<PAGE>
As filed with the Securities and Exchange Registration No. 33-75976
Commission on May 19, 1995 Registration No. 811-2513
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
________________________________________________________________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4
and
Amendment To
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
________________________________________________________________________________
Variable Annuity Account C 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)
________________________________________________________________________________
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 paragraph (a)(ii) of
Rule 485
X on June 30, 1995 pursuant to paragraph (a)(3) 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.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-4
--------
Item No. Part A (Prospectus) Location
-------- ------------------ --------
<S> <C> <C>
1 Cover Page................................... Cover Page
2 Definitions.................................. Definitions
3 Synopsis..................................... Prospectus Summary; Fee Table
4 Condensed Financial Information.............. Condensed Financial Information
5 General Description of Registrant, Depositor,
and Portfolio Companies...................... The Company; Variable Annuity
Account C; 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................. Purchase;
Determining Contract Value
11 Redemptions.................................. Contract Rights - Withdrawals;
Right to Cancel
12 Taxes........................................ Tax Status
13 Legal Proceedings............................ Miscellaneous - Legal
Proceedings
14 Table of Contents of the Statements of
Additional Information....................... Statement of Additional
Information - Table of Contents
<CAPTION>
Form N-4
--------
Part B (Statement of
Item No. Additional Information) Location
-------- ----------------------- --------
<S> <C> <C>
15 Cover Page.................................... Cover page
16 Table of Contents............................. Table of Contents
17 General Information and History............... General Information and
History
18 Services...................................... General Information and
History; Independent Auditors
19 Purchase of Securities Being Offered.......... Offering and Purchase of
Contracts
20 Underwriters.................................. Offering and Purchase of
Contracts
21 Calculation of Performance Data............... Performance Data;
Average Annual Total Return
Quotations
22 Annuity Payments.............................. Annuity Payments
23 Financial Statements.......................... Financial Statements
</TABLE>
Part C (Other Information)
-------------------------
Information required to be included in Part C is set forth under the appropriate
item, so numbered , in Part C to this Registration Statement.
<PAGE>
Variable Annuity Account C
Optional Retirement Plan - Group Variable Annuity Contracts
issued by Aetna Life Insurance and Annuity Company
for Tax-Deferred Annuity (Section 403(b)) Retirement Plans
and for Section 401(a) Defined Contribution Plans
June 30, 1995 Supplement to May 1, 1995 Prospectus
The following clarifying language to the Prospectus applies to all Contracts:
COVER PAGE
The second sentence of the fifth paragraph has been revised as follows:
Not all credited interest options are available in all jurisdictions or
under all Contracts.
FEE TABLE, page 6
Footnote number (1) will apply to the Asset Based Sales Charge. The footnote is
as follows:
(1) We will monitor the deductions applicable to each Account for the total
sales charges to ensure they will never exceed 8.5% of the total Purchase
Payments actually made to the Account. The sales charges apply during the
Accumulation Period only.
Existing footnote (1) relates to the Administrative Expense Charge and has been
renumbered as footnote (2).
PERFORMANCE DATA, page 11
The second sentence of the second paragraph relating to standardized average
annual total returns and non-standardized returns has been revised as follows:
Such returns will reflect the deduction of all recurring charges during each
period (e.g., mortality and expense risk charges, asset-based sales charges and
any administrative expense charge).
The following provisions of the Prospectus have been revised to disclose the
addition of a loan feature, (if permitted by the Plan), the establishment of an
Employee Supplemental Account, a modification to the nonlifetime Annuity option,
modifications to the Fixed Plus Account, and additions to the "Modification of
the Contract" provision. These changes apply to Contracts issued on or after
June 30, 1995.
DEFINITIONS, page 3
Account: A record established for each Participant to identify Contract
values accumulated on the Participant's behalf during the Accumulation Period.
Generally, at least two Accounts will be established for each Participant: the
Employee Account and the Employer Account. Under some Plans, an Employee
Supplemental Account will also be established.
Employee Supplemental Account: An additional Account established for a
Participant under some Plans, which will be credited with any employee
(Participant) salary reduction contributions made
<PAGE>
pursuant to Section 403(b) of the Code which are in excess of the amount
required by the Plan to be contributed to the Employee Account.
Loan Account: An account established for record keeping purposes and credited
with the amount of any loan.
CONTRACT PURCHASE, page 16
In addition to the Employee Account and Employer Account, an Employee
Supplemental Account may be established for contributions made by an employee
pursuant to Section 403(b) which are in excess of the amount required by the
Plan to be contributed to the Employee Account.
CONTRACT RIGHTS, page 19
General
Any discussion in the Prospectus in which the Contract Holder, on the
Participant's behalf, has a right to withdraw all or a portion of the Employee
or Employer Account Value will also include the Participant's right to
withdraw from the Employee Supplemental Account without Contract Holder
consent. See "Contract Rights - Withdrawals" and "Additional Withdrawal
Options" in this Prospectus. The employee (Participant) has all rights in the
amounts held under the Employee Supplemental Account. See "Rights Under the
Contract," "Reinvestment Privilege" and "Annuity Period - Annuity Period
Elections."
The following information applies to Plans that include a loan feature and
should be added as a subsection of Contract Rights:
Contract Loans
If allowed by the Plan, during the Accumulation Period the Participant may
request a loan from his or her Employee Account or Employee Supplemental
Account (if any) by submitting a loan request formto the Company at its Home
Office. Some Plans may also allow the Participant to borrow against the
vested portion of the Employer Account. The loan effective date is the date
the Company receives a loan request form in good order at its Home Office. A
loan will not be allowed within 12 months of the effective date of any prior
loan. The combined current value of all Accounts from which loans may be
taken must be at lease $2,000 and the minimum loan amount is $1,000. A loan
that meets provisions set forth in Code Section 72(p) is not considered a
taxable distribution.
The amount available for a loan is calculated based on the current value of
the Account(s) from which loans may be taken. The loan amount is limited to
the lesser of: (1) 50% of the vested current value of the Account(s) on the
date the loan is made; or (2) $50,000 reduced by the amount of the highest
outstanding loan balance during the preceding 12 month period that ends the
day before the current loan is made.
When the loan is made, only amounts in the Funds and the Fixed Plus Account
may be withdrawn and transferred to the Loan Account. The amounts will be
withdrawn in the same proportion that the vested current value of the
Account(s) is divided between the Fixed Plus Account and/or Funds on the
loan's effective date. If the amount of the loan requested would require the
proportionate amount transferred from the Fixed Plus Account to exceed the
amount that would be allowed under the 20% limit, the Participant may transfer
an additional amount from the Fixed Plus Account. The additional amount will
be limited and will never exceed 50% of the Fixed Plus Account value on the
effective date of the loan, minus any previous partial withdrawal or transfer
made during the 12-month period in
<PAGE>
which the loan becomes effective. The Company reserves the right to change the
maximum percentage a Participant can transfer from the Fixed Plus Account for
the purpose of taking a loan. If the amount needed to make the loan exceeds
the Fixed Plus Account transfer limit, the additional amount will be withdrawn
proportionately from the Funds. The Company will record the percentage by
which any amount withdrawn from the Fixed Plus Account exceeds the 20%
transfer limit described in Appendix IV. The percentage will equal the amount
transferred from the Fixed Plus Account that exceeds the 20% withdrawal limit
divided by the total amount of the loan. In the event of a loan payment
default, this percentage will be used to calculate the penalty that would be
applied as described below.
The loan interest rate will be 5%. Interest on the Loan Account balance will
be calculated daily at a rate to yield an effective annual rate of 3%.
Interest will be credited quarterly based on the loan's effective date and
credited to the Funds and/or Fixed Plus Account in the same proportion in
which the loan amount was withdrawn. Principal and interest on loans is
amortized in quarterly payments over a one to five year term. The Participant
chooses the number of years. An exception applies to loans taken for the
acquisition of the Participant's principal residence. Loans for this purpose
can be amortized quarterly over a one to twenty year term, as elected by the
Participant. The Participant must certify in writing that a loan is for the
purchase of a principal residence. The term of the loan, elected by the
Participant, must result in full repayment by no later than December 31 of the
calendar year prior to the calendar year during which the Participant reaches
age 70 1/2.
The entire Loan Account balance may be paid in full at any time. The
Participant will be billed for any loan interest accrued to the date the
payment is received. The Company will consider the loan paid when the interest
amount is received.
A bill in the amount of the quarterly payment due will be mailed to the
Participant in advance of the due date. The first due date is three months
from the loan's effective date and quarterly thereafter. A loan payment will
be in default if it is not received by the Company at its Home Office by the
due date. The principal portion of each loan payment will be credited to the
Participant's Fixed Plus Account and/or the Funds in the same proportion in
which the loan amount was withdrawn. The Loan Account will then be reduced by
the principal portion of the payment.
If a payment is in default, a partial withdrawal in an amount equal to the
payment due will be deducted from the Account at the close of business on
the due date. Payments that are less than the amount due will be returned and
if the full payment is not received by the due date, the payment will be in
default. The required amount will be withdrawn from the Fixed Plus Account
and/or the Funds in the same proportion in which the loan amount was
withdrawn. This amount will be applied as a loan payment as set forth above.
The Company will report to the IRS the amount withdrawn to pay the default and
such amount may be subject to a federal penalty tax (see "Tax Status"). In
addition, if the amount withdrawn from the Fixed Plus Account to make the loan
exceeded the 20% annual withdrawal limitation described in Appendix IV, a 5%
charge will be assessed on the same percentage of the defaulted payment. For
example, if 60% of the amount withdrawn was in excess of the limit, then 60%
of the amount withdrawn for the defaulted payment will be subject to the
additional 5% charge.
If a Participant makes a payment that is more than the billed amount, the
excess will be credited to the Fixed Plus Account and/or the Funds in the same
proportion in which the loan amount was withdrawn. The Loan Account will be
reduced by the additional amount. On the following loan anniversary date,
future payments will be recalculated to reflect the additional principal
payment so that the outstanding loan balance is amortized in equal quarterly
payments over the remaining loan term.
<PAGE>
Upon the election of an Annuity option or at the Participant's death, or if
the Participant makes a full withdrawal of his or her Account Values, any
Loan Account will be canceled. This will result in a taxable distribution of
an amount equal to the Loan Account balance and such amount may be subject to
a 10% federal penalty tax. Interest earned but not yet credited will be
credited to, and loan interest accrued but not paid will be deducted from,
the Account Value(s) in the same proportion in which the loan amount was
withdrawn.
The Company has developed and plans to install a new loan provision before
May 1996 subject to state insurance department approvals. If the loan
provision in your Contract is changed, you will be notified. The difference
between the rate charged and the rate credited on the loaned amounts will be
not be more than 2%.
Default under the new loan provision will occur if two payments are missed.
Once a loan is in default, the outstanding loan balance will be reported to
the IRS and due but unpaid interest will be reported to the IRS on an
annual basis until a distributable event occurs and we are able to close out
the loan record. Once the loan is in default but before a distributable event
occurs, there will be a $50 annual loan fee charged for ongoing
recordkeeping.
CONTRACT RIGHTS-Withdrawals, page 20
The following replaces the phrase "minus any Fixed Plus Account withdrawal(s),
or transfer(s) previously made during the calendar year" for each withdrawal
option:
"minus any Fixed Plus Account withdrawal(s), transfer(s), annuitization(s) or
loan(s) made during the prior 12 months."
An additional sentence has been added to the note regarding full withdrawal of
an Account as follows:
**For Contracts issued after June 30, 1995, the full amount of the Fixed Plus
Account Value less a 3% surrender charge may be withdrawn in conjunction with
a full withdrawal due to separation from service with the employer. See
Appendix IV.
ANNUITY PERIOD-Annuity Options, page 26
The following is added to the paragraph discussing the Nonlifetime Annuity
Option:
For Contracts issued after June 30, 1995, the specified period annuity will
be made for five to thirty years, as selected. This option is only available
on a fixed basis for Annuity payments from the Fixed Plus Account.
MISCELLANEOUS-Modification of the Contract, page 31
The following three items are added to the list of items to which changes will
apply only to future Accounts:
(f) calculation of current value and withdrawal value;
(g) Fixed Plus Account and Guaranteed Accumulation Account guaranteed rates;
and
(h) the fixed annuity interest rates.
<PAGE>
The following Appendix is added to the Prospectus:
APPENDIX IV
FIXED PLUS ACCOUNT
for Contracts Issued After June 30, 1995
The Fixed Plus Account is an investment option available during the Accumulation
Period under the Contracts. The following summarizes material information
concerning the Fixed Plus Account that is offered as an option under the
Contract. Additional information may be found in your Certificate. Amounts
allocated to the Fixed Plus Account are held in the company's general account
that supports insurance and Annuity obligations. Interests in the Fixed Plus
Account have not been registered with the SEC in reliance on exemptions under
the Securities Act of 1933, as amended. Disclosures in this Prospectus regarding
the Fixed Plus Account, however, may be subject to certain generally applicable
provisions of the federal securities laws resulting to the accuracy and
completeness of the statements. Disclosures in this Appendix regarding the Fixed
Plus Account has not been reviewed by the SEC.
The Fixed Plus Account guarantees that amounts allocated to this option will
earn the minimum interest rate specified in the Contract. We may credit a higher
interest rate from time to time. The Company's determination of interest rates
reflects the investment income earned on invested assets and the amortization
of any capital gains and/or losses realized on the sale of invested assets.
Under this option, we assume the risk of investment gain or loss by guaranteeing
Net Purchase Payment values and promising a minimum interest rate and Annuity
payment.
The Fixed Plus Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. Amounts applied to the Fixed
Plus Account will earn the Fixed Plus interest rate in effect when actually
applied to the Fixed Plus Account.
Beginning on the tenth anniversary of the effective date of an Account, we will
credit amounts held in the Fixed Plus Account with an interest rate that is at
least 0.25% higher than the then-declared interest rate for the Fixed Plus
Account for Accounts that have not reached their tenth anniversary. We make no
deductions from the credited interest rate for mortality and expense risks;
these risks are considered in determining the credited rate.
Under certain emergency conditions, we may defer payment of a Fixed Plus Account
withdrawal value (a) for a period of up to 6 months or (b) as provided by
federal law.
Withdrawals
Any withdrawal requested from an Account's Fixed Plus Account Value may not
exceed 20% of the Account's Fixed Plus Account current value as of the date the
withdrawal request is received in good order at our Home Office, reduced by any
Fixed Plus Account withdrawal(s), transfer(s), loan or annuitizations previously
made during the prior 12 months. We will waive the 20% transfer limit when the
partial withdrawal is made on a pro rata basis from all investment options and
the withdrawal is (1) due to your death before Annuity payments begin and
withdrawal is within six months of your death or (2) used to purchase Annuity
benefits.
If a full withdrawal is requested, we will pay any Fixed Plus Account withdrawal
value from the Account with interest, in five annual payments of:
<PAGE>
. One-fifth of the Fixed Plus Account withdrawal Value minus any Fixed Plus
Account withdrawal(s), transfer(s), loan or annuitizations made during the
calendar year;
. One-fourth of the remaining Fixed Plus Account Value 12 months later;
. One-third of the remaining Fixed Plus Account Value 12 months later;
. One-half of the remaining Fixed Plus Account Value 12 months later; and
. The balance of the Fixed Plus Account Value 12 months later.
Once we receive a request for a full withdrawal from an Account termination, no
further withdrawal(s), loan(s) or transfer(s) will be permitted from the Fixed
Plus Account.
A full withdrawal from the Fixed Plus Account may be cancelled at any time
before the end of the five-payment period.
We will waive the Fixed Plus Account full surrender provision if a full
withdrawal is made due to:
(a) the Participant's death (within 6 months after the Participant's date of
death) before Annuity payments begin;
(b) the election of an Annuity option;
(c) if the fixed Plus Account value is $3,500 or less (and no withdrawals,
transfers, loan or annuitizations have been made from the Account
within the prior 12 months);
(d) if permitted by the Plan and allowed by the employer, the Participant's
separation from service with the employer (if the separation from service
is certified by the employer and the withdrawal request is received
within 60 days of the date of termination), subject to a 3% charge based
on the entire Fixed Plus Account Value. If the Participant chooses to
have the five annual payments of the Fixed Plus Account withdrawal as
described above, then no charge will be assessed.
Mortality and Expense Risk Charges
The Fixed Plus Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risk; these risks are
considered in determining the credited rate.
Transfers Among Investment Options
Transfers from the Fixed Plus Account to any other available investment
option(s) are allowed once in each calendar year during the Accumulation Period.
The amount that may be transferred will be up to 20% of the amount held in the
Fixed Plus Account reduced by Fixed Plus Account withdrawals, transfers, loan or
annuitizations made in the prior 12 months. We will waive the 20% transfer limit
when the value in the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before Annuity payments
begin, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the funds available during the
Annuity Period, or any combination thereof, to provide variable Annuity
payments.
SWO
The Systematic Withdrawal Option may not be elected if you have requested a
Fixed Plus Account transfer or withdrawal within the prior 12 month period.
<PAGE>
----------------- Variable Annuity Account
Prospectus Dated:
May 1, 1995
[ARROW APPEARS HERE] C
[ARROW APPEARS HERE] . AetnaPlus
. Group Variable
Annuity Contracts
[ARROW APPEARS HERE] . Optional Retirement Plan
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Annuity Operations 151 Farmington Avenue Hartford, Connecticut 06156 Telephone:
1-800-525-4225
VARIABLE ANNUITY ACCOUNT C
Prospectus Dated: May 1, 1995
OPTIONAL RETIREMENT PLAN -- GROUP VARIABLE ANNUITY CONTRACTS FOR TAX-DEFERRED
ANNUITY (SECTION 403(B)) RETIREMENT PLANS AND FOR SECTION 401(A) DEFINED
CONTRIBUTION PLANS
This Prospectus describes group deferred variable annuity contracts issued by
Aetna Life Insurance and Annuity Company ("Company," "us" or "we"). The
Contract allows lump-sum payments and installment payments. See "Contract
Purchase." The Contracts are designed to fund plans that provide retirement
income for employees of state or municipal institutions of higher education.
These plans are established under certain sections of the Internal Revenue Code
of 1986, as amended ("Code"). Amounts held under the Contracts may be entitled
to tax-deferred treatment under certain sections of the Code.
The Contracts allow for the accumulation of values under credited interest
options or variable options, or a combination of these options. They also
provide for the payment of annuity benefits on a fixed or variable basis, or a
combination thereof.
The variable funding options currently available through the Separate Account
under the Contract described in this Prospectus are as follows:
. Aetna Variable Fund . Fidelity Overseas Portfolio
. Aetna Income Shares . Franklin Government Securities
. Aetna Variable Encore Fund Trust
. Aetna Investment Advisers Fund, . Janus Aspen Aggressive Growth
Inc. Portfolio
. Aetna Ascent Variable Portfolio . Janus Aspen Balanced Portfolio
. Aetna Crossroads Variable . Janus Aspen Flexible Income
Portfolio Portfolio
. Aetna Legacy Variable Portfolio . Janus Aspen Growth Portfolio
. Alger American Growth Portfolio . Janus Aspen Short-Term Bond
. Alger American Small Cap Portfolio
Portfolio . Janus Aspen Worldwide Growth
. Calvert Responsibly Invested Portfolio
Balanced Portfolio . Lexington Natural Resources Trust
. Fidelity Contrafund Portfolio . Neuberger & Berman Growth Portfolio
. Fidelity Equity-Income Portfolio . Scudder International Portfolio
. Fidelilty Growth Portfolio . TCI Growth (a Twentieth Century
Fund)
The availability of the above Funds is subject to applicable regulatory
authorization. Not all Funds are available in all jurisdictions or under all
Contracts. Please check with your employer to determine option availability.
The credited interest options available for the accumulation of values are the
Guaranteed Accumulation Account and the Fixed Plus Account. The Guaranteed
Accumulation Account and the Fixed Plus Account are offered only in those
jurisdictions in which they are approved.
Except as specifically mentioned, this Prospectus describes only the variable
options of the Contracts. Information about the Guaranteed Accumulation Account
and the Fixed Plus Account is found in Appendix I and Appendix II in this
Prospectus and in the prospectus for the Guaranteed Accumulation Account.
This Prospectus describes the information about Variable Annuity Account C (the
"Separate Account") that a prospective investor should know before investing.
Additional information about the Separate Account is contained in a Statement
of Additional Information ("SAI") dated May 1, 1995, which has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
The Table of Contents for the SAI is found in this Prospectus. An SAI may be
obtained without charge by indicating your request on the enrollment form or on
the prospectus receipt contained in this prospectus or by calling
1-800-525-4225.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION
OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
IN CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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DEFINITIONS.............................. 3
PROSPECTUS SUMMARY....................... 5
FEE TABLE................................ 6
CONDENSED FINANCIAL INFORMATION.......... 9
PERFORMANCE DATA......................... 11
THE COMPANY.............................. 12
VARIABLE ANNUITY ACCOUNT C............... 12
THE FUNDS................................ 12
Fund Investment Advisers................ 15
Mixed and Shared Funding................ 16
Fund Additions, Substitutions and
Limitations............................ 16
PURCHASE
Contract Purchase....................... 16
Net Purchase Payments................... 17
Distribution............................ 17
DETERMINING CONTRACT VALUE
Accumulation Units ..................... 18
Net Investment Factor................... 18
CONTRACT RIGHTS
Right to Cancel......................... 19
Rights Under the Contract............... 19
Transfers and Allocation Changes........ 19
Withdrawals............................. 20
Withdrawal Restrictions................. 21
Reinvestment Privilege.................. 21
CHARGES AND DEDUCTIONS
Mortality and Expense Risk Charges...... 22
Asset Based Sales Charge................ 22
Administrative Expense Charge........... 22
Fund Expenses........................... 22
Premium Tax............................. 23
</TABLE>
<TABLE>
<CAPTION>
Page
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ADDITIONAL WITHDRAWAL OPTIONS
General ................................ 23
Estate Conservation Option.............. 24
Systematic Withdrawal Option............ 24
ANNUITY PERIOD
Annuity Period Elections................ 25
Annuity Options......................... 26
DEATH BENEFIT
Accumulation Period..................... 27
Annuity Period.......................... 28
TAX STATUS
Introduction............................ 28
Taxation of the Company................. 29
Tax Status of the Contract.............. 29
Contracts Used with Certain Retirement
Plans.................................. 29
Possible Changes in Taxation............ 31
Other Tax Consequences.................. 31
MISCELLANEOUS
Voting Rights........................... 31
Modification of the Contract............ 31
Contract Holder Inquiries............... 32
Telephone Transfers..................... 32
Transfer of Ownership; Assignment....... 33
Legal Proceedings....................... 33
Legal Matters........................... 33
STATEMENT OF ADDITIONAL INFORMATION --
TABLE OF CONTENTS........................ 34
APPENDIX I--Guaranteed Accumulation
Account................................. 35
APPENDIX II--Fixed Plus Account.......... 36
APPENDIX III--401(a) Defined Contribution
Plans................................... 38
HYPOTHETICAL TABLES...................... 40
</TABLE>
2
<PAGE>
DEFINITIONS
As used in this Prospectus, the following terms have the meanings shown:
ACCOUNT: A record established for each Participant to identify Contract values
accumulated on the Participant's behalf during the Accumulation Period.
Generally, two Accounts will be established for each Participant: the Employee
Account and the Employer Account.
ACCOUNT VALUE: The dollar value of amounts held in an Account as of any
Valuation Period, including the value of the Accumulation Units in the Funds,
the amounts held in GAA, and any amounts invested in the Fixed Plus Account,
plus interest earned on those amounts, but excluding amounts used for Annuity
Options.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of the Separate Account assets
attributable to each Fund used as a variable funding option.
ANNUITANT: A natural person on whose life an Annuity payment is based.
ANNUITY: A series of payments for life, for a definite period or a combination
of the two.
ANNUITY PERIOD: The period during which Annuity Payments are made.
ANNUITY UNIT: A measure of the value attributable to each Fund selected during
the Annuity Period.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY: Aetna Life Insurance and Annuity Company, sometimes referred to as
"we" or "us."
CONTRACT: The group deferred variable annuity contracts offered by this
Prospectus.
CONTRACT HOLDER: The entity to which the Contract is issued. The Contract
Holder is usually the employer.
DISTRIBUTOR(S): The registered broker-dealer(s) which have entered into selling
agreements with the Company to offer and sell the Contracts. The Company may
also serve as a Distributor.
EFFECTIVE DATE: The date the Company accepts and approves the Contract
application or enrollment form, as applicable.
EMPLOYEE ACCOUNT: An Account established for each Participant. This Account
will be credited with employee (Participant) Net Purchase Payments made by the
Participant, specifically employee salary reduction contributions.
EMPLOYER ACCOUNT: An Account established for each Participant. This Account
will be credited with Net Purchase Payments made by the employer (Contract
Holder).
ERISA: Employee Retirement Income Security Act of 1974.
FUNDS: The mutual funds offered as variable options for the investment of
assets of the Separate Account under the Contracts.
GAA: Guaranteed Accumulation Account, the credited interest option available in
certain jurisdictions for deposits under the Contract.
HOME OFFICE: The Company's principal executive offices, located at 151
Farmington Avenue, Hartford, Connecticut 06156.
3
<PAGE>
MARKET VALUE ADJUSTMENT: An amount deducted or added to amounts withdrawn early
from the Guaranteed Accumulation Account to reflect changes in the market value
of the investment since the date of deposit. See Appendix I and the prospectus
for the Guaranteed Accumulation Account for a discussion of how the market
value adjustment is actually calculated.
NET PURCHASE PAYMENT(S): The Purchase Payment(s) less applicable premium taxes.
PARTICIPANT: An eligible person participating in the Plan maintained by the
Contract Holder, referred to as "you."
PLAN(S): Tax-deferred retirement plans adopted by public higher education
systems for their employees under Section 403(b) of the Code. A separate
Contract may be offered to Contract Holders who wish to make Purchase Payments
or rollover contributions in connection with qualified defined contribution
Plans under Section 401(a) of the Code.
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract.
SEC: Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account C, an account that segregates assets
from other assets of the Company. The Separate Account holds shares of the
Funds acquired for the Contracts. The Company holds title to the assets held in
the Separate Account.
UNDERWRITER: The registered broker-dealer which contracts with other registered
broker-dealers on behalf of the Separate Accounts to offer and sell the
Contracts.
VALUATION PERIOD: The period of time from when a Fund determines its net asset
value until the next time it 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.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the Annuity Period and the value of
a commutation right available under the "Payments for Specified Period"
nonlifetime Annuity option when elected on a variable basis under the Contract.
VARIABLE ANNUITY CONTRACT: An Annuity Contract providing for the accumulation
of values and/or for Annuity payments which vary in dollar amount with
investment results.
4
<PAGE>
PROSPECTUS SUMMARY
CONTRACTS OFFERED
The Contracts described in this prospectus are group, deferred, variable
annuity contracts. They allow lump-sum payments and installment payments. See
"Purchase of Contract," "Contract Rights" and "Miscellaneous."
The Contract provisions we describe in this prospectus apply to Plans that are
adopted by public higher education systems for their employees under Section
403(b) of the Code. A separate Contract may be offered to Contract Holders who
wish to make the Purchase Payments to a qualified defined contribution plan
under Section 401(a) (see Appendix III). Under these formal retirement plans,
the Contract Holder makes contributions on behalf of the Participant
(employee.)
PURCHASE
The Contracts may be purchased by eligible organizations on behalf of a group
made up of their employees. Eligible employees may participate in the Contract
by completing an enrollment form (and any other required forms) and submitting
it to the Company. Purchase Payments are made by salary reduction or by lump
sum payments from an eligible, existing plan. For every Contract, two Accounts
will be established: an Employee Account, for contributions made by an
employee, and an Employer Account, for contributions made by the employer on
the employee's behalf. See "Purchase."
REDEMPTION
The Contract Holder may withdraw all or a portion of the Account Value during
the Accumulation Period by properly completing the Company's disbursement form
and sending it to the Company's Home Office. A distribution can be made only if
the Contract Holder certifies in writing that the Participant is eligible, both
as to the timing and form of the distribution. With respect to any such
withdrawal from a Plan subject to ERISA, the Contract Holder must provide
written certification that the applicable REA requirements have been met and
that the distribution is in accordance with the terms of the Plan. See
"Contract Rights--Withdrawals." Limitations apply to withdrawals from the Fixed
Plus Account (See Appendix II.) The Code restricts full and partial withdrawals
in certain circumstances. (See "Withdrawal Restrictions").
TAXES AND WITHHOLDING
A 10% federal tax penalty and a 20% withholding for income tax may also be
imposed on certain withdrawals. See "Tax Status--Contracts Used with Certain
Retirement Plans."
CONTRACT CHARGES
Certain charges are associated with these Contracts, for example, mortality and
expense risk charges, asset based sales charge and administrative expense
charges. The Funds are also subject to certain fees and expenses. Purchase
Payments may also be subject to premium taxes. See "Charges and Deductions" for
a complete explanation of these charges.
FREE LOOK PROVISION
Participants and Contract Holders have the right to cancel their Certificate or
Contract (as applicable) within 10 days after receipt (or as otherwise allowed
by state law) by returning it to the Company along with a written notice of
cancellation. Unless state law requires otherwise, the amount you will receive
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 your Purchase Payments. See
"Contract Rights--Right to Cancel."
5
<PAGE>
FEE TABLE
(Based on year ended December 31, 1994)
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CONTRACT 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.
FOR MORE INFORMATION REGARDING EXPENSES PAID OUT OF THE ASSETS OF A PARTICULAR
FUND, SEE THE FUND'S PROSPECTUS.
SEPARATE ACCOUNT ANNUAL EXPENSES
--------------------------------
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
Asset Based Sales Charge .15%
Administrative Expense Charge(/2/) 0%
-----
Total Separate Account Annual Expenses 1.40%
=====
</TABLE>
(/1/We)currently do not impose an Administrative Expense Charge; however, we
reserve the right to deduct a daily charge of not more than 0.25% per year
from the portion of contract values held in the Separate Account.
6
<PAGE>
MUTUAL FUND ANNUAL EXPENSES
---------------------------
(Except as noted, the following figures are a percentage of average net assets
and, except where otherwise indicated, are based on figures for the year ended
December 31, 1994)
<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL
ADVISORY FEES(/1/) EXPENSES(/2/) MUTUAL FUND
(AFTER EXPENSE (AFTER EXPENSE ANNUAL
REIMBURSEMENT) REIMBURSEMENT) EXPENSES
------------------ -------------- -----------
<S> <C> <C> <C>
Aetna Variable Fund 0.25% 0.05% 0.30%
Aetna Income Shares 0.25% 0.08% 0.33%
Aetna Variable Encore Fund 0.25% 0.07% 0.32%
Aetna Investment Advisers Fund,
Inc. 0.25% 0.07% 0.32%
Aetna Ascent Variable
Portfolio(/3/) 0.50% 0.20% 0.70%
Aetna Crossroads Variable
Portfolio(/3/) 0.50% 0.20% 0.70%
Aetna Legacy Variable
Portfolio(/3/) 0.50% 0.20% 0.70%
Alger American Growth Portfolio 0.75% 0.11% 0.86%
Alger American Small Cap
Portfolio 0.85% 0.11% 0.96%
Calvert Responsibly Invested
Balanced Portfolio 0.70% 0.10% 0.80%
Fidelity Contrafund
Portfolio(/3/) 0.62% 0.27% 0.89%
Fidelity Equity-Income Portfolio 0.52% 0.06% 0.58%
Fidelity Growth Portfolio 0.62% 0.07% 0.69%
Fidelity Overseas Portfolio 0.77% 0.14% 0.91%
Franklin Government Securities
Trust(/4/) 0.47% 0.16% 0.63%
Janus Aspen Aggressive Growth
Portfolio(/5/) 0.77% 0.28% 1.05%
Janus Aspen Balanced
Portfolio(/5/) 0.83% 0.74% 1.57%
Janus Aspen Flexible Income
Portfolio(/5/) 0.30% 0.70% 1.00%
Janus Aspen Growth
Portfolio(/5/) 0.66% 0.22% 0.88%
Janus Aspen Short-Term Bond
Portfolio(/5/) 0.00% 0.65% 0.65%
Janus Aspen Worldwide Growth
Portfolio(/5/) 0.69% 0.49% 1.18%
Lexington Natural Resources
Trust(/6/) 1.00% 0.55% 1.55%
Neuberger & Berman Growth
Portfolio(/7/) 0.79% 0.12% 0.91%
Scudder International Portfolio 0.88% 0.20% 1.08%
TCI Growth(/8/) 1.00% 0.00% 1.00%
</TABLE>
-------
(/1/) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds
as variable funding options under the Contract. These reimbursements are
paid out of the investment advisory fees and are not charged to investors.
(/2/) A Fund's "Other Expenses" include operating costs of the Fund. The
deduction of the above expenses are reflected in the Fund's net asset
value and are not deducted from the Account Value under the Contract.
(/3/) These Funds have only limited operating history; therefore the expenses
are estimated for the current fiscal year.
(/4/) The investment adviser for the Franklin Government Securities Trust has
agreed to reduce the investment advisory fee and to reimburse the Fund for
certain expenses. Without this agreement, the other expenses would have
been 0.63% and total annual expenses for the Franklin Government
Securities Trust would have been 0.78%.
(/5/) The expense figures shown are net of certain expense waivers from Janus
Capital Corporation. Without such waivers, the Investment Advisory Fees,
Other Expenses and Total Mutual Fund Annual Expenses for the Portfolios
for the fiscal year ended December 31, 1994 would have been: 1.00%, 0.28%
and 1.28%, respectively, for Janus Aspen Aggressive Growth Portfolio;
1.00%, 0.74% and 1.74%, respectively, for Janus Aspen Balanced Portfolio;
0.65%, 0.70% and 1.35%, respectively, for Janus Aspen Flexible Income
Portfolio; 1.00%, 0.22% and 1.22%, respectively, for Janus Aspen Growth
Portfolio; 0.65%, 0.75% and 1.40%, respectively, for Janus Aspen Short-
Term Bond Portfolio; and 1.00%, 0.49% and 1.49%, respectively, for Janus
Aspen Worldwide Growth Portfolio.
(/6/) These fees as a percentage of assets are higher than those for other
similar funds, although the amounts of the fees are not due to the limited
amount of assets in the Fund.
(/7/) Until May 1, 1995, the Portfolio had a Distribution Plan pursuant to Rule
12b-1 which provided for the reimbursement by Neuberger & Berman
Management of certain distribution expenses, up to a maximum of 0.25% on
an annual basis of the Portfolio's average daily net assets. The "Total
Annual Expenses" shown above would have been increased by 0.02% for each
Portfolio if the 12b-1 fees for the months of January through April, 1995
were taken into account.
(/8/) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest, fees and expenses of the
non-interested directors (including counsel fees) and extraordinary
expenses.
7
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
-----------------------------------
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, you would have paid the following
expenses on a $1,000 investment whether or not you withdraw or if you annuitize
your contract at the end of the applicable time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Aetna Variable Fund $17 $54 $ 92 $201
Aetna Income Shares $18 $54 $ 94 $204
Aetna Variable Encore Fund $17 $54 $ 93 $203
Aetna Investment Advisers Fund, Inc. $17 $54 $ 93 $203
Aetna Ascent Variable Portfolio $21 $66 $113 $243
Aetna Crossroads Variable Portfolio $21 $66 $113 $243
Aetna Legacy Variable Portfolio $21 $66 $113 $243
Alger American Growth Portfolio $23 $71 $121 $260
Alger American Small Cap Portfolio $24 $74 $126 $270
Calvert Responsibly Invested
Balanced Portfolio $22 $69 $118 $253
Fidelity Contrafund Portfolio $23 $72 $123 $263
Fidelity Equity-Income Portfolio $20 $62 $107 $231
Fidelity Growth Portfolio $21 $65 $112 $242
Fidelity Overseas Portfolio $23 $72 $124 $265
Franklin Government Securities Trust $21 $64 $109 $236
Janus Aspen Aggressive Growth
Portfolio $25 $76 $131 $279
Janus Aspen Balanced Portfolio $30 $92 $156 $329
Janus Aspen Flexible Income
Portfolio $24 $75 $128 $274
Janus Aspen Growth Portfolio $23 $71 $122 $262
Janus Aspen Short-Term Bond
Portfolio $21 $64 $110 $238
Janus Aspen Worldwide Growth
Portfolio $26 $80 $137 $291
Lexington Natural Resources Trust $30 $91 $155 $327
Neuberger & Berman Growth Portfolio $23 $72 $124 $265
Scudder International Portfolio $25 $77 $132 $282
TCI Growth $24 $75 $128 $274
</TABLE>
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN
THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994 (AS APPLICABLE), IS DERIVED FROM
THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS
HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE INDEPENDENT
AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL
INFORMATION.
<TABLE>
<CAPTION>
1994 1993 1992
--------- ------- ------------
<S> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $11.083 $10.531 $10.000(/2/)
Value at end of period $10.823 $11.083 $10.531
Increase (decrease) in value of
accumulation unit(/1/) (2.35)% 5.24% 5.31%
Number of accumulation units outstanding
at end of period 77,511 37,807 3,948
AETNA INCOME SHARES
Value at beginning of period $11.107 $10.271 $10.000(/2/)
Value at end of period $10.536 $11.107 $10.271
Increase (decrease) in value of
accumulation unit(/1/) (5.14)% 8.14% 2.71%
Number of accumulation units outstanding
at end of period 14,482 4,936 416
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.252 $10.076 $10.000(/2/)
Value at end of period $10.523 $10.252 $10.076
Increase (decrease) in value of
accumulation unit(/1/) 2.64% 1.75% 0.76%
Number of accumulation units outstanding
at end of period 12,934 3,066 547
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $11.109 $10.253 $10.000(/2/)
Value at end of period $10.900 $11.109 $10.253
Increase (decrease) in value of
accumulation unit(/1/) (1.88)% 8.35% 2.53%
Number of accumulation units outstanding
at end of period 11,773 6,540 221
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000 $10.000(/3/)
Value at end of period $9.461 $10.000
Increase (decrease) in value of
accumulation unit(/1/) (5.39)% 0.00%
Number of accumulation units outstanding
at end of period 4,575 2
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO*
Value at beginning of period $11.352 $10.589 $10.000(/2/)
Value at end of period $10.839 $11.352 $10.589
Increase (decrease) in value of
accumulation unit(/1/) (4.52)% 7.21% 5.89%
Number of accumulation units outstanding
at end of period 8,469 2,383 125
</TABLE>
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
FRANKLIN GOVERNMENT SECURITIES TRUST
Value at beginning of period $10.843 $10.214 $10.000(/2/)
Value at end of period $10.294 $10.843 $10.214
Increase (decrease) in value of
accumulation unit(/1/) (5.06)% 6.16% 2.14%
Number of accumulation units
outstanding at end of period 10,738 4,409 470
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.000(/4/)
Value at end of period $10.577
Increase (decrease) in value of
accumulation unit(/1/) 5.77%
Number of accumulation units
outstanding at end of period 820
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $10.000
Value at end of period $10.000
Increase (decrease) in value of
accumulation unit(/1/) 0.00%
Number of accumulation units
outstanding at end of period 0
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $11.261 $10.196 $10.000(/2/)
Value at end of period $10.496 $11.261 $10.196
Increase (decrease) in value of
accumulation unit(/1/) (6.79)% 10.45% 1.96%
Number of accumulation units
outstanding at end of period 7,350 2,438 165
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $11.796 $10.927 $10.000(/2/)
Value at end of period $11.055 $11.796 $10.927
Increase (decrease) in value of
accumulation unit(/1/) (6.28)% 7.95% 9.27%
Number of accumulation units
outstanding at end of period 21,935 7,403 477
SCUDDER INTERNATIONAL PORTFOLIO
Value at beginning of period $12.883 $ 9.539 $10.000(/2/)
Value at end of period $12.595 $12.883 $9.539
Increase (decrease) in value of
accumulation unit(/1/) (2.24)% 35.06% (4.81)%
Number of accumulation units
outstanding at end of period 22,036 4,560 281
TCI GROWTH
Value at beginning of period $12.046 $10.000(/5/)
Value at end of period $11.740 $12.046
Increase (decrease) in value of
accumulation unit(/1/) (2.54)% 20.46%
Number of accumulation units
outstanding at end of period 15,078 4,104
</TABLE>
(/1/) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value.
(/2/) The initial Accumulation Unit value was established at $10.000 on July 20,
1992 the date on which the Fund/Portfolio became available under the
Contract.
(/3/) The initial Accumulation Unit value was established at $10.000 on
September 17, 1993 the date on which the Portfolio became available under
the Contract.
(/4/) The initial Accumulation Unit value was established at $10.000 during
October 1994, when funds were first received in this option.
(/5/) The initial Accumulation Unit value was established at $10.000 on February
1, 1993 the date on which the Portfolio became available under the
Contract.
* Formerly Calvert Socially Responsible Series.
10
<PAGE>
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" and "non-standardized 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 since inception if less than 10 years). Such returns will reflect
the deduction of all recurring charges during each period (e.g., mortality and
expense risk charges and any administrative expense charge). "Non-standardized
return" may also include a three-year period in addition to the one, five and
ten-year periods.
For Funds that were in existence prior to the date that the Fund became
available under the Contract, the performance data will show the investment
performance that such Fund would have achieved (reduced by the applicable
charges) had it been available under the Contract for the period quoted.
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 500 Stock Index and the Dow Jones Industrial
Average or to the percentage change in values of other management investment
companies which have investment objectives similar to the Fund being compared.
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. may be published by us
in advertisements and reports to you and to Contract Holders. The purpose of
the ratings is to reflect our financial strength and/or claims-paying ability.
Ranking services such as Morningstar's Variable Annuity/Life Performance Report
and Lipper's Variable Insurance Products Performance Analysis Service (VIPPAS),
which rank variable annuity or life subaccounts or their underlying funds by
performance and/or investment objective may be quoted by us. From time to time,
articles from newspapers and magazines or other publications or reports,
including, but not limited to The Wall Street Journal, Money magazine, USA
Today and The VARDS Report may also be quoted by us.
11
<PAGE>
THE COMPANY
Aetna Life Insurance and Annuity Company is a stock life insurance company
organized in 1976 under the insurance laws of State of Connecticut; it is the
depositor for Variable Annuity Account C. As of December 31, 1994, the Company
managed over $20.4 billion of assets. As of December 31, 1993, we ranked among
the top 2% of all U.S. life insurance companies by size. It 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. Our Home Office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C is a separate account established by us in 1976
pursuant to the insurance laws of the State of Connecticut. The Separate
Account was formed for the purpose of segregating assets attributable to the
variable portions of Contracts from our other assets. The Separate Account is
registered as a unit investment trust under the Investment Company Act of 1940
and meets the definition of "separate account" under the federal 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
we may conduct. Income, gains or losses of the Separate Account are credited
to or charged against the assets of the Separate Account without regard to our
other income, gains or losses. However, all obligations arising under the
Contracts are our general corporate obligations.
THE FUNDS
The Contract Holder will designate some or all of the mutual funds described
below as variable funding options under the Contract. The Contract Holder, or
you, if allowed by the Contract Holder may select one or more of the Funds for
investment of the Purchase Payments made on your behalf. Except where noted,
all of the Funds are diversified as defined in the Investment Company Act of
1940. The availability of the above Funds is subject to applicable regulatory
authorization. Not all Funds are available in all jurisdictions or under all
Contracts.
. AETNA VARIABLE FUND (sometimes called the "Growth and Income Fund") seeks
to maximize total return through investments in a diversified portfolio
of common stocks and securities convertible into common stock.
. AETNA INCOME SHARES (sometimes called the "Bond Fund") seeks to maximize
total return, consistent with reasonable risk, through investments in a
diversified portfolio consisting primarily of debt securities.
. AETNA VARIABLE ENCORE FUND (sometimes called the "Money Market Fund")
seeks to provide high current return, consistent with preservation of
capital and liquidity, through investment in high-quality money market
instruments. An investment in this Fund is neither insured nor guaranteed
by the U.S. Government.
. AETNA INVESTMENT ADVISERS FUND, INC. (sometimes called the "Managed
Fund") is a managed mutual fund that seeks to maximize investment return
consistent with reasonable safety of principal by investing in one or
more of the following asset classes: stocks, bonds and cash equivalents
based on the Company's judgment of which of those sectors or mix thereof
offers the best investment prospects.
. AETNA GENERATION PORTFOLIOS, INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks
to provide capital appreciation by allocating its investments among
equities and fixed income securities. Aetna Ascent Variable Portfolio is
managed for investors who generally have an investment horizon exceeding
15 years, and who have a high level of risk tolerance. See the Fund's
prospectus for a discussion of the risks involved.
. AETNA GENERATION PORTFOLIOS, INC.--AETNA CROSSROADS VARIABLE PORTFOLIO
seeks to provide total return (i.e., income and capital appreciation,
both realized and unrealized) by allocating its investments among
equities and fixed income securities. Aetna Crossroads Variable Portfolio
is managed for investors who generally have an investment horizon
exceeding 10 years and who have a moderate level of risk tolerance.
12
<PAGE>
. AETNA GENERATION PORTFOLIOS, INC.--AETNA LEGACY VARIABLE PORTFOLIO seeks
to provide total return consistent with preservation of capital by
allocating its investments among equities and fixed income securities.
Aetna Legacy Variable Portfolio is managed for investors who generally
have an investment horizon exceeding five years and who have a low level
of risk tolerance.
. ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term
capital appreciation by investing in a diversified, actively managed
portfolio of equity securities, primarily of companies with total market
capitalization -- present market value per share multiplied by the total
number of shares outstanding -- of $1 billion or greater. Income is a
consideration in the selection of investments but is not an investment
objective.
. ALGER AMERICAN FUND--ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
("Alger American Small Cap Portfolio") seeks capital return through
investment in the common stock of smaller companies offering the
potential for significant price gain. It invests at least 85% of its net
assets in equity securities and at least 65% of its net assets in equity
of companies that, at the time of purchase, have "total market
capitalization"-- present market value per share multiplied by the total
number of shares outstanding -- of less than $1 billion. Investing in
smaller companies may present risks not present in investments in larger
companies. See the Fund's prospectus for a discussion of these risks.
. CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO is a nondiversified
portfolio that seeks growth of capital through investment in enterprises
that make a significant contribution to society through their products
and services and through the way they do business. Prior to May 1, 1995,
the Fund was known as the Calvert Socially Responsible Series.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND
PORTFOLIO ("Fidelity Contrafund Portfolio") seeks maximum total return
over the long term by investing its assets mainly in equity securities of
companies that are undervalued or out-of-favor.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME
PORTFOLIO ("Fidelity Equity-Income Portfolio") seeks reasonable income by
investing primarily in income-producing equity securities. In choosing
these securities, the Fund will also consider the potential for capital
appreciation.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO
("Fidelity Growth Portfolio") seeks to achieve capital appreciation by
investing primarily in common stock, although the Fund is not limited to
any one type of security.
. FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS
PORTFOLIO ("Fidelity Overseas Portfolio") seeks long-term growth of
capital primarily through investments in foreign securities (at least 65%
from at least three countries outside of North America). International
investments such as these involve greater risks than U.S. investments.
. FRANKLIN GOVERNMENT SECURITIES TRUST seeks income through investments in
obligations of the U.S. Government or its agencies or instrumentalities,
primarily GNMA obligations.
. JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO ("Janus Aspen Aggressive
Growth Portfolio") is a nondiversified portfolio that seeks long-term
growth of capital by emphasizing investments in common stocks of
companies with market capitalizations between $1 billion and $5 billion.
. JANUS ASPEN SERIES--BALANCED PORTFOLIO ("Janus Aspen Balanced Portfolio")
seeks both long-term growth of capital and current income. The Portfolio
is designed for investors who want to participate in the equity markets
through a more moderate investment than a pure growth fund. Investments
in income-producing securities are intended to result in a portfolio that
provides a more consistent total return than may be attainable through
investing solely in growth stocks. The Portfolio is not designed for
investors who desire a consistent level of income.
13
<PAGE>
. JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO ("Janus Aspen Flexible
Income Portfolio") seeks to maximize total return, consistent with
preservation of capital from a combination of current income and capital
appreciation. Janus Aspen Flexible Income Portfolio invests in all types
of income-producing securities and may have substantial holdings of debt
securities rated below investment grade ("high yield, high risk
securities") also commonly known as "junk bonds." High yield, high risk
securities involve certain risks. See the Fund's prospectus for a
discussion of these risks.
. JANUS ASPEN SERIES--GROWTH PORTFOLIO ("Janus Aspen Growth Portfolio")
seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of
any size. The Portfolio generally emphasizes issuers with large market
capitalizations.
. JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO ("Janus Aspen Short-Term
Bond Portfolio") seeks as high a level of current income as is consistent
with preservation of capital by investing primarily in short- and
intermediate-term fixed income securities. The Portfolio will normally
maintain a dollar-weighted average portfolio maturity of less than three
years, but not to exceed five years depending upon its portfolio
manager's opinion of prevailing market, financial and economic
conditions.
. JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO ("Janus Aspen Worldwide
Growth Portfolio") seeks long-term growth of capital by investing
primarily in common stocks of companies of foreign and domestic issuers
of any size. The Portfolio normally invests in issuers from at least five
different countries including the United States. International
investments involve risks not present in U.S. Securities.
. LEXINGTON NATURAL RESOURCES TRUST is a nondiversified portfolio that
seeks long-term growth of capital through investment primarily in common
stocks of companies which own or develop natural resources and other
basic commodities or supply goods and services to such companies. Current
income will not be a factor. Total return will consist primarily of
capital appreciation. The Fund may invest up to 25% of its total assets
in foreign securities. Foreign investing involves risks that differ from
those involved in domestic investing. See the Fund's prospectus for a
discussion of these risks.
. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST--GROWTH PORTFOLIO
("Neuberger & Berman Growth Portfolio") seeks capital growth through
investments in common stocks of companies that the investment adviser
believes will have above-average potential for capital appreciation.
. SCUDDER VARIABLE LIFE INVESTMENT FUND--INTERNATIONAL PORTFOLIO ("Scudder
International Portfolio") seeks long-term growth of capital primarily
through diversified holdings of marketable foreign equity investments.
Investing in foreign securities may involve a greater degree of risk than
investing in domestic securities. See the Fund's prospectus for a
discussion of the risks involved.
. TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century Fund) seeks capital
growth by investing in common stocks (including securities convertible
into common stocks) and other securities that meet certain fundamental
and technical standards of selection and, in the opinion of TCI Growth's
management, have better than average potential for appreciation. TCI
Growth tries to stay fully invested in such securities, regardless of the
movement of prices generally. The Fund may invest in foreign securities.
Foreign investing involves risks that differ from those involved in
domestic investing. See the Fund's prospectus for a discussion of these
risks.
There is no assurance that the Funds will achieve their investment objectives.
Participants bear the full investment risk of investments in the Funds
selected.
Some of the 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 involve 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.
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<PAGE>
More comprehensive information, including a discussion of potential risks, is
found in the current prospectus for each Fund which is distributed with and
must accompany this Prospectus. Contract Holders and Participants should read
the accompanying prospectuses carefully before investing. Additional
prospectuses and the Statements of Additional Information for this Prospectus
and each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed on the cover of this Prospectus.
FUND INVESTMENT ADVISERS
The following identifies the investment adviser and the subadviser, if any, for
each Fund.
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER SUBADVISER
---- ------------------ ----------
<S> <C> <C>
Aetna Variable Fund Aetna Life Insurance --
and Annuity Company (ALIAC)
Aetna Income Shares ALIAC --
Aetna Variable Encore ALIAC --
Fund
Aetna Investment ALIAC --
Advisers Fund, Inc.
Aetna Ascent ALIAC --
Aetna Crossroads ALIAC --
Aetna Legacy ALIAC --
Alger American Growth Fred Alger Management, Inc. --
Portfolio
Alger American Small Fred Alger Management, Inc. --
Cap Portfolio
Calvert Responsibly Calvert Asset Management NCM Capital Management
Invested Balanced Company, Inc. Group, Inc.
Portfolio
Fidelity Contrafund Fidelity Management & --
Portfolio Research Company
Fidelity Equity- Fidelity Management & --
Income Portfolio Research Company
Fidelity Growth Fidelity Management & --
Portfolio Research Company
Fidelity Management & --
Fidelity Overseas Research Company
Portfolio
Franklin Government Franklin Advisers, Inc. --
Securities Trust
Janus Aspen Janus Capital Corporation --
Aggressive Growth
Portfolio
Janus Aspen Balanced Janus Capital Corporation --
Portfolio
Janus Aspen Flexible Janus Capital Corporation --
Income Portfolio
Janus Aspen Growth Janus Capital Corporation --
Portfolio
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER SUBADVISER
---- ------------------ ----------
<S> <C> <C>
Janus Aspen Short- Janus Capital Corporation --
Term Bond Portfolio
Janus Aspen Janus Capital Corporation --
Worldwide Growth
Portfolio
Lexington Natural Lexington Management Market Systems Research
Resources Trust Corporation Advisors, Inc.
Neuberger & Berman Neuberger & Berman Neuberger & Berman
Growth Portfolio Management Incorporated
Scudder Scudder, Stevens & Clark, Inc. --
International
Portfolio
TCI Growth Investors Research Corporation --
</TABLE>
MIXED AND SHARED FUNDING
Shares of the Funds are sold to us for funding variable annuities. The Funds
may be sold to other companies for the same purpose. This is referred to as
"shared funding." Shares of the Funds may also be used for funding variable
life insurance policies through variable life separate accounts sponsored by us
or by third parties. This is referred to as "mixed funding."
It is conceivable that, in the future, it may be disadvantageous for variable
annuity separate accounts and variable life separate accounts to invest in
these Funds simultaneously, since the interests of the contract holders or
policy owners or of the insurance companies may differ. Each Fund's Board of
Trustees or Directors has agreed to monitor events in order to identify any
material irreconcilable conflicts which 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 a
Fund. This might force that Fund to sell portfolio securities at
disadvantageous prices.
FUND ADDITIONS, SUBSTITUTIONS AND LIMITATIONS
We may, from time to time, add additional mutual funds as eligible variable
funding options under the Contracts. In such event, the Contract Holder or you,
if permitted by the Contract Holder, may be permitted to select from these
other funds, subject to any conditions that may be imposed in connection with
those options. No more than 18 different investment choices may be made over
the life of the Account. See "Transfers and Allocation Changes."
The Company's current policy is to allow only Aetna Variable Fund, Aetna Income
Shares and Aetna Investment Advisers Fund, Inc. to be used as variable
investment options during the Annuity Period. See "Annuity Period Elections."
The Contract Holder may decide to offer only a select number of Funds as
funding options under its Plan, or may decide to substitute shares of one Fund
for shares of another Fund currently held by the Separate Account.
PURCHASE
CONTRACT PURCHASE
An organization eligible to establish tax-deferred annuity plans under Section
403(b) of the Code or certain qualified plans under Section 401(a) of the Code
may acquire a group Contract for its Plan by filling out the
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<PAGE>
appropriate master application form and returning it to the Company or to a
Distributor for delivery to the Company. Once we approve the application, a
group Contract is issued to the organization as Contract Holder. The Contract
Holder exercises all rights under the Contracts. See "Contract Rights." Lump-
sum transfers of amounts accumulated under a preexisting Plan and continuing,
periodic payments are allowed under the Contract.
Employees of the Contract Holder may fill out an enrollment form or forms and
return them to the Company or to a Distributor for delivery to the Company for
review, acceptance or rejection. The Company must accept or reject an
application or the enrollment form within two business days of its receipt. If
the application or enrollment form is incomplete, the Company may hold it and
any accompanying Purchase Payment for five days. Purchase Payments may be held
for longer periods only with the consent of the Contract Holder or Participant,
pending acceptance of the application or enrollment form. If the application or
enrollment form is accepted, a certificate will be issued to the Participant or
the Purchase Payment will be accepted. Any Purchase Payment accompanying the
application or enrollment form or received prior to acceptance of the
application, will be invested as of the date of acceptance. If the application
or enrollment form is rejected, the application or enrollment form and any
Purchase Payments will be returned to the Contract Holder. Initial payments
held for longer than the five business days will be deposited in the Aetna
Variable Encore Fund until the forms are completed.
A group Contract is issued to cover all present and future Participants. The
Contract provides for the establishment of an Account on behalf of each
Participant. The Employer Account will be credited with Net Purchase Payments
made by the employer. The Employee Account will be credited with Net Purchase
Payments from employee salary reduction contributions. Lump-sum transfers to us
of amounts accumulated under a preexisting Plan are permitted and can be added
to your Account. There is currently no minimum amount for lump-sum payments;
however, we reserve the right to set such a minimum. The Contract Holder may
cancel the Contract within 10 days after receiving it. See "Right to Cancel."
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the Plan meets
applicable Code nondiscrimination requirements. It is the Contract Holder's
responsibility to determine compliance with these requirements and other
provisions of the Plan (see "Rights Under the Contract"). (For 401(a) Contracts
see Appendix III.)
NET PURCHASE PAYMENTS
Each Purchase Payment is forwarded to us through a Distributor. Each Net
Purchase Payment, to the extent it is to be accumulated on a variable basis, is
placed in the Separate Account and credited to the Contract.
You may elect to have the Net Purchase Payment(s) accumulate (a) on a variable
basis by allocation to one or more of the available Funds; (b) on a fixed basis
under one or more of the available credited interest options; or (c) in a
combination of any of the available investment options. The Net Purchase
Payment(s) must be allocated to the options in terms of whole percentages.
You may elect to change the allocation of future Net Purchase Payments to any
available accumulation option described above.
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities
and Exchange Commission and is a member of the National Association of
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<PAGE>
Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract with
one or more registered broker- dealers ("Distributors"), including at least one
affiliate of the Company, to offer and sell the Contracts. All persons offering
and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell Variable
Annuity Contracts. These registered representatives may also provide services
to Participants in connection with establishing their Accounts under the
Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum percentage amount that
the Company will ever pay as commission with respect to any given Purchase
Payment is with respect to those made during the first year of Purchase
Payments under a Certificate. That percentage amount will range from 1% to 3%
of those Purchase Payments. The Company may also pay renewal commissions on
Purchase Payments made after the first year and asset-based service fees. The
average of all payments made by the Company is estimated to equal approximately
3% of the total Purchase Payments made over the life of an average Contract.
The Company may also reimburse the Distributor for certain expenses. The name
of the Distributor and the registered representative responsible for your
Account are set forth on your enrollment form. Commissions and sales related
expenses are paid by the Company and are not deducted from Purchase Payments.
See "Charges and Deductions--Asset Based Sales Charge."
Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We may
also enter into agreements with some entities associated with the Contract
Holder or Participants in which we would agree to pay the association for
certain services in connection with administering the Contracts. In both these
circumstances there may be an understanding that the Distributor or association
would endorse the Company as a provider of the Contract. You will be notified
if you are purchasing a Contract that is subject to these arrangements.
DETERMINING CONTRACT VALUE
ACCUMULATION UNITS
A Purchase Payment that is directed to one or more of the Funds is deposited in
the Separate Account and credited to the Account in the form of Accumulation
Units for each Fund selected. The number of Accumulation Units credited is
determined by dividing the applicable portion of the Purchase Payment by that
Contract's Accumulation Unit value of the appropriate Fund. The Accumulation
Unit value used is that next-computed following the date on which a Purchase
Payment is received, unless the application has not been accepted. In that
event, Purchase Payments will be credited at the Accumulation Unit Value next
determined after acceptance of the application. Shares of the Funds are
purchased by the Separate Account at the net asset value next determined by the
Fund following receipt of Purchase Payments by the Separate Account. 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 you elect
to have a Purchase Payment invested in a combination of Funds, you will have
Accumulation Units credited from more than one source. The value of your
Account as of the most recent Valuation Period, is determined by adding the
value of any Accumulation Units attributed to the Fund(s) you have selected to
the value of any amounts invested in the Fixed Plus Account and in GAA.
NET INVESTMENT FACTOR
A Valuation Period is 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. 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.
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<PAGE>
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 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 an annual effective rate of
1.25% for the Annuity mortality and expense risks; an asset based sales charge
at an annual effective rate of 0.15% and a daily administrative expense charge
that will not exceed 0.25% (zero through April 30, 1996) on an annual effective
basis. The net investment rate may be more or less than zero.
CONTRACT RIGHTS
RIGHT TO CANCEL
You or the Contract Holder may participate under the certificate or Contract no
later than ten days after receiving the certificate or Contract (or as
otherwise allowed by state law) by returning it to us along with a written
notice of cancellation. We will produce a refund not later than seven days (or
as otherwise allowed by state law) after we receive the certificate or Contract
and the written notice at our Home Office. Unless the applicable state law
requires a refund of Purchase Payment(s) only, we will refund the Purchase
Payment(s) plus any increase or minus any decrease in the value of any Purchase
Payments allocated to the variable option(s).
RIGHTS UNDER THE CONTRACT
All rights under the Contract rest with the Contract Holder (the employer). The
Contract Holder may make any choices allowed by this Contract. The Plan,
however, may allow you to select the investment option of the Employer Account
and Employee Account. Benefits payable to you are governed exclusively by the
Plan. We are not a party to the Plan.
You have a nonforfeitable right to the value of your Employee Account and the
terms of the Plan as interpreted by the Contract Holder. You have a
nonforfeitable right to the value of your Employer Account pursuant to the
terms of, and to the extent of your vested percentage under, the Plan as
interpreted by the Contract Holder. It is the Contract Holder's responsibility
to maintain records of your vesting percentages.
The Contract Holder and each Participant hereunder have agreed in writing to
the terms and conditions of the Contract to have the Contract Holder make all
choices under the Contract, and to be bound by the Contract Holder's direction
to the Company.
The Company and Contract Holder have also agreed that the Contract Holder must:
(a) Maintain all Participant vesting percentages and records,
(b) Certify to the Company that all distributions are made in accordance
with the terms of the Plan, and
(c) Ensure that the Plan meets applicable nondiscrimination requirements
and other requirements imposed by the Code (see "Purchase" and
"Determining Contract Value").
TRANSFERS AND ALLOCATION CHANGES
During each calendar year, the Contract Holder (or you if authorized) may
change the allocation of future Net Purchase Payments among the allowable
investment options. There is no limit to the number of changes you may
19
<PAGE>
make to your allocations. You may also make any number of transfers of not less
than $500 among funding options during the calendar year, without charge. You
may not make allocations or transfers, however, to new funding options if the
total number of funding options you have selected would exceed 18, since the
time you acquired an interest in the Contract. Each variable funding option
selected, the Fixed Plus Account and each guaranteed term of GAA, counts as one
option, even if you no longer have funds allocated to that option.
Any transfer will be based on the Accumulation Unit value next determined after
we receive a valid request at our Home Office. See Appendix I and II for more
information on transfers from GAA and the Fixed Plus Account.
During the Annuity Period, transfers of accumulated value are not available.
WITHDRAWALS
The Contract Holder, on your behalf, may withdraw all or a portion of the
Account value during the Accumulation Period. To do so, the Contract Holder
must properly complete a disbursement form and send it to our Home Office. If
you are married and are participating in a Plan subject to Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"), the Contract Holder
must provide written certification that the applicable Retirement Equity Act of
1984 ("REA") requirements for ERISA tax-deferred annuity plans have been met
(see "Rights Under the Contract; Contract Holder Responsibilities" above).
Disbursement forms are available from us and our representatives. Withdrawals
may be requested in one of the following ways:
. Full withdrawal of the Contract: The amount paid will be the full value
of the Funds and GAA (plus or minus the Market Value Adjustment) held in
all Accounts plus one fifth of the amount held in the Fixed Plus
Account*, minus any Fixed Plus Account withdrawal(s) or transfer(s)
previously made during the calendar year.
. Full withdrawal of an Account: The amount paid will be the full value of
the Funds and GAA (plus or minus the Market Value Adjustment) held in the
Account plus one fifth of the amount held in the Fixed Plus Account*,
minus any Fixed Plus Account withdrawal(s) or transfer(s) previously made
during the calendar year.**
. Partial withdrawal (percentage): The amount paid will be the percentage
of the Account value requested. However, amounts withdrawn from the Fixed
Plus Account*** may not exceed 20% minus any Fixed Plus Account
withdrawals, transfers or wannuitizations previously made in a calendar
year.**
. Partial withdrawal (specific dollar amount): The amount paid will be the
dollar amount requested. However, amounts withdrawn from the Fixed Plus
Account*** may not exceed 20% minus any Fixed Plus Account withdrawals,
transfers or annuitizations previously made in a calendar year.**
* The balance of the amount held in the Fixed Plus Account will be paid
in four annual installments (see "Appendix II"). If the withdrawal is
due to death, disability or annuitization, the entire amount held in
the Fixed Plus Account for you will be paid in one sum rather than in
installments.
** A 20% income tax may be withheld from amounts paid directly to you. See
"Tax Status--Contracts Used with Certain Retirement Plans."
*** The 20% limit is waived if the partial withdrawal is due to
annuitization or death. See Appendix II for more information.
All amounts paid will be based on Account values as of the end of the Valuation
Period the request is received in good order in the Home Office. For any
partial withdrawal, unless requested otherwise by the Contract Holder, the
value of the Accumulation Units cancelled will be withdrawn proportionately
from each investment option used under the Account.
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<PAGE>
Payments for withdrawal requests (subject to the above limitations on
withdrawals from the Fixed Plus Account) will be made in accordance with SEC
requirements, but normally not later than seven calendar days after a properly
completed disbursement form is received at our Home Office or within seven
calendar days of the date the disbursement form 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 where 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 may by order permit for the protection of Contract Holders and
Participants. The conditions under which restricted trading or an emergency
exists shall be determined by the rules and regulations of the SEC.
WITHDRAWAL RESTRICTIONS
The Code imposes restrictions on full or partial withdrawals from 403(b)
Accounts attributable to Purchase Payments made on or after January 1, 1989
under a salary reduction agreement, and to any earnings on the Account
attributable to salary reduction contributions credited on and after January 1,
1989 (for 401(a) Contracts see Appendix III). Withdrawals of these amounts are
allowed only if you have (a) died, (b) become disabled, as defined in the Code,
(c) attained age 59 1/2, or (d) separated from service. Withdrawals are also
allowed if you can show "hardship," as defined by the IRS, but the withdrawal
is limited to the lesser of Purchase Payments attributable to Participant
salary reduction contributions made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a withdrawal is permitted under
these provisions, a 10% federal tax penalty may be assessed on the amount paid
to you if it does not otherwise meet the exceptions to the penalty tax
provisions. See "Tax Status--Contracts Used with Certain Retirement Plans." The
Contract Holder must certify in writing that one of these conditions has been
met before a payment will be made.
There are no Code restrictions on the Employee Account Value attributable to
salary reduction contributions as of December 31, 1988 (the "grandfathered"
amount). Although the Code withdrawal restrictions do not apply to this amount,
a 10% federal penalty tax may be assessed on the amount paid to you if it does
not otherwise meet the exceptions to the penalty tax provisions. See "Tax
Status--Contracts Used with Certain Retirement Plans."
We believe that the Code withdrawal restrictions do not apply to tax-free
transfers pursuant to Revenue Ruling 90-24. We further believe that the
withdrawal restrictions will not apply to any "grandfathered" amount which is
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
Revenue Ruling 90-24 provides that a direct transfer from one 403(b) investment
to another 403(b) investment is not a distribution and is not taxable if, after
the transfer, the transferred funds continue to be subject to the same or more
stringent distribution requirements.
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinstate all or a portion of the proceeds
received for the full withdrawal of an Account within 30 days after such
withdrawal. Accumulation Units will be credited to the Account for the amount
reinvested. Such reinvested amounts will be reallocated to the applicable
investment options in the same proportion as they were allocated at the time of
withdrawal.
The number of Accumulation Units credited will be based upon the Accumulation
Unit value(s) next computed following receipt at our Home Office of the
reinvestment request along with the amount to be reinvested. The reinvestment
privilege may be used only once.
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<PAGE>
CHARGES AND DEDUCTIONS
This section describes the maximum Contract charges which we may deduct for
administrative expenses and sales-related expenses. A description of mortality
and expense risk charges and Fund expenses is also included.
MORTALITY AND EXPENSE RISK CHARGES
We make a daily deduction from the variable portion of Contract values for
mortality and expense risks. The deduction, made as part of the calculation of
Accumulation and Annuity Unit value(s), is equivalent to 1.25% per year. The
mortality risk charge is to compensate us for the risk we assume when we
promise to continue making payments for the lives of individual Annuitants
according to Annuity rates specified in the Contract at issue. 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.
During 1994, we received $59,320,898 for mortality and expense risks from
Contracts funded through the Separate Account. We do 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 the general account (which supports
insurance and Annuity obligations), would be available for any proper corporate
purpose, including, but not limited to, payment of sales-related expenses.
ASSET BASED SALES CHARGE
There are no deductions from Purchase Payments for sales commissions or related
expenses. Sales commissions and expenses are advanced by the Company and
recovered out of an asset based sales charge that is deducted from the Account
in an amount that equals 0.15% on an annual basis. The deduction is made on
amounts held in variable options during the Accumulation Period only. We will
monitor the deductions applicable to each Account for the total sales charges
to ensure they will never exceed 8.5% of the total Purchase Payments actually
made to the Account.
If the asset based sales charges are insufficient to recover sales commissions,
such commissions would be recovered out of the Company's profits from
investment activities, including the mortality and expense risk charges under
the Contract. For sales commissions paid in connections with the sale of the
Contracts, see "Contract Purchase--Distribution."
ADMINISTRATIVE EXPENSE CHARGE
We reserve the right to deduct a daily charge of not more than 0.25% per year
from the variable portion of Contract values to reimburse us for some of the
expenses we incur for administering the Contract. This charge will be
established by us annually and will be effective each May 1 through April 30 of
the following year. During the Accumulation Period, the charge may fluctuate
annually. Once an Annuity option is elected, the charge will be established and
will be effective during the entire Annuity Period.
Through April 30, 1996, we have established the charge to be zero. Since the
administrative expense charge is a percentage of the variable portion of
Contract values, there may be no relationship between the amount so deducted
and the amount of expenses attributable to the Contract.
FUND EXPENSES
Each Fund has an investment adviser. An investment advisory fee, based on the
Fund's average net assets, is deducted from the assets of each Fund and paid to
the investment adviser.
Most expenses incurred in the operations of the Funds are borne by that Fund.
Fund advisers may reimburse the Funds they advise for some or all of these
expenses. For further details on each Fund's expenses, Contract
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<PAGE>
Holders and Participants should read the accompanying prospectus for each Fund
and refer to the Fee Table in this Prospectus.
PREMIUM TAX
Several states and municipalities impose a premium tax on Annuities. Currently
such taxes range up to 4%. Ordinarily, any state premium tax will be deducted
from the amount applied to an Annuity option. However, we reserve the right to
deduct from the Purchase Payment(s) or from the Account value based upon our
determination of when such tax is due.
Any municipal premium tax assessed at a rate in excess of 1% will be deducted
from the Purchase Payment(s) or from the amount applied to an Annuity option
based upon our determination of when such tax is due. We will absorb any
municipal premium tax that 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.
ADDITIONAL WITHDRAWAL OPTIONS
GENERAL
We offer two additional withdrawal options that are not considered Annuity
options: the Estate Conservation Option ("ECO") and the Systematic Withdrawal
Option ("SWO"). These options are available if your Account value is at least
$25,000 at the time of election and are available at certain ages as described
below. The Contract Holder must provide us written certification that the
distribution is in accordance with the terms of the Plan (see "Rights Under the
Contract"). Under SWO, you receive a series of partial withdrawals from your
account based on a payment method you select. It is designed for those who want
a periodic income while retaining investment flexibility for amounts
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 you that
amount once a year.
Amounts withdrawn for ECO and SWO will be deducted from the Account in the same
manner as for any other withdrawal during the Accumulation Period. (See
"Contract Rights--Withdrawals").
Since ECO and SWO are not Annuity options, the Account remains in the
Accumulation Period, retains all the rights and flexibility described in this
prospectus, and is subject to all other Contract charges. We reserve the right
to discontinue the availability of these withdrawal options and to change the
terms for future elections.
Once elected, the applicable option(s) may be revoked on your behalf by the
Contract Holder at any time, by submitting a written request to the 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.
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 the
Participant's lifetime, and (2) generally, SWO payments will be higher than
expected ECO payments. You should carefully assess your future income needs
when considering the election of these withdrawal options.
You should consult your tax advisor prior to requesting the election of these
options due to the potential for adverse tax consequences.
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In the event of your death, payments may be continued if allowed by the Plan,
as communicated by the Contract Holder.
ESTATE CONSERVATION OPTION
The first ECO distribution may not be made before the calendar year in which
you attain age 70 1/2. We will calculate and distribute an annual amount using
a method contained in the Code's minimum distribution regulations. The annual
distribution is determined by dividing the value of the Account by a life
expectancy factor. The factor will be based on either your life expectancy or
the joint life expectancy of you and your designated beneficiary, as directed
by the Contract Holder, and based on tables in IRS regulations. If ECO is based
on your life expectancy only, the full Account Value must be distributed in the
year following your death, as required by current IRS regulations. Factors will
be redetermined for each year's distribution. The value of the Account to be
used in this calculation is the value on the December 31st prior to the year
for which payment is being made. This calculation will be changed, if
necessary, to conform to changes in the Code or applicable regulations.
An exception is made if we maintain a separate record of your Account value as
of December 31, 1986 and you have retired (for 401(a) Contracts, see Appendix
III). In this instance, payments made in or after the year age 70 1/2 was
attained (or retirement, if later) but before the age 75 is attained will only
be calculated on amounts contributed after December 31, 1986 and any earnings
after that date. This exception will not apply if you have received any
distribution from your Account, other than distribution amounts required under
Code minimum distribution requirements.
SYSTEMATIC WITHDRAWAL OPTION
The first SWO distribution may not be made before you attain age 59 1/2 (55 if
separated from service with the Contract Holder at or after age 55). SWO
payments are available monthly, quarterly, semiannually or annually. No
election may be made that would result in a payment of less than $250.
One of the following distribution methods may be elected:
(a) Specified Payment -- payments of a designated amount. The annual dollar
amount chosen cannot be greater than 20% of the Account Value applied
to SWO. The specified payment amount will remain constant unless a
higher amount is required under the Code minimum distribution
requirements. Each year that the Specified Payment is in effect, we
will calculate the minimum required distribution under the Code. The
specified payment minimum distribution is determined by dividing the
value of the Account by the life expectancy factor. The value of the
Account to be used in this calculation is the value on the December
31st prior to the year for which the payment is being made. If the
dollar amount chosen is less than the Code's minimum distribution, we
will calculate and pay the minimum distribution amount.
(b) Specified Period -- payments for a designated time period. The
specified period must be at least 5 years but not greater than your
life expectancy factor. Each annual distribution is determined by
dividing the Account value by the number of years remaining in the
elected period. The value to be used in this calculation is the value
on the December 31st prior to the year for which the payment is being
made. For payments made more often than annually, the annual payment
result (calculated above) is divided by the number of payments due each
year.
(c) Specified Percentage -- payments of a designated percentage. The
specified percentage chosen cannot be greater than 20% of the current
value. You may change the specified percentage elected every six
months. Each annual distribution is determined by multiplying the
Account or total portions of the Plan Account's value by the percentage
chosen. The value to be used in this calculation is the value on the
December 31st prior to the year for which the payment is being made.
For payments made more often
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than annually, the annual payment result (calculated above) is divided
by the number of the payments due each year. Payments will be made each
year until the year you attain age 70 1/2.
A life expectancy factor from tables designated by the IRS will be used to
determine the minimum distribution amounts required. The factor will be based
on either your life expectancy or the joint life expectancy of you and your
designated beneficiary, as directed by the Contract Holder. Factors will be
reduced by one for each distribution year.
ANNUITY PERIOD
ANNUITY PERIOD ELECTIONS
The Contract Holder, on your behalf, must notify us in writing of the Annuity
start date and Annuity option elected (for details, see the Statement of
Additional Information). Until a date and option are elected, the Employer and
Employee Accounts will continue in the Accumulation Period. The Contract Holder
must provide written certification that the distribution is in accordance with
the terms of the Plan (see "Rights Under the Contract").
The Contract Holder may give us written notice at least 30 days before Annuity
payments begin, electing or changing (a) the date on which Annuity payments are
to start, (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, Aetna Variable Fund, Aetna Income Shares, Aetna Investment Advisers
Fund, Inc., or any combination thereof). No other variable Funds may currently
be used as investment options during the Annuity Period. Once Annuity Payments
begin, the Annuity Option may not be changed, nor may transfers be made among
funding options.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate (3
1/2% per year, 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.
Selection of a 5% rate causes a higher first payment, but Annuity payments will
increase thereafter only to the extent the net investment rate increases by
more than 5% on an annualized basis. Annuity payments would decline if the rate
failed to increase by 5%.
No election may be made that would result in a first Annuity payment of less
than $20 or total yearly Annuity payments of less than $100. If the value of
the Account is insufficient to provide the minimum amount specified, a lump-sum
payment must be elected.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
Annuity payments may not extend beyond (a) your life, (b) the joint lives of
you and your beneficiary, (c) a period certain greater than your life
expectancy, or (d) a period certain greater than the joint life expectancies of
you and your beneficiary.
Section 401(a)(9) of the Code has required minimum distribution rules for
403(b) Plans. (For 401 Plans, see Appendix III.) Under such rules,
distributions of the Account value attributable to contributions made on and
after January 1, 1987 and any of the earnings on the entire Account after that
date must begin by April 1 of the calendar year following the year in which you
attain age 70 1/2 or retire, whichever occurs later. Distributions of the
Account value as of December 31, 1986 must generally begin by age 75. In
addition, distributions must be in a form and amount sufficient to satisfy the
Code requirements.
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In determining the amount of benefit payments, the minimum distribution
incidental death benefit rule described in IRS regulations* must be satisfied.
This distribution rule does not apply to certain 403(b) Plans if any of the
Annuity Options under (b) below are elected with the spouse as the sole
beneficiary. See "Annuity Options."
You will be subject to a 50% federal penalty tax on the amount required to be
distributed each year which is not distributed under the Code's minimum
distribution rules.
*This rule assures that any death benefits payable under the Plan are inciden-
tal to the primary purpose of the Plan, which is to provide retirement benefits
to the Participant. The amount to be distributed under this rule is determined
based on the Participant's age and tables contained in the IRS regulations.
ANNUITY OPTIONS
LIFETIME:
(a) Life Annuity -- an Annuity with payments guaranteed to the date of the
Annuitant's death. This option may be elected with payments guaranteed
for 5, 10, 15 or 20 years. Because it provides a specified minimum
number of Annuity payments, the election of a guaranteed payment period
results in somewhat lower payments.
(b) Life Income Based Upon the Lives of Two Payees--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:
(i) 100% of the payment to continue after the first death;
(ii) 66 2/3% of the payment to continue after the first death;
(iii) 50% of the payment to continue after the first death;
(iv) Payments for a minimum of 120 months, with 100% of the payment to
continue after the first death; or
(v) 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;
Because (iv) provides a specified minimum number of Annuity payments,
the election of the guaranteed payment period results in somewhat lower
payments.
Payments under any lifetime Annuity option will be determined without regard to
the sex of the Annuitant(s). Such Annuity payments will be based solely on the
age of the Annuitant(s).
If a lifetime option is elected without a guaranteed minimum payment period, it
is possible that only one Annuity payment will be made if the Annuitant under
(a), or the surviving Annuitant under (b) (i), (ii), (iii) or (v) should die
before the due date of the second Annuity payment.
Once lifetime Annuity payments begin, neither the Contract Holder nor the
Annuitant can elect to receive a lump-sum settlement.
NONLIFETIME:
Payments for a Specified Period -- an Annuity with payments to be made for
three to thirty years, as selected. If this option is elected on a variable
basis, the Contract Holder (on your behalf) may request at any time during
the payment period that the present value of all or any portion of the
remaining variable payments be paid in one sum. This option is not
available on a variable basis under a Contract which provides for immediate
Annuity benefits.
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We make a daily deduction for mortality and expense risks from any Contract
values held on a variable basis. See "Mortality and Expense Risk Charges."
Therefore, electing the nonlifetime option on a variable basis will result in a
deduction being made even though we assume no mortality risk.
In addition to the Annuity options described above, we may make optional
methods of payment available to Contract Holders and other payees.
DEATH BENEFIT
ACCUMULATION PERIOD
A portion or all of any death proceeds may be (a) paid to the beneficiary (as
directed in writing by the Contract Holder) in a lump sum; (b) applied under
any of the Annuity Options (see "Annuity Options"); (c) subject to applicable
provisions of the Code, left in the variable investment options; or (d) subject
to applicable provisions of the Code, left on deposit in our general account
with the Contract Holder on behalf of the beneficiary, electing to receive
monthly, quarterly, semiannual or annual interest payments at the interest rate
then currently being credited on such deposits. The balance on deposit can be
withdrawn at any time or applied to any of the Annuity Options. See "Annuity
Options." Any lump-sum payment paid during the Accumulation Period or under the
applicable lifetime or nonlifetime Annuity options will normally be made within
seven calendar days after proof of death acceptable to us and a request for
payment are received at our Home Office.
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.
The Code requires that distributions begin within a certain time period. If the
Plan beneficiary is your surviving spouse and the Plan allows, the beneficiary
has until you would have attained age 70 1/2 to begin Annuity payments, to
receive a lump-sum distribution, or to elect and begin receiving distributions
under ECO or SWO. If the beneficiary is not your surviving spouse, either
Annuity payments must begin by December 31 of the year following the year of
your death, or the entire value must be distributed by December 31 of the fifth
year following the year of your death. In no event may payments to any
beneficiary extend beyond the life of the beneficiary or any period certain
greater than the beneficiary's life expectancy. If no elections are made
concerning distribution, no distributions will be made. Failure to commence
distribution within the above time periods can result in tax penalties.
For Contract Holders who, on behalf of the Plan beneficiaries, request a lump-
sum payment or elect an Annuity Option within six months of the Participant's
death, a guaranteed death benefit is provided. For each Account, the death
benefit is guaranteed to be the greater of:
(a) The Account Value, plus any positive aggregate Market Value Adjustment,
on the day the death notice and request for payment are received, in
good order, at our Home Office, or
(b) The sum of the Net Purchase Payments made on your behalf to each
Account, minus the total of all withdrawals or annuitizations made from
those Accounts.
If a lump-sum distribution is elected by the Contract Holder, six months or
more after your death, the beneficiary will receive the value of the Account
determined as of the Valuation Period in which proof of death acceptable to us
and a request for payment are received at our Home Office. If an Annuity Option
is elected, the value applied to the Annuity Option is determined in the same
manner as a lump-sum distribution; the amount of payout will depend on the
annuity option elected and the investment option(s) used to provide such
payments. See "Annuity Period." If amounts are left in the variable investment
options, the account value will continue to be affected by the investment
performance of the investment option(s) selected. If amounts are left on
deposit in the general account, the principal amount is guaranteed, but
interest payments may vary. In general, regardless of the method of
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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.")
ANNUITY PERIOD
If an Annuitant dies after annuity payments have begun, any death benefit
payable will depend upon the terms of the Contract and the Annuity option
selected.
If lifetime option (a) or (b) was elected without a guaranteed minimum payment
period under the Contract, Annuity payments will cease upon the death of the
Annuitant under a Life Annuity or the death of the surviving Annuitant under
options (b)(i), (ii), (iii) or (v).
Under the Contract, if lifetime option (a) or (b) was elected with a guaranteed
minimum payment period and the death of the Annuitant under option (a) or the
surviving Annuitant under option (b)(iv) occurs before the end of that period,
we will pay the person designated by the Contract Holder in a lump sum, unless
otherwise requested, the present value of the guaranteed Annuity payments
remaining. Such value will be determined as of the Valuation Period in which
proof of death acceptable to us and a request for payment are received at our
Home Office. The value will be reduced by any payments made after the date of
death.
If the nonlifetime option was elected under the Contract and the Annuitant dies
before all payments are made, the value of any remaining payments may be paid
in a lump sum to your beneficiary (as directed by the Contract Holder). Such
value will be determined as of the Valuation Period in which proof of death
acceptable to us and a request for payment are received at our Home Office.
Any lump sum payment paid under the applicable lifetime or nonlifetime Annuity
options will normally be made within seven calendar days after proof of death,
acceptable to us and a request for payment are received at our Home Office.
If the Annuitant dies after Annuity payments have begun and if there is a death
benefit payable under the Annuity option elected, the remaining values must be
distributed to your beneficiary at least as rapidly as under the original
method of distribution.
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 and used in connection with certain retirement
arrangements entitled to special income tax treatment under Section 403(b) of
the Code. A separate Contract may be offered to Contract Holders who wish to
make their Purchase Payments to a qualified defined contribution plan under
section 401(a). See Appendix IV. The ultimate effect of federal income taxes on
the amounts held under a Contract, or Annuity
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Payments, and on the economic benefit to the Contract Owner, 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 Part I of 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.
Investment income and realized capital gains are automatically applied to
increase reserves under the Contracts. Under existing federal income tax law,
the Company believes that the Separate Account investment income and realized
net capital gains will not be taxed to the extent that such income and gains
are applied to increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the
Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACT
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 those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. One of the circumstances that has
raised this issue is the number of funding options available under the
Contract. The Company reserves the right to modify the Contract as necessary to
attempt to prevent an Owner from being considered the owner of a pro rata share
of the assets of the Separate Account.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
IN GENERAL. The Contract is designed for use with Section 403(b) plans. The tax
rules applicable to participants and beneficiaries in retirement plans vary
according to the type of plan and the terms and conditions of the plan. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances.
The Company makes no attempt to provide more than general information about use
of the Contracts with the various types of retirement plans. Owners and
participants under retirement plans as well as annuitants and beneficiaries are
cautioned that the rights of any person to any benefits under the Contracts may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the Contract issued in connection with such a plan.
Some retirement plans are subject to distribution and other requirements that
are not incorporated in the administration of the Contracts. Owners are
responsible for determining that contributions, distributions and other
transactions with respect to the Contracts satisfy applicable law. Purchasers
of Contracts for use with any retirement plan should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
SECTION 403(B) PLANS. Under Code section 403(b), payments made by public school
systems and certain tax exempt organizations to purchase annuity contracts for
their employees are excludable from the gross income of the employee, subject
to certain limitations. However, these payments may be subject to FICA (Social
Security)
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taxes. A Contract issued as a tax-deferred annuity under section 403(b) will be
amended as necessary to conform to the requirements of the Code.
In order to be excludible from your taxable income, your total annual
contributions to section 403(b) plans cannot exceed either of two limits set by
the Code. The first limit, under section 415, is generally the lesser of 25
percent of your compensation or $30,000. This limits applies to all your own
contributions, your employer's contributions under the Plan on your behalf,
and, if you are in control of the employer as defined in the Code,
contributions under certain other retirement plans. The second limit, which is
the exclusion allowance under section 403(b) of the Code, is usually calculated
according to a formula that takes account of your length of employment, any
pretax contributions you and your employer have already made under the Plan,
and pretax contributions to certain other retirement plans. There is also a
third limit that specifically limits your salary reduction contributions to the
Plan to no more than $9,500 annually (subject to indexing); your own limit may
be lower.
Code section 403(b)(11) restricts the distribution under Code section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in
such years on amounts held as of the last year beginning before January 1,
1989. Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
The Code also has required distribution rules for section 403(b) plans.
Distributions of amounts as of December 31, 1986, generally must begin by age
75. Distributions attributable to contributions made on or after January 1,
1987, and any earnings on the entire Account on or after that date, must begin
by (1) for governmental or church plans, April 1 of the calendar year following
the calendar year in which the participant attains age 70 1/2 or retires,
whichever occurs later, or (2) for all other plans, April 1 of the calendar
year following the calendar year in which the participant attains age 70 1/2.
To comply with these provisions, distributions must be in a form and amount
sufficient to satisfy the minimum distribution and minimum distribution
incidental death benefit rules specified in IRS regulations. In general,
annuity payments may not extend beyond your life, the joint lives of you and
your Beneficiary, a period certain greater than your life expectancy, or a
period certain greater than the joint life expectancies of you and your
beneficiary. If you die after the required minimum distributions have
commenced, distributions to your beneficiary must be made at least as rapidly
as under the method of distribution in effect at the time of your death. If you
die before the required minimum distributions have commenced, distribution to
your beneficiary generally must either commence as an annuity within one year
or be completed within five years, subject to certain special rules. If
distributions are taken in excess of the minimum required distribution, the
Company will no longer maintain the grandfathered amount.
All distributions will be taxed as they are received unless you made a rollover
contribution of the distribution to another section 403(b) plan or an
individual retirement/annuity account ("IRA") in accordance with the Code, or
unless you have made after tax contributions to the plan, which are not taxed
upon distribution. The Code has specific rules that apply, depending on the
type of distribution received, if after-tax contributions were made.
In general, payments received by your beneficiaries after your death are taxed
in the same manner as if you had received those payments, except that a limited
death benefit exclusion may apply.
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 generally are
provided the opportunity to elect not to have tax withheld from distributions;
however, certain distributions from Section 403(b) tax-deferred annuities are
subject to mandatory federal income tax withholding. We will report to the IRS
the taxable portion of all distributions.
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The Code imposes a 10% penalty tax on the taxable portion of any distribution
unless made when (a) you have attained age 59 1/2, (b) you have become
disabled, (c) you have died, (d) you have attained age 55 and have separated
from service with the plan sponsor, (e) the distribution amount is rolled over
into another section 403(b) plan or an IRA in accordance with the terms of the
Code, or (f) the distribution amount is annuitized over your life or life
expectancy or the joint lives or life expectancies of you and your plan
beneficiary, provided you have separated from service with the plan sponsor at
or after age 55. In addition, the penalty tax is abated for the amount of a
distribution equal to unreimbursed medical expenses incurred by you that
qualify for deduction as specified in the Code. The Code may impose other
penalty taxes in other circumstances.
POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the federal taxation of certain annuities. Although as of the date of this
prospectus Congress is not actively considering 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 Owner or recipient of a distribution. A
competent tax adviser should be consulted for further information.
MISCELLANEOUS
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at meetings of
shareholders of the appropriate Fund(s). The number of votes to which each
Contract Holder may give direction will be determined as of the record date.
The number of votes each Contract Holder is entitled to direct with respect to
a particular Fund during the Accumulation Period is equal to the portion of the
current value of the Contract attributable to that Fund divided by the net
asset value of one share of that Fund. During the Annuity Period, the number of
votes is equal to the Valuation Reserve applicable to the portion of the
Contract attributable to that Fund, divided by the net asset value of one share
of that Fund. In determining the number of votes, fractional votes will be
recognized. Where the value of the Contract or valuation reserve relates to
more than one Fund, the calculation of votes will be performed separately for
each Fund.
Contract Holders, or Participants and Annuitants entitled to instruct the
casting of votes, 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 their participation under the Contract and stating the
right to instruct the Contract Holder how such votes shall be cast.
MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to the limitations described below, by notifying the Contract Holder in
writing 30 days before the effective date of the change, with
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the Contract Holder's consent. Changes to the following Contract provisions may
be considered material by us and cannot be changed without the approval of
appropriate state or federal regulatory authorities:
(a) transfers among investment options;
(b) notification to the Contract Holder;
(c) conditions governing payments of surrender values;
(d) terms of Annuity Options;
(e) death benefit payments; and
(f) maintenance fee provisions.
In addition, changes to the items listed below will apply only to future
Accounts:
(a) the Annuity options (such changes may only be made twelve months after
the Effective Date of the Contract and twelve months after the
Effective Date of any prior changes);
(b) the contractual promise that no deduction will be made from Purchase
Payments for sales or administrative expenses;
(c) increasing the asset based sales charges;
(d) increasing the mortality and expense risk charges; and
(e) increasing the administrative expense charge provision, if applicable.
If the Contract Holder has not accepted the proposed change at the time of its
effective date, no new Participants may be enrolled under the Contract.
However, additional Purchase Payments may continue to be made on behalf of
Participants already enrolled under the Contract.
No change may affect any Annuity beginning before the effective date of such
modification unless deemed necessary for the Plan or Contract to comply with
the requirements of the Code or other laws and regulations affecting the Plan
or Contract.
Modification of items (b) through (e) above specifically require authorization
by the SEC to the extent that the proposed charges are not currently authorized
by existing orders issued to us by the SEC.
CONTRACT HOLDER INQUIRIES
A Contract Holder may direct inquiries to a local representative of the
Distributor or may write directly to us at the address shown on the cover page
of this prospectus.
TELEPHONE TRANSFERS
Subject to the Contract Holder's approval, you automatically have the right to
make transfers among Funds by telephone. We have enacted procedures to prevent
abuses of Account transactions by telephone. The procedures include requiring
the use of a personal identification number (PIN) to execute transactions. You
are responsible for safeguarding your PIN, and for keeping Account information
confidential. If the Company fails to follow its procedures it would be liable
for any losses to your Account resulting from the failure. To ensure
authenticity, we record all calls on the 800 line. Note: all Account
information and transactions permitted are subject to the terms of the Plan(s).
32
<PAGE>
TRANSFER OF OWNERSHIP; ASSIGNMENT
Unless contrary to applicable law, assignment of the Contract or an Account is
prohibited.
LEGAL PROCEEDINGS
We know of no material legal proceedings pending to which the Separate Account
is a party or which would materially affect the Separate Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed upon
by Susan E. Bryant, Esq., Counsel to the Company.
33
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION -- TABLE OF CONTENTS
The following items are the contents of the Statement of Additional
Information:
<TABLE>
<S> <C>
General Information and History............................................. 2
Variable Annuity Account C.................................................. 2
Offering and Purchase of Contracts.......................................... 3
Performance Data............................................................ 3
General................................................................... 3
Average Annual Total Return Quotations.................................... 4
Annuity Payments............................................................ 5
Dollar-Cost Averaging....................................................... 6
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
</TABLE>
34
<PAGE>
APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION
AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS. CONTRACT HOLDERS
AND PARTICIPANTS SHOULD READ THE ACCOMPANYING GAA PROSPECTUS CAREFULLY BEFORE
INVESTING. THIS APPENDIX IS A SUMMARY OF GAA AND IS NOT INTENDED TO REPLACE THE
GAA PROSPECTUS. AMOUNTS ALLOCATED TO GAA ARE HELD IN A NONINSULATED,
NONUNITIZED SEPARATE ACCOUNT.
GAA is a credited interest option in which we guarantee stipulated rates of
interest for stated periods of time on amounts directed to GAA. The interest
rate stipulated is an annual effective yield; that is, it reflects a full
year's interest. Interest is credited daily at a rate that will provide the
guaranteed annual effective yield over the period of one year. This option
guarantees the minimum interest rate specified in the Contract.
During a specified period of time, amounts may be applied to any or all
available Guaranteed Terms within the Short-Term and Long-Term Classifications.
The Short-Term Classification consists of all Guaranteed Terms of 3 years or
less and the Long-Term Classification consists of all Guaranteed Terms of 10
years or less, but greater than 3 years.
Withdrawals or transfers from a Guaranteed Term prior to the end of that
Guaranteed Term may be subject to a Market Value Adjustment ("MVA"). An MVA
reflects the change in the value of the investment due to changes in interest
rates since the date of deposit. When interest rates increase after the date of
deposit, the value of the investment decreases, and the MVA is negative.
Conversely, when interest rates decrease after the date of deposit, the value
of the investment increases, and the MVA is positive. It is possible that a
negative MVA could result in the Contract Holder receiving an amount that is
less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to the other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to tax
penalties and/or withholding.
By notifying us at our Home Office at least 30 days before the Annuity payments
begin, the Contract Holder, on your behalf, may elect to have amounts which
have been accumulating under GAA transferred to one or more of the funds
available during the Annuity Period or any combination thereof, to provide
variable Annuity payments. GAA cannot be used as an investment option during
the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
TRANSFERS
Amounts applied to a Guaranteed Term during a deposit period may not be
transferred to any other funding option or to another Guaranteed Term during
that deposit period or for 90 days after the close of that deposit period.
Transfers are permitted from Guaranteed Terms of one Classification to
available Guaranteed Terms of another Classification. We will apply an MVA to
GAA transfers made prior to the end of a Guaranteed Term.
REINVESTMENT PRIVILEGE
Any amounts reinvested in GAA will be applied to the current deposit period.
Amounts are proportionately reinvested to the Classifications in the same
manner as they were allocated before the surrender. Any negative MVA amount
applied to a withdrawal is not included in the reinvestment.
35
<PAGE>
APPENDIX II
FIXED PLUS ACCOUNT
THE FIXED PLUS ACCOUNT IS AN INVESTMENT OPTION AVAILABLE DURING THE
ACCUMULATION PERIOD UNDER THE CONTRACTS. THE FOLLOWING SUMMARIZES MATERIAL
INFORMATION CONCERNING THE FIXED ACCOUNT THAT IS OFFERED AS AN OPTION UNDER THE
CONTRACT. ADDITIONAL INFORMATION MAY BE FOUND IN YOUR CERTIFICATE. AMOUNTS
ALLOCATED TO THE FIXED PLUS ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT
THAT SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED PLUS
ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THIS PROSPECTUS REGARDING
THE FIXED PLUS ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF THE STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED
PLUS ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC.
The Fixed Plus Account guarantees that amounts allocated to this option will
earn the minimum interest rate specified in the Contract. We may credit a
higher interest rate from time to time. The Company's determination of interest
rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of
invested assets. Under this option, we assume the risk of investment gain or
loss by guaranteeing Net Purchase Payment values and promising a minimum
interest rate and Annuity payment.
Under certain emergency conditions, we may defer payment of a Fixed Plus
Account withdrawal value (a) for a period of up to 6 months or (b) as provided
by federal law.
During any calendar year, any withdrawals requested from an Account's Fixed
Plus Account value may not exceed 20% of the Account's Fixed Plus Account Value
as of the date the withdrawal request is received in good order at our Home
Office. The withdrawal value will be reduced by any Fixed Plus Account
withdrawal(s), transfer(s) or annuitizations previously made during the
calendar year.
The 20% limit is waived if the partial withdrawal is due to annuitization or
death. The waiver upon death will only be exercised once and must occur within
6 months after the Participant's date of death.
In the event of an Account termination, we will pay any Fixed Plus Account
withdrawal value from the Account with interest, in five annual payments of:
. One-fifth of the Fixed Plus Account withdrawal value minus any Fixed Plus
Account withdrawal(s), transfer(s) or annuitizations made during the
calendar year;
. One-fourth of the remaining Fixed Plus Account withdrawal value 12 months
later;
. One-third of the remaining Fixed Plus Account withdrawal value 12 months
later;
. One-half of the remaining Fixed Plus Account withdrawal value 12 months
later; and
. The balance of the Fixed Plus Account withdrawal value as the fifth and
final payment 12 months later.
Once we receive notification of an Account termination, no further
withdrawal(s) or transfer(s) will be permitted from the Fixed Plus Account.
We will waive the Fixed Plus Account full surrender provision if a full
withdrawal is made due to:
(a) the Participant's death within 6 months after the Participant's date of
death before Annuity payments begin and request for payment is
received;
(b) the election of an Annuity option;
(c) if the Fixed Plus Account value is $3,500 or less (and no withdrawals,
transfers or annuitizations have been made from the Account during the
calendar year), the entire Fixed Plus Account value will be paid in one
sum.
36
<PAGE>
Amounts applied to the Fixed Plus Account will earn the interest rate in effect
when actually applied to the Fixed Plus Account.
MORTALITY AND EXPENSE RISK CHARGES
The Fixed Plus Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. We make no deductions
from the credited interest rate for mortality and expense risks; these risks
are considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Plus Account to any other available investment
option(s) are allowed once in each calendar year during the Accumulation
Period. The amount that may be transferred will be up to 20% of the amount held
in the Fixed Plus Account. We will waive the 20% transfer limit when the value
in the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before Annuity payments
begin, the Contract Holder, on your behalf, may elect to have amounts which
have been accumulating under the Fixed Plus Account transferred to one or more
of the funds available during the Annuity Period to provide variable Annuity
payments.
37
<PAGE>
APPENDIX III
401(A) DEFINED CONTRIBUTION PLANS
THE COMPANY HAS MADE THE FOLLOWING CHANGES DESCRIBED IN THIS PROSPECTUS SO THAT
A SEPARATE CONTRACT MAY BE OFFERED TO CONTRACT HOLDERS WHO WISH TO MAKE THEIR
PURCHASE PAYMENTS OR ROLLOVER CONTRIBUTIONS TO A QUALIFIED DEFINED CONTRIBUTION
PLAN UNDER SECTION 401(A) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("CODE"). EXCEPT AS NOTED BELOW, THE 401(A) CONTRACT SHALL HAVE THE SAME
PROVISIONS AS THOSE DESCRIBED IN THIS PROSPECTUS.
Where the prospectus references 403(b) or tax-deferred annuity plans, these
references are replaced with the terms 401(a) or qualified plans.
PURCHASE OF CONTRACT
The following paragraph replaces the last paragraph under the section entitled
"Contract Purchase":
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a Participant's gross income. Such limit must be calculated
under the Plan by the Contract Holder in accordance with Section 415 of the
Code. In addition, Purchase Payments will be excluded from a Participant's
gross income only if the 401(a) Plan meets certain nondiscrimination
requirements.
WITHDRAWALS
The withdrawal restrictions imposed by the Code Section 403(b)(11) do not apply
to 401(a) Plans. Please disregard the section detailing these restrictions in
the section entitled "Withdrawals."
ADDITIONAL WITHDRAWAL OPTIONS
Under ECO, the exception describing special rules when we maintain a separate
record of your Account value as of December 31, 1986, does not apply to 401(a)
Plans.
ANNUITY PERIOD ELECTIONS
The following paragraph replaces the seventh paragraph under the section
entitled "Annuity Period Elections":
Section 401(a)(9) of the Code has required minimum distribution rules for
401 Plans. Under such rules, distribution of the entire Account value must
be made, or must begin no later than April 1 of the calendar year following
the calendar year in which you attain age 70 1/2. However, for governmental
or church plans, or if you attained age 70 1/2 prior to January 1, 1988,
distribution must be made, or begin by April 1 of the calendar year
following the calendar year in which you attain age 70 1/2 or retire,
whichever occurs later. The distribution date may be further deferred if
allowed under federal law or regulations. In addition, distributions must
be in a form and amount sufficient to satisfy the Code requirements.
TAX STATUS
The following replaces the section entitled "Tax Status--Contracts Used with
Certain Retirement Plans."
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
IN GENERAL. The Contract is designed for use with certain types of retirement
plans that qualify under Section 401(a) of the Code. The tax rules applicable
to participants and beneficiaries in retirement plans vary according to
38
<PAGE>
the type of plan and the terms and conditions of the plan. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances.
The Company makes no attempt to provide more than general information about use
of the Contracts with the various types of retirement plans. Owners and
participants under retirement plans as well as annuitants and beneficiaries are
cautioned that the rights of any person to any benefits under the Contracts may
be subject to the terms and conditions of the plans themselves, regardless of
the terms and conditions of the Contract issued in connection with such a plan.
Some retirement plans are subject to distribution and other requirements that
are not incorporated in the administration of the Contracts. Owners are
responsible for determining that contributions, distributions and other
transactions with respect to the Contracts satisfy applicable law. Purchasers
of Contracts for use with any retirement plan should consult their legal
counsel and tax adviser regarding the suitability of the Contract.
Code section 401(a) permits employers to establish various types of retirement
plans for employees. These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax
consequences to the Plan, to the Participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments.
In the case of a withdrawal under a Contract paid to a plan participant or
beneficiary, including withdrawals under the Systematic Withdrawal Option or
the Estate Conservation Option, a ratable portion of the amount received is
taxable, generally based on the ratio of the "investment in the contract" to
the individual's total accrued benefit under the retirement plan. The
"investment in the contract" generally equals the amount of any non-deductible
contributions paid by or on behalf of any individual's total accrued benefit
under the retirement plan. The "investment in the contract" generally equals
the amount of any non-deductible contributions paid by or on behalf of any
individual. For a Contract issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax rules may be available
for certain distributions from a qualified plan.
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.
Pension 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 generally are provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions are subject to mandatory federal income tax withholding.
39
<PAGE>
HYPOTHETICAL TABLES
The following tables represent hypothetical values for the periods indicated
that would have resulted under a Contract described in this Prospectus had you
made contributions to the Contract during the periods indicated. Each set of
hypothetical results is based exclusively on the investment performance of a
particular Fund during the periods shown. The Fund performance is based on the
actual net asset values of the various Funds which would be net of advisory
fees and expenses actually charged for those periods. Some of the Funds'
advisers have reimbursed the Funds for a portion of those fees. Reimbursement
may not continue in the future. The hypothetical returns also assume deduction
of all charges and expenses under the Contracts which currently consists of
1.25% mortality and expense risk charges and 0.15% asset-based sales charges.
The Accumulation Value is net of all applicable fees and expenses of the Fund
and under the Contract. It also reflects the amount available for withdrawal.
Since the Contracts are designed to fund variable retirement benefits through
long-term investments, "active" Contracts will, on the average, involve a long-
term relationship between the Company and the Contract Holder during both the
Accumulation and Annuity Periods. Accordingly, the Tables are intended to
illustrate the hypothetical values of each Fund since that Fund became
available under the Contract. For those Funds not available under the Contract
as of December 31, 1994, no histories are shown.
Generally, Table 1 for each Fund shows the accumulation value at annual
intervals following contract issuance on the date indicated, and Table 2 shows
the accumulation value at quarterly intervals following contract issuance.
Table 1 assumes that monthly purchase payments of $100 were made during each
Contract Year following contract issuance, and illustrates the accumulation
value of such payment over a period of time, as well as the actual withdrawal
value of your account. Tables 2 assumes that a single net purchase payment of
$100 was made at contract issuance, and illustrates the accumulation value of
that payment at quarterly intervals thereafter.
For those Funds available during annuity payout (e.g., Aetna Variable Fund,
Aetna Income Shares and Aetna Investment Advisers Fund, Inc.), Table 3
illustrates the value of hypothetical monthly variable annuity payments at
quarterly intervals following the commencement of annuity payments on the date
indicated. Table 3 assumes an initial annuity payment of $100. For those funds
not available as funding options during the Annuity Period, no annuity payout
information is provided.
PLEASE NOTE THAT AMOUNTS WITHDRAWN BEFORE YOUR REACH AGE 59 1/2 MAY BE SUBJECT
TO A 10% FEDERAL PENALTY TAX. (SEE THE SECTION ENTITLED "TAX STATUS" IN THIS
PROSPECTUS.)
PLEASE ALSO NOTE THAT WHILE THESE HYPOTHETICAL CHARTS REFLECT ACTUAL HISTORICAL
PERFORMANCE, THEY ARE NOT INDICATIVE OF FUTURE RESULTS. A PROGRAM OF THE TYPE
ILLUSTRATED IN THE TABLES DOES NOT ASSURE A PROFIT OR PROTECT AGAINST
DEPRECIATION IN DECLINING MARKETS.
40
<PAGE>
AETNA VARIABLE FUND
HYPOTHETICAL PERIODIC ACCUMULATION VALUES AND ANNUITY PAYMENTS
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
-------------------------------------------------------------------------
<S> <C> <C>
December 1985 $ 1,200.00 $ 1,386.00
-------------------------------------------------------------------------
December 1986 2,400.00 2,885.32
-------------------------------------------------------------------------
December 1987 3,600.00 4,093.67
-------------------------------------------------------------------------
December 1988 4,800.00 5,884.55
-------------------------------------------------------------------------
December 1989 6,000.00 8,831.47
-------------------------------------------------------------------------
December 1990 7,200.00 10,236.68
-------------------------------------------------------------------------
December 1991 8,400.00 14,103.86
-------------------------------------------------------------------------
December 1992 9,600.00 16,027.62
-------------------------------------------------------------------------
December 1993 10,800.00 18,114.05
-------------------------------------------------------------------------
December 1994 12,000.00 18,876.30
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1985 $107.66 September 1988 $175.70 March 1992 $281.41
-------------------------------------------------------------------------------------
June 1985 116.70 December 1988 178.52 June 1992 283.02
-------------------------------------------------------------------------------------
September
1985 112.81 March 1989 190.48 September 1992 291.17
-------------------------------------------------------------------------------------
December
1985 129.45 June 1989 203.48 December 1992 301.99
-------------------------------------------------------------------------------------
March
1986 144.82 September 1989 220.57 March 1993 307.24
-------------------------------------------------------------------------------------
June 1986 152.68 December 1989 227.18 June 1993 304.45
-------------------------------------------------------------------------------------
September
1986 143.66 March 1990 221.95 September 1993 310.37
-------------------------------------------------------------------------------------
December
1986 151.84 June 1990 238.18 December 1993 317.83
-------------------------------------------------------------------------------------
March
1987 178.92 September 1990 213.95 March 1994 307.27
-------------------------------------------------------------------------------------
June 1987 183.78 December 1990 231.38 June 1994 305.10
-------------------------------------------------------------------------------------
September
1987 192.92 March 1991 259.14 September 1994 311.45
-------------------------------------------------------------------------------------
December
1987 157.94 June 1991 255.78 December 1994 310.36
-------------------------------------------------------------------------------------
March
1988 167.52 September 1991 265.33
-------------------------------------------------------------------------------------
June 1988 175.05 December 1991 288.34
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
41
<PAGE>
TABLE 3 - ANNUITY PERIOD
VALUE AT QUARTERLY INTERVALS OF HYPOTHETICAL MONTHLY
VARIABLE ANNUITY PAYMENTS
(Assumes Initial Annuity Payment of $100 beginning on December 31, 1984)
<TABLE>
<CAPTION>
PAYMENT PAYMENT PAYMENT
MONTH FOR MONTH(/1/) MONTH FOR MONTH(/1/) MONTH FOR MONTH(/1/)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1985 $106.78 September 1988 $155.37 March 1992 $221.84
---------------------------------------------------------------------------------------
June 1985 114.80 December 1988 156.57 June 1992 221.29
---------------------------------------------------------------------------------------
September
1985 110.07 March 1989 165.69 September 1992 226.82
---------------------------------------------------------------------------------------
December
1985 125.27 June 1989 175.55 December 1992 233.32
---------------------------------------------------------------------------------------
March
1986 139.00 September 1989 188.74 March 1993 235.44
---------------------------------------------------------------------------------------
June 1986 145.34 December 1989 192.81 June 1993 231.40
---------------------------------------------------------------------------------------
September
1986 135.64 March 1990 186.84 September 1993 233.97
---------------------------------------------------------------------------------------
December
1986 142.20 June 1990 198.86 December 1993 237.64
---------------------------------------------------------------------------------------
March
1987 166.19 September 1990 177.18 March 1994 227.87
---------------------------------------------------------------------------------------
June 1987 169.31 December 1990 190.04 June 1994 224.41
---------------------------------------------------------------------------------------
September
1987 176.28 March 1991 211.10 September 1994 227.21
---------------------------------------------------------------------------------------
December
1987 143.14 June 1991 206.66 December 1994 224.56
---------------------------------------------------------------------------------------
March
1988 150.58 September 1991 212.63
---------------------------------------------------------------------------------------
June 1988 156.06 December 1991 229.18
</TABLE>
AETNA INCOME SHARES
HYPOTHETICAL PERIODIC ACCUMULATION VALUES AND ANNUITY PAYMENTS
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/2/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1985 $ 1,200.00 $ 1,345.48
-------------------------------------------------------------------------
December 1986 2,400.00 2,781.13
-------------------------------------------------------------------------
December 1987 3,600.00 4,101.77
-------------------------------------------------------------------------
December 1988 4,800.00 5,572.44
-------------------------------------------------------------------------
December 1989 6,000.00 7,574.53
-------------------------------------------------------------------------
December 1990 7,200.00 9,422.00
-------------------------------------------------------------------------
December 1991 8,400.00 12,430.40
-------------------------------------------------------------------------
December 1992 9,600.00 14,411.57
-------------------------------------------------------------------------
December 1993 10,800.00 16,826.58
-------------------------------------------------------------------------
December 1994 12,000.00 17,143.07
</TABLE>
(/1/) The amounts above assume deductions of all fees and expenses of the Funds
and under the Contracts during the Annuity Period. The Payments are based
on the standard assumed net investment rate of 3 1/2% per annum. See the
narrative preceding these Tables.
(/2/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
42
<PAGE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1985 $101.94 September 1988 $149.23 March 1992 $210.14
-------------------------------------------------------------------------------------
June 1985 110.48 December 1988 148.21 June 1992 216.89
-------------------------------------------------------------------------------------
September
1985 112.69 March 1989 150.50 September 1992 223.58
-------------------------------------------------------------------------------------
December
1985 120.56 June 1989 160.41 December 1992 224.70
-------------------------------------------------------------------------------------
March
1986 127.82 September 1989 162.97 March 1993 230.97
-------------------------------------------------------------------------------------
June 1986 128.97 December 1989 167.47 June 1993 236.39
-------------------------------------------------------------------------------------
September
1986 131.49 March 1990 166.34 September 1993 241.59
-------------------------------------------------------------------------------------
December
1986 135.51 June 1990 171.59 December 1993 243.00
-------------------------------------------------------------------------------------
March
1987 137.95 September 1990 172.79 March 1994 234.11
-------------------------------------------------------------------------------------
June 1987 134.94 December 1990 180.19 June 1994 228.95
-------------------------------------------------------------------------------------
September
1987 133.38 March 1991 185.70 September 1994 230.94
-------------------------------------------------------------------------------------
December
1987 139.67 June 1991 189.14 December 1994 230.50
-------------------------------------------------------------------------------------
March
1988 144.37 September 1991 200.31
-------------------------------------------------------------------------------------
June 1988 146.73 December 1991 212.19
</TABLE>
TABLE 3 - ANNUITY PERIOD
VALUE AT QUARTERLY INTERVALS OF HYPOTHETICAL MONTHLY
VARIABLE ANNUITY PAYMENTS
(Assumes Initial Annuity Payment of $100 beginning on December 31, 1984)
<TABLE>
<CAPTION>
PAYMENT PAYMENT PAYMENT
MONTH FOR MONTH(/2/) MONTH FOR MONTH(/2/) MONTH FOR MONTH(/2/)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1985 $101.10 September 1988 $131.96 March 1992 $165.66
---------------------------------------------------------------------------------------
June 1985 108.68 December 1988 129.99 June 1992 169.58
---------------------------------------------------------------------------------------
September
1985 109.95 March 1989 130.92 September 1992 173.46
---------------------------------------------------------------------------------------
December
1985 116.67 June 1989 138.39 December 1992 172.91
---------------------------------------------------------------------------------------
March
1986 122.68 September 1989 139.45 March 1993 176.28
---------------------------------------------------------------------------------------
June 1986 122.77 December 1989 142.14 June 1993 178.94
---------------------------------------------------------------------------------------
September
1986 124.16 March 1990 140.02 September 1993 181.39
---------------------------------------------------------------------------------------
December
1986 126.91 June 1990 143.26 December 1993 180.95
---------------------------------------------------------------------------------------
March
1987 128.13 September 1990 143.09 March 1994 172.91
---------------------------------------------------------------------------------------
June 1987 124.32 December 1990 148.00 June 1994 167.72
---------------------------------------------------------------------------------------
September
1987 121.87 March 1991 151.28 September 1994 167.80
---------------------------------------------------------------------------------------
December
1987 126.58 June 1991 152.82 December 1994 166.11
---------------------------------------------------------------------------------------
March
1988 129.77 September 1991 160.53
---------------------------------------------------------------------------------------
June 1988 130.81 December 1991 168.65
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
(/2/) The amounts above assume deductions of all fees and expenses of the Funds
and under the Contracts during the Annuity Period. The Payments are based
on the standard assumed net investment rate of 3 1/2% per annum. See the
narrative preceding these Tables.
43
<PAGE>
AETNA VARIABLE ENCORE FUND
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
-------------------------------------------------------------------------
<S> <C> <C>
December 1985 $ 1,200.00 $ 1,244.36
-------------------------------------------------------------------------
December 1986 2,400.00 2,543.96
-------------------------------------------------------------------------
December 1987 3,600.00 3,915.04
-------------------------------------------------------------------------
December 1988 4,800.00 5,389.58
-------------------------------------------------------------------------
December 1989 6,000.00 7,062.04
-------------------------------------------------------------------------
December 1990 7,200.00 8,794.43
-------------------------------------------------------------------------
December 1991 8,400.00 10,468.92
-------------------------------------------------------------------------
December 1992 9,600.00 11,914.06
-------------------------------------------------------------------------
December 1993 10,800.00 13,334.03
-------------------------------------------------------------------------
December 1994 12,000.00 14,905.63
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1984
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1985 $101.67 September 1988 $123.79 March 1992 $153.37
-------------------------------------------------------------------------------------
June 1985 103.51 December 1988 125.81 June 1992 154.34
-------------------------------------------------------------------------------------
September
1985 105.16 March 1989 128.23 September 1992 155.17
-------------------------------------------------------------------------------------
December
1985 106.95 June 1989 130.88 December 1992 155.76
-------------------------------------------------------------------------------------
March
1986 108.66 September 1989 133.32 March 1993 156.48
-------------------------------------------------------------------------------------
June 1986 110.08 December 1989 135.69 June 1993 157.14
-------------------------------------------------------------------------------------
September
1986 111.48 March 1990 137.94 September 1993 157.87
-------------------------------------------------------------------------------------
December
1986 112.72 June 1990 140.31 December 1993 158.49
-------------------------------------------------------------------------------------
March
1987 114.03 September 1990 142.64 March 1994 159.10
-------------------------------------------------------------------------------------
June 1987 115.44 December 1990 145.07 June 1994 160.03
-------------------------------------------------------------------------------------
September
1987 116.94 March 1991 147.06 September 1994 161.19
-------------------------------------------------------------------------------------
December
1987 118.70 June 1991 148.85 December 1994 162.67
-------------------------------------------------------------------------------------
March
1988 120.37 September 1991 150.68
-------------------------------------------------------------------------------------
June 1988 121.95 December 1991 152.38
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under Contract; this is the amount available at withdrawal. See
the narrative preceding these Tables.
44
<PAGE>
AETNA INVESTMENT ADVISERS FUND, INC.
HYPOTHETICAL PERIODIC ACCUMULATION VALUES AND ANNUITY PAYMENTS
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1990 $1,200.00 $1,241.25
--------------------------------------------------------------------------
December 1991 2,400.00 2,761.09
--------------------------------------------------------------------------
December 1992 3,600.00 4,129.27
--------------------------------------------------------------------------
December 1993 4,800.00 5,734.42
--------------------------------------------------------------------------
December 1994 6,000.00 6,828.77
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1990 $100.46 December 1991 $121.64 September 1993 $134.84
-------------------------------------------------------------------------------------
June 1990 104.16 March 1992 121.13 December 1993 138.00
-------------------------------------------------------------------------------------
September
1990 98.36 June 1992 123.83 March 1994 133.92
-------------------------------------------------------------------------------------
December
1990 104.23 September 1992 125.33 June 1994 132.31
-------------------------------------------------------------------------------------
March
1991 110.23 December 1992 127.37 September 1994 136.02
-------------------------------------------------------------------------------------
June 1991 110.21 March 1993 130.28 December 1994 135.60
-------------------------------------------------------------------------------------
September
1991 114.96 June 1993 131.25
</TABLE>
TABLE 3 - ANNUITY PERIOD
VALUE AT QUARTERLY INTERVALS OF HYPOTHETICAL MONTHLY
VARIABLE ANNUITY PAYMENTS
(Assumes Initial Annuity Payment of $100 beginning on December 31, 1990)
<TABLE>
<CAPTION>
PAYMENT PAYMENT PAYMENT
MONTH FOR MONTH(/2/) MONTH FOR MONTH(/2/) MONTH FOR MONTH(/2/)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1991 $104.89 September 1992 $113.71 March 1994 $115.67
---------------------------------------------------------------------------------------
June 1991 104.02 December 1992 114.62 June 1994 113.35
---------------------------------------------------------------------------------------
September
1991 107.61 March 1993 116.28 September 1994 115.57
---------------------------------------------------------------------------------------
December
1991 112.93 June 1993 116.19 December 1994 114.27
---------------------------------------------------------------------------------------
March
1992 111.54 September 1993 118.39
---------------------------------------------------------------------------------------
June 1992 113.10 December 1993 120.18
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
(/2/) The amounts above assume deductions of all fees and expenses of the Funds
and under the Contracts during the Annuity Period. The Payments are based
on the standard assumed net investment rate of 3 1/2% per annum. See the
narrative preceding these Tables.
45
<PAGE>
ALGER AMERICAN GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1990 $1,200.00 $1,266.19
--------------------------------------------------------------------------
December 1991 2,400.00 3,167.23
--------------------------------------------------------------------------
December 1992 3,600.00 4,864.66
--------------------------------------------------------------------------
December 1993 4,800.00 7,248.31
--------------------------------------------------------------------------
December 1994 6,000.00 8,478.22
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1990 $ 94.27 December 1991 $142.13 September 1993 $180.25
-------------------------------------------------------------------------------------
June 1990 109.60 March 1992 138.25 December 1993 190.17
-------------------------------------------------------------------------------------
September
1990 91.51 June 1992 130.06 March 1994 181.60
-------------------------------------------------------------------------------------
December
1990 102.68 September 1992 138.38 June 1994 171.29
-------------------------------------------------------------------------------------
March
1991 121.98 December 1992 157.49 September 1994 185.20
-------------------------------------------------------------------------------------
June 1991 116.66 March 1993 160.21 December 1994 190.22
-------------------------------------------------------------------------------------
September
1991 131.46 June 1993 164.59
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
46
<PAGE>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1988
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1989 $1,200.00 $ 1,454.71
--------------------------------------------------------------------------
December 1990 2,400.00 2,845.24
--------------------------------------------------------------------------
December 1991 3,600.00 5,953.96
--------------------------------------------------------------------------
December 1992 4,800.00 7,450.99
--------------------------------------------------------------------------
December 1993 6,000.00 9,748.44
--------------------------------------------------------------------------
December 1994 7,200.00 10,451.19
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1988
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1989 $121.65 March 1991 $217.78 March 1993 $251.52
-------------------------------------------------------------------------------------
June 1989 135.70 June 1991 204.71 June 1993 268.33
-------------------------------------------------------------------------------------
September
1989 167.48 September 1991 229.07 September 1993 301.90
-------------------------------------------------------------------------------------
December
1989 162.18 December 1991 269.99 December 1993 309.89
-------------------------------------------------------------------------------------
March
1990 164.16 March 1992 243.31 March 1994 281.98
-------------------------------------------------------------------------------------
June 1990 187.60 June 1992 215.99 June 1994 262.63
-------------------------------------------------------------------------------------
September
1990 148.18 September 1992 232.08 September 1994 285.73
-------------------------------------------------------------------------------------
December
1990 173.79 December 1992 275.64 December 1994 293.20
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
47
<PAGE>
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1987 $1,200.00 $ 1,131.66
--------------------------------------------------------------------------
December 1988 2,400.00 2,482.68
--------------------------------------------------------------------------
December 1989 3,600.00 4,126.70
--------------------------------------------------------------------------
December 1990 4,800.00 5,634.97
--------------------------------------------------------------------------
December 1991 6,000.00 7,773.86
--------------------------------------------------------------------------
December 1992 7,200.00 9,469.32
--------------------------------------------------------------------------
December 1993 8,400.00 11,393.41
--------------------------------------------------------------------------
December 1994 9,600.00 12,057.34
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1987 $112.53 December 1989 $132.20 September 1992 $165.19
-------------------------------------------------------------------------------------
June 1987 115.41 March 1990 133.35 December 1992 169.88
-------------------------------------------------------------------------------------
September
1987 120.72 June 1990 138.55 March 1993 174.79
-------------------------------------------------------------------------------------
December
1987 104.20 September 1990 132.21 June 1993 175.75
-------------------------------------------------------------------------------------
March
1988 111.07 December 1990 140.30 September 1993 181.59
-------------------------------------------------------------------------------------
June 1988 113.77 March 1991 147.11 December 1993 182.12
-------------------------------------------------------------------------------------
September
1988 114.18 June 1991 147.24 March 1994 175.59
-------------------------------------------------------------------------------------
December
1988 114.70 September 1991 152.04 June 1994 172.38
-------------------------------------------------------------------------------------
March
1989 118.15 December 1991 161.02 September 1994 175.64
-------------------------------------------------------------------------------------
June 1989 127.22 March 1992 156.57 December 1994 173.88
-------------------------------------------------------------------------------------
September
1989 133.93 June 1992 158.20
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
48
<PAGE>
FIDELITY EQUITY-INCOME PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1987 $1,200.00 $ 1,054.74
--------------------------------------------------------------------------
December 1988 2,400.00 2,550.34
--------------------------------------------------------------------------
December 1989 3,600.00 4,185.46
--------------------------------------------------------------------------
December 1990 4,800.00 4,620.74
--------------------------------------------------------------------------
December 1991 6,000.00 7,326.25
--------------------------------------------------------------------------
December 1992 7,200.00 9,750.84
--------------------------------------------------------------------------
December 1993 8,400.00 12,652.19
--------------------------------------------------------------------------
December 1994 9,600.00 14,584.84
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1987 $116.57 December 1989 $136.52 September 1992 $158.60
-------------------------------------------------------------------------------------
June 1987 116.34 March 1990 127.82 December 1992 170.30
-------------------------------------------------------------------------------------
September
1987 121.06 June 1990 129.78 March 1993 184.04
-------------------------------------------------------------------------------------
December
1987 97.50 September 1990 107.06 June 1993 188.13
-------------------------------------------------------------------------------------
March
1988 107.32 December 1990 114.02 September 1993 196.54
-------------------------------------------------------------------------------------
June 1988 116.45 March 1991 130.61 December 1993 198.65
-------------------------------------------------------------------------------------
September
1988 117.22 June 1991 132.30 March 1994 192.92
-------------------------------------------------------------------------------------
December
1988 117.98 September 1991 141.27 June 1994 199.52
-------------------------------------------------------------------------------------
March
1989 126.89 December 1991 147.77 September 1994 212.49
-------------------------------------------------------------------------------------
June 1989 135.32 March 1992 152.19 December 1994 209.70
-------------------------------------------------------------------------------------
September
1989 143.38 June 1992 156.27
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
49
<PAGE>
FIDELITY GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1987 $1,200.00 $ 1,079.44
--------------------------------------------------------------------------
December 1988 2,400.00 2,474.41
--------------------------------------------------------------------------
December 1989 3,600.00 4,552.62
--------------------------------------------------------------------------
December 1990 4,800.00 5,090.70
--------------------------------------------------------------------------
December 1991 6,000.00 8,750.43
--------------------------------------------------------------------------
December 1992 7,200.00 10,738.94
--------------------------------------------------------------------------
December 1993 8,400.00 13,942.98
--------------------------------------------------------------------------
December 1994 9,600.00 14,968.07
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1986
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1987 $117.63 December 1989 $151.08 September 1992 $178.64
-------------------------------------------------------------------------------------
June 1987 121.49 March 1990 144.93 December 1992 203.31
-------------------------------------------------------------------------------------
September
1987 128.18 June 1990 155.80 March 1993 210.41
-------------------------------------------------------------------------------------
December
1987 102.22 September 1990 122.96 June 1993 225.22
-------------------------------------------------------------------------------------
March
1988 111.51 December 1990 131.49 September 1993 239.40
-------------------------------------------------------------------------------------
June 1988 117.13 March 1991 154.72 December 1993 239.27
-------------------------------------------------------------------------------------
September
1988 116.52 June 1991 149.77 March 1994 230.92
-------------------------------------------------------------------------------------
December
1988 116.50 September 1991 172.05 June 1994 214.68
-------------------------------------------------------------------------------------
March
1989 125.52 December 1991 188.66 September 1994 231.06
-------------------------------------------------------------------------------------
June 1989 134.62 March 1992 191.16 December 1994 235.92
-------------------------------------------------------------------------------------
September
1989 149.93 June 1992 174.42
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
50
<PAGE>
FIDELITY OVERSEAS PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
------------------------------------------------------------------------
<S> <C> <C>
December 1988 $1,200.00 $ 1,264.46
------------------------------------------------------------------------
December 1989 2,400.00 2,963.32
------------------------------------------------------------------------
December 1990 3,600.00 4,023.45
------------------------------------------------------------------------
December 1991 4,800.00 5,532.27
------------------------------------------------------------------------
December 1992 6,000.00 5,955.94
------------------------------------------------------------------------
December 1993 7,200.00 9,452.99
------------------------------------------------------------------------
December 1994 8,400.00 10,644.52
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1988 $103.28 September 1990 $122.85 March 1993 $134.90
-------------------------------------------------------------------------------------
June 1988 100.89 December 1990 128.73 June 1993 142.83
-------------------------------------------------------------------------------------
September
1988 100.43 March 1991 129.99 September 1993 155.05
-------------------------------------------------------------------------------------
December
1988 106.62 June 1991 125.43 December 1993 163.47
-------------------------------------------------------------------------------------
March
1989 111.20 September 1991 136.96 March 1994 166.24
-------------------------------------------------------------------------------------
June 1989 109.44 December 1991 137.11 June 1994 167.24
-------------------------------------------------------------------------------------
September
1989 125.77 March 1992 132.67 September 1994 168.55
-------------------------------------------------------------------------------------
December
1989 132.77 June 1992 143.80 December 1994 163.98
-------------------------------------------------------------------------------------
March
1990 132.31 September 1992 127.63
-------------------------------------------------------------------------------------
June 1990 144.38 December 1992 120.70
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
51
<PAGE>
FRANKLIN GOVERNMENT SECURITIES TRUST
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
-----------------------------------------------------------------------
<S> <C> <C>
December 1990 $1,200.00 $1,277.91
-----------------------------------------------------------------------
December 1991 2,400.00 2,766.77
-----------------------------------------------------------------------
December 1992 3,600.00 4,183.01
-----------------------------------------------------------------------
December 1993 4,800.00 5,664.48
-----------------------------------------------------------------------
December 1994 6,000.00 6,560.04
-----------------------------------------------------------------------
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1990 $ 99.89 December 1991 $124.53 September 1993 $139.97
-------------------------------------------------------------------------------------
June 1990 103.10 March 1992 122.66 December 1993 140.17
-------------------------------------------------------------------------------------
September
1990 104.38 June 1992 127.62 March 1994 134.48
-------------------------------------------------------------------------------------
December
1990 108.93 September 1992 131.95 June 1994 132.45
-------------------------------------------------------------------------------------
March
1991 111.64 December 1992 132.03 September 1994 132.65
-------------------------------------------------------------------------------------
June 1991 113.56 March 1993 136.00 December 1994 133.06
-------------------------------------------------------------------------------------
September
1991 119.09 June 1993 138.91
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
52
<PAGE>
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,365.12
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/2/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $95.34 September 1994 $109.08
----------------------------------------------------------------------------------
June 1994 93.71 December 1994 114.73
</TABLE>
JANUS ASPEN BALANCED PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,174.85
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $101.71 September 1994 $100.80
----------------------------------------------------------------------------------
June 1994 100.42 December 1994 99.42
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
53
<PAGE>
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
---------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,180.23
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $99.36 September 1994 $98.87
----------------------------------------------------------------------------------
June 1994 98.52 December 1994 97.73
</TABLE>
JANUS ASPEN GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
---------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,195.11
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $100.81 September 1994 $101.62
----------------------------------------------------------------------------------
June 1994 98.97 December 1994 101.45
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
54
<PAGE>
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,202.53
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $99.15 September 1994 $99.27
----------------------------------------------------------------------------------
June 1994 98.41 December 1994 99.51
</TABLE>
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
---------------------------------------------------------------------------
<S> <C> <C>
December 1994 $1,200.00 $1,185.62
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1993
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
March 1994 $99.65 September 1994 $101.46
----------------------------------------------------------------------------------
June 1994 97.40 December 1994 100.10
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
55
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
---------------------------------------------------------------------------
<S> <C> <C>
December 1990 $1,200.00 $1,098.87
---------------------------------------------------------------------------
December 1991 2,400.00 2,237.30
---------------------------------------------------------------------------
December 1992 3,600.00 3,505.04
---------------------------------------------------------------------------
December 1993 4,800.00 5,073.08
---------------------------------------------------------------------------
December 1994 6,000.00 5,863.99
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1989
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1990 $94.52 December 1991 $78.57 September 1993 $92.59
-------------------------------------------------------------------------------------
June 1990 85.80 March 1992 77.77 December 1993 88.75
-------------------------------------------------------------------------------------
September
1990 94.80 June 1992 77.42 March 1994 86.42
-------------------------------------------------------------------------------------
December
1990 83.84 September 1992 80.06 June 1994 84.20
-------------------------------------------------------------------------------------
March
1991 77.68 December 1992 80.36 September 1994 89.35
-------------------------------------------------------------------------------------
June 1991 81.26 March 1993 88.87 December 1994 82.72
-------------------------------------------------------------------------------------
September
1991 76.51 June 1993 91.40
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
56
<PAGE>
NEUBERGER & BERMAN GROWTH PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1985
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1986 $ 1,200.00 $ 1,201.38
--------------------------------------------------------------------------
December 1987 2,400.00 2,124.29
--------------------------------------------------------------------------
December 1988 3,600.00 3,945.74
--------------------------------------------------------------------------
December 1989 4,800.00 6,329.02
--------------------------------------------------------------------------
December 1990 6,000.00 6,901.22
--------------------------------------------------------------------------
December 1991 7,200.00 10,168.42
--------------------------------------------------------------------------
December 1992 8,400.00 12,057.39
--------------------------------------------------------------------------
December 1993 9,600.00 14,280.71
--------------------------------------------------------------------------
December 1994 10,800.00 14,550.88
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1985
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1986 $117.48 March 1989 $143.91 March 1992 $191.46
-------------------------------------------------------------------------------------
June 1986 120.74 June 1989 156.13 June 1992 187.16
-------------------------------------------------------------------------------------
September
1986 109.24 September 1989 174.32 September 1992 190.03
-------------------------------------------------------------------------------------
December
1986 113.33 December 1989 168.19 December 1992 206.31
-------------------------------------------------------------------------------------
March
1987 134.76 March 1990 159.65 March 1993 206.36
-------------------------------------------------------------------------------------
June 1987 138.41 June 1990 169.59 June 1993 211.44
-------------------------------------------------------------------------------------
September
1987 143.48 September 1990 141.92 September 1993 225.54
-------------------------------------------------------------------------------------
December
1987 106.26 December 1990 152.28 December 1993 222.74
-------------------------------------------------------------------------------------
March
1988 120.38 March 1991 174.63 March 1994 213.28
-------------------------------------------------------------------------------------
June 1988 126.10 June 1991 171.81 June 1994 199.24
-------------------------------------------------------------------------------------
September
1988 126.80 September 1991 181.38 September 1994 212.66
-------------------------------------------------------------------------------------
December
1988 131.97 December 1991 194.71 December 1994 208.73
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
57
<PAGE>
SCUDDER INTERNATIONAL PORTFOLIO
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(ASSUMING $100 MONTHLY PURCHASE PAYMENTS MADE DURING EACH CONTRACT YEAR)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1988 $1,200.00 $ 1,291.56
--------------------------------------------------------------------------
December 1989 2,400.00 3,174.25
--------------------------------------------------------------------------
December 1990 3,600.00 3,994.77
--------------------------------------------------------------------------
December 1991 4,800.00 5,629.43
--------------------------------------------------------------------------
December 1992 6,000.00 6,483.24
--------------------------------------------------------------------------
December 1993 7,200.00 10,183.41
--------------------------------------------------------------------------
December 1994 8,400.00 11,111.07
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1988 $108.18 September 1990 $137.01 March 1993 $161.38
-------------------------------------------------------------------------------------
June 1988 110.06 December 1990 142.38 June 1993 167.81
-------------------------------------------------------------------------------------
September
1988 104.78 March 1991 153.65 September 1993 185.87
-------------------------------------------------------------------------------------
December
1988 115.10 June 1991 147.34 December 1993 200.04
-------------------------------------------------------------------------------------
March
1989 125.53 September 1991 155.90 March 1994 198.23
-------------------------------------------------------------------------------------
June 1989 129.75 December 1991 156.46 June 1994 200.09
-------------------------------------------------------------------------------------
September
1989 147.28 March 1992 149.61 September 1994 204.15
-------------------------------------------------------------------------------------
December
1989 156.37 June 1992 158.19 December 1994 195.57
-------------------------------------------------------------------------------------
March
1990 157.77 September 1992 153.49
-------------------------------------------------------------------------------------
June 1990 166.25 December 1992 148.11
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
58
<PAGE>
TCI GROWTH
HYPOTHETICAL PERIODIC ACCUMULATION VALUES
TABLE 1 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT ANNUAL INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(Assuming $100 Monthly Purchase Payments made during each Contract Year)
<TABLE>
<CAPTION>
CUMULATIVE
VALUE AT END PURCHASE ACCUMULATION
OF MONTH PAYMENTS VALUE(/1/)
--------------------------------------------------------------------------
<S> <C> <C>
December 1988 $1,200.00 $ 1,220.04
--------------------------------------------------------------------------
December 1989 2,400.00 2,854.97
--------------------------------------------------------------------------
December 1990 3,600.00 3,967.45
--------------------------------------------------------------------------
December 1991 4,800.00 6,961.88
--------------------------------------------------------------------------
December 1992 6,000.00 8,021.07
--------------------------------------------------------------------------
December 1993 7,200.00 10,330.53
--------------------------------------------------------------------------
December 1994 8,400.00 11,259.52
</TABLE>
TABLE 2 - ACCUMULATION PERIOD
HYPOTHETICAL ACCUMULATION VALUES AT QUARTERLY INTERVALS
FOLLOWING CONTRACT ISSUANCE ON DECEMBER 31, 1987
(Assumes Single $100 Net Purchase Payment made at Contract Issuance)
<TABLE>
<CAPTION>
VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION VALUE AT END ACCUMULATION
OF MONTH VALUE(/1/) OF MONTH VALUE(/1/) OF MONTH VALUE(/1/)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March
1988 $ 91.36 September 1990 $112.50 March 1993 $165.39
-------------------------------------------------------------------------------------
June 1988 100.05 December 1990 119.06 June 1993 173.50
-------------------------------------------------------------------------------------
September
1988 94.27 March 1991 145.13 September 1993 182.35
-------------------------------------------------------------------------------------
December
1988 96.35 June 1991 135.51 December 1993 182.89
-------------------------------------------------------------------------------------
March
1989 104.42 September 1991 151.07 March 1994 178.19
-------------------------------------------------------------------------------------
June 1989 110.22 December 1991 166.53 June 1994 168.78
-------------------------------------------------------------------------------------
September
1989 124.36 March 1992 158.12 September 1994 176.54
-------------------------------------------------------------------------------------
December
1989 122.26 June 1992 147.59 December 1994 178.24
-------------------------------------------------------------------------------------
March
1990 123.07 September 1992 151.64
-------------------------------------------------------------------------------------
June 1990 133.72 December 1992 162.10
</TABLE>
(/1/) The Accumulation Value is net of all applicable fees and expenses of the
Fund and under the Contract; this is the amount available at withdrawal.
See the narrative preceding these Tables.
59
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of:
(1) an Account C group prospectus dated May 1, 1995 for optional retirement
plan contracts issued by Aetna Life Insurance and Annuity Company; and
(2) all current prospectuses pertaining to all of the variable investment
options under the contracts.
[_] Please send an Account C Statement of Additional Information.
________________________________________________________________________________
SIGNATURE
________________________________________________________________________________
DATE
75976-1 (5/95)
<PAGE>
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Telephone 1-800-525-4225
[LOGO OF AETNA APPEARS HERE]
[RECYCLING LOGO APPEARS HERE] printed on recycled paper
<PAGE>
--------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
--------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1995
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account ") dated May 1, 1995.
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
Annuity Operations
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History....................................... 2
Variable Annuity Account C............................................ 2
Offering and Purchase of Contracts.................................... 3
Performance Data...................................................... 3
General............................................................. 3
Average Annual Total Return Quotations.............................. 4
Annuity Payments...................................................... 5
Dollar-Cost Averaging................................................. 6
Sales Material........................................................ 6
Independent Auditors.................................................. 7
Financial Statements of the Separate Account.......................... S-1
Financial Statements of Aetna Life Insurance and Annuity Company...... F-1
<PAGE>
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 C" below).
Other than the mortality and expense risk charges and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from the Fund's 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 C
Variable Annuity Account C (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:
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity Growth Portfolio
Aetna Income Shares Fidelity Overseas Portfolio
Aetna Variable Encore Fund Franklin Government Securities Trust
Aetna Investment Advisers Fund, Inc. Janus Aspen Aggressive Growth Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Balanced Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Flexible Income Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Growth Portfolio
Alger American Growth Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American Small Cap Portfolio Janus Aspen Worldwide Growth Portfolio
Calvert Responsibly Invested Balanced Portfolio Neuberger & Berman Growth Portfolio
Fidelity Contrafund Portfolio Scudder International Portfolio
Fidelity Equity-Income Portfolio TCI Growth
</TABLE>
2
<PAGE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the Depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Contract Purchase" and "Determining
Contract 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 and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the variable options under the Contract, and then related
to the ending redeemable values over one, three, five and ten year periods (or
fractional periods thereof). Such figures reflect the deduction of all
recurring charges during each period (e.g., mortality and expense risk charges,
the asset-based sales charge, and any applicable administrative charge). These
charges will be deducted on a pro rata basis in the case of fractional periods.
The non-standardized total return figures use the same formula, but may be
computed to include a three year period as well as the one, five and ten year
periods.
For variable options of the Separate Account that were in existence prior to the
date the Fund became available under the Contract, the standardized and non-
standardized total returns may include periods prior to the date on which such
Fund became available under the Contract. These figures are calculated by
adjusting the actual returns of the Fund to reflect the charges that would have
been assessed under the Contract had that Fund been available under the Contract
during that period.
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 Funds will perform in any future period. Additionally, your Contract
Value upon redemption may be more or less than your original cost.
3
<PAGE>
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The table below reflects the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1994 for the
variable options under the Contract issued by the Company.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Non- Fund
Standardized Standardized Inception Date
-------------------------------------------------------------------------------------------------------------------
Single Payment Contract 1 Year 5 Years 10 Years 3 Years
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund (2.35)% 6.44% 11.99% 2.48% 04/30/75
-------------------------------------------------------------------------------------------------------------------
Aetna Income Shares (5.14)% 6.60% 8.71% 2.80% 06/01/78
-------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund 2.64% 3.69% 4.99% 2.20% 09/01/75
-------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. (1.75)% 6.28% 6.47% * 3.69% 06/23/89
-------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 0.03% 13.72% 15.19% * 10.20% 01/08/89
-------------------------------------------------------------------------------------------------------------------
Alger American Small Cap Portfolio (5.39)% 12.57% 17.98% * 2.79% 09/21/88
-------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced
Portfolio** (4.52)% 5.63% 8.33% * 2.60% 09/30/86
-------------------------------------------------------------------------------------------------------------------
Fidelity Equity-Income Portfolio 5.56% 8.96% 9.45% * 12.38% 10/22/86
-------------------------------------------------------------------------------------------------------------------
Fidelity Growth Portfolio (1.40)% 9.32% 11.12% * 7.74% 11/07/86
-------------------------------------------------------------------------------------------------------------------
Fidelity Overseas Portfolio 0.31% 4.31% 5.57% * 6.15% 02/13/87
-------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust (5.07)% 5.88% 6.30% * 2.23% 05/30/89
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth Portfolio 14.73% 25.90% * N/A 25.90% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio (0.58)% 4.69% * N/A 4.69% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income Portfolio (2.27)% (1.54)% * N/A (1.54)% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 1.45% 3.50% * N/A 3.50% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond Portfolio (0.49)% (0.47)% * N/A (0.47)% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth Portfolio 0.11% 14.13% * N/A 14.13% * 09/13/93
-------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust (6.79)% (3.72)% (1.00)% * 1.73% 05/31/89
-------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Non- Fund
Standardized Standardized Inception Date
-------------------------------------------------------------------------------------------------------------------
Single Payment Contract 1 Year 5 Years 10 Years 3 Years
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Neuberger & Berman Growth Portfolio (6.29)% 4.41% 8.52% * 2.35% 12/31/85
-------------------------------------------------------------------------------------------------------------------
Scudder International Portfolio (2.24)% 4.58% 7.42% * 7.72% 04/30/87
-------------------------------------------------------------------------------------------------------------------
TCI Growth (2.54)% 7.83% 9.51% * 2.29% 11/20/87
-------------------------------------------------------------------------------------------------------------------
</TABLE>
*Although results are not available for the full calendar indicated, the
percentage shown is an average annual return since inception.
**Formerly known as Calvert Socially Responsible Series.
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Contract or Individual
Account is determined 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) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation 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.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
5
<PAGE>
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Contract or Individual 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.
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 Deposits.
6
<PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
7
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
Independent Auditors Report
Statement of Assets and Liabilities
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account C:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account C (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 C 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
January 31, 1995
S-2
<PAGE>
Variable Annuity Account C
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value:(Note 1)
Aetna Variable Fund; 115,046,067 shares at $26.23 per share (cost $2,938,078,798).............. $3,017,586,769
Aetna Income Shares; 28,987,528 shares at $11.72 per share (cost $373,229,679)................. 339,845,651
Aetna Variable Encore Fund; 18,165,132 shares at $12.55 per share (cost $230,182,227).......... 227,945,773
Aetna Investment Advisers Fund, Inc.; 48,115,691 shares at $12.23 per share
(cost $557,208,037).......................................................................... 588,336,344
Aetna GET Fund, Series B; 6,130,437 shares at $9.92 per share (cost $61,658,244)............... 60,813,035
Alger American Fund--Alger American Small Capitalization Portfolio; 2,504,238 shares at
$27.31 per share (cost $68,490,734).......................................................... 68,390,728
Calvert Socially Responsible Series; 11,114,321 shares at $1.44 per share (cost $16,386,553)... 16,015,737
Fidelity Investments Variable Insurance Products Fund II--Asset Manager Portfolio;
859,413 shares at $13.79 per share (cost $12,101,599)........................................ 11,851,301
Fidelity Investments Variable Insurance Products Fund--Equity-Income
Portfolio; 97,900 shares at $15.35 per share (cost $1,512,657)................................. 1,502,758
Fidelity Investments Variable Insurance Products Fund--Growth Portfolio; 74,198 shares at
$21.69 per share (cost $1,566,291)........................................................... 1,609,365
Fidelity Investments Variable Insurance Products Fund--Overseas Portfolio; 35,965 shares at
$15.67 per share (cost $575,367)............................................................. 563,569
Franklin Government Securities Trust; 1,232,301 shares at $12.05 per share (cost $15,779,220).. 14,849,231
Janus Aspen Series--Aggressive Growth Portfolio; 937,913 shares at $13.62 per share
(cost $12,554,413)........................................................................... 12,774,375
Janus Aspen Series--Flexible Income Portfolio; 31,351 shares at $9.48 per share
(cost $307,352).............................................................................. 297,205
Lexington Emerging Markets Fund, Inc.; 128,777 shares at $9.86 per share (cost $1,392,103)..... 1,269,745
Lexington Natural Resources Trust; 1,260,454 shares at $9.71 per share (cost $12,849,039)...... 12,239,010
Neuberger & Berman Advisers Management Trust--Growth Portfolio; 2,416,504 shares at $20.31 per
share (cost $52,391,344)..................................................................... 49,079,202
Scudder Variable Life Investment Fund--International Portfolio; 13,314,695 shares at $10.69
per share (cost $141,368,583)................................................................ 142,334,092
TCI Portfolios, Inc.--TCI Growth; 32,031,260 shares at $9.21 per share (cost $291,200,318)..... 295,007,901
--------------
NET ASSETS....................................................................................... $4,862,311,791
==============
</TABLE>
(continued)
S-3
<PAGE>
Variable Annuity Account C
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994 (continued)
Net assets represented by:
<TABLE>
<CAPTION>
ACCUMULATION
UNIT
UNITS VALUE
------------- ------------
<S> <C> <C> <C>
Reserves for annuity contracts in
accumulation period:
AETNA VARIABLE FUND:
Qualified I......................... 1,258,166.4 $138.406 $ 174,137,707
Qualified III....................... 13,966,072.4 105.558 1,474,234,355
Qualified IV........................ 269.0 63.884 17,183
Qualified V......................... 77,510.5 10.823 838,870
Qualified VI........................ 114,733,034.7 10.778 1,236,626,034
Qualified VII....................... 2,703,365.0 10.136 27,402,446
Qualified VIII...................... 3,454.8 10.011 34,586
Qualified IX........................ 23,601.2 9.879 233,158
Qualified X (1.15).................. 110,419.5 10.791 1,191,541
Qualified X (1.25).................. 602,837.7 10.778 6,497,560
AETNA INCOME SHARES:
Qualified I......................... 161,534.6 40.570 6,553,450
Qualified III....................... 5,108,719.7 40.173 205,233,454
Qualified V......................... 14,481.7 10.536 152,573
Qualified VI........................ 11,713,354.4 10.360 121,354,557
Qualified VII....................... 49,298.1 9.565 471,526
Qualified VIII...................... 440.2 9.543 4,201
Qualified IX........................ 4,120.5 9.570 39,432
Qualified X (1.15).................. 16,109.8 10.373 167,101
Qualified X (1.25).................. 148,192.7 10.360 1,535,329
AETNA VARIABLE ENCORE FUND:
Qualified I......................... 241,159.0 36.723 8,856,130
Qualified III....................... 3,679,802.2 36.271 133,469,142
Qualified V......................... 12,934.0 10.523 136,102
Qualified VI........................ 7,673,528.3 10.528 80,784,765
Qualified VII....................... 99,270.9 10.435 1,035,905
Qualified VIII...................... 215.3 10.141 2,184
Qualified IX........................ 3,366.5 10.341 34,812
Qualified X (1.15).................. 9,735.5 10.541 102,618
Qualified X (1.25).................. 334,746.2 10.528 3,524,115
AETNA INVESTMENT ADVISERS FUND,
INC.:
Qualified I......................... 756,261.3 14.317 10,827,393
Qualified III....................... 21,990,186.1 14.270 313,799,955
Qualified V......................... 11,773.4 10.900 128,330
Qualified VI........................ 23,139,603.9 10.868 251,481,215
Qualified VII....................... 144,586.5 10.434 1,508,616
Qualified VIII...................... 120.8 10.091 1,219
Qualified IX........................ 4,574.1 10.000 45,741
Qualified X (1.15).................. 49,332.6 10.880 536,739
Qualified X (1.25).................. 261,895.1 10.868 2,846,276
</TABLE>
(continued)
S-4
<PAGE>
Variable Annuity Account C
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994 (continued)
<TABLE>
<CAPTION>
ACCUMULATION
UNIT
UNITS VALUE
----------- ------------
<S> <C> <C> <C>
AETNA GET FUND, SERIES B:
Qualified III.................... 113,700.1 $ 10.160 $ 1,155,184
Qualified VI..................... 5,515,433.4 10.160 56,036,373
Qualified X (1.25)............... 356,447.4 10.160 3,621,478
ALGER AMERICAN FUND--ALGER
AMERICAN SMALL CAPITALIZATION
PORTFOLIO:
Qualified III.................... 665,518.0 9.513 6,331,073
Qualified V...................... 4,574.5 9.461 43,282
Qualified VI..................... 6,339,406.7 9.437 59,827,174
Qualified VIII................... 1,056.6 9.889 10,449
Qualified X (1.15)............... 22,051.9 9.450 208,380
Qualified X (1.25)............... 208,784.3 9.437 1,970,370
CALVERT SOCIALLY RESPONSIBLE
SERIES:
Qualified III.................... 743,464.3 13.990 10,401,066
Qualified V...................... 8,469.2 10.839 91,795
Qualified VI..................... 521,140.5 10.554 5,500,118
Qualified VIII................... 2,401.5 9.590 23,031
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS FUND II--
ASSET MANAGER PORTFOLIO:
Qualified III.................... 1,254,504.2 9.447 11,851,301
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS FUND--EQUITY-
INCOME PORTFOLIO:
Qualified X (1.15)............... 43,852.1 10.409 456,470
Qualified X (1.25)............... 100,574.2 10.403 1,046,288
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS FUND--GROWTH
PORTFOLIO:
Qualified X (1.15)............... 32,591.9 10.479 341,515
Qualified X (1.25)............... 121,069.6 10.472 1,267,850
FIDELITY INVESTMENTS VARIABLE
INSURANCE PRODUCTS FUND--
OVERSEAS PORTFOLIO:
Qualified X (1.15)............... 5,097.9 9.480 48,326
Qualified X (1.25)............... 54,386.5 9.474 515,243
FRANKLIN GOVERNMENT SECURITIES
TRUST:
Qualified III.................... 804,457.0 14.190 11,415,245
Qualified V...................... 10,738.2 10.294 110,534
Qualified VI..................... 325,365.0 10.119 3,292,269
Qualified VIII................... 3,268.3 9.541 31,183
JANUS ASPEN SERIES--AGGRESSIVE
GROWTH PORTFOLIO:
Qualified III.................... 393,553.0 12.169 4,789,146
Qualified V...................... 819.6 10.577 8,669
Qualified VI..................... 753,862.0 10.581 7,976,560
JANUS ASPEN SERIES--FLEXIBLE
INCOME PORTFOLIO:
Qualified III.................... 1,554.8 9.911 15,410
Qualified VI..................... 28,542.8 9.873 281,795
</TABLE>
(continued)
S-5
<PAGE>
Variable Annuity Account C
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1994 (continued)
<TABLE>
<CAPTION>
ACCUMULATION
UNIT
UNITS VALUE
------------ ------------
<S> <C> <C> <C>
LEXINGTON EMERGING MARKETS FUND,
INC.:
Qualified III................... 144,749.8 $ 8.772 $ 1,269,745
LEXINGTON NATURAL RESOURCES
TRUST:
Qualified III................... 533,015.5 9.412 5,016,742
Qualified V..................... 7,349.7 10.496 77,142
Qualified VI.................... 703,676.0 10.154 7,145,126
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST--
GROWTH PORTFOLIO:
Qualified III................... 2,107,524.7 13.398 28,236,616
Qualified V..................... 21,935.1 11.055 242,485
Qualified VI.................... 1,865,104.0 11.026 20,565,351
Qualified VIII.................. 3,664.8 9.482 34,750
SCUDDER VARIABLE LIFE INVESTMENT
FUND--
INTERNATIONAL PORTFOLIO:
Qualified III................... 4,240,411.7 13.227 56,087,925
Qualified V..................... 22,036.3 12.595 277,545
Qualified VI.................... 6,558,945.9 12.687 83,214,974
Qualified VIII.................. 7,124.8 10.692 76,181
Qualified X (1.15).............. 23,840.2 12.701 302,803
Qualified X (1.25).............. 187,169.4 12.687 2,374,664
TCI PORTFOLIOS, INC.--TCI
GROWTH:
Qualified III *................. 1,608,361.5 11.172 17,968,615
Qualified III................... 12,096,731.2 10.213 123,547,291
Qualified V..................... 15,078.2 11.740 177,018
Qualified VI.................... 12,853,827.6 11.781 151,426,971
Qualified VII................... 14,330.4 9.911 142,029
Qualified VIII.................. 4,377.2 9.939 43,505
Qualified IX.................... 957.4 9.693 9,280
Qualified X (1.15).............. 4,486.4 11.794 52,912
Qualified X (1.25).............. 139,234.6 11.781 1,640,280
Reserves for annuity contracts in payment period (Note 1). 107,867,944
--------------
$4,862,311,791
==============
</TABLE>
*Applies only to participants of the Opportunity Plus program and Multiple
Options Portfolio.
See Notes to Financial Statements.
S-6
<PAGE>
Variable Annuity Account C
STATEMENT OF OPERATIONS -- Year Ended December 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
Aetna Variable Fund............................... $ 467,266,533
Aetna Income Shares............................... 23,593,571
Aetna Variable Encore Fund........................ 8,637,154
Aetna Investment Advisers Fund, Inc............... 24,584,458
Aetna GET Fund, Series B.......................... 2,115,482
Alger American Fund--Alger American Small
Capitalization Portfolio......................... 2,620,001
Calvert Socially Responsible Series............... 497,655
Fidelity Investments Variable Insurance Products
Fund II--Asset Manager Portfolio................. 5,798
Fidelity Investments Variable Insurance Products
Fund--Equity-Income Portfolio.................... 10,084
Franklin Government Securities Trust.............. 930,986
Janus Aspen Series--Aggressive Growth Portfolio... 92,229
Janus Aspen Series--Flexible Income Portfolio..... 8,975
Lexington Emerging Markets Fund, Inc.............. 26,666
Lexington Natural Resources Trust................. 45,284
Neuberger & Berman Advisers Management Trust--
Growth Portfolio................................. 4,614,980
Scudder Variable Life Investment Fund--
International Portfolio.......................... 441,642
TCI Portfolios, Inc.--TCI Growth.................. 25,820
-------------
Total investment income........................ 535,517,318
Valuation period deductions (Note 2)............... (59,320,898)
-------------
Net investment income.............................. 476,196,420
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on sales of investments: (Notes 1
and 4)
Proceeds from sales............................... $293,968,699
Cost of investments sold.......................... 229,897,138
------------
Net realized gain.............................. 64,071,561
Net unrealized gain (loss) on investments:
Beginning of year................................. 719,363,247
End of year....................................... 73,479,233
------------
Net unrealized loss............................ (645,884,014)
-------------
Net realized and unrealized loss on investments.... (581,812,453)
-------------
Net decrease in net assets resulting from
operations........................................ $(105,616,033)
=============
</TABLE>
See Notes to Financial Statements.
S-7
<PAGE>
Variable Annuity Account C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 476,196,420 $ 232,176,564
Net realized and unrealized gain (loss) on
investments............................... (581,812,453) 21,509,547
-------------- --------------
Net increase (decrease) in net assets re-
sulting from operations.................. (105,616,033) 253,686,111
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase pay-
ments..................................... 711,565,372 649,666,815
Sales and administrative charges deducted
by the Company............................ (137,737) (165,303)
-------------- --------------
Net variable annuity contract purchase
payments................................. 711,427,635 649,501,512
Transfers from the Company for mortality
guarantee adjustments..................... 1,880,350 1,413,366
Transfers to the Company's fixed account
options................................... (56,920,532) (17,366,092)
Transfers to other variable annuity ac-
counts.................................... (23,284,415) 0
Redemptions by contract holders............ (269,542,942) (210,939,684)
Annuity payments........................... (11,189,149) (8,655,687)
Other...................................... 1,452,959 1,717,888
-------------- --------------
Net increase in net assets from unit
transactions............................. 353,823,906 415,671,303
-------------- --------------
Change in net assets....................... 248,207,873 669,357,414
NET ASSETS:
Beginning of year.......................... 4,614,103,918 3,944,746,504
-------------- --------------
End of year................................ $4,862,311,791 $4,614,103,918
============== ==============
</TABLE>
See Notes to Financial Statements.
S-8
<PAGE>
Variable Annuity Account C
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account C ("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 are qualified under 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:
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity Investments Variable Insurance Products
Aetna Income Shares Fund-Overseas Portfolio
Aetna Variable Encore Fund Franklin Government Securities Trust
Aetna Investment Advisers Fund, Inc. Janus Aspen Series-Aggressive Growth Portfolio
Aetna GET Fund, Series B Janus Aspen Series-Flexible Income Portfolio
Alger American Fund-Alger American Small Lexington Emerging Markets Fund, Inc.
Capitalization Portfolio Lexington Natural Resources Trust
Calvert Socially Responsible Series Neuberger & Berman Advisers Management
Fidelity Investments Variable Insurance Products Trust-Growth Portfolio
Fund II-Asset Manager Portfolio Scudder Variable Life Investment Fund-
Fidelity Investments Variable Insurance Products International Portfolio
Fund-Equity-Income Portfolio TCI Portfolios, Inc.-TCI Growth
Fidelity Investments Variable Insurance Products
Fund-Growth Portfolio
</TABLE>
B. OTHER
Investment transactions are accounted for on a trade-date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is de-
termined by specific identification.
C. FEDERAL INCOME TAXES
The operations of Variable Annuity Account C form a part of, and are taxed
with, the total operations of Aetna Life Insurance and Annuity Company ("Compa-
ny") which is taxed as a life insurance company under the Internal Revenue Code
of 1986, as amended.
D. ANNUITY RESERVES
Annuity reserves are computed for currently payable contracts according to the
Progressive Annuity, Individual Annuity Mortality, and Group Annuity Mortality
tables using various assumed interest rates not to exceed seven percent.
Charges to annuity reserves for mortality and expense risk experience are reim-
bursed to the Company if the reserves required are less than originally esti-
mated. If additional reserves are required, the Company reimburses the Account.
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made in
accordance with the terms of the contracts and are paid to the Company.
S-9
<PAGE>
Variable Annuity Account C
NOTES TO FINANCIAL STATEMENTS (continued)
3. DIVIDEND INCOME
On an annual basis the Funds distribute substantially all of their taxable in-
come and realized capital gains to their shareholders. Distributions to the Ac-
count are automatically reinvested in shares of the Funds. The Account's pro-
portionate share of the Funds' undistributed net investment income and accumu-
lated net realized gain (loss) on investments is included in net unrealized
loss in the Statement of Operations.
Dividends were received from the following Funds:
<TABLE>
<CAPTION>
DATE OF DIVIDEND SOURCE OF
FUND REINVESTMENT DIVIDENDS
---- ---------------- ---------
<S> <C> <C>
Aetna Variable Fund July 20, 1994 Net investment income and
December 30, 1994 net realized gains
-------------------------------------------------------------------------------
Aetna Income Shares July 20, 1994 Net investment income
December 30, 1994
-------------------------------------------------------------------------------
Aetna Variable Encore Fund July 20, 1994 Net investment income
December 30, 1994
-------------------------------------------------------------------------------
Aetna Investment Advisers Fund, July 20, 1994 Net investment income and
Inc. December 30, 1994 net realized gains
-------------------------------------------------------------------------------
Aetna GET Fund, Series B December 30, 1994 Net investment income and
net realized gains
-------------------------------------------------------------------------------
Alger American Fund-Alger May 9, 1994 Net realized gains
American Small Capitalization
Portfolio
-------------------------------------------------------------------------------
Calvert Socially Responsible December 30, 1994 Net investment income
Series
-------------------------------------------------------------------------------
Fidelity Investments Variable September 2, 1994 Net investment income
Insurance Products Fund II-Asset
Manager Portfolio
-------------------------------------------------------------------------------
Fidelity Investments Variable June 7, 1994 Net investment income
Insurance Products Fund-Equity- September 19, 1994
Income Portfolio December 16, 1994
-------------------------------------------------------------------------------
Franklin Government Securities June 13, 1994 Net investment income
Trust
-------------------------------------------------------------------------------
Janus Aspen Series-Aggressive June 29, 1994 Net investment income
Growth Portfolio December 29, 1994
-------------------------------------------------------------------------------
Janus Aspen Series-Flexible December 29, 1994 Net investment income
Income Portfolio
-------------------------------------------------------------------------------
Lexington Emerging Markets Fund, December 29, 1994 Net investment income and
Inc. net realized gains
-------------------------------------------------------------------------------
Lexington Natural Resources Trust December 29, 1994 Net investment income
-------------------------------------------------------------------------------
Neuberger & Berman Advisers February 11, 1994 Net investment income and
Management Trust-Growth net realized gains
Portfolio
-------------------------------------------------------------------------------
Scudder Variable Life Investment February 24, 1994 Net investment income
Fund-International Portfolio
-------------------------------------------------------------------------------
TCI Portfolios, Inc.-TCI Growth April 11, 1994 Net investment income
</TABLE>
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 $688,544,469
and $293,968,699, respectively.
S-10
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
F-1
<PAGE>
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
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED STATEMENTS OF INCOME
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED BALANCE SHEETS
(MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
ASSETS 1994 1993
------ --------- ---------
<S> <C> <C>
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
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
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
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
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)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
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
======== ======== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF AETNA LIFE AND CASUALTY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(millions)
<S> <C> <C> <C> <C>
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
========= ====== ====== =========
</TABLE>
F-11
<PAGE>
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:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(millions)
<S> <C> <C> <C> <C>
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
======== ====== ===== =========
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
(millions)
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
AMORTIZED FAIR
DEBT SECURITIES COST VALUE
--------------- --------- ------
(millions)
<S> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
(millions)
<S> <C> <C>
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
</TABLE>
Investments in available for sale equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- -------
(millions)
<S> <C> <C> <C> <C>
1994
Equity Securities...................... $ 230.5 $ 6.5 $7.9 $ 229.1
------- ----- ---- -------
1993
Equity Securities...................... $ 160.7 $12.0 $0.1 $ 172.6
------- ----- ---- -------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- -----
(millions)
<S> <C> <C> <C>
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
==== ==== =====
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ -----
(millions)
<S> <C> <C> <C>
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)
======= ====== =====
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
(millions)
<S> <C> <C> <C>
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
======= ====== ======
</TABLE>
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
F-17
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
F-18
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(millions)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions)
<S> <C> <C>
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
====== ======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
CEDED TO ASSUMED
DIRECT OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
------ --------- ---------- ------
(millions)
<S> <C> <C> <C> <C>
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
====== ===== ===== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(millions)
<S> <C> <C> <C> <C>
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
</TABLE>
F-23
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(millions)
<S> <C> <C> <C>
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
========= ========= =========
<CAPTION>
1994 1993 1992
--------- --------- ---------
(millions)
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
F-25
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT C
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Form No.__75976__ (S) ALIAC Ed. 5/95
<PAGE>
VARIABLE ANNUITY ACCOUNT C
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 C:
- 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 C/1/
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement/2/
(3.2) Alternative Form of Wholesaling Agreement and related Selling
Agreement/2/
(4.1) Form of Variable Annuity Contract (G-CDA-IB(ATORP))/3/
(4.2) Form of Variable Annuity Contract (G-CDA-IB(AORP))/3/
(4.3) Form of Variable Annuity Contract (G-CDA-95(ORP))/4/
(4.4) Form of Variable Annuity Contract (GTCC-95(ORP))/4/
(4.5) Form of Variable Annuity Contract (G-CDA-95(TORP))/4/
(4.6) Form of Variable Annuity Contract (GTCC-95(TORP))/4/
(5) Form of Variable Annuity Contract Application (300-MOP-IB)/3/
(6) Certification of Incorporation and By-Laws of Depositor/5/
(7) Not applicable
<PAGE>
(8.1) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Alger American Fund and Fred Alger Management,
Inc. dated September 1, 1993/2/
(8.2) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and C alvert Asset Management Company (Calvert
Responsibly Invested Balanced Portfolio formerly Calvert Socially
Responsible Series) dated March 13, 1989 and amended December 12,
1993/6/
(8.3) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation dated
February 1, 1994 (Variable Insurance Products Fund)/7/
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation dated
February 1, 1994 (Variable Insurance Products Fund II)/7/
(8.5) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Franklin Advisers, Inc. dated January 31,
1989/8/
(8.6) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994 and
amended June 15, 1994/9/
(8.7) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991/6/
(8.8) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Advisers Management Trust (now Neuberger &
Berman Advisers Management Trust) dated April 14, 1989/2/
(8.9) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment Fund dated
April 27, 1992 and amended February 19, 1993 and August 13,
1993/10/
(8.10) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994/10/
(9) Opinion of Counsel/11/
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data/12/
(14) Not applicable
(15.1) Powers of Attorney/13/
(15.2) Authorization for Signatures/13/
(27) Financial Data Schedule
1. Incorporated by reference to Registration Statement on Form N-4
(File No. 2-52449) filed on February 28, 1986.
<PAGE>
2. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-75996) filed on April 21, 1994.
3. Incorporated by Reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-75976) filed on April 28, 1995.
4. Incorporated by reference to Registration Statement on Form N-4 (File No. 33-
91846) filed on May 1, 1995.
5. 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.
6. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 33-75978) filed on March 24, 1995.
7. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-75978) filed on April 25, 1994.
8. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-75990) filed on April 25, 1994.
9. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-4 (File No. 33-75960) filed on August 9, 1994.
10.Incorporated by reference to Registration Statement on Form N-4 (File No.
33-88720) filed on January 20, 1995.
11.Incorporated by reference to Registrant's 24f-2 Notice for fiscal year ended
December 31, 1994 filed on February 28, 1995.
12.Incorporated by reference to Post-effective Amendment No.3 to Registration
Statement on Form N-4 (File No.33-75976) filed on April 28, 1995.
13.Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-75996) filed on February 23, 1995.
<PAGE>
Item 25. Directors and Officers of the Depositor
-------------------------------------------------
<TABLE>
<CAPTION>
Name and Principal
Business Address* Positions and Offices with Depositor
----------------- ------------------------------------
<S> <C>
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, Mutual
Funds
Scott A. Striegel Director and Senior Vice President, Annuity
James C. Hamilton Director, Vice President and Treasurer
Dominick J. Agostino Director and 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
</TABLE>
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
-----------------------------------------------------------------------------
Registrant
----------
Incorporated herein by reference to Exhibit 24(c) to Registration Statement
on Form N-4 (File No. 33-88720) filed on January 20, 1995.
<PAGE>
Item 27. Number of Contract Owners
-----------------------------------
As of February 28, 1995, there were 500,668 contract owners of variable
annuity contracts funded through Account C.
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 B (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.,
Series B 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 B.
<PAGE>
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1994:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Name of Net Underwriting Compensation
Principal Discounts on Redemption Brokerage
Underwriter and Commissions or Annuitization Commissions Compensation*
----------- --------------- ---------------- ----------- -------------
Aetna Life Insurance $1,644,753 $62,552,321
and Annuity
Company
</TABLE>
* 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 C.
Item 30. Location of Accounts and Records
------------------------------------------
All records concerning contract owners of Variable Annuity Account C 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
<PAGE>
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) The Company hereby represents that it is relying upon and complies with
the provisions of Paragraphs (1) through (4) of the SEC Staff's No-Action
Letter dated November 22, 1988 with respect to language concerning
withdrawal restrictions applicable to plans established pursuant to
Section 403(b) of the Internal Revenue Code. See American Counsel of Life
Insurance; SEC No-Action Letter, [1989 Transfer Binder] Fed. SEC. L. Rep.
(CCH) (P) 78,904 at 78,523 (November 22, 1988).
(e) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
24(b)(1) Resolution of the Board of Directors of Aetna Life Insurance and *
Annuity Company establishing Variable Annuity Account C
24(b)(3.1) Form of Broker Dealer Agreement *
24(b)(3.2) Alternative Form of Wholesaling Agreement and related Selling *
Agreement
24(b)(4.1) Form of Variable Annuity Contract (G-CDA-IB(ATORP)) *
24(b)(4.2) Form of Variable Annuity Contract (G-CDA-IB(AORP)) *
24(b)(4.3) Form of Variable Annuity Contract (G-CDA-95(ORP)) *
24(b)(4.4) Form of Variable Annuity Contract (GTCC-95(ORP)) *
24(b)(4.5) Form of Variable Annuity Contract (G-CDA-95(TORP)) *
24(b)(4.6) Form of Variable Annuity Contract (GTCC-95(TORP)) *
24(b)(5) Form of Variable Annuity Contract Application (300-MOP-IB) *
24(b)(6) Certification of Incorporation and By-Laws of Depositor *
24(b)(8.1) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company, Alger American Fund and Fred Alger
Management, Inc., dated September 1, 1993
24(b)(8.2) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Calvert Asset Management Company
(Calvert Responsibly Invested Balanced Portfolio formerly
Calvert Socially Responsible Series) dated March 13, 1989 and
amended December 12, 1993
</TABLE>
* Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
24(b)(8.3) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Distributors Corporation dated
February 1, 1994 (Variable Insurance Products Fund)
24(b)(8.4) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Distributors Corporation dated
February 1, 1994 (Variable Insurance Products Fund II)
24(b)(8.5) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Franklin Advisers, Inc. dated January 31,
1989
24(b)(8.6) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended June 15, 1994
24(b)(8.7) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Lexington Management Corporation
regarding Natural Resources Trust dated December 1, 1988 and
amended February 11, 1991
24(b)(8.8) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Advisers Management Trust (now
Neuberger & Berman Advisers Management Trust) dated April
14, 1989
24(b)(8.9) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company and Scudder Variable Life Investment Fund
dated April 27, 1992 and amended February 19, 1993 and
August 13, 1993
24(b)(8.10) Fund Participation Agreement between Aetna Life Insurance and *
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994
24(b)(9) Opinion of Counsel *
24(b)(10.1) Consent of Independent Auditors 125
</TABLE>
* Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
24(b)(10.2) Consent of Counsel 126
24(b)(13) Computation of Performance Data *
24(b)(15.1) Powers of Attorney *
24(b)(15.2) Authorization for Signatures *
24(b)(27) Financial Date Schedule 127
</TABLE>
* Incorporated by reference
<PAGE>
SIGNATURES
As required by the Securities Act of 1993, as amended, and the Investment
Company Act of 1940, the Registrant, Variable Annuity Account C of Aetna Life
Insurance and Annuity Company, has duly caused this Post-Effective Amendment No.
4 to its Registration Statement on Form N-4 (File No. 33-75976) to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hartford, State of Connecticut, on the 19th day of May, 1995.
VARIABLE ANNUITY ACCOUNT C OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
(Depositor)
By: Daniel P. Kearney*
------------------------------------------
Daniel P. Kearney
Principal Executive Officer
As required by the Securities Act of 1993, as amended, this Post-Effective
Amendment No.4 to the Registration Statement on Form N-4 (File No. 33-75976) has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Daniel P. Kearney* Director and President )
------------------------- )
Daniel P. Kearney* (Principal Executive Officer) )
)
Dominick J. Agostino* Director Senior Vice President and Chief Financial )
------------------------- )
Dominick J. Agostino Officer (Principal Accounting and Financial Officer) )
)
James C. Hamilton* Director, Vice President and Treasurer )
------------------------- ) May
James C. Hamilton ) 19, 1995
)
Gary G. Benanav* Director )
------------------------- )
Gary G. Benanav )
)
Christopher J. Burns* Director and Senior Vice President, Life )
------------------------- )
Christopher J. Burns )
)
Laura R. Estes* Director and Senior Vice President, ALIAC Pensions )
------------------------- )
Laura R. Estes )
)
)
John Y. Kim* Director and Senior Vice President, ALIAC )
------------------------- Investments )
John Y. Kim )
)
)
Shaun P. Mathews* Director and Senior Vice President, Mutual Funds )
------------------------- )
Shaun P. Mathews )
)
)
Scott A. Striegel* Director and Senior Vice President, Annuity )
------------------------- )
Scott A. Striegel )
</TABLE>
By: /s/ Julie E. Rockmore
-----------------------------------------------------
*Attorney-in-Fact
<PAGE>
Consent of Independent Auditors
The Board of Directors of Aetna Life Insurance and Annuity Company
and Contract Owners of Aetna Variable Annuity Account C:
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 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
May 19, 1995
<PAGE>
151 Farmington Avenue SUSAN E. BRYANT
Hartford, CT 06156 Counsel
Law & Regulatory Affairs, RE4C
(203)273-7834
Fax: (203)273-8340
May 19, 1995
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Aetna Life Insurance and Annuity Company and its Variable Annuity Account C
Post-Effective Amendment No. 4 to Registration Statement on Form N-4
Prospectus Title: Optional Retirement Plan-Group Variable Annuity Contracts
for Tax-Deferred Annuity (Section 403(b)) Retirement
Plans
File No. 33-75976 and 811-2513
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 C of Aetna Life Insurance and Annuity
Company on February 28, 1995) as an exhibit to this Registration Statement on
Form N-4 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 4,788,832,558
<INVESTMENTS-AT-VALUE> 4,862,311,791
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,862,311,791
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,862,311,791
<TOTAL-LIABILITIES> 4,862,311,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 535,517,318
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 59,320,898
<NET-INVESTMENT-INCOME> 476,196,420
<REALIZED-GAINS-CURRENT> 64,071,561
<APPREC-INCREASE-CURRENT> (645,884,014)
<NET-CHANGE-FROM-OPS> (105,616,033)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 248,207,873
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
