-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBeCojJoqZ+PaRlyaZMcAoPxPgsITVLBtojqk2ofS6ZhSjlxaoWJHcV/o3O8O54i /Vwr+bBA1AmkTmxTiuTYpA== 0000912057-96-008667.txt : 19960510 0000912057-96-008667.hdr.sgml : 19960510 ACCESSION NUMBER: 0000912057-96-008667 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INS & ANNUITY CO CENTRAL INDEX KEY: 0000103005 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-75996 FILM NUMBER: 96558318 BUSINESS ADDRESS: STREET 1: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 BUSINESS PHONE: 2032734808 MAIL ADDRESS: STREET 1: AETNA LIFE & CASUALTY STREET 2: 151 FARMINGTON AVE CITY: HARTFORD STATE: CT ZIP: 06156 FORMER COMPANY: FORMER CONFORMED NAME: VARIABLE ANNUITY ACCOUNT B OF AETNA VARIABLE ANNUITY LIFE IN DATE OF NAME CHANGE: 19791108 497 1 497 VARIABLE ANNUITY ACCOUNT B GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS MAY 1, 1996 SUPPLEMENT TO MAY 1, 1996 PROSPECTUS PRODUCERS' DEFERRED COMPENSATION PLAN PRODUCERS' INCENTIVE SAVINGS PLAN This supplement relates to the Producers' Deferred Compensation Plan and the Producers' Incentive Savings Plan (the "Plans") for career agents and certain brokers of Aetna Life Insurance Company and Aetna Life Insurance and Annuity Company. The Plans have met the criteria allowing for the reduction or elimination of certain charges under the Contract. Therefore, no maintenance fee or deferred sales charge will be deducted under the Contract. (See "Maintenance Fee - Reduction or Elimination of Maintenance Fee" and "Deferred Sales Charge - Reduction or Elimination of Deferred Sales Charge.") Form No. x75996.1-7 VARIABLE ANNUITY ACCOUNT B GROUP VARIABLE ANNUITY CONTRACTS FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS MAY 1, 1996 SUPPLEMENT TO MAY 1, 1996 PROSPECTUS The following is a negotiated provision regarding the deferred sales charge applicable to the participants of the American Chamber of Commerce Executives Deferred Compensation Plan. (See "Deferred Sales Charge - Reduction or Elimination of Deferred Sales Charge.") In addition to the applicable reasons listed in this Prospectus, a deferred sales charge is not deducted for any Account Value which is withdrawn due to the Participant's separation from service. Form No. x75996.2-7 Prospectus Dated: May 1, 1996 VARIABLE ANNUITY ACCOUNT B AETNAPLUS -- Variable Annuity Contracts for EMPLOYER -- SPONSORED DEFERRED COMPENSATION PLANS [LOGO] 75996-2 Aetna Life Insurance and Annuity Company PROSPECTUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Prospectus generally describes group deferred variable annuity contracts ("Contracts") issued by Aetna Life Insurance and Annuity Company (the "Company"). The Contracts are available through participation in (1) employer- sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Section 457 of the Internal Revenue Code of 1986, as amended ("Code") or by taxable organizations for their employees and/or independent contractors ("Non-Section 457 Plans"); or (2) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans") (collectively referred to as "Plans"). Only group contracts are currently offered for sale; however, "Contracts" shall also refer to employer-owned individual Contracts issued in connection with Plans in the past. The Contracts provide that contributions may be allocated to one or more of the Credited Interest Options or to one or more of the Subaccounts of Variable Annuity Account B, a separate account of the Company. The Subaccounts invest directly in shares of the following Funds: - Aetna Variable Fund - Fidelity VIP Growth Portfolio - Aetna Income Shares - Fidelity VIP Overseas Portfolio - Aetna Variable Encore Fund - Janus Aspen Aggressive Growth - Aetna Investment Advisers Fund, Portfolio Inc. - Janus Aspen Balanced Portfolio - Aetna Ascent Variable Portfolio - Janus Aspen Flexible Income - Aetna Crossroads Variable Portfolio Portfolio - Aetna Legacy Variable Portfolio - Janus Aspen Growth Portfolio - Alger American Growth Portfolio - Janus Aspen Short-Term Bond - Alger American Small Cap Portfolio Portfolio - Calvert Responsibly Invested - Janus Aspen Worldwide Growth Balanced Portfolio Portfolio - Fidelity VIP II Contrafund - Lexington Natural Resources Trust Portfolio - Neuberger & Berman Growth Portfolio - Fidelity VIP Equity-Income - Scudder International Portfolio Portfolio Class A Shares - TCI Growth (a Twentieth Century fund) The Credited Interest Options currently available under the Contract are the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account. Except as specifically mentioned, this Prospectus describes only investments through the Separate Account. A brief description of each of the Credited Interest Options is contained in Appendices to this Prospectus. Additional information concerning the Guaranteed Accumulation Account is contained in a separate prospectus. The availability of the Funds and the Credited Interest Options is subject to applicable regulatory authorization. Not all Funds or Credited Interest Options may be available in all jurisdictions, under all Contracts, or in all Plans. Please check with your employer to determine option availability. (See "Investment Options.") This Prospectus provides investors with the information that they should know about the Separate Account before investing in the Contract through the Separate Account. Additional information about the Separate Account is contained in a Statement of Additional Information ("SAI") which is available at no charge. The SAI has been filed with the Securities and Exchange Commission and is incorporated herein by reference. The Table of Contents for the SAI is printed on page 17 of this Prospectus. An SAI may be obtained by indicating the request on the enrollment form or on the prospectus receipt contained in this Prospectus, or by calling the number listed under the "Inquiries" section of the Prospectus Summary. THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE FUNDS AND GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. THE SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1, 1996 TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DEFINITIONS.......................................................................... DEFINITIONS - 1 PROSPECTUS SUMMARY................................................................... SUMMARY - 1 FEE TABLE............................................................................ FEE TABLE - 1 CONDENSED FINANCIAL INFORMATION...................................................... AUV HISTORY - 1 THE COMPANY.......................................................................... 1 VARIABLE ANNUITY ACCOUNT B........................................................... 1 INVESTMENT OPTIONS................................................................... 1 The Funds........................................................................ 1 Credited Interest Options........................................................ 4 PURCHASE............................................................................. 4 Contract Availability............................................................ 4 Contract Purchase................................................................ 4 Purchase Payments................................................................ 4 Right to Cancel.................................................................. 5 Transfer Credits................................................................. 5 CHARGES AND DEDUCTIONS............................................................... 5 Daily Deductions from the Separate Account....................................... 5 Maintenance Fee.................................................................. 6 Deferred Sales Charge............................................................ 6 Fund Expenses.................................................................... 7 Premium and Other Taxes.......................................................... 7 CONTRACT VALUATION................................................................... 8 Account Value.................................................................... 8 Accumulation Units............................................................... 8 Net Investment Factor............................................................ 8 TRANSFERS............................................................................ 8 Dollar Cost Averaging Program.................................................... 8 WITHDRAWALS.......................................................................... 9 ADDITIONAL WITHDRAWAL OPTIONS........................................................ 9 DEATH BENEFIT DURING ACCUMULATION PERIOD............................................. 10 ANNUITY PERIOD....................................................................... 10 Annuity Period Elections......................................................... 10 Annuity Options.................................................................. 11 Annuity Payments................................................................. 12 Charges Deducted During the Annuity Period....................................... 12 Death Benefit Payable During the Annuity Period.................................. 12 TAX STATUS........................................................................... 13 Introduction..................................................................... 13 Taxation of the Company.......................................................... 13 Tax Status of the Contract....................................................... 13 Contracts Used With Certain Retirement Plans..................................... 13 Section 457 Plans................................................................ 14 Plans of Non-Section 457 Tax-Exempt Organizations and Taxable Organizations...... 14 MISCELLANEOUS........................................................................ 15 Voting Rights.................................................................... 15 Modification of the Contract..................................................... 15 Distribution..................................................................... 16 Performance Reporting............................................................ 16 Transfer of Ownership; Assignment................................................ 16 Delay or Suspension of Payments.................................................. 16 Legal Matters and Proceedings.................................................... 17
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.................................. 17 APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT.......................................... 18 APPENDIX II--FIXED ACCOUNT........................................................... 19 APPENDIX III--FIXED PLUS ACCOUNT..................................................... 20
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 LAWFULLY BE MADE. DEFINITIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- As used in this Prospectus, the following terms have the meanings shown: ACCOUNT: A record established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. ACCOUNT YEAR: A period of twelve months measured from the date on which an Account is established (the effective date) or from an anniversary of such effective date. ACCOUNT VALUE: The total dollar value of amounts held in an Account as of any Valuation Date during the Accumulation Period. ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an Account are invested to fund future annuity payments. ACCUMULATION UNIT: A measure of the value of each Subaccount before Annuity payments begin. AGGREGATE PURCHASE PAYMENT(S): The sum of all Purchase Payment(s) made under a Contract. ANNUITANT: The person on whose life or life expectancy the annuity payments are based. ANNUITY: A series of payments for life, for a definite period or a combination of the two. ANNUITY PERIOD: The period during which annuity payments are made. ANNUITY UNIT: A measure of the value of each Subaccount selected during the Annuity Period. CODE: The Internal Revenue Code of 1986, as amended. COMPANY (WE, US): Aetna Life Insurance and Annuity Company. CONTRACTS: The group and individual deferred, variable annuity contracts described in this Prospectus. CONTRACT BENEFICIARY: The Contract Holder is the Contract Beneficiary. CONTRACT HOLDER: The entity to which the Contract is issued (generally the employer). The Contract Holder has all right, title and interest in amounts held under the Contract. CREDITED INTEREST OPTIONS: The fixed interest options under the Contract. The Credited Interest Options currently consist of the Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account, each of which is described in an Appendix to this Prospectus. Amounts allocated to the Credited Interest Options are included in the Account Value. FUND(S): An open-end management investment company whose shares are purchased by the Separate Account to fund the benefits provided by the Contracts. HOME OFFICE: The Company's principal executive offices located at 151 Farmington Avenue, Hartford, Connecticut 06156. NON-SECTION 457 PLAN(S): Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors. PARTICIPANT (YOU): A person participating in a Plan maintained by an eligible organization. Participants have no rights to the assets accumulated under the Plan. PLAN(S): Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations and/or taxable organizations for their employees or independent contractors (or both). - -------------------------------------------------------------------------------- DEFINITIONS - 1 PLAN ACCOUNT: The record established for a Contract Holder of the net Purchase Payments accumulated under a Contract where Accounts are not maintained. PLAN BENEFICIARY: The person entitled to receive benefits under the Plan in the event of the Participant's death. PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract. PURCHASE PAYMENT PERIOD: For "Installment Purchase Payment Accounts" the period of time for completion of the agreed upon annual number and amount of Purchase Payments. For example, if it is determined that the Purchase Payment Period will consist of 12 payments per year and only 11 payments are made, the Purchase Payment Period is not completed until the twelfth Purchase Payment is made. SECTION 457 PLAN(S): Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors. SEPARATE ACCOUNT: Variable Annuity Account B, a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. SUBACCOUNT(S): The portion of the assets of the Separate Account that is allocated to a particular Fund. Each Subaccount invests in the shares of only one corresponding Fund. VALUATION DATE: The date and time at which the value of a Subaccount is calculated. Currently, this calculation occurs at the close of business of the New York Stock Exchange on any normal business day, Monday through Friday, that the New York Stock Exchange is open. - -------------------------------------------------------------------------------- DEFINITIONS - 2 PROSPECTUS SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACTS OFFERED The Contracts offered in this Prospectus are group deferred variable annuity contracts issued by Aetna Life Insurance and Annuity Company (the "Company"). The purpose of the Contract is to accumulate values and to provide benefits upon retirement to Participants under: (1) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors ("Non-Section 457 Plans"), and (2) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans"). CONTRACT PURCHASE The Contract may be purchased by eligible organizations on behalf of a group made up of their employees and/or independent contractors. An Account is established for eligible employees by completing the enrollment form (and any other required forms) and submitting them to the Company. Purchase Payments can be applied to the Contract either through a lump-sum transfer from a pre-existing plan or through periodic salary reductions or employer contributions. (See "Purchase.") FREE LOOK PERIOD Contract Holders have the right to cancel their Contract within 10 days after receiving it (or as otherwise allowed by state law) by returning it to us along with a written notice of cancellation. Unless state law requires otherwise, the amount received upon cancellation under this provision may reflect the investment performance of the Purchase Payments deposited in the Separate Account while invested. In certain cases, this may be less than the amount of the Purchase Payments. (See "Purchase--Right to Cancel.") INVESTMENT OPTIONS The Company has established Variable Annuity Account B, a registered unit investment trust, for the purpose of funding the variable portion of the Contracts. The Separate Account is divided into subaccounts which invest directly in shares of the Funds described herein. The Contract allows investment in any or all of the Subaccounts, as well as in the Credited Interest Options described below. For a complete list of the Funds available under the Contracts, and a description of the investment objectives of each of the Funds and their investment advisers, see "Investment Options-- The Funds" in this Prospectus, as well as the prospectuses for each of the Funds. The Contract also provides for investment in Credited Interest Options, which earn fixed rates of interest. The fixed options available under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.) CHARGES AND DEDUCTIONS Certain charges are associated with these Contracts. These charges include daily deductions from the Separate Account (the mortality and expense risk charge and an administrative charge), any annual maintenance fee, and premium and other taxes. The Funds also incur certain fees and expenses which are deducted directly from the Funds. A deferred sales charge may apply upon a full or partial withdrawal of the Account Value. (See the Fee Table and "Charges and Deductions.") TRANSFERS Prior to the Annuity Date, and subject to certain limitations, Account Values may be transferred among the Subaccounts and the Credited Interest Options without charge. Transfers can be requested in writing or by telephone in accordance with the Company's transfer procedures. (See Appendices I, II and III for a full description of the restrictions applicable to transfers from the Credited Interest Options.) (See "Transfers.") - -------------------------------------------------------------------------------- SUMMARY - 1 WITHDRAWALS The Contract Holder may withdraw all or a part of the Account Value prior to the Annuity Date by properly completing a disbursement form and sending it to the Company. Limitations apply to withdrawals from the Fixed Plus Account. Certain charges may be assessed upon withdrawal. The withdrawals may also be subject to income tax. (See "Withdrawals.") The Contract also offers certain Additional Withdrawal Options during the Accumulation Period to persons meeting certain criteria. Additional Withdrawal Options are not available in all states and may not be suitable in every situation. (See "Additional Withdrawal Options.") DEATH BENEFIT The Contract provides that a Death Benefit is payable to the Contract Beneficiary upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the Death Benefit will be equal to the Account Value. Until the election of a method of payment, the Account Value will remain invested under the Contract. The Contract Holder on behalf of a Plan Beneficiary may elect to receive the proceeds in a lump sum or under any of the payment options available under the Contract. However, the Code requires that distributions begin within a certain time period. (See "Death Benefit During Accumulation Period.") After Annuity Payments have commenced, a death benefit may be payable to the Contract Beneficiary depending upon the terms of the Contract and the Annuity Option selected. (See "Annuity Period--Death Benefit Payable During the Annuity Period.") THE ANNUITY PERIOD On the Annuity Date, the Contract Holder, on your behalf, may elect to begin receiving Annuity Payments on either a fixed, variable or combination of fixed and variable basis. If a variable payout is selected, the payments will vary with the investment performance of the Subaccount(s) selected. The Company reserves the right to limit the number of Subaccounts that may be available during the Annuity Period. (See "Annuity Period.") TAXES Contributions and earnings are not generally taxed until paid or made available under the employer's Plan. Withholding for income tax may be imposed on certain withdrawals. (See "Tax Status.") INQUIRIES Questions, inquiries or requests for additional information can be directed to your agent or local representative, or you may contact the Company as follows: - Write to: Aetna Life Insurance and Annuity Company 151 Farmington Avenue Hartford, Connecticut 06156-1277 Attention: Customer Service - Call Customer Service: 1-800-525-4225 (for automated transfers or changes in the allocation of Account Values, call: 1-800-262-3862)
- -------------------------------------------------------------------------------- SUMMARY - 2 FEE TABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Fee Table describes the various charges and expenses associated with the Contract during the Accumulation Period. For amounts deducted during the Annuity Period, see "Charges Deducted During the Annuity Period." No sales charge is paid when the Contract is purchased. Some expenses may vary as explained under "Charges and Deductions." The charges and expenses shown below do not include premium taxes that may be applicable. For more information regarding expenses paid out of assets of a particular Fund, see the Fund's prospectus. DIRECT CHARGES. These charges are deducted daily from the Account Value. They include: DEFERRED SALES CHARGE. The deferred sales charge is deducted as a percentage of the amount withdrawn. The total amount deducted for the deferred sales charge will not exceed 8.5% of the total Purchase Payments applied to the Account. The amount of the deferred sales charge is calculated as follows:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS PURCHASE PAYMENT PERIODS COMPLETED DEDUCTION - ---------------------------------------- --------- Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or more but less than 10 2% more than 10 0% SINGLE PURCHASE PAYMENT ACCOUNTS ACCOUNT YEARS COMPLETED DEDUCTION - ---------------------------------------- --------- Less than 5 5% 5 or more but less than 6 4% 6 or more but less than 7 3% 7 or more but less than 8 2% 8 or more but less than 9 1% 9 or more 0%
ANNUAL CONTRACT MAINTENANCE FEE--Installment Purchase Payment Accounts.................... $ 20.00 --Single Purchase Payment Accounts.......................... $ 0.00 The maintenance fee will generally be deducted annually from each Account during the Accumulation Period. The amount of maintenance fee may be reduced or eliminated under group Contracts. (See "Charges and Deductions.") The amount shown is the MAXIMUM maintenance fee that can be deducted under the Contract.
INDIRECT CHARGES. Each Subaccount pays these expenses out of its assets. The charges are reflected in the Subaccount's daily Accumulation Unit Value and are not charged directly to an Account. They include: MORTALITY AND EXPENSE RISK CHARGE......................................................... 1.25% ADMINISTRATIVE EXPENSE CHARGE. We currently do not impose an Administrative............... 0.00% Expense Charge. However, we reserve the right to deduct a daily charge from the Subaccounts, equivalent on an annual basis to not more than 0.25%. --------- TOTAL SEPARATE ACCOUNT CHARGES............................................................ 1.25% --------- ---------
- -------------------------------------------------------------------------------- FEE TABLE - 1 ANNUAL EXPENSES OF THE FUNDS The following table illustrates the advisory fees and other expenses applicable to the Funds. Except as noted, the following figures are a percentage of average net assets and, except where otherwise indicated, are based on figures for the year ended December 31, 1995. A Fund's "Other Expenses" include operating costs of the Fund. These expenses are reflected in the Fund's net asset value and are not deducted from the Account Value under the Contract.
INVESTMENT ADVISORY FEES(1) OTHER EXPENSES TOTAL FUND (AFTER EXPENSE (AFTER EXPENSE ANNUAL REIMBURSEMENT) REIMBURSEMENT) EXPENSES -------------- -------------- ----------- Aetna Variable Fund(2) 0.25% 0.06% 0.31% Aetna Income Shares(2) 0.25% 0.08% 0.33% Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35% Aetna Investment Advisers Fund, Inc.(2) 0.25% 0.08% 0.33% Aetna Ascent Variable Portfolio(2) 0.50% 0.15% 0.65% Aetna Crossroads Variable Portfolio(2) 0.50% 0.15% 0.65% Aetna Legacy Variable Portfolio(2) 0.50% 0.15% 0.65% Alger American Growth Portfolio 0.75% 0.10% 0.85% Alger American Small Cap Portfolio 0.85% 0.07% 0.92% Calvert Responsibly Invested Balanced Portfolio(3) 0.70% 0.13% 0.83% Fidelity VIP II Contrafund Portfolio(4) 0.61% 0.11% 0.72% Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61% Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70% Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91% Janus Aspen Aggressive Growth Portfolio(5) 0.75% 0.11% 0.86% Janus Aspen Balanced Portfolio(5) 0.82% 0.55% 1.37% Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07% Janus Aspen Growth Portfolio(5) 0.65% 0.13% 0.78% Janus Aspen Short-Term Bond Portfolio(5) 0.00% 0.70% 0.70% Janus Aspen Worldwide Growth Portfolio(5) 0.68% 0.22% 0.90% Lexington Natural Resources Trust 1.00% 0.47% 1.47% Neuberger & Berman Growth Portfolio(6) 0.84% 0.10% 0.94% Scudder International Portfolio Class A Shares 0.88% 0.20% 1.08% TCI Growth(7) 1.00% 0.00% 1.00%
- -------------------------- (1) Certain of the unaffiliated Fund advisers reimburse the Company for administrative costs incurred in connection with administering the Funds as variable funding options under the Contract. These reimbursements are paid out of the investment advisory fees and are not charged to investors. (2)As of May 1, 1996, the Company will provide administrative services to the Fund and will assume the Fund's ordinary recurring direct costs under an Administrative Services Agreement. The "Other Expenses" shown are not based on figures for the year ended December 31, 1995, but reflect the fee payable under this Agreement. (3)The Management and Advisory Fees are subject to a performance adjustment, after July 1, 1996, which could cause the fee to be as high as 0.85% or as low as 0.55%, depending on performance. "Other Expenses" reflect an indirect fee of 0.02%. Net fund operating expenses after reduction for fees paid indirectly would be 0.81%. (4) A portion of the brokerage commission the Fund paid was used to reduce its expenses. Without this reduction, total operating expenses would have been 0.73% for the Contrafund Portfolio. (5) The information for each Portfolio is net of fee waivers or reductions from Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth, and Worldwide Growth Portfolios reduce the management fee to the level of the corresponding Janus retail fund. Other waivers, if applicable, are first applied against management fee and then against other expenses. Without such waivers or reductions, the Investment Advisory Fees, Other Expenses and Total Fund Annual Expenses would have been: 0.82%, 0.11 % and 0.93%, respectively, for Janus Aspen Aggressive Growth Portfolio; 1.00%, 0.55% and 1.55%, respectively, for Janus Aspen Balanced Portfolio; 0.85%, 0.13% and 0.98%, respectively, for Janus Aspen Growth Portfolio; 0.65%, 0.72% and 1.37%, respectively, for Janus Aspen Short-Term Bond Portfolio; and 0.87%, 0.22% and 1.09%, respectively, for Janus Aspen Worldwide Growth Portfolio. Janus Capital may modify or terminate the waivers or reductions at any time upon 90 days' notice to the Portfolio's Board of Trustees. (6) Neuberger & Berman Advisers Management Trust (the "Trust") is divided into portfolios ("Portfolios"), each of which invests all of its net investable assets in a corresponding series ("Series") of Advisers Managers Trust. Expenses in the table reflect expenses of the Portfolio and include the Portfolio's pro rata portion of the operating expenses of the Portfolio's corresponding Series. The Portfolio pays Neuberger & Berman Management Inc. ("NBMI") an administration fee based on the Portfolio's net asset value. The - -------------------------------------------------------------------------------- FEE TABLE - 2 corresponding Series of the Portfolio pays NBMI a management fee based on the Series' average daily net assets. Accordingly, this table combines management fees at the Series level and administration fees at the Portfolio level in a unified fee rate. (See "Expenses" in the Trust's prospectus.) (7) The Portfolio's investment adviser pays all expenses of the Portfolio except brokerage commissions, taxes, interest, fees, expenses of the non-interested person directors (including counsel fees) and extraordinary expenses. These expenses have historically represented a very small percentage (less than 0.01%) of total net assets in a fiscal year. HYPOTHETICAL ILLUSTRATION (EXAMPLE) THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW. The following Examples illustrate the expenses that would have been paid assuming a $1,000 investment in the Contract and a 5% return on assets. For the purposes of these Examples, the maximum maintenance fee of $20.00 that can be deducted under the Contract has been converted to a percentage of assets equal to 0.021%.
EXAMPLE A EXAMPLE B ------------------------------------- ------------------------------------- IF YOU WITHDRAW YOUR ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW YOUR ACCOUNT VALUE AT THE END OF THE PERIODS VALUE, OR IF YOU ANNUITIZE AT THE END SHOWN, YOU WOULD PAY THE FOLLOWING OF THE PERIODS SHOWN, YOU WOULD PAY EXPENSES, INCLUDING ANY APPLICABLE THE FOLLOWING EXPENSES (NO DEFERRED DEFERRED SALES CHARGE: SALES CHARGE IS REFLECTED):* 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- Aetna Variable Fund $68 $105 $145 $188 $16 $50 $ 86 $188 Aetna Income Shares $68 $106 $146 $190 $16 $51 $ 87 $190 Aetna Variable Encore Fund $68 $106 $147 $192 $16 $51 $ 88 $192 Aetna Investment Advisers Fund, Inc. $68 $106 $146 $190 $16 $51 $ 87 $190 Aetna Ascent Variable Portfolio $71 $115 $162 $224 $20 $60 $104 $224 Aetna Crossroads Variable Portfolio $71 $115 $162 $224 $20 $60 $104 $224 Aetna Legacy Variable Portfolio $71 $115 $162 $224 $20 $60 $104 $224 Alger American Growth Portfolio $73 $121 $172 $245 $22 $66 $114 $245 Alger American Small Cap Portfolio $74 $123 $175 $252 $22 $69 $118 $252 Calvert Responsibly Invested Balanced Portfolio $73 $120 $171 $243 $21 $66 $113 $243 Fidelity VIP II Contrafund Portfolio $72 $117 $165 $232 $20 $62 $107 $232 Fidelity VIP Equity-Income Portfolio $71 $114 $160 $220 $19 $59 $102 $220 Fidelity VIP Growth Portfolio $72 $117 $164 $230 $20 $62 $106 $230 Fidelity VIP Overseas Portfolio $74 $123 $174 $251 $22 $68 $117 $251 Janus Aspen Aggressive Growth Portfolio $73 $121 $172 $246 $22 $67 $114 $246 Janus Aspen Balanced Portfolio $78 $136 $196 $297 $27 $82 $140 $297 Janus Aspen Flexible Income Portfolio $75 $127 $182 $268 $24 $73 $125 $268 Janus Aspen Growth Portfolio $72 $119 $168 $238 $21 $64 $110 $238 Janus Aspen Short-Term Bond Portfolio $72 $117 $164 $230 $20 $62 $106 $230 Janus Aspen Worldwide Growth Portfolio $73 $122 $174 $250 $22 $68 $117 $250 Lexington Natural Resources Trust $79 $139 $201 $307 $28 $85 $145 $307 Neuberger & Berman Growth Portfolio $74 $123 $176 $255 $22 $69 $119 $255 Scudder International Portfolio Class A Shares $75 $127 $183 $269 $24 $73 $126 $269 TCI Growth $74 $125 $179 $261 $23 $71 $122 $261
- -------------------------- *This Example would not apply if a nonlifetime variable annuity option is selected, and a lump-sum settlement is requested within three years after annuity payments start since the lump-sum payment will be treated as a withdrawal during the Accumulation Period and will be subject to any deferred sales charge that would then apply. (Refer to Example A.) - -------------------------------------------------------------------------------- FEE TABLE - 3 CONDENSED FINANCIAL INFORMATION (SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
1995 1994 1993 1992 1991 1990 ------------ ------------ ---------- ---------- ----------- --------- AETNA VARIABLE FUND Value at beginning of period $10.698 $10.940 $10.378 $84.249 $67.496 $66.174 Value at end of period $13.972 $10.698 $10.940 $10.378(2) $84.249 $67.496 Increase (decrease) in value of accumulation unit(1) 30.61% (2.21)% 5.41% (2) 24.82% 2.00% Number of accumulation units outstanding at end of period 30,554,957 11,117,383 879,670 3,107 908,777 810,126 AETNA INCOME SHARES Value at beginning of period $10.457 $11.006 $10.160 $37.815 $32.066 $29.752 Value at end of period $12.212 $10.457 $11.006 $10.160(3) $37.815 $32.066 Increase (decrease) in value of accumulation unit(1) 16.78% (4.99)% 8.33% (3) 17.93% 7.78% Number of accumulation units outstanding at end of period 4,853,662 1,988,960 166,913 4,196 427,893 358,454 AETNA VARIABLE ENCORE FUND Value at beginning of period $10.509 $10.223 $10.031 $34.122 $32.431 $30.285 Value at end of period $11.007 $10.509 $10.223 $10.031(4) $34.122 $32.431 Increase (decrease) in value of accumulation unit(1) 4.73% 2.79% 1.91% (4) 5.21% 7.09% Number of accumulation units outstanding at end of period 4,354,272 1,822,449 90,782 2,808 548,425 722,438 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.971 $11.164 $10.286 $12.717 $10.882 $10.423 Value at end of period $13.803 $10.971 $11.164 $10.286(6) $12.717 $10.882 Increase (decrease) in value of accumulation unit(1) 25.81% (1.73)% 8.54% (6) 16.86% 4.40% Number of accumulation units outstanding at end of period 6,430,772 3,541,703 318,711 6,537 1,324,822 984,798 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.652 Increase (decrease) in value of accumulation unit(1) 6.52% Number of accumulation units outstanding at end of period 16,791 AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.594 Increase (decrease) in value of accumulation unit(1) 5.94% Number of accumulation units outstanding at end of period 16,953 AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period $10.000(8) Value at end of period $10.443 Increase (decrease) in value of accumulation unit(1) 4.43% Number of accumulation units outstanding at end of period 2,222 1989 1988 1987 1986 --------- --------- ---------- ---------- AETNA VARIABLE FUND Value at beginning of period $51.900 $45.839 $43.994 $37.445 Value at end of period $66.174 $51.900 $45.839 $43,994 Increase (decrease) in value of accumulation unit(1) 27.50% 13.22% 4.19% 17.49% Number of accumulation units outstanding at end of period 831,547 887,039 1,020,744 1,273,920 AETNA INCOME SHARES Value at beginning of period $26.291 $24.734 $23.888 $21.203 Value at end of period $29,752 $26.291 $24.734 $23.888 Increase (decrease) in value of accumulation unit(1) 13.16% 6.29% 3.54% 12.66% Number of accumulation units outstanding at end of period 366,176 383,856 377,078 565,148 AETNA VARIABLE ENCORE FUND Value at beginning of period $28.029 $26.401 $25.028 $23.660 Value at end of period $30.285 $28.029 $26.401 $25.028 Increase (decrease) in value of accumulation unit(1) 8.05% 6.17% 5.49% 5.78% Number of accumulation units outstanding at end of period 653,619 720,726 898,557 881,853 AETNA INVESTMENT ADVISERS FUND, INC. Value at beginning of period $10.000(5) Value at end of period $10.423 Increase (decrease) in value of accumulation unit(1) 4.23% Number of accumulation units outstanding at end of period 639,219 AETNA ASCENT VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA CROSSROADS VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period AETNA LEGACY VARIABLE PORTFOLIO Value at beginning of period Value at end of period Increase (decrease) in value of accumulation unit(1) Number of accumulation units outstanding at end of period
- -------------------------------------------------------------------------------- AUV HISTORY - 1 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 ------------ ------------ ----------- ---------- ALGER AMERICAN GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.157 Increase (decrease) in value of accumulation unit(1) 1.57% Number of accumulation units outstanding at end of period 275,494 ALGER AMERICAN SMALL CAP PORTFOLIO Value at beginning of period $ 9.622 $10.307 $10.000(9) Value at end of period $13.714 $ 9.622 $10.307 Increase (decrease) in value of accumulation unit(1) 42.52% (6.64)% 3.07% Number of accumulation units outstanding at end of period 1,364,901 441,809 31,855 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO* Value at beginning of period $10.518 $11.010 $10.296 $10.000(10) Value at end of period $13.480 $10.518 $11.010 $10.296 Increase (decrease) in value of accumulation unit(1) 28.17% (4.47)% 6.93% 2.96% Number of accumulation units outstanding at end of period 25,730 752 1,383 82 FIDELITY VIP II CONTRAFUND PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.468 Increase (decrease) in value of accumulation unit(1) 4.68% Number of accumulation units outstanding at end of period 379,862 FIDELITY VIP EQUITY-INCOME PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $11.054 Increase (decrease) in value of accumulation unit(1) 10.54% Number of accumulation units outstanding at end of period 294,244 FIDELITY VIP GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.066 Increase (decrease) in value of accumulation unit(1) 0.66% Number of accumulation units outstanding at end of period 288,576 FIDELITY VIP OVERSEAS PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.052 Increase (decrease) in value of accumulation unit(1) 0.52% Number of accumulation units outstanding at end of period 33,813 JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Value at beginning of period $10.319 $10.000(11) Value at end of period $12.992 $10.319 Increase (decrease) in value of accumulation unit(1) 25.91% 3.19% Number of accumulation units outstanding at end period 723,839 131,702 JANUS ASPEN BALANCED PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.835 Increase (decrease) in value of accumulation unit(1) 8.35% Number of accumulation units outstanding at end period 7,772 JANUS ASPEN FLEXIBLE INCOME PORTFOLIO Value at beginning of period $ 9.886 $10.000(11) Value at end of period $12.094 $ 9.886 Increase (decrease) in value of accumulation unit(1) 22.33% (1.14)% Number of accumulation units outstanding at end of period 84,048 15,893 JANUS ASPEN GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.870 Increase (decrease) in value of accumulation unit(1) 8.70% Number of accumulation units outstanding at end period 26,022 JANUS ASPEN SHORT-TERM BOND PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.325 Increase (decrease) in value of accumulation unit(1) 3.25% Number of accumulation units outstanding at end period 2,678
- -------------------------------------------------------------------------------- AUV HISTORY - 2 CONDENSED FINANCIAL INFORMATION (CONTINUED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
1995 1994 1993 1992 ------------ ------------ ----------- ---------- JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Value at beginning of period $10.000(7) Value at end of period $10.893 Increase (decrease) in value of accumulation unit(1) 8.93% Number of accumulation units outstanding at end period 227,582 LEXINGTON NATURAL RESOURCES TRUST Value at beginning of period $ 9.079 $ 9.716 $10.000(12) Value at end of period $10.479 $ 9.079 $ 9.716 Increase (decrease) in value of accumulation unit(1) 15.42% (6.56)% (2.84)% Number of accumulation units outstanding at end of period 162,462 141,076 27,908 NEUBERGER & BERMAN GROWTH PORTFOLIO Value at beginning of period $12.199 $12.990 $10.123 $10.000(10) Value at end of period $15.871 $12.199 $12.990 $10.123 Increase (decrease) in value of accumulation unit(1) 30.10% (6.09)% 28.32% 1.23% Number of accumulation units outstanding at end of period 526,542 228,370 71,556 2,275 SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES Value at beginning of period $13.372 $13.654 $10.051 $10.000(10) Value at end of period $14.674 $13.372 $13.654 $10.051 Increase (decrease) in value of accumulation unit(1) 9.74% (2.07)% 35.85% 0.51% Number of accumulation units outstanding at end of period 720,017 652,630 144,303 324 TCI GROWTH Value at beginning of period $10.883 $11.159 $10.232 $10.000(13) Value at end of period $14.091 $10.883 $11.159 $10.232 Increase (decrease) in value of accumulation unit(1) 29.47% (2.48)% 9.06% 2.32% Number of accumulation units outstanding at end of period 2,735,782 1,123,366 261,107 4,284
(1) The above figures are calculated by subtracting the beginning Accumulation Unit value from the ending Accumulation Unit value during a calendar year, and dividing the result by the beginning Accumulation Unit value. These figures do not reflect the deferred sales charges or the fixed dollar annual maintenance fee, if any. Inclusion of these charges would reduce the investment results shown. (2) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $85.546. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 1.54%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 3.78%. (3) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $39.496. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 4.45%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 1.60%. (4) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $34.828. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 2.07%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 0.31%. (5) The initial Accumulation Unit value was established at $10.000 on June 23, 1989, the date on which the Fund commenced operations. (6) The Accumulation Unit value was converted to $10.000 on November 2, 1992 upon the commencement of a new administrative system. Immediately prior to that date, the Accumulation Unit value of the Fund was $12.991. On the date of conversion, additional units were issued so that account values were not changed as a result of the conversion. The percentage change in the Accumulation Unit value from the beginning of the year to the date of conversion was 2.15%; the percentage change in the Accumulation Unit value from the date of conversion to the end of the year was 2.86%. (7) The initial Accumulation Unit value was established at $10.000 during August 1995, when the Fund became available under the Contract. (8) The initial Accumulation Unit value was established at $10.000 during September 1995, when the Fund became available under the Contract. (9) The initial Accumulation Unit value was established at $10.000 on September 17, 1993, the date on which the Portfolio became available under the Contract. (10) The initial Accumulation Unit value was established at $10.000 on November 2, 1992, the date on which the Fund/Portfolio became available under the Contract. (11) The initial Accumulation Unit value was established at $10.000 during October 1994, when the funds were first received in this option. (12) The initial Accumulation Unit value was established at $10.000 on May 26, 1993, the date on which the Fund became available under the Contract. (13) The initial Accumulation Unit value was established at $10.000 on August 21, 1992, the date on which the Fund became available under the Contract. * Formerly Calvert Socially Responsible Series - -------------------------------------------------------------------------------- AUV HISTORY - 3 THE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Aetna Life Insurance and Annuity Company (the "Company") is the issuer of the Contract, and as such, it is responsible for providing the insurance and annuity benefits under the Contract. The Company is a stock life insurance company organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company), an Arkansas life insurance company organized in 1954. The Company is engaged in the business of issuing life insurance policies and variable annuity contracts in all states of the United States. The Company's principal executive offices are located at 151 Farmington Avenue, Hartford, Connecticut 06156. The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of Aetna Life and Casualty Company. VARIABLE ANNUITY ACCOUNT B - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company established Variable Annuity Account B (the "Separate Account") in 1976 as a segregated asset account for the purpose of funding its variable annuity contracts. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"), and meets the definition of "separate account" under federal securities laws. The Separate Account is divided into "subaccounts" which do not invest directly in stocks, bonds or other investments. Instead, each Subaccount buys and sells shares of a corresponding Fund. Although the Company holds title to the assets of the Separate Account, such assets are not chargeable with liabilities arising out of any other business conducted by the Company. Income, gains or losses of the Separate Account are credited to or charged against the assets of the Separate Account without regard to other income, gains, or losses of the Company. All obligations arising under the Contracts are general corporate obligations of the Company. INVESTMENT OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FUNDS The Contract Holder (or you if allowed by the Contract Holder) may allocate Purchase Payments to one or more of the Subaccounts as designated on the enrollment form. In turn, the Subaccounts invest in the corresponding Funds at net asset value. The Contract Holder may decide to offer only a select number of Funds under its Plan, or it may decide to substitute shares of one Fund for shares of another Fund currently held by the Separate Account. In addition, the availability of Funds may be subject to regulatory authorization. Funds may be added or withdrawn by the Company as permitted by applicable law. Therefore, not all Funds may be available in all jurisdictions, under all Contracts, or in all Plans. The investment results of the Funds described below are likely to differ significantly and there is no assurance that any of the Funds will achieve their respective investment objectives. Except where otherwise noted, all of the Funds are diversified, as defined in the 1940 Act. - -AETNA VARIABLE FUND seeks to maximize total return through investments in a diversified portfolio of common stocks and securities convertible into common stock.(1) - -AETNA INCOME SHARES seeks to maximize total return, consistent with reasonable risk, through investments in a diversified portfolio consisting primarily of debt securities.(1) - -AETNA VARIABLE ENCORE FUND seeks to provide high current return, consistent with preservation of capital and liquidity, through investment in high quality "money market" instruments. An investment in the Fund is neither insured nor guaranteed by the U.S. Government. - -------------------------------------------------------------------------------- 1 - -AETNA INVESTMENT ADVISERS FUND, INC. is a managed fund which seeks to maximize investment return consistent with reasonable safety of principal by investing in one or more of the following asset classes: stocks, bonds and cash equivalents, based on the Company's judgment of which of those sectors or mix thereof offers the best investment prospects.(1) - -AETNA GENERATION PORTFOLIOS INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks to provide capital appreciation by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding 15 years, and who have a high level of risk tolerance.(1) - -AETNA GENERATION PORTFOLIOS, INC.--AETNA CROSSROADS VARIABLE PORTFOLIO seeks to provide total return (i.e., income and capital appreciation, both realized and unrealized) by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding 10 years and who have a moderate level of risk tolerance.(1) - -AETNA GENERATION PORTFOLIOS, INC.--AETNA LEGACY VARIABLE PORTFOLIO seeks to provide total return consistent with preservation of capital by allocating its investments among equities and fixed income securities. The Portfolio is managed for investors who generally have an investment horizon exceeding five years and who have a low level of risk tolerance.(1) - -ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital appreciation by investing in a diversified, actively managed portfolio of equity securities. The Portfolio primarily invests in equity securities of companies which have a market capitalization of $1 billion or greater.(2) - -ALGER AMERICAN FUND--ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 65% of its total assets in equity securities of companies that, at the time of purchase of such securities, have total market capitalization within the range of companies included in the Russell 2000 Growth Index, updated quarterly. The Russell 2000 Growth Index is designed to track the performance of small capitalization companies. At March 31, 1996, the range of market capitalization of these companies was $20 million to $3.0 billion.(2) - -CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO is a non-diversified portfolio that seeks growth of capital through investment in enterprises that make a significant contribution to society through their products and services and through the way they do business.(3) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND PORTFOLIO seeks maximum total return over the long term by investing mainly in equity securities of companies that are undervalued or out-of-favor.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. In selecting investments, the Fund also considers the potential for capital appreciation.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO seeks capital appreciation by investing mainly in common stocks, although its investments are not restricted to any one type of security.(4) - -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS PORTFOLIO seeks long-term growth by investing mainly in foreign securities (at least 65% of the Fund's total assets in securities of issuers from at least three countries outside of North America).(4) - -JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO is a non-diversified portfolio that seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by normally investing at least 50% of its equity assets in securities issued by medium-sized companies. Medium-sized companies are those whose market capitalizations fall within the range of companies in the S&P MidCap 400 Index, which as of December 29, 1995 included companies with capitalizations between approximately $118 million and $7.5 billion, but which is expected to change on a regular basis.(5) - -JANUS ASPEN SERIES--BALANCED PORTFOLIO seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The Portfolio pursues its investment objective by investing 40%-60% of its assets in securities selected primarily for their growth potential and 40%-60% of its assets in securities selected primarily for their income potential.(5) - -------------------------------------------------------------------------------- 2 - -JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The Portfolio pursues its investment objective by investing 40%-60% of its assets in equity securities selected primarily for their growth potential and 40%-60% of its assets in fixed-income securities. Flexible Income Series may have substantial holdings of debt securities rated below investment grade ("high yield, high risk securities" also commonly known as "junk bonds.") High yield, high risk securities involve certain risks. See the Fund's prospectus for a discussion of these risks.(5) - -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by investing in common stocks of companies of any size.(5) - -JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO seeks as high a level of current income as is consistent with preservation of capital by investing primarily in short- and intermediate-term fixed income securities.(5) - -JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital in a manner consistent with preservation of capital. The Portfolio pursues its investment objective primarily through investments in common stocks of foreign and domestic issuers.(5) - -LEXINGTON NATURAL RESOURCES TRUST is a non-diversified portfolio that seeks long-term growth of capital through investment primarily in common stocks of companies which own or develop natural resources and other basic commodities or supply goods and services to such companies.(6) - -NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST-- GROWTH PORTFOLIO seek capital appreciation without regard to income. The Portfolio generally invests in securities believed to have the maximum potential for long-term capital appreciation. The Portfolio expects to be almost fully invested in common stocks, often of companies that may be temporarily out of favor in the market.(7) - -SCUDDER VARIABLE LIFE INVESTMENT FUND-- INTERNATIONAL PORTFOLIO CLASS A SHARES seeks long-term growth of capital primarily through diversified holdings of marketable foreign equity investments.(8) - -TCI PORTFOLIOS, INC.--TCI GROWTH (A TWENTIETH CENTURY FUND) seeks capital growth. The Fund seeks to achieve its objective by investing in common stocks (including securities convertible into common stocks) and other securities that meet certain fundamental and technical standards of selection and, in the opinion of the Fund's investment manager, have better than average potential for appreciation.(9) Investment Advisers for each of the Funds: (1) Aetna Life Insurance and Annuity Company (2) Fred Alger Management, Inc. (3) Calvert Asset Management Company, Inc. (4) Fidelity Management & Research Company (5) Janus Capital Corporation (6) Lexington Management Corporation (adviser); Market Systems Research Advisors, Inc. (subadviser) (7)Neuberger & Berman Management Inc. (Investment Manager); Neuberger & Berman, L.P. (Sub-Adviser) (8) Scudder, Stevens & Clark, Inc. (9) Investors Research Corporation RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS. Some of the Funds may use instruments known as derivatives as part of their investment strategies. The use of certain derivatives may involve high risk of volatility to a Fund, and the use of leverage in connection with such derivatives can also increase risk of losses. Some of the Funds may also invest in foreign or international securities which involve greater risks than U.S. investments. More comprehensive information, including a discussion of potential risks, is found in the respective Fund prospectuses which accompany this Prospectus. You should read the Fund prospectuses and consider carefully, and on a continuing basis, which Fund or combination of Funds is best suited to your long-term investment objectives. CONFLICTS OF INTEREST (MIXED AND SHARED FUNDING). Shares of the Funds are sold to each of the Subaccounts for funding the variable annuity contracts issued by the Company. Shares of the Funds may also be sold to other insurance companies for the same purpose. This is referred to as "shared funding." Shares of the Funds may also be used for funding variable life insurance contracts issued by the Company or by third parties. This is referred to as "mixed funding." Because the Funds available under the Contract are sold to fund variable annuity contracts and variable life insurance policies issued by us or by other companies, certain conflicts of interest could arise. If a conflict of interest were to occur, one of the separate accounts might withdraw its investment in a Fund, which might force that Fund to sell portfolio securities at disadvantageous prices, causing its per share value to decrease. Each Fund's Board - -------------------------------------------------------------------------------- 3 of Directors or Trustees has agreed to monitor events in order to identify any material irreconcilable conflicts which might arise and to determine what action, if any, should be taken to address such conflict. CREDITED INTEREST OPTIONS Purchase Payments may be allocated to one or more of the Credited Interest Options available under the Contract, as described below. The Contract Holder may elect not to offer all Credited Interest Options under its Plan. - - The Guaranteed Accumulation Account (GAA) is a credited interest option through which we guarantee stipulated rates of interest for stated periods of time. Amounts must remain in the GAA for the full guaranteed term to received the quoted interest rates, or a market value adjustment (which may be positive or negative) will be applied. (See Appendix I.) - - The Fixed Account is a part of the Company's general account. The Fixed Account guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates from time to time. Transfers from the Fixed Account are limited. (See Appendix II.) - - The Fixed Plus Account is also a part of the Company's general account and guarantees a minimum interest rate, as specified in the Contract. The Company may credit higher interest rates in its discretion. Withdrawals and transfers from the Fixed Plus Account are limited. (See Appendix III.) PURCHASE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONTRACT AVAILABILITY The Contracts are designed for (1) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Section 457 of the Internal Revenue Code of 1986, as amended ("Code") or by taxable organizations for their employees and/or independent contractors ("Non-Section 457 Plans"); or (2) employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors ("Section 457 Plans"). The Contract is generally owned by the employer, and an Account is established for each Participant, as directed by the Contract Holder, to identify contract values during the Accumulation Period. A Participant's record under the Contract is known as his or her "Account." Under Section 457 Plans and Non-Section 457 Plans, the employer has all right, title and interest in the amounts held under the Contract or in the Account. The Contract will be part of the employer's general assets, subject to the claims of its general creditors. Benefits available to you are governed exclusively by the provisions of the Plan and are backed only by the general assets of the employer. Some of the options and elections available under the Contract may not be available to you under the provisions of your Plan. Contact your employer for information regarding your Plan. CONTRACT PURCHASE Eligible organizations may acquire a Contract by submitting an application to the Company. Once we approve the forms, a Contract is issued to the employer as the Contract Holder. You may participate in the Plan by submitting an enrollment form to the Company. The Company must accept or reject the application or enrollment form within two business days of receipt. If the application or enrollment form is incomplete, the Company may hold any forms and accompanying Purchase Payments for five days. Purchase Payments may be held for longer periods, pending acceptance of the forms only with the consent of the Participant, or under limited circumstances, with the consent of the group Contract holder. If we agree to hold Purchase Payments for longer than the five business days based on the consent of the group Contract Holder, they will be deposited in the Aetna Variable Encore Fund Subaccount until the forms are completed. PURCHASE PAYMENTS Generally, two types of Purchase Payments may be made under the Contract, and depending upon which type of payment is made, different Accounts may be established for each payment type. Continuing, periodic payments will be placed in "Installment Purchase Payment Accounts." Installment Purchase Payments must be at least $100 per month ($1,200 annually) per Participant. No payment may be less than $25. Lump-sum transfers of amounts accumulated under a pre-existing plan may be placed in "Single Purchase Payment Accounts" in accordance with the Company's procedures in effect at the time of purchase. - -------------------------------------------------------------------------------- 4 The Code imposes a maximum limit on annual Purchase Payments which may be excluded from a Participant's gross income for Section 457 Plan Participants. Such limit is generally the lesser of $7,500 or 33 1/3% of your includible compensation (25% of gross compensation). For Contracts sold to taxable organizations, this Contract may be aggregated with other annuity contracts purchased by the Contract Holder from us (and our affiliates) on or after October 21, 1988 for purposes of determining the taxable portion of payments from this Contract. (See "Tax Status.") ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be allocated to the Subaccounts or Credited Interest Options as specified by the Contract Holder (or you, if authorized by the Contract Holder) on the enrollment form. Changes in such allocation may be made in writing or by telephone transfer. Allocations must be in whole percentages, and there may be limitations on the number of investment options that can be selected during the Accumulation Period. (See "Transfers.") RIGHT TO CANCEL The Contract Holder may cancel participation under the Contract without penalty by returning it to the Company with a written notice of cancellation. In most states, Contract Holders have ten days to exercise this right; some states allow a longer free-look period. When we receive the request for cancellation, we will return the Account Value, unless the laws of the state in which the Contract was issued require that we return the initial Purchase Payment (if greater than the Account Value). In states that do not require a return of Purchase Payments, the purchaser bears the entire investment risk for amounts allocated among the Subaccounts during the free look period. Account Values will be determined as of the Valuation Date on which we receive the request for cancellation at our Home Office. TRANSFER CREDITS The Company may provide a transfer credit on "transferred assets," subject to certain conditions and state approvals. Transferred assets are the value of contributions made on your behalf under this Plan or a prior plan before such amounts are applied to this Contract. The transfer credit equals a percentage of the transferred assets remaining in the Contract after a specified period of time. Once a transfer credit is applied to your Contract, all provisions of the Contract apply. This benefit is provided on a nondiscriminatory basis. If a transfer credit is due under the Contract, you will be provided with additional information specific to the Contract. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily deduction from each of the Subaccounts for the mortality and expense risk charge. The charge is equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts and compensates the Company for the assumption of mortality and expense risks under the Contract. The mortality risks are those assumed for our promise to make lifetime payments according to annuity rates specified in the Contract. The expense risk is the risk that the actual expenses for costs incurred under the Contract will exceed the maximum costs that can be charged under the Contract. If the amount deducted for mortality and expense risks is not sufficient to cover the mortality costs and expense shortfalls, the loss is borne by the Company. If the deduction is more than sufficient, the excess may be used to recover distribution expense relating to the Contracts and as a source of profit for the Company. The Company expects to make a profit from the mortality and expense risk charge. ADMINISTRATIVE EXPENSE CHARGE. The Company reserves the right to make a deduction from each of the Subaccounts for an administrative expense charge. The administrative expense charge compensates the Company for administrative expenses that exceed revenues from the maintenance fee described below. The charge is set at a level which does not exceed the average expected cost of the administrative services to be provided while the Contract is in force. The Company does not expect to make a profit from this charge. Under the Contract, the amount of the administrative expense charge may be of an amount equal, on an annual basis, to a maximum of 0.25% of the daily net assets of the Subaccounts. There is currently no administrative expense charge during the Accumulation - -------------------------------------------------------------------------------- 5 Period or Annuity Period. Once an Annuity Option is elected, the charge will be established and will be effective during the entire Annuity Period. MAINTENANCE FEE During the Accumulation Period, the Company will deduct an annual maintenance fee from each Installment Purchase Payment Account on its anniversary date. The maintenance fee is to reimburse the Company for some of its administrative expenses relating to the establishment and maintenance of the Accounts. The maximum maintenance fee that can be deducted under the Contract is $20. However, under group contracts, the maintenance fee may be reduced or eliminated depending upon certain criteria described below. The maintenance fee will be deducted on a pro rata basis from each Subaccount and Credited Interest Option in which the Account is invested. If the Account Value is withdrawn, the full maintenance fee will be deducted at the time of withdrawal. REDUCTION OR ELIMINATION OF THE MAINTENANCE FEE. The annual maintenance fee may be reduced or eliminated under various conditions as agreed to by us and the Contract Holder in writing. Any reduction or elimination of the annual maintenance fee will reflect differences in administrative costs and services after taking into consideration factors such as the following: - - the size, characteristics, and nature of the group to which a Contract is issued; - - the level of our anticipated expenses in administering the Contract, such as billing for Purchase Payments, producing periodic reports, providing for the direct payment of Contract charges rather than having them deducted from Contract Values, and any other factors pertaining to the level and expense of administrative services which will be provided under the Contract. Any reduction or elimination of maintenance fees will not be unfairly discriminatory against any person. We will make any reduction in annual maintenance fees according to our own rules in effect at the time an application for a Contract is approved. We reserve the right to change these rules from time to time. DEFERRED SALES CHARGE Withdrawals of all or a portion of the Account Value may be subject to a deferred sales charge. The deferred sales charge is a percentage of the amount withdrawn from the Subaccounts, the Fixed Account or the Guaranteed Accumulation Account. No deferred sales charge is deducted from amounts withdrawn from the Fixed Plus Account. For Installment Purchase Payment Accounts, the deferred sales charge is based on the number of completed Purchase Payment Periods. For Single Purchase Payment Accounts, it is based on the number of Contract Years that have elapsed since the Contract effective date. The amount of the deferred sales charge is determined in accordance with the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS DEFERRED SALES PURCHASE PAYMENT CHARGE PERIODS COMPLETED DEDUCTION ---------------------------------------- --------- Less than 5 5% 5 or more but less than 7 4% 7 or more but less than 9 3% 9 or more but less than 10 2% more than 10 0% SINGLE PURCHASE PAYMENT ACCOUNTS DEFERRED SALES ACCOUNT YEARS CHARGE COMPLETED DEDUCTION ---------------------------------------- --------- Less than 5 5% 5 or more but less than 6 4% 6 or more but less than 7 3% 7 or more but less than 8 2% 8 or more but less than 9 1% 9 or more 0%
If you transfer the total account value under another deferred compensation annuity contract issued by the Company to an Account under this Contract, the effective date of the new Account will be the same effective date as your former contract for purposes of calculating the applicable deferred sales charge under this Contract. A deferred sales charge will not be deducted from any portion of the Account Value which is: - - applied to provide Annuity benefits; - - withdrawn on or after the tenth anniversary of the effective date of the Account or Plan Account; - -------------------------------------------------------------------------------- 6 - - paid due to the death of the Participant; - - withdrawn due to the election of an Additional Withdrawal Option (see "Additional Withdrawal Options"); - - paid where the Account Value is $3,500 or less and no amount has been withdrawn or used to purchase Annuity benefits during the prior 12 months. If more than one Account is being fully withdrawn on behalf of a Participant, all Account Values will be added together to determine eligibility for the $3,500 exemption. This provision is not available under Plan Accounts (where Accounts are not maintained by the Company) or applicable to the withdrawal of all Accounts under one Contract established with the Company; - - withdrawn from an Installment Purchase Payment Account by a Participant who is at least age 59 1/2 and who has completed nine Purchase Payment Periods; or - - for Section 457 Plans only, withdrawn due to a hardship resulting from an unforeseeable emergency, as specified in the Code. The deduction for the deferred sales charge will not exceed 8.5% of the total Purchase Payments actually made to the Account. The Company does not anticipate that the deferred sales charge will cover all sales and administrative expenses which it incurs in connection with the Contract; the difference will be covered by the general assets of the Company which are attributable, in part, to the mortality and expense risk charge described above. REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE. For a particular Plan, we may reduce, waive or eliminate the deferred sales charge. Any reduction, waiver or elimination of such charges will reflect differences or expected differences in the amounts of unrecovered distribution costs or services of the types that the charge is intended to defray. When considering whether to reduce or eliminate such charges or to grant such a waiver, we will take into account factors which may include the following: - - the number of participants under the Plan; - - the expected level of assets or cash flow under the Plan; - - the level of agent involvement in sales activities; - - the level of our sales-related expenses; - - the specific distribution provisions under the Plan; - - the Plan's purchase of one or more other variable annuity contracts from us and the features of those contracts; - - the level of employer involvement in determining eligibility for distributions under the Contract; and - - our assessment of financial risk to the Company relating to surrenders. Any reduction, waiver or elimination of deferred sales charges will not be unfairly discriminatory against any person. We may also negotiate provisions regarding the deferred sales charge with respect to Contracts issued to certain employer groups or associations which have negotiated on behalf of its employees. All variations in, or elimination of, provisions regarding the deferred sales charge resulting from such negotiations will be offered uniformly to all employees within the group. For specific information on fees applicable to your Account please call the number listed under the "Inquiries" section. We will make any reduction in deferred sales charge according to our own rules in effect at the time an Application for a Contract is approved. We reserve the right to change these rules from time to time. FUND EXPENSES Each Fund incurs certain expenses which are paid out of its net assets. These expenses include, among other things, the investment advisory or "management" fee. The expenses of the Funds are illustrated in the Fee Table in this Prospectus and described more fully in the accompanying Fund prospectuses. PREMIUM AND OTHER TAXES Several states and municipalities impose a premium tax on Annuities. These taxes currently range from 0% to 4%. The Company reserves the right to deduct premium tax against Purchase Payments or Account Values at any time, but no earlier than when we have a tax liability under state law. The Company's current practice is to deduct for premium taxes at the time of complete withdrawal or annuitization. In addition to the premium tax, the Company reserves the right to assess a charge for any state or federal taxes due against the Contract or the Separate Account assets. - -------------------------------------------------------------------------------- 7 CONTRACT VALUATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACCOUNT VALUE Until the Annuity Date, the Account Value is the total dollar value of amounts held in the Account as of any Valuation Date. The Account Value at any given time is based on the value of the units held in each Subaccount, plus the value of amounts held in any of the Credited Interest Options. ACCUMULATION UNITS The value of your interests in a Subaccount is expressed as the number of "Accumulation Units" that you hold multiplied by an "Accumulation Unit Value" (or "AUV") for each unit. The AUV on any Valuation Date is determined by multiplying the value on the immediately preceding Valuation Date by the net investment factor of that Subaccount for the period between the immediately preceding Valuation Date and the current Valuation Date. (See "Net Investment Factor" below.) The Accumulation Unit Value will be affected by the investment performance, expenses and charges of the applicable Fund and is reduced each day by a percentage that accounts for the daily assessment of mortality and expense risk charges and the administrative charge (if any). Initial Purchase Payments will be credited to your Account as described under "Contract Purchase." Each subsequent Purchase Payment (or amount transferred) will be credited to your Account at the AUV computed on the next Valuation Date following our receipt of your payment or transfer request. The value of an Accumulation Unit may increase or decrease. NET INVESTMENT FACTOR The net investment factor is used to measure the investment performance of a Subaccount from one Valuation Date to the next. The net investment factor for a Subaccount for any valuation period is equal to the sum of 1.0000 plus the net investment rate. The net investment rate equals: (a) the net assets of the Fund held by the Subaccount on the current Valuation Date, minus (b) the net assets of the Fund held by the Subaccount on the preceding Valuation Date, plus or minus (c) taxes or provisions for taxes, if any, attributable to the operation of the Subaccount; (d) divided by the total value of the Subaccount's Accumulation and Annuity Units the preceding Valuation Date; (e) minus a daily charge at the annual effective rate of 1.25% for mortality and expense risks and up to 0.25% as an administrative expense charge (currently 0%). The net investment rate may be either positive or negative. TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- At any time prior to the Annuity Date, the Contract Holder, or you (if permitted by the Contract Holder), can transfer amounts held under the Contract from one Subaccount to another. Transfers between the Credited Interest Options and the Subaccounts are subject to certain restrictions. (See Appendices I, II and III.) A request for transfer can be made either in writing or by telephone. The telephone transfer privilege is available automatically; no special election is necessary. All transfers must be in accordance with the terms of the Contract and your Plan, as applicable. The Company currently allows unlimited transfers of accumulated amounts to available investment options without charge. The transfer amount may not be less than $500. In addition, the total number of investment options that may be selected during the Accumulation Period may be limited, as set forth on your enrollment materials. Any transfer will be based on the Accumulation Unit Value next determined after the Company receives a valid transfer request at its Home Office. Transfers are currently not available during the Annuity Period; however, they may be available beginning later in 1996. (See "Annuity Period--Annuity Options.") DOLLAR COST AVERAGING PROGRAM You may establish automated transfers of Account Values on a monthly or quarterly basis through the Company's Dollar Cost Averaging Program, if available under your Plan. Dollar Cost Averaging is a system for - -------------------------------------------------------------------------------- 8 investing a fixed amount of money at regular intervals over a period of time. Dollar Cost Averaging does not ensure a profit nor guarantee against loss in a declining market. You should consider your financial ability to continue purchases through periods of low price levels. For additional information, please refer to the Inquiries Section of the Prospectus Summary which describes how you can obtain further information. WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject to the limitations on withdrawals from the Fixed Plus Account, the Contract Holder may withdraw all or a portion of the Account Value at any time during the Accumulation Period. To request a withdrawal, the Contract Holder, on your behalf, must property complete a disbursement form and send it to our Home Office. Payments for withdrawal requests will be made in accordance with SEC requirements, but normally not later than seven calendar days following our receipt of a disbursement form. Withdrawals may be requested in one of the following forms: - -FULL WITHDRAWAL OF THE CONTRACT OR AN ACCOUNT: The amount paid for a full withdrawal will be the Account Value(s) allocated to the Subaccounts, the Guaranteed Accumulation Account (plus or minus a market value adjustment) (see Appendix I), and the Fixed Account, minus any applicable deferred sales charge and maintenance fee due, plus the amount available for withdrawal from the Fixed Plus Account (see Appendix III). - -PARTIAL WITHDRAWALS (Percentage): The amount paid will be the percentage of the Account Value(s) requested minus any applicable deferred sales charge; however, the amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). - -PARTIAL WITHDRAWAL (Specified Dollar Amount): The amount paid will be the dollar amount requested. However, the amount withdrawn from the Account will equal the amount requested plus any applicable deferred sales charge. The amount available for withdrawal from the Fixed Plus Account is limited (see Appendix III). For any partial withdrawal, amounts will be withdrawn proportionately from each Subaccount or Credited Interest Option in which the Account is invested unless otherwise requested in writing. All amounts paid will be based on Account Values as of the next Valuation Date after we receive a request for withdrawal at our Home Office, or on such later date as the disbursement form may specify. ADDITIONAL WITHDRAWAL OPTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Company offers certain withdrawal options under the Contract that are not considered annuity options ("Additional Withdrawal Options"). To exercise these options, the Account Value must meet the minimum dollar amounts and age criteria applicable to that option. The Additional Withdrawal Options currently available under the Contract include the following: - -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from the Account based on a payment method you select. It is designed for those who want a periodic income while retaining investment flexibility for amounts accumulated under a Contract. - -ECO--ESTATE CONSERVATION OPTION. ECO is available to Section 457 Plan Participants only. It offers the same investment flexibility as SWO but is designed for those who want to receive only the minimum distribution that the Code requires each year. Under ECO, the Company calculates the minimum distribution amount required by law at age 70 1/2 (or retirement, if later, for church plans), and pays you that amount once a year. (See "Tax Status.") Other Additional Withdrawal Options may be added from time to time. Additional information relating to any of the Additional Withdrawal Options may be obtained from your local representative or from the Company at its Home Office. If you select one of the Additional Withdrawal Options, the Account will retain all of the rights and flexibility permitted under the Contract during the Accumulation Period. The Account Value will continue to be subject to the charges and deductions described in this Prospectus. - -------------------------------------------------------------------------------- 9 Once elected, an Additional Withdrawal Option may be revoked by the Contract Holder at any time by submitting a written request to our Home Office. Any revocation will apply only to the amount not yet paid. Once an option is revoked, it may not be elected again, nor may any other Additional Withdrawal Options be elected. The Company reserves the right to discontinue the availability of one or all of these Additional Withdrawal Options at any time, and/or to change the terms of future elections. To determine whether the Additional Withdrawal Options are available under your Plan, and to assess the terms and conditions that may apply, you should check with your employer. Any pay-out election that you make under a deferred compensation plan must be irrevocable. DEATH BENEFIT DURING ACCUMULATION PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Contract provides that a death benefit is payable to the Contract Beneficiary(ies) upon the death of the Participant before the Annuity Date. The Contract Holder may direct that we make such payment to the Plan Beneficiary. The amount of the death benefit will be equal to the Account Value. Death benefit proceeds may be paid to the beneficiary: - - in a lump sum; - - in accordance with any of the Annuity Options available under the Contract; or - - under any Additional Withdrawal Options available under the Contract (if the Plan Beneficiary is your spouse). The Contract Holder on behalf of a Plan Beneficiary may instead elect to leave the Account Value invested in the Contract. However, the Code limits how long the death benefit proceeds may be left in this option (see below). When paying the Contract Beneficiary, we will determine the Account Value on the Valuation Date following the date on which we receive proof of death acceptable to the Company. Interest, if any, will be paid from the date of death at a rate no less than required by law. We will mail payment to the Contract Beneficiary within seven days after we receive proof of death. The Code requires that distribution of death proceeds begin within a certain period of time. For NON-SECTION 457 PLANS, if required by the Code, the entire value must be distributed within five years after the date of death unless an Annuity option is elected within one year. For SECTION 457 PLANS, generally, either payments must begin by December 31 of the year following the year of your death, or the entire value of your benefits must be distributed by December 31 of the fifth year following the year of your death. If your Plan Beneficiary is your spouse, he or she is not required to begin distributions until the year you would have attained age 70 1/2. In no event may payments extend beyond the life expectancy of the Plan Beneficiary or any period certain greater than the Plan Beneficiary's life expectancy. If no elections are made, no distributions will be made. Failure to commence distributions within the above time periods can result in tax penalties. Regardless of the method of payment, death benefit proceeds will generally be taxed to the beneficiary in the same manner as if you had received those payments. (See "Tax Status.") ANNUITY PERIOD - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUITY PERIOD ELECTIONS For Section 457 Plans, the Code generally requires that minimum annual distributions of the Account Value must begin by April 1st of the calendar year following the calendar year in which a Participant attains age 70 1/2. In addition, distributions must be in a form and amount sufficient to satisfy the Code requirements. These requirements may be satisfied by the election of certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.") At least 30 days prior to the Annuity Date, the Contract Holder must notify us in writing of the following: - - the date on which you would like to start receiving annuity payments; - -------------------------------------------------------------------------------- 10 - - the Annuity Option under which you want your payments to be calculated and paid; - - whether the payments are to be made monthly, quarterly, semi-annually or annually; and - - the investment option(s) used to provide annuity payments (i.e., a fixed annuity using the general account or any of the Subaccounts available at the time of annuitization). As of the date of this Prospectus, Aetna Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund, Inc. are the only Subaccounts available; however, additional Subaccounts may be available under some Annuity Options in the future (see "Annuity Options" below). Annuity payments will not begin until an Annuity Option has been selected. Until a date and option are elected, the Account or Plan Account will continue in the Accumulation Period. Once annuity payments begin, the Annuity Option may not be changed, nor may transfers be made among the investment options(s) selected. (See "Annuity Options" below for more information about transfers during the Annuity Period.) ANNUITY OPTIONS The Contract Holder may choose one of the following Annuity Options: LIFETIME ANNUITY OPTIONS: - -OPTION 1--Life Annuity--An annuity with payments ending on the Annuitant's death. - -OPTION 2--Life Annuity with Guaranteed Payments-- An annuity with payments guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may offer at the time of annuitization. - -OPTION 3--Life Income based Upon the Lives of Two Payees--An annuity will be paid during the lives of the Annuitant and a second Annuitant, with 100%, 66 2/3% or 50% of the payment to continue after the first death, or 100% of the payment to continue at the death of the second Annuitant and 50% of the payment to continue at the death of the Annuitant. - -OPTION 4--Life Income based Upon the Lives of Two Payees--An annuity with payments for a minimum of 120 months, with 100% of the payment to continue after the first death. If Option 1 or 3 is elected, it is possible that only one Annuity Payment will be made if the Annuitant under Option 1, or the surviving Annuitant under Option 3, should die prior to the due date of the second Annuity Payment. Once lifetime Annuity payments begin, the Annuitant cannot elect to receive a lump-sum settlement. NONLIFETIME ANNUITY OPTIONS: - -OPTION 1--Payments for a Specified Period--payments will continue for a specified period of time, as provided for under your Contract. Under the nonlifetime option, the type of annuity (fixed or variable) and the number of years that may be selected are determined by the investment options used prior to annuitization. For amounts held in the Fixed Plus Account, the annuity must be paid on a fixed basis and payments may be made for 5-30 years. For amounts held in the Subaccounts, the Guaranteed Accumulation Account or the Fixed Account, an annuity may be selected on a fixed or variable basis and payments may be made for 3-30 years. If this option is elected on a variable basis, the Contract Holder may request at any time during the payment period that the present value of all or any portion of the remaining variable payments be paid in one sum. However, any lump-sum elected before three years of payments have been completed will be treated as a withdrawal during the Accumulation Period and any applicable deferred sales charge will be assessed. (See "Charges and Deductions--Deferred Sales Charge.") The nonlifetime options is not available on a variable basis under a Contract which provides for immediate Annuity benefits. We may also offer additional Annuity Options under the Contract from time to time. The Company expects to offer additional Annuity Options and enhanced versions of the Annuity Options listed above at some time during 1996. These additional Annuity Options and enhanced versions of the existing options will have additional Subaccounts available and will allow transfers between Subaccounts during the Annuity Period. (Additional Subaccounts and transfer capability are expected during the second half of 1996.) Such additional or enhanced options will be made available by an endorsement to the Contract, which will include the guaranteed annuity payout rates and other terms applicable to such options. (Depending on which guaranteed payout rates apply to the existing options, the guaranteed payout rates for the new and enhanced options will be the same or lower.) Please refer to the Contract, or call the number listed in the "Inquiries" section of the Prospectus Summary, to determine which options are available and the terms of - -------------------------------------------------------------------------------- 11 such options. It is not expected that these additional or enhanced options will be made available to those who have already commenced receiving Annuity Payments. ANNUITY PAYMENTS DATE PAYOUTS START. When payments start, the age of the Annuitant plus the number of years for which payments are guaranteed must not exceed 95. Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the joint lives of the Annuitant and beneficiary, (c) a period certain greater than the Annuitant's life expectancy, or (d) a period certain greater than the joint life expectancies of the Annuitant and beneficiary. AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on the size of the Account Value, how you allocate it between fixed and variable payouts, and the annuity option chosen. No election may be made that would result in the first Annuity payment of less than $20, or total yearly Annuity payments of less than $100. If the Account or Plan Account Value on the Annuity Date is insufficient to elect an option for the minimum amount specified, a lump-sum payment must be elected. If Annuity Payments are to be made on a variable basis, the first and subsequent payments will vary depending on the assumed net investment rate selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity Payments will increase thereafter only to the extent that the net investment rate exceeds 5% on an annualized basis. Annuity Payments would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. (See the Statement of Additional Information for further discussion on the impact of selecting an assumed net investment rate.) CHARGES DEDUCTED DURING THE ANNUITY PERIOD We make a daily deduction for mortality and expense risks from any amounts held on a variable basis. Therefore, electing the nonlifetime option on a variable basis will result in a deduction being made even though we assume no mortality risk. We may also deduct a daily administrative charge from amounts held under the variable options. (See "Charges and Deductions.") DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD If an Annuitant dies after Annuity Payments have begun, any death benefit payable will depend on the terms of the Contract and the Annuity Option selected. If Option 1 or Option 3 was elected, Annuity Payments will cease on the death of the Annuitant under Option 1 or the death of the surviving Annuitant under Option 3. If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs prior to the end of the guaranteed minimum payment period, we will pay to the beneficiary in a lump sum, unless otherwise requested, the present value of the guaranteed annuity payments remaining. If the nonlifetime option was elected, and the Annuitant dies before all payments are made, the value of any remaining payments may be paid in a lump-sum to the Plan Beneficiary (unless otherwise requested), and no deferred sales charge will be imposed. For Non-Section 457 Plans, if required by the Code, and there is a death benefit payable under the Annuity Option elected, the remaining values must be distributed at least as rapidly as under the original method of distribution. For Section 457 Plans, if there is a death benefit payable under the Annuity Option elected, Annuity Payments must be distributed to your beneficiary at least as rapidly as under the original method of distribution and in substantially nonincreasing amounts. Any lump-sum payment paid under the applicable lifetime or nonlifetime Annuity options will be made within seven calendar days after proof of death acceptable to us, and a request for payment are received at our Home Office. The value of any death benefit proceeds will be determined as of the next Valuation Date after we receive acceptable proof of death and a request for payment. Under Options 2 and 4, such value will be reduced by any payments made after the date of death. - -------------------------------------------------------------------------------- 12 TAX STATUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTRODUCTION The following provides a general discussion and is not intended as tax advice. This discussion reflects the Company's understanding of current federal income tax law. Such laws may change in the future, and it is possible that any change could be retroactive (i.e., effective prior to the date of the change). The Company makes no guarantee regarding the tax treatment of any Contract or transaction involving a Contract. The ultimate effect of federal income taxes on the amounts held under a Contract, on Annuity Payments, and on the economic benefit to the Contract Holder, Participant or Beneficiary may depend upon the tax status of the individual concerned. Any person concerned about these tax implications should consult a competent tax adviser before initiating any transaction. TAXATION OF THE COMPANY The Company is taxed as a life insurance company under the Code. Since the Separate Account is not an entity separate from the Company, it will not be taxed separately as a "regulated investment company" under the Code. Investment income and realized capital gains are automatically applied to increase reserves under the Contracts. Under existing federal income tax law, the Company believes that the Separate Accounts investment income and realized net capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contracts. The Company does not anticipate that it will incur any federal income tax liability attributable to the Separate Account and, therefore, the Company does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in the Company being taxed on income or gains attributable to the Separate Account, then the Company may impose a charge against the Separate Account (with respect to some or all Contracts) in order to set aside provisions to pay such taxes. TAX STATUS OF THE CONTRACT With respect to contracts sold to taxable organizations, Section 817(h) of the Code requires that the investments of the Funds be "adequately diversified" in accordance with Treasury Regulations in order for the Contracts to qualify as annuity contracts with federal tax law. The Separate Account, through the Funds, intends to comply with the diversification requirements prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the Fund's assets may be invested. In certain circumstances, owners of variable annuity contracts that are taxable organizations may be considered the owners, for federal income tax purposes, of the assets of the separate accounts used to support their contracts. In these circumstances, income and gains from the separate account assets would be includible in the variable contract owner's gross income. One of the circumstances that has raised this issue is the number of funding options available under the Contract. The Company reserves the right to modify the Contract as necessary to attempt to prevent a Contract Holder from being considered the owner of a pro rata share of the assets of the Separate Account. CONTRACTS USED WITH CERTAIN RETIREMENT PLANS IN GENERAL: The Contract may be purchased and used in connection with: (1) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals not subject to Code Section 457 and by taxable organizations for their employees and/or independent contractors; and (2) Employer-sponsored deferred compensation plans sponsored by tax-exempt organizations for deferrals that are subject to Code Section 457 for their employees and/or independent contractors. The Company makes no attempt to provide more than general information about use of the Contracts with the various types of retirement plans. Participants as well as beneficiaries are cautioned that the rights of any person to any benefits under the Contracts may be subject to the terms and conditions of the plans themselves, in addition to the terms and conditions of the Contract issued in connection with such plans. Some retirement plans are subject to distribution and other requirements that are not incorporated in the provisions of the Contracts. Purchasers are responsible for determining that contributions, distributions and other transactions with respect to the Contracts satisfy applicable laws and should consult their legal counsel and tax adviser regarding the suitability of the Contract. - -------------------------------------------------------------------------------- 13 SECTION 457 PLANS Section 457 provides for certain deferred compensation plans. These plans may be offered with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. These plans are subject to various restrictions on contributions and distributions. The plans may permit participants to specify the form of investment for their deferred compensation account. In general, all investments are owned by the sponsoring employer and are subject to the claims of the general creditors of the employer. Depending on the terms of the particular plan, the employer may be entitled to draw on deferred amounts for purposes unrelated to its Section 457 plan obligations. In general, all amounts received under a Section 457 plan are taxable and reportable to the IRS as taxable income. This includes payments for death benefits, periodic and nonperiodic distribution. Also, all amounts except death benefit proceeds are subject to federal income tax withholding as wages. If we make payments directly to a Participant on behalf of the employer as Contract Holder, we will withhold federal taxes (state taxes, if applicable). The Code imposes a maximum limit on annual Purchase Payments which may be excluded from your gross income. For Section 457 Plan Participants, such limit is generally the lesser of $7,500 or 33 1/3% of your includible compensation (25% of gross compensation). MINIMUM DISTRIBUTION REQUIREMENTS: The Code has required distribution rules for Section 457 Plans. Distributions must generally begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2. For governmental or church plans, distributions must begin by April 1 of the calendar year following the calendar year in which you attain age 70 1/2 or retire, whichever occurs later. In general, annuity payments must be distributed over your life or the joint lives of you and your Plan Beneficiary, or over a period not greater than your life expectancy or the joint life expectancies of you and your Plan Beneficiary. Also, any distribution payable over a period of more than one year must be made in substantially non-increasing amounts. If you die after the required minimum distribution has commenced, distributions to your Plan Beneficiary must be made at least as rapidly as under the method of distribution in effect at the time of your death. However, if the minimum required distribution is calculated each year based on your single life expectancy or the joint life expectancies of you and your Plan Beneficiary, the regulations for Code Section 401(a)(9) provide specific rules for calculating the minimum required distributions at your death. For example, if you have elected ECO with the calculation based on your single life expectancy, and the life expectancy is recalculated each year, your recalculated life expectancy becomes zero in the calendar year following your death and the entire remaining interest must be distributed to your beneficiary by December 31 of the year following your death. The rules are complex and you should consult your tax adviser before electing the method of calculation to satisfy the minimum distribution requirements. If you die before the required minimum distribution has commenced, your entire interest must be distributed by December 31 of the calendar year containing the fifth anniversary of the date of your death. Alternatively, payments may be made over the life of the Plan Beneficiary or over a period not extending beyond the life expectancy of the Plan Beneficiary (not to exceed 15 years for a non-spousal beneficiary) provided the distribution begins by December 31 of the calendar year following the calendar year of your death, or December 31 of the calendar year in which you would have attained age 70 1/2. If you fail to receive the minimum required distribution for any tax year, a 50% excise tax is imposed on the required amount that was not distributed. PLANS OF NON-SECTION 457 TAX-EXEMPT ORGANIZATIONS AND TAXABLE ORGANIZATIONS Effective January 1, 1987, rules applicable to deferred compensation plans of state and local governments (Section 457 of the Code) were extended to deferred compensation plans sponsored by tax-exempt employers. While no limitation is imposed on deferrals under deferred compensation plans of taxable employers, each Participant in a plan subject to Section 457 has a maximum allowable annual deferral of $7,500 or 33 1/3% of the Participant's includible compensation (25% of gross compensation). However, the Code does allow the following "grandfathering" provisions for those who were Participants in tax-exempt employer deferred compensation plans, as of August 16, 1986. (1) Section 457 shall not apply to amounts deferred from taxable years beginning before January 1, 1987. - -------------------------------------------------------------------------------- 14 (2) Section 457 shall not apply to amounts deferred from taxable years beginning after December 31, 1986 provided (a) a deferral agreement was in writing on August 16, 1986, and (b) as of August 16, 1986, the agreement provided for a deferral of a fixed amount or of an amount determined pursuant to a fixed formula, and (c) the agreement has not been modified as to amount or formula after August 16, 1986. Only individuals may participate under a Section 457 Plan subject to the Section 457 rules. Therefore, corporations may not participate in tax-exempt employer deferred compensation plans unless they qualify under the "grandfathering" provisions. Any reference in this prospectus to Section 457 Plans relates only to contributions subject to Section 457 of the Code and these references do not apply to "grandfathered" contributions. In general, all amounts received under these Plans are taxable and, except for death benefit payments, are subject to federal income tax withholding as wages. This includes payments for periodic and nonperiodic distributions. Under Plans sponsored by taxable organizations, such payments made to a Participant are generally deductible by the Contract Holder as compensation paid to the Participant. If we make payments directly to a Participant or beneficiary on behalf of the employer as Contract Holder, we will report to the IRS the taxable income and we will withhold federal taxes (and state taxes, if applicable) for payments to Participants. The owner of a Contract who is not a natural person must generally include in income any increase in the excess of the Account Value over the "investment in the contract" during the taxable year. There are some exceptions to this rule and prospective owners that are not natural persons may wish to discuss this with a competent tax advisor. For contracts sold to taxable organizations, Section 72(e)(11) of the Code provides that annuity contracts issued by the same insurer (and its affiliates) to the same Contract Holder during a calendar year shall be treated as a single annuity contract. This means that any amount received under this contract, or any other contract subject to this provision, prior to the contract's Annuity starting date will be taxable (and possibly subject to the 10% penalty tax) to the extent of the combined income in all such contracts. For purposes of this section, immediate annuity contracts, and contracts used to fund qualified pension and profit-sharing plans under Section 401(a) of the Code, Annuity plans under Sections 403(a) or 403(b) of the Code, and individual retirement annuities and accounts under Section 408 of the Code are not aggregated. MISCELLANEOUS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- VOTING RIGHTS Each Contract Holder may direct us in the voting of shares at meetings of shareholders of the appropriate Fund(s). The number of votes to which each Contract Holder may give direction will be determined as of the record date. The number of votes each Contract Holder is entitled to direct with respect to a particular Fund during the Accumulation Period is equal to the portion of the current value of the Contract attributable to that Fund, divided by the net asset value of one share of that Fund. During the Annuity Period, the number of votes is equal to the valuation reserve applicable to the portion of the Contract attributable to that Fund, divided by the net asset value of one share of that Fund. In determining the number of votes, fractional votes will be recognized. Where the value of the Contract or valuation reserve relates to more than one Fund, the calculation of votes will be performed separately for each Fund. Each Contract Holder will receive a notice of each meeting of shareholders of that Fund, together with any proxy solicitation materials, and a statement of the number of votes attributable to the Contract. Votes attributable to Contract Holders who do not direct us will be cast by us in the same proportion as the votes for which we have received directions. MODIFICATION OF THE CONTRACT The Company may change the Contract as required by federal or state law. In addition, the Company may, upon 30 days written notice to the Contract Holder, make other changes to group Contracts that would apply only to individuals who become Participants under that Contract - -------------------------------------------------------------------------------- 15 after the effective date of such changes. If the Contract Holder does not agree to a change, no new Participants will be covered under the Contract. Certain changes will require the approval of appropriate state or federal regulatory authorities. DISTRIBUTION The Company will serve as Principal Underwriter for the securities sold by this Prospectus. The Company 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, the Company will contract with one or more registered broker-dealers ("Distributors"), including at least one affiliate of the Company, to offer and sell the Contracts. All persons offering and selling the Contracts must be registered representatives of the Distributors and must also be licensed as insurance agents to sell variable annuity contracts. These registered representatives may also provide services to Participants in connection with establishing their Accounts under the Contract. Persons offering and selling the Contracts may receive commissions in connection with the sale of the Contracts. The maximum percentage amount that the Company will ever pay as commission with respect to any given Purchase Payment is with respect to those made during the first year of Purchase Payments under an Account. That percentage amount will range from 1% to 6% of those Purchase Payments. The Company may also pay renewal commissions on Purchase Payments made after the first year and, under group contracts, asset-based service fees. The average of all payments made by the Company is estimated to equal approximately 3% of the total Purchase Payments made over the life of an average Contract. The Company may also reimburse the Distributor for certain actual expenses. The name of the Distributor and the registered representative responsible for your Account are set forth on your enrollment form. Commissions and sales related expenses are paid by the Company and are not deducted from Purchase Payments. (See "Charges and Deductions--Deferred Sales Charge.") Occasionally, we may pay commissions and fees to Distributors which are affiliated or associated with the Contract Holder or the Participants. We may also enter into agreements with some entities associated with the Contract Holder or Participants in which we would agree to pay the entity for certain services in connection with administering the Contracts. In both these circumstances there may be an understanding that the Distributor or entity would endorse the Company as a provider of the Contract. You will be notified if you are purchasing a Contract that is subject to these arrangements. PERFORMANCE REPORTING From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account. The Company may advertise the "standardized average annual total returns" of the Subaccounts, calculated in a manner prescribed by the SEC, as well as the "non-standardized returns." "Standardized average annual total returns" are computed according to a formula in which a hypothetical investment of $1,000 is applied to the Subaccount and then related to the ending redeemable values over the most recent one, five and ten-year periods (or since inception, if less than ten years). Standardized returns will reflect the reduction of all recurring charges during each period (e.g., mortality and expense risk charges, annual maintenance fees, administrative expense charge (if any) and any applicable deferred sales charge). "Non-standardized returns" will be calculated in a similar manner, except that non-standardized figures will not reflect the deduction of any applicable deferred sales charge (which would decrease the level of performance shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year to date and three-year periods. The Company may also advertise certain ratings, rankings or other information related to the Company, the Subaccounts or the Funds. Further details regarding performance reporting and advertising are described in the Statement of Additional Information. TRANSFER OF OWNERSHIP; ASSIGNMENT No assignment of a Contract will be binding on us unless made in writing and sent to us at our Home Office. The Company will use reasonable procedures to confirm that the assignment is authentic, including verification of signature. If the Company fails to follow its procedures, it would be liable for any losses to you directly resulting from the failure. Otherwise, we are not responsible for the validity of any assignment. The rights of the Owner and the interest of the Annuitant and any Beneficiary will be subject to the rights of any assignee of record. DELAY OR SUSPENSION OF PAYMENTS The Company reserves the right to suspend or postpone the date of payment for any benefit or values (a) on any Valuation Date on which the New York Stock - -------------------------------------------------------------------------------- 16 Exchange ("Exchange") is closed (other than customary weekend and holiday closings) or when trading on the Exchange is restricted; (b) when an emergency exists, as determined by the SEC, so that disposal of securities held in the Subaccounts is not reasonably practicable or is not reasonably practicable for the value of the Subaccount's assets; or (c) during such other periods as the SEC may by order permit for the protection of investors. The conditions under which restricted trading or an emergency exists shall be determined by the rules and regulations of the SEC. LEGAL MATTERS AND PROCEEDINGS The Company knows of no material legal proceedings pending to which the Separate Account or the Company is a party or which would materially affect the Separate Account. The validity of the securities offered by this Prospectus has been passed upon by Susan E. Bryant, Esq., Counsel to the Company. CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Statement of Additional Information contains more specific information on the Separate Account and the Contract, as well as the financial statements of the Separate Account and the Company. A list of the contents of the SAI is set forth below: General Information and History Variable Annuity Account B Offering and Purchase of Contracts Performance Data General Average Annual Total Return Quotations Annuity Payments Sales Material and Advertising Independent Auditors Financial Statements of the Separate Account Financial Statements of the Company - -------------------------------------------------------------------------------- 17 APPENDIX I GUARANTEED ACCUMULATION ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS OFFERED BY THIS PROSPECTUS. AMOUNTS ALLOCATED TO THE LONG-TERM CLASSIFICATIONS OF GAA ARE HELD IN A NONINSULATED, NONUNITIZED SEPARATE ACCOUNT. AMOUNTS ALLOCATED TO THE SHORT-TERM CLASSIFICATIONS OF GAA ARE HELD IN THE COMPANY'S GENERAL ACCOUNT. THIS APPENDIX IS A SUMMARY OF GAA AND IS NOT INTENDED TO REPLACE THE GAA PROSPECTUS. YOU SHOULD READ THE ACCOMPANYING GAA PROSPECTUS CAREFULLY BEFORE INVESTING. GAA is a credited interest option in which we guarantee stipulated rates of interest for stated periods of time on amounts directed to GAA. The interest rate stipulated is an annual effective yield; that is, it reflects a full year's interest. Interest is credited daily at a rate that will provide the guaranteed annual effective yield over the period of one year. This option guarantees the minimum interest rate specified in the Contract. During a specified period of time (the "deposit period"), amounts may be applied to any or all available Guaranteed Terms within the Short-Term and Long-Term Classifications. Short-Term GAA has Guaranteed Terms from one to three years, and Long-Term GAA has Guaranteed Terms from three to ten years. Purchase Payments must remain in GAA for the full Guaranteed Term to receive the quoted interest rates. Withdrawals or transfers from a Guaranteed Term before the end of that Guaranteed Term may be subject to a market value adjustment ("MVA"). An MVA reflects the change in the value of the investment due to changes in interest rates since the date of deposit. When interest rates increase after the date of deposit, the value of the investment decreases, and the MVA is negative. Conversely, when interest rates decrease after the date of deposit, the value of the investment increases, and the MVA is positive. It is possible that a negative MVA could result in you receiving an amount that is less than the amount paid into GAA. As a Guaranteed Term matures, assets accumulating under GAA may be (a) transferred to a new Guaranteed Term, (b) transferred to the other available investment options, or (c) withdrawn. Amounts withdrawn may be subject to a deferred sales charge and/or federal tax liabilities. By notifying us at our Home Office at least 30 days prior to the Annuity Date, you may elect a variable annuity and have amounts that have been accumulating under GAA transferred to one or more of the Subaccounts available during the Annuity Period. GAA cannot be used as an investment option during the Annuity Period. MORTALITY AND EXPENSE RISK CHARGES We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. TRANSFERS Amounts applied to a Guaranteed Term during a deposit period may not be transferred to any other funding option or to another Guaranteed Term during that deposit period or for 90 days after the close of that deposit period. Transfers are permitted from Guaranteed Terms of one classification to available Guaranteed Terms of another classification. We will apply an MVA to GAA transfers made before the end of a Guaranteed Term. Transfers of GAA values due to a maturity are not subject to an MVA. - -------------------------------------------------------------------------------- 18 APPENDIX II FIXED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED ACCOUNT. AMOUNTS ALLOCATED TO THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT THAT SUPPORTS GENERAL INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THE PROSPECTUS REGARDING THE FIXED ACCOUNT, MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC. The Fixed Account guarantees the minimum interest rate specified in the Contract. The Company may credit a higher interest rate from time to time. The current rate is subject to change at any time, but will never fall below the guaranteed minimum. The Company's determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under the Fixed Account, the Company assumes the risk of investment gain or loss by guaranteeing Account Values and promising a minimum interest rate and Annuity Payment. Under certain emergency conditions, we may defer payment of a Fixed Account withdrawal value (a) for a period of up to six months, or (b) as provided by federal law. In addition, if allowed by state law, the Company may pay any Fixed Account withdrawal value in equal payments, with interest, over a period not to exceed 60 months, when: (a) the Fixed Account withdrawal value for the Contract or for the total of the Accounts under the Contract exceeds $250,000 on the day prior to the withdrawal; and (b) the sum of the current Fixed Account withdrawal and the total of all Fixed Account withdrawals from the Contract or any Account under the Contract within the past 12 calendar months exceeds 20% of the amount in the Fixed Account on the day prior to the current withdrawal. Interest, as used above, will not be more than two percentage points below any rate determined prospectively by the Board of Directors for this class of Contract. In no event will the interest rate be less than the minimum stated in the Contract. Amounts applied to the Fixed Account will earn the interest rate in effect when actually applied to the Fixed Account. The Fixed Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. If a withdrawal is made from the Fixed Account, a deferred sales charge may apply. (See "Charges and Deductions-- Deferred Sales Charge.") TRANSFERS AMONG INVESTMENT OPTIONS Transfers from the Fixed Account to any other available investment option(s) are allowed in each calendar year during the Accumulation Period. The amount which may be transferred may vary at our discretion; however, it will never be less than 10% of the amount held under the Fixed Account. Transfers to the Fixed Plus Account (if available under the Contract) will be permitted without regard to this limitation. By notifying us at our Home Office at least 30 days before Annuity payments begin, you may elect to have amounts which have been accumulating under the Fixed Account transferred to one or more of the Subaccounts available during the Annuity Period to provide variable Annuity Payments. - -------------------------------------------------------------------------------- 19 APPENDIX III FIXED PLUS ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED PLUS ACCOUNT. AMOUNTS ALLOCATED TO THE FIXED PLUS ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT THAT SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED PLUS ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THIS PROSPECTUS REGARDING THE FIXED PLUS ACCOUNT MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF THE STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED PLUS ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC. FIXED PLUS ACCOUNT The Fixed Plus Account guarantees that amounts allocated to this option will earn the minimum Fixed Plus interest rate specified in the Contract. We may credit a higher interest rate from time to time. Our determination of interest rates reflects the investment income earned on invested assets and the amortization of any capital gains and/or losses realized on the sale of invested assets. Under this option, we assume the risk of investment gain or loss by guaranteeing Net Purchase Payment values and promising a minimum interest rate and Annuity payment. The Fixed Plus Account will reflect a compound interest rate credited by us. The interest rate quoted is an annual effective yield. Amounts applied to the Fixed Plus Account will earn the Fixed Plus interest rate in effect when actually applied to the Fixed Plus Account. We make no deductions from the credited interest rate for mortality and expense risks; these risks are considered in determining the credited rate. Beginning on the tenth Account Year, we will credit amounts held in the Fixed Plus Account with an interest rate that is at least 0.25% higher than the then-declared interest rate for the Fixed Plus Accounts for Accounts that have not reached their tenth anniversary. We reserve the right to limit Net Purchase Payment(s) and/or transfers to the Fixed Plus Account. FIXED PLUS ACCOUNT WITHDRAWALS The amount eligible for partial withdrawal is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of any Additional Withdrawal Option. The 20% limit is waived if the partial withdrawal is due to annuitization or death. The waiver upon death will only be exercised once and must occur within six months after the Participant's date of death. For this waiver to apply, any such partial withdrawal must also be made pro rata from all funding options used under the Account. If a full withdrawal is requested, we will pay any amounts held in the Fixed Plus Account, with interest, in five annual payments that will be equal to: 1. One-fifth of the Fixed Plus Account value on the day the request is received, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months; 2. One-fourth of the remaining Fixed Plus Account value twelve months later; 3. One-third of the remaining Fixed Plus Account value twelve months later; 4. One-half of the remaining Fixed Plus Account value twelve months later; and 5. The balance of the Fixed Plus Account value twelve months later. Once we receive a request for a full withdrawal from an Account, no further withdrawals or transfers will be permitted from the Fixed Plus Account. - -------------------------------------------------------------------------------- 20 A full withdrawal from the Fixed Plus Account may be cancelled at any time before the end of the five-payment period. We will waive the Fixed Plus Account full withdrawal provision, if the withdrawal is made: (a) due to your death, before Annuity payments begin, within 6 months of the date of death; (b) due to the election of an Annuity option; (c) when the Fixed Plus Account value is $3,500 or less (and no withdrawals, transfers or annuitizations have been made from the Account within the prior 12 months). TRANSFERS AMONG INVESTMENT OPTIONS The amount eligible for transfer from the Fixed Plus Account is 20% of the amount held in the Fixed Plus Account on the day we receive a written request in our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or annuitizations made in the prior 12 months. In calculating the 20% limit, we reserve the right to include payments made due to the election of an Additional Withdrawal Option. We will waive the 20% transfer limit when the value in the Fixed Plus Account is $1,000 or less. By notifying us at our Home Office at least 30 days before Annuity payments begin, the Contract Holder may elect to have amounts which have been accumulating under the Fixed Plus Account transferred to one or more of the Subaccounts available during the Annuity Period, to provide lifetime variable Annuity payments. SWO The Systematic Withdrawal Option may not be elected if you have requested a Fixed Plus Account transfer or withdrawal within the prior 12-month period. - -------------------------------------------------------------------------------- 21 FOR MASTER APPLICATIONS ONLY I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT B GROUP DEFERRED VARIABLE ANNUITY PROSPECTUS DATED MAY 1, 1996 FOR EMPLOYER-SPONSORED DEFERRED COMPENSATION PLANS, AS WELL AS ALL CURRENT PROSPECTUSES PERTAINING TO THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS. - ---- PLEASE SEND AN ACCOUNT B STATEMENT OF ADDITIONAL INFORMATION (FORM NO. 75996(S)-2) DATED MAY 1, 1996. - -------------------------------------------------------------------------------- CONTRACT HOLDER'S SIGNATURE - -------------------------------------------------------------------------------- DATE 75996-2 (5/96) Insurance products offered by: Aetna Life Insurance and Annuity Company Securities offered through: Aetna Investment Services, Inc. 151 Farmington Avenue Hartford, CT 06156 1-800-525-4225 Visit our home page on the Internet http://www.aetna.com [LOGO] Aetna Retirement Services, Inc. Printed on recycled paper 75996-2 VARIABLE ANNUITY ACCOUNT B OF AETNA LIFE INSURANCE AND ANNUITY COMPANY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996 AetnaPlus Contracts Group and Individual Variable Annuity Contracts Available under Section 457 This Statement of Additional Information is not a prospectus and should be read in conjunction with the current prospectus for Variable Annuity Account B (the "Separate Account") dated May 1, 1996. A free prospectus is available upon request from the local Aetna Life Insurance and Annuity Company office or by writing to or calling: Aetna Life Insurance and Annuity Company Customer Service 151 Farmington Avenue Hartford, Connecticut 06156 1-800-525-4225 Read the prospectus before you invest. Terms used in this Statement of Additional Information shall have the same meaning as in the Prospectus. TABLE OF CONTENTS
Page General Information and History. . . . . . . . . . . . . . . . . . . . . . 1 Variable Annuity Account B . . . . . . . . . . . . . . . . . . . . . . . . 1 Offering and Purchase of Contracts . . . . . . . . . . . . . . . . . . . . 2 Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Average Annual Total Return Quotations . . . . . . . . . . . . . . . . 3 Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Sales Material and Advertising . . . . . . . . . . . . . . . . . . . . . . 8 Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Financial Statements of the Separate Account . . . . . . . . . . . . . . . S-1 Financial Statements of Aetna Life Insurance and Annuity Company . . . . . F-1
GENERAL INFORMATION AND HISTORY Aetna Life Insurance and Annuity Company (the "Company") is a stock life insurance company which was organized under the insurance laws of the State of Connecticut in 1976. Through a merger, it succeeded to the business of Aetna Variable Annuity Life Insurance Company (formerly Participating Annuity Life Insurance Company organized in 1954). As of December 31, 1995, the Company had assets of $27.1 billion (subject to $25.5 billion of customer and other liabilities, $1.6 billion of shareholder equity) which includes $11 billion in assets held in the Company's separate accounts. the Company had $22 billion in assets under management, including $8 billion in its mutual funds. as of December 31, 1994, it ranked among the top 2% of all U.S. life insurance companies by size. the Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc., and an indirect wholly owned subsidiary of Aetna Life and Casualty Company. The Company is engaged in the business of issuing life insurance policies and annuity contracts in all states of the United States. The Company's Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156. In addition to serving as the principal underwriter and the depositor for the Separate Account, the Company is also a registered investment adviser under the Investment Advisers Act of 1940, and a registered broker-dealer under the Securities Exchange Act of 1934. The Company provides investment advice to several of the registered management investment companies offered as variable investment options under the Contracts funded by the Separate Account (see "Variable Annuity Account B" below). Other than the mortality and expense risk charges and administrative expense charge described in the prospectus, all expenses incurred in the operations of the Separate Account are borne by the Company. See "Charges and Deductions" in the prospectus. The Company receives reimbursement for certain administrative costs from some unaffiliated sponsors of the Funds used as funding options under the Contract. These fees generally range up to 0.25%. The assets of the Separate Account are held by the Company. The Separate Account has no custodian. However, the Funds in whose shares the assets of the Separate Account are invested each have custodians, as discussed in their respective prospectuses. VARIABLE ANNUITY ACCOUNT B Variable Annuity Account B (the "Separate Account") is a separate account established by the Company for the purpose of funding variable annuity contracts issued by the Company. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, as amended. The assets of each of the Subaccounts of the Separate Account will be invested exclusively in shares of the mutual funds described in the Prospectus. Purchase Payments made under the Contract may be allocated to one or more of the Subaccounts. The Company may make additions to or deletions from available investment options as permitted by law. The availability of the Funds is subject to applicable regulatory authorization. Not all Funds are available in all jurisdictions, under all Contracts, or under all Plans. The Funds currently available under the Contract are as follows: 1
Aetna Variable Fund Fidelity VIP Growth Portfolio Aetna Income Shares Fidelity VIP Overseas Portfolio Aetna Variable Encore Fund Janus Aspen Aggressive Growth Portfolio Aetna Investment Advisers Fund, Inc. Janus Aspen Balanced Portfolio Aetna Ascent Variable Portfolio Janus Aspen Flexible Income Portfolio Aetna Crossroads Variable Portfolio Janus Aspen Growth Portfolio Aetna Legacy Variable Portfolio Janus Aspen Short-Term Bond Portfolio Alger American Growth Portfolio Janus Aspen Worldwide Growth Portfolio Alger American Small Cap Portfolio Lexington Natural Resources Trust Calvert Responsibly Invested Balanced Portfolio Neuberger & Berman Growth Portfolio Fidelity VIP II Contrafund Portfolio Scudder International Portfolio Class A Shares Fidelity VIP Equity-Income Portfolio TCI Growth
Complete descriptions of each of the Funds, including their investment objectives, policies, risks and fees and expenses, are contained in the prospectuses and statements of additional information for each of the Funds. OFFERING AND PURCHASE OF CONTRACTS The Company is both the depositor and the principal underwriter for the securities sold by the prospectus. The Company offers the Contracts through life insurance agents licensed to sell variable annuities who are registered representatives of the Company or of other registered broker-dealers who have sales agreements with the Company. The offering of the Contracts is continuous. A description of the manner in which Contracts are purchased may be found in the prospectus under the sections titled "Purchase" and "Contract Valuation." PERFORMANCE DATA GENERAL From time to time, the Company may advertise different types of historical performance for the Subaccounts of the Separate Account available under the Contracts issued by the Company in connection with Plans described in the Prospectus. The Company may advertise the "standardized average annual total returns," calculated in a manner prescribed by the Securities and Exchange Commission (the "standardized return"), as well as "non-standardized returns," both of which are described below. The standardized and non-standardized total return figures are computed according to a formula in which a hypothetical initial Purchase Payment of $1,000 is applied to the various Subaccounts under the Contract, and then related to the ending redeemable values over one, five and ten year periods (or fractional periods thereof). The standardized figures reflect the deduction of all recurring charges during each period (e.g., mortality and expense risk charges, maintenance fees, administrative expense charges, and deferred sales charges). These charges will be deducted on a pro rata basis in the case of fractional periods. The maintenance fee is converted to a percentage of assets based on the average account size under the Contracts described in the Prospectus. The non-standardized figures will be calculated in a similar manner, except that they will not reflect the deduction of any applicable deferred sales charge (which would decrease the level of performance 2 shown if reflected in these calculations). The non-standardized figures may also include monthly, quarterly, year-to-date and three year periods. If a Fund was in existence prior to the date it became available under the Contract, standardized and non-standardized total returns may include periods prior to such date. These figures are calculated by adjusting the actual returns of the Fund to reflect the charges that would have been assessed under the Contract had that Fund been available under the Contract during that period. Investment results of the Subaccounts will fluctuate over time, and any presentation of the Subaccounts' total return quotations for any prior period should not be considered as a representation of how the Subaccounts will perform in any future period. Additionally, the Account Value upon redemption may be more or less than your original cost. AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED Each set of tables shown below represents the variations in contract payment type and in the maintenance fees assessed under different plans. Table A reflects the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1995 for the Subaccounts under Single Payment Accounts issued by the Company. Tables B and C reflect the average annual standardized and non-standardized total return quotation figures for the periods ended December 31, 1995 for the Subaccounts under Installment Payment Accounts with a $20 annual maintenance fee and a $15 annual maintenance fee, respectively. For those Subaccounts where results are not available for the full calendar period indicated, the percentage shown is an average annual return since inception (denoted with an *). TABLE A
- ------------------------------------------------------------------------------------------------------------------------------------ SINGLE PAYMENT ACCOUNT FUND ($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE - ------------------------------------------------------------------------------------------------------------------------------------ SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Fund 24.08% 11.20% 12.31% 30.61% 10.42% 12.11% 12.31% 04/30/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Income Shares 10.94% 7.62% 8.57% 16.78% 6.32% 8.51% 8.57% 06/01/78 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Encore Fund (0.50%) 2.56% 4.94% 4.74% 3.14% 3.40% 4.94% 09/01/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Investment Advisers Fund, Inc. 19.37% 9.61% 8.86%* 25.65% 10.30% 10.50% 9.37%* 06/23/89 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Ascent Variable Portfolio 4.32%* N/A N/A 9.81%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads Variable Portfolio 3.25%* N/A N/A 8.68%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Legacy Variable Portfolio 2.27%* N/A N/A 7.66%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Growth Portfolio 27.95% 19.24% 17.44%* 34.68% 17.73% 20.22% 17.96%* 01/08/89 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap Portfolio 35.39% 17.79% 20.51%* 2.52% 14.07% 18.75% 20.85%* 09/21/88 - ------------------------------------------------------------------------------------------------------------------------------------ Calvert Responsibly Invested Balanced Portfolio 21.76% 9.20% 8.85%* 28.17% 9.40% 10.09% 8.85%* 09/04/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 31.01%* N/A N/A 37.91%* N/A N/A N/A 01/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 26.75% 18.84% 11.99%* 33.43% 18.12% 19.82% 11.99%* 10/22/86 - ------------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 27.01% 18.31% 13.55%* 33.69% 15.88% 19.28% 13.55%* 11/07/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 2.91% 5.91% 5.90%* 8.32% 13.86% 6.78% 6.02%* 02/13/87 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 19.61% 23.24%* N/A 25.91% 26.02%* N/A N/A 9/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 17.08% 10.02%* N/A 23.24% 12.50%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 16.21% 5.92%* N/A 22.33% 8.31%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 22.14% 11.27%* N/A 28.56% 13.78%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Short-Term Bond Portfolio 2.77% 1.02%* N/A 8.18% 3.30%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 19.40% 16.51%* N/A 25.69% 19.13%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust 9.65% 3.61%* N/A 15.42% 5.51% 4.88%* N/A 10/14/91 - ----------------------------------------------------------------------------------------------------------------------------------- Neuberger & Berman Growth Portfolio 23.59% 15.67% 12.90% 30.10% 16.17% 16.62% 12.90% 12/31/85 - ------------------------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A Shares 4.25% 8.11% 7.88%* 9.74% 13.44% 8.99% 8.01%* 05/01/87 - ------------------------------------------------------------------------------------------------------------------------------------ TCI Growth 23.00% 12.57% 11.32%* 29.47% 11.26% 13.50% 11.46%* 11/20/87 - ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. 4 TABLE B
---------------------------- --------------------------------------- --------- INSTALLMENT PAYMENT ACCOUNT FUND ($20 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE ---------------------------- --------------------------------------- --------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Fund 24.06% 10.94% 12.29% 30.59% 10.40% 12.09% 12.29% 04/30/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Income Shares 10.92% 7.38% 8.54% 16.76% 6.30% 8.49% 8.54% 06/01/78 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Encore Fund (0.52%) 2.33% 4.92% 4.71% 3.12% 3.38% 4.92% 09/01/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Investment Advisers Fund, Inc. 19.35% 9.36% 8.49%* 25.63% 10.28% 10.48% 9.34%* 06/23/89 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Ascent Variable Portfolio 4.30%* N/A N/A 9.79%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads Variable Portfolio 3.23%* N/A N/A 8.66%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Legacy Variable Portfolio 2.25%* N/A N/A 7.64%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Growth Portfolio 27.93% 18.97% 17.07%* 34.66% 17.71% 20.20% 17.94%* 01/08/89 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap Portfolio 35.37% 17.52% 19.98%* 42.50% 14.05% 18.73% 20.83%* 09/21/88 - ------------------------------------------------------------------------------------------------------------------------------------ Calvert Responsibly Invested Balanced Portfolio 21.74% 8.95% 8.23%* 28.15% 9.38% 10.07% 8.83%* 09/04/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 30.99%* N/A N/A 37.89%* N/A N/A N/A 01/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 26.73% 18.57% 11.35%* 33.40% 18.10% 19.80% 11.97%* 10/22/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 26.99% 18.04% 12.90%* 33.67% 15.86% 19.26% 13.53%* 11/07/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 2.89% 5.67% 5.39%* 8.30% 13.84% 6.76% 6.00%* 02/13/87 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 19.59% 23.21%* N/A 25.89% 26.00%* N/A N/A 9/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 17.06% 10.00%* N/A 23.22% 12.48%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 16.19% 5.90%* N/A 22.31% 8.29%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 22.11% 11.24%* N/A 28.54% 13.75%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Short-Term Bond Portfolio 2.75% 1.00%* N/A 8.16% 3.28%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 19.38% 16.48%* N/A 25.67% 19.11%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust 9.63% 3.59%* N/A 15.40% 5.49% 4.86%* N/A 10/14/91 - ------------------------------------------------------------------------------------------------------------------------------------ Neuberger & Berman Growth Portfolio 23.57% 15.41% 12.87% 30.08% 16.15% 16.60% 12.87% 12/31/85 - ------------------------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A Shares 4.23% 7.86% 7.35%* 9.72% 13.42% 8.97% 7.99%* 05/01/87 - ------------------------------------------------------------------------------------------------------------------------------------ TCI Growth 22.98% 12.32% 10.74%* 29.45% 11.24% 13.48% 11.44%* 11/20/87 - ------------------------------------------------------------------------------------------------------------------------------------
Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. 5 TABLE C
---------------------------- --------------------------------------- --------- INSTALLMENT PAYMENT ACCOUNT FUND ($15 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION DATE ---------------------------- --------------------------------------- --------- SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Fund 24.06% 10.95% 12.29% 30.59% 10.40% 12.09% 12.29% 04/30/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Income Shares 10.92% 7.38% 8.55% 16.76% 6.31% 8.49% 8.55% 06/01/78 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Variable Encore Fund (0.52%) 2.33% 4.93% 4.72% 3.13% 3.39% 4.93% 09/01/75 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Investment Advisers Fund, Inc. 19.35% 9.36% 8.49%* 25.64% 10.28% 10.49% 9.35%* 06/23/89 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Ascent Variable Portfolio 4.30%* N/A N/A 9.79%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Crossroads Variable Portfolio 3.23%* N/A N/A 8.67%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Aetna Legacy Variable Portfolio 2.26%* N/A N/A 7.64%* N/A N/A N/A 07/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Growth Portfolio 27.93% 18.98% 17.08%* 34.67% 17.72% 20.20% 17.94%* 01/08/89 - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Small Cap Portfolio 35.38% 17.53% 19.98%* 42.50% 14.05% 18.74% 20.83%* 09/21/88 - ------------------------------------------------------------------------------------------------------------------------------------ Calvert Responsibly Invested Balanced Portfolio 21.74% 8.95% 8.23%* 28.15% 9.38% 10.08% 8.83%* 09/04/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP II Contrafund Portfolio 31.00%* N/A N/A 37.89%* N/A N/A N/A 01/03/95 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income Portfolio 26.74% 18.58% 11.35%* 33.41% 18.10% 19.80% 11.97%* 10/22/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth Portfolio 26.99% 18.05% 12.90%* 33.68% 15.87% 19.26% 13.54%* 11/07/86 - ------------------------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas Portfolio 2.89% 5.67% 5.39%* 8.31% 13.84% 6.76% 6.00%* 02/13/87 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Aggressive Growth Portfolio 19.59% 23.22%* N/A 25.89% 26.00%* N/A N/A 9/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Balanced Portfolio 17.07% 10.00%* N/A 23.23% 12.48%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Flexible Income Portfolio 16.19% 5.90%* N/A 22.31% 8.29%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Growth Portfolio 22.12% 11.25%* N/A 28.55% 13.76%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Short-Term Bond Portfolio 2.75% 1.00%* N/A 8.16% 3.28%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Janus Aspen Worldwide Growth Portfolio 19.39% 16.49%* N/A 25.67% 19.12%* N/A N/A 09/13/93 - ------------------------------------------------------------------------------------------------------------------------------------ Lexington Natural Resources Trust 9.63% 3.59%* N/A 15.40% 5.49% 4.86%* N/A 10/14/91 - ------------------------------------------------------------------------------------------------------------------------------------ Neuberger & Berman Growth Portfolio 23.58% 15.41% 12.88% 30.08% 16.15% 16.60% 12.88% 12/31/85 - ------------------------------------------------------------------------------------------------------------------------------------ Scudder International Portfolio Class A Shares 4.24% 7.86% 7.35%* 9.72% 13.43% 8.98% 7.99%* 05/01/87 - ------------------------------------------------------------------------------------------------------------------------------------ TCI Growth 22.98% 12.32% 10.74%* 29.46% 11.24% 13.48% 11.45%* 11/20/87 - 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Please refer to the discussion preceding the Tables for an explanation of the charges included in the Standardized and Non-Standardized figures. These figures represent historical performance and should not be considered a projection of future performance. 6 ANNUITY PAYMENTS When Annuity payments are to begin, the value of the Account is determined using Accumulation Unit values as of the tenth Valuation Date before the first Annuity payment is due. Such value (less any applicable premium tax) is applied to provide an Annuity in accordance with the Annuity and investment options elected. The Annuity option tables found in the Contract show, for each form of Annuity, the amount of the first Annuity payment for each $1,000 of value applied. Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s) fluctuates with the investment experience of the selected investment option(s). The first payment and subsequent payments also vary depending on the assumed net investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a higher first payment, but Annuity payments will increase thereafter only to the extent that the net investment rate increases by more than 5% on an annual basis. Annuity payments would decline if the rate failed to increase by 5%. Use of the 3.5% assumed rate causes a lower first payment, but subsequent payments would increase more rapidly or decline more slowly as changes occur in the net investment rate. When the Annuity Period begins, the Annuitant is credited with a fixed number of Annuity Units (which does not change thereafter) in each of the designated investment options. This number is calculated by dividing (a) by (b), where (a) is the amount of the first Annuity payment based on a particular investment option, and (b) is the then current Annuity Unit value for that investment option. As noted, Annuity Unit values fluctuate from one Valuation Date to the next; such fluctuations reflect changes in the net investment factor for the appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company time to process Annuity payments) and a mathematical adjustment which offsets the assumed net investment rate of 3.5% or 5% per annum. The operation of all these factors can be illustrated by the following hypothetical example. These procedures will be performed separately for the investment options selected during the Annuity Period. EXAMPLE: Assume that, at the date Annuity payments are to begin, there are 3,000 Accumulation Units credited under a particular Account and that the value of an Accumulation Unit for the tenth Valuation Date prior to retirement was $13.650000. This produces a total value of $40,950. Assume also that no premium tax is payable and that the Annuity table in the Contract provides, for the option elected, a first monthly variable Annuity payment of $6.68 per $1000 of value applied; the Annuitant's first monthly payment would thus be 40.950 multiplied by $6.68, or $273.55. Assume then that the value of an Annuity Unit for the Valuation Date on which the first payment was due was $13.400000. When this value is divided into the first monthly payment, the number of Annuity Units is determined to be 20.414. The value of this number of Annuity Units will be paid in each subsequent month. If the net investment factor with respect to the appropriate Subaccount is 1.0015000 as of the tenth Valuation Date preceding the due date of the second monthly payment, multiplying this factor by .9999058* (to neutralize the assumed net investment rate of 3.5% per annum built into the number of 7 Annuity Units determined above) produces a result of 1.0014057. This is then multiplied by the Annuity Unit value for the prior Valuation Date (assume such value to be $13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation Date in which the second payment is due. The second monthly payment is then determined by multiplying the number of Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359, which produces a payment of $276.07. *If an assumed net investment rate of 5% is elected, the appropriate factor to neutralize such assumed rate would be .9998663. SALES MATERIAL AND ADVERTISING The Company may include hypothetical illustrations in its sales literature that explain the mathematical principles of dollar cost averaging, compounded interest, tax deferred accumulation, and the mechanics of variable annuity contracts. The Company may also discuss the difference between variable annuity contracts and other types of savings or investment products, including, but not limited to, personal savings accounts and certificates of deposit. We may distribute sales literature that compares the percentage change in Accumulation Unit values for any of the Subaccounts to established market indices such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average or to the percentage change in values of other management investment companies that have investment objectives similar to the Subaccount being compared. We may publish in advertisements and reports, the ratings and other information assigned to us by one or more independent rating organizations such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors Services, Inc. The purpose of the ratings is to reflect our financial strength and/or claims-paying ability. We may also quote ranking services such as Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS), which rank variable annuity or life Subaccounts or their underlying funds by performance and/or investment objective. From time to time, we will quote articles from newspapers and magazines or other publications or reports, including, but not limited to The Wall Street Journal, Money magazine, USA Today and The VARDS Report. The Company may provide in advertising, sales literature, periodic publications or other materials information on various topics of interest to current and prospective Contract Holders or Participants. These topics may include the relationship between sectors of the economy and the economy as a whole and its effect on various securities markets, investment strategies and techniques (such as value investing, market timing, dollar cost averaging, asset allocation, constant ratio transfer and account rebalancing), the advantages and disadvantages of investing in tax-deferred and taxable investments, customer profiles and hypothetical purchase and investment scenarios, financial management and tax and retirement planning, and investment alternatives to certificates of deposit and other financial instruments, including comparison between the Contracts and the characteristics of and market for such financial instruments. 8 INDEPENDENT AUDITORS KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the independent auditors for the Separate Account and for the Company. The services provided to the Separate Account include primarily the examination of the Separate Account's financial statements and the review of filings made with the SEC. 9 FINANCIAL STATEMENTS VARIABLE ANNUITY ACCOUNT B INDEX Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . S-2 Statement of Assets and Liabilities. . . . . . . . . . . . . . . . . . S-3 Statement of Operations. . . . . . . . . . . . . . . . . . . . . . . . S-8 Statements of Changes in Net Assets. . . . . . . . . . . . . . . . . . S-10 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . S-11 Condensed Financial Information. . . . . . . . . . . . . . . . . . . . S-13 S-1 INDEPENDENT AUDITORS' REPORT The Board of Directors of Aetna Life Insurance and Annuity Company and Contract Owners of Variable Annuity Account B: We have audited the accompanying statement of assets and liabilities of Aetna Life Insurance and Annuity Company Variable Annuity Account B (the "Account") as of December 31, 1995, and the related statement of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1995. These financial statements and condensed financial information are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements and condensed financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and condensed financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and condensed financial information referred to above present fairly, in all material respects, the financial position of the Aetna Life Insurance and Annuity Company Variable Annuity Account B as of December 31, 1995, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended and condensed financial information for the year ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Hartford, Connecticut February 16, 1996 S-2 VARIABLE ANNUITY ACCOUNT B STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
ASSETS: Investments, at net asset value: (Note 1) Aetna Variable Fund; 20,401,661 shares at $29.06 per share (cost $600,834,096)..............................$ 592,782,223 Aetna Income Shares; 6,006,058 shares at $13.00 per share (cost $74,865,329) ............................... 78,089,373 Aetna Variable Encore Fund; 6,101,341 shares at $13.30 per share (cost $78,645,161) ........................ 81,132,779 Aetna Investment Advisers Fund, Inc.; 7,664,725 shares at $14.50 per share (cost $98,736,185)............... 111,155,405 Aetna GET Fund, Series B; 1,128,914 shares at $12.40 per share (cost $11,433,593) .......................... 14,000,173 Aetna Ascent Variable Portfolio; 32,179 shares at $10.80 per share (cost $341,813) ......................... 347,383 Aetna Crossroads Variable Portfolio; 43,426 shares at $10.74 per share (cost $458,196) ..................... 466,405 Aetna Legacy Variable Portfolio; 30,419 shares at $10.64 per share (cost $321,970) ......................... 323,579 Alger American Funds: Alger American Balanced Portfolio; 50,517 shares at $13.64 per share (cost $687,406)...................... 689,050 Alger American Growth Portfolio; 346,280 shares at $31.16 per share(cost $10,853,903) .................... 10,790,086 Alger American Income and Growth Portfolio; 57,421 shares at $17.79 per share (cost $1,028,289)........... 1,021,520 Alger American Leveraged AllCap Portfolio; 112,151 shares at $17.43 per share (cost $1,922,235)........... 1,954,796 Alger American MidCap Growth Portfolio; 167,570 shares at $19.44 per share (cost $3,250,372).............. 3,257,565 Alger American Small Capitalization Portfolio; 646,138 shares at $39.41 per share (cost $25,418,034)...... 25,464,317 Calvert Responsibly Invested Balanced Portfolio; 203,667 shares at $1.70 per share (cost $360,358).......... 346,846 Fidelity Investments Variable Insurance Products Funds: Equity-Income Portfolio; 800,426 shares at $19.27 per share (cost $14,457,609)............................ 15,424,209 Growth Portfolio; 521,413 shares at $29.20 per share (cost $15,259,452)................................... 15,225,262 High Income Portfolio; 100,193 shares at $12.05 per share (cost $1,192,297)............................... 1,207,326 Overseas Portfolio; 117,982 shares at $17.05 per share (cost $1,960,157).................................. 2,011,591 Fidelity Investments Variable Insurance Products Funds II: Asset Manager Portfolio; 86,288 shares at $15.79 per share (cost $1,264,129).............................. 1,362,489 Contrafund Portfolio; 867,434 shares at $13.78 per share (cost $11,830,403)............................... 11,953,244 Index 500 Portfolio; 28,699 shares at $75.71 per share (cost $2,101,954).................................. 2,172,818 Investment Grade Bond Portfolio; 56,547 shares at $12.48 per share (cost $694,235)........................ 705,701 Insurance Management Series: Corporate Bond Fund; 1,213,125 shares at $9.79 per share (cost $11,647,482)............................... 11,876,490 Equity Growth and Income Fund; 2,084,810 shares at $12.80 per share (cost $23,768,678).................... 26,685,566 Growth Stock Fund; 17,464 shares at $10.30 per share (cost $176,265)...................................... 179,879 International Stock Fund; 156,864 shares at $10.35 per share (cost $1,580,366)............................ 1,623,538 Prime Money Fund; 5,774,492 shares at $1.00 per share (cost $5,775,674)................................... 5,774,492 U.S. Government Bond Fund; 438,127 shares at $10.29 per share (cost $4,432,728)........................... 4,508,328 Utility Fund; 797,832 shares at $11.03 per share (cost $8,000,336)........................................ 8,800,082 Janus Aspen Series: Aggressive Growth Portfolio; 693,818 shares at $17.08 per share (cost $10,685,497)........................ 11,850,406 Balanced Portfolio; 55,709 shares at $13.03 per share (cost $699,844)..................................... 725,884 Flexible Income Portfolio; 141,156 shares at $11.11 per share (cost $1,538,432)........................... 1,568,241 Growth Portfolio; 190,925 shares at $13.45 per share (cost $2,483,088).................................... 2,567,940 Short-Term Bond Portfolio; 74,706 shares at $10.03 per share (cost $747,969).............................. 749,299 Worldwide Growth Portfolio; 365,442 shares at $15.31 per share (cost $5,341,275).......................... 5,594,914 Lexington Emerging Markets Fund; 36,371 shares at $9.38 per share (cost $345,183)........................... 341,159 Lexington Natural Resources Trust; 166,302 shares at $11.30 per share (cost $1,690,491)..................... 1,879,208 S-3 Neuberger & Berman Advisers Management Trust - Growth Portfolio; 323,147 shares at $25.86 per share (cost $8,279,416) .............................................................................. 8,356,574 Scudder Variable Life Investment Fund - International Portfolio; 893,880 shares at $11.82 per share (cost $9,913,254)..................................................................... 10,565,665 TCI Portfolios, Inc.: TCI Balanced; 69,585 shares at $7.04 per share (cost $473,338) ........................................... 489,878 TCI Growth; 4,503,433 shares at $12.06 per share (cost $46,105,299) ...................................... 54,311,402 TCI International; 113,062 shares at $5.33 per share (cost $586,969) ..................................... 602,619 -------------- NET ASSETS ...................................................................................................$1,130,935,704 -------------- --------------
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995 (continued) Net assets represented by:
ACCUMULATION UNIT UNITS VALUE ----- ----- Reserves for annuity contracts in accumulation and payment period: AETNA VARIABLE FUND: Non-Qualified 1964 ................................................... 5,159.1 $149.975........ $773,737 Non-Qualified I ...................................................... 157,693.1 169.682........ 26,757,709 Non-Qualified II ..................................................... 91,497.4 119.527........ 10,936,439 Non-Qualified III .................................................... 129,657.4 114.464........ 14,841,063 Non-Qualified V ......................................................30,554,956.8 13.972........ 426,924,429 Non-Qualified VI ..................................................... 538,384.8 13.060........ 7,031,177 Non-Qualified VII .................................................... 3,068,782.3 14.001........ 42,967,268 Reserves for annuity contracts in payment period (Note 1) .............................................. 62,550,401 AETNA INCOME SHARES: Non-Qualified I ...................................................... 7,341.1 46.171........ 338,944 Non-Qualified II ..................................................... 46,936.3 48.232........ 2,263,808 Non-Qualified III .................................................... 11,092.5 46.616........ 517,093 Non-Qualified V ...................................................... 4,853,662.2 12.212........ 59,271,792 Non-Qualified VI ..................................................... 36,561.4 11.140........ 407,298 Non-Qualified VII .................................................... 988,198.5 12.037........ 11,894,717 Reserves for annuity contracts in payment period (Note 1) .............................................. 3,395,721 AETNA VARIABLE ENCORE FUND: Non-Qualified I ...................................................... 19,658.0 37.683........ 740,766 Non-Qualified II ..................................................... 53,953.2 38.335........ 2,068,303 Non-Qualified III .................................................... 21,094.2 36.081........ 761,100 Non-Qualified V ...................................................... 4,354,271.6 11.007........ 47,927,808 Non-Qualified VI ..................................................... 8,053.2 10.728........ 86,394 Non-Qualified VII .................................................... 2,694,033.8 10.968........ 29,548,408 AETNA INVESTMENT ADVISERS FUND, INC.: Non-Qualified I ...................................................... 38,200.7 18.002........ 687,677 Non-Qualified II ..................................................... 101,130.6 17.932........ 1,813,429 Non-Qualified III .................................................... 26,617.3 17.889........ 476,148 Non-Qualified V ...................................................... 6,430,772.1 13.803........ 88,762,468 S-4 Non-Qualified VI ..................................................... 14,277.8 11.589........ 165,459 Non-Qualified VII .................................................... 919,744.2 13.602........ 12,510,415 Reserves for annuity contracts in payment period (Note 1) .............................................. 6,739,809 AETNA GET FUND, SERIES B: Non-Qualified V ...................................................... 1,089,582.2 12.849........ 14,000,173 AETNA ASCENT VARIABLE PORTFOLIO: Non-Qualified V ...................................................... 16,790.9 10.652........ 178,853 Non-Qualified VII .................................................... 15,831.9 10.645........ 168,530 AETNA CROSSROADS VARIABLE PORTFOLIO: Non-Qualified V ...................................................... 16,953.1 10.594........ 179,603 Non-Qualified VII .................................................... 27,089.2 10.587........ 286,802 AETNA LEGACY VARIABLE PORTFOLIO: Non-Qualified V ...................................................... 2,222.3 10.443........ 23,208 Non-Qualified VII .................................................... 28,777.7 10.438........ 300,371 ALGER AMERICAN FUNDS: ALGER AMERICAN BALANCED PORTFOLIO: Non-Qualified VII .................................................... 54,737.3 12.588........ 689,050 ALGER AMERICAN GROWTH PORTFOLIO: Non-Qualified V ...................................................... 275,493.6 10.157........ 2,798,288 Non-Qualified VII .................................................... 615,696.6 12.980........ 7,991,798 ALGER AMERICAN INCOME AND GROWTH PORTFOLIO: Non-Qualified VII .................................................... 95,828.9 10.660........ 1,021,520 ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: Non-Qualified VII .................................................... 159,378.8 12.265........ 1,954,796 ALGER AMERICAN MIDCAP GROWTH PORTFOLIO: Non-Qualified VII .................................................... 233,109.8 13.974........ 3,257,565 ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO: Non-Qualified V ...................................................... 1,364,900.9 13.714........ 18,718,117 Non-Qualified VII .................................................... 507,425.1 13.295........ 6,746,200 CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: Non-Qualified V ...................................................... 25,730.0 13.480........ 346,846 FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: EQUITY - INCOME PORTFOLIO: Non-Qualified V ...................................................... 294,244.1 11.054........ 3,252,637 Non-Qualified VII..................................................... 913,516.8 13.324........ 12,171,572 GROWTH PORTFOLIO: Non-Qualified V ...................................................... 288,576.0 10.066........ 2,904,786 Non-Qualified VII..................................................... 885,545.2 13.913........ 12,320,476 HIGH INCOME PORTFOLIO: Non-Qualified VII..................................................... 112,818.5 10.701........ 1,207,326 OVERSEAS PORTFOLIO: Non-Qualified V ...................................................... 33,813.3 10.052........ 339,882 Non-Qualified VII..................................................... 150,017.4 11.143........ 1,671,709 FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II ASSET MANAGER PORTFOLIO: Non-Qualified VII..................................................... 116,810.0 11.664........ 1,362,489 CONTRAFUND PORTFOLIO: Non-Qualified V ...................................................... 379,862.0 10.468........ 3,976,320 Non-Qualified VII..................................................... 684,272.2 11.658........ 7,976,924 INDEX 500 PORTFOLIO: Non-Qualified VII..................................................... 191,671.3 11.336........ 2,172,818 S-5 INVESTMENT GRADE BOND PORTFOLIO: Non-Qualified VII..................................................... 66,574.4 10.600........ 705,701 INSURANCE MANAGEMENT SERIES: CORPORATE BOND FUND: Non-Qualified VII..................................................... 1,020,320.8 11.640........ 11,876,490 EQUITY GROWTH AND INCOME FUND: Non-Qualified VII..................................................... 2,057,363.9 12.971........ 26,685,566 GROWTH STOCK FUND: Non-Qualified VII..................................................... 17,503.1 10.277........ 179,879 INTERNATIONAL STOCK FUND: Non-Qualified VII..................................................... 158,318.6 10.255........ 1,623,538 PRIME MONEY FUND: Non-Qualified VII..................................................... 554,933.5 10.406........ 5,774,492 U.S. GOVERNMENT BOND FUND: Non-Qualified VII..................................................... 417,293.2 10.804........ 4,508,328 UTILITY FUND: Non-Qualified VII..................................................... 727,600.6 12.095........ 8,800,082 JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO: Non-Qualified V....................................................... 723,838.5 12.992........ 9,404,275 Non-Qualified VII..................................................... 187,583.5 13.040........ 2,446,131 BALANCED PORTFOLIO: Non-Qualified V....................................................... 7,771.5 10.835........ 84,204 Non-Qualified VII..................................................... 53,016.1 12.104........ 641,680 FLEXIBLE INCOME PORTFOLIO: Non-Qualified V....................................................... 84,047.6 12.094........ 1,016,439 Non-Qualified VII..................................................... 45,713.6 12.071........ 551,802 GROWTH PORTFOLIO: Non-Qualified V....................................................... 26,022.4 10.870........ 282,874 Non-Qualified VII..................................................... 176,110.7 12.975........ 2,285,066 SHORT-TERM BOND PORTFOLIO: Non-Qualified V....................................................... 2,677.9 10.325........ 27,650 Non-Qualified VII..................................................... 67,034.3 10.765........ 721,649 WORLDWIDE GROWTH PORTFOLIO: Non-Qualified V....................................................... 227,582.2 10.893........ 2,479,004 Non-Qualified VII..................................................... 252,485.1 12.341........ 3,115,910 LEXINGTON EMERGING MARKETS FUND: Non-Qualified VII..................................................... 36,773.1 9.277........ 341,159 LEXINGTON NATURAL RESOURCES TRUST: Non-Qualified V ...................................................... 162,462.2 10.479........ 1,702,501 Non-Qualified VII .................................................... 16,932.5 10.436........ 176,707 NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST - GROWTH PORTFOLIO: Non-Qualified V ...................................................... 526,542.1 15.871........ 8,356,574 SCUDDER VARIABLE LIFE INVESTMENT FUND: INTERNATIONAL PORTFOLIO: Non-Qualified V ...................................................... 720,017.3 14.674........ 10,565,665 TCI PORTFOLIOS, INC.: TCI BALANCED: Non-Qualified VII..................................................... 40,406.8 12.124........ 489,878 S-6 TCI GROWTH: Non-Qualified II ..................................................... 82,191.6 13.224........ 1,086,884 Non-Qualified III .................................................... 24,926.7 13.107........ 326,719 Non-Qualified V ...................................................... 2,735,782.0 14.091........ 38,549,513 Non-Qualified VI ..................................................... 10,258.8 11.884........ 121,912 Non-Qualified VII .................................................... 1,014,612.2 14.021........ 14,226,374 TCI INTERNATIONAL: Non-Qualified VII...................................................... 57,691.1 10.446........ 602,619 -------------- $1,130,935,704 -------------- --------------
See Notes to Financial Statements. S-7 VARIABLE ANNUITY ACCOUNT B STATEMENT OF OPERATIONS - Year Ended December 31, 1995
INVESTMENT INCOME: Dividends: (Notes 1 and 3) Aetna Variable Fund.................................................................... $97,535,899 Aetna Income Shares.................................................................... 4,800,986 Aetna Variable Encore Fund............................................................. 61,853 Aetna Investment Advisers Fund, Inc.................................................... 7,359,482 Aetna GET Fund, Series B .............................................................. 359,007 Aetna Ascent Variable Portfolio........................................................ 7,378 Aetna Crossroads Variable Portfolio.................................................... 8,108 Aetna Legacy Variable Portfolio........................................................ 5,625 Alger American Fund - Alger American Balanced Portfolio................................ 267 Alger American Fund - Alger American Growth Portfolio.................................. 1,379 Alger American Fund - Alger American MidCap Portfolio.................................. 2 Calvert Responsibly Invested Balanced Portfolio..................... .................. 30,986 Fidelity Investments Variable Insurance Products Fund - Equity-Income Portfolio........ 126,924 Fidelity Investments Variable Insurance Products Fund - Growth Portfolio............... 1,403 Fidelity Investments Variable Insurance Products Fund - Overseas Portfolio............. 106 Fidelity Investments Variable Insurance Products Fund II - Asset Manager Portfolio..... 3,070 Fidelity Investments Variable Insurance Products Fund II - Contrafund Portfolio........ 146,072 Insurance Management Series - Corporate Bond Fund...................................... 425,532 Insurance Management Series - Equity Growth and Income Fund............................ 249,502 Insurance Management Series - Prime Money Fund......................................... 225,699 Insurance Management Series - U.S. Government Bond Fund................................ 98,938 Insurance Management Series - Utility Fund............................................. 186,623 Janus Aspen Series - Aggressive Growth Portfolio....................................... 113,664 Janus Aspen Series - Balanced Portfolio................................................ 5,931 Janus Aspen Series - Flexible Income Portfolio......................................... 51,680 Janus Aspen Series - Growth Portfolio.................................................. 41,839 Janus Aspen Series - Short-Term Bond Portfolio......................................... 15,670 Janus Aspen Series - Worldwide Growth Portfolio........................................ 17,957 Lexington Emerging Markets Fund........................................................ 3,323 Lexington National Resources Trust..................................................... 7,842 Neuberger & Berman Advisers Management Trust - Growth Portfolio........................ 111,452 Scudder Variable Life Investment Fund - International Portfolio........................ 40,450 TCI Portfolios, Inc. - TCI Balanced.................................................... 5,359 TCI Portfolios, Inc. - TCI Growth...................................................... 47,667 Total investment income ............................................................ 112,097,675 Valuation period deductions (Note 2)................................................... (11,786,592) Net investment income ................................................................. 100,311,083 S-8 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on sales of investments: (Notes 1 and 4) Proceeds from sales .................................................................$495,934,611 Cost of investments sold ............................................................ 463,921,121 Net realized gain ................................................................. 32,013,490 Net unrealized gain (loss) on investments: Beginning of year ................................................................... (44,356,052) End of year ......................................................................... 28,746,944 Net unrealized gain ............................................................... 73,102,996 Net realized and unrealized gain on investments ....................................... 105,116,486 ------------ Net increase in net assets resulting from operations .................................. $205,427,569 ------------ ------------
See Notes to Financial Statements. S-9 VARIABLE ANNUITY ACCOUNT B STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995 1994 ---- ---- FROM OPERATIONS: Net investment income ................................................ $100,311,083 $74,514,904 Net realized and unrealized gain (loss) on investments ............... 105,116,486 (89,424,840) -------------- ------------ Net increase (decrease) in net assets resulting from operations .... 205,427,569 (14,909,936) -------------- ------------ FROM UNIT TRANSACTIONS: Variable annuity contract purchase payments .......................... 178,474,387 170,170,873 Sales and administrative charges deducted by the Company ............. (34,250) (8,045) -------------- ------------ Net variable annuity contract purchase payments .................... 178,440,137 170,162,828 Transfers from the Company for mortality guarantee adjustments........ 1,565,140 537,027 Transfers from (to) the Company's fixed account options .............. 4,144,061 (6,000,310) Redemptions by contract holders ...................................... (46,390,791) (32,737,461) Annuity payments ..................................................... (9,198,421) (7,564,589) Other ................................................................ 1,143,373 (127,555) -------------- ------------ Net increase in net assets from unit transactions .................. 129,703,499 124,269,940 -------------- ------------ Change in net assets ................................................. 335,131,068 109,360,004 NET ASSETS: Beginning of year .................................................... 795,804,636 686,444,632 -------------- ------------ End of year .......................................................... $1,130,935,704 $795,804,636 -------------- ------------ -------------- ------------
See Notes to Financial Statements. S-10 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Variable Annuity Account B ("Account") is registered under the Investment Company Act of 1940 as a unit investment trust. The Account is sold exclusively for use with annuity contracts that may be entitled to tax- deferred treatment under specific sections of the Internal Revenue Code of 1986, as amended. The accompanying financial statements of the Account have been prepared in accordance with generally accepted accounting principles. a. VALUATION OF INVESTMENTS Investments in the following Funds are stated at the closing net asset value per share as determined by each Fund on December 31, 1995:
Aetna Variable Fund Insurance Management Series: Aetna Income Shares - Corporate Bond Fund Aetna Variable Encore Fund - Equity Growth and Income Fund Aetna Investment Advisers Fund, Inc. - Growth Stock Fund Aetna GET Fund, Series B - International Stock Fund Aetna Ascent Variable Portfolio - Prime Money Fund Aetna Crossroads Variable Portfolio - U.S. Government Bond Fund Aetna Legacy Variable Portfolio - Utility Fund Alger American Funds: Janus Aspen Series: - Alger American Balanced Portfolio - Aggressive Growth Portfolio - Alger American Growth Portfolio - Balanced Portfolio - Alger American Income and Growth Portfolio - Flexible Income Portfolio - Alger American Leveraged AllCap Portfolio - Growth Portfolio - Alger American MidCap Growth Portfolio - Short-Term Bond Portfolio - Alger American Small Capitalization Portfolio - Worldwide Growth Portfolio Calvert Responsibly Invested Balanced Portfolio Lexington Emerging Markets Fund: Fidelity Investments Variable Insurance Products Fund: Lexington Natural Resources Trust - Equity-Income Portfolio Neuberger & Berman Advisers Management Trust: - Growth Portfolio - Growth Portfolio - High Income Portfolio Scudder Variable Life Investment Fund: - Overseas Portfolio - International Portfolio Fidelity Investments Variable Insurance Products Fund II: TCI Portfolios, Inc.: - Asset Manager Portfolio - TCI Balanced - Contrafund Portfolio - TCI Growth - Index 500 Portfolio - TCI International - Investment Grade Bond Portfolio
b. OTHER Investment transactions are accounted for on a trade date basis and dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by specific identification. S-11 VARIABLE ANNUITY ACCOUNT B NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued) c. FEDERAL INCOME TAXES The operations of the Account form a part of, and are taxed with, the total operations of Aetna Life Insurance and Annuity Company ("Company") which is taxed as a life insurance company under the Internal Revenue Code of 1986, as amended. d. ANNUITY RESERVES Annuity reserves held in the Separate Accounts are computed for currently payable contracts according to the Progressive Annuity, a49, 1971 Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983 Group Annuity Mortality tables using various assumed interest rates not to exceed seven percent. Mortality experience is monitored by the Company. Charges to annuity reserves for mortality experience are reimbursed to the Company if the reserves required are less than originally estimated. If additional reserves are required, the Company reimburses the Account. 2. VALUATION PERIOD DEDUCTIONS Deductions by the Account for mortality and expense risk charges are made in accordance with the terms of the contracts and are paid to the Company. 3. DIVIDEND INCOME On an annual basis, the Funds distribute substantially all of their taxable income and realized capital gains to their shareholders. Distributions to the Account are automatically reinvested in shares of the Funds. The Account's proportionate share of each Fund's undistributed net investment income and accumulated net realized gain on investments is included in net unrealized gain in the Statement of Operations. 4. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments other than short-term investments for the year ended Decmeber 31, 1995 aggregated $725,949,193 and $495,934,611, respectively. 5. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Account. S-12 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------- AETNA VARIABLE FUND: Non-Qualified 1964 ....................................... $114.828 $149.975 30.61% Non-Qualified I .......................................... 129.838 169.682 30.69% Non-Qualified II ......................................... 91.515 119.527 30.61% Non-Qualified III ........................................ 87.638 114.464 30.61% Non-Qualified V .......................................... 10.698 13.972 30.61% Non-Qualified VI ......................................... 9.993 13.060 30.69% Non-Qualified VII ........................................ 10.737 14.001 30.40% - ------------------------------------------------------------------------------------------------------- AETNA INCOME SHARES: Non-Qualified I .......................................... $39.514 $46.171 16.85% Non-Qualified II ......................................... 41.302 48.232 16.78% Non-Qualified III ........................................ 39.919 46.616 16.78% Non-Qualified V .......................................... 10.457 12.212 16.78% Non-Qualified VI ......................................... 9.534 11.140 16.85% Non-Qualified VII ........................................ 10.324 12.037 16.59% - ------------------------------------------------------------------------------------------------------- AETNA VARIABLE ENCORE FUND: Non-Qualified I .......................................... $35.958 $37.683 4.80% Non-Qualified II ......................................... 36.602 38.335 4.73% Non-Qualified III ........................................ 34.450 36.081 4.73% Non-Qualified V .......................................... 10.509 11.007 4.73% Non-Qualified VI ......................................... 10.237 10.728 4.80% Non-Qualified VII ........................................ 10.489 10.968 4.57% - ------------------------------------------------------------------------------------------------------- AETNA INVESTMENT ADVISERS FUND, INC.: Non-Qualified I .......................................... $14.299 $18.002 25.90% Non-Qualified II ......................................... 14.252 17.932 25.82% Non-Qualified III ........................................ 14.218 17.889 25.82% Non-Qualified V .......................................... 10.971 13.803 25.81% Non-Qualified VI ......................................... 10.000 11.589 15.89% (4) Non-Qualified VII ........................................ 10.828 13.602 25.62% - ------------------------------------------------------------------------------------------------------- AETNA GET FUND, SERIES B: Non-Qualified V .......................................... $10.159 $12.849 26.48% - ------------------------------------------------------------------------------------------------------- AETNA ASCENT VARIABLE PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.652 6.52% (7) Non-Qualified VII ........................................ 10.000 10.645 6.45% (7) - ------------------------------------------------------------------------------------------------------- AETNA CROSSROADS VARIABLE PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.594 5.94% (7) Non-Qualified VII ........................................ 10.000 10.587 5.87% (7) - ------------------------------------------------------------------------------------------------------- AETNA LEGACY VARIABLE PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.443 4.43% (8) Non-Qualified VII ........................................ 10.000 10.438 4.38% (8) - -------------------------------------------------------------------------------------------------------
S-13 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN FUNDS: ALGER AMERICAN BALANCED PORTFOLIO: Non-Qualified VII ........................................ $10.000 $12.588 25.88% (1) - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN GROWTH PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.157 1.57% (7) Non-Qualified VII ........................................ 10.000 12.980 29.80% (2) - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN INCOME AND GROWTH PORTFOLIO: Non-Qualified VII ........................................ $10.000 $10.660 6.60% (5) - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: Non-Qualified VII ........................................ $10.000 $12.265 22.65% (5) - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN MIDCAP GROWTH PORTFOLIO: Non-Qualified VII ........................................ $10.000 $13.974 39.74% (1) - ------------------------------------------------------------------------------------------------------- ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO: Non-Qualified V .......................................... $9.622 $13.714 42.52% Non-Qualified VII ........................................ 10.000 13.295 32.95% (3) - ------------------------------------------------------------------------------------------------------- CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: Non-Qualified V .......................................... $10.518 $13.480 28.17% - ------------------------------------------------------------------------------------------------------- FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS: EQUITY - INCOME PORTFOLIO: Non-Qualified V .......................................... $10.000 $11.054 10.54% (7) Non-Qualified VII ........................................ 10.002 13.324 33.21% - ------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.066 0.66% (7) Non-Qualified VII ........................................ 10.423 13.913 33.48% - ------------------------------------------------------------------------------------------------------- HIGH INCOME PORTFOLIO: Non-Qualified VII ........................................ $10.000 $10.701 7.01% (5) - ------------------------------------------------------------------------------------------------------- OVERSEAS PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.052 0.52% (7) Non-Qualified VII ........................................ 10.000 11.143 11.43% (1) - ------------------------------------------------------------------------------------------------------- FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II: ASSET MANAGER PORTFOLIO: Non-Qualified VII ........................................ $10.000 $11.664 16.64% (1) - ------------------------------------------------------------------------------------------------------- CONTRAFUND PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.468 4.68% (7) Non-Qualified VII ........................................ 10.000 11.658 16.58% (5) - ------------------------------------------------------------------------------------------------------- INDEX 500 PORTFOLIO: Non-Qualified VII ........................................ $10.000 $11.336 13.36% (5) - ------------------------------------------------------------------------------------------------------- INVESTMENT GRADE BOND PORTFOLIO: Non-Qualified VII ........................................ $10.000 $10.600 6.00% (6) - ------------------------------------------------------------------------------------------------------- INSURANCE MANAGEMENT SERIES: CORPORATE BOND FUND: Non-Qualified VII ........................................ $9.814 $11.640 18.61% - -------------------------------------------------------------------------------------------------------
S-14 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------- Increase (Decrease) Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------- EQUITY GROWTH AND INCOME FUND: Non-Qualified VII ....................................... $9.838 $12.971 31.84% - ------------------------------------------------------------------------------------------------------- GROWTH STOCK FUND: Non-Qualified VII ........................................ $10.000 $10.277 2.77% (9) - ------------------------------------------------------------------------------------------------------- INTERNATIONAL STOCK FUND: Non-Qualified VII ........................................ $10.000 $10.255 2.55% (4) - ------------------------------------------------------------------------------------------------------- PRIME MONEY FUND: Non-Qualified VII ........................................ $10.033 $10.406 3.71% - ------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT BOND FUND: Non-Qualified VII ........................................ $10.073 $10.804 7.25% - ------------------------------------------------------------------------------------------------------- UTILITY FUND: Non-Qualified VII ........................................ $9.881 $12.095 22.40% - ------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES: AGGRESSIVE GROWTH PORTFOLIO: Non-Qualified V .......................................... $10.319 $12.992 25.91% Non-Qualified VII ........................................ 10.374 13.040 25.71% - ------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.835 8.35% (7) Non-Qualified VII ........................................ 10.000 12.104 21.04% (1) - ------------------------------------------------------------------------------------------------------- FLEXIBLE INCOME PORTFOLIO: Non-Qualified V .......................................... $9.886 $12.094 22.33% Non-Qualified VII ........................................ 9.884 12.071 22.13% - ------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.870 8.70% (7) Non-Qualified VII ........................................ 10.109 12.975 28.35% - ------------------------------------------------------------------------------------------------------- SHORT TERM BOND PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.325 3.25% (7) Non-Qualified VII ........................................ 10.000 10.765 7.65% (1) - ------------------------------------------------------------------------------------------------------- WORLDWIDE GROWTH PORTFOLIO: Non-Qualified V .......................................... $10.000 $10.893 8.93% (7) Non-Qualified VII ........................................ 10.000 12.341 23.41% (3) - ------------------------------------------------------------------------------------------------------- LEXINGTON EMERGING MARKETS FUND: Non-Qualified VII ........................................ $9.795 $9.277 (5.28%) - ------------------------------------------------------------------------------------------------------- LEXINGTON NATURAL RESOURCES TRUST: Non-Qualified V .......................................... $9.079 $10.479 15.42% Non-Qualified VII ........................................ 9.056 10.436 15.24% - ------------------------------------------------------------------------------------------------------- NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST - GROWTH PORTFOLIO: Non-Qualified V .......................................... $12.199 $15.871 30.10% - ------------------------------------------------------------------------------------------------------- SCUDDER VARIABLE LIFE INVESTMENT FUND - INTERNATIONAL PORTFOLIO: Non-Qualified V .......................................... $13.372 $14.674 9.74% - -------------------------------------------------------------------------------------------------------
S-15 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued)
- ------------------------------------------------------------------------------------------------------- Increase Value at Value at in Value of Beginning End of Accumulation of Year Year Unit - ------------------------------------------------------------------------------------------------------- TCI PORTFOLIOS, INC.: TCI BALANCED: Non-Qualified VII ........................................ $10.152 $12.124 19.42% - ------------------------------------------------------------------------------------------------------- TCI GROWTH: Non-Qualified II ......................................... $10.213 $13.224 29.47% Non-Qualified III ........................................ 10.123 13.107 29.47% Non-Qualified V .......................................... 10.883 14.091 29.47% Non-Qualified VI ......................................... 10.000 11.884 18.84% (4) Non-Qualified VII ........................................ 10.847 14.021 29.27% - ------------------------------------------------------------------------------------------------------- TCI INTERNATIONAL: Non-Qualified VII ........................................ $9.441 $10.446 10.64% - -------------------------------------------------------------------------------------------------------
NON-QUALIFIED 1964 Individual contract issued from December 1, 1964 to March 14, 1967. NON-QUALIFIED I Individual contract issued in connection with deferred compensation plans from March 15, 1967 through April 30, 1975; other individual contracts issued from March 15, 1967 through October 31, 1975; and group contracts issued from March 15, 1967 to December 31, 1975. NON-QUALIFIED II Individual contracts issued in connection with deferred compensation plans since May 1, 1975; other individual contracts issued since November 1, 1975; and group contracts issued since January 1, 1976. NON-QUALIFIED III Group contracts issued in connection with deferred compensation plans for tax-exempt organizations (non-governmental only) since May 3, 1982. NON-QUALIFIED V Group Aetna Plus contracts issued in connection with Deferred Compensation Plans issued since August 28, 1992. NON-QUALIFIED VI Certain existing contracts that were converted to ACES, the new administrative system (previously valued under Non-Qualified I). NON-QUALIFIED VII Certain individual and group contracts issued as non-qualified deferred annuity contracts or Individual Retirement Annuity contracts issued since May 4, 1994. 1 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during January 1995 when the fund became available under the contract. 2 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during February 1995 when the fund became available under the contract. 3 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during April 1995 when the fund became available under the contract. S-16 VARIABLE ANNUITY ACCOUNT B CONDENSED FINANCIAL INFORMATION CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995 (continued) - -------------------------------------------------------------------------------- 4 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during May 1995 when the fund became available under the contract. 5 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during June 1995 when the fund became available under the contract. 6 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during July 1995 when the fund became available under the contract. 7 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during August 1995 when the fund became available under the contract. 8 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during September 1995 when the fund became available under the contract. 9 - Reflects less than a full year of performance activity. The initial Accumulation Unit Value was established at $10.000 during November 1995 when the fund became available under the contract. S-17 CONSOLIDATED FINANCIAL STATEMENTS AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES Index
PAGE --- Independent Auditors' Report..................................... F-2 Consolidated Financial Statements: Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993.............................. F-3 Consolidated Balance Sheets as of December 31, 1995 and 1994... F-4 Consolidated Statements of Changes in Shareholder's Equity for the Years Ended December 31, 1995, 1994 and 1993.............................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993.............................. F-6 Notes to Consolidated Financial Statements....................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Shareholder and Board of Directors Aetna Life Insurance and Annuity Company: We have audited the accompanying consolidated balance sheets of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholder's equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aetna Life Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its methods of accounting for certain investments in debt and equity securities. KPMG Peat Marwick LLP Hartford, Connecticut February 6, 1996 F-2 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Income (millions)
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Revenue: Premiums............................................. $ 130.8 $ 124.2 $ 82.1 Charges assessed against policyholders............... 318.9 279.0 251.5 Net investment income................................ 1,004.3 917.2 911.9 Net realized capital gains........................... 41.3 1.5 9.5 Other income......................................... 42.0 10.3 9.5 -------- -------- -------- Total revenue...................................... 1,537.3 1,332.2 1,264.5 -------- -------- -------- Benefits and expenses: Current and future benefits.......................... 915.3 854.1 818.4 Operating expenses................................... 318.7 235.2 207.2 Amortization of deferred policy acquisition costs.... 43.3 26.4 19.8 -------- -------- -------- Total benefits and expenses........................ 1,277.3 1,115.7 1,045.4 -------- -------- -------- Income before federal income taxes..................... 260.0 216.5 219.1 Federal income taxes................................. 84.1 71.2 76.2 -------- -------- -------- Net income............................................. $ 175.9 $ 145.3 $ 142.9 -------- -------- -------- -------- -------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Balance Sheets (millions)
DECEMBER 31, -------------------- 1995 1994 --------- --------- ASSETS - ------------------------------------------------------- Investments: Debt securities, available for sale: (amortized cost: $11,923.7 and $10,577.8)........... $12,720.8 $10,191.4 Equity securities, available for sale: Non-redeemable preferred stock (cost: $51.3 and $43.3)............................................ 57.6 47.2 Investment in affiliated mutual funds (cost: $173.4 and $187.1)....................................... 191.8 181.9 Common stock (cost: $6.9 at December 31, 1995)..... 8.2 -- Short-term investments............................... 15.1 98.0 Mortgage loans....................................... 21.2 9.9 Policy loans......................................... 338.6 248.7 Limited partnership.................................. -- 24.4 --------- --------- Total investments................................ 13,353.3 10,801.5 Cash and cash equivalents.............................. 568.8 623.3 Accrued investment income.............................. 175.5 142.2 Premiums due and other receivables..................... 37.3 75.8 Deferred policy acquisition costs...................... 1,341.3 1,164.3 Reinsurance loan to affiliate.......................... 655.5 690.3 Other assets........................................... 26.2 15.9 Separate Accounts assets............................... 10,987.0 7,420.8 --------- --------- Total assets..................................... $27,144.9 $20,934.1 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDER'S EQUITY - ------------------------------------------------------- Liabilities: Future policy benefits............................... $ 3,594.6 $ 2,912.7 Unpaid claims and claim expenses..................... 27.2 23.8 Policyholders' funds left with the Company........... 10,500.1 8,949.3 --------- --------- Total insurance reserve liabilities.............. 14,121.9 11,885.8 Other liabilities.................................... 259.2 302.1 Federal income taxes: Current............................................ 24.2 3.4 Deferred........................................... 169.6 233.5 Separate Accounts liabilities........................ 10,987.0 7,420.8 --------- --------- Total liabilities................................ 25,561.9 19,845.6 --------- --------- --------- --------- Shareholder's equity: Common stock, par value $50 (100,000 shares authorized; 55,000 shares issued and outstanding)............... 2.8 2.8 Paid-in capital...................................... 407.6 407.6 Net unrealized capital gains (losses)................ 132.5 (189.0) Retained earnings.................................... 1,040.1 867.1 --------- --------- Total shareholder's equity....................... 1,583.0 1,088.5 --------- --------- Total liabilities and shareholder's equity..... $27,144.9 $20,934.1 --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Changes in Shareholder's Equity (millions)
YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 --------- --------- --------- Shareholder's equity, beginning of year................ $ 1,088.5 $ 1,246.7 $ 990.1 Net change in unrealized capital gains (losses)........ 321.5 (303.5) 113.7 Net income............................................. 175.9 145.3 142.9 Common stock dividends declared........................ (2.9) -- -- --------- --------- --------- Shareholder's equity, end of year...................... $ 1,583.0 $ 1,088.5 $ 1,246.7 --------- --------- --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Consolidated Statements of Cash Flows (millions)
YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 ---------- ---------- ---------- Cash Flows from Operating Activities: Net income........................................... $ 175.9 $ 145.3 $ 142.9 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued investment income.............. (33.3) (17.5) (11.1) Decrease (increase) in premiums due and other receivables....................................... 25.4 1.3 (5.6) Increase in policy loans........................... (89.9) (46.0) (36.4) Increase in deferred policy acquisition costs...... (177.0) (105.9) (60.5) Decrease in reinsurance loan to affiliate.......... 34.8 27.8 31.8 Net increase in universal life account balances.... 393.4 164.7 126.4 Increase in other insurance reserve liabilities.... 79.0 75.1 86.1 Net increase in other liabilities and other assets............................................ 15.0 53.9 7.0 Decrease in federal income taxes................... (6.5) (11.7) (3.7) Net accretion of discount on bonds................. (66.4) (77.9) (88.1) Net realized capital gains......................... (41.3) (1.5) (9.5) Other, net......................................... -- (1.0) 0.2 ---------- ---------- ---------- Net cash provided by operating activities........ 309.1 206.6 179.5 ---------- ---------- ---------- Cash Flows from Investing Activities: Proceeds from sales of: Debt securities available for sale................. 4,207.2 3,593.8 473.9 Equity securities.................................. 180.8 93.1 89.6 Mortgage loans..................................... 10.7 -- -- Limited partnership................................ 26.6 -- -- Investment maturities and collections of: Debt securities available for sale................. 583.9 1,289.2 2,133.3 Short-term investments............................. 106.1 30.4 19.7 Cost of investment purchases in: Debt securities.................................... (6,034.0) (5,621.4) (3,669.2) Equity securities.................................. (170.9) (162.5) (157.5) Short-term investments............................. (24.7) (106.1) (41.3) Mortgage loans..................................... (21.3) -- -- Limited partnership................................ -- (25.0) -- ---------- ---------- ---------- Net cash used for investing activities........... (1,135.6) (908.5) (1,151.5) ---------- ---------- ---------- Cash Flows from Financing Activities: Deposits and interest credited for investment contracts........................................... 1,884.5 1,737.8 2,117.8 Withdrawals of investment contracts.................. (1,109.6) (948.7) (1,000.3) Dividends paid to shareholder........................ (2.9) -- -- ---------- ---------- ---------- Net cash provided by financing activities........ 772.0 789.1 1,117.5 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents... (54.5) 87.2 145.5 Cash and cash equivalents, beginning of year........... 623.3 536.1 390.6 ---------- ---------- ---------- Cash and cash equivalents, end of year................. $ 568.8 $ 623.3 $ 536.1 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental cash flow information: Income taxes paid, net............................... $ 90.2 $ 82.6 $ 79.9 ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-6 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries (collectively, the "Company") is a provider of financial services and life insurance products in the United States. The Company has two business segments, financial services and life insurance. The financial services products include individual and group annuity contracts which offer a variety of funding and distribution options for personal and employer-sponsored retirement plans that qualify under Internal Revenue Code Sections 401, 403, 408 and 457, and individual and group non-qualified annuity contracts. These contracts may be immediate or deferred and are offered primarily to individuals, pension plans, small businesses and employer-sponsored groups in the health care, government, education (collectively "not-for-profit" organizations) and corporate markets. Financial services also include pension plan administrative services. The life insurance products include universal life, variable universal life, interest sensitive whole life and term insurance. These products are offered primarily to individuals, small businesses, employer sponsored groups and executives of Fortune 2000 companies. BASIS OF PRESENTATION The consolidated financial statements include Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries, Aetna Insurance Company of America and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna Investment Services, Inc. ("AISI"), which were previously reported in the consolidated financial statements were distributed in the form of dividends to ARSI in December of 1995. The impact to the Company's financial statements of distributing these dividends was immaterial. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Intercompany transactions have been eliminated. Certain reclassifications have been made to 1994 and 1993 financial information to conform to the 1995 presentation. ACCOUNTING CHANGES Accounting for Certain Investments in Debt and Equity Securities On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities, which requires the classification of debt securities into three categories: "held to maturity", which are carried at amortized cost; "available for sale", which are carried at fair value with changes in fair value recognized as a component of shareholder's equity; and "trading", which are carried at fair value with immediate recognition in income of changes in fair value. Initial adoption of this standard resulted in a net increase of $106.8 million, net of taxes of $57.5 million, to net unrealized gains in shareholder's equity. These amounts exclude gains and losses allocable to experience-rated (including universal life) contractholders. Adoption of FAS No. 115 did not have a material effect on deferred policy acquisition costs. F-7 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. CASH AND CASH EQUIVALENT Cash and cash equivalents include cash on hand, money market instruments and other debt issues with a maturity of ninety days or less when purchased. INVESTMENTS Debt Securities At December 31, 1995 and 1994, all of the Company's debt securities are classified as available for sale and carried at fair value. These securities are written down (as realized losses) for other than temporary decline in value. Unrealized gains and losses related to these securities, after deducting amounts allocable to experience-rated contractholders and related taxes, are reflected in shareholder's equity. Fair values for debt securities are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair values are measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Cost for mortgage-backed securities is adjusted for unamortized premiums and discounts, which are amortized using the interest method over the estimated remaining term of the securities, adjusted for anticipated prepayments. Purchases and sales of debt securities are recorded on the trade date. Equity Securities Equity securities are classified as available for sale and carried at fair value based on quoted market prices or dealer quotations. Equity securities are written down (as realized losses) for other than temporary declines in value. Unrealized gains and losses related to such securities are reflected in shareholder's equity. Purchases and sales are recorded on the trade date. The investment in affiliated mutual funds represents an investment in the Aetna Series Fund, Inc., a retail mutual fund which has been seeded by the Company, and is carried at fair value. Mortgage Loans and Policy Loans Mortgage loans and policy loans are carried at unpaid principal balances net of valuation reserves, which approximates fair value, and are generally secured. Purchases and sales of mortgage loans are recorded on the closing date. F-8 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Limited Partnership The Company's limited partnership investment was carried at the amount invested plus the Company's share of undistributed operating results and unrealized gains (losses), which approximates fair value. The Company disposed of the limited partnership during 1995. Short-Term Investments Short-term investments, consisting primarily of money market instruments and other debt issues purchased with an original maturity of over ninety days and less than one year, are considered available for sale and are carried at fair value, which approximates amortized cost. DEFERRED POLICY ACQUISITION COSTS Certain costs of acquiring insurance business have been deferred. These costs, all of which vary with and are primarily related to the production of new business, consist principally of commissions, certain expenses of underwriting and issuing contracts and certain agency expenses. For fixed ordinary life contracts, such costs are amortized over expected premium-paying periods. For universal life and certain annuity contracts, such costs are amortized in proportion to estimated gross profits and adjusted to reflect actual gross profits. These costs are amortized over twenty years for annuity pension contracts, and over the contract period for universal life contracts. Deferred policy acquisition costs are written off to the extent that it is determined that future policy premiums and investment income or gross profits would not be adequate to cover related losses and expenses. INSURANCE RESERVE LIABILITIES The Company's liabilities include reserves related to fixed ordinary life, fixed universal life and fixed annuity contracts. Reserves for future policy benefits for fixed ordinary life contracts are computed on the basis of assumed investment yield, assumed mortality, withdrawals and expenses, including a margin for adverse deviation, which generally vary by plan, year of issue and policy duration. Reserve interest rates range from 2.25% to 10.00%. Assumed investment yield is based on the Company's experience. Mortality and withdrawal rate assumptions are based on relevant Aetna experience and are periodically reviewed against both industry standards and experience. Reserves for fixed universal life (included in Future Policy Benefits) and fixed deferred annuity contracts (included in Policyholders' Funds Left With the Company) are equal to the fund value. The fund value is equal to cumulative deposits less charges plus credited interest thereon, without reduction for possible future penalties assessed on premature withdrawal. For guaranteed interest options, the interest credited ranged from 4.00% to 6.38% in 1995 and 4.00% to 5.85% in 1994. For all other fixed options, the interest credited ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994. Reserves for fixed annuity contracts in the annuity period and for future amounts due under settlement options are computed actuarially using the 1971 Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table, the F-9 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 1983 Group Annuity Mortality Table and, in some cases, mortality improvement according to scales G and H, at assumed interest rates ranging from 3.5% to 9.5%. Reserves relating to contracts with life contingencies are included in Future Policy Benefits. For other contracts, the reserves are reflected in Policyholders' Funds Left With the Company. Unpaid claims for all lines of insurance include benefits for reported losses and estimates of benefits for losses incurred but not reported. PREMIUMS, CHARGES ASSESSED AGAINST POLICYHOLDERS, BENEFITS AND EXPENSES Premiums are recorded as revenue when due for fixed ordinary life contracts. Charges assessed against policyholders' funds for cost of insurance, surrender charges, actuarial margin and other fees are recorded as revenue for universal life and certain annuity contracts. Policy benefits and expenses are recorded in relation to the associated premiums or gross profit so as to result in recognition of profits over the expected lives of the contracts. SEPARATE ACCOUNTS Assets held under variable universal life, variable life and variable annuity contracts are segregated in Separate Accounts and are invested, as designated by the contractholder or participant under a contract, in shares of Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna Series Fund Inc., which are managed by the Company or other selected mutual funds not managed by the Company. Separate Accounts assets and liabilities are carried at fair value except for those relating to a guaranteed interest option which is offered through a Separate Account. The assets of the Separate Account supporting the guaranteed interest option are carried at an amortized cost of $322.2 million for 1995 (fair value $343.9 million) and $149.7 million for 1994 (fair value $146.3 million), since the Company bears the investment risk where the contract is held to maturity. Reserves relating to the guaranteed interest option are maintained at fund value and reflect interest credited at rates ranging from 4.5% to 8.38% in both 1995 and 1994. Separate Accounts assets and liabilities are shown as separate captions in the Consolidated Balance Sheets. Deposits, investment income and net realized and unrealized capital gains (losses) of the Separate Accounts are not reflected in the Consolidated Statements of Income (with the exception of realized capital gains (losses) on the sale of assets supporting the guaranteed interest option). The Consolidated Statements of Cash Flows do not reflect investment activity of the Separate Accounts. FEDERAL INCOME TAXES The Company is included in the consolidated federal income tax return of Aetna. The Company is taxed at regular corporate rates after adjusting income reported for financial statement purposes for certain items. Deferred income tax benefits result from changes during the year in cumulative temporary differences between the tax basis and book basis of assets and liabilities. F-10 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS Investments in debt securities available for sale as of December 31, 1995 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (MILLIONS) U.S. Treasury securities and obligations of U.S. government agencies and corporations... $ 539.5 $ 47.5 $ -- $ 587.0 Obligations of states and political subdivisions................................ 41.4 12.4 -- 53.8 U.S. Corporate securities: Financial.................................. 2,764.4 110.3 2.1 2,872.6 Utilities.................................. 454.4 27.8 1.0 481.2 Other...................................... 2,177.7 159.5 1.2 2,336.0 --------- ---------- ----- --------- Total U.S. Corporate securities............ 5,396.5 297.6 4.3 5,689.8 Foreign securities: Government................................. 316.4 26.1 2.0 340.5 Financial.................................. 534.2 45.4 3.5 576.1 Utilities.................................. 236.3 32.9 -- 269.2 Other...................................... 215.7 15.1 -- 230.8 --------- ---------- ----- --------- Total Foreign securities................... 1,302.6 119.5 5.5 1,416.6 Residential mortgage-backed securities: Residential pass-throughs.................. 556.7 99.2 1.8 654.1 Residential CMOs........................... 2,383.9 167.6 2.2 2,549.3 --------- ---------- ----- --------- Total Residential mortgage-backed securities................................ 2,940.6 266.8 4.0 3,203.4 Commercial/Multifamily mortgage-backed securities.................................. 741.9 32.3 0.2 774.0 --------- ---------- ----- --------- Total Mortgage-backed securities........... 3,682.5 299.1 4.2 3,977.4 Other asset-backed securities................ 961.2 35.5 0.5 996.2 --------- ---------- ----- --------- Total debt securities available for sale..... $11,923.7 $811.6 $14.5 $12,720.8 --------- ---------- ----- --------- --------- ---------- ----- ---------
F-11 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Investments in debt securities available for sale as of December 31, 1994 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (MILLIONS) U.S. Treasury securities and obligations of U.S. government agencies and corporations... $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9 Obligations of states and political subdivisions................................ 37.9 1.2 -- 39.1 U.S. Corporate securities: Financial.................................. 2,216.9 3.8 109.4 2,111.3 Utilities.................................. 100.1 -- 7.9 92.2 Other...................................... 1,344.3 6.0 67.9 1,282.4 --------- ---------- ---------- --------- Total U.S. Corporate securities............ 3,661.3 9.8 185.2 3,485.9 Foreign securities: Government................................. 434.4 1.2 33.9 401.7 Financial.................................. 368.2 1.1 23.0 346.3 Utilities.................................. 204.4 2.5 9.5 197.4 Other...................................... 46.3 0.8 1.5 45.6 --------- ---------- ---------- --------- Total Foreign securities................... 1,053.3 5.6 67.9 991.0 Residential mortgage-backed securities: Residential pass-throughs.................. 627.1 81.5 5.0 703.6 Residential CMOs........................... 2,671.0 32.9 139.4 2,564.5 --------- ---------- ---------- --------- Total Residential mortgage-backed securities.................................. 3,298.1 114.4 144.4 3,268.1 Commercial/Multifamily mortgage-backed securities.................................. 435.0 0.2 21.3 413.9 --------- ---------- ---------- --------- Total Mortgage-backed securities............. 3,733.1 114.6 165.7 3,682.0 Other asset-backed securities................ 696.1 0.2 16.8 679.5 --------- ---------- ---------- --------- Total debt securities available for sale..... $10,577.8 $133.4 $519.8 $10,191.4 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of $797.1 million and $(386.4) million, respectively, on available for sale debt securities included $619.1 million and $(308.6) million, respectively, related to experience-rated contractholders, which were not included in shareholder's equity. F-12 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) The amortized cost and fair value of debt securities for the year ended December 31, 1995 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called, or prepaid.
AMORTIZED FAIR COST VALUE --------- --------- (MILLIONS) Due to mature: One year or less..................................... $ 348.8 $ 351.1 After one year through five years.................... 2,100.2 2,159.5 After five years through ten years................... 2,516.0 2,663.4 After ten years...................................... 2,315.0 2,573.2 Mortgage-backed securities........................... 3,682.5 3,977.4 Other asset-backed securities........................ 961.2 996.2 --------- --------- Total................................................ $11,923.7 $12,720.8 --------- --------- --------- ---------
The Company engages in securities lending whereby certain securities from its portfolio are loaned to other institutions for short periods of time. Cash collateral, which is in excess of the market value of the loaned securities, is deposited by the borrower with a lending agent, and retained and invested by the lending agent to generate additional income for the Company. The market value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the market value fluctuates. At December 31, 1995, the Company had loaned securities (which are reflected as invested assets on the Consolidated Balance Sheets) with a market value of approximately $264.5 million. At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0 million, respectively, were on deposit as required by regulatory authorities. The valuation reserve for mortgage loans was $3.1 million at December 31, 1994. There was no valuation reserve for mortgage loans at December 31, 1995. The carrying value of non-income producing investments was $0.1 million and $0.2 million at December 31, 1995 and 1994, respectively. F-13 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Investments in a single issuer, other than obligations of the U.S. government, with a carrying value in excess of 10% of the Company's shareholder's equity at December 31, 1995 are as follows:
AMORTIZED DEBT SECURITIES COST FAIR VALUE ---------- ---------- (MILLIONS) General Electric Corporation........................... $ 314.9 $ 329.3 General Motors Corporation............................. 273.9 284.5 Associates Corporation of North America................ 230.2 239.1 Society National Bank.................................. 203.5 222.3 Ciesco, L.P............................................ 194.9 194.9 Countrywide Funding.................................... 171.2 172.7 Baxter International................................... 168.9 168.9 Time Warner............................................ 158.6 166.1 Ford Motor Company..................................... 156.7 162.6
The portfolio of debt securities at December 31, 1995 and 1994 included $662.5 million and $318.3 million, respectively, (5% and 3%, respectively, of the debt securities) of investments that are considered "below investment grade". "Below investment grade" securities are defined to be securities that carry a rating below BBB-/Baa3, by Standard & Poors/ Moody's Investor Services, respectively. The increase in below investment grade securities is the result of a change in investment strategy, which has reduced the Company's holdings in residential mortgage-back securities and increased the Company's holdings in corporate securities. Residential mortgage-back securities are subject to higher prepayment risk and lower credit risk, while corporate securities earning a comparable yield are subject to higher credit risk and lower prepayment risk. We expect the percentage of below investment grade securities will increase in 1996, but we expect that the overall average quality of the portfolio of debt securities will remain at AA-. Of these below investment grade assets, $14.5 million and $31.8 million, at December 31, 1995 and 1994, respectively, were investments that were purchased at investment grade, but whose ratings have since been downgraded. Included in residential mortgage-back securities are collateralized mortgage obligations ("CMOs") with carrying values of $2.5 billion and $2.6 billion at December 31, 1995 and 1994, respectively. The principal risks inherent in holding CMOs are prepayment and extension risks related to dramatic decreases and increases in interest rates whereby the CMOs would be subject to repayments of principal earlier or later than originally anticipated. At December 31, 1995 and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings consisted of sequential and planned amortization class debt securities which are subject to less prepayment and extension risk than other CMO instruments. At December 31, 1995 and 1994, approximately 81% and 82%, respectively, of the Company's CMO holdings were collateralized by residential mortgage loans, on which the timely payment of principal and interest was backed by specified government agencies (e.g., GNMA, FNMA, FHLMC). If due to declining interest rates, principal was to be repaid earlier than originally anticipated, the Company could be affected by a decrease in investment income due to the reinvestment of these funds at a lower interest rate. Such prepayments may result in a duration mismatch between assets and liabilities which could be corrected as cash from prepayments could be reinvested at an appropriate duration to adjust the mismatch. F-14 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 2. INVESTMENTS (CONTINUED) Conversely, if due to increasing interest rates, principal was to be repaid slower than originally anticipated, the Company could be affected by a decrease in cash flow which reduces the ability to reinvest expected principal repayments at higher interest rates. Such slower payments may result in a duration mismatch between assets and liabilities which could be corrected as available cash flow could be reinvested at an appropriate duration to adjust the mismatch. At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of the Company's CMO holdings consisted of interest-only strips ("IOs") or principal-only strips ("POs"). IOs receive payments of interest and POs receive payments of principal on the underlying pool of mortgages. The risk inherent in holding POs is extension risk related to dramatic increases in interest rates whereby the future payments due on POs could be repaid much slower than originally anticipated. The extension risks inherent in holding POs was mitigated somewhat by offsetting positions in IOs. During dramatic increases in interest rates, IOs would generate more future payments than originally anticipated. The risk inherent in holding IOs is prepayment risk related to dramatic decreases in interest rates whereby future IO cash flows could be much less than originally anticipated and in some cases could be less than the original cost of the IO. The risks inherent in IOs are mitigated somewhat by holding offsetting positions in POs. During dramatic decreases in interest rates POs would generate future cash flows much quicker than originally anticipated. Investments in available for sale equity securities were as follows:
GROSS GROSS UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ------ ---------- ---------- ---------- (MILLIONS) 1995 Equity Securities................ $231.6 $ 27.2 $ 1.2 $ 257.6 ------ ----- --- ---------- 1994 Equity Securities................ $230.5 $ 6.5 $ 7.9 $ 229.1 ------ ----- --- ----------
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS Realized capital gains or losses are the difference between proceeds received from investments sold or prepaid, and amortized cost. Net realized capital gains as reflected in the Consolidated Statements of Income are after deductions for net realized capital gains (losses) allocated to experience-rated contracts of $61.1 million, $(29.1) million and $(54.8) million for the years ended December 31, 1995, 1994, and 1993, respectively. Net realized capital gains (losses) allocated to experience-rated contracts are deferred and subsequently reflected in credited rates on an amortized basis. Net unamortized gains (losses), reflected as a component of Policyholders' Funds Left With the Company, were $7.3 million and $(50.7) million at the end of December 31, 1995 and 1994, respectively. Changes to the mortgage loan valuation reserve and writedowns on debt securities are included in net realized capital gains (losses) and amounted to $3.1 million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million and $(91.5) million were allocable to experience-rated contractholders, for the years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were primarily related to writedowns of interest-only mortgage-backed securities to their fair value. F-15 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED) Net realized capital gains (losses) on investments, net of amounts allocated to experience-rated contracts, were as follows:
1995 1994 1993 ----- ----- ------ (MILLIONS) Debt securities........................................ $32.8 $ 1.0 $ 9.6 Equity securities...................................... 8.3 0.2 0.1 Mortgage loans......................................... 0.2 0.3 (0.2) ----- ----- ------ Pretax realized capital gains.......................... $41.3 $ 1.5 $ 9.5 ----- ----- ------ After-tax realized capital gains....................... $25.8 $ 1.0 $ 6.2 ----- ----- ------
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses of $11.8 million, $25.6 million and $23.7 million were realized from the sales of investments in debt securities in 1995, 1994 and 1993, respectively. Changes in unrealized capital gains (losses), excluding changes in unrealized capital gains (losses) related to experience-rated contracts, for the years ended December 31, were as follows:
1995 1994 1993 ------ -------- ------ (MILLIONS) Debt securities........................................ $255.9 $ (242.1) $164.3 Equity securities...................................... 27.3 (13.3) 10.6 Limited partnership.................................... 1.8 (1.8) -- ------ -------- ------ 285.0 (257.2) 174.9 Deferred federal income taxes (See Note 6)............. (36.5) 46.3 61.2 ------ -------- ------ Net change in unrealized capital gains (losses)........ $321.5 $ (303.5) $113.7 ------ -------- ------ ------ -------- ------
Net unrealized capital gains (losses) allocable to experience-rated contracts of $515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and $(47.7) million at December 31, 1994 are reflected on the Consolidated Balance Sheet in Policyholders' Funds Left With the Company and Future Policy Benefits, respectively, and are not included in shareholder's equity. F-16 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED) Shareholder's equity included the following unrealized capital gains (losses), which are net of amounts allocable to experience-rated contractholders, at December 31:
1995 1994 1993 ------ ------- ------- (MILLIONS) Debt securities Gross unrealized capital gains....................... $179.3 $ 27.4 $ 164.3 Gross unrealized capital losses...................... (1.3) (105.2) -- ------ ------- ------- 178.0 (77.8) 164.3 Equity securities Gross unrealized capital gains....................... 27.2 6.5 12.0 Gross unrealized capital losses...................... (1.2) (7.9) (0.1) ------ ------- ------- 26.0 (1.4) 11.9 Limited Partnership Gross unrealized capital gains....................... -- -- -- Gross unrealized capital losses...................... -- (1.8) -- ------ ------- ------- Deferred federal income taxes (See Note 6)............. 71.5 108.0 61.7 ------ ------- ------- Net unrealized capital gains (losses).................. $132.5 $(189.0) $ 114.5 ------ ------- ------- ------ ------- -------
4. NET INVESTMENT INCOME Sources of net investment income were as follows:
1995 1994 1993 -------- ------ ------ (MILLIONS) Debt securities........................................ $ 891.5 $823.9 $828.0 Preferred stock........................................ 4.2 3.9 2.3 Investment in affiliated mutual funds.................. 14.9 5.2 2.9 Mortgage loans......................................... 1.4 1.4 1.5 Policy loans........................................... 13.7 11.5 10.8 Reinsurance loan to affiliate.......................... 46.5 51.5 53.3 Cash equivalents....................................... 38.9 29.5 16.8 Other.................................................. 8.4 6.7 7.7 -------- ------ ------ Gross investment income................................ 1,019.5 933.6 923.3 Less investment expenses............................... (15.2) (16.4) (11.4) -------- ------ ------ Net investment income.................................. $1,004.3 $917.2 $911.9 -------- ------ ------ -------- ------ ------
Net investment income includes amounts allocable to experience-rated contractholders of $744.2 million, $677.1 million and $661.3 million for the years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to contractholders is included in Current and Future Benefits. F-17 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. The amount of dividends that may be paid to the shareholder in 1996 without prior approval by the Insurance Commissioner of the State of Connecticut is $70.0 million. The Insurance Department of the State of Connecticut (the "Department") recognizes as net income and shareholder's equity those amounts determined in conformity with statutory accounting practices prescribed or permitted by the Department, which differ in certain respects from generally accepted accounting principles. Statutory net income was $70.0 million, $64.9 million and $77.6 million for the years ended December 31, 1995, 1994 and 1993, respectively. Statutory shareholder's equity was $670.7 million and $615.0 million as of December 31, 1995 and 1994, respectively. At December 31, 1995 and December 31, 1994, the Company does not utilize any statutory accounting practices which are not prescribed by insurance regulators that, individually or in the aggregate, materially affect statutory shareholder's equity. 6. FEDERAL INCOME TAXES The Company is included in the consolidated federal income tax return of Aetna. Aetna allocates to each member an amount approximating the tax it would have incurred were it not a member of the consolidated group, and credits the member for the use of its tax saving attributes in the consolidated return. In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted which resulted in an increase in the federal corporate tax rate from 34% to 35% retroactive to January 1, 1993. The enactment of OBRA resulted in an increase in the deferred tax liability of $3.4 million at date of enactment, which is included in the 1993 deferred tax expense. Components of income tax expense (benefits) were as follows:
1995 1994 1993 ----- ----- ------- (MILLIONS) Current taxes (benefits): Income from operations............................... $82.9 $78.7 $ 87.1 Net realized capital gains........................... 28.5 (33.2) 18.1 ----- ----- ------- 111.4 45.5 105.2 ----- ----- ------- Deferred taxes (benefits): Income from operations............................... (14.4) (8.0) (14.2) Net realized capital gains........................... (12.9) 33.7 (14.8) ----- ----- ------- (27.3) 25.7 (29.0) ----- ----- ------- Total................................................ $84.1 $71.2 $ 76.2 ----- ----- ------- ----- ----- -------
F-18 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 6. FEDERAL INCOME TAXES (CONTINUED) Income tax expense was different from the amount computed by applying the federal income tax rate to income before federal income taxes for the following reasons:
1995 1994 1993 ------ ------ ------ (MILLIONS) Income before federal income taxes..................... $260.0 $216.5 $219.1 Tax rate............................................... 35% 35% 35% ------ ------ ------ Application of the tax rate............................ 91.0 75.8 76.7 ------ ------ ------ Tax effect of: Excludable dividends................................. (9.3) (8.6) (8.7) Tax reserve adjustments.............................. 3.9 2.9 4.7 Reinsurance transaction.............................. (0.5) 1.9 (0.2) Tax rate change on deferred liabilities.............. -- -- 3.7 Other, net........................................... (1.0) (0.8) -- ------ ------ ------ Income tax expense................................... $ 84.1 $ 71.2 $ 76.2 ------ ------ ------ ------ ------ ------
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31 are presented below:
1995 1994 ------ ------ (MILLIONS) Deferred tax assets: Insurance reserves................................... $290.4 $211.5 Net unrealized capital losses........................ -- 136.3 Unrealized gains allocable to experience-rated contracts........................................... 216.7 -- Investment losses not currently deductible........... 7.3 15.5 Postretirement benefits other than pensions.......... 7.7 8.4 Other................................................ 32.0 28.3 ------ ------ Total gross assets..................................... 554.1 400.0 Less valuation allowance............................... -- 136.3 ------ ------ Deferred tax assets, net of valuation.................. 554.1 263.7 Deferred tax liabilities: Deferred policy acquisition costs.................... 433.0 385.2 Unrealized losses allocable to experience-rated contracts........................................... -- 108.0 Market discount...................................... 4.4 3.6 Net unrealized capital gains......................... 288.2 -- Other................................................ (1.9) 0.4 ------ ------ Total gross liabilities................................ 723.7 497.2 ------ ------ Net deferred tax liability............................. $169.6 $233.5 ------ ------ ------ ------
F-19 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 6. FEDERAL INCOME TAXES (CONTINUED) Net unrealized capital gains and losses are presented in shareholder's equity net of deferred taxes. At December 31, 1994, $81.0 million of net unrealized capital losses were reflected in shareholder's equity without deferred tax benefits. As of December 31, 1995, no valuation allowance was required for unrealized capital gains and losses. The reversal of the valuation allowance had no impact on net income in 1995. The "Policyholders' Surplus Account," which arose under prior tax law, is generally that portion of a life insurance company's statutory income that has not been subject to taxation. As of December 31, 1983, no further additions could be made to the Policyholders' Surplus Account for tax return purposes under the Deficit Reduction Act of 1984. The balance in such account was approximately $17.2 million at December 31, 1995. This amount would be taxed only under certain conditions. No income taxes have been provided on this amount since management believes the conditions under which such taxes would become payable are remote. The Internal Revenue Service ("Service") has completed examinations of the consolidated federal income tax returns of Aetna through 1986. Discussions are being held with the Service with respect to proposed adjustments. However, management believes there are adequate defenses against, or sufficient reserves to provide for, such challenges. The Service has commenced its examinations for the years 1987 through 1990. 7. BENEFIT PLANS Employee Pension Plans--The Company, in conjunction with Aetna, has non-contributory defined benefit pension plans covering substantially all employees. The plans provide pension benefits based on years of service and average annual compensation (measured over sixty consecutive months of highest earnings in a 120 month period). Contributions are determined using the Projected Unit Credit Method and, for qualified plans subject to ERISA requirements, are limited to the amounts that are currently deductible for tax reporting purposes. The accumulated benefit obligation and plan assets are recorded by Aetna. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Agent Pension Plans--The Company, in conjunction with Aetna, has a non-qualified pension plan covering certain agents. The plan provides pension benefits based on annual commission earnings. The accumulated plan assets exceed accumulated plan benefits. There has been no funding to the plan for the years 1993 through 1995, and therefore, no expense has been recorded by the Company. Employee Postretirement Benefits--In addition to providing pension benefits, Aetna also provides certain postretirement health care and life insurance benefits, subject to certain caps, for retired employees. Medical and dental benefits are offered to all full-time employees retiring at age 50 with at least 15 years of service or at age 65 with at least 10 years of service. Retirees are required to contribute to the plans based on their years of service with Aetna. The cost to the Company associated with the Aetna postretirement plans for 1995, 1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, respectively. Agent Postretirement Benefits--The Company, in conjunction with Aetna, also provides certain postemployment health care and life insurance benefits for certain agents. F-20 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 7. BENEFIT PLANS (CONTINUED) The cost to the Company associated to the agents' postretirement plans for 1995, 1994 and 1993 were $0.8 million, $0.7 million and $0.6 million, respectively. Incentive Savings Plan--Substantially all employees are eligible to participate in a savings plan under which designated contributions, which may be invested in common stock of Aetna or certain other investments, are matched, up to 5% of compensation, by Aetna. Pretax charges to operations for the incentive savings plan were $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993, respectively. Stock Plans--Aetna has a stock incentive plan that provides for stock options and deferred contingent common stock or cash awards to certain key employees. Aetna also has a stock option plan under which executive and middle management employees of Aetna may be granted options to purchase common stock of Aetna at the market price on the date of grant or, in connection with certain business combinations, may be granted options to purchase common stock on different terms. The cost to the Company associated with the Aetna stock plans for 1995, 1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively. 8. RELATED PARTY TRANSACTIONS The Company is compensated by the Separate Accounts for bearing mortality and expense risks pertaining to variable life and annuity contracts. Under the insurance contracts, the Separate Accounts pay the Company a daily fee which, on an annual basis, ranges, depending on the product, from .25% to 1.80% of their average daily net assets. The Company also receives fees from the variable life and annuity mutual funds and The Aetna Series Fund for serving as investment adviser. Under the advisory agreements, the Funds pay the Company a daily fee which, on an annual basis, ranges, depending on the fund, from .25% to 1.00% of their average daily net assets. The advisory agreements also call for the variable funds to pay their own administrative expenses and for The Aetna Series Fund to pay certain administrative expenses. The Company also receives fees (expressed as a percentage of the average daily net assets) from The Aetna Series Fund for providing administration, shareholder services and promoting sales. The amount of compensation and fees received from the Separate Accounts and Funds, included in Charges Assessed Against Policyholders, amounted to $128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993, respectively. The Company may waive advisory fees at its discretion. The Company may, from time to time, make reimbursements to a Fund for some or all of its operating expenses. Reimbursement arrangements may be terminated at any time without notice. Since 1981, all domestic individual non-participating life insurance of Aetna and its subsidiaries has been issued by the Company. Effective December 31, 1988, the Company entered into a reinsurance agreement with Aetna Life Insurance Company ("Aetna Life") in which substantially all of the non-participating individual life and annuity business written by Aetna Life prior to 1981 was assumed by the Company. A $108.0 million commission, paid by the Company to Aetna Life in 1988, was capitalized as deferred policy acquisition costs. The Company maintained insurance reserves of $655.5 million and $690.3 million as of December 31, 1995 and 1994, respectively, relating to the business assumed. In consideration for the assumption of this business, a loan was established relating to the assets held by Aetna Life which support the insurance reserves. The loan is being reduced in accordance with the decrease in the reserves. The fair value of this loan was $663.5 million and $630.3 million as of December 31, 1995 and 1994, respectively, and is based upon the fair value of the underlying assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current and future benefits of $43.0 million, $43.8 million and $55.4 million were assumed in 1995, 1994 and 1993, respectively. F-21 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 8. RELATED PARTY TRANSACTIONS (CONTINUED) Investment income of $46.5 million, $51.5 million and $53.3 million was generated from the reinsurance loan to affiliate in 1995, 1994 and 1993, respectively. Net income of approximately $18.4 million, $25.1 million and $13.6 million resulted from this agreement in 1995, 1994 and 1993, respectively. On December 16, 1988, the Company assumed $25.0 million of premium revenue from Aetna Life for the purchase and administration of a life contingent single premium variable payout annuity contract. In addition, the Company also is responsible for administering fixed annuity payments that are made to annuitants receiving variable payments. Reserves of $28.0 million and $24.2 million were maintained for this contract as of December 31, 1995 and 1994, respectively. Effective February 1, 1992, the Company increased its retention limit per individual life to $2.0 million and entered into a reinsurance agreement with Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0 million on any new individual life business, on a yearly renewable term basis. Premium amounts related to this agreement were $3.2 million, $1.3 million and $0.6 million for 1995, 1994 and 1993, respectively. The Company received no capital contributions in 1995, 1994 or 1993. The Company distributed $2.9 million in the form of dividends of two of its subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995. Premiums due and other receivables include $5.7 million and $27.6 million due from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4 million and $27.9 million due to affiliates for 1995 and 1994, respectively. Substantially all of the administrative and support functions of the Company are provided by Aetna and its affiliates. The financial statements reflect allocated charges for these services based upon measures appropriate for the type and nature of service provided. 9. REINSURANCE The Company utilizes indemnity reinsurance agreements to reduce its exposure to large losses in all aspects of its insurance business. Such reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Company as direct insurer of the risks reinsured. The Company evaluates the financial strength of potential reinsurers and continually monitors the financial condition of reinsurers. Only those reinsurance recoverables deemed probable of recovery are reflected as assets on the Company's Consolidated Balance Sheets. F-22 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 9. REINSURANCE (CONTINUED) The following table includes premium amounts ceded/assumed to/from affiliated companies as discussed in Note 8 above.
CEDED TO ASSUMED DIRECT OTHER FROM OTHER NET AMOUNT COMPANIES COMPANIES AMOUNT --------- ------------- ------------- --------- (MILLIONS) 1995 Premiums: Life Insurance....................................... $ 28.8 $ 8.6 $ 28.0 $ 48.2 Accident and Health Insurance........................ 7.5 7.5 -- -- Annuities............................................ 82.1 -- 0.5 82.6 --------- ----- ----- --------- Total earned premiums................................ $ 118.4 $ 16.1 $ 28.5 $ 130.8 --------- ----- ----- --------- --------- ----- ----- --------- 1994 Premiums: Life Insurance....................................... $ 27.3 $ 6.0 $ 32.8 $ 54.1 Accident and Health Insurance........................ 9.3 9.3 -- -- Annuities............................................ 69.9 -- 0.2 70.1 --------- ----- ----- --------- Total earned premiums................................ $ 106.5 $ 15.3 $ 33.0 $ 124.2 --------- ----- ----- --------- --------- ----- ----- --------- 1993 Premiums: Life Insurance....................................... $ 22.4 $ 5.6 $ 33.3 $ 50.1 Accident and Health Insurance........................ 12.9 12.9 -- -- Annuities............................................ 31.3 -- 0.7 32.0 --------- ----- ----- --------- Total earned premiums................................ $ 66.6 $ 18.5 $ 34.0 $ 82.1 --------- ----- ----- --------- --------- ----- ----- ---------
F-23 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 10. FINANCIAL INSTRUMENTS ESTIMATED FAIR VALUE The carrying values and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 were as follows:
1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE --------- --------- --------- --------- (MILLIONS) Assets: Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3 Short-term investments.................................... 15.1 15.1 98.0 98.0 Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4 Equity securities......................................... 257.6 257.6 229.1 229.1 Limited partnership....................................... -- -- 24.4 24.4 Mortgage loans............................................ 21.2 21.9 9.9 9.9 Liabilities: Investment contract liabilities: With a fixed maturity................................... 989.1 1,001.2 826.7 833.5 Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument. In evaluating the Company's management of interest rate and liquidity risk, the fair values of all assets and liabilities should be taken into consideration, not only those above. The following valuation methods and assumptions were used by the Company in estimating the fair value of the above financial instruments: SHORT-TERM INSTRUMENTS: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices are not available, the carrying amounts reported in the Consolidated Balance Sheets approximates fair value. Short-term instruments have a maturity date of one year or less and include cash and cash equivalents, and short-term investments. DEBT AND EQUITY SECURITIES: Fair values are based on quoted market prices or dealer quotations. Where quoted market prices or dealer quotations are not available, fair value is estimated by using quoted market prices for similar securities or discounted cash flow methods. F-24 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 10. FINANCIAL INSTRUMENTS (CONTINUED) MORTGAGE LOANS: Fair value is estimated by discounting expected mortgage loan cash flows at market rates which reflect the rates at which similar loans would be made to similar borrowers. The rates reflect management's assessment of the credit quality and the remaining duration of the loans. The fair value estimate of mortgage loans of lower quality, including problem and restructured loans, is based on the estimated fair value of the underlying collateral. INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH THE COMPANY): WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at interest rates currently being offered by, or available to, the Company for similar contracts. WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the contractholder upon demand. However, the Company has the right under such contracts to delay payment of withdrawals which may ultimately result in paying an amount different than that determined to be payable on demand. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS) During 1995, the Company received $0.4 million for writing call options on underlying securities. As of December 31, 1995 there were no option contracts outstanding. At December 31, 1995, the Company had a forward swap agreement with a notional amount of $100.0 million and a fair value of $0.1 million. The Company did not have transactions in derivative instruments in 1994. The Company also holds investments in certain debt and equity securities with derivative characteristics (i.e., including the fact that their market value is at least partially determined by, among other things, levels of or changes in interest rates, prepayment rates, equity markets or credit ratings/spreads). The amortized cost and fair value of these securities, included in the $13.4 billion investment portfolio, as of December 31, 1995 was as follows:
AMORTIZED FAIR (MILLIONS) COST VALUE ----------- ----------- Collateralized mortgage obligations......................... $ 2,383.9 $ 2,549.3 Principal-only strips (included above)...................... 38.7 50.0 Interest-only strips (included above)....................... 10.7 20.7 Structured Notes (1)........................................ 95.0 100.3
(1) Represents non-leveraged instruments whose fair values and credit risk are based on underlying securities, including fixed income securities and interest rate swap agreements. 11. COMMITMENTS AND CONTINGENT LIABILITIES COMMITMENTS Through the normal course of investment operations, the Company commits to either purchase or sell securities or money market instruments at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either higher or lower replacement cost. Also, there is likely to be a change in F-25 AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A wholly owned subsidiary of Aetna Retirement Services, Inc.) Notes to Consolidated Financial Statements (continued) December 31, 1995, 1994, and 1993 11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) the value of the securities underlying the commitments. At December 31, 1995, the Company had commitments to purchase investments of $31.4 million. The fair value of the investments at December 31, 1995 approximated $31.5 million. There were no outstanding forward commitments at December 31, 1994. LITIGATION There were no material legal proceedings pending against the Company as of December 31, 1995 or December 31, 1994 which were beyond the ordinary course of business. The Company is involved in lawsuits arising, for the most part, in the ordinary course of its business operations as an insurer. 12. SEGMENT INFORMATION The Company's operations are reported through two major business segments: Life Insurance and Financial Services. Summarized financial information for the Company's principal operations was as follows:
(MILLIONS) 1995 1994 1993 ----------- ----------- ----------- Revenue: Financial services........................................ $ 1,129.4 $ 946.1 $ 892.8 Life insurance............................................ 407.9 386.1 371.7 ----------- ----------- ----------- Total revenue............................................. $ 1,537.3 $ 1,332.2 $ 1,264.5 ----------- ----------- ----------- Income before federal income taxes: Financial services........................................ $ 158.0 $ 119.7 $ 121.1 Life insurance............................................ 102.0 96.8 98.0 ----------- ----------- ----------- Total income before federal income taxes.................. $ 260.0 $ 216.5 $ 219.1 ----------- ----------- ----------- Net income: Financial services........................................ $ 113.8 $ 85.5 $ 86.8 Life insurance............................................ 62.1 59.8 56.1 ----------- ----------- ----------- Net income.................................................. $ 175.9 $ 145.3 $ 142.9 ----------- ----------- ----------- Assets under management, at fair value: Financial services........................................ $ 23,224.3 $ 17,785.2 $ 16,600.5 Life insurance............................................ 2,698.1 2,171.7 2,175.5 ----------- ----------- ----------- Total assets under management............................. $ 25,922.4 $ 19,956.9 $ 18,776.0 ----------- ----------- ----------- ----------- ----------- -----------
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