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VARIABLE ANNUITY ACCOUNT C
Prospectus Dated: MAY 1, 1996
GROUP INSTALLMENT VARIABLE ANNUITY CONTRACTS FOR REWRITE OF QUALIFIED 401 PLANS
- --------------------------------------------------------------------------------
The group installment Purchase Payment Variable Annuity Contract (the
"Contract") described in this Prospectus is offered by Aetna Life Insurance
and Annuity Company (the "Company"). The Contracts are designed to fund Plans
("Plans") which provide for retirement income. The Plans are qualified as to
their federal income tax status and amounts held under the Plans may be
entitled to tax-deferred treatment under certain sections of the Internal
Revenue Code of 1986, as amended (the "Code").
The Contract allows values to accumulate under credited interest or variable
options, or a combination of these options. It also provides for the payment
of annuity benefits on a fixed or variable basis, or a combination thereof.
The variable funding options currently available through the Separate Account
under the Contract described in this Prospectus are as follows:
- Aetna Variable Fund
- Aetna Income Shares
- Aetna Variable Encore Fund
- Aetna Investment Advisers Fund, Inc.
- TCI Growth (a Twentieth Century fund)
The credited interest options available for the accumulation of values are the
Guaranteed Accumulation Account and the Fixed Account. The Guaranteed
Accumulation Account and the Fixed Account are offered only in those states in
which they are approved. Except as specifically mentioned, this Prospectus
describes only the variable options of the Contract. Information concerning
the Guaranteed Accumulation Account and the Fixed Account is found in Appendix
I and Appendix II, respectively, of this Prospectus.
This Prospectus contains the information about Variable Annuity Account C (the
"Separate Account") that a prospective investor should know before investing.
Additional information about the Separate Account is contained in a Statement
of Additional Information ("SAI") dated May 1, 1996, which has been filed with
the Securities and Exchange Commission and is incorporated herein by
reference. The Table of Contents for the SAI is printed in this Prospectus.
An SAI may be obtained without charge by indicating the request on the
Prospectus receipt contained in this prospectus or by calling 1-800-232-5422.
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.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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TABLE OF CONTENTS
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . .6
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . .9
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VARIABLE ANNUITY ACCOUNT C. . . . . . . . . . . . . . . . . . . . . 10
THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Mixed and Shared Funding. . . . . . . . . . . . . . . . . . . . . 11
Fund Additions and Substitutions. . . . . . . . . . . . . . . . . 11
404(c) Protection . . . . . . . . . . . . . . . . . . . . . . . . 12
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE CONTRACT
Contract Purchase . . . . . . . . . . . . . . . . . . . . . . . . 12
Net Purchase Payments . . . . . . . . . . . . . . . . . . . . . . 13
Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . . 13
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . 14
Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
RIGHT TO CANCEL . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CHARGES AND DEDUCTIONS
Maintenance Fee . . . . . . . . . . . . . . . . . . . . . . . . . 15
Mortality and Expense Risk Charges. . . . . . . . . . . . . . . . 15
Administrative Expense Charge . . . . . . . . . . . . . . . . . . 15
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Allocation and Transfer Fees. . . . . . . . . . . . . . . . . . . 16
Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . 16
Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS
Rights Under the Contract . . . . . . . . . . . . . . . . . . . . 17
Modification of the Contract. . . . . . . . . . . . . . . . . . . 17
Contract Holder Inquiries . . . . . . . . . . . . . . . . . . . . 18
Telephone Transfers . . . . . . . . . . . . . . . . . . . . . . . 18
Transfer of Ownership; Assignment . . . . . . . . . . . . . . . . 18
REDEMPTION PAYMENTS DURING ACCUMULATION PERIOD. . . . . . . . . . . 18
REINVESTMENT PRIVILEGE. . . . . . . . . . . . . . . . . . . . . . . 19
ADDITIONAL WITHDRAWAL OPTIONS . . . . . . . . . . . . . . . . . . . 19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Estate Conservation Option. . . . . . . . . . . . . . . . . . . . 20
Systematic Withdrawal Option. . . . . . . . . . . . . . . . . . . 20
ANNUITY PERIOD
Annuity Period Elections. . . . . . . . . . . . . . . . . . . . . 21
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . 22
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . 23
Annuity Period. . . . . . . . . . . . . . . . . . . . . . . . . . 23
TAX STATUS
Federal Tax Status of the Company . . . . . . . . . . . . . . . . 24
Use of the Contract . . . . . . . . . . . . . . . . . . . . . . . 24
Tax Status of Amounts Distributed Under the Contract. . . . . . . 24
2
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Accumulation Period . . . . . . . . . . . . . . . . . . . . . . . 25
Annuity Period. . . . . . . . . . . . . . . . . . . . . . . . . . 25
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 25
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . 26
APPENDIX I-GUARANTEED ACCUMULATION ACCOUNT. . . . . . . . . . . . . 27
APPENDIX II-FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . 28
3
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DEFINITIONS
As used in this Prospectus, the following terms have the meanings shown:
ACCOUNT VALUE: The dollar value of amounts held in an Account as of any
Valuation Period, including the value of the Accumulation Units in the Funds,
the amounts held in GAA, and any amounts invested in the Fixed Account, plus
interest earned on those amounts, less any maintenance fees due, but excluding
amounts used for Annuity Options.
ACCUMULATION PERIOD: The period during which Purchase Payment(s) credited to
an Account are invested to fund future annuity payments.
ACCUMULATION UNIT: A measure of the value of the Separate Account assets
attributable to each Fund used as a variable funding option.
AGGREGATE PURCHASE PAYMENT(S): The sum of all Purchase Payment(s) made under
a Contract.
ANNUITANT: A natural person on whose life an Annuity payment is based.
ANNUITY: A series of payments for life, for a definite period, or combination
of the two.
ANNUITY PERIOD: The period during which Annuity payments are made.
ANNUITY UNIT: A unit of measure used to calculate the amount of each variable
annuity payment.
CODE: Internal Revenue Code of 1986, as amended.
COMPANY: Aetna Life Insurance and Annuity Company, sometimes referred to as
"we" or "us."
CONTRACT: The group installment Purchase Payment variable annuity contracts
offered by this Prospectus.
CONTRACT HOLDER: The entity to which the Contract is issued. The Contract
Holder is usually the trustee of a trusteed Plan.
CONTRACT YEAR: The Period of 12 months measured from the Contract's effective
date or from any anniversary of such effective date.
DISTRIBUTOR(S): The registered broker-dealer(s) which have entered into
selling agreements with the Company to offer and sell the Contracts. The
Company may also serve as a Distributor.
EFFECTIVE DATE: The date on which the Company accepts and approves the
Contract application.
ERISA: Employee Retirement Income Security Act of 1974.
FUND(S): An open-end management investment company whose shares are purchased
by the Separate Account to fund the benefits provided by the Contract.
GAA: Guaranteed Accumulation Account, the credited interest option available
in most jurisdictions for deposits under the Contract.
HOME OFFICE: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
INDIVIDUAL ACCOUNT: A record established for each Participant to identify
Contract values accumulated on the Participant's behalf during the
Accumulation Period.
MARKET VALUE ADJUSTMENT: An amount deducted or added to amounts withdrawn
early from the Guaranteed Accumulation Account to reflect changes in the
market value of the investment since the date of deposit. See Appendix I and
the prospectus for the Guaranteed Accumulation Account for a discussion of how
the market value adjustment is actually calculated.
NET PURCHASE PAYMENTS(S): The Purchase Payment(s) less premium taxes, if
applicable.
PARTICIPANT: An eligible person participating in a Plan maintained by the
Contract Holder.
PLAN(S): Qualified tax-deferred retirement plans established by Corporations
(401 Rewrite).
4
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PLAN ACCOUNT: The record established for a Contract Holder of the Net
Purchase Payment(s) accumulated under a Contract where Individual Accounts are
not maintained.
PURCHASE PAYMENT(S): The gross payment(s) made to the Company under a
Contract.
REDEMPTION PAYMENT: The amount paid to the Contract Holder or Participant
upon a withdrawal request.
SEC: Securities and Exchange Commission.
SEPARATE ACCOUNT: Variable Annuity Account C, an account whose assets are
segregated from other assets of the Company and which holds shares of the
Funds acquired for the Contracts. The Company holds title to the assets held
in the Separate Account.
UNDERWRITER: The registered broker-dealer which contracts with other
registered broker-dealers on behalf of the Separate Account to offer and sell
the Contracts.
VALUATION PERIOD: The period of time from when a Fund determines its net
asset value until the next time it determines its net asset value, usually
from 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
until the close of business the next such business day.
VALUATION RESERVE: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the Annuity Period and the value
of a commutation right available under the "Payments for a Specified Period"
nonlifetime Annuity option when elected on a variable basis under the
Contract.
VARIABLE ANNUITY CONTRACT: An Annuity Contract providing for the accumulation
of values and for Annuity payments which vary in dollar amount with
investment.
5
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PROSPECTUS SUMMARY
PURCHASE
The Contracts are designed for Plans established by employers for their
employees to provide retirement benefits under Corporate 401 Plans. These
Plans may be trusteed or non-trusteed.
The Contract may be purchased by completing the proper application form and
submitting it to the Distributor with the initial Purchase Payment. "The
Contract" in this prospectus outlines the complete process of purchasing a
Variable Annuity Contract.
REDEMPTION
The Contract Holder may redeem all or a portion of the Contract or an
Individual Account value during the Accumulation Period by properly completing
and submitting to the Company a disbursement form provided by the Company.
Certain charges and deductions may be assessed upon withdrawal. (See "Charges
and Deductions" and "Redemption Payments During Accumulation Period.")
DEFERRED SALES CHARGE
The maximum deferred sales charge that could be assessed on a full or partial
withdrawal is 5% of the amount withdrawn. (See "Charges and
Deductions--Deferred Sales Charge," and "Redemption Payments During
Accumulation Period.")
TAXES AND WITHHOLDING
A 10% federal penalty tax may be imposed on a premature distribution paid to
the Participants. Certain distributions are subject to mandatory withholding.
(See "Tax Status--Tax Status of Amounts Distributed Under the Contract.")
CONTRACT CHARGES
Certain other charges are associated with this Contract such as the
maintenance fee, mortality and expense risk charges, administrative expense
charge, fund expenses, allocation and transfer fees, and premium tax. (See
"Charge and Deductions" for a compete explanation of these charges.)
FREE LOOK PROVISION
The Contract Holder may cancel the Contract no later than ten days after
receiving it (or as otherwise allowed by state law) by returning it along with
a written notice of cancellation to the Company. Unless state law requires
otherwise, the amount the Contract Holder will receive on cancellation under
this provision may reflect the investment performance of the Purchase Payments
deposited in the Separate Account while invested. In certain cases, this may
be less than the amount of your Purchase Payments. (See "Right to Cancel.")
6
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FEE TABLE
(Based on year ended December 31, 1995)
THE PURPOSE OF THE FEE TABLE IS TO ASSIST CONTRACT HOLDERS IN UNDERSTANDING
THE VARIOUS COSTS AND EXPENSES THAT WILL BE BORNE, DIRECTLY OR INDIRECTLY,
UNDER THE CONTRACT. THE INFORMATION LISTED REFLECTS THE CHARGES DUE UNDER THE
CONTRACT AS WELL AS THE FEES AND EXPENSES DEDUCTED FROM THE FUNDS. ADDITIONAL
INFORMATION REGARDING THE CHARGES AND DEDUCTIONS ASSESSED UNDER THE CONTRACT
CAN BE FOUND UNDER "CHARGES AND DEDUCTIONS" IN THIS PROSPECTUS. CHARGES AND
EXPENSES SHOWN DO NOT TAKE INTO ACCOUNT PREMIUM TAXES THAT MAY BE APPLICABLE.
CONTRACT HOLDER TRANSACTION EXPENSES
- ------------------------------------
DEFERRED SALES CHARGE (as a percentage of amount withdrawn)(1):
INSTALLMENT PURCHASE PAYMENT CONTRACT
COMPLETED CONTRACT YEARS Deduction
---------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
ALLOCATION AND TRANSFER FEES(2) $0.00
ANNUAL CONTRACT MAINTENANCE FEE(3) $30.00
- -------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
- --------------------------------
(Daily deductions, equal to the percentage shown on an annual basis, made from
amounts allocated to the variable options)
Mortality and Expense Risk Fees 1.19%
Administrative Expense Charge(4) 0%
-----
Total Separate Account Annual Expenses 1.19%
-----
(1) The total amount deducted for the deferred sales charge will not exceed
8.5% of the Purchase Payments made to the individual Account. The deferred
sales charge may be referred to in the Contract as a "surrender fee." See
"Deferred Sales Charge" for instances in which this charge is not deducted.
(2) The Company currently allows an unlimited number of transfers or
allocation changes without charge. However, the Company reserves the right
to impose a transfer fee of $10 for each transfer or allocation charge in
excess of 12 during each Contract Year. (See "Transfers and Allocation
Changes.")
(3) A maintenance fee, to the extent permitted by state law, is also deducted
upon termination of an Account.
(4) The Company currently does not impose an Administrative Expense Charge.
However, the Company reserves the right to deduct a daily charge of not more
than 0.25% per year from the variable portion of contract values.
7
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MUTUAL FUND ANNUAL EXPENSES
- ---------------------------
(Except as noted, the following figures are a percentage of average net assets
and, except where otherwise indicated, are based on figures for the year ended
December 31, 1995)
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY OTHER TOTAL
FEES(1) EXPENSES(2) FUND
(AFTER EXPENSE (AFTER EXPENSE ANNUAL
REIMBURSEMENT) REIMBURSEMENT) EXPENSES
--------------- --------------- --------
<S> <C> <C> <C>
Aetna Variable Fund(3) 0.25% 0.06% 0.31%
Aetna Income Shares(3) 0.25% 0.08% 0.33%
Aetna Variable Encore Fund(3) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc. (3) 0.25% 0.08% 0.33%
TCI Growth(4) 1.00% 0.00% 1.00%
</TABLE>
(1) Certain of the unaffiliated Fund managers reimburse the Company for
administrative costs incurred in connection with administering the Fund as a
variable funding option under the Contract. These reimbursements are paid
out of the managers' investment advisory fees and are not charged to
investors.
(2) A Fund's "Other Expenses" include operating costs of the Fund. The
expenses are factored into the Fund's net asset value and are not deducted
from the Contract Holder's or Participant's Account Value.
(3) 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.
(4) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest fees, and expenses of the
non-interested directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
- -----------------------------------
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OF FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL
EXPENSES AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Assuming a 5% annual return on assets, you would have paid the following
expenses on a $1,000 investment:(1)
<TABLE>
<CAPTION>
EXAMPLE A EXAMPLE B
--------- ---------
If you make a complete withdrawal of If you do NOT make a complete
your contract at the end of the withdrawal of your contract or if you
applicable time period: annuitize:*
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 $68 $105 $133 $188 $16 $50 $86 $188
Aetna Income Shares $68 $106 $134 $190 $16 $50 $87 $190
Aetna Variable Encore Fund $68 $106 $135 $192 $16 $51 $88 $192
Aetna Investment Advisers Fund, Inc. $68 $106 $134 $190 $16 $50 $87 $190
TCI Growth $74 $125 $167 $260 $23 $71 $121 $260
</TABLE>
(1) The illustration reflects the $30.00 annual maintenance fee as an annual
charge of 0.077% of assets.
* 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 than apply. (See Example A.)
8
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CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
THE CONDENSED FINANCIAL INFORMATION PRESENTED BELOW FOR EACH OF THE YEARS IN
THE TEN-YEAR PERIOD ENDED DECEMBER 31, 1995 (AS APPLICABLE), IS DERIVED FROM
THE FINANCIAL STATEMENTS OF THE SEPARATE ACCOUNT, WHICH FINANCIAL STATEMENTS
HAVE BEEN AUDITED BY KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS. THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
INDEPENDENT AUDITORS' REPORT THEREON, ARE INCLUDED IN THE STATEMENT OF
ADDITIONAL INFORMATION.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of
period $138.406 $141.424 $134.081 $127.171 $101.824 $99.758 $78.220 $69.051 $66.237 $56.345
Value at end of period $180.879 $138.406 $141.424 $134.080 $127.171 $101.824 $99.758 $78.220 $69.051 $66.237
Increase(decrease) in
value of accumulation
unit(1) 30.69% (2.13)% 5.48% 5.43% 24.89% 2.07% 27.54% 13.28% 4.25% 17.56%
Number of accumulation
units outstanding at
end of period 549,056 1,258,166 1,616,018 1,829,160 1,956,479 2,169,721 2,496,795 3,030,548 3,740,739 4,835,791
AETNA INCOME SHARES
Value at beginning of
period $40.570 $42.675 $39.376 $37.086 $31.424 $29.142 $25.734 $24.197 $23.426 $20.795
Value at end of period $47.405 $40.570 $42.675 $39.376 $37.086 $31.424 $29.142 $25.734 $24.197 $23.426
Increase(decrease) in
value of accumulation
unit(1) 16.85% (4.93)% 8.38% 6.17% 18.02% 7.83% 13.24% 6.35% 9.29% 12.65%
Number of accumulation
units outstanding at
end of period 72,902 181,535 241,551 263,105 283,119 251,861 248,678 284,650 251,513 348,406
AETNA VARIABLE ENCORE FUND
Value at beginning of
period $36.723 $35.701 $35.009 $34.172 $32.460 $30.295 $28.028 $26.387 $25.001 $23.889
Value at end of period $38.485 $36.723 $35.701 $35.009 $34.172 $32.460 $30.295 $28.028 $26.387 $25.001
Increase(decrease) in
value of accumulation
unit(1) 4.80% 2.88% 1.98% 2.45% 5.27% 7.15% 8.09% 6.22% 5.54% 5.63%
Number of accumulation
units outstanding at
end of period 150,480 241,159 312,350 471,585 470,248 624,613 542,581 637,833 627,039 651,678
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of
period $14.317 $14.558 $13.407 $12.755 $10.906 $10.440 $10.000(2)
Value at end of period $18.024 $14.317 $14.558 $13.407 $12.755 $10.906 $10.440
Increase(decrease) in
value of accumulation
unit(1) 25.89% (1.66)% 8.59% 5.11% 16.86% 4.46% 4.40%
Number of accumulation
units outstanding at
end of period 393,613 756,261 1,142,268 1,129,453 725,598 619,748 470,302
TCI GROWTH
Value at beginning of
period $10.213 $10.469 $10.000(3)
Value at end of period $13.224 $10.213 $10.463
Increase(decrease) in
value of accumulation
unit(1) 29.47% (2.39)% 4.63%
Number of accumulation
units outstanding at
end of period 4,184,701 12,096,731 12,272,152
---------
---------
</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 charge or the fixed
dollar annual maintenance fee, if any. Inclusion of these charges would
reduce the investment results shown.
(2) The initial Accumulation Unit value was established at $10.000 on June
23, 1989, the date on which the Fund commenced operations.
(3) The initial Accumulation Unit value was established at $10.000 on
February 1, 1993, the date on which the Portfolio became available under the
Contract.
9
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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
Variable Annuity Account C is a Separate Account established by the Company in
1976 pursuant to the insurance laws of the State of Connecticut. The Separate
Account was formed for the purpose of segregating assets attributable to the
variable portions of Contracts from other assets of the Company. The Separate
Account is registered as a unit investment trust under the Investment Company
Act of 1940, and meets the definition of "separate account" under the federal
securities laws.
Although the Company holds title to the assets of the Separate Account, such
assets are not chargeable with liabilities arising out of any other business
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 our other income, gains or losses. All obligations arising under
the Contracts are general corporate obligations of the Company.
THE FUNDS
The Contract Holder will designate some or all of the Funds described below
as variable funding options under the Contract. The Contract Holder, or the
Participant, if allowed by the Contract Holder may select one or more of the
Funds for investment of the Purchase Payments made on their behalf. Except
where noted, all of the Funds are diversified as defined in the Investment
Company Act of 1940.
- - AETNA VARIABLE FUND seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into
common stock.
- - AETNA INCOME SHARES seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio consisting
primarily of debt securities.
- - 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.
- - AETNA INVESTMENT ADVISERS FUND, INC. is a managed mutual 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.
- - TCI PORTFOLIOS, INC.--TCI GROWTH (a Twentieth Century Fund) seeks capital
growth by investing in common stocks (including securities convertible into
common stocks) and other securities that meet certain fundamental and
technical standards of selection and, in the opinion of TCI Growth's
management, have better than average potential for appreciation. TCI Growth
tries to stay fully invested in such securities,
10
<PAGE>
regardless of the movement of prices generally. The Fund may invest in
foreign securities. Foreign investing involves risks that differ from
those involved in domestic investing. See the Fund's prospectus for a
discussion of these risks.
There is no assurance that the Funds will achieve their investment
objectives. Contract Holders bear the full investment risk of investments in
the Funds selected.
Some of the above funds may use instruments known as derivatives as part of
their investment strategies as described in their respective prospectuses.
The use of certain derivatives such as inverse floaters and principal only
debt instruments may involve higher risk of volatility to a Fund. The use of
leverage in connection with derivatives can also increase risk of losses.
See the prospectus for the Funds for a discussion of the risks associated
with an investment in those funds. More comprehensive information, including
a discussion of potential risks, is found in the current prospectus for each
Fund which is distributed with and must accompany this Prospectus. Contract
Holders should read the accompanying prospectuses and Statements of
Additional Information for this Prospectus and each of the Funds can be
obtained from the Company's Home Office at the address and telephone number
listed on the cover of this Prospectus.
FUND INVESTMENT ADVISERS
The following identifies the investment adviser for each Fund.
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
---- ------------------
<S> <C>
Aetna Variable Fund Aetna Life Insurance and Annuity Company (ALIAC)
Aetna Income Shares ALIAC
Aetna Variable Encore Fund ALIAC
Aetna Investment Advisers Fund, Inc. ALIAC
TCI Growth Investors Research Corporation
</TABLE>
MIXED AND SHARED FUNDING
Shares of the Funds are sold to the Company for funding variable annuities.
The Funds may be sold to other companies for the same purpose. This is
referred to as "shared funding." Shares of the Funds may also be used for
funding variable life insurance policies through variable life separate
accounts sponsored by the Company or by third parties. This is referred to as
"mixed funding."
It is conceivable that, in the future, it may be disadvantageous for variable
annuity separate accounts and variable life separate accounts to invest in
these Funds simultaneously, since the interests of the contract holders or
policy owners may differ. Each Fund's Board of Trustees or Directors has
agreed to monitor events in order to identify any material irreconcilable
conflicts that may possibly arise and to determine what action, if any,
should be taken in response thereto. If such a conflict were to occur, one
of the separate accounts might withdraw its investment in a Fund. This might
force that Fund to sell portfolio securities at disadvantageous prices.
FUND ADDITIONS AND SUBSTITUTIONS
We may, from time to time, add additional Funds as eligible variable funding
options under the Contracts. In such event, the Contract Holder or the
Participant, if permitted by a Plan, may be permitted to select from these
other Funds, subject to any conditions that may be imposed in connection with
those options.
The Company's current policy is to allow only Aetna Variable Fund, Aetna
Income Shares and Aetna Investment Advisers Fund, Inc. to be used as variable
investment options during the Annuity Period. (See "Annuity Period
Elections.")
The Contract Holder may decide to offer only a select number of Funds as
funding options under its Plan, or may decide to substitute shares of one
Fund for shares of another Fund currently held by the Separate Account.
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<PAGE>
404(C) PROTECTION
The Employee Retirement Income Security Act of 1974 (ERISA) imposes a
"prudent man" standard of investment selection and monitoring on employers
and other pension plan fiduciaries. Fiduciaries can be held liable for plan
investment losses if they fail to invest plan assets prudently. However,
Section 404(c) of ERISA provides limited relief from liability in
participant-directed individual account plans where the plans' investment
options meet special conditions.
The five mutual fund options offered under the Contract allow plan trustees
to take advantage of the 404(c) protection. These five funds qualify as
"core funds" under the 404(c) rules since they are broadly diversified, have
different risk/return characteristics, are supported by pre- and
post-enrollment disclosure material, are valued and accessible daily, and are
look-through investment vehicles (mandatory for employees with small account
balances). The Fixed Account and Guaranteed Accumulation Account are
designed to be additional investments (not 404(c) core funds) which, in
combination with the Funds, provide employers with both a well-rounded
portfolio and 404(c) protection without the need for outside investment
managers.
Although the Contract can provide employers and trustees with 404(c)
protection, it is important to understand that the Company is not a
designated fiduciary nor investment manager for any pension plan, since the
Company has no discretionary authority over the plan or its investments.
Rather, the Company's responsibility is to carry out the investment
instructions received from the trustee and/or employees in accordance with
applicable federal and state requirements. The employer and plan trustee
always have overall fiduciary responsibility for their plan. It is also
important to note that the plan trustees must take certain affirmative
actions in order to avail themselves of 404(c) protection and should
carefully review the applicable Department of Labor regulations (29
C.F.R. Section 2550.404c-1).
Contract Holders and Participants should read the accompanying prospectuses
of the Funds carefully before investing. Fund prospectuses may be obtained
from the Company at its Home Office.
VOTING RIGHTS
Each Contract Holder may direct the Company in the voting of shares at
meetings of shareholders of the appropriate Fund(s). The number of votes to
which each Contract Holder may give direction will be determined as of the
record date.
The number of votes each Contract Holder is entitled to direct with respect
to a particular Fund during the Accumulation Period is equal to the portion
of the current value of the Contract attributable to that Fund divided by the
net asset value of one share of that Fund. During the Annuity Period, the
number of votes is equal to the Valuation Reserve applicable to the portion
of the Contract attributable to that Fund, divided by the net asset value of
one share of the Fund. In determining the number of votes, fractional votes
will be recognized. Where the value of the Contract or Valuation Reserve
relates to more than one Fund, the calculation of votes will be performed
separately for each Fund.
Each Contract Holder will receive a notice of each meeting of shareholders,
together with any proxy solicitation materials, and a statement of the number
of votes attributable to the Contract. Votes attributable to Contract
Holders who do not direct the Company will be cast by the Company in the same
proportion as the votes for which directions have been received by the
Company.
THE CONTRACT
CONTRACT PURCHASE
The Contact is available, through the Company's rewrite program, only to
existing Contract Holders who elect to discontinue Purchase Payments to their
existing Contracts and direct future Purchase Payments to the new Contracts.
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<PAGE>
The Contract application form, completed by the prospective Contract Holder,
is forwarded together with the initial Purchase Payment, if any, to the
Company's Home Office for review, acceptance or rejection. The Company must
accept or reject an application within two business days of its receipt.
If the application is incomplete, the Company may hold it and any
accompanying Purchase Payment for five days. Purchase Payments may be held
for longer periods only with the consent of the Contract Holder or
Participant, pending acceptance of the application. If the application is
accepted, a Contract will be issued to the Contract Holder. Any Purchase
Payment accompanying the application or received prior to acceptance of the
application, will be invested as of the date of acceptance. If the
application is rejected, the application and any Purchase Payments will be
returned to the Contract Holder.
The Contract Holder may cancel the Contract within 10 days of receiving it.
(See "Right to Cancel.")
A single master group Contract is issued to cover all present and future
Participants. Contracts may be issued in either allocated or unallocated
form. An allocated Contract provides for the establishment of an Individual
Account for each Participant. An unallocated Contract does not provide for
the establishment of Individual Accounts but all Purchase Payments are
applied to a single Plan Account.
The Purchase Payments made on behalf of a Participant in a defined
contribution Plan are determined by the Plan contribution formula.
Generally, Code Section 415 imposes an annual limit of the lesser of $30,000
or 25% of includible compensation for each Participant. Purchase Payments
for a defined benefit Plan are determined on an actuarial basis to provide
Plan benefits for all Participants. These Purchase Payments are held in a
single Plan Account. Under Code Section 415, a Plan can provide annual
benefits of the lesser of $120,000 (for 1996) or 100% of includible
compensation for each Participant. Under Code Section 402(g) for a 401(k)
Plan, the maximum elected deferral is $9,500 (for 1996).
NET PURCHASE PAYMENTS
Each Purchase Payment is forwarded to the Company through a Distributor.
Each Net Purchase Payment, to the extent it is to be accumulated on a
variable basis, is placed in the Separate Account and credited to the
Contract.
The Contract Holder or, if permitted by a Plan, the Participant may elect to
have the Net Purchase Payment(s) accumulate (a) on a variable basis by
allocation to one of more of the available Funds; (b) on a fixed basis under
one or more of the available credited interest options; or (c) in a
combination of any of the available investment options. The Net Purchase
Payment(s) must be allocated to the respective options in increments of whole
percentage amounts.
The Contract Holder or, if permitted by a Plan, the Participant may elect to
change the allocation of future Net Purchase Payments to any investment
option described above.
ACCUMULATION UNITS
A Purchase Payment that is directed to one or more of the Funds is deposited
in the Separate Account and credited to the Account in the form of
Accumulation Units for each Fund selected. The number of Accumulation Units
credited is determined by dividing the applicable portion of the Purchase
Payment by that Contract's Accumulation Unit value of the appropriate Fund.
The Accumulation Unit value used is that next-computed following the date on
which a Purchase Payment is received, unless the application has not been
accepted. In that event, Purchase Payments will be credited at the
Accumulation Unit value next determined after acceptance of the application.
Shares of the Funds are purchased by the Separate Account at the net asset
value next determined by the Fund following receipt of Purchase Payments by
the Separate Account. Generally, if the net asset value of the Fund
increases, so does the Accumulation Unit value; however, performance of the
Separate Account is reduced by charges and deductions under the Contract.
Accumulation Units are valued separately for each Fund. Therefore, a
Contract Holder or Participant (if permitted a Plan) who elects to have a
Purchase Payment invested in a combination of Funds will have Accumulation
Units credited from more than one source. The value of the Account as of the
most recent
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<PAGE>
Valuation Period, is determined by adding the value of any Accumulation Units
attributed to the Fund(s) selected to the value of any amounts invested in
the Fixed Account and in GAA.
NET INVESTMENT FACTOR
The value of an Accumulation Unit for any Valuation Period is calculated by
multiplying the Accumulation Unit value for the immediately preceding
Valuation Period by the net investment factor of the appropriate investment
option for the current period.
The net investment factor is calculated separately for each Fund in which
assets of the Separate Account are invested.
The net investment rate equals (a) the net assets of the Fund held by the
Separate Account at the end of Valuation Period, minus (b) the net assets of
the Fund held by the Separate Account at the beginning of a Valuation Period,
plus or minus (c) taxes or provision for taxes, if any, attributable to the
operation of the Separate Account, divided by (d) the value of the Fund's
Accumulation and Annuity Units held by the Separate Account at the beginning
of the Valuation Period, minus (e) the applicable daily charge for the
Annuity mortality and expense risks, and a daily administrative expense
charge which will not exceed 0.25% (0% through April 30, 1997) on an annual
basis. The net investment rate may be more or less than zero.
The net investment rate is then added to 1.0000000 to arrive at the net
investment factor.
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities
and Exchange Commission and is a member of the National Association of
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 service to Participants in connection with establishing their
Accounts under the Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum percentage amount
that the Company will ever pay as commission with respect to any given
Purchase Payment is with respect to those made during the first year of
Purchase Payments. That percentage amount will range from 2% to 5% of those
Purchase Payments. The Company may also pay renewal commissions and service
fees. In limited circumstances we also pay certain of these professionals
profit sharing and other compensation, overrides or reimbursement for
expenses. The average of all payments made by the Company is equal to
approximately 3% of the total Purchase Payments made over the estimated life
of the Contract. The name of the Distributor and the registered
representative responsible for your Account are set forth on your enrollment
form. Commissions and sales related expenses are paid by the Company and are
not deducted from Purchase Payments. (See "Charges and Deductions--Deferred
Sales Charges.")
Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We
may also enter into agreements with some entities associated with the
Contract Holder or Participants in which we would agree to pay the
association for certain services in connection with administering the
Contracts. In both these circumstances there may be an understanding that
the Distributor or association would endorse the Company as a provider of the
Contract. Participants will be notified if they are purchasing a Contract
that is subject to these arrangements.
RIGHT TO CANCEL
The Contract Holder may cancel the Contract no later than ten days after
receiving it (or as otherwise allowed by state law) by returning it along
with a written notice of cancellation to the Company. The Company will
produce a refund not later than seven days after it receives the Contract and
the written notice at the Home Office. Unless the applicable state law
requires a refund of Purchase Payments only, the Company will refund the
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<PAGE>
Purchase Payment(s) plus any increase or minus any decrease in the value
attributable to any Purchase Payments allocated to the variable option(s).
CHARGES AND DEDUCTIONS
MAINTENANCE FEE
An annual maintenance fee is deducted during the Accumulation Period from
each Individual or Plan Account on the Contract anniversary date (or, if not
a valuation date, on the next valuation date). This fee is to reimburse the
Company for some of its administrative expenses relating to the establishment
and maintenance of the Individual or Plan Account. The Company deducts this
fee from each respective investment option in the same proportion as the
values held under each option bear to the total value of the Individual or
Plan Account. The maintenance fee, to the extent permitted by state law, is
also deducted upon termination of an Individual or Plan Account.
The annual maintenance fee is $30 for each Individual Account. The annual
maintenance fee for a Plan Account is $30 for each Participant then enrolled
under the Contract, up to a maximum of $240 for the Plan Account.
The Contract Holder may elect to pay the annual maintenance fee directly to
the Company for all Participants. In this case, the maintenance fee will not
be deducted from the current value.
The maintenance fee will be reduced by $5 if the Contract has 25 or more
active Participants and the Contract Holder meets and adheres to the terms of
an agreement to remit automated payments. The maintenance fee is waived if
(a) a Participant has a total of less than $100 in his or her Individual
Account, (b) a Participant enrolls within 90 days of the maintenance fee
deduction, or (c) upon termination of an Individual or Plan Account, a
maintenance fee has been deducted within the previous 90 days.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes a daily deduction from the variable portion of Contract
values for mortality and expense risks. This deduction, made as part of the
calculation of Accumulation and Annuity Unit value(s), is equivalent to 1.19%
per year.
The mortality risk charge is to compensate the Company for the risk it
assumes when it promises to continue making payments for the lives of
individual Annuitants according to Annuity rates specified in the Contract at
issue. The expense risk charge is to compensate the Company for the risk
that actual expenses for costs incurred under the Contract will exceed the
maximum costs that can be charged under the Contract. During 1995, the
Company received $71,090,542 for mortality and expense risks from Contracts
under the Separate Account.
ADMINISTRATIVE EXPENSE CHARGE
The Company reserves the right to deduct a daily charge of not more than
0.25% per year from the variable portion of Contract values to reimburse the
Company for some of the expenses incurred by the Company for administering
the Contract. This charge will be established by the Company on an annual
basis effective each May 1 and continue until April 30 of the following year.
During the Accumulation Period, the charge may fluctuate annually.
Once an Annuity option is elected, the charge will be established and will
remain effective during the entire Annuity Period. Through April 30, 1997,
the Company has established the charge to be 0%. Since the administrative
expense charge is a percentage of the variable portion of Contract values,
there may be no relationship between the amount so deducted and the amount of
expenses attributable to the Contract.
FUND EXPENSES
Each Fund has an investment adviser and pays and investment advisory fee,
which is deducted daily from each Fund's net assets. Most expenses incurred
in the operations of each Fund are borne by the Fund and are deducted before
the Fund calculates its net assets. Fund advisers may reimburse the Funds
they advise for some
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<PAGE>
or all of these expenses. For further details of each Fund's expenses, you
should read the accompanying prospectus for each Fund and refer to the Fee
Table in this Prospectus.
ALLOCATION AND TRANSFER FEES
Once 12 allocation changes or 12 transfers have been made in a calendar year,
we reserve the right to charge a fee of not more than $10, deducted from the
Contract value, for each additional change or transfer. We currently do not
impose a fee.
Transfers may be made among the available Funds or from any of the Funds to a
credited interest option. The Company reserves the right to charge $10 for
each additional transfer, once 12 transfers have been made in a calendar
year. Any fee imposed would be deducted from the Individual or Plan Account
value. Any transfer will be based on the Accumulation Unit value next
determined after a valid request is received at the Home Office. See
Appendix I and II for information on transfers from credited interest options.
DEFERRED SALES CHARGE
There are no deductions from Purchase Payments for sales commissions or
related expenses. Sales commissions and expenses are advanced by the Company
and recovered out of any deferred sales charges or, if deferred sales charges
are insufficient, out of its profits from investment activities, including
the mortality and expense risk charges under the Contract. (For sales
commissions paid in connection with the sale of Contracts, see "Contract
Purchase--Distribution.") Deferred sales charges may be deducted from
amounts withdrawn during the first 10 Contract Years as set forth in the
table below. The deferred sales charge will apply to withdrawals during the
Accumulation Period. It will apply during the Annuity Period if the
nonlifetime Annuity Option is elected on a variable basis and the remaining
value is withdrawn before three years of Annuity payments have been
completed. (See "Annuity Period--Annuity Options.") There are additional
restrictions and deductions on withdrawals. (See "Contract
Rights--Withdrawals.")
The following table reflects the deferred sales charge deduction as a
percentage of the amount withdrawn:
DEFERRED SALES
COMPLETED CONTRACT YEARS CHARGE DEDUCTION
- ------------------------ ----------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
The deduction for the deferred sales charge will not exceed 8.5% of the total
Purchase Payments actually made to the Individual or Plan Account.
A deferred sales charge is not deducted from any Individual or Plan Account
value that is:
(a) applied to provide Annuity benefits;
(b) paid due to the death of the Participant;
(c) withdrawn on or after the completion of 10 Contract Years;
(d) withdrawn due to the election of the Estate Conservation Option;
(e) withdrawn due to the election of the Systematic Withdrawal Option;
(f) withdrawn as a rollover to another pension or IRA Contract issued by
the Company; or
(g) paid where the Individual Account value is less than $2,500 and no
withdrawals have been made from that Individual Account within the
prior 12 months. All Individual Account values held on behalf of the
Participant will be added together to determine eligibility for the $2,500
exemption. This provision is not available under Plan Accounts (where
Individual Accounts are not maintained by the Company) or applicable to
the withdrawal of all Individual Accounts under one Contract established
with the Company.
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In the instances cited in the above paragraphs, no deferred sales charge is
deducted. However, the amount withdrawn may be subject to the 10% federal
penalty tax. (See "Tax Status of Amounts Distributed Under the Contract.")
Based on its actuarial determination, the Company does not anticipate that
the deferred sales charge will cover all sales and administrative expenses
which the Company will incur in connection with the Contract. Also, the
Company does not intend to profit from either the annual maintenance fee or
the administrative expense charge, if imposed. The Company does hope to
profit from the daily deduction for mortality and expense risks. Any such
profit, as well as any other profit realized by the Company and held in the
general account (which supports insurance and annuity obligations), would be
available for any proper corporate purpose, including, but not limited to,
payment of sales and distribution expenses.
PREMIUM TAX
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 Contract 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.")
Any municipal premium tax assessed at a rate in excess of 1% will be deducted
from the Purchase Payment(s) or from the amount applied to an Annuity Option
based upon the Company's determination of when such tax is due. The Company
will absorb any municipal premium tax which is assessed at 1% or less. We
reserve the right, however, to reflect this added expense in its Annuity
purchase rates for residents of such municipalities.
GENERAL DESCRIPTION OF VARIABLE ANNUITY CONTRACTS
RIGHTS UNDER THE CONTRACT
All rights under the Contract rest with the Contract Holder, which is usually
the employer. In the case of a trusteed Plan, the Plan trustee will be the
Contract Holder. Benefits available to Participants are governed exclusively
by the provisions of the Plan. Some of the options and elections under the
Contract may not be available to Participants under the provisions of the
Plan.
MODIFICATION OF THE CONTRACT
The Company may modify the Contract when it deems an amendment appropriate,
subject to the limitations described below, by giving written notice to the
Contract Holder 30 days before the effective date of the change. The
following Contract provisions may be considered material by the Company and
cannot be changed without the approval of appropriate state or federal
regulatory authorities:
(a) transfers among investment options;
(b) notification to the Contract Owner;
(c) conditions governing payments of withdrawal values;
(d) terms of Annuity options;
(e) death benefit payments; and
(f) maintenance fee provisions.
However, changes to items (a) through (g) listed below will apply only to new
Participants enrolled under a Contract after the effective date of the
modification:
(a)the Annuity options;
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<PAGE>
(b) the contractual promise that no deduction will be made from Purchase
Payments for sales or administrative expenses;
(c) increasing the deferred sales charge;
(d) increasing the mortality and expense risk charges;
(e) increasing the administrative expense charge provision, if applicable;
(f) increasing the annual maintenance fee charge, and
(g) the maximum allocation and transfer fees.
Modification of items (b) though (g) above specifically require authorization
by the SEC to the extent that the proposed changes are not currently
authorized by existing orders issued to us by the SEC.
If the Contract Holder has not accepted the proposed change at the time of
the effective date, no new Participants may be enrolled under the Contract.
However, additional Purchase Payments may continue to be made on behalf of
Participants already enrolled under the Contract.
No change may affect any Annuity beginning before the effective date of such
modification unless deemed necessary for the Plan or Contract to comply with
the requirements of the Code or other laws and regulations affecting the Plan
or Contract.
CONTRACT HOLDER INQUIRIES
A Contract Holder may direct inquiries to a local representative of the
Distributor or may write directly to the Company at the address shown on the
cover page of this prospectus.
TELEPHONE TRANSFERS
The Participant automatically has the right to make transfers among Funds by
telephone. The Company has enacted procedures to prevent abuses of
Individual Account transactions via the 800 number. The procedures include
requiring the use of a personal identification number (PIN) to execute
transactions. The Participant is responsible for safeguarding his or her
PIN, and for keeping account information confidential. If the Company fails
to follow its procedures, it would be liable for any losses to the
Participant's Individual Account resulting from the failure. To ensure
authenticity, the Company records all calls on the 800 line. Note: all
Individual Account information and transactions permitted are subject to the
terms of the Plan(s).
TRANSFER OF OWNERSHIP; ASSIGNMENT
Unless contrary to applicable law, assignment of the Contract or an
Individual or Plan Account is prohibited.
REDEMPTION PAYMENTS DURING ACCUMULATION PERIOD
The Contract Holder may redeem all or a portion of the Individual or Plan
Account value during the Accumulation Period by properly completing and
submitting to the Company's Home Office a withdrawal request form provided by
the Company.
The Redemption Payment, in the case of a full withdrawal of the Contract,
will be the value of the Plan Account or all Individual Accounts less the
applicable maintenance fees and deferred sales charge. The Redemption
Payment, for any partial withdrawal, where a percentage of the value of a
Plan or Individual Account is requested, will be the percentage requested
less a deferred sales charge, if any. For any partial withdrawal where a
specific dollar amount is requested the Redemption Payment will be the amount
requested; sufficient Accumulation Units will be cancelled to cover both the
specific withdrawal amount requested and any deferred sales charge. A 20%
income tax may be withheld from amounts paid directly to a Participant. (See
"Tax Status of Amounts Distributed Under the Contract.")
The value of the Accumulation Units cancelled for a Redemption Payment will
be determined as of the end of the Valuation Period in which a disbursement
form properly completed by the Contract Holder is received at the
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<PAGE>
Company's Home Office or on such later date as the withdrawal form may
specify. Disbursement forms are available from the Company and its local
representatives.
For any partial withdrawal, unless requested otherwise by the Contract
Holder, the value of the Accumulation Units cancelled will be withdrawn from
the respective investment options in the same proportions as their respective
values bear to the total value of the Plan or Individual Account.
Redemption Payments will normally be made in accordance with SEC
requirements, but normally not later than seven calendar days after a
properly completed withdrawal form is received at the Company's Home Office
or within seven calendar days of the date the withdrawal form may specify.
Redemption Payments may be delayed for: (a) any period in which the New
York Stock Exchange ("Exchange") is closed (other than customary weekend and
holiday closings) or in which trading on the Exchange is restricted; (b) any
period in which an emergency exists where disposal of securities held by the
Funds is not reasonably practicable or it is not reasonably practicable for
the value of the assets of the Funds to be fairly determined; or (c) such
other periods as the SEC may by order permit for the protection of Contract
Holders and Participants. The conditions under which restricted trading or
an emergency exists shall be determined by the rules and regulations of the
SEC.
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinvest all or a portion of the proceeds
received from the full withdrawal of a Plan or Individual Account within 30
days after such withdrawal. Accumulation Units will be credited to the Plan
or Individual Account for the amount reinvested, as well as for any
applicable maintenance fee and any appropriate portion of 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 amount reinvested. Reinvested amounts will be reallocated to the
applicable investment options in the same proportion as they were allocated
at the time of withdrawal.
The number of Accumulation Units credited will be based upon the Accumulation
Unit value(s) next computed following receipt at the Company's Home Office of
the reinvestment request along with the amount to be reinvested. The
reinvestment privilege may be used only once. A Contract Holder
contemplating reinvestment should seek competent advice regarding the tax
consequences associated with such a transaction.
ADDITIONAL WITHDRAWAL OPTIONS
GENERAL
The Company offers two additional withdrawal options which are not considered
Annuity Options: the Estate Conservation Option ("ECO") and the Systematic
Withdrawal Option ("SWO"). These options are available to you with contract
values of at least $25,000 at the time of election and are available at
certain ages as described below. Under SWO, Participants receive a series of
partial withdrawals from the account based on the payment method selected. It
is designed for those who want a periodic income while retaining investment
flexibility for amounts accumulated under the Contract. ECO offers the same
investment flexibility as SWO, but is designed for those who want to receive
only the minimum distribution that the Code requires each year. Under ECO,
the Company calculates the minimum distribution amount required by law and
pays you that amount once a year.
Amounts withdrawn for ECO and SWO will be deducted from the Contract in the
same manner as for any other withdrawals during the Accumulation Period
except that no deferred sales charge will be applied. (See "Charges and
Deductions--Deferred Sales Charge.") Since ECO and SWO are not Annuity
options, the Individual or Plan Account remains in the Accumulation Period,
retains all the rights and flexibility described in this Prospectus, and is
subject to all other Contract charges. The value of the Accumulation Units
cancelled will be withdrawn from the respective investment options in the
same proportion as their respective values bear to the total value of the
Individual or Participant's portion of the Plan Account. The Company
reserves the right to discontinue the availability of these options and to
change the terms for future elections.
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Once elected, these options may be revoked by the Contract Holder at any
time, but only by submitting a written request to the Home Office. Any
revocation will apply only to the amounts not yet paid. Once ECO or SWO is
revoked, it may not be elected again.
Participants should determine the availability of ECO and SWO under their
Plan (by checking with the Contract Holder), and the terms and conditions
that may apply.
SWO is different from ECO in the following ways: (1) SWO payments are made
for a fixed dollar amount or fixed time period, whereas ECO payments vary in
dollar amount and can continue indefinitely during the Contract Holder's or
Participant's lifetime, and (2) generally, SWO payments will be higher than
expected ECO payments. Participants should carefully assess their future
income needs when considering the election of these distribution options.
Participants should also consult their tax adviser before requesting the
election of these conditions due to the potential for adverse tax
consequences.
In the event of the Participant's death, payments may be continued if allowed
by the Plan.
ESTATE CONSERVATION OPTION
The Company will calculate and distribute an annual amount using the method
contained in the Code's minimum distribution regulations. The annual
distribution is determined by dividing the prior December 31 value of the
Individual or Participant's portion of the Plan Account, as directed by the
Contract Holder, by a life expectancy factor from tables designated by the
Internal Revenue Service ("IRS"). The factor will be based on either the
Participant's life expectancy or the joint life expectancies of the
participant and the Participant's spouse. If ECO is elected based on the
Participant's life expectancy, the full value of the Individual or
Participant's portion of the Plan Account must be distributed in the year
following the Participant's death, as required by current IRS regulations.
Factors will be redetermined for each year's distribution. The value of the
Individual or Participant's portion of the Plan Account to be used in this
calculation is the value on the December 31st prior to the year for which
payment is being made. This calculation will be changed, if necessary, to
conform to changes in the Code or applicable regulations.
At the time of ECO election, the total aggregate value of all Individual
Accounts or portions of Plan Accounts to which ECO is applied must be $25,000
or more. The first distribution must be made in the calendar year in which
age 70 1/2 is attained or later.
SYSTEMATIC WITHDRAWAL OPTION
The Company will distribute a portion of the Individual or Participant's
portion of the Plan Account, as directed by the Contract Holder, annually.
The Company reserves the right to provide payments more frequently.
The annual minimum SWO distribution, or maximum SWO time period, will be
determined as directed by the Contract Holder, by a life expectancy factor
from tables designated by the IRS. The factor will be based on either the
Participant's life expectancy or the joint life expectancies of the
Participant and Participant's spouse. Factors will be reduced by one for
each distribution year.
At the time of SWO election, the total aggregate value of all Individual
Accounts or portions of Plan Accounts to which SWO is applied must be $25,000
or more. Payments must not begin before the calendar year in which age
70 1/2 is attained or later.
One of two methods of distribution may be elected:
(a) Specified Payment--Payments of a designate dollar amount. The minimum
specified payment is determined by dividing the value of the Individual or
Participant's portion of the Plan Account by the life expectancy factor. The
value of the Individual or Participant's portion of the Plan Account to be
used in this calculation is the value on the December 31st prior to the year
for which the payment is being made. The dollar amount chosen must be at
least $250 annually but cannot be greater than 10% of the cash value applied
to SWO.
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This amount will remain constant unless a higher amount is required under
Code minimum distribution regulations. If a payment is less than the amount
determined under the Code's minimum distribution regulations, the Company
will calculate and pay the minimum distribution amount.
(b) Specified Period--payments for a designated time period. The specified
period must be at least 10 years but no greater than the Participant's life
expectancy factor. The first distribution must be at least $250. Each
annual distribution is determined by dividing the Individual Account or
total portions of the Plan Accounts' value by the number of years remaining
in the elected period. The value to be used in this calculation is the
value on the December 31st prior to the year for which the payment is being
made.
ANNUITY PERIOD
ANNUITY PERIOD ELECTIONS
The Contract Holder must notify the Company in writing of the Annuity start
date and Annuity Option elected. Until a date and option are elected, the
Individual or Plan Account will continue in the Accumulation Period.
The Contract Holder may give written notice to the Company at least 30 days
before Annuity payments begin by electing or changing (a) the date on which
Annuity payments are to start, (b) the Annuity Option, (c) whether the
payments are to be made monthly, quarterly, semiannually or annually, and (d)
the investment option(s) used to provide Annuity payments (i.e., a fixed
annuity using the general account, Aetna Variable Fund, Aetna Income Shares,
Aetna Investment Advisers Fund, Inc., or any combination thereof). No other
Funds, may currently be used as investment options during the Annuity Period.
Once Annuity Payments begin, the Annuity Option may not be changed, nor may
transfers be made among funding options.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
(3 1/2% per annum, unless a 5% annual rate is elected). 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.
No election may be made that would result in a first Annuity payment of less
than $20 or total yearly Annuity payments of less than $100. If the value of
the Contract is insufficient to elect an option for the minimum amount
specified, a lump-sum payment must be elected.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
The retirement date and the Annuity Options available to Participants are
normally established by the terms of the Plan, subject to applicable
provisions of the Code.
Generally, distributions for all Plan Participants must begin no later than
April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2, whether or not retired.
In determining the amount of benefit payments, the minimum distribution
incidental death benefit rule described in IRS regulations* must be
satisfied. This distribution rule does not apply if any of the Annuity
Options under (b) below are elected with the spouse as the sole beneficiary.
(See "Annuity Options.")
The Participant will be subject to a 50% federal penalty tax on the amount of
distribution required each year which is not distributed under the Code's
minimum distribution rules.
Annuity payments may not extend beyond (a) the life of the Annuitant, (b) the
joint lives of the Annuitant and beneficiary, (c) a period certain greater
than the Annuitant's life expectancy, or (d) a period certain greater than
the joint life expectancies of the Annuitant and beneficiary.
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* This rule assures that any death benefits payable under the Plan are
incidental to the primary purpose of the Plan which is to provide
retirement benefits or deferred compensation to the Participant. The amount
to be distributed under this rule is determined based on the Participant's
age and tables contained in the IRS regulations.
ANNUITY OPTIONS
LIFETIME:
(a) Life Annuity--an Annuity with payments guaranteed to the date of the
Annuitant's death. This option may be elected with payments guaranteed
for 5, 10, 15 or 20 years. Because it provides a specified minimum
number of Annuity payments, the election of a guaranteed payment period
results in somewhat lower payments.
(b) Life Income Based Upon the Lives of Two Payees--an Annuity will be
paid during the lives of the Annuitant and a second Annuitant. Payments
will continue until both Annuitants have died. When this option is
chosen, a choice must be made of:
(i) 100% of the payment to continue after the first death;
(ii) 66 2/3% of the payment to continue after the first death;
(iii) 50% of the payment to continue after the first death;
(iv) payments for a minimum of 120 months, with 100% of the payment
to continue after the first death; or
(v) 100% of the payment to continue at the death of the second
Annuitant and 50% of the payment to continue at the death of the
Annuitant.
Because (iv) provides a specified minimum number of Annuity payments, the
election of the guaranteed payment period results in somewhat lower payments.
Payments under any lifetime Annuity Option will be determined without regard
to the sex of the Annuitant(s). Such Annuity payments will be based solely
on the age of the Annuitant(s).
If a lifetime option is elected without a guaranteed minimum payment period,
it is possible that only one Annuity payment will be made if the Annuitant
under (a), or the surviving Annuitant under (b), should die prior to the due
date of the second Annuity payment.
Once lifetime annuity payments begin, neither the Contract Holder nor the
Annuitant can elect to receive a lump-sum settlement.
NONLIFETIME:
Payments for a Specified Period--an Annuity with payments to be made for
3 to 30 years, as selected. If this option is elected on a variable basis,
the Contract Holder may request at any time during the payment period that
the present value of all or any portion of the remaining variable payments
be paid in one sum. However, any lump sum elected before 3 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
"Deferred Sales Charge." This option is not available on a variable basis
under a Contract which provides for immediate Annuity benefits.
The Company makes a daily deduction for mortality and expense risks from any
Contract values held on a variable basis. (See "Mortality and Expense Risk
Charges.") Therefore, electing the nonlifetime option on a variable basis
will result in a deduction being made even though the Company assumes no
mortality risk.
The Company may make available to Contact Holders and other payees optional
methods of payment in addition to the Annuity Options described above.
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DEATH BENEFIT
ACCUMULATION PERIOD
A portion or all of any death proceeds may be (a) paid to the Participant's
beneficiary under the Plan in a lump sum; (b) applied under any of the
Annuity Options; (c) subject to applicable provisions of the Code, left in
the variable investment options; or (d) subject to applicable provisions of
the Code, left on deposit in the Company's general account with the
Participant's beneficiary electing to receive monthly, quarterly, semiannual
or annual interest payments at the interest rate then currently being
credited on such deposits. The balance on deposit can be withdrawn at any
time or applied under any Annuity Option. Any lump-sum payment paid during
the Accumulation Period will normally be made within seven calendar days
after proof of death acceptable to the Company and a request for payment are
received at the Company's Home Office.
Until the election of method of payment, amounts will remain invested as they
were before the death, and the beneficiary will assume all rights under the
Contract. The Code requires that distributions begin within a certain time
period. If the Participant's beneficiary under the Plan is the surviving
spouse, the Code allows a Plan to give the Participant's beneficiary until
the Participant would have attained age 70 1/2 to begin receiving Annuity
payments or to receive a lump-sum distribution. If the Participant's
beneficiary under the Plan is not the surviving spouse, Annuity payments must
begin by December 31 of the year following the year of your death, or the
entire value must be distributed by December 31 of the fifth year following
the year of your death. In no event may payments to any beneficiary extend
beyond the life of the beneficiary or any period certain greater than the
beneficiary's life expectancy. If no elections are made concerning
distribution, no distributions will be made. Failure to commence
distribution within the above time periods can result in tax penalties. In
no event may payments to any Participant's beneficiary extend beyond the life
of the Participant's beneficiary or any period certain greater than the
Participant's beneficiary's life expectancy.
If a lump-sum distribution is elected, the beneficiary will receive the value
of the Contract determined as of the Valuation Period in which proof of death
acceptable to us and a request for payment are received at the Home Office.
If an Annuity Option is elected, the value applied to the Annuity Options is
determined in the same manner as a lump-sum distribution; the amount of
payout will depend on the annuity option elected and the investment option(s)
used to provide such payments. (See "Annuity Period.") If amounts are left
in the variable investment options, the account value will continue to be
affected by the investment performance of the investment option(s) selected.
If amounts are left on deposit in the general account, the principal amount
is guaranteed but interest payments may vary. In general, regardless of the
method of payment, payments received by your beneficiaries after your death
are taxed in the same manner as if you had received those payments. (See
"Tax Status.")
ANNUITY PERIOD
Should an Annuitant die after Annuity payments have begun, any death benefit
payable will depend upon the terms of the Contract and the Annuity option
selected.
If lifetime option (a) or (b) was elected without a guaranteed minimum
payment period under the Contract, Annuity payments will cease upon the death
of the Annuitant under a Life Annuity or the death of the surviving Annuitant
under options (b)(i), (ii), (iii), or (v).
Under the Contract, if lifetime option (a) or (b) was elected with a
guaranteed minimum payment period and the death of the Annuitant under option
(a) or the death of the surviving Annuitant under option (b)(iv) occurs prior
to the end of that period, the Company will pay to the designated beneficiary
in a lump sum, unless otherwise requested, the present value of the
guaranteed Annuity payments remaining. Such value will be determined as of
the Valuation Period in which proof of death acceptable to the Company and a
request for payment are received at its Home Office. The value will be
reduced by any payments made after the date of death.
If the nonlifetime option was elected under the Contract and the Annuitant
dies before all payments are made in a lump sum to the beneficiary and no
deferred sales charge will be imposed. Such value will be determined as of
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the Valuation Period in which proof of death acceptable to the Company and a
request for payment are received at the Home Office.
Any lump sum payment paid under the applicable lifetime or nonlifetime
Annuity Options will normally be made within seven calendar days after proof
of death acceptable to us, and a request for payment are received at our Home
Office.
Under the Code, if the Annuitant under a Plan dies after Annuity payments
have begun and if there is a death benefit payable under the Annuity option
elected, the remaining values must be distributed to the Participant's
beneficiary under the Plan at least as rapidly as under the original method
of distribution.
TAX STATUS
FEDERAL TAX STATUS OF THE COMPANY
The Company is taxed as a life insurance company in accordance with the Code.
For federal income tax purposes, the operations of the Separate Account form
a part of the Company's total operations and are not taxed independently,
although operations of the Separate Account are treated separately for
accounting and financial statement purposes. Under the current provisions of
the Code, the investment income and realized capital gains of the Separate
Account (i.e., income and capital gains distributed to the Separate Account
by the Funds) will not be taxable to the Company to the extent such amounts
are credited to the Contracts. Based on this, no charge is being made
currently to the Separate Account for federal income taxes. However, the
Company reserves the right to make a deduction for federal income taxes
attributable to the Contracts should such taxes be imposed in the future.
USE OF THE CONTRACT
The Contract is intended to provide retirement benefits to Participants under
Corporate 401 Plans established by employers. Some of the options and
elections under the Contract may not be available to Participants under the
provisions of the Plan.
TAX STATUS OF AMOUNTS DISTRIBUTED UNDER THE CONTRACT
The following description of the federal income tax status of amounts
distributed under the Contracts is not exhaustive and is not intended to
cover all situations. Contract Holders and Participants should seek advice
from their tax advisers as to the application of federal (and where
applicable, state and local) tax laws to amounts received by them and by
their beneficiaries under the Contracts.
The Code imposes a 10% penalty tax on the taxable portion of any distribution
unless made when (a) the Participant has attained age 59 1/2, (b) the
Participant has become disabled, (c) the Participant has died, (d) the
Participant has attained age 55 and has separated from service with the Plan
sponsor, (e) the distribution amount is rolled over into an Individual
Retirement Account ("IRA") in accordance with terms of the Code, or (f) the
distribution amount is annuitized over the life or life expectancy of the
Participant or the joint lives or life expectancies of the Participant and
beneficiary, provided the Participant has separated from service with the
Plan sponsor. In addition, the penalty tax is abated for the amount of a
distribution equal to unreimbursed medical expenses incurred by the
Participant that qualify for deduction as specified in the Code.
Whether the Participant elects a lump sum or Annuity payments, if a
Participant has made after-tax contributions to the Plan, the Participant
will have a cost basis (equal to such contributions) which can be recovered
tax-free from distributions from the Plan.
The Contract Holder, on behalf of a payee (a Participant, surviving spouse,
and former spouse, if entitled to benefits under certain divorce orders)
entitled to a distribution under this Contract on or after January 1, 1993,
may elect a direct rollover of an eligible rollover distribution. A direct
rollover is the payment by the Company to another eligible retirement plan.
The election of a direct rollover must be made in accordance with the
Company's procedures.
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An eligible rollover distribution is a distribution of all or any portion of
an amount payable except for any distribution that is: (1) one of a series
of equal payments (made at least once a year) for the life/life expectancy of
the payee or payee and beneficiary, or for a period of ten years or more; (2)
a required minimum distribution under Code Section 401(a)(9); and (3) any
distribution or portion thereof that is not taxable.
If a direct rollover of an eligible rollover distribution is made, the
Company must report the amount of the distribution to the IRS and the
Participant, but is not required to withhold any federal or state income tax.
If an eligible rollover distribution is paid to the payee (as defined
above), the Company must withhold 20% federal income tax and any required
state income tax. For taxable amounts that are not eligible rollover
distributions, if payable to the Participant, he or she has the right to
choose not to have federal income tax withheld.
If a Participant receives a payment prior to reaching age 59 1/2, and does
not roll the payment over, in addition to the tax withholding, a 10% penalty
tax on the taxable portion of the payment may apply (unless the payment is
subject to an exception listed above).
Federal income and state taxes will be withheld from any payments paid
directly to a Participant, unless instructed otherwise. The Company will
report to the IRS the taxable portion of all distributions whether or not
income taxes are withheld.
a. ACCUMULATION PERIOD
The Purchase Payments and investment results of the Separate Account
credited to the value of the Contract are not taxable to Participants
until distributed. Lump-sum payments will generally be taxed to
Participants as ordinary income in the year received. Special provisions
of the Code may afford more favorable tax treatment for lump-sum
distributions under 401 Plans.
b. ANNUITY PERIOD
Annuity payments will generally be fully taxable to Participants as
ordinary income when received.
LEGAL PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account is a party or which would materially affect the Separate
Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed
upon by Susan E. Bryant, Esq., Counsel to the Company.
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CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
The following items are the contents of the Statement of Additional Information:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Annuity Payments
Sales Material
Independent Auditors
Financial Statements of the Separate Account
Financial Statements for Aetna Life Insurance and Annuity Company
26
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APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
THE GUARANTEED ACCUMULATION ACCOUNT ("GAA") IS A CREDITED INTEREST OPTION
AVAILABLE DURING THE ACCUMULATION PERIOD UNDER THE CONTRACT. CONTRACT
HOLDERS SHOULD READ THE ACCOMPANYING GAA PROSPECTUS CAREFULLY BEFORE
INVESTING. THIS APPENDIX IS A SUMMARY OF GAA AND IS NOT INTENDED TO REPLACE
THE GAA PROSPECTUS. AMOUNTS ALLOCATED TO 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.
GAA is a credited interest option where the Company guarantees stipulated
rates of interest for stated periods of time on amounts directed to GAA. The
interest rate stipulated is an annual effective yield; that is, it reflects a
full year's interest. Interest is credited daily at a rate that will provide
the guaranteed annual effective yield over the period of one year. This
option guarantees the minimum interest rate specified in the Contract.
During a specified period of time, amounts may be applied to any or all of
available Guaranteed Terms within the Short-Term and Long-Term
Classifications. The Short-Term Classification consists of all Guaranteed
Terms of 3 years or less and the Long-Term Classification consists of all
Guaranteed Terms of 10 years or less, but greater than 3 years.
Withdrawals or transfers from a Guaranteed Term prior to the end of that
Guaranteed Term may be subject to a Market Value Adjustment ("MVA"). An MVA
reflects the change in the value of the investment due to changes in interest
rates since the date of deposit. When interest rates increase after the date
of deposit, the value of the investment decreases, and the MVA is negative.
Conversely, when interest rates decrease after the date of deposit, the value
of the investment increases, and the MVA is positive. It is possible that a
negative MVA could result in the Contract Holder or, if applicable, 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 the other available
investment options or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge, tax penalties and/or withholding.
By notifying the Company at its Home Office at least 30 days before Annuity
payments begin, the Contract Holder or, if permitted by the Plan, the
Participant may elect to have amounts which have been accumulating under GAA
transferred to one or more of the Funds available during the Annuity Period,
to provide variable Annuity payments. GAA cannot be used as an investment
option during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes no deductions from the credited interest rate for mortality
and expense risks; these risks are considered in determining the credited
rate.
TRANSFERS
Amounts applied to a Guaranteed Term during a deposit period may not be
transferred to any other funding option or to another Guaranteed Term during
that deposit period or for 90 days after the close of that deposit period.
Transfers are permitted from Guaranteed Terms of one Classification to
available Guaranteed Terms of another Classification. The Company will apply
an MVA to GAA transfers made before the end of a Guaranteed Term. Transfers
of GAA values due to a maturity are not subject to an MVA and are not counted
as one of the 12 free transfers of accumulated values in the Individual or
Plan Account.
REINVESTMENT PRIVILEGE
Any amounts reinvested in GAA will be applied to the current deposit period.
Amounts are proportionately reinvested to the Classifications in the same
manner as they were allocated prior to withdrawal. Any negative MVA amount
applied to a withdrawal is not included in the reinvestment.
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APPENDIX II
FIXED ACCOUNT
THE FIXED ACCOUNT IS AN INVESTMENT OPTION AVAILABLE DURING THE ACCUMULATION
PERIOD UNDER THE CONTRACTS. THE FOLLOWING SUMMARIZES MATERIAL INFORMATION
CONCERNING THE FIXED ACCOUNT THAT IS OFFERED AS AN OPTION UNDER THE CONTRACT.
ADDITIONAL INFORMATION MAY BE FOUND IN THE CONTRACT. AMOUNTS ALLOCATED TO
THE FIXED ACCOUNT ARE HELD IN THE COMPANY'S GENERAL ACCOUNT THAT SUPPORTS
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 THIS PROSPECTUS REGARDING THE FIXED
ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS
OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF
THE STATEMENTS. DISCLOSURE IN THIS APPENDIX REGARDING THE FIXED ACCOUNT HAS
NOT BEEN REVIEWED BY THE SEC.
CREDITED INTEREST OPTION -- FIXED ACCOUNT
This option guarantees that amounts allocated to this option will earn the
minimum interest rates specified in the Contract. (This minimum interest
rate cannot be changed by the Company.) The Company may credit a higher
interest rate from time to time. The Company's determination of interest
rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of
invested assets. Under this option, the Company assumes the risk of
investment gain or loss by guaranteeing Net Purchase Payment values and
promising a minimum interest rate and Annuity payment.
The Company may pay any Fixed Account withdrawal value in one lump sum to the
Contract Holder if (a) the total of the current Fixed Account withdrawal and
(b) the total of all Fixed Account withdrawals from the Contract within the
past 12 calendar months is less than $500,000. However, if the total is
equal to or greater than $500,000, the Company will pay the Fixed Account
withdrawal value in equal payments, with interest, over a period not to
exceed 60 months. This interest 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. In addition, under certain emergency
conditions, the Company may defer payment (a) for a period of up to 6 months
or (b) as provided by federal law.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
MORTALITY AND EXPENSE RISK CHARGES
The Fixed Account will reflect a compound interest rate credited by the
Company. The interest rate quoted is an annual effective yield. The Company
makes no deductions from the credited interest rate for mortality and expense
risks; these risks are considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment option are
allowed in each calendar year during the Accumulation Period. The amount
which may be transferred may vary at the Company's discretion; however, it
will never be less than 10% of the amount held under the Fixed Account.
By notifying the Company at its Home Office at least 30 days before Annuity
payments begin, the Contract Holder or, if permitted by the Plan, the
Participant may elect to have amounts which have been accumulating under the
Fixed Account transferred to one or more of the Funds available during the
Annuity Period to provide variable Annuity payments.
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VARIABLE ANNUITY ACCOUNT C
PROSPECTUS
DATED MAY 1, 1996
GROUP 401 REWRITE
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156-1268
Telephone: 1-800-232-5422
Form No. 75984-2 May 1996
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
Group Variable Retirement Annuity Contracts for Tax-Deferred Annuity Plans
(Section 403(b)), Qualified 401 Plans, and HR 10 Plans
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
1-800-531-4547
Read the prospectus before you invest. Terms used in this Statement of
Additional Information shall have the same meaning as in the prospectus.
TABLE OF CONTENTS
Page
General Information and History. . . . . . . . . . . . . . . . . . . . . 2
Variable Annuity Account C . . . . . . . . . . . . . . . . . . . . . . . 2
Offering and Purchase of Contracts . . . . . . . . . . . . . . . . . . . 3
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sales Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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 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 each of the
variable investment options of the Separate Account will be invested
exclusively in shares of the mutual funds described in the Prospectus.
Purchase Payments made under the Contract may be allocated to one or more of
the variable investment options. The Company may make additions to or
deletions from available investment options as permitted by law. The
availability of the Funds is subject to applicable regulatory authorization.
Not all Funds are available in all jurisdictions or under all Contracts. The
Funds currently available under the Contract are as follows:
Aetna Income Shares
Aetna Investment Advisers Fund, Inc.
Aetna Variable Encore Fund
Aetna Variable Fund
TCI Growth
2
<PAGE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through
life insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the section titled "The Contract."
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Contract or Individual
Account is determined using Accumulation Unit values as of the tenth Valuation
Period before the first Annuity payment is due. Such value (less any applicable
premium tax) is applied to provide an Annuity in accordance with the Annuity and
investment options elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Period to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Fund(s) (with a ten Valuation Period lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to commence, there are 3,000
Accumulation Units credited under a particular Contract or Individual Account
and that the value of an Accumulation Unit for the tenth Valuation Period prior
to retirement was $13.650000. This produces a total value of $40,950.
3
<PAGE>
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Period in which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Period (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Period in which the second payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
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.
4
<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
Condensed Financial Information . . . . . . . . . . . . . . S-12
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contract Owners of Variable Annuity Account C:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account C (the "Account")
as of December 31, 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
Form No. ADVANCE -2
USED FOR 75974 AND 75984 ALIAC Ed. MAY 1996
