<PAGE>
Prospectus
Dated:
May 1, 1996
VARIABLE
ANNUITY
ACCOUNT C
AETNAPLUS
RETIREMENT PLUS
TAX-DEFERRED ANNUITY PLANS
[LOGO]
75986.ACES-2 Aetna Life Insurance and Annuity Company
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PROSPECTUS
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This Prospectus describes group deferred variable annuity contracts
("Contracts") issued by Aetna Life Insurance and Annuity Company (the
"Company"). The Contracts are available for nonprofit healthcare organizations
and certain tax-exempt nonhealthcare (Section 501(c)(3)) organizations for their
employees under Section 403(b) of the Internal Revenue Code of 1986 as amended
(the "Code") and for employees of certain tax-exempt organizations and their
for-profit subsidiaries in connection with qualified defined contribution plans
under Sections 401(a)/401(k) of the Code. (See "Purchase.")
The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account C, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:
- Aetna Variable Fund - Fidelity VIP 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 Portfolio - Janus Aspen Flexible Income
- Aetna Legacy Variable Portfolio Portfolio
- Alger American Growth Portfolio - Janus Aspen Growth Portfolio
- Alger American Small Cap Portfolio - Janus Aspen Short-Term Bond
- Calvert Responsibly Invested Portfolio
Balanced Portfolio - Janus Aspen Worldwide Growth
- Fidelity VIP II Contrafund Portfolio
Portfolio - Lexington Natural Resources Trust
- Fidelity VIP Equity-Income - Neuberger & Berman Growth Portfolio
Portfolio - Scudder International Portfolio
- Fidelity VIP Growth Portfolio Class A Shares
- TCI Growth (a Twentieth Century
fund)
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is also contained in
a separate prospectus.
The availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available in all jurisdictions, under all Contracts or under all Plans.
Please check with your employer to determine option availability. (See
"Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract through the Separate
Account. Additional information about the Separate Account is contained in a
Statement of Additional Information ("SAI") which is available at no charge. The
SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the SAI is printed
on page 18 of this Prospectus. An SAI may be obtained by indicating the request
on the enrollment form or on the prospectus receipt contained in this
Prospectus, or by calling the number listed under the "Inquiries" section of the
Prospectus Summary.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE 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.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1996.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
DEFINITIONS........................................................... DEFINITIONS - 1
PROSPECTUS SUMMARY.................................................... SUMMARY - 1
FEE TABLE............................................................. FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION....................................... AUV HISTORY - 1
THE COMPANY........................................................... 1
VARIABLE ANNUITY ACCOUNT C............................................ 1
INVESTMENT OPTIONS.................................................... 1
The Funds......................................................... 1
Credited Interest Options......................................... 4
PURCHASE.............................................................. 4
Contract Availability............................................. 4
Purchasing Interests in the Contract.............................. 4
Purchase Payments................................................. 4
Rights Under the Contract......................................... 5
Transfer Credits.................................................. 5
Right to Cancel................................................... 5
CHARGES AND DEDUCTIONS................................................ 5
Daily Deductions from the Separate Account........................ 5
Mortality and Expense Risk Charge............................ 5
Administrative Expense Charge................................ 6
Maintenance Fee................................................... 6
Deferred Sales Charge............................................. 6
Deferred Sales Charge Schedule for GAA for Certain New York
Contracts........................................................ 8
Fund Expenses..................................................... 8
Premium and Other Taxes........................................... 8
CONTRACT VALUATION.................................................... 8
Account Value..................................................... 8
Accumulation Units................................................ 8
Net Investment Factors............................................ 9
TRANSFERS............................................................. 9
Dollar Cost Averaging Program..................................... 9
WITHDRAWALS........................................................... 9
Reinvestment Privilege............................................ 10
CONTRACT LOANS........................................................ 10
ADDITIONAL WITHDRAWAL OPTIONS......................................... 11
DEATH BENEFIT DURING ACCUMULATION PERIOD.............................. 11
ANNUITY PERIOD........................................................ 12
Annuity Period Elections.......................................... 12
Annuity Options................................................... 12
Annuity Payments.................................................. 13
Charges Deducted During the Annuity Period........................ 13
Death Benefit Payable During the Annuity Period................... 13
</TABLE>
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<TABLE>
<S> <C>
TAX STATUS............................................................ 14
Introduction...................................................... 14
Taxation of the Company........................................... 14
Contracts Used with Certain Retirement Plans...................... 14
MISCELLANEOUS......................................................... 17
Distribution...................................................... 17
Delay or Suspension of Payments................................... 17
Performance Reporting............................................. 17
Voting Rights..................................................... 17
Modification of the Contract...................................... 18
Legal Matters and Proceedings..................................... 18
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................... 18
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT........................... 19
APPENDIX II--THE FIXED ACCOUNT........................................ 20
APPENDIX III--THE FIXED PLUS ACCOUNT.................................. 21
APPENDIX IV--EMPLOYEE APPOINTMENT OF EMPLOYER AS AGENT UNDER AN
ANNUITY CONTRACT.................................................... 23
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
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DEFINITIONS
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The following terms are defined as they are used in this Prospectus:
ACCOUNT: A record which identifies contract values accumulated on behalf of each
Participant during the Accumulation Period. One or more Employee Accounts and
Employer Accounts may be established for each Participant.
ACCOUNT VALUE: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
ACCOUNT YEAR: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of each Subaccount before annuity
payments begin.
ANNUITANT: The person on whose life or life expectancy the annuity payments are
based.
ANNUITY: A series of payments for life, a definite period or a combination of
the two.
ANNUITY DATE: The date on which annuity payments begin.
ANNUITY PERIOD: The period during which annuity payments are made.
ANNUITY UNIT: A measure of the value of each Subaccount selected during the
Annuity Period.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY (WE, US): Aetna Life Insurance and Annuity Company.
CONTRACT: The group deferred variable annuity contracts offered by this
Prospectus.
CONTRACT BENEFICIARY(IES): Under the Contract, the Contract Holder is the
Contract Beneficiary. The Participant designates a beneficiary with the
employer, pursuant to terms of the Plan. (See definition of "Plan Beneficiary"
below.)
CONTRACT HOLDER: The person or entity to whom the Contract is issued. The
Contract Holder is usually the employer.
CREDITED INTEREST OPTIONS: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.
EMPLOYEE ACCOUNT: An Account that is credited with payments derived from
employee salary reduction contributions and remitted to the Company by the
employer on behalf of each Participant.
EMPLOYER ACCOUNT: An account that is credited with net Purchase Payments made by
the Contract Holder.
FUND(S): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
HOME OFFICE: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
PARTICIPANT (YOU): A person participating in a Plan maintained by an eligible
organization.
PLAN BENEFICIARY: The person entitled to receive benefits under the Plan in the
event of the Participant's death.
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DEFINITIONS - 1
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PLAN(S): Tax-deferred retirement plans under Section 403(b) of the Code for
employees of nonprofit healthcare organizations and other Section 501(c)(3)
nonhealthcare organizations. Certain for-profit subsidiaries of tax-exempt
organizations may be offered a separate Contract in connection with qualified
defined contribution plans under Section 401(a)/401(k) of the Code.
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a Contract.
PURCHASE PAYMENT PERIODS: For "Installment Purchase Payment Accounts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
SEPARATE ACCOUNT: Variable Annuity Account C, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
SUBACCOUNT(S): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
VALUATION DATE: The date and time at which the value of the Subaccount is
calculated. Currently, this calculation occurs at the close of business of the
New York Stock Exchange on any normal business day, Monday through Friday, that
the New York Stock Exchange is open.
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DEFINITIONS - 2
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PROSPECTUS SUMMARY
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CONTRACTS OFFERED
The Contracts described in this Prospectus are group deferred variable
annuity contracts issued by Aetna Life Insurance and Annuity Company (the
"Company"). The purpose of the Contract is to accumulate values and to provide
benefits upon retirement. The Contracts are available for nonprofit healthcare
organizations and certain tax-exempt nonhealthcare (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Code, and for
employees of certain for-profit subsidiaries of tax-exempt organizations in
connection with qualified defined contribution plans under Section 401(a)/401(k)
of the Code. Under these Plans, the Contract Holder (employer) makes
contributions on behalf of a Participant (employee) and the Participant makes
contributions via salary reduction.
CONTRACT PURCHASE
The Contract 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 the enrollment form and submitting it to the Company. Purchase
Payments can be applied to the Contract either through a lump-sum transfer from
a pre-existing plan or through periodic salary reductions or employer
contributions. (See "Purchase.")
FREE LOOK PERIOD
Contract Holders have the right to cancel their purchase within 10 days
after receiving the Contract (or longer if required by state law) by returning
it to the Company along with a written notice of cancellation. Unless state law
requires otherwise, the amount received upon cancellation will reflect the
investment performance of the Subaccounts into which Purchase Payments were
deposited. In some cases this may be more or less than the amount of Purchase
Payments. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows investment
in any or all of the Subaccounts, as well as in the Credited Interest Options
described below. For a complete list of the Funds available under the Contracts,
and a description of the investment objectives of each of the Funds and their
investment advisers, see "Investment Options-- The Funds" in this Prospectus, as
well as the prospectuses for each of the Funds.
The Contract also provides for investment in Credited Interest Options which
allow you to earn fixed rates of interest. The fixed options available under the
Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and
the Fixed Plus Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges and an administrative charge), as well as any annual maintenance fee and
premium and other taxes. The Funds also incur certain fees and expenses which
are deducted directly from the Funds. A deferred sales charge may apply upon a
full or partial withdrawal of the Account Value. (See the Fee Table and "Charges
and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone in
accordance with the Company's transfer procedures. (See Appendices for a full
description of the restrictions applicable to transfers from the Credited
Interest Options.) (See "Transfers.")
WITHDRAWALS
The Contract Holder may redeem all or a part of the Account Value prior to
the Annuity Date by properly completing a disbursement form and sending it to
the Company. Limitations apply to withdrawals from the Fixed Plus Account.
Certain charges may be assessed upon withdrawal. The withdrawal may also be
subject to income tax and a federal tax penalty. The Code restricts full and
partial withdrawals in some circumstances. (See "Withdrawals.")
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SUMMARY - 1
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The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional Withdrawal
Options are not available in all states and may not be suitable in every
situation. (See "Additional Withdrawal Options.")
LOANS
A Contract Holder under a Section 403(b) Plan may request a loan on your
behalf at any time during the Accumulation Period. Such loan will be taken from
the Employee Account and/or the Employer Account, as permitted by the Contract
Holder. Loans are not available from Contracts issued under Section
401(a)/401(k) Plans. (See "Contract Loans.")
DEATH BENEFIT
The Contract provides that a death benefit is payable to the Contract
Beneficiary upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Until the
election of a method of payment, the Account Value will remain invested under
the Contract. The Contract Holder, on behalf of a Plan Beneficiary, may elect to
receive the proceeds in a lump sum or under any of the payment options available
under the Contract. However, the Code requires that distributions begin within a
certain time period. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable,
depending upon the terms of the Contract and the Annuity Option selected. (See
"Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, the Contract Holder, on your behalf, may elect the
commencement of Annuity Payments. Annuity Payments can be made on either a
fixed, variable or combination fixed and variable basis. If a variable payout is
selected, the payments will vary with the investment performance of the
Subaccount(s) selected. The Company reserves the right to limit the number of
Subaccounts that may be available during the Annuity Period. (See "Annuity
Period.")
TAXES
Contributions and earnings are not generally taxed until you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
<TABLE>
<S> <C>
- Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-1277
Attention: Customer Service
(For AetnaPlus Contracts)
- Call Customer Service: 1-800-525-4225 (for automated transfers or changes
in the allocation of Account Values, call:
1-800-262-3862)
</TABLE>
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SUMMARY - 2
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FEE TABLE
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This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the Annuity
Period, see "Charges Deducted During the Annuity Period." No sales charge is
paid upon purchase of the Contract. Some expenses may vary as explained under
"Charges and Deductions." The charges and expenses shown below do not include
premium taxes that may be applicable. For more information regarding fees and
expenses paid out of the assets of a particular Fund, see the Fund's prospectus.
DIRECT CHARGES. These charges are deducted directly from the Account Value. They
include:
DEFERRED SALES CHARGE. The deferred sales charge is deducted as a
percentage of the amount withdrawn. The total amount deducted for the
deferred sales charge will not exceed 8.5% of the total Purchase Payments
applied to the Account. The amount of the deferred sales charge is
calculated as follows:
<TABLE>
<CAPTION>
INSTALLMENT PURCHASE PAYMENT ACCOUNTS: SINGLE PURCHASE PAYMENT ACCOUNTS:
PURCHASE PAYMENT DEFERRED SALES ACCOUNT YEARS DEFERRED SALES
PERIODS COMPLETED CHARGE DEDUCTION COMPLETED CHARGE DEDUCTION
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<S> <C> <C> <C>
Less than 5 5% Less than 5 5%
5 or more but less than 7 4% 5 or more but less than 6 4%
7 or more but less than 9 3% 6 or more but less than 7 3%
9 or more but less than 10 2% 7 or more but less than 8 2%
More than 10 0% 8 or more but less than 9 1%
9 or more 0%
</TABLE>
<TABLE>
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ANNUAL CONTRACT MAINTENANCE FEE Installment Purchase Payment Account...................... $ 15.00
Single Purchase Payment Account........................... $ 0.00
The maintenance fee will generally be deducted annually from each Account
during the Accumulation Period. The amount shown is the MAXIMUM maintenance fee
that can be deducted under each Account.
</TABLE>
INDIRECT CHARGES. Each Subaccount pays these expenses out of its assets. The
charges are reflected in the Subaccount's daily Accumulation Unit Value and are
not charged directly to an Account. They include:
<TABLE>
<S> <C>
MORTALITY AND EXPENSE RISK CHARGE.......................................................... 1.25%
ADMINISTRATIVE EXPENSE CHARGE. We currently do not impose an Administrative Expense
Charge..................................................................................... 0.00%
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However, we reserve the right to deduct a daily charge of not more than 0.25%
per year from the Subaccounts.
TOTAL SEPARATE ACCOUNT CHARGES........................................................... 1.25%
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</TABLE>
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FEE TABLE - 1
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ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of average
net assets and, except where otherwise indicated, are based on figures for the
year ended December 31, 1995. A Fund's "Other Expenses" include operating costs
of the Fund. The expenses shown below are reflected in the Fund's net asset
value and are not deducted from the Account Value under the Contract.
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
FEES(1) OTHER EXPENSES TOTAL FUND
(AFTER EXPENSE (AFTER EXPENSE ANNUAL
REIMBURSEMENT) REIMBURSEMENT) EXPENSES
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<S> <C> <C> <C>
Aetna Variable Fund(2) 0.25% 0.06% 0.31%
Aetna Income Shares(2) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund,
Inc.(2) 0.25% 0.08% 0.33%
Aetna Ascent Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Crossroads Variable Portfolio(2) 0.50% 0.15% 0.65%
Aetna Legacy Variable Portfolio(2) 0.50% 0.15% 0.65%
Alger American Growth Portfolio 0.75% 0.10% 0.85%
Alger American Small Cap Portfolio 0.85% 0.07% 0.92%
Calvert Responsibly Invested Balanced
Portfolio(3) 0.70% 0.13% 0.83%
Fidelity VIP II Contrafund
Portfolio(4) 0.61% 0.11% 0.72%
Fidelity VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth Portfolio 0.61% 0.09% 0.70%
Fidelity VIP Overseas Portfolio 0.76% 0.15% 0.91%
Franklin Government Securities
Trust(5) 0.63% 0.13% 0.76%
Janus Aspen Aggressive Growth
Portfolio(6) 0.75% 0.11% 0.86%
Janus Aspen Balanced Portfolio(6) 0.82% 0.55% 1.37%
Janus Aspen Flexible Income Portfolio 0.65% 0.42% 1.07%
Janus Aspen Growth Portfolio(6) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond
Portfolio(6) 0.00% 0.70% 0.70%
Janus Aspen Worldwide Growth
Portfolio(6) 0.68% 0.22% 0.90%
Lexington Natural Resources Trust 1.00% 0.47% 1.47%
Neuberger & Berman Growth Portfolio(7) 0.84% 0.10% 0.94%
Scudder International Portfolio Class
A Shares 0.88% 0.20% 1.08%
TCI Growth(8) 1.00% 0.00% 1.00%
</TABLE>
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(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid
out of the investment advisory fees and are not charged to investors.
(2) As of May 1, 1996, the Company will provide administrative services to the
Fund and will assume the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not based
on figures for the year ended December 31, 1995, but reflect the fee payable
under this Agreement.
(3)The Management and Advisory Fees are subject to a performance adjustment,
after July 1, 1996, which could cause the fee to be as high as 0.85% or as
low as 0.55%, depending on performance. "Other Expenses" reflect an indirect
fee of 0.02%. Net fund operating expenses after reductions for fees paid
indirectly would be 0.81%.
(4) A portion of the brokerage commissions the Fund paid was used to reduce its
expenses. Without this reduction, total operating expenses would have been
0.73% for the Contrafund Portfolio.
(5)An expense reimbursement arrangement was in effect until February 1, 1996;
however, it is no longer in effect. The advisory fee and total annual
expenses shown above reflect the actual expenses of the Fund before
reimbursement, as if such arrangement had not been in effect during 1995.
(6)The information for each Portfolio is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Aggressive Growth, Balanced, Growth,
and Worldwide Growth Portfolios reduce the management fee to the level of the
corresponding Janus retail fund. Other waivers, if applicable, are first
applied against the management fee and then against other expenses. Without
such waivers or reductions, the Management Fee, Other Expenses and Total Fund
Annual Expenses would have been 0.82%, 0.11%, and 0.93% for
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FEE TABLE - 2
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Aggressive Growth Portfolio; 1.00%, 0.55%, 1.55% for Balanced Portfolio;
0.85%, 0.13% and 0.98% for Growth Portfolio; 0.65%, 0.72% and 1.37% for
Short-Term Bond Portfolio; and 0.87%, 0.22% and 1.09% for Worldwide Growth
Portfolio; respectively. Janus Capital may modify or terminate the waivers or
reductions at any time upon 90 days' notice to the Portfolio's Board of
Trustees.
(7)Neuberger and Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust.
Expenses in the table reflect expenses of the Portfolio and include the
Portfolio's pro rata portion of the operating expenses of the Portfolio's
corresponding Series. The Portfolio pays Neuberger & Berman Management Inc.
("NBMI") an administration fee based on the Portfolio's net asset value. The
corresponding Series of the Portfolio pays NBMI a management fee based on the
Series' average daily net assets. Accordingly, this table combines management
fees at the Series level and administration fees at the Portfolio level in a
unified fee rate. (See "Expenses" in the Trust's prospectus.)
(8) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees, expenses of the non-interested
person directors (including counsel fees) and extraordinary expenses. These
expenses have historically represented a very small percentage (less than
0.01%) of total net assets in a fiscal year.
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FEE TABLE - 3
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HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. For the
purposes of these Examples, the maximum maintenance fee of $15.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.107%.
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
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IF YOU WITHDRAW YOUR ENTIRE ACCOUNT IF YOU DO NOT WITHDRAW YOUR ACCOUNT
VALUE AT THE END OF THE PERIODS VALUE, OR IF YOU ANNUITIZE AT THE END
SHOWN, YOU WOULD PAY THE FOLLOWING OF THE PERIODS SHOWN, YOU WOULD PAY
EXPENSES, INCLUDING ANY APPLICABLE THE FOLLOWING EXPENSES (NO DEFERRED
DEFERRED SALES CHARGE: SALES CHARGE IS REFLECTED):*
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund $69 $108 $149 $197 $17 $ 53 $ 91 $197
Aetna Income Shares $69 $108 $150 $199 $17 $ 53 $ 92 $199
Aetna Variable Encore Fund $69 $109 $151 $202 $17 $ 54 $ 93 $202
Aetna Investment Advisers
Fund, Inc. $69 $108 $150 $199 $17 $ 53 $ 92 $199
Aetna Ascent Variable
Portfolio $71 $117 $166 $233 $20 $ 63 $108 $233
Aetna Crossroads Variable
Portfolio $71 $117 $166 $233 $20 $ 63 $108 $233
Aetna Legacy Variable
Portfolio $71 $117 $166 $233 $120 $ 63 $108 $233
Alger American Growth
Portfolio $74 $123 $176 $254 $22 $ 69 $118 $254
Alger American Small Cap
Portfolio $74 $125 $179 $261 $23 $ 71 $122 $261
Calvert Responsibly Invested
Balanced Portfolio $74 $123 $175 $252 $22 $ 68 $117 $252
Fidelity VIP II Contrafund
Portfolio $73 $120 $169 $241 $21 $ 65 $112 $241
Fidelity VIP Equity-Income
Portfolio $71 $116 $164 $229 $20 $ 62 $106 $229
Fidelity VIP Growth Portfolio $72 $119 $168 $239 $21 $ 64 $111 $239
Fidelity VIP Overseas
Portfolio $74 $125 $179 $260 $23 $ 71 $121 $260
Franklin Government Securities
Trust $73 $121 $171 $245 $21 $ 66 $114 $245
Janus Aspen Aggressive Growth
Portfolio $74 $124 $176 $255 $22 $ 69 $119 $255
Janus Aspen Balanced Portfolio $79 $138 $200 $306 $28 $ 85 $144 $306
Janus Aspen Flexible Income
Portfolio $76 $130 $186 $276 $25 $ 76 $129 $276
Janus Aspen Growth Portfolio $73 $121 $172 $247 $22 $ 67 $115 $247
Janus Aspen Short-Term Bond
Portfolio $72 $119 $168 $239 $21 $ 64 $111 $239
Janus Aspen Worldwide Growth
Portfolio $74 $125 $178 $259 $23 $ 71 $121 $259
Lexington Natural Resources
Trust $80 $141 $205 $315 $29 $ 88 $149 $315
Neuberger & Berman Growth
Portfolio $75 $126 $180 $263 $23 $ 72 $123 $263
Scudder International
Portfolio Class A Shares $76 $130 $187 $277 $25 $ 76 $130 $277
TCI Growth $75 $128 $183 $269 $24 $ 74 $126 $269
</TABLE>
- ------------------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump sum settlement is requested within three years after
annuity payments start since the lump sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A).
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
AETNA PLUS CONTRACTS
(SELECTED DATA FOR ACCUMULATION UNITS OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN THE
TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM THE
FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS HAVE
BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE FINANCIAL
STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE INDEPENDENT
AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF ADDITIONAL
INFORMATION.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990
-------------- ------------ ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $10.778 $11.020 $10.454 $97.165 $77.845 $76.311
Value at end of period $14.077 $10.778 $11.020 $10.454(2) $97.165 $77.845
Increase (decrease) in value of
accumulation unit(1) 30.61% (2.20)% 5.41% (2) 24.82% 2.01%
Number of accumulation units
outstanding at end of period 188,964,022 114,733,035 44,166,470 21,250 20,948,226 18,362,906
AETNA INCOME SHARES
Value at beginning of period $10.360 $10.905 $10.068 $36.789 $31.192 $28.943
Value at end of period $12.098 $10.360 $10.905 $10.068(3) $36.789 $31.192
Increase (decrease) in value of
accumulation unit(1) 16.78% (5.00)% 8.31% (3) 17.94% 7.77%
Number of accumulation units
outstanding at end of period 21,379,976 11,713,354 4,084,142 3,870 7,844,412 6,984,793
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.528 $10.241 $10.048 $33.812 $32.138 $30.012
Value at end of period $11.026 $10.528 $10.241 $10.048(4) $33.812 $32.138
Increase (decrease) in value of
accumulation unit(1) 4.73% 2.80% 1.92% (4) 5.21% 7.08%
Number of accumulation units
outstanding at end of period 12,999,680 7,673,528 2,766,044 825 8,430,082 10,220,110
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.868 $11.057 $10.189 $12.736 $10.896 $10.437
Value at end of period $13.673 $10.868 $11.057 $10.189(6) $12.736 $10.896
Increase (decrease) in value of
accumulation unit(1) 25.81% (1.71)% 8.52% (6) 16.89% 4.40%
Number of accumulation units
outstanding at end of period 38,152,395 23,139,604 11,368,365 11,508 22,898,099 17,078,985
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.673
Increase (decrease) in value of
accumulation unit(1) 6.73%
Number of accumulation units
outstanding at end of period 393,053
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.612
Increase (decrease) in value of
accumulation unit(1) 6.12%
Number of accumulation units
outstanding at end of period 294,673
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.580
Increase (decrease) in value of
accumulation unit(1) 5.80%
Number of accumulation units
outstanding at end of period 143,637
--------------
--------------
<CAPTION>
1989 1988 1987 1986
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $59.871 $52.885 $50.760 $43.205
Value at end of period $76.311 $59.871 $52.885 $50.760
Increase (decrease) in value of
accumulation unit(1) 27.46% 13.21% 4.19% 17.49%
Number of accumulation units
outstanding at end of period 17,142,820 16,455,396 16,497,406 16,578,251
AETNA INCOME SHARES
Value at beginning of period $25.574 $24.061 $23.308 $20.703
Value at end of period $28.943 $25.574 $24.061 $23.308
Increase (decrease) in value of
accumulation unit(1) 13.17% 6.29% 3.23% 12.58%
Number of accumulation units
outstanding at end of period 6,202,834 5,955,293 5,372,271 6,188,470
AETNA VARIABLE ENCORE FUND
Value at beginning of period $27.783 $26.171 $24.812 $23.504
Value at end of period $30.012 $27.783 $26.171 $24.812
Increase (decrease) in value of
accumulation unit(1) 8.02% 6.16% 5.48% 5.57%
Number of accumulation units
outstanding at end of period 8,286,033 8,154,644 7,326,151 6,692,947
AETNA INVESTMENT ADVISERS
FUND, INC.
Value at beginning of period $10.000(5)
Value at end of period $10.437
Increase (decrease) in value of
accumulation unit(1) 4.37%
Number of accumulation units
outstanding at end of period 9,535,986
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
-------------- ------------ ------------- -------------
ALGER AMERICAN GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
Value at beginning of period $10.000(7)
Value at end of period $10.157
Increase (decrease) in value of
accumulation unit(1) 1.57%
Number of accumulation units
outstanding at end of period 2,832,440
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period $ 9.437 $ 9.959 $10.000(8)
Value at end of period $13.450 $ 9.437 $ 9.959
Increase (decrease) in value of
accumulation unit(1) 42.52% (5.24)% (0.41)%
Number of accumulation units
outstanding at end of period 15,036,765 6,339,407 781,836
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO*
Value at beginning of period $10.554 $11.036 $10.278 $10.000(9)
Value at end of period $13.527 $10.554 $11.036 $10.278
Increase (decrease) in value of
accumulation unit(1) 28.17% (4.37)% 7.37% 2.78%
Number of accumulation units
outstanding at end of period 966,098 521,141 144,168 2,556
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.397
Increase (decrease) in value of
accumulation unit(1) 3.97%
Number of accumulation units
outstanding at end of period 2,116,732
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $11.092
Increase (decrease) in value of
accumulation unit(1) 10.92%
Number of accumulation units
outstanding at end of period 1,660,304
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.066
Increase (decrease) in value of
accumulation unit(1) 0.66%
Number of accumulation units
outstanding at end of period 1,833,794
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $ 9.961
Increase (decrease) in value of
accumulation unit(1) (0.39)%
Number of accumulation units
outstanding at end of period 196,090
FRANKLIN GOVERNMENT SECURITIES
TRUST
Value at beginning of period $10.119 $10.642 $10.008 $10.000(9)
Value at end of period $11.762 $10.119 $10.642 $10.008
Increase (decrease) in value of
accumulation unit(1) 16.24% (4.91)% 6.33% 0.08%
Number of accumulation units
outstanding at end of period 717,760 325,365 167,137 5,559
--------------
--------------
<CAPTION>
ALGER AMERICAN GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO*
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP II CONTRAFUND PORTFOLI
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP EQUITY-INCOME PORTFOLI
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FRANKLIN GOVERNMENT SECURITIES
TRUST
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
-------------- ------------ ------------- -------------
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
Value at beginning of period $10.581 $10.000(10)
Value at end of period $13.322 $10.581
Increase (decrease) in value of
accumulation unit(1) 25.91% 5.81%
Number of accumulation units
outstanding at end of period 4,887,060 753,862
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.850
Increase (decrease) in value of
accumulation unit(1) 8.50%
Number of accumulation units
outstanding at end of period 93,304
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $ 9.873 $10.000(10)
Value at end of period $12.077 $ 9.873
Increase (decrease) in value of
accumulation unit(1) 22.33% (1.27)%
Number of accumulation units
outstanding at end of period 315,361 28,543
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.870
Increase (decrease) in value of
accumulation unit(1) 8.70%
Number of accumulation units
outstanding at end of period 259,196
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.323
Increase (decrease) in value of
accumulation unit(1) 3.23%
Number of accumulation units
outstanding at end of period 32,696
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(7)
Value at end of period $10.877
Increase (decrease) in value of
accumulation unit(1) 8.77%
Number of accumulation units
outstanding at end of period 1,036,040
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.154 $10.877 $ 9.832 $10.000(9)
Value at end of period $11.720 $10.154 $10.877 $ 9.832
Increase (decrease) in value of
accumulation unit(1) 15.42% (6.65)% 10.63% (1.68)%
Number of accumulation units
outstanding at end of period 711,892 703,676 135,614 561
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $11.026 $11.747 $10.864 $10.000(9)
Value at end of period $14.345 $11.026 $11.747 $10.864
Increase (decrease) in value of
accumulation unit(1) 30.10% (6.14)% 8.13% 8.64%
Number of accumulation units
outstanding at end of period 3,331,218 1,865,104 546,559 10,645
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $12.687 $12.957 $ 9.578 $10.000(9)
Value at end of period $13.923 $12.687 $12.957 $ 9.578
Increase (decrease) in value of
accumulation unit(1) 9.74% (2.08)% 35.28% (4.22)%
Number of accumulation units
outstanding at end of period 7,323,208 6,558,946 1,020,233 5,232
--------------
--------------
<CAPTION>
JANUS ASPEN AGGRESSIVE GROWTH PORTF
<S> <C> <C> <C> <C>
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE INCOME PORTFOL
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN SHORT-TERM BOND PORTFOL
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE GROWTH PORTFO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
SCUDDER INTERNATIONAL PORTFOLIO CLA
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992
-------------- ------------ ------------- -------------
TCI GROWTH
<S> <C> <C> <C> <C> <C> <C>
Value at beginning of period $11.781 $12.069 $10.692 $10.000(9)
Value at end of period $15.253 $11.781 $12.069 $10.692
Increase (decrease) in value of
accumulation unit(1) 29.47% (2.39)% 12.88% 6.92%
Number of accumulation units
outstanding at end of period 21,986,645 12,853,828 3,667,821 2,254
<CAPTION>
TCI GROWTH
<S> <C> <C> <C> <C>
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</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. These
figures do not reflect the deferred sales charges or the fixed dollar
annual maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $97.817. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 0.67%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 4.54%.
(3) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $38.521. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.70%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.68%.
(4) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.397. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.73%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.48%.
(5) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(6) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $13.118. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.99%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.89%.
(7) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1995, when
the Fund became available under the Contract.
(8) 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.
(9) The initial Accumulation Unit value was established at $10.000 on August
21, 1992, the date on which the Fund/Portfolio became available under the
Contract.
(10) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first allocated to this option.
* Formerly Calvert Socially Responsible Series.
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
THE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings, Inc.,
which is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly owned subsidiary of Aetna Life and Casualty Company.
VARIABLE ANNUITY ACCOUNT C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company established Variable Annuity Account C (the "Separate Account")
in 1976 as a segregated asset account for the purpose of funding its variable
annuity contracts. The Separate Account is registered as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"), and meets the
definition of "separate account" under federal securities laws. The Separate
Account is divided into "Subaccounts" which do not invest directly in stocks,
bonds or other investments. Instead, each Subaccount buys and sells shares of a
corresponding Fund.
Although the Company holds title to the assets in the Separate Account, such
assets are not chargeable with liabilities arising out of any other business
conducted by the Company. Income, gains or losses of the Separate Account are
credited to or charged against the assets of the Separate Account without regard
to other income, gains or losses of the Company. All obligations arising under
the Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FUNDS
The Contract Holder, or the Participant, if allowed by the Contract Holder,
may allocate Purchase Payments to one or more of the Subaccounts as designated
on the enrollment form. In turn, the Subaccounts invest in the corresponding
Funds at net asset value.
The Contract Holder may decide to offer only a select number of Funds under
its Plan, or it may decide to substitute shares of one Fund for shares of
another Fund currently held by the Separate Account. The availability of Funds
may be subject to regulatory authorization. In addition, the Company may add or
withdraw Funds, as permitted by applicable law. Not all Funds may be available
in all jurisdictions, under all Contracts, or in all Plans.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
- -AETNA VARIABLE FUND seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into common
stock.(1)
- -AETNA INCOME SHARES seeks to maximize total return, consistent with reasonable
risk, through investments in a diversified portfolio consisting primarily of
debt securities.(1)
- --------------------------------------------------------------------------------
1
<PAGE>
- -AETNA VARIABLE ENCORE FUND seeks to provide high current return, consistent
with preservation of capital and liquidity, through investment in high-quality
money market instruments. An investment in the Fund is neither insured nor
guaranteed by the U.S. Government.(1)
- -AETNA INVESTMENT ADVISERS FUND, INC. is a managed fund which seeks to maximize
investment return consistent with reasonable safety of principal by investing
in one or more of the following asset classes: stocks, bonds and cash
equivalents based on the Company's judgment of which of those sectors or mix
thereof offers the best investment prospects.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA ASCENT VARIABLE PORTFOLIO seeks to
provide capital appreciation by allocating its investments among equities and
fixed income securities. The Portfolio is managed for investors who generally
have an investment horizon exceeding 15 years, and who have a high level of
risk tolerance.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA CROSSROADS VARIABLE PORTFOLIO seeks to
provide total return (i.e., income and capital appreciation, both realized and
unrealized) by allocating its investments among equities and fixed income
securities. The Portfolio is managed for investors who generally have an
investment horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
- -AETNA GENERATION PORTFOLIOS, INC.--AETNA LEGACY VARIABLE PORTFOLIO seeks to
provide total return consistent with preservation of capital by allocating its
investments among equities and fixed income securities. The Portfolio is
managed for investors who generally have an investment horizon exceeding five
years and who have a low level of risk tolerance.(1)
- -ALGER AMERICAN FUND--ALGER AMERICAN GROWTH PORTFOLIO seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities. The Portfolio primarily invests in equity securities of
companies which have a market capitalization of $1 billion or greater.(2)
- -ALGER AMERICAN FUND--ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks
long-term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the Russell 2000
Growth Index, updated quarterly. The Russell 2000 Growth Index is designed to
track the performance of small capitalization companies. At March 31, 1996, the
range of market capitalization of these companies was $20 million to $3.0
billion.(2)
- -CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO is a 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.(3)
- -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II--CONTRAFUND PORTFOLIO
seeks maximum total return over the long term by investing mainly in equity
securities of companies that are undervalued or out-of-favor.(4)
- -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--EQUITY-INCOME PORTFOLIO
seeks reasonable income by investing primarily in income-producing equity
securities. In selecting investments, the Fund also considers the potential for
capital appreciation.(4)
- -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--GROWTH PORTFOLIO seeks
capital appreciation by investing mainly in common stocks, although its
investments are not restricted to any one type of security.(4)
- -FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND--OVERSEAS PORTFOLIO
seeks long-term growth by investing mainly in foreign securities (at least 65%
of the Fund's total assets in securities of issuers from at least three
countries outside of North America).(4)
- -FRANKLIN GOVERNMENT SECURITIES TRUST seeks income through investments in
obligations of the U.S. Government or its agencies or instrumentalities,
primarily GNMA obligations.(5)
- -JANUS ASPEN SERIES--AGGRESSIVE GROWTH PORTFOLIO is a NONDIVERSIFIED portfolio
that seeks long-term growth of capital in a manner consistent with the
preservation of capital. The Portfolio pursues its investment objective by
normally investing at least 50% of its equity assets in securities issued by
medium-sized companies. Medium-sized companies are those whose market
capitalizations fall within the range of companies in the S & P Midcap 400
Index, which as of December 29, 1995 included
- --------------------------------------------------------------------------------
2
<PAGE>
companies with capitalizations between approximately $118 million and $7.5
billion, but which is expected to change on a regular basis.(6)
- -JANUS ASPEN SERIES--BALANCED PORTFOLIO seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. The
Portfolio pursues its investment objective by investing 40%-60% of its assets
in equity securities selected primarily for their growth potential and 40%-60%
of its assets in fixed-income securities selected primarily for their income
potential.(6)
- -JANUS ASPEN SERIES--FLEXIBLE INCOME PORTFOLIO seeks to obtain maximum total
return, consistent with preservation of capital. Total return is expected to
result from a combination of current income and capital appreciation. The
Portfolio invests in all types of income producing securities and may have
substantial holdings of debt securities rated below investment grade (e.g.,
junk bonds). High yield, high risk securities involve certain risks. See the
Fund's prospectus for a discussion of these risks.(6)
- -JANUS ASPEN SERIES--GROWTH PORTFOLIO seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing in common stocks of companies of any size.(6)
- -JANUS ASPEN SERIES--SHORT-TERM BOND PORTFOLIO seeks as high a level of current
income as is consistent with preservation of capital. The Portfolio pursues its
investment objective by investing primarily in short-and intermediate-term
fixed income securities.(6)
- -JANUS ASPEN SERIES--WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of
capital in a manner consistent with preservation of capital. The Portfolio
pursues its investment objective primarily through investments in common stocks
of foreign and domestic issuers.(6)
- -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.(7)
- -NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST-- GROWTH PORTFOLIO seeks capital
appreciation without regard to income. The Portfolio generally invests in
securities believed to have the maximum potential for long-term capital
appreciation. The Portfolio expects to be almost fully invested in common
stocks, often of companies that may be temporarily out of favor in the
market.(8)
- -SCUDDER VARIABLE LIFE INVESTMENT FUND-- INTERNATIONAL PORTFOLIO CLASS A SHARES
seeks long-term growth of capital primarily through diversified holdings of
marketable foreign equity investments.(9)
- -TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century fund) seeks capital
growth. The Fund seeks to achieve its objective by investing in common stocks
(including securities convertible into common stocks) and other securities that
meet certain fundamental and technical standards of selection and, in the
opinion of the Fund's investment manager, have better than average potential
for appreciation.(10)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company
(2) Fred Alger Management, Inc.
(3) Calvert Asset Management Company, Inc.
(4) Fidelity Management & Research Company
(5) Franklin Advisers, Inc.
(6) Janus Capital Corporation
(7) Lexington Management Corporation (adviser); Market Systems Research
Advisors, Inc. (subadviser)
(8) Neuberger & Berman Management Inc. (Investment Manager); Neuberger &
Berman, L.P. (Sub-Adviser)
(9) Scudder, Stevens & Clark, Inc.
(10) Investors Research Corporation
RISKS ASSOCIATED WITH INVESTMENT IN THE FUNDS. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The use
of certain derivatives may involve high risk of volatility to a Fund, and the
use of leverage in connection with such derivatives can also increase risk of
losses. Some of the Funds may also invest in foreign or international securities
which involve greater risks than U.S. investments.
More comprehensive information, including a discussion of potential risks,
is found in the respective Fund prospectuses which accompany this Prospectus.
You should read the Fund prospectuses and consider carefully, and on a
continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives.
CONFLICTS OF INTEREST (MIXED AND SHARED FUNDING). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the
- --------------------------------------------------------------------------------
3
<PAGE>
Company. Shares of the Funds may also be sold to other insurance companies for
the same purpose. This is referred to as "shared funding." Shares of the Funds
may also be used for funding variable life insurance contracts issued by the
Company or by third parties. This is referred to as "mixed funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to identify
any material irreconcilable conflicts which might arise and to determine what
action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTIONS
Purchase Payments may be allocated to one or more of the Credited Interest
Options available under the Contract as described below. The Contract Holder may
elect not to offer all Credited Interest Options under its Plan.
- - The Guaranteed Accumulation Account (GAA) is a credited interest option
through which we guarantee stipulated rates of interest for stated periods of
time. Amounts must remain in the GAA for the full guaranteed term to receive
the quoted interest rates, or a market value adjustment (which may be positive
or negative) will be applied. (See Appendix I.)
- - The Fixed Account is a part of the Company's general account. The Fixed
Account guarantees a minimum interest rate, as specified in the Contract. The
Company may credit higher interest rates from time to time. Transfers from the
Fixed Account are limited. (See Appendix II.)
- - The Fixed Plus Account is also a part of the Company's general account and
guarantees a minimum interest rate, as specified in the Contract. The Company
may credit higher interest rates in its discretion. Withdrawals and transfers
from the Fixed Plus Account are limited. (See Appendix III.)
PURCHASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT AVAILABILITY
The Contracts are designed to fund Plans adopted by (1) nonprofit healthcare
organizations and certain tax-exempt nonhealthcare (Section 501(c)(3))
organizations for their employees under Section 403(b) of the Code, and (2)
certain tax-exempt organizations or their for-profit subsidiaries in connection
with qualified defined contribution plans under Section 401(a)/401(k) of the
Code. The Contract Holder must notify the Company whether Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by
subsequent law, including the Retirement Equity Act of 1984, applies to the
Plan.
PURCHASING INTERESTS IN THE CONTRACT
Eligible organizations may acquire the Contract by submitting an application
to the Company. Once we approve the application, a group Contract is issued to
the employer or association as the group Contract Holder. Participants may
purchase interests in a group Contract by submitting an enrollment form to the
Company.
The Company must accept or reject the application or enrollment form within
two business days of receipt. If the enrollment materials are incomplete, the
Company may hold any forms and accompanying Purchase Payments for five days.
Purchase Payments may be held for longer periods pending acceptance of the forms
only with the consent of the Participant, or under limited circumstances, with
the consent of the Contract Holder. If we agree to hold Purchase Payments for
longer than five business days based on the consent of the Contract Holder, the
Purchase Payments will be deposited in the Aetna Variable Encore Fund Subaccount
until the forms are completed.
PURCHASE PAYMENTS
The Contract provides for the establishment of two types of Accounts on
behalf of each Participant. Employer Accounts will be credited with Purchase
Payments made by the employer (Contract Holder). Employee Accounts will be
credited with Purchase Payments derived from employee salary reduction
contributions. If such payments are continuing, periodic payments made by you or
the employer, the Employee or Employer Accounts will
- --------------------------------------------------------------------------------
4
<PAGE>
be designated as "Installment Purchase Payment Accounts." If such payments are
lump sum transfers of amounts accumulated under a pre-existing plan that meet
the Company's minimums and other requirements at the time of purchase, such
payments will be placed in either Employer Accounts or Employee Accounts as
instructed by the Contract Holder, and such Accounts will be designated as
"Single Purchase Payment Accounts."
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from a Participant's gross income. (See "Tax Status.")
ALLOCATION OF PURCHASE PAYMENTS. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Contract Holder or the Participant, if allowed by the Contract Holder, on the
enrollment form. Changes in such allocation may be made in writing or by
telephone transfer. Allocations must be in whole percentages, and there may be
limitations on the number of investment options that can be selected during the
Accumulation Period. (See "Transfers.")
RIGHTS UNDER THE CONTRACT
The Contract Holder has all rights, title and interest in the amounts held
under the Contract or in the Account; the Contract Holder makes all elections
under the Contract. Participants have no rights to direct the Company as to
payments under the Contract unless countersigned by the Contract Holder.
Benefits payable to Participants are governed exclusively by the Plan. The
Company is not a party to the Plan.
Participants have a nonforfeitable right to the value of their Employee
Account pursuant to Code Section 403(b) and the terms of the Plan as interpreted
by the Contract Holder. Participants have a nonforfeitable right to the value of
the Employer Account pursuant to the terms of, and to the extent of the
Participant's vested percentage under, the Plan as interpreted by the Contract
Holder.
The Contract Holder and each Participant 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 directions to the
Company. (See Appendix IV.)
In addition to the responsibilities mentioned elsewhere in this Prospectus,
the Contract Holder must:
- - maintain all Participant vesting percentages and records;
- - certify that all distributions are made in accordance with the terms of the
Plan; and
- - ensure that the Plan meets certain nondiscrimination requirements imposed by
the Code.
TRANSFER CREDITS
The Company may provide a transfer credit on "transferred assets," subject
to certain conditions and state approvals. Transferred assets are the value of
contributions made on your behalf under this Plan or a prior plan before such
amounts are applied to this Contract. The transfer credit will equal a
percentage of the transferred assets applied to the Contract that remain in the
Contract after a specified period of time. Once a transfer credit is applied to
your Contract, all provisions of the Contract apply. This benefit is provided on
a non-discriminatory basis. If a transfer credit is due under the Contract, you
will be provided with additional information specific to the Contract.
RIGHT TO CANCEL
The Contract Holder may cancel participation under the Contract without
penalty by returning it to the Company with a written notice of cancellation. In
most states, Contract Holders have ten days to exercise this right; some states
allow a longer free-look period. When we receive the request for cancellation,
we will return the Account Value, unless the laws of the state in which the
Contract was issued require that we return the initial Purchase Payment (if
greater than the Account Value). In states that do not require a return of
Purchase Payments, the purchaser bears the entire investment risk for amounts
allocated among the Subaccounts during the free look period. Account Values will
be determined as of the Valuation Date on which we receive the request for
cancellation at our Home Office.
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5
<PAGE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily deduction from
each of the Subaccounts for the mortality and expense risk charge. The Charge is
equal, on an annual basis, to 1.25% of the daily net assets of the Subaccounts
and compensates the Company for the assumption of the mortality and expense
risks under the Contract. The mortality risks are those assumed for our promise
to make lifetime payments according to annuity rates specified in the Contract.
The expense risk is the risk that the actual expenses for costs incurred under
the Contract will exceed the maximum costs that can be charged under the
Contract.
If the amount deducted for mortality and expense risks is not sufficient to
cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
ADMINISTRATIVE EXPENSE CHARGE. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative charge. The
administrative expense charge compensates the Company for administrative
expenses that exceed revenues from the maintenance fee described below. The
charge is set at a level which does not exceed the average expected cost of the
administrative services to be provided while the Contract is in force. The
Company does not expect to make a profit from this charge.
Under the Contract, the amount of the administrative expense charge may be
of an amount equal, on an annual basis, to a maximum of 0.25% of the daily net
assets of the Subaccounts. There is currently no administrative expense charge
during the Accumulation Period or Annuity Period. Once an Annuity Option is
elected, the charge will be established and will be effective during the entire
Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value of each Participant who has an
Installment Purchase Payment Account. No maintenance fee will be deducted from
any Account designated as a Single Purchase Payment Account. The maintenance fee
is to reimburse the Company for some of its administrative expenses relating to
the establishment of the Accounts.
The maximum maintenance fee that can be deducted for each Participant is
$15. However, the maintenance fee may be reduced or eliminated depending upon
certain criteria described below. At the election of the employer, the
maintenance fee may be deducted from the Participant's Employee Account,
Employer Account, or a portion from each Account. The Company may send a bill to
the employer at or prior to such deduction. The maintenance fee will be deducted
on a pro rata basis from each Subaccount and Credited Interest Option in which
you have an interest. If the Account Value is withdrawn, the full maintenance
fee will be deducted at the time of withdrawal.
REDUCTION OR ELIMINATION OF THE MAINTENANCE FEE. The annual maintenance fee
may be reduced or eliminated under various conditions as agreed to by us and by
the Contract Holder in writing. Any reduction or elimination of the annual
maintenance fee will reflect differences in administrative costs and services
after taking into consideration factors such as the following:
- - the size, characteristics, and nature of the group to which a Contract is
issued;
- - the level of our anticipated expenses in administering the Contract, such as
billing for Purchase Payments, producing periodic reports, providing for the
direct payment of Contract charges rather than having them deducted from
Contract values, and any other factors pertaining to the level and expense of
administrative services which will be provided under the Contract.
Any reduction or elimination of maintenance fees will not be unfairly
discriminatory against any person. We will make any reduction in annual
maintenance fees according to our own rules in effect at the time an application
for a Contract is approved. We reserve the right to change these rules from time
to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts, the Fixed Account and the
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6
<PAGE>
Guaranteed Accumulation Account. No deferred sales charge is deducted from
amounts withdrawn from the Fixed Plus Account.
For Installment Purchase Payment Accounts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Accounts, it is based on the number of Contract Years that have elapsed
since the Contract effective date. The amount of the deferred sales charge is
determined in accordance with the schedule set forth in the following tables:
<TABLE>
<CAPTION>
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
DEFERRED SALES
PURCHASE PAYMENT CHARGE
PERIODS COMPLETED DEDUCTION
- ---------------------------------------- ---------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
<CAPTION>
SINGLE PURCHASE PAYMENT ACCOUNTS:
DEFERRED SALES
ACCOUNT YEARS CHARGE
COMPLETED DEDUCTION
- ---------------------------------------- ---------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
Generally, if you transfer the total account value under another similar
annuity contract issued by the Company to an Account under this Contract, the
effective date of the new Account will be the same effective date as your former
contract for the purpose of calculating the applicable deferred sales charge
under this Contract.
A deferred sales charge will not be deducted from any portion of the Account
Value if the withdrawal is:
- - due to the Participant's separation from service with the Employer (the
employer must submit documentation satisfactory to the Company confirming that
the Participant is no longer providing services to the employer);
- - applied to provide Annuity benefits;
- - taken on or after the tenth anniversary of the effective date of the Account;
- - paid due to your death before Annuity payments begin;
- - made due to the election of an Additional Withdrawal Option (see "Additional
Withdrawal Options");
- - due to financial hardship as specified in the Code;
- - paid where the Account Value of any one Account is $3,500 or less and no
amount has been withdrawn, taken as a loan, or used to purchase Annuity
benefits during the prior 12 months; or
- - taken from an installment Purchase Payment Account by a Participant who is at
least age 59 1/2 and who has completed nine or more Purchase Payment Periods.
Where the Company is the exclusive variable annuity provider for a Plan, and
the Plan also offers a 403(b)(7) custodial arrangement providing retail mutual
funds with only one fund family where the Company or an affiliate is the
recordkeeper, the deferred sales charge will also be waived if such withdrawal
is due to a transfer to a 403(b)(7) option under the custodial arrangement
described above.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract. The
difference will be covered by the general assets of the Company which are
attributable, in part, to mortality and expense risk charges under the Contract
described above.
FREE WITHDRAWALS. For Participants between the ages of 59 1/2 and 70 1/2, up
to 10% of the current Account Value may be withdrawn during each calendar year
without imposition of a Deferred Sales Charge. The free withdrawal applies only
to the first partial withdrawal in each calendar year. The 10% amount will be
based on the Account Value calculated on the Valuation Date next following our
receipt of the request for withdrawal. Any outstanding contract loans are
excluded from the Account Value when calculating the 10% free withdrawal amount.
This provision does not apply to a full withdrawal of the Account, or to any
withdrawal due to a default on a contract loan (see "Contract Loans"). This
provision may not be exercised if SWO is elected. (See "Additional Withdrawal
Options.")
In the instances cited above, no deferred sales charge is deducted. However,
the amount withdrawn may be subject to the 10% federal penalty tax.
REDUCTION OR ELIMINATION OF THE DEFERRED SALES CHARGE. For a particular
Plan, we may reduce, waive or eliminate the deferred sales charge. Any
reduction, waiver or elimination of such charges will reflect differences or
expected differences in the amounts of unrecovered distribution costs or
services of the types that
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<PAGE>
the charge is intended to defray. When considering whether to reduce or
eliminate such charges or to grant such a waiver, we will take into account
factors which may include the following:
- - the number of participants under the Plan;
- - the expected level of assets or cash flow under the Plan;
- - the level of agent involvement in sales activities;
- - the level of our sales-related expenses;
- - the specific distribution provisions under the Plan;
- - the Plan's purchase of one or more other variable annuity contracts from us
and the features of those contracts;
- - the level of employer involvement in determining eligibility for distributions
under the Contract; and
- - our assessment of financial risk to the Company relating to surrenders.
Any reduction, waiver or elimination of deferred sales charges will not be
unfairly discriminatory against any person.
We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section.
We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.
DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR CERTAIN NEW YORK CONTRACTS
The following deferred sales charge schedule applies for withdrawals from
the Guaranteed Accumulation Account for group master Contracts, where available,
which are issued after July 29, 1993 in the State of New York. This schedule is
based on the number of completed Account Years for Single and Installment
Purchase Payment Contracts, as follows:
<TABLE>
<CAPTION>
DEFERRED SALES
COMPLETED CHARGE
ACCOUNT YEARS DEDUCTION
- -------------------- ---------------
<S> <C>
Less than 3 5%
3 or more but less
than 4 4%
4 or more but less
than 5 3%
5 or more but less
than 6 2%
6 or more but less
than 7 1%
7 or more 0%
</TABLE>
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Account Values at any time, but no
earlier than when we have a tax liability under state law. The Company's current
practice is to deduct for premium taxes at the time of complete withdrawal or
annuitization. In addition to the premium tax, the Company reserves the right to
assess a charge for any state or federal taxes due against the Contract or the
Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
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ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately
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8
<PAGE>
preceding Valuation Date by the net investment factor of that Subaccount for the
period between the immediately preceding Valuation Date and the current
Valuation Date. (See "Net Investment Factor" below.) The Accumulation Unit Value
will be affected by the investment performance, expenses and charges of the
applicable Fund and is reduced each day by a percentage that accounts for the
daily assessment of mortality and expense risk charges and the administrative
charge (if any).
Initial Purchase Payments will be credited to your Account as described
under "Purchasing Interests in the Contract." Each subsequent Purchase Payment
(or amount transferred) will be credited to your Account at the AUV computed on
the next Valuation Date following our receipt of your payment or transfer
request. The value of an Accumulation Unit may increase or decrease.
NET INVESTMENT FACTOR
The net investment factor is used to measure the investment performance of a
Subaccount from one Valuation Date to the next. The net investment factor for a
Subaccount for any valuation period is equal to the sum of 1.000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of
the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units preceding the Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for mortality
and expense risks and up to 0.25% as an administrative expense charge
(currently 0%).
The net investment rate may be either positive or negative.
TRANSFERS
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- --------------------------------------------------------------------------------
At any time prior to the Annuity Date, the Contract Holder (or you, if
authorized by the Contract Holder) can transfer amounts held under your Contract
from one Subaccount to another. Transfers between the Credited Interest Options
and the Subaccounts are subject to certain restrictions. (See Appendices I, II
and III.) A request for transfer can be made either in writing or by telephone.
The telephone transfer privilege is available automatically; no special election
is necessary. All transfers must be in accordance with the terms of the Contract
and your employer's Plan, as applicable.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. The minimum transfer amount may not
be less than $500. However, the total number of investment options that you may
select during the Accumulation Period may be limited, as set forth on your
enrollment form. Any transfer will be based on the Accumulation Unit Value next
determined after the Company receives a valid transfer request at its Home
Office. Transfers are currently not available during the Annuity Period;
however, they may be available under some Annuity Options beginning later in
1996. (See "Annuity Period -- Annuity Options.")
DOLLAR COST AVERAGING PROGRAM
The Contract Holder (or you, if authorized) may establish automated
transfers of Account Values on a monthly or quarterly basis through the
Company's Dollar Cost Averaging Program, if available under your Plan. Dollar
Cost Averaging is a system for investing a fixed amount of money at regular
intervals over a period of time. Dollar Cost Averaging does not ensure a profit
nor guarantee against loss in a declining market. You should consider your
financial ability to continue purchases through periods of low price levels.
Please refer to the "Inquiries" section of the prospectus summary which
describes how you can obtain further information.
WITHDRAWALS
- --------------------------------------------------------------------------------
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The Contract Holder, on your behalf, may withdraw all or a portion of the
Account Value at any time during the Accumulation Period, subject to the
withdrawal restrictions under Section 403(b) Contracts described below, and to
the limitations on withdrawals from the Fixed Plus Account. To request a
withdrawal, the Contract Holder, on your behalf, must properly complete a
disbursement form and send it to our Home Office. If you
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9
<PAGE>
are married and are participating in a Plan subject to ERISA, the Contract
Holder must provide written certification that the applicable Retirement Equity
Act requirements have been met. Payments for withdrawal requests will be made in
accordance with SEC requirements, but normally not later than seven calendar
days following our receipt of a disbursement form.
Withdrawals may be requested in one of the following forms:
- -FULL WITHDRAWAL OF THE CONTRACT: The amount paid upon a full withdrawal will be
the Account Value of all Accounts allocated to the Subaccounts, the Guaranteed
Accumulation Account (plus or minus a market value adjustment) (see Appendix
I), and the Fixed Account, minus any applicable deferred sales charge and
maintenance fee due, plus the amount available for withdrawal from the Fixed
Plus Account (see Appendix III).
- -FULL WITHDRAWAL OF AN ACCOUNT: The amount paid for a full withdrawal will be
the Account Value allocated to the Subaccounts, the Guaranteed Accumulation
Account (plus or minus a market value adjustment) (see Appendix I), and the
Fixed Account, minus any applicable deferred sales charge and maintenance fee
due, plus the amount available for withdrawal from the Fixed Plus Account (see
Appendix III).
- -PARTIAL WITHDRAWALS (Percentage): The amount paid will be the percentage of the
Account Value requested minus any applicable deferred sales charge; however,
amounts available for withdrawal from the Fixed Plus Account are limited (see
Appendix III).
- -PARTIAL WITHDRAWAL (Specified Dollar Amount): The amount paid will be the
dollar amount requested. However, the amount withdrawn from the Account will
equal the amount requested plus any applicable deferred sales charge. The
amount available for withdrawal from the Fixed Plus Account is limited (see
Appendix III).
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or Credited Interest Option in which the Account is invested,
unless requested otherwise in writing by the Contract Holder. All amounts paid
will be based on Account Values as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify. A 20% federal income tax may be withheld from
amounts paid directly to you. (See "Tax Status -- Contracts Used with Certain
Retirement Plans.")
WITHDRAWAL RESTRICTIONS FROM 403(B) PLANS. Under Section 403(b) Contracts, a
withdrawal of salary reduction contributions and earnings on such contributions
is generally prohibited prior to the Participant's death, disability, attainment
of age 59 1/2, separation from service or financial hardship. (See "Tax
Status.")
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinvest all or a portion of the proceeds
received from a full withdrawal of an Account within 30 days after such
withdrawal has been made. Accumulation Units will be credited to the Account for
the amount reinvested, as well as any maintenance fee and any deferred sales
charge imposed at the time of withdrawal. Any maintenance fee which falls due
after the withdrawal and before the reinvestment will be deducted from the
amounts reinvested. Reinvested amounts will be reallocated to the applicable
investment options in the same proportion as they were allocated at the time of
withdrawal. Accumulation Units will be credited to the Account based on the
Accumulation Unit Value next computed following our receipt of the request along
with the amount to be reinvested. The reinvestment privilege may be used only
once. See Appendix I for a discussion of amounts withdrawn from GAA and then
reinvested. If you are contemplating reinvestment, you should seek competent
advice regarding the tax consequences associated with such a transaction.
CONTRACT LOANS
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During the Accumulation Period, a Contract Holder of a 403(b) Plan may
request (on your behalf) a loan from the your Employee Account. The Contract
Holder may also authorize contract loans from the value of the Employer Account
(check with the Contract Holder to see if this is available). Loans can only be
taken from those Account Values held in the Subaccounts or from those Credited
Interest Options that allow loans. (See Appendices I, II and III.) A loan may be
obtained by reviewing and reading the terms of the loan agreement, properly
completing a loan request form and submitting it to the Company's Home Office.
Loans are not available from Contracts issued to 401(a)/401(k) Plans.
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ADDITIONAL WITHDRAWAL OPTIONS
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The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Additional Withdrawal Options"). To exercise
these options, the Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
- -SWO--SYSTEMATIC WITHDRAWAL OPTION. SWO is a series of partial withdrawals from
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
accumulated under a Contract. (This option may not be elected if you have an
outstanding contract loan.)
- -ECO--ESTATE CONSERVATION OPTION. ECO offers the same investment flexibility as
SWO but is designed for those who want to receive only the minimum distribution
that the Code requires each year. Under ECO, the Company calculates the minimum
distribution amount required by law at age 70 1/2 or retirement, if later, for
governmental or church plans, and pays you that amount once a year. (See "Tax
Status.")
Other Additional Withdrawal Options may be added from time to time. Additional
information relating to any of the Additional Withdrawal Options may be obtained
from your local representative or from the Company at its Home Office. For
Contracts issued in the state of New York, no market value adjustment will be
imposed on withdrawals from GAA for SWO or ECO.
If one of the Additional Withdrawal Options is selected, your Account will
retain all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Once elected, an Additional Withdrawal Option may be revoked by the Contract
Holder any time by submitting a written request to our Home Office. Once an
option is revoked, it may not be elected again, nor may any other Additional
Withdrawal Options be elected unless permitted by the Code. The Company reserves
the right to discontinue the availability of one or all of these Additional
Withdrawal Options at any time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
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The Contract provides that a death benefit is payable to the Contract
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
amount of the death benefit will be equal to the Account Value. Death benefit
proceeds may be paid to the Plan Beneficiary (as directed in writing by the
Contract Holder):
- - in a lump sum;
- - in accordance with any of the Annuity Options available under the Contract; or
- - under any Additional Withdrawal Options available under the Contract (if the
Plan Beneficiary is your spouse).
The Contract Holder, on behalf of the Plan Beneficiary, may instead elect
one of the following two options; however, the Code limits how long the death
benefit proceeds may be left in these options (see below):
- - to leave the Account Value invested in the Contract; or
- - to leave the Account Value on deposit in the Company's general account, and to
receive monthly, quarterly, semi-annual or annual interest payments at the
interest rate then being credited on such deposits. The balance on deposit can
be withdrawn at any time or applied to an Annuity Option.
When paying the Plan Beneficiary, we will determine the Account Value on the
Valuation Date following the date on which we receive proof of death acceptable
to the Company. Interest, if any, will be paid from the date of death at a rate
no less than required by law. We will mail
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payment to the Contract Holder, or to the Plan Beneficiary, if requested by the
Contract Holder, within seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a certain
period of time. Generally, if your Plan Beneficiary is not your spouse either
annuity payments must begin by December 31 of the year following the year of
your death, or the entire value of your benefits must be distributed by December
31 of the fifth year following the year of your death. If your Plan Beneficiary
is your spouse, he or she is not required to begin distributions until the year
in which you would have attained age 70 1/2. In no event may payments extend
beyond the life expectancy of the Plan Beneficiary or any period certain greater
than the Plan Beneficiary's life expectancy. If no elections are made, no
distributions will be made. Failure to commence distributions within the above
time periods can result in tax penalties. Regardless of the method of payment,
death benefit proceeds will generally be taxed to the beneficiary in the same
manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
The Code generally requires that minimum annual distributions of the Account
Value must begin by April 1st of the calendar year following the calendar year
in which a Participant attains age 70 1/2 (or retires, if later, for
governmental and church plans). In addition, distributions must be in a form and
amount sufficient to satisfy the Code requirements. These requirements may be
satisfied by the election of certain Annuity Options or Additional Withdrawal
Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, the Contract Holder, on your
behalf, must notify us in writing of the following:
- - the date on which you would like to start receiving Annuity payments;
- - the Annuity option under which you want your payments to be calculated and
paid;
- - whether the payments are to be made monthly, quarterly, semi-annually or
annually; and the investment option(s) used to provide Annuity payments (i.e.,
a fixed annuity using the general account or a variable annuity using any of
the Subaccounts available at the time of annuitization). As of the date of
this Prospectus, Aetna Variable Fund, Aetna Income Shares and Aetna Investment
Advisers Fund, Inc. are the only Subaccounts available; however, additional
Subaccounts may be available under some Annuity Options in the future. (See
"Annuity Options.")
Annuity Payments will not begin until you have selected an Annuity Option.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once Annuity payments begin, the Annuity Option may not be
changed, nor may transfers currently be made among the investment option(s)
selected. (See "Annuity Options" below for more information about transfers
during the Annuity Period.)
ANNUITY OPTIONS
The Contract Holder, on behalf of the Participant, may choose one of the
following Annuity Options:
LIFETIME ANNUITY OPTIONS:
- -OPTION 1--Life Annuity--An annuity with payments ending on the Annuitant's
death.
- -OPTION 2--Life Annuity with Guaranteed Payments--A life annuity with payments
guaranteed for 5, 10, 15 or 20 years, or such other periods as the Company may
offer at the time of annuitization.
- -OPTION 3--Life Income based Upon the Lives of Two Payees--An annuity will be
paid during the lives of the Annuitant and a second Annuitant, with 100%,
66 2/3% or 50% of the payment to continue after the first death, or 100% of the
payment to continue at the death of the second Annuitant and 50% of the payment
to continue at the death of the Annuitant.
- -OPTION 4--Life Income based Upon the Lives of Two Payees--An annuity with
payments for a minimum of 120 months, with 100% of the payment to continue
after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant under
Option 3, should die prior to the due date of the second Annuity Payment. Once
lifetime Annuity payments begin, the Annuitant cannot elect to receive a
lump-sum settlement.
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NONLIFETIME ANNUITY OPTIONS:
- -OPTION 1--Payments for a Specified Period--payments will continue for a
specified period of time, as provided for under your Contract.
Under the nonlifetime option, the type of annuity (fixed or variable) and
the number of years that may be selected are determined by the investment
options used prior to annuitization. For amounts held in the Fixed Plus Account
(if available under the Contract), the annuity must be paid on a fixed basis and
payments may be made for 5-30 years. For amounts held in the Subaccounts, the
Guaranteed Accumulation Account or the Fixed Account, an annuity may be selected
on a fixed or variable basis and payments may be made for 3-30 years. If this
option is elected on a variable basis, the Annuitant may request at any time
during the payment period that the present value of all or any portion of the
remaining variable payments be paid in one sum. However, any lump-sum elected
before three years of payments have been completed will be treated as a
withdrawal during the Accumulation Period and any applicable deferred sales
charge will be assessed. (See "Charges and Deductions-- Deferred Sales Charge.")
The nonlifetime option is not available on a variable basis under a Contract
which provides for immediate Annuity benefits.
We may also offer additional Annuity Options under your Contract from time
to time. The Company expects to offer additional Annuity Options and enhanced
versions of the Annuity Options listed above at some time during 1996. These
additional Annuity Options and enhanced versions of the existing options will
have additional Subaccounts available and will allow transfers between
Subaccounts during the Annuity Period. (Additional Subaccounts and transfer
capability are expected during the second half of 1996.) Such additional or
enhanced options will be made available by an endorsement to the Contract, which
will include the guaranteed annuity payout rates and other terms applicable to
such options. (Depending on which guaranteed payout rates apply to the existing
options, the guaranteed payout rates for the new and enhanced options will be
the same or lower.) Please refer to the Contract, or call the number listed in
the "Inquiries" section of the Prospectus Summary, to determine which options
are available and the terms of such options. It is not expected that these
additional or enhanced options will be made available to those who have already
commenced receiving Annuity Payments.
ANNUITY PAYMENTS
DATE PAYOUTS START. Annuity payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and Plan Beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and Plan
Beneficiary.
AMOUNT OF EACH ANNUITY PAYMENT. The amount of each payment depends on your
Account Value, how it is allocated between fixed and variable payouts, and the
Annuity option chosen. No election may be made that would result in the first
Annuity payment of less than $20, or total yearly Annuity payments of less than
$100. If your combined Employer and Employee Account Value on the Annuity Date
is insufficient to elect an option for the minimum amount specified, a lump-sum
payment must be elected.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity payments
would decline if the rate were below 5%. Use of the 3 1/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further information on the impact of
selecting a particular assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE
ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
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If Lifetime Option 2 or Option 4 was elected and the death of the Annuitant
under Option 2, or the surviving Annuitant under Option 4, occurs prior to the
end of the guaranteed minimum payment period, we will pay to the Plan
Beneficiary in a lump sum, unless otherwise requested, the present value of the
guaranteed annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the Plan Beneficiary (unless otherwise requested), and no deferred sales
charge will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the Plan Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment. Under
Options 2 and 4, such value will be reduced by any payments made after the date
of death.
TAX STATUS
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any Contract or
transaction involving a Contract. The ultimate effect of federal income taxes on
the amounts held under a Contract, on Annuity payments, and on the economic
benefit to the Contract Holder, Participant or Plan Beneficiary may depend upon
the tax status of the individual concerned. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, the Company believes
that the Separate Account's 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 interpretation 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.
CONTRACTS USED WITH CERTAIN
RETIREMENT PLANS
IN GENERAL. The Contract is designed for use with Section 403(b) plans, and
Section 401(a) and Section 401(k) plans. The tax rules applicable to retirement
plans vary according to the type of plan and the terms and conditions of the
plan.
The Company makes no attempt to provide more than general information about
use of the Contracts with the various types of retirement plans. Participants as
well as Plan Beneficiaries are cautioned that the rights of any person to any
benefits under the Contracts may be subject to the terms and conditions of the
plans themselves, in addition to the terms and conditions of the Contracts
issued in connection with such plans. Some retirement plans are subject to
limitations on distribution and other requirements that are not incorporated in
the Contracts. Purchasers are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts satisfy
applicable laws, and should consult their legal counsel and tax adviser
regarding the suitability of the Contract.
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MINIMUM DISTRIBUTION REQUIREMENTS. The Code has required distribution rules
for Section 403(b), 401(a) and 401(k) Plans. Under 403(b) Plans, distributions
of amounts held as of December 31, 1986 must generally begin by the end of the
calendar year in which you attain age 75 (or retire, if later, for governmental
or church plans). However, special rules require that some or all of that
balance be distributed earlier if any distributions are taken in excess of the
minimum required amount. Distributions under 401(a) and 401(k) Plans, and
distributions attributable to contributions under Section 403(b) Plans on or
after January 1, 1987 (including any earnings on the entire Account Value after
that date), must generally begin by April 1 of the calendar year following the
calendar year in which you attain age 70 1/2 or retire, whichever occurs later.
In general, annuity payments must be distributed over your life or the joint
lives of you and your Plan Beneficiary, or over a period not greater than your
life expectancy or the joint life expectancies of you and your Plan Beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your Plan Beneficiary must be made at least as rapidly as under
the method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your beneficiary by December 31 of the year
following your death. However, a spousal beneficiary has certain rollover rights
which can only be exercised in the year of your death. The rules are complex and
you should consult your tax adviser before electing the method of calculation to
satisfy the minimum distribution requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death, or December 31 of the calendar year in which you would have
attained age 70 1/2.
If you fail to receive the minimum required distribution for any tax year, a
50% excise tax is imposed on the required amount that was not distributed.
TAXATION OF DISTRIBUTIONS. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to another
plan of the same type or to 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 Plan 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 may be provided
the opportunity to elect not to have tax withheld from distributions; however,
certain distributions from annuities are subject to mandatory federal income tax
withholding. We will report to the IRS the taxable portion of all distributions.
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 separated from service with the
plan sponsor at or after age 55, (e) the distribution amount is rolled over into
another plan of the same type or to an IRA in accordance with the terms of the
Code, or (f) the distribution amount is made in substantially equal periodic
payments (at least annually) over your life or life expectancy or the joint
lives or joint life expectancies of you and your plan beneficiary, provided you
have separated from service with the plan sponsor. In addition, the penalty tax
does not apply 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.
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SECTION 403(B) PLANS. Under Code Section 403(b), contributions made by
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of your
includable compensation or $30,000. The second limit, which is the exclusion
allowance under Section 403(b), is usually calculated according to a formula
that takes into account your length of employment and any pretax contributions
to certain other retirement plans. These two limits apply to your contributions
as well as to any contributions made by your employer on your behalf. There is
an additional limit that specifically limits your salary reduction contributions
to generally no more than $9,500 annually (subject to indexing); your own limit
may be higher or lower, depending on certain conditions. In addition Purchase
Payments will be excluded from a Participant's gross income only if the Plan
meets certain nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b) contracts
of: (1) salary reduction contributions made after December 31, 1988; (2)
earnings on those contributions; and (3) earnings during such period on amounts
held as of December 31, 1988. Distribution of those amounts may only occur upon
death of the employee, attainment of age 59 1/2, separation from service,
disability, or financial hardship. In addition, income attributable to salary
reduction contributions may not be distributed in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a Code
Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable prior
to the time of actual distribution. However, the IRS has stated in published
rulings that a variable contract owner, including participants under Section
403(b) Plans, will be considered the owner of separate account assets if the
contract owner possesses incidents of investment control over the assets. In
these circumstances, income and gains from the separate account assets would be
currently includable in the variable contract owner's gross income. The Treasury
announced that guidance would be issued in the future regarding the extent to
which owners could direct their investments among Subaccounts without being
treated as owners of the underlying assets of the Separate Account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right to
modify the Contract as necessary to attempt to prevent the owner from being
considered the federal tax owner of the assets of the Separate Account.
SECTION 401(A) AND 401(K) PLANS. Section 401(a) and 401(k) permits certain
employers to establish various types of retirement plans for employees, and
permits self-employed individuals to establish various types of retirement plans
for themselves and for their employees. These retirement plans may permit the
purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax consequences to the Plan, to the Participant or to both may result
if this Contract is assigned or transferred to any individual except to a
Participant as a means to provide benefit payments.
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 employer in accordance with Section 415 of the Code. This limit
is generally the lesser of 25% of your compensation or $30,000. The limit
applies to your contributions as well as any contributions made by your employer
on your behalf. There is an additional limit that specifically limits your
salary reduction contributions under a 401(k) Plan to generally no more than
$9,500 annually (subject to indexing). Your own limits may be higher or lower,
depending on certain conditions. In addition, Purchase Payments will be excluded
from a Participant's gross income only if the Plan meets certain
nondiscrimination requirements.
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MISCELLANEOUS
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DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities sold
by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract
with one or more registered broker-dealers ("Distributors"), including at least
one affiliate of the Company, to offer and sell the Contracts. All persons
offering and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services to
Participants in connection with establishing their Accounts under the Contract.
PAYMENT OF COMMISSIONS. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect to
any given Purchase Payment is with respect to those made during the first year
of Purchase Payments under an Account. The percentage amount will range from 1%
to 6% of those Purchase Payments. The Company may also pay renewal commissions
and asset-based service fees on Purchase Payments made after the first year. 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 in your enrollment materials. Commissions and sales related expenses
are paid by the Company and are not deducted from Purchase Payments. (See
"Charges and Deductions--Deferred Sales Charge.")
THIRD PARTY COMPENSATION ARRANGEMENTS. Occasionally, we may pay commissions
and fees to Distributors which are affiliated or associated with the Contract
Holder or the Participants. We may also enter into agreements with some entities
associated with the Contract Holder or Participants in which we would agree to
pay the entity for certain services in connection with administering the
Contracts. In both these circumstances there may be an understanding that the
Distributor or entity would endorse the Company as a provider of the Contract.
You will be notified if you are purchasing a Contract that is subject to these
arrangements.
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or is not reasonably practicable for
the value of the Subaccount's assets; or (c) during such other periods as the
SEC may by order permit for the protection of investors. The conditions under
which restricted trading or an emergency exists shall be determined by the rules
and regulations of the SEC.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative expense charge (if any) and any applicable deferred sales
charge). "Non-standardized returns" will be calculated in a similar manner,
except that non-standardized figures will not reflect the deduction of any
applicable deferred sales charge (which would decrease the level of performance
shown if reflected in these calculations). The non-standardized figures may also
include monthly, quarterly, year-to-date and three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds
- --------------------------------------------------------------------------------
17
<PAGE>
held by the Separate Account at regular and special meetings of Fund
shareholders in accordance with instructions received from persons having a
voting interest in the Separate Account. Participants and Annuitants have a
fully vested (100%) interest in the value of the Employee Account and also have
a nonforfeitable (vested) right to the value of the Employer Account pursuant to
the terms of, and to the extent of their vested percentage under the Plan.
Therefore, such Participants and Annuitants may instruct the Contract Holder how
to direct the Company to cast the votes for the portion of the Account Value or
valuation reserve attributable to their Accounts. The Company will vote shares
for which it has not received instructions in the same proportion as it votes
shares for which it has received instructions.
Each person having a voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest, as
well as any proxy materials and a form on which to give voting instructions.
Voting instructions will be solicited by written communication at least 14 days
before such meeting. The number of votes to which each person may give direction
will be determined as of the record date set by the Fund.
The number of votes each Contract Holder, Participant or beneficiary, as
applicable, may cast during the Accumulation Period is equal to the portion of
the Account Value 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.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law. In
addition, the Company may, upon 30 days written notice to the Contract Holder,
make other changes to the Contract that would apply only to individuals who
become Participants under that Contract after the effective date of such
changes. If the Contract Holder does not agree to a change, no new Participants
will be covered under the Contract. Certain changes will require the approval of
appropriate state or federal regulatory authorities.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Susan E. Bryant, Esq., Counsel to the Company.
CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements of
the Separate Account and the Company. A list of the contents of the SAI is set
forth below:
<TABLE>
<S> <C>
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION
AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACTS DISCUSSED IN THIS
PROSPECTUS. AMOUNTS ALLOCATED TO LONG-TERM CLASSIFICATIONS OF GAA ARE HELD IN A
NONINSULATED, NONUNITIZED SEPARATE ACCOUNT. AMOUNTS ALLOCATED TO SHORT-TERM
CLASSIFICATIONS OF GAA ARE HELD IN THE COMPANY'S GENERAL ACCOUNT. THIS APPENDIX
IS A SUMMARY OF GAA AND IS NOT INTENDED TO REPLACE THE GAA PROSPECTUS. YOU
SHOULD READ THE ACCOMPANYING GAA PROSPECTUS CAREFULLY BEFORE INVESTING.
GAA is a Credited Interest Option in which we guarantee stipulated rates of
interest for stated periods of time on amounts directed to GAA. The interest
rate stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. This option guarantees the minimum interest
rate specified in the Contract.
During a specified period of time, (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to three
years, and Long-Term GAA has Guaranteed Terms from more than three and up to ten
years.
Purchase Payments must remain in GAA for the full Guaranteed Term to receive
the quoted interest rates. Withdrawals or transfers from a Guaranteed Term
before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). For Contracts issued in New York, no MVA applies upon the
election of the Estate Conservation Option or the Systematic Withdrawal Option.
An MVA reflects the change in the value of the investments 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 Participant receiving an amount which 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 other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge, federal tax penalties or mandatory income tax withholding
and a maintenance fee.
By notifying us at least 30 days prior to the Annuity Date, the Contract
Holder may elect a variable annuity on your behalf and have amounts that have
been accumulating under GAA transferred to one or more of the Subaccounts
available during the Annuity Period. GAA cannot be used as an investment option
during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Transfers are permitted among Guaranteed Terms. However, amounts applied to
GAA may not be transferred to another Guaranteed Term of GAA, or to any other
Subaccount or Credited Interest Option available under the Contract, during the
deposit period or the 90 days after the close of the deposit period. We will
apply an MVA to transfers made before the end of a Guaranteed Term, unless such
transfer is due to the maturity of the Guaranteed Term.
CONTRACT LOANS
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from GAA and reinvested, they 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 withdrawal.
Any negative MVA amount applied to a withdrawal is not included in the
reinvestment.
- --------------------------------------------------------------------------------
19
<PAGE>
APPENDIX II
FIXED ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED ACCOUNT.
AMOUNTS ALLOCATED TO THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT
THAT SUPPORTS GENERAL INSURANCE AND ANNUITY OBLIGATIONS. INTERESTS IN THE FIXED
ACCOUNT HAVE NOT BEEN REGISTERED WITH THE SEC IN RELIANCE ON EXEMPTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. DISCLOSURE IN THE PROSPECTUS REGARDING
THE FIXED ACCOUNT, MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED
ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by guaranteeing
Account Values and promising a minimum interest rate and Annuity Payment.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as provided by
federal law.
In addition, if allowed by state law, the Company may pay any Fixed Account
withdrawal value in equal payments, with interest, over a period not to exceed
60 months, when:
(a) The Fixed Account withdrawal value for the Contract or for the total of the
Accounts under the Contract exceeds $250,000 on the day prior to the
withdrawal; and
(b) the sum of the current Fixed Account withdrawal and the total of all Fixed
Account withdrawals from the Contract or for the total of the Accounts under
the Contract within the past 12 calendar months exceeds 20% of the amount in
the Fixed Account on the day prior to the current withdrawal.
Interest, as used above, will not be more than two percentage points below
any rate determined prospectively by the Board of Directors for this class of
Contract. In no event will the interest rate be less than the minimum stated in
the Contract.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
If a withdrawal is made from the Fixed Account, a deferred sales charge may
apply. (See "Charges and Deductions-- Deferred Sales Charge.")
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period. The
amount which may be transferred may vary at our discretion; however, it will
never be less than 10% of the amount held under the Fixed Account.
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 Account transferred to one or more of the
Subaccounts available during the Annuity Period to provide variable Annuity
payments.
CONTRACT LOANS
Under 403(b) Plans, loans may be made from Account Values held in the Fixed
Account.
- --------------------------------------------------------------------------------
20
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FOLLOWING SUMMARIZES MATERIAL INFORMATION CONCERNING THE FIXED PLUS
ACCOUNT. AMOUNTS ALLOCATED TO THE FIXED PLUS ACCOUNT ARE HELD IN THE COMPANY'S
GENERAL ACCOUNT THAT SUPPORTS GENERAL 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 THE PROSPECTUS REGARDING THE FIXED PLUS ACCOUNT, MAY, HOWEVER, BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING
TO THE ACCURACY AND COMPLETENESS OF SUCH STATEMENTS. DISCLOSURE IN THIS APPENDIX
REGARDING THE FIXED PLUS ACCOUNT HAS NOT BEEN REVIEWED BY THE SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will never
fall below the guaranteed minimum. The Company's determination of interest rates
reflects the investment income earned on invested assets and the amortization of
any capital gains and/or losses realized on the sale of invested assets. Under
the Fixed Plus Account, the Company assumes the risk of investment gain or loss
by guaranteeing Account Values and promising a minimum interest rate and Annuity
Payment. This option is not available in the state of New York.
The Fixed Plus Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. Amounts applied to the
Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.
The Company reserves the right to limit Purchase Payment(s) and/or transfers
to the Fixed Plus Account.
FIXED PLUS ACCOUNT WITHDRAWALS
The amount eligible for partial withdrawal is 20% of the amount held in the
Fixed Plus Account on the day our Home Office receives a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any of the
Additional Withdrawal Options.
The 20% limit is waived if the partial withdrawal is due to annuitization or
death. The waiver upon death will only be exercised once and must occur within
six months after the Participant's date of death. Any such surrender or
annuitization must also be made pro rata from all Subaccounts and Credited
Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the Fixed
Plus Account, with interest, in five annual payments equal to:
1. One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
5. The balance of the Fixed Plus Account Value 12 months later.
- --------------------------------------------------------------------------------
21
<PAGE>
Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers 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
withdrawal provision if a full withdrawal is made due to:
(a) the Participant's death, before Annuity payments begin and request for
payment is received within 6 months after the Participant's date of death;
(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.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of an Additional
Withdrawal Option. The 20% limit on transfers will be waived 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 the Annuity Date,
you may elect to have amounts which have been accumulating under the Fixed Plus
Account transferred to one or more of the Subaccounts available during the
Annuity Period to provide lifetime variable Annuity Payments.
SWO
The Systematic Withdrawal Option may not be elected if you have requested a
Fixed Plus Account transfer or withdrawal within the prior 12 month period.
CONTRACT LOANS
If permitted under the Contract, loans may be made from Account Values held
in the Fixed Plus Account. See the loan agreement for a description of the
amount available and the consequences upon loan default if more than 20% of the
Fixed Plus Account Value is used for a loan.
- --------------------------------------------------------------------------------
22
<PAGE>
APPENDIX IV
EMPLOYEE APPOINTMENT OF EMPLOYER
AS AGENT UNDER AN ANNUITY CONTRACT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
My employer has adopted a Retirement Plan under Internal Revenue Code
Section 403(b) ("Plan") and has purchased an Aetna Life Insurance and Annuity
Company ("Company") group variable annuity contract ("Contract") as the funding
vehicle. Contributions under this Plan will be made by me through salary
reduction to an Employee Account, and by my employer to an Employer Account.
By electing to participate in my employer's Plan, I voluntarily appoint my
employer, who is the Contract Holder, as my agent for the purposes of all
transactions under the Contract in accordance with the terms of the Plan. The
Company is not a party to the Plan and does not interpret the Plan provisions.
As a Participant in the Plan, I understand and agree to the following terms
and conditions:
- - I own the value of my Employee Account subject to the restrictions of Section
403(b) and the terms of the Plan. Subject to the terms of the vesting schedule
in the Plan and the restrictions of Section 403(b), I have ownership in the
value of my Employer Account.
- - I understand that the Company will process transactions only with my
employer's written direction to the Company. I agree to be bound by my
employer's interpretation of the Plan provisions and its written direction to
the Company.
- - My employer may permit me to make investment selections under the Employee
Account and/or the Employer Account directly with the Company under the terms
of the Contract. Without my employer's written permission, I will be unable to
make any investment selections under the Contract.
- - On my behalf, my employer may request a loan in accordance with the terms of
the Contract and the provisions of the Plan. The Company will make payment of
the loan amount directly to me. I will be responsible for making repayments
directly to the Company in a timely manner.
- - In the event of my death, my employer is the named beneficiary under the terms
of the Contract. I have the right to name a personal beneficiary as determined
under the terms of the Plan and file that beneficiary election with my
employer. It is my employer's responsibility to direct the Company to properly
pay any death benefits.
- --------------------------------------------------------------------------------
23
<PAGE>
FOR MASTER APPLICATIONS ONLY
I HEREBY ACKNOWLEDGE RECEIPT OF AN ACCOUNT C "RETIREMENT PLUS -- GROUP
DEFERRED VARIABLE ANNUITY" PROSPECTUS DATED MAY 1, 1996, AS WELL AS ALL CURRENT
PROSPECTUSES PERTAINING TO THE VARIABLE INVESTMENT OPTIONS AVAILABLE UNDER THE
CONTRACTS.
- ---- PLEASE SEND AN ACCOUNT C STATEMENT OF ADDITIONAL INFORMATION (FORM NO.
75986(S)-2) DATED MAY 1, 1996.
- --------------------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------------------
DATE
75986-ACES-2 (5/96)
- --------------------------------------------------------------------------------
<PAGE>
Insurance products offered by:
Aetna Life Insurance and Annuity Company
Securities offered through:
Aetna Investment Services, Inc.
151 Farmington Avenue
Hartford, CT 06156
1-800-525-4225
Visit our home page on the Internet
http://www.aetna.com
[LOGO]
Aetna
Retirement
Services, Inc.
Printed on recycled paper
75986-ACES-2
<PAGE>
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
AetnaPlus Contracts and Multiple Option Contracts
Group Variable Annuity Contracts Available under Section 403(b) and 401(a)
RETIREMENT PLUS
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, 1996.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History. . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sales Material and Advertising . . . . . . . . . . . . . . . . . . . . 12
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 12
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 under the insurance laws of the State of
Connecticut in 1976. Through a merger, it succeeded to the business of Aetna
Variable Annuity Life Insurance Company (formerly Participating Annuity Life
Insurance Company organized in 1954). As of December 31, 1995, the Company had
assets of $27.1 billion (subject to $25.5 billion of customer and other
liabilities, $1.6 billion of shareholder equity) which includes $11 billion in
assets held in the Company's separate accounts. The Company had $22 billion in
assets under management, including $8 billion in its mutual funds. As of
December 31, 1994, it ranked among the top 2% of all U.S. life insurance
companies by size. The Company is a wholly owned subsidiary of Aetna Retirement
Holdings, Inc., which is in turn a wholly owned subsidiary of Aetna Retirement
Services, Inc. and an indirect wholly owned subsidiary of Aetna Life and
Casualty Company. The Company is engaged in the business of issuing life
insurance policies and annuity contracts in all states of the United States.
The Company's Home Office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
In addition to serving as the principal underwriter and the depositor for the
Separate Account, the Company is also a registered investment adviser under the
Investment Advisers Act of 1940, and a registered broker-dealer under the
Securities Exchange Act of 1934. The Company provides investment advice to
several of the registered management investment companies offered as variable
investment options under the Contracts funded by the Separate Account (see
"Variable Annuity Account 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 some unaffiliated sponsors of the Funds used as funding options under
the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate
Account has no custodian. However, the Funds in whose shares the assets of the
Separate Account are invested each have custodians, as discussed in their
respective prospectuses.
VARIABLE ANNUITY ACCOUNT 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 Funds described in the Prospectus. Purchase
Payments made under the Contract may be allocated to one or more of the
Subaccounts. The Company may make additions to or deletions from available
investment options as permitted by law. The availability of the Funds is
subject to applicable regulatory authorization. Not all Funds are available in
all jurisdictions or under all Plans. The Funds currently available under the
Contract are as follows:
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Aetna Variable Fund Fidelity VIP Overseas Portfolio
Aetna Income Shares Franklin Government Securities Trust
Aetna Variable Encore Fund Janus Aspen Aggressive Growth Portfolio
Aetna Investment Advisers Fund, Inc. Janus Aspen Balanced Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Flexible Income Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Growth Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American Growth Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Small Cap Portfolio Lexington Natural Resources Trust
Calvert Responsibly Invested Balanced Portfolio Neuberger & Berman Growth Portfolio
Fidelity VIP II Contrafund Portfolio Scudder International Portfolio Class A Shares
Fidelity VIP Equity-Income Portfolio TCI Growth
Fidelity VIP Growth Portfolio
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
Prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as the "non-standardized total
returns," both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The standardized figures reflect the deduction of
all recurring charges during each period (e.g., mortality and expense risk
charges, maintenance fees, administrative expense charges, and deferred sales
charges). These charges will be deducted on a pro rata basis in the case of
fractional periods. The maintenance fee is converted to a percentage of assets
based on the average account size under the Contracts described in the
Prospectus.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if
3
<PAGE>
reflected in these calculations). The non-standardized figures may also include
monthly, quarterly, year-to-date and three year periods.
If a Fund was in existence prior to the date it became available under the
Contract, standardized and non-standardized total returns may include periods
prior to such date. These figures are calculated by adjusting the actual
returns of the Fund to reflect the charges that would have been assessed under
the Contract had that Fund been available under the Contract during that period.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - STANDARDIZED AND NON-STANDARDIZED
There are two sets of total return quotations shown below: one for AetnaPlus
Contracts and one for Multiple Option Contracts (as identified on the cover of
your Prospectus). The contract features and charges under these types of
contracts are identical; however, they are administered on two different
administrative systems. Due to differences in the way the two systems
administered payments prior to mid-1994, performance for the Subaccounts under
the two systems for those periods differs.
Additionally, each set of tables shown below represents the variations in
contract payment type and in the maintenance fees assessed under different
plans. Table A reflects the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1995 for the
Subaccounts under Single Payment Accounts issued by the Company. Tables B and C
reflect the average annual standardized and non-standardized total return
quotation figures for the periods ended December 31, 1995 for the Subaccounts
under Installment Payment Accounts with a $15 annual maintenance fee and a $7.50
annual maintenance fee, respectively. In both sets of tables, for those
Subaccounts where results are not available for the full calendar period
indicated, the percentage shown is an average annual return since inception
(denoted with an *).
AETNA PLUS CONTRACTS
TABLE A
<TABLE>
<CAPTION>
SINGLE PAYMENT ACCOUNT: FUND
($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 24.08% 11.20% 12.30% 30.61% 10.43% 12.11% 12.30% 04/30/75
Aetna Income Shares 10.94% 7.62% 8.52% 16.78% 6.32% 8.51% 8.52% 06/01/78
Aetna Variable Encore Fund (0.50%) 2.56% 4.92% 4.74% 3.14% 3.40% 4.92% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.37% 9.60% 8.88%* 25.65% 10.30% 10.50% 9.39%* 06/23/89
Aetna Ascent Variable Portfolio 4.33%* n/a n/a 9.82%* n/a n/a n/a 07/03/95
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SINGLE PAYMENT ACCOUNT: FUND
($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Crossroads Variable Portfolio 3.22%* n/a n/a 8.66%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.21%* n/a n/a 7.59%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.95% 19.24% 17.44%* 34.68% 17.73% 20.22% 17.96%* 01/08/89
Alger American Small Cap Portfolio 35.39% 17.95% 20.62%* 42.52% 14.33% 18.92% 20.96%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.76% 8.97% 8.72%* 28.17% 9.59% 9.86% 8.72%* 09/30/86
Fidelity VIP II Contrafund Portfolio 31.01%* n/a n/a 37.91%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.75% 18.84% 11.99%* 33.43% 18.12% 19.82% 11.99%* 10/22/86
Fidelity VIP Growth Portfolio 27.01% 18.31% 13.55%* 33.69% 15.88% 19.28% 13.55%* 11/07/86
Fidelity VIP Overseas Portfolio 2.91% 5.91% 5.90%* 8.32% 13.86% 6.78% 6.02%* 02/13/87
Franklin Government Securities Trust 10.43% 6.50% 7.37%* 16.24% 5.53% 7.37% 7.87%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.61% 23.24%* n/a 25.91% 26.02%* n/a n/a 9/13/93
Janus Aspen Balanced Portfolio 17.08% 10.02%* n/a 23.24% 12.50%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.21% 5.92%* n/a 22.33% 8.31%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 22.14% 11.27%* n/a 28.56% 13.78%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.77% 1.02%* n/a 8.18% 3.30%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.40% 16.51%* n/a 25.69% 19.13%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.65% 16.66%* n/a 15.42% 6.03% 18.09%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.59% 11.91% 11.04% 30.10% 9.71% 12.82% 11.04% 12/31/85
Scudder International Portfolio
Class A Shares 4.25% 8.05% 7.85%* 9.74% 13.28% 8.93% 7.98%* 04/30/87
TCI Growth 23.00% 13.38% 11.81%* 29.47% 12.57% 14.31% 11.95%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
AETNA PLUS CONTRACTS
TABLE B
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($15 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 23.97% 10.86% 12.20% 30.50% 10.32% 12.00% 12.20% 04/30/75
Aetna Income Shares 10.83% 7.29% 8.42% 16.67% 6.21% 8.40% 8.42% 06/01/78
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($15 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Encore Fund (0.61%) 2.24% 4.81% 4.63% 3.04% 3.29% 4.81% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.26% 9.27% 8.42%* 25.55% 10.19% 10.40% 9.28%* 06/23/89
Aetna Ascent Variable Portfolio 4.22%* n/a n/a 9.71%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.12%* n/a n/a 8.55%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.11%* n/a n/a 7.49%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.84% 18.88% 16.99%* 34.58% 17.63% 20.11% 17.85%* 01/08/89
Alger American Small Cap Portfolio 35.29% 17.59% 20.00%* 42.41% 14.22% 18.81% 20.85%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.65% 8.63% 8.02%* 28.06% 9.48% 9.75% 8.62%* 09/30/86
Fidelity VIP II Contrafund Portfolio 30.91%* n/a n/a 37.80%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.65% 18.49% 11.26%* 33.32% 18.01% 19.71% 11.88%* 10/22/86
Fidelity VIP Growth Portfolio 26.90% 17.95% 12.81%* 33.59% 15.78% 19.17% 13.44%* 11/07/86
Fidelity VIP Overseas Portfolio 2.80% 5.58% 5.30%* 8.22% 13.75% 6.67% 5.91%* 02/13/87
Franklin Government Securities Trust 10.32% 6.17% 6.93%* 16.14% 5.42% 7.26% 7.76%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.50% 23.13%* n/a 25.80% 25.91%* n/a n/a 09/13/93
Janus Aspen Balanced Portfolio 16.97% 9.91%* n/a 23.14% 12.39%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.10% 5.81%* n/a 22.22% 8.20%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 22.03% 11.16%* n/a 28.46% 13.67%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.66% 0.91%* n/a 8.07% 3.19%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.30% 16.40%* n/a 25.58% 19.03%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.54% 16.55%* n/a 15.31% 5.92% 17.98%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.49% 11.56% 10.94% 29.99% 9.60% 12.72% 10.94% 12/31/85
Scudder International Portfolio
Class A Shares 4.14% 7.72% 7.23%* 9.63% 13.17% 8.83% 7.87%* 04/30/87
TCI Growth 22.89% 13.03% 11.14%* 29.37% 12.46% 14.20% 11.85%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
6
<PAGE>
AETNA PLUS CONTRACTS
TABLE C
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($7.50 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 24.03% 10.91% 12.25% 30.56% 10.37% 12.06% 12.25% 04/30/75
Aetna Income Shares 10.89% 7.34% 8.47% 16.72% 6.26% 8.45% 8.47% 06/01/78
Aetna Variable Encore Fund (0.56%) 2.29% 4.87% 4.68% 3.09% 3.35% 4.87% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.32% 9.32% 8.48%* 25.60% 10.25% 10.45% 9.33%* 06/23/89
Aetna Ascent Variable Portfolio 4.28%* n/a n/a 9.77%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.17%* n/a n/a 8.60%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.16%* n/a n/a 7.54%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.90% 18.94% 17.04%* 34.63% 17.68% 20.17% 17.90%* 01/08/89
Alger American Small Cap Portfolio 35.34% 17.65% 20.06%* 42.47% 14.28% 18.86% 20.91%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.71% 8.69% 8.07%* 28.12% 9.53% 9.81% 8.67%* 09/30/86
Fidelity VIP II Contrafund Portfolio 30.96%* n/a n/a 37.86%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.70% 18.54% 11.31%* 33.37% 18.07% 19.77% 11.94%* 10/22/86
Fidelity VIP Growth Portfolio 26.96% 18.01% 12.86%* 33.64% 15.83% 19.23% 13.50%* 11/07/86
Fidelity VIP Overseas Portfolio 2.85% 5.64% 5.35%* 8.27% 13.81% 6.73% 5.96%* 02/13/87
Franklin Government Securities Trust 10.38% 6.22% 6.98%* 16.19% 5.48% 7.32% 7.82%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.56% 23.18%* n/a 25.85% 25.96%* n/a n/a 09/13/93
Janus Aspen Balanced Portfolio 17.03% 9.96%* n/a 23.19% 12.45%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.16% 5.86%* n/a 22.27% 8.25%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 22.08% 11.21%* n/a 28.51% 13.72%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.72% 0.97%* n/a 8.12% 3.24%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.35% 16.45%* n/a 25.64% 19.08%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.60% 16.61%* n/a 15.37% 5.98% 18.04%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.54% 11.62% 10.99% 30.04% 9.66% 12.77% 10.99% 12/31/85
Scudder International Portfolio
Class A Shares 4.20% 7.77% 7.29%* 9.68% 13.23% 8.88% 7.92%* 04/30/87
TCI Growth 22.95% 13.09% 11.19%* 29.42% 12.52% 14.25% 11.90%* 11/20/87
</TABLE>
7
<PAGE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
MULTIPLE OPTION CONTRACTS
TABLE A
<TABLE>
<CAPTION>
SINGLE PAYMENT ACCOUNT: FUND
($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 24.08% 10.97% 12.30% 30.61% 10.43% 12.11% 12.30% 04/30/75
Aetna Income Shares 10.94% 7.40% 8.52% 16.78% 6.32% 8.51% 8.52% 06/01/78
Aetna Variable Encore Fund (0.50%) 2.35% 4.92% 4.74% 3.14% 3.40% 4.92% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.37% 9.38% 8.53%* 25.65% 10.33% 10.50% 9.39%* 06/23/89
Aetna Ascent Variable Portfolio 4.33%* n/a n/a 9.82%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.22%* n/a n/a 8.66%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.21%* n/a n/a 7.59%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 28.02% 19.01% 17.10%* 34.76% 17.76% 20.23% 17.97%* 01/08/89
Alger American Small Cap Portfolio 35.40% 17.89% 20.24%* 42.53% 14.64% 19.11% 21.09%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.90% 8.71% 8.11%* 28.31% 9.36% 9.83% 8.71%* 09/30/86
Fidelity VIP II Contrafund Portfolio 31.05%* n/a n/a 37.94%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.87% 18.60% 11.37%* 33.55% 18.13% 19.82% 11.99%* 10/22/86
Fidelity VIP Growth Portfolio 27.02% 18.06% 12.92%* 33.70% 15.89% 19.28% 13.55%* 11/07/86
Fidelity VIP Overseas Portfolio 2.90% 5.69% 5.41%* 8.31% 13.86% 6.78% 6.02%* 02/13/87
Franklin Government Securities Trust 10.43% 6.30% 7.05%* 16.24% 5.49% 7.40% 7.89%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.62% 23.24%* n/a 25.91% 26.02%* n/a n/a 09/13/93
Janus Aspen Balanced Portfolio 17.05% 10.01%* n/a 23.22% 12.49%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.22% 5.92%* n/a 22.33% 8.31%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 21.78% 11.13%* n/a 28.19% 13.63%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.49% 0.90%* n/a 7.89% 3.18%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.54% 16.56%* n/a 25.83% 19.19%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.64% 3.76%* n/a 15.41% 5.72% 5.03%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.59% 11.36% 10.77% 30.09% 8.80% 12.28% 10.77% 12/31/85
Scudder International Portfolio
Class A Shares 4.25% 7.92% 7.39%* 9.74% 13.52% 9.03% 8.03%* 04/30/87
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SINGLE PAYMENT ACCOUNT: FUND
($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCI Growth 22.99% 12.33% 10.75%* 29.47% 11.28% 13.49% 11.46%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
MULTIPLE OPTION CONTRACTS
TABLE B
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($15 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 23.97% 10.86% 12.20% 30.50% 10.32% 12.00% 12.20% 04/30/75
Aetna Income Shares 10.83% 7.29% 8.42% 16.67% 6.21% 8.40% 8.42% 06/01/78
Aetna Variable Encore Fund (0.61%) 2.24% 4.81% 4.63% 3.04% 3.29% 4.81% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.26% 9.27% 8.42%* 25.55% 10.19% 10.40% 9.28%* 06/23/89
Aetna Ascent Variable Portfolio 4.22%* n/a n/a 9.71%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.12%* n/a n/a 8.55%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.11%* n/a n/a 7.49%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.91% 18.90% 17.00%* 34.65% 17.65% 20.13% 17.86%* 01/08/89
Alger American Small Cap Portfolio 35.29% 17.78% 20.13%* 42.42% 14.53% 19.00% 20.99%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.79% 8.60% 8.00%* 28.20% 9.25% 9.72% 8.60%* 09/30/86
Fidelity VIP II Contrafund Portfolio 30.94%* n/a n/a 37.84%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.76% 18.49% 11.26%* 33.44% 18.02% 19.72% 11.89%* 10/22/86
Fidelity VIP Growth Portfolio 26.91% 17.96% 12.81%* 33.59% 15.78% 19.17% 13.44%* 11/07/86
Fidelity VIP Overseas Portfolio 2.79% 5.58% 5.30%* 8.21% 13.75% 6.67% 5.91%* 02/13/87
Franklin Government Securities Trust 10.32% 6.19% 6.95%* 16.14% 5.39% 7.29% 7.78%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.51% 23.13%* n/a 25.81% 25.92%* n/a n/a 09/13/93
Janus Aspen Balanced Portfolio 16.95% 9.90%* n/a 23.14% 12.39%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.11% 5.81%* n/a 22.22% 8.20%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 21.68% 11.02%* n/a 28.09% 13.53%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.39% 0.79%* n/a 7.78% 3.07%* n/a n/a 09/13/93
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($15 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Worldwide Growth Portfolio 19.43% 16.46%* n/a 25.72% 19.09%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.53% 3.65%* n/a 15.30% 5.61% 4.92%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.48% 11.02% 10.67% 29.99% 8.69% 12.17% 10.67% 12/31/85
Scudder International Portfolio
Class A Shares 4.14% 7.81% 7.29%* 9.63% 13.41% 8.93% 7.92%* 04/30/87
TCI Growth 22.89% 12.22% 10.65%* 29.36% 11.18% 13.38% 11.35%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
MULTIPLE OPTION CONTRACTS
TABLE C
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($7.50 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 24.03% 10.91% 12.25% 30.56% 10.38% 12.06% 12.25% 04/30/75
Aetna Income Shares 10.89% 7.34% 8.47% 16.72% 6.26% 8.45% 8.48% 06/01/78
Aetna Variable Encore Fund (0.56%) 2.29% 4.87% 4.68% 3.09% 3.35% 8.47% 09/01/75
Aetna Investment Advisers Fund, Inc. 19.32% 9.32% 8.48%* 25.60% 10.25% 10.45% 9.33%* 06/23/89
Aetna Ascent Variable Portfolio 4.28%* n/a n/a 9.77%* n/a n/a n/a 07/03/95
Aetna Crossroads Variable Portfolio 3.17%* n/a n/a 8.60%* n/a n/a n/a 07/03/95
Aetna Legacy Variable Portfolio 2.16%* n/a n/a 7.54%* n/a n/a n/a 07/03/95
Alger American Growth Portfolio 27.97% 18.95% 17.05%* 34.70% 17.70% 20.18% 17.91%* 01/08/89
Alger American Small Cap Portfolio 35.35% 17.84% 20.19%* 42.47% 14.58% 19.05% 21.04%* 09/21/88
Calvert Responsibly Invested
Balanced Portfolio 21.84% 8.66% 8.06%* 28.26% 9.31% 9.78% 8.65%* 09/30/86
Fidelity VIP II Contrafund Portfolio 30.99%* n/a n/a 37.89%* n/a n/a n/a 01/03/95
Fidelity VIP Equity-Income Portfolio 26.82% 18.55% 11.32%* 33.50% 18.08% 19.77% 11.94%* 10/22/86
Fidelity VIP Growth Portfolio 26.96% 18.01% 12.86%* 33.65% 15.83% 19.23% 13.50%* 11/07/86
Fidelity VIP Overseas Portfolio 2.85% 5.63% 5.35%* 8.26% 13.81% 6.72% 5.96%* 02/13/87
Franklin Government Securities Trust 10.38% 6.25% 7.00%* 16.19% 5.44% 7.34% 7.84%* 05/30/89
Janus Aspen Aggressive Growth Portfolio 19.57% 23.19%* n/a 25.86% 25.97%* n/a n/a 09/13/93
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INSTALLMENT PAYMENT ACCOUNT: FUND
($7.50 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- ------------------------------ --------------------------- ------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- ------------------------------ --------------------------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Balanced Portfolio 17.00% 9.95%* n/a 23.16% 12.44%* n/a n/a 09/13/93
Janus Aspen Flexible Income Portfolio 16.16% 5.87%* n/a 22.28% 8.26%* n/a n/a 09/13/93
Janus Aspen Growth Portfolio 21.73% 11.07%* n/a 28.14% 13.58%* n/a n/a 09/13/93
Janus Aspen Short-Term Bond Portfolio 2.44% 0.85%* n/a 7.84% 3.12%* n/a n/a 09/13/93
Janus Aspen Worldwide Growth Portfolio 19.49% 16.51%* n/a 25.78% 19.14%* n/a n/a 09/13/93
Lexington Natural Resources Trust 9.59% 3.71%* n/a 15.36% 5.67% 4.98%* n/a 05/31/89
Neuberger & Berman Growth Portfolio 23.54% 11.08% 10.72% 30.04% 8.74% 12.22% 10.72% 12/31/85
Scudder International Portfolio
Class A Shares 4.20% 7.87% 7.34%* 9.68% 13.47% 8.98% 7.98%* 04/30/87
TCI Growth 22.94% 12.27% 10.70%* 29.41% 11.23% 13.43% 11.40%* 11/20/87
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These
figures represent historical performance and should not be considered a
projection of future performance.
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date before the first Annuity
payment is due. Such value (less any applicable premium tax) is applied to
provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b) where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
11
<PAGE>
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of
an Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be
20.414. The value of this number of Annuity Units will be paid in each
subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the
assumed net investment rate of 3.5% per annum built into the number of
Annuity Units determined above) produces a result of 1.0014057. This is then
multiplied by the Annuity Unit value for the prior Valuation Date (assume
such value to be $13.504376) to produce an Annuity Unit value of $13.523359
for the Valuation Date on which the second payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor
to neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature
that explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable
annuity contracts and other types of savings or investment products,
including, but not limited to, personal savings accounts and certificates of
deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the
Subaccount being compared.
We may publish in advertisements and reports, the ratings and other
information assigned to us by one or more independent rating organizations
such as A.M. Best Company, Duff & Phelps, Standard & Poor's Corporation and
Moody's Investors Services, Inc. The purpose of the ratings is to reflect
our financial strength and/or claims-paying ability. We may also quote
ranking services such as Morningstar's Variable Annuity/Life Performance
Report and Lipper's Variable Insurance Products Performance Analysis Service
12
<PAGE>
(VIPPAS), which rank variable annuity or life Subaccounts or their underlying
funds by performance and/or investment objective. From time to time, we will
quote articles from newspapers and magazines or other publications or
reports, including, but not limited to The Wall Street Journal, Money
magazine, USA Today and The VARDS Report.
The Company may provide in advertising, sales literature, periodic
publications or other materials information on various topics of interest to
current and prospective Contract Holders or Participants. These topics may
include the relationship between sectors of the economy and the economy as a
whole and its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer and account rebalancing), the
advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and
investment alternatives to certificates of deposit and other financial
instruments, including comparison between the Contracts and the
characteristics of and market for such financial instruments.
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.
13
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
INDEX
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . S-2
Statement of Assets and Liabilities. . . . . . . . . . S-3
Statement of Operations. . . . . . . . . . . . . . . . S-8
Statements of Changes in Net Assets. . . . . . . . . . S-9
Notes to Financial Statements. . . . . . . . . . . . . S-10
Consolidated Financial Information . . . . . . . . . . S-12
S-1
</TABLE>
<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, 1995, and the related statement of operations for the year
then ended, statements of changes in net assets for each of the years in the
two-year period then ended and condensed financial information for the year
ended December 31, 1995. These financial statements and condensed financial
information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
condensed financial information are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Aetna Life Insurance and Annuity Company Variable Annuity
Account C as of December 31, 1995, the results of its operations for the year
then ended, changes in its net assets for each of the years in the two-year
period then ended and condensed financial information for the year ended
December 31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
S-2
<PAGE>
VARIABLE ANNUITY ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES - December 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 135,944,293 shares at $29.06 per share (cost $3,682,373,523).................... $3,949,941,096
Aetna Income Shares; 29,688,857 shares at $13.00 per share (cost $382,776,733)....................... 386,007,595
Aetna Variable Encore Fund; 17,318,377 shares at $13.30 per share (cost $221,087,268) ............... 230,291,686
Aetna Investment Advisers Fund, Inc.; 49,855,715 shares at $14.50 per share
(cost $600,395,092) ............................................................................... 723,017,695
Aetna GET Fund, Series B; 5,897,397 shares at $12.40 per share (cost $59,712,454).................... 73,136,258
Aetna Ascent Variable Portfolio; 454,714 shares at $10.80 per share (cost $4,803,331)................ 4,908,736
Aetna Crossroads Variable Portfolio; 341,591 shares at $10.74 per share (cost $3,599,790)............ 3,668,757
Aetna Legacy Variable Portfolio; 180,468 shares at $10.64 per share (cost $1,883,466)................ 1,919,680
Alger American Funds:
Alger American Growth Portfolio; 1,234,082 shares at $31.16 per share (cost
$38,739,937)....................................................................................... 38,454,000
Alger American Small Capitalization Portfolio; 6,121,453 shares at $39.41 per share
(cost $203,207,523)................................................................................ 241,246,447
Calvert Responsibly Invested Balanced Portfolio; 16,846,014 shares at $1.70 per share
(cost $26,512,853)................................................................................ 28,688,761
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio; 1,973,219 shares at $19.27 per share (cost $35,264,252)................... 38,023,939
Growth Portfolio; 949,237 shares at $29.20 per share (cost $27,212,340)............................ 27,717,728
Overseas Portfolio; 218,122 shares at $17.05 per share (cost $3,555,791)........................... 3,718,987
Fidelity Investments Variable Insurance Products Funds II -
Asset Manager Portfolio; 910,080 shares at $15.79 per share (cost $12,839,173)..................... 14,370,158
Contrafund Portfolio; 2,202,984 shares at $13.78 per share (cost $30,071,951) ..................... 30,357,117
Index 500 Portfolio; 45,055 shares at $75.71 per share (cost $3,187,279) .......................... 3,411,144
Franklin Government Securities Trust; 1,651,095 shares at $13.35 per share
(cost $21,210,874) .............................................................................. 22,042,115
Janus Aspen Series -
Aggressive Growth Portfolio; 5,116,845 shares at $17.08 per share (cost $74,304,318)............... 87,395,716
Balanced Portfolio; 115,516 shares at $13.03 per share (cost $1,444,640)........................... 1,505,170
Flexible Income Portfolio; 347,266 shares at $11.11 per share (cost $3,690,542).................... 3,858,123
Growth Portfolio; 376,690 shares at $13.45 per share (cost $4,920,509)............................. 5,066,487
Short-Term Bond Portfolio; 54,258 shares at $10.03 per share (cost $544,564)....................... 544,210
Worldwide Growth Portfolio; 1,048,130 shares at $15.31 per share (cost $15,260,366)................ 16,046,863
Lexington Emerging Markets Fund, Inc.; 329,323 shares at $9.38 per share (cost $3,135,164) .......... 3,089,046
Lexington Natural Resources Trust; 1,257,565 shares at $11.30 per share (cost $12,932,744) .......... 14,210,484
Neuberger & Berman Advisers Management Trust - Growth Portfolio; 3,460,773 shares
at $25.86 per share (cost $77,838,858)............................................................ 89,495,579
Scudder Variable Life Investment Fund - International Portfolio; 13,936,090 shares
at $11.82 per share (cost $151,941,144).................................. ........................ 164,724,583
TCI Portfolios, Inc. - TCI Growth; 35,261,982 shares at $12.06 per share (cost $333,587,996) ........ 425,259,499
NET ASSETS ............................................................................................ 6,632,117,659
--------------
--------------
</TABLE>
S-3
<PAGE>
Net assets represented by:
<TABLE>
<CAPTION>
Accumulation
Unit
Units Value
<S> <C> <C> <C>
Reserves for annuity contracts in accumulation and payment period:
AETNA VARIABLE FUND:
Qualified I ..................................................... 549,055.7 $180.879 $99,312,649
Qualified III ................................................... 6,364,000.3 137.869 877,395,210
Qualified IV .................................................... 269.0 83.646 22,498
Qualified V ..................................................... 121,691.2 14.113 1,717,411
Qualified VI .................................................... 188,964,022.4 14.077 2,660,123,261
Qualified VII ................................................... 9,779,134.6 13.247 129,544,460
Qualified VIII .................................................. 20,835.7 13.074 272,413
Qualified IX .................................................... 21,417.9 12.935 277,043
Qualified X (1.15)............................................... 273,578.4 14.108 3,859,670
Qualified X (1.25)............................................... 2,370,233.5 14.077 33,366,740
Reserves for annuity contracts in payment period (Note 1)........ 144,049,741
AETNA INCOME SHARES:
Qualified I ..................................................... 72,902.0 47.405 3,455,895
Qualified III ................................................... 2,377,621.8 46.913 111,541,104
Qualified V ..................................................... 20,427.2 12.283 250,918
Qualified VI .................................................... 21,379,975.5 12.098 258,665,226
Qualified VII ................................................... 185,030.5 11.176 2,067,926
Qualified VIII .................................................. 1,090.6 11.143 12,153
Qualified IX .................................................... 3,580.8 11.203 40,116
Qualified X (1.15)............................................... 50,261.1 12.125 609,409
Qualified X (1.25)............................................... 354,993.3 12.098 4,294,879
Reserves for annuity contracts in payment period (Note 1) ....... 5,069,969
AETNA VARIABLE ENCORE FUND:
Qualified I ..................................................... 150,480.4 38.485 5,791,253
Qualified III ................................................... 1,836,260.4 37.988 69,756,054
Qualified V ..................................................... 19,202.4 11.003 211,293
Qualified VI .................................................... 12,999,680.2 11.026 143,337,034
Qualified VII ................................................... 324,091.0 10.936 3,544,190
Qualified VIII .................................................. 656.2 10.620 6,969
Qualified IX .................................................... 3,050.3 10.857 33,118
Qualified X (1.15)............................................... 145,629.4 11.051 1,609,306
Qualified X (1.25)............................................... 544,382.5 11.026 6,002,469
AETNA INVESTMENT ADVISERS FUND, INC.:
Qualified I ..................................................... 393,612.5 18.024 7,094,461
Qualified III ................................................... 9,193,181.4 17.954 165,052,015
Qualified V ..................................................... 19,038.2 13.693 260,683
Qualified VI .................................................... 38,152,394.6 13.673 521,663,491
Qualified VII ................................................... 335,791.4 13.135 4,410,596
Qualified VIII .................................................. 1,055.3 12.695 13,397
Qualified IX .................................................... 3,961.7 12.613 49,969
Qualified X (1.15)............................................... 138,270.8 13.703 1,894,705
Qualified X (1.25)............................................... 940,932.7 13.673 12,865,516
Reserves for annuity contracts in payment period (Note 1) ....... 9,712,862
AETNA GET FUND, SERIES B:
Qualified III .................................................. 63,245.0 12.850 812,688
S-4
<PAGE>
<CAPTION>
Accumulation
Unit
Units Value
<S> <C> <C> <C>
Qualified VI..................................................... 5,279,157.0 12.850 67,836,249
Qualified X (1.25)............................................... 349,212.6 12.850 4,487,321
AETNA ASCENT VARIABLE PORTFOLIO:
Qualified III.................................................... 8.4 10.673 90
Qualified V...................................................... 202.1 10.666 2,156
Qualified VI..................................................... 393,052.6 10.673 4,195,040
Qualified VIII................................................... 7.7 10.673 82
Qualified X (1.15)............................................... 15,054.8 10.982 165,326
Qualified X (1.25)............................................... 49,748.1 10.976 546,042
AETNA CROSSROADS VARIABLE PORTFOLIO:
Qualified V...................................................... 243.2 10.605 2,579
Qualified VI..................................................... 294,673.3 10.612 3,126,954
Qualified VIII................................................... 43.8 10.611 464
Qualified X (1.15)............................................... 2,393.5 10.868 26,012
Qualified X (1.25)............................................... 47,204.4 10.862 512,748
AETNA LEGACY VARIABLE PORTFOLIO:
Qualified VI..................................................... 143,636.5 10.580 1,519,662
Qualified X (1.15)............................................... 17,106.0 10.631 181,853
Qualified X (1.25)............................................... 20,531.2 10.626 218,165
ALGER AMERICAN FUNDS:
ALGER AMERICAN GROWTH PORTFOLIO:
Qualified III ................................................... 530,262.6 11.715 6,211,911
Qualified V...................................................... 7,965.7 10.365 82,564
Qualified VI..................................................... 2,832,439.7 10.157 28,770,111
Qualified VIII................................................... 38.3 10.371 397
Qualified X (1.15)............................................... 12,858.7 11.385 146,392
Qualified X (1.25)............................................... 284,978.1 11.379 3,242,625
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO:
Qualified III ................................................... 1,714,187.0 13.558 23,241,019
Qualified V ..................................................... 31,527.5 13.463 424,453
Qualified VI .................................................... 15,036,764.7 13.450 202,245,073
Qualified VIII .................................................. 3,845.1 14.093 54,189
Qualified X (1.15)............................................... 54,683.5 13.481 737,179
Qualified X (1.25)............................................... 1,081,374.8 13.450 14,544,534
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO:
Qualified III ................................................... 856,360.5 17.951 15,372,772
Qualified V ..................................................... 14,656.3 13.870 203,278
Qualified VI .................................................... 966,097.9 13.527 13,068,322
Qualified VIII .................................................. 3,611.6 12.291 44,389
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS:
EQUITY-INCOME PORTFOLIO:
Qualified III ................................................... 628,581.6 11.617 7,301,978
Qualified V ..................................................... 1,107.9 11.047 12,239
Qualified VI .................................................... 1,660,304.1 11.092 18,415,763
Qualified VIII .................................................. 638.7 11.054 7,060
Qualified X (1.15)............................................... 118,679.1 13.902 1,649,878
Qualified X (1.25)............................................... 766,359.8 13.880 10,637,021
GROWTH PORTFOLIO:
Qualified III ................................................... 762.1 10.198 7,772
Qualified V ..................................................... 2,540.5 10.183 25,871
Qualified VI .................................................... 1,833,793.9 10.066 18,458,844
S-5
<PAGE>
<CAPTION>
Accumulation
Unit
Units Value
<S> <C> <C> <C>
Qualified VIII .................................................. 158.7 10.190 1,617
Qualified X (1.15)............................................... 45,764.6 14.023 641,737
Qualified X (1.25)............................................... 612,991.7 14.000 8,581,887
OVERSEAS PORTFOLIO:
Qualified III ................................................... 1,301.8 10.197 13,274
Qualified V ..................................................... 190.8 9.954 1,899
Qualified VI .................................................... 196,089.8 9.961 1,953,206
Qualified X (1.15)............................................... 4,284.4 10.278 44,037
Qualified X (1.25)............................................... 166,303.2 10.262 1,706,571
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II:
ASSET MANAGER PORTFOLIO:
Qualified III.................................................... 1,316,915.5 10.912 14,370,158
CONTRAFUND PORTFOLIO:
Qualified III ................................................... 525,476.0 11.763 6,181,326
Qualified V ..................................................... 6,415.4 10.461 67,111
Qualified VI .................................................... 2,116,732.0 10.397 22,007,519
Qualified VIII .................................................. 173.7 10.467 1,818
Qualified X (1.15)............................................... 5,452.8 10.689 63,737
Qualified X (1.25)............................................... 174,259.3 10.681 2,035,606
INDEX 500 PORTFOLIO:
Qualified III ................................................... 290,546.8 11.740 3,411,144
FRANKLIN GOVERNMENT SECURITIES TRUST:
Qualified III ................................................... 809,413.7 16.495 13,351,329
Qualified V ..................................................... 16,226.2 11.946 193,844
Qualified VI .................................................... 717,760.0 11.762 8,442,415
Qualified VIII .................................................. 4,916.9 11.090 54,527
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO:
Qualified III ................................................... 1,280,952.5 15.323 19,627,517
Qualified V.. ................................................... 15,482.4 13.296 205,852
Qualified VI. ................................................... 4,887,059.8 13.322 65,105,449
Qualified VIII .................................................. 1,021.7 13.321 13,610
Qualified X (1.15)............................................... 22,049.9 12.869 283,760
Qualified X (1.25)............................................... 167,919.9 12.861 2,159,528
BALANCED PORTFOLIO:
Qualified III ................................................... 161.4 10.853 1,751
Qualified V ..................................................... 160.2 10.843 1,737
Qualified VI .................................................... 93,303.8 10.850 1,012,385
Qualified X (1.15)............................................... 9,382.9 11.265 105,697
Qualified X (1.25)............................................... 34,071.6 11.259 383,600
FLEXIBLE INCOME PORTFOLIO:
Qualified III ................................................... 3,344.5 12.124 40,550
Qualified V ..................................................... 745.1 12.054 8,981
Qualified VI .................................................... 315,361.3 12.077 3,808,592
GROWTH PORTFOLIO:
Qualified III ................................................... 109,716.5 11.859 1,301,115
Qualified V. .................................................... 166.2 10.872 1,807
Qualified VI. ................................................... 259,195.5 10.870 2,817,612
Qualified X (1.15)............................................... 3,238.4 11.633 37,671
Qualified X (1.25)............................................... 78,126.0 11.626 908,282
S-6
<PAGE>
<CAPTION>
Accumulation
Unit
Units Value
<S> <C> <C> <C>
SHORT-TERM BOND PORTFOLIO:
Qualified III ................................................... 18,472.9 10.393 191,983
Qualified V ..................................................... 23.8 10.316 245
Qualified VI .................................................... 32,695.8 10.323 337,528
Qualified X (1.25)............................................... 1,405.3 10.285 14,454
WORLDWIDE GROWTH PORTFOLIO:
Qualified III ................................................... 314,652.7 12.158 3,825,607
Qualified V ..................................................... 11,127.9 10.952 121,875
Qualified VI .................................................... 1,036,039.6 10.877 11,268,519
Qualified VIII .................................................. 13.7 10.846 149
Qualified X (1.15)............................................... 2,616.9 12.223 31,987
Qualified X (1.25)............................................... 65,384.2 12.216 798,726
LEXINGTON EMERGING MARKETS FUND:
Qualified III ................................................... 371,155.8 8.323 3,089,046
LEXINGTON NATURAL RESOURCES TRUST:
Qualified III ................................................... 530,562.2 10.862 5,763,092
Qualified V ..................................................... 8,347.9 12.095 100,969
Qualified VI .................................................... 711,891.9 11.720 8,346,423
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
GROWTH PORTFOLIO:
Qualified III ................................................... 2,359,089.9 17.430 41,119,982
Qualified V ..................................................... 35,940.7 14.359 516,068
Qualified VI .................................................... 3,331,217.5 14.345 47,786,169
Qualified VIII .................................................. 5,947.6 12.334 73,360
SCUDDER VARIABLE LIFE INVESTMENT FUND:
INTERNATIONAL PORTFOLIO:
Qualified III ................................................... 3,823,292.2 14.515 55,495,694
Qualified V ..................................................... 38,067.4 13.799 525,305
Qualified VI .................................................... 7,323,208.0 13.923 101,958,550
Qualified VIII .................................................. 12,189.3 11.733 143,011
Qualified X (1.15)............................................... 41,921.0 13.952 584,886
Qualified X (1.25)............................................... 432,183.0 13.923 6,017,137
TCI PORTFOLIOS, INC.:
TCI GROWTH:
Qualified III *.................................................. 1,784,551.6 14.464 25,811,741
Qualified III .................................................. 4,184,701.2 13.224 55,336,455
Qualified V ..................................................... 24,825.6 15.176 376,753
Qualified VI .................................................... 21,986,645.3 15.253 335,360,124
Qualified VII ................................................... 63,035.5 12.840 809,380
Qualified VIII .................................................. 8,144.3 12.868 104,799
Qualified IX .................................................... 1,241.8 12.581 15,623
Qualified X (1.15)............................................... 13,306.7 15.285 203,397
Qualified X (1.25)............................................... 474,744.3 15.253 7,241,227
$6,632,117,659
--------------
--------------
</TABLE>
*Applies only to participants of the Opportunity Plus program and Multiple
Options Contracts.
See Notes to Financial Statements.
S-7
<PAGE>
VARIABLE ANNUITY ACCOUNT C
STATEMENT OF OPERATIONS - Year Ended December 31, 1995
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Dividends: (Notes 1 and 3)
Aetna Variable Fund............................................................ $648,150,765
Aetna Income Shares............................................................ 23,872,308
Aetna Variable Encore Fund .................................................... 172,751
Aetna Investment Advisers Fund, Inc............................................ 47,274,300
Aetna GET Fund, Series B ...................................................... 1,878,972
Aetna Ascent Variable Portfolio ............................................... 110,626
Aetna Crossroads Variable Portfolio ........................................... 61,834
Aetna Legacy Variable Portfolio ............................................... 33,640
Calvert Responsibly Invested Balanced Portfolio .............................. 2,556,825
Fidelity Investments Variable Insurance Products Fund - Equity Income Portfolio 423,626
Fidelity Investments Variable Insurance Products Fund - Growth Portfolio ...... 10,256
Fidelity Investments Variable Insurance Products Fund - Overseas Portfolio .... 5,145
Fidelity Investments Variable Insurance Products Fund II - Asset Manager Portfolio 259,914
Fidelity Investments Variable Insurance Products Fund II - Contrafund Portfolio 379,043
Franklin Government Securities Trust .......................................... 1,061,449
Janus Aspen Series - Aggressive Growth Portfolio............................... 982,586
Janus Aspen Series - Balanced Portfolio........................................ 11,553
Janus Aspen Series - Flexible Income Portfolio................................. 151,761
Janus Aspen Series - Growth Portfolio.......................................... 91,472
Janus Aspen Series - Short-Term Bond Portfolio................................. 11,707
Janus Aspen Series - Worldwide Growth Portfolio................................ 50,858
Lexington Emerging Markets Fund................................................ 29,990
Lexington Natural Resources Trust.............................................. 59,767
Neuberger & Berman Advisers Management Trust - Growth Portfolio ............... 1,779,523
Scudder Variable Life Investment Fund - International Portfolio............... 670,720
TCI Portfolios, Inc. - TCI Growth.............................................. 339,221
--------------
Total investment income ..................................................... 730,430,612
Valuation period deductions (Note 2)............................................. (71,090,542)
--------------
Net investment income............................................................ 659,340,070
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales ........................................................... $570,154,582
Cost of investments sold ...................................................... 409,480,615
------------
Net realized gain ........................................................... 160,673,967
Net unrealized gain on investments:
Beginning of year ............................................................. 73,479,233
End of year ................................................................... 594,083,184
------------
Net unrealized gain ......................................................... 520,603,951
--------------
Net realized and unrealized gain on investments ................................. 681,277,918
--------------
Net increase in net assets resulting from operations ............................ $1,340,617,988
--------------
--------------
</TABLE>
See Notes to Financial Statements.
S-8
<PAGE>
VARIABLE ANNUITY ACCOUNT C
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---- ----
<S> <C> <C>
FROM OPERATIONS:
Net investment income .......................................... $ 659,340,070 $ 476,196,420
Net realized and unrealized gain (loss) on investments .......... 681,277,918 (581,812,453)
Net increase (decrease) in net assets resulting from operations 1,340,617,988 (105,616,033)
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ..................... 771,594,245 711,565,372
Sales and administrative charges deducted by the Company ........ (98,694) (137,737)
Net variable annuity contract purchase payments ............... 771,495,551 711,427,635
Transfers from the Company for mortality guarantee adjustments .. 3,678,430 1,880,350
Transfers to the Company's fixed account options ................ (44,377,350) (56,920,532)
Transfers to other variable annuity accounts ........... 0 (23,284,415)
Redemptions by contract holders ................................. (287,945,984) (269,542,942)
Annuity payments ................................................ (14,807,537) (11,189,149)
Other ........................................................... 1,144,770 1,452,959
Net increase in net assets from unit transactions ............. 429,187,880 353,823,906
Change in net assets ............................................ 1,769,805,868 248,207,873
NET ASSETS:
Beginning of year ............................................... 4,862,311,791 4,614,103,918
End of year...................................................... $6,632,117,659 $4,862,311,791
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements.
S-9
<PAGE>
VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account C ("Account") is registered under the Investment
Company Act of 1940 as a unit investment trust. The Account is sold
exclusively for use with annuity contracts that are qualified under the
Internal Revenue Code of 1986, as amended.
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles.
a. VALUATION OF INVESTMENTS
Investments in the following Funds are stated at the closing net asset
value per share as determined by each Fund on December 31, 1995:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna GET Fund, Series B
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Alger American Fund:
- Alger American Growth Portfolio
- Alger American Small Capitalization Portfolio
Calvert Responsibly Invested Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund:
- Equity-Income Portfolio
- Growth Portfolio
- Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
- Asset Manager Portfolio
- Contrafund Portfolio
- Index 500 Portfolio
Franklin Government Securities Trust
Janus Aspen Series:
- Aggressive Growth Portfolio
- Balanced Portfolio
- Flexible Income Portfolio
- Growth Portfolio
- Short-Term Bond Portfolio
- Worldwide Growth Portfolio
Lexington Emerging Markets Fund
Lexington Natural Resources Trust
Neuberger & Berman Advisers Management Trust:
- Growth Portfolio
Scudder Variable Life Investment Fund:
- International Portfolio
TCI Portfolios, Inc.:
- TCI Growth
b. OTHER
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is determined by specific identification.
c. FEDERAL INCOME TAXES
The operations of Variable Annuity Account C form a part of, and are taxed
with, the total operations of Aetna Life Insurance and Annuity Company
("Company") which is taxed as a life insurance company under the Internal
Revenue Code of 1986, as amended.
d. ANNUITY RESERVES
Annuity reserves 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. Mortality experience is monitored by the Company.
S-10
<PAGE>
VARIABLE ANNUITY ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - December 31, 1995 (continued)
Charges to annuity reserves for mortality and expense risk experience are
reimbursed to the Company if the reserves required are less than originally
estimated. If additional reserves are required, the Company reimburses the
Account.
2. VALUATION PERIOD DEDUCTIONS
Deductions by the Account for mortality and expense risk charges are made
in accordance with the terms of the contracts and are paid to the Company.
3. DIVIDEND INCOME
On an annual basis the Funds distribute substantially all of their taxable
income and realized capital gains to their shareholders. Distributions to
the Account are automatically reinvested in shares of the Funds. The
Account's proportionate share of each Fund's undistributed net investment
income and accumulated net realized gain on investments is included in net
unrealized gain in the Statement of Operations.
4. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments other than
short-term investments for the year ended December 31, 1995 aggregated
$1,658,682,532 and $570,154,582, respectively.
5. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported therein. Although actual results
could differ from these estimates, any such differences are expected to be
immaterial to the net assets of the Account.
S-11
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AETNA VARIABLE FUND:
Qualified I ............................................................. $138.406 $180.879 30.69%
Qualified III ........................................................... 105.558 137.869 30.61%
Qualified IV ............................................................ 63.884 83.646 30.93%
Qualified V ............................................................. 10.823 14.113 30.40%
Qualified VI ............................................................ 10.778 14.077 30.61%
Qualified VII ........................................................... 10.136 13.247 30.69%
Qualified VIII .......................................................... 10.011 13.074 30.60%
Qualified IX ............................................................ 9.879 12.935 30.93%
Qualified X (1.15) ...................................................... 10.791 14.108 30.74%
Qualified X (1.25) ...................................................... 10.778 14.077 30.61%
- -------------------------------------------------------------------------------------------------------------------------
AETNA INCOME SHARES:
Qualified I ............................................................. $ 40.570 $ 47.405 16.85%
Qualified III ........................................................... 40.173 46.913 16.78%
Qualified V ............................................................. 10.536 12.283 16.59%
Qualified VI ............................................................ 10.360 12.098 16.78%
Qualified VII ........................................................... 9.565 11.176 16.85%
Qualified VIII .......................................................... 9.543 11.143 16.77%
Qualified IX ............................................................ 9.570 11.203 17.07%
Qualified X (1.15) ...................................................... 10.373 12.125 16.89%
Qualified X (1.25) ...................................................... 10.360 12.098 16.78%
- -------------------------------------------------------------------------------------------------------------------------
AETNA VARIABLE ENCORE FUND:
Qualified I ............................................................. $ 36.723 $ 38.485 4.80%
Qualified III ........................................................... 36.271 37.988 4.73%
Qualified V ............................................................. 10.523 11.003 4.57%
Qualified VI ............................................................ 10.528 11.026 4.73%
Qualified VII ........................................................... 10.435 10.936 4.80%
Qualified VIII .......................................................... 10.141 10.620 4.73%
Qualified IX ............................................................ 10.341 10.857 5.00%
Qualified X (1.15) ...................................................... 10.541 11.051 4.84%
Qualified X (1.25) ...................................................... 10.528 11.026 4.73%
- -------------------------------------------------------------------------------------------------------------------------
AETNA INVESTMENT ADVISERS FUND, INC.:
Qualified I ............................................................. $ 14.317 $ 18.024 25.89%
Qualified III ........................................................... 14.270 17.954 25.82%
Qualified V ............................................................. 10.900 13.693 25.62%
Qualified VI ............................................................ 10.868 13.673 25.81%
Qualified VII ........................................................... 10.434 13.135 25.89%
Qualified VIII .......................................................... 10.091 12.695 25.81%
Qualified IX ............................................................ 10.000 12.613 26.13%
Qualified X (1.15) ...................................................... 10.880 13.703 25.95%
Qualified X (1.25) ...................................................... 10.868 13.673 25.81%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-12
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AETNA GET FUND, SERIES B:
Qualified III ........................................................... $ 10.160 $ 12.850 26.48%
Qualified VI ............................................................ 10.160 12.850 26.48%
Qualified X (1.25) ...................................................... 10.160 12.850 26.48%
- -------------------------------------------------------------------------------------------------------------------------
AETNA ASCENT VARIABLE PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 10.673 6.73% (4)
Qualified V ............................................................. 10.000 10.666 6.66% (5)
Qualified VI ............................................................ 10.000 10.673 6.73% (5)
Qualified VIII .......................................................... 10.000 10.673 6.73% (5)
Qualified X (1.15) ...................................................... 10.000 10.982 9.82% (3)
Qualified X (1.25) ...................................................... 10.000 10.976 9.76% (3)
- -------------------------------------------------------------------------------------------------------------------------
AETNA CROSSROADS VARIABLE PORTFOLIO:
Qualified V ............................................................. $ 10.000 $ 10.605 6.05% (5)
Qualified VI ............................................................ 10.000 10.612 6.12% (5)
Qualified VIII .......................................................... 10.000 10.611 6.11% (5)
Qualified X (1.15) ...................................................... 10.000 10.868 8.68% (3)
Qualified X (1.25) ...................................................... 10.000 10.862 8.62% (3)
- -------------------------------------------------------------------------------------------------------------------------
AETNA LEGACY VARIABLE PORTFOLIO:
Qualified VI ............................................................ $ 10.000 $ 10.580 5.80% (5)
Qualified X (1.15) ...................................................... 10.000 10.631 6.31% (4)
Qualified X (1.25) ...................................................... 10.000 10.626 6.26% (4)
- -------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN FUNDS:
ALGER AMERICAN GROWTH PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 11.715 17.15% (4)
Qualified V ............................................................. 10.000 10.365 3.65% (5)
Qualified VI ............................................................ 10.000 10.157 1.57% (5)
Qualified VIII .......................................................... 10.000 10.371 3.71% (5)
Qualified X (1.15) ...................................................... 10.000 11.385 13.85% (3)
Qualified X (1.25) ...................................................... 10.000 11.379 13.79% (3)
- -------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO:
Qualified III ........................................................... $ 9.513 $ 13.558 42.52%
Qualified V ............................................................. 9.461 13.463 42.29%
Qualified VI ............................................................ 9.437 13.450 42.52%
Qualified VIII .......................................................... 9.889 14.093 42.51%
Qualified X (1.15) ...................................................... 9.450 13.481 42.66%
Qualified X (1.25) ...................................................... 9.437 13.450 42.52%
- -------------------------------------------------------------------------------------------------------------------------
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO:
Qualified III ........................................................... $ 13.990 $ 17.951 28.31%
Qualified V ............................................................. 10.839 13.870 27.96%
Qualified VI ............................................................ 10.554 13.527 28.17%
Qualified VIII .......................................................... 9.590 12.291 28.16%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-13
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Increase
(Decrease)
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS:
EQUITY - INCOME PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 11.617 16.17% (2)
Qualified V ............................................................. 10.000 11.047 10.47% (5)
Qualified VI ............................................................ 10.000 11.092 10.92% (5)
Qualified VIII .......................................................... 10.000 11.054 10.54% (5)
Qualified X (1.15) ...................................................... 10.409 13.902 33.55%
Qualified X (1.25) ...................................................... 10.403 13.880 33.42%
- -------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 10.198 1.98% (4)
Qualified V ............................................................. 10.000 10.183 1.83% (5)
Qualified VI ............................................................ 10.000 10.066 0.66% (5)
Qualified VIII .......................................................... 10.000 10.190 1.90% (5)
Qualified X (1.15) ...................................................... 10.479 14.023 33.82%
Qualified X (1.25) ...................................................... 10.472 14.000 33.69%
- -------------------------------------------------------------------------------------------------------------------------
OVERSEAS PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 10.197 1.97% (4)
Qualified V ............................................................. 10.000 9.954 (0.46%) (5)
Qualified VI ............................................................ 10.000 9.961 (0.39%) (5)
Qualified X (1.15) ...................................................... 9.480 10.278 8.43%
Qualified X (1.25) ...................................................... 9.474 10.262 8.32%
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS II:
ASSET MANAGER PORTFOLIO:
Qualified III ........................................................... $ 9.447 $ 10.912 15.51%
- -------------------------------------------------------------------------------------------------------------------------
CONTRAFUND PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 11.763 17.63% (2)
Qualified V ............................................................. 10.000 10.461 4.61% (5)
Qualified VI ............................................................ 10.000 10.397 3.97% (5)
Qualified VIII .......................................................... 10.000 10.467 4.67% (5)
Qualified X (1.15) ...................................................... 10.000 10.689 6.89% (2)
Qualified X (1.25) ...................................................... 10.000 10.681 6.81% (2)
- -------------------------------------------------------------------------------------------------------------------------
INDEX 500 PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 11.740 17.40% (2)
- -------------------------------------------------------------------------------------------------------------------------
FRANKLIN GOVERNMENT SECURITIES TRUST:
Qualified III ........................................................... $ 14.190 $ 16.495 16.24%
Qualified V ............................................................. 10.294 11.946 16.06%
Qualified VI ............................................................ 10.119 11.762 16.24%
Qualified VIII .......................................................... 9.541 11.090 16.23%
- -------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO:
Qualified III ........................................................... $ 12.169 $ 15.323 25.91%
Qualified V ............................................................. 10.577 13.296 25.71%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Increase
(Decrease)
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JANUS ASPEN SERIES:
AGGRESSIVE GROWTH PORTFOLIO (continued):
Qualified VI ............................................................ $ 10.581 $ 13.322 25.91%
Qualified VIII .......................................................... 10.581 13.321 25.90%
Qualified X (1.15) ...................................................... 10.000 12.869 28.69% (2)
Qualified X (1.25) ...................................................... 10.000 12.861 28.61% (2)
- -------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 10.853 8.53% (4)
Qualified V ............................................................. 10.000 10.843 8.43% (5)
Qualified VI ............................................................ 10.000 10.850 8.50% (5)
Qualified X (1.15) ...................................................... 10.000 11.265 12.65% (3)
Qualified X (1.25) ...................................................... 10.000 11.259 12.59% (3)
- -------------------------------------------------------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO:
Qualified III ........................................................... $ 9.911 $ 12.124 22.33%
Qualified V ............................................................. 10.000 12.054 20.54% (1)
Qualified VI ............................................................ 9.873 12.077 22.33%
- -------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 11.859 18.59% (4)
Qualified V ............................................................. 10.000 10.872 8.72% (5)
Qualified VI ............................................................ 10.000 10.870 8.70% (5)
Qualified X (1.15) ...................................................... 10.000 11.633 16.33% (3)
Qualified X (1.25) ...................................................... 10.000 11.626 16.26% (3)
- -------------------------------------------------------------------------------------------------------------------------
SHORT TERM BOND PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 10.393 3.93% (4)
Qualified V ............................................................. 10.000 10.316 3.16% (5)
Qualified VI ............................................................ 10.000 10.323 3.23% (5)
Qualified X (1.25) ...................................................... 10.000 10.285 2.85% (4)
- -------------------------------------------------------------------------------------------------------------------------
WORLDWIDE GROWTH PORTFOLIO:
Qualified III ........................................................... $ 10.000 $ 12.158 21.58% (4)
Qualified V ............................................................. 10.000 10.952 9.52% (4)
Qualified VI ............................................................ 10.000 10.877 8.77% (5)
Qualified VIII .......................................................... 10.000 10.846 8.46% (5)
Qualified X (1.15) ...................................................... 10.000 12.223 22.23% (2)
Qualified X (1.25) ...................................................... 10.000 12.216 22.16% (2)
- -------------------------------------------------------------------------------------------------------------------------
LEXINGTON EMERGING MARKETS FUND:
Qualified III ........................................................... $ 8.772 $ 8.323 (5.12%)
- -------------------------------------------------------------------------------------------------------------------------
LEXINGTON NATURAL RESOURCES TRUST:
Qualified III ........................................................... $ 9.412 $ 10.862 15.41%
Qualified V ............................................................. 10.496 12.095 15.24%
Qualified VI ............................................................ 10.154 11.720 15.42%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST - GROWTH PORTFOLIO:
Qualified III ........................................................... $ 13.398 $ 17.430 30.09%
Qualified V ............................................................. 11.055 14.359 29.89%
Qualified VI ............................................................ 11.026 14.345 30.10%
Qualified VIII .......................................................... 9.482 12.334 30.09%
- --------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND - INTERNATIONAL
PORTFOLIO:
Qualified III ........................................................... $ 13.227 $ 14.515 9.74%
Qualified V ............................................................. 12.595 13.799 9.56%
Qualified VI ............................................................ 12.687 13.923 9.74%
Qualified VIII .......................................................... 10.692 11.733 9.73%
Qualified X (1.15) ...................................................... 12.701 13.952 9.85%
Qualified X (1.25) ...................................................... 12.687 13.923 9.74%
- --------------------------------------------------------------------------------------------------------------------------
TCI PORTFOLIOS, INC.:
TCI GROWTH:
Qualified III* .......................................................... $ 11.172 $ 14.464 29.47%
Qualified III ........................................................... 10.213 13.224 29.47%
Qualified V ............................................................. 11.740 15.176 29.27%
Qualified VI ............................................................ 11.781 15.253 29.47%
Qualified VII ........................................................... 9.911 12.840 29.55%
Qualified VIII .......................................................... 9.939 12.868 29.46%
Qualified IX ............................................................ 9.693 12.581 29.80%
Qualified X (1.15) ...................................................... 11.794 15.285 29.60%
Qualified X (1.25) ...................................................... 11.781 15.253 29.47%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Applies only to participants of the Opportunity Plus program and Multiple
Options Contracts.
QUALIFIED I Individual contracts issued prior to May 1, 1975
in connection with "Qualified Corporate Retirement
Plans" established pursuant to Section 401 of the
Internal Revenue Code ("Code"); "Tax-Deferred
Annuity Plans" established by the public school
systems and tax-exempt organizations pursuant to
Section 403(b) of the Code, and certain Individual
Retirement Annuity Plans established by or on
behalf of individuals pursuant to section 408(b)
of the Code; Individual contracts issued prior to
November 1, 1975 in connection with "H.R. 10
Plans" established by persons entitled to the
benefits of the Self-Employed Individuals Tax
Retirement Act of 1962, as amended; allocated
group contracts issued prior to May 1, 1975 in
connection with Qualified Corporate Retirement
Plans; and group contracts issued prior to
October 1, 1978 in connection with Tax-Deferred
Annuity Plans.
QUALIFIED III Individual contracts issued in connection with
Tax-Deferred Annuity Plans and Individual
Retirement Annuity Plans since May 1, 1975, H.R.
10 Plans since November 1, 1975; group contracts
issued since October 1, 1978 in connection with
Tax-Deferred Annuity
S-16
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CONDENSED FINANCIAL INFORMATION
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1995 TO DECEMBER 31, 1995
(continued)
- --------------------------------------------------------------------------------
QUALIFIED III (continued): Plans and group contracts issued since May 1, 1979
in connection with "Deferred Compensation Plans"
adopted by state and local governments and H.R. 10
Plans.
QUALIFIED IV Certain large group contracts (Jumbo) issued in
connection with Tax-Deferred Annuity Plans and
Deferred Compensation Plans issued since
January 1, 1979.
QUALIFIED V Group AetnaPlus contracts issued since August 28,
1992 in connection with "Optional Retirement
Plans" established pursuant to Section 403(b) or
401(a) of the Internal Revenue Code.
QUALIFIED VI Group AetnaPlus contracts issued in connection
with Tax-Deferred Annuity Plans and Retirement
Plus Plans since August 28, 1992.
QUALIFIED VII Certain existing contracts that were converted to
ACES, the new administrative system (Previously
valued under Qualified I).
QUALIFIED VIII "Group Aetna Plus" contracts issued in connection
with Tax-Deferred Annuity Plans and "Deferred
Compensation Plans" adopted by state and local
governments since June 30, 1993.
QUALIFIED IX Certain large group contracts (Jumbo) that were
converted to ACES, the new administrative system
(previously valued under Qualified VI).
QUALIFIED X Individual Retirement Annuity and Simplified
Employee Pension Plans issued or converted to
ACES, the new administrative system.
1 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during March 1995 when
the fund became available under the contract or the applicable daily asset
charge was first utilized.
2 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during May 1995 when the
fund became available under the contract or the applicable daily asset
charge was first utilized.
3 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during June 1995 when
the fund became available under the contract or the applicable daily asset
charge was first utilized.
4 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during July 1995 when
the fund became available under the contract or the applicable daily asset
charge was first utilized.
5 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established at $10.000 during August 1995 when
the fund became available under the contract or the applicable daily asset
charge was first utilized.
S-17
<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, 1995, 1994 and 1993.............................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994... F-4
Consolidated Statements of Changes in Shareholder's Equity for
the Years Ended
December 31, 1995, 1994 and 1993.............................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.............................. F-6
Notes to Consolidated Financial Statements....................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholder and Board of Directors
Aetna Life Insurance and Annuity Company:
We have audited the accompanying consolidated balance sheets of Aetna Life
Insurance and Annuity Company and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aetna Life Insurance
and Annuity Company and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its methods of accounting for certain investments in debt and
equity securities.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 6, 1996
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Income
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Premiums............................................. $ 130.8 $ 124.2 $ 82.1
Charges assessed against policyholders............... 318.9 279.0 251.5
Net investment income................................ 1,004.3 917.2 911.9
Net realized capital gains........................... 41.3 1.5 9.5
Other income......................................... 42.0 10.3 9.5
-------- -------- --------
Total revenue...................................... 1,537.3 1,332.2 1,264.5
-------- -------- --------
Benefits and expenses:
Current and future benefits.......................... 915.3 854.1 818.4
Operating expenses................................... 318.7 235.2 207.2
Amortization of deferred policy acquisition costs.... 43.3 26.4 19.8
-------- -------- --------
Total benefits and expenses........................ 1,277.3 1,115.7 1,045.4
-------- -------- --------
Income before federal income taxes..................... 260.0 216.5 219.1
Federal income taxes................................. 84.1 71.2 76.2
-------- -------- --------
Net income............................................. $ 175.9 $ 145.3 $ 142.9
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Balance Sheets
(millions)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
- -------------------------------------------------------
Investments:
Debt securities, available for sale:
(amortized cost: $11,923.7 and $10,577.8)........... $12,720.8 $10,191.4
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $51.3 and
$43.3)............................................ 57.6 47.2
Investment in affiliated mutual funds (cost: $173.4
and $187.1)....................................... 191.8 181.9
Common stock (cost: $6.9 at December 31, 1995)..... 8.2 --
Short-term investments............................... 15.1 98.0
Mortgage loans....................................... 21.2 9.9
Policy loans......................................... 338.6 248.7
Limited partnership.................................. -- 24.4
--------- ---------
Total investments................................ 13,353.3 10,801.5
Cash and cash equivalents.............................. 568.8 623.3
Accrued investment income.............................. 175.5 142.2
Premiums due and other receivables..................... 37.3 75.8
Deferred policy acquisition costs...................... 1,341.3 1,164.3
Reinsurance loan to affiliate.......................... 655.5 690.3
Other assets........................................... 26.2 15.9
Separate Accounts assets............................... 10,987.0 7,420.8
--------- ---------
Total assets..................................... $27,144.9 $20,934.1
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
- -------------------------------------------------------
Liabilities:
Future policy benefits............................... $ 3,594.6 $ 2,912.7
Unpaid claims and claim expenses..................... 27.2 23.8
Policyholders' funds left with the Company........... 10,500.1 8,949.3
--------- ---------
Total insurance reserve liabilities.............. 14,121.9 11,885.8
Other liabilities.................................... 259.2 302.1
Federal income taxes:
Current............................................ 24.2 3.4
Deferred........................................... 169.6 233.5
Separate Accounts liabilities........................ 10,987.0 7,420.8
--------- ---------
Total liabilities................................ 25,561.9 19,845.6
--------- ---------
--------- ---------
Shareholder's equity:
Common stock, par value $50 (100,000 shares
authorized;
55,000 shares issued and outstanding)............... 2.8 2.8
Paid-in capital...................................... 407.6 407.6
Net unrealized capital gains (losses)................ 132.5 (189.0)
Retained earnings.................................... 1,040.1 867.1
--------- ---------
Total shareholder's equity....................... 1,583.0 1,088.5
--------- ---------
Total liabilities and shareholder's equity..... $27,144.9 $20,934.1
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Shareholder's equity, beginning of year................ $ 1,088.5 $ 1,246.7 $ 990.1
Net change in unrealized capital gains (losses)........ 321.5 (303.5) 113.7
Net income............................................. 175.9 145.3 142.9
Common stock dividends declared........................ (2.9) -- --
--------- --------- ---------
Shareholder's equity, end of year...................... $ 1,583.0 $ 1,088.5 $ 1,246.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 175.9 $ 145.3 $ 142.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income.............. (33.3) (17.5) (11.1)
Decrease (increase) in premiums due and other
receivables....................................... 25.4 1.3 (5.6)
Increase in policy loans........................... (89.9) (46.0) (36.4)
Increase in deferred policy acquisition costs...... (177.0) (105.9) (60.5)
Decrease in reinsurance loan to affiliate.......... 34.8 27.8 31.8
Net increase in universal life account balances.... 393.4 164.7 126.4
Increase in other insurance reserve liabilities.... 79.0 75.1 86.1
Net increase in other liabilities and other
assets............................................ 15.0 53.9 7.0
Decrease in federal income taxes................... (6.5) (11.7) (3.7)
Net accretion of discount on bonds................. (66.4) (77.9) (88.1)
Net realized capital gains......................... (41.3) (1.5) (9.5)
Other, net......................................... -- (1.0) 0.2
---------- ---------- ----------
Net cash provided by operating activities........ 309.1 206.6 179.5
---------- ---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale................. 4,207.2 3,593.8 473.9
Equity securities.................................. 180.8 93.1 89.6
Mortgage loans..................................... 10.7 -- --
Limited partnership................................ 26.6 -- --
Investment maturities and collections of:
Debt securities available for sale................. 583.9 1,289.2 2,133.3
Short-term investments............................. 106.1 30.4 19.7
Cost of investment purchases in:
Debt securities.................................... (6,034.0) (5,621.4) (3,669.2)
Equity securities.................................. (170.9) (162.5) (157.5)
Short-term investments............................. (24.7) (106.1) (41.3)
Mortgage loans..................................... (21.3) -- --
Limited partnership................................ -- (25.0) --
---------- ---------- ----------
Net cash used for investing activities........... (1,135.6) (908.5) (1,151.5)
---------- ---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment
contracts........................................... 1,884.5 1,737.8 2,117.8
Withdrawals of investment contracts.................. (1,109.6) (948.7) (1,000.3)
Dividends paid to shareholder........................ (2.9) -- --
---------- ---------- ----------
Net cash provided by financing activities........ 772.0 789.1 1,117.5
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents... (54.5) 87.2 145.5
Cash and cash equivalents, beginning of year........... 623.3 536.1 390.6
---------- ---------- ----------
Cash and cash equivalents, end of year................. $ 568.8 $ 623.3 $ 536.1
---------- ---------- ----------
---------- ---------- ----------
Supplemental cash flow information:
Income taxes paid, net............................... $ 90.2 $ 82.6 $ 79.9
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Aetna Life Insurance and Annuity Company and its wholly owned subsidiaries
(collectively, the "Company") is a provider of financial services and life
insurance products in the United States. The Company has two business segments,
financial services and life insurance.
The financial services products include individual and group annuity contracts
which offer a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify under Internal Revenue Code
Sections 401, 403, 408 and 457, and individual and group non-qualified annuity
contracts. These contracts may be immediate or deferred and are offered
primarily to individuals, pension plans, small businesses and employer-sponsored
groups in the health care, government, education (collectively "not-for-profit"
organizations) and corporate markets. Financial services also include pension
plan administrative services.
The life insurance products include universal life, variable universal life,
interest sensitive whole life and term insurance. These products are offered
primarily to individuals, small businesses, employer sponsored groups and
executives of Fortune 2000 companies.
BASIS OF PRESENTATION
The consolidated financial statements include Aetna Life Insurance and Annuity
Company and its wholly owned subsidiaries, Aetna Insurance Company of America
and Aetna Private Capital, Inc. Aetna Life Insurance and Annuity Company is a
wholly owned subsidiary of Aetna Retirement Services, Inc. ("ARSI"). ARSI is a
wholly owned subsidiary of Aetna Life and Casualty Company ("Aetna"). Two
subsidiaries, Systematized Benefits Administrators, Inc. ("SBA"), and Aetna
Investment Services, Inc. ("AISI"), which were previously reported in the
consolidated financial statements were distributed in the form of dividends to
ARSI in December of 1995. The impact to the Company's financial statements of
distributing these dividends was immaterial.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Intercompany transactions have been
eliminated. Certain reclassifications have been made to 1994 and 1993 financial
information to conform to the 1995 presentation.
ACCOUNTING CHANGES
Accounting for Certain Investments in Debt and Equity Securities
On December 31, 1993, the Company adopted Financial Accounting Standard ("FAS")
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires the classification of debt securities into three categories: "held to
maturity", which are carried at amortized cost; "available for sale", which are
carried at fair value with changes in fair value recognized as a component of
shareholder's equity; and "trading", which are carried at fair value with
immediate recognition in income of changes in fair value.
Initial adoption of this standard resulted in a net increase of $106.8 million,
net of taxes of $57.5 million, to net unrealized gains in shareholder's equity.
These amounts exclude gains and losses allocable to experience-rated (including
universal life) contractholders. Adoption of FAS No. 115 did not have a material
effect on deferred policy acquisition costs.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
CASH AND CASH EQUIVALENT
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity of ninety days or less when purchased.
INVESTMENTS
Debt Securities
At December 31, 1995 and 1994, all of the Company's debt securities are
classified as available for sale and carried at fair value. These securities are
written down (as realized losses) for other than temporary decline in value.
Unrealized gains and losses related to these securities, after deducting amounts
allocable to experience-rated contractholders and related taxes, are reflected
in shareholder's equity.
Fair values for debt securities are based on quoted market prices or dealer
quotations. Where quoted market prices or dealer quotations are not available,
fair values are measured utilizing quoted market prices for similar securities
or by using discounted cash flow methods. Cost for mortgage-backed securities is
adjusted for unamortized premiums and discounts, which are amortized using the
interest method over the estimated remaining term of the securities, adjusted
for anticipated prepayments.
Purchases and sales of debt securities are recorded on the trade date.
Equity Securities
Equity securities are classified as available for sale and carried at fair value
based on quoted market prices or dealer quotations. Equity securities are
written down (as realized losses) for other than temporary declines in value.
Unrealized gains and losses related to such securities are reflected in
shareholder's equity. Purchases and sales are recorded on the trade date.
The investment in affiliated mutual funds represents an investment in the Aetna
Series Fund, Inc., a retail mutual fund which has been seeded by the Company,
and is carried at fair value.
Mortgage Loans and Policy Loans
Mortgage loans and policy loans are carried at unpaid principal balances net of
valuation reserves, which approximates fair value, and are generally secured.
Purchases and sales of mortgage loans are recorded on the closing date.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Limited Partnership
The Company's limited partnership investment was carried at the amount invested
plus the Company's share of undistributed operating results and unrealized gains
(losses), which approximates fair value. The Company disposed of the limited
partnership during 1995.
Short-Term Investments
Short-term investments, consisting primarily of money market instruments and
other debt issues purchased with an original maturity of over ninety days and
less than one year, are considered available for sale and are carried at fair
value, which approximates amortized cost.
DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring insurance business have been deferred. These costs,
all of which vary with and are primarily related to the production of new
business, consist principally of commissions, certain expenses of underwriting
and issuing contracts and certain agency expenses. For fixed ordinary life
contracts, such costs are amortized over expected premium-paying periods. For
universal life and certain annuity contracts, such costs are amortized in
proportion to estimated gross profits and adjusted to reflect actual gross
profits. These costs are amortized over twenty years for annuity pension
contracts, and over the contract period for universal life contracts.
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross profits
would not be adequate to cover related losses and expenses.
INSURANCE RESERVE LIABILITIES
The Company's liabilities include reserves related to fixed ordinary life, fixed
universal life and fixed annuity contracts. Reserves for future policy benefits
for fixed ordinary life contracts are computed on the basis of assumed
investment yield, assumed mortality, withdrawals and expenses, including a
margin for adverse deviation, which generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 10.00%. Assumed
investment yield is based on the Company's experience. Mortality and withdrawal
rate assumptions are based on relevant Aetna experience and are periodically
reviewed against both industry standards and experience.
Reserves for fixed universal life (included in Future Policy Benefits) and fixed
deferred annuity contracts (included in Policyholders' Funds Left With the
Company) are equal to the fund value. The fund value is equal to cumulative
deposits less charges plus credited interest thereon, without reduction for
possible future penalties assessed on premature withdrawal. For guaranteed
interest options, the interest credited ranged from 4.00% to 6.38% in 1995 and
4.00% to 5.85% in 1994. For all other fixed options, the interest credited
ranged from 5.00% to 7.00% in 1995 and 5.00% to 7.50% in 1994.
Reserves for fixed annuity contracts in the annuity period and for future
amounts due under settlement options are computed actuarially using the 1971
Individual Annuity Mortality Table, the 1983 Individual Annuity Mortality Table,
the
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1983 Group Annuity Mortality Table and, in some cases, mortality improvement
according to scales G and H, at assumed interest rates ranging from 3.5% to
9.5%. Reserves relating to contracts with life contingencies are included in
Future Policy Benefits. For other contracts, the reserves are reflected in
Policyholders' Funds Left With the Company.
Unpaid claims for all lines of insurance include benefits for reported losses
and estimates of benefits for losses incurred but not reported.
PREMIUMS, CHARGES ASSESSED AGAINST POLICYHOLDERS, BENEFITS AND EXPENSES
Premiums are recorded as revenue when due for fixed ordinary life contracts.
Charges assessed against policyholders' funds for cost of insurance, surrender
charges, actuarial margin and other fees are recorded as revenue for universal
life and certain annuity contracts. Policy benefits and expenses are recorded in
relation to the associated premiums or gross profit so as to result in
recognition of profits over the expected lives of the contracts.
SEPARATE ACCOUNTS
Assets held under variable universal life, variable life and variable annuity
contracts are segregated in Separate Accounts and are invested, as designated by
the contractholder or participant under a contract, in shares of Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers
Fund, Inc., Aetna GET Fund, or The Aetna Series Fund Inc., which are managed by
the Company or other selected mutual funds not managed by the Company. Separate
Accounts assets and liabilities are carried at fair value except for those
relating to a guaranteed interest option which is offered through a Separate
Account. The assets of the Separate Account supporting the guaranteed interest
option are carried at an amortized cost of $322.2 million for 1995 (fair value
$343.9 million) and $149.7 million for 1994 (fair value $146.3 million), since
the Company bears the investment risk where the contract is held to maturity.
Reserves relating to the guaranteed interest option are maintained at fund value
and reflect interest credited at rates ranging from 4.5% to 8.38% in both 1995
and 1994. Separate Accounts assets and liabilities are shown as separate
captions in the Consolidated Balance Sheets. Deposits, investment income and net
realized and unrealized capital gains (losses) of the Separate Accounts are not
reflected in the Consolidated Statements of Income (with the exception of
realized capital gains (losses) on the sale of assets supporting the guaranteed
interest option). The Consolidated Statements of Cash Flows do not reflect
investment activity of the Separate Accounts.
FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
The Company is taxed at regular corporate rates after adjusting income reported
for financial statement purposes for certain items. Deferred income tax benefits
result from changes during the year in cumulative temporary differences between
the tax basis and book basis of assets and liabilities.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS
Investments in debt securities available for sale as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies and corporations... $ 539.5 $ 47.5 $ -- $ 587.0
Obligations of states and political
subdivisions................................ 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial.................................. 2,764.4 110.3 2.1 2,872.6
Utilities.................................. 454.4 27.8 1.0 481.2
Other...................................... 2,177.7 159.5 1.2 2,336.0
--------- ---------- ----- ---------
Total U.S. Corporate securities............ 5,396.5 297.6 4.3 5,689.8
Foreign securities:
Government................................. 316.4 26.1 2.0 340.5
Financial.................................. 534.2 45.4 3.5 576.1
Utilities.................................. 236.3 32.9 -- 269.2
Other...................................... 215.7 15.1 -- 230.8
--------- ---------- ----- ---------
Total Foreign securities................... 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Residential pass-throughs.................. 556.7 99.2 1.8 654.1
Residential CMOs........................... 2,383.9 167.6 2.2 2,549.3
--------- ---------- ----- ---------
Total Residential mortgage-backed
securities................................ 2,940.6 266.8 4.0 3,203.4
Commercial/Multifamily mortgage-backed
securities.................................. 741.9 32.3 0.2 774.0
--------- ---------- ----- ---------
Total Mortgage-backed securities........... 3,682.5 299.1 4.2 3,977.4
Other asset-backed securities................ 961.2 35.5 0.5 996.2
--------- ---------- ----- ---------
Total debt securities available for sale..... $11,923.7 $811.6 $14.5 $12,720.8
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Investments in debt securities available for sale as of December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies and corporations... $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9
Obligations of states and political
subdivisions................................ 37.9 1.2 -- 39.1
U.S. Corporate securities:
Financial.................................. 2,216.9 3.8 109.4 2,111.3
Utilities.................................. 100.1 -- 7.9 92.2
Other...................................... 1,344.3 6.0 67.9 1,282.4
--------- ---------- ---------- ---------
Total U.S. Corporate securities............ 3,661.3 9.8 185.2 3,485.9
Foreign securities:
Government................................. 434.4 1.2 33.9 401.7
Financial.................................. 368.2 1.1 23.0 346.3
Utilities.................................. 204.4 2.5 9.5 197.4
Other...................................... 46.3 0.8 1.5 45.6
--------- ---------- ---------- ---------
Total Foreign securities................... 1,053.3 5.6 67.9 991.0
Residential mortgage-backed securities:
Residential pass-throughs.................. 627.1 81.5 5.0 703.6
Residential CMOs........................... 2,671.0 32.9 139.4 2,564.5
--------- ---------- ---------- ---------
Total Residential mortgage-backed
securities.................................. 3,298.1 114.4 144.4 3,268.1
Commercial/Multifamily mortgage-backed
securities.................................. 435.0 0.2 21.3 413.9
--------- ---------- ---------- ---------
Total Mortgage-backed securities............. 3,733.1 114.6 165.7 3,682.0
Other asset-backed securities................ 696.1 0.2 16.8 679.5
--------- ---------- ---------- ---------
Total debt securities available for sale..... $10,577.8 $133.4 $519.8 $10,191.4
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
At December 31, 1995 and 1994, net unrealized appreciation (depreciation) of
$797.1 million and $(386.4) million, respectively, on available for sale debt
securities included $619.1 million and $(308.6) million, respectively, related
to experience-rated contractholders, which were not included in shareholder's
equity.
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of debt securities for the year ended December
31, 1995 are shown below by contractual maturity. Actual maturities may differ
from contractual maturities because securities may be restructured, called, or
prepaid.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
(MILLIONS)
<S> <C> <C>
Due to mature:
One year or less..................................... $ 348.8 $ 351.1
After one year through five years.................... 2,100.2 2,159.5
After five years through ten years................... 2,516.0 2,663.4
After ten years...................................... 2,315.0 2,573.2
Mortgage-backed securities........................... 3,682.5 3,977.4
Other asset-backed securities........................ 961.2 996.2
--------- ---------
Total................................................ $11,923.7 $12,720.8
--------- ---------
--------- ---------
</TABLE>
The Company engages in securities lending whereby certain securities from its
portfolio are loaned to other institutions for short periods of time. Cash
collateral, which is in excess of the market value of the loaned securities, is
deposited by the borrower with a lending agent, and retained and invested by the
lending agent to generate additional income for the Company. The market value of
the loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value fluctuates. At December 31, 1995, the
Company had loaned securities (which are reflected as invested assets on the
Consolidated Balance Sheets) with a market value of approximately $264.5
million.
At December 31, 1995 and 1994, debt securities carried at $7.4 million and $7.0
million, respectively, were on deposit as required by regulatory authorities.
The valuation reserve for mortgage loans was $3.1 million at December 31, 1994.
There was no valuation reserve for mortgage loans at December 31, 1995. The
carrying value of non-income producing investments was $0.1 million and $0.2
million at December 31, 1995 and 1994, respectively.
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Investments in a single issuer, other than obligations of the U.S. government,
with a carrying value in excess of 10% of the Company's shareholder's equity at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED
DEBT SECURITIES COST FAIR VALUE
---------- ----------
(MILLIONS)
<S> <C> <C>
General Electric Corporation........................... $ 314.9 $ 329.3
General Motors Corporation............................. 273.9 284.5
Associates Corporation of North America................ 230.2 239.1
Society National Bank.................................. 203.5 222.3
Ciesco, L.P............................................ 194.9 194.9
Countrywide Funding.................................... 171.2 172.7
Baxter International................................... 168.9 168.9
Time Warner............................................ 158.6 166.1
Ford Motor Company..................................... 156.7 162.6
</TABLE>
The portfolio of debt securities at December 31, 1995 and 1994 included $662.5
million and $318.3 million, respectively, (5% and 3%, respectively, of the debt
securities) of investments that are considered "below investment grade". "Below
investment grade" securities are defined to be securities that carry a rating
below BBB-/Baa3, by Standard & Poors/ Moody's Investor Services, respectively.
The increase in below investment grade securities is the result of a change in
investment strategy, which has reduced the Company's holdings in residential
mortgage-back securities and increased the Company's holdings in corporate
securities. Residential mortgage-back securities are subject to higher
prepayment risk and lower credit risk, while corporate securities earning a
comparable yield are subject to higher credit risk and lower prepayment risk. We
expect the percentage of below investment grade securities will increase in
1996, but we expect that the overall average quality of the portfolio of debt
securities will remain at AA-. Of these below investment grade assets, $14.5
million and $31.8 million, at December 31, 1995 and 1994, respectively, were
investments that were purchased at investment grade, but whose ratings have
since been downgraded.
Included in residential mortgage-back securities are collateralized mortgage
obligations ("CMOs") with carrying values of $2.5 billion and $2.6 billion at
December 31, 1995 and 1994, respectively. The principal risks inherent in
holding CMOs are prepayment and extension risks related to dramatic decreases
and increases in interest rates whereby the CMOs would be subject to repayments
of principal earlier or later than originally anticipated. At December 31, 1995
and 1994, approximately 79% and 85%, respectively, of the Company's CMO holdings
consisted of sequential and planned amortization class debt securities which are
subject to less prepayment and extension risk than other CMO instruments. At
December 31, 1995 and 1994, approximately 81% and 82%, respectively, of the
Company's CMO holdings were collateralized by residential mortgage loans, on
which the timely payment of principal and interest was backed by specified
government agencies (e.g., GNMA, FNMA, FHLMC).
If due to declining interest rates, principal was to be repaid earlier than
originally anticipated, the Company could be affected by a decrease in
investment income due to the reinvestment of these funds at a lower interest
rate. Such prepayments may result in a duration mismatch between assets and
liabilities which could be corrected as cash from prepayments could be
reinvested at an appropriate duration to adjust the mismatch.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
2. INVESTMENTS (CONTINUED)
Conversely, if due to increasing interest rates, principal was to be repaid
slower than originally anticipated, the Company could be affected by a decrease
in cash flow which reduces the ability to reinvest expected principal repayments
at higher interest rates. Such slower payments may result in a duration mismatch
between assets and liabilities which could be corrected as available cash flow
could be reinvested at an appropriate duration to adjust the mismatch.
At December 31, 1995 and 1994, approximately 3% and 4%, respectively, of the
Company's CMO holdings consisted of interest-only strips ("IOs") or
principal-only strips ("POs"). IOs receive payments of interest and POs receive
payments of principal on the underlying pool of mortgages. The risk inherent in
holding POs is extension risk related to dramatic increases in interest rates
whereby the future payments due on POs could be repaid much slower than
originally anticipated. The extension risks inherent in holding POs was
mitigated somewhat by offsetting positions in IOs. During dramatic increases in
interest rates, IOs would generate more future payments than originally
anticipated.
The risk inherent in holding IOs is prepayment risk related to dramatic
decreases in interest rates whereby future IO cash flows could be much less than
originally anticipated and in some cases could be less than the original cost of
the IO. The risks inherent in IOs are mitigated somewhat by holding offsetting
positions in POs. During dramatic decreases in interest rates POs would generate
future cash flows much quicker than originally anticipated.
Investments in available for sale equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------ ---------- ---------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
1995
Equity Securities................ $231.6 $ 27.2 $ 1.2 $ 257.6
------ ----- --- ----------
1994
Equity Securities................ $230.5 $ 6.5 $ 7.9 $ 229.1
------ ----- --- ----------
</TABLE>
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS
Realized capital gains or losses are the difference between proceeds received
from investments sold or prepaid, and amortized cost. Net realized capital gains
as reflected in the Consolidated Statements of Income are after deductions for
net realized capital gains (losses) allocated to experience-rated contracts of
$61.1 million, $(29.1) million and $(54.8) million for the years ended December
31, 1995, 1994, and 1993, respectively. Net realized capital gains (losses)
allocated to experience-rated contracts are deferred and subsequently reflected
in credited rates on an amortized basis. Net unamortized gains (losses),
reflected as a component of Policyholders' Funds Left With the Company, were
$7.3 million and $(50.7) million at the end of December 31, 1995 and 1994,
respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt securities
are included in net realized capital gains (losses) and amounted to $3.1
million, $1.1 million and $(98.5) million, of which $2.2 million, $0.8 million
and $(91.5) million were allocable to experience-rated contractholders, for the
years ended December 31, 1995, 1994 and 1993, respectively. The 1993 losses were
primarily related to writedowns of interest-only mortgage-backed securities to
their fair value.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Net realized capital gains (losses) on investments, net of amounts allocated to
experience-rated contracts, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $32.8 $ 1.0 $ 9.6
Equity securities...................................... 8.3 0.2 0.1
Mortgage loans......................................... 0.2 0.3 (0.2)
----- ----- ------
Pretax realized capital gains.......................... $41.3 $ 1.5 $ 9.5
----- ----- ------
After-tax realized capital gains....................... $25.8 $ 1.0 $ 6.2
----- ----- ------
</TABLE>
Gross gains of $44.6 million, $26.6 million and $33.3 million and gross losses
of $11.8 million, $25.6 million and $23.7 million were realized from the sales
of investments in debt securities in 1995, 1994 and 1993, respectively.
Changes in unrealized capital gains (losses), excluding changes in unrealized
capital gains (losses) related to experience-rated contracts, for the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ -------- ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $255.9 $ (242.1) $164.3
Equity securities...................................... 27.3 (13.3) 10.6
Limited partnership.................................... 1.8 (1.8) --
------ -------- ------
285.0 (257.2) 174.9
Deferred federal income taxes (See Note 6)............. (36.5) 46.3 61.2
------ -------- ------
Net change in unrealized capital gains (losses)........ $321.5 $ (303.5) $113.7
------ -------- ------
------ -------- ------
</TABLE>
Net unrealized capital gains (losses) allocable to experience-rated contracts of
$515.0 million and $104.1 million at December 31, 1995 and $(260.9) million and
$(47.7) million at December 31, 1994 are reflected on the Consolidated Balance
Sheet in Policyholders' Funds Left With the Company and Future Policy Benefits,
respectively, and are not included in shareholder's equity.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
3. CAPITAL GAINS AND LOSSES ON INVESTMENT OPERATIONS (CONTINUED)
Shareholder's equity included the following unrealized capital gains (losses),
which are net of amounts allocable to experience-rated contractholders, at
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Debt securities
Gross unrealized capital gains....................... $179.3 $ 27.4 $ 164.3
Gross unrealized capital losses...................... (1.3) (105.2) --
------ ------- -------
178.0 (77.8) 164.3
Equity securities
Gross unrealized capital gains....................... 27.2 6.5 12.0
Gross unrealized capital losses...................... (1.2) (7.9) (0.1)
------ ------- -------
26.0 (1.4) 11.9
Limited Partnership
Gross unrealized capital gains....................... -- -- --
Gross unrealized capital losses...................... -- (1.8) --
------ ------- -------
Deferred federal income taxes (See Note 6)............. 71.5 108.0 61.7
------ ------- -------
Net unrealized capital gains (losses).................. $132.5 $(189.0) $ 114.5
------ ------- -------
------ ------- -------
</TABLE>
4. NET INVESTMENT INCOME
Sources of net investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Debt securities........................................ $ 891.5 $823.9 $828.0
Preferred stock........................................ 4.2 3.9 2.3
Investment in affiliated mutual funds.................. 14.9 5.2 2.9
Mortgage loans......................................... 1.4 1.4 1.5
Policy loans........................................... 13.7 11.5 10.8
Reinsurance loan to affiliate.......................... 46.5 51.5 53.3
Cash equivalents....................................... 38.9 29.5 16.8
Other.................................................. 8.4 6.7 7.7
-------- ------ ------
Gross investment income................................ 1,019.5 933.6 923.3
Less investment expenses............................... (15.2) (16.4) (11.4)
-------- ------ ------
Net investment income.................................. $1,004.3 $917.2 $911.9
-------- ------ ------
-------- ------ ------
</TABLE>
Net investment income includes amounts allocable to experience-rated
contractholders of $744.2 million, $677.1 million and $661.3 million for the
years ended December 31, 1995, 1994 and 1993, respectively. Interest credited to
contractholders is included in Current and Future Benefits.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
5. DIVIDEND RESTRICTIONS AND SHAREHOLDER'S EQUITY
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
The amount of dividends that may be paid to the shareholder in 1996 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$70.0 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's equity those amounts determined in
conformity with statutory accounting practices prescribed or permitted by the
Department, which differ in certain respects from generally accepted accounting
principles. Statutory net income was $70.0 million, $64.9 million and $77.6
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Statutory shareholder's equity was $670.7 million and $615.0 million as of
December 31, 1995 and 1994, respectively.
At December 31, 1995 and December 31, 1994, the Company does not utilize any
statutory accounting practices which are not prescribed by insurance regulators
that, individually or in the aggregate, materially affect statutory
shareholder's equity.
6. FEDERAL INCOME TAXES
The Company is included in the consolidated federal income tax return of Aetna.
Aetna allocates to each member an amount approximating the tax it would have
incurred were it not a member of the consolidated group, and credits the member
for the use of its tax saving attributes in the consolidated return.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 (OBRA) was enacted
which resulted in an increase in the federal corporate tax rate from 34% to 35%
retroactive to January 1, 1993. The enactment of OBRA resulted in an increase in
the deferred tax liability of $3.4 million at date of enactment, which is
included in the 1993 deferred tax expense.
Components of income tax expense (benefits) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -------
(MILLIONS)
<S> <C> <C> <C>
Current taxes (benefits):
Income from operations............................... $82.9 $78.7 $ 87.1
Net realized capital gains........................... 28.5 (33.2) 18.1
----- ----- -------
111.4 45.5 105.2
----- ----- -------
Deferred taxes (benefits):
Income from operations............................... (14.4) (8.0) (14.2)
Net realized capital gains........................... (12.9) 33.7 (14.8)
----- ----- -------
(27.3) 25.7 (29.0)
----- ----- -------
Total................................................ $84.1 $71.2 $ 76.2
----- ----- -------
----- ----- -------
</TABLE>
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
6. FEDERAL INCOME TAXES (CONTINUED)
Income tax expense was different from the amount computed by applying the
federal income tax rate to income before federal income taxes for the following
reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Income before federal income taxes..................... $260.0 $216.5 $219.1
Tax rate............................................... 35% 35% 35%
------ ------ ------
Application of the tax rate............................ 91.0 75.8 76.7
------ ------ ------
Tax effect of:
Excludable dividends................................. (9.3) (8.6) (8.7)
Tax reserve adjustments.............................. 3.9 2.9 4.7
Reinsurance transaction.............................. (0.5) 1.9 (0.2)
Tax rate change on deferred liabilities.............. -- -- 3.7
Other, net........................................... (1.0) (0.8) --
------ ------ ------
Income tax expense................................... $ 84.1 $ 71.2 $ 76.2
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at December 31 are presented below:
<TABLE>
<CAPTION>
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax assets:
Insurance reserves................................... $290.4 $211.5
Net unrealized capital losses........................ -- 136.3
Unrealized gains allocable to experience-rated
contracts........................................... 216.7 --
Investment losses not currently deductible........... 7.3 15.5
Postretirement benefits other than pensions.......... 7.7 8.4
Other................................................ 32.0 28.3
------ ------
Total gross assets..................................... 554.1 400.0
Less valuation allowance............................... -- 136.3
------ ------
Deferred tax assets, net of valuation.................. 554.1 263.7
Deferred tax liabilities:
Deferred policy acquisition costs.................... 433.0 385.2
Unrealized losses allocable to experience-rated
contracts........................................... -- 108.0
Market discount...................................... 4.4 3.6
Net unrealized capital gains......................... 288.2 --
Other................................................ (1.9) 0.4
------ ------
Total gross liabilities................................ 723.7 497.2
------ ------
Net deferred tax liability............................. $169.6 $233.5
------ ------
------ ------
</TABLE>
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
6. FEDERAL INCOME TAXES (CONTINUED)
Net unrealized capital gains and losses are presented in shareholder's equity
net of deferred taxes. At December 31, 1994, $81.0 million of net unrealized
capital losses were reflected in shareholder's equity without deferred tax
benefits. As of December 31, 1995, no valuation allowance was required for
unrealized capital gains and losses. The reversal of the valuation allowance had
no impact on net income in 1995.
The "Policyholders' Surplus Account," which arose under prior tax law, is
generally that portion of a life insurance company's statutory income that has
not been subject to taxation. As of December 31, 1983, no further additions
could be made to the Policyholders' Surplus Account for tax return purposes
under the Deficit Reduction Act of 1984. The balance in such account was
approximately $17.2 million at December 31, 1995. This amount would be taxed
only under certain conditions. No income taxes have been provided on this amount
since management believes the conditions under which such taxes would become
payable are remote.
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1986. Discussions are
being held with the Service with respect to proposed adjustments. However,
management believes there are adequate defenses against, or sufficient reserves
to provide for, such challenges. The Service has commenced its examinations for
the years 1987 through 1990.
7. BENEFIT PLANS
Employee Pension Plans--The Company, in conjunction with Aetna, has
non-contributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over sixty consecutive months of highest
earnings in a 120 month period). Contributions are determined using the
Projected Unit Credit Method and, for qualified plans subject to ERISA
requirements, are limited to the amounts that are currently deductible for tax
reporting purposes. The accumulated benefit obligation and plan assets are
recorded by Aetna. The accumulated plan assets exceed accumulated plan benefits.
There has been no funding to the plan for the years 1993 through 1995, and
therefore, no expense has been recorded by the Company.
Agent Pension Plans--The Company, in conjunction with Aetna, has a non-qualified
pension plan covering certain agents. The plan provides pension benefits based
on annual commission earnings. The accumulated plan assets exceed accumulated
plan benefits. There has been no funding to the plan for the years 1993 through
1995, and therefore, no expense has been recorded by the Company.
Employee Postretirement Benefits--In addition to providing pension benefits,
Aetna also provides certain postretirement health care and life insurance
benefits, subject to certain caps, for retired employees. Medical and dental
benefits are offered to all full-time employees retiring at age 50 with at least
15 years of service or at age 65 with at least 10 years of service. Retirees are
required to contribute to the plans based on their years of service with Aetna.
The cost to the Company associated with the Aetna postretirement plans for 1995,
1994 and 1993 were $1.4 million, $1.0 million and $0.8 million, respectively.
Agent Postretirement Benefits--The Company, in conjunction with Aetna, also
provides certain postemployment health care and life insurance benefits for
certain agents.
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
7. BENEFIT PLANS (CONTINUED)
The cost to the Company associated to the agents' postretirement plans for 1995,
1994 and 1993 were $0.8 million, $0.7 million and $0.6 million, respectively.
Incentive Savings Plan--Substantially all employees are eligible to participate
in a savings plan under which designated contributions, which may be invested in
common stock of Aetna or certain other investments, are matched, up to 5% of
compensation, by Aetna. Pretax charges to operations for the incentive savings
plan were $4.9 million, $3.3 million and $3.1 million in 1995, 1994 and 1993,
respectively.
Stock Plans--Aetna has a stock incentive plan that provides for stock options
and deferred contingent common stock or cash awards to certain key employees.
Aetna also has a stock option plan under which executive and middle management
employees of Aetna may be granted options to purchase common stock of Aetna at
the market price on the date of grant or, in connection with certain business
combinations, may be granted options to purchase common stock on different
terms. The cost to the Company associated with the Aetna stock plans for 1995,
1994 and 1993, was $6.3 million, $1.7 million and $0.4 million, respectively.
8. RELATED PARTY TRANSACTIONS
The Company is compensated by the Separate Accounts for bearing mortality and
expense risks pertaining to variable life and annuity contracts. Under the
insurance contracts, the Separate Accounts pay the Company a daily fee which, on
an annual basis, ranges, depending on the product, from .25% to 1.80% of their
average daily net assets. The Company also receives fees from the variable life
and annuity mutual funds and The Aetna Series Fund for serving as investment
adviser. Under the advisory agreements, the Funds pay the Company a daily fee
which, on an annual basis, ranges, depending on the fund, from .25% to 1.00% of
their average daily net assets. The advisory agreements also call for the
variable funds to pay their own administrative expenses and for The Aetna Series
Fund to pay certain administrative expenses. The Company also receives fees
(expressed as a percentage of the average daily net assets) from The Aetna
Series Fund for providing administration, shareholder services and promoting
sales. The amount of compensation and fees received from the Separate Accounts
and Funds, included in Charges Assessed Against Policyholders, amounted to
$128.1 million, $104.6 million and $93.6 million in 1995, 1994 and 1993,
respectively. The Company may waive advisory fees at its discretion.
The Company may, from time to time, make reimbursements to a Fund for some or
all of its operating expenses. Reimbursement arrangements may be terminated at
any time without notice.
Since 1981, all domestic individual non-participating life insurance of Aetna
and its subsidiaries has been issued by the Company. Effective December 31,
1988, the Company entered into a reinsurance agreement with Aetna Life Insurance
Company ("Aetna Life") in which substantially all of the non-participating
individual life and annuity business written by Aetna Life prior to 1981 was
assumed by the Company. A $108.0 million commission, paid by the Company to
Aetna Life in 1988, was capitalized as deferred policy acquisition costs. The
Company maintained insurance reserves of $655.5 million and $690.3 million as of
December 31, 1995 and 1994, respectively, relating to the business assumed. In
consideration for the assumption of this business, a loan was established
relating to the assets held by Aetna Life which support the insurance reserves.
The loan is being reduced in accordance with the decrease in the reserves. The
fair value of this loan was $663.5 million and $630.3 million as of December 31,
1995 and 1994, respectively, and is based upon the fair value of the underlying
assets. Premiums of $28.0 million, $32.8 million and $33.3 million and current
and future benefits of $43.0 million, $43.8 million and $55.4 million were
assumed in 1995, 1994 and 1993, respectively.
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Investment income of $46.5 million, $51.5 million and $53.3 million was
generated from the reinsurance loan to affiliate in 1995, 1994 and 1993,
respectively. Net income of approximately $18.4 million, $25.1 million and $13.6
million resulted from this agreement in 1995, 1994 and 1993, respectively.
On December 16, 1988, the Company assumed $25.0 million of premium revenue from
Aetna Life for the purchase and administration of a life contingent single
premium variable payout annuity contract. In addition, the Company also is
responsible for administering fixed annuity payments that are made to annuitants
receiving variable payments. Reserves of $28.0 million and $24.2 million were
maintained for this contract as of December 31, 1995 and 1994, respectively.
Effective February 1, 1992, the Company increased its retention limit per
individual life to $2.0 million and entered into a reinsurance agreement with
Aetna Life to reinsure amounts in excess of this limit, up to a maximum of $8.0
million on any new individual life business, on a yearly renewable term basis.
Premium amounts related to this agreement were $3.2 million, $1.3 million and
$0.6 million for 1995, 1994 and 1993, respectively.
The Company received no capital contributions in 1995, 1994 or 1993.
The Company distributed $2.9 million in the form of dividends of two of its
subsidiaries, SBA and AISI, to Aetna Retirement Services, Inc. in 1995.
Premiums due and other receivables include $5.7 million and $27.6 million due
from affiliates in 1995 and 1994, respectively. Other liabilities include $12.4
million and $27.9 million due to affiliates for 1995 and 1994, respectively.
Substantially all of the administrative and support functions of the Company are
provided by Aetna and its affiliates. The financial statements reflect allocated
charges for these services based upon measures appropriate for the type and
nature of service provided.
9. REINSURANCE
The Company utilizes indemnity reinsurance agreements to reduce its exposure to
large losses in all aspects of its insurance business. Such reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge
the primary liability of the Company as direct insurer of the risks reinsured.
The Company evaluates the financial strength of potential reinsurers and
continually monitors the financial condition of reinsurers. Only those
reinsurance recoverables deemed probable of recovery are reflected as assets on
the Company's Consolidated Balance Sheets.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
9. REINSURANCE (CONTINUED)
The following table includes premium amounts ceded/assumed to/from affiliated
companies as discussed in Note 8 above.
<TABLE>
<CAPTION>
CEDED TO ASSUMED
DIRECT OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
--------- ------------- ------------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
1995
Premiums:
Life Insurance....................................... $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance........................ 7.5 7.5 -- --
Annuities............................................ 82.1 -- 0.5 82.6
--------- ----- ----- ---------
Total earned premiums................................ $ 118.4 $ 16.1 $ 28.5 $ 130.8
--------- ----- ----- ---------
--------- ----- ----- ---------
1994
Premiums:
Life Insurance....................................... $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance........................ 9.3 9.3 -- --
Annuities............................................ 69.9 -- 0.2 70.1
--------- ----- ----- ---------
Total earned premiums................................ $ 106.5 $ 15.3 $ 33.0 $ 124.2
--------- ----- ----- ---------
--------- ----- ----- ---------
1993
Premiums:
Life Insurance....................................... $ 22.4 $ 5.6 $ 33.3 $ 50.1
Accident and Health Insurance........................ 12.9 12.9 -- --
Annuities............................................ 31.3 -- 0.7 32.0
--------- ----- ----- ---------
Total earned premiums................................ $ 66.6 $ 18.5 $ 34.0 $ 82.1
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUE
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents................................. $ 568.8 $ 568.8 $ 623.3 $ 623.3
Short-term investments.................................... 15.1 15.1 98.0 98.0
Debt securities........................................... 12,720.8 12,720.8 10,191.4 10,191.4
Equity securities......................................... 257.6 257.6 229.1 229.1
Limited partnership....................................... -- -- 24.4 24.4
Mortgage loans............................................ 21.2 21.9 9.9 9.9
Liabilities:
Investment contract liabilities:
With a fixed maturity................................... 989.1 1,001.2 826.7 833.5
Without a fixed maturity................................ 9,511.0 9,298.4 8,122.6 7,918.2
</TABLE>
Fair value estimates are made at a specific point in time, based on available
market information and judgments about the financial instrument, such as
estimates of timing and amount of expected future cash flows. Such estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument, nor
do they consider the tax impact of the realization of unrealized gains or
losses. In many cases, the fair value estimates cannot be substantiated by
comparison to independent markets, nor can the disclosed value be realized in
immediate settlement of the instrument. In evaluating the Company's management
of interest rate and liquidity risk, the fair values of all assets and
liabilities should be taken into consideration, not only those above.
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
SHORT-TERM INSTRUMENTS: Fair values are based on quoted market prices or dealer
quotations. Where quoted market prices are not available, the carrying amounts
reported in the Consolidated Balance Sheets approximates fair value. Short-term
instruments have a maturity date of one year or less and include cash and cash
equivalents, and short-term investments.
DEBT AND EQUITY SECURITIES: Fair values are based on quoted market prices or
dealer quotations. Where quoted market prices or dealer quotations are not
available, fair value is estimated by using quoted market prices for similar
securities or discounted cash flow methods.
F-24
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
10. FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS: Fair value is estimated by discounting expected mortgage loan
cash flows at market rates which reflect the rates at which similar loans would
be made to similar borrowers. The rates reflect management's assessment of the
credit quality and the remaining duration of the loans. The fair value estimate
of mortgage loans of lower quality, including problem and restructured loans, is
based on the estimated fair value of the underlying collateral.
INVESTMENT CONTRACT LIABILITIES (INCLUDED IN POLICYHOLDERS' FUNDS LEFT WITH THE
COMPANY):
WITH A FIXED MATURITY: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
WITHOUT A FIXED MATURITY: Fair value is estimated as the amount payable to the
contractholder upon demand. However, the Company has the right under such
contracts to delay payment of withdrawals which may ultimately result in paying
an amount different than that determined to be payable on demand.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS)
During 1995, the Company received $0.4 million for writing call options on
underlying securities. As of December 31, 1995 there were no option contracts
outstanding.
At December 31, 1995, the Company had a forward swap agreement with a notional
amount of $100.0 million and a fair value of $0.1 million.
The Company did not have transactions in derivative instruments in 1994.
The Company also holds investments in certain debt and equity securities with
derivative characteristics (i.e., including the fact that their market value is
at least partially determined by, among other things, levels of or changes in
interest rates, prepayment rates, equity markets or credit ratings/spreads). The
amortized cost and fair value of these securities, included in the $13.4 billion
investment portfolio, as of December 31, 1995 was as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
(MILLIONS) COST VALUE
----------- -----------
<S> <C> <C>
Collateralized mortgage obligations......................... $ 2,383.9 $ 2,549.3
Principal-only strips (included above)...................... 38.7 50.0
Interest-only strips (included above)....................... 10.7 20.7
Structured Notes (1)........................................ 95.0 100.3
</TABLE>
(1) Represents non-leveraged instruments whose fair values and credit risk are
based on underlying securities, including fixed income securities and
interest rate swap agreements.
11. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
Through the normal course of investment operations, the Company commits to
either purchase or sell securities or money market instruments at a specified
future date and at a specified price or yield. The inability of counterparties
to honor these commitments may result in either higher or lower replacement
cost. Also, there is likely to be a change in
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (continued)
December 31, 1995, 1994, and 1993
11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
the value of the securities underlying the commitments. At December 31, 1995,
the Company had commitments to purchase investments of $31.4 million. The fair
value of the investments at December 31, 1995 approximated $31.5 million. There
were no outstanding forward commitments at December 31, 1994.
LITIGATION
There were no material legal proceedings pending against the Company as of
December 31, 1995 or December 31, 1994 which were beyond the ordinary course of
business. The Company is involved in lawsuits arising, for the most part, in the
ordinary course of its business operations as an insurer.
12. SEGMENT INFORMATION
The Company's operations are reported through two major business segments: Life
Insurance and Financial Services.
Summarized financial information for the Company's principal operations was as
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Financial services........................................ $ 1,129.4 $ 946.1 $ 892.8
Life insurance............................................ 407.9 386.1 371.7
----------- ----------- -----------
Total revenue............................................. $ 1,537.3 $ 1,332.2 $ 1,264.5
----------- ----------- -----------
Income before federal income taxes:
Financial services........................................ $ 158.0 $ 119.7 $ 121.1
Life insurance............................................ 102.0 96.8 98.0
----------- ----------- -----------
Total income before federal income taxes.................. $ 260.0 $ 216.5 $ 219.1
----------- ----------- -----------
Net income:
Financial services........................................ $ 113.8 $ 85.5 $ 86.8
Life insurance............................................ 62.1 59.8 56.1
----------- ----------- -----------
Net income.................................................. $ 175.9 $ 145.3 $ 142.9
----------- ----------- -----------
Assets under management, at fair value:
Financial services........................................ $ 23,224.3 $ 17,785.2 $ 16,600.5
Life insurance............................................ 2,698.1 2,171.7 2,175.5
----------- ----------- -----------
Total assets under management............................. $ 25,922.4 $ 19,956.9 $ 18,776.0
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT C
VARIABLE ANNUITY CONTRACTS
ISSUED BY
AETNA LIFE INSURANCE AND ANNUITY COMPANY
