Life Insurance and Annuity Company)
SCHEDULE I
December 31, 1995
(thousands)
Amount at
Which Shown
in the
Balance
Type of Investment Cost Value* Sheeet
--------------------------------------- -------- -------- -------------
Debt Securities:
U.S. Treasury securities $7,953.0 $8,187.4 $8,187.4
-------- -------- -------------
Total Investments--other than
investments in affiliates $7,953.0 $8,187.4 $8,187.4
======== ======== =============
* See Notes 1, 2 and 9 to Financial Statements.
21
<PAGE>
SCHEDULE III
Supplementary Insurance Information
As of and for the years ended December 31, 1995, 1994 and 1993
(thousands)
<TABLE>
<CAPTION>
Policy-
Deferred Unpaid holders'
policy Future claims and funds left
acquisition policy Unearned claim with the
costs benefits premiums expenses company
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $2066.4 $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------
1994 $ -- $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------
1993 $ -- $ -- $ -- $ -- $ --
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Other income
(including Amortization
realized of deferred Current
Net capital policy Other & Future
Premium investment gains and acquisition operating benefits
revenue income (1) losses) costs expenses expenses
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $ -- $721.0 $ 141.0 $ -- $ 605.2 $ --
-------------------------------------------------------------------------------------------------------
1994 $ -- $ 619.3 $ -- $ -- $ 83.0 $ --
-------------------------------------------------------------------------------------------------------
1993 $ -- $ 560.0 $ -- $ -- $ 79.5 $ --
-------------------------------------------------------------------------------------------------------
</TABLE>
(1) The allocation of net investment income is based upon the investment year
method or specific identification of certain portfolios within specific
segments.
22
<PAGE>
Insurance products offered by:
Aetna Insurance Company of America
Securities offered through:
Aetna Investment Services, Inc.
151 Farmington Avenue
Hartford, CT 06156
Visit our home page on the Internet
http://www.aetna.com
[Aetna logo]
Aetna
Retirement
Services, Inc.
Printed on recycled paper
63657-2
