As filed with the Securities and Exchange Registration No. 33-75982*
Commission on April 16, 1997 Registration No. 811-2513
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Post-Effective Amendment No. 13 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
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) 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 filed a Rule 24f-2 Notice for the fiscal year ended December 31, 1996
on 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 prospectuses relating
to the securities covered by Registration Statement Nos.: 33-75968, 33-75966,
33-75990 and the individual deferred compensation contracts covered by
Registration Statement No. 33-75992.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4
ITEM NO. PART A (PROSPECTUS) LOCATION
<C> <S> <C>
1 Cover Page.................................... Cover Page
2 Definitions................................... Definitions
3 Synopsis...................................... Prospectus Summary; Fee Table
4 Condensed Financial Information............... Condensed Financial Information
5 General Description of Registrant, Depositor,
and Portfolio Companies....................... The Company; Variable Annuity Account C; The
Funds
6 Deductions and Expenses....................... Charges and Deductions; Distribution
7 General Description of Variable Annuity
Contracts..................................... Purchase; Miscellaneous
8 Annuity Period................................ Annuity Period
9 Death Benefit................................. Death Benefit During Accumulation Period;
Death Benefit Payable During the Annuity
Period
10 Purchases and Contract Value.................. Purchase; Contract Valuation
11 Redemptions................................... Right to Cancel; Withdrawals
12 Taxes......................................... Tax Status
13 Legal Proceedings............................. Miscellaneous - Legal Matters and Proceedings
14 Table of Contents of the Statement of
Additional Information........................ Contents of the Statement of Additional
Information
<PAGE>
FORM N-4
ITEM NO. PART B (STATEMENT OF ADDITIONAL INFORMATION LOCATION
15 Cover Page........................................... Cover page
16 Table of Contents.................................... Table of Contents
17 General Information and History...................... General Information and History
18 Services............................................. General Information and History;
Independent Auditors
19 Purchase of Securities Being Offered................. Offering and Purchase of Contracts
20 Underwriters......................................... Offering and Purchase of Contracts
21 Calculation of Performance Data...................... Performance Data; Average Annual
Total Return Quotations
22 Annuity Payments..................................... Annuity Payments
23 Financial Statements................................. Financial Statements
</TABLE>
PART C (OTHER INFORMATION)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
GROUP VARIABLE ANNUITY CONTRACTS FOR
PUBLIC EMPLOYER DEFERRED COMPENSATION PLANS (SECTION 457)
AND FOR 401(a) DEFINED CONTRIBUTION PLANS
MAY 1, 1997 SUPPLEMENT TO MAY 1, 1997 PROSPECTUS
PENNSYLVANIA STATE ASSOCIATION OF BOROUGHS
The following information supplements the "Distribution" section of this
Prospectus:
Miscellaneous--Distribution
Under a signed agreement, the Pennsylvania State Association of Boroughs
("Association") has endorsed the Company's variable annuity for sale to its
employees under the group's Deferred Compensation Plan. The Company has agreed
to compensate the Association in the amount of $3.50 per year for each
Participant on whose behalf contributions are being made to the Contract.
Form x75982.2-97
<PAGE>
VARIABLE ANNUITY ACCOUNT C
GROUP VARIABLE ANNUITY CONTRACTS FOR
PUBLIC EMPLOYER DEFERRED COMPENSATION PLANS (SECTION 457)
AND FOR 401(a) DEFINED CONTRIBUTION PLANS
MAY 1, 1997 SUPPLEMENT TO MAY 1, 1997 PROSPECTUS
ERIE COUNTY
The following is a negotiated provision regarding the deferred sales charge
applicable to the Erie County Public Employee Deferred Compensation Plan. (See
"Deferred Sales Charge--Reduction or Elimination of Deferred Sales Charge.")
Deferred Sales Charge
A deferred sales charge is not deducted from any amount paid to another
financial organization under the Plan in an amount of up to 10% of the Account
Value annually.
Form No. x75982.1-97
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Contracts offered in connection with this Prospectus are group deferred
variable annuity contracts ("Contracts") issued by Aetna Life Insurance and
Annuity Company (the "Company"). The Contracts are available through
participation in deferred compensation plans ("Plans") adopted by state and
local governments for their employees or independent contractors, or both, under
Section 457 of the Internal Revenue Code of 1986, as amended, and under
qualified defined contribution plans under Section 401(a) of the Code. Only
group contracts are currently offered for sale; however, "Contracts" shall also
refer to employer-owned individual Contracts issued in connection with Plans in
the past.
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 Capital Appreciation Portfolio
[bullet] Aetna Variable Growth Portfolio
[bullet] Aetna Variable Index Plus Portfolio
[bullet] Aetna Variable Small Company Portfolio
[bullet] Alger American Growth Portfolio
[bullet] Alger American Small Cap Portfolio
[bullet] American Century VP Capital Appreciation (formerly TCI Growth)
[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
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is 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 in 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 17 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. You may also obtain an
SAI for any Funds by calling that phone number.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL INFORMATION AND OTHER INFORMATION
ABOUT THE SEPARATE ACCOUNT REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (SEC) CAN BE FOUND IN THE SEC'S WEB SITE AT http://www.sec.gov.
THE SECURITIES OFFERED BY THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1997
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DEFINITIONS ................................................... DEFINITIONS - 1
PROSPECTUS SUMMARY ........................................... SUMMARY - 1
FEE TABLE .................................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION ............................ AUV HISTORY - 1
THE COMPANY .............................................................. 1
VARIABLE ANNUITY ACCOUNT C ............................................... 1
INVESTMENT OPTIONS ..................................................... 1
The Funds .............................................................. 1
Credited Interest Options ............................................ 4
PURCHASE ................................................................. 4
Contract Availability .................................................. 4
Contract Purchase ..................................................... 5
Purchase Payments ..................................................... 5
Right to Cancel ........................................................ 5
Transfer Credits ..................................................... 5
CHARGES AND DEDUCTIONS .................................................. 6
Daily Deductions from the Separate Account ............................. 6
Maintenance Fee ........................................................ 6
Deferred Sales Charge .................................................. 7
Fund Expenses ........................................................ 8
Premium and Other Taxes ............................................... 8
CONTRACT VALUATION ..................................................... 8
Account Value .......................................................... 8
Accumulation Units ...................................................... 8
Net Investment Factor ................................................. 8
TRANSFERS .............................................................. 9
Dollar Cost Averaging Program ......................................... 9
WITHDRAWALS .............................................................. 9
ADDITIONAL WITHDRAWAL OPTIONS ............................................ 10
DEATH BENEFIT DURING ACCUMULATION PERIOD ................................ 10
ANNUITY PERIOD ........................................................... 11
Annuity Period Elections ............................................... 11
Annuity Options ........................................................ 11
Annuity Payments ..................................................... 12
Charges Deducted During the Annuity Period ............................. 12
Death Benefit Payable During the Annuity Period ....................... 12
TAX STATUS .............................................................. 13
Introduction ........................................................... 13
Taxation of the Company ............................................... 13
Contracts Used with Certain Retirement Plans .......................... 13
Section 457 Plans ..................................................... 14
Section 401(a) Plans .................................................. 14
MISCELLANEOUS ........................................................... 15
Voting Rights ........................................................ 15
Modification of the Contract ......................................... 15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Distribution .......................................................... 15
Performance Reporting ................................................. 16
Transfer of Ownership; Assignment ..................................... 16
Delay or Suspension of Payments ........................................ 16
Legal Matters and Proceedings ........................................... 16
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ...................... 17
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ............................... 18
APPENDIX II--FIXED ACCOUNT .............................................. 19
APPENDIX III--FIXED PLUS ACCOUNT ........................................ 20
</TABLE>
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the meanings shown:
Account: A record established for each Participant, as directed by the Contract
Holder, to identify contract values during the Accumulation Period.
Account Value: The total dollar value of amounts held in an Account as of any
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, for a definite period or a combination
of the two.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Code: The Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contracts: The group and individual deferred, variable annuity contracts
described in this Prospectus.
Contract Beneficiary: The Contract Holder is the Contract Beneficiary.
Contract Holder: The entity which owns the Contract and to which the Contract is
issued.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.
Fund(s): An open-end management investment company whose shares are purchased by
the Separate Account to fund the benefits provided by the Contracts.
Home Office: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Participant (You): A person participating in a Plan maintained by an eligible
organization. The terms of the Plan govern participant benefits.
Plan Beneficiary: The person entitled to receive benefits under the Plan in the
event of the Participant's death.
Plans: Section 457 Plans or Section 401 Plans.
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
Purchase Payment Periods: For "Installment Purchase Payment Accounts" the period
of time for completion of the agreed upon annual number and amount of Purchase
Payments. For example, if it is determined that the Purchase Payment Period will
consist of 12 payments per year and only 11 payments are made, the Purchase
Payment Period is not completed until the twelfth Purchase Payment is made.
Section 457 Plan: Deferred compensation plans adopted by state and local
governments for their employees or independent contractors (or both) under
Section 457 of the Code.
- --------------------------------------------------------------------------------
DEFINITIONS - 1
<PAGE>
Section 401 Plan: Defined contribution plans adopted by state and local
governments under Section 401 of the Code.
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 Accumulation Unit Value and
Annuity Unit Value of a Subaccount is calculated. Currently, this calculation
occurs after 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.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACTS OFFERED
The Contracts offered in connection with 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 in connection with
deferred compensation plans of state and local governments for their employees
or independent contractors, or both, under Section 457 of the Code, and for
qualified defined contribution plans under Section 401(a) of the Code
(collectively referred to as "Plans").
CONTRACT PURCHASE
The Contract may be purchased by eligible organizations on behalf of a
group made up of their employees. An Account is established for eligible
employees by completing the enrollment form (and any other required forms) and
submitting them to the Company. Purchase Payments can be applied to the Contract
either through a lump-sum transfer from a pre-existing plan, through periodic
salary reductions or through periodic employer contributions. (See "Purchase.")
FREE LOOK PERIOD
Contract Holders have the right to cancel their Contract within 10 days
after receiving it (or as otherwise allowed by state law) by returning it to us
along with a written notice of cancellation. Unless state law requires
otherwise, the amount received upon cancellation under this provision will
reflect the investment performance of the Purchase Payments deposited in the
Separate Account while invested. In certain cases, this may be less than the
amount of the Purchase Payments. (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. The total number of investment options that may be selected
during the Accumulation Period is limited. For a complete list of the Funds
available under the Contracts, a description of the investment objectives of
each of the Funds and their investment advisers, and a description of the
limitations on the number of investment options, 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 earn fixed rates of interest. The fixed options available under the
Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed Account, and
the Fixed Plus Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charge and an administrative charge), any annual maintenance fee and premium and
other taxes. The Funds also incur certain fees and expenses which are deducted
directly from the Funds. A deferred sales charge may apply upon a full or
partial withdrawal of the Account Value. (See the Fee Table and "Charges and
Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone in
accordance with the Company's transfer procedures. (See the Appendices for a
full description of the restrictions applicable to transfers made from the
Credited Interest Options.) (See "Transfers.")
WITHDRAWALS
The Contract Holder may withdraw all or a part of the Account Value prior
to the Annuity Date by properly completing a disbursement form and sending it to
the Company. Limitations apply to withdrawals from the Fixed Plus Account.
Certain charges may be assessed upon withdrawal. The withdrawals may also be
subject to income tax. (See "Withdrawals.")
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
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.")
DEATH BENEFIT
The Contract provides that a death benefit is payable to the Contract
Beneficiary upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Until the
election of a method of payment, the Account Value will remain invested under
the Contract. The Contract Holder, on behalf of a Plan Beneficiary, may elect to
receive the proceeds in a lump sum or under any of the payment options available
under the Contract. However, the Code requires that distributions begin within a
certain time period. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable to
the Contract Beneficiary depending upon the terms of the Contract and the
Annuity Option selected. (See "Annuity Period Death Benefit Payable During the
Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, the Contract Holder, on your behalf, may elect to
begin receiving Annuity Payments on either a fixed, variable or combination of
fixed and variable basis. If a variable payout is selected, the payments will
vary with the investment performance of the Subaccount(s) selected. The Company
reserves the right to limit the number of Subaccounts that may be available
during the Annuity Period. (See "Annuity Period.")
TAXES
For Section 457 Plans, contributions and earnings are not generally taxed
until paid or made available under the employer's Plan. Withholding for income
tax may be imposed on certain withdrawals. For Section 401 Plans, contributions
and earnings are generally taxed when they are distributed, and a 10% federal
penalty tax 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
For AetnaPlus Contracts
[bullet] Call Customer Service: 1-800-525-4225 (for automated transfers or
changes in the allocation of Account
Values, call 1-800-262-3862)
For Multiple Option Contracts
(which applies to Contracts issued to the following Plans):
San Bernadino County
Macomb County
City of San Jose
[bullet] Call Customer Service 1-800-677-4636 (for automated transfers or
changes in the allocation of Account
Values, call 1-800-262-3862)
- --------------------------------------------------------------------------------
SUMMARY - 2
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the Annuity
Period, see "Annuity Period--Charges Deducted During the Annuity Period." No
sales charge is paid when the Contract is purchased. Some expenses may vary as
explained under "Charges and Deductions." The charges and expenses shown below
do not include premium taxes that may be applicable. For more information
regarding expenses paid out of assets of a particular Fund, see the Fund's
prospectus.
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge (as a percentage of the amount withdrawn):*
<TABLE>
<CAPTION>
INSTALLMENT PURCHASE PAYMENT ACCOUNTS SINGLE PURCHASE PAYMENT ACCOUNTS
Purchase Payment Account Year Completed Deduction
Periods Completed Deduction ---------------------- ---------
- ----------------------------- -----------
<S> <C> <C> <C>
Less than 5 5% Less than 5 5%
5 or more but less than 7 4% 5 or more but less than 6 4%
7 or more but less than 9 3% 6 or more but less than 7 3%
9 or more but less than 10 2% 7 or more but less than 8 2%
more than 10 0% 8 or more but less than 9 1%
9 or more 0%
</TABLE>
<TABLE>
<S> <C>
Annual Contract Maintenance Fee Installment Purchase Payment Accounts .. $20.00**
Single Purchase Payment Accounts ..... $ 0.00
</TABLE>
* The total amount deducted for the deferred sales charge will not exceed 8.5%
of the total Purchase Payments applied to the Account.
**The maintenance fee will generally be deducted annually from each Installment
Purchase Payment Account during the Accumulation Period. The amount of the
maintenance fee may be reduced or eliminated. See "Charges and
Deductions-Maintenance Fee." The amount shown is the maximum maintenance fee
that can be deducted under the Contract.
SEPARATE ACCOUNT ANNUAL EXPENSES (Daily deductions, equal to the percentage
shown on an annual basis, made from amounts allocated to the variable options
under each Contract.)
For all Contracts except those for which an Administrative Expense Charge is
imposed (see "Charges and Deductions"), Separate Account Annual Expenses are:
<TABLE>
<S> <C>
Mortality and Expense Risk Charge ...... 1.25%
Administrative Expense Charge ......... 0.00%
-------
Total Separate Account Charges ......... 1.25%
=======
</TABLE>
For Contracts for which an Administrative Expense Charge is imposed (see
"Charges and Deductions"), Separate Account Annual Expenses are:
<TABLE>
<S> <C>
Mortality and Expense Risk Charge ...... 1.25%
Administrative Expense Charge ......... 0.25%
-------
Total Separate Account Charges ......... 1.50%
=======
</TABLE>
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
The following table illustrates the advisory fees and other expenses applicable
to the Funds. Except as noted, the following figures are a percentage of average
net assets and, except where otherwise indicated, are based on figures for the
year ended December 31, 1996. 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.
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------- ----------------- -----------------
<S> <C> <C> <C>
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 Capital Appreciation Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Growth Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Index Plus Portfolio(2) 0.35% 0.15% 0.50%
Aetna Variable Small Company Portfolio(2) 0.75% 0.15% 0.90%
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Small Cap Portfolio 0.85% 0.03% 0.88%
American Century VP Cap. Appreciation (formerly "TCI
Growth")(3) 1.00% 0.00% 1.00%
Calvert Responsibly Invested Balanced Portfolio(4) 0.71% 0.13% 0.84%
Fidelity VIP II Contrafund Portfolio(5) 0.61% 0.13% 0.74%
Fidelity VIP Equity-Income Portfolio(5) 0.51% 0.07% 0.58%
Fidelity VIP Growth Portfolio(5) 0.61% 0.08% 0.69%
Fidelity VIP Overseas Portfolio(5) 0.76% 0.17% 0.93%
Franklin Government Securities Trust(6) 0.63% 0.07% 0.70%
Janus Aspen Aggressive Growth Portfolio(7) 0.72% 0.04% 0.76%
Janus Aspen Balanced Portfolio(7) 0.79% 0.15% 0.94%
Janus Aspen Flexible Income Portfolio(7) 0.65% 0.19% 0.84%
Janus Aspen Growth Portfolio(7) 0.65% 0.04% 0.69%
Janus Aspen Short-Term Bond Portfolio(7) 0.47% 0.19% 0.66%
Janus Aspen Worldwide Growth Portfolio(7) 0.66% 0.14% 0.80%
Lexington Natural Resources Trust 1.00% 0.42% 1.42%
Neuberger & Berman Growth Portfolio(8) 0.83% 0.09% 0.92%
Scudder International Portfolio Class A Shares 0.86% 0.19% 1.05%
</TABLE>
- ------------------
(1)
Certain of the unaffiliated Fund advisers reimburse the Company for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Contract. These reimbursements are paid out
of the investment advisory fees and are not charged to investors.
(2)
The Company provides administrative services to the Fund and assumes the Fund's
ordinary recurring direct costs under an Administrative Services Agreement. The
new Administrative Services Agreement became effective on May 1, 1996 for Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., Aetna Ascent Variable Portfolio, Aetna
Crossroads Variable Portfolio, and Aetna Legacy Variable Portfolio. Therefore,
for these Funds the "Other Expenses" shown are not based on actual figures for
the year ended December 31, 1996, but reflect the fee payable under that
Agreement. The Administrative Services Agreement was in effect for Aetna
Variable Capital Appreciation Portfolio, Aetna Variable Growth Portfolio, Aetna
Variable Index Plus Portfolio and Aetna Variable Small Company Portfolio since
their inception.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc., Aetna
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio, and Aetna
Legacy Variable Portfolio. The Advisory Fees shown above are not based on
actual figures for the year ended December 31, 1996, but reflect the increased
Investment Advisory Fees.
(3)
The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and 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.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(4)
The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03% expected
to be incurred in 1997. "Investment Advisory Fees" include a performance
adjustment, 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
0.03% (relating to an expense offset arrangement with the Portfolio's
custodian). Net fund operating expenses after reductions for fees paid
indirectly (again, restated) would be 0.81%.
(5)
A portion of the brokerage commissions that certain funds pay was used to
reduce expenses. In addition, certain funds have entered into arrangements with
their custodian and transfer agent whereby interest earned on uninvested cash
balances was used to reduce custodian and transfer agent expenses. Including
these reductions, the total operating expenses would have been 0.56% for Equity
Income Portfolio, 0.67% for Growth Portfolio, 0.92% for Overseas Portfolio; and
0.71% for Contrafund Portfolio.
(6)
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 at any time during 1996.
(7)
The fees and expenses shown above are based on gross expenses of the Shares
before expense offset arrangements for the fiscal year ended December 31, 1996.
The information for each Portfolio other than the Flexible Income Portfolio is
net of fee waivers or reductions from Janus Capital. Fee reductions for the
Aggressive Growth, Balanced, Growth, and Worldwide Growth Portfolios reduce the
management fee to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the management fee and then
against other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Fund Annual Expenses would have been 0.79%, 0.04% and
0.83% for Aggressive Growth Portfolio; 0.92%, 0.15% and 1.07% for Balanced
Portfolio; 0.79%, 0.04% and 0.83% for Growth Portfolio; 0.65%, 0.19% and 0.84%
for Short-Term Bond Portfolio; and 0.77%, 0.14% and 0.91% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the waivers or
reductions at any time upon at least 90 days' notice to the Portfolio's Board
of Trustees.
(8)
Neuberger & Berman Advisers Management 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. The figures
reported under "Investment Advisory Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by its
corresponding Series. Similarly, "Other Expenses" includes all other expenses
of the Portfolio and its corresponding Series.
- --------------------------------------------------------------------------------
FEE TABLE - 3
<PAGE>
HYPOTHETICAL ILLUSTRATION (EXAMPLE)
THIS EXAMPLE IS PURELY HYPOTHETICAL. IT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR EXPECTED RETURN. ACTUAL EXPENSES
AND/OR RETURN MAY BE MORE OR LESS THAN THOSE SHOWN BELOW.
WITHOUT ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that no Administrative Expense Charge is imposed. For the
purposes of these Examples, the maximum maintenance fee of $20.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.027%.
<TABLE>
<CAPTION>
EXAMPLE A
--------------------------------------------
If you withdraw your entire Account
Value at the end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:
1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $70 $113 $158 $216
Aetna Income Shares $69 $110 $154 $207
Aetna Variable Encore Fund $68 $107 $148 $193
Aetna Investment Advisers Fund, Inc. $70 $113 $159 $218
Aetna Ascent Variable Portfolio $72 $118 $167 $236
Aetna Crossroads Variable Portfolio $72 $118 $167 $236
Aetna Legacy Variable Portfolio $72 $118 $167 $236
Aetna Variable Capital Appreciation Portfolio $72 $118 $167 $236
Aetna Variable Growth Portfolio $72 $118 $167 $236
Aetna Variable Index Plus Portfolio $70 $111 $155 $209
Aetna Variable Small Company Portfolio $73 $122 $174 $251
Alger American Growth Portfolio $72 $119 $169 $240
Alger American Small Cap Portfolio $73 $122 $173 $249
American Century VP Capital Appreciation $74 $125 $179 $261
Calvert Responsibility Invested Balanced Portfolio $73 $121 $171 $245
Fidelity VIP II Contrafund Portfolio $72 $118 $167 $234
Fidelity VIP Equity-Income Portfolio $70 $113 $159 $218
Fidelity VIP Growth Portfolio $71 $116 $164 $229
Fidelity VIP Overseas Portfolio $74 $123 $176 $254
Franklin Government Securities Trust $72 $117 $165 $230
Janus Aspen Aggressive Growth Portfolio $72 $118 $168 $237
Janus Aspen Balanced Portfolio $74 $124 $176 $255
Janus Aspen Flexible Income Portfolio $73 $121 $171 $245
Janus Aspen Growth Portfolio $71 $116 $164 $229
Janus Aspen Short-Term Bond Portfolio $71 $116 $163 $226
Janus Aspen Worldwide Growth Portfolio $73 $120 $170 $241
Lexington Natural Resources Trust $78 $137 $199 $303
Neuberger & Berman Growth Portfolio $74 $123 $175 $253
Scudder International Portfolio Class A Shares $75 $127 $181 $266
<CAPTION>
EXAMPLE B
-------------------------------------------
If you do not withdraw your Account
Value, or if you annuitize at the end of
the periods shown, you would pay the
following expenses (no deferred sales
charge is reflected):*
1 year 3 years 5 years 10 years
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $19 $58 $99 $216
Aetna Income Shares $18 $55 $95 $207
Aetna Variable Encore Fund $17 $51 $88 $193
Aetna Investment Advisers Fund, Inc. $19 $58 $100 $218
Aetna Ascent Variable Portfolio $21 $64 $109 $236
Aetna Crossroads Variable Portfolio $21 $64 $109 $236
Aetna Legacy Variable Portfolio $21 $64 $109 $236
Aetna Variable Capital Appreciation Portfolio $21 $64 $109 $236
Aetna Variable Growth Portfolio $21 $64 $109 $236
Aetna Variable Index Plus Portfolio $18 $56 $96 $209
Aetna Variable Small Company Portfolio $22 $68 $117 $251
Alger American Growth Portfolio $21 $65 $111 $240
Alger American Small Cap Portfolio $22 $68 $116 $249
American Century VP Capital Appreciation $23 $71 $122 $261
Calvert Responsibility Invested Balanced Portfolio $21 $66 $114 $245
Fidelity VIP II Contrafund Portfolio $20 $63 $109 $234
Fidelity VIP Equity-Income Portfolio $19 $58 $100 $218
Fidelity VIP Growth Portfolio $20 $62 $106 $229
Fidelity VIP Overseas Portfolio $22 $69 $118 $254
Franklin Government Securities Trust $20 $62 $107 $230
Janus Aspen Aggressive Growth Portfolio $21 $64 $110 $237
Janus Aspen Balanced Portfolio $22 $69 $119 $255
Janus Aspen Flexible Income Portfolio $21 $66 $114 $245
Janus Aspen Growth Portfolio $20 $62 $106 $229
Janus Aspen Short-Term Bond Portfolio $20 $61 $105 $226
Janus Aspen Worldwide Growth Portfolio $21 $65 $112 $241
Lexington Natural Resources Trust $27 $84 $143 $303
Neuberger & Berman Growth Portfolio $22 $69 $118 $253
Scudder International Portfolio Class A Shares $24 $73 $124 $266
</TABLE>
- ------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump-sum settlement is requested within three years after
annuity payments start since the lump-sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
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.
WITH ADMINISTRATIVE EXPENSE CHARGE:
The following Examples illustrate the expenses that would have been paid
assuming a $1,000 investment in the Contract and a 5% return on assets. This
example assumes that an Administrative Expense Charge of 0.25% annually is
imposed. For the purposes of these Examples, the maximum maintenance fee of
$20.00 that can be deducted under the Contract has been converted to a
percentage of assets equal to 0.027%.
<TABLE>
<CAPTION>
EXAMPLE A
--------------------------------------------
If you withdraw your entire Account
Value at the end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:
1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $73 $120 $170 $242
Aetna Income Shares $72 $118 $166 $233
Aetna Variable Encore Fund $71 $114 $160 $220
Aetna Investment Advisers Fund, Inc. $73 $120 $171 $244
Aetna Ascent Variable Portfolio $74 $125 $179 $261
Aetna Crossroads Variable Portfolio $74 $125 $179 $261
Aetna Legacy Variable Portfolio $74 $125 $179 $261
Aetna Variable Capital Appreciation Portfolio $74 $125 $179 $261
Aetna Variable Growth Portfolio $74 $125 $179 $261
Aetna Variable Index Plus Portfolio $72 $118 $167 $236
Aetna Variable Small Company Portfolio $76 $130 $186 $276
Alger American Growth Portfolio $75 $126 $181 $265
Alger American Small Cap Portfolio $76 $129 $185 $274
American Century VP Capital Appreciation $77 $132 $191 $286
Calvert Responsibly Invested Balanced Portfolio $75 $128 $183 $270
Fidelity VIP II Contrafund Portfolio $74 $125 $179 $260
Fidelity VIP Equity-Income Portfolio $73 $120 $171 $244
Fidelity VIP Growth Portfolio $74 $124 $176 $255
Fidelity VIP Overseas Portfolio $76 $130 $188 $279
Franklin Government Securities Trust $74 $124 $177 $256
Janus Aspen Aggressive Growth Portfolio $75 $126 $180 $262
Janus Aspen Balanced Portfolio $76 $131 $188 $280
Janus Aspen Flexible Income Portfolio $75 $128 $183 $270
Janus Aspen Growth Portfolio $74 $124 $176 $255
Janus Aspen Short-Term Bond Portfolio $74 $123 $175 $252
Janus Aspen Worldwide Growth Portfolio $75 $127 $182 $266
Lexington Natural Resources Trust $81 $144 $210 $327
Neuberger & Berman Growth Portfolio $76 $130 $187 $278
Scudder International Portfolio Class A Shares $77 $134 $193 $291
<CAPTION>
EXAMPLE B
-------------------------------------------
If you do not withdraw your Account
Value, or if you annuitize at the end of
the periods shown, you would pay the
following expenses (no deferred sales
charge is reflected):*
1 year 3 years 5 years 10 years
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $21 $65 $112 $242
Aetna Income Shares $20 $63 $108 $233
Aetna Variable Encore Fund $19 $59 $101 $220
Aetna Investment Advisers Fund, Inc. $21 $66 $113 $244
Aetna Ascent Variable Portfolio $23 $71 $122 $261
Aetna Crossroads Variable Portfolio $23 $71 $122 $261
Aetna Legacy Variable Portfolio $23 $71 $122 $261
Aetna Variable Capital Appreciation Portfolio $23 $71 $122 $261
Aetna Variable Growth Portfolio $23 $71 $122 $261
Aetna Variable Index Plus Portfolio $21 $64 $109 $236
Aetna Variable Small Company Portfolio $25 $76 $129 $276
Alger American Growth Portfolio $23 $72 $124 $265
Alger American Small Cap Portfolio $24 $75 $128 $274
American Century VP Capital Appreciation $26 $79 $134 $286
Calvert Responsibly Invested Balanced Portfolio $24 $74 $126 $270
Fidelity VIP II Contrafund Portfolio $23 $71 $121 $260
Fidelity VIP Equity-Income Portfolio $21 $66 $113 $244
Fidelity VIP Growth Portfolio $22 $69 $119 $255
Fidelity VIP Overseas Portfolio $25 $77 $131 $279
Franklin Government Securities Trust $23 $70 $119 $256
Janus Aspen Aggressive Growth Portfolio $23 $71 $122 $262
Janus Aspen Balanced Portfolio $25 $77 $131 $280
Janus Aspen Flexible Income Portfolio $24 $74 $126 $270
Janus Aspen Growth Portfolio $22 $69 $119 $255
Janus Aspen Short-Term Bond Portfolio $22 $68 $117 $252
Janus Aspen Worldwide Growth Portfolio $24 $73 $124 $266
Lexington Natural Resources Trust $30 $91 $155 $327
Neuberger & Berman Growth Portfolio $25 $76 $130 $278
Scudder International Portfolio Class A Shares $26 $80 $137 $291
</TABLE>
- ------------------
* This Example would not apply if a nonlifetime variable annuity option is
selected, and a lump-sum settlement is requested within three years after
annuity payments start since the lump-sum payment will be treated as a
withdrawal during the Accumulation Period and will be subject to any deferred
sales charge that would then apply. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 5
<PAGE>
CONDENSED FINANCIAL INFORMATION
AETNA PLUS CONTRACTS
(Selected data for accumulation units outstanding throughout each period)
Applies to all Contracts except those issued to San Bernadino County,
Macomb County, and City of San Jose. For information on those Contracts, see
"Condensed Financial Information--Multiple Option Contracts"
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Separate Account, which financial statements have
been audited by KPMG Peat Marwick LLP, Independent Auditors. The financial
statements and the independent auditors' report thereon are included in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $14.077 $10.778 $11.020 $10.454
Value at end of period 17.302 $14.077 $10.778 $11.020
Increase (decrease) in value of
accumulation unit(1) 22.91% 30.61% (2.20)% 5.41%
Number of accumulation units
outstanding at end of period 185,328,132 188,964,022 114,733,035 44,166,470
AETNA INCOME SHARES
Value at beginning of period $12.098 $10.360 $10.905 $10.068
Value at end of period $12.377 $12.098 $10.360 $10.905
Increase (decrease) in value of
accumulation unit(1) 2.30% 16.78% (5.00)% 8.31%
Number of accumulation units
outstanding at end of period 20,036,622 21,379,976 11,713,354 4,084,142
AETNA VARIABLE ENCORE FUND
Value at beginning of period $11.026 $10.528 $10.241 $10.048
Value at end of period $11.473 $11.026 $10.528 $10.241
Increase (decrease) in value of
accumulation unit(1) 4.05% 4.73% 2.80% 1.92%
Number of accumulation units
outstanding at end of period 13,898,826 12,999,680 7,673,528 2,766,044
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $13,673 $10.868 $11.057 $10.189
Value at end of period $15.551 $13.673 $10.868 $11.057
Increase (decrease) in value of
accumulation unit(1) 13.73% 25.81% (1.71)% 8.52%
Number of accumulation units
outstanding at end of period 36,147,028 38,152,395 23,139,604 11,368,365
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.673 $10.000(7)
Value at end of period $13.025 $10.673
Increase (decrease) in value of
accumulation unit(1) 22.04% 6.73%
Number of accumulation units
outstanding at end of period 1,314,997 393,053
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.612 $10.000(7)
Value at end of period $12.450 $10.612
Increase (decrease) in value of
accumulation unit(1) 17.32% 6.12%
Number of accumulation units
outstanding at end of period 918,336 294,673
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.580 $10.000(7)
Value at end of period $11.930 $10.580
Increase (decrease) in value of
accumulation unit(1) 12.76% 5.80%
Number of accumulation units
outstanding at end of period 513,590 143,637
AETNA VARIABLE INDEX PLUS PORTFOLIO
Value at beginning of period $10.000(8)
Value at end of period $10.924
Increase (decrease) in value of
accumulation unit(1) 9.24%(8)
Number of accumulation units
outstanding at end of period 879,588
<CAPTION>
1992 1991 1990 1989 1988 1987
---------------- ------------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $97.165 $77.845 $76.311 $59.871 $52.885 $50.760
Value at end of period $10.454(2) $97.165 $77.845 $76.311 $59.871 $52.885
Increase (decrease) in value of
accumulation unit(1) (2) 24.82% 2.01% 27.46% 13.21% 4.19%
Number of accumulation units
outstanding at end of period 21,250 20,948,226 18,362,906 17,142,820 16,455,396 16,497,406
AETNA INCOME SHARES
Value at beginning of period $36.789 $31.192 $28.943 $25.574 $24.061 $23.308
Value at end of period $10.068(3) $36.789 $31.192 $28.943 $25.574 $24.061
Increase (decrease) in value of
accumulation unit(1) (3) 17.94% 7.77% 13.17% 6.29% 3.23%
Number of accumulation units
outstanding at end of period 3,870 7,844,412 6,984,793 6,202,834 5,955,293 5,372,271
AETNA VARIABLE ENCORE FUND
Value at beginning of period $33.812 $32.138 $30.012 $27.783 $26.171 $24.812
Value at end of period $10.048(4) $33.812 $32.138 $30.012 $27.783 $26.171
Increase (decrease) in value of
accumulation unit(1) (4) 5.21% 7.08% 8.02% 6.16% 5.48%
Number of accumulation units
outstanding at end of period 825 8,430,082 10,220,110 8,286,033 8,154,644 7,326,151
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $12.736 $10.896 $10.437 $10.000(5)
Value at end of period $10.189(6) $12.736 $10.896 $10.437
Increase (decrease) in value of
accumulation unit(1) (6) 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 11,508 22,898,099 17,078,985 9,535,986
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AETNA VARIABLE INDEX PLUS PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 1
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ---------------- --------------
<S> <C> <C> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $10.157 $10.000(7)
Value at end of period $11.370 $10.157
Increase (decrease) in value of
accumulation unit(1) 11.93% 1.57%
Number of accumulation units
outstanding at end of period 6,708,795 2,832,440
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period $13.450 $9.437 $9.959
Value at end of period $13.838 $13.450 $9.437
Increase (decrease) in value of
accumulation unit(1) 2.88% 42.52% (5.24)%
Number of accumulation units
outstanding at end of period 17,587,705 15,036,765 6,339,407
AMERICAN CENTURY VP CAPITAL
APPRECIATION*
Value at beginning of period $15.253 $11.781 $12.069
Value at end of period $14.395 $15.253 $11.781
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.39)%
Number of accumulation units
outstanding at end of period 18,038,614 21,986,645 12,853,828
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $13.527 $10.554 $11.036
Value at end of period $15.044 $13.527 $10.554
Increase (decrease) in value of
accumulation unit(1) 11.22% 28.17% (4.37)%
Number of accumulation units
outstanding at end of period 1,313,324 966,098 521,141
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.397 $10.000(7)
Value at end of period $12.455 $10.397
Increase (decrease) in value of
accumulation unit(1) 19.79% 3.97%
Number of accumulation units
outstanding at end of period 6,812,870 2,116,732
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $11.092 $10.000(7)
Value at end of period $12.518 $11.092
Increase (decrease) in value of
accumulation unit(1) 12.86% 10.92%
Number of accumulation units
outstanding at end of period 5,007,706 1,660,304
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.066 $10.000(7)
Value at end of period $11.402 $10.066
Increase (decrease) in value of
accumulation unit(1) 13.27% 0.66%
Number of accumulation units
outstanding at end of period 5,171,098 1,833,794
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $9.961 $10.000(7)
Value at end of period $11.137 $9.961
Increase (decrease) in value of
accumulation unit(1) 11.80% (0.39)%
Number of accumulation units
outstanding at end of period 487,709 196,090
<CAPTION>
1993 1992
---------------- ------------------
<S> <C> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period $10.000(9)
Value at end of period $9.959
Increase (decrease) in value of
accumulation unit(1) (0.41)%
Number of accumulation units
outstanding at end of period 781,836
AMERICAN CENTURY VP CAPITAL
APPRECIATION*
Value at beginning of period $10.692 $10.000(10)
Value at end of period $12.069 $10.692
Increase (decrease) in value of
accumulation unit(1) 12.88% 6.92%
Number of accumulation units
outstanding at end of period 3,667,821 2,254
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $10.278 $10.000(10)
Value at end of period $11.036 $10.278
Increase (decrease) in value of
accumulation unit(1) 7.37% 2.78%
Number of accumulation units
outstanding at end of period 144,168 2,556
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------------- ----------
<S> <C> <C> <C>
FRANKLIN GOVERNMENT SECURITIES TRUST
Value at beginning of period $11.762 $10.119 $10.642
Value at end of period $12.088 $11.762 $10.119
Increase (decrease) in value of
accumulation unit(1) 2.77% 16.24% (4.91)%
Number of accumulation units
outstanding at end of period 763,006 717,760 325,365
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $13.322 $10.581 $10.000(11)
Value at end of period $14.202 $13.322 $10.581
Increase (decrease) in value of
accumulation unit(1) 6.60% 25.91% 5.81%
Number of accumulation units
outstanding at end of period 8,835,470 4,887,060 753,862
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.850 $10.000(7)
Value at end of period $12.449 $10.850
Increase (decrease) in value of
accumulation unit(1) 14.73% 8.50%
Number of accumulation units
outstanding at end of period 996,510 93,304
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $12.077 $9.873 $10.000(11)
Value at end of period $13.022 $12.077 $9.873
Increase (decrease) in value of
accumulation unit(1) 7.83% 22.33% (1.27)%
Number of accumulation units
outstanding at end of period 619,287 315,361 28,543
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.870 $10.000(7)
Value at end of period $12.716 $10.870
Increase (decrease) in value of
accumulation unit(1) 16.98% 8.70%
Number of accumulation units
outstanding at end of period 2,018,527 259,196
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.323 $10.000(7)
Value at end of period $10.600 $10.323
Increase (decrease) in value of
accumulation unit(1) 2.68% 3.23%
Number of accumulation units
outstanding at end of period 91,328 32,696
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.877 $10.000(7)
Value at end of period $13.860 $10.877
Increase (decrease) in value of
accumulation unit(1) 27.43% 8.77%
Number of accumulation units
outstanding at end of period 8,715,825 1,036,040
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $11.720 $10.154 $10.877
Value at end of period $14.686 $11.720 $10.154
Increase (decrease) in value of
accumulation unit(1) 25.31% 15.42% (6.65)%
Number of accumulation units
outstanding at end of period 966,482 711,892 703,676
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $14.345 $11.026 $11.747
Value at end of period $15.461 $14.345 $11.026
Increase (decrease) in value of
accumulation unit(1) 7.78% 30.10% (6.14)%
Number of accumulation units
outstanding at end of period 3,130,549 3,331,218 1,865,104
<CAPTION>
1993 1992
---------- ------------------
<S> <C> <C>
FRANKLIN GOVERNMENT SECURITIES
TRUST
Value at beginning of period $10.008 $10.000(10)
Value at end of period $10.642 $10.008
Increase (decrease) in value of
accumulation unit(1) 6.33% 0.08%
Number of accumulation units
outstanding at end of period 167,137 5,559
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $ 9.832 $10.000(10)
Value at end of period $10.877 $ 9.832
Increase (decrease) in value of
accumulation unit(1) 10.63% (1.68)%
Number of accumulation units
outstanding at end of period 135,614 561
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $10.864 $10.000(10)
Value at end of period $11.747 $10.864
Increase (decrease) in value of
accumulation unit(1) 8.13% 8.64%
Number of accumulation units
outstanding at end of period 546,559 10,645
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $13.923 $12.687 $12.957 $9.578
Value at end of period $15.781 $13.923 $12.687 $12.957
Increase (decrease) in value of
accumulation unit(1) 13.35% 9.74% (2.08)% 35.28%
Number of accumulation units
outstanding at end of period 6,905,884 7,323,208 6,558,946 1,020,233
<CAPTION>
1992
------------------
<S> <C>
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $10.000(10)
Value at end of period $ 9.578
Increase (decrease) in value of
accumulation unit(1) (4.22)%
Number of accumulation units
outstanding at end of period 5,232
</TABLE>
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charges or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $97.817. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 0.67%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 4.54%.
(3) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $38.521. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 4.70%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.68%.
(4) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $34.397. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 1.73%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 0.48%.
(5) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(6) The Accumulation Unit value was converted to $10.000 on August 21, 1992
upon the commencement of a new administrative system. Immediately prior to
that date, the Accumulation Unit value of the Fund was $13.118. On the date
of conversion, additional units were issued so that account values were not
changed as a result of the conversion. The percentage change in the
Accumulation Unit value from the beginning of the year to the date of
conversion was 2.99%; the percentage change in the Accumulation Unit value
from the date of conversion to the end of the year was 1.89%.
(7) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during August 1995, when
the Fund became available under the Contract.
(8) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established during August 1996, when the
Portfolio became available under the Contract, when Funds were first
received in this option or when the applicable daily asset charge was first
utilized.
(9) 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.
(10) The initial Accumulation Unit value was established at $10.000 on August
21, 1992, the date on which the Fund/Portfolio became available under the
Contract.
(11) The initial Accumulation Unit value was established at $10.000 during
October 1994, when the funds were first received in this option.
* Formerly TCI Portfolios, Inc. -- TCI Growth
** Formerly Calvert Socially Responsible Series.
- --------------------------------------------------------------------------------
AUV HISTORY - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
MULTIPLE OPTION CONTRACTS
(Selected data for accumulation units outstanding throughout each period)
Applies to Contracts issued to San Bernadino County, Macomb County, and
City of San Jose. For all other contracts, see "Condensed Financial
Information--Aetna Plus Contracts."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 1996 (as applicable), is derived from the
financial statements of the Separate Account, which financial statements have
been audited by KPMG Peat Marwick LLP, Independent Auditors. The financial
statements and the independent auditors' report thereon are included in the SAI.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $137.869 $105.558 $107.925 $102.383 $97.165
Value at end of period $169.448 $137.869 $105.558 $107.925 $102.383
Increase (decrease) in value of
accumulation unit(1) 22.91% 30.61% (2.19)% 5.41% 5.37%
Number of accumulation units
outstanding at end of period 2,071,139 6,364,000 13,966,072 21,148,863 24,201,565
AETNA INCOME SHARES
Value at beginning of period $46.913 $40.173 $42.283 $39.038 $36.789
Value at end of period $47.992 $46.913 $40.173 $42.283 $39.038
Increase (decrease) in value of
accumulation unit(1) 2.30% 16.78% (4.99)% 8.31% 6.11%
Number of accumulation units
outstanding at end of period 835,724 2,377,622 5,108,720 8,210,666 8,507,292
AETNA VARIABLE ENCORE FUND
Value at beginning of period $37.988 $36.271 $35.282 $34.619 $33.812
Value at end of period $39.528 $37.988 $36.271 $35.282 $34.619
Increase (decrease) in value of
accumulation unit(1) 4.05% 4.73% 2.80% 1.92% 2.39%
Number of accumulation units
outstanding at end of period 597,656 1,836,260 3,679,802 5,086,515 7,534,662
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $17.954 $14.270 $14.519 $13.379 $12.736
Value at end of period $20.419 $17.954 $14.270 $14.519 $13.379
Increase (decrease) in value of
accumulation unit(1) 13.73% 25.82% (1.71)% 8.52% 5.05%
Number of accumulation units
outstanding at end of period 2,716,641 9,193,181 21,990,186 30,784,750 34,802,433
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.673 $10.000(3)
Value at end of period $13.025 $10.673
Increase (decrease) in value of
accumulation unit(1) 22.04% 6.73%
Number of accumulation units
outstanding at end of period 0 8
<CAPTION>
1991 1990 1989 1988 1987
------------- ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
AETNA VARIABLE FUND
Value at beginning of period $77.845 $76.311 $59.871 $52.885 $50.760
Value at end of period $97.165 $77.845 $76.311 $59.871 $52.885
Increase (decrease) in value of
accumulation unit(1) 24.82% 2.01% 27.46% 13.21% 4.19%
Number of accumulation units
outstanding at end of period 20,948,226 18,362,906 17,142,820 16,455,396 16,497,406
AETNA INCOME SHARES
Value at beginning of period $31.192 $28.943 $25.574 $24.061 $23.308
Value at end of period $36.789 $31.192 $28.943 $25.574 $24.061
Increase (decrease) in value of
accumulation unit(1) 17.94% 7.77% 13.17% 6.29% 3.23%
Number of accumulation units
outstanding at end of period 7,844,412 6,984,793 6,202,834 5,955,293 5,372,271
AETNA VARIABLE ENCORE FUND
Value at beginning of period $32.138 $30.012 $27.783 $26.171 $24.812
Value at end of period $33.812 $32.138 $30.012 $27.783 $26.171
Increase (decrease) in value of
accumulation unit(1) 5.21% 7.08% 8.02% 6.16% 5.48%
Number of accumulation units
outstanding at end of period 8,430,082 10,220,110 8,286,033 8,154,644 7,326,151
AETNA INVESTMENT ADVISERS FUND, IN
Value at beginning of period $10.896 $10.437 $10.000(2)
Value at end of period $12.736 $10.896 $10.437
Increase (decrease) in value of
accumulation unit(1) 16.89% 4.40% 4.37%
Number of accumulation units
outstanding at end of period 22,898,099 17,078,985 9,535,986
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 5
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $11.715 $10.000(3)
Value at end of period $13.113 $11.715
Increase (decrease) in value of
accumulation unit(1) 11.93% 17.15%
Number of accumulation units
outstanding at end of period 1,023,908 530,263
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period $13.558 $9.513 $10.072 $10.000(4)
Value at end of period $13.949 $13.558 $9.513 $10.072
Increase (decrease) in value of
accumulation unit(1) 2.88% 42.52% (5.55)% 0.72%
Number of accumulation units
outstanding at end of period 2,373,178 1,714,187 665,518 51,327
AMERICAN CENTURY VP CAPITAL
APPRECIATION*
Value at beginning of period $14.464 $11.172 $11.443 $10.495
Value at end of period $13.650 $14.464 $11.172 $11.443
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.37)% 9.03%
Number of accumulation units
outstanding at end of period 1,566,276 1,784,552 1,608,362 1,016,894
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $17.951 $13.990 $14.640 $13.726
Value at end of period $19.965 $17.951 $13.990 $14.640
Increase (decrease) in value of
accumulation unit(1) 11.22% 28.31% (4.44)% 6.66%
Number of accumulation units
outstanding at end of period 898,279 856,361 743,464 705,415
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $11.763 $10.000(7)
Value at end of period $14.092 $11.763
Increase (decrease) in value of
accumulation unit(1) 19.79% 17.63%
Number of accumulation units
outstanding at end of period 1,522,169 525,476
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $11.617 $10.000(7)
Value at end of period $13.110 $11.617
Increase (decrease) in value of
accumulation unit(1) 12.86% 16.17%
Number of accumulation units
outstanding at end of period 1,454,755 628,582
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.198 $10.000(3)
Value at end of period $11.552 $10.198
Increase (decrease) in value of
accumulation unit(1) 13.27% 1.98%
Number of accumulation units
outstanding at end of period 0 762
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.197 $10.000(3)
Value at end of period $11.400 $10.197
Increase (decrease) in value of
accumulation unit(1) 11.80% 1.97%
Number of accumulation units
outstanding at end of period 0 1,302
<CAPTION>
1992 1991 1990 1989
---------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
ALGER AMERICAN SMALL CAP
PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
AMERICAN CENTURY VP CAPITAL
APPRECIATION*
Value at beginning of period $10.000(5)
Value at end of period $10.495
Increase (decrease) in value of
accumulation unit(1) 4.95%
Number of accumulation units
outstanding at end of period 232,832
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $12.913 $11.233 $10.568 $10.000(6)
Value at end of period $13.726 $12.913 $11.233 $10.568
Increase (decrease) in value of
accumulation unit(1) 6.30% 14.96% 6.29% 5.68%
Number of accumulation units
outstanding at end of period 503,006 355,851 148,576 20,710
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 6
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
FRANKLIN GOVERNMENT SECURITIES TRUST
Value at beginning of period $16.495 $14.190 $14.929 $14.050
Value at end of period 16.952 $16.495 $14.190 $14.929
Increase (decrease) in value of
accumulation unit(1) 2.77% 16.24% (4.95)% 6.26%
Number of accumulation units
outstanding at end of period 767.910 809,414 804,457 960,629
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $15.323 $12.169 $10.000(9)
Value at end of period $16.334 $15.323 $12.169
Increase (decrease) in value of
accumulation unit(1) 6.60% 25.91% 21.69%
Number of accumulation units
outstanding at end of period 1,893,718 1,280,953 393,553
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.853 $10.000(3)
Value at end of period $12.453 $10.853
Increase (decrease) in value of
accumulation unit(1) 14.73% 8.53%
Number of accumulation units
outstanding at end of period 231 161
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $12.124 $9.911 $10.000(10)
Value at end of period $13.074 $12.124 $9.911
Increase (decrease) in value of
accumulation unit(1) 7.83% 22.33% (0.89)%
Number of accumulation units
outstanding at end of period 3,761 3,345 1,555
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $11.859 $10.000(3)
Value at end of period $13.872 $11.859
Increase (decrease) in value of
accumulation unit(1) 16.98% 18.59%
Number of accumulation units
outstanding at end of period 663,945 109,717
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.393 $10.000(3)
Value at end of period $10.671 $10.393
Increase (decrease) in value of
accumulation unit(1) 2.68% 3.93%
Number of accumulation units
outstanding at end of period 54,215 18.473
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $12.158 $10.000(3)
Value at end of period $15.493 $12.158
Increase (decrease) in value of
accumulation unit(1) 27.43% 21.58%
Number of accumulation units
outstanding at end of period 2,090,908 314,653
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.862 $9.412 $10.071 $9.193
Value at end of period $13.611 $10.862 $9.412 $10.071
Increase (decrease) in value of
accumulation unit(1) 25.31% 15.41% (6.54)% 9.55%
Number of accumulation units
outstanding at end of period 587,248 530,562 533,016 341,771
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $17.430 $13.398 $14.278 $13.536
Value at end of period $18.786 $17.430 $13.398 $14.278
Increase (decrease) in value of
accumulation unit(1) 7.78% 30.09% (6.16)% 5.48%
Number of accumulation units
outstanding at end of period 2,169,362 2,359,090 2,107,525 1,927,674
<CAPTION>
1992 1991 1990 1989
----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
FRANKLIN GOVERNMENT SECURITIES
TRUST
Value at beginning of period $13.219 $11.545 $10.581 $10.000(8)
Value at end of period $14.050 $13.219 $11.545 $10.581
Increase (decrease) in value of
accumulation unit(1) 6.29% 14.50% 9.11% 5.81%
Number of accumulation units
outstanding at end of period 810,155 627,552 178,761 25,258
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period
Value at end of period
Increase (decrease) in value of
accumulation unit(1)
Number of accumulation units
outstanding at end of period
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $9.018 $9.608 $11.441 $10.000(6)
Value at end of period $9.193 $9.018 $9.608 $11.441
Increase (decrease) in value of
accumulation unit(1) 1.94% (6.14)% (16.02)% 14.41%
Number of accumulation units
outstanding at end of period 198,338 144,139 75,052 11,481
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $12.511 $ 9.769 $ 10.772 $10.000(6)
Value at end of period $13.536 $12.511 $9.769 $10.772
Increase (decrease) in value of
accumulation unit(1) 8.19% 28.07% (9.31)% 7.72%
Number of accumulation units
outstanding at end of period 1,346,898 971,985 482,220 68,885
</TABLE>
- --------------------------------------------------------------------------------
AUV HISTORY - 7
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES***
Value at beginning of period $14.515 $13.227 $13.508 $9.922
Value at end of period $16.453 $14.515 $13.227 $13.508
Increase (decrease) in value of
accumulation unit 13.35% 9.74% (2.08)% 36.14%
Number of accumulation units
outstanding at end of period 3,684,698 3,823,292 4,240,412 2,371,037
<CAPTION>
1992 1991 1990 1989
-------------- ---------- ------------- ------------------
<S> <C> <C> <C> <C>
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES***
Value at beginning of period $10.239** $9.256 $10.306 $10.000(11)
Value at end of period $9.922 $10.239 $9.256 $10.306
Increase (decrease) in value of
accumulation unit (3.10)% 10.62% (10.19)% 3.06%
Number of accumulation units
outstanding at end of period 1,161,007 779,667 317,829 32,906
</TABLE>
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year,
and dividing the result by the beginning Accumulation Unit value. These
figures do not reflect the deferred sales charges or the fixed dollar annual
maintenance fee, if any. Inclusion of these charges would reduce the
investment results shown.
(2) The initial Accumulation Unit value was established at $10.000 on June 23,
1989, the date on which the Fund commenced operations.
(3) The initial Accumulation Unit value was established at $10.000 during July
1995, when the Fund became available under the Contract.
(4) 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.
(5) The initial Accumulation Unit value was established at $10.000 on September
21, 1992, the date on which the Portfolio became available under the
Contract.
(6) The initial Accumulation Unit value was established at $10.000 on May 31,
1989, the date on which the Fund/Portfolio became available under the
Contract.
(7) The initial Accumulation Unit value was established at $10.000 during May
1995, when the Fund became available under the Contract.
(8) The initial Accumulation Unit value was established at $10.000 on June 7,
1989, the date on which the Fund became available under the Contract.
(9) The initial Accumulation Unit value was established at $10.000 during June
1994, when funds were first received in this option.
(10) The initial Accumulation Unit value was established at $10.000 during
November 1994, when funds were first received in this option.
(11) The initial Accumulation Unit value was established at $10.000 on July 5,
1989, the date on which the Portfolio became available under the Contract.
* Formerly TCI Portfolios, Inc. -- TCI Growth
** Formerly Calvert Socially Responsible Series.
*** Formerly T. Rowe Price International Equity Fund. On April 27, 1992, the
Fund's assets were liquidated and merged into Scudder Variable Life Investment
Fund--Managed International Portfolio. The Accumulation Unit Value following
the merger was $10.051.
- --------------------------------------------------------------------------------
AUV HISTORY - 8
<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 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 other income, gains or losses of the Company. All obligations
arising under the Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FUNDS
The Contract Holder (or you, if allowed by the Contract Holder) may
allocate Purchase Payments to one or more of the Subaccounts as designated on
the enrollment form. In turn, the Subaccounts invest in the corresponding Funds
at net asset value. The 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 the Guaranteed
Accumulation Account counts as one option, even if you no longer have amounts
allocated to that option.
The Contract Holder may decide to offer only a select number of Funds
under its Plan. In addition, the Company may add, withdraw or substitute Funds,
subject to the conditions in the Contract and to compliance with regulatory
requirements. The availability of the Funds may also be subject to applicable
regulatory authorization. Not all Funds may be available in all jurisdictions,
under all Contracts or in all Plans.
The investment results of the Funds described below are likely to differ
significantly and there is no assurance that any of the Funds will achieve their
respective investment objectives. Except where otherwise noted, all of the Funds
are diversified, as defined in the 1940 Act.
[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)
[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)
- --------------------------------------------------------------------------------
1
<PAGE>
[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 Capital Appreciation
Portfolio seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stock. The Portfolio will use a value-oriented approach in an attempt 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] Aetna Variable Portfolios, Inc.--Aetna Variable Growth Portfolio seeks
growth of capital through investment in a diversified portfolio of common
stocks and securities convertible into common stocks believed to offer growth
potential.(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.(1)
[bullet] Aetna Variable Portfolios, Inc.--Aetna Variable Small Company Portfolio
seeks growth of capital primarily through investment in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies with smaller market capitalizations. Companies with smaller market
capitalizations generally will have market capitalization at the time of
purchase of $1 billion or less.(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, ("Russell Index") and the S&P Small Cap 600
Index ("S&P Index"), updated quarterly. At March 31, 1997 the range of market
capitalization of the companies in the Russell Index was $10 million to $1.94
billion;(2) the range of market capitalization of the companies in the S&P
Index at that date was $32 million to $2.58 billion. The combined range was
$10 million to $2.58 billion.(2)
[bullet] American Century VP Capital Appreciation (formerly TCI Growth) 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.(3)
[bullet] Calvert Responsibly Invested Balanced Portfolio is a non-
diversified portfolio that seeks to achieve a total return above the rate of
inflation through an actively managed, nondiversified portfolio of common and
preferred stocks, bonds and money market instruments which offer
- --------------------------------------------------------------------------------
2
<PAGE>
income and capital growth opportunity and which satisfy the social criteria
established for the Portfolio.(4)
[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.(5)
[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.(5)
[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.(5)
[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). Foreign investments involve
greater risks than U.S. investments, including political and economic risks
and the risk of currency fluctuations.(5)
[bullet] Franklin Government Securities Trust seeks income through investments
in obligations of the U.S. Government or its agencies or instrumentalities,
primarily GNMA obligations.(6)
[bullet] Janus Aspen Series--Aggressive Growth Portfolio is a non-diversified
portfolio that seeks long-term growth of capital. The Portfolio pursues its
investment objective by normally investing at least 50% of its equity assets
in securities issued by medium-sized companies. Medium-sized companies are
those whose market capitalizations fall within the range of companies in the
S&P MidCap 400 Index, which as of December 30, 1996 included companies with
capitalizations between approximately $192 million and $6.5 billion, but
which is expected to change on a regular basis.(7)
[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, under normal circumstances,
investing 40%-60% of its assets in securities selected primarily for their
growth potential and 40%-60% of its assets in securities selected primarily
for their income potential.(7)
[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 (commonly known as "junk bonds.")(7)
[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.(7)
[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.(7)
[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.(7)
[bullet] Lexington Natural Resources Trust is a non-diversified 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.(8)
[bullet] Neuberger & Berman Advisers Management Trust--Growth Portfolio seek
capital appreciation without regard to income. The Portfolio generally
invests in securities believed to have the maximum potential for long-term
capital appreciation. The Portfolio expects to be almost fully invested in
common stocks, often of companies that may be temporarily out of favor in the
market.(9)
[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.(10)
Investment Advisers for each of the Funds:
(1) Aetna Life Insurance and Annuity Company
(adviser); Aeltus Investment Management, Inc. (sub-adviser)
(2) Fred Alger Management, Inc.
(3) American Century Investment Management, Inc.
(4) Calvert Asset Management Company, Inc.
(5) Fidelity Management & Research Company
- --------------------------------------------------------------------------------
3
<PAGE>
(6) Franklin Advisers, Inc.
(7) Janus Capital Corporation
(8) Lexington Management Corporation (adviser);
Market Systems Research Advisors, Inc. (subadviser)
(9) Neuberger & Berman Management Inc. (Investment
Manager); Neuberger & Berman, LLC (Sub-Adviser)
(10) Scudder, Stevens & Clark, Inc.
Risks Associated with Investment in the Funds. Some of the Funds may use
instruments known as derivatives as part of their investment strategies. The use
of certain derivatives may involve high risk of volatility to a Fund, and the
use of leverage in connection with such derivatives can also increase risk of
losses. Some of the Funds may also invest in foreign or international securities
which involve greater risks than U.S. investments.
More comprehensive information, including a discussion of potential risks,
is found in the respective Fund prospectuses which accompany this Prospectus.
You should read the Fund prospectuses and consider carefully, and on a
continuing basis, which Fund or combination of Funds is best suited to your
long-term investment objectives.
Conflicts of Interest (Mixed and Shared Funding). Shares of the Funds are
sold to each of the Subaccounts for funding the variable annuity contracts
issued by the Company. Shares of the Funds may also be sold to other insurance
companies for the same purpose. This is referred to as "shared funding." Shares
of the Funds may also be used for funding variable life insurance contracts
issued by the Company or by third parties. This is referred to as "mixed
funding."
Because the Funds available under the Contract are sold to fund variable
annuity contracts and variable life insurance policies issued by us or by other
companies, certain conflicts of interest could arise. If a conflict of interest
were to occur, one of the separate accounts might withdraw its investment in a
Fund, which might force that Fund to sell portfolio securities at
disadvantageous prices, causing its per share value to decrease. Each Fund's
Board of Directors or Trustees has agreed to monitor events in order to identify
any material irreconcilable conflicts which might arise and to determine what
action, if any, should be taken to address such conflict.
CREDITED INTEREST OPTIONS
Purchase Payments may be allocated to one or more of the Credited Interest
Options available under the Contract as described below. (The Contract Holder
may elect not to offer all Credited Interest Options under its Plan.)*
[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 received
the quoted interest rates, or a market value adjustment (which may be
positive or negative) will be applied. (See Appendix I.)
[bullet] The Fixed Account is a part of the Company's general account. The Fixed
Account guarantees a minimum interest rate, as specified in the Contract. The
Company may credit higher interest rates from time to time. Transfers from
the Fixed Account are limited. (See Appendix II.)
[bullet] The Fixed Plus Account is also a part of the Company's general account
and guarantees a minimum interest rate, as specified in the Contract. The
Company may credit higher interest rates in its discretion. Withdrawals and
transfers from the Fixed Plus Account are limited. (See Appendix III.)
* GAA is no longer available under the Contract issued to the Erie County Public
Employee Deferred Compensation Plan. If Participants currently have funds in
GAA, as a Guaranteed Term matures, unless the Participant instructs us
otherwise, amounts will automatically be transferred to the Fixed Account.
PURCHASE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT AVAILABILITY
The Contracts are designed for Plans established by organizations for
their deferred compensation plans under Section 457 of the Code, and for
qualified defined contribution plans under Section 401(a) of the Code. The
Contract is generally owned by the employer, and an Account is established for
each Participant, as directed by the Contract Holder, to identify contract
values during the Accumulation Period. A Participant's record under the Contract
is known as his or her "Account."
Prior to the August 20, 1996 enactment of the Small Business Job
Protection Act of 1996 (the "Small Business Act"), all amounts of compensation
deferred under Plans, all property and rights purchased with such amounts, and
all income attributable to such amounts, property or rights remained solely the
property and rights of the employer
- --------------------------------------------------------------------------------
4
<PAGE>
(without being restricted to the provision of benefits under the Plan), subject
only to the claims of the employer's general creditors. Under the Small Business
Act, Plans are required to hold all assets and income in trust (or a custodial
account or annuity contract) for the exclusive benefit of participants and their
beneficiaries. Plans that were in existence on August 20, 1996 are allowed until
January 1, 1999 to meet this requirement. Until such time as a Plan meets the
Small Business Act's trust requirement the Contract will be part of the
employer's general assets, subject to the claims of its general creditors, and
benefits available to you will be backed only by the general assets of the
employer. Some of the options and elections available under the Contract may not
be available to you under the provisions of your Plan. Contact your employer for
information regarding your Plan.
CONTRACT PURCHASE
Eligible organizations may acquire a Contract by submitting an application
to the Company. Once we approve the application, a group Contract is issued to
the employer as the Contract Holder. The Company will establish an Account for a
Participant upon receipt of an enrollment form.
The Company must accept or reject an application or enrollment form within
two business days of receipt. If a form is incomplete, the Company may hold any
forms and accompanying Purchase Payments for five days. Purchase Payments may be
held for longer periods pending acceptance of the forms only with the consent of
the Participant, or under limited circumstances, with the consent of the group
Contract Holder. If we agree to hold Purchase Payments for longer than the five
business days based on the consent of the group Contract Holder, they will be
deposited in the Aetna Variable Encore Fund Subaccount until the forms are
completed.
PURCHASE PAYMENTS
Generally, two types of Purchase Payments may be made under the Contract,
and depending upon which type of payment is made, different Accounts may be
established for each payment type. Continuing, periodic payments will be placed
in "Installment Purchase Payment Accounts." Installment Purchase Payments must
be at least $50 per month ($600 annually) per Participant. No payment may be
less than $25. Lump-sum transfers of amounts accumulated under a pre-existing
plan may be placed in "Single Purchase Payment Accounts" in accordance with the
Company's procedures and minimums in effect at the time of purchase. The Code
imposes a maximum limit on annual Purchase Payments which may be excluded from a
Participant's gross income. (See "Tax Status.")
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Contract Holder (or you, if authorized by the Contract Holder) on the enrollment
form. Changes in such allocation may be made in writing or by telephone
transfer. Allocations must be in whole percentages, and there may be limitations
on the number of investment options that can be selected during the Accumulation
Period. (See "Investment Options--The Funds.")
RIGHT TO CANCEL
The Contract Holder may cancel participation under the Contract without
penalty by returning it to the Company with a written notice of cancellation. In
most states, Contract Holders have ten days to exercise this right; some states
allow a longer free-look period. When we receive the request for cancellation,
we will return the Account Value, unless the laws of the state in which the
Contract was issued require that we return the initial Purchase Payment (if
greater than the Account Value). In states that do not require a return of
Purchase Payments, the purchaser bears the entire investment risk for amounts
allocated among the Subaccounts during the free look period. Account Values will
be determined as of the Valuation Date on which we receive the request for
cancellation at our Home Office.
TRANSFER CREDITS
The Company may provide a transfer credit on "transferred assets," subject
to certain conditions and state approvals. Transferred assets are the value of
contributions made on your behalf under this Plan or a prior plan before such
amounts are applied to this Contract. The transfer credit will equal a
percentage of the transferred assets applied to the Contract that remain in the
Contract after a specified period of time. Once a transfer credit is applied to
the Contract, all provisions of the Contract apply. This benefit is provided on
a nondiscriminatory basis. If a transfer credit is due under the Contract, you
will be provided with additional information specific to the Contract.
- --------------------------------------------------------------------------------
5
<PAGE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
charge is equal, on an annual basis, to 1.25% of the daily net assets of the
Subaccounts and compensates the Company for the assumption of 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 expense relating to the Contracts and as a source of profit
for the Company. The Company expects to make a profit from the mortality and
expense risk charge.
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative 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.
Effective April 4, 1997, the administrative expense charge during the
Accumulation Period equals, on an annual basis, 0.25% of the daily net assets
allocated to the Subaccounts for Contracts effective prior to October 31, 1996
where the number of Participants with assets in the Contract is less than 30 as
of November 30, 1996 and the Contract Holder has chosen not to elect one of the
Company's electronic standards for cash collection and application of
participant contribution data. There is currently no administrative expense
charge assessed during the Accumulation Period for any other Contracts.
In addition, the administrative expense charge will not be imposed for
Participants who enrolled in a group Contract prior to November 5, 1984, for any
Participants in individual Contracts issued prior to November 5, 1984, or for
Contracts issued to public school systems.
There is currently no administrative expense charge during the Annuity
Period. Once an Annuity Option is elected, the charge will be established and
will be effective during the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from each Installment Purchase Payment Account on its
anniversary date. The maintenance fee is to reimburse the Company for some of
its administrative expenses relating to the establishment and maintenance of the
Accounts.
The maximum maintenance fee that can be deducted under the Contract is
$20. However, the maintenance fee may be reduced or eliminated depending upon
certain criteria described below. The maintenance fee will be deducted on a pro
rata basis from each Subaccount and Credited Interest Option in which the
Account is invested. If the Account Value is withdrawn, the full maintenance fee
will be deducted at the time of withdrawal.
Reduction or Elimination of the Maintenance Fee. The annual maintenance
fee may be reduced or eliminated under various conditions as agreed to by us and
the Contract Holder in writing. Any reduction or elimination of the annual
maintenance fee will reflect differences in administrative costs and services
after taking into consideration factors such as the following:
[bullet] the size, characteristics, and nature of the group to which a
Contract is issued;
[bullet] the level of our anticipated expenses in administering the
Contract, such as billing for Purchase Payments, producing periodic
reports, providing for the direct payment of Contract charges rather
than having them deducted from Account Values, and any other factors
pertaining to the level and expense of administrative services which
will be provided under the Contract.
Any reduction or elimination of maintenance fees will not be unfairly
discriminatory against any person. We will make any reduction in annual
maintenance fees according to our own rules in effect at the time an application
for a Contract is approved. We reserve the right to change these rules from time
to time.
- --------------------------------------------------------------------------------
6
<PAGE>
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amount
withdrawn from the Subaccounts, the Fixed Account or the Guaranteed Accumulation
Account. No deferred sales charge is deducted from amounts withdrawn from the
Fixed Plus Account.
For Installment Purchase Payment Accounts, the deferred sales charge is
based on the number of completed Purchase Payment Periods. For Single Purchase
Payment Accounts, it is based on the number of Account Years that have elapsed
since the Purchase Payments were made. The amount of the deferred sales charge
is determined in accordance with the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
<TABLE>
<CAPTION>
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ----------------------------- ------------------
<S> <C>
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
</TABLE>
SINGLE PURCHASE PAYMENT ACCOUNTS:
<TABLE>
<CAPTION>
Account Years Deferred Sales
Completed Charge Deduction
- ---------------------------- ------------------
<S> <C>
Less than 5 5%
5 or more but less than 6 4%
6 or more but less than 7 3%
7 or more but less than 8 2%
8 or more but less than 9 1%
9 or more 0%
</TABLE>
If you transfer the total account value under another deferred
compensation annuity contract issued by the Company to an Account under this
Contract, the effective date of the new Account will be the same effective date
as the former contract for purposes of calculating the applicable deferred sales
charge under this Contract.
A deferred sales charge will not be deducted from any portion of the
Account Value which is:
[bullet] applied to provide Annuity benefits;
[bullet] withdrawn on or after the tenth anniversary of the effective date of
the Account;
[bullet] withdrawn due to a hardship resulting from an unforeseeable emergency,
as specified in the Code;
[bullet] paid due to your death before Annuity payments begin;
[bullet] withdrawn due to the election of an Additional Withdrawal Option (see
"Additional Withdrawal Options");
[bullet] paid where the Account Value is $3,500 or less and no amount has been
withdrawn or used to purchase Annuity benefits during the prior 12 months;
[bullet] withdrawn due to the Participant's separation from service with the
employer (the Contract Holder must submit documentation satisfactory to the
Company confirming that the Participant is no longer providing services to
the employer); or
[bullet] withdrawn from an Installment Purchase Payment Account by a Participant
who is at least age 59-1/2 and who has completed nine Purchase Payment
Periods.
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to the Account. The Company does not
anticipate that the deferred sales charge will cover all sales and
administrative expenses which it incurs in connection with the Contract; the
difference will be covered by the general assets of the Company which are
attributable, in part, to the mortality and expense risk charge described above.
Reduction or Elimination of the Deferred Sales Charge. For a particular
Plan, we may reduce, waive or eliminate the deferred sales charge. Any
reduction, waiver or elimination of such charges will reflect differences or
expected differences in the amounts of unrecovered distribution costs or
services of the types that the charge is intended to defray. When considering
whether to reduce or eliminate such charges or to grant such a waiver, we will
take into account factors which may include the following:
[bullet] the number of participants under the Plan;
[bullet] the expected level of assets or cash flow under the Plan;
[bullet] the level of agent involvement in sales activities;
[bullet] the level of our sales-related expenses;
[bullet] the specific distribution provisions under the Plan;
[bullet] the Plan's purchase of one or more other variable annuity contracts
from us and the features of those contracts;
[bullet] the level of employer involvement in determining eligibility for
distributions under the Contract; and
[bullet] our assessment of financial risk to the Company relating to surrenders.
- --------------------------------------------------------------------------------
7
<PAGE>
Any reduction, waiver or elimination of deferred sales charges will not be
unfairly discriminatory against any person.
We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section.
We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.
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 illustrated in the Fee Table in
this Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Account Values at any time, but no
earlier than when we have a tax liability under state law. The Company's current
practice is to deduct for premium taxes at the time of complete withdrawal or
annuitization. In addition to the premium tax, the Company reserves the right to
assess a charge for any state or federal taxes due against the Contract or the
Separate Account assets.
CONTRACT VALUATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative charge (if any).
Initial Purchase Payments will be credited to your Contract at the AUV
computed on the next Valuation Date following our acceptance of the application
or enrollment form, as described under "Purchase--Contract Purchase." Each
subsequent Purchase Payment (or amount transferred) received by the Company by
the close of business of the New York Stock Exchange 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;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units on the preceding Valuation Date;
- --------------------------------------------------------------------------------
8
<PAGE>
(e) minus a daily charge at the annual effective rate of 1.25% for
mortality and expense risks and up to 0.25% as an
administrative expense charge.
The net investment rate may be either positive or negative.
TRANSFERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At any time prior to the Annuity Date, the Contract Holder, or you (if
permitted by the Contract Holder), can transfer amounts held under the Contract
from one Subaccount to another. Transfers between the Credited Interest Options
and the Subaccounts are subject to certain restrictions. (See Appendices I, II
and III.) A request for transfer can be made either in writing or by telephone.
The telephone transfer privilege is available automatically; no special election
is necessary. All transfers must be in accordance with the terms of the Contract
and your Plan, as applicable.
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. The transfer amount may not be less
than $500. The total number of investment options in which you may invest during
the Accumulation Period is limited. (See "Investment Options--The Funds.") Any
transfer will be based on the Accumulation Unit Value next determined after the
Company receives a valid transfer request at its Home Office. Transfers are not
available during the Annuity Period.
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, if
available under your Plan. There is no additional charge for this 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. For additional information, please refer to the Inquiries Section of the
Prospectus Summary, which describes how you can obtain further information.
WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subject to the limitations on withdrawals from the Fixed Plus Account, the
Contract Holder may withdraw all or a portion of the Account Value at any time
during the Accumulation Period. To request a withdrawal, the Contract Holder, on
your behalf, 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. Under a Section 457 Plan, pay-out elections may
not be changed once payments have commenced.
Withdrawals may be requested in one of the following forms:
[bullet] Full Withdrawal of the Contract or an Account: The amount paid upon a
full withdrawal will be the Account Value(s) allocated to the Subaccounts,
the Guaranteed Accumulation Account (plus or minus a market value adjustment)
(see Appendix I), and the Fixed Account, minus any applicable deferred sales
charge and maintenance fee due, plus the amount available for withdrawal from
the Fixed Plus Account (see Appendix III).
[bullet] Partial Withdrawals (Percentage): The amount paid will be the
percentage of the Account Value(s) requested minus any applicable deferred
sales charge; however, amounts available for withdrawal from the Fixed Plus
Account is limited (see Appendix III).
[bullet] Partial Withdrawal (Specified Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the Account
will equal the amount requested plus any applicable deferred sales charge.
The amount available for withdrawal from the Fixed Plus Account is limited
(see Appendix III).
For any partial withdrawal, amounts will be withdrawn proportionately from
each Subaccount or Credited Interest Option in which the Account is invested,
unless otherwise requested 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.
- --------------------------------------------------------------------------------
9
<PAGE>
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, the Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from the 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.
[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, and pays you that amount once a year. (See "Tax
Status.")
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office.
If you select one of the Additional Withdrawal Options, your Account will
retain all of the rights and flexibility permitted under the Contract during the
Accumulation Period. The Account Value will continue to be subject to the
charges and deductions described in this Prospectus. Taking a withdrawal under
one of these Additional Withdrawal Options may have tax consequences. Any person
concerned about tax implications should consult a competent tax advisor prior to
electing an option.
Once elected, an Additional Withdrawal Option may be revoked by the
Contract Holder at any time by submitting a written request to our Home Office.
Any revocation will apply only to the amount not yet paid. Once an option is
revoked, it may not be elected again, nor may any other Additional Withdrawal
Options be elected. To determine whether the Additional Withdrawal Options are
available under your Plan, and to assess the terms and conditions that may
apply, you should check with your employer. The Company reserves the right to
discontinue the availability of one or all of these Additional Withdrawal
Options at any time, and/or to change the terms of future elections.
DEATH BENEFIT DURING ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Contract provides that a death benefit is payable to the Contract
Beneficiary upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Death
benefit proceeds may be paid to the Contract Beneficiary:
[bullet] in a lump sum;
[bullet] in accordance with any of the Annuity Options available under the
Contract; or
[bullet] under any Additional Withdrawal Options available under the Contract
(if the Plan Beneficiary is your spouse).
The Contract Holder, on behalf of a Plan Beneficiary may instead elect one
of the following two options; however, the Code limits how long the death
benefit proceeds may be left in these options (see below):
[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 Contract 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 Contract
Holder, or to the Plan Beneficiary, if requested by the Contract Holder, within
seven days after we receive proof of death.
- --------------------------------------------------------------------------------
10
<PAGE>
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, if your Plan Beneficiary is not your spouse,
either payments must begin by December 31 of the year following the year of your
death, or the entire value of your benefits must be distributed by December 31
of the fifth year following the year of your death. If your Plan Beneficiary is
your spouse, he or she is not required to begin distributions until the year you
would have attained age 70-1/2. In no event may payments extend beyond the life
expectancy (not to exceed 15 years for a non-spousal 457 Plan Beneficiary) of
the Plan Beneficiary or any period certain greater than the Plan Beneficiary's
life expectancy.
If no elections are made, no distributions will be made. Failure to
commence distributions within the above time periods can result in tax
penalties.
Regardless of the method of payment, death benefit proceeds will generally
be taxed to the Plan Beneficiary in the same manner as if you had received those
payments. (See "Tax Status.") Also, for 457 Plans, any distribution payable over
a period of more than one year must be made in substantially non-increasing
amounts.
ANNUITY PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUITY PERIOD ELECTIONS
For the types of Contracts described in this prospectus the Code 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. In addition, distributions must be in a form
and amount sufficient to satisfy the Code requirements. These requirements may
be satisfied by the election of certain Annuity Options or Additional Withdrawal
Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, the Contract Holder must
notify us in writing of the following:
[bullet] the date on which you would like to start receiving annuity payments;
[bullet] the Annuity Option under which you want your payments to be calculated
and paid;
[bullet] whether the payments are to be made monthly, quarterly, semi-annually
or annually; 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). As of the date of this Prospectus, Aetna
Variable Fund, Aetna Income Shares and Aetna Investment Advisers Fund, Inc.
are the only Subaccounts available.
Annuity payments will not begin until an Annuity Option has been selected.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once annuity payments begin, the Annuity Option may not be
changed, nor may transfers be made among the investment options(s) selected.
Under Contracts issued to the Erie County Public Employee Deferred
Compensation Plan, the Lifetime Annuity Options listed below may not be elected
and the "Payment for a Specified Period" nonlifetime option, if selected, must
be elected for a period of at least three years and not more than the lesser of
fifteen years or the life expectancy of the Participant.
ANNUITY OPTIONS
The Contract Holder may choose one of the following Annuity Options:
Lifetime Annuity Options:
[bullet] Option 1--Life Annuity--An annuity with payments ending on the
Annuitant's death.
[bullet] Option 2--Life Annuity with Guaranteed Payments--An annuity with
payments guaranteed for 5, 10, 15 or 20 years, or such other periods as the
Company may make available at the time of annuitization.
[bullet] Option 3--Life Income based Upon the Lives of Two Payees--An annuity
will be paid during the lives of the Annuitant and a second Annuitant, with
100%, 66-2/3% or 50% of the payment to continue after the first death, or
100% of the payment to continue at the death of the second Annuitant and 50%
of the payment to continue at the death of the Annuitant.
[bullet] Option 4--Life Income based Upon the Lives of Two Payees--An annuity
with payments for a minimum of 120 months, with 100% of the payment to
continue after the first death.
If Option 1 or 3 is elected, it is possible that only one Annuity Payment
will be made if the Annuitant under
- --------------------------------------------------------------------------------
11
<PAGE>
Option 1, or the surviving Annuitant under Option 3, should die prior to the due
date of the second Annuity Payment. Once lifetime Annuity payments begin, the
Annuitant cannot elect to receive a lump-sum settlement.
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 the nonlifetime option, the number of years that may be selected are
determined by the investment options used prior to annuitization. For amounts
held in the Fixed Plus Account, the annuity may be paid on a fixed or variable
basis and payments may be made for 5-30 years. For amounts held in the
Subaccounts, the Guaranteed Accumulation Account or the Fixed Account, an
annuity may be selected on a fixed or variable basis and payments may be made
for 3-30 years. If a nonlifetime option is elected on a variable basis, the
Annuitant may request at any time during the payment period that the present
value of all or any portion of the remaining variable payments be paid in one
sum. However, any lump-sum elected before three years of payments have been
completed will be treated as a withdrawal during the Accumulation Period and any
applicable deferred sales charge will be assessed. (See "Charges and
Deductions--
Deferred Sales Charge.") The nonlifetime option is not available on a variable
basis under a Contract which provides for immediate Annuity benefits.
We may also offer additional Annuity Options under the Contract from time
to time.
ANNUITY PAYMENTS
Date Payouts Start. When payments start, the age of the Annuitant plus the
number of years for which payments are guaranteed must not exceed 95. Annuity
payments may not extend beyond (a) the life of the Annuitant, (b) the joint
lives of the Annuitant and beneficiary, (c) a period certain greater than the
Annuitant's life expectancy, or (d) a period certain greater than the joint life
expectancies of the Annuitant and beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on the
Account Value, how it is allocated between fixed and variable payouts and the
annuity option chosen. No election may be made that would result in the first
Annuity payment of less than $20, or total yearly Annuity Payments of less than
$100. If the 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
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore, electing the nonlifetime option on a
variable basis will result in a deduction being made even though we assume no
mortality risk. We may also deduct a daily administrative charge from amounts
held under the variable options. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
If 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 3 was elected, Annuity Payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
Contract Beneficiary in a lump sum, unless otherwise requested, the present
value of the guaranteed annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the Contract Beneficiary (unless otherwise requested), and no deferred sales
charge will be imposed.
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 Plan Beneficiary at least as rapidly as under the
original method of distribution and, for 457 Plans, in substantially
nonincreasing amounts.
- --------------------------------------------------------------------------------
12
<PAGE>
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment. Under
Options 2 and 4, such value will be reduced by any payments made after the date
of death.
TAX STATUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Company believes
that the Separate Account's investment income and realized net capital gains
will not be taxed to the extent that such income and gains are applied to
increase the reserves under the Contracts.
The Company does not anticipate that it will incur any federal income tax
liability attributable to the Separate Account and, therefore, the Company does
not intend to make provisions for any such taxes. However, if changes in the
federal tax laws or interpretations thereof result in the Company being taxed on
income or gains attributable to the Separate Account, then the Company may
impose a charge against the Separate Account (with respect to some or all
Contracts) in order to set aside provisions to pay such taxes.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
In General: The Contract is designed for use with Section 457 plans and
Section 401 Plans. The tax rules applicable to retirement plans vary according
to 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 Contract issued in connection with such plans. Some retirement plans are
subject to distribution and other requirements that are not incorporated in the
provisions of the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws and should consult their legal counsel and tax
adviser regarding the suitability of the Contract.
Minimum Distribution Requirements: The Code has required distribution
rules for Section 457 and 401(a) Plans. Distributions under Section 457 and
401(a) Plans must generally begin by April 1 of the calendar year following the
calendar year in which you attain age 70-1/2 or retire, whichever occurs later.
In general, annuity payments must be distributed over your life or the
joint lives of you and your Plan Beneficiary, or over a period not greater than
your life expectancy or the joint life expectancies of you and your beneficiary.
Also, any distribution under a Section 457 Plan payable over a period of more
than one year must be made in substantially non-increasing amounts.
If you die after the required minimum distribution has commenced,
distributions to your Plan Beneficiary must be made at least as rapidly as under
the method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your Plan Beneficiary, the
- --------------------------------------------------------------------------------
13
<PAGE>
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, under Section 401 Plans, a spousal beneficiary
has certain rollover rights which can only be exercised in the year of your
death. The rules are complex and you should consult your tax adviser before
electing the method of calculation to satisfy the minimum distribution
requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the Plan Beneficiary or over a period not
extending beyond the life expectancy of the Plan Beneficiary (for Section 457
Plans, not to exceed 15 years for a non-spousal beneficiary), provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death, or December 31 of the calendar year in which you would have
attained age 70-1/2.
If you fail to receive the minimum required distribution for any tax year,
a 50% excise tax is imposed on the required amount that was not distributed.
SECTION 457 PLANS
Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. These plans are subject to various
restrictions on contributions and distributions. The plans may permit
participants to specify the form of investment for their deferred compensation
account. Prior to the August 20, 1996 enactment of the Small Business Job
Protection Act of 1996 (the "Small Business Act"), all compensation deferred
under the plans, all property and rights purchased with such amounts, and all
income attributable to such amounts, property or rights remained solely the
property and rights of the employer (without being restricted to the provision
of benefits) subject only to the claims of the employer's general creditors. For
that reason, depending on the terms of the particular plan, the employer may
have been entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations.
Under the Small Business Act, plans maintained by State or local
governments, their political subdivisions, agencies, instrumentalities and
certain affiliates will be required to hold all assets and income of the Plan in
trust for the exclusive benefit of plan participants and their beneficiaries.
For purposes of meeting the new requirement, custodial accounts and annuity
contracts are treated as trusts. State and local government plans that were in
existence on August 20, 1996 are allowed a transition period that ends January
1, 1999 to comply with the new requirement. In general, all amounts received
under a Section 457 plan are taxable and reportable to the IRS as taxable
income. This includes payments for death benefits, periodic and nonperiodic
distributions. Also, all amounts, except death benefit proceeds, are subject to
federal income tax withholding as wages. If we make payments directly to a
Participant on behalf of the employer as Contract Holder, we will withhold
federal taxes (and state taxes, if applicable).
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. For Section 457 Plan Participants, such limit
is generally the lesser of $7,500, as adjusted to reflect changes in the cost of
living, or 33-1/3% of your includible compensation (25% of gross compensation).
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 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 an 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
Section 401(a) Plan meets the applicable nondiscrimination requirements.
- --------------------------------------------------------------------------------
14
<PAGE>
All distributions will be taxed as they are distributed unless you made a
rollover contribution of the distribution to another plan of the same type or to
an individual retirement annuity/account ("IRA") in accordance with the Code, or
unless you have made after-tax contributions to the plan, which are not taxed
upon distribution. The Code has specific rules that apply, depending on the type
of distribution received, if after-tax contributions were made.
In general, payments received by your beneficiaries after your death are
taxed in the same manner as if you had received those payments, except that a
limited death benefit exclusion may apply to payments made for deaths occuring
on or before August 20, 1996.
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 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.
MISCELLANEOUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at meetings of
shareholders of the appropriate Fund(s). The number of votes to which each
Contract Holder may give direction will be determined as of the record date.
The number of votes each Contract Holder is entitled to direct with
respect to a particular Fund during the Accumulation Period is equal to the
portion of the current value of the Contract attributable to that Fund, divided
by the net asset value of one share of that Fund. During the Annuity Period, the
number of votes is equal to the valuation reserve applicable to the portion of
the Contract attributable to that Fund, divided by the net asset value of one
share of that Fund. In determining the number of votes, fractional votes will be
recognized. Where the value of the Contract or valuation reserve relates to more
than one Fund, the calculation of votes will be performed separately for each
Fund.
Each Contract Holder will receive a notice of each meeting of shareholders
of that Fund, together with any proxy solicitation materials, and a statement of
the number of votes attributable to the Contract. Votes attributable to Contract
Holders who do not direct us will be cast by us in the same proportion as the
votes for which we have received directions.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to the Contracts 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.
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the Securities and
Exchange Commission and is a member of the National Association of Securities
Dealers, Inc. (NASD). As Underwriter, the Company will contract with one or more
registered broker-dealers ("Distributors"), including at least one affiliate of
the Company, to offer and sell the Contracts. All persons offering and selling
the Contracts must be registered representatives of the Distributors and must
also be licensed as insurance agents to sell variable
- --------------------------------------------------------------------------------
15
<PAGE>
annuity contracts. These registered representatives may also provide services to
Participants in connection with establishing their Accounts under the Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of the Contracts. The maximum percentage amount that
the Company will ever pay as commission with respect to any given Purchase
Payment is with respect to those made during the first year of Purchase Payments
under an Account. That 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, under group contracts, 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. In addition, some sales personnel may receive various types of
non-cash compensation as special sales incentives, including trips and
educational and/or business seminars. Supervisory and other management personnel
of the Company may receive compensation that will vary based on the relative
profitability to the Company of the funding options you select. Funding options
that invest in Funds advised by the Company or its affiliates are generally more
profitable to the Company. The Company may also reimburse the Distributor for
certain actual expenses. The name of the Distributor and the registered
representative responsible for your Account are set forth on your enrollment
form. Commissions and sales related expenses are paid by the Company and are not
deducted from Purchase Payments. (See "Charges and Deductions--Deferred Sales
Charge.")
Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We may
also enter into agreements with some entities associated with the Contract
Holder or Participants in which we would agree to pay the 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.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative expense charge (if any) and any applicable deferred sales
charge). "Non-standardized returns" will be calculated in a similar manner,
except that non-standardized figures will not reflect the deduction of any
applicable deferred sales charge (which would decrease the level of performance
shown if reflected in these calculations). The non-standardized figures may also
include a 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
SAI.
TRANSFER OF OWNERSHIP; ASSIGNMENT
Unless contrary to applicable law, assignment of the Contract or Account
is prohibited.
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 it is not reasonably practicable
for the Company fairly to determine 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.
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 Counsel to the Company.
- --------------------------------------------------------------------------------
16
<PAGE>
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
- --------------------------------------------------------------------------------
17
<PAGE>
APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Guaranteed Accumulation Account ("GAA") is a credited interest option
available during the Accumulation Period under the Contract offered by this
Prospectus. Amounts allocated to the Long-Term Classifications of GAA are held
in a noninsulated, nonunitized separate account. Amounts allocated to the
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 over the period of 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 investment
due to changes in interest rates since the date of deposit. When interest rates
increase after the date of deposit, the value of the investment decreases, and
the MVA is negative. Conversely, when interest rates decrease after the date of
deposit, the value of the investment increases, and the MVA is positive. It is
possible that a negative MVA could result in you receiving an amount that is
less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to the other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge and/or federal tax liability, and a maintenance fee.
By notifying us at our Home Office 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
We will apply an MVA to GAA transfers made before the end of a Guaranteed
Term. Transfers of GAA values due to a maturity are not subject to an MVA.
- --------------------------------------------------------------------------------
18
<PAGE>
APPENDIX II
FIXED ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following summarizes material information concerning the Fixed Account.
Amounts allocated to the Fixed Account are held in the Company's general account
that supports general insurance and annuity obligations. Interests in the Fixed
Account have not been registered with the SEC in reliance on exemptions under
the Securities Act of 1933, as amended. Disclosure in the Prospectus regarding
the Fixed Account, may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of such statements. Disclosure in this Appendix regarding the Fixed
Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by guaranteeing
Account Values and promising a minimum interest rate and Annuity Payment.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as provided by
federal law.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
If a withdrawal is made from the Fixed Account, a deferred sales charge
may apply. (See "Charges and Deductions--Deferred Sales Charge.")
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
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 (if available under the Contract) 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.
- --------------------------------------------------------------------------------
19
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the Company's
general account that supports insurance and annuity obligations. Interests in
the Fixed Plus Account have not been registered with the SEC in reliance on
exemptions under the Securities Act of 1933, as amended. Disclosure in this
Prospectus regarding the Fixed Plus Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of the statements. Disclosure in this Appendix
regarding the Fixed Plus Account has not been reviewed by the SEC.
FIXED PLUS ACCOUNT
The Fixed Plus Account guarantees that amounts allocated to this option
will earn the minimum Fixed Plus interest rate specified in the Contract. We may
credit a higher interest rate from time to time. Our determination of interest
rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of invested
assets. Under this option, we assume the risk of investment gain or loss by
guaranteeing Net Purchase Payment values and promising a minimum interest rate
and Annuity payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.
We reserve the right to limit Net 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 we receive a written request in our Home Office,
reduced by any Fixed Plus Account withdrawals, transfers 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 Option.
The 20% limit is waived if the partial withdrawal is due to annuitization,
death, unforeseeable emergency (when the conditions specified under (d) below
are met), or separation from service (when the conditions specified under (e)
below are met). For this waiver to apply, any such partial withdrawal must also
be made pro rata from all funding options used under the Account.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account in five annual payments that will be 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 or annuitizations
made in the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account value twelve months later;
3. One-third of the remaining Fixed Plus Account value twelve months later;
4. One-half of the remaining Fixed Plus Account value twelve months later; and
5. The balance of the Fixed Plus Account value twelve months later.
Once we receive a request for a full withdrawal from an Account, no further
withdrawals or transfers will be permitted from the Fixed Plus Account.
- --------------------------------------------------------------------------------
20
<PAGE>
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 the
withdrawal is made:
(a) due to your death, before Annuity payments begin and request for payment is
received within 6 months after the Participant's date of death;
(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 in
our Home Office, reduced by any Fixed Plus Account withdrawals, transfers or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any of the
Additional Withdrawal Options. 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 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.
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.
- --------------------------------------------------------------------------------
21
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C Group Deferred Variable Annuity
prospectus dated May 1, 1997 for Section 457 Public Employer Deferred
Compensation Plans, 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.
SAI.75982-97) dated May 1, 1997.
- --------------------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------------------
DATE
PROS. 75982-97
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 1997
AetnaPlus Contracts and Multiple Option Contracts
Group and Individual Variable Annuity Contracts Available
under Section 457 and 401(a)
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account") dated May 1, 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. 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................................................ 8
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, 1996, the Company had
$30.1 billion invested through its products, including $15.0 billion in its
separate accounts (of which the Company oversees the management of $10.5
billion) and $1.1 billion in its mutual funds offered outside of its separate
accounts. As of December 31, 1995, it ranked among the top 2% of all U.S. life
insurance companies based on assets. 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 and administrative expense
charge described in the prospectus, all expenses incurred in the operations of
the Separate Account are borne by the Company. See "Charges and Deductions" in
the prospectus. The Company receives reimbursement for certain administrative
costs from some unaffiliated sponsors of the Funds used as funding options under
the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. The Separate Account
has no custodian. However, the Funds in whose shares the assets of the Separate
Account are invested each have custodians, as discussed in their respective
prospectuses.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C (the "Separate Account") is a separate account
established by the Company for the purpose of funding variable annuity contracts
issued by the Company. The Separate Account is registered with the Securities
and Exchange Commission as a unit investment trust under the Investment Company
Act of 1940, as amended. Purchase Payments made under the Contract may be
allocated to one or more of the Subaccounts. Each Subaccount invests in the
shares of only one of the Funds listed below. The Company may make additions to,
deletions from or substitutions of available investment options as permitted by
law and subject to the conditions in the Contract. 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.
2
<PAGE>
The Funds currently available under the Contract are as follows:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Aetna Variable Capital Appreciation Portfolio
Aetna Variable Growth Portfolio
Aetna Variable Index Plus Portfolio
Aetna Variable Small Company Portfolio
Alger American Growth Portfolio
Alger American Small Cap Portfolio
American Century VP Capital Appreciation
(formerly TCI Growth)
Calvert Responsibly Invested Balanced Portfolio
Fidelity VIP II Contrafund Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP Overseas Portfolio
Franklin Government Securities Trust
Janus Aspen Aggressive Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Flexible Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Short-Term Bond Portfolio
Janus Aspen Worldwide Growth Portfolio
Lexington Natural Resources Trust
Neuberger & Berman Growth Portfolio
Scudder International Portfolio Class A Shares
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
GENERAL
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as "non-standardized returns,"
both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The redeemable value is then divided by the initial
investment and this quotient is taken to the Nth root (N represents the number
of years in the period) and 1 is subtracted from the result which is then
expressed as a percentage, carried to at least the nearest hundredth of a
percent. The standardized figures use the actual returns of the Fund since
inception and then adjust them to reflect the deduction of all recurring charges
under the Contracts during each period (e.g., mortality
3
<PAGE>
and expense risk charges, maintenance fees, administrative expense charges, and
deferred sales charges). These charges will be deducted on a pro rata basis in
the case of fractional periods. The maintenance fee is converted to a percentage
of assets based on the average account size under the Contracts described in the
prospectus. The total return figures shown below may be different from the
actual historical total return under your Contract because for periods prior to
1994, the Subaccount's investment performance was based on the performance of
the underlying Fund plus any cash held by the Subaccount.
The non-standardized figures will be calculated in a similar manner, except that
they will not reflect the deduction of any applicable deferred sales charge
(which would decrease the level of performance shown if reflected in these
calculations). The non-standardized figures may also include monthly, quarterly,
year-to-date and three-year periods.
Investment results of the Subaccounts will fluctuate over time, and any
presentation of the Subaccounts' total return quotations for any prior period
should not be considered as a representation of how the Subaccounts will perform
in any future period. Additionally, the Account Value upon redemption may be
more or less than your original cost.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS - Standardized and Non-Standardized
Table A shown below reflects the average annual standardized and
non-standardized total return quotation figures for the periods ended December
31, 1996 for the Subaccounts under Single Payment Accounts issued by the
Company. No maintenance fee applies to these types of Accounts. Table B reflects
the average annual standardized and non-standardized total return quotation
figures for the periods ended December 31, 1996 for the Subaccounts under
Installment Payment Accounts with a $20 annual maintenance fee. The Company may
also advertise returns based on a $15 annual maintenance fee. The returns shown
below do not reflect the 0.25% administrative expense charge applicable to some
Contracts, since this charge was not assessed during the periods illustrated.
The Company will reflect such charges for periods beginning after April 4, 1997,
and may also advertise returns that do not reflect such charges. In both sets of
tables shown below, 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 *).
4
<PAGE>
TABLE A
<TABLE>
<CAPTION>
--------------------------------- --------------------------------------------- ----------
SINGLE PAYMENT ACCOUNT FUND
($0 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
--------------------------------------- --------------------------------- -------------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
- --------------------------------------- --------------------------------- --------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 16.76% 10.86% 12.81% 22.91% 16.22% 11.76% 12.81% 05/01/75
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Income Shares (2.82%) 4.59% 7.48% 2.30% 4.28% 5.44% 7.48% 05/15/73
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Variable Encore Fund (1.15%) 2.33% 4.77% 4.05% 3.84% 3.16% 4.77% 08/01/75
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Investment Advisers Fund, Inc. 8.05% 9.00% 9.48%* 13.73% 12.00% 9.89% 9.91%* 04/03/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Ascent Variable Portfolio 15.94% 17.53%* n/a 22.04% 21.64%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Crossroads Variable Portfolio 11.46% 13.67%* n/a 17.32% 17.64%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Legacy Variable Portfolio 7.13%* 9.99%* n/a 12.77% 13.84%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Variable Index Plus Portfolio 3.78%* n/a n/a 9.24%* n/a n/a n/a 09/16/96
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Alger American Growth Portfolio 6.34% 14.26% 16.76%* 11.93% 14.74% 15.19% 17.21%* 01/09/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Alger American Small Cap Portfolio (2.26%) 8.75% 18.30%* 2.88% 11.46% 9.64% 18.74%* 09/21/88
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
American Century VP Capital
Appreciation (10.24%) 4.00% 9.20%* (5.52%) 6.09% 4.86% 9.44%* 11/20/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Calvert Responsibly Invested Balanced
Portfolio 5.66% 8.19% 9.74% 11.22% 10.86% 9.08% 9.74% 09/02/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP II Contrafund Portfolio 13.72% 25.41%* n/a 19.71% 28.68%* n/a n/a 01/03/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Equity-Income Portfolio 7.21% 15.58% 12.33% 12.86% 16.78% 16.52% 12.33% 10/09/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Growth Portfolio 7.61% 12.82% 13.73% 13.27% 14.36% 13.74% 13.73% 10/09/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Overseas Portfolio 6.15% 6.92% 6.38%* 11.74% 6.76% 7.80% 6.59%* 02/13/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Franklin Government Securities Trust (2.37%) 4.25% 6.74%* 2.77% 4.33% 5.11% 7.15%* 02/17/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Aggressive Growth Portfolio 1.27% 17.94%* n/a 6.60% 15.53% 19.78%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- ----------
Janus Aspen Balanced Portfolio 9.00% 11.43%* n/a 14.73% 12.09% 13.18%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Flexible Income Portfolio 2.44% 6.49%* n/a 7.83% 8.89% 8.16%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Growth Portfolio 11.13% 12.97%* n/a 16.98% 15.14% 14.74%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Short-Term Bond Portfolio (2.45%) 1.52%* n/a 2.68% 3.45% 3.11%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Worldwide Growth Portfolio 21.06% 19.75%* n/a 27.43% 17.14% 21.63%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Lexington Natural Resources Trust 19.04% 7.70% 7.80%* 25.31% 10.56% 8.58% 8.65%* 10/14/91
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Neuberger & Berman Growth Portfolio 2.39% 7.58% 10.06% 7.78% 9.58% 8.47% 10.06% 09/10/84
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Scudder International Portfolio
Class A Shares 7.68% 8.79% 8.35%* 13.35% 6.80% 9.68% 8.57%* 05/01/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
</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.
5
<PAGE>
TABLE B
<TABLE>
<CAPTION>
--------------------------------- --------------------------------------------- ----------
INSTALLMENT PAYMENT ACCOUNT Fund
($20 ANNUAL MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED Inception
Date
--------------------------------------- --------------------------------- --------------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------- --------------------------------- --------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 16.73% 10.60% 12.78% 22.88% 16.19% 11.74% 12.78% 05/01/75
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Income Shares (2.84%) 4.34% 7.46% 2.27% 4.25% 5.42% 7.46% 05/15/73
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Variable Encore Fund (1.18%) 2.08% 4.74% 4.03% 3.81% 3.14% 4.74% 08/01/75
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Investment Advisers Fund, Inc. 8.02% 8.74% 9.16%* 13.71% 11.97% 9.86% 9.89%* 04/03/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Ascent Variable Portfolio 15.91% 17.50%* n/a 22.01% 21.61%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Crossroads Variable Portfolio 11.43% 13.64%* n/a 17.30% 17.62%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Legacy Variable Portfolio 7.10% 9.97%* n/a 12.74% 13.81%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Aetna Variable Index Plus Portfolio 3.75%* n/a n/a 9.21%* n/a n/a n/a 09/16/96
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Alger American Growth Portfolio 6.31% 13.99% 16.43%* 11.91% 14.71% 15.17% 17.18%* 01/09/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Alger American Small Cap Portfolio (2.29%) 8.50% 17.98%* 2.85% 11.44% 9.62% 18.71%* 09/21/88
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
American Century VP Capital
Appreciation (10.27%) 3.76% 8.80%* (5.55%) 6.06% 4.83% 9.42%* 11/20/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Calvert Responsibly Invested Balanced
Portfolio 5.63% 7.94% 9.71% 11.19% 10.83% 9.05% 9.71% 09/02/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP II Contrafund Portfolio 13.70% 25.38%* n/a 19.68% 28.65%* n/a n/a 01/03/95
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Equity-Income Portfolio 7.19% 15.31% 12.31% 12.83% 16.75% 16.50% 12.31% 10/09/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Growth Portfolio 7.58% 12.55% 13.70% 13.25% 14.33% 13.71% 13.70% 10/09/86
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Fidelity VIP Overseas Portfolio 6.12% 6.67% 6.01%* 11.71% 6.73% 7.77% 6.57%* 02/13/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Franklin Government Securities Trust (2.40%) 4.01% 6.43%* 2.74% 4.30% 5.08% 7.13%* 02/17/89
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Aggressive Growth Portfolio 1.25% 17.91%* n/a 6.58% 15.51% 19.76%* n/a 09/13/93
-------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Balanced Portfolio 8.97% 11.40%* n/a 14.71% 12.07% 13.15%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Flexible Income Portfolio 2.41% 6.46%* n/a 7.80% 8.86% 8.13%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Growth Portfolio 11.10% 12.94%* n/a 16.95% 15.11% 14.71%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Short-Term Bond Portfolio (2.48%) 1.50%* n/a 2.66% 3.43% 3.09%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Janus Aspen Worldwide Growth Portfolio 21.03% 19.73%* n/a 27.40% 17.12% 21.60%* n/a 09/13/93
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Lexington Natural Resources Trust 19.02% 7.44% 7.56%* 25.28% 10.54% 8.55% 8.62%* 10/14/91
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Neuberger & Berman Growth Portfolio 2.36% 7.33% 10.03% 7.75% 9.55% 8.44% 10.03% 09/10/84
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
Scudder International Portfolio
Class A Shares 7.66% 8.53% 7.97%* 13.32% 6.77% 9.65% 8.55%* 05/01/87
--------------------------------------- ---------- ----------- ---------- ---------- ----------- ---------- ----------- -----------
</TABLE>
Please refer to the discussion preceding the Tables for an explanation of the
charges included in the Standardized and Non-Standardized figures. These figures
represent historical performance and should not be considered a projection of
future performance.
6
<PAGE>
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.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000
Accumulation Units credited under a particular Account and that the value of an
Accumulation Unit for the tenth Valuation Date prior to retirement was
$13.650000. This produces a total value of $40,950.
Assume also that no premium tax is payable and that the Annuity table in the
Contract provides, for the option elected, a first monthly variable Annuity
payment of $6.68 per $1000 of value applied; the Annuitant's first monthly
payment would thus be 40.950 multiplied by $6.68, or $273.55.
Assume then that the value of an Annuity Unit for the Valuation Date on which
the first payment was due was $13.400000. When this value is divided into the
first monthly payment, the number of Annuity Units is determined to be 20.414.
The value of this number of Annuity Units will be paid in each subsequent month.
If the net investment factor with respect to the appropriate Subaccount is
1.0015000 as of the tenth Valuation Date preceding the due date of the second
monthly payment, multiplying this factor by .9999058* (to neutralize the assumed
net investment rate of 3.5% per annum built into the number of Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Annuity Unit value for the prior Valuation Date (assume such value to be
$13.504376) to produce an Annuity Unit value of $13.523359 for the Valuation
Date on which the second payment is due.
7
<PAGE>
The second monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 20.414 times $13.523359,
which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life Subaccounts or their underlying funds by performance and/or
investment objective. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the Separate Account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. 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.
8
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
Statement of Assets and Liabilities...................................... S-2
Statements of Operations and Changes in Net Assets....................... S-5
Notes to Financial Statements ........................................... S-6
Independent Auditors' Report............................................. S-12
S-1
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996:
<TABLE>
<S> <C>
ASSETS:
Investments, at net asset value: (Note 1)
Aetna Variable Fund; 151,485,109 shares (cost $4,579,080,272) ............................. $4,906,825,216
Aetna Income Shares; 28,507,123 shares (cost $369,163,545)................................ 359,849,312
Aetna Variable Encore Fund; 18,592,739 shares (cost $246,054,502) ......................... 245,304,466
Aetna Investment Advisers Fund, Inc.; 53,928,968 shares (cost $718,075,860) ............... 815,295,428
Aetna GET Fund, Series B; 4,575,463 shares (cost $47,775,458) ............................. 65,062,153
Aetna GET Fund, Series C; 19,458,746 shares (cost $196,074,278) ........................... 199,058,163
Aetna Ascent Variable Portfolio; 1,716,448 shares (cost $19,943,767) ...................... 21,660,591
Aetna Crossroads Variable Portfolio; 1,232,084 shares (cost $13,920,592) .................. 14,758,921
Aetna Legacy Variable Portfolio; 805,622 shares (cost $8,954,520) ......................... 9,067,002
Aetna Variable Index Plus Portfolio; 976,838 shares (cost $10,573,112) .................... 10,653,437
Alger American Funds:
Growth Portfolio; 3,054,826 shares (cost $98,141,364) ................................... 104,872,172
Small Capitalization Portfolio; 7,916,675 shares (cost $284,506,629) .................... 323,871,170
Calvert Responsibly Invested Balanced Fund; 22,541,903 shares (cost $37,025,408) .......... 39,989,335
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio; 5,062,740 shares (cost $95,793,557) ............................ 106,469,428
Growth Portfolio; 2,583,239 shares (cost $75,185,783) ................................... 80,442,047
Overseas Portfolio; 448,481 shares (cost $7,799,758) .................................... 8,449,388
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio; 1,010,226 shares (cost $14,600,538) ............................ 17,103,129
Contrafund Portfolio; 7,179,138 shares (cost $103,725,028) .............................. 118,886,521
Index 500 Portfolio; 238,202 shares (cost $18,926,038) .................................. 21,230,903
Franklin Government Securities Trust; 1,774,843 shares (cost $22,950,984) .................. 23,356,943
Janus Aspen Series:
Aggressive Growth Portfolio; 9,477,882 shares (cost $155,207,650) ....................... 172,876,567
Balanced Portfolio; 1,034,616 shares (cost $14,529,701) ................................. 15,281,267
Flexible Income Portfolio; 748,885 shares (cost $8,276,798) ............................. 8,417,464
Growth Portfolio; 2,630,613 shares (cost $38,608,238) ................................... 40,800,809
Short-Term Bond Portfolio; 169,569 shares (cost $1,697,074) ............................. 1,690,606
Worldwide Growth Portfolio; 8,868,224 shares (cost $155,687,884) ........................ 172,398,274
Lexington Emerging Markets Fund; 480,702 shares (cost $4,742,490) ......................... 4,845,481
Lexington Natural Resources Trust Fund; 1,668,604 shares (cost $19,847,176) ............... 23,844,347
Neuberger and Berman Advisers Management Trust -
Growth Portfolio; 3,688,195 shares (cost $85,622,163) ................................... 95,081,684
Scudder Variable Life Investment Fund -
International Portfolio; 14,454,018 shares (cost $162,216,238) .......................... 191,515,746
TCI Portfolios Inc. - Growth Fund; 33,812,929 shares (cost $338,104,873) .................... 346,244,393
--------------
NET ASSETS (cost $7,952,811,278)............................................................ $8,565,202,363
==============
Net assets represented by:
Reserves for annuity contracts in accumulation and payment period: (Notes 1 and 5)
Aetna Variable Fund:
Annuity contracts in accumulation.......................................................... $4,694,078,344
Annuity contracts in payment period........................................................ 212,746,872
Aetna Income Shares:
Annuity contracts in accumulation.......................................................... 354,233,289
Annuity contracts in payment period........................................................ 5,616,023
Aetna Variable Encore Fund:
Annuity contracts in accumulation.......................................................... 245,304,466
Aetna Investment Advisers Fund, Inc.:
Annuity contracts in accumulation.......................................................... 800,532,626
Annuity contracts in payment period........................................................ 14,762,802
</TABLE>
S-2
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
Aetna GET Fund, Series B:
Annuity contracts in accumulation......................................................... $65,062,153
Aetna GET Fund, Series C:
Annuity contracts in accumulation......................................................... 199,058,163
Aetna Ascent Variable Portfolio:
Annuity contracts in accumulation......................................................... 21,660,591
Aetna Crossroads Variable Portfolio:
Annuity contracts in accumulation......................................................... 14,758,921
Aetna Legacy Variable Portfolio:
Annuity contracts in accumulation......................................................... 9,067,002
Aetna Variable Index Plus Portfolio:
Annuity contracts in accumulation......................................................... 10,653,437
Alger American Funds:
Growth Portfolio:
Annuity contracts in accumulation......................................................... 104,872,172
Small Capitalization Portfolio:
Annuity contracts in accumulation......................................................... 323,871,170
Calvert Responsibly Invested Balanced Fund:
Annuity contracts in accumulation......................................................... 39,989,335
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio:
Annuity contracts in accumulation......................................................... 106,469,428
Growth Portfolio:
Annuity contracts in accumulation......................................................... 80,442,047
Overseas Portfolio:
Annuity contracts in accumulation......................................................... 8,449,388
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio:
Annuity contracts in accumulation......................................................... 17,103,129
Contrafund Portfolio:
Annuity contracts in accumulation......................................................... 118,886,521
Index 500 Portfolio:
Annuity contracts in accumulation......................................................... 21,230,903
Franklin Government Securities Trust Fund:
Annuity contracts in accumulation......................................................... 23,356,943
Janus Aspen Series:
Aggressive Growth Portfolio:
Annuity contracts in accumulation......................................................... 172,876,567
Balanced Portfolio:
Annuity contracts in accumulation......................................................... 15,281,267
Flexible Income Portfolio:
Annuity contracts in accumulation......................................................... 8,417,464
Growth Portfolio:
Annuity contracts in accumulation......................................................... 40,800,809
Short-Term Bond Portfolio:
Annuity contracts in accumulation......................................................... 1,690,606
Worldwide Growth Portfolio:
Annuity contracts in accumulation......................................................... 172,398,274
Lexington Emerging Markets Fund:
Annuity contracts in accumulation......................................................... 4,845,481
Lexington Natural Resources Trust Fund:
Annuity contracts in accumulation......................................................... 23,844,347
Neuberger and Berman Advisers Management Trust -
Growth Portfolio:
Annuity contracts in accumulation......................................................... 95,081,684
Scudder Variable Life Investment Fund - International Portfolio:
Annuity contracts in accumulation......................................................... 191,515,746
</TABLE>
S-3
<PAGE>
Variable Annuity Account C
Statement of Assets and Liabilities - December 31, 1996 (continued):
<TABLE>
<S> <C>
TCI Portfolios, Inc. - Growth Fund:
Annuity contracts in accumulation......................................................... $346,244,393
--------------
$8,565,202,363
==============
</TABLE>
See Notes to Financial Statements
S-4
<PAGE>
Variable Annuity Account C
Statements of Operations and Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Income: (Notes 1, 3 and 5)
Dividends ..................................................... $712,854,599 $730,430,612
Expenses: (Notes 2 and 5)
Valuation Period Deductions ................................... (93,446,331) (71,090,542)
-------------- --------------
Net investment income ............................................ 619,408,268 659,340,070
-------------- --------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on sales of investments: (Notes 1, 4 and 5)
Proceeds from sales ............................................ 2,060,808,031 570,154,582
Cost of investments sold ....................................... 1,547,239,509 409,480,615
-------------- --------------
Net realized gain ............................................ 513,568,522 160,673,967
Net unrealized gain on investments: (Note 5)
Beginning of year .............................................. 594,083,184 73,479,233
End of year .................................................... 612,391,085 594,083,184
-------------- --------------
Net change in unrealized gain ................................ 18,307,901 520,603,951
-------------- --------------
Net realized and unrealized gain on investments .................. 531,876,423 681,277,918
-------------- --------------
Net increase in net assets resulting from operations ............. 1,151,284,691 1,340,617,988
-------------- --------------
FROM UNIT TRANSACTIONS:
Variable annuity contract purchase payments ...................... 951,293,520 771,594,245
Sales and administrative charges deducted by the Company ......... (61,783) (98,694)
-------------- --------------
Net variable annuity contract purchase payments............... 951,231,737 771,495,551
Transfer from the Company for mortality guarantee adjustments .... 3,247,064 3,678,430
Transfers (to) from the Company's fixed account options .......... 187,508,331 (44,377,350)
Redemptions by contract holders .................................. (339,383,183) (287,945,984)
Annuity Payments ................................................. (20,948,181) (14,807,537)
Other ............................................................ 144,245 1,144,770
-------------- --------------
Net increase in net assets from unit transactions (Note 5) ... 781,800,013 429,187,880
-------------- --------------
Change in net assets ............................................. 1,933,084,704 1,769,805,868
NET ASSETS:
Beginning of year ................................................ 6,632,117,659 4,862,311,791
-------------- --------------
End of year ...................................................... $8,565,202,363 $6,632,117,659
============== ==============
</TABLE>
See Notes to Financial Statements
S-5
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996
1. Summary of Significant Accounting Policies
Variable Annuity Account C ("Account") is a separate account established by
Aetna Life Insurance and Annuity Company and is registered under the
Investment Company Act of 1940 as a unit investment trust. The Account is
sold exclusively for use with variable annuity contracts that are qualified
under the Internal Revenue Code of 1986, as amended.
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.
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, 1996:
Aetna Variable Fund
Aetna Income Shares
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna GET Fund, Series B
Aetna GET Fund, Series C
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
Aetna Variable Index Plus Portfolio
Alger American Funds:
[bullet] Growth Portfolio
[bullet] Small Capitalization Portfolio
Calvert Responsibly Invested Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund:
[bullet] Equity-Income Portfolio
[bullet] Growth Portfolio
[bullet] Overseas Portfolio
Fidelity Investments Variable Insurance Products Fund II:
[bullet] Asset Manager Portfolio
[bullet] Contrafund Portfolio
[bullet] Index 500 Portfolio
Franklin Government Securities Trust
Janus Aspen Series:
[bullet] Aggressive Growth Portfolio
[bullet] Balanced Portfolio
[bullet] Flexible Income Portfolio
[bullet] Growth Portfolio
[bullet] Short-Term Bond Portfolio
[bullet] Worldwide Growth Portfolio
Lexington Fund Emerging Markets Fund
Lexington Natural Resources Trust Fund
Neuberger & Berman Advisers Management Trust -
Growth Portfolio
Scudder Variable Life Investment Fund -
International Portfolio
TCI Portfolios, Inc. - Growth Fund
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 the Account form a part of, and are taxed with, the total
operations of Aetna Life Insurance and Annuity Company ("Company") which is
taxed as a life insurance company under the Internal Revenue Code of 1986,
as amended.
S-6
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
d. Annuity Reserves
Annuity reserves held in the Separate Accounts are computed for currently
payable contracts according to the Progressive Annuity, a49, 1971
Individual Annuity Mortality, 1971 Group Annuity Mortality, 83a, and 1983
Group Annuity Mortality tables using various assumed interest rates not to
exceed seven percent. Mortality experience is monitored by the Company.
Charges to annuity reserves for mortality experience are reimbursed to the
Company if the reserves required are less than originally estimated. If
additional 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 (distributions in excess of net investment income) and accumulated
net realized gain (loss) on investments is included in net unrealized gain
(loss) in the Statements of Operations and Changes in Net Assets.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments other than
short-term investments for the years ended December 31, 1996 and December
31, 1995 aggregated $3,462,016,312 and $2,060,808,031; $1,658,682,532 and
$570,154,582, respectively.
S-7
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
Net Unrealized
Valuation Proceeds Cost of Net Gain (Loss)
Period from Investments Realized Beginning
Dividends Deductions Sales Sold Gain (Loss) of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund: $515,238,366 ($54,321,686) $1,237,963,630 $841,837,896 $396,125,734 $267,567,573
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: 23,144,319 (4,611,478) 155,474,786 153,469,788 2,004,998 3,230,862
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: 14,058,252 (2,878,790) 175,207,017 167,163,639 8,043,378 9,204,418
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 72,699,670 (9,562,496) 223,353,174 160,905,519 62,447,655 122,622,603
Annuity contracts in accumulation
Annuity contracts in payment period
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 5,304,368 (1,100,778) 25,117,816 18,596,857 6,520,959 13,423,804
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 969,084 (280,865) 229,569 224,240 5,329 0
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 963,171 (137,931) 514,612 443,710 70,902 105,405
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 797,511 (106,179) 755,620 679,118 76,502 68,967
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 595,666 (63,355) 1,206,903 1,119,490 87,413 36,214
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 57,328 (16,537) 356,603 338,531 18,072 0
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 2,138,198 (966,404) 3,326,813 3,149,890 176,923 (285,937)
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 1,173,212 (3,731,877) 24,333,106 17,577,100 6,756,006 38,038,924
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 3,000,539 (425,159) 1,793,014 1,429,393 363,621 2,175,908
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 2,269,871 (994,896) 3,851,613 3,166,678 684,935 2,759,687
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 2,304,888 (707,334) 623,639 453,561 170,078 505,388
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 115,737 (82,498) 2,280,928 2,065,136 215,792 163,196
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 955,910 (196,386) 2,016,939 1,797,456 219,483 1,530,985
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 357,388 (910,633) 1,299,964 1,078,898 221,066 285,166
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 219,199 (139,391) 1,105,697 943,071 162,626 223,865
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: 1,223,061 (290,354) 5,788,894 5,646,267 142,627 831,241
Annuity contracts in accumulation
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-8
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
Net
Net Unrealized Net Increase(Decrease)
Gain (Loss) Change in In Net Assets Net Assets
End Unrealized from Unit Beginning End
of Year Gain (Loss) Transactions of Year of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Variable Fund: $327,744,944 $60,177,371 $39,664,335
Annuity contracts in accumulation $3,805,891,355 $4,694,078,344
Annuity contracts in payment period 144,049,741 212,746,872
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares: (9,314,233) (12,545,095) (34,151,027)
Annuity contracts in accumulation 380,937,626 354,233,289
Annuity contracts in payment period 5,069,969 5,616,023
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund: (750,036) (9,954,454) 5,744,394
Annuity contracts in accumulation 230,291,686 245,304,466
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers Fund, Inc.: 97,219,569 (25,403,034) (7,904,062)
Annuity contracts in accumulation 713,304,833 800,532,626
Annuity contracts in payment period 9,712,862 14,762,802
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series B: 17,286,695 3,862,891 (22,661,545)
Annuity contracts in accumulation 73,136,258 65,062,153
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund, Series C: 2,983,885 2,983,885 195,380,730
Annuity contracts in accumulation 0 199,058,163
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio: 1,716,824 1,611,419 14,244,294
Annuity contracts in accumulation 4,908,736 21,660,591
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable Portfolio: 838,329 769,362 9,552,968
Annuity contracts in accumulation 3,668,757 14,758,921
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio: 112,482 76,268 6,451,330
Annuity contracts in accumulation 1,919,680 9,067,002
- -----------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus Portfolio: 80,325 80,325 10,514,249
Annuity contracts in accumulation 0 10,653,437
- -----------------------------------------------------------------------------------------------------------------------------------
Alger American Funds:
Growth Portfolio: 6,730,808 7,016,745 58,052,710
Annuity contracts in accumulation 38,454,000 104,872,172
- -----------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Portfolio: 39,364,541 1,325,617 77,101,765
Annuity contracts in accumulation 241,246,447 323,871,170
- -----------------------------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested Balanced Fund: 2,963,927 788,019 7,573,554
Annuity contracts in accumulation 28,688,761 39,989,335
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund:
Equity-Income Portfolio: 10,675,870 7,916,183 58,569,396
Annuity contracts in accumulation 38,023,939 106,469,428
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 5,256,264 4,750,876 46,205,811
Annuity contracts in accumulation 27,717,728 80,442,047
- -----------------------------------------------------------------------------------------------------------------------------------
Overseas Portfolio: 649,630 486,434 3,994,936
Annuity contracts in accumulation 3,718,987 8,449,388
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Investments Variable Insurance Products Fund II:
Asset Manager Portfolio: 2,502,591 971,606 782,358
Annuity contracts in accumulation 14,370,158 17,103,129
- -----------------------------------------------------------------------------------------------------------------------------------
Contrafund Portfolio: 15,161,493 14,876,327 73,985,256
Annuity contracts in accumulation 30,357,117 118,886,521
- -----------------------------------------------------------------------------------------------------------------------------------
Index 500 Portfolio: 2,304,865 2,081,000 15,496,325
Annuity contracts in accumulation 3,411,144 21,230,903
- -----------------------------------------------------------------------------------------------------------------------------------
Franklin Government Securities Trust: 405,959 (425,282) 664,776
Annuity contracts in accumulation 22,042,115 23,356,943
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-9
<PAGE>
Variable Annuity Account C
Notes to Financial Statements - December 31, 1996 (continued):
5. Supplemental Information to Statements of Operations and Changes in
Net Assets - Year Ended December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Valuation Proceeds Cost of Net
Period from Investments Realized
Dividends Deductions Sales Sold Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio: $1,589,459 ($1,739,222) $4,803,682 $3,702,615 $1,101,067
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 238,807 (87,725) 1,671,701 1,511,274 160,427
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 499,929 (72,736) 1,541,843 1,429,353 112,490
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 630,364 (245,877) 1,130,979 963,703 167,276
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: 61,378 (14,453) 726,351 729,002 (2,651)
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 1,725,690 (1,035,043) 1,942,344 1,492,553 449,791
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: 0 (55,554) 905,228 870,164 35,064
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 80,144 (231,100) 7,649,108 6,026,027 1,623,081
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 8,437,018 (1,199,983) 15,336,623 13,853,081 1,483,542
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 4,063,525 (2,264,627) 26,981,873 22,523,390 4,458,483
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 47,942,547 (4,974,984) 131,517,962 112,052,109 19,465,853
Annuity contracts in accumulation
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $712,854,599 ($93,446,331) $2,060,808,031 $1,547,239,509 $513,568,522
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net Net
Unrealized Net Increase (Decrease)
Gain (Loss) Change in In Net Assets Net Assets
Beginning End Unrealized from Unit Beginning End
of Year of Year Gain (Loss) Transactions of Year of Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Janus Aspen Series:
Aggressive Growth Portfolio: $13,091,398 $17,668,916 $4,577,518 $79,952,029
Annuity contracts in accumulation $87,395,716 $172,876,567
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Portfolio: 60,530 751,567 691,037 12,773,551
Annuity contracts in accumulation 1,505,170 15,281,267
- ------------------------------------------------------------------------------------------------------------------------------------
Flexible Income Portfolio: 167,581 140,666 (26,915) 4,046,573
Annuity contracts in accumulation 3,858,123 8,417,464
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio: 145,978 2,192,571 2,046,593 33,135,966
Annuity contracts in accumulation 5,066,487 40,800,809
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Portfolio: (354) (6,468) (6,114) 1,108,236
Annuity contracts in accumulation 544,210 1,690,606
S-10
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio: 786,497 16,710,390 15,923,893 139,287,080
Annuity contracts in accumulation 16,046,863 172,398,274
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Emerging Markets Fund: (46,118) 102,991 149,109 1,627,816
Annuity contracts in accumulation 3,089,046 4,845,481
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Natural Resources Trust Fund: 1,277,740 3,997,171 2,719,431 5,442,307
Annuity contracts in accumulation 14,210,484 23,844,347
- ------------------------------------------------------------------------------------------------------------------------------------
Neuberger and Berman Advisers Management Trust -
Growth Portfolio: 11,656,721 9,459,521 (2,197,200) (937,272)
Annuity contracts in accumulation 89,495,579 95,081,684
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund -
International Portfolio: 12,783,439 29,299,509 16,516,070 4,017,712
Annuity contracts in accumulation 164,724,583 191,515,746
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Portfolios, Inc. - Growth Fund: 91,671,503 8,139,519 (83,531,984) (57,916,538)
Annuity contracts in accumulation 425,259,499 346,244,393
- ------------------------------------------------------------------------------------------------------------------------------------
Total Variable Annuity Account C $594,083,184 $612,391,085 $18,307,901 $781,800,013 $6,632,117,659 $8,565,202,363
===================================================================================================================================
</TABLE>
S-11
<PAGE>
Independent Auditors' Report
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Variable Annuity Account C:
We have audited the accompanying statement of assets and liabilities of Aetna
Life Insurance and Annuity Company Variable Annuity Account C (the "Account") as
of December 31, 1996, and the related statements of operations and 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, 1996. 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, 1996, 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 Aetna Life Insurance and Annuity Company Variable Annuity Account C
as of December 31, 1996, the results of its operations and the 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, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
S-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996
and 1995 F-4
Consolidated Statements of Changes in Shareholder's Equity
for the Years Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
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, 1996 and 1995,
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, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
February 4, 1997
F-2
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Income
(millions)
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue:
Premiums $133.6 $212.7 $191.6
Charges assessed against policyholders 396.5 318.9 279.0
Net investment income 1,045.6 1,004.3 917.2
Net realized capital gains 19.7 41.3 1.5
Other income 45.4 42.0 10.3
------- ------- -------
Total revenue 1,640.8 1,619.2 1,399.6
------- ------- -------
Benefits and expenses:
Current and future benefits 968.6 997.2 921.5
Operating expenses 342.2 310.8 225.7
Amortization of deferred policy
acquisition costs 69.8 48.0 31.5
Severance and facilities charges 61.3 -- --
------- ------- -------
Total benefits and expenses 1,441.9 1,356.0 1,178.7
------- ------- -------
Income before income taxes 198.9 263.2 220.9
Income taxes 57.8 87.3 75.6
------- ------- -------
Net income $141.1 $175.9 $145.3
======= ======= =======
See Notes to Consolidated Financial Statements.
F-3
<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)
December 31,
-------------------------
1996 1995
---- ----
Assets
- ------
Investments:
Debt securities, available for sale:
(amortized cost: $12,539.1 and $11,923.7) $12,905.5 $12,720.8
Equity securities, available for sale:
Non-redeemable preferred stock
(cost: $107.6 and $51.3) 119.0 57.6
Investment in affiliated mutual funds
(cost: $77.3 and $173.4) 81.1 191.8
Common stock (cost: $0.0 and $6.9) 0.3 8.2
Short-term investments 34.8 15.1
Mortgage loans 13.0 21.2
Policy loans 399.3 338.6
--------- ---------
Total investments 13,553.0 13,353.3
Cash and cash equivalents 459.1 568.8
Accrued investment income 159.0 175.5
Premiums due and other receivables 26.6 37.3
Deferred policy acquisition costs 1,515.3 1,341.3
Reinsurance loan to affiliate 628.3 655.5
Other assets 33.7 26.2
Separate Account assets 15,318.3 10,987.0
--------- ---------
Total assets $31,693.3 $27,144.9
========= =========
Liabilities and Shareholder's Equity
- -------------------------------------
Liabilities:
Future policy benefits $3,617.0 $3,594.6
Unpaid claims and claim expenses 28.9 27.2
Policyholders' funds left with the Company 10,663.7 10,500.1
--------- ---------
Total insurance reserve liabilities 14,309.6 14,121.9
Other liabilities 354.7 257.2
Income taxes:
Current 20.7 26.2
Deferred 80.5 169.6
Separate Account liabilities 15,318.3 10,987.0
--------- ---------
Total liabilities 30,083.8 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 418.0 407.6
Net unrealized capital gains 60.5 132.5
Retained earnings 1,128.2 1,040.1
--------- ---------
Total shareholder's equity 1,609.5 1,583.0
--------- ---------
Total liabilities and shareholder's equity $31,693.3 $27,144.9
========= =========
See Notes to Consolidated Financial Statements.
F-4
<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)
Years Ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Shareholder's equity, beginning of year $1,583.0 $1,088.5 $1,246.7
Capital contributions 10.4 -- --
Net change in unrealized capital gains (losses) (72.0) 321.5 (303.5)
Net income 141.1 175.9 145.3
Other changes (49.5) -- --
Common stock dividends declared (3.5) (2.9) --
-------- -------- --------
Shareholder's equity, end of year $1,609.5 $1,583.0 $1,088.5
======== ======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Consolidated Statements of Cash Flows
(millions)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $141.1 $175.9 $145.3
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Decrease (increase) in accrued investment income 16.5 (33.3) (17.5)
Decrease in premiums due and other receivables 1.6 25.4 1.3
Increase in policy loans (60.7) (89.9) (46.0)
Increase in deferred policy acquisition costs (174.0) (177.0) (105.9)
Decrease in reinsurance loan to affiliate 27.2 34.8 27.8
Net increase in universal life account balances 243.2 393.4 164.7
(Decrease) increase in other insurance
reserve liabilities (211.5) 79.0 75.1
Net increase in other liabilities and other assets 3.1 13.0 52.5
Decrease in income taxes (26.7) (4.5) (10.3)
Net accretion of discount on investments (68.0) (66.4) (77.9)
Net realized capital gains (19.7) (41.3) (1.5)
Other, net 1.1 -- (1.0)
-------- -------- --------
Net cash (used for) provided by operating activities (126.8) 309.1 206.6
-------- -------- --------
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale 5,182.2 4,207.2 3,593.8
Equity securities 190.5 180.8 93.1
Mortgage loans 8.7 10.7 --
Limited partnership -- 26.6 --
Investment maturities and collections of:
Debt securities available for sale 885.2 583.9 1,289.2
Short-term investments 35.0 106.1 30.4
Cost of investment purchases in:
Debt securities available for sale (6,534.3) (6,034.0) (5,621.4)
Equity securities (118.1) (170.9) (162.5)
Short-term investments (54.7) (24.7) (106.1)
Mortgage loans -- (21.3) --
Limited partnership -- -- (25.0)
Other, net (17.6) -- --
-------- -------- --------
Net cash used for investing activities (423.1) (1,135.6) (908.5)
-------- -------- --------
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts 1,579.5 1,884.5 1,737.8
Withdrawals of investment contracts (1,146.2) (1,109.6) (948.7)
Additional capital contributions 10.4 -- --
Dividends paid to shareholder (3.5) (2.9) --
-------- -------- --------
Net cash provided by financing activities 440.2 772.0 789.1
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (109.7) (54.5) 87.2
Cash and cash equivalents, beginning of year 568.8 623.3 536.1
-------- -------- --------
Cash and cash equivalents, end of year $459.1 $568.8 $623.3
======== ======== ========
Supplemental cash flow information:
Income taxes paid, net $85.5 $92.8 $85.9
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
F-6
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements
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 individual life insurance.
Financial services products include annuity contracts that offer a variety
of funding and payout options for individual and employer-sponsored
retirement plans qualified under Internal Revenue Code Sections 401, 403,
408 and 457, and non-qualified annuity contracts. These contracts may be
deferred or immediate ("payout annuities"). Financial services also include
investment advisory services, financial planning and pension plan
administrative services.
Individual life insurance products include universal life, variable
universal life, traditional whole life and term insurance.
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 Holdings, Inc.
("HOLDCO"). HOLDCO is a wholly owned subsidiary of Aetna Retirement
Services, Inc., whose ultimate parent is Aetna Inc. ("Aetna").
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. Certain reclassifications have
been made to 1995 and 1994 financial information to conform to the 1996
presentation.
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 any assets it
controls and liabilities it has incurred. An entity would not recognize
assets when control has been surrendered or liabilities have been
satisfied. Portions of this statement are effective for each of 1997 and
1998 financial statements and early adoption is not permitted. The Company
does not expect adoption of this statement to have a material effect on its
financial position or results of operations.
F-7
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from reported results
using those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments
and other debt issues with a maturity of 90 days or less when purchased.
Investments
All of the Company's debt and equity securities are classified as available
for sale and carried at fair value. These securities are written down (as
realized capital losses) for other than temporary declines in value.
Unrealized capital gains and losses related to available for sale other
than amounts allocable to experience rated contractholders, are reflected
in shareholder's equity, net of related taxes.
Fair values for debt and equity 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 and equity securities are recorded on the trade
date.
The investment in affiliated mutual funds primarily 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 are carried at unpaid principal balances,
net of impairment reserves. Sales of mortgage loans are recorded on the
closing date.
Short-term investments, consisting primarily of money market instruments
and other debt issues purchased with a maturity of 91 days to one year, are
considered available for sale and are carried at fair value, which
approximates amortized cost.
F-8
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Futures contracts are carried at fair value and require daily cash
settlement. Changes in the fair value of futures contracts that qualify as
hedges are deferred and recognized as an adjustment to the hedged asset or
liability. Deferred gains or losses on such futures contracts are amortized
over the life of the acquired asset or liability as a yield adjustment or
through net realized capital gains or losses upon disposal of an asset.
Changes in the fair value of futures contracts that do not qualify as
hedges are recorded in net realized capital gains or losses. Hedge
designation requires specific asset or liability identification, a
probability at inception of high correlation with the position underlying
the hedge, and that high correlation be maintained throughout the hedge
period. If a hedging instrument ceases to be highly correlated with the
position underlying the hedge, hedge accounting ceases at that date and
excess gains and losses on the hedging instrument are reflected in net
realized capital gains or losses.
Swap agreements which are designated as interest rate risk management
instruments at inception are accounted for using the accrual method.
Accordingly, the difference between amounts paid and received on such
agreements is reported in net investment income. There is no recognition in
the Consolidated Balance Sheets for changes in the fair value of the
agreement.
Deferred Policy Acquisition Costs
Certain costs of acquiring insurance business are deferred. These costs,
all of which vary with and are primarily related to the production of new
and renewal 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 (up to 20 years). For universal life and certain
annuity contracts, such costs are amortized in proportion to estimated
gross profits and adjusted to reflect actual gross profits over the life of
the contracts (up to 20 years).
Deferred policy acquisition costs are written off to the extent that it is
determined that future policy premiums and investment income or gross
profits are not adequate to cover related losses and expenses.
Insurance Reserve Liabilities
Future Policy Benefits include reserves for universal life, immediate
annuities with life contingent payouts and traditional life insurance
contracts. Reserves for universal life contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon.
Reserves for immediate annuities with life contingent payouts and
traditional life insurance contracts are computed on the basis of assumed
investment yield, mortality, and expenses, including a margin for adverse
deviations. Such assumptions generally vary by plan, year of issue and
policy duration. Reserve interest rates range from 2.25% to 12.00%.
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.
F-9
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Policyholders' Funds Left With the Company include reserves for deferred
annuity investment contracts and immediate annuities without life
contingent payouts. Reserves on such contracts are equal to cumulative
deposits less charges and withdrawals plus credited interest thereon (rates
range from 4.00% to 7.00%), net of adjustments for investment experience
that the Company is entitled to reflect in future credited interest.
Reserves on contracts subject to experience rating reflect the rights of
contractholders, plan participants and the Company.
Unpaid claims for all lines of insurance include benefits for reported
losses and estimates of benefits for losses incurred but not reported.
Premiums, Charges Assessed Against Policyholders, Benefits and Expenses
For universal life and certain annuity contracts, charges assessed against
policyholders' funds for the cost of insurance, surrender charges,
actuarial margin and other fees are recorded as revenue in charges assessed
against policyholders. Other amounts received for these contracts are
reflected as deposits and are not recorded as revenue. Life insurance
premiums, other than premiums for universal life and certain annuity
contracts, are recorded as premium revenue when due. Related policy
benefits are recorded in relation to the associated premiums or gross
profit so that profits are recognized over the expected lives of the
contracts. When annuity payments begin under contracts with life contingent
payouts that were initially investment contracts, the accumulated balance
in the account is treated as a single premium for the purchase of an
annuity, reflected as an offsetting amount in both premiums and current and
future benefits in the Consolidated Statements of Income.
Separate Accounts
Assets held under variable universal 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, the Aetna Series Fund Inc., or the
Aetna Generation Funds (collectively, "Funds"), 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. Since the Company bears
the investment risk where the contract is held to maturity, the assets of
the Separate Account supporting the guaranteed interest option are carried
at an amortized cost of $515.6 million for 1996 (fair value $523.0 million)
and $322.2 million for 1995 (fair value $343.9 million). Reserves relating
to the guaranteed interest option are maintained at fund value and reflect
interest credited at rates ranging from 4.10% to 8.00% in 1996 and 4.50% to
8.38% in 1995.
F-10
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
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 and losses of the Separate Accounts
are not reflected in the Consolidated Statements of Income (with the
exception of realized capital gains and 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.
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 expenses/benefits result from changes during the year
in cumulative temporary differences between the tax basis and book basis of
assets and liabilities.
F-11
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments
Debt securities available for sale as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(millions)
<S> <C> <C> <C> <C>
U.S. government and government
agencies and authorities $ 1,072.4 $ 20.5 $ 4.5 $ 1,088.4
States, municipalities and political
subdivisions 6.0 1.2 -- 7.2
U.S. corporate securities:
Financial 2,143.4 43.1 9.7 2,176.8
Food & fiber 198.2 4.6 1.3 201.5
Healthcare & consumer products 735.9 20.2 6.3 749.8
Media & broadcast 274.9 7.0 2.8 279.1
Natural resources 187.7 4.5 0.4 191.8
Transportation & capital goods 521.9 22.0 1.8 542.1
Utilities 448.8 14.8 2.8 460.8
Other 141.5 3.0 -- 144.5
--------- --------- --------- ---------
Total U.S. corporate securities 4,652.3 119.2 25.1 4,746.4
Foreign Securities:
Government 758.6 36.0 5.7 788.9
Utilities 187.8 16.1 -- 203.9
Other 945.5 30.9 6.3 970.1
--------- --------- --------- ---------
Total foreign securities 1,891.9 83.0 12.0 1,962.9
Residential mortgage-backed securities:
Pass-throughs 792.2 78.3 3.1 867.4
Collateralized mortgage obligations 2,227.8 94.9 13.7 2,309.0
--------- --------- --------- ---------
Total residential mortgage-
backed securities 3,020.0 173.2 16.8 3,176.4
Commercial/Multifamily mortgage-
backed securities 1,008.7 24.8 5.6 1,027.9
Other asset-backed securities 887.8 10.7 2.2 896.3
--------- --------- --------- ---------
Total Debt Securities $12,539.1 $ 432.6 $ 66.2 $12,905.5
========= ========= ========= =========
</TABLE>
F-12
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
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. government and government
agencies and authorities $ 539.5 $ 47.5 $ -- $ 587.0
States, municipalities and political
subdivisions 41.4 12.4 -- 53.8
U.S. Corporate securities:
Financial 2,764.4 110.3 2.1 2,872.6
Food & fiber 310.8 20.8 0.6 331.0
Healthcare & consumer products 766.0 59.2 0.2 825.0
Media & broadcast 191.7 10.0 -- 201.7
Natural resources 186.9 12.6 0.2 199.3
Transportation & capital goods 602.4 46.7 0.2 648.9
Utilities 454.4 27.8 1.0 481.2
Other 119.9 10.2 -- 130.1
--------- --------- --------- ---------
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
Utilities 236.3 32.9 269.2
Other 749.9 60.5 3.5 806.9
--------- --------- --------- ---------
Total foreign securities 1,302.6 119.5 5.5 1,416.6
Residential mortgage-backed securities:
Pass-throughs 556.7 99.2 1.8 654.1
Collateralized mortgage obligations 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
Other asset-backed securities 961.2 35.5 0.5 996.2
--------- --------- --------- ---------
Total Debt Securities $11,923.7 $ 811.6 $ 14.5 $12,720.8
========= ========= ========= =========
</TABLE>
F-13
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
At December 31, 1996 and 1995, net unrealized appreciation of $366.4
million and $797.1 million, respectively, on available for sale debt
securities included $288.5 million and $619.1 million, respectively,
related to experience rated contracts, which were not reflected in
shareholder's equity but in Future Policy Benefits and Policyholders' Funds
Left With the Company.
The amortized cost and fair value of debt securities for the year ended
December 31, 1996 are shown below by contractual maturity. Actual
maturities may differ from contractual maturities because securities may be
restructured, called, or prepaid.
Amortized Fair
Cost Value
--------- -----
(millions)
Due to mature:
One year or less $ 424.4 $ 425.7
After one year through five years 2,162.4 2,194.2
After five years through ten years 2,467.4 2,509.6
After ten years 2,568.4 2,675.4
Mortgage-backed securities 4,028.7 4,204.3
Other asset-backed securities 887.8 896.3
--------- ---------
Total $12,539.1 $12,905.5
========= =========
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Collateral, primarily cash, 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, 1996 and 1995, the Company had loaned
securities (which are reflected as invested assets) with a market value of
approximately $444.7 million and $264.5 million, respectively.
At December 31, 1996 and 1995, debt securities carried at $7.6 million and
$7.4 million, respectively, were on deposit as required by regulatory
authorities.
The carrying value of non-income producing investments was $0.9 million and
$0.1 million at December 31, 1996 and 1995, respectively.
The Company did not have any 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, 1996.
F-14
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Included in the Company's total debt securities were residential
collateralized mortgage obligations ("CMOs") supporting the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
(millions)
<S> <C> <C> <C> <C>
Total residential CMOs (1) $2,309.0 $2,227.8 $2,549.4 $2,383.9
======== ======== ======== ========
Percentage of total:
Supporting experience rated products 84.2% 85.3%
Supporting remaining products 15.8% 14.7%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
(1) At December 31, 1996 and 1995, approximately 71% and 81%,
respectively, of the Company's residential CMO holdings were backed by
government agencies such as GNMA, FNMA, FHLMC.
There are various categories of CMOs which are subject to different degrees
of risk from changes in interest rates and, for nonagency-backed CMOs,
defaults. The principal risks inherent in holding CMOs are prepayment and
extension risks related to dramatic decreases and increases in interest
rates resulting in the repayment of principal from the underlying mortgages
either earlier or later than originally anticipated.
At December 31, 1996 and 1995, approximately 68% and 79%, respectively, of
the Company's CMO holdings were in planned amortization class ("PAC") and
sequential structure tranches, which are subject to less prepayment and
extension risk than other types of CMO instruments. At December 31, 1996
and 1995, approximately 3% of the Company's CMO holdings were in the
interest-only ("IOs") and principal-only ("POs") tranches, which are
subject to more prepayment and extension risks than other types of CMO
instruments. Remaining CMO holdings are in other tranches that have
prepayment and extension risks which fall between the degree of risk
associated with PACs and sequentials, and IOs and POs.
F-15
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
2. Investments (Continued)
Investments in available for sale equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ---------- ---------- -----
(millions)
1996
Equity Securities $ 184.9 $ 16.3 $ 0.8 $ 200.4
======= ======= ======= =======
1995
Equity Securities $ 231.6 $ 27.2 $ 1.2 $ 257.6
======= ======= ======= =======
3. Financial Instruments
Estimated Fair Value
The carrying values and estimated fair values of certain of the Company's
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Assets:
Mortgage loans $ 13.0 $ 13.2 $ 21.2 $ 21.9
Liabilities:
Investment contract liabilities:
With a fixed maturity $ 1,014.1 $ 1,028.8 $ 989.1 $ 1,001.2
Without a fixed maturity 9,649.6 9,427.6 9,511.0 9,298.4
</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 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, price and liquidity
risks, the fair values of all assets and liabilities should be taken into
consideration, not only those presented above.
F-16
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:
Mortgage loans: Fair values are 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.
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 and Other Financial Instruments (including Derivative
Financial Instruments)
The Company uses off-balance-sheet and other financial instruments
primarily to manage portfolio risks, including interest rate,
prepayment/call, credit, price, and liquidity risks. In 1996, Treasury
futures contracts were used to manage interest rate risk in the Company's
bond portfolio and stock index futures contracts were used to manage price
risk in the Company's equity portfolio. In 1996 and 1995, interest rate
swaps and forward commitments to enter into interest rate swaps,
respectively, were also used to manage interest rate risk in the Company's
bond portfolio.
Futures Contracts:
Futures contracts represent commitments to either purchase or sell
underlying assets at a specified future date. Futures contracts trade on
organized exchanges and, therefore, have minimal credit risk. Cash
settlements are made daily based on changes in the prices of the underlying
assets. There were no futures contracts open as of December 31, 1996 and
1995.
F-17
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
3. Financial Instruments (Continued)
Interest Rate Swaps:
Under interest rate swaps, the Company agrees with other parties to
exchange interest amounts calculated by reference to an agreed notional
principal amount. Generally, no cash is exchanged at the outset of the
contract and no principal payments are made. A single net payment is
usually made by one counterparty at each due date or upon termination of
the contract. The Company would be exposed to credit-related losses in the
event of nonperformance by counterparties to financial instruments,
however, the Company controls its exposure to credit risk through credit
approvals, credit limits and regular monitoring procedures. The credit
exposure of interest rate swaps is represented by the fair value (market
value) of contracts with a positive fair value (market value) at the
reporting date. There were no interest rate swap agreements open as of
December 31, 1996. At December 31, 1995, the Company had an open forward
swap agreement with a notional amount of $100.0 million and a fair value of
$0.1 million.
During 1995, the Company received $0.4 million for writing call options on
underlying securities. The Company did not write any call options in 1996.
As of December 31, 1996 and 1995, there were no option contracts
outstanding.
The Company also had investments in certain debt instruments with
derivative characteristics, including those whose market value is at least
partially determined by, among other things, levels of or changes in
domestic and/or foreign interest rates (short or long term), exchange
rates, prepayment rates, equity markets or credit ratings/spreads. The
amortized cost and fair value of these securities, included in the debt
securities portfolio, as of December 31, 1996 was as follows:
Amortized Fair
Cost Value
---- -----
(millions)
Residential collateralized mortgage obligations $ 2,227.8 $ 2,309.0
Principal-only strips (included above) 44.5 53.3
Interest-only strips (included above) 10.3 22.8
Other structured securities with derivative
characteristics (1) 126.3 129.2
(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.
F-18
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
4. Net Investment Income
Sources of net investment income were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 945.3 $ 891.5 $ 823.9
Preferred stock 5.9 4.2 3.9
Investment in affiliated mutual funds 14.3 14.9 5.2
Mortgage loans 2.2 1.4 1.4
Policy loans 18.4 13.7 11.5
Reinsurance loan to affiliate 44.1 46.5 51.5
Cash equivalents 29.4 38.9 29.5
Other 2.1 8.4 6.7
-------- -------- --------
Gross investment income 1,061.7 1,019.5 933.6
Less investment expenses (16.1) (15.2) (16.4)
-------- -------- --------
Net investment income $1,045.6 $1,004.3 $ 917.2
======== ======== ========
Net investment income includes amounts allocable to experience rated
contractholders of $787.6 million, $744.2 million and $677.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Interest
credited to contractholders is included in Current and Future Benefits.
5. Dividend Restrictions and Shareholder's Equity
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
The amount of dividends that may be paid to the shareholder in 1997 without
prior approval by the Insurance Commissioner of the State of Connecticut is
$71.1 million.
The Insurance Department of the State of Connecticut (the "Department")
recognizes as net income and shareholder's capital and surplus 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
$57.8 million, $70.0 million and $64.9 million for the years ended December
31, 1996, 1995 and 1994, respectively. Statutory capital and surplus was
$713.6 million and $670.7 million as of December 31, 1996 and 1995,
respectively.
As of December 31, 1996 the Company does not utilize any statutory
accounting practices which are not prescribed by state regulatory
authorities that, individually or in the aggregate, materially affect
statutory capital and surplus.
F-19
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations
Realized capital gains or losses are the difference between the carrying
value and sale proceeds of specific investments sold.
Net realized capital gains on investments were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ 11.1 $ 32.8 $ 1.0
Equity securities 8.6 8.3 0.2
Mortgage loans -- 0.2 0.3
-------- -------- -------
Pretax realized capital gains $ 19.7 $ 41.3 $ 1.5
======== ======= =======
After tax realized capital gains $ 13.0 $ 25.8 $ 1.0
======== ======= =======
Net realized capital gains of $53.1 million and $61.1 million for 1996 and
1995, respectively, and net realized capital losses of $29.1 million for
1994, allocable to experience rated contracts, were deducted from net
realized capital gains (losses) and an offsetting amount was reflected in
policyholder funds' left with the Company. Net unamortized gains were $53.3
million and $7.3 million at December 31, 1996 and 1995, respectively.
Changes to the mortgage loan valuation reserve and writedowns on debt
securities for other than temporary declines in value are included in net
realized capital gains (losses) and amounted to $(3.3) million, $3.1
million and $1.1 million, of which $(3.2) million, $2.2 million and $0.8
million were allocable to experience rated contractholders, for the years
ended December 31, 1996, 1995 and 1994, respectively. There was no
valuation reserve for mortgage loans at December 31, 1996 or at December
31, 1995.
Proceeds from the sale of available for sale debt securities and the
related gross gains and losses were as follows:
1996 1995 1994
---- ---- ----
(millions)
Proceeds on Sales $5,182.2 $4,207.2 $3,593.8
Gross gains 24.3 44.6 26.6
Gross losses 13.2 11.8 25.6
F-20
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
6. Capital Gains and Losses on Investment Operations (Continued)
Changes in shareholder's equity related to changes in unrealized capital
gains (losses), (excluding those related to experience rated
contractholders), were as follows:
1996 1995 1994
---- ---- ----
(millions)
Debt securities $ (100.1) $ 255.9 $ (242.1)
Equity securities (10.5) 27.3 (13.3)
Limited partnership -- 1.8 (1.8)
-------- -------- --------
(110.6) 285.0 (257.2)
Deferred income taxes (See Note 8) (38.6) (36.5) 46.3
-------- -------- --------
Net change in unrealized
capital gains (losses) $ (72.0) $ 321.5 $ (303.5)
======== ======== ========
Net unrealized capital gains allocable to experience rated contracts of
$245.2 million and $43.3 million at December 31, 1996 and $515.0 million
and $104.1 million at December 31, 1995 are reflected on the Consolidated
Balance Sheets in Policyholders' Funds Left With the Company and Future
Policy Benefits, respectively, and are not included in shareholder's
equity.
Shareholder's equity included the following unrealized capital gains
(losses), which are net of amounts allocable to experience rated
contractholders, at December 31:
1996 1995 1994
---- ---- ----
(millions)
Debt securities
Gross unrealized capital gains $101.7 $179.3 $ 27.4
Gross unrealized capital losses (23.8) (1.3) (105.2)
------ ------ --------
77.9 178.0 (77.8)
Equity securities
Gross unrealized capital gains 16.3 27.2 6.5
Gross unrealized capital losses (0.8) (1.2) (7.9)
------ ------ --------
15.5 26.0 (1.4)
Limited Partnership -- -- --
Gross unrealized capital gains -- -- --
Gross unrealized capital losses -- -- (1.8)
------ ------ --------
-- -- (1.8)
Deferred income taxes (See Note 8) 32.9 71.5 108.0
------ ------ --------
Net unrealized capital gains (losses) $ 60.5 $132.5 $(189.0)
====== ====== ========
F-21
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
7. Severance and Facilities Charges
Severance and facilities charges during 1996, as described below, included
the following (pretax):
<TABLE>
<CAPTION>
Vacated
Asset Leased Corporate
(Millions) Severance Write-Off Property Other Allocation Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services $ 29.1 $ 1.0 $ 1.3 $ 1.7 $ -- $ 33.1
Individual 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
- --------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company recorded a $30.7 million after
tax ($47.3 million pretax) charge principally 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).
The activity during 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 year $ -- --
Severance and facilities charges 47.3 702
Corporate Allocation 14.0 --
Actions taken (1) (13.4) (178)
-------------------------------
End of year $ 47.9 524
---------------------------------------------------------------------------
(1) Includes $8.0 million of severance-related actions and $4.1 million of
corporate allocation-related actions.
The Company's severance actions are expected to be substantially completed
by March 31, 1998. The corporate allocation actions and the vacating of the
leased office space are expected to be substantially completed in 1997.
F-22
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes
The Company is included in the consolidated federal income tax return and
combined Connecticut and New York state income tax returns 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 used in the consolidated
returns.
Income taxes for the years ended December 31, consist of:
1996 1995 1994
---- ---- ----
(millions)
Current taxes (benefits):
Income Taxes:
Federal $ 50.9 $ 82.9 $ 78.7
State 3.7 3.2 4.4
Net realized capital gains (losses) 25.3 28.5 (33.2)
------ ------ ------
79.9 114.6 49.9
------ ------ ------
Deferred taxes (benefits):
Income Taxes:
Federal (3.5) (14.4) (8.0)
Net realized capital gains (losses) (18.6) (12.9) 33.7
------ ------ ------
(22.1) (27.3) 25.7
------ ------ ------
Total $ 57.8 $ 87.3 $ 75.6
====== ====== ======
Income taxes were different from the amount computed by applying the
federal income tax rate to income before income taxes for the following
reasons:
1996 1995 1994
---- ---- ----
(millions)
Income before income taxes $198.9 $263.2 $220.9
Tax rate 35% 35% 35%
------ ------ ------
Application of the tax rate 69.6 92.1 77.3
------ ------ ------
Tax effect of:
State income tax, net of federal benefit 2.4 2.1 2.9
Excludable dividends (8.7) (9.3) (8.6)
Other, net (5.5) 2.4 4.0
------ ------ ------
Income taxes $ 57.8 $ 87.3 $ 75.6
====== ====== ======
F-23
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. 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:
1996 1995
---- ----
(millions)
Deferred tax assets:
Insurance reserves $ 344.6 $ 290.4
Unrealized gains allocable to
experience rated contracts 100.8 216.7
Investment losses 7.5 7.3
Postretirement benefits other
than pensions 27.0 7.7
Deferred compensation 25.0 18.9
Pension 7.6 5.7
Other 29.3 9.2
------- -------
Total gross assets 541.8 555.9
Deferred tax liabilities:
Deferred policy acquisition costs 482.1 433.0
Market discount 6.8 4.4
Net unrealized capital gains 133.7 288.2
Other (0.3) (0.1)
------- -------
Total gross liabilities 622.3 725.5
------- -------
Net deferred tax liability $ 80.5 $ 169.6
======= =======
Net unrealized capital gains and losses are presented in shareholder's
equity net of deferred taxes. Valuation allowances are provided when it is
not considered more likely than not that deferred tax assets will be
realized. As of December 31, 1996 and 1995, no valuation allowances were
required for unrealized capital gains and losses.
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, 1996. 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 Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The Internal Revenue Service ("Service") has completed examinations of the
consolidated federal income tax returns of Aetna through 1990. Discussions
are being held with the Service with respect to proposed adjustments.
Management believes there are adequate defenses against, or sufficient
reserves to provide for, any such adjustments. The Service has commenced
its examinations for the years 1991 through 1994.
9. Benefit Plans
Employee Pension Plans - The Company, in conjunction with Aetna, has
noncontributory defined benefit pension plans covering substantially all
employees. The plans provide pension benefits based on years of service and
average annual compensation (measured over 60 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 tax-deductible. As of
December 31, 1996, Aetna's accrued pension cost has been allocated to its
subsidiaries, including the Company, under an allocation based on eligible
salaries. Data on a separate company basis regarding the proportionate
share of the projected benefit obligation and plan assets is not available.
The accumulated benefit obligation and plan assets are recorded by Aetna.
As of the measurement date (i.e., September 30), the accumulated plan
assets exceeded accumulated plan benefits. Allocated pretax charges to
operations for the pension plan (based on the Company's total salary cost
as a percentage of Aetna's total salary cost) were $4.3 million, $6.1
million and $5.5 million for the years ended December 31, 1996, 1995 and
1994, respectively.
Employee Postretirement Benefits - In addition to providing pension
benefits, Aetna currently provides health care and life insurance benefits,
subject to certain caps, for retired employees. A comprehensive medical and
dental plan is offered to all full-time employees retiring at age 50 with
15 years of service or at age 65 with 10 years of service. Retirees are
generally required to contribute to the plans based on their years of
service with Aetna. The costs to the Company associated with the Aetna
postretirement plans for 1996, 1995 and 1994 were $1.8 million, $1.4
million and $1.0 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$77.7 million of accrued liabilities, primarily related to the pension and
postretirement benefit plans described above, that had been previously
recorded by Aetna. The after tax amount of this transfer (approximately
$50.5 million) is reported as a reduction in retained earnings.
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. As of the measurement
date (i.e., September 30), the accumulated plan assets exceeded accumulated
plan benefits.
F-25
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
9. Benefit Plans (Continued)
Agent Postretirement Benefits - The Company, in conjunction with Aetna,
also provides certain postretirement health care and life insurance
benefits for certain agents. The costs to the Company associated with the
agents' postretirement plans for 1996, 1995 and 1994 were $0.7 million,
$0.8 million and $0.7 million, respectively.
Incentive Savings Plan - Substantially all employees are eligible to
participate in a savings plan under which designated contributions, which
may be invested in common stock of Aetna or certain other investments, are
matched, up to 5% of compensation, by Aetna. Pretax charges to operations
for the incentive savings plan were $5.4 million, $4.9 million and $3.3
million in 1996, 1995 and 1994, respectively.
Stock Plans - Aetna has a stock incentive plan that provides for stock
options, deferred contingent common stock or equivalent cash awards or
restricted stock to certain key employees. Executive and middle management
employees may be granted options to purchase common stock of Aetna at or
above the market price on the date of grant. Options generally become 100%
vested three years after the grant is made, with one-third of the options
vesting each year. Aetna does not recognize compensation expense for stock
options granted at or above the market price on the date of grant under its
stock incentive plans. In addition, executives may be granted incentive
units which are rights to receive common stock or an equivalent value in
cash. The incentive units may vest within a range from 0% to 175% at the
end of a four year period based on the attainment of performance goals. The
costs to the Company associated with the Aetna stock plans for 1996, 1995
and 1994, were $8.1 million, $6.3 million and $1.7 million, respectively.
As of December 31, 1996, Aetna transferred to the Company approximately
$1.1 million of deferred tax benefits related to stock options. This amount
is reported as an increase in retained earnings.
10. 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 .10% to
1.90% 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 .85% of their average daily net assets. The Company
also receives fees (expressed as a percentage of the average daily net
assets) from the variable life and annuity mutual funds and The Aetna
Series Fund for providing administration services, and from The Aetna
Series Fund for providing 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
$185.4 million, $128.1 million and $104.6 million in 1996, 1995 and 1994,
respectively. The Company may waive advisory fees at its discretion.
F-26
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
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, included in both
Charges Assessed Against Policyholders and Net Investment Income, on an
annual basis, range from .06% to .55% of the average daily net assets under
management. For the year ended December 31, 1996, the Company paid $16.0
million in such fees.
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. An additional $6.1 million commission, paid by
the Company to Aetna Life in 1996, was capitalized as deferred policy
acquisition costs. The Company maintained insurance reserves of $628.3
million and $655.5 million as of December 31, 1996 and 1995, 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 $625.3 million and $663.5 million as of December 31, 1996 and 1995,
respectively, and is based upon the fair value of the underlying assets.
Premiums of $25.3 million, $28.0 million and $32.8 million and current and
future benefits of $39.5 million, $43.0 million and $43.8 million were
assumed in 1996, 1995 and 1994, respectively.
Investment income of $44.1 million, $46.5 million and $51.5 million was
generated from the reinsurance loan to affiliate in 1996, 1995 and 1994,
respectively. Net income of approximately $8.1 million, $18.4 million and
$25.1 million resulted from this agreement in 1996, 1995 and 1994,
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 $28.9 million and
$28.0 million were maintained for this contract as of December 31, 1996 and
1995, 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 $5.2
million, $3.2 million and $1.3 million for 1996, 1995 and 1994,
respectively.
F-27
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
10. Related Party Transactions (Continued)
The Company received a capital contribution of $10.4 million in cash from
HOLDCO in 1996. The Company received no capital contributions in 1995 or
1994.
The Company paid $3.5 million in cash dividends to HOLDCO in 1996. In 1995,
the Company dividended $2.9 million in the form of two of its subsidiaries,
Systematized Benefits Administrators, Inc. and Aetna Investment Services,
Inc., to Aetna Retirement Services, Inc. (the Company's former parent).
Premiums due and other receivables include $2.8 million and $5.7 million
due from affiliates in 1996 and 1995, respectively. Other liabilities
include $10.7 million and $12.4 million due to affiliates for 1996 and
1995, 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.
11. Reinsurance
The Company utilizes indemnity reinsurance agreements to reduce its
exposure to large losses in all aspects of its insurance business. Such
reinsurance permits recovery of a portion of losses from reinsurers,
although it does not discharge the primary liability of the Company as
direct insurer of the risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of reinsurers. Only those reinsurance recoverables deemed
probable of recovery are reflected as assets on the Company's Consolidated
Balance Sheets.
F-28
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
11. Reinsurance (Continued)
The following table includes premium amounts ceded/assumed to/from
affiliated companies as discussed in Note 10 above.
Ceded to Assumed
Direct Other from Other Net
Amount Companies Companies Amount
------ --------- --------- ------
(millions)
1996
Premiums:
Life Insurance $ 34.6 $ 11.2 $ 25.3 $ 48.7
Accident and Health Insurance 6.3 6.3 -- --
Annuities 84.3 -- 0.6 84.9
======= ======= ======= =======
Total earned premiums $ 125.2 $ 17.5 $ 25.9 $ 133.6
======= ======= ======= =======
1995
Premiums:
Life Insurance $ 28.8 $ 8.6 $ 28.0 $ 48.2
Accident and Health Insurance 7.5 7.5 -- --
Annuities 164.0 -- 0.5 164.5
======= ======= ======= =======
Total earned premiums $ 200.3 $ 16.1 $ 28.5 $ 212.7
======= ======= ======= =======
1994
Premiums:
Life Insurance $ 27.3 $ 6.0 $ 32.8 $ 54.1
Accident and Health Insurance 9.3 9.3 -- --
Annuities 137.3 -- 0.2 137.5
======= ======= ======= =======
Total earned premiums $ 173.9 $ 15.3 $ 33.0 $ 191.6
======= ======= ======= =======
12. 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, 1996, the
Company had commitments to purchase investments of $17.9 million. The fair
value of the investments at December 31, 1996 approximated $18.3 million.
F-29
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
12. Commitments and Contingent Liabilities (Continued)
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-30
<PAGE>
AETNA LIFE INSURANCE AND ANNUITY COMPANY AND SUBSIDIARIES
(A wholly owned subsidiary of Aetna Retirement Holdings, Inc.)
Notes to Consolidated Financial Statements (Continued)
13. Segment Information (1)
The Company's operations are reported through two major business segments:
Financial Services and Individual Life Insurance.
Summarized financial information for the Company's principal operations was
as follows:
(Millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenue:
Financial Services $ 1,195.1 $ 1,211.3 $ 1,013.5
Individual Life Insurance 445.7 407.9 386.1
---------------------------------
Total revenue $ 1,640.8 $ 1,619.2 $ 1,399.6
- --------------------------------------------------------------------------------
Income before income taxes: (2)
Financial Services $ 129.9 $ 160.1 $ 122.5
Individual Life Insurance 83.0 103.1 98.4
---------------------------------
Total income before income taxes $ 212.9 $ 263.2 $ 220.9
- --------------------------------------------------------------------------------
Net income: (2)
Financial Services $ 94.3 $ 113.8 $ 85.5
Individual Life Insurance 55.9 62.1 59.8
---------------------------------
Net income $ 150.2 $ 175.9 $ 145.3
- --------------------------------------------------------------------------------
Assets under management: (3)
Financial Services $27,268.1 $22,534.4 $18,122.9
Individual Life Insurance 2,830.5 2,590.9 2,220.5
- --------------------------------------------------------------------------------
Total assets under management $30,098.6 $25,125.3 $20,343.4
- --------------------------------------------------------------------------------
(1) The 1996 results include severance and facilities charges of $30.7 million,
after tax. Of this charge $21.5 million related to the Financial Services
segment and $9.2 million related to the Individual Life Insurance segment.
(2) Excludes any effect of the corporate facilities and severance charge
recorded in 1996 which is not directly allocable to the Financial Services
and Individual Life Insurance segments. (Refer to Note 7).
(3) Excludes net unrealized capital gains (losses) of $366.4 million, $797.1
million and $(386.4) million at December 31, 1996, 1995 and 1994,
respectively.
F-31
<PAGE>
Form No. SAI.75982-97 ALIAC Ed. May 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:
- Statement of Assets and Liabilities as of December 31, 1996
- Statements of Operations and Changes in Net Assets for the
years ended December 31, 1996 and 1995
- Notes to Financial Statements
- Independent Auditors' Report
Financial Statements of the Depositor:
- Independent Auditors' Report
- Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Balance Sheets as of December 31, 1996 and 1995
- Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
(b) Exhibits
(1) Resolution of the Board of Directors of Aetna Life Insurance
and Annuity Company establishing Variable Annuity Account C(1)
(2) Not applicable
(3.1) Form of Broker-Dealer Agreement(2)
(3.2) Alternative Form of Wholesaling Agreement and Related Selling
Agreement(2)
(4.1) Form of Variable Annuity Contract (G-CDA-HF)(3)
(4.2) Form ofVariable Annuity Contract (G-CDA-HD)(4)
(4.3) Form of Variable Annuity Contract (GID-CDA-HO)(5)
(4.4) Form of Variable Annuity Contract (GLID-CDA-HO)(5)
(4.5) Form of Variable Annuity Contract (GSD-CDA-HO)(5)
(4.6) Form of Variable Annuity Contract (GST-CDA-HO)(6)
(4.7) Endorsement (EGET-IC(R)) to Contracts G-CDA-HD and G-CDA-HF(2)
(5) Form of Variable Annuity Contract Application (300-GTD-IA)(7)
(6.1) Certification of Incorporation and By-Laws of Aetna Life
Insurance and Annuity Company(8)
<PAGE>
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(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(9)
(8.4) Third Amendment dated February 11, 1997 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibility
Invested Balanced Portfolio, formerly Calvert Socially
Responsible Series) dated March 13, 1989 and amended December
27, 1993 and January 1, 1996(10)
(8.5) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund and Fidelity
Distributors Corporation dated February 1, 1994 and amended on
December 15, 1994, February 1, 1995, May 1, 1995, January 1,
1996 and March 1, 1996(6)
(8.6) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Variable Insurance Products Fund II and
Fidelity Distributors Corporation dated February 1, 1994 and
amended on December 15, 1994, February 1. 1995, May 1, 1995,
January 1, 1996 and March 1,1996(6)
(8.7) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(9)
(8.8) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Franklin Advisers, Inc. dated January 31,
1989(2)
(8.9) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended March 1, 1996(2)
(8.10) 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)
(8.11) 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)
<PAGE>
(8.12) 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)
(8.13) 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(9)
(8.14) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994(2)
(9) Opinion of Counsel(11)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Schedule for Computation of Performance Data(12)
(14) Not applicable
(15.1) Powers of Attorney(13)
(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. 33-75964), as filed on February 24, 1995.
4. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-75982), as filed electronically on April
22, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75982), as filed
electronically on February 20, 1997.
6. Incorporated by reference to Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-75964), as filed
electronically on February 11, 1997.
7. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-4 (File No. 33-75982), as filed on February 24, 1995.
8. 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.
9. 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.
10. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
February 26, 1997
<PAGE>
11. Incorporated by reference to Registrant's 24f-2 Notice for fiscal year
ended December 31, 1996, as filed electronically with the Securities and
Exchange Commission on February 28, 1997.
12. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 33-75964), as filed on April 28, 1995.
13. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form S-2 (File No. 33-60477), as filed electronically on April
4, 1997.
<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
J. Scott Fox 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 Post-Effective Amendment No.
2 to the Registration Statement on Form N-4 (File No. 33-61897), as filed
electronically on April 11, 1997.
<PAGE>
Item 27. Number of Contract Owners
As of February 28, 1997, there were 606,945 individuals holding interests
in variable annuity contracts funded through Variable Annuity Account C.
Item 28. Indemnification
Reference is hereby made to Section 33-771(f) of the Connecticut General
Statutes ("C.G.S.") regarding indemnification of directors and Section 33-776(4)
regarding indemnification of officers, employees and agents of Connecticut
corporations. These statutes provide in general that Connecticut corporations
incorporated prior to January 1, 1997 shall indemnify their officers, directors,
employees and agents against "liability" (defined as the obligation to pay a
judgment, settlement, penalty, fine, excise tax in the case of an employee
benefit plan or reasonable expenses incurred with respect to a proceeding). In
the case of a proceeding by or in the right of the corporation, indemnification
is limited to reasonable expenses incurred in connection with the proceeding
against the corporation to which the individual was named a party. The
corporation's obligation to provide such indemnification does not apply unless
(1) the individual has met the standard of conduct set forth in Section 33-771;
and (2) a determination is made (by majority vote of a quorum of the board of
directors who were not parties to the proceeding, or if a quorum cannot be
obtained, by a committee of the board selected as described in Section
33-775(b)(2); by special legal counsel selected by the board of directors or
members thereof as described in Section 33-775(b)(3); by shareholders) that the
individual met the standard set forth in Section 33-771; 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. Also, unless limited by
its Certificate of Incorporation, a corporation must indemnify an individual who
was wholly successful on the merits or otherwise against reasonable expenses
incurred by him in connection with a proceeding to which he was a party because
of his relationship as director, officer, employee or agent of the corporation.
The statute does specifically authorize a corporation to procure indemnification
insurance on behalf of an individual who is or was a director, officer, employer
or agent of the corporation. 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.
Item 29. Principal Underwriter
(a) In addition to serving as the principal underwriter and depositor for
the Registrant, Aetna Life Insurance and Annuity Company (Aetna) 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, and Aetna Variable
Portfolios, Inc. (all management investment companies registered under
the Investment Company Act of 1940 (1940 Act)). Additionally, Aetna
acts as the principal underwriter and depositor for Variable Life
Account B of Aetna, Variable Annuity Account B of Aetna and Variable
<PAGE>
Annuity Account G of Aetna (separate accounts of Aetna registered as
unit investment trusts under the 1940 Act). Aetna is also the principal
underwriter for Variable Annuity Account I of Aetna Insurance Company
of America (AICA) (a separate account of AICA registered as a unit
investment trust under the 1940 Act).
(b) See Item 25 regarding the Depositor.
(c) Compensation as of December 31, 1996:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Discounts and Redemption or Brokerage
Principal Underwriter Commissions Annuitization Commissions Compensation*
<S> <C> <C> <C> <C>
Aetna Life Insurance $1,325,661 $96,924,599
and Annuity Company
</TABLE>
* Compensation shown in column 5 includes deductions for mortality and
expense risk guarantees and contract charges assessed to cover costs
incurred in the sales and administration of the contracts issued under
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
<PAGE>
registration statement are never more than sixteen months old for as
long as payments under the variable annuity contracts may be accepted;
(b) to include as part of any application to purchase a contract offered by
a prospectus which is part of this registration statement on Form N-4,
a space that an applicant can check to request a Statement of
Additional Information; and
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
(d) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(e) 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 and the Investment Company Act of
1940, the Registrant, Variable Annuity Account C of Aetna Life Insurance and
Annuity Company, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this Post-Effective Amendment No. 13 to its
Registration Statement on Form N-4 (File No. 33-75982) and has caused this
Post-Effective Amendment No. 13 to its Registration Statement on Form N-4 (File
No. 33-75982) to be signed on its behalf by the undersigned, there unto duly
authorized, in the City of Hartford, State of Connecticut, on the 16th day of
April, 1997.
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, this Post-Effective Amendment
No. 13 to the Registration Statement on Form N-4 (File No. 33-75982) has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
Daniel P. Kearney* Director and President )
- -------------------------- (principal executive officer)
Daniel P. Kearney )
)
Timothy A. Holt* Director, Senior Vice President and ) April
- ------------------------- Chief Financial Officer
Timothy A. Holt ) 16, 1997
)
Christopher J. Burns* Director )
- --------------------------
Christopher J. Burns )
)
Laura R. Estes* Director )
- --------------------------
Laura R. Estes )
)
J. Scott Fox* Director )
- --------------------------
J. Scott Fox )
<PAGE>
Gail P. Johnson* Director )
- --------------------------
Gail P. Johnson )
)
John Y. Kim* Director )
- --------------------------
John Y. Kim )
)
Shaun P. Mathews* Director )
- --------------------------
Shaun P. Mathews )
)
Glen Salow* Director )
- --------------------------
Glen Salow )
)
Creed R. Terry* Director )
- --------------------------
Creed R. Terry )
)
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
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<C> <S> <C>
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 Wholesaling Agreement and Related Selling Agreement *
99-B.4.1 Form of Variable Annuity Contract (G-CDA-HF) *
99-B.4.2 Form of Variable Annuity Contract (G-CDA-HD) *
99-B.4.3 Form of Variable Annuity Contract (GID-CDA-HO) *
99-B.4.4 Form of Variable Annuity Contract (GLID-CDA-HO) *
99-B.4.5 Form of Variable Annuity Contract (GSD-CDA-HO) *
99-B.4.6 Form of Variable Annuity Contract (GST-CDA-HO) *
99-B.4.7 Endorsement (EGET-IC(R)) to Contracts G-CDA-HD and G-CDA-HF *
99-B.5 Form of Variable Annuity Contract Application (300-GTD-IA) *
99-B.6.1 Certification of Incorporation and By-Laws of Depositor *
99-B.6.2 Amendment of Certificate of Incorporation 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
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
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
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 Third Amendment dated February 11, 1997 to Fund Participation Agreement *
between Aetna Life Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibility Invested Balanced Portfolio,
formerly Calvert Socially Responsible Series) dated March 13, 1989 and
amended December 27, 1993 and January 1, 1996
99-B.8.5 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Variable Insurance Products Fund and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996
99-B.8.6 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Variable Insurance Products Fund II and Fidelity Distributors
Corporation dated February 1, 1994 and amended on December 15, 1994,
February 1, 1995, May 1, 1995, January 1, 1996 and March 1, 1996
99-B.8.7 Service Agreement between Aetna Life Insurance and Annuity Company and *
Fidelity Investments Institutional Operations Company dated as of November
1, 1995
99-B.8.8 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Franklin Advisers, Inc. dated January 31, 1989
99-B.8.9 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company and Janus Aspen Series dated April 19, 1994 and amended March 1, 1996
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
99-B.8.10 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
99-B.8.11 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.8.12 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.8.13 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.8.14 Fund Participation Agreement between Aetna Life Insurance and Annuity *
Company, Investors Research Corporation and TCI Portfolios, Inc. dated July
29, 1992 and amended December 22, 1992 and June 1, 1994
99-B.9 Opinion of Counsel *
99-B.10.1 Consent of Independent Auditors
-----------------
99-B.10.2 Consent of Counsel
-----------------
99-B.13 Schedule for Computation of Performance Data *
99-B.15.1 Powers of Attorney *
99-B.15.2 Authorization for Signatures *
27 Financial Data Schedule
-----------------
</TABLE>
*Incorporated by reference
Exhibit 10.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Aetna Variable Annuity Account C:
We consent to the use of our reports dated February 4, 1997 and February 14,
1997 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.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
April 16, 1997
Exhibit 10.2
151 Farmington Avenue
Hartford, CT 06156
Susan E. Bryant
Counsel
Law Division, RE4A
Investments & Financial Services
(860) 273-7834
Fax: (860) 273-0356
April 16, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Variable Annuity Account C of Aetna Life Insurance and Annuity Company
Post-Effective Amendment No. 13 to Registration Statement on Form N-4
File Nos. 33-75982* and 811-2513
Dear Sir or Madam:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1997 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1996 filed
on behalf of Variable Annuity Account C of Aetna Life Insurance and Annuity
Company on February 28, 1997) as an exhibit to this Post-Effective Amendment No.
13 to Registration Statement on Form N-4 (File No. 33-75982).
Sincerely,
/s/ Susan E. Bryant
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
- --------
*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 prospectuses relating
to the securities covered by Registration Statement Nos.: 33-75986, 33-75996,
33-75990 and the individual deferred compensation contracts covered by
Registration Statement No. 33-75992.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000103007
<NAME> Variable Annuity Account C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 7,952,811,278
<INVESTMENTS-AT-VALUE> 8,565,202,363
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,565,202,363
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,565,202,363
<DIVIDEND-INCOME> 712,854,599
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 93,446,331
<NET-INVESTMENT-INCOME> 619,408,268
<REALIZED-GAINS-CURRENT> 513,568,522
<APPREC-INCREASE-CURRENT> 18,307,901
<NET-CHANGE-FROM-OPS> 1,151,284,691
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
