0000950109-95-003265.txt : 19950818
0000950109-95-003265.hdr.sgml : 19950818
ACCESSION NUMBER: 0000950109-95-003265
CONFORMED SUBMISSION TYPE: 485APOS
PUBLIC DOCUMENT COUNT: 7
FILED AS OF DATE: 19950816
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: 485APOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-79122
FILM NUMBER: 95564782
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-02512
FILM NUMBER: 95564783
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
485APOS
1
AMENDMENT NO. 3
As filed with the Securities and Exchange Registration No. 33-79122
Commission on August 16, 1995 Registration No. 811-2512
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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Post-Effective Amendment No. 3
To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment To
----------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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Variable Annuity Account B of Aetna Life Insurance and Annuity Company
(Exact Name of Registrant)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (203) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (Check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
on _______________________ pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(i) of Rule 485
---
on _______________________ pursuant to paragraph (a)(i) of Rule 485
---
75 days after filing pursuant to paragraph (a)(ii) of Rule 485
---
on _______________________ pursuant to (a)(ii) of Rule 485
---
X on August 31, 1995 pursuant to (a)(iii) of Rule 485
---
If appropriate check the following space:
This post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1994
on February 28, 1995.
VARIABLE ANNUITY ACCOUNT B
CROSS REFERENCE SHEET
Form N-4
--------
Item No. Part A (Prospectus) Location
-------- -------------------- --------
1 Cover Page.................................. Cover Page
2 Definitions................................. Definitions
3 Synopsis or Highlights...................... Prospectus Summary; Fee Table
4 Condensed Financial Information............. Condensed Financial Information
5 General Description of Registrant, Depositor, The Company; Variable Annuity
and Portfolio Companies..................... Account B; The Funds
6 Deductions and Expenses..................... Charges and Deductions;
Distribution
7 General Description of Variable Annuity
Contracts................................... Contract Rights; Miscellaneous
8 Annuity Period.............................. Annuity Period
9 Death Benefit............................... Death Benefit
10 Purchases and Contract Value................ Contract Purchase
11 Redemptions................................. Contract Rights - Withdrawals;
Right to Cancel
12 Taxes....................................... Tax Status
13 Legal Proceedings........................... Miscellaneous - Legal
Proceedings
14 Table of Contents of the Statement of Statement of Additional
Additional Information...................... Information - Table of Contents
Form N-4
--------
Item No. Part B (Statement of Additional Information) Location
-------- ------------------------------------------- --------
15 Cover Page........................................ Cover page
16 Table of Contents................................. Table of Contents
17 General Information and History................... General Information and History
18 Services.......................................... General Information and
History; Independent Auditors
19 Purchase of Securities Being Offered.............. Offering and Purchase of
Contracts
20 Underwriters...................................... Offering and Purchase of
Contracts
21 Calculation of Performance Data................... Performance Data; Average
Annual Total Return Quotations
22 Annuity Payments.................................. Annuity Payments
23 Financial Statements.............................. Financial Statements
Part C (Other Information)
-------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
GROWTH PLUS
A Variable Annuity Contract funded through
Variable Annuity Account B
and issued by Aetna Life Insurance and Annuity Company
_____,95 Supplement to the May 1, 1995 Prospectus
The Company has made the following changes to this Prospectus.
NAME CHANGE
The name for the Growth Plus Guaranteed Account has been changed to "ALIAC
Guaranteed Account." Where the names "Growth Plus Guaranteed Account" or "GP
Guaranteed Account" appear in this Prospectus, they will now mean the ALIAC
Guaranteed Account.
MUTUAL FUND ANNUAL EXPENSES, page 9
The Mutual Fund Annual Expense information for the funds of the Insurance
Management Series Trust should be as follows:
As a percentage of average net assets:
Investment Other Total Fund
Advisory Fees(1) Expenses Annual Expenses
(after expense (after expense (after expense
reimbursement) reimbursement) reimbursement)
------------------------- ------------------------- --------------------------
Equity Growth and Income Fund (2) 0.00% 0.85% 0.85%
Utility Fund (2) 0.00% 0.85% 0.85%
Prime Money Fund (2) 0.00% 0.80% 0.80%
U.S. Government Bond Fund (2) 0.00% 0.80% 0.80%
Corporate Bond Fund (2) 0.00% 0.80% 0.80%
International Stock Fund (3) 0.52% 0.73% 1.25%
(1) The Adviser has agreed to reimburse the Company for certain costs incurred
in connection with administering the Funds by payment of an amount based on
assets in the Funds attributable to the Contracts. These amounts are not
charged to the Funds or Certificate Holders, but are paid from other assets
of the Adviser.
(2) The Fund's Adviser has agreed to waive all or a portion of its advisory fee
and reimburse certain expenses so that the total annual expenses for the
Equity Growth and Income Fund and the Utility Fund would not exceed 0.85%
of average net assets, and the total annual expenses for the Prime Money
Fund, the U.S. Government Bond Fund and the Corporate Bond Fund would not
exceed 0.80% of average net assets. Without this waiver and reimbursement,
the maximum advisory fees and the maximum total annual expenses for the
Funds, respectively, would have been 0.75% and 25.96% for the Equity Growth
and Income Fund, 0.75% and 55.43% for the Utility Fund, 0.50% and 72.54%
for the Prime Money Fund, 0.60% and 33.35% for the U.S. Government Bond
Fund, and 0.60% and 10.42% for the Corporate Bond Fund. The Adviser can
terminate this voluntary waiver or reimbursement of expenses at any time at
its sole discretion.
(3) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The advisor can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 1.00%. The Total Fund Annual Expenses are
estimated to be 1.73% absent the anticipated voluntary waiver of a portion
of the management fee. Total Fund Annual Expenses are estimated based on
average expenses expected to be incurred during the period ending December
31, 1995. During the course of this period, expenses may be more or less
than the average amount shown.
WITHDRAWALS, page 19
The value at which the Company reserves the right to close the Certificate
Holder's Account after a partial withdrawal should be $2,500. The Company does
not intend to exercise this right in cases where the Certificate Holder's
Account Value is reduced to $2,500 or less solely due to investment performance.
DEFERRED SALES CHARGE, page 21
The following information replaces items (d) and (f) in the third paragraph
discussing Deferred Sales Charge:
(d) paid due to the full withdrawal of a Certificate Holder's Account for
which the value is $2,500 or less and no withdrawals have been made in
the prior 12 months;
(f) paid if we close out a Certificate Holder's Account when the value is
less than $2,500. See "Contract Rights-Withdrawals."
DEATH BENEFITS, Death Benefit Amount Prior to the Annuity Date, page 27
The following paragraph, subject to state regulatory approval, has been added
after the last paragraph in "Death Benefit Amount Prior to the Annuity Date":
For amounts held in the ALIAC Guaranteed Account: The death benefit, if paid
within six months of the date of the Certificate Holder's death, is the
greater of the Certificate Holder's Account Value or the aggregate market
value adjusted amount. This provision does not apply at the death of a
spousal beneficiary or joint Certificate Holder who continued the Account in
his or her own name after the first death. If amounts are withdrawn after
the six-month period, the death benefit will be the aggregate Market Value
Adjustment. The aggregate Market Value Adjustment may be more or less than
the Certificate Holder's Account Value. (See the Appendix.)
APPENDIX A - Transfers, page 37
The following information, subject to state regulatory approval, has been added
after the fourth sentence in the section discussing transfers in the Appendix to
this Prospectus:
However, only a positive aggregate Market Value Adjustment will be applied to
transfers made due to annuitization under one of the lifetime Annuity Options
described in item (2) above.
APPENDIX A - Death Benefit, page 37
The following paragraph, subject to state regulatory approval, has been added as
a new section following the section on Transfers:
Full and partial withdrawals and transfers made from the ALIAC Guaranteed
Account within six months after the date of the Certificate Holder's death
(including transfers due to annuitization) will be the greater of:
(a) the aggregate Market Value Adjustment (i.e., the sum of all Market
Value Adjustments calculated due to a withdrawal of amounts). This
total may be greater or less than the Certificate Holder's Account
Value of those amounts; or
(b) the applicable portion of the Certificate Holder's Account Value
attributable to the ALIAC Guaranteed Account.
After the six-month period, the surrender or transfer amount will be adjusted
for the aggregate Market Value Adjustment, which may be greater or less than
the Certificate Holder's Account Value of those amounts. However, only a
positive aggregate Market Value Adjustment will be applied to transfers made
due to annuitization under one of the lifetime Annuity Options.
[LOGO OF AETNA AETNA LIFE INSURANCE AND ANNUITY COMPANY
APPEARS HERE]
VARIABLE ANNUITY
Service Unit
151 Farmington Avenue ACCOUNT B
Hartford, Connecticut 06156-8027
Telephone: 1-800-531-4547 Prospectus Dated:
May 1, 1995
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AETNA GROWTH PLUS
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This Prospectus describes the Aetna Growth Plus variable deferred
annuity contracts ("Contracts") to be issued by Aetna Life Insurance and
Annuity Company (the "Company"). The Contracts allow individuals to
accumulate values and elect payment of annuity benefits on a fixed or a
variable basis. Group Contracts are offered to certain broker-dealers
which have agreed to act as Distributors of the Contracts. See "Contract
Purchase--Distribution." Individuals who have established accounts with
those broker-dealers are eligible to participate in the Contract.
Individual Contracts are offered only in those states where the group
Contracts are not authorized for sale.
The Contracts are not designed for retirement plans that qualify for
special tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code"); however, the Contracts may be available for use
under Section 408(b) of the Code as Individual Retirement Annuities. See
"Contract Purchase--How to Purchase" and "Tax Status."
The securities offered in this Prospectus will be distributed through
Aetna Life Insurance and Annuity Company as the Underwriter and by
registered broker dealers selected by it as Distributors. See "Contract
Purchase--Distribution."
Purchase Payments received under the Contracts on behalf of persons
participating under group Contracts or individual Contract owners
(collectively, "Certificate Holders") will be allocated at the
Certificate Holder's direction to variable funding options or to a
credited interest option for accumulation of values for the Certificate
Holder's Account. Amounts allocated to the variable funding options will
be deposited in a separate account of the Company, Variable Annuity
Account B (the "Separate Account"), for investment in the variable
funding options.
This Prospectus is intended to describe the Contract provisions relating
to the variable funding options (the "Funds") and the fees and expenses
that may be charged in connection with investment in the Separate
Account. Information with respect to the credited interest option, the
Growth Plus Guaranteed Account (GP Guaranteed Account), is included in
the Appendix to this Prospectus and in the prospectus for the GP
Guaranteed Account which should accompany this Prospectus. The GP
Guaranteed Account is offered only in those jurisdictions where it has
been qualified for sale.
The following investment series of the Insurance Management Series
("Trust"), a Massachusetts business trust that is not affiliated with
the Company, are available as variable funding options under the
Contract:
. Equity Growth and Income Fund
. Utility Fund
. Prime Money Fund
. U.S. Government Bond Fund
. Corporate Bond Fund
. International Stock Fund
Information about the Funds is found in "The Funds," and in the
prospectus for the Trust which must accompany this Prospectus.
THE PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT FUND
PROSPECTUS AND THE CURRENT GROWTH PLUS GUARANTEED ACCOUNT PROSPECTUS.
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.
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 OFFERS OF THE SECURITIES DESCRIBED IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE CONTRACTS AND
THE SEPARATE ACCOUNT THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVEST-
ING. ADDITIONAL INFORMATION IS CONTAINED IN THE STATEMENT OF ADDITIONAL INFOR-
MATION ("SAI") DATED MAY 1, 1995, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") AND IS INCORPORATED HEREIN BY REFERENCE. THE
TABLE OF CONTENTS FOR THE SAI IS FOUND IN THIS PROSPECTUS. AN SAI MAY BE OB-
TAINED WITHOUT CHARGE BY CALLING 1-800-531-4547.
The Company has filed registration statements (the "Registration Statements")
with the SEC under the Securities Act of 1933 relating to the Contracts offered
by this Prospectus. This Prospectus has been filed as a part of the Registra-
tion Statements and does not contain all of the information set forth in the
Registration Statements and exhibits thereto, and reference is hereby made to
such Registration Statements and exhibits for further information relating to
the Company and the Contracts. The Registration Statements and the exhibits
thereto may be inspected and copied at the public reference facilities of the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. Copies of such mate-
rials also can be obtained by contacting the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
2
TABLE OF CONTENTS
Page
GLOSSARY OF TERMS.......................................................... 4
PROSPECTUS SUMMARY......................................................... 6
FEE TABLE.................................................................. 8
PERFORMANCE DATA........................................................... 11
THE COMPANY................................................................ 12
VARIABLE ANNUITY ACCOUNT B................................................. 12
THE FUNDS.................................................................. 12
General................................................................... 12
Mixed and Shared Funding.................................................. 13
The Adviser............................................................... 13
Fund Additions, Limitations and Substitutions............................. 14
CONTRACT PURCHASE.......................................................... 14
How to Purchase........................................................... 14
Designations of Beneficiary and Annuitant................................. 15
Distribution.............................................................. 16
CERTIFICATE HOLDER'S ACCOUNT VALUE......................................... 16
Accumulation Units........................................................ 16
Net Investment Factor..................................................... 16
CONTRACT RIGHTS............................................................ 17
Right to Cancel........................................................... 17
Rights to the Contract and Account........................................ 17
Joint Certificate Holders................................................. 17
Transfers Among Investment Options........................................ 17
Dollar Cost Averaging Program............................................. 18
Account Rebalancing Program............................................... 18
Withdrawals............................................................... 18
CHARGES AND DEDUCTIONS..................................................... 19
Maintenance Charge........................................................ 19
Mortality and Expense Risk Charge......................................... 20
Administrative Charge..................................................... 20
Transfer Charges.......................................................... 20
Deferred Sales Charge..................................................... 20
Fund Expenses............................................................. 22
Page
Premium Tax............................................................... 22
Commissions and Distribution Expenses..................................... 22
ADDITIONAL WITHDRAWAL OPTIONS.............................................. 22
General................................................................... 22
Estate Conservation Option................................................ 23
Systematic Withdrawal Option.............................................. 24
ANNUITY PERIOD............................................................. 24
Annuity Period Elections.................................................. 24
Annuity Options........................................................... 25
DEATH BENEFITS............................................................. 26
Death of the Certificate Holder Prior to
the Annuity Date.......................................................... 26
Death Benefit Amount Prior to the Annuity Date............................ 26
Payment Methods for Death Before Annuity Date............................. 27
Death of Certificate Holder on
or After the Annuity Date................................................. 28
Death of the Annuitant.................................................... 28
TAX STATUS................................................................. 28
Introduction.............................................................. 28
Taxation of the Company................................................... 28
Tax Status of the Contract................................................ 29
Taxation of Annuities..................................................... 29
Contracts................................................................. 31
Withholding............................................................... 31
Possible Changes in Taxation.............................................. 31
Other Tax Consequences.................................................... 32
MISCELLANEOUS.............................................................. 32
Voting Rights............................................................. 32
Modification of the Contract.............................................. 32
Transfer of Ownership--Assignment......................................... 33
Certificate Holder Inquiries.............................................. 33
Telephone Transfers....................................................... 33
Legal Proceedings......................................................... 34
Legal Matters............................................................. 34
TABLE OF CONTENTS -- STATEMENT OF ADDITIONAL INFORMATION................... 35
APPENDIX A--GP GUARANTEED ACCOUNT.......................................... 36
3
GLOSSARY OF TERMS
As used in this prospectus, the following terms have the meanings shown.
ACCUMULATION PERIOD: The period during which one or more Net Purchase Payments
applied to a Certificate Holder's Account accumulate(s) to provide future
Annuity payments.
ACCUMULATION UNIT: A measure of the net investment results for each variable
investment option during the Accumulation Period. The Accumulation Units for
the applicable Funds are used to calculate the value of a Certificate Holder's
Account invested in the Separate Account during the Accumulation Period.
ADJUSTED ACCOUNT VALUE: For any Valuation Period, the Certificate Holder's
Account Value, plus or minus the Certificate Holder's aggregate GP Guaranteed
Account market value adjustment, if applied during that period.
ADVISER: Federated Advisers, the investment adviser of the Funds.
ANNUITANT: The natural person on whose life an Annuity payment is based.
ANNUITY: A series of payments made for life, a definite period, or a
combination of the two.
ANNUITY DATE: The date on which Annuity payments commence under an Annuity
Option.
ANNUITY OPTIONS: Annuity payment methods available during the Annuity Period.
ANNUITY PERIOD: The period of time during which Annuity payments are made.
ANNUITY UNIT: A measure of the net investment results for each variable
investment option during the Annuity Period. Annuity Units are used to
calculate the amount of each variable Annuity payment.
BENEFICIARY: The person(s) entitled to receive any death benefit under the
Certificate Holder's Account. See "Death Benefits."
CERTIFICATE: The document issued to a Certificate Holder under a group Contract
to evidence the Certificate Holder's interest in the Contract.
CERTIFICATE HOLDER: A person who acquires an interest in a group Contract or
who purchases an individual Contract. A Certificate Holder's spouse may have an
interest in the same Certificate Holder's Account, as a joint Certificate
Holder. References to "Certificate Holder" in this prospectus mean both of the
Certificate Holders on joint accounts. See "Contract Purchase--How to
Purchase--Joint Certificate Holders."
CERTIFICATE HOLDER'S ACCOUNT: A record established for each Certificate Holder
to maintain values under a Contract during the Accumulation Period.
CERTIFICATE HOLDER'S ACCOUNT VALUE: The dollar value as of any Valuation Period
of all amounts accumulated in a Certificate Holder's Account, including the
value of the Certificate Holder's Accumulation Units, GP Guaranteed Account, if
any, and amounts deposited pursuant to the guaranteed death benefit, when
applicable.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: Aetna Life Insurance and Annuity Company, also referred to as "We" or
"Us."
CONTRACT HOLDER: The entity to which a group Contract is issued and the
individual who has purchased an individual Contract.
CONTRACTS: Group variable deferred annuity contracts and individual variable
deferred annuity contracts which are offered by this prospectus.
4
DISTRIBUTORS: The registered broker-dealers which have entered into selling
agreements with the Underwriter to distribute interests in the Contracts. The
Underwriter may also serve as a Distributor.
EFFECTIVE DATE: The date a Certificate is issued to a Certificate Holder or
the date the Contract is issued to an individual Contract Holder.
FUNDS: The mutual funds offered as variable options for the accumulation of
values under the Contracts.
GENERAL ACCOUNT: The account into which all Company assets not held in
separate accounts are deposited. The General Account is subject to all
liabilities of the Company.
GP GUARANTEED ACCOUNT: The Growth Plus Guaranteed Account, a credited interest
option offered as a funding option under the Contract, guaranteeing specified
rates of interest for specified periods of time.
GROUP CONTRACT HOLDER: The entity to which a group contract is issued.
HOME OFFICE: Our principal executive offices located at 151 Farmington Avenue,
Hartford, Connecticut 06156.
INDIVIDUAL RETIREMENT ANNUITY: A Certificate Holder's Account which is
established so that it qualifies for special tax treatment under Section
408(b) of the Code.
MARKET VALUE ADJUSTMENT (MVA): an amount deducted or added to amounts
withdrawn early from the Growth Plus Guaranteed Account to reflect changes in
the market value of the investment since the date of deposit. See the Appendix
and the prospectus for the Guaranteed Account for a discussion of how the
market value adjustment is actually calculated.
NASD: National Association of Securities Dealers, Inc.
NET PURCHASE PAYMENT: The Purchase Payment less premium taxes, if applicable.
1940 ACT: The Investment Company Act of 1940, as amended.
PURCHASE PAYMENT: The gross payment made to a Certificate Holder's Account
pursuant to the terms of the Contract. The Company reserves the right to
refuse to accept any Purchase Payment at any time for any reason.
REGISTERED REPRESENTATIVE: The individual who is registered with the
Distributor to offer and sell securities and to sell variable annuity
contracts. See "Contract Purchase--Distribution."
SEC: Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account B, an account where assets are
segregated from other assets of the Company. The Separate Account holds shares
of the Funds acquired as funding options under the Contracts.
UNDERWRITER: The registered broker-dealer which contracts with other
registered broker-dealers to offer and sell the Contracts. The Company will
serve as Underwriter.
VALUATION PERIOD: The period of time for which a Fund determines its net asset
value, usually from 4:15 p.m. Eastern time each day the New York Stock
Exchange is open until 4:15 p.m. the next such business day, or such other day
that one or more of the Funds determines its net asset value.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of the
state of Connecticut to measure voting rights during the Annuity Period. It
also measures the value of a commutation right under the "Payments For a
Stated Period of Time" Annuity Option when elected on a variable basis.
VARIABLE ANNUITY CONTRACT: An annuity contract providing for the accumulation
of values and/or for Annuity payments, which vary in amount based on
investment results.
5
PROSPECTUS SUMMARY
CONTRACTS
The Contracts described in this Prospectus are designed to provide retirement
benefits. The Contracts described in this prospectus are group variable
deferred annuity contracts under which accounts are established for persons in
the group. Individual variable deferred annuity contracts will be issued where
required in certain states. Persons participating under a group contract and
individuals acquiring individual contracts are all referred to as "Certificate
Holders."
The Contracts allow for one or more Purchase Payments to be made. The minimum
initial Purchase Payment is $1,500 and additional Purchase Payments must be at
least $500 or, if paid by automatic check plan, $50 per month. See "Contract
Purchase--How to Purchase."
Joint Certificate Holders are allowed, except for Contracts acquired by
individuals for purposes of establishing an Individual Retirement Annuity under
Sections 408(a) or 408(b) of the Code. A joint Certificate Holder must be the
spouse of the other joint Certificate Holder (unless otherwise prohibited by
state law). See "Contract Purchase--How to Purchase--Joint Certificate
Holders."
A Contract is issued to a group Contract Holder once we receive a completed
master application form. An account is established for an individual under the
Group Contract by completing an enrollment form and any other required forms
and forwarding them with the Purchase Payment to the Registered Representative
or the Underwriter. Upon acceptance, a Certificate is issued for each account
under the group Contract. In those states where an individual Contract is
offered, an individual applies for a Contract by completing an individual
Contract application and submitting it with the Purchase Payment to his or her
Registered Representative or the Underwriter.
WITHDRAWAL
A Certificate Holder may redeem all or a portion of his or her Certificate
Holder's Account Value during the Accumulation Period by completing the
Company's withdrawal request form. The maximum deferred sales charge that could
be assessed on a full or partial withdrawal is 7% of each Net Purchase Payment.
In no event may aggregate charges for deferred sales charges assessed against a
Certificate Holder exceed 8.5% of the Certificate Holder's aggregate Purchase
Payments. Amounts withdrawn from the GP Guaranteed Account may be subject to a
market value adjustment. See "Charges and Deductions--Deferred Sales Charge"
and the Appendix. A 10% federal penalty tax may also be imposed on the taxable
portion withdrawn. See "Tax Status."
GUARANTEED DEATH BENEFIT
The Contracts contain a death benefit feature. Upon the death of the
Certificate Holder, and subject to certain conditions, the Certificate Holder's
Account Value may be increased. If the Certificate Holder is a non-natural
person, the death benefit is paid upon the death of the Annuitant. See "Death
Benefits."
CONTRACT CHARGES
Certain charges are associated with these Contracts, for example, deferred
sales charges, mortality and expense risk charges, administrative charges, fund
expenses, transfer charges, maintenance charges and premium taxes. See "Charges
and Deductions."
6
SEPARATE ACCOUNT
Variable Annuity Account B is a separate account established by the Company and
registered as a unit investment trust under the 1940 Act. The Company holds
title to the assets held in the Separate Account. The assets of the Separate
Account shall not be charged with other Company liabilities. Separate Account
assets attributable to the Contract are invested in shares of one or more of
the Funds. See "The Company," "Variable Annuity Account B" and "The Funds."
FREE LOOK PROVISION
The Certificate Holder may cancel his or her interest in the Contract within
ten days after receiving the Certificate or Contract or as otherwise provided
by state law. Unless state law requires otherwise, the amount the Certificate
Holder will receive on cancellation under this provision may reflect the
investment performance of the Purchase Payments deposited in the Separate
Account while invested. In certain cases, this may be less than the amount of
the Purchase Payments. For Individual Retirement Annuities, the full Purchase
Payment will be refunded. See "Contract Rights--Right to Cancel."
7
FEE TABLE
(Based on the year ended December 31, 1994)
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CERTIFICATE HOLDERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT WILL BE BORNE, DIRECTLY OR INDIRECTLY,
UNDER THE CONTRACT. THE INFORMATION LISTED REFLECTS THE CHARGES DUE UNDER THE
CONTRACT AS WELL AS THE FEES AND EXPENSES DEDUCTED FROM THE FUNDS. ADDITIONAL
INFORMATION REGARDING THE CHARGES AND DEDUCTIONS ASSESSED UNDER THE CONTRACT
CAN BE FOUND UNDER "CHARGES AND DEDUCTIONS" IN THIS PROSPECTUS. CHARGES AND
EXPENSES SHOWN DO NOT TAKE INTO ACCOUNT PREMIUM TAXES THAT MAY BE APPLICABLE.
CERTIFICATE HOLDER TRANSACTION EXPENSES
---------------------------------------
Deferred Sales Charge (as a percentage of each Net Purchase Payment
deposited)/(1)/
YEARS FROM RECEIPT OF DEFERRED SALES
NET PURCHASE PAYMENT CHARGE/(2)/
Less than 1 year 7%
1 year or more but less than 2 6%
2 years or more but less than 3 5%
3 years or more but less than 4 4%
4 years or more but less than 5 3%
5 years or more but less than 6 2%
6 years or more but less than 7 1%
7 years or more 0%
Annual Maintenance Charge/(3)/ $30.00
Transfer Fee/(4)/ $ 0.00
SEPARATE ACCOUNT ANNUAL EXPENSES -- VARIABLE OPTION ONLY
--------------------------------------------------------
Deductions are made from the Separate Account during both the Accumulation
Period and the Annuity Period and are the daily equivalent of the annual
effective percentage shown in the following chart:
During the Accumulation Period: During the Annuity Period:
Administrative Charge 0.15% Administrative Charge(/5/) 0.00%
Mortality and Expense Risk Charge 1.25% Mortality and Expense Risk Charge 1.25%
----- -----
Total Separate Account Annual Total Separate Account Annual
Charges 1.40% Charges 1.25%
===== =====
--------
/(1)/ The total amount deducted for the deferred sales charge will not exceed
8.5% of the aggregate Purchase Payments made to the Certificate Holder's
Account. See "Charges and Deductions --Deferred Sales Charge," for a
description of the deferred sales charge and instances in which this
charge may be waived.
/(2)/ Reduced charges apply to Purchase Payments in excess of $1.5 million.
/(3)/ The maintenance charge is only charged during the Accumulation Period and
is waived when the Certificate Holder's Account is $50,000 or more on the
date the maintenance charge is due. A maintenance charge is also deducted
upon withdrawal of the Certificate Holder's entire Account Value. See
"Charges and Deductions -- Maintenance Charge."
/(4)/ The Company currently allows an unlimited number of transfers without
charge. However, we reserve the right to assess a fee of $10 for each
transfer in excess of 12 per year. See "Charges and Deductions -- Transfer
Charges."
/(5)/ The Company does not currently impose an administrative charge during the
Annuity Period. The Company does, however, reserve the right to deduct, on
a daily basis, a charge of not more than 0.25% per year from the Separate
Account during such period. See "Charges and Deductions -- Administrative
Charge."
8
MUTUAL FUND ANNUAL EXPENSES
(As a percentage of average net assets based on figures that are estimated):
INVESTMENT ADVISORY TOTAL MUTUAL FUND
FEE/(1)/ OTHER EXPENSES ANNUAL EXPENSES
(AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
REIMBURSEMENT)/(2)/ REIMBURSEMENT)/(2)/ REIMBURSEMENT)/(2)/
------------------- ------------------- -------------------
Equity Growth and Income Fund 0.37% 0.48% 0.85%
Utility Fund 0.40% 0.45% 0.85%
Prime Money Fund 0.00% 0.80% 0.80%
U.S. Government Bond Fund 0.29% 0.51% 0.80%
Corporate Bond Fund 0.29% 0.51% 0.80%
International Stock Fund/(2)/ 0.52% 0.73% 1.25%
--------
/(1)/ The Adviser has agreed to reimburse the Company for certain costs incurred
in connection with administering the Funds, by payment of an amount based
on assets in the Funds attributable to the Contracts. These amounts are
not charged to the Funds or Certificate Holders, but are paid from other
assets of the Adviser.
/(2)/ The Fund's Adviser has agreed to waive all or a portion of its advisory
fee so that the total annual expenses for the Equity Growth and Income
Fund and the Utility Fund would not exceed 0.85% of average net assets,
total annual expenses for the Prime Money Fund, the U.S. Government Bond
Fund and the Corporate Bond Fund would not exceed 0.80% of average net
assets and total annual expenses for the International Stock Fund would
not exceed 1.00% of average net assets. Without this reimbursement, the
maximum advisory fees and the maximum total annual expenses for the Funds,
respectively, would have been 0.75% and 1.23% for the Equity Growth and
Income Fund, 0.75% and 1.20% for the Utility Fund, 0.50% and 1.30% for the
Prime Money Fund, 0.60% and 1.11% for the U.S. Government Fund and 0.60%
and 1.11% for the Corporate Bond Fund. The Adviser can terminate this
voluntary reimbursement of expenses at any time at its sole discretion.
/(3)/ The total operating expenses of the International Stock Fund are estimated
based on average expenses expected to be incurred during the period ending
December 31, 1995. During this period, expenses may be more or less than
those shown.
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 RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, the Certificate Holder would have paid
the following expenses on a $1,000 investment/(1)/:
For a complete withdrawal at If no withdrawal is made, or if
the end of the applicable time the Certificate Holder annuitizes:
period:
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Equity Growth and Income Fund $85 $115 $146 $264 $23 $72 $123 $264
Utility Fund $85 $115 $146 $264 $23 $72 $123 $264
Prime Money Fund $85 $114 $144 $259 $23 $71 $121 $259
U.S. Government Bond Fund $85 $114 $144 $259 $23 $71 $121 $259
Corporate Bond Fund $85 $114 $144 $259 $23 $71 $121 $259
International Stock Fund $89 $154 $193 $331 $27 $111 $170 $331
--------
/(1)/ The illustration reflects the $30.00 annual maintenance charge as an
annual charge of 0.058% of assets.
9
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR THE YEAR OR PERIOD
ENDED DECEMBER 31, 1994 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, 1994, AND THE INDEPENDENT AUDITORS' REPORT THEREON,
ARE INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION.
1994
-------------
IMS EQUITY GROWTH AND INCOME FUND
Value at beginning of period $10.000
Value at end of period $ 9.838
Increase (decrease) in value of accumulation units/(1)/ (1.62)%/(2)/
Number of accumulation units outstanding at end of period 188,708
IMS UTILITY FUND
Value at beginning of period $10.000
Value at end of period $ 9.881
Increase (decrease) in value of accumulation units/(1)/ (1.19)%/(2)/
Number of accumulation units outstanding at end of period 41,191
IMS U.S. GOVERNMENT BOND FUND
Value at beginning of period $10.000
Value at end of period $10.073
Increase (decrease) in value of accumulation units/(1)/ 0.73%/(2)/
Number of accumulation units outstanding at end of period 12,714
IMS CORPORATE BOND FUND
Value at beginning of period $10.000
Value at end of period $ 9.814
Increase (decrease) in value of accumulation units/(1)/ (1.86)%/(2)/
Number of accumulation units outstanding at end of period 31,309
/(1)/ The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charge or the fixed dollar
annual maintenance fee, if any. Inclusion of these charges would reduce
the investment results shown.
/(2)/ Reflects less than a full year of performance activity. Funds were first
received in this option during September 1994.
10
PERFORMANCE DATA
From time to time, the Company may advertise different types of historical
performance for the variable funding options of the Separate Account available
under the Contracts described in this Prospectus. The Company may advertise the
"standardized average annual total returns" of the variable funding options,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
return." Both methods are described below. Further information is contained in
the SAI.
"Standardized average annual total returns" are computed according to a formula
in which a hypothetical investment of $1,000 is applied to the variable funding
options under the Contract and then related to the ending redeemable values
over the most recent one, five and ten-year periods (or fractional periods
thereof). Standardized returns will reflect the deduction of all recurring
charges during each period (e.g., mortality and expense risk charges, the
annual maintenance fee, any administrative charge and any applicable deferred
sales charge).
"Non-standardized return" will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also
included a three-year period.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Funds to established market indexes
such as the Standard & Poor's Composite 500 Stock Price Index and the Dow Jones
Industrial Average or to the change in values of other management investment
companies that have investment objectives similar to the Fund being compared.
The Company may publish in advertisements and reports to Certificate Holders
the ratings and other information assigned to us by one or more independent
rating organizations such as A.M. Best Company, Duff & Phelps, Standard &
Poor's Corporation and Moody's Investors Service, Inc. The purpose of the
ratings is to reflect the Company's financial strength and/or claims-paying
ability. We may also quote ranking services, such as Morningstar's Variable
Annuity/Life Performance Report and Lipper's Variable Insurance Products
Performance Analysis Service (VIPPAS) which rank variable annuity or life
subaccounts 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 (R) Report.
11
THE COMPANY
Aetna Life Insurance and Annuity Company, the depositor for Variable Annuity
Account B, is a stock life insurance company organized in 1976 under the laws
of the State of Connecticut. As of December 31, 1994, the Company managed over
$19.9 billion of assets. The Company is a wholly-owned subsidiary of Aetna
Life and Casualty Company which, with its subsidiaries, constitutes one of the
nation's largest diversified financial services organizations. The Company's
Home Office is located at 151 Farmington Avenue, Hartford, Connecticut 06156.
VARIABLE ANNUITY ACCOUNT B
Variable Annuity Account B is a separate account established by the Company in
1976 under the insurance laws of the State of Connecticut. The Separate
Account was formed the purpose of segregating assets attributable to the
variable portions of Contracts from other assets of the Company. The Separate
Account is registered as a unit investment trust under the 1940 Act, and meets
the definition of "separate account" under federal securities laws.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities arising out of any other business
that the Company may conduct. Income, gains or losses of the Separate Account,
realized or unrealized, are credited to or charged against the assets of the
Separate Account, without regard to other income, gains or losses of the
Company. All obligations of the Company arising under the Contracts are
general corporate obligations of the Company.
THE FUNDS
GENERAL
Certificate Holders can choose one or more of the Funds of the Insurance
Management Series (the "Trust") as variable funding options under the
Contract. The Trust is an open-end investment management company established
under the laws of the Commonwealth of Massachusetts under a Declaration of
Trust dated September 15, 1993. The Trust was formed as a series trust to
provide funding options for variable life insurance policies and Variable
Annuity Contracts. The Trust includes the following six separate investment
portfolios (individually referred to as a "Fund" or collectively as the
"Funds"), each having distinct investment objectives and policies:
EQUITY GROWTH AND INCOME FUND. The primary investment objective of the Fund is
to achieve long-term growth of capital. The Fund's secondary objective is to
provide income. The Fund pursues its investment objectives by investing, under
normal circumstances, at least 65% of its total assets in common stock of
"blue-chip" companies. "Blue-chip" companies generally are top-quality,
established growth companies that, in the opinion of the Adviser, meet certain
criteria.
UTILITY FUND. The investment objective of the Fund is to achieve high current
income and moderate capital appreciation by investing primarily in a
professionally managed and diversified portfolio of equity and debt securities
of utility companies. Under normal market conditions, the Fund will invest at
least 65% of its total assets in securities of utility companies.
PRIME MONEY FUND. The investment objective of the Fund is to provide current
income consistent with stability of principal and liquidity. The Fund pursues
its investment objective by investing exclusively in a portfolio of money
market instruments maturing in 397 days or less. The average maturity of the
money market instruments in the Fund's portfolio, computed on a dollar-
weighted basis, will be 90 days or less. An investment in this Fund is neither
insured nor guaranteed by the U.S. government.
U.S. GOVERNMENT BOND FUND. The investment objective of the Fund is to provide
current income. The Fund invests only in securities which are primary or
direct obligations of the U.S. government or its
12
agencies or instrumentalities or which are guaranteed by the U.S. government,
its agencies or instrumentalities and in certain collateralized mortgage
obligations and repurchase agreements.
CORPORATE BOND FUND. The investment objective of the Fund is to seek high
current income by investing primarily in a diversified portfolio of
professionally managed fixed income securities. The fixed-income securities in
which the Fund intends to invest are lower-rated corporate debt obligations.
Lower-rated corporate debt obligations are commonly known as "junk bonds" or
"High Yield, High Risk Bonds" and involve a significant degree of risk (see
the Trust's prospectus for a discussion of the risk factors involved in
investing in lower-rated corporate debt obligations). Some of the fixed income
securities may involve equity features. Capital growth will be considered, but
only when consistent with the investment objective of high current income.
INTERNATIONAL STOCK FUND The investment objective of the Fund is to seek a
total return on its assets by investing at least 65% of its assets (and under
normal market conditions, substantially all of its assets) in equity
securities of issuers located in at least three different countries outside of
the United States. Investing in non-U.S. securities carries substantial risks
in addition to those associated with domestic investments. In an attempt to
reduce some of these risks, the Fund diversifies its investments broadly among
foreign countries, including both developed and developing countries. At least
three countries will always be represented. Other risks may also be
attributable to investments in developing countries due to less mature
economies and less stable political systems. Investors should consult the
Fund's prospectus for a discussion of these risks before investing.
There is no assurance that the Funds will achieve their investment objectives.
Certificate Holders bear the complete investment risk of investments in the
Funds attributable to their Account.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses.
The use of certain derivatives such as inverse floaters and principal only
debt instruments may involved higher risk of volatility to a Fund. The use of
leverage in connection with derivatives can also increase risk of losses. See
the prospectus for the Funds for a discussion of the risks associated with an
investment in those funds.
More comprehensive information, including a discussion of potential risks, is
found in the current prospectus for the Trust which is included with this
prospectus. Additional prospectuses and the Statement of Additional
Information can be obtained from your Registered Representative or by writing
to us at our Home Office, Attention Service Unit, or by calling us at 1-800-
531-4547.
MIXED AND SHARED FUNDING
Shares of the Funds are sold to us for allocation to our separate accounts
established for the purpose of funding variable annuity contracts and also for
purposes of funding variable life insurance contracts. This is referred to as
"mixed funding." They are also used for allocation to separate accounts of
insurance companies not affiliated with us for the same purpose (i.e., funding
variable annuity contracts and variable life insurance policies). This is
referred to as "shared funding."
It is conceivable that, in the future, it may be disadvantageous for variable
annuity separate accounts and variable life insurance separate accounts to
invest in these Funds simultaneously, since the interests of such policy
owners may differ. The Board of Trustees of the Trust has agreed to monitor
events in order to identify any material irreconcilable conflicts that may
possibly arise and to determine what action, if any, should be taken in
response thereto. If such a conflict were to occur, one of the separate
accounts might withdraw its investment in the Trust. This might force the
Trust to sell portfolio securities at disadvantageous prices.
THE ADVISER
The Trust is managed by Federated Advisers, a Delaware business trust
organized on April 11, 1989, with its principal place of business in
Pittsburgh, Pennsylvania. Federated Advisers is a registered investment
adviser under the Investment Advisers Act of 1940, as amended.
13
Prospective Certificate Holders should read the accompanying prospectus for the
Trust carefully before investing. The Funds' prospectus may be obtained from
your Registered Representative, a Distributor, or by calling 1-800-531-4547.
FUND ADDITIONS, LIMITATIONS AND SUBSTITUTIONS
We may, from time to time, add additional mutual funds as eligible variable
funding options under the Contracts. In such event, the Certificate Holder may
be permitted to select from these other funds, subject to any conditions that
may be imposed in connection with these options.
The Company's current policy is to allow all of the Funds noted above to be
used as investment options during the Annuity Period. However, the Company has
reserved the right to limit which Funds can be used as investment options
during the Annuity Period. Currently, a Certificate Holder may elect no more
than four funding options during the Annuity Period. See "Annuity Period
Elections."
If the shares of any Fund should no longer be available for investment by the
Separate Account or if in the judgment of the Company, further investment in
such shares should become inappropriate in view of the purpose of the Contract,
we may cease to make such Fund shares available for investment under the
Contract prospectively. The Company may, alternatively, substitute shares of
another Fund for shares already acquired. The Company reserves the right to
substitute shares of another Fund for shares already acquired without a proxy
vote. Any elimination, substitution or addition of Funds will be done in
accordance with applicable state and federal securities laws.
CONTRACT PURCHASE
HOW TO PURCHASE
GROUP CONTRACTS -- The person to which a group contract will be issued will
execute a master application and return it to the Underwriter. The master
application will then be delivered to the Company for its approval. Once the
application is approved, the Contract will be issued and the Contract Holder
will be entitled to exercise certain limited rights under the Contract. See
"Contract Rights." Under certain circumstances, the person who would otherwise
be the Contract Holder may designate a trustee or other third party to act as
Contract Holder in its place subject to applicable insurance laws. In that
event, the third party would exercise the Contract rights for the group
Contract.
Eligible individuals who want to purchase an interest in a Contract as part of
the group will fill out an enrollment form and return it with their initial
Purchase Payment to their Registered Representative or to the Underwriter for
delivery to the Company. Once the enrollment is accepted, a Certificate will be
issued to the individual evidencing his or her interest in the group Contract.
INDIVIDUAL CONTRACTS -- Certain states will not allow a group Contract to be
offered due to provisions in their insurance laws. In those states an
individual Contract will be issued directly to the individuals instead of a
Certificate. Individuals who want to purchase a Contract must fill out an
application and return it with their initial Purchase Payment to their
Registered Representative or to the Underwriter for delivery to the Company.
Once the application is accepted, an individual Contract will be issued to the
purchaser.
INDIVIDUAL RETIREMENT ANNUITIES -- The Contract has been approved by the
Internal Revenue Service as a prototype for an Individual Retirement Annuity
under Section 408(b) of the Code. Persons acquiring Contracts for Individual
Retirement Annuities may do so by transferring amounts previously accumulated
(rollover amounts) under another Individual Retirement Annuity, an Individual
Retirement Account (as defined by the Code), or a retirement plan qualified
under Section 401 or 403 of the Code or by making contributions. Once the
application is accepted and the initial amount is credited to the
14
Certificate Holder's Account, subsequent Purchase Payments may be made either
by contributions (subject to the requirements of the Code) or by rolling over
additional amounts from other appropriate plans. Certificate Holders making any
contributions to Individual Retirement Annuities are urged to consult with
their tax advisers to determine if the payments meet the conditions for
contributions under the Code. See "Tax Status."
CERTIFICATE HOLDERS -- The term "Certificate Holders," as used in this
Prospectus, includes individuals purchasing an interest in the Contract as part
of a group and individuals who acquire individual Contracts. Generally,
Certificate Holders must be natural persons. The maximum issue age for a
Certificate Holder is 90; however, tax laws or some state laws may limit
issuance to persons younger than 90.
JOINT CERTIFICATE HOLDERS -- Contracts may be purchased by spouses as joint
Certificate Holders. Tax laws prohibit the purchase as joint Certificate
Holders of Individual Retirement Annuities. See "Tax Status" and "Contract
Rights."
REJECTION -- Any application or enrollment form and Purchase Payment tendered
by a prospective Certificate Holder may be rejected for any reason by the
Company. The Company will also return any forms that are incomplete or that do
not include sufficient information to set up a Certificate Holder's Account,
unless the forms are completed within five business days from the date the
Company receives them, or unless the prospective Certificate Holder consents to
the forms being held for a longer period of time. Initial payments held for
longer than the five business days will be deposited in the Prime Money Fund
until the forms are completed. All forms that are rejected will be returned
with a refund of all Purchase Payments submitted with them.
MINIMUM PURCHASE PAYMENTS -- The minimum initial Purchase Payment is $1,500.
Additional Purchase Payments must be at least $500, or if made by automatic
check plan, $50 per month.
ADDITIONAL PURCHASE PAYMENTS -- Additional Purchase Payments may be made
subject to the terms and conditions published at the time the Purchase Payment
is tendered. The Company reserves the right to limit the total dollar amount it
will accept or to reject any Purchase Payment without advance notice. A
Purchase Payment of more than $500,000 will be allowed only with the Company's
express consent. Additional payments may be delivered to your Registered
Representative or sent directly to the Underwriter at the Company's Home
Office, Attention: Service Unit.
CREDITING OF PURCHASE PAYMENTS -- Once the application or enrollment form is
accepted, the initial Purchase Payment less any premium taxes required to be
deducted at that time, is credited to the Certificate Holder's Account. See
"Charges and Deductions--Premium Tax."
The Certificate Holder may elect to have each Net Purchase Payment accumulate
(a) on a variable basis by investing in shares of one or more of the Funds; (b)
under the GP Guaranteed Account; or (c) by a combination of (a) and (b). Net
Purchase Payments allocated to the Funds will be deposited in the Separate
Account. Net Purchase Payments must be allocated in terms of whole percentages.
Purchase Payments received after the initial payment will be allocated in the
same proportions as the last allocation, unless new allocation instructions are
received with the Purchase Payment.
DESIGNATIONS OF BENEFICIARY AND ANNUITANT
The Certificate Holder designates the Beneficiary and the Annuitant on the
enrollment or application form. For an Individual Retirement Annuity, the
Certificate Holder must be the Annuitant. For all other Contracts, the
Certificate Holder may, (but need not), select a different person as the
Annuitant. See "Contract Rights--Rights to the Contract and Account."
15
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Underwriter is registered as a broker-dealer with the SEC and
is a member of the NASD. As Underwriter, the Company will contract with one or
more registered broker-dealers ("Distributors") to offer and sell the
Contracts. The Underwriter and one or more affiliates may also sell the
Contracts directly. See "Charges and Deductions--Commissions and Distribution
Expenses."
Registered Representatives of the Distributor will offer and sell Contracts on
behalf of the Distributor. All Registered Representatives for the Distributors
will also be licensed as insurance agents to sell Variable Annuity Contracts.
Federated Securities Corp. ("FSC"), an affiliate of the Adviser, may enter
into agreements with some of the Distributors to provide services to customers
in connection with the Funds acquired through the Contracts. These services
will include providing customers with information concerning the Funds, their
investment objectives, policies and limitations; portfolio securities;
performance, responding to customer inquiries and providing such other
services as the parties may agree. Fees for these services may be based on the
total number of assets in the Funds attributable to the Distributors'
customers.
CERTIFICATE HOLDER'S ACCOUNT VALUE
ACCUMULATION UNITS
A Net Purchase Payment that is allocated to one or more of the Funds is
credited to the Certificate Holder's Account in the form of Accumulation Units
in the Separate Account. The number of Accumulation Units credited is
determined by dividing the applicable portion of the Net Purchase Payment by
that Contract's Accumulation Unit value of the appropriate Fund. The
Accumulation Unit value used is computed for the Valuation Period in which the
Purchase Payment and a completed application or enrollment form are received
at the Home Office and accepted by the Company. Accumulation Units will be
credited within two business days of the initial application. Subsequent
Purchase Payments, if any, will be credited at the Accumulation Unit value
next determined following receipt of the payment. Shares in the Funds are
purchased by the Separate Account at the net asset value next determined by
the Fund following receipt of Net Purchase Payments by the Separate Account,
which will be no later than one business day following the purchase of the
Accumulation Units attributable to the Funds. The value of Accumulation Units
attributable to the Funds will be affected by the investment performance,
expenses and charges of those Funds. Generally, if the net asset value of the
fund increases, so does the Accumulation Unit value; however, performance of
the Separate Account is reduced by charges and deductions under the Contract.
Accumulation Units are valued separately for each Fund. Therefore, if the
Certificate Holder elects to have a Net Purchase Payment invested in a
combination of Funds, the Certificate Holder will have Accumulation Units
credited from more than one source. The value of the Certificate Holder's
Account as of the most recent Valuation Period is determined by adding the
value of any Accumulation Units attributed to the Fund(s) to the value of any
amounts attributed to the GP Guaranteed Account.
NET INVESTMENT FACTOR
The value of an Accumulation Unit for any Valuation Period is calculated by
multiplying the Accumulation Unit value for the immediately preceding
Valuation Period by the net investment factor of the appropriate investment
option for the current period.
The net investment factor is calculated separately for each Fund in which
assets of the Separate Account are invested. It is determined by adding
1.0000000 to the net investment rate.
The net investment rate equals (a) the net assets of the Fund held by the
Separate Account at the end of a Valuation Period, minus (b) the net assets of
the Fund held by the Separate Account at the
16
beginning of a Valuation Period, plus or minus (c) taxes or provision for
taxes, if any, attributable to the operation of the Separate Account divided by
(d) the value of the Fund's Accumulation and Annuity Units held by the Separate
Account at the beginning of the Valuation Period, minus (e) a daily charge at
the annual effective rate of 1.25% for mortality and expense risks, and a daily
administrative expense charge at the annual effective rate of 0.15% during the
Accumulation Period and up to 0.25% during the Annuity Period. The net
investment rate may be more or less than zero percent (0%).
CONTRACT RIGHTS
RIGHT TO CANCEL
A Contract Holder may cancel the Contract no later than ten days after
receiving it from the Company by returning the Contract to the Company, or to
the person from whom the Contract was purchased, with a written notice of
cancellation. A Certificate Holder under a Group Contract may cancel his or her
interest in a Contract no later than ten days after receiving the Certificate
from the Company, by returning the Certificate to the Company with a written
notice of cancellation. Certain state laws provide a longer period of time to
exercise these cancellation rights. The Contract or Certificate will state the
period of time for which a right to cancel may be exercised. The Company we
will produce a refund not later than seven calendar days after we receive the
Contract or Certificate and the written notice of cancellation at our Home
Office. Unless applicable state law requires a refund of the Purchase Payments,
the Purchase Payments plus any increase or minus any decrease in the value
attributable to the Purchase Payments allocated to the variable option(s) will
be refunded. For Individual Retirement Annuities, the Purchase Payments will be
refunded.
RIGHTS TO THE CONTRACT AND ACCOUNT
The Contract Holder has title to the Contract and has the right to accept or
reject any modifications to the Contract. For group Contracts, this is the only
right the Contract Holder has. All other rights, specifically those relating to
the Certificate Holder's Account under the Contract, are held by the
Certificate Holder. Certificate Holders' rights are subject to rights of any
assignee under an assignment filed with the Company and to the rights of any
irrevocably named beneficiary.
JOINT CERTIFICATE HOLDERS
Two individuals may have an interest in the same Certificate Holder's Account
as Joint Certificate Holders. See "Contract Purchase--How to Purchase--Joint
Certificate Holders." Joint Certificate Holders have equal rights under the
Contract and with respect to their Certificate Holder's Account. On the death
of a Joint Certificate Holder prior to the Annuity Date, the surviving
Certificate Holder may retain all ownership rights under the Contract or elect
to have the proceeds distributed. See "Death Benefits." All rights under the
Contract must be exercised by both Joint Certificate Holders except, at the
Company's discretion, one Joint Certificate Holder can elect investment options
after the account has been established.
TRANSFERS AMONG INVESTMENT OPTIONS
The Company currently allows unlimited transfers of accumulated amounts to
available investment options during the Accumulation Period; however, it
reserves the right to charge if more than 12 transfers are made in a calendar
year. See "Charges and Deductions--Transfer Charges." The Company reserves the
right to establish a minimum transfer amount. Unless the transfer is made from
the one-year term in connection with the Dollar Cost Averaging Program (where
regulatory approval has been received), transfers from the GP Guaranteed
Account will be subject to a market value adjustment, if applicable. (See
"Dollar Cost Averaging Program" below, as well as the Appendix and the
prospectus for the GP Guaranteed Account.) Any transfer will be based on the
Accumulation Unit value next determined after the Company receives a valid
request at its Home Office. During the Annuity Period, transfers are not
available.
17
DOLLAR COST AVERAGING PROGRAM
Dollar Cost Averaging is a system for investing a fixed amount of money at
regular intervals over a period of time. It is based on the economic fact that
buying a variably priced item with a constant sum of money at fixed intervals
affords the buyer the opportunity to automatically buy more of that item when
prices are low and less of it when prices are high, thus reducing the average
cost per item. Dollar Cost Averaging does not ensure a profit nor guarantee
against loss in a declining market. Certificate Holders should consider their
financial ability to continue purchases through periods of low price levels.
The Dollar Cost Averaging Program permits Certificate Holders to
systematically transfer amounts from any of the variable funding options and
the one-year Guaranteed Account Term, to any of the variable investment
options. Where state regulatory approval has been received, a market value
adjustment will not be applied to Dollar Cost Averaging transfers from the
one-year Guaranteed Account Term. Consult your representative to determine
whether the waiver is approved in your state. (See the Appendix for a
discussion of the restrictions and features attributable to the GP Guaranteed
Account.)
You must have an Account Value of at least $5,000 to participate in the Dollar
Cost Averaging Program. The minimum amount that may be transferred into a
particular variable funding option is $50. DCA can be elected at any time
during the Accumulation Period by completing the DCA section of the
application or by completing a DCA Election Form available from the Company at
its Home Office. All DCA transfers will be made on the 15th of each month (or
the next Valuation Period, if applicable). Any transfer made under the DCA
program will not affect any transfer limitations imposed under the Contract. A
Certificate Holder may terminate the Dollar Cost Averaging program at any
time. The Company reserves the right to modify or terminate the DCA program at
any time.
Dollar Cost Averaging is not available to individuals who have elected the
Systematic Withdrawal Option or the Account Rebalancing Program (described
below).
ACCOUNT REBALANCING PROGRAM
The Account Rebalancing Program allows Certificate Holders to have portions of
their Account automatically reallocated annually to a specified percentage.
Only those Purchase Payments accumulating in the variable funding options can
be rebalanced. Certificate Holders may participate in this program by
completing the Account Rebalancing Section of the Contract Application, or by
requesting the service in writing from the Company's Home Office.
Account Rebalancing is not available to Certificate Holders who have elected
the Dollar Cost Averaging Program.
Account Rebalancing does not ensure a profit nor guarantee against loss in a
declining market.
WITHDRAWALS
The Certificate Holder may withdraw all or a portion of his or her Certificate
Holder's Account during the Accumulation Period by properly completing a
withdrawal request form provided by us and sending it to our Home Office. The
following types of withdrawals may be requested:
. Full Withdrawal: The Adjusted Account Value minus any applicable deferred
sales charge and maintenance fee.
. Partial Withdrawal (Percentage): The percentage of the Adjusted Account
Value requested minus any applicable deferred sales charge.
. Partial Withdrawal (Specified Dollar Amount): The dollar amount
requested. However, the amount withdrawn from the Certificate Holder's
Account Value will equal the dollar amount requested plus any applicable
deferred sales charge, plus or minus any applicable market value
adjustment.
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The Company will pay all amounts based on the Certificate Holder's Account
Value next computed after the request is received in the Home Office or at a
later date, if specified. For any partial withdrawal, if instructions from the
Certificate Holder are not provided, amounts are withdrawn on a pro rata basis
from the Certificate Holder's interests in the Fund(s) and the GP Guaranteed
Account. See the Appendix for the treatment of amounts withdrawn from the GP
Guaranteed Account and see "Charges and Deductions--Deferred Sales Charge" for
information regarding deferred sales charges. Amounts withdrawn may be subject
to income taxes or withholding for taxes. See "Tax Status--Tax Treatment of
Withdrawals."
The Company reserves the right to close out, upon 90 days written notice, any
Certificate Holder's Account which has a value of $1,500 or less immediately
following a partial withdrawal; provided an Individual Retirement Annuity may
only be closed out when Purchase Payments have not been received for a 24-
month period and the paid-up annuity benefit at maturity would be less than
$20 per month. If the Company closes out a Certificate Holder's Account, no
deferred sales charge will be deducted. The Company does not intend to
exercise this right in cases where the Certificate Holder's Account Value is
reduced to $1,500 or less solely due to investment performance.
The Company's policy is to make payments for withdrawal requests, subject to
SEC requirements, within seven calendar days after receipt of a properly
completed withdrawal request form in its Home Office or within seven calendar
days of the date the withdrawal request may specify. Payments may be delayed
for: (a) any period in which the New York Stock Exchange ("Exchange") is
closed (other than customary weekend and holiday closings) or in which trading
on the Exchange is restricted; (b) any period in which an emergency exists
where disposal of securities held by the Funds is not reasonably practicable
or it is not reasonably practicable for the value of the assets of the Funds
to be fairly determined; or (c) such other periods as the SEC by order may
permit for the protection of Certificate Holders. The conditions under which
restricted trading or an emergency exists will be determined by the rules and
regulations of the SEC.
If a Certificate Holder has an account under more than one Contract issued
within a calendar year by the Company or its affiliates, all accounts may have
to be aggregated in determining the tax consequences of any amounts
distributed to the Certificate Holder. See "Tax Status -- Multiple Contracts."
The Company reserves the right to defer payment of amounts requested to be
withdrawn or transferred from the GP Guaranteed Account for up to six months
from the time a written request is received by the Company.
CHARGES AND DEDUCTIONS
This section describes the maximum charges that may be deducted for
maintenance fees, administrative expenses, sales-related expenses and transfer
charges. A description of mortality and expense risk charges and Fund expenses
is also included.
MAINTENANCE CHARGE
We will deduct an annual maintenance charge of $30 from the Certificate
Holder's Account Value during the Accumulation Period. This charge is to
reimburse us for administrative expenses relating to the establishment and
maintenance of the Certificate Holder's Account. We will deduct the charge on
the anniversary of the Effective Date (or the next valuation date, if the
anniversary is not a valuation date). The charge is also deducted upon
withdrawal of the entire Certificate Holder's Account. The fee is deducted
proportionately from each investment option used, including the GP Guaranteed
Account.
We will not deduct a maintenance charge when the Certificate Holder's Account
is $50,000 or more on the day the maintenance charge is due.
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MORTALITY AND EXPENSE RISK CHARGE
We make a daily deduction from the Separate Account for mortality and expense
risks (insurance charges). The deduction, equal to the annual effective rate of
1.25% per year, is made as part of the calculation of Accumulation and Annuity
Unit value(s).
The mortality risk charge is to compensate us for the risks we assume (a) for
the death benefit and (b) when we promise to continue making lifetime payments
according to annuity rates specified in our Contract. The expense risk charge
is to compensate us for the risk that actual expenses for costs incurred under
the Contract will exceed the maximum costs that can be charged under the
Contract. We hope to profit from the daily deduction for mortality and expense
risks. Any such profit, as well as any other profit realized by us and held in
our General Account (that supports insurance and annuity obligations), would be
available for any proper corporate purpose, including, but not limited to,
payment of sales and distribution expenses.
ADMINISTRATIVE CHARGE
During the Accumulation Period, we deduct a daily charge of 0.15% per year from
the Separate Account. This charge is to reimburse us for expenses we incur in
administering the Contract. Since the administrative charge is a percentage of
the Separate Account there may be no relationship between the amount so
deducted and the amount of expenses attributable to a Certificate Holder's
Account. We do not profit from this charge.
An administrative charge will also be established for the Annuity Period
equivalent to the charge in effect on the valuation date when annuitization
begins. This charge will not exceed 0.25% per year, deducted on a daily basis
from any variable portion of the benefit payments; however, through April 30,
1996, this charge is guaranteed to be zero percent (0%). Once an Annuity Option
is elected and an administrative charge is established, we will not change the
charge.
TRANSFER CHARGES
For each Certificate Holder's Account, unlimited transfers are allowed during
the Accumulation Period. Twelve free transfers are allowed per calendar year
without charge. Thereafter, the Company reserves the right to charge up to $10
for each additional transfer. If the charge is assessed, it will be deducted
from the Certificate Holder's Account Value. During the Annuity Period,
transfers are not available.
DEFERRED SALES CHARGE
The Certificate Holder may withdraw the Adjusted Account Value at any time;
however, if all or any portion of the Adjusted Account Value is withdrawn
during the Accumulation Period, a deferred sales charge may be deducted so that
the Company may recover sales expenses.
A deferred sales charge only applies to the portion of a Certificate Holder's
Account Value that represents Net Purchase Payments (not to any associated
changes in value), and gradually decreases so that seven years after the date
of receipt of a Net Purchase Payment, the charge associated with that payment
is $0. To satisfy a partial withdrawal, amounts are withdrawn proportionately
from each investment option elected, including the GP Guaranteed Account. For
the purpose of determining deferred sales charges, amounts are treated as
withdrawn first from the values attributable to Net Purchase Payments in the
order in which they were received. All amounts attributable to Net Purchase
Payments are withdrawn before amounts attributable to increases in value. The
deferred sales charge attributable to each Net Purchase Payment is determined
by multiplying the Net Purchase Payment withdrawn by the appropriate
percentage, depending on the number of years completed since the Net Purchase
Payment was received as shown in the table below. The total charge will be the
sum of the charges applicable for all of the Net Purchase Payments withdrawn.
In no event may the aggregate
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deferred sales charges assessed against a Certificate Holder's Account exceed
8.5% of the Certificate Holder's aggregate Purchase Payments. Reduced charges
apply to Purchase Payments in excess of $1.5 million.
YEARS FROM RECEIPT OF DEFERRED
NET PURCHASE PAYMENT SALES CHARGE
--------------------- ------------
Less than 1 year 7%
1 year or more but less than 2 6%
2 years or more but less than 3 5%
3 years or more but less than 4 4%
4 years or more but less than 5 3%
5 years or more but less than 6 2%
6 years or more but less than 7 1%
7 years or more 0%
We will not deduct a deferred sales charge from any Net Purchase Payment that
is:
(a) paid to a Beneficiary as a death benefit, except for Purchase Payments
made by a surviving joint Certificate Holder after the Company has
received at its Home Office due proof of the death of the first joint
Certificate Holder, where the surviving joint Certificate Holder elects
to continue the Certificate Holder's Account in his or her own name;
(b) paid as premium for an Annuity Option;
(c) withdrawn due to the election of the Systematic Withdrawal Option or
Estate Conservation Option. (See "Additional Withdrawal Options");
(d) paid due to the full withdrawal of a Certificate Holder's Account for
which the value is $1,500 or less and no withdrawals have been made in
the prior 12 months;
(e) paid at least 12 months after the date of the first Purchase Payment to
the Certificate Holder's Account in an amount equal to or less than 15%
of the Certificate Holder's Account Value. This applies to the first
withdrawal request, partial or full, in a calendar year. The
Certificate Holder's Account Value is calculated as of the date the
withdrawal request is received in good order at our Home Office. If a
withdrawal is made that exceeds 15%, the applicable deferred sales
charge on the amount over 15% will be deducted from the Certificate
Holder's Account. See "Withdrawals." This provision may not be
exercised if SWO is elected; or
(f) paid if we close out a Certificate Holder's Account when the value is
less than $1,500. (See "Contract Rights--Withdrawals.")
In some states, the Contract has been endorsed to provide that the deferred
sales charge will not be deducted when Net Purchase Payments are withdrawn
after the Certificate Holder has spent at least 45 consecutive days in a
licensed nursing care facility (in New Hampshire only, the facility does not
have to be licensed). The withdrawal must be made after the first year
anniversary of the Effective Date and must be requested within three (3) years
of admission to a licensed nursing care facility. This waiver does not apply if
the Certificate Holder is in a licensed nursing care facility at the time the
Certificate Holder's Account is established.
In the instances cited above, no deferred sales charge is deducted. However,
the amount withdrawn may be subject to a 10% federal penalty tax. See "Tax
Status." A market value adjustment may also apply to amounts withdrawn from the
GP Guaranteed Account in instances other than withdrawals from the one-year
term in connection with the Dollar Cost Averaging Program.
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Based on our actuarial determination, we do not anticipate that the deferred
sales charge will cover all sales and administrative expenses that we will
incur in connection with the Contract. The balance will be paid from the
Company's other profits and from its reimbursements for mortality and expense
risks.
FUND EXPENSES
Pursuant to an investment advisory contract with the Funds, the Adviser is
entitled to receive an annual investment advisory fee equal to 0.75% of the
average daily net assets for the Equity Growth and Income Fund and Utility
Fund, 0.60% of the average daily net assets for the U.S. Government Bond Fund
and Corporate Bond Funds, 0.50% of the average daily net assets of the Prime
Money Fund, and 0.52% of the average daily net assets of the International
Stock Fund. The Adviser has agreed to waive a portion of its advisory fees for
the Funds so that total annual expenses for the Equity Growth and Income Fund
and the Utility Fund would not exceed 0.85% of average net assets, total
annual expenses for the Prime Money Fund, the U.S. Government Bond Fund, and
the Corporate Bond Fund would not exceed 0.80% of average net assets, and
total annual expenses of the International Stock Fund would not exceed 1.00%.
The Adviser can terminate this voluntary reimbursement of expenses at any time
at its sole discretion.
For further details on each Fund's expenses, prospective Certificate Holders
should read the accompanying prospectus for the Trust and refer to the Fee
Table in this Prospectus.
PREMIUM TAX
Several states and municipalities impose a premium tax on Purchase Payments
either when made or when an Annuity Option is elected. Currently such taxes
range up to 4%. Ordinarily, any state premium tax will be deducted from the
Certificate Holder's Account Value when it is applied to an Annuity Option.
However, we reserve the right to deduct the state premium tax at any time from
the Purchase Payment(s) or from the Certificate Holder's Account.
Any municipal premium tax assessed at a rate in excess of 1% will be deducted
from the Purchase Payments or from the amount applied to an Annuity Option
based on our determination of when such tax is due. We will absorb any
municipal premium tax which is assessed at 1% or less. We reserve the right,
however, to reflect this added expense in our Annuity purchase rates for
residents of such municipalities.
COMMISSIONS AND DISTRIBUTION EXPENSES
Commissions will be paid to broker-dealers who sell the Contracts. Broker-
dealers will be paid commissions, up to an amount currently equal to 6.5% of
Purchase Payments for promotional or distribution expenses associated with the
marketing of the Contracts.
Other than the mortality and expense risk charge, the administrative charge
and the reimbursements by Federated Advisers for administrative charges, all
expenses incurred in the operations of the Separate Account are borne by the
Company.
ADDITIONAL WITHDRAWAL OPTIONS
GENERAL
The Company offers two withdrawal options that are not considered Annuity
options--the Estate Conservation Option ("ECO"), which is available only for
Individual Retirement Annuity Contracts, and the Systematic Withdrawal Option
("SWO"). These options may be withdrawn at any time by the Company and are
subject to any state law or tax law that may affect their availability. These
options are available to Certificate Holders whose Certificate Holder's
Account Value is equal to at least $25,000 at
22
the time of election and are available at certain ages as described below. (The
Company reserves the right to change the Minimum Account Value required.) Under
SWO, the Certificate Holder receives a series of partial withdrawals from the
account based on the payment method selected. It is designed for those who want
a periodic income while retaining investment flexibility for amounts
accumulating under the Contract. ECO offers the same investment flexibility as
SWO, but is designed for those who want to receive only the minimum
distribution that the Code requires each year. Under ECO, the Company
calculates the minimum distribution amount required by law and pays that amount
once a year.
No deferred sales charge will be assessed on amounts distributed under an ECO
or SWO election. Additionally, where state regulatory approval has been
received, no market value adjustment will be applied to amounts distributed
under an ECO or SWO election. (See your representative to determine whether the
waiver is approved in your state.) As these options are not annuity options,
the Annuity Date is not reached and the Certificate Holder's Account is still
in the Accumulation Period. All the rights and obligations relating to the
Accumulation Period remain in effect with respect to the Certificate Holder's
Account, including fees and charges.
Amounts required to meet either a SWO or ECO payment will be obtained by
liquidating Accumulation Units attributable to the Funds allocable to the
Certificate Holder's Account and liquidating amounts from the Certificate
Holder's GP Guaranteed Account. Amounts will be withdrawn pro rata from each
funding option currently attributable to the Certificate Holder's Account. See
the Appendix for the treatment of withdrawals from the GP Guaranteed Account.
Once elected, the applicable option(s) may be revoked by the Certificate Holder
at any time, by submitting a written request to our Home Office. Any revocation
will apply only to the amounts not yet paid. Once ECO or SWO is revoked, it may
not be elected again. The Company reserves the right to change the terms of
these options for future elections and discontinue the availability of these
options.
SWO is different from ECO in the following ways: (1) SWO payments are made for
a fixed dollar amount, fixed time period or fixed percentage whereas ECO
payments vary in dollar amount and can continue indefinitely during your
lifetime; and (2) generally, SWO payments will be higher than expected ECO
payments. ECO is available only for amounts in an Individual Retirement Annuity
Contract whereas SWO payments are available under both Individual Retirement
Annuity Contracts and nonqualified deferred annuity contracts. You should
carefully assess your future income needs when considering the election of
these withdrawal options.
You should consult your tax adviser prior to electing ECO or SWO due to the
potential for adverse tax consequences.
For a discussion of certain provisions that will apply if the Certificate
Holder or the Beneficiary dies after SWO or ECO has been elected, see "Death
Benefits."
ESTATE CONSERVATION OPTION
The first distribution may not be made before the calendar year in which the
Certificate Holder attains age 70 1/2. ECO is available only for amounts in an
Individual Retirement Annuity Contract.
We will calculate and distribute an annual amount using the method contained in
the Code's minimum distribution regulations. The annual distribution is
determined by dividing the Certificate Holder's Account Value as of December 31
of the year prior to the year of payment by a life expectancy factor from
tables designated by the Code. The factor will be based on either the
Certificate Holder's life expectancy or the joint life expectancies of the
Certificate Holder and his or her designated beneficiary. If ECO is based on
the Certificate Holder's life expectancy, the full Certificate Holder's Account
Value must be distributed in the year following the Certificate Holder's death
as required by current Internal Revenue Service regulations. This calculation
will be changed, if necessary, to conform to changes in the Code or applicable
regulations.
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SYSTEMATIC WITHDRAWAL OPTION
SWO payments are available on a monthly, quarterly, semiannual, or annual
basis. The Certificate Holder specifies the initial distribution date.
Subsequent distributions will be made on such date as we may designate or
allow.
A Certificate Holder may elect one of the following methods of distribution:
(1) Specified Payment: Payments of a designated dollar amount. The annual
amount may not be greater than 10% of the Certificate Holder's Account
Value at time of the election. This annual dollar amount will remain
constant. At our discretion, we may require a minimum payment amount;
or
(2) Specified Period: Payments which are made over a period of time which
must be at least 10 years. The annual amount paid each year is
calculated by dividing the Certificate Holder's Account Value as of
December 31 of the prior year by the number of payment years remaining;
or
(3) Specified Percentage: Payment of a designated percentage which cannot
be greater than 10% of the Certificate Holder's Account Value at the
time of election. The percentage chosen may be changed by written
request. We reserve the right to limit the number of times the
percentage may be changed. The annual amount is calculated by
multiplying the Certificate Holder's Account Value as of December 31 of
the year prior to the payment by the designated percentage.
Note: For an Individual Retirement Annuity, the annual minimum SWO
distribution, or maximum SWO time period, as the Certificate Holder directs,
will be determined by a life expectancy factor from tables designated by the
Code. Under both the Specified Payment and Specified Period methods, a higher
amount will be paid in any year, if required under the Code's minimum
distribution rules. Life expectancy factors will be reduced by one for each
distribution year.
ANNUITY PERIOD
ANNUITY PERIOD ELECTIONS
The Certificate Holder must notify the Company in writing of the Annuity Date
and Annuity Option elected. Until a date and option are elected, the
Certificate Holder's Account will remain in the Accumulation Period. Once an
Annuity Option is elected, it cannot be changed. The Certificate Holder elects
the Annuity Date. Current underwriting rules require that payment must begin no
later than the later of the Annuitant's 90th birthday or the tenth anniversary
of the last Purchase Payment. As required by the Code, distributions from an
Individual Retirement Annuity must begin no later than April 1 of the calendar
year after the calendar year in which the Certificate Holder attains age 70
1/2.
The Certificate Holder names the Annuitant. During the Accumulation Period, the
Certificate Holder may change the designated Annuitant. The Annuitant must be
the Certificate Holder for Individual Retirement Annuities.
At least 30 days before the Annuity Date, the Certificate Holder must notify
the Company in writing to elect or change (a) the date on which Annuity
payments are to begin, (b) the Annuity Option, (c) whether the payments are to
be made monthly, quarterly, semiannually, or annually, and (d) the investment
option(s) used to provide Annuity payments (i.e., a fixed annuity using the
general account, one or more of the available Funds or any combination
thereof). The Company has reserved the right to limit which Funds will be
available as investment options during the Annuity Period. Currently, a
Certificate Holder may elect no more than four funding options during the
Annuity Period. Once Annuity Payments begin, the Annuity Option may not be
changed, nor may transfers be made among funding options.
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If Annuity payments are on a variable basis (i.e., one or more of the Funds are
chosen), the first and subsequent Annuity payments will depend on the assumed
net investment rate (3 1/2% annually, unless a 5% annual rate is elected). Use
of the 3 1/2% assumed rate causes a lower first payment, but subsequent
payments would increase more rapidly or decline more slowly as changes occur in
the net investment rate. A 5% rate causes a higher first payment, but Annuity
payments will increase thereafter only to the extent that the net investment
rate exceeds 5% annually (plus up to 0.25% to offset any applicable
administrative charge). Annuity payments would decline if the rate were below
5% (assuming an administrative charge of zero).
For purposes of Annuity payments, the Annuitant's adjusted age (and joint
Annuitant's, if applicable) will be used. The Annuitant's adjusted age is his
or her age as of the birthday closest to the date of the first Annuity payment,
reduced by one year for Annuity start dates occurring from July 1, 1994 through
December 31, 1999. The Annuitant's age (and joint Annuitant's, if applicable)
will be reduced by two years for Annuity start dates occurring from January 1,
2000 through December 31, 2009. The Annuitant's adjusted age (and joint
Annuitant's, if applicable) will be reduced by one additional year for Annuity
start dates in each succeeding decade.
No election may be made that would result in an Annuity payment of less than
$50 per month or total yearly Annuity payments of less than $250 (less if
required by state law). If the Certificate Holder's Account Value on the
Annuity Date is insufficient to elect an option for the minimum amount
specified, a lump-sum payment must be elected.
For Individual Retirement Annuity Contracts, the payments must satisfy the
minimum distribution incidental death benefit rule described in Treasury
regulations adopted under the Code. This rule assures that any death benefits
payable are incidental to the primary purpose of the Contract, which is to
provide the Certificate Holder with retirement benefits. The amount to be
distributed under this rule is determined based on age and tables contained in
the Treasury regulations.
ANNUITY OPTIONS
Option 1 -- Payments For a Stated Period of Time -- An Annuity will be paid for
the number of years chosen. The number of years must be at least 5 and not more
than 30.
If payments for this option are made under a variable annuity, the present
value of any remaining payments may be withdrawn at any time; however, any lump
sum election before 5 years of payments have been completed will be treated as
a withdrawal occurring during the Accumulation Period and any applicable
deferred sales charge will apply.
Option 2 -- Life Income -- An Annuity will be paid for the life of the
Annuitant. If also chosen, we will guarantee payments for 60, 120, 180, or 240
months.
Option 3 -- Life Income Based upon the Lives of Two Annuitants -- An Annuity
will be paid during the lives of the Annuitant and a second Annuitant. Payments
will continue until both Annuitants have died. When this option is chosen, a
choice must be made of:
(a) 100% of the payment to continue after the first death;
(b) 66 2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) Payments for a minimum of 120 months with 100% of the payment to
continue after the first death; or
(e) 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.
We may make other options available as allowed by law.
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DEATH BENEFITS
The following section provides information about the death benefit, should the
Certificate Holder or the Annuitant die. In many cases, the rights available
will depend on whether the Beneficiary is the Certificate Holder's spouse and
whether they are joint Certificate Holders.
Note: The Company will not allow Annuity payments made to a Beneficiary to
extend beyond the Beneficiary's life or any period certain greater than the
Beneficiary's life expectancy.
DEATH OF THE CERTIFICATE HOLDER PRIOR TO THE ANNUITY DATE
In the event of the death of a Certificate Holder prior to the Annuity Date, a
death benefit is payable to the Beneficiary(ies) designated by the Certificate
Holder. Upon the death of a joint Certificate Holder, the surviving Certificate
Holder, if any, will be the designated Beneficiary. Any other Beneficiary
designation on record with the Company at the time of death will be treated as
a contingent Beneficiary and payments will be made to such Beneficiary only
upon the death of the surviving Certificate Holder. If the Certificate Holder
is a non-natural person, the death benefit will be paid to the beneficiary(ies)
at the death of the Annuitant.
A Beneficiary may elect the death benefit to be paid under one of the options
described below or if the designated Beneficiary is the spouse of the
Certificate Holder, he or she may continue as a Certificate Holder and exercise
all the deceased Certificate Holder's rights under the Contract.
DEATH BENEFIT AMOUNT PRIOR TO THE ANNUITY DATE
(a) Except as described in Section (b), the value of the guaranteed death
benefit is equal to the greater of:
(i) the Certificate Holder's Account Value at the end of the Valuation
Period during which we receive at our Home Office proof of death
and election of the type of payment to be made; or
(ii) the amount of the death benefit determined as of the Valuation
Period corresponding to the date of death as follows:
Until the first Effective Date anniversary, the death benefit is equal
to the Purchase Payments made by the Certificate Holder during that
year, less any withdrawals and any amounts applied to an Annuity
Option.
For each year thereafter, the death benefit during the year is equal
to the death benefit at the beginning of the year plus all Purchase
Payments made during the year less any withdrawals and any amounts
applied to an Annuity Option during that year.
On the anniversary of the Effective Date each year, the death benefit
is determined as follows:
(A) The death benefit on the previous Effective Date anniversary
increased by the death benefit factor of 4%; plus
(B) Purchase Payments made by the Certificate Holder during the year
since the last anniversary of the Effective Date increased by the
death benefit factor of 4% for the portion of the year since the
Purchase Payment was made; less
(C) Any withdrawals or amounts applied to an Annuity Option during the
year increased by the death benefit factor of 4% for the portion
of the year since the withdrawal or election of an Annuity Option;
or
(iii) The Certificate Holder's Account Value on the most recent seventh year
anniversary of the Effective Date plus any Purchase Payments made
after such Effective Date anniversary less any withdrawals and any
amounts applied to an Annuity Option.
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Currently there is no limitation on the maximum death benefit payable;
however, the Company reserves the right, in the future, to impose a
limitation on the maximum allowable death benefit under subsections (ii)
and (iii). The Company currently does not anticipate imposing such a
limitation prior to May 1, 1996.
The death benefit calculation described in (ii) and (iii) above applies
until the Certificate Holder attains 85 years of age. Thereafter, the
death benefit is only adjusted for Purchase Payments, withdrawals and
amounts applied to Annuity Options. If the Certificate Holder attains 85
years of age prior to the seventh anniversary of the Effective Date, the
death benefit will be the greater of (i) or (ii) above.
The excess, if any, of the guaranteed death benefit value over the
Certificate Holder's Account Value is determined when the Company receives
at its Home Office proof of death. Any excess amount is allocated through
the Separate Account to the Prime Money Fund. The Certificate Holder's
Account Value plus any excess amount deposited becomes the Certificate
Holder's Account Value.
(b) In the case of a Beneficiary of a surviving joint Certificate Holder
who continues the Certificate Holder's Account in his or her own name,
the death benefit shall be equal to the Adjusted Account Value less any
applicable deferred sales charge on any Purchase Payment made after the
Company has received proof of death of the first joint Certificate
Holder at our Home Office.
PAYMENT METHODS FOR DEATH BEFORE ANNUITY DATE
A Beneficiary who is the spouse of the Certificate Holder, or spouse of the
Annuitant if the Certificate Holder is a non-natural person, may (a) elect to
continue the Certificate Holder's Account in his or her name, in which case
the account value will continue to be affected by the investment performance
of the investment option(s) selected, (b) elect a lump sum payment of the
death benefit, or (c) apply the Certificate Holder's Adjusted Account Value to
an Annuity Option, in which case the amount of payout will depend on the
annuity option elected and the investment option(s) used to provide such
payments.
A Beneficiary who is not the spouse of the Certificate Holder must elect one
of the following options for payment of the death benefit in the event of the
death of the Certificate Holder prior to the Annuity Date:
Option 1 -- lump sum payment of the death benefit; or
Option 2 -- the payment of the entire death benefit within 5 years of the
date of the Certificate Holder's death; or
Option 3 -- payment of the death benefit over the lifetime of the
designated Beneficiary or over a period not extending beyond the life
expectancy of the designated Beneficiary with distribution beginning within
one year of the date of death of the Certificate Holder.
In general, regardless of the method of payment, payments received by your
Beneficiaries after your death are taxed in the same manner as if you had
received those payments. See "Tax Status."
Any portion of the death benefit not applied under Option 3 within one year of
the date of the Certificate Holder's death must be distributed within five
years of the date of death. A market value adjustment will apply at the time
the death benefit is paid.
Until the election of a method of payment, amounts will remain invested as
they were before death, and the Beneficiary will assume rights under the
Contracts. However, the Code requires that distributions begin within a
certain time period as described above. If no elections are made, no
distributions will be made. Failure to commence distributions within the above
time periods can result in tax penalties.
27
DEATH OF CERTIFICATE HOLDER ON OR AFTER THE ANNUITY DATE
If the Certificate Holder is the Annuitant, and the Annuity Payments are solely
life contingent, the death of the Certificate Holder after the Annuity Date
terminates the Annuity payments. If the Certificate Holder is not the
Annuitant, or if Annuity Payments are for a stated period of time, the
Certificate Holder's death after the Annuity Date will not affect the Annuity
payment except as provided under "Death of the Annuitant." The remaining
payments under the Annuity Option elected will be made to the Beneficiary at
least as rapidly as under the method of distribution in effect at the time of
the Certificate Holder's death. See "Annuity Options."
DEATH OF THE ANNUITANT
If the Certificate Holder is a non-natural person and a death benefit is paid
at the death of the Annuitant, a new Annuitant may not be named. In all other
circumstances, if the Annuitant who is not a Certificate Holder dies on or
before the Annuity Date, a new Annuitant may be named. If no Annuitant is
named, the Certificate Holder will be the Annuitant. If the Annuitant dies
after the Annuity Date, the death benefit, if any, will be payable to the
Beneficiary as specified in the Annuity Option elected. We will require proof
of the Annuitant's death. Death benefits will be paid at least as rapidly as
under the method of distribution in effect at the time of the Annuitant's
death.
TAX STATUS
INTRODUCTION
The following discussion is a general discussion of federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all
of the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service ("IRS"). No representation is made as to the
likelihood of the continuation of the present federal income tax laws or of the
current interpretation by the IRS. Moreover, no attempt has been made to
consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis ("Nonqualified
Contract") or purchased and used in connection with certain arrangements
entitled to special income tax treatment under section 408 of the Code
("Qualified Contracts"). The ultimate effect of federal income taxes on the
amounts held under a Contract, on Annuity Payments, and on the economic benefit
to the Certificate Holder, the Annuitant, or the Beneficiary may depend on the
tax status of the individual concerned.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Subchapter L of the
Code. Since the Separate Account is not an entity separate from the Company,
and its operation forms a part of the Company, it will not be taxed separately
as a "regulated investment company" under Subchapter M of the Code or as any
other separate entity. Investment income and capital gains are automatically
applied to increase reserves under the Contracts. Under existing federal income
tax law, the Company believes that the Separate Account investment income and
net capital gains will not be taxed to the extent that such income and gains
are applied to increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the
Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
28
TAX STATUS OF THE CONTRACT
DIVERSIFICATION. Section 817(h) of the Code requires that with respect to
Nonqualified Contracts, the investments of the Funds be "adequately
diversified" in accordance with Treasury Regulations in order for the Contracts
to qualify as annuity contracts under federal tax law. The Separate Account,
through the Funds, intends to comply with the diversification requirements
prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the Fund's
assets may be invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In these circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of investment control over the
assets. The ownership rights under the contract are similar to, but different
in certain respects from those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, a Certificate Holder has additional flexibility in allocating premium
payments and account values. In addition, the number of funds provided under
the Contract is greater than the number of funds offered in contracts on which
rulings have been issued. These differences could result in a Certificate
Holder being treated as the owner of a pro rata portion of the assets of the
Separate Account. The Company reserves the right to modify the Contract as
necessary to attempt to prevent a Certificate Holder from being considered the
owner of a pro rata share of the assets of the Separate Account.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires Nonqualified
Contracts to provide that (a) if any Certificate Holder or Joint Certificate
Holder dies on or after the annuity date but prior to the time the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of such owner's death; and (b) if any
Certificate Holder or Joint Certificate Holder dies prior to the annuity date,
the entire interest in the Contract will be distributed within five years after
the date of such Certificate Holder's death. These requirements will be
considered satisfied as to any portion of a Certificate Holder's interest which
is payable to or for the benefit of a "designated beneficiary" and which is
distributed over the life of such "designated beneficiary" or over a period not
extending beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of the Certificate Holder's death. The
"designated beneficiary" refers to a natural person designated by the
Certificate Holder as a Beneficiary and to whom ownership of the contract passes
by reason of death. However, if the "designated beneficiary" is the surviving
spouse of the deceased Certificate Holder, the contract may be continued with
the surviving spouse as the new Certificate Holder.
The Nonqualified Contracts contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code section 72(s) when clarified by regulation or
otherwise. Other rules may apply to Qualified Contracts.
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL. Section 72 of the Code governs taxation of annuities in general.
The Company believes that a Certificate Holder who is a natural person
generally is not taxed on increases in the Certificate Holder's Account Value
until distribution occurs by withdrawing all or part of such Account Value
(e.g., withdrawals or Annuity payments under the Annuity Option elected). The
assignment, pledge, or
29
agreement to assign or pledge any portion of the Account Value generally will
be treated as a distribution. The taxable portion of a distribution (in the
form of a single sum payment or an annuity) is taxable as ordinary income.
The following discussion generally applies to a Contract owned by a natural
person.
WITHDRAWALS. In the case of a withdrawal under a Qualified Contract, including
withdrawals under SWO or ECO, the amount taxable is generally based on the
ratio of the "investment in the contract" to the Certificate Holder's Account
Value. The "investment in the contract" generally equals the amount of any
nondeductible Purchase Payments paid by or on behalf of any individual less any
amount received previously which was excludable from gross income. For a
Qualified Contract, the "investment in the contract" can be zero. Special tax
rules may be available for certain distributions from a Qualified Contract.
With respect to Nonqualified Contracts, partial withdrawals, including
withdrawals under SWO, are generally treated as taxable income to the extent
that the Account Value immediately before the withdrawal exceeds the
"investment in the contract" at that time. The Account Value immediately before
a withdrawal may have to be increased by any positive market value adjustment
(MVA) that results from such a withdrawal. There is, however, no definitive
guidance on the proper tax treatment of MVAs in these circumstances, and a
Certificate Holder should contact a competent tax advisor with respect of the
potential tax consequences of any MVA that arises as a result of a partial
withdrawal.
Full withdrawals of a Nonqualified Contract are treated as taxable income to
the extent that the amount received exceeds the "investment in the contract."
ANNUITY PAYMENTS. Although the tax consequences may vary depending on the
Annuity payment elected under the Contract, in general, only the portion of the
Annuity payment that represents the amount by which the Account Value exceeds
the "investment in the contract" will be taxed; after the "investment in the
contract" is recovered, the full amount of any additional Annuity payments is
taxable.
For Variable Annuity payments, the taxable portion is generally determined by
an equation that establishes a specific dollar amount of each payment that is
not taxed. The dollar amount is determined by dividing the "investment in the
contract" by the total number of expected periodic payments. However, the
entire distribution will be taxable once the recipient has recovered the dollar
amount of his or her "investment in the contract." For Fixed Annuity payments,
in general there is no tax on the portion of each payment which represents the
same ratio that the "investment in the contract" bears to the total expected
value of the Annuity payments for the term of the payments; however, the
remainder of each Annuity payment is taxable. Once the "investment in the
contract" has been fully recovered, the full amount of any additional Annuity
payments is taxable. If Annuity payments cease as a result of an Annuitant's
death before full recovery of the "investment in the contract," consult a
competent tax advisor regarding deductibility of the unrecovered amount.
PENALTY TAX. In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal income tax penalty equal to 10% of the
amount treated as taxable income. In general, however, there is no penalty tax
on distributions: (1) made on or after the date on which the taxpayer attains
age 59 1/2; (2) made as a result of death or disability of a Certificate
Holder; (3) received in substantially equal periodic payments as a life annuity
or a joint and survivor annuity for the lives or life expectancies of the
Certificate Holder and a "designated beneficiary." Other tax penalties may
apply to certain distributions pursuant to a Qualified Contract.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from the
Contract because of the death of a Certificate Holder or the Annuitant.
Generally, such amounts are includible in the income of the recipient as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity payments, as described
above.
30
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF THE CONTRACT. A transfer of ownership
of a Contract, the designation of an Annuitant, Payee or other Beneficiary who
is not also a Certificate Holder, the selection of certain Annuity Dates, or
the exchange of a Contract may result in certain tax consequences that are not
discussed herein. Assignments or transfers of ownership of an Individual
Retirement Annuity Contract are not allowed except as permitted under Section
408(d)(6) of the Code in connection with a divorce. Anyone contemplating any
such designation, transfer, assignment, selection, or exchange should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction. (See also "Transfer of Ownership -- Assignment.")
MULTIPLE CONTRACTS. All deferred nonqualified annuity contracts that are issued
by the Company (or its affiliates) to the same owner during any calendar year
are treated as one annuity contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. In addition, the
Treasury Department has specific authority to issue regulations that prevent
the avoidance of section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract
and separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
QUALIFIED CONTRACTS
IN GENERAL. The Qualified Contract is designed for use as an Individual
Retirement Annuity. The tax rules applicable to participants and beneficiaries
in Individual Retirement Annuities are complex. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions);
distributions that do not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of a specified annual
amount; and in other specified circumstances.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity or Individual Retirement Account, each
hereinafter referred to as an "IRA." Also, distributions from certain other
types of
qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The
sale of a Contract for use with an IRA may be subject to special disclosure
requirements of the Internal Revenue Service. Purchasers of a Contract for use
with IRAs will be provided with supplemental information required by the
Internal Revenue Service or other appropriate agency. Such purchasers will have
the right to revoke their purchase within 7 days of the earlier of the
establishment of the IRA or their purchase. A Qualified Contract issued in
connection with an IRA will be amended as necessary to conform to the
requirements of the Code. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRAs.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not have tax withheld from
distributions.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. For example, one such proposal would
have changed the tax treatment of nonqualified annuities that did not have
"substantial life contingencies" by taxing income as it is credited to the
annuity. Although as of the date of this prospectus Congress is not actively
considering
31
any legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive (that
is, effective prior to the date of the change).
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income tax consequences
is not exhaustive and special rules are provided with respect to other tax
situations not discussed in this Prospectus. Further, the federal income tax
consequences discussed herein reflect the Company's understanding of the
current law and the law may change. Federal estate and gift tax consequences of
ownership or receipt of distributions under the Contract depend on the
individual circumstances of each Certificate Holder or recipient of a
distribution. A competent tax adviser should be consulted for further
information.
MISCELLANEOUS
VOTING RIGHTS
Each Certificate Holder may direct the Company in the voting of shares at
meetings of shareholders of the appropriate Fund(s). The number of votes to
which each Certificate Holder may give direction will be determined as of the
record date. The number of votes each Certificate 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 Certificate Holders Account Value
attributable to that Fund divided by the net asset value of one share of that
Fund. During the Annuity Period, the number of votes is equal to the Valuation
Reserve for the portion of the Contract attributable to the Certificate
Holder's interest in 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.
Certificate Holders have a fully vested (100%) interest in the benefits
provided under a group Contract. Therefore, Certificate Holders may instruct
the Contract Holder of a group Contract how to direct the Company to cast the
votes for the portion of the value or Valuation Reserve attributable to their
Certificate Holder's Account. Votes attributable to Certificate Holders who do
not direct the Company will be cast by the Company in the same proportion as
votes for which directions have been received by the Company.
Each Certificate Holder will receive a notice of each meeting of shareholders,
together with any proxy solicitation materials, and a statement of the number
of votes attributable to his or her Certificate Holder's Account.
MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to the limitations described below, by notifying Contract Holders in
writing at least 30 days before the effective date of any change to a Contract.
No change will affect the amount or terms of any Annuity which begins before
the change.
The Company may make any change that affects the GP Guaranteed Account market
value adjustment with at least thirty (30) days' advance written notice to the
Contract Holder and the Certificate Holder. Any such change shall become
effective for any new guaranteed term and will apply to all present and future
Certificate Holders' Accounts.
The Company reserves the right to change the terms of the Estate Conservation
and Systematic Withdrawal Options for future elections and discontinue the
availability of these options at any time.
32
Any change to any of the following provisions under an existing Contract will
not apply to Certificate Holder's Accounts established under that Contract
before the effective date of the change:
(a) Net Purchase Payment
(b) GP Guaranteed Account Guaranteed Interest Rate
(c) Net Investment Factor
(d) Certificate Holder's Account Value
(e) Increasing the Deferred Sales Charge
(f) Annuity Unit Value
(g) Annuity Options
(h) Fixed Annuity Interest Rates
(i) Transfers
Modification of items (a), (c) and (e) above specifically require the approval
by the SEC to the extent the proposed charges are not currently authorized by
existing orders issued to us by the SEC.
Any change that affects the Annuity Option and the tables for the Annuity
Options may be made no earlier than twelve (12) months after the Effective
Date, and no earlier than twelve (12) months after the effective date of any
prior change.
Any Certificate Holder's Account established on or after the effective date of
any change will be subject to the change. If the Group Contract Holder does not
agree to any change under this provision, the Company reserves the right not to
allow any new Certificate Holder's Accounts to be established under this
Contract. The Contract may also be changed as deemed necessary by the Company
to comply with federal or state law.
TRANSFER OF OWNERSHIP--ASSIGNMENT
Assignments or transfers of ownership of an Individual Retirement Annuity
Contract are not allowed except as permitted under Section 408(d)(6) of the
Code in connection with a divorce. The Company generally will accept
assignments or transfers of ownership of Contracts or Certificate Holder's
Accounts with proper notification. The date of any such transfer will be the
date on which the Company receives such notification. Certificate Holders
contemplating a transfer of ownership or assignment should consult a tax
adviser due to the potential for tax liability. See "Tax Status of the
Contract."
CERTIFICATE HOLDER INQUIRIES
Certificate Holders may direct inquiries to their Registered Representatives or
they may contact the Company by writing to the address shown on the cover page
of this Prospectus or by calling 1-800-531-4547.
TELEPHONE TRANSFERS
Certificate Holders are automatically given the right to make transfers among
investment options by telephone, using the Company's "800" number. The Company
has enacted procedures to prevent abuses in account transactions made by
telephone. The procedures include requiring the use of a personal
identification number (PIN) to execute transactions. The Certificate Holder is
responsible for safeguarding his or her PIN, and for keeping account
information confidential. To ensure authenticity, the Company records all calls
on the "800" line. Where two individuals have an interest in a Certificate
Holder's Account as joint Certificate Holders, either may make telephone
transfers. If the Company does not maintain reasonable safeguards, it would be
liable for any losses to the Certificate Holder's Account resulting from the
failure.
33
LEGAL PROCEEDINGS
The Company knows of no material legal proceedings pending to which the Company
is a party or which would materially affect the Company.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed upon
by Susan E. Bryant, Esq., Counsel to the Company.
34
TABLE OF CONTENTS -- STATEMENT OF ADDITIONAL INFORMATION
General Information and History............................................. 3
Variable Annuity Account B.................................................. 3
Offering and Purchase of Contracts.......................................... 3
Performance................................................................. 3
General....................................................................
Average Annual Total Return Quotations.....................................
Dollar-Cost Averaging....................................................... 4
Sales Material.............................................................. 4
Annuity Payments............................................................ 4
Independent Auditors........................................................
Financial Statements........................................................ F-1
35
APPENDIX A
GROWTH PLUS GUARANTEED ACCOUNT
GENERAL
The Growth Plus Guaranteed Account ("GP Guaranteed Account") is a guaranteed
interest option available during the Accumulation Period under the Contracts
described in this prospectus. The GP Guaranteed Account is only offered in
states where the offer and sale has been authorized by the appropriate
regulatory authorities. Since the GP Guaranteed Account is a funding option
under the Contract, Certificate Holders should read the accompanying GP
Guaranteed Account prospectus carefully before investing. This Appendix is
intended as a summary description of the GP Guaranteed Account and is not
intended as a replacement for the GP Guaranteed Account prospectus.
INTEREST RATES
The GP Guaranteed Account is a guaranteed interest option for which the
Company guarantees stipulated rates of interest for stated periods of time on
amounts invested in the GP Guaranteed Account. A guaranteed rate is credited
for the full term. The interest rate stipulated is an annual effective yield;
that is, it reflects a full year's interest. Interest is credited daily at a
rate that will provide the guaranteed annual effective yield over the period
of one year. The Company has guaranteed that interest rates for investments in
the GP Guaranteed Account through the Contracts will never be less than an
annual effective rate of 3%.
ALLOCATION TO GUARANTEED TERMS
During the deposit period, amounts may be applied to any of the available
guaranteed terms. Purchase Payments received after the initial payment will be
allocated in the same proportions as the last allocation, if no new allocation
instructions are received with the Purchase Payment. For amounts allocated to
the GP Guaranteed Account, if the same guaranteed term(s) are not available,
the next shortest will be used. If no shorter guaranteed term is available,
the next longer guaranteed term will be used.
WITHDRAWALS
Except for transfers from the one-year Guaranteed Term taken in connection
with the Dollar Cost Averaging Program, and withdrawals taken in connection
with an Estate Conservation or Systematic Withdrawal distribution option
(where regulatory approval for such waivers has been received), withdrawals or
transfers from a guaranteed term before the guaranteed term matures may be
subject to a market value adjustment ("MVA"). An MVA reflects the change in
the value of the investment due to changes in interest rates since the date of
deposit. When interest rates increase after the date of deposit, the value of
the investment decreases, and the MVA is negative. Conversely, when interest
rates decrease after the date of deposit, the value of the investment
increases, and the MVA is positive. It is possible that a negative MVA could
result in the payment of an amount that is less than the amount initially
allocated to the GP Guaranteed Account. If a Certificate Holder requests a
partial withdrawal of the Certificate Holder's Account Value without
designating from which investment option it should be taken, a proportionate
share will be withdrawn from the GP Guaranteed Account. The amount will be
withdrawn from all guaranteed term groups as defined in the prospectus for the
Guaranteed Account.
MATURITY OF A GUARANTEED TERM
As a guaranteed term matures, assets accumulating under the GP Guaranteed
Account may be (a) transferred to a new guaranteed term, (b) transferred to
any other available investment option, or (c) withdrawn. Amounts withdrawn may
be subject to a deferred sales charge. If no direction is received by the
Company at its Home Office by the maturity date of a guaranteed term, the
amount from the maturing guaranteed term will be transferred to a similar-
length guaranteed term during the current
36
deposit period. If the same guaranteed term is no longer available, the next
shortest guaranteed term available in the current deposit period will be used.
If no shorter guaranteed term is available, the next longer guaranteed term
will be used.
If the Certificate Holder does not provide instructions concerning the maturity
value of a maturing guaranteed term, the maturity value transfer provision
applies. This provision allows Certificate Holders to transfer without an MVA
to available guaranteed terms of the current deposit period or to other
available investment options, or surrender without an MVA. A deferred sales
charge may be assessed, if applicable, on the surrendered amount. The provision
is available only during the calendar month immediately following a guaranteed
term maturity date and only applies to the first transaction regardless of the
amount involved in the transaction.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited interest 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
except for matured term value(s) during the calendar month following the
guaranteed term's maturity date. This does not apply to (1) amounts transferred
on the Maturity Date or under the maturity value transfer provision; (2)
amounts transferred from the Guaranteed Account before the Maturity Date due to
the election of an Annuity Option; (3) amounts transferred from the one-year
Guaranteed Term in connection with the Dollar Cost Averaging Program; and (4)
amounts distributed under the Estate Conservation or Systematic Withdrawal
distribution option. Transfers after the 90-day period are permitted from
guaranteed term(s) to other guaranteed term(s) available during a deposit
period or to other available investment options. Except for transactions
described in items (1), (3) and (4) above, amounts withdrawn or transferred
from the Guaranteed Account prior to the Maturity Date will be subject to a
Market Value Adjustment. These waivers are subject to regulatory approval and
may not be available in all states. See your representative to determine
whether the waiver is approved in your state.
Transfers of GP Guaranteed Account values on or within one calendar month of a
term's maturity date are not counted against any free transfer limit.
37
--------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT B
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
--------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1995
for
GROWTH PLUS
Group Variable Annuity Contracts
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus dated May 1, 1995 which describes the
Growth Plus Variable Annuity Contracts funded through Variable Annuity Account B
(the "Separate Account").
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
Service Unit
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History........................................... 2
Variable Annuity Account B................................................ 2
Offering and Purchase of Contracts........................................ 3
Performance Data.......................................................... 3
General................................................................. 3
Average Annual Total Return Quotations.................................. 4
Annuity Payments.......................................................... 4
Dollar-Cost Averaging..................................................... 5
Sales Material............................................................ 6
Independent Auditors...................................................... 6
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 in 1976 under the insurance laws of the
State of Connecticut. The Company is a wholly owned subsidiary of Aetna Life and
Casualty Company which, with its subsidiaries, constitutes one of the nation's
largest diversified financial services organizations. 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).
ALIAC, a registered broker-dealer under the Securities Exchange Act of 1934,
serves as the principal underwriter for the Separate Account. ALIAC is also a
registered investment adviser under the Investment Advisers Act of 1940, and
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 "Charges and Deductions" in the prospectus.
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 the Funds' investment adviser used as funding options under the
Contract.
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 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 variable
investment options listed below. The Company may make additions to or deletions
from available investment options as permitted by law. The availability of the
Funds is subject to applicable regulatory authorization. Not all Funds are
available in all jurisdictions or under all Contracts. The Funds currently
available under the Contract are as follows:
Equity Growth and Income Fund
Utility Fund
Prime Money Fund
U.S. Government Bond Fund
Corporate Bond Fund
International Stock Fund
2
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
As principal underwriter, ALIAC offers the Contracts through life insurance
agents licensed to sell variable annuities who are registered representatives of
ALIAC or of other registered broker-dealers who have sales agreements with
ALIAC. The offering of the Contracts is continuous. A description of the
manner in which Contracts are purchased may be found in the prospectus under the
sections titled "Contract Purchase" and "Certificate Holder's Account Value."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the variable options 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 the "non-standardized total
return" both of which are described below.
The standardized total return figures are computed according to a formula in
which a hypothetical initial Purchase Payment of $1,000 is applied to the
variable options under the Contract, and then related to the ending redeemable
values over one, five and ten year periods (or fractional periods thereof). The
SEC figures reflect the deduction of all recurring charges during each period
(e.g., mortality and expense risk charges, maintenance fees, administrative
charges, and deferred sales charges). These charges will be deducted on a pro
rata basis in the case of fractional periods. The maintenance fee is converted
to a percentage of assets based on the average account size under these
contracts and similar contracts funded by the Separate Account.
The non-standardized figures will be calculated in a similar manner, except that
non-standardized figures will not reflect the deduction of any applicable
deferred sales charge (which would decrease the level of performance shown if
reflected in these calculations). The non-standardized figures may also include
a three year period.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance. Investment results of the
Funds will fluctuate over time, and any presentation of the Funds' total return
quotations for any prior period should not be considered as a representation of
how the variable options will perform in any future period. Additionally, your
Contract Value upon redemption may be more or less than your original cost.
3
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The table shown below reflects the average annual standardized and non-
standardized total return quotation figures for the periods ended December 31,
1994 for the variable options available under Contract.
-------------------------------------------------------------------------------
Fund
STANDARDIZED NON-STANDARDIZED Inception
Date
--------------------------------------------------------------------------------------------------------------
Installment Payment Contract
($30 annual maintenance fee) 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------------------------------
* *
Equity Growth and Income Fund (7.93)% N/A N/A (1.62)% N/A N/A N/A 02/10/94
--------------------------------------------------------------------------------------------------------------
* *
Utility Fund (13.15)% N/A N/A (6.80)% N/A N/A N/A 02/10/94
--------------------------------------------------------------------------------------------------------------
* *
Prime Money Fund (6.02)% N/A N/A 0.28% N/A N/A N/A 11/15/94
--------------------------------------------------------------------------------------------------------------
* *
U.S. Government Bond Fund (6.45)% N/A N/A (0.14)% N/A N/A N/A 03/28/94
--------------------------------------------------------------------------------------------------------------
*
Corporate Bond Fund (16.13)% N/A N/A (9.76)% N/A N/A N/A 03/01/94
--------------------------------------------------------------------------------------------------------------
* Although results are not available for the full calendar indicated, the
percentage shown is an average annual return since inception.
ANNUITY PAYMENTS
When Annuity payments are to commence, the value of the Certificate Holder's
Account is determined by using Accumulation Unit values as of the tenth
Valuation Period 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) of the variable options
selected. This number is calculated by dividing (a) the amount of the first
Annuity payment based on a particular investment medium by (b) the then current
Annuity Unit value for that investment medium. As noted, Annuity Unit values
fluctuate from one Valuation Period to the next; such fluctuations reflect
changes in the net investment factor for the appropriate Fund(s) (with a ten
Valuation Period 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.
4
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to commence, there are 3,000
Accumulation Units credited under a particular Certificate Holder's Account and
that the value of an Accumulation Unit for the tenth Valuation Period 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 Period in 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 Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Period (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Period 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.
DOLLAR-COST AVERAGING
The term "dollar-cost averaging" describes a system of investing a uniform sum
of money at regular intervals over an extended period of time. It is based on
the economic fact that buying a variably priced item with a constant sum of
money at fixed intervals results in acquiring more of the item when prices are
low and less of it when prices are high. In order to maximize the effectiveness
of dollar-cost averaging, it is important that investors consider their
financial ability to continue purchasing the securities through periods of high
and low price levels. Investors should also note that no system can protect
against reduced values in a declining market.
5
SALES MATERIAL
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 (CD).
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.
6
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT B
Index
Independent Auditors Report
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Condensed Financial Information
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, 1994, the related statement of operations and condensed fi-
nancial information for the year then ended and the statements of changes in
net assets for each of the years in the two-year period then ended. These fi-
nancial 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 au-
dits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed fi-
nancial information are free of material misstatement. An audit also 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, 1994, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant esti-
mates 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 posi-
tion of Aetna Life Insurance and Annuity Company Variable Annuity Account B as
of December 31, 1994, the results of its operations and condensed financial in-
formation for the year then ended and the changes in its net assets for each of
the years in the two-year period then ended in conformity with generally ac-
cepted accounting principles.
KPMG Peat Marwick llp
Hartford, Connecticut
January 31, 1995
Variable Annuity Account B
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 17,826,130 shares at $26.23 per share (cost
$507,156,445)................................................... $467,568,315
Aetna Income Shares; 5,871,114 shares at $11.72 per share (cost
$74,117,645).................................................... 68,832,108
Aetna Variable Encore Fund; 7,078,396 shares at $12.55 per share
(cost $89,821,997).............................................. 88,823,487
Aetna Investment Advisers Fund, Inc.; 7,752,415 shares at $12.23
per share
(cost $93,379,859).............................................. 94,792,938
Aetna GET Fund, Series B; 1,226,848 shares at $9.92 per share
(cost $12,353,186).............................................. 12,170,153
Alger American Fund--Alger American Small Capitalization
Portfolio; 155,668 shares at $27.31 per share (cost $4,071,354). 4,251,298
Calvert Socially Responsible Series; 5,491 shares at $1.44 per
share (cost $8,462)............................................. 7,912
Fidelity Investments Variable Insurance Products Fund--Equity-
Income Portfolio; 11,086 shares at $15.35 per share (cost
$170,056)....................................................... 170,167
Fidelity Investments Variable Insurance Products Fund--Growth
Portfolio; 8,176 shares at $21.69 per share (cost $170,056)..... 177,333
Insurance Management Series--Corporate Bond Fund; 34,641 shares
at $8.87 per share
(cost $311,414)................................................. 307,263
Insurance Management Series--Equity Growth and Income Fund;
190,609 shares at $9.74 per share (cost $1,862,442)............. 1,856,527
Insurance Management Series--U.S. Government Bond Fund; 12,833
shares at $9.98 per share (cost $128,226)....................... 128,071
Insurance Management Series--Prime Money Fund; 521,201 shares at
$1.00 per share
(cost $521,214)................................................. 521,201
Insurance Management Series--Utility Fund; 43,813 shares at $9.29
per share
(cost $408,580)................................................. 407,020
Janus Aspen Series--Aggressive Growth Portfolio; 99,782 shares at
$13.62 per share (cost $1,346,463).............................. 1,359,035
Janus Aspen Series--Flexible Income Portfolio; 16,574 shares at
$9.48 per share (cost $162,859)................................. 157,121
Janus Aspen Series--Growth Portfolio; 9,169 shares at $10.57 per
share (cost $96,205)............................................ 96,920
Lexington Emerging Markets Fund, Inc.; 1,490 shares at $9.86 per
share (cost $14,968)............................................ 14,692
Lexington Natural Resources Trust; 132,414 shares at $9.71 per
share (cost $1,326,234)......................................... 1,285,738
Neuberger & Berman Advisers Management Trust--Growth Portfolio;
137,169 shares at $20.31 per share (cost $2,851,294)............ 2,785,910
Scudder Variable Life Investment Fund--International Portfolio;
816,372 shares at $10.69 per share (cost $8,944,895)............ 8,727,018
TCI Portfolios, Inc.--TCI Balanced; 5,922 shares at $5.96 per
share (cost $35,156)............................................ 35,294
TCI Portfolios, Inc.--TCI Growth; 4,483,578 shares at $9.21 per
share (cost $40,864,347)........................................ 41,293,756
TCI Portfolios, Inc.--TCI International; 7,444 shares at $4.75
per share (cost $37,331)........................................ 35,359
------------
NET ASSETS........................................................ $795,804,636
============
Variable Annuity Account B
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994 (continued)
Net assets represented by:
ACCUMULATION
UNIT
UNITS VALUE
------------ ------------
Reserves for annuity contracts in
accumulation period:
AETNA VARIABLE FUND:
Non-Qualified 1964................... 5,159.1 $114.828 $ 592,407
Non-Qualified I...................... 232,142.6 129.838 30,140,993
Non-Qualified II..................... 478,180.1 91.515 43,760,850
Non-Qualified III.................... 2,229,372.7 87.638 195,378,787
Non-Qualified V...................... 11,117,382.8 10.698 118,932,105
Non-Qualified VI..................... 52,441.8 9.993 524,057
Non-Qualified VII.................... 3,178,711.5 10.737 34,130,411
AETNA INCOME SHARES:
Non-Qualified I...................... 16,981.4 39.514 671,004
Non-Qualified II..................... 151,836.3 41.302 6,271,196
Non-Qualified III.................... 699,850.8 39.919 27,937,427
Non-Qualified V...................... 1,988,960.0 10.457 20,799,277
Non-Qualified VI..................... 8,201.1 9.534 78,189
Non-Qualified VII.................... 983,356.7 10.324 10,152,119
AETNA VARIABLE ENCORE FUND:
Non-Qualified I...................... 30,683.2 35.958 1,103,292
Non-Qualified II..................... 194,997.6 36.602 7,137,317
Non-Qualified III.................... 744,594.5 34.450 25,651,159
Non-Qualified V...................... 1,822,449.0 10.509 19,152,951
Non-Qualified VI..................... 3,730.2 10.237 38,185
Non-Qualified VII.................... 3,407,448.2 10.489 35,740,583
AETNA INVESTMENT ADVISERS FUND, INC.:
Non-Qualified I...................... 70,446.9 14.299 1,007,320
Non-Qualified II..................... 679,528.1 14.252 9,684,634
Non-Qualified III.................... 2,044,887.2 14.218 29,074,206
Non-Qualified V...................... 3,541,702.6 10.971 38,856,019
Non-Qualified VII.................... 911,280.6 10.828 9,867,346
AETNA GET FUND, SERIES B:
Non-Qualified V...................... 1,197,924.6 10.159 12,170,153
ALGER AMERICAN FUND--ALGER AMERICAN
SMALL CAPITALIZATION PORTFOLIO:
Non-Qualified V...................... 441,808.5 9.622 4,251,298
CALVERT SOCIALLY RESPONSIBLE SERIES:
Non-Qualified V...................... 752.3 10.518 7,912
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS
FUND--EQUITY-INCOME PORTFOLIO:
Non-Qualified VII.................... 17,012.8 10.002 170,167
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS
FUND--GROWTH PORTFOLIO:
Non-Qualified VII.................... 17,012.8 10.423 177,333
Variable Annuity Account B
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994 (continued)
ACCUMULATION
UNIT
UNITS VALUE
------------ ------------
INSURANCE MANAGEMENT SERIES--CORPORATE
BOND FUND:
Non-Qualified VII...................... 31,308.6 $ 9.814 $ 307,263
INSURANCE MANAGEMENT SERIES--EQUITY
GROWTH AND INCOME FUND:
Non-Qualified VII...................... 188,707.5 9.838 1,856,527
INSURANCE MANAGEMENT SERIES--U.S.
GOVERNMENT BOND FUND:
Non-Qualified VII...................... 12,713.7 10.073 128,071
INSURANCE MANAGEMENT SERIES--PRIME
MONEY FUND:
Non-Qualified VII...................... 51,948.7 10.033 521,201
INSURANCE MANAGEMENT SERIES--UTILITY
FUND:
Non-Qualified VII...................... 41,190.7 9.881 407,020
JANUS ASPEN SERIES--AGGRESSIVE GROWTH
PORTFOLIO:
Non-Qualified V........................ 131,702.1 10.319 1,359,035
JANUS ASPEN SERIES--FLEXIBLE INCOME
PORTFOLIO:
Non-Qualified V........................ 15,892.7 9.886 157,121
JANUS ASPEN SERIES--GROWTH PORTFOLIO:
Non-Qualified VII...................... 9,587.6 10.109 96,920
LEXINGTON EMERGING MARKETS FUND, INC.:
Non-Qualified VII...................... 1,500.0 9.795 14,692
LEXINGTON NATURAL RESOURCES TRUST:
Non-Qualified V........................ 141,075.6 9.079 1,280,873
Non-Qualified VII...................... 537.2 9.056 4,865
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST--GROWTH PORTFOLIO:
Non-Qualified V........................ 228,369.5 12.199 2,785,910
SCUDDER VARIABLE LIFE INVESTMENT FUND--
INTERNATIONAL PORTFOLIO:
Non-Qualified V........................ 652,629.7 13.372 8,727,018
TCI PORTFOLIOS, INC.--TCI BALANCED:
Non-Qualified VII...................... 3,476.6 10.152 35,294
TCI PORTFOLIOS, INC.--TCI GROWTH:
Non-Qualified II....................... 568,153.8 10.213 5,802,835
Non-Qualified III...................... 1,340,758.1 10.123 13,573,082
Non-Qualified V........................ 1,123,365.7 10.883 12,225,789
Non-Qualified VII...................... 893,534.0 10.847 9,692,050
TCI PORTFOLIOS, INC.--TCI
INTERNATIONAL:
Non-Qualified VII...................... 3,745.4 9.441 35,359
Reserved for annuity contracts in
payment period (Note 1)............... 53,335,014
------------
$795,804,636
============
See Notes to Financial Statements.
Variable Annuity Account B
STATEMENT OF OPERATIONS -- Year Ended December 31, 1994
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Aetna Variable Fund............................................. $ 71,958,106
Aetna Income Shares............................................. 4,312,751
Aetna Variable Encore Fund...................................... 2,814,325
Aetna Investment Advisers Fund, Inc............................. 3,701,779
Aetna GET Fund, Series B........................................ 423,359
Alger American Fund--Alger American Small Capitalization
Portfolio...................................................... 51,845
Calvert Socially Responsible Series............................. 246
Insurance Management Series--Corporate Bond Fund................ 3,827
Insurance Management Series--Equity Growth and Income Fund...... 4,162
Insurance Management Series--U.S. Government Bond Fund.......... 936
Insurance Management Series--Prime Money Fund................... 2,397
Insurance Management Series--Utility Fund....................... 1,778
Janus Aspen Series--Aggressive Growth Portfolio................. 9,728
Janus Aspen Series--Flexible Income Portfolio................... 4,789
Janus Aspen Series--Growth Portfolio............................ 274
Lexington Emerging Markets Fund, Inc. .......................... 315
Lexington Natural Resources Trust............................... 4,758
Neuberger & Berman Advisers Management Trust--Growth Portfolio.. 113,211
Scudder Variable Life Investment Fund--International Portfolio.. 20,721
TCI Portfolios, Inc.--TCI Balanced.............................. 405
TCI Portfolios, Inc.--TCI Growth................................ 3,234
------------
Total investment income...................................... 83,432,946
Valuation period deductions (Note 2)............................. (8,918,042)
------------
Net investment income............................................ 74,514,904
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales............................................. 213,403,512
Cost of investments sold........................................ 156,402,976
------------
Net realized gain............................................ 57,000,536
Net unrealized gain (loss) on investments:
Beginning of year............................................... 102,069,324
End of year..................................................... (44,356,052)
------------
Net unrealized loss.......................................... (146,425,376)
------------
Net realized and unrealized loss on investments.................. (89,424,840)
------------
Net decrease in net assets resulting from operations............. $(14,909,936)
============
See Notes to Financial Statements.
Variable Annuity Account B
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
FROM OPERATIONS:
Net investment income.............................. $ 74,514,904 $ 34,484,591
Net realized and unrealized gain (loss) on invest-
ments............................................. (89,424,840) 995,346
------------ ------------
Net increase (decrease) in net assets resulting
from operations.................................. (14,909,936) 35,479,937
------------ ------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments........ 170,170,873 115,263,261
Sales and administrative charges deducted by the
Company........................................... (8,045) (68,920)
------------ ------------
Net variable annuity contract purchase payments... 170,162,828 115,194,341
Transfers from the Company for mortality guarantee
adjustments....................................... 537,027 522,820
Transfers from (to) the Company's fixed account op-
tions............................................. (6,000,310) 12,354,531
Redemptions by contract holders.................... (32,737,461) (20,997,172)
Annuity payments................................... (7,564,589) (5,704,047)
Other.............................................. (127,555) 166,934
------------ ------------
Net increase in net assets from unit transactions. 124,269,940 101,537,407
------------ ------------
Change in net assets............................... 109,360,004 137,017,344
NET ASSETS:
Beginning of year.................................. 686,444,632 549,427,288
------------ ------------
End of year........................................ $795,804,636 $686,444,632
============ ============
See Notes to Financial Statements.
Variable Annuity Account B
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account B ("Account") is registered under the Investment Com-
pany 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 ac-
cordance 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, 1994:
Aetna Variable Fund Insurance Management Series--
Aetna Income Shares Prime Money Fund
Aetna Variable Encore Fund Insurance Management Series--
Aetna Investment Advisers Fund, Utility Fund
Inc. Janus Aspen Series--Aggressive
Aetna GET Fund, Series B Growth Portfolio
Alger American Fund--Alger Janus Aspen Series--Flexible
American Small Capitalization Income Portfolio
Portfolio Janus Aspen Series--Growth
Calvert Socially Responsible Portfolio
Series Lexington Emerging Markets Fund,
Fidelity Investments Variable Inc.
Insurance Products Fund-- Lexington Natural Resources Trust
Equity-Income Portfolio Neuberger & Berman Advisers
Fidelity Investments Variable Management Trust--Growth
Insurance Products Fund-- Portfolio
Growth Portfolio Scudder Variable Life Investment
Insurance Management Series-- Fund--International Portfolio
Corporate Bond Fund TCI Portfolios, Inc.--TCI
Insurance Management Series-- Balanced
Equity Growth and Income Fund TCI Portfolios, Inc.--TCI Growth
Insurance Management Series--U.S. TCI Portfolios, Inc.--TCI
Government Bond Fund International
B. OTHER
Investment transactions are accounted for on a trade-date basis and divi-
dend income is recorded on the ex-dividend date. The cost of investments
sold is determined by specific identification.
C. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the total
operations of 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 Individ-
ual 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 re-
serves are required, the Company reimburses the Account.
VARIABLE ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
3. DIVIDEND INCOME
On an annual basis, the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to the
Account are automatically reinvested in shares of the Funds. The Account's
proportionate share of the Funds' undistributed net investment income and
accumulated net realized gain (loss) on investments is included in net
unrealized loss in the Statement of Operations.
Dividends were received from the following Funds:
DATE OF DIVIDEND SOURCE
FUND REINVESTMENT OF DIVIDENDS
---- ---------------- ------------
Aetna Variable Fund July 20, 1994 Net investment income and net
December 30, 1994 realized gains
-------------------------------------------------------------------------------
Aetna Income Shares July 20, 1994
December 30, 1994 Net investment income
-------------------------------------------------------------------------------
Aetna Variable Encore Fund July 20, 1994
December 30, 1994 Net investment income
-------------------------------------------------------------------------------
Aetna Investment Advisers July 20, 1994 Net investment income and net
Fund, Inc. December 30, 1994 realized gains
-------------------------------------------------------------------------------
Aetna Get Fund, Series B Net investment income and net
December 30, 1994 realized gains
-------------------------------------------------------------------------------
Alger American Fund--Alger
American Small
Capitalization Portfolio May 5, 1994 Net realized gains
-------------------------------------------------------------------------------
Calvert Socially Responsible
Series December 30, 1994 Net investment income
-------------------------------------------------------------------------------
Insurance Management October 21, 1994
Series--Corporate Bond November 21, 1994
Fund December 21, 1994 Net investment income
-------------------------------------------------------------------------------
Insurance Management
Series--Equity Growth and
Income Fund December 21, 1994 Net investment income
-------------------------------------------------------------------------------
Insurance Management October 21, 1994
Series--U.S. Government November 21, 1994
Bond Fund December 21, 1994 Net investment income
-------------------------------------------------------------------------------
Insurance Management November 30, 1994
Series--Prime Money Fund December 30, 1994 Net investment income
-------------------------------------------------------------------------------
Insurance Management October 21, 1994
Series--Utility Fund November 21, 1994
December 21, 1994 Net investment income
VARIABLE ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS (continued)
3. DIVIDEND INCOME (continued)
DATE OF DIVIDEND SOURCE
FUND REINVESTMENT OF DIVIDENDS
---- ---------------- ------------
Janus Aspen Series--
Aggressive Growth
Portfolio December 29, 1994 Net investment income
-------------------------------------------------------------------------------
Janus Aspen Series--Flexible
Income Portfolio December 29, 1994 Net investment income
-------------------------------------------------------------------------------
Janus Aspen Series--Growth
Portfolio December 29, 1994 Net investment income
-------------------------------------------------------------------------------
Lexington Emerging Markets Net investment income and net
Fund, Inc. December 29, 1994 realized gains
-------------------------------------------------------------------------------
Lexington Natural Resources
Trust December 29, 1994 Net investment income
-------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust--Growth Net investment income and net
Portfolio February 11, 1994 realized gains
-------------------------------------------------------------------------------
Scudder Variable Life
Investment Fund--
International Portfolio February 28, 1994 Net investment income
-------------------------------------------------------------------------------
TCI Portfolios, Inc.--TCI September 24, 1994
Balanced December 16, 1994 Net investment income
-------------------------------------------------------------------------------
TCI Portfolios, Inc.--TCI April 8, 1994 Net investment income
Growth
4. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended December 31, 1994 aggregated
$342,561,371 and $213,403,512, respectively.
Variable Annuity Account B
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT -- JANUARY 1, 1994 TO DECEMBER 31, 1994
INCREASE
NET NET REALIZED (DECREASE)
VALUE AT INVESTMENT AND UNREALIZED VALUE AT IN VALUE OF ANNUITY UNIT
BEGINNING INCOME GAIN (LOSS) ON END OF ACCUMULATION VALUE AT END
OF YEAR (LOSS) INVESTMENTS YEAR UNIT OF YEAR (A)
--------- ---------- -------------- -------- ------------ ------------
AETNA VARIABLE FUND:
Non-Qualified 1964............. $117.426 $ 3.539 $(6.137) $114.828 (2.21%) $ --
Non-Qualified I................ 132.696 2.261 (5.119) 129.838 (2.15%) 48.373
Non-Qualified II............... 93.586 3.122 (5.193) 91.515 (2.21%) 46.528
Non-Qualified III.............. 89.593 3.170 (5.125) 87.638 (2.18%) --
---------------------------------------------------------------------------------------------------------
AETNA INCOME SHARES:
Non-Qualified I................ $ 41.562 $ 0.774 $(2.822) $ 39.514 (4.93%) $21.717
Non-Qualified II............... 43.469 0.870 (3.037) 41.302 (4.99%) 24.646
Non-Qualified III.............. 42.014 0.887 (2.982) 39.919 (4.99%) --
---------------------------------------------------------------------------------------------------------
AETNA VARIABLE ENCORE FUND:
Non-Qualified I................ $ 34.957 $ 0.147 $ 0.854 $ 35.958 2.86% $ --
Non-Qualified II............... 35.605 0.244 0.753 36.602 2.80% --
Non-Qualified III.............. 33.511 0.270 0.669 34.450 2.80% --
---------------------------------------------------------------------------------------------------------
AETNA INVESTMENT ADVISERS FUND, INC.:
Non-Qualified I................ $ 14.543 $ 0.347 $(0.591) $ 14.299 (1.68%) $11.326
Non-Qualified II............... 14.503 0.348 (0.599) 14.252 (1.73%) 11.296
Non-Qualified III.............. 14.462 0.348 (0.592) 14.218 (1.69%) --
---------------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC--TCI GROWTH:
Non-Qualified II............... $ 10.473 $(0.124) $(0.136) $ 10.213 (2.48%) $ --
Non-Qualified III.............. 10.373 (0.123) (0.127) 10.123 (2.41%) --
---------------------------------------------------------------------------------------------------------
Condensed financial information for Aetna GET Fund, Series B, Alger American
Fund--Alger American Small Capitalization Portfolio, Calvert Socially
Responsible Series, Fidelity Investments Variable Insurance Products Fund--
Equity--Income Portfolio, Fidelity Investments Variable Insurance Products
Fund--Growth Portfolio, Insurance Management Series--Corporate Bond Fund,
Insurance Management Series--Equity Growth and Income Fund, Insurance
Management Series--U.S. Government Bond Fund, Insurance Management Series--
Prime Money Fund, Insurance Management Series--Utility Fund, Janus Aspen
Series--Aggressive Growth Portfolio, Janus Aspen Series--Flexible Income
Portfolio, Janus Aspen Series--Growth Portfolio, Lexington Emerging Markets
Fund, Inc., Lexington Natural Resources Trust, Neuberger & Berman Advisers
Management Trust--Growth Portfolio, Scudder Variable Life Investment Fund--
International Portfolio, TCI Portfolios, Inc.--TCI Balanced, TCI Portfolios,
Inc.--International has been omitted as it only pertains to those individuals
in the Aetna Growth Plus and Marathon Plus programs.
NON-QUALIFIED 1964 Individual contracts issued from December 1, 1964 to
March 14, 1967.
NON-QUALIFIED I Individual contracts 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.
(a) The annuity unit is a statistical device used to calculate variable annuity
payments. Each variable annuity payment is determined by multiplying the
current annuity unit value by the number of annuity units credited to the
annuitant at the commencement of the annuity period. At this time, only
Aetna Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund,
Inc. are available for variable annuity payments.
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, 1994,
1993 and 1992.......................................................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1993............ F-4
Consolidated Statements of Shareholder's Equity for the Years Ended
December 31, 1994, 1993 and 1992....................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
F-1
INDEPENDENT AUDITOR'S 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, 1994 and
1993, 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, 1994. 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 at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, 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 and reinsurance contracts. In 1992, the Company changed its
method of accounting for income taxes and postretirement benefits other than
pensions.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 7, 1995
F-2
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS)
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
Revenue:
Premiums......................................... $ 124.2 $ 82.1 $ 72.5
Charges assessed against policyholders........... 279.0 251.5 235.4
Net investment income............................ 917.2 911.9 848.1
Net realized capital gains....................... 1.5 9.5 13.4
Other income..................................... 10.3 9.5 6.7
-------- -------- --------
Total revenue.................................. 1,332.2 1,264.5 1,176.1
-------- -------- --------
Benefits and expenses:
Current and future benefits...................... 852.4 806.4 761.6
Operating expenses............................... 227.2 201.3 213.5
Amortization of deferred policy acquisition
costs........................................... 36.1 37.7 32.9
-------- -------- --------
Total benefits and expenses.................... 1,115.7 1,045.4 1,008.0
-------- -------- --------
Income before federal income taxes and cumulative
effect adjustments................................ 216.5 219.1 168.1
Federal income taxes............................. 71.2 76.2 54.9
-------- -------- --------
Income before cumulative effect adjustments........ 145.3 142.9 113.2
Cumulative effect adjustments, net of tax:
Change in accounting for income taxes............ -- -- 22.8
Change in accounting for postretirement benefits
other than pensions............................. -- -- (13.2)
-------- -------- --------
Net income......................................... $ 145.3 $ 142.9 $ 122.8
======== ======== ========
See Notes to Consolidated Financial Statements.
F-3
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
DECEMBER 31,
--------------------
ASSETS 1994 1993
------ --------- ---------
Investments:
Debt securities, available for sale:
(amortized cost: $10,577.8 and $9,783.9).................... $10,191.4 $10,531.0
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $43.3 and $38.3)...... 47.2 45.9
Investment in affiliated mutual funds (cost: $187.2 and
$122.4).................................................... 181.9 126.7
Short-term investments....................................... 98.0 22.6
Mortgage loans............................................... 9.9 10.1
Policy loans................................................. 248.7 202.7
Limited partnership.......................................... 24.4 --
--------- ---------
Total investments........................................ 10,801.5 10,939.0
Cash and cash equivalents...................................... 623.3 536.1
Accrued investment income...................................... 142.2 124.7
Premiums due and other receivables............................. 75.8 67.0
Deferred policy acquisition costs.............................. 1,172.0 1,061.0
Reinsurance loan to affiliate.................................. 690.3 711.0
Other assets................................................... 15.9 12.6
Separate Accounts assets....................................... 7,420.8 6,684.3
--------- ---------
Total assets............................................. $20,941.8 $20,135.7
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Liabilities:
Future policy benefits....................................... $ 2,968.1 $ 2,741.8
Unpaid claims and claim expenses............................. 23.8 27.2
Policyholders' funds left with the Company................... 8,901.6 9,003.9
--------- ---------
Total insurance liabilities.............................. 11,893.5 11,698.7
Other liabilities............................................ 302.1 229.7
Federal income taxes:
Current.................................................... 3.4 40.6
Deferred................................................... 233.5 161.5
Separate Accounts liabilities................................ 7,420.8 6,684.3
--------- ---------
Total liabilities........................................ 19,853.3 18,889.0
--------- ---------
Shareholder's equity:
Common capital stock, par value $50 (100,000 shares autho-
rized; 55,000 shares issued and outstanding)................ 2.8 2.8
Paid-in capital.............................................. 407.6 407.6
Net unrealized capital gains (losses)........................ (189.0) 114.5
Retained earnings............................................ 867.1 721.8
--------- ---------
Total shareholder's equity............................... 1,088.5 1,246.7
--------- ---------
Total liabilities and shareholder's equity............... $20,941.8 $20,135.7
========= =========
See Notes to Consolidated Financial Statements.
F-4
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(MILLIONS)
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993 1992
-------- -------- ------
Shareholder's equity, beginning of year.............. $1,246.7 $ 990.1 $867.4
Net change in unrealized capital gains (losses)...... (303.5) 113.7 (0.1)
Net income........................................... 145.3 142.9 122.8
-------- -------- ------
Shareholder's equity, end of year.................... $1,088.5 $1,246.7 $990.1
======== ======== ======
See Notes to Consolidated Financial Statements.
F-5
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
Cash Flows from Operating Activities:
Net income.................................. $ 145.3 $ 142.9 $ 122.8
Cumulative effect adjustments............... -- -- (9.6)
Increase in accrued investment income....... (17.5) (11.1) (8.7)
(Increase) decrease in premiums due and
other receivables.......................... 1.3 (5.6) (19.9)
Increase in policy loans.................... (46.0) (36.4) (32.4)
Increase in deferred policy acquisition
costs...................................... (96.5) (60.5) (60.8)
Decrease in reinsurance loan to affiliate... 27.8 31.8 37.8
Net increase in universal life account
balances................................... 164.7 126.4 130.8
Increase in other insurance reserve
liabilities................................ 65.7 86.1 20.5
Net increase in other liabilities and other
assets..................................... 53.9 7.0 20.2
Decrease in federal income taxes............ (11.7) (3.7) (11.8)
Net accretion of discount on bonds.......... (77.9) (88.1) (75.2)
Net realized capital gains.................. (1.5) (9.5) (13.4)
Other, net.................................. (1.0) 0.2 (0.2)
--------- --------- ---------
Net cash provided by operating activities. 206.6 179.5 100.1
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale........ 3,593.8 473.9 543.3
Equity securities......................... 93.1 89.6 50.6
Investment maturities and collections of:
Debt securities available for sale........ 1,289.2 2,133.3 1,179.2
Short-term investments.................... 30.4 19.7 5.0
Cost of investment purchases in:
Debt securities........................... (5,621.4) (3,669.2) (2,612.2)
Equity securities......................... (162.5) (157.5) (63.0)
Short-term investments.................... (106.1) (41.3) (5.0)
Limited partnership....................... (25.0) -- --
--------- --------- ---------
Net cash used for investing activities.. (908.5) (1,151.5) (902.1)
--------- --------- ---------
Cash Flows from Financing Activities:
Deposits and interest credited for
investment contracts....................... 1,737.8 2,117.8 1,619.6
Withdrawals of investment contracts......... (948.7) (1,000.3) (767.7)
--------- --------- ---------
Net cash provided by financing
activities............................. 789.1 1,117.5 851.9
--------- --------- ---------
Net increase in cash and cash equivalents..... 87.2 145.5 49.9
Cash and cash equivalents, beginning of year.. 536.1 390.6 340.7
--------- --------- ---------
Cash and cash equivalents, end of year........ $ 623.3 $ 536.1 $ 390.6
========= ========= =========
Supplemental cash flow information:
Income taxes paid, net...................... $ 82.6 $ 79.9 $ 54.0
========= ========= =========
See Notes to Consolidated Financial Statements.
F-6
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993, AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America,
Systematized Benefits Administrators, Inc., Aetna Private Capital, Inc. and
Aetna Investment Services, Inc. (collectively, the "Company"). Aetna Life
Insurance and Annuity Company is a wholly owned subsidiary of Aetna Life and
Casualty Company ("Aetna").
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 1993 and 1992 financial
information to conform to the 1994 presentation.
The Company offers a wide range of life insurance products and annuity
contracts with variable and fixed accumulation and payout options. The Company
also provides investment advisory and other services to affiliated mutual
funds.
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.
Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts
During 1993, the Company adopted FAS No. 113, Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts, retroactive to
January 1, 1993. Reinsurance recoverables (previously reported as a reduction
in insurance reserve liabilities) and reinsurance receivables and ceded
unearned premiums are included in premiums due and other receivables. The
adoption of FAS No. 113 did not have a material impact on the Company's 1993
Consolidated Financial Statements.
Accounting for Income Taxes
The Company adopted FAS No. 109, Accounting for Income Taxes, in 1992,
retroactive to January 1, 1992. A cumulative effect benefit of $22.8 million
related to the adoption of this standard is reflected in the 1992 Consolidated
Statement of Income.
F-7
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postretirement Benefits Other Than Pensions
FAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, required that employers accrue the cost and recognize the liability
for providing non-pension benefits to retired employees and agents. Aetna and
the Company implemented FAS No. 106 in 1992, retroactive to January 1, 1992 on
the immediate recognition basis. The cumulative effect charge for all Aetna
employees was reflected in Aetna's 1992 Statement of Income. A cumulative
effect charge of $13.2 million, net of taxes of $7.1 million, related to the
adoption of this standard for Company agents is reflected in the Company's 1992
Consolidated Statement of Income.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of ninety days or less when purchased.
Investments
Debt Securities
At December 31, 1994 and 1993, 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 LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Limited Partnership
The Company's limited partnership investment is carried at the amount invested
plus the Company's share of undistributed operating results and unrealized
gains (losses), which approximates fair value.
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 10.50%. 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 5.85% in 1994 and
4.00% to 7.68% in 1993. For all other fixed options, the interest credited
ranged from 5.00% to 7.50% in 1994 and 5.00% to 9.25% in 1993.
Reserves for fixed annuity contracts in the annuity period and for future
amounts due under settlement options are computed actuarially using the
Progressive Annuity Table (modified), the Annuity Table for 1949, the 1971
Individual Annuity Mortality Table, the 1971 Group Annuity Mortality Table, the
1983 Individual Annuity Mortality Table and the 1983 Group Annuity Mortality
Table, 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.
F-9
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $149.7 million for 1994
(fair value $146.3 million) and $31.2 million for 1993 (fair value $33.3
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 1994 and from 4% to 9.45% in 1993. 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 LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
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 obliga-
tions 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 securi-
ties:
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 se-
curities............................ 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 loan-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
========= ====== ====== =========
F-11
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investments in debt securities available for sale as of December 31, 1993
were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(millions)
U.S. Treasury securities and obliga-
tions of U.S. government agencies
and corporations.................... $ 827.2 $ 19.4 $ 6.6 $ 840.0
Obligations of states and political
subdivisions........................ 0.5 -- -- 0.5
U.S. Corporate securities:
Financial.......................... 983.3 49.2 0.7 1,031.8
Utilities.......................... 141.2 12.4 -- 153.6
Other.............................. 704.3 51.6 2.3 753.6
-------- ------ ----- ---------
Total U.S. Corporate securi-
ties.......................... 1,828.8 113.2 3.0 1,939.0
Foreign securities:
Government......................... 289.1 31.7 0.5 320.3
Financial.......................... 365.8 18.5 0.9 383.4
Utilities.......................... 206.2 28.9 0.1 235.0
Other.............................. 30.4 1.3 0.8 30.9
-------- ------ ----- ---------
Total Foreign securities....... 891.5 80.4 2.3 969.6
Residential mortgage-backed securi-
ties:
Residential pass-throughs.......... 1,125.0 218.1 1.7 1,341.4
Residential CMOs................... 4,868.7 318.1 1.1 5,185.7
-------- ------ ----- ---------
Total Residential mortgage-backed se-
curities............................ 5,993.7 536.2 2.8 6,527.1
Commercial/Multifamily mortgage-
backed securities................... 193.0 13.4 0.8 205.6
-------- ------ ----- ---------
Total Mortgage-backed securi-
ties.......................... 6,186.7 549.6 3.6 6,732.7
Other loan-backed securities......... 49.2 0.2 0.2 49.2
-------- ------ ----- ---------
Total debt securities available for
sale................................ $9,783.9 $762.8 $15.7 $10,531.0
======== ====== ===== =========
At December 31, 1994 and 1993, net unrealized appreciation (depreciation) of
$(386.4) million and $747.1 million, respectively, on available for sale debt
securities included $(308.6) million and $582.8 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 LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair value of debt securities for the year ended
December 31, 1994 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................................... $ 103.9 $ 103.5
After one year through five years.................. 1,965.6 1,920.0
After five years through ten years................. 2,371.3 2,207.0
After ten years.................................... 1,707.8 1,599.4
Mortgage-backed securities......................... 3,733.1 3,682.0
Other loan-backed securities....................... 696.1 679.5
--------- ---------
Total............................................ $10,577.8 $10,191.4
========= =========
At December 31, 1994 and 1993, debt securities carried at $7.0 million and $7.3
million, respectively, were on deposit as required by regulatory authorities.
The valuation reserve for mortgage loans was $3.1 million and $4.2 million at
December 31, 1994 and 1993, respectively. The carrying value of non-income
producing investments was $0.2 million and $34.3 million at December 31, 1994
and 1993, respectively.
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, 1994 are as follows:
AMORTIZED FAIR
DEBT SECURITIES COST VALUE
--------------- --------- ------
(millions)
General Electric Capital Corporation.................... $264.9 $252.1
General Motors Corporation.............................. 167.8 161.7
Society National Bank................................... 152.8 143.7
Ford Motor Company...................................... 144.7 142.3
Associates Corporation of North America................. 132.9 131.1
First Deposit Master Trust 1994-1A...................... 114.9 112.1
The portfolio of debt securities at December 31, 1994 and 1993 included $318
million and $329 million, respectively, (3% of the debt securities for both
years) 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.
Of these below investment grade assets, $32 million and $39 million, at
December 31, 1994 and 1993, 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 $2.6 billion and $5.2 billion at
December 31, 1994 and 1993, respectively. The $2.6 billion decline in CMOs from
December 31, 1993 to December 31, 1994 was related primarily to sales
F-13
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and principal repayments. CMO sales of $1.6 billion resulted in net realized
capital gains of $35 million of which $23 million was allocated to experience-
rated contracts. The Company's CMO exposure was reduced as a result of changes
in their risk and return characteristics and to better diversify the risk
profile of the Company's assets. 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, 1994 and 1993,
approximately 85% and 93%, respectively, of the Company's CMO holdings
consisted of sequential and planned amortization class ("PAC") debt securities
which are subject to less prepayment and extension risk than other CMO
instruments. At December 31, 1994 and 1993, approximately 82% 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.
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, 1994 and 1993, 4% and 3%, 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, PACs and sequentials
was mitigated by purchasing 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 by holding offsetting
positions in PO's, PACs, and sequentials. During dramatic decreases in interest
rates POs, PACs and sequentials would generate future cash flows much quicker
than originally anticipated.
In 1993, due to declining interest rates and prepayments on the underlying pool
of mortgages, the amortized cost on IO's was written down by $85.4 million. IO
writedowns of $4.7 million, net of $80.7 million allocated to experience-rated
contracts, were reflected in 1993 net realized capital gains (losses). In 1994,
due to increasing interest rates, unrealized gains on IO's increased from $0.5
million at December 31, 1993 to $17.8 million at December 31, 1994. Conversely,
unrealized gains on POs decreased from $36.7 million at December 31, 1993 to
$5.3 million at December 31, 1994. 1994 net realized gains (losses) included
net gains of $10.0 million as a result of sales of IOs and POs (including
amounts allocated to experience-rated contractholders).
F-14
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company did not use derivative instruments (ie., futures, forward
contracts, interest swaps, etc.) for hedging or any other purposes in 1994 or
1993.
The Company does hold investments in certain debt and equity securities with
derivative characteristics (ie., 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 $10.8
billion investment portfolio, as of December 31, 1994 was as follows:
AMORTIZED FAIR
COST VALUE
--------- --------
(millions)
Collateralized mortgage obligations (including
interest-only and principal-only strips)............ $2,671.0 $2,564.5
Treasury and agency strips:
Principal.......................................... 20.7 21.6
Interest........................................... 104.2 90.2
Mandatorily convertible preferred stock.............. 12.1 11.6
Investments in available for sale equity securities were as follows:
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
(millions)
1994
Equity Securities...................... $ 230.5 $ 6.5 $7.9 $ 229.1
------- ----- ---- -------
1993
Equity Securities...................... $ 160.7 $12.0 $0.1 $ 172.6
------- ----- ---- -------
At December 31, 1994 and 1993, 91% of outstanding policy loans had fixed
interest rates. The fixed interest rates for annuity policy loans ranged from
1% to 3% for individual annuity policies in both 1994 and 1993. The fixed
interest rates for individual life policy loans ranged from 5% to 8% in 1994
and 6% to 8% in 1993. The remaining outstanding policy loans had variable
interest rates averaging 8% in 1994 and 1993. Investment income from policy
loans was $11.5 million, $10.8 million and $9.5 million in 1994, 1993 and 1992,
respectively.
Off-Balance Sheet Financial Instruments
At December 31, 1993, the Company had $149.0 million in outstanding forward
commitments to purchase mortgage-backed securities at a specified future date
and at a specified price or yield. These instruments involve elements of market
risk whereby future changes in market prices may make a financial instrument
less valuable. However, the difference between the fair value at which the
commitments can be settled, and the contractual value of these securities, was
immaterial at December 31, 1993. There were no outstanding forward commitments
at December 31, 1994.
There were no material concentrations of off-balance sheet financial
instruments at December 31, 1994 and 1993.
F-15
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $(29.1) million, $(54.8) million and $36.1 million for the
years ended December 31, 1994, 1993, and 1992, 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 $(50.7) million and $(16.5) million at the end of December 31,
1994 and 1993, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities are included in net realized capital gains (losses) and amounted to
$1.1 million and $(98.5) million, of which $0.8 million and $(91.5) million
were allocable to experience-rated contractholders, for the years ended
December 31, 1994 and 1993, respectively. There were no changes to the
valuation reserve or writedowns in 1992. The 1993 losses were primarily related
to writedowns of interest-only mortgage-backed securities to their fair value.
Net realized capital gains (losses) on investments, net of amounts allocated to
experience-rated contracts, were as follows:
1994 1993 1992
---- ---- -----
(millions)
Debt securities............................................ $1.0 $9.6 $12.9
Equity securities.......................................... 0.2 .1 0.5
Mortgage loans............................................. 0.3 (0.2) --
---- ---- -----
Pretax realized capital gains.............................. $1.5 $9.5 $13.4
==== ==== =====
After-tax realized capital gains........................... $1.0 $6.2 $ 8.8
==== ==== =====
Gross gains of $26.6 million, $33.3 million and $13.9 million and gross losses
of $25.6 million, $23.7 million and $1.0 million were realized from the sales
of investments in debt securities in 1994, 1993 and 1992, 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:
1994 1993 1992
------- ------ -----
(millions)
Debt securities...................................... $(242.1) $164.3 $ --
Equity securities.................................... (13.3) 10.6 (0.1)
Limited partnership.................................. (1.8) -- --
------- ------ -----
(257.2) 174.9 (0.1)
Deferred federal income taxes (See Note 6)........... 46.3 61.2 --
------- ------ -----
Net change in unrealized capital gains (losses)...... $(303.5) $113.7 $(0.1)
======= ====== =====
The net change in unrealized capital gains (losses) on debt securities in 1994
and 1993 resulted from the adoption of FAS No. 115. For the year ended December
31, 1992, debt securities were carried at
F-16
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amortized cost. The unrecorded net appreciation for debt securities carried at
amortized cost (including amounts allocable to experience-rated contracts)
amounted to $612.4 million at December 31, 1992.
Net unrealized capital gains (losses) allocable to experience-rated contracts
of $(308.6) million and $582.8 million at December 31, 1994 and 1993,
respectively, are not included in shareholder's equity. These amounts are
reflected on the Consolidated Balance Sheet in policyholders' funds left with
the Company.
Shareholder's equity included the following unrealized capital gains (losses),
which are net of amounts allocable to experience-rated contractholders, at
December 31:
1994 1993 1992
------- ------ ------
(millions)
Debt securities
Gross unrealized capital gains.................... $ 27.4 $164.3 $ --
Gross unrealized capital losses................... (105.2) -- --
------- ------ ------
(77.8) 164.3 --
Equity securities
Gross unrealized capital gains.................... 6.5 12.0 2.0
Gross unrealized capital losses................... (7.9) (0.1) (0.7)
------- ------ ------
(1.4) 11.9 1.3
Limited Partnership
Gross unrealized capital gains.................... -- -- --
Gross unrealized capital losses................... (1.8) -- --
------- ------ ------
(1.8) -- --
Deferred federal income taxes (See Note 6).......... 108.0 61.7 0.5
------- ------ ------
Net unrealized capital gains (losses)............... $(189.0) $114.5 $ 0.8
======= ====== ======
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
1994 1993 1992
------ ------ ------
(millions)
Debt securities.................................. $823.9 $828.0 $763.7
Preferred stock.................................. 3.9 2.3 2.8
Investment in affiliated mutual funds............ 5.2 2.9 3.2
Mortgage loans................................... 1.4 1.5 1.8
Policy loans..................................... 11.5 10.8 9.5
Reinsurance loan to affiliate.................... 51.5 53.3 56.7
Cash equivalents................................. 29.5 16.8 16.6
Other............................................ 6.7 7.7 6.4
------ ------ ------
Gross investment income.......................... 933.6 923.3 860.7
Less investment expenses......................... (16.4) (11.4) (12.6)
------ ------ ------
Net investment income............................ $917.2 $911.9 $848.1
====== ====== ======
F-17
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net investment income includes amounts allocable to experience-rated
contractholders of $677.1 million, $661.3 million and $604.0 million for the
years ended December 31, 1994, 1993 and 1992, respectively. Interest credited
to contractholders is included in Current and Future Benefits.
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The amount of dividends that may be paid to the shareholder in 1995 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$70.9 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 $70.9 million, $77.6 million and $62.5
million for the years ended December 31, 1994, 1993 and 1992, respectively.
Statutory shareholder's equity was $615.0 million and $574.4 million as of
December 31, 1994 and 1993, respectively.
As of 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.
As discussed in Note 1, the Company adopted FAS No. 109 as of January 1, 1992
resulting in a cumulative effect benefit of $22.8 million.
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:
1994 1993 1992
------ ------ ------
(millions)
Current taxes (benefits):
Income from operations............................. $ 78.7 $ 87.1 $ 68.0
Net realized capital gains......................... (33.2) 18.1 18.1
------ ------ ------
45.5 105.2 86.1
------ ------ ------
Deferred taxes (benefits):
Income from operations............................. (8.0) (14.2) (17.7)
Net realized capital gains......................... 33.7 (14.8) (13.5)
------ ------ ------
25.7 (29.0) (31.2)
------ ------ ------
Total............................................ $ 71.2 $ 76.2 $ 54.9
====== ====== ======
F-18
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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:
1994 1993 1992
------ ------ ------
(millions)
Income before federal income taxes................... $216.5 $219.1 $168.1
Tax rate............................................. 35% 35% 34%
------ ------ ------
Application of the tax rate.......................... 75.8 76.7 57.2
------ ------ ------
Tax effect of:
Excludable dividends............................... (8.6) (8.7) (6.4)
Tax reserve adjustments............................ 2.9 4.7 5.1
Reinsurance transaction............................ 1.9 (0.2) (0.5)
Tax rate change on deferred liabilities............ -- 3.7 --
Other, net......................................... (0.8) -- (0.5)
------ ------ ------
Income tax expense............................... $ 71.2 $ 76.2 $ 54.9
====== ====== ======
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities under FAS No. 109 at December 31, 1994 and 1993
are presented below:
1994 1993
------ ------
(millions)
Deferred tax assets:
Insurance reserves........................................... $211.5 $195.4
Net unrealized capital losses................................ 136.3 --
Investment losses not currently deductible................... 15.5 31.2
Postretirement benefits other than pensions.................. 8.4 8.6
Impairment reserves.......................................... -- 7.9
Other........................................................ 28.3 19.3
------ ------
Total gross assets......................................... 400.0 262.4
Less valuation allowance....................................... 136.3 --
------ ------
Deferred tax assets net of valuation......................... 263.7 262.4
Deferred tax liabilities:
Deferred policy acquisition costs............................ 385.2 355.2
Unrealized losses allocable to experience-rated contracts.... 108.0 --
Market discount.............................................. 3.6 5.4
Net unrealized capital gains................................. -- 61.7
Other........................................................ 0.4 1.6
------ ------
Total gross liabilities.................................... 497.2 423.9
------ ------
Net deferred tax liability................................. $233.5 $161.5
====== ======
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. For federal income tax purposes, capital losses are deductible only
against capital gains in the year of sale or during the carryback and
carryforward periods (three and five years, respectively). Due to the expected
full utilization of capital gains in the carryback period and
F-19
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the uncertainty of future capital gains, a valuation allowance of $28.3 million
related to the net unrealized capital losses has been reflected in
shareholder's equity. In addition, $308.6 million of net unrealized capital
losses related to experience-rated contracts are not reflected in shareholder's
equity since such losses, if realized, are allocable to contractholders.
However, the potential loss of tax benefits on such losses is the risk of the
Company and therefore would adversely affect the Company rather than the
contractholder. Accordingly, an additional valuation allowance of $108.0
million has been reflected in shareholder's equity as of December 31, 1994. Any
reversals of the valuation allowance are contingent upon the recognition of
future capital gains in the Company's federal income tax return or a change in
circumstances which causes the recognition of the benefits to become more
likely than not. Non-recognition of the deferred tax benefits on net unrealized
losses described above had no impact on net income for 1994, but has the
potential to adversely affect future results if such losses are realized.
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, 1994. 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 adjustments. 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 Entry
Age Normal Cost 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 1992 through 1994, 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 1992 through 1994, 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.
F-20
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aetna implemented FAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions in 1992 on the immediate recognition basis. The
cumulative effect charge for all Aetna employees was reflected in Aetna's 1992
Statement of Income. Prior to the adoption of FAS No. 106, the cost of
postretirement benefits was charged to operations as payments were made. The
accumulated benefit obligation and plan assets are recorded by Aetna.
Accumulated postretirement benefits exceed plan assets.
The cost to the Company associated with the Aetna postretirement plans for
1994, 1993 and 1992 were $1.0 million, $0.8 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. The impact of recognizing the liability for agent costs was a
cumulative effect adjustment of $13.2 million (net of deferred taxes of $6.8
million) and is reported in the 1992 Consolidated Statement of Income.
The cost to the Company associated to the agents' postretirement plans for
1994, 1993 and 1992 were $0.7 million, $0.6 million and $0.7 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 $3.3 million, $3.1 million and $2.8 million in
1994, 1993 and 1992, 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 to the Aetna stock plans for 1994 and
1993 was $2.3 million, $0.4 million, respectively. The cost for 1992 was
immaterial.
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 .70% 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 $104.6 million, $93.6 million and $80.5 million in 1994, 1993 and
1992, respectively. The Company may waive advisory fees at its discretion.
F-21
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $690.3 million and $711.0
million as of December 31, 1994 and 1993, 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 $630.3 million and $685.8
million as of December 31, 1994 and 1993, respectively, and is based upon the
fair value of the underlying assets. Premiums of $32.8 million, $33.3 million
and $36.8 million and current and future benefits of $43.8 million, $55.4
million and $47.2 million were assumed in 1994, 1993 and 1992, respectively.
Investment income of $51.5 million, $53.3 million and $56.7 million was
generated from the reinsurance loan to affiliate in 1994, 1993 and 1992,
respectively. Net income of approximately $25.1 million, $13.6 million and
$21.7 million resulted from this agreement in 1994, 1993 and 1992,
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 $24.2 million and $27.8
million were maintained for this contract as of December 31, 1994 and 1993,
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 for 1994, 1993 and 1992 were
immaterial.
Effective December 31, 1992, the Company entered into an assumption reinsurance
agreement with Aetna Life to reinsure a block of approximately 3,500 life
contingent, period certain and deferred lump sum annuities (totaling $175.5
million in premium) issued by the Company to Aetna Casualty to fund its
obligations under structured settlement agreements. The negotiated price
recognized the sale of future profits and included consideration to ALIAC for
the continued administration of the reinsured contracts on behalf of, and in
the name of, Aetna Life.
The Company received no capital contributions in 1994, 1993 or 1992.
Premiums due and other receivables include $27.6 million and $9.8 million due
from affiliates in 1994 and 1993, respectively. Other liabilities include $27.9
million and $26.1 million due to affiliates for 1994 and 1993, 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.
F-22
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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)
1994
Premiums:
Life Insurance............................ $ 25.8 $ 6.0 $32.8 $ 52.6
Accident and Health Insurance............. 10.8 9.3 -- 1.5
Annuities................................. 69.9 -- 0.2 70.1
------ ----- ----- ------
Total earned premiums................... $106.5 $15.3 $33.0 $124.2
====== ===== ===== ======
1993
Premiums:
Life Insurance............................ $ 20.9 $ 5.6 $33.3 $ 48.6
Accident and Health Insurance............. 14.4 12.9 -- 1.5
Annuities................................. 31.3 -- 0.7 32.0
------ ----- ----- ------
Total earned premiums................... $ 66.6 $18.5 $34.0 $ 82.1
====== ===== ===== ======
1992
Premiums:
Life Insurance............................ $ 20.8 $ 5.2 $36.8 $ 52.4
Accident and Health Insurance............. 15.1 13.7 -- 1.4
Annuities................................. 18.4 -- 0.3 18.7
------ ----- ----- ------
Total earned premiums................... $ 54.3 $18.9 $37.1 $ 72.5
====== ===== ===== ======
10. FINANCIAL INSTRUMENTS
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1994 and 1993 were as follows:
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(millions)
Assets:
Cash and cash equivalents............. $ 623.3 $ 623.3 $ 536.1 $ 536.1
Short-term investments................ 98.0 98.0 22.6 22.6
Debt securities....................... 10,191.4 10,191.4 10,531.0 10,531.0
Equity securities..................... 229.1 229.1 172.6 172.6
Limited partnership................... 24.4 24.4 -- --
Mortgage loans........................ 9.9 9.9 10.1 10.1
Liabilities:
Investment contract liabilities:
With a fixed maturity............... 826.7 833.5 733.3 795.6
Without a fixed maturity............ 8,074.9 7,870.4 8,196.4 8,099.3
F-23
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
11. SEGMENT INFORMATION
Effective December 31, 1994, the Company's operations, which previously were
reported in total, will now be reported through two major business segments:
Life Insurance and Financial Services. The Life Insurance segment markets most
types of life insurance including 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. The Financial Services segment markets and services individual and
group annuity contracts which offer a variety of funding and distribution
options for personal and employer-sponsored retirement plans that qualify for
tax deferral under sections 401(k) for corporations, 403(b) for hospitals and
educational institutions, 408 for individual retirement accounts, and 457 for
state and local governments and tax exempt healthcare organizations (the
"deferred compensation market"), of the Internal Revenue Code. These contracts
may be immediate or deferred. These products are offered primarily to
individuals, pension plans, small businesses and employer-sponsored groups.
F-24
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Summarized financial information for the Company's principal operations was as
follows:
1994 1993 1992
--------- --------- ---------
(millions)
Revenue:
Life insurance................................. $ 386.1 $ 371.7 $ 363.6
Financial services............................. 946.1 892.8 812.5
--------- --------- ---------
Total revenue................................ $ 1,332.2 $ 1,264.5 $ 1,176.1
========= ========= =========
Income from continuing operations before income
taxes and cumulative effect adjustments:
Life insurance................................. $ 96.8 $ 98.0 $ 74.6
Financial services............................. 119.7 121.1 93.5
--------- --------- ---------
Total income from continuing operations be-
fore income taxes and cumulative effect ad-
justments................................... $ 216.5 $ 219.1 $ 168.1
Net income:
Life insurance................................. $ 59.8 $ 56.1 $ 45.6
Financial services............................. 85.5 86.8 67.6
--------- --------- ---------
Income before cumulative effect adjustments.. $ 145.3 $ 142.9 $ 113.2
--------- --------- ---------
Cumulative effect adjustments................ -- -- 9.6
--------- --------- ---------
Net income....................................... $ 145.3 $ 142.9 $ 122.8
========= ========= =========
1994 1993 1992
--------- --------- ---------
(millions)
Assets under management, at fair value:
Life insurance................................. $ 2,175.2 $ 2,180.1 $ 1,973.1
Financial services............................. 17,791.9 16,600.5 13,644.3
--------- --------- ---------
Total assets under management................ $19,967.1 $18,780.6 $15,617.4
========= ========= =========
F-25
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT B
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Form No.__79122__ (S) ALIAC Ed. 5/95
VARIABLE ANNUITY ACCOUNT B
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
-------------------------------------------
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account B:
- Independent Auditors' Report
- Statement of Assets and Liabilities as of December 31, 1994
- Statement of Operations for the year ended December 31, 1994
- Statements of Changes in Net Assets for the years ended
December 31, 1994 and 1993
- Notes to Financial Statements
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Balance Sheets as of December 31, 1994 and 1993
- Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1994, 1993 and 1992
- Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account B/1/
(2) Not applicable
(3.1) Form of Federated Broker-Dealer Agreement (9/2/94)
(3.2) Alternate Form of Broker-Dealer Agreement (1994)
(4.1) Form of Aetna Growth Plus Group Variable, Fixed or
Combination Annuity Contract (Nonparticipating)/2/
(4.2) Form of Aetna Growth Plus Individual Variable, Fixed or
Combination Annuity Contract (Nonparticipating)/2/
(5.1) Form of Application for Aetna Growth Plus Group
Variable, Fixed or Combination Annuity Contract
(Nonparticipating)/2/
(5.2) Form of Application for Aetna Growth Plus Individual
Variable, Fixed or Combination Annuity Contract
(Nonparticipating)/2/
(6) Certificate of Incorporation and By-Laws of Depositor/3/
(7) Form of Reinsurance Agreement/4/
(8) Form of Fund Participation Agreement by and among Insurance
Management Series, Federated Advisers and Aetna Life Insurance
and Annuity Company (12/12/94)/5/
(9) Opinion of Counsel/6/
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data/7/
(14) Financial Data Schedule
(15.1) Powers of Attorney/8/
(15.2) Authorization for Signatures
1. Incorporated by reference to Registration Statement on Form N-4 (File No.
2-52448) filed on February 28, 1986.
2. Incorporated by reference to Registration Statement on Form N-4 (File No.
33-79122) filed on May 18, 1994.
3. Incorporated by reference to Post-Effective Amendment No. 58 to
Registration Statement on Form N-4 (File No. 2-52449) filed on February 28,
1994.
4. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-80750) filed on August 15, 1995.
5. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-79122) filed on September 15, 1994.
6. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year
ended December 31, 1994 filed on February 28, 1995.
7. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 33-79122) filed on April 25, 1995.
8. Incorporated by reference to Registrant's Post-Effective Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-75996) filed on
February 23, 1995.
Item 25. Directors and Officers of the Depositor
-------- ---------------------------------------
Name and Principal
Business Address* Positions and Offices with Depositor
----------------- ------------------------------------
Daniel P. Kearney Director and President
Gary G. Benanav Director
Christopher J. Burns Director and Senior Vice President, Life
Laura R. Estes Director and Senior Vice President, ALIAC
Pensions
Shaun P. Mathews Director and Senior Vice President,
Strategic Markets and Products
Scott A. Striegel Director and Senior Vice President, Annuity
James C. Hamilton Director, Vice President and Treasurer
Dominick J. Agostino Director, Senior Vice President and Chief
Financial Officer
John Y. Kim Director and Senior Vice President, ALIAC
Investments
Robert E. Broatch Senior Vice President and Corporate
Controller
Zoe Baird Senior Vice President and General Counsel
Fred J. Franklin Vice President and Chief Compliance Officer
Susan E. Schechter Corporate Secretary and Counsel
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
-------- -------------------------------------------------------------------
Registrant
----------
Incorporated herein by references to Exhibit 24(c) to Registration
Statement on Form N-4 (File No. 33-88720) filed on January 20, 1995.
Item 27. Number of Contract Owners
-----------------------------------
As of June 30, 1995, there were 73,790 contract owners of variable
annuity contracts funded through Account B.
Item 28. Indemnification
-------------------------
Reference is hereby made to Section 33-320a of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents, and
certain other defined individuals against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification does not apply unless (1) the individual is successful on
the merits in the defense of any such proceeding; or (2) a determination is made
(by a majority of the board of directors not a party to the proceeding by
written consent; by independent legal counsel selected by a majority of the
directors not involved in the proceeding; or by a majority of the shareholders
not involved in the proceeding) that the individual acted in good faith and in
the best interests of the corporation; or (3) the court, upon application by the
individual, determines in view of all the circumstances that such person is
reasonably entitled to be indemnified.
C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut
corporation cannot indemnify a director or officer to an extent either greater
or less than that authorized by the statute, e.g., pursuant to its certificate
of incorporation, bylaws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Consistent with the statute, Aetna Life and Casualty Company has
procured insurance from Lloyd's of London and several major United States excess
insurers for its directors and officers and the directors and officers of its
subsidiaries, including the Depositor, which supplements the indemnification
rights provided by C.G.S. Section 33-320a to the extent such coverage does not
violate public policy.
Item 29. Principal Underwriter
-------------------------------
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts
as the principal underwriter for Variable Life Account B and Variable
Annuity Account C (separate accounts of ALIAC registered as unit
investment trusts), and Separate Account I (a separate account of
Aetna Insurance Company of America registered as a unit investment
trust). Additionally, ALIAC is the investment adviser for Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., of Aetna GET Fund, Aetna Series Fund,
Inc. and Aetna Generation Portfolios, Inc. ALIAC is also the depositor
of Variable Life Account B and Variable Annuity Account C.
(b) See Item 25 regarding the underwriter.
(c) Compensation as of December 31, 1994:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
---------- ----------- ---------------- ----------- -------------
Aetna Life $269,230 $9,036,662
Insurance and
Annuity
Company
* Compensation shown in column 5 includes deductions for mortality and expense
risk guarantees and contract charges assessed to cover costs incurred in the
sales and administration of the contracts issued under Account B.
Item 30. Location of Accounts and Records
------------------------------------------
All records concerning contract owners of Variable Annuity Account B
are located at the home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
-----------------------------
Not applicable
Item 32. Undertakings
----------------------
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on Form
N-4 as frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for as long as payments under the variable annuity contracts
may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4, a
space that an applicant can check to request a Statement of Additional
Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
SIGNATURES
As required by the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, the Registrant, Variable Annuity Account B of Aetna Life
Insurance and Annuity Company, has caused this Post-Effective Amendment No. 3 to
its Registration Statement on Form N-4 (File No. 33-79122) to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hartford,
State of Connecticut, on the 16th day of August, 1995.
VARIABLE ANNUITY ACCOUNT B OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
(Depositor)
By: Daniel P. Kearney*
-------------------------------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, as amended, this Post-
Effective Amendment No. 3 to the Registration Statement on Form N-4 (File No.
33-79122) has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
Daniel P. Kearney* Director and President )
---------------------- (Principal Executive Officer) )
Daniel P. Kearney )
)
Dominick J. Agostino* Director, Senior Vice President and )
---------------------- Chief Financial )
Dominick J. Agostino Officer (Principal Accounting and )
Financial Officer) )
)
James C. Hamilton* Director )
---------------------- )
James C. Hamilton ) August
) 16, 1995
Gary G. Benanav* Director )
---------------------- )
Gary G. Benanav )
)
Christopher J. Burns* Director )
---------------------- )
Christopher J. Burns )
Laura R. Estes* Director )
---------------------- )
Laura R. Estes )
)
John Y. Kim* Director )
---------------------- )
John Y. Kim )
)
Shaun P. Mathews* Director )
---------------------- )
Shaun P. Mathews )
)
Scott A. Striegel* Director )
---------------------- )
Scott A. Striegel )
By: /s/ Julie E. Rockmore
-----------------------------------
Julie E. Rockmore
*Attorney-in-Fact
VARIABLE ANNUITY ACCOUNT B
EXHIBIT INDEX
Exhibit No. Exhibit Page
----------- ------- ----
99-B.1 Resolution of the Board of Directors of Aetna Life *
Insurance and Annuity Company establishing Variable
Annuity Account B
99-B.3.1 Form of Federated Broker-Dealer Agreement (9/2/94) __________
99-B.3.2 Alternate Form of Broker-Dealer Agreement (1994) __________
99-B.4.1 Form of Aetna Growth Plus Group Variable, Fixed or
Combination Annuity Contract (Nonparticipating) *
99-B.4.2 Form of Aetna Growth Plus Individual Variable, Fixed
or Combination Annuity Contract (Nonparticipating) *
99-B.5.1 Form of Application for Aetna Growth Plus Group
Variable, Fixed or Combination Annuity Contract
(Nonparticipating) *
99-B.5.2 Form of Application for Aetna Growth Plus Individual
Variable, Fixed or Combination Annuity Contract
(Nonparticipating) *
99-B.6 Certificate of Incorporation and By-Laws of Depositor *
99-B.7 Form of Reinsurance Agreement *
99-B.8 Form of Fund Participation Agreement by and among *
Insurance Management Series, Federated Advisers and
Aetna Life Insurance and Annuity Company (12/12/94)
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors __________
99-B.10.2 Consent of Counsel __________
99-B.13 Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures __________
27 Financial Data Schedule __________
*Incorporated by reference
EX-99.B.3.1
2
BROKER DEALER AGREEMENT
EXHIBIT 99-B(3.1)
FORM OF ALIAC BROKER-DEALER AGREEMENT
-------------------------------------
THIS AGREEMENT ("Agreement") is effective as of this _____________ day of
___________________, 1995, by and between Aetna Life Insurance and Annuity
Company ("Company"), Hartford, Connecticut 06156, incorporated under the laws of
the State of Connecticut, and___________________________________________________
("Broker-Dealer"), incorporated under the laws of the State of
_____________________.
In consideration of the mutual promises contained herein, the parties hereto
agree as follows:
1. Agreements of the Company
-------------------------
A. The Company hereby authorizes the Broker-Dealer during the term of this
Agreement to solicit, offer and sell variable annuity and life contracts
("Contracts") described in the Schedules attached hereto and issued and
distributed by the Company to suitable customers, provided that the Contracts
are qualified for sale under all applicable federal and state securities and
insurance laws of the jurisdiction in which the solicitations, offers or
sales will be made.
B. The Company, during the term of this Agreement, will notify Broker-Dealer of
the issuance by the SEC or any state or jurisdiction of any stop order with
respect to the registration statement or any amendments thereto or the
initiation of any proceedings for that purpose or for any other purpose
relating to the registration and/or offering of the Contracts and of any
other action or circumstance that may prevent the lawful sale of any Contract
in any state or jurisdiction.
C. During the term of this Agreement, the Company shall advise the Broker-Dealer
of any amendment to any registration statement and/or any amendment, sticker
or supplement to any Prospectus.
2. Agreements of Broker-Dealer
---------------------------
A. Registration and Licenses. The Broker-Dealer represents that it is a
-------------------------
registered Broker-Dealer with the Securities and Exchange Commission ("SEC")
and a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"). The Broker-Dealer represents that it is or will
become registered, licensed and appointed to sell the Contracts, as required,
in those states and jurisdictions where its agents or registered
representatives will solicit, offer and sell the Contracts. The Broker-
Dealer represents that each registered representative who solicits, offers
and sells the Contracts will be a duly registered representative of Broker-
Dealer. The Broker-Dealer represents that each registered representative
will hold all registrations and licenses required by the NASD and any state
or jurisdiction to sell the Contracts.
1
B. Sales Practices and Supervision. The Broker-Dealer agrees to use its best
-------------------------------
efforts to lawfully solicit, offer and sell the Contracts and further agrees
to the following:
(i) The Broker-Dealer shall only use advertising material and sales
literature, including prospectuses, which have been first approved by
the Company and, if required, filed with the NASD and any state or
jurisdiction. The Broker-Dealer agrees to discard immediately any out
dated sales and advertising material and prospectuses.
(ii) The Broker-Dealer shall establish and implement compliance and
supervisory procedures for the supervision of the sales practices and
conduct of its agents and representatives. The Broker-Dealer shall
submit to the Company, as reasonably requested, periodic reports
concerning the compliance by the Broker-Dealer and its registered
representatives with its procedures and applicable laws and
regulations, as they may pertain to the Company's contracts. The
Broker-Dealer agrees to permit the Company to periodically audit its
records with respect to compliance upon reasonable notice.
(iii) The Broker-Dealer agrees that its registered representatives will not
make recommendations to a customer to invest in a Contract in the
absence of reasonable grounds to believe that the Contract is suitable
for the customer. While not limited to the following, a determination
of suitability by the Broker-Dealer shall be based on information
obtained from the customer by the registered representative after
reasonable inquiry concerning the customer's investment objectives,
other investment holdings, financial and tax status and needs.
C. Handling of Customer Payments. All payments for Contracts collected by the
-----------------------------
Broker-Dealer shall be remitted promptly together with such applications,
forms and other required documentation to the Company. Payments from
customers shall be in accordance with the procedures established by the
Company from time to time. No payment is deemed received by the Company
until actually received by the Company. The Broker-Dealer acknowledges that
the Company retains the unconditional right to reject, in whole or part, any
application for a Contract. Upon the Company's acceptance of a Contract
application submitted by the Broker-Dealer, the Company shall mail the
appropriate documentation representing the Contract to the Broker-Dealer,
which shall make prompt delivery to the customer. Notwithstanding this
obligation of the Broker-Dealer, the Company reserves the right to transmit
such documentation directly to the customer.
D. Independent Contractor. The Broker-Dealer agrees it is and shall act as an
----------------------
independent contractor. Nothing in this Agreement shall make the Broker-
Dealer, or its employees, agents or registered representatives, an employee
of the Company. Neither the Broker-Dealer, nor its employees, agents, or
registered representatives
2
shall hold themselves out to be employees, agents or registered
representatives of the Company in any dealings with the public.
The Broker-Dealer warrants and represents that it has the authority to act on
behalf of any and all subsidiaries, and is hereby exercising such authority
on behalf of such subsidiaries with respect to the obligations set forth in
this Agreement as well as the transfer of customer payments and forms, and
the acceptance of any compensation paid under this Agreement.
E. Training. The Broker-Dealer shall be responsible for training its registered
--------
representatives with regard to the Contracts as well as the Company
procedures before they are permitted to sell any Contract. The Company will,
at the request of the Broker-Dealer, provide training to Broker-Dealer
personnel. The Broker-Dealer shall be responsible to pay all costs of
training for its registered representatives.
F. Use of Sales and Training Materials. The Broker-Dealer agrees that any
-----------------------------------
material that it develops, approves or uses for sales, advertising, training,
explanatory or other purposes in connection with the Contracts, and that
references the Aetna, the Company or Company name or the Company's Contract
will not be used without the prior written consent of the Company.
G. Compliance with Laws and Regulations. The solicitation, offer and sale of
------------------------------------
the Contracts by the Broker-Dealer and its registered representatives shall
be undertaken only in accordance with applicable laws and regulations. No
registered representative of the Broker-Dealer shall solicit, offer or sell
the Contracts until duly registered, licensed, or appointed, as required by
the NASD and any state or jurisdiction. The Broker-Dealer understands and
acknowledges that neither the Broker-Dealer nor its registered
representatives are authorized by the Company to give any information or make
any representation in connection with the solicitation, offer or sale of the
Contracts other than as contained in the prospectus or sales or advertising
material authorized in writing by the Company.
H. Maintaining Records. The Broker-Dealer shall have the responsibility for
-------------------
maintaining the records of those registered representatives of the Broker-
Dealer registered, licensed and appointed and otherwise qualified to sell the
Contracts. The Broker-Dealer shall maintain such records as required by
applicable laws and regulations. The books, accounts and records maintained
by the Broker-Dealer under the terms of this Agreement that relate to the
sale of the Contracts, the Company, and/or the Broker-Dealer shall be
maintained so as to clearly and accurately disclose the nature and details of
the transactions covered by the Agreement.
I. Proprietary Information. Any and all account records developed by the
-----------------------
Company or provided to the Company by the Broker-Dealer, including customers
files, customer names, addresses, telephone numbers and related paperwork,
literature, authorizations, manuals and supplies of every kind and nature
relating to the Contracts and the servicing of the Contracts are and shall
remain the property of the
3
Company. Any and all materials developed and provided by the Company shall be
returned to the Company upon termination of this Agreement. Any materials
developed by the Broker-Dealer in support of the marketing, sales,
advertising or training related to the Company or its Contracts shall be
destroyed upon the termination of the Agreement. The Broker-Dealer shall keep
confidential any information that is covered by this Agreement, and shall
only disclose such information if authorized in writing by the Company or
expressly required by the laws or regulations of any jurisdiction or the NASD
or court order.
J. Marketing Changes. With respect to the Contracts covered by this Agreement,
-----------------
as amended from time to time, the Broker-Dealer shall notify the Company of
any material change or intention to materially change its marketing
operations. Such notice shall be given in the manner specified in Section 14
of this Agreement. All Broker-Dealer marketing plans and methods for
offering Contracts are subject to periodic review by the Company, but not
less frequently than annually.
3. Compensation
------------
A. Payment Schedule. The Company agrees to pay compensation to Broker-Dealer
----------------
for the sale of each Contract lawfully sold by a registered representative of
the Broker-Dealer. The amount of compensation shall be in accordance with
the Schedules attached hereto. Notwithstanding the foregoing, no
compensation shall be payable for any transaction not in compliance with all
applicable insurance and securities laws, rules and regulations at the time
of the solicitation, offer and sale of a Contract and thereafter.
Notwithstanding any provision in the Schedule concerning chargebacks, if any
Contract is tendered for redemption or not taken in accordance with
applicable regulatory requirements, no compensation shall be paid. Payment
of compensation as described in Schedules B is due the Broker-Dealer when an
application for a Contract is tendered to the Company. The Broker-Dealer may
retain any compensation due it from amounts otherwise lawfully due the
Company by the Broker-Dealer; provided, however, that the Broker-Dealer
agrees to refund immediately any compensation so retained with regard to a
particular Contract if the Company does not accept an application for such
Contract or the Contract is otherwise redeemed or not taken as hereinbefore
described.
B. Designation of Nominee. With respect to all compensation to be paid to the
----------------------
Broker-Dealer, as described in this Section 3, such payments shall be made to
______________ as the Broker-Dealer's nominee. Payments by the Company to
______________ shall constitute full payment for all compensation to be paid
to the Broker-Dealer in connection with the sale of the Contracts. The
Broker-Dealer shall be solely responsible for the payment of any compensation
of any kind to its registered representatives.
4
C. Deductions by the Company. The Company reserves the right to deduct any
-------------------------
amount it determines is owed by the Broker-Dealer to the Company or its
affiliates, from any compensation due the Broker-Dealer from the Company.
This right shall apply, but is not limited to the following: (i) advances to
the Broker-Dealer; (ii) compensation paid to the Broker-Dealer for payments
by a customer received by the Company and later returned or credited to such
customer for any reason; and (iii) any overpayment of compensation to the
Broker-Dealer. Any balance due the Company after such deduction shall be a
debt of the Broker-Dealer and will accrue interest at eight percent (8%) per
annum. The Company shall have all rights of a creditor to collect amounts
owed it by the Broker-Dealer.
D. Payment Upon Termination. Upon the termination of this Agreement, the
------------------------
Company will pay commissions to the Broker-Dealer in accordance with the
Company's established procedures on business placed with the Company prior to
the termination date of this Agreement unless payment or receipt of renewal
commissions would violate any laws, rules or regulations of any jurisdiction
or the NASD.
4. Complaints and Investigations
-----------------------------
A. Cooperation. The Company and Broker-Dealer agree to cooperate fully in any
-----------
investigation or proceeding, the subject of which is the Broker-Dealer, to
the extent that such investigation or proceeding concerns any matters related
to this Agreement. Without limiting the foregoing:
(i) The Company shall promptly notify the Broker-Dealer of receipt of any
customer complaint or notice of any inquiry, investigation or proceeding
concerning any matter related to this Agreement.
(ii) The Broker-Dealer shall promptly notify the Company of receipt of any
customer complaint or notice of any inquiry, investigation or proceeding
concerning any of the Company's Contracts. The Broker-Dealer shall
promptly notify the Company of any NASD, federal or state inquiry,
investigation or proceeding, or litigation that has been initiated
against the Broker-Dealer regarding the Company or its Contracts.
B. Settlement by the Company. The Company reserves the right to settle any
-------------------------
claim or complaint made by a customer concerning any conduct, act or omission
by the Broker-Dealer or its registered representatives. Provided there is
agreement between the Company and the Broker-Dealer regarding such
settlement, the Broker-Dealer shall reimburse the Company for the amount of
any such settlement. Any settlement payments agreed to by the Broker-Dealer
shall be reimbursed by the Broker-Dealer and will be a debt of the Broker-
Dealer as described in Section 3.D.
5
5. Indemnification
---------------
A. By the Company. The Company agrees to hold harmless and indemnify the
--------------
Broker-Dealer and its affiliates against any and all claims, liabilities and
expenses which any such party may incur from liabilities (including
reasonable attorney fees and related expenses) arising from the actions or
omission of the Company and its employees and other associated persons.
B. By the Broker-Dealer. The Broker-Dealer agrees to hold harmless and
--------------------
indemnify Company and its affiliates against any and all claims, liabilities
and expenses which any such party may incur from liabilities (including
reasonable attorney fees and related expense) arising from the actions or
omissions of the Broker-Dealer, its registered representatives and other
associated persons.
C. Notice of Action. After receipt by an indemnified party of notice of the
----------------
commencement of any action with respect to which a claim will be made against
an indemnifying party, such indemnified party shall notify the indemnifying
party promptly in writing of the commencement of the action. The failure to
so notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may otherwise have to any indemnified party
except and to the extent the indemnifying party is prejudiced thereby. In
any such action where the indemnified party has given the notice described in
this Section 5, the indemnifying party shall be entitled to participate in
and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume defense of the action. After notice to
such indemnified party that the indemnifying party has elected to assume
defense of the action, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense other than reasonable
costs of investigation.
6. Assignability
-------------
This Agreement shall not be assigned by either party without the written
consent of the other party.
7. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the laws
of the State of Connecticut.
8. Revocation of Prior Agreements
------------------------------
This Agreement and any subsequent written amendments constitute the entire
agreement between the Company and the Broker-Dealer. This Agreement
terminates and supersedes all previous contracts, agreements or arrangements
made between the parties in connection with the Contracts described in this
Agreement.
6
9. Severability
------------
The provisions of this Agreement are severable, and if any provision of this
Agreement or any amendment to it is found to be invalid, such provision
shall not affect any other provision of the Agreement that can be given
effect without the invalid provision.
10. Waiver
------
Failure of either party to require performance of any provision of this
Agreement shall not constitute a waiver of that party's right to enforce
such provision at a later time. Waiver of any breach of any provision shall
not constitute a waiver of any succeeding breach.
11. Termination
-----------
A. This Agreement shall terminate:
(i) If the Broker-Dealer is dissolved, liquidated, or otherwise ceases
business operations;
(ii) If the Broker-Dealer fails, in the Company's sole judgment, to comply
with any of its obligations under this Agreement;
(iii) If the Company fails, in the Broker-Dealer's sole judgment, to comply
with any of its obligations under this Agreement;
(iv) If the Broker-Dealer's annuity license or appointment to represent
the Company is terminated;
(v) If the Broker-Dealer's SEC, state or NASD registration or membership
is suspended, terminated or otherwise restricted so as to render the
Broker-Dealer, in the Company's opinion, unable to perform its
obligations pursuant to this Agreement.
(vi) At the end of any calendar year, beginning with __________________,
19___, during which the Broker fails to maintain a minimum production
level of $_________________ of annualized paid deposits through the
sale of the Contracts under this Agreement.
B. The termination date of this Agreement for any of these reasons shall be the
date of occurrence.
7
C. Notwithstanding the provisions of Section 11.A., the Company and the Broker-
Dealer shall have the right to terminate this Agreement for any reason.
Termination in accordance with this Section 11.C. shall be effective thirty
(30) days from the date notice is given by the terminating party.
D. Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the provisions set forth in Sections 3.D. and
E., 4, and 5.
12.Notice
------
Any notice required by the terms of this Agreement or any attachment hereto,
shall be valid if in writing and hand delivered, or sent by United States
mail postage prepaid, overnight delivery service or facsimile transmission to
the other party at the address provided below such party's signature hereto.
13.Force Majeure
-------------
No party to this Agreement shall be responsible to the other for delays or
errors in its performance or other breach under this Agreement occurring
solely by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, fire, major mechanical
breakdown, labor disputes, flood or catastrophe, acts of God, insurrection,
war, riots, delays of supplier, or failure of transportation, communication
or power supply.
14.Headings
--------
The headings in this Agreement are for reference purposes only and shall not
be deemed part of this Agreement or affect its meaning or interpretation.
8
15.Counterparts
------------
This Agreement may be executed in any number of counterparts, all of which,
taken together, shall constitute one agreement, and any party hereto may
execute this Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By:____________________________ Date:___________________
Name:__________________________
Title:_________________________
Address: 151 Farmington Avenue
----------------------
Hartford, CT 06156
-------------------------------
By:____________________________ Date:___________________
Name:__________________________
Title:_________________________
Address:_______________________
9
EX-99.B.3.2
3
ALTERNATE BROKER DEALER
Exhibit 99-B(3.2)
FORM OF ALIAC BROKER-DEALER AGREEMENT
-------------------------------------
THIS AGREEMENT ("Agreement") is effective as of this ______ day of ____________,
1995, by and between Aetna Life Insurance and Annuity Company ("Company"),
Hartford, Connecticut 06156, incorporated under the laws of the State of
Connecticut, and ______________________________________________________________
_______________________________________________________________________________
("Broker-Dealer"), incorporated under the laws of the State of __________.
In consideration of the mutual promises contained herein, the parties hereto
agree as follows:
1. Agreements of the Company
-------------------------
A. The Company hereby authorizes Broker during the term of this Agreement to
solicit, offer and sell variable annuity contracts ("Contracts")
described in the schedules attached hereto and issued and distributed by
the Company to suitable customers, provided that the Contracts are
qualified for sale under all applicable federal and state securities and
insurance laws of the jurisdiction in which the solicitations, offers or
sales will be made.
B. The Company, during the term of this Agreement, will notify Broker-Dealer
of the issuance by the SEC or any state or jurisdiction of any stop order
with respect to the registration statement or any amendments thereto or
the initiation of any proceedings for that purpose or for any other
purpose relating to the registration and/or offering of the Contracts and
of any other action or circumstance that may prevent the lawful sale of
any Contract in any state or jurisdiction.
C. During the term of this Agreement, the Company shall advise Broker-Dealer
of any amendment to any registration statement and/or any amendment,
sticker or supplement to any Prospectus.
2. Agreements of Broker-Dealer
---------------------------
A. Registration and Licenses. Broker-Dealer represents that it is a
-------------------------
registered broker-dealer with the Securities and Exchange Commission
("SEC") and a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"). Broker-Dealer represents that it is or
will become registered, licensed and appointed to sell the Contracts, as
required, in those states and jurisdictions where its agents or
registered representatives will solicit, offer and sell the Contracts.
Broker-Dealer represents that each registered representative who
solicits, offers and sells the Contracts will be a duly registered
representative of Broker-Dealer. Broker-Dealer represents that each
registered representative will hold all registrations and licenses
required by the NASD and any state or jurisdiction to sell the Contracts.
1
B. Sales Practices and Supervision. Broker-Dealer agrees to use its best
-------------------------------
efforts to lawfully solicit, offer and sell the Contracts and further
agrees to the following:
(i) The Broker-Dealer shall only use advertising material and sales
literature, including prospectuses, which have been first approved
by the Company and, if required, filed with the NASD and any state
or jurisdiction. The Broker-Dealer agrees to discard immediately any
out dated sales and advertising material and prospectuses.
(ii) The Broker-Dealer shall establish and implement compliance and
supervisory procedures for the supervision of the sales practices
and conduct of its agents and representatives. The Broker-Dealer
shall submit to the Company, as reasonably requested, periodic
reports concerning the compliance by the Broker-Dealer and its
registered representatives with its procedures and applicable laws
and regulations.
(iii) The Broker-Dealer agrees that its registered representatives will
not make recommendations to a customer to invest in a Contract in
the absence of reasonable grounds to believe that the Contract is
suitable for the customer. While not limited to the following, a
determination of suitability by the Broker-Dealer shall be based on
information obtained from the customer by the registered
representative after reasonable inquiry concerning the customer's
investment objectives, other investment holdings, financial and tax
status and needs.
C. Handling of Customer Payments. All payments for Contracts collected by
-----------------------------
the Broker-Dealer shall be remitted promptly in full together with such
applications, forms and other required documentation to the Company.
Payments from customers shall only be in the form of checks, money orders
or wire transfers and shall be drawn to the order of the Company unless
otherwise required in the appropriate prospectus for a Contract. No
payment is deemed received by the Company until actually received by the
Company. Broker-Dealer acknowledges that the Company retains the
unconditional right to reject, in whole or part, any application for a
Contract. Upon the Company's acceptance of a Contract application
submitted by the Broker-Dealer, the Company shall mail the appropriate
documentation representing the Contract to the Broker, which shall make
prompt delivery to the customer. Notwithstanding this obligation of the
Broker-Dealer, the Company reserves the right to transmit such
documentation directly to the customer.
D. Independent Contractor. The Broker-Dealer agrees it is and shall act as
----------------------
an independent contractor. Nothing in this Agreement shall make Broker-
Dealer, or its employees, agents or registered representatives, an
employee of the Company. Neither the Broker-Dealer, nor its employees,
agents, or registered representatives shall hold themselves out to be
employees, agents or registered representatives of the Company in any
dealings with the public.
2
E. Training. The Broker-Dealer shall be responsible for training its
--------
registered representatives with regard to the Contract as well as the
Company procedures before they are permitted to sell any Contract. The
Company will, at the request of the Broker-Dealer, provide training to
Broker-Dealer personnel. The Broker-Dealer shall be responsible to pay
all costs of training for its registered representatives.
F. Use of Sales and Training Materials. The Broker-Dealer agrees that any
-----------------------------------
material that it develops, approves or uses for sales, advertising,
training, explanatory or other purposes in connection with the Contracts,
and that references the Aetna or Company name or the Company's Contract
will not be used without the prior written consent of the Company.
G. Compliance with Laws and Regulations. The solicitation, offer and sale of
------------------------------------
the Contracts by Broker-Dealer and its registered representatives shall
be undertaken only in accordance with applicable laws and regulations. No
registered representative of Broker-Dealer shall solicit, offer or sell
the Contracts until duly registered, licensed, or appointed, as required
by the NASD and any state or jurisdiction. Broker-Dealer understands and
acknowledges that neither Broker-Dealer nor its registered
representatives are authorized by the Company to give any information or
make any representation in connection with the solicitation, offer or
sale of the Contracts other than as contained in the prospectus or sales
or advertising material authorized in writing by the Company.
H. Maintaining Records. Broker-Dealer shall have the responsibility for
-------------------
maintaining the records of those registered representatives of Broker-
Dealer registered, licensed and appointed and otherwise qualified to sell
the Contracts. Broker-Dealer shall maintain such records as required by
applicable laws and regulations. The books, accounts and records
maintained by Broker-Dealer under the terms of this Agreement that relate
to the sale of the Contracts, the Company, and/or Broker-Dealer shall be
maintained so as to clearly and accurately disclose the nature and
details of the transactions covered by the Agreement.
I. Proprietary Information. Any and all account records developed by the
-----------------------
Company or provided to the Company by the Broker-Dealer, including
customers files, customer names, addresses, telephone numbers and related
paperwork, literature, authorizations, manuals and supplies of every kind
and nature relating to the Contracts and the servicing of the Contracts
are and shall remain the property of the Company. Any and all materials
developed and provided by the Company shall be returned to the Company
upon termination of this Agreement. Any materials developed by the
Broker-Dealer in support of the marketing, sales, advertising or training
related to the Company or its Contracts shall be destroyed upon the
termination of the Agreement. The Broker-Dealer shall keep confidential
any information that is covered by this Agreement, and shall only
disclose such information if authorized in writing by the Company or
expressly
3
required by the laws or regulations of any jurisdiction or the NASD or
court order.
J. Marketing Changes. With respect to the Contracts covered by this
-----------------
Agreement, as amended from time to time, Broker-Dealer shall notify the
Company of any material change or intention to materially change its
marketing operations. Such notice shall be given in the manner specified
in Section 14 of this Agreement. All Broker-Dealer marketing plans and
methods for offering Contracts are subject to periodic review by the
Company, but not less frequently than annually.
3. Compensation
------------
A. Payment Schedule. The Company agrees to pay compensation to Broker-Dealer
----------------
for the sale of each Contract lawfully sold by a registered
representative of Broker-Dealer. The amount of compensation shall be in
accordance with the Schedules attached hereto. Notwithstanding the
foregoing, no compensation shall be payable for any transaction not in
compliance with all applicable insurance and securities laws, rules and
regulations at the time of the solicitation, offer and sale of a Contract
and thereafter. Notwithstanding any provision in the Schedules concerning
charge backs, if any Contract is tendered for redemption or not taken in
accordance with applicable regulatory requirements, no compensation shall
be paid.
B. Designation of Nominee. With respect to all compensation to be paid to
----------------------
Broker, as described in this Section 3, such payments shall be made to
______________ as Broker's nominee. Payments by the Company to
______________ shall constitute full payment for all compensation to be
paid to Broker in connection with the sale of the Contracts. Broker
shall be solely responsible for the payment of any compensation of any
kind to its registered representatives.
C. Withholding of Payments. Neither Broker nor any of its registered
-----------------------
representatives shall have any right to withhold or deduct any part of
any payment received from a customer.
D. Deductions by the Company. The Company reserves the right to deduct any
-------------------------
amount it determines is owed by the Broker-Dealer to the Company or its
affiliates, from any compensation due the Broker-Dealer from the Company.
This right shall apply, but is not limited to the following: (i) advances
to the Broker-Dealer; (ii) compensation paid to the Broker-Dealer for
payments by a customer received by the Company and later returned or
credited to such customer for any reason; and (iii) any overpayment of
compensation to the Broker-Dealer. Any balance due the Company after such
deduction shall be a debt of the Broker-Dealer and will accrue interest
at eight percent (8%) per annum. The Company shall have all rights of a
creditor to collect amounts owed it by the Broker-Dealer.
4
E. Payment Upon Termination. Upon the termination of this Agreement, the
------------------------
Company will pay commissions to the Broker-Dealer in accordance with the
Company's established procedures on business placed with the Company
prior to the termination date of this Agreement unless payment or receipt
of renewal commissions would violate any laws, rules or regulations of
any jurisdiction or the NASD.
4. Complaints and Investigations
-----------------------------
A. Cooperation. The Company and Broker-Dealer agree to cooperate fully in
-----------
any investigation or proceeding, the subject of which is the Broker-
Dealer, to the extent that such investigation or proceeding concerns any
matters related to this Agreement. Without limiting the foregoing:
(i) The Company shall promptly notify the Broker-Dealer of receipt of
any customer complaint or notice of any inquiry, investigation or
proceeding concerning any matter related to this Agreement.
(ii) The Broker-Dealer shall promptly notify the Company of receipt of
any customer complaint or notice of any inquiry, investigation or
proceeding concerning any matter related to this Agreement. The
Broker-Dealer shall promptly notify the Company of any NASD, federal
or state inquiry, investigation or proceeding, or litigation that
has been initiated against the Broker-Dealer.
B. Settlement by the Company. The Company reserves the right to settle any
-------------------------
claim or complaint made by a customer concerning any conduct, act or
omission by the Broker-Dealer or its registered representatives. The
Broker-Dealer shall reimburse the Company for the amount of any such
settlement. Any settlement payments made by the Company shall be
reimbursed by the Broker-Dealer and will be a debt of the Broker-Dealer
as described in Section 3.D.
5. Indemnification
---------------
A. By the Company. The Company shall indemnify the Broker-Dealer against any
--------------
liability or loss incurred by the Broker-Dealer arising out of or in
connection with allegations or claims that any prospectus or sales
material supplied by the Company to the Broker-Dealer was materially
false or misleading under federal or state securities insurance law or
common law standards of fraud or misrepresentation or arising out of
intentional wrongdoing or gross negligence on the part of the Company.
B. By the Broker-Dealer. The Broker-Dealer shall indemnify the Company
--------------------
against any liability or loss incurred by the Company arising out of or
in connection with: (i) any violation by the Broker-Dealer, its
employees, agents or registered representatives of federal or state
securities laws or regulations, or state insurance
5
laws or regulations, or the rules of the NASD or common law standards of
fraud or misrepresentation; (ii) any violation by the Broker-Dealer, its
employees, agents or registered representatives of any of the terms of
this Agreement; (iii) any intentional wrongdoing or gross negligence on
the part of the Broker-Dealer, its employees, agents or registered
representatives in the course of any activities or conduct performed in
relation to this Agreement, or (iv) any action where the Broker-Dealer,
its employees, agents or registered representatives improperly, illegally
or in breach of this Agreement held out to the public or to a customer
that the Broker-Dealer, employee, agent or registered representative was
operating pursuant to this Agreement or the authority of the Company. Any
finding by a court, regulatory body or arbitration panel that the Broker-
Dealer, its employees, agents or registered representatives engaged in
any of the conduct described in this Subsection B. shall be conclusive
evidence that the Company is entitled to indemnification as set forth in
this Section 5. Failure of such a court, regulatory body or panel to make
such a finding shall not preclude the Company from alleging and putting
forth proof on the issue.
C. Notice of Action. After receipt by an indemnified party of notice of the
----------------
commencement of any action with respect to which a claim will be made
against an indemnifying party, such indemnified party shall notify the
indemnifying party promptly in writing of the commencement of the action.
The failure to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may otherwise have to any
indemnified party except and to the extent the indemnifying party is
prejudiced thereby. In any such action where the indemnified party has
given the notice described in this Section 5, the indemnifying party
shall be entitled to participate in and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume defense of the action with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party). After notice to
such indemnified party that the indemnifying party has elected to assume
defense of the action, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense other than
reasonable costs of investigation.
6. Assignability
-------------
This Agreement shall not be assigned by either party without the written
consent of the other party.
7. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Connecticut.
8. Revocation of Prior Agreements
------------------------------
6
This Agreement and any subsequent written amendments constitute the
entire agreement between the Company and Broker-Dealer. This Agreement
terminates and supersedes all previous contracts, agreements or
arrangements made between the parties in connection with the Contracts
described in this Agreement.
9. Severability
------------
The provisions of this Agreement are severable, and if any provision of
this Agreement or any amendment to it is found to be invalid, such
provision shall not affect any other provision of the Agreement that can
be given effect without the invalid provision.
10. Amendments
----------
A. The Company reserves the right to amend this Agreement or any
Schedule attached hereto at any time. An amendment to the Agreement
shall be effective thirty (30) days from the date notice is given
the Broker-Dealer. Amendments to Schedules shall be effective
without approval of the Broker-Dealer from the date notice is given
to the Broker-Dealer that a new or amended Schedule has been issued
by the Company.
B. No amendment made by the Broker-Dealer shall be effective unless it
is agreed to in writing by the Company.
11. Waiver
------
Failure of either party to require performance of any provision of this
Agreement shall not constitute a waiver of that party's right to
enforce such provision at a later time. Waiver of any breach of any
provision shall not constitute a waiver of any succeeding breach.
12. Termination
-----------
A. This Agreement shall terminate:
(i) If the Broker-Dealer is dissolved, liquidated, or otherwise
ceases business operations;
(ii) If the Broker-Dealer fails, in the Company's sole judgment,
to comply with any of its obligations under this Agreement;
(iii) If the Broker-Dealer's annuity license or appointment to
represent the Company is terminated;
7
(iv) If the Broker-Dealer's SEC, state or NASD registration or
membership is suspended, terminated or otherwise limited so
as to render the Broker-Dealer, in the Company's opinion,
unable to perform its obligations pursuant to this Agreement.
(v) If the Broker-Dealer refuses to accept an amendment made in
accordance with Section 10., or
(vi) At the end of any calendar year, beginning with
__________________, 19___, during which the Broker fails to
maintain a minimum production level of $_________________ of
annualized paid deposits through the sale of the Contracts
under this Agreement.
B. The termination date of this Agreement for any of these reasons
shall be the date of occurrence.
C. Notwithstanding the provisions of Section 12.A., the Company and
Broker-Dealer shall have the right to terminate this Agreement for
any reason. Termination in accordance with this Section 12.C. shall
be effective thirty (30) days from the date notice is given by the
terminating party.
D. Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the provisions set forth in Sections
3.D. and E., 4, and 5.
13. Notice
------
Any notice required by the terms of this Agreement or any attachment
hereto, shall be valid if in writing and hand delivered, or sent by
United States mail postage prepaid, overnight delivery service or
facsimile transmission to the other party at the address provided below
such party's signature hereto.
14. Force Majeure
-------------
No party to this Agreement shall be responsible to the other for delays
or errors in its performance or other breach under this Agreement
occurring solely by reason of circumstances beyond its control,
including acts of civil or military authority, national emergencies,
fire, major mechanical breakdown, labor disputes, flood or catastrophe,
acts of God, insurrection, war, riots, delays of supplier, or failure
of transportation, communication or power supply.
15. Headings
--------
The headings in this Agreement are for reference purposes only and
shall not be deemed part of this Agreement or affect its meaning or
interpretation.
16. Counterparts
------------
8
This Agreement may be executed in any number of counterparts, all of
which, taken together, shall constitute one agreement, and any party
hereto may execute this Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By:___________________________________
Name:_________________________________
Title:________________________________
Address: 151 Farmington Avenue
----------------------------
Hartford, CT 06156
----------------------------
Date:_________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
Address:______________________________
_______________________________
Date:_________________________________
9
EX-99.B.10.1
4
CONSENT OF AUDITORS
Exhibit 99(B)(10)(1)
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contract Owners of Aetna Variable Annuity Account B:
We consent to the use of our reports dated January 31, 1995 and February 7, 1995
included herein and to the references to our Firm under the captions "CONDENSED
FINANCIAL INFORMATION" in the Prospectus and "INDEPENDENT AUDITORS" in the
Statement of Additional Information.
Our report dated February 7, 1995 refers to a change in 1993 in the Company's
methods of accounting for certain investments in debt and equity securities and
reinsurance contracts, and a change in 1992 in the Company's methods of
accounting for income taxes and post retirement benefits other than pensions.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
August 8, 1995
EX-99.B.10.2
5
CONSENT OF COUNSEL
[LOGO OF Aetna Life Insurance and Susan E. Bryant
AETNA Annuity Company Counsel
APPEARS 151 Farmington Avenue Law & Regulatory Affairs, RE4C
HERE] Hartford, CT 06156 (203) 273-7834
203-273-0123 Fax: (203) 273-8340
EXHIBIT 99.B.10.2
August 16, 1995
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Dear Sir or Madam:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I
hereby consent to the use of my opinion dated February 27, 1995 (incorporated
herein by reference to the 24f-2 Notice for the fiscal year ended December 31,
1994 filed on behalf of Variable Annuity Account B of Aetna Life Insurance and
Annuity Company on February 28, 1995) as an exhibit to this Amendment No. 3 to
Registration Statement on Form N-4 (File No. 33-79122) and to my being named
under the caption "Legal Matters" therein.
Sincerely,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
EX-99.B.15.2
6
AUTHORIZATION FOR SIGNATURES
Exhibit 99-B(15.2)
AETNA LIFE INSURANCE AND ANNUITY COMPANY
I, Susan E. Schechter, Corporate Secretary of Aetna Life Insurance and Annuity
Company (the "Company"), hereby certify that the following resolution was duly
adopted by the Board of Directors of the Company by Unanimous Consent on June
22, 1995 and that such resolution remains in full force and effect as of this
date.
RESOLVED: That the following officers:
President
Senior Vice President
Vice President
General Counsel
Corporate Secretary
Treasurer
Assistant Corporate Secretary
(l) are hereby severally authorized to sign in the Company's name:
(a) insurance contracts of every type and description which the
Company is authorized to write;
(b) agreements relating to the purchase, sale, or exchange of
securities including any consents and modifications given or
made under such agreements;
(c) conveyances and leases of real estate or any interest therein
including any modifications thereof;
(d) assignments and releases of mortgages and other liens, claims
or demands;
(e) any other written instrument which they are authorized to
approve in the normal course of Company business; and
(f) any other written instrument when specifically authorized by
the Board of Directors or the President;
and are further severally authorized (i) to delegate all or any part
of the foregoing authority to one or more officers, employees or
agents of this Company, provided that each such delegation is in
writing and a copy thereof is filed in the Office of the Corporate
Secretary, or (ii) to designate any attorney at law representing this
Company on a matter under their direction, to so sign this Company's
name;
1
(2) are hereby severally authorized to possess the Company's duplicate
seals and to affix the same to items (a) through (f) above;
and are further severally authorized to designate any Company
officer under their direction to possess and to so affix the
Company's duplicate seals; and
that the Senior Vice President, Investments is hereby authorized
to designate any officer, employee or agent of this Company under
his direction to sign the Company's name and to affix the
Company's seal to any and all documents required in connection
with any investment transaction in which the Company has an
interest.
FURTHER RESOLVED, that all actions heretofore taken by any officer,
Director or employee of this Company in connection with any
transaction authorized by this resolution and consistent with the
intent and purposes of the foregoing resolution are hereby ratified,
confirmed and approved in all respects.
I further certify that Daniel P. Kearney is President, Zoe Baird, Christopher J.
Burns, Laura R. Estes, John Y. Kim, Shaun P. Mathews and Scott A. Striegel are
Senior Vice Presidents, Dominick J. Agostino is Senior Vice President and Chief
Financial Officer, Robert E. Broatch is Senior Vice President and Corporate
Controller and James E. Hamilton is Vice President and Treasurer of the Company.
Dated at Hartford, Connecticut, on July 18, 1995.
-------------
/s/ Susan E. Schechter
Susan E. Schechter
Corporate Secretary
2
EX-27
7
FINANCIAL DATA SCHEDULE
6
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
840,160,688
795,804,636
0
0
0
795,804,636
0
0
0
0
0
0
0
0
0
0
0
0
0
795,804,636
83,432,946
0
0
(8,918,042)
74,514,904
57,000,536
(146,425,376)
(14,909,936)
0
0
0
0
0
0
0
109,360,004
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0