As filed with the Securities and Exchange Registration No. 33-91846*
Commission on December 31, 1996 Registration No. 811-2513
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Post-Effective Amendment No. 8 To
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
and Amendment To
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Variable Annuity Account C of Aetna Life Insurance and Annuity Company
(Exact Name of Registrant)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RC4A, Hartford, Connecticut 06156
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RC4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
Registrant expects to file a Rule 24f-2 Notice for the fiscal year ended
December 31, 1996 on or before February 28, 1997.
*Pursuant to Rule 429(a) under the Securities Act of 1933, Registrant has
included a combined prospectus under this Registration Statement which includes
all the information which would currently be required in a prospectus relating
to the securities covered by the following earlier Registration Statement:
33-75976.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION - PROSPECTUS
DATED MARCH __, 1997
FORM N-4
ITEM NO. PART A (PROSPECTUS)
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Definitions.......................................... Definitions
3 Synopsis............................................. Prospectus Summary; Fee Table
4 Condensed Financial Information...................... Condensed Financial Information
5 General Description of Registrant,
Depositor, and Portfolio Companies................... The Company; Variable Annuity Account
C; Investment Options - The Funds
6 Deductions and Expenses.............................. Charges and Deductions; Miscellaneous -
Distribution
7 General Description of Variable Annuity
Contracts........................................... Purchase; Miscellaneous
8 Annuity Period....................................... Annuity Period
9 Death Benefit........................................ Death Benefit During Accumulation
Period; Annuity Period - Death Benefit
Payable During the Annuity Period
10 Purchases and Contract Value......................... Purchase; Contract Valuation
11 Redemptions.......................................... Purchase - Right to Cancel; Withdrawals
12 Taxes................................................ Tax Status
13 Legal Proceedings.................................... Miscellaneous - Legal Matters and
Proceedings
<PAGE>
Form N-4
Item No. Part B (Statement of Additional Information) Location
14 Table of Contents of the Statement of Additional
Information.......................................... Contents of the Statement of Additional
Information
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data - Average Annual
Total Return Quotations
22 Annuity Payments..................................... Annuity Payments
23 Financial Statements................................. Financial Statements of the
Separate Account; Financial
Statements of Aetna Life Insurance
and Annuity Company
</TABLE>
Part C (Other Information)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
=============================================================================
This Prospectus describes group deferred variable annuity contracts
("Contracts") issued by Aetna Life Insurance and Annuity Company (the
"Company"). The Contracts are designed to fund plans that provide retirement
income for employees of institutions of higher education. The Contracts are
available through participation in retirement programs which receive
favorable tax deferred treatment under Federal income tax law. (See
"Purchase.")
The Contracts provide that contributions may be allocated to one or more of
the Credited Interest Options or to one or more of the Subaccounts of
Variable Annuity Account C, a separate account of the Company. The
Subaccounts invest directly in shares of the following Funds:
[bullet] Aetna Variable Fund
[bullet] Aetna Income Shares
[bullet] Aetna Variable Encore Fund
[bullet] Aetna Investment Advisers Fund, Inc.
[bullet] Aetna Ascent Variable Portfolio
[bullet] Aetna Crossroads Variable Portfolio
[bullet] Aetna Legacy Variable Portfolio
[bullet] Aetna Variable Index Plus Portfolio
[bullet] Alger American Growth Portfolio
[bullet] Alger American Small Cap Portfolio
[bullet] Calvert Responsibly Invested Balanced Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Franklin Government Securities Trust
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Short-Term Bond Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust
[bullet] Neuberger & Berman Growth Portfolio
[bullet] Scudder International Portfolio Class A Shares
[bullet] TCI Growth (a Twentieth Century fund)
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Plus Account and the Fixed Account
(available for accumulation only in limited circumstances). Except as
specifically mentioned, this Prospectus describes only investments through
the Separate Account. A brief description of each of the Credited Interest
Options is contained in Appendices to this Prospectus. Additional information
concerning the Guaranteed Accumulation Account is contained in a separate
prospectus.
The availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest
Options may be available in all jurisdictions, under all Contracts, or under
all Plans. Please check with your employer to determine option availability.
(See "Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract. Additional
information about the Separate Account is contained in a Statement of
Additional Information ("SAI") which is available at no charge. The SAI has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents for the SAI is printed on page 16
of this Prospectus. An SAI may be obtained by indicating the request on the
enrollment form or on the prospectus receipt contained in this Prospectus, or
by calling the number listed under the "Inquiries" section of the Prospectus
Summary.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus and the Statement of Additional Information are dated March
__, 1997.
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
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<PAGE>
TABLE OF CONTENTS
DEFINITIONS .................................. DEFINITIONS - 1
PROSPECTUS SUMMARY .......................... SUMMARY - 1
FEE TABLE..................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .............. AUV HISTORY - 1
THE COMPANY .......................................... 1
VARIABLE ANNUITY ACCOUNT C ........................... 1
INVESTMENT OPTIONS ................................... 1
The Funds .......................................... 1
Credited Interest Options .......................... 4
PURCHASE ............................................. 4
Contract Availability .............................. 4
Purchasing Interests in the Contract ............... 4
Rights Under the Contract .......................... 5
Right to Cancel .................................... 5
CHARGES AND DEDUCTIONS ............................... 5
Daily Deductions from the Separate Account ......... 5
Mortality and Expense Risk Charge ................ 5
Asset Based Sales Charge ......................... 5
Administrative Expense Charge .................... 6
Fund Expenses ...................................... 6
Premium and Other Taxes ............................ 6
CONTRACT VALUATION ................................... 6
Account Value ...................................... 6
Accumulation Units ................................. 6
Net Investment Factor .............................. 6
TRANSFERS ............................................ 7
Dollar Cost Averaging Program ...................... 7
WITHDRAWALS .......................................... 7
Reinvestment Privilege ............................. 8
CONTRACT LOANS ....................................... 8
ADDITIONAL WITHDRAWAL OPTIONS ........................ 8
DEATH BENEFIT DURING ACCUMULATION PERIOD ............. 9
ANNUITY PERIOD ....................................... 9
Annuity Period Elections ........................... 9
Annuity Options .................................... 10
Duration of Annuity Payments ....................... 10
Charges Deducted During the Annuity Period ......... 11
Death Benefit Payable During the Annuity Period .... 11
TAX STATUS ........................................... 11
Introduction ....................................... 11
Taxation of the Company ............................ 11
Contracts Used with Certain Retirement Plans ....... 12
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<PAGE>
MISCELLANEOUS ........................................ 14
Distribution ....................................... 14
Delay or Suspension of Payments .................... 14
Performance Reporting .............................. 14
Voting Rights ...................................... 15
Changes in Beneficiary Designations ................ 15
Modification of the Contract ....................... 15
Legal Matters and Proceedings ...................... 15
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION .. 16
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT .......... 17
APPENDIX II--FIXED PLUS ACCOUNT ...................... 18
APPENDIX III--FIXED PLUS ACCOUNT
(Applicable Only In Limited Circumstances) ......... 20
APPENDIX IV--FIXED PLUS ACCOUNT
(Applicable Only In Limited Circumstances) ......... 22
APPENDIX V--FIXED ACCOUNT
(Applicable Only In Limited Circumstances) ......... 24
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THE OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED
HEREIN.
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<PAGE>
DEFINITIONS
=============================================================================
The following terms are defined as they are used in this Prospectus:
Account: A record which identifies contract values accumulated on behalf of
each Participant during the Accumulation Period. One or more Employee
Accounts and Employer Accounts may be established for each Participant.
Account Value: The total dollar value of amounts held in an Account as of
each Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to
an Account are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments
are based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Beneficiary(ies): The person(s) entitled to receive any death benefit upon
the death of the Participant.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group deferred variable annuity contracts offered by this
Prospectus.
Contract Holder: The entity to whom the Contract is issued. The Contract
Holder is usually the employer.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account and the Fixed Plus Account, each of which is described in an Appendix
to this Prospectus. The Fixed Account is an additional Credited Interest
Option described in an Appendix to this Prospectus; however, the Fixed
Account is available during accumulation only in limited circumstances.
Amounts allocated to the Credited Interest Options are included in the
Account Value.
Employee Account: An account that is credited with payments derived from
employee salary reduction or salary deduction contributions (as provided for
by the Plan) and remitted to the Company by the employer on behalf of each
Participant.
Employer Account: An account that is credited with net Purchase Payments made
by the Contract Holder.
Section 403(b) Contract: A Contract that accepts Purchase Payments made
pursuant to Code Section 403(b) and transferred funds attributable to Code
Section 403(b).
Section 401(a) Contract: A Contract that accepts Purchase Payments made
pursuant to Code Section 401(a) and transferred funds attributable to Section
401(a) contributions. Section 401(a) Contracts issued to some Plans may also
accept Purchase Payments made pursuant to Code Section 414(h) and transferred
funds attributable to Section 414(h).
Fund(s): An open-end registered management investment company whose shares
are purchased by the Separate Account to fund the benefits provided by the
Contract.
Home Office: The Company's principal executive offices located at 151
Farmington Avenue, Hartford, Connecticut 06156.
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DEFINITIONS - 1
<PAGE>
Loan Account: An account established for record keeping purposes and credited
with the amount of any loan.
Master Contracts: Contracts used in conjunction with a group of affiliated
government institutions of higher education.
Participant (You): A person participating in a Plan maintained by an eligible
organization.
Plan(s): Tax-deferred retirement plans adopted by higher education systems
for their employees under Section 401(a) or Section 403(b) of the Code.
Purchase Payment(s): The gross payment(s) submitted to the Company under a
Contract.
Separate Account: Variable Annuity Account C, a separate account established
by the Company for the purpose of funding variable annuity contracts issued
by the Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Valuation Date: The date and time at which the value of the Subaccount is
calculated. Currently, this calculation occurs at the close of business of
the New York Stock Exchange on any normal business day, Monday through
Friday, that the New York Stock Exchange is open.
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DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
=============================================================================
Contracts Offered
The Contracts described in this Prospectus are group deferred variable
annuity contracts issued by Aetna Life Insurance and Annuity Company (the
"Company"). The purpose of the Contract is to accumulate values and to
provide benefits upon retirement. The Contracts are available for
institutions of higher education to fund (1) tax-deferred annuity programs
under Section 403(b) of the Code, and/or (2) qualified defined contribution
plans under Section 401(a) of the Code. Section 401 Contracts issued to some
Plans may also accept payments and transferred funds made pursuant to Section
414(h) of the Code.
Contract Purchase
The Contract may be purchased by institutions of higher education on
behalf of a group made up of their employees. One or more Contracts are
issued to the Contract Holder once we receive a completed master application
form(s). Eligible employees may participate in the Contract by completing the
enrollment form (and any other required forms) and submitting them to the
Company. Depending upon the terms of the Plan, Purchase Payments can be
applied to the Contract either through a lump-sum transfer, through periodic
salary reduction or salary deduction, or through employer contributions. For
each Contract, one or more Employee Accounts will be established for
contributions made by an employee, and one or more Employer Accounts may be
established for contributions made by the employer on the employee's behalf.
(See "Purchase.")
Free Look Period
You or the Contract Holder may cancel participation in the Contract within
10 days after you receive the Contract or other document evidencing your
interest in the Contract (or longer if required by state law) by returning it
to the Company along with a written notice of cancellation. Unless state law
requires otherwise, the amount that will be received upon cancellation will
reflect the investment performance of the Subaccounts into which Purchase
Payments were deposited. In some cases this may be more or less than the
amount of Purchase Payments. (See "Purchase--Right to Cancel.")
Investment Options
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows
investment in any or all of the Subaccounts, as well as in the Credited
Interest Options described below. For a complete list of the Funds available
under the Contracts, and a description of the investment objectives of each
of the Funds and their investment advisers, see "Investment Options--The
Funds" in this Prospectus, as well as the prospectuses for each of the Funds.
The Contract also provides for investment in Credited Interest Options
which allow you to earn fixed rates of interest. The fixed options available
under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed
Plus Account and the Fixed Account (available during accumulation only in
limited circumstances). (See the Appendices to this Prospectus.)
Charges and Deductions
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges, an asset based sales charge and an administrative expense charge),
as well as premium and other taxes. Not all charges apply to all Contracts.
The Funds also incur certain fees and expenses which are deducted directly
from the Funds. (See the Fee Table and "Charges and Deductions.")
Transfers
Subject to certain limitations, Account Values may be transferred among
the Subaccounts and the Credited Interest Options without charge. Transfers
can be requested in writing or by telephone in accordance with the Company's
transfer procedures. (See the Appendices for a full description of the
restrictions applicable to transfers made from the Credited Interest
Options.) (See "Transfers.")
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SUMMARY - 1
<PAGE>
Withdrawals
All or a part of the Account Value may be withdrawn prior to the Annuity
Date, subject to Plan provisions, by properly completing a disbursement form
and sending it to the Company. Limitations apply to withdrawals from the
Credited Interest Options. A distribution can be made from certain Employer
Accounts and certain Employee Accounts (as provided by the Plan) only if the
Contract Holder certifies in writing that you are eligible, both as to timing
and form of distribution. The withdrawal will generally be subject to income
tax and may be subject to a federal tax penalty. The Code restricts full and
partial withdrawals in some circumstances. (See "Withdrawals.")
The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional
Withdrawal Options are not available in all states and may not be suitable in
every situation. (See "Additional Withdrawal Options.")
Loans
If allowed by the Plan, Participants may request a loan from their Account
Value during the Accumulation Period. (See "Contract Loans.")
Death Benefit
A death benefit is payable if the Participant dies before the Annuity
Date. Death benefit proceeds will be paid to the Beneficiary. Until the
election of a method of payment, the Account Value will remain invested under
the Contract. The Beneficiary may elect to receive the proceeds in a lump sum
or under any of the payment options available under the Contract. However,
the Code requires that distributions begin within a certain time period. (See
"Death Benefit During the Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Beneficiary depending upon the terms of the Contract and the Annuity
Option selected. (See "Death Benefit Payable During the Annuity Period.")
The Annuity Period
You may elect to begin receiving Annuity Payments on the Annuity Date. For
certain Employer and Employee Accounts, the Contract Holder must provide
written certification that the distribution is in accordance with the terms
of the Plan. (See "Rights Under the Contract.") Annuity Payments can be made
on either a fixed, variable or combination fixed and variable basis. If you
choose a variable payout, the payments will vary with the investment
performance of the Subaccount(s) selected. The Company reserves the right to
limit the number of Subaccounts that may be available during the Annuity
Period. (See "Annuity Period.")
Taxes
Contributions and earnings are not generally taxed until you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
Inquiries
Questions, inquiries or requests for additional information can be
directed to your agent or local representative, or you may contact the
Company as follows:
[bullet] Write to: Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-1277
Attention: Customer Service
[bullet] Call Customer 1-800-525-4225 (for automated transfers or
Service: changes in the allocation of Account Values,
call: 1-800-262-3862)
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SUMMARY - 2
<PAGE>
FEE TABLE
================================================================================
This Fee Table describes the various charges and expenses associated with the
Contract. The charges and expenses shown below do not include premium taxes
that may be applicable. For more information regarding the expenses paid out
of the assets of a particular Fund, see the Fund's prospectus.
TABLE A--FOR MASTER CONTRACTS ISSUED OR ENDORSED
ON OR AFTER OCTOBER 1, 1996
1. CHARGES AGAINST THE SEPARATE ACCOUNT. Each Subaccount pays these expenses
out of its assets. The charges are reflected in the Subaccount's daily
Accumulation Unit Value and are not charged directly to an Account. They
include:
During the Accumulation Period:
Mortality and Expense Risk Charge ............................. 1.00%*
Administrative Expense Charge. We currently do not impose an
Administrative Expense Charge.
However, we reserve the right to deduct a daily charge of not
more than 0.25% per year from the Subaccounts. .............. 0.00%
--------
Total Separate Account Charges ................................ 1.00%
During the Annuity Period (All Contracts):
Mortality and Expense Risk Charge ............................. 1.25%
Administrative Expense Charge. We currently do not impose an
Administrative Expense Charge.
However, we reserve the right to deduct a daily charge of not
more than 0.25% per year from the Subaccounts. .............. 0.00%
--------
Total Separate Account Charges ................................ 1.25%
*The mortality and expense risk charge during the Accumulation Period
is 0.75% for Contracts issued to Plans that meet certain criteria.
See "Charges and Deductions."
2. ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses
applicable to the Funds. A Fund's "Other Expenses" include operating costs of
the Fund. These expenses are reflected in the Fund's net asset value and are
not deducted from the Account Value under the Contract. (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.)
Investment
Advisory
Fees(1)
(after Other Expenses
expense (after expense Total Fund
reimbursement reimbursement) Annual Expenses
------------ -------------- ----------------
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore
Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers
Fund, Inc.(2) 0.50% 0.08% 0.58%
Aetna Ascent Variable
Portfolio(2) 0.60% 0.15% 0.75%
Aetna Crossroads Variable
Portfolio(2) 0.60% 0.15% 0.75%
Aetna Legacy Variable
Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Index Plus
Portfolio 0.35% 0.15% 0.50%
Alger American Growth
Portfolio 0.75% 0.10% 0.85%
Alger American Small Cap
Portfolio 0.85% 0.07% 0.92%
Calvert Responsibly
Invested Balanced
Portfolio(3) 0.70% 0.13% 0.83%
Fidelity VIP II Contrafund
Portfolio(4) 0.61% 0.11% 0.72%
Fidelity VIP Equity-Income
Portfolio 0.51% 0.10% 0.61%
Fidelity VIP Growth
Portfolio 0.61% 0.09% 0.70%
Fidelity VIP Overseas
Portfolio 0.76% 0.15% 0.91%
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FEE TABLE - 1
<PAGE>
Franklin Government
Securities Trust(5) 0.63% 0.13% 0.76%
Janus Aspen Aggressive
Growth Portfolio(6) 0.75% 0.11% 0.86%
Janus Aspen Balanced
Portfolio(6) 0.82% 0.55% 1.37%
Janus Aspen Flexible Income
Portfolio 0.65% 0.42% 1.07%
Janus Aspen Growth
Portfolio(6) 0.65% 0.13% 0.78%
Janus Aspen Short-Term Bond
Portfolio(6) 0.00% 0.70% 0.70%
Janus Aspen Worldwide
Growth Portfolio(6) 0.68% 0.22% 0.90%
Lexington Natural Resources
Trust 1.00% 0.47% 1.47%
Neuberger & Berman Growth
Portfolio(7) 0.84% 0.10% 0.94%
Scudder International
Portfolio Class A Shares 0.88% 0.20% 1.08%
TCI Growth(8) 1.00% 0.00% 1.00%
- ------------
(1) Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds
as variable funding options under the Contract. These reimbursements are
paid out of the investment advisory fees and are not charged to
investors.
(2) As of May 1, 1996, the Company provides administrative services to the
Fund and assumes the Fund's ordinary recurring direct costs under an
Administrative Services Agreement. The "Other Expenses" shown are not
based on figures for the year ended December 31, 1995, but reflect the
fee payable under this Agreement.
(3) The Management and Advisory Fees are subject to a performance adjustment,
after July 1, 1996, which could cause the fee to be as high as 0.85% or
as low as 0.55%, depending on performance. "Other Expenses" reflect an
indirect fee of 0.02%. Net fund operating expenses after reduction for
fees paid indirectly would be 0.81%.
(4) A portion of the brokerage commissions the Fund paid was used to reduce
its expenses. Without this reduction, total operating expenses would have
been 0.73% for the Contrafund Portfolio.
(5) An expense reimbursement arrangement was in effect until February 1,
1996; however, it is no longer in effect. The Advisory Fee and Total
Annual Expenses shown above reflect the actual expenses of the Fund
before reimbursement, as if such arrangement had not been in effect
during 1995.
(6) The information for each Portfolio is net of fee waivers or reductions
from Janus Capital. Fee reductions for the Aggressive Growth, Balanced,
Growth, and Worldwide Growth Portfolios reduce the management fee to the
level of the corresponding Janus retail fund. Other waivers if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Portfolio Operating Expenses would have been
0.82%, 0.11%, and 0.93% for Aggressive Growth Portfolio; 1.00%, 0.55%,
1.55% for Balanced Portfolio; 0.85%, 0.13% and 0.98% for Growth
Portfolio; 0.65%, 0.72% and 1.37% for Short-Term Bond Portfolio and
0.87%, 0.22% and 1.09% for Worldwide Growth Portfolio; respectively.
Janus Capital may modify or terminate the waivers or reductions at any
time upon 90 days' notice to the Portfolio's Board of Trustees.
(7) Neuberger and Berman Advisers Management Trust (the "Trust") is divided
into portfolios ("Portfolios"), each of which invests all of its net
investable assets in a corresponding series ("Series") of Advisers
Managers Trust. Expenses in the table reflect expenses of the Portfolio
and include the Portfolio's pro rata portion of the operating expenses of
the Portfolio's corresponding Series. The Portfolio pays Neuberger &
Berman Management Inc. ("NBMI") an administration fee based on the
Portfolio's net asset value. The corresponding Series of the Portfolio
pays NBMI a management fee based on the Series' average daily net assets.
Accordingly, this table combines management fees at the Series level and
administration fees at the Portfolio level in a unified fee rate. (See
"Expenses" in the Trust's prospectus.)
(8) The Portfolio's investment adviser pays all expenses of the Portfolio
except brokerage commissions, taxes, interest, fees, expenses of the
non-interested person directors (including counsel fees) and
extraordinary expenses. These expenses have historically represented a
very small percentage (less than 0.01%) of total net assets in a fiscal
year.
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FEE TABLE - 2
<PAGE>
3. Hypothetical Illustration (Example)
THESE EXAMPLES ARE PURELY HYPOTHETICAL. THEY SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Contracts with 1.00% Mortality and Expense Risk Charge.
Whether or not you withdraw or if you annuitize your Account, assuming a 5%
annual return on assets and an annual mortality and expense risk charge of
1.00%, you would have paid the following expenses on a $1,000 investment at
the end of the applicable time period:
1 year 3 years 5 years 10 years
------- -------- -------- ----------
Aetna Variable Fund $16 $49 $ 85 $186
Aetna Income Shares $15 $47 $ 81 $177
Aetna Variable Encore Fund $14 $43 $ 74 $162
Aetna Investment Advisers Fund,
Inc. $16 $50 $ 86 $188
Aetna Ascent Variable Portfolio $18 $55 $ 95 $206
Aetna Crossroads Variable
Portfolio $18 $55 $ 95 $206
Aetna Legacy Variable Portfolio $18 $55 $ 95 $206
Aetna Variable Index Plus
Portfolio $15 $47 $ 82 $179
Alger American Growth Portfolio $19 $58 $100 $217
Alger American Small Cap Portfolio $19 $60 $104 $224
Calvert Responsibly Invested
Balanced Portfolio $19 $58 $ 99 $215
Fidelity VIP II Contrafund
Portfolio $17 $54 $ 93 $203
Fidelity VIP Equity-Income
Portfolio $16 $51 $ 88 $191
Fidelity VIP Growth Portfolio $17 $54 $ 92 $201
Fidelity VIP Overseas Portfolio $19 $60 $103 $223
Franklin Government Securities
Trust $18 $55 $ 95 $207
Janus Aspen Aggressive Growth
Portfolio $19 $58 $101 $218
Janus Aspen Balanced Portfolio $24 $74 $127 $271
Janus Aspen Flexible Income
Portfolio $21 $65 $111 $240
Janus Aspen Growth Portfolio $18 $56 $ 96 $209
Janus Aspen Short-Term Bond
Portfolio $17 $54 $ 92 $201
Janus Aspen Worldwide Growth
Portfolio $19 $60 $103 $222
Lexington Natural Resources Trust $25 $77 $132 $281
Neuberger & Berman Growth
Portfolio $20 $61 $105 $226
Scudder International Portfolio
Class A Shares $21 $65 $112 $241
TCI Growth $20 $63 $108 $233
Contracts with a 0.75% Mortality and Expense Risk Charge.
Whether or not you withdraw or if you annuitize your Account, assuming a 5%
annual return on assets and an annual mortality and expense risk chare of
0.75%, you would have paid the following expenses on a $1,000 investment at
the end of the applicable time period:
1 year 3 years 5 years 10 years
------- -------- -------- ----------
Aetna Variable Fund $13 $42 $72 $158
Aetna Income Shares $13 $39 $68 $149
Aetna Variable Encore Fund $11 $35 $61 $134
Aetna Investment Advisers Fund,
Inc. $14 $42 $73 $160
Aetna Ascent Variable Portfolio $15 $47 $82 $179
Aetna Crossroads Variable
Portfolio $15 $47 $82 $179
Aetna Legacy Variable Portfolio $15 $47 $82 $179
Aetna Variable Index Plus
Portfolio $13 $40 $69 $151
Alger American Growth Portfolio $16 $50 $87 $190
Alger American Small Cap Portfolio $17 $53 $91 $198
Calvert Responsibly Invested
Balanced Portfolio $16 $50 $86 $188
-----------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
Fidelity VIP II Contrafund
Portfolio $15 $46 $ 80 $176
Fidelity VIP Equity-Income
Portfolio $14 $43 $ 74 $164
Fidelity VIP Growth Portfolio $15 $46 $ 79 $174
Fidelity VIP Overseas Portfolio $17 $52 $ 90 $197
Franklin Government Securities
Trust $15 $48 $ 82 $180
Janus Aspen Aggressive Growth
Portfolio $16 $51 $ 88 $191
Janus Aspen Balanced Portfolio $22 $66 $114 $245
Janus Aspen Flexible Income
Portfolio $18 $57 $ 99 $214
Janus Aspen Growth Portfolio $16 $48 $ 83 $182
Janus Aspen Short-Term Bond
Portfolio $15 $46 $ 79 $174
Janus Aspen Worldwide Growth
Portfolio $17 $52 $ 90 $195
Lexington Natural Resources Trust $23 $69 $119 $255
Neuberger & Berman Growth
Portfolio $17 $53 $ 92 $200
Scudder International Portfolio
Class A Shares $19 $58 $ 99 $215
TCI Growth $18 $55 $ 95 $206
TABLE B--FOR CONTRACTS ISSUED PRIOR TO OCTOBER 1, 1996
1. CHARGES AGAINST THE SEPARATE ACCOUNT. Each Subaccount pays these expenses
out of its assets. The charges are reflected in the Subaccount's daily
Accumulation Unit Value and are not charged directly to an Account. They
include:
Mortality and Expense Risk Charge 1.25%
Asset-Based Sales Charge. We will monitor the deductions
applicable to each Account for the total sales charges to
ensure they will never exceed 8.5% of the total Purchase
Payments actually made to the Account. The sales charges apply
during the Accumulation Period only. 0.15%
Administrative Expense Charge. We currently do not impose an
Administrative Expense Charge. However, we reserve the right to
deduct a daily charge of not more than 0.25% per year from the
Subaccounts. 0.00%
-------
Total Separate Account Charges 1.40%
=======
2. ANNUAL EXPENSES OF THE FUNDS
Please refer to "Annual Expenses of The Funds" under Table A for a full
illustration of the advisory fees and other expenses applicable to the Funds.
3. HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
Whether or not you withdraw or if you annuitize your Account, assuming a 5%
annual return on assets, you would have paid the following expenses on a
$1,000 investment at the end of the applicable time period:
1 year 3 years 5 years 10 years
------- -------- -------- ----------
Aetna Variable Fund $20 $62 $106 $229
Aetna Income Shares $19 $59 $102 $220
Aetna Variable Encore Fund $18 $55 $ 95 $206
Aetna Investment Advisers Fund,
Inc. $20 $62 $107 $231
Aetna Ascent Variable Portfolio $22 $67 $115 $248
Aetna Crossroads Variable
Portfolio $22 $67 $115 $248
Aetna Legacy Variable Portfolio $22 $67 $115 $248
Aetna Variable Index Plus
Portfolio $19 $60 $103 $222
Alger American Growth Portfolio $23 $70 $120 $258
Alger American Small Cap
Portfolio $24 $72 $124 $266
Calvert Responsibly Invested
Balanced Portfolio $23 $70 $119 $256
-----------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
Fidelity VIP II Contrafund
Portfolio $22 $66 $114 $245
Fidelity VIP Equity-Income
Portfolio $20 $63 $108 $234
Fidelity VIP Growth Portfolio $21 $66 $113 $243
Fidelity VIP Overseas Portfolio $23 $72 $124 $265
Franklin Government Securities
Trust $22 $68 $116 $249
Janus Aspen Aggressive Growth
Portfolio $23 $71 $121 $260
Janus Aspen Balanced Portfolio $28 $86 $146 $310
Janus Aspen Flexible Income
Portfolio $25 $77 $132 $281
Janus Aspen Growth Portfolio $22 $68 $117 $251
Janus Aspen Short-Term Bond
Portfolio $21 $66 $113 $243
Janus Aspen Worldwide Growth
Portfolio $23 $72 $123 $264
Lexington Natural Resources
Trust $29 $89 $151 $319
Neuberger & Berman Growth
Portfolio $24 $73 $125 $268
Scudder International Portfolio
Class A Shares $25 $77 $132 $282
TCI Growth $24 $75 $128 $274
-----------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
CONDENSED FINANCIAL INFORMATION
(Selected data for accumulation units outstanding throughout each period)
================================================================================
The condensed financial information presented below for each of the years in the
four-year period ended December 31, 1995, is derived from the financial
statements of the Separate Account, which financial statements have been audited
by KPMG Peat Marwick LLP, independent auditors. Condensed financial information
for the nine-month period ending September 30, 1996 is unaudited. 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. The Accumulation Unit Values and the percentage change in the value
of an accumulation unit reflect a mortality and expense risk charge of 1.25% and
an asset based sales charge of 0.15% for the periods shown. For Master Contracts
issued or endorsed on or after October 1, 1996, the mortality and expense risk
charge is 1.00% (0.75% if the Plan meets certain criteria) during the
Accumulation Period, and the asset based sales charge does not apply.
<TABLE>
<CAPTION>
Period Ending
September 30,
1996
(unaudited) 1995 1994 1993 1992
------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $ 14.113 $ 10.823 $11.083 $10.531 $10.000(2)
Value at end of period $ 15.980 $ 14.113 $10.823 $11.083 $10.531
Increase (decrease) in value
of accumulation unit(1) 13.23% 30.40% (2.35)% 5.24% 5.31%
Number of accumulation units
outstanding at end of
period 155,270 121,691 77,511 37,807 3,948
AETNA INCOME SHARES
Value at beginning of period $ 12.283 $ 10.536 $11.107 $10.271 $10.000(2)
Value at end of period $ 12.265 $ 12.283 $10.536 $11.107 $10.271
Increase (decrease) in value
of accumulation unit(1) (0.15%) 16.59% (5.14)% 8.14% 2.71%
Number of accumulation units
outstanding at end of
period 25,392 20,427 14,482 4,936 416
AETNA VARIABLE ENCORE FUND
Value at beginning of period $ 11.003 $ 10.523 $10.252 $10.076 $10.000(2)
Value at end of period $ 11.318 $ 11.003 $10.523 $10.252 $10.076
Increase (decrease) in value
of accumulation unit(1) 2.86% 4.57% 2.64% 1.75% 0.76%
Number of accumulation units
outstanding at end of
period 28,894 19,202 12,934 3,066 547
AETNA INVESTMENT ADVISERS FUND,
INC.
Value at beginning of period $ 13.693 $ 10.900 $11.109 $10.253 $10.000(2)
Value at end of period $ 14.948 $ 13.693 $10.900 $11.109 $10.253
Increase (decrease) in value
of accumulation unit(1) 9.17% 25.62% (1.88)% 8.35% 2.53%
Number of accumulation units
outstanding at end of
period 21,375 19,038 11,773 6,540 221
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $ 10.666 $ 10.000(6)
Value at end of period $ 12.091 $ 10.666
Increase (decrease) in value
of accumulation unit(1) 13.36% 6.66%
Number of accumulation units
outstanding at end of
period 1,019 202
AETNA CROSSROADS VARIABLE
PORTFOLIO
Value at beginning of period $ 10.605 $ 10.000(6)
Value at end of period $ 11.718 10.605
Increase (decrease) in value
of accumulation unit(1) 10.50% 6.05%
Number of accumulation units
outstanding at end of
period 900 243
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $ 10.573 $ 10.000(6)
Value at end of period $ 11.375 $ 10.573
Increase (decrease) in value
of accumulation unit(1) 7.59% 5.73%
Number of accumulation units
outstanding at end of
period 3 0
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $ 10.365 $ 10.000(6)
Value at end of period $ 11.225 $ 10.365
Increase (decrease) in value
of accumulation unit(1) 8.30% 3.65%
Number of accumulation units
outstanding at end of
period 36,389 7,966
-----------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period $13.463 $ 9.461 $10.000 $10.000(3)
Value at end of period $14.400 $13.463 $ 9.461 $10.000
Increase (decrease) in value
of accumulation unit(1) 6.96% 42.29% (5.39)% 0.00%
Number of accumulation units
outstanding at end of
period 66,033 31,528 4,575 2
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO
Value at beginning of period $13.870 $10.839 $11.352 $10.589 $10.000(2)
Value at end of period $14.916 $13.870 $10.839 $11.352 $10.589
Increase (decrease) in value
of accumulation unit(1) 7.54% 27.96% (4.52)% 7.21% 5.89%
Number of accumulation units
outstanding at end of
period 17,742 14,656 8,469 2,383 125
FIDELITY VIP II CONTRAFUND
PORTFOLIO
Value at beginning of period $10.461 $10.000(6)
Value at end of period $11.563 $10.461
Increase (decrease) in value
of accumulation unit(1) 10.53% 4.61%
Number of accumulation units
outstanding at end of
period 28,421 6,415
FIDELITY VIP EQUITY-INCOME
PORTFOLIO
Value at beginning of period $11.047 $10.000(6)
Value at end of period $11.713 $11.047
Increase (decrease) in value
of accumulation unit(1) 6.03% 10.47%
Number of accumulation units
outstanding at end of
period 8,820 1,108
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.183 $10.000(6)
Value at end of period $11.323 $10.183
Increase (decrease) in value
of accumulation unit(1) 11.20% 1.83%
Number of accumulation units
outstanding at end of
period 11,003 2,541
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $ 9.954 $10.000(6)
Value at end of period $10.648 $ 9.954
Increase (decrease) in value
of accumulation unit(1) 6.97% (0.46)%
Number of accumulation units
outstanding at end of
period 533 191
FRANKLIN GOVERNMENT SECURITIES
TRUST
Value at beginning of period $11.946 $10.294 $10.843 $10.214 $10.000(2)
Value at end of period $11.946 $11.946 $10.294 $10.843 $10.214
Increase (decrease) in value
of accumulation unit(1) 0.00% 16.06% (5.06)% 6.16% 2.14%
Number of accumulation units
outstanding at end of
period 20,179 16,226 10,738 4,409 470
JANUS ASPEN AGGRESSIVE GROWTH
PORTFOLIO
Value at beginning of period $13.296 $10.577 $10.000(4)
Value at end of period $14.606 $13.296 $10.577
Increase (decrease) in value
of accumulation unit(1) 9.85% 25.71% 5.77%
Number of accumulation units
outstanding at end of
period 40,769 15,482 820
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.843 $10.000(6)
Value at end of period $12.064 $10.843
Increase (decrease) in value
of accumulation unit(1) 11.26% 8.43%
Number of accumulation units
outstanding at end of
period 2,872 160
JANUS ASPEN FLEXIBLE INCOME
PORTFOLIO
Value at beginning of period $12.054 $10,000(7) $10.000
Value at end of period $12.473 $12.054 $10.000
Increase (decrease) in value
of accumulation unit(1) 3.48% 20.54% 0.00%
Number of accumulation units
outstanding at end of
period 3,636 745 0
-----------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.872 $10.000(6)
Value at end of period $12.433 $10.872
Increase (decrease) in value
of accumulation unit(1) 14.35% 8.72%
Number of accumulation units
outstanding at end of
period 5,181 166
JANUS ASPEN SHORT-TERM BOND
PORTFOLIO
Value at beginning of period $10.316 $10.000(6)
Value at end of period $10.395 $10.316
Increase (decrease) in value
of accumulation unit(1) 0.76% 3.16%
Number of accumulation units
outstanding at end of
period 709 24
JANUS ASPEN WORLDWIDE GROWTH
PORTFOLIO
Value at beginning of period $10.952 $10.000(8)
Value at end of period $13.289 $10.952
Increase (decrease) in value
of accumulation unit(1) 21.33% 9.52%
Number of accumulation units
outstanding at end of
period 37,847 11,128
LEXINGTON NATURAL RESOURCES
TRUST
Value at beginning of period $12.095 $10.496 $11.261 $10.196 $10.000(2)
Value at end of period $13.561 $12.095 $10.496 $11.261 $10.196
Increase (decrease) in value
of accumulation unit(1) 12.12% 15.24% (6.79)% 10.45% 1.96%
Number of accumulation units
outstanding at end of
period 9,076 8,348 7,350 2,438 165
NEUBERGER & BERMAN GROWTH
PORTFOLIO
Value at beginning of period $14.359 $11.055 $11.796 $10.927 $10.000(2)
Value at end of period $14.832 $14.359 $11.055 $11.796 $10.927
Increase (decrease) in value
of accumulation unit(1) 3.29% 29.89% (6.28)% 7.95% 9.27%
Number of accumulation units
outstanding at end of
period 44,418 35,941 21,935 7,403 477
SCUDDER INTERNATIONAL PORTFOLIO
Class A Shares
Value at beginning of period $13.799 $12.595 $12.883 $ 9.539 $10.000(2)
Value at end of period $14.915 $13.799 $12.595 $12.883 $ 9.539
Increase (decrease) in value
of accumulation unit(1) 8.08% 9.56% (2.24)% 35.06% (4.81)%
Number of accumulation units
outstanding at end of
period 45,684 38,067 22,036 4,560 281
TCI GROWTH
Value at beginning of period $15.176 $11.740 $12.046 $10.000(5)
Value at end of period $15.752 $15.176 $11.740 $12.046
Increase (decrease) in value
of accumulation unit(1) 3.79% 29.27% (2.54)% 20.46%
Number of accumulation units
outstanding at end of
period 35,058 24,826 15,078 4,104
</TABLE>
(1) The above figures are calculated by subtracting the beginning
Accumulation Unit value from the ending Accumulation Unit value during a
calendar year or period, and dividing the result by the beginning
Accumulation Unit value.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on July 20, 1992.
(3) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on September 17, 1993,
the date on which the Portfolio became available under the Contract.
(4) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1994, when
funds were first received in this option.
(5) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on February 1, 1993.
(6) 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.
(7) Reflects less than a full year of performance activity. Funds were first
available in this option during March 1995.
(8) 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.
-----------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
THE COMPANY
=============================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in
1976. Through a merger, it succeeded to the business of Aetna Variable
Annuity Life Insurance Company (formerly Participating Annuity Life Insurance
Company, an Arkansas life insurance company organized in 1954). The Company
is engaged in the business of issuing life insurance policies and variable
annuity contracts in all states of the United States. The Company's principal
executive offices are located at 151 Farmington Avenue, Hartford, Connecticut
06156.
The Company is a wholly owned subsidiary of Aetna Retirement
Holdings,Inc., which is in turn a wholly owned subsidiary of Aetna Retirement
Services, Inc. and an indirect wholly owned subsidiary of Aetna Inc.
VARIABLE ANNUITY ACCOUNT C
=============================================================================
The Company established Variable Annuity Account C (the "Separate Account")
in 1976 as a segregated asset account for the purpose of funding its variable
annuity contracts. The Separate Account is registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"), and meets
the definition of "separate account" under the federal securities laws. The
Separate Account is divided into "subaccounts" which do not invest directly
in stocks, bonds or other investments. Instead, each Subaccount buys and
sells shares of a corresponding Fund.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business conducted by the Company. Income, gains or losses of the Separate
Account are credited to or charged against the assets of the Separate Account
without regard to our other income, gains or losses. All obligations arising
under the Contracts are our general corporate obligations.
INVESTMENT OPTIONS
=============================================================================
The Funds
Purchase Payments may be allocated to one or more of the Subaccounts as
designated on the enrollment form. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The total number of investment
options that you may select during the Accumulation Period may be limited.
(See "Transfers".)
The Contract Holder may decide to offer only a select number of Funds
under its Plan. The availability of Funds may be subject to regulatory
authorization. In addition, the Company may add or withdraw Funds, as
permitted by applicable law. Not all Funds may be available in all
jurisdictions, under all Contracts, or under all Plans.
If the shares of any Fund should no longer be available for investment by
the Separate Account, or if in the judgment of the Company further
investments in such shares should become inappropriate under this type of
Contract, we may cease to make such Fund shares available for investment
under the Contract on a prospective basis. The Company may, alternatively,
substitute shares of another Fund for shares already acquired. The Company
reserves the right to substitute shares of another Fund for shares already
acquired without a proxy vote. Any elimination, substitution or addition of
Funds will be done in accordance with applicable state and federal securities
laws.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve
their respective investment objectives. Except where otherwise noted, all of
the Funds are diversified, as defined in the 1940 Act.
[bullet] Aetna Variable Fund seeks to maximize total return through
investments in a diversified portfolio of common stocks and
securities convertible into common stock.(1)
[bullet] Aetna Income Shares seeks to maximize total return, consistent with
reasonable risk, through investments in a diversified portfolio
consisting primarily of debt securities.(1)
-----------------------------------------------------------------------------
1
<PAGE>
[bullet] Aetna Variable Encore Fund seeks to provide high current return,
consistent with preservation of capital and liquidity, through
investment in high-quality money market instruments. An investment
in the Fund is neither insured nor guaranteed by the U.S.
Government.(1)
[bullet] Aetna Investment Advisers Fund, Inc. is a managed fund which seeks
to maximize investment return consistent with reasonable safety of
principal by investing in one or more of the following asset
classes: stocks, bonds and cash equivalents based on the Company's
judgment of which of those sectors or mix thereof offers the best
investment prospects.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Ascent Variable Portfolio
seeks to provide capital appreciation by allocating its investments
among equities and fixed income securities. The Portfolio is managed
for investors who generally have an investment horizon exceeding 15
years, and who have a high level of risk tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Crossroads Variable
Portfolio seeks to provide total return (i.e., income and capital
appreciation, both realized and unrealized) by allocating its
investments among equities and fixed income securities. The
Portfolio is managed for investors who generally have an investment
horizon exceeding 10 years and who have a moderate level of risk
tolerance.(1)
[bullet] Aetna Generation Portfolios, Inc.--Aetna Legacy Variable Portfolio
seeks to provide total return consistent with preservation of
capital by allocating its investments among equities and fixed
income securities. The Portfolio is managed for investors who
generally have an investment horizon exceeding five years and who
have a low level of risk tolerance.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Index Plus Portfolio
seeks to outperform the total return performance of publicly traded
common stocks represented by the S&P 500 Composite Stock Price Index
("S&P 500"), a broad-based stock market index composed of 500 common
stocks selected by the Standard & Poor's Corporation. The Portfolio
uses the S&P 500 as a comparative benchmark because it represents
approximately two-thirds of the total market value of all U.S.
common stocks, and is well known to investors.(1)
[bullet] Alger American Fund--Alger American Growth Portfolio seeks long-term
capital appreciation by investing in a diversified, actively managed
portfolio of equity securities. The Portfolio primarily invests in
equity securities of companies which have a market capitalization of
$1 billion or greater.(2)
[bullet] Alger American Fund--Alger American Small Capitalization Portfolio
seeks long-term capital appreciation. Except during temporary
defensive periods, the Portfolio invests at least 65% of its total
assets in equity securities of companies that, at the time of
purchase of such securities, have total market capitalization within
the range of companies included in the Russell 2000 Growth Index,
updated quarterly. The Russell 2000 Growth Index is designed to
track the performance of small capitalization companies. At March
31, 1996, the range of market capitalization of these companies was
$20 million to $3.0 billion.(2)
[bullet] Calvert Responsibly Invested Balanced Portfolio is a nondiversified
portfolio that seeks growth of capital through investment in
enterprises that make a significant contribution to society through
their products and services and through the way they do business.(3)
[bullet] Fidelity Investments' Variable Insurance Products Fund
II--Contrafund Portfolio seeks maximum total return over the long
term by investing mainly in equity securities of companies that are
undervalued or out-of-favor.(4)
[bullet] Fidelity Investments' Variable Insurance Products
Fund--Equity-Income Portfolio seeks reasonable income by investing
primarily in income-producing equity securities. In selecting
investments, the Fund also considers the potential for capital
appreciation.(4)
[bullet] Fidelity Investments' Variable Insurance Products Fund--Growth
Portfolio seeks capital appreciation by investing mainly in common
stocks, although its investments are not restricted to any one type
of security.(4)
[bullet] Fidelity Investments Variable Insurance Products Fund--Overseas
Portfolio seeks long-term growth by investing mainly in foreign
securities (at least 65% of the Fund's total assets in securities of
issuers from at least three countries outside of North America).(4)
[bullet] Franklin Government Securities Trust seeks income through
investments in obligations of the U.S. Government or its agencies or
instrumentalities, primarily GNMA obligations.(5) (This Fund is only
available under limited circumstances.)
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a nondiversified
portfolio that seeks long-term growth of capital in a manner
consistent with the preservation of
-----------------------------------------------------------------------------
2
<PAGE>
capital. The Portfolio pursues its investment objective by normally
investing at least 50% of its equity assets in securities issued by
medium-sized companies. Medium-sized companies are those whose
market capitalizations fall within the range of companies in the S &
P Midcap 400 Index, which as of December 29, 1995 included companies
with capitalizations between approximately $118 million and $7.5
billion, but which is expected to change on a regular basis.(6)
[bullet] Janus Aspen Series--Balanced Portfolio seeks long-term capital
growth, consistent with preservation of capital and balanced by
current income. The Portfolio pursues its investment objective by
investing 40%-60% of its assets in equity securities selected
primarily for their growth potential and 40%-60% of its assets in
fixed-income securities selected primarily for their income
potential.(6)
[bullet] Janus Aspen Series--Flexible Income Portfolio seeks to obtain
maximum total return, consistent with preservation of capital. Total
return is expected to result from a combination of current income
and capital appreciation. The Portfolio invests in all types of
income producing securities and may have substantial holdings of
debt securities rated below investment grade (e.g., junk bonds).(6)
[bullet] Janus Aspen Series--Growth Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital. The
Portfolio pursues its investment objective by investing in common
stocks of companies of any size.(6)
[bullet] Janus Aspen Series--Short-Term Bond Portfolio seeks as high a level
of current income as is consistent with preservation of capital. The
Portfolio pursues its investment objective by investing primarily in
short- and intermediate-term fixed income securities.(6)
[bullet] Janus Aspen Series--Worldwide Growth Portfolio seeks long-term
growth of capital in a manner consistent with preservation of
capital. The Portfolio pursues its investment objective primarily
through investments in common stocks of foreign and domestic
issuers.(6)
[bullet] Lexington Natural Resources Trust is a nondiversified portfolio that
seeks long-term growth of capital through investment primarily in
common stocks of companies which own or develop natural resources
and other basic commodities or supply goods and services to such
companies.(7)
[bullet] Neuberger & Berman Advisers Management Trust--Growth Portfolio
seeks capital appreciation without regard to income. The Portfolio
generally invests in securities believed to to have the maximum
potential for long-term capital appreciation. The Portfolio expects
to be almost fully invested in common stocks, often of companies
that may be temporarily out of favor in the market.(8)
[bullet] Scudder Variable Life Investment Fund--International Portfolio Class
A Shares seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments.(9)
[bullet] TCI Portfolios, Inc.--TCI Growth (a Twentieth Century fund) seeks
capital growth. The Fund seeks to achieve its objective by investing
in common stocks (including securities convertible into common
stocks) and other securities that meet certain fundamental and
technical standards of selection and, in the opinion of the Fund's
investment manager, have better than average potential for
appreciation.(10)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company (investment adviser);
Aeltus Investment Management, Inc.
(sub-adviser)
(2) Fred Alger Management, Inc.
(3) Calvert Asset Management Company, Inc.
(4) Fidelity Management & Research Company
(5) Franklin Advisers, Inc.
(6) Janus Capital Corporation
(7) Lexington Management Corporation (adviser);
Market Systems Research Advisors, Inc. (subadviser)
(8) Neuberger & Berman Management Inc. (Investment Manager);
Neuberger & Berman, L.P. (Sub-Adviser)
(9) Scudder, Stevens & Clark, Inc.
(10) Investors Research Corporation
Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The
use of certain derivatives may involve high risk of volatility to a Fund, and
the use of leverage in connection with such derivatives can also increase
risk of losses. Some of the Funds may also invest in foreign or international
securities which involve greater risks than U.S. investments.
More comprehensive information, including a discussion of potential risks,
is found in the respective Fund prospectuses which accompany this Prospectus.
You should read the Fund prospectuses and consider carefully, and on a
continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives.
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Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other
insurance companies for the same purpose. This is referred to as "shared
funding." Shares of the Funds may also be used for funding variable life
insurance contracts issued or sponsored by the Company or by third parties.
This is referred to as "mixed funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by
other companies, certain conflicts of interest could arise. If a conflict of
interest were to occur, one of the separate accounts might withdraw its
investment in a Fund, which might force that Fund to sell portfolio
securities at disadvantageous prices, causing its per share value to
decrease. Each Fund's Board of Directors or Trustees has agreed to monitor
events in order to identify any material irreconcilable conflicts which might
arise and to determine what action, if any, should be taken to address such
conflict.
Credited Interest Options
Purchase Payments may be allocated to one or more of the Credited Interest
Options available under the Contract as described below. The Contract Holder
may elect not to offer all Credited Interest Options under its Plan.
[bullet] The Guaranteed Accumulation Account (GAA) is a credited interest
option through which we guarantee stipulated rates of interest for
stated periods of time. Amounts must remain in the GAA for the full
guaranteed term to receive the quoted interest rates, or a market
value adjustment (which may be positive or negative) will be
applied. (See Appendix I.)
[bullet] The Fixed Plus Account is a part of the Company's general account
and guarantees a minimum interest rate, as specified in the
Contract. The Company may credit higher interest rates in its
discretion. Withdrawals and transfers from the Fixed Plus Account
are limited. (See Appendices II, III and IV.)
[bullet] The Fixed Account is part of the Company's general account. The
Fixed Account guarantees a minimum interest rate, as specified in
the Contract. The Company may credit higher interest rates from time
to time. The Fixed Account is only available in limited
circumstances. Transfers from the Fixed Account are limited. (See
Appendix V.)
PURCHASE
=============================================================================
Contract Availability
The Contracts are designed to fund Plans adopted by institutions of higher
education for their employees. The Plans may be (1) tax-deferred annuity
programs under Section 403(b) of the Code, and/or (2) qualified defined
contribution plans under Section 401(a) and 414(h) of the Code.
Eligible participants in the Plan seeking to invest and accumulate money
for retirement can purchase individual interests in group Contracts. The
group Contract is generally owned by the employer, and individual accounts
are established for each Participant. For each Contract, one or more Employee
Accounts will be established for contributions derived from employee salary
reduction or salary deduction (as provided for by the Plan), and one or more
Employer Accounts may be established for contributions made by the employer
on the employee's behalf.
Purchasing Interests in the Contract
Eligible organizations may acquire both types (403(b) and 401(a)) of group
Contracts for its Plans(s) by submitting the appropriate master application
form(s) to the Company. Once we approve the application, a group Contract is
generally issued to the employer as the group Contract Holder. Participants
may purchase interests in a group Contract by submitting an enrollment form
to the Company.
The Company must accept or reject the enrollment form within two business
days of receipt. If the enrollment materials are incomplete, the Company may
hold any forms and accompanying Purchase Payments for five days. Purchase
Payments may be held for longer periods only with the consent of the
Participant, or under limited circumstances, with the consent of the Contract
Holder pending acceptance of the form. If we agree to hold Purchase Payments
for longer than the five business days based on the consent of the Contract
Holder, the Purchase Payments will be deposited in the Aetna Variable Encore
Fund Subaccount until the forms are completed.
Purchase Payments will initially be allocated to the Subaccounts or
Credited Interest Options as specified by the Participant on the enrollment
form. Changes in such allocation may be made in writing or by telephone
transfer. Allocations must be in whole percentages, and there may be
limitations on the number of investment options that
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can be selected during the Accumulation Period. (See "Transfers.") The Code
imposes a maximum limit on annual Purchase Payments which may be excluded
from a Participant's gross income. (See "Tax Status.")
Rights Under the Contract
You have a nonforfeitable right to the value of your Employee Account. You
have a nonforfeitable right to the value of your Employer Account to the
extent of your vested percentage under the Plan as interpreted by the
Contract Holder. Subject to the terms of the Plan, you may select the
investment options for your Employer Account and your Employee Account. You
may elect an Annuity option for your Account Value; however, for your
Employer and certain Employee Accounts (as provided in the Plan), the
Contract Holder must certify that you are eligible for a distribution and
that the form of Annuity is permitted under the terms of the Plan.
Right to Cancel
The Contract or participation under the Contract may be canceled without
penalty by returning it (or other document evidencing your interest) to the
Company with a written notice of intent to cancel. In most states, you have
ten days to exercise this right; some states allow you a longer free-look
period. When we receive the request for cancellation, we will return the
Account Value, unless the laws of the state in which the Contract was issued
require that we return the initial Purchase Payment (if greater than the
Account Value). In states that do not require a return of Purchase Payments,
the purchaser bears the entire investment risk for amounts allocated among
the Subaccounts during the free look period. Account Values will be
determined as of the Valuation Date on which we receive the request for
cancellation at our Home Office.
CHARGES AND DEDUCTIONS
=============================================================================
Daily Deductions from the Separate Account
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. For
Master Contracts issued on or after October 1, 1996 (and for Master Contracts
issued prior to that date that are endorsed to contain this provision),
during the Accumulation Period, the charge is equal, on an annual basis, to
1.00% of the daily net assets of the Subaccounts. However, for Master
Contracts issued to Plans that meet the following criteria, the charge during
the Accumulation Period is equal on an annual basis to 0.75% of daily net
assets of the Subaccounts:
--the employer requires that we distribute the Contracts through salaried
enrollers;
--both employer and Participant contributions are mandatory; and
--the Plan has existing assets of at least $300 million in an Optional
Retirement Plan.
For Master Contracts issued prior to October 1, 1996, the mortality and
expense risk charge during the Accumulation Period is equivalent to 1.25% per
year.
During the Annuity Period, for any Contract, the deduction for mortality
and expense risks is equivalent to 1.25% per year.
The mortality and expense risk charge compensates the Company for the
assumption of the mortality and expense risks under the Contract. The
mortality risks are those assumed for our promise to make lifetime payments
according to annuity rates specified in the Contract. The expense risk is the
risk that the actual expenses for costs incurred under the Contract will
exceed the maximum costs that can be charged under the Contract.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the
mortality and expense risk charge.
Asset Based Sales Charge. There are no deductions from Purchase Payments for
sales commissions or related expenses. For Contracts issued prior to October
1, 1996 (except for Contracts that are endorsed to delete this provision),
sales commissions and expenses are advanced by the Company and recovered out
of an asset based sales charge that is deducted from the Account in an amount
that equals 0.15% on an annual basis. The deduction is made from amounts held
in the Subaccounts during the Accumulation Period only. We will monitor each
Account to ensure that the total sales charges will never exceed 8.5% of the
total Purchase Payments actually made to the Account.
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If the asset based sales charges are insufficient to recover sales
commissions, such commissions would be recovered out of the Company's profits
from investment activities, including the mortality and expense risk charges
under the Contract. For sales commissions paid in connection with the sale of
the Contracts, see "Distribution."
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative expense charge.
The administrative expense charge compensates the Company for administrative
expenses that exceed revenues from the maintenance fee described below. The
charge is set at a level which does not exceed the average expected cost of
the administrative services to be provided while the Contract is in force.
The Company does not expect to make a profit from this charge.
Under the Contract, the amount of the administrative expense charge may be
of an amount equal, on an annual basis, to a maximum of 0.25% of the daily
net assets of the Subaccounts. There is currently no administrative expense
charge during the Accumulation Period or Annuity Period. Once an Annuity
Option is elected, the charge will be established and will be effective
during the entire Annuity Period.
Fund Expenses
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this Prospectus and described more fully in the accompanying Fund
prospectuses.
Premium and Other Taxes
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Account Values, but no earlier than
when we have a tax liability under state law. The Company's current practice
is to deduct for premium taxes at the time of complete withdrawal or
annuitization. In addition to the premium tax, the Company reserves the right
to assess a charge for any state or federal taxes due against the Contract or
the Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
=============================================================================
Account Value
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in your Account as of any Valuation Date. The Account Value at
any given time is based on the value of the units held in each Subaccount,
plus the value of amounts held in any of the Credited Interest Options.
Accumulation Units
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the
investment performance, expenses and charges of the applicable Fund and is
reduced each day by a percentage that accounts for the daily assessment of
mortality and expense risk charges, the asset based sales charge (if
applicable) and the administrative expense charge (if any).
Initial Purchase Payments will be credited to your Account as described
under "Purchasing Interests in the Contract." Each subsequent Purchase
Payment (or amount transferred) will be credited to your Account at the AUV
computed on the next Valuation Date following our receipt of your payment or
transfer request. The value of an Accumulation Unit may increase or decrease.
Net Investment Factor
The net investment factor is used to measure the investment performance of
a Subaccount from one Valuation Date to the next. The net investment factor
for a Subaccount for any valuation period is equal to the sum of 1.0000 plus
the net investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation of
the Subaccount;
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<PAGE>
(d) divided by the total value of the Subaccount's Accumulation and Annuity
Units on the preceding Valuation Date;
(e) minus a daily charge for mortality and expense risks, administrative
expenses (if applicable), and asset based sales charges (if applicable).
(See "Charges and Deductions" for further details on the charges
pertaining to your Contract.)
The net investment rate may be either positive or negative.
TRANSFERS
=============================================================================
You can transfer amounts held under your Account from one Subaccount to
another. Transfers between the Credited Interest Options and the Subaccounts
are subject to certain restrictions. (See the Appendices.) A request for
transfer can be made either in writing or by telephone. The telephone
transfer privilege is available automatically; no special election is
necessary. All transfers must be in accordance with the terms of the Contract
and your Plan, as applicable.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. However, the total number of
investment options that you may select during the Accumulation Period is
limited to 18. Each Subaccount selected, the Fixed Account, Fixed Plus
Account and each guaranteed term of GAA counts as one option, even if you no
longer have amounts allocated to that option. The minimum transfer amount is
$500. Any transfer will be based on the Accumulation Unit Value next
determined after the Company receives a valid transfer request at its Home
Office.
Dollar Cost Averaging Program
You may establish automated transfers of Account Values on a monthly or
quarterly basis through the Company's Dollar Cost Averaging Program. Dollar
Cost Averaging is a system for investing a fixed amount of money at regular
intervals over a period of time. Dollar Cost Averaging does not ensure a
profit nor guarantee against loss in a declining market. You should consider
your financial ability to continue purchases through periods of low price
levels. Please refer to the "Inquiries" section of the Prospectus Summary
which describes how you can obtain further information.
WITHDRAWALS
=============================================================================
All or a portion of the Account Value may be withdrawn at any time during
the Accumulation Period, subject to the withdrawal restrictions under Section
403(b) Contracts described below, and subject to limitations on withdrawals
from the Credit Interest Options. The Contract may require that the Contract
Holder certify in writing that you are eligible both as to the timing and
form of distribution. To request a withdrawal, you must properly complete a
disbursement form and send it to our Home Office. Payments for withdrawal
requests will be made in accordance with SEC requirements, but normally not
later than seven calendar days following our receipt of a disbursement form.
Withdrawals may be requested in one of the following forms:
[bullet] Full Withdrawal of an Account: The amount paid for a full withdrawal
will be the Account Value allocated to the Subaccounts, the
Guaranteed Accumulation Account (plus or minus a market value
adjustment) (see Appendix I), and the Fixed Account, plus the amount
available for withdrawal from the Fixed Plus Account (see Appendices
II, III and IV).
[bullet] Partial Withdrawals (Percentage or Specified Dollar Amount): The
amount paid will be the percentage of the Account Value or the
dollar amount requested; however, the amount available for
withdrawal from the Fixed Plus Account is limited (see Appendix II).
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or Credited Interest Option in which the Account is invested,
unless you request otherwise in writing. All amounts paid will be based on
Account Values as of the next Valuation Date after we receive a request for
withdrawal at our Home Office, or on such later date as the disbursement form
may specify. A 20% federal income tax may be withheld from amounts paid
directly to you. (See "Tax Status--Contracts Used with Certain Retirement
Plans.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b) Contracts, a
withdrawal of salary reduction
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7
<PAGE>
contributions and earnings on such contributions is generally prohibited
prior to your death, disability, attainment of age 59-1/2, separation from
service or financial hardship. (See "Tax Status.")
Reinvestment Privilege
You may elect to reinvest all or a portion of the proceeds received from a
full withdrawal of your Account within 30 days after such withdrawal has been
made. Accumulation Units will be credited to the Account for 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. Accumulation Units will be credited to your Account based on
the Accumulation Unit Value next computed following our receipt of your
request along with the amount to be reinvested. The reinvestment privilege
may be used only once. See Appendix I for a discussion of amounts withdrawn
from GAA and then reinvested. If you are contemplating reinvestment, you
should seek competent advice regarding the tax consequences associated with
such a transaction.
CONTRACT LOANS
=============================================================================
If allowed by the Plan, Participants may request a loan from their Account
Value during the Accumulation Period. Loans can only be made from those
Account Values held in the Subaccounts or from those Credited Interest
Options that allow loans. (See Appendices I, II and III.) A loan may be
obtained by reviewing and reading the terms of your loan agreement, properly
completing a loan request form and submitting it to the Company's Home
Office.
ADDITIONAL WITHDRAWAL OPTIONS
=============================================================================
The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Additional Withdrawal Options"). To exercise
these options, your Account Value must meet the minimum dollar amounts and
age criteria applicable to that option. In addition, for Employer and certain
Employee Accounts, the Contract Holder must provide written certification
that the distribution is in accordance with the terms of the Plan. The
Additional Withdrawal Options that may be available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select.
It is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract.
(This option may not be elected if you have an outstanding contract
loan.)
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed for those who want to receive
only the minimum distribution that the Code requires each year.
Under ECO, the Company calculates the minimum distribution amount
required by law at age 70-1/2 or retirement, if later, for
governmental plans, and pays you that amount once a year. (See "Tax
Status.")
[bullet] LEO--Life Expectancy Option. LEO is a distribution option under
which a portion of your Account Value will be automatically
surrendered and distributed each year, payable over a period equal
to the life expectancy of the Participant or the joint life
expectancy of the Participant and the designated Beneficiary.
Other Additional Withdrawal Options may be added from time to time.
Information relating to any of the Additional Withdrawal Options may be
obtained from your local representative or from the Company at its Home
Office.
If you select one of the Additional Withdrawal Options, you will retain
all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus.
Once you elect an Additional Withdrawal Option, you may revoke it any time
by submitting a written request to our Home Office. Once an option is
revoked, it may not be elected again, nor may any other Additional Withdrawal
Option be elected unless permitted by the Code. The Company reserves the
right to discontinue the availability of one or all of these Additional
Withdrawal Options at any time, and/or to change the terms of future
elections.
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DEATH BENEFIT DURING ACCUMULATION PERIOD
=============================================================================
The Contract provides that a death benefit is payable to the
Beneficiary(ies) upon the death of the Participant before the Annuity Date.
If a lump-sum distribution or an Annuity Option is elected within six months
of the Participant's death, a guaranteed death benefit is provided. For each
Account, the guaranteed death benefit is the greater of:
(a) the Account Value, plus any positive aggregate Market Value Adjustment
(MVA) that applies to amounts allocated to the Guaranteed Accumulation
Account (GAA), on the day the death notice and request for payment are
received in good order at our Home Office; or
(b) the sum of the net Purchase Payments made to each Account, minus the
total of all withdrawals or annuitizations made from the Account and any
amount allocated to the Loan Account.
If a lump-sum distribution or Annuity Option is elected six months or more
after your death, the Beneficiary will receive the Account Value, plus or
minus any MVA that would apply to any portion of the Account allocated to
GAA. If a full or partial withdrawal is made within six months after your
death, the Beneficiary will receive the Account Value, plus any positive MVA
that would apply to any portion of the Account allocated to GAA. The value of
the Account is determined as of the Valuation Date on which proof of death
acceptable to us and a request for payment are received at our Home Office.
Death benefit proceeds may be paid to the Beneficiary:
[bullet] in a lump sum; or
[bullet] in accordance with any of the Annuity Options available under the
Contract.
The Beneficiary may instead elect one of the following two options;
however, the Code limits how long the death benefit proceeds may be left in
these options (see below):
[bullet] to leave the Account Value invested in the Contract; or
[bullet] to leave the Account Value on deposit in the Company's general
account, and to receive monthly, quarterly, semi-annual or annual
interest payments at the interest rate then being credited on such
deposits. The balance on deposit can be withdrawn at any time or
applied to an Annuity Option.
When paying the Beneficiary, we will determine the Account Value on the
Valuation Date following the date on which we receive proof of death
acceptable to the Company. Interest, if any, will be paid from the date of
death at a rate no less than required by law. We will mail payment to the
Beneficiary within seven days after we receive proof of death and request for
payment.
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, either payments must begin by December 31
of the year following the year of your death, or the entire value of your
benefits must be distributed by December 31 of the fifth year following the
year of your death. If your Beneficiary is your spouse, he or she is not
required to begin distributions until the year you would have attained age
701/2. In no event may payments extend beyond the life of the Beneficiary or
any specified period greater than the Beneficiary's life expectancy. If no
elections are made, no distributions will be made. Failure to commence
distributions within the above time periods can result in tax penalties.
Regardless of the method of payment, death benefit proceeds will generally be
taxed to the Beneficiary in the same manner as if you had received those
payments. (See "Tax Status.")
ANNUITY PERIOD
=============================================================================
Annuity Period Elections
The Code generally requires that minimum annual distributions of the
Account Value must begin by April 1st of the calendar year following the
calendar year in which a Participant attains age 70-1/2 (or retires, if
later, unless the Participant is a 5% owner). In addition, distributions must
be in a form and amount sufficient to satisfy the Code requirements. These
requirements may be satisfied by the election of certain Annuity Options or
Additional Withdrawal Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, you must notify us in writing
of the following:
[bullet] the date on which you would like to start receiving annuity
payments;
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[bullet] the Annuity Option under which you want your payments to be
calculated and paid; and
[bullet] the investment option(s) used to provide annuity payments (i.e., a
fixed annuity using the general account or any of the Subaccounts
available at the time of annuitization).
For the Employer and certain Employee Accounts, the Contract Holder must
provide written certification that the distribution is in accordance with the
terms of the Plan. (See "Rights Under the Contract.")
Annuity Payments will not begin until you have selected an Annuity Date
and an Annuity Option. Until a date and option are elected the Account will
continue in the Accumulation Period. Annuity Payments will be made monthly,
unless a Participant elects otherwise. Once Annuity Payments begin, the
Annuity Option selected may not be changed. If your Plan requires, you may
also be required to submit the appropriate joint and survivor annuity waiver
and spousal consent form(s) to us. Transfers among Subaccounts during the
Annuity Period are only permitted under Master Contracts issued, or endorsed
to allow such transfers, on or after October 1, 1996. We reserve the right to
limit such transfers to four per year.
Annuity Options
You may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Participant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments--An annuity with
payments guaranteed for 5-30 years.
[bullet] Option 3--Life Annuity with Cash Refund Feature--An annuity with a
cash refund feature. Payments may be guaranteed for the amount
applied to the Annuity option. If the Annuitant dies prior to the
payment of the amount applied to the Annuity Option (less any
premium tax), any remaining balance will be paid in one sum to the
Beneficiary. This option is only available on a fixed basis.
[bullet] Option 4--Life Annuity based upon the Lives of Two Annuitants--An
annuity will be paid during the lives of the Annuitant and a second
Annuitant. You may select either an Annuity with 100%, 66 2/3% or 50%
of the payment to continue after the first death, or an Annuity with
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.
[bullet] Option 5--Life Annuity based Upon the Lives of Two Annuitants with
Guaranteed Payments--An annuity with Payments for a minimum of 5-30
years, with 100% of the payment to continue after the first death.
[bullet] Option 6--Life Annuity Based Upon the Lives of Two Annuitants with a
Cash Refund Feature--An annuity with 100% of the payment to continue
after the first death with a cash refund feature. Payments are
guaranteed for the amount applied to the Annuity Option. If both
Annuitants die prior to the total payment of the amount applied to
the Annuity Option (less any premium tax), any remaining balance
will be paid in one sum to the beneficiary. This option is only
available on a fixed basis.
If Option 1 or 4 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under Option 1, or the surviving Annuitant
under Option 4, should die prior to the due date of the second Annuity
Payment. Once lifetime Annuity payments begin, the Participant cannot elect
to receive a lump-sum settlement.
Nonlifetime Annuity Options:
[bullet] Option 1--Payments for a Specified Period--payments will continue
for a specified period of time, as provided for under your Contract.
Under some Contracts, for amounts held in the Fixed Plus Account,
the Annuity must be paid on a fixed basis. (See Appendices II, III
and IV to determine if this applies to the Contract.)
If a nonlifetime option is elected on a variable basis, the Participant,
with the consent of the Contract Holder, may request at any time during the
payment period that the present value of all or a portion of the remaining
variable payments be paid in one sum. The nonlifetime option is not available
on a variable basis under a Contract which provides for immediate Annuity
benefits.
We may also offer additional Annuity Options under your Contract from time
to time.
Duration of Annuity Payments
Annuity payments may not extend beyond (a) the life of the Participant,
(b) the joint lives of the Participant and Beneficiary, (c) a period greater
than the Participant's life expectancy, or (d) a period greater than the
joint life expectancies of the Participant and Beneficiary.
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Amount of Each Annuity Payment. The amount of each payment depends on how you
allocate your Account Value between fixed and variable payouts. For Master
Contracts issued on or after October 1, 1996 (and Master Contracts issued
prior to that date that are endorsed to contain this provision), no election
may be made that would result in the first Annuity payment of less than $50,
or total yearly Annuity payments of less than $250. For Contracts issued
prior to October 1, 1996, no election may be made that would result in the
first Annuity payment of less than $25, or total yearly Annuity payments of
less than $125. If your Account Value on the Annuity Date is insufficient to
elect an option for the minimum amount specified, a lump-sum payment must be
elected.
If Annuity Payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3-1/2% or 5% per annum). Selection of a 5% rate causes a higher
first payment, but Annuity Payments will increase thereafter only to the
extent that the net investment rate exceeds 5% on an annualized basis.
Annuity Payments would decline if the rate were below 5%. Use of the 3-1/2%
assumed rate causes a lower first payment, but subsequent payments would
increase more rapidly or decline more slowly as changes occur in the net
investment rate. (See the Statement of Additional Information for further
discussion on the impact of selecting an assumed net investment rate.)
Charges Deducted During the Annuity Period
During the Annuity Period, we will make a daily deduction of 1.25% for
mortality and expense risks from any amounts held on a variable basis.
Therefore, electing the nonlifetime option on a variable basis will result in
a deduction being made even though we assume no mortality risk. We may also
deduct a daily administrative charge from amounts held under the variable
options. (See "Charges and Deductions.")
Death Benefit Payable During the Annuity Period
If a Participant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 4 was elected, Annuity Payments will cease on
the death of the Participant under Option 1 or the death of the surviving
Annuitant under Option 4.
If Lifetime Option 2 or Option 5 was elected and the death of the
Participant under Option 2, or the surviving Annuitant under Option 5, occurs
prior to the end of the guaranteed minimum payment period, we will continue
payments to the Beneficiary unless the Beneficiary elects a lump sum.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments will be paid to the
Beneficiary unless the Beneficiary elects a lump sum.
If the Participant dies after Annuity payments have begun and if there is
a death benefit payable under the Annuity option elected, the remaining value
must be distributed to the Beneficiary at least as rapidly as under the
original method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after acceptable
proof of death, and a request for payment are received at our Home Office.
The value of any death benefit proceeds will be determined as of the next
Valuation Date after we receive acceptable proof of death and a request for
payment. Under Options 2 and 5, such value will be reduced by any payments
made after the date of death.
TAX STATUS
=============================================================================
Introduction
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current
federal income tax law. Such laws may change in the future, and it is
possible that any change could be retroactive (i.e., effective prior to the
date of the change). The Company makes no guarantee regarding the tax
treatment of any contract or transaction involving a Contract. The ultimate
effect of federal income taxes on the amounts held under a Contract, on
Annuity payments, and on the economic benefit to the Contract Holder,
Participant or Beneficiary may depend upon the tax status of the individual
concerned. Any person concerned about these tax implications should consult a
competent tax adviser before initiating any transaction.
Taxation of the Company
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code.
Investment income and realized capital gains are automatically applied to
increase reserves under the Contracts. Under existing federal income tax law,
the
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<PAGE>
Company believes that the Separate Account investment income and realized net
capital gains will not be taxed to the extent that such income and gains are
applied to increase the reserves under the Contracts.
The Company does not anticipate that it will incur any federal income tax
liability attributable to the Separate Account and, therefore, the Company
does not intend to make provisions for any such taxes. However, if changes in
the federal tax laws or interpretation thereof result in the Company being
taxed on income or gains attributable to the Separate Account, then the
Company may impose a charge against the Separate Account (with respect to
some or all Contracts) in order to set aside provisions to pay such taxes.
Contracts used with Certain Retirement Plans
In General. The Contract is designed for use with Section 403(b) plans and
Section 401(a) plans. The tax rules applicable to retirement plans vary
according to the type of plan and the terms and conditions of the plan.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as Beneficiaries are cautioned that the rights of any
person to any benefits under the Contracts may be subject to the terms and
conditions of the plans themselves, in addition to the terms and conditions
of the Contracts issued in connection with such plans. Some retirement plans
are subject to limitations on distribution and other requirements that are
not incorporated in the Contracts. Purchasers are responsible for determining
that contributions, distributions and other transactions relating to the
Contracts satisfy applicable laws, and should consult their legal counsel and
tax adviser regarding the suitability of the Contract.
Minimum Distribution Requirements. The Code has required distribution rules
for Section 403(b) and 401(a) Plans. Under 403(b) Plans, distributions of
amounts held as of December 31, 1986 must generally begin by the end of the
calendar year in which you attain age 75 (or retire, if later, for
governmental or church plans). However, special rules require that some or
all of that balance be distributed earlier if any distributions are taken in
excess of the minimum required amount. Distributions under 401(a) Plans, and
distributions attributable to contributions under Section 403(b) Plans on or
after January 1, 1987 (including any earnings on the entire Account Value
after that date), must generally begin by April 1 of the calendar year
following the calendar year in which you attain age 70-1/2 (or retire, if
later, unless you are a five percent owner).
In general, annuity payments must be distributed over your life or the
joint lives of you and your beneficiary, or over a period not greater than
your life expectancy or the joint life expectancies of you and your
beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your beneficiary must be made at least as rapidly as under
the method of distribution in effect at the time of your death. However, if
the minimum required distribution is calculated each year based on your
single life expectancy or the joint life expectancies of you and your
beneficiary, the regulations for Code Section 401(a)(9) provide specific
rules for calculating the minimum required distributions at your death. For
example, if you have elected ECO with the calculation based on your single
life expectancy, and the life expectancy is recalculated each year, your
recalculated life expectancy becomes zero in the calendar year following your
death and the entire remaining interest must be distributed to your
beneficiary by December 31 of the year following your death. However, a
spousal beneficiary has certain rollover rights which can only be exercised
in the year of your death. The rules are complex and you should consult your
tax adviser before electing the method of calculation to satisfy the minimum
distribution requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year in
which the fifth anniversary of the date of your death occurs. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the
calendar year of your death. If the Beneficiary is your spouse, the
distribution must begin on or before the later of (1) December 31 of the
calendar year following the calendar year of your death, or (2) December 31
of the calendar year in which you would have attained age 70-1/2.
If you fail to receive the minimum required distribution for any tax year,
a 50% excise tax is imposed on the required amount that was not distributed.
Taxation of Distributions. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to
another plan of the same type or to
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<PAGE>
an individual retirement annuity/account ("IRA") in accordance with the Code,
or unless you have made after-tax contributions to the plan, which are not
taxed upon distribution. The Code has specific rules that apply, depending on
the type of distribution received, if after-tax contributions were made.
In general, payments received by your beneficiaries after your death are
taxed in the same manner as if you had received those payments.
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to
the type of distribution and the recipient's tax status. Recipients may be
provided the opportunity to elect not to have tax withheld from
distributions; however, certain distributions from annuities are subject to
mandatory federal income tax withholding. We will report to the IRS the
taxable portion of all distributions.
The Code imposes a 10% penalty tax on the taxable portion of any
distribution unless made when (a) you have attained age 59-1/2, (b) you have
become disabled, (c) you have died, (d) you have separated from service with
the plan sponsor at or after age 55, (e) the distribution amount is rolled
over into another plan of the same type or to an IRA in accordance with the
terms of the Code, or (f) the distribution amount is made in substantially
equal periodic payments (at least annually) over your life or life expectancy
or the joint lives or joint life expectancies of you and your plan
beneficiary, provided you have separated from service with the plan sponsor.
In addition, the penalty tax does not apply for the amount of a distribution
equal to unreimbursed medical expenses incurred by you that qualify for
deduction as specified in the Code. The Code may impose other penalty taxes
in other circumstances.
Section 403(b) Plans. Under Section 403(b), contributions made by public
school systems and Section 501(c)(3) tax exempt organizations to purchase
annuity contracts for their employees are generally excludable from the gross
income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of
your includable compensation or $30,000. The second limit, which is the
exclusion allowance under Section 403(b), is usually calculated according to
a formula that takes into account your length of employment and any pretax
contributions to certain other retirement plans. These two limits apply to
your contributions as well as to any contributions made by your employer on
your behalf. There is an additional limit that specifically limits your
salary reduction contributions to generally no more than $9,500 annually
(subject to indexing); your own limit may be higher or lower, depending on
certain conditions.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31,
1988; (2) earnings on those contributions; and (3) earnings during such
period on amounts held as of December 31, 1988. Distribution of those amounts
may only occur upon death of the employee, attainment of age 59-1/2,
separation from service, disability, or financial hardship. In addition,
income attributable to salary reduction contributions may not be distributed
in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a
Code Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable prior
to the time of actual distribution. However, the IRS has stated in published
rulings that a variable contract owner, including participants under Section
403(b) plans, will be considered the owner of separate account assets if the
owner possesses incidents of investment control over the assets. In these
circumstances, income and gains from the separate account assets would be
currently includable in the variable contract owner's gross income. The
Treasury announced that guidance would be issued in the future regarding the
extent to which owners could direct their investments among Subaccounts
without being treated as owners of the underlying assets of the Separate
Account. It is possible that the Treasury's position, when announced, may
adversely affect the tax treatment of existing contracts. The Company
therefore reserves the right to modify the Contract as necessary to attempt
to prevent the owner from being considered the federal tax owner of the
assets of the Separate Account.
Section 401(a) Plans. Section 401(a) permits certain employers to establish
various types of retirement plans for employees, and permits self-employed
individuals to establish various types of retirement plans for themselves and
for their employees. These retirement plans may
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<PAGE>
permit the purchase of the Contracts to accumulate retirement savings under
the plans. Adverse tax consequences to the Plan, to the Participant or to
both may result if this Contract is assigned or transferred to any individual
except to a Participant as a means to provide benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a Participant's gross income. Such limit must be calculated
under the Plan by the employer in accordance with Section 415 of the Code.
This limit is generally the lesser of 25% of your compensation or $30,000. In
addition, Purchase Payments will be excluded from a Participant's gross
income only if the 401(a) Plan meets certain nondiscrimination requirements.
MISCELLANEOUS
=============================================================================
Distribution
The Company will serve as the Principal Underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with
the Securities and Exchange Commission and is a member of the National
Association of Securities Dealers, Inc. (NASD). As Underwriter, the Company
will contract with one or more registered broker-dealers ("Distributors"),
including at least one affiliate of the Company, to offer and sell the
Contracts. All persons offering and selling the Contracts must be registered
representatives of the Distributors and must also be licensed as insurance
agents to sell variable annuity contracts. These registered representatives
may also provide services to Participants in connection with establishing
their Accounts under the Contract.
Payment of Commissions. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect
to any given Purchase Payment is with respect to those made during the first
year of Purchase Payments under an Account. The percentage amount will range
from 1% to 6% of those Purchase Payments. The Company may also pay renewal
commissions on Purchase Payments made after the first year and asset-based
service fees. The average of all payments made by the Company is estimated to
equal approximately 3% of the total Purchase Payments made over the life of
an average Contract. The Company may also reimburse the Distributor for
certain expenses. The name of the Distributor and the registered
representative responsible for your Account are set forth in your enrollment
materials. Commissions and sales related expenses are paid by the Company and
are not deducted from Purchase Payments. (See "Charges and Deductions.")
Third Party Compensation Arrangements. Occasionally, we may pay commissions
and fees to Distributors which are affiliated or associated with the Contract
Holder or the Participants. We may also enter into agreements with some
entities associated with the Contract Holder or Participants in which we
would agree to pay the entity for certain services in connection with
administering the Contracts. In both these circumstances there may be an
understanding that the Distributor or entity would endorse the Company as a
provider of the Contract. You will be notified if you are purchasing a
Contract that is subject to these arrangements.
Delay or Suspension of Payments
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York
Stock Exchange ("Exchange") is closed (other than customary weekend and
holiday closings) or when trading on the Exchange is restricted; (b) when an
emergency exists, as determined by the SEC, so that disposal of securities
held in the Subaccounts is not reasonably practicable or is not reasonably
practicable for the value of the Subaccount's assets; or (c) during such
other periods as the SEC may by order permit for the protection of investors.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
Performance Reporting
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the
"non-standardized returns." "Standardized average annual total returns" are
computed according to a formula in which a hypothetical investment of $1,000
is applied to the Subaccount and then related to the ending redeemable values
over the most recent one, five and ten-year periods (or since inception, if
less than ten years). Standardized returns will reflect the reduction of all
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recurring charges during each period (e.g., mortality and expense risk
charges, asset based sales charges (if applicable) and any administrative
expense charge). The non-standardized figures are computed in the same manner
but may also include monthly, quarterly, year-to-date and three-year
periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
Voting Rights
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular
and special meetings of Fund shareholders in accordance with instructions
received from persons having a voting interest in the Separate Account.
Participants may instruct the Contract Holder how to direct the Company to
cast the votes for the portion of the Account Value or valuation reserve
attributable to their Accounts. The Company will vote shares for which it has
not received instructions in the same proportion as it votes shares for which
it has received instructions.
Each person having a voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest,
as well as any proxy materials and a form on which to give voting
instructions. Voting instructions will be solicited by written communication
at least 14 days before such meeting. The number of votes to which each
person may give direction will be determined as of the record date set by the
Fund.
The number of votes each Contract Holder or Participant, or Beneficiary as
applicable, may cast during the Accumulation Period is equal to the portion
of the Account Value to that Fund, divided by the net asset value of one
share of that Fund. During the Annuity Period, the number of votes is equal
to the valuation reserve applicable to the portion of the Contract
attributable to that Fund, divided by the net asset value of one share of
that Fund. In determining the number of votes, fractional votes will be
recognized.
Changes in Beneficiary Designations
The designated Beneficiary may be changed at any time prior to the Annuity
Date, subject to limitations contained in the Code and other applicable laws.
Such change will not become effective until written notice of the change is
received by the Company.
Modification of the Contract
Master Contracts Issued on or after October 1, 1996 (and Master Contracts
issued prior to that date that are endorsed to contain this provision). Only
an authorized officer of the Company may change the terms of this Contract.
The Company reserves the right to modify this Contract to meet the
requirements of applicable state and federal laws or regulations. The Company
will notify the Contract Holder and Participants in writing of any changes.
The Company may change the tables for determining the amount of Annuity
benefit payments attributable only to Contributions accepted after the
effective date of change, without Contract Holder consent. Such a change will
not become effective earlier than twelve months after (1) the effective date
of the Contract, or (2) the effective date of a previous change. The Company
will notify the Contract Holder in writing at least thirty (30) days before
the effective date of the change. The Company may not make changes which
adversely affect the Annuity benefits attributable to Contributions already
made to the Contract.
Contracts Issued Prior to October 1, 1996. The Company may change the
Contract as required by federal or state law. In addition, the Company may,
upon thirty days written notice to the Contract Holder, make other changes
that would apply only to individuals who become Participants under that
Contract after the effective date of such changes. If the Contract Holder
does not agree to a change, no new Participants will be covered under the
Contract. Certain changes will require the approval of appropriate state or
federal regulatory authorities.
Legal Matters and Proceedings
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect
the Separate Account. The validity of the securities offered by this
Prospectus has been passed upon by Susan E. Bryant, Esq., Counsel to the
Company.
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CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
=============================================================================
The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements
of the Separate Account and the Company. A list of the contents of the SAI is
set forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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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 Contracts described in
this Prospectus. Amounts allocated to Long-Term Classifications of GAA are
held in a noninsulated, nonunitized separate account. Amounts allocated to
Short-Term Classifications of GAA are held in the Company's general account.
This Appendix is a summary of GAA and is not intended to replace the GAA
prospectus. You should read the accompanying GAA prospectus carefully before
investing.
GAA is a Credited Interest Option in which we guarantee stipulated rates
of interest for stated periods of time on amounts directed to GAA. The
interest rate stipulated is an annual effective yield; that is, it reflects a
full year's interest. Interest is credited daily at a rate that will provide
the guaranteed annual effective yield for one year. This option guarantees
the minimum interest rate specified in the Contract.
During a specified period of time (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to
three years, and Long-Term GAA has Guaranteed Terms from three to ten years.
Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). An MVA reflects the change in the value of the
investments due to changes in interest rates since the date of deposit. When
interest rates increase after the date of deposit, the value of the
investment decreases and the MVA is negative. Conversely, when interest rates
decrease after the date of deposit, the value of the investment increases,
and the MVA is positive. It is possible that a negative MVA could result in
the Participant receiving an amount which is less than the amount paid into
GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to
federal tax penalties or mandatory income tax withholding.
By notifying us at least 30 days prior to the Annuity Date, you may elect
a variable annuity and have amounts that have been accumulating under GAA
transferred to one or more of the Subaccounts available during the Annuity
Period. GAA cannot be used as an investment option during the Annuity Period.
Mortality and Expense Risk Charges
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
Transfers
Transfers are permitted among Guaranteed Terms. However, amounts applied
to GAA may not be transferred to another Guaranteed Term of GAA, or to any
other Subaccount or Credited Interest Option available under the Contract,
during the deposit period or the 90 days after the close of the deposit
period. We will apply an MVA to transfers made before the end of a Guaranteed
Term, unless such transfer is due to the maturity of the Guaranteed Term.
Contract Loans
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
Reinvestment Privilege
If amounts are withdrawn for GAA and are reinvested, they will be applied
to the current deposit period. Amounts are proportionately reinvested in the
same manner as they were allocated before the withdrawal. Any negative MVA
amount applied to a withdrawal is not included in the reinvestment.
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APPENDIX II
FIXED PLUS ACCOUNT
=============================================================================
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the
Company's general account that supports general insurance and annuity
obligations. Interests in the Fixed Plus Account have not been registered
with the SEC in reliance on exemptions under the Securities Act of 1933, as
amended. Disclosure in the Prospectus regarding the Fixed Plus Account, may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of such statements.
Disclosure in this Appendix regarding the Fixed Plus Account has not been
reviewed by the SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will
never fall below the guaranteed minimum. The Company's determination of
interest rates reflects the investment income earned on invested assets and
the amortization of any capital gains and/or losses realized on the sale of
invested assets. Under the Fixed Plus Account, the Company assumes the risk
of investment gain or loss by guaranteeing Account Values and promising a
minimum interest rate and Annuity Payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to 6 months; or (b) as
provided by federal law.
The Company reserves the right to limit Purchase Payment(s) and/or
transfers to the Fixed Plus Account.
Fixed Plus Account Withdrawals
The amount eligible for partial withdrawal is 20% of the amount held in
the Fixed Plus Account on the day our Home Office receives a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any
Additional Withdrawal Options.
The 20% limit is waived if the partial withdrawal is due to annuitization
or death. The waiver upon death will only be exercised once and must occur
within six months after the Participant's date of death. Any such surrender
or annuitization must also be made pro rata from all Subaccounts and Credited
Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments equal to:
1. One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, transfers,
loans or annuitizations made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
5. The balance of the Fixed Plus Account Value 12 months later.
Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be cancelled at any time before
the end of the five-payment period. We will waive the Fixed Plus Account full
withdrawal provision if a full withdrawal is made:
(a) due to your death, before Annuity payments begin;
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(b) due to the election of an Annuity option;
(c) when the Fixed Plus Account value is $3,500 or less (and no
withdrawals, transfers or annuitizations have been made from the
Account within the prior 12 months);
(d) due to hardship from an unforeseeable emergency, as defined by the
Code, if the following conditions are met:
(1) the hardship is certified by the employer;
(2) the amount is paid directly to you; and
(3) the amount paid for all withdrawals due to hardship during the
previous 12-month period does not exceed 10% of the average value
of all Accounts during that same period; or
(e) due to your separation from service with the employer, provided that:
(1) the employer certifies that you have separated from service;
(2) the amount withdrawn is paid directly to you; and
(3) the amount paid for all partial and full withdrawals due to
separation from service during the previous 12-month period does
not exceed 20% of the average value of all Accounts under the
Contract during that same period.
Transfers Among Investment Options
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written
request, reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months. In calculating the 20% limit,
we reserve the right to include payments made due to the election of one of
the Additional Withdrawal Options. The 20% limit on transfers will be waived
when the value in the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before the Annuity
Date, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Subaccounts available
during the Annuity Period to provide lifetime variable Annuity Payments. For
amounts which have been accumulating under the Fixed Plus Account, a
nonlifetime annuity option may only be elected on a fixed basis.
SWO
The Systematic Withdrawal Option may not be elected if you have requested
a Fixed Plus Account transfer or withdrawal within the prior 12 month period.
Contract Loans
If permitted under the Plan, loans may be made from Account Values held in
the Fixed Plus Account. See the loan agreement for a description of the
amount available and the consequences upon loan default if more than 20% of
the Fixed Plus Account Value is used for a loan.
-----------------------------------------------------------------------------
19
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
(APPLICABLE ONLY IN LIMITED CIRCUMSTANCES)*
=============================================================================
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the
Company's general account that supports general insurance and annuity
obligations. Interests in the Fixed Plus Account have not been registered
with the SEC in reliance on exemptions under the Securities Act of 1933, as
amended. Disclosure in the Prospectus regarding the Fixed Plus Account, may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of such statements.
Disclosure in this Appendix regarding the Fixed Plus Account has not been
reviewed by the SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will
never fall below the guaranteed minimum. The Company's determination of
interest rates reflects the investment income earned on invested assets and
the amortization of any capital gains and/or losses realized on the sale of
invested assets. Under the Fixed Plus Account, the Company assumes the risk
of investment gain or loss by guaranteeing Account Values and promising a
minimum interest rate and Annuity Payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than
the then declared interest rate for the Fixed Plus Account for Accounts that
have not reached their tenth anniversary.
Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to 6 months; or (b) as
provided by federal law.
The Company reserves the right to limit Purchase Payment(s) and/or
transfers to the Fixed Plus Account.
Fixed Plus Account Withdrawals
The amount eligible for partial withdrawal is 20% of the amount held in
the Fixed Plus Account on the day our Home Office receives a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any
Additional Withdrawal Options.
The 20% limit is waived if the partial withdrawal is due to annuitization
or death. The waiver upon death will only be exercised once and must occur
within six months after the Participant's date of death. Any such surrender
or annuitization must also be made pro rata from all Subaccounts and Credited
Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments equal to:
1. One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, transfers,
loans or annuitizations made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
5. The balance of the Fixed Plus Account Value 12 months later.
- ------------
* This Fixed Plus Account was formerly described under Appendix II of
Prospectus 91846.HED-2.
-----------------------------------------------------------------------------
20
<PAGE>
Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be cancelled at any time before
the end of the five-payment period. We will waive the Fixed Plus Account full
withdrawal provision if a full withdrawal is made due to (a) the
Participant's death within 6 months after the Participant's date of death
before Annuity payments begin and request for payment is received; (b) the
election of an Annuity option; or (c) if the Fixed Plus Account value is
$3,500 or less and no withdrawals, transfers, loans or annuitizations have
been made from the Account within the prior 12 months; or (d) the
Participant's separation from service with the employer (if the separation
from service is certified by the employer and the withdrawal request is
received within 60 days of the date of termination) subject to a 3% charge
based on the entire Fixed Plus Account value. If the Participant who
separates from service chooses to have the five annual payments of the Fixed
Plus Account withdrawal, as described above, then no charge will be assessed.
Transfers Among Investment Options
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written
request, reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months. In calculating the 20% limit,
we reserve the right to include payments made due to the election of one of
the Additional Withdrawal Options. The 20% limit on transfers will be waived
when the value in the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before the Annuity
Date, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Subaccounts available
during the Annuity Period to provide lifetime variable Annuity Payments. For
amounts which have been accumulating under the Fixed Plus Account, a
nonlifetime annuity option may only be elected on a fixed basis.
SWO
The Systematic Withdrawal Option may not be elected if you have requested
a Fixed Plus Account transfer or withdrawal within the prior 12 month period.
Contract Loans
If permitted under the Plan, loans may be made from Account Values held in
the Fixed Plus Account. See the loan agreement for a description of the
amount available and the consequences upon loan default if more than 20% of
the Fixed Plus Account Value is used for a loan.
-----------------------------------------------------------------------------
21
<PAGE>
APPENDIX IV
FIXED PLUS ACCOUNT
(APPLICABLE ONLY IN LIMITED CIRCUMSTANCES)*
=============================================================================
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the
Company's general account that supports general insurance and annuity
obligations. Interests in the Fixed Plus Account have not been registered
with the SEC in reliance on exemptions under the Securities Act of 1933, as
amended. Disclosure in the Prospectus regarding the Fixed Plus Account, may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of such statements.
Disclosure in this Appendix regarding the Fixed Plus Account has not been
reviewed by the SEC.
The Fixed Plus Account guarantees that amounts allocated to this option
will earn the minimum interest rate specified in the Contract. We may credit
a higher interest rate from time to time. The Company's determination of
interest rates reflects the Investment income earned on invested assets and
the amortization of any capital gains and/or losses realized on the sale of
invested assets. Under this option, we assume the risk of investment gain or
loss by guaranteeing Net Purchase Payment values and promising a minimum
interest rate and Annuity payment.
Under certain emergency conditions, we may defer payment of a Fixed Plus
Account withdrawal value (a) for a period of up to 6 months or (b) as
provided by federal law.
During any calendar year, any withdrawals requested from an Account's
Fixed Plus Account value may not exceed 20% of the Account's Fixed Plus
Account Value as of the date the withdrawal request is received in good order
at our Home Office. The withdrawal value will be reduced by any Fixed Plus
Account withdrawal(s), transfer(s) or annuitizations previously made during
the calendar year.
The 20% limit is waived if the partial withdrawal is due to annuitization
or death. The waiver upon death will only be exercised once and must occur
within 6 months after the Participant's date of death.
In the event of an complete Account withdrawal, we will pay any Fixed Plus
Account withdrawal value from the Account with interest, in five annual
payments of:
1. One-fifth of the Fixed Plus Account withdrawal value minus any Fixed
Plus Account withdrawal(s), transfer(s) or annuitizations made during
the calendar year;
2. One-fourth of the remaining Fixed Plus Account withdrawal value 12
months later;
3. One third of the remaining Fixed Plus Account withdrawal value 12
months later;
4. One-half of the remaining Fixed Plus Account withdrawal value 12 months
later; and
5. The balance of the Fixed Plus Account withdrawal value as the fifth and
final payment 12 months later.
Once we receive notification of an Account termination, no further
withdrawal(s) or transfer(s) will be permitted from the Fixed Plus Account.
We will waive the Fixed Plus Account full surrender provision if a full
withdrawal is made due to:
(a) the Participant's death within 6 months after the Participant's date
of death before Annuity payments begin and request for payment is
received;
(b) the election of an Annuity option;
(c) if the Fixed Plus Account value is $3,500 or less (and no withdrawals,
transfers or annuitizations have been made from the Account during the
calendar year), the entire Fixed Plus Account value will be paid in
one sum.
Amounts applied to the Fixed Plus Account will earn the interest rate in
effect when actually applied to the Fixed Plus Account.
- ------------
* This Fixed Plus Account was formerly described under Appendix II of
Prospectus 91846.ORP-2.
-----------------------------------------------------------------------------
22
<PAGE>
Mortality and Expense Risk Charges
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. We make no
deductions from the credited interest rate for mortality and expense risks;
these risks are considered in determining the credited rate.
Transfers Among Investment Options
Transfers from the Fixed Plus Account to any other available investment
option(s) are allowed once in each calendar year during the Accumulation
Period. The amount that may be transferred will be up to 20% of the amount
held in the Fixed Plus Account. We will waive the 20% transfer limit when the
value in the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before annuity
payments begin, the Contract Holder, on your behalf, may elect to have
amounts which have been accumulating under the Fixed Plus Account transferred
to one or more of the Subaccounts available during the Annuity Period to
provide variable annuity payments under any of the lifetime or nonlifetime
Annuity Options.
-----------------------------------------------------------------------------
23
<PAGE>
APPENDIX V
FIXED ACCOUNT
(AVAILABLE ONLY IN LIMITED CIRCUMSTANCES)
=============================================================================
The following summarizes material information concerning the Fixed Account.
Amounts allocated to the Fixed Account are held in the Company's general
account that supports general insurance and annuity obligations. Interests in
the Fixed Account have not been registered with the SEC in reliance on
exemptions under the Securities Act of 1933, as amended. Disclosure in the
Prospectus regarding the Fixed Account, may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to
the accuracy and completeness of such statements. Disclosure in this Appendix
regarding the Fixed Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Contract may credit a higher interest rate from time to time.
The current rate is subject to change at any time, but will never fall below
the guaranteed minimum. The Company's determination of interest rates
reflects the investment income earned on invested assets and the amortization
of any capital gains and/or losses realized on the sale of invested assets.
Under the Fixed Account, the Company assumes the risk of investment gain or
loss by guaranteeing Account Values and promising a minimum interest rate and
Annuity Payment.
Under certain emergency conditions, we may defer payment of a Fixed
Account withdrawal value (a) for a period of up to six months, or (b) as
provided by federal law.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us.
The interest rate quoted is an annual effective yield. We make no deductions
from the credited interest rate for mortality and expense risks; these risks
are considered in determining the credited rate.
Transfers Among Investment Options
Transfers from the Fixed Account to any other available investment
option(s) are allowed in each calendar year during the Accumulation Period.
The amount which may be transferred may vary at our discretion; however, it
will never be less than 10% of the amount held under the Fixed Account.
Transfers to the Fixed Plus Account will be permitted without regard to this
limitation.
By notifying us at our Home Office at least 30 days before Annuity
payments begin, you may elect to have amounts which have been accumulating
under the Fixed Account transferred to one or more of the Subaccounts
available during the Annuity Period to provide variable Annuity Payments.
Contract Loans
Loans may be made from Account Values held in the Fixed Account.
-----------------------------------------------------------------------------
24
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C Group Deferred Variable Annuity
prospectus dated March , 1997 (Form No. 91846-4), as well as all current
prospectuses pertaining to the variable investment options available under
the Contracts.
Please send an Account C Statement of Additional Information
(Form No. 91846(S)-4) dated March , 1997.
_____________________________________________________________________________
CONTRACT HOLDER'S SIGNATURE
_____________________________________________________________________________
DATE
Form No. 91846-4 (3/97)
-----------------------------------------------------------------------------
<PAGE>
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Statement of Additional Information dated March__, 1997
Group Variable Annuity Contracts
for Optional Retirement Programs and Retirement Programs for Higher Education
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 March___, 1997.
A free prospectus is available upon request from the local Aetna Life Insurance
and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
Page
General Information and History...............................................2
Variable Annuity Account C....................................................2
Offering and Purchase of Contracts............................................3
Performance Data..............................................................3
General..................................................................3
Average Annual Total Return Quotations...................................4
Annuity Payments..............................................................7
Sales Material and Advertising................................................8
Independent Auditors..........................................................9
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 Inc. 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, asset-based sales charge and
administrative expense charge, if any, described in the prospectus, all expenses
incurred in the operations of the Separate Account are borne by the Company.
(See "Charges and Deductions" in the prospectus.) The Company receives
reimbursement for certain administrative costs from some unaffiliated sponsors
of the Funds used as funding options under the Contract. These fees generally
range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. The assets of each of the Subaccounts of the Separate
Account will be invested exclusively in shares of the Funds described in the
Prospectus. Purchase Payments made under the Contract may be allocated to one or
more of the Subaccounts. The Company may make additions to or deletions from
available investment options as permitted by law. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions, under all Contracts, or under all Plans. The Funds
currently available under the Contract are as follows:
2
<PAGE>
<TABLE>
<S> <C>
Aetna Variable Fund Fidelity VIP Growth Portfolio
Aetna Income Shares Fidelity VIP Overseas Portfolio
Aetna Variable Encore Fund Franklin Government Securities Trust
Aetna Investment Advisers Fund, Inc. Janus Aspen Aggressive Growth Portfolio
Aetna Ascent Variable Portfolio Janus Aspen Balanced Portfolio
Aetna Crossroads Variable Portfolio Janus Aspen Flexible Income Portfolio
Aetna Legacy Variable Portfolio Janus Aspen Growth Portfolio
Aetna Variable Index Plus Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American Growth Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Small Cap Portfolio Lexington Natural Resources Trust
Calvert Responsibly Invested Balanced Portfolio Neuberger & Berman Growth Portfolio
Fidelity VIP II Contrafund Portfolio Scudder International Portfolio Class A Shares
Fidelity VIP Equity-Income Portfolio TCI Growth
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
General
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
Prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as "non-standardized returns",
calculated in an identical manner but including additional periods.
The standardized total return figures are computed according to a formula in
which a hypothetical initial Purchase Payment of $1,000 is applied to the
various Subaccounts under the Contract, and then related to the ending
redeemable values over one, five and ten year periods (or fractional periods
thereof). The standardized figures reflect the deduction of all recurring
charges during each period (as applicable) (e.g., mortality and expense risk
charges, asset-based sales charges and administrative expense charges). These
charges will be deducted on a pro rata basis in the case of fractional periods.
3
<PAGE>
The non-standardized figures use the same formula, but may be computed to
include monthly, quarterly, year-to-date and three-year periods.
If a Fund was in existence prior to the date it became available under the
Contract, standardized and non-standardized total returns may include periods
prior to such date. These figures are calculated by adjusting the actual returns
of the Fund to reflect the charges that would have been assessed under the
Contract had that Fund been available under the Contract during that period.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, your Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
The table below reflects the average annual standardized and non-standardized
total return quotation figures for the period ended September 30, 1996 for each
of the Subaccounts available under the Contract. For those Subaccounts where
results are not available for the full calendar period indicated, the percentage
shown is an average annual return since inception (denoted with an *).
FOR MASTER CONTRACTS ISSUED OR ENDORSED ON OR AFTER OCTOBER 1, 1996
(ASSUMES A MORTALITY AND EXPENSE RISK CHARGE OF 1.00%)
<TABLE>
<CAPTION>
FUND
STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
======================================= ================================== ============================================ ===========
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
18.82% 12.11% 12.81% 18.82% 14.34% 12.11% 12.81%
Aetna Variable Fund 04/30/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
4.18% 6.47% 7.84% 4.18% 3.99% 6.47% 7.84%
Aetna Income Shares 06/01/78
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
4.42% 3.46% 5.04% 4.42% 3.91% 3.46% 5.04%
Aetna Variable Encore Fund 09/01/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
14.52% 10.55% 9.99%* 14.52% 11.72% 10.55% 9.99%*
Aetna Investment Advisers Fund, Inc. 06/23/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.17% 19.66%* n/a 18.17% 19.66%* n/a n/a
Aetna Ascent Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
14.75% 16.23%* n/a 14.75% 16.23%* n/a n/a
Aetna Crossroads Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
11.53% 12.87%* n/a 11.53% 12.87%* n/a n/a
Aetna Legacy Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.16% 16.55% 17.60%* 3.16% 15.87% 16.55% 17.60%*
Alger American Growth Portfolio 01/08/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-1.52% 14.34% 20.15%* -1.52% 13.72% 14.34% 20.15%*
Alger American Small Cap Portfolio 09/21/88
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Calvert Responsibly Invested Balanced 11.55% 9.97% 10.76% 11.55% 10.08% 9.97% 10.76%
Portfolio 09/30/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
10.77% 27.81%* n/a 10.77% 27.81%* n/a n/a
Fidelity VIP II Contrafund Portfolio 01/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
12.61% 16.43% 11.99%* 12.61% 15.13% 16.43% 11.99%*
Fidelity VIP Equity-Income Portfolio 10/22/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
6.62% 15.75% 13.98%* 6.62% 13.97% 15.75% 13.98%*
Fidelity VIP Growth Portfolio 11/07/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
4
<PAGE>
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
9.27% 7.17% 6.56%* 9.27% 7.39% 7.17% 6.56%*
Fidelity VIP Overseas Portfolio 02/13/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.47% 5.73% 7.32%* 3.47% 3.75% 5.73% 7.32%*
Franklin Government Securities Trust 05/30/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
15.94% 23.14%* n/a 15.94% 20.47% 23.14%* n/a
Janus Aspen Aggressive Growth 09/13/93
Portfolio
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.55% 13.51%* n/a 18.55% 12.14% 13.51%* n/a
Janus Aspen Balanced Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
9.10% 7.72%* n/a 9.10% 7.79% 7.72%* n/a
Janus Aspen Flexible Income Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
20.04% 15.52%* n/a 20.04% 15.04% 15.52%* n/a
Janus Aspen Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.35% 3.03%* n/a 3.35% 3.13% 3.03%* n/a
Janus Aspen Short-Term Bond Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
27.90% 21.95%* n/a 27.90% 21.11% 21.95%* n/a
Janus Aspen Worldwide Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
16.16% 18.17%* n/a 16.16% 5.33% 18.17%* n/a
Lexington Natural Resources Trust 10/14/91
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-0.46% 9.93% 10.70% -0.46% 7.92% 9.93% 10.70%
Neuberger & Berman Growth Portfolio 12/31/85
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Scudder International Portfolio Class 8.15% 8.92% 8.49%* 8.15% 8.05% 8.92% 8.49%*
A Shares 04/30/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-0.04% 10.08% 11.65%* -0.04% 9.91% 10.08% 11.65%*
TCI Growth 11/20/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
(ASSUMES A MORTALITY AND EXPENSE RISK CHARGE OF 0.75%)
FUND
STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
--------------------------------------- ---------------------------------- -------------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
19.12% 12.39% 13.09% 19.12% 14.62% 12.39% 13.09%
Aetna Variable Fund 04/30/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
4.44% 6.73% 8.11% 4.44% 4.25% 6.73% 8.11%
Aetna Income Shares 06/01/78
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
4.68% 3.72% 5.30% 4.68% 4.17% 3.72% 5.30%
Aetna Variable Encore Fund 09/01/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
14.80% 10.83% 10.26%* 14.80% 12.00% 10.83% 10.26%*
Aetna Investment Advisers Fund, Inc. 06/23/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.47% 19.96%* n/a 18.47% 19.96%* n/a n/a
Aetna Ascent Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
15.04% 16.52%* n/a 15.04% 16.52%* n/a n/a
Aetna Crossroads Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
11.81% 13.15%* n/a 11.81% 13.15%* n/a n/a
Aetna Legacy Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.42% 16.84% 17.89%* 3.42% 16.16% 16.84% 17.89%*
Alger American Growth Portfolio 01/08/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-1.28% 14.62% 20.45%* -1.28% 14.00% 14.62% 20.45%*
Alger American Small Cap Portfolio 09/21/88
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Calvert Responsibly Invested Balanced 11.82% 10.24% 11.04% 11.82% 10.36% 10.24% 11.04%
Portfolio 09/30/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
11.05% 28.13%* n/a 11.05% 28.13%* n/a n/a
Fidelity VIP II Contrafund Portfolio 01/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
12.90% 16.73% 12.27%* 12.90% 15.41% 16.73% 12.27%*
Fidelity VIP Equity-Income Portfolio 10/22/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
6.89% 16.04% 14.26%* 6.89% 14.26% 16.04% 14.26%*
Fidelity VIP Growth Portfolio 11/07/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
9.55% 7.43% 6.82%* 9.55% 7.66% 7.43% 6.82%*
Fidelity VIP Overseas Portfolio 02/13/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
5
<PAGE>
- --------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.72% 6.00% 7.59%* 3.72% 4.01% 6.00% 7.59%*
Franklin Government Securities Trust 05/30/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
16.23% 23.45%* n/a 16.23% 20.77% 23.45%* n/a
Janus Aspen Aggressive Growth 9/13/93
Portfolio
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.85% 13.80%* n/a 18.85% 12.42% 13.80%* n/a
Janus Aspen Balanced Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
9.37% 7.98%* n/a 9.37% 8.06% 7.98%* n/a
Janus Aspen Flexible Income Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
20.34% 15.81%* n/a 20.34% 15.33% 15.81%* n/a
Janus Aspen Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.61% 3.29%* n/a 3.61% 3.39% 3.29%* n/a
Janus Aspen Short-Term Bond Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
28.22% 22.25%* n/a 28.22% 21.41% 22.25%* n/a
Janus Aspen Worldwide Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
16.45% 18.47%* n/a 16.45% 5.59% 18.47%* n/a
Lexington Natural Resources Trust 10/14/91
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-0.21% 10.20% 10.98% -0.21% 8.19% 10.20% 10.98%
Neuberger & Berman Growth Portfolio 12/31/85
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Scudder International Portfolio Class 8.42% 9.20% 8.76%* 8.42% 8.32% 9.20% 8.76%*
A Shares 04/30/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
0.21% 10.36% 11.93%* 0.21% 10.18 10.36% 11.93%*
TCI Growth 11/20/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
FOR MASTER CONTRACTS ISSUED PRIOR TO OCTOBER 1, 1996
(ASSUMES A MORTALITY AND EXPENSE RISK CHARGE OF 1.25%
AND AN ASSET BASED SALES CHARGE OF 0.15%)
FUND
STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
--------------------------------------- ---------------------------------- -------------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.33% 11.55% 12.30% 18.33% 13.87% 11.55% 12.30%
Aetna Variable Fund 04/30/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.75% 6.02% 7.39% 3.75% 3.56% 6.02% 7.39%
Aetna Income Shares 06/01/78
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.99% 3.03% 4.61% 3.99% 3.49% 3.03% 4.61%
Aetna Variable Encore Fund 09/01/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
14.05% 10.07% 9.51%* 14.05% 11.26% 10.07% 9.51%*
Aetna Investment Advisers Fund, Inc. 06/23/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
17.69% 19.17%* n/a 17.69% 19.17%* n/a n/a
Aetna Ascent Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
14.28% 15.76%* n/a 14.28% 15.76%* n/a n/a
Aetna Crossroads Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
11.07% 12.49%* n/a 11.07% 12.49%* n/a n/a
Aetna Legacy Variable Portfolio 07/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
2.74% 16.08% 17.12%* 2.74% 15.41% 16.08% 17.12%*
Alger American Growth Portfolio 01/08/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-1.93% 14.27% 19.92%* -1.93% 13.91% 14.27% 19.92%*
Alger American Small Cap Portfolio 09/21/88
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Calvert Responsibly Invested Balanced 11.09% 9.49% 10.29% 11.09% 9.63% 9.49% 10.29%
Portfolio 09/30/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
10.32% 27.36%* n/a 10.32% 27.36%* n/a n/a
Fidelity VIP II Contrafund Portfolio 01/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
12.15% 15.96% n/a 12.15% 14.65% 15.96%* n/a
Fidelity VIP Equity-Income Portfolio 10/22/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
6.19% 15.28% n/a 6.19% 13.51% 15.28%* n/a
Fidelity VIP Growth Portfolio 11/07/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
8.83% 6.73% 6.12%* 8.83% 6.95% 6.73% 6.12%*
Fidelity VIP Overseas Portfolio 02/13/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
3.04% 5.33% 6.91%* 3.04% 3.33% 5.33% 6.91%*
Franklin Government Securities Trust 05/30/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
6
<PAGE>
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
15.46% 22.64%* n/a 15.46% 19.98% 22.64%* n/a
Janus Aspen Aggressive Growth 9/13/93
Portfolio
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
18.07% 13.05%* n/a 18.07% 11.68% 13.05%* n/a
Janus Aspen Balanced Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
8.65% 7.27%* n/a 8.65% 7.35% 7.27%* n/a
Janus Aspen Flexible Income Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
19.55% 15.05%* n/a 19.55% 14.57% 15.05%* n/a
Janus Aspen Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
2.93% 2.61%* n/a 2.93% 2.71% 2.61%* n/a
Janus Aspen Short-Term Bond Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
27.38% 21.52%* n/a 27.38% 20.68% 21.52%* n/a
Janus Aspen Worldwide Growth Portfolio 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
15.68% 6.83%* n/a 15.68% 4.90% 6.83%* n/a
Lexington Natural Resources Trust 10/14/91
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-0.86% 9.08% 9.87% -0.86% 7.48% 9.08% 9.87%
Neuberger & Berman Growth Portfolio 12/31/85
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Scudder International Portfolio Class 7.70% 8.24% 7.92%* 7.70% 7.61% 8.24% 7.92%*
A Shares 04/30/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
-0.45% 9.62% 11.19%* -0.45% 9.46% 9.62% 11.19%*
TCI Growth 11/20/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
ANNUITY PAYMENTS
When Annuity payments are to begin, the value of the Account is determined using
Accumulation Unit values as of the tenth Valuation Date before the first Annuity
payment is due. Such value (less any applicable premium tax) is applied to
provide an Annuity in accordance with the Annuity and investment options
elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Annuity payment for each $1,000 of value applied.
Thereafter, variable Annuity payments fluctuate as the Annuity Unit value(s)
fluctuates with the investment experience of the selected investment option(s).
The first payment and subsequent payments also vary depending on the assumed net
investment rate selected (3.5% or 5% per annum). Selection of a 5% rate causes a
higher first payment, but Annuity payments will increase thereafter only to the
extent that the net investment rate increases by more than 5% on an annual
basis. Annuity payments would decline if the rate failed to increase by 5%. Use
of the 3.5% assumed rate causes a lower first payment, but subsequent payments
would increase more rapidly or decline more slowly as changes occur in the net
investment rate.
When the Annuity Period begins, the Annuitant is credited with a fixed number of
Annuity Units (which does not change thereafter) in each of the designated
investment options. This number is calculated by dividing (a) by (b), where (a)
is the amount of the first Annuity payment based on a particular investment
option, and (b) is the then current Annuity Unit value for that investment
option. As noted, Annuity Unit values fluctuate from one Valuation Date to the
next; such fluctuations reflect changes in the net investment factor for the
appropriate Subaccount(s) (with a ten Valuation Date lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
7
<PAGE>
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Contract or Account and that the
value of an Accumulation Unit for the tenth Valuation Date prior to retirement
was $13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date 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 Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date in which the second payment is due.
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's
8
<PAGE>
Variable Annuity/Life Performance Report and Lipper's Variable Insurance
Products Performance Analysis Service (VIPPAS), which rank variable annuity or
life Subaccounts or their underlying funds by performance and/or investment
objective. From time to time, we will quote articles from newspapers and
magazines or other publications or reports, including, but not limited to The
Wall Street Journal, Money magazine, USA Today and The VARDS Report.
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Contract Holders or Participants. These topics may include the
relationship between sectors of the economy and the economy as a whole and its
effect on various securities markets, investment strategies and techniques (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparison
between the Contracts and the characteristics of and market for such financial
instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
9
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
Independent Auditors' Report ............................................. S-2
Statement of Assets and Liabilities as of December 3l, 1995 .............. S-3
Statement of Operations for the year ended December 3l, 1995 ............. S-9
Statement of Changes in Net Assets for the years ended December 3l, 1995
and 1994 ............................................................. S-11
Notes to Financial Statements as of December 3l, 1995 .................... S-12
Condensed Financial Information as of December 3l, 1995 .................. S-14
Statement of Assets and Liabilities as of September 30, 1996
(unaudited) .......................................................... S-20
Statement of Operations for the nine-month period ended September 30,
1996 (unaudited) ..................................................... S-27
Statement of Changes in Net Assets for the nine-month ended September
30, 1996 and the year ended December 31, 1995 (unaudited) ............ S-28
Notes to Financial Statements (unaudited) ................................ S-29
Condensed Financial Information as of September 30, 1996 (unaudited) ..... S-31
S-1
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and
Contracts 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:
Investments, at net asset value: (Note 1)
<S> <C>
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
S-3
<PAGE>
Statement of Assets and Liabilities (continued)
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>
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)......................................... 144,049,740
S-4
<PAGE>
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)........................................... 9,712,863
Aetna GET Fund, Series B:
Qualified III...................................... 63,245.0 12.850 812,688
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
S-5
<PAGE>
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
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
S-6
<PAGE>
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
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
S-7
<PAGE>
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 Portfolio.
See Notes to Financial Statements.
S-8
<PAGE>
Variable Annuity Account C
<TABLE>
<CAPTION>
Statement of Operations Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
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 670,720
Portfolio.................................................
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
----------------
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C> <C>
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-10
<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-11
<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:
<TABLE>
<S> <C>
Aetna Variable Fund Franklin Government Securities Trust
Aetna Income Shares Janus Aspen Series:
Aetna Variable Encore Fund [bullet] Aggressive Growth Portfolio
Aetna Investment Advisers Fund, Inc. [bullet] Balanced Portfolio
Aetna GET Fund, Series B [bullet] Flexible Income Portfolio
Aetna Ascent Variable Portfolio [bullet] Growth Portfolio
Aetna Crossroads Variable Portfolio [bullet] Short-Term Bond Portfolio
Aetna Legacy Variable Portfolio [bullet] Worldwide Growth Portfolio
Alger American Fund: Lexington Emerging Markets Fund
[bullet] Alger American Growth Portfolio Lexington Natural Resources Trust
[bullet] Alger American Small Capitalization Neuberger & Berman Advisers Management
Portfolio Trust:
Calvert Responsibly Invested Balanced Portfolio [bullet] Growth Portfolio
Fidelity Investments Variable Insurance Scudder Variable Life Investment Fund:
Products Fund: [bullet] International Portfolio
[bullet] Equity-Income Portfolio TCI Portfolios, Inc . - TCI Growth
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance
Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
[bullet] Index 500 Portfolio
</TABLE>
b. Other
Investment transactions are accounted for on a trade date basis and dividend
income is recorded on the ex-dividend date. The cost of investments sold is
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.
S-12
<PAGE>
Notes to Financial Statements - December 31, 1995 (continued)
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.
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-13
<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-14
<PAGE>
Variable Annuity Account C
Condensed Financial Information (Continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------
<S> <C> <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%
- -------------------------------------------------------------------------------------------------
</TABLE>
S-15
<PAGE>
Variable Annuity Account C
Condensed Financial Information (Continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
- -------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------
</TABLE>
S-16
<PAGE>
Variable Annuity Account C
Condensed Financial Information (Continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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%
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%)
- -------------------------------------------------------------------------------------------------
</TABLE>
S-17
<PAGE>
Variable Annuity Account C
Condensed Financial Information (Continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Year Unit
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- -------------------------------------------------------------------------------------------------
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 Portfolio.
S-18
<PAGE>
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 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-19
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 138,437,343 shares at $32.93 per share (cost $3,954,687,798)........................ $4,558,383,461
Aetna Income Shares; 28,558,936 shares at $12.82 per share (cost $369,287,328)........................... 366,012,878
Aetna Variable Encore Fund; 18,039,913 shares at $13.02 per share (cost $236,896,325) ................... 234,823,027
Aetna Investment Advisers Fund, Inc.; 54,450,738 shares at $14.67 per share
(cost $702,696,785).................................................................................... 799,000,771
Aetna GET Fund, Series B; 5,653,546 shares at $13.14 per share (cost $58,283,775)........................ 74,289,667
Aetna GET Fund, Series C; 2,378,841 shares at $10.02 per share (cost $23,813,430)........................ 23,832,017
Aetna Ascent Variable Portfolio; 1,136,204 shares at $12.13 per share (cost $12,644,042)................. 13,785,623
Aetna Crossroads Variable Portfolio; 935,946 shares at $11.74 per share (cost $10,326,579)............... 10,990,935
Aetna Legacy Variable Portfolio; 592,518 shares at $11.26 per share (cost $6,460,787).................... 6,673,297
Alger American Funds:
Alger American Growth Portfolio; 2,862,518 shares at $33.15 per share (cost $91,422,437) ............. 94,891,366
Alger American Small Capitalization Portfolio; 8,081,043 shares at $42.45 per share (cost $286,989,408) 343,038,462
Calvert Responsibly Invested Balanced Portfolio; 19,804,295 shares at $1.85 per share
(cost $31,894,524) ................................................................................... 36,657,746
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio; 4,806,246 shares at $19.72 per share (cost $90,101,888) ...................... 94,778,792
Growth Portfolio; 2,380,058 shares at $30.51 per share (cost $68,758,249).............................. 72,614,625
Overseas Portfolio; 429,387 shares at $17.99 per share (cost $7,358,710)............................... 7,724,350
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio; 991,918 shares at $15.96 per share (cost $14,215,113)......................... 15,830,757
Contrafund Portfolio; 5,995,948 shares at $15.25 per share (cost $84,519,773).......................... 91,437,974
Index 500 Portfolio; 177,647 shares at $82.31 per share (cost $13,616,758)............................. 14,615,388
Franklin Government Securities Trust; 1,832,080 shares at $12.78 per share
(cost $23,641,048).................................................................................... 23,413,816
Janus Aspen Series:
Aggressive Growth Portfolio; 8,908,100 shares at $18.76 per share (cost $144,269,789).................. 167,115,605
Balanced Portfolio; 596,313 shares at $14.44 per share (cost $8,085,502)............................... 8,610,556
Flexible Income Portfolio; 605,159 shares at $11.10 per share (cost $6,605,573)........................ 6,717,141
Growth Portfolio; 1,642,207 shares at $15.23 per share (cost $23,314,820).............................. 25,010,585
Short-Term Bond Portfolio; 138,466 shares at $9.96 per share (cost $1,382,253)......................... 1,379,025
Worldwide Growth Portfolio; 6,390,734 shares at $18.57 per share (cost $108,225,232)................... 118,675,588
Lexington Emerging Markets Fund, Inc.; 472,157 shares at $10.30 per share (cost $4,637,082).............. 4,863,113
Lexington Natural Resources Trust; 1,537,974 shares at $12.80 per share (cost $17,174,548)............... 19,685,904
Neuberger & Berman Advisers Management Trust - Growth Portfolio; 4,015,474 shares
at $24.66 per share (cost $92,752,432)................................................................ 99,020,972
Scudder Variable Life Investment Fund - International Portfolio; 15,129,238 shares
at $12.61 per share (cost $168,389,187)................................................................ 190,779,527
TCI Portfolios, Inc. - TCI Growth; 36,669,887 shares at $11.24 per share (cost $361,701,001).............. 412,169,400
--------------
NET ASSETS................................................................................................. $7,936,822,368
==============
</TABLE>
S-20
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Net assets represented by:
Accumulation
Unit
Units Value
--------- --------------
Reserves for annuity contracts in accumulation and payment period:
Aetna Variable Fund:
Qualified I .......................394,818.4 $205.155 $80,998,769
Qualified III ...................3,190,829.1 156.301 498,729,452
Qualified V .......................155,270.8 15.980 2,481,291
Qualified VI ..................183,809,561.0 15.959 2,933,506,667
Qualified VII ..................10,322,362.8 15.025 155,092,366
Qualified VIII .....................26,888.9 14.821 398,531
Qualified IX .......................22,658.8 14.692 332,907
Qualified X (1.15).................358,579.8 16.006 5,739,549
Qualified X (1.25)..............29,191,178.3 15.959 465,876,289
Qualified XI.....................4,835,072.8 15.994 77,330,961
Qualified XII (0.95).............2,847,065.0 10.571 30,097,184
Qualified XIII...................7,242,424.9 15.976 115,707,667
Reserves for annuity contracts in payment period (Note 1) 192,091,828
Aetna Income Shares:
Qualified I .......................50,596.6 47.412 2,398,896
Qualified III ..................1,171,277.3 46.899 54,931,830
Qualified V .......................25,391.8 12.265 311,432
Qualified VI ..................19,937,551.6 12.095 241,143,112
Qualified VII ....................188,261.5 11.178 2,104,368
Qualified VIII .....................1,637.2 11.139 18,237
Qualified IX .......................2,380.3 11.221 26,709
Qualified X (1.15).................58,270.8 12.130 706,849
Qualified X (1.25)..............3,816,066.0 12.095 46,155,017
Qualified XI......................369,422.0 12.121 4,477,730
Qualified XII (0.95)..............177,817.5 10.257 1,823,788
Qualified XIII....................523,145.5 12.108 6,334,092
Reserves for annuity contracts in payment period (Note 1) 5,580,818
Aetna Variable Encore Fund:
Qualified I ......................101,852.0 39.651 4,038,539
Qualified III ....................829,284.9 39.121 32,442,693
Qualified V .......................28,894.2 11.318 327,026
Qualified VI ..................13,046,809.1 11.355 148,147,978
Qualified VII ....................331,505.6 11.267 3,735,107
Qualified VIII .....................1,186.3 10.936 12,973
Qualified IX .......................3,320.5 11.202 37,197
Qualified X (1.15)................177,955.5 11.389 2,026,720
Qualified X (1.25)..............3,274,276.6 11.355 37,179,777
Qualified XI......................223,582.2 11.380 2,544,255
Qualified XII (0.95)...............38,214.1 10.164 388,405
Qualified XIII....................346,821.3 11.367 3,942,357
Aetna Investment Advisers Fund, Inc.:
Qualified I ......................284,069.3 19.710 5,598,918
Qualified III ..................3,250,992.3 19.624 63,797,506
Qualified V .......................21,375.0 14.948 319,522
Qualified VI ..................36,749,526.4 14.945 549,228,509
Qualified VII ....................351,085.3 14.363 5,042,775
Qualified VIII .....................2,069.0 13.876 28,709
Qualified IX .......................3,064.4 13.812 42,327
Qualified X (1.15)................171,933.1 14.989 2,577,094
S-21
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Aetna Investment Advisers Fund, Inc. (continued):
Qualified X (1.25)..............7,815,582.4 $14.945 $116,805,332
Qualified XI......................790,684.8 14.977 11,842,309
Qualified XII (0.95)..............694,494.0 10.469 7,270,748
Qualified XIII..................1,548,633.4 14.961 23,169,093
Reserves for annuity contracts in payment period (Note 1) 13,277,929
Aetna GET Fund, Series B:
Qualified III .....................62,652.8 14.402 902,323
Qualified VI ...................4,160,641.5 14.402 59,921,375
Qualified X (1.25)................342,079.2 14.402 4,926,609
Qualified XI......................466,442.1 14.433 6,732,099
Qualified XIII....................125,354.6 14.417 1,807,261
Aetna GET Fund, Series C:
Qualified III .....................45,805.3 10.014 458,675
Qualified VI ...................1,986,342.0 10.014 19,890,406
Qualified XI......................267,942.6 10.015 2,683,374
Qualified XIII.....................79,838.5 10.015 799,562
Aetna Ascent Variable Portfolio:
Qualified I ..........................347.4 10.859 3,772
Qualified V ........................1,018.6 12.091 12,316
Qualified VI .....................920,582.0 12.113 11,151,272
Qualified VIII ........................36.4 12.112 441
Qualified X (1.15).................24,705.8 12.473 308,155
Qualified X (1.25)................148,499.6 12.457 1,849,912
Qualified XI........................7,627.9 12.139 92,597
Qualified XII (0.95)................5,733.2 10.661 61,120
Qualified XIII.....................25,238.0 12.126 306,038
Aetna Crossroads Variable Portfolio:
Qualified V ..........................899.8 11.718 10,545
Qualified VI .....................723,134.9 11.740 8,489,814
Qualified VIII .......................159.1 11.739 1,867
Qualified X (1.15).................12,384.8 12.033 149,023
Qualified X (1.25)................140,097.7 12.018 1,683,649
Qualified XI.......................28,553.0 11.766 335,940
Qualified XII (0.95)................1,645.9 10.502 17,286
Qualified XIII.....................25,765.3 11.753 302,811
Aetna Legacy Variable Portfolio:
Qualified V ............................3.4 11.375 39
Qualified VI .....................384,229.9 11.397 4,378,528
Qualified X (1.15).................17,035.0 11.460 195,207
Qualified X (1.25)................155,707.3 11.446 1,782,107
Qualified XI.......................13,733.1 11.421 156,832
Qualified XII (0.95)....................3.5 10.409 36
Qualified XIII.....................14,073.8 11.409 160,548
Alger American Funds:
Alger American Growth Portfolio:
Qualified III ....................929,072.6 12.702 11,801,029
Qualified V........................36,388.7 11.225 408,460
Qualified VI....................6,321,861.5 11.013 69,624,412
Qualified VIII........................712.4 11.245 8,011
Qualified X (1.15).................53,634.1 12.353 662,560
Qualified X (1.25)................679,714.2 12.337 8,385,858
S-22
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Alger American Growth Portfolio (continued):
Qualified XI......................127,004.2 $11.037 $1,401,738
Qualified XII (0.95)...............81,406.9 10.158 826,949
Qualified XIII....................160,758.2 11.025 1,772,349
Alger American Small Capitalization Portfolio:
Qualified III ..................2,286,967.5 14.519 33,205,181
Qualified V........................66,032.5 14.400 950,876
Qualified VI...................18,381,600.0 14.404 264,762,060
Qualified VIII......................6,394.5 15.091 96,500
Qualified X (1.15).................87,745.9 14.448 1,267,710
Qualified X (1.25)..............1,582,724.3 14.404 22,797,000
Qualified XI......................552,921.2 14.435 7,981,192
Qualified XII (0.95)..............231,362.9 9.556 2,210,805
Qualified XIII....................677,383.5 14.419 9,767,138
Calvert Responsibly Invested Balanced Portfolio:
Qualified III ....................880,085.1 19.328 17,010,575
Qualified V........................17,741.6 14.916 264,626
Qualified VI....................1,226,588.5 14.565 17,864,719
Qualified VIII......................4,491.7 13.233 59,436
Qualified XI.......................53,046.4 14.596 774,257
Qualified XII (0.95)...............19,096.0 10.568 201,809
Qualified XIII.....................33,081.3 14.580 482,324
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio:
Qualified III ..................1,400,341.2 12.332 17,269,141
Qualified V.........................8,820.4 11.713 103,316
Qualified VI....................4,621,703.1 11.775 54,420,449
Qualified VIII......................1,013.8 11.734 11,897
Qualified X (1.15)................212,626.3 14.769 3,140,362
Qualified X (1.25)..............1,199,892.5 14.735 17,680,216
Qualified XI.......................85,875.9 11.800 1,013,358
Qualified XII (0.95)...............24,072.5 10.169 244,798
Qualified XIII.....................75,950.0 11.787 895,255
Growth Portfolio:
Qualified I ..........................448.8 10.584 4,750
Qualified V........................11,002.9 11.323 124,590
Qualified VI....................4,734,076.5 11.206 53,052,291
Qualified VIII........................839.3 11.343 9,521
Qualified X (1.15).................80,524.8 15.623 1,258,054
Qualified X (1.25)................983,027.8 15.586 15,321,778
Qualified XI.......................96,945.0 11.231 1,088,744
Qualified XII (0.95)...............37,991.9 10.176 386,620
Qualified XIII....................121,967.9 11.218 1,368,277
Overseas Portfolio:
Qualified V...........................532.7 10.648 5,672
Qualified VI......................457,395.6 10.668 4,879,279
Qualified X (1.15).................26,918.0 11.016 296,527
Qualified X (1.25)................191,500.6 10.990 2,104,572
Qualified XI.......................12,413.4 10.690 132,705
Qualified XII (0.95)................4,129.3 10.207 42,147
Qualified XIII.....................24,670.2 10.679 263,448
S-23
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Qualified III...................1,355,544.0 $11.679 $15,830,757
Contrafund Portfolio:
Qualified III...................1,202,695.3 13.018 15,656,362
Qualified V........................28,421.2 11.563 328,623
Qualified VI....................5,800,933.6 11.506 66,743,570
Qualified VIII........................891.9 11.583 10,331
Qualified X (1.15).................12,918.7 12.945 167,232
Qualified X (1.25)................425,653.6 12.927 5,502,505
Qualified XI.......................72,313.2 11.530 833,797
Qualified XII (0.95)...............63,700.1 10.378 661,084
Qualified XIII....................133,225.6 11.518 1,534,470
Index 500 Portfolio:
Qualified III...................1,107,923.1 13.192 14,615,388
Franklin Government Securities Trust:
Qualified III.....................813,764.8 16.514 13,438,735
Qualified V........................20,178.9 11.946 241,054
Qualified VI......................771,455.4 11.776 9,084,558
Qualified VIII......................6,322.7 11.102 70,194
Qualified XI.......................40,882.0 11.801 482,455
Qualified XII (0.95)................2,449.5 10.246 25,096
Qualified XIII......................6,084.4 11.788 71,724
Janus Aspen Series:
Aggressive Growth Portfolio:
Qualified III...................1,803,472.3 16.853 30,393,781
Qualified V........................40,769.3 14.606 595,484
Qualified VI....................8,385,374.7 14.653 122,866,913
Qualified VIII......................2,254.9 14.650 33,035
Qualified X (1.15).................29,848.0 14.165 422,797
Qualified X (1.25)................430,563.8 14.145 6,090,307
Qualified XI......................222,505.2 14.684 3,267,270
Qualified XII (0.95)..............103,183.0 9.805 1,011,666
Qualified XIII....................165,962.8 14.668 2,434,352
Balanced Portfolio:
Qualified III.........................150.4 12.090 1,819
Qualified V.........................2,871.9 12.064 34,646
Qualified VI......................551,775.8 12.087 6,669,074
Qualified X (1.15).................15,876.2 12.558 199,369
Qualified X (1.25)................105,964.0 12.541 1,328,927
Qualified XI.......................14,205.0 12.113 172,058
Qualified XII (0.95)................3,436.5 10.773 37,021
Qualified XIII.....................13,855.5 12.099 167,642
Flexible Income Portfolio:
Qualified III.......................3,833.2 12.562 48,151
Qualified V.........................3,635.9 12.473 45,351
Qualified VI......................512,042.4 12.512 6,406,900
Qualified VIII.........................37.2 12.511 466
Qualified XI........................8,064.2 12.539 101,119
Qualified XII (0.95)..................795.6 10.467 8,328
Qualified XIII......................8,528.6 12.526 106,826
S-24
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Growth Portfolio:
Qualified III.....................435,897.8 $13.577 $5,918,287
Qualified V.........................5,180.6 12.433 64,410
Qualified VI....................1,249,192.5 12.446 15,546,874
Qualified VIII.........................56.8 12.455 707
Qualified X (1.15)..................4,514.4 13.328 60,169
Qualified X (1.25)................195,303.1 13.310 2,599,570
Qualified XI.......................27,434.5 12.472 342,170
Qualified XII (0.95)................3,989.4 10.651 42,492
Qualified XIII.....................34,988.1 12.459 435,906
Short-Term Bond Portfolio:
Qualified III......................44,597.1 10.484 467,574
Qualified V...........................709.2 10.395 7,372
Qualified VI.......................77,208.6 10.414 804,047
Qualified X (1.25)..................8,570.7 10.376 88,928
Qualified XI..........................937.3 10.436 9,782
Qualified XII (0.95)...................67.8 10.176 690
Qualified XIII.........................60.6 10.425 632
Worldwide Growth Portfolio:
Qualified III...................1,521,161.5 14.770 22,467,110
Qualified V........................37,847.3 13.289 502,940
Qualified VI....................6,382,558.4 13.213 84,331,244
Qualified VIII........................362.3 13.175 4,773
Qualified X (1.15).................27,223.6 14.860 404,542
Qualified X (1.25)................389,079.4 14.840 5,773,863
Qualified XI......................157,580.8 13.241 2,086,547
Qualified XII (0.95)...............56,826.6 10.831 615,483
Qualified XIII....................188,186.0 13.227 2,489,086
Lexington Emerging Markets Fund, Inc.:
Qualified III.....................537,161.6 9.053 4,863,113
Lexington Natural Resources Trust:
Qualified III.....................560,198.9 12.194 6,830,866
Qualified V.........................9,075.9 13.561 123,080
Qualified VI......................902,135.3 13.157 11,871,990
Qualified XI.......................36,004.6 13.185 474,713
Qualified XII (0.95)................3,214.6 10.190 32,756
Qualified XIII.....................26,764.4 13.170 352,499
Neuberger & Berman Advisers
Management Trust - Growth Portfolio:
Qualified III...................2,322,209.0 18.026 41,861,244
Qualified V........................44,418.0 14.832 658,806
Qualified VI....................3,473,125.4 14.835 51,525,482
Qualified VIII......................7,236.8 12.755 92,307
Qualified XI......................220,643.1 14.867 3,280,383
Qualified XII (0.95)...............37,509.1 9.560 358,577
Qualified XIII.....................83,775.9 14.851 1,244,173
Scudder Variable Life Investment Fund -
International Portfolio:
Qualified III...................3,834,766.4 15.707 60,234,090
Qualified V........................45,683.9 14.915 681,365
Qualified VI....................7,293,781.2 15.066 109,889,625
Qualified VIII.....................15,344.4 12.695 194,803
S-25
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - September 30, 1996
(unaudited and continued)
Scudder Variable Life Investment Fund -
International Portfolio (continued):
Qualified X (1.15).................44,658.8 $15.109 $674,768
Qualified X (1.25)................525,556.8 15.066 7,918,149
Qualified XI......................340,583.6 15.099 5,142,324
Qualified XII (0.95)..............181,181.5 10.181 1,844,596
Qualified XIII....................278,462.3 15.082 4,199,807
TCI Portfolios, Inc. - TCI Growth:
Qualified III*..................1,667,312.4 15.031 25,060,799
Qualified III.....................935,210.8 13.742 12,851,275
Qualified V........................35,058.1 15.752 552,218
Qualified VI...................19,667,975.9 15.850 311,746,623
Qualified VII......................65,139.7 13.349 869,561
Qualified VIII.....................10,105.9 13.371 135,126
Qualified IX........................1,441.6 13.099 18,883
Qualified X (1.15)..................5,884.2 15.896 93,536
Qualified X (1.25)..............2,362,640.3 15.850 37,448,954
Qualified XI......................631,008.9 15.885 10,023,279
Qualified XII (0.95)..............472,364.9 9.990 4,718,713
Qualified XIII....................545,174.8 15.867 8,650,433
--------------
$7,936,822,368
==============
*Applies only to participants of the Opportunity Plus program and Multiple
Options Portfolio.
See Notes to Financial Statements.
S-26
<PAGE>
Variable Annuity Account C
Statement of Operations - September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
Dividends: (Notes 1 and 3)
<S> <C>
Aetna Variable Fund............................................................................. $41,121,520
Aetna Income Shares............................................................................. 8,502,057
Aetna Variable Encore Fund...................................................................... 14,058,252
Aetna Investment Advisers Fund, Inc............................................................. 62,057,627
Aetna GET Fund, Series B........................................................................ 4,850,719
Aetna Ascent Variable Portfolio................................................................. 202,085
Aetna Crossroads Variable Portfolio............................................................. 196,169
Aetna Legacy Variable Portfolio................................................................. 156,472
Alger American Funds:
Alger American Growth Portfolio............................................................... 2,138,198
Alger American Small Capitalization Portfolio................................................. 1,173,212
Fidelity Investments Variable Insurance Products Funds:
Equity-Income Portfolio....................................................................... 2,269,871
Growth Portfolio.............................................................................. 2,304,888
Overseas Portfolio............................................................................ 115,737
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio....................................................................... 955,910
Contrafund Portfolio.......................................................................... 357,388
Index 500 Portfolio........................................................................... 219,199
Franklin Government Securities Trust............................................................ 1,223,061
Janus Aspen Series:
Aggressive Growth Portfolio................................................................... 1,589,459
Balanced Portfolio............................................................................ 88,916
Flexible Income Portfolio..................................................................... 246,035
Growth Portfolio.............................................................................. 372,146
Short-Term Bond Portfolio..................................................................... 28,071
Worldwide Growth Portfolio.................................................................... 850,988
Lexington Natural Resources Trust............................................................... 7,884
Neuberger & Berman Advisers Management Trust - Growth Portfolio................................. 8,437,018
Scudder Variable Life Investment Fund - International Portfolio................................. 4,063,525
TCI Portfolios, Inc. - TCI Growth................................................................ 47,942,547
---------------
Total investment income ...................................................................... 205,528,954
Valuation period deductions (Note 2).............................................................. (67,710,773)
---------------
Net investment income............................................................................. 137,818,181
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1 and 4)
Proceeds from sales............................................ $1,083,592,483
Cost of investments sold....................................... 816,952,968
------------------
Net realized gain............................................ 266,639,515
Net unrealized gain on investments:
Beginning of year.............................................. 594,083,184
End of period.................................................. 912,670,192
------------------
Net unrealized gain.......................................... 318,587,008
---------------
Net realized and unrealized gain on investments.................. 585,226,523
---------------
Net increase in net assets resulting from operations............. $723,044,704
==============
</TABLE>
See Notes to Financial Statements.
S-27
<PAGE>
Variable Annuity Account C
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996 Year Ended
(Unaudited) December 31, 1995
FROM OPERATIONS:
<S> <C> <C>
Net investment income........................................................... $137,818,181 $659,340,070
Net realized and unrealized gain on investments................................. 585,226,523 681,277,918
------------------- -----------------
Net increase in net assets resulting from operations.......................... 723,044,704 1,340,617,988
------------------- -----------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments..................................... 690,194,659 771,594,245
Sales and administrative charges deducted by the Company........................ (52,018) (98,694)
------------------- -----------------
Net variable annuity contract purchase payments............................... 690,142,641 771,495,551
Transfers from the Company for mortality guarantee adjustments.................. 2,502,311 3,678,430
Transfers from(to) the Company's fixed account options.......................... 144,295,730 (44,377,350)
Redemptions by contract holders................................................. (240,215,680) (287,945,984)
Annuity payments................................................................ (14,903,958) (14,807,537)
Other........................................................................... (161,039) 1,144,770
------------------- -----------------
Net increase in net assets from unit transactions............................. 581,660,005 429,187,880
------------------- -----------------
Change in net assets............................................................ 1,304,704,709 1,769,805,868
NET ASSETS:
Beginning of year............................................................... 6,632,117,659 4,862,311,791
------------------- -----------------
End of period................................................................... $7,936,822,368 $6,632,117,659
------------------- -----------------
</TABLE>
See Notes to Financial Statements.
S-28
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - September 30, 1996 (unaudited)
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 September 30, 1996:
<TABLE>
<S> <C>
Aetna Variable Fund Franklin Government Securities Trust
Aetna Income Shares Janus Aspen Series:
Aetna Variable Encore Fund [bullet] Aggressive Growth Portfolio
Aetna Investment Advisers Fund, Inc. [bullet] Balanced Portfolio
Aetna GET Fund, Series B [bullet] Flexible Income Portfolio
Aetna GET Fund, Series C [bullet] Growth Portfolio
Aetna Ascent Variable Portfolio [bullet] Short-Term Bond Portfolio
Aetna Crossroads Variable Portfolio [bullet] Worldwide Growth Portfolio
Aetna Legacy Variable Portfolio Lexington:
Alger American Fund: [bullet] Emerging Markets Fund
[bullet] Alger American Growth Portfolio [bullet] Natural Resources Trust
[bullet] Alger American Small Capitalization Portfolio Neuberger & Berman Advisers Management Trust -
Calvert Responsibly Invested Balanced Portfolio Growth Portfolio
Fidelity Investments Variable Insurance Products Fund: Scudder Variable Life Investment Fund -
[bullet] Equity-Income Portfolio International Portfolio
[bullet] Growth Portfolio TCI Portfolios, Inc . - TCI Growth
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
[bullet] Index 500 Portfolio
</TABLE>
b. Other
Investment transactions are accounted for on a trade date basis and
dividend income is recorded on the ex-dividend date. The cost of
investments sold is 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-29
<PAGE>
Notes to Financial Statements - September 30, 1996 (unaudited and 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 period ended September 30, 1996 aggregated
$1,802,994,048 and $1,083,592,483, 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-30
<PAGE>
Variable Annuity Account C
Condensed Financial Information
<TABLE>
<CAPTION>
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Increase/Decrease
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Aetna Variable Fund:
<S> <C> <C> <C> <C>
Qualified I $180.879 $205.155 13.42%
Qualified III 137.869 156.301 13.37%
Qualified V 14.113 15.980 13.23%
Qualified VI 14.077 15.959 13.37%
Qualified VII 13.247 15.025 13.42%
Qualified VIII 13.074 14.821 13.36%
Qualified IX 12.935 14.692 13.58%
Qualified X (1.15) 14.108 16.006 13.45%
Qualified X (1.25) 14.077 15.959 13.37%
Qualified XI 13.757 15.994 16.26% (1)
Qualified XII (0.95) 10.000 10.571 5.71% (3)
Qualified XIII 15.453 15.976 3.38% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Income Shares:
Qualified I $47.405 $47.412 0.02%
Qualified III 46.913 46.899 (0.03%)
Qualified V 12.283 12.265 (0.15%)
Qualified VI 12.098 12.095 (0.03%)
Qualified VII 11.176 11.178 0.02%
Qualified VIII 11.143 11.139 (0.04%)
Qualified IX 11.203 11.221 0.16%
Qualified X (1.15) 12.125 12.130 0.05%
Qualified X (1.25) 12.098 12.095 (0.03%)
Qualified XI 12.024 12.121 0.81% (1)
Qualified XII (0.95) 10.000 10.257 2.57% (3)
Qualified XIII 11.862 12.108 2.07% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund:
Qualified I $38.485 $39.651 3.03%
Qualified III 37.988 39.121 2.98%
Qualified V 11.003 11.318 2.86%
Qualified VI 11.026 11.355 2.98%
Qualified VII 10.936 11.267 3.03%
Qualified VIII 10.620 10.936 2.98%
Qualified IX 10.857 11.202 3.18%
Qualified X (1.15) 11.051 11.389 3.06%
Qualified X (1.25) 11.026 11.355 2.98%
Qualified XI 11.038 11.380 3.10% (1)
Qualified XII (0.95) 10.000 10.164 1.64% (3)
Qualified XIII 11.193 11.367 1.55% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.:
Qualified I $18.024 $19.710 9.35%
Qualified III 17.954 19.624 9.30%
Qualified V 13.693 14.948 9.17%
Qualified VI 13.673 14.945 9.30%
Qualified VII 13.135 14.363 9.35%
Qualified VIII 12.695 13.876 9.30%
Qualified IX 12.613 13.812 9.51%
Qualified X (1.15) 13.703 14.989 9.39%
S-31
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- ---------------------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc. (continued):
Qualified X (1.25) $13.673 $14.945 9.30%
Qualified XI 13.417 14.977 11.63% (1)
Qualified XII (0.95) 10.000 10.469 4.69% (3)
Qualified XIII 14.564 14.961 2.73% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B:
Qualified III $12.850 $14.402 12.08%
Qualified VI 12.850 14.402 12.08%
Qualified X (1.25) 12.850 14.402 12.08%
Qualified XI 12.570 14.433 14.82% (1)
Qualified XIII 14.062 14.417 2.52% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C:
Qualified III $10.000 $10.014 0.14% (4)
Qualified VI 10.000 10.014 0.14% (4)
Qualified XI 10.000 10.015 0.15% (4)
Qualified XIII 10.000 10.015 0.15% (4)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio:
Qualified I $10.000 $10.859 8.59% (2)
Qualified V 10.666 12.091 13.36%
Qualified VI 10.673 12.113 13.49%
Qualified VIII 10.673 12.112 13.49%
Qualified X (1.15) 10.982 12.473 13.58%
Qualified X (1.25) 10.976 12.457 13.49%
Qualified XI 10.567 12.139 14.88% (1)
Qualified XII (0.95) 10.000 10.661 6.61% (3)
Qualified XIII 11.593 12.126 4.60% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio:
Qualified V $10.605 $11.718 10.50%
Qualified VI 10.612 11.740 10.64%
Qualified VIII 10.611 11.739 10.63%
Qualified X (1.15) 10.868 12.033 10.72%
Qualified X (1.25) 10.862 12.018 10.64%
Qualified XI 10.505 11.766 12.00% (1)
Qualified XII (0.95) 10.000 10.502 5.02% (3)
Qualified XIII 11.330 11.753 3.73% (3)
- ---------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio:
Qualified V $10.573 $11.375 7.59%
Qualified VI 10.580 11.397 7.72%
Qualified X (1.15) 10.631 11.460 7.80%
Qualified X (1.25) 10.626 11.446 7.72%
Qualified XI 10.476 11.421 9.02% (1)
Qualified XII (0.95) 10.000 10.409 4.09% (3)
Qualified XIII 11.057 11.409 3.18% (3)
- ---------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Alger American Growth Portfolio:
Qualified III $11.715 $12.702 8.43%
Qualified V 10.365 11.225 8.30%
Qualified VI 10.157 11.013 8.43%
S-32
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- ---------------------------------------------------------------------------------------------------------------------
Increase/Decrease
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio (continued):
Qualified VIII $10.371 $11.245 8.42%
Qualified X (1.15) 11.385 12.353 8.51%
Qualified X (1.25) 11.379 12.337 8.43%
Qualified XI 9.661 11.037 14.24% (1)
Qualified XII (0.95) 10.000 10.158 1.58% (3)
Qualified XIII 11.075 11.025 (0.45%) (3)
- ---------------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio:
Qualified III $13.558 $14.519 7.09%
Qualified V 13.463 14.400 6.96%
Qualified VI 13.450 14.404 7.09%
Qualified VIII 14.093 15.091 7.08%
Qualified X (1.15) 13.481 14.448 7.17%
Qualified X (1.25) 13.450 14.404 7.09%
Qualified XI 12.417 14.435 16.25% (1)
Qualified XII (0.95) 10.000 9.556 (4.44%) (3)
Qualified XIII 15.575 14.419 (7.42%) (3)
- ---------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Portfolio:
Qualified III $17.951 $19.328 7.67%
Qualified V 13.870 14.916 7.54%
Qualified VI 13.527 14.565 7.67%
Qualified VIII 12.291 13.233 7.66%
Qualified XI 13.195 14.596 10.62% (1)
Qualified XII (0.95) 10.000 10.568 5.68% (3)
Qualified XIII 14.024 14.580 3.96% (3)
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds:
Equity - Income Portfolio:
Qualified III $11.617 $12.332 6.16%
Qualified V 11.047 11.713 6.03%
Qualified VI 11.092 11.775 6.16%
Qualified VIII 11.054 11.734 6.15%
Qualified X (1.15) 13.902 14.769 6.24%
Qualified X (1.25) 13.880 14.735 6.16%
Qualified XI 10.845 11.800 8.81% (1)
Qualified XII (0.95) 10.000 10.169 1.69% (3)
Qualified XIII 11.800 11.787 (0.11%) (3)
- ---------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Qualified I $10.000 $10.584 5.84% (2)
Qualified V 10.183 11.323 11.20%
Qualified VI 10.066 11.206 11.33%
Qualified VIII 10.190 11.343 11.32%
Qualified X (1.15) 14.023 15.623 11.41%
Qualified X (1.25) 14.000 15.586 11.33%
Qualified XI 9.569 11.231 17.37% (1)
Qualified XII (0.95) 10.000 10.176 1.76% (3)
Qualified XIII 11.351 11.218 (1.17%) (3)
- ---------------------------------------------------------------------------------------------------------------------
S-33
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- ---------------------------------------------------------------------------------------------------------------------
Increase/Decrease
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Overseas Portfolio:
Qualified V $9.954 $10.648 6.97%
Qualified VI 9.961 10.668 7.10%
Qualified X (1.15) 10.278 11.016 7.18%
Qualified X (1.25) 10.262 10.990 7.10%
Qualified XI 10.079 10.690 6.06% (1)
Qualified XII (0.95) 10.000 10.207 2.07% (3)
Qualified XIII 10.544 10.679 1.28% (3)
- ---------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Funds II:
Asset Manager Portfolio:
Qualified III $10.912 $11.679 7.02%
- ---------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio:
Qualified III $11.763 $13.018 10.66%
Qualified V 10.461 11.563 10.53%
Qualified VI 10.397 11.506 10.66%
Qualified VIII 10.467 11.583 10.66%
Qualified X (1.15) 11.689 12.945 10.75%
Qualified X (1.25) 11.681 12.927 10.66%
Qualified XI 10.076 11.530 14.43% (1)
Qualified XII (0.95) 10.000 10.378 3.78% (3)
Qualified XIII 11.294 11.518 1.98% (3)
- ---------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio:
Qualified III $11.740 $13.192 12.36%
- ---------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust:
Qualified III $16.495 $16.514 0.12%
Qualified V 11.946 11.946 0.00%
Qualified VI 11.762 11.776 0.12%
Qualified VIII 11.090 11.102 0.11%
Qualified XI 11.739 11.801 0.53% (1)
Qualified XII (0.95) 10.000 10.246 2.46% (3)
Qualified XIII 11.557 11.788 2.00% (3)
- ---------------------------------------------------------------------------------------------------------------------
Janus Aspen Series:
Aggressive Growth Portfolio:
Qualified III $15.323 $16.853 9.99%
Qualified V 13.296 14.606 9.85%
Qualified VI 13.322 14.653 9.99%
Qualified VIII 13.321 14.650 9.98%
Qualified X (1.15) 12.869 14.165 10.07%
Qualified X (1.25) 12.861 14.145 9.99%
Qualified XI 12.817 14.684 14.57% (1)
Qualified XII (0.95) 10.000 9.805 (1.95%) (3)
Qualified XIII 15.184 14.668 (3.40%) (3)
- ---------------------------------------------------------------------------------------------------------------------
Balanced Portfolio:
Qualified III $10.853 $12.090 11.39%
Qualified V 10.843 12.064 11.26%
Qualified VI 10.850 12.087 11.39%
Qualified X (1.15) 11.265 12.558 11.48%
Qualified X (1.25) 11.259 12.541 11.39%
S-34
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- ---------------------------------------------------------------------------------------------------------------------
Increase
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Balanced Portfolio (continued):
Qualified XI $10.604 $12.113 14.23% (1)
Qualified XII (0.95) 10.000 10.773 7.73% (3)
Qualified XIII 11.445 12.099 5.71% (3)
- ---------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio:
Qualified III $12.124 $12.562 3.61%
Qualified V 12.054 12.473 3.48%
Qualified VI 12.077 12.512 3.61%
Qualified VIII 12.076 12.511 3.60%
Qualified XI 12.028 12.539 4.25% (1)
Qualified XII (0.95) 10.000 10.467 4.67% (3)
Qualified XIII 12.019 12.526 4.22% (3)
- ---------------------------------------------------------------------------------------------------------------------
Growth Portfolio:
Qualified III $11.859 $13.577 14.49%
Qualified V 10.872 12.433 14.35%
Qualified VI 10.870 12.446 14.49%
Qualified VIII 10.879 12.455 14.48%
Qualified X (1.15) 11.633 13.328 14.58%
Qualified X (1.25) 11.626 13.310 14.49%
Qualified XI 10.607 12.472 17.58% (1)
Qualified XII (0.95) 10.000 10.651 6.51% (3)
Qualified XIII 11.985 12.459 3.95% (3)
- ---------------------------------------------------------------------------------------------------------------------
Short Term Bond Portfolio:
Qualified III $10.393 $10.484 0.88%
Qualified V 10.316 10.395 0.76%
Qualified VI 10.323 10.414 0.88%
Qualified X (1.25) 10.285 10.376 0.88%
Qualified XI 10.318 10.436 1.14% (1)
Qualified XII (0.95) 10.000 10.176 1.76% (3)
Qualified XIII 10.263 10.425 1.58% (3)
- ---------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Qualified III $12.158 $14.770 21.48%
Qualified V 10.952 13.289 21.33%
Qualified VI 10.877 13.213 21.48%
Qualified VIII 10.846 13.175 21.47%
Qualified X (1.15) 12.223 14.860 21.57%
Qualified X (1.25) 12.216 14.840 21.48%
Qualified XI 10.929 13.241 21.15% (1)
Qualified XII (0.95) 10.000 10.831 8.31% (3)
Qualified XIII 12.592 13.227 5.04% (3)
- ---------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.:
Qualified III $8.323 $9.053 8.78%
- ---------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust:
Qualified III $10.862 $12.194 12.26%
Qualified V 12.095 13.561 12.12%
Qualified VI 11.720 13.157 12.26%
Qualified XI 11.673 13.185 12.95% (1)
Qualified XII (0.95) 10.000 10.190 1.90% (3)
S-35
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- ---------------------------------------------------------------------------------------------------------------------
Increase/Decrease
Value at Value at in Value of
Beginning End of Accumulation
of Year Period Unit
- ---------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust (continued):
Qualified XIII $13.130 $13.170 0.30% (3)
- ---------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Advisers
Management Trust - Growth Portfolio:
Qualified III $17.430 $18.026 3.42%
Qualified V 14.359 14.832 3.29%
Qualified VI 14.345 14.835 3.42%
Qualified VIII 12.334 12.755 3.41%
Qualified XI 13.884 14.867 7.08% (1)
Qualified XII (0.95) 10.000 9.560 (4.40%) (3)
Qualified XIII 15.781 14.851 (5.89%) (3)
- ---------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund - International
Portfolio:
Qualified III $14.515 $15.707 8.21%
Qualified V 13.799 14.915 8.08%
Qualified VI 13.923 15.066 8.21%
Qualified VIII 11.733 12.695 8.21%
Qualified X (1.15) 13.952 15.109 8.30%
Qualified X (1.25) 13.923 15.066 8.21%
Qualified XI 14.058 15.099 7.41% (1)
Qualified XII (0.95) 10.000 10.181 1.81% (3)
Qualified XIII 14.944 15.082 0.92% (3)
- ---------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc.:
TCI Growth:
Qualified III* $14.464 $15.031 3.92%
Qualified III 13.224 13.742 3.92%
Qualified V 15.176 15.752 3.79%
Qualified VI 15.253 15.850 3.92%
Qualified VII 12.840 13.349 3.96%
Qualified VIII 12.868 13.371 3.91%
Qualified IX 12.581 13.099 4.11%
Qualified X (1.15) 15.285 15.896 4.00%
Qualified X (1.25) 15.253 15.850 3.92%
Qualified XI 14.146 15.885 12.29% (1)
Qualified XII (0.95) 10.000 9.990 (0.10%) (3)
Qualified XIII 16.604 15.867 (4.44%) (3)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Applies only to participants of the Opportunity Plus program and
Multiple Options Portfolio.
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
S-36
<PAGE>
Variable Annuity Account C
Condensed Financial Information
CHANGE IN VALUE OF ACCUMULATION UNIT - JANUARY 1, 1996 TO SEPTEMBER 30, 1996
(unaudited and continued)
- -------------------------------------------------------------------------------
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 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.
QUALIFIED XI Certain large group contracts issued in connection with
"Deferred Compensation Plans" adopted by state and local
governments since January 1996.
QUALIFIED XII Group "Deferred Compensation Plan" contracts shown
separately by applicable daily charge.
QUALIFIED XIII Certain existing contracts in connection with Tax-Deferred
Annuity Plans and Retirement Plus Plans issued through product
exchange (Previously valued under Qualified VI).
1 - Reflects less than a full year of performance activity. The initial
Accumulation Unit Value was established during January 1996 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 during April 1996 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 during May 1996 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 during September 1996 when the fund
became available under the contract or the applicable daily asset charge
was first utilized.
S-37
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Aetna Life Insurance and Annuity Company and Subsidiaries
Index
Page
Independent Auditors' Report ........................................... F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994, and 1993 ............................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994 ....... F-4
Consolidated Statements of Shareholder's Equity for the Years
Ended December 31, 1995, 1994 and 1993 ........................... F-6
Consolidated Statements of Cash Flows for the Years Ended December
31, 1995, 1994 and 1993 .......................................... F-7
Notes to Consolidated Financial Statements ............................. F-9
Consolidated Financial Statements as of and the period ended
September 30, 1996 (unaudited):
Consolidated Statements of Income .................................. F-34
Consolidated Balance Sheets ........................................ F-35
Consolidated Statements of Changes in Shareholder's Equity ......... F-36
Consolidated Statements of Cash Flows .............................. F-37
Condensed Notes to Consolidated Financial Statements ............... F-38
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,
-----------------------
Assets 1995 1994
- ------ ---- ----
<S> <C> <C>
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
---------- ----------
F-4
<PAGE>
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-5
<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-6
<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)
---------- ---------- ----------
F-7
<PAGE>
Cash Flows from Financing Activities:
Deposits and interest credited for investment 1,884.5 1,737.8 2,117.8
contracts
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-8
<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.
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)
1. Summary of Significant Accounting Policies (Continued)
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.
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 Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of ninety days or less when
purchased.
Investments
Debt Securities
At December 31, 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.
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)
1. Summary of Significant Accounting Policies (Continued)
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.
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.
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)
1. Summary of Significant Accounting Policies (Continued)
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 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.
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)
1. Summary of Significant Accounting Policies (Continued)
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
Premiums are recorded as revenue when due for fixed ordinary life
contracts. Charges assessed against policyholders' funds for cost of
insurance, surrender charges, actuarial margin and other fees are recorded
as revenue for universal life and certain annuity contracts. Policy
benefits and expenses are recorded in relation to the associated premiums
or gross profit so as to result in recognition of profits over the expected
lives of the contracts.
Separate Accounts
Assets held under variable universal life, variable life and variable
annuity contracts are segregated in Separate Accounts and are invested, as
designated by the contractholder or participant under a contract, in shares
of Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund,
Aetna Investment Advisers Fund, Inc., Aetna GET Fund, or The Aetna Series
Fund Inc., which are managed by the Company or other selected mutual funds
not managed by the Company.
Separate Accounts assets and liabilities are carried at fair value except
for those relating to a guaranteed interest option which is offered through
a Separate Account. The assets of the Separate Account supporting the
guaranteed interest option are carried at an amortized cost of $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-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)
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 $ 539.5 $ 47.5 $ - $ 587.0
government agencies and corporations
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-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)
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. $ 1,396.1 $ 2.0 $ 84.2 $ 1,313.9
government agencies and corporations
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-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)
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>
(millions)
Amortized Cost Fair Value
<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-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)
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:
Debt Securities Amortized Fair
Cost Value
--------- -----
(millions)
General Electric Corporation $ 314.9 $ 329.3
General Motors Corporation 273.9 284.5
Associates Corporation of North America 230.2 239.1
Society National Bank 203.5 222.3
Ciesco, L.P. 194.9 194.9
Countrywide Funding 171.2 172.7
Baxter International 168.9 168.9
Time Warner 158.6 166.1
Ford Motor Company 156.7 162.6
The portfolio of debt securities at December 31, 1995 and 1994 included
$662.5 million and $318.3 million, respectively, (5% and 3%, respectively,
of the debt securities) of investments that are considered "below
investment grade". "Below investment grade" securities are defined to be
securities that carry a rating below BBB-/Baa3, by Standard & Poors/Moody's
Investor Services, respectively. The increase in below investment grade
securities is the result of a change in investment strategy, which has
reduced the Company's holdings in residential mortgage-back securities and
increased the Company's holdings in corporate securities. Residential
mortgage-back securities are subject to higher prepayment risk and lower
credit risk, while corporate securities earning a comparable yield are
subject to higher credit risk and lower prepayment risk. We expect the
percentage of below investment grade securities will increase in 1996, but
we expect that the overall average quality of the portfolio of debt
securities will remain at AA-. Of these below investment grade assets,
$14.5 million and $31.8 million, at December 31, 1995 and 1994,
respectively, were investments that were purchased at investment grade, but
whose ratings have since been downgraded.
Included in residential mortgage-back securities are collateralized
mortgage obligations ("CMOs") with carrying values of $2.5 billion and $2.6
billion at December 31, 1995 and 1994, respectively. The principal risks
inherent in holding CMOs are prepayment and extension risks related to
dramatic decreases and increases in interest rates whereby the CMOs would
be subject to repayments of principal earlier or later than originally
anticipated. At December 31, 1995 and 1994, approximately 79% and 85%,
respectively, of the Company's CMO holdings consisted of sequential and
planned amortization class debt securities which are subject to less
prepayment and extension risk than other CMO instruments. At December 31,
1995 and 1994, approximately 81% and 82%, respectively, of the Company's
CMO holdings were collateralized by residential mortgage loans, on which
the timely payment of principal and interest was backed by specified
government agencies (e.g., GNMA, FNMA, FHLMC).
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)
2. Investments (Continued)
If due to declining interest rates, principal was to be repaid earlier than
originally anticipated, the Company could be affected by a decrease in
investment income due to the reinvestment of these funds at a lower
interest rate. Such prepayments may result in a duration mismatch between
assets and liabilities which could be corrected as cash from prepayments
could be reinvested at an appropriate duration to adjust the mismatch.
Conversely, if due to increasing interest rates, principal was to be repaid
slower than originally anticipated, the Company could be affected by a
decrease in cash flow which reduces the ability to reinvest expected
principal repayments at higher interest rates. Such slower payments may
result in a duration mismatch between assets and liabilities which could be
corrected as available cash flow could be reinvested at an appropriate
duration to adjust the mismatch.
At December 31, 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.
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)
Investments in available for sale equity securities were as follows:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
1994
Equity Securities $ 230.5 $ 6.5 $ 7.9 $ 229.1
======= ======= ======= =======
3. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between proceeds
received from investments sold or prepaid, and amortized cost. Net realized
capital gains as reflected in the Consolidated Statements of Income are
after deductions for net realized capital gains (losses) allocated to
experience-rated contracts of $61.1 million, $(29.1) million and $(54.8)
million for the years ended December 31, 1995, 1994, and 1993,
respectively. Net realized capital gains (losses) allocated to
experience-rated contracts are deferred and subsequently reflected in
credited rates on an amortized basis. Net unamortized gains (losses),
reflected as a component of Policyholders' Funds Left With the Company,
were $7.3 million and $(50.7) million at the end of December 31, 1995 and
1994, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities are included in net realized capital gains (losses) and amounted
to $3.1 million, $1.1 million and $(98.5) million, of which $2.2 million,
$0.8 million and $(91.5) million were allocable to experience-rated
contractholders, for the years ended December 31, 1995, 1994 and 1993,
respectively. The 1993 losses were primarily related to writedowns of
interest-only mortgage-backed securities to their fair value.
Net realized capital gains (losses) on investments, net of amounts
allocated to experience-rated contracts, were as follows:
1995 1994 1993
---- ---- ----
(millions)
Debt securities $ 32.8 $ 1.0 $ 9.6
Equity securities 8.3 0.2 0.1
Mortgage loans 0.2 0.3 (0.2)
-------- -------- ------
Pretax realized capital gains $ 41.3 $ 1.5 $ 9.5
======== ======= =======
After-tax realized capital gains $ 25.8 $ 1.0 $ 6.2
======== ======= =======
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)
3. Capital Gains and Losses on Investment Operations (Continued)
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-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)
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) -
--------- -------- -------
- (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-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)
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.
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)
6. Federal Income Taxes (continued)
Components of income tax expense (benefits) were as follows:
1995 1994 1993
---- ---- ----
(millions)
Current taxes (benefits):
Income from operations $ 82.9 $ 78.7 $ 87.1
Net realized capital gains 28.5 (33.2) 18.1
-------- -------- ---------
111.4 45.5 105.2
-------- -------- ---------
Deferred taxes (benefits):
Income from operations (14.4) (8.0) (14.2)
Net realized capital gains (12.9) 33.7 (14.8)
-------- -------- ---------
(27.3) 25.7 (29.0)
-------- -------- ---------
Total $ 84.1 $ 71.2 $ 76.2
======== ======== =========
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>
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)
6. Federal Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
1995 1994
---- ----
Deferred tax assets: (millions)
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
======= =======
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.
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)
6. Federal Income Taxes (continued)
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.
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
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)
operations for the incentive savings plan were $4.9 million, $3.3 million
and $3.1 million in 1995, 1994 and 1993, respectively.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Benefit Plans
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
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Related Party Transactions (continued)
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.
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.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 8 above.
<TABLE>
<CAPTION>
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1995
<S> <C> <C> <C> <C>
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-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
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.
F-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Financial Instruments (Continued)
Debt and equity securities: Fair values are based on quoted market prices
or dealer quotations. Where quoted market prices or dealer quotations are
not available, fair value is estimated by using quoted market prices for
similar securities or discounted cash flow methods.
Mortgage loans: Fair value is estimated by discounting expected mortgage
loan cash flows at market rates which reflect the rates at which similar
loans would be made to similar borrowers. The rates reflect management's
assessment of the credit quality and the remaining duration of the loans.
The fair value estimate of mortgage loans of lower quality, including
problem and restructured loans, is based on the estimated fair value of the
underlying collateral.
Investment contract liabilities (included in Policyholders' Funds Left With
the Company):
With a fixed maturity: Fair value is estimated by discounting cash flows at
interest rates currently being offered by, or available to, the Company for
similar contracts.
Without a fixed maturity: Fair value is estimated as the amount payable to
the contractholder upon demand. However, the Company has the right under
such contracts to delay payment of withdrawals which may ultimately result
in paying an amount different than that determined to be payable on demand.
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.
F-31
<PAGE>
10. Financial Instruments (Continued)
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>
(Millions) Amortized Cost Fair 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 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.
F-32
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Services, Inc.)
Notes to Consolidated Financial Statements (Continued)
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
- ------------------------------------------------------------------------------------------
(Millions) 1995 1994 1993
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-33
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A
wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended September 30, 9 Months Ended September 30,
--------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Premiums $14.2 $24.1 $46.4 $94.8
Charges assessed against policyholders 99.1 80.2 289.3 231.1
Net investment income 259.7 250.1 771.8 732.0
Net realized capital gains 0.1 8.3 17.2 19.3
Other income 9.4 7.5 34.6 30.0
-------- -------- -------- --------
Total revenue 382.5 370.2 1,159.3 1,107.2
Benefits and expenses:
Current and future benefits 224.3 225.6 665.6 663.5
Operating expenses 85.5 76.9 264.1 232.4
Amortization of deferred policy acquisition costs 17.9 8.9 46.6 31.4
Severance and facilities charges 47.3 - 61.3 -
-------- -------- -------- --------
Total benefits and expenses 375.0 311.4 1,037.6 927.3
Income before income taxes 7.5 58.8 121.7 179.9
Income taxes 0.5 19.6 31.5 58.8
-------- -------- -------- --------
Net income $7.0 $39.2 $90.2 $121.1
======== ======== ======== ========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-34
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A
wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Balance Sheets
(millions, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Investments:
Debt securities, available for sale:
(amortized cost: $12,367.3 and $11,923.7) $12,573.0 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock (cost: $79.3 and $51.3) 86.6 57.6
Investment in affiliated mutual funds (cost: $112.9 and $173.4) 135.4 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 29.1 15.1
Mortgage loans 13.0 21.2
Policy loans 368.1 338.6
---------- ----------
Total investments 13,205.5 13,353.3
Cash and cash equivalents 422.0 568.8
Accrued investment income 188.5 175.5
Premiums due and other receivables 159.1 37.3
Deferred policy acquisition costs 1,468.5 1,341.3
Reinsurance loan to affiliate 633.4 655.5
Other assets 19.3 26.2
Separate Accounts assets 14,010.7 10,987.0
---------- ----------
Total assets $30,107.0 $27,144.9
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $3,584.3 $3,594.6
Unpaid claims and claim expenses 28.3 27.2
Policyholders' funds left with the Company 10,413.8 10,500.1
---------- ----------
Total insurance reserve liabilities 14,026.4 14,121.9
Other liabilities 375.1 259.2
Income taxes:
Current 16.6 24.2
Deferred 99.9 169.6
Separate Accounts liabilities 14,010.7 10,987.0
---------- ----------
Total liabilities 28,528.7 25,561.9
---------- ----------
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 39.1 132.5
Retained earnings 1,128.8 1,040.1
---------- ----------
Total shareholder's equity 1,578.3 1,583.0
---------- ----------
Total liabilities and shareholder's equity $30,107.0 $27,144.9
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-35
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES (A
wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Changes in Shareholder's Equity
(millions)
(unaudited)
9 Months Ended September 30,
----------------------------
1996 1995
---- ----
Shareholder's equity, beginning of period $1,583.0 $1,088.5
Net change in unrealized capital gains and losses (93.4) 300.2
Net income 90.2 121.1
Common stock dividends declared (1.5) --
---------- ----------
Shareholder's equity, end of period $1,578.3 $1,509.8
========== ==========
See Condensed Notes to Consolidated Financial Statements.
F-36
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
(unaudited)
<TABLE>
<CAPTION>
9 Months Ended September 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $90.2 $121.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income (13.0) (29.6)
(Increase) decrease in premiums due and other receivables (2.3) 28.1
Increase in policy loans (29.5) (57.0)
Increase in deferred policy acquisition costs (127.2) (137.9)
Decrease in reinsurance loan to affiliate 22.1 30.9
Net increase in universal life account balances 172.5 164.0
(Decrease) increase in other insurance reserve liabilities (125.2) 10.6
Net increase in other liabilities and other assets 130.0 9.6
Decrease in income taxes (26.7) (3.6)
Net accretion of discount on investments (51.1) (48.9)
Net realized capital gains (17.2) (19.3)
---------- ----------
Net cash provided by operating activities 22.6 68.0
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 3,830.6 3,271.9
Equity securities 114.5 130.5
Mortgage loans 8.6 4.3
Investment maturities and collections of:
Debt securities available for sale 681.8 420.7
Short-term investments 21.5 95.6
Cost of investment purchases in:
Debt securities available for sale (4,996.5) (4,581.6)
Equity securities (63.7) (170.2)
Short-term investments (35.5) (14.2)
Other, net (9.1) -
---------- ----------
Net cash used for investing activities (447.8) (843.0)
---------- ----------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,140.6 1,461.9
Withdrawals of investment contracts (860.7) (803.8)
Dividends paid to shareholder (1.5) -
---------- ----------
Net cash provided by financing activities 278.4 658.1
---------- ----------
Net decrease in cash and cash equivalents (146.8) (116.9)
Cash and cash equivalents, beginning of period 568.8 623.3
---------- ----------
Cash and cash equivalents, end of period $422.0 $506.4
========== ==========
Supplemental cash flow information:
Income taxes paid, net $60.3 $62.4
========== ==========
</TABLE>
See Condensed Notes to Consolidated Financial Statements.
F-37
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
(unaudited)
1. 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. (collectively, the "Company").
Aetna Life Insurance and Annuity Company is a wholly-owned subsidiary of
Aetna Retirement Holdings, Inc. ("HOLDCO"). HOLDCO is a wholly-owned
subsidiary of Aetna Retirement Services, Inc., which is a wholly-owned
subsidiary of Aetna Services, Inc. ("Aetna") (formerly Aetna Life and
Casualty Company). Aetna is a wholly-owned subsidiary of Aetna Inc.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and are unaudited. Certain
reclassifications have been made to 1995 financial information to conform to
the 1996 presentation. These interim statements necessarily rely heavily on
estimates, including assumptions as to annualized tax rates. In the opinion
of management, all adjustments necessary for a fair statement of results for
the interim periods have been made. All such adjustments are of a normal,
recurring nature. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes as presented in the Company's 1995 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission on
March 29, 1996. Certain financial information that is normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles, but that is not required for interim reporting
purposes, has been condensed or omitted.
2. FUTURE APPLICATION OF ACCOUNTING STANDARDS
Financial Accounting Standard ("FAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued
in June 1996. This statement provides accounting and reporting standards for
transfers of financial assets and extinguishments of liabilities.
Transactions covered by this statement would include securitizations, sales
of partial interests in assets, repurchase agreements and securities
lending. This statement requires that after a transfer of financial assets,
an entity would recognize on the balance sheet any assets it controls and
liabilities it has incurred. Similarly, an entity would remove assets or
liabilities from its balance sheet when control of the assets has been
surrendered or the liabilities satisfied.
This statement is effective for 1997 financial statements and early adoption
or retroactive application of this statement is not permitted. The Company
does not expect the adoption of this statement will have a material effect
on its financial position or results of operations.
F-38
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
(Continued)
(unaudited)
3. SEVERANCE AND FACILITIES CHARGES
In the third quarter of 1996, the Company recorded a $30.7 million after tax
($47.3 million pretax) severance and facilities charge primarily related to
actions taken or expected to be taken to improve its cost structure relative
to its competitors. The severance portion of the charge is based on a plan
to eliminate 702 positions (primarily customer service, sales and
information technology support staff). The facilities portion of the charge
is based on a plan to consolidate sales/service field offices.
In addition to the above charge, Aetna recorded a facilities and severance
charge in the second quarter of 1996, primarily as a result of actions taken
or expected to be taken to reduce the level of corporate expenses and other
costs previously absorbed by Aetna's property-casualty operations. The cost
allocated to the Company associated with this charge was $9.1 million after
tax ($14.0 million pretax).
Severance and facilities charges for the nine months ended September 30,
1996 included the following (pretax):
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------
Financial Services $29.1 $1.0 $1.3 $1.7 $ - $33.1
Life Insurance 12.5 0.4 0.5 0.8 - 14.2
Corporate
Allocation - - - - 14.0 14.0
----------------------------------------------------------
Total Company $41.6 $1.4 $1.8 $2.5 $14.0 $61.3
- -------------------------------------------------------------------------------
The activity for the nine months ended September 30, 1996 within the severance
and facilities reserve (pretax, in millions) and the number of positions
eliminated related to such actions were as follows:
Reserve Positions
- -------------------------------------------------------------------
Beginning of period $ - -
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 -
Actions taken (5.9) (1) (68)
- -------------------------------------------------------------------
End of period $ 55.4 634
- -------------------------------------------------------------------
(1) Includes $3.6 million of severance related actions and $2.3 million of
corporate allocation related actions.
F-39
<PAGE>
Termination of the remaining employees, under the announced actions, and the
vacating of the leased office space are expected to be substantially completed
within 15 months.
F-40
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly-owned subsidiary of Aetna Retirement Holdings, Inc.)
Condensed Notes to Consolidated Financial Statements
(Continued)
(unaudited)
4. DIVIDENDS
The Company paid $1.5 million in cash dividends to HOLDCO in the second
quarter of 1996. No dividends were paid in the third quarter of 1996.
5. OFF-BALANCE-SHEET AND OTHER FINANCIAL INSTRUMENTS
The Company engages in hedging activities to manage interest rate and price
risks. Such hedging activities have principally consisted of using futures
and forward contracts and interest rate swap agreements.
At September 30, 1996, the Company had stock index futures with a notional
amount of $139.2 million and a carrying value of ($9.1) million which
approximated fair value. In addition, at September 30, 1996, the Company had
commitments to purchase investments for $2.3 million, the fair market value
of which is $2.5 million.
6. RELATED PARTY TRANSACTIONS
The Company acts as an investment adviser for its affiliated mutual funds.
Since August 1996, Aeltus Investment Management, Inc. ("Aeltus"), a
wholly-owned subsidiary of HOLDCO and an affiliate of the Company, has been
acting as Subadvisor of all affiliated mutual funds and of most of the
General Account assets.
Fees paid by the Company to Aeltus, on an annual basis, range from .06% to
.55% of the average daily net assets under management. For both the three
and nine months ended September 30, 1996, the Company paid $6.0 million in
such fees.
7. LITIGATION
The Company is involved in numerous lawsuits arising, for the most part, in
the ordinary course of its business operations. While the ultimate outcome
of litigation against the Company cannot be determined at this time, after
consideration of the defenses available to the Company and any related
reserves established, it is not expected to result in liability for amounts
material to the financial condition of the Company, although it may
adversely affect results of operations in future periods.
F-41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT C
VARIABLE ANNUITY CONTRACTS
issued by
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Hartford, Connecticut
Form No. 91846 (s)-4 ALIAC ED. March 1997
<PAGE>
VARIABLE ANNUITY ACCOUNT C
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Condensed Financial Information
(2) Included in Part B:
Financial Statements of Variable Annuity Account C:
- Independent Auditors' Report
- Statement of Assets and Liabilities as of December 31, 1995
- Statement of Operations for the year ended December 31, 1995
- Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994
- Notes to Financial Statements
- Unaudited Statement of Assets and Liabilities as of
September 30, 1996 and December 31, 1995
- Unaudited Statement of Operations for the nine-month period ended
September 30, 1996
- Unaudited Statement of Changes in Net Assets for the nine-month
period ended September 30, 1996 and year ended December 31, 1995
- Notes to Financial Statements
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
- Consolidated Balance Sheets as of December 31, 1995 and 1994
- Consolidated Statements of Changes in Shareholder's Equity for
the years ended December 31, 1995, 1994 and 1993
- Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements
- Unaudited Consolidated Balance Sheets as of September 30, 1996
- Unaudited Consolidated Statements of Income for the three-and
nine-month periods ended September 30, 1996 and 1995
- Unaudited Consolidated Statements of Changes in
Shareholder's Equity for the nine-month period ended
September 30, 1996 and 1995
- Unaudited Consolidated Statements of Cash Flows for the
nine-month period ended September 30, 1996 and 1995
- Condensed Notes to Consolidated Financial Statements
<PAGE>
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account C(1)
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesale Agreement and Related Selling
Agreement(2)
(4.1) Form of Variable Annuity Contract (G-CDA-IB(ATORP)) and
Endorsement (EGET-IC(R))(3)
(4.2) Form of Variable Annuity Contract and Certificate
(G-CDA-95(TORP) and (GTCC-95(TORP))(3)
(4.3) Form of Variable Annuity Contract (G-CDA-IB(AORP)) and
Endorsement (EGET-IC(R))(3)
(4.4) Form of Variable Annuity Contract and Certificate
(G-CDA-95(ORP) and (GTCC-95(ORP))(3)
(4.5) Form of Variable Annuity Contract (GCDA-96(TORP))(4)
(4.6) Endorsement (GET/96) to Form of Variable Annuity Contract
G-CDA-95(TORP), GTCC95(TORP), G-CDA-95(ORP), GTCC-95(ORP)(4)
(5) Form of Variable Annuity Contract Application (300-MOP-IB)(5)
(6) Certification of Incorporation and By-Laws of Depositor(6)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated March 31, 1995(2)
(8.2) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Calvert Asset Management Company (Calvert
Responsibly Invested Balanced Portfolio, formerly Calvert
Socially Responsible Series) dated March 13, 1989 and amended
December 27, 1993(2)
(8.3) Second Amendment dated January 1, 1996 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993(7)
(8.4) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation
(Variable Insurance Products Fund) dated February 1, 1994 and
amended March 1, 1996(2)
(8.5) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Fidelity Distributors Corporation
(Variable Insurance Products Fund II) dated February 1, 1994
and amended March 1, 1996(2)
<PAGE>
(8.6) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(7)
(8.7) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Franklin Advisers, Inc. dated
January 31, 1989(2)
(8.8) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended March 1, 1996(2)
(8.9) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation
regarding Natural Resources Trust dated December 1, 1988 and
amended February 11, 1991(2)
(8.10) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Advisers Management Trust (now Neuberger &
Berman Advisers Management Trust) dated April 14, 1989 and as
assigned and modified on May 1, 1995(2)
(8.11) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment Fund
dated April 27, 1992 and amended February 19, 1993 and August
13, 1993(2)
(8.12) Amendment dated as of February 20, 1996 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Scudder Variable Life Investment Fund dated April 27, 1992 as
amended February 19, 1993 and August 13, 1993(7)
(8.13) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended
December 27, 1992 and June 1, 1994(2)
(9) Opinion of Counsel(8)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(9)
(14) Not applicable
(15.1) Powers of Attorney(10)
(15.2) Authorization for Signatures(2)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No.33-75986), as filed electronically on
April 22, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 5 to Registration
Statement on Form N-4 (File No.33-75986), as filed electronically on
April 12, 1996.
3. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No.33-91846), as filed electronically on
April 15, 1996.
<PAGE>
4. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No.33-91846), as filed electronically on
August 6, 1996.
5. Incorporated by reference to Registration Statement on Form N-4
(File No. 33-91846), as filed on May 1, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No.33-60477), as filed electronically on April
15, 1996.
7. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-88720), as filed electronically on June
28, 1996.
8. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year
ended December 31, 1995, as filed electronically on February 29, 1996.
9. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-91846), as filed electronically on
August 16, 1995.
10. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
August 2, 1996.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address* Positions and Offices with Depositor
Daniel P. Kearney Director and President
Timothy A. Holt Director, Senior Vice President and Chief
Financial Officer
Christopher J. Burns Director and Senior Vice President
Laura R. Estes Director and Senior Vice President
Gail P. Johnson Director and Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President
Glen Salow Director and Vice President
Creed R. Terry Director and Vice President
Deborah Koltenuk Vice President and Treasurer, Corporate Controller
Frederick D. Kelsven Vice President and Chief Compliance Officer
Kirk P. Wickman Vice President, General Counsel and Secretary
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated herein by reference to Item 26 of Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-4 (File No. 333-01107), as filed
electronically on August 2, 1996.
Item 27. Number of Contract Owners
As of November 30,1996, there were 598,590 individuals holding interests in
variable annuity contracts funded through Variable Annuity Account C.
<PAGE>
Item 28. Indemnification
Reference is hereby made to Section 33-320a of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and officers of
Connecticut corporations. The statute provides in general that Connecticut
corporations shall indemnify their officers, directors, employees, agents, and
certain other defined individuals against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses actually incurred in connection with
proceedings against the corporation. The corporation's obligation to provide
such indemnification does not apply unless (1) the individual is successful on
the merits in the defense of any such proceeding; or (2) a determination is made
(by a majority of the board of directors not a party to the proceeding by
written consent; by independent legal counsel selected by a majority of the
directors not involved in the proceeding; or by a majority of the shareholders
not involved in the proceeding) that the individual acted in good faith and in
the best interests of the corporation; or (3) the court, upon application by the
individual, determines in view of all the circumstances that such person is
reasonably entitled to be indemnified.
C.G.S. Section 33-320a provides an exclusive remedy: a Connecticut
corporation cannot indemnify a director or officer to an extent either greater
or less than that authorized by the statute, e.g., pursuant to its certificate
of incorporation, bylaws, or any separate contractual arrangement. However, the
statute does specifically authorize a corporation to procure indemnification
insurance to provide greater indemnification rights. The premiums for such
insurance may be shared with the insured individuals on an agreed basis.
Consistent with the statute, Aetna Inc. has procured insurance from Lloyd's
of London and several major United States excess insurers for its directors and
officers and the directors and officers of its subsidiaries, including the
Depositor, which supplements the indemnification rights provided by C.G.S.
Section 33-320a to the extent such coverage does not violate public policy.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also
acts as the principal underwriter and investment adviser for Aetna
Variable Encore Fund, Aetna Variable Fund, Aetna Series Fund, Inc.,
Aetna Generation Portfolios, Inc., Aetna Income Shares, Aetna
Investment Advisers Fund, Inc., Aetna GET Fund, Aetna Generation Funds,
Inc. and Aetna Variable Portfolios, Inc. (all registered investment
management companies under the 1940 Act). Additionally ALIAC also acts
as the principal underwriter and depositor for Variable Life Account B
and Variable Annuity Accounts B and G (separate accounts of ALIAC
registered as unit investment trusts under the 1940 Act). ALIAC also
acts as the principal underwriter for Variable Annuity Account I (a
separate account of Aetna Insurance Company of America registered as a
unit investment trust under the 1940 Act).
(b) See Item 25 regarding the Depositor.
<PAGE>
(c) Compensation as of December 31, 1995:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commissions Compensation*
- ----------- ---------------- --------------- ----------- -------------
Aetna Life $1,830,629 $74,341,006
Insurance and
Annuity
Company
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
Variable Annuity Account C.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on
Form N-4 as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
<PAGE>
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) The Company hereby represents that it is relying upon and complies with
the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer Binder]
Fed. SEC. L. Rep. (CCH) P. 78,904 at 78,523 (November 22, 1988).
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, the Registrant, Variable Annuity Account C of Aetna Life
Insurance and Annuity Company, has duly caused this Post-Effective Amendment No.
8 to its Registration Statement on Form N-4 (File No. 33-91846) to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hartford, State of Connecticut, on the 31st day of December, 1996.
VARIABLE ANNUITY ACCOUNT C OF AETNA
LIFE INSURANCE AND ANNUITY COMPANY
(Registrant)
By: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
(Depositor)
By: Daniel P. Kearney*
----------------------------
Daniel P. Kearney
President
As required by the Securities Act of 1933, as amended, this Post-Effective
Amendment No. 8 to the Registration Statement on Form N-4 (File No. 33-91846)
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
/s/ Daniel P. Kearney* Director and President )
- ------------------------------- )
Daniel P. Kearney (principal executive officer) )
)
/s/ Timothy A. Holt* Director and ) December
- ------------------------------- Chief Financial Officer )
Timothy A. Holt ) 31, 1996
)
/s/ Christopher J. Burns* Director )
- ------------------------------- )
Christopher J. Burns )
)
/s/ Laura R. Estes* Director )
- ------------------------------- )
Laura R. Estes )
)
/s/ Gail P. Johnson* Director )
- ------------------------------- )
Gail P. Johnson )
)
/s/ John Y. Kim* Director )
- ------------------------------- )
John Y. Kim )
)
<PAGE>
/s/ Shaun P. Mathews* Director )
- ------------------------------- )
Shaun P. Mathews )
)
/s/ Glen Salow* Director )
- ------------------------------- )
Glen Salow )
)
/s/ Creed R. Terry* Director )
- ------------------------------- )
Creed R. Terry )
)
/s/ Deborah Koltenuk* Vice President and Treasurer, )
- ------------------------------- Corporate Controller )
Deborah Koltenuk )
By: /s/ Julie E. Rockmore
------------------------
Julie E. Rockmore
*Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT C
EXHIBIT INDEX
Exhibit No. Exhibit Page
99-B.1 Resolution of the Board of Directors of Aetna Life *
Insurance and Annuity Company establishing Variable
Annuity Account C
99-B.3.1 Form of Broker-Dealer Agreement *
99-B.3.2 Alternative Form of Wholesale Agreement and Related *
Selling Agreement
99-B.4.1 Form of Variable Annuity Contract (G-CDA-IB(ATORP) *
and Endorsement (EGET-IC(R))
99-B.4.2 Form of Variable Annuity Contract and Certificate *
(G-CDA-95(TORP) and (GTCC-95(TORP))
99-B.4.3 Form of Variable Annuity Contract (G-CDA-IB(AORP) *
and Endorsement (EGET-IC(R))
99-B.4.4 Form of Variable Annuity Contract and Certificate *
(G-CDA-95(ORP) and (GTCC-95(ORP))
99-B.4.5 Form of Variable Annuity Contract (GCDA-96(TORP)) *
99-B.4.6 Endorsement (GET/96) to Form of Variable Annuity *
Contract G-CDA-95(TORP), GTCC95(TORP),
G-CDA-95(ORP), GTCC-95(ORP)
99-B.5 Form of Variable Annuity Contract Application *
(300-MOP-IB)
99-B.6 Certification of Incorporation and By-Laws of *
Depositor
99-B.8.1 Fund Participation Agreement (Amended and Restated) *
between Aetna Life Insurance and Annuity Company,
Alger American Fund and Fred Alger Management, Inc.
dated March 31, 1995
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.2 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially
Responsible Series) dated March 13, 1989 and
amended December 27, 1993
99-B.8.3 Second Amendment dated January 1, 1996 to Fund *
Participation Agreement between Aetna Life
Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially
Responsible Series) dated March 13, 1989 and
amended December 27, 1993
99-B.8.4 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Fidelity
Distributors Corporation (Variable Insurance
Products Fund) dated February 1, 1994 and amended
March 1, 1996
99-B.8.5 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Fidelity
Distributors Corporation (Variable Insurance
Products Fund II) dated February 1, 1994 and
amended March 1, 1996
99-B.8.6 Service Agreement between Aetna Life Insurance and *
Annuity Company and Fidelity Investments
Institutional Operations Company dated as of
November 1, 1995
99-B.8.7 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Franklin
Advisers, Inc. dated January 31, 1989
99-B.8.8 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Janus Aspen
Series dated April 19, 1994 and amended March 1,
1996
99-B.8.9 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Lexington
Management Corporation regarding Natural Resources
Trust dated December 1, 1988 and amended February
11, 1991
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.10 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Advisers
Management Trust (now Neuberger & Berman Advisers
Management Trust) dated April 14, 1989 and as
assigned and modified on May 1, 1995
99-B.8.11 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company and Scudder Variable
Life Investment Fund dated April 27, 1992 and
amended February 19, 1993 and August 13, 1993
99-B.8.12 Amendment dated as of February 20, 1996 to Fund *
Participation Agreement between Aetna Life
Insurance and Annuity Company and Scudder Variable
Life Investment Fund dated April 27, 1992 as
amended February 19, 1993 and August 13, 1993
99-B.8.13 Fund Participation Agreement between Aetna Life *
Insurance and Annuity Company, Investors Research
Corporation and TCI Portfolios, Inc. dated July 29,
1992 and amended December 27, 1992 and June 1, 1994
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors ____
99-B.10.2 Consent of Counsel ____
99-B.13 Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
27 Financial Data Schedule ____
*Incorporated by reference
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Aetna Variable Annuity Account C:
We consent to the use of our reports dated February 6, 1996 and February 16,
1996 included herein and to the references to our Firm under the captions
"Condensed Financial Information" in the Prospectus and "Independent Auditors"
in the Statement of Additional Information.
Our report dated February 6, 1996 refers to a change in 1993 in the Company's
method of accounting for certain investments in debt and equity securities.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
December 31, 1996
151 Farmington Avenue
Hartford, CT 06156
Susan E. Bryant
Counsel
Law Division
December 31, 1996 Investments & Financial Services, RC4A
(860) 273-7834
Fax: (860) 273-0356
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Filing Desk
Re: Variable Annuity Account C of Aetna Life Insurance and Annuity Company
Post-Effective Amendment No. 8 to the Registration Statement on Form N-4
File Nos. 33-91846(1) and 811-2513
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1996 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1995 filed
on behalf of Variable Annuity Account C of Aetna Life Insurance and Annuity
Company on February 29, 1996) as an exhibit to this Post-Effective Amendment
No.8 to the Registration Statement on Form N-4 (File No.33-91846) and to my
being named under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
- --------
(1) Pursuant to Rule 429(a) under the Securities Act of 1933, the Registrant
has included a combined prospectus under this Registration Statement which
includes all the information that would currently be required in a
prospectus relating to the securities covered by the following earlier
Registration Statement: 33-75976.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 7,024,152,176
<INVESTMENTS-AT-VALUE> 7,936,822,368
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