As filed with the Securities and Exchange Registration No. 33-75986*
Commission on April 11, 1997 Registration No. 811-2513
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
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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
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Variable Annuity Account C of Aetna Life Insurance and Annuity Company
(Exact Name of Registrant)
Aetna Life Insurance and Annuity Company
(Name of Depositor)
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code: (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
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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 securities covered by the following earlier Registration Statements:
33-75970; 33-75954; and 33-75956.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-4 LOCATION - PROSPECTUS
ITEM NO. PART A (PROSPECTUS) DATED MAY 1, 1997
<S> <C> <C>
1 Cover Page..................................... Cover Page
2 Definitions.................................... Definitions
3 Synopsis....................................... Prospectus Summary; Fee Table
4 Condensed Financial Information................ Condensed Financial Information
5 General Description of Registrant, Depositor,
and Portfolio Companies........................ The Company; Variable Annuity Account C; The Funds
6 Deductions..................................... 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>
PROSPECTUS
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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 for nonprofit
healthcare organizations and certain tax-exempt nonhealthcare (Section
501(c)(3)) organizations for their employees under Section 403(b) of the
Internal Revenue Code of 1986 as amended (the "Code") and for employees of
certain tax-exempt organizations and their for-profit subsidiaries in connection
with qualified defined contribution plans under Sections 401(a)/401(k) of the
Code. (See "Purchase.")
The Contracts provide that contributions may be allocated to one or more of the
Credited Interest Options or to one or more of the Subaccounts of Variable
Annuity Account C, a separate account of the Company. The Subaccounts invest
directly in shares of the following Funds:
<TABLE>
<S> <C>
[bullet] Aetna Variable Fund [bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Aetna Income Shares [bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Aetna Variable Encore Fund [bullet] Fidelity VIP Growth Portfolio
[bullet] Aetna Investment Advisers Fund, Inc. [bullet] Fidelity VIP Overseas Portfolio
[bullet] Aetna Ascent Variable Portfolio [bullet] Franklin Government Securities Trust
[bullet] Aetna Crossroads Variable Portfolio [bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Aetna Legacy Variable Portfolio [bullet] Janus Aspen Balanced Portfolio
[bullet] Aetna Variable Capital Appreciation Portfolio [bullet] Janus Aspen Flexible Income Portfolio
[bullet] Aetna Variable Growth Portfolio [bullet] Janus Aspen Growth Portfolio
[bullet] Aetna Variable Index Plus Portfolio [bullet] Janus Aspen Short-Term Bond Portfolio
[bullet] Aetna Variable Small Company Portfolio [bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Alger American Growth Portfolio [bullet] Lexington Natural Resources Trust
[bullet] Alger American Small Cap Portfolio [bullet] Neuberger & Berman Growth Portfolio
[bullet] American Century VP Capital Appreciation [bullet] Scudder International Portfolio Class A Shares
(Formerly TCI Growth)
[bullet] Calvert Responsibly Invested Balanced Portfolio
</TABLE>
The Credited Interest Options currently available under the Contract are the
Guaranteed Accumulation Account, the Fixed Account and the Fixed Plus Account.
Except as specifically mentioned, this Prospectus describes only investments
through the Separate Account. A brief description of each of the Credited
Interest Options is contained in Appendices to this Prospectus. Additional
information concerning the Guaranteed Accumulation Account is also contained in
a separate prospectus.
The availability of the Funds and the Credited Interest Options is subject to
applicable regulatory authorization. Not all Funds or Credited Interest Options
may be available in all jurisdictions, under all Contracts or under all Plans.
Please check with your employer to determine option availability. (See
"Investment Options.")
This Prospectus provides investors with the information that they should know
about the Separate Account before investing in the Contract through the Separate
Account. Additional information about the Separate Account is contained in a
Statement of Additional Information ("SAI") which is available at no charge. The
SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the SAI is printed
on page 19 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 of the Funds by calling
that phone number.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE FUNDS AND THE GUARANTEED ACCUMULATION ACCOUNT. ALL PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY 1,
1997.
<PAGE>
TABLE OF CONTENTS
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DEFINITIONS ................................................ DEFINITIONS - 1
PROSPECTUS SUMMARY .......................................... SUMMARY - 1
FEE TABLE ................................................... FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION .............................. AUV HISTORY - 1
THE COMPANY ............................................................ 1
VARIABLE ANNUITY ACCOUNT C ............................................. 1
INVESTMENT OPTIONS ...................................................... 1
The Funds ............................................................ 1
Credited Interest Options ............................................. 4
PURCHASE ............................................................... 4
Contract Availability ................................................ 4
Purchasing Interests in the Contract ................................. 4
Purchase Payments ................................................... 5
Rights Under the Contract ............................................. 5
Transfer Credits ...................................................... 5
Right to Cancel ...................................................... 6
CHARGES AND DEDUCTIONS ................................................ 6
Daily Deductions from the Separate Account ........................... 6
Mortality and Expense Risk Charge ................................. 6
Administrative Expense Charge ....................................... 6
Maintenance Fee ...................................................... 6
Charge ................................................................. 7
Deferred Sales Charge Schedule for GAA for Certain New York Contracts 8
Fund Expenses ......................................................... 8
Premium and Other Taxes ............................................. 9
CONTRACT VALUATION ...................................................... 9
Account Value ......................................................... 9
Accumulation Units ................................................... 9
Net Investment Factors ................................................ 9
TRANSFERS ............................................................... 9
Dollar Cost Averaging Program ....................................... 10
WITHDRAWALS ............................................................ 10
Reinvestment Privilege ................................................ 11
CONTRACT LOANS ......................................................... 11
ADDITIONAL WITHDRAWAL OPTIONS .......................................... 11
DEATH BENEFIT DURING ACCUMULATION PERIOD .............................. 12
ANNUITY PERIOD ......................................................... 12
Annuity Period Elections ............................................. 12
Annuity Options ...................................................... 13
Annuity Payments ...................................................... 13
Charges Deducted During the Annuity Period ........................... 13
Death Benefit Payable During the Annuity Period ..................... 14
<PAGE>
TAX STATUS ................................................... 14
Introduction ................................................ 14
Taxation of the Company .................................... 14
Contracts Used with Certain Retirement Plans ............... 14
MISCELLANEOUS ................................................ 17
Distribution ................................................ 17
Delay or Suspension of Payments ........................... 17
Performance Reporting ....................................... 17
Voting Rights ............................................. 18
Modification of the Contract .............................. 18
Legal Matters and Proceedings .............................. 18
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ......... 19
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT .................. 20
APPENDIX II--THE FIXED ACCOUNT .............................. 21
APPENDIX III--THE FIXED PLUS ACCOUNT ........................ 22
APPENDIX IV--EMPLOYEE APPOINTMENT OF EMPLOYER AS AGENT UNDER AN
ANNUITY CONTRACT ............................................. 24
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
PERSON TO GIVE INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING CONTAINED IN THIS PROSPECTUS EXCEPT AS OTHERWISE CONTAINED HEREIN.
<PAGE>
DEFINITIONS
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The following terms are defined as they are used in this Prospectus:
Account: A record which identifies contract values accumulated on behalf of each
Participant during the Accumulation Period. One or more Employee Accounts and
Employer Accounts may be established for each Participant.
Account Value: The total dollar value of amounts held in an Account as of each
Valuation Date during the Accumulation Period.
Account Year: A period of twelve months measured from the date on which an
Account is established (the effective date) or from an anniversary of such
effective date.
Accumulation Period: The period during which Purchase Payment(s) credited to an
Account are invested to fund future annuity payments.
Accumulation Unit: A measure of the value of each Subaccount before annuity
payments begin.
Annuitant: The person on whose life or life expectancy the annuity payments are
based.
Annuity: A series of payments for life, a definite period or a combination of
the two.
Annuity Date: The date on which annuity payments begin.
Annuity Period: The period during which annuity payments are made.
Annuity Unit: A measure of the value of each Subaccount selected during the
Annuity Period.
Code: Internal Revenue Code of 1986, as amended.
Company (We, Us): Aetna Life Insurance and Annuity Company.
Contract: The group deferred variable annuity contracts offered by this
Prospectus.
Contract Beneficiary(ies): Under the Contract, the Contract Holder is the
Contract Beneficiary. The Participant designates a beneficiary with the
employer, pursuant to terms of the Plan. (See definition of "Plan Beneficiary"
below.)
Contract Holder: The person or entity to whom the Contract is issued. The
Contract Holder is usually the employer.
Credited Interest Options: The fixed interest options under the Contract. The
Credited Interest Options currently consist of the Guaranteed Accumulation
Account, the Fixed Account and the Fixed Plus Account, each of which is
described in an Appendix to this Prospectus. Amounts allocated to the Credited
Interest Options are included in the Account Value.
Employee Account: An Account that is credited with payments derived from
employee salary reduction contributions and remitted to the Company by the
employer on behalf of each Participant.
Employer Account: An account that is credited with net Purchase Payments made by
the Contract Holder.
Fund(s): An open-end registered management investment company whose shares are
purchased by the Separate Account to fund the benefits provided by the Contract.
Home Office: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Participant (You): A person participating in a Plan maintained by an eligible
organization.
Plan Beneficiary: The person entitled to receive benefits under the Plan in the
event of the Participant's death.
Plan(s): Tax-deferred retirement plans under Section 403(b) of the Code for
employees of nonprofit healthcare organizations and other Section 501(c)(3)
nonhealthcare organizations. Certain for-profit subsidiaries of tax-exempt
organizations may be offered a separate Contract in connection with qualified
defined contribution plans under Section 401(a)/401(k) of the Code.
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DEFINITIONS - 1
<PAGE>
Purchase Payment(s): The gross payment(s) made to the Company under a Contract.
Purchase Payment Periods: For "Installment Purchase Payment Accounts," the
period of time for completion of the agreed upon annual number and amount of
Purchase Payments. For example, if it is determined that the Purchase Payment
Period will consist of 12 payments per year and only 11 payments are made, the
Purchase Payment Period is not completed until the twelfth Purchase Payment is
made.
Separate Account: Variable Annuity Account C, a separate account established by
the Company for the purpose of funding variable annuity contracts issued by the
Company.
Subaccount(s): The portion of the assets of the Separate Account that is
allocated to a particular Fund. Each Subaccount invests in the shares of only
one corresponding Fund.
Valuation Date: The date and time at which the 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.
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DEFINITIONS - 2
<PAGE>
PROSPECTUS SUMMARY
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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 for nonprofit
healthcare organizations and certain tax-exempt nonhealthcare (Section
501(c)(3)) organizations for their employees under Section 403(b) of the Code,
and for employees of certain for-profit subsidiaries of tax-exempt organizations
in connection with qualified defined contribution plans under Section
401(a)/401(k) of the Code. Under these Plans, the Contract Holder (employer)
makes contributions on behalf of a Participant (employee) and the Participant
makes contributions via salary reduction.
CONTRACT PURCHASE
The Contract may be purchased by eligible organizations on behalf of a
group made up of their employees. Eligible employees may participate in the
Contract by completing the enrollment form and submitting it to the Company.
Purchase Payments can be applied to the Contract either through a lump-sum
transfer from a pre-existing plan or through periodic salary reductions or
employer contributions. (See "Purchase.")
FREE LOOK PERIOD
Contract Holders have the right to cancel their purchase within 10 days
after receiving the Contract (or longer if required by state law) by returning
it to the Company along with a written notice of cancellation. Unless state law
requires otherwise, the amount received upon cancellation will reflect the
investment performance of the Subaccounts into which Purchase Payments were
deposited. In some cases this may be more or less than the amount of Purchase
Payments. (See "Purchase--Right to Cancel.")
INVESTMENT OPTIONS
The Company has established Variable Annuity Account C, a registered unit
investment trust, for the purpose of funding the variable portion of the
Contracts. The Separate Account is divided into Subaccounts which invest
directly in shares of the Funds described herein. The Contract allows investment
in any or all of the Subaccounts, as well as in the Credited Interest Options
described below. 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, 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 allow you to earn fixed rates of interest. The fixed options available
under the Contract are the Guaranteed Accumulation Account ("GAA"), the Fixed
Account, and the Fixed Plus Account. (See the Appendices to this Prospectus.)
CHARGES AND DEDUCTIONS
Certain charges are associated with these Contracts. These charges include
daily deductions from the Separate Account (the mortality and expense risk
charges and an administrative charge), as well as any annual maintenance fee and
premium and other taxes. The Funds also incur certain fees and expenses which
are deducted directly from the Funds. A deferred sales charge may apply upon a
full or partial withdrawal of the Account Value. (See the Fee Table and "Charges
and Deductions.")
TRANSFERS
Prior to the Annuity Date, and subject to certain limitations, Account
Values may be transferred among the Subaccounts and the Credited Interest
Options without charge. Transfers can be requested in writing or by telephone in
accordance with the Company's transfer procedures. (See Appendices for a full
description of the restrictions applicable to transfers from the Credited
Interest Options.) (See "Transfers.")
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SUMMARY - 1
<PAGE>
WITHDRAWALS
The Contract Holder may redeem all or a part of the Account Value prior to
the Annuity Date by properly completing a disbursement form and sending it to
the Company. Limitations apply to withdrawals from the Fixed Plus Account.
Certain charges may be assessed upon withdrawal. The withdrawal may also be
subject to income tax and a federal tax penalty. The Code restricts full and
partial withdrawals in some circumstances. (See "Withdrawals.")
The Contract also offers certain Additional Withdrawal Options during the
Accumulation Period to persons meeting certain criteria. Additional Withdrawal
Options are not available in all states and may not be suitable in every
situation. (See "Additional Withdrawal Options.")
LOANS
A Contract Holder under a Section 403(b) Plan may request a loan on your
behalf at any time during the Accumulation Period. Such loan will be taken from
the Employee Account and/or the Employer Account, as permitted by the Contract
Holder. Loans are not available from Contracts issued under Section
401(a)/401(k) Plans. (See "Contract Loans.")
DEATH BENEFIT
The Contract provides that a death benefit is payable to the Contract
Beneficiary upon the death of the Participant before the Annuity Date. The
Contract Holder may direct that we make such payment to the Plan Beneficiary.
The amount of the death benefit will be equal to the Account Value. Until the
election of a method of payment, the Account Value will remain invested under
the Contract. The Contract Holder, on behalf of a Plan Beneficiary, may elect to
receive the proceeds in a lump sum or under any of the payment options available
under the Contract. However, the Code requires that distributions begin within a
certain time period. (See "Death Benefit During Accumulation Period.")
After Annuity Payments have commenced, a death benefit may be payable,
depending upon the terms of the Contract and the Annuity Option selected. (See
"Death Benefit Payable During the Annuity Period.")
THE ANNUITY PERIOD
On the Annuity Date, the Contract Holder, on your behalf, may elect the
commencement of Annuity Payments. Annuity Payments can be made on either a
fixed, variable or combination fixed and variable basis. If a variable payout is
selected, the payments will vary with the investment performance of the
Subaccount(s) selected. The Company reserves the right to limit the number of
Subaccounts that may be available during the Annuity Period. (See "Annuity
Period.")
TAXES
Contributions and earnings are not generally taxed until you or your
beneficiary(ies) actually receive a distribution from the Contract. A 10%
federal tax penalty and a 20% withholding for income tax may be imposed on
certain withdrawals. (See "Tax Status.")
INQUIRIES
Questions, inquiries or requests for additional information can be directed
to your agent or local representative, or you may contact the Company as
follows:
[bullet] Write to:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156-1277
Attention: Customer Service
[bullet] Call Customer Service:
1-800-525-4225 (for automated transfers or
changes in the allocation of Account
Values, call: 1-800-262-3862)
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SUMMARY - 2
<PAGE>
FEE TABLE
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This Fee Table describes the various charges and expenses associated with the
Contract during the Accumulation Period. For amounts deducted during the Annuity
Period, see "Annuity Period--Charges Deducted During the Annuity Period." No
sales charge is paid upon purchase of the Contract. Some expenses may vary as
explained under "Charges and Deductions." The charges and expenses shown below
do not include premium taxes that may be applicable. For more information
regarding fees and expenses paid out of the assets of a particular Fund, see the
Fund's prospectus.
CONTRACT HOLDER TRANSACTION EXPENSES
Deferred Sales Charge (as a percentage of the amount withdrawn).*
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ----------------------------- ------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNTS:
Account Years Deferred Sales
Completed Charge Deduction
- ----------------------------- ------------------
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>
<S> <C>
Annual Contract Maintenance Fee Installment Purchase Payment Account .... $15.00**
Single Purchase Payment Account ........ $ 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 shown is
the maximum maintenance fee that can be deducted under each Account.
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:
Mortality and Expense Risk Charge ...... 1.25%
Administrative Expense Charge ......... 0.00%***
----
Total Separate Account Charges ......... 1.25%
----
For Contracts for which an Administrative Expense Charge is imposed (see
"Charges and Deductions"). Separate Account Annual Expenses are:
Mortality and Expense Risk Charge ...... 1.25%
----
Administrative Expense Charge ......... 0.25%***
----
Total Separate Account Charges ......... 1.50%
====
***Effective July 1, 1997, during the Annuity Period, an administrative expense
charge of 0.25% will apply for all Participants who enrolled in a group Contract
on or after November 5, 1994.
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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. The expenses shown below are reflected in the Fund's net asset
value and are not deducted from the Account Value under the Contract.
<TABLE>
<CAPTION>
Investment Other Total
Advisory Fees(1) Expenses Fund
(after expense (after expense Annual
reimbursement) reimbursement) 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 Capital 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 Service 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 a 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 are 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 $15.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.125%.
<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 $71 $116 $163 $226
Aetna Income Shares $70 $113 $159 $217
Aetna Variable Encore Fund $69 $109 $152 $204
Aetna Investment Advisers Fund, Inc. $71 $116 $164 $228
Aetna Ascent Variable Portfolio $73 $121 $172 $246
Aetna Crossroads Variable Portfolio $73 $121 $172 $246
Aetna Legacy Variable Portfolio $73 $121 $172 $246
Aetna Variable Capital Appreciation Portfolio $73 $121 $172 $246
Aetna Variable Growth Portfolio $73 $121 $172 $246
Aetna Variable Index Plus Portfolio $71 $114 $160 $220
Aetna Variable Small Company Portfolio $74 $125 $179 $261
Alger American Growth Portfolio $73 $122 $174 $250
Alger American Small Cap Portfolio $74 $125 $178 $259
American Century VP Capital Appreciation $75 $128 $184 $271
Calvert Responsibly Invested Balanced Portfolio $74 $124 $176 $255
Fidelity VIP II Contrafund Portfolio $73 $121 $171 $245
Fidelity VIP Equity-Income Portfolio $71 $116 $164 $228
Fidelity VIP Growth Portfolio $72 $119 $169 $239
Fidelity VIP Overseas Portfolio $75 $126 $180 $264
Franklin Government Securities Trust $73 $120 $169 $241
Janus Aspen Aggressive Growth Portfolio $73 $121 $172 $247
Janus Aspen Balanced Portfolio $75 $126 $181 $265
Janus Aspen Flexible Income Portfolio $74 $124 $176 $255
Janus Aspen Growth Portfolio $72 $119 $169 $239
Janus Aspen Short-Term Bond Portfolio $72 $118 $167 $236
Janus Aspen Worldwide Growth Portfolio $73 $122 $174 $251
Lexington Natural Resources Trust $79 $140 $203 $312
Neuberger & Berman Growth Portfolio $75 $126 $180 $263
Scudder International Portfolio Class A Shares $76 $130 $186 $276
<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 $20 $61 $104 $226
Aetna Income Shares $19 $58 $100 $217
Aetna Variable Encore Fund $18 $54 $ 94 $204
Aetna Investment Advisers Fund, Inc. $20 $61 $105 $228
Aetna Ascent Variable Portfolio $22 $67 $114 $246
Aetna Crossroads Variable Portfolio $22 $67 $114 $246
Aetna Legacy Variable Portfolio $22 $67 $114 $246
Aetna Variable Capital Appreciation Portfolio $22 $67 $114 $246
Aetna Variable Growth Portfolio $22 $67 $114 $246
Aetna Variable Index Plus Portfolio $19 $59 $101 $220
Aetna Variable Small Company Portfolio $23 $71 $122 $261
Alger American Growth Portfolio $22 $68 $116 $250
Alger American Small Cap Portfolio $23 $70 $121 $259
American Century VP Capital Appreciation $24 $74 $127 $271
Calvert Responsibly Invested Balanced Portfolio $22 $69 $119 $255
Fidelity VIP II Contrafund Portfolio $21 $66 $114 $245
Fidelity VIP Equity-Income Portfolio $20 $61 $105 $228
Fidelity VIP Growth Portfolio $21 $65 $111 $239
Fidelity VIP Overseas Portfolio $23 $72 $123 $264
Franklin Government Securities Trust $21 $65 $112 $241
Janus Aspen Aggressive Growth Portfolio $22 $67 $115 $247
Janus Aspen Balanced Portfolio $23 $72 $124 $265
Janus Aspen Flexible Income Portfolio $22 $69 $119 $255
Janus Aspen Growth Portfolio $21 $65 $111 $239
Janus Aspen Short-Term Bond Portfolio $21 $64 $110 $236
Janus Aspen Worldwide Growth Portfolio $22 $68 $117 $251
Lexington Natural Resources Trust $28 $87 $148 $312
Neuberger & Berman Growth Portfolio $23 $72 $123 $263
Scudder International Portfolio Class A Shares $25 $76 $129 $276
</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>
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 is imposed. For the
purposes of these Examples, the maximum maintenance fee of $15.00 that can be
deducted under the Contract has been converted to a percentage of assets equal
to 0.125%.
<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 $74 $123 $175 $252
Aetna Income Shares $73 $120 $171 $244
Aetna Variable Encore Fund $72 $117 $165 $230
Aetna Investment Advisers Fund, Inc. $74 $123 $176 $254
Aetna Ascent Variable Portfolio $75 $128 $184 $271
Aetna Crossroads Variable Portfolio $75 $128 $184 $271
Aetna Legacy Variable Portfolio $75 $128 $184 $271
Aetna Variable Capital Appreciation Portfolio $75 $128 $184 $271
Aetna Variable Growth Portfolio $75 $128 $184 $271
Aetna Variable Index Plus Portfolio $73 $121 $172 $246
Aetna Variable Small Company Portfolio $77 $132 $191 $286
Alger American Growth Portfolio $76 $129 $186 $275
Alger American Small Cap Portfolio $77 $132 $190 $284
American Century VP Capital Appreciation $78 $135 $195 $296
Calvert Responsibly Invested Balanced Portfolio $76 $131 $188 $280
Fidelity VIP II Contrafund Portfolio $75 $128 $183 $270
Fidelity VIP Equity-Income Portfolio $74 $123 $176 $254
Fidelity VIP Growth Portfolio $75 $126 $181 $265
Fidelity VIP Overseas Portfolio $77 $133 $192 $289
Franklin Government Securities Trust $75 $127 $181 $266
Janus Aspen Aggressive Growth Portfolio $75 $128 $184 $272
Janus Aspen Balanced Portfolio $77 $134 $193 $290
Janus Aspen Flexible Income Portfolio $76 $131 $188 $280
Janus Aspen Growth Portfolio $75 $126 $181 $265
Janus Aspen Short-Term Bond Portfolio $75 $126 $179 $262
Janus Aspen Worldwide Growth Portfolio $76 $130 $186 $276
Lexington Natural Resources Trust $82 $147 $215 $336
Neuberger & Berman Growth Portfolio $77 $133 $192 $288
Scudder International Portfolio Class A Shares $78 $137 $198 $301
<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 $22 $68 $117 $252
Aetna Income Shares $21 $66 $113 $244
Aetna Variable Encore Fund $20 $62 $107 $230
Aetna Investment Advisers Fund, Inc. $22 $69 $118 $254
Aetna Ascent Variable Portfolio $24 $74 $127 $271
Aetna Crossroads Variable Portfolio $24 $74 $127 $271
Aetna Legacy Variable Portfolio $24 $74 $127 $271
Aetna Variable Capital Appreciation Portfolio $24 $74 $127 $271
Aetna Variable Growth Portfolio $24 $74 $127 $271
Aetna Variable Index Plus Portfolio $22 $67 $114 $246
Aetna Variable Small Company Portfolio $26 $79 $134 $286
Alger American Growth Portfolio $24 $75 $129 $275
Alger American Small Cap Portfolio $25 $78 $133 $284
American Century VP Capital Appreciation $27 $82 $139 $296
Calvert Responsibly Invested Balanced Portfolio $25 $77 $131 $280
Fidelity VIP II Contrafund Portfolio $24 $74 $126 $270
Fidelity VIP Equity-Income Portfolio $22 $69 $118 $254
Fidelity VIP Growth Portfolio $23 $72 $124 $265
Fidelity VIP Overseas Portfolio $26 $79 $136 $289
Franklin Government Securities Trust $24 $73 $124 $266
Janus Aspen Aggressive Growth Portfolio $24 $74 $127 $272
Janus Aspen Balanced Portfolio $26 $80 $136 $290
Janus Aspen Flexible Income Portfolio $25 $77 $131 $280
Janus Aspen Growth Portfolio $23 $72 $124 $265
Janus Aspen Short-Term Bond Portfolio $23 $71 $122 $262
Janus Aspen Worldwide Growth Portfolio $25 $76 $129 $276
Lexington Natural Resources Trust $31 $94 $160 $336
Neuberger & Berman Growth Portfolio $26 $79 $135 $288
Scudder International Portfolio Class A Shares $27 $83 $142 $301
</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
(Selected data for accumulation units outstanding throughout each period)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
The condensed financial information presented below for each of the years in the
ten-year period ended December 31, 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
Statement of Additional Information.
<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%
Number of accumulation units
outstanding at end of period 879,588
<PAGE>
<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 1993 1992
--------------- ---------------- --------------- ---------------- -------------------
<S> <C> <C> <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 $ 10.000(9)
Value at end of period $ 13.838 $ 13.450 $ 9.437 $ 9.959
Increase (decrease) in value of
accumulation unit(1) 2.88% 42.52% (5.24)% (0.41)%
Number of accumulation units
outstanding at end of period 17,587,705 15,036,765 6,339,407 781,836
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $ 15.253 $ 11.781 $ 12.069 $ 10.692 $ 10.000(10)
Value at end of period $ 14.395 $ 15.253 $ 11.781 $ 12.069 $ 10.692
Increase (decrease) in value of
accumulation unit(1) (5.63)% 29.47% (2.39)% 12.88% 6.92%
Number of accumulation units
outstanding at end of period 18,038,614 21,986,645 12,853,828 3,667,821 2,254
CALVERT RESPONSIBLY INVESTED
BALANCED PORTFOLIO**
Value at beginning of period $ 13.527 $ 10.554 $ 11.036 $ 10.278 $ 10.000(10)
Value at end of period $ 15.044 $ 13.527 $ 10.554 $ 11.036 $ 10.278
Increase (decrease) in value of
accumulation unit(1) 11.22% 28.17% (4.37)% 7.37% 2.78%
Number of accumulation units
outstanding at end of period 1,313,324 966,098 521,141 144,168 2,556
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
FRANKLIN GOVERNMENT SECURITIES TRUST
Value at beginning of period $ 11.762 $ 10.119 $ 10.642 $ 10.008 $ 10.000(10)
Value at end of period $ 12.088 $ 11.762 $ 10.119 $ 10.642 $ 10.008
Increase (decrease) in value of
accumulation unit(1) 2.77% 16.24% (4.91)% 6.33% 0.08%
Number of accumulation units
outstanding at end of period 763,006 717,760 325,365 167,137 5,559
</TABLE>
- --------------------------------------------------------------------
AUV HISTORY - 2
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ --------------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
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 $ 9.832 $ 10.000(10)
Value at end of period $ 14.686 $ 11.720 $ 10.154 $ 10.877 $ 9.832
Increase (decrease) in value of
accumulation unit(1) 25.31% 15.42% (6.65)% 10.63% (1.68)%
Number of accumulation units
outstanding at end of period 966,482 711,892 703,676 135,614 561
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $ 14.345 $ 11.026 $ 11.747 $ 10.864 $ 10.000(10)
Value at end of period $ 15.461 $ 14.345 $ 11.026 $ 11.747 $ 10.864
Increase (decrease) in value of
accumulation unit(1) 7.78% 30.10% (6.14)% 8.13% 8.64%
Number of accumulation units
outstanding at end of period 3,130,549 3,331,218 1,865,104 546,559 10,645
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $ 13.923 $ 12.687 $ 12.957 $ 9.578 $ 10.000(10)
Value at end of period $ 15.781 $ 13.923 $ 12.687 $ 12.957 $ 9.578
Increase (decrease) in value of
accumulation unit(1) 13.35% 9.74% (2.08)% 35.28% (4.22)%
Number of accumulation units
outstanding at end of period 6,905,884 7,323,208 6,558,946 1,020,233 5,232
</TABLE>
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AUV HISTORY - 3
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
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(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) Reflects less than a full year of performance activity. 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 at $10.000 during August 1996, when
the Portfolio became available under the Contract.
(9) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 on September 17, 1993,
the date on which the Portfolio became available under the Contract.
(10) Reflects less than a full year of performance activity. 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) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established at $10.000 during October 1994,
when the funds were first allocated to this option.
* Formerly TCI Portfolios, Inc.-TCI Growth
** Formerly Calvert Socially Responsible Series.
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AUV HISTORY - 4
<PAGE>
THE COMPANY
- --------------------------------------------------------------------
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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
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The Company established Variable Annuity Account C (the "Separate
Account") in 1976 as a segregated asset account for the purpose of funding its
variable annuity contracts. The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"), and
meets the definition of "separate account" under federal securities laws. The
Separate Account is divided into "Subaccounts" which do not invest directly in
stocks, bonds or other investments. Instead, each Subaccount buys and sells
shares of a corresponding Fund.
Although the Company holds title to the assets in the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business conducted by the Company. Income, gains or losses of the Separate
Account are credited to or charged against the assets of the Separate Account
without regard to other income, gains or losses of the Company. All obligations
arising under the Contracts are general corporate obligations of the Company.
INVESTMENT OPTIONS
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THE FUNDS
The Contract Holder, or the Participant, if allowed by the Contract
Holder, may allocate Purchase Payments to one or more of the Subaccounts as
designated on the enrollment form. In turn, the Subaccounts invest in the
corresponding Funds at net asset value. The total number of investment options
that you may select during the Accumulation Period is limited to 18. Each
Subaccount selected, the Fixed Account, Fixed Plus Account, and each guaranteed
term of GAA counts as one option, even if you no longer have amounts allocated
to that option.
The 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 in 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)
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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 the
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. As of
March 31, 1997, the range of market capitalization of the companies in
the Russell Index was $10 million to $1.94 billion; 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 Variable Portfolios, Inc.--American Century VP Capital
Appreciation (formerly TCI Portfolios, Inc.--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 nondiversified
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 income and capital growth opportunity and which satisfy the
social criteria established for the Portfolio.(4)
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2
<PAGE>
[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
fluctuation.(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 nondiversified
portfolio that seeks long-term growth of capital in a manner consistent
with the preservation of capital. The Portfolio pursues its investment
objective by normally investing at least 50% of its equity assets in
securities issued by medium-sized companies. Medium-sized companies
are those whose market capitalizations fall within the range of
companies in the S & P Midcap 400 Index, which as of December 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, under normal
circumstances by investing 40%-60% of its assets in equity securities
selected primarily for their growth potential and 40%-60% of its
assets in fixed-income securities selected primarily for their income
potential. (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 (e.g., junk bonds). High yield, high risk
securities involve certain risks. See the Fund's prospectus for a
discussion of these risks.(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 nondiversified portfolio that
seeks long-term growth of capital through investment primarily in
common stocks of companies which own or develop natural resources and
other basic commodities or supply goods and services to such
companies.(8)
[bullet] Neuberger & Berman Advisers Management Trust--Growth Portfolio seeks
capital growth without regard to income through investments in common
stocks of companies believed to be under-valued and have above-average
potential for capital appreciation. The Portfolio is heavily
diversified among a number of stocks to limit risk.(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. (subadviser)
(2) Fred Alger Management, Inc.
(3) American Century Investment Management, Inc.
(4) Calvert Asset Management Company, Inc.
- --------------------------------------------------------------------
3
<PAGE>
(5) Fidelity Management & Research Company
(6) Franklin Advisers, Inc.
(7) Janus Capital Corporation
(8) Lexington Management Corporation(adviser); Market Systems Research Advisors,
Inc. serves as the subadviser for the Lexington Natural Resources Trust
(9) Neuberger & Berman Management Inc. (Investment Management); Neuberger &
Berman, LLC (Subadviser)
(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 current prospectuses for each Fund which is distributed with and
accompanies 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. Additional prospectuses and
Statements of Additional Information for this Prospectus and for each of the
Funds can be obtained from the Company's Home Office at the address and
telephone number listed under the "Inquiries" section of the Prospectus Summary.
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 receive the quoted interest rates, or a market value adjustment
(which may be positive or negative) will be applied. (See Appendix I.)
[bullet] The Fixed 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.)
PURCHASE
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CONTRACT AVAILABILITY
The Contracts are designed to fund Plans adopted by (1) nonprofit
healthcare organizations and certain tax- exempt nonhealthcare (Section
501(c)(3)) organizations for their employees under Section 403(b) of the Code,
and (2) certain tax-exempt organizations or their for-profit subsidiaries in
connection with qualified defined contribution plans under Section 401(a)/401(k)
of the Code. The Contract Holder must notify the Company whether Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by
subsequent law, including the Retirement Equity Act of 1984, applies to the
Plan.
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4
<PAGE>
PURCHASING INTERESTS IN THE CONTRACT
Eligible organizations may acquire the Contract by submitting an
application to the Company. Once we approve the application, a group Contract is
issued to the employer or association as the group Contract Holder. Participants
may purchase interests in a group Contract by submitting an enrollment form to
the Company.
The Company must accept or reject the application or enrollment form
within two business days of receipt. If the enrollment materials are incomplete,
the Company may hold any forms and accompanying Purchase Payments for five days.
Purchase Payments may be held for longer periods pending acceptance of the forms
only with the consent of the Participant, or under limited circumstances, with
the consent of the Contract Holder. If we agree to hold Purchase Payments for
longer than five business days based on the consent of the Contract Holder, the
Purchase Payments will be deposited in the Aetna Variable Encore Fund Subaccount
until the forms are completed.
PURCHASE PAYMENTS
The Contract provides for the establishment of two types of Accounts on
behalf of each Participant. Employer Accounts will be credited with Purchase
Payments made by the employer (Contract Holder). Employee Accounts will be
credited with Purchase Payments derived from employee salary reduction
contributions. If such payments are continuing, periodic payments made by you or
the employer, the Employee or Employer Accounts will be designated as
"Installment Purchase Payment Accounts." If such payments are lump sum transfers
of amounts accumulated under a pre-existing plan that meet the Company's
minimums and other requirements at the time of purchase, such payments will be
placed in either Employer Accounts or Employee Accounts as instructed by the
Contract Holder, and such Accounts will be designated as "Single Purchase
Payment Accounts."
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from a Participant's gross income. (See "Tax Status.")
Allocation of Purchase Payments. Purchase Payments will initially be
allocated to the Subaccounts or Credited Interest Options as specified by the
Contract Holder or the Participant, if allowed by the Contract Holder, on the
enrollment form. Changes in such allocation may be made in writing or by
telephone transfer. Allocations must be in whole percentages, and there may be
limitations on the number of investment options that can be selected during the
Accumulation Period. (See "Investment Options--The Funds".)
RIGHTS UNDER THE CONTRACT
The Contract Holder has all rights, title and interest in the amounts held
under the Contract or in the Account; the Contract Holder makes all elections
under the Contract. Participants have no rights to direct the Company as to
payments under the Contract unless countersigned by the Contract Holder.
Benefits payable to Participants are governed exclusively by the Plan. The
Company is not a party to the Plan.
Participants have a nonforfeitable right to the value of their Employee
Account pursuant to Code Section 403(b) and the terms of the Plan as interpreted
by the Contract Holder. Participants have a nonforfeitable right to the value of
the Employer Account pursuant to the terms of, and to the extent of the
Participant's vested percentage under, the Plan as interpreted by the Contract
Holder.
The Contract Holder and each Participant have agreed in writing to the
terms and conditions of the Contract, to have the Contract Holder make all
choices under the Contract, and to be bound by the Contract Holder's directions
to the Company. (See Appendix IV.)
In addition to the responsibilities mentioned elsewhere in this
Prospectus, the Contract Holder must:
[bullet] maintain all Participant vesting percentages and records;
[bullet] certify that all distributions are made in accordance with the terms of
the Plan; and
[bullet] ensure that the Plan meets certain nondiscrimination requirements
imposed by the Code.
TRANSFER CREDITS
The Company may provide a transfer credit on "transferred assets," subject
to certain conditions and state approvals. Transferred assets are the value of
contributions made on your behalf under this Plan or a prior plan before such
amounts are applied to this Contract. The transfer credit will equal a
percentage of the transferred assets applied to the Contract that remain in the
Contract after a specified period of time. Once a transfer credit is applied to
your Contract, all provisions of the Contract apply. This benefit is provided on
a non-discriminatory basis. If a transfer credit is due under the Contract, you
will be provided with additional information specific to the Contract.
- --------------------------------------------------------------------
5
<PAGE>
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.
CHARGES AND DEDUCTIONS
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DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. The Company makes a daily deduction
from each of the Subaccounts for the mortality and expense risk charge. The
Charge is equal, on an annual basis, to 1.25% of the daily net assets of the
Subaccounts and compensates the Company for the assumption of the mortality and
expense risks under the Contract. The mortality risks are those assumed for our
promise to make lifetime payments according to annuity rates specified in the
Contract. The expense risk is the risk that the actual expenses for costs
incurred under the Contract will exceed the maximum costs that can be charged
under the Contract.
If the amount deducted for mortality and expense risks is not sufficient
to cover the mortality costs and expense shortfalls, the loss is borne by the
Company. If the deduction is more than sufficient, the excess may be used to
recover distribution expenses relating to the Contracts and as a source of
profit to the Company. The Company expects to make a profit from the mortality
and expense risk charge.
Administrative Expense Charge. The Company reserves the right to make a
deduction from each of the Subaccounts for an administrative charge. The
administrative expense charge compensates the Company for administrative
expenses that exceed revenues from the maintenance fee described below. The
charge is set at a level which does not exceed the average expected cost of the
administrative services to be provided while the Contract is in force. The
Company does not expect to make a profit from this charge.
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 standard's 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.
Effective July 1, 1997, during the Annuity Period, the administrative
expense charge equals, on an annual basis, 0.25% of the daily net assets
allocated to the Subaccounts for Participants who enrolled in a group Contract
on or after November 5, 1994. Once an Annuity Option is elected, the charge will
be established and will be effective during the entire Annuity Period.
MAINTENANCE FEE
During the Accumulation Period, the Company will deduct an annual
maintenance fee from the Account Value of each Participant who has an
Installment Purchase Payment Account. No maintenance fee will be deducted from
any Account designated as a Single Purchase Payment Account. The maintenance fee
is to reimburse the Company for some of its administrative expenses relating to
the establishment of the Accounts.
The maximum maintenance fee that can be deducted for each Participant is
$15. However, the maintenance fee may be reduced or eliminated depending upon
certain criteria described below. At the election of the employer, the
maintenance fee may be deducted from the Participant's Employee Account,
Employer Account, or a portion from each Account. The Company may send a bill to
the employer at or prior to such deduction. The maintenance fee will be deducted
on a pro rata basis from each Subaccount and Credited Interest Option in which
you have an interest. If the Account Value is withdrawn, the full maintenance
fee will be deducted at the time of withdrawal.
Reduction or Elimination of the Maintenance Fee. The annual maintenance
fee may be reduced or eliminated
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6
<PAGE>
under various conditions as agreed to by us and by the Contract Holder in
writing. Any reduction or elimination of the annual maintenance fee will reflect
differences in administrative costs and services after taking into consideration
factors such as the following:
[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 Contract values, and any other factors pertaining to
the level and expense of administrative services which will be provided
under the Contract.
Any reduction or elimination of maintenance fees will not be unfairly
discriminatory against any person. We will make any reduction in annual
maintenance fees according to our own rules in effect at the time an application
for a Contract is approved. We reserve the right to change these rules from time
to time.
DEFERRED SALES CHARGE
Withdrawals of all or a portion of the Account Value may be subject to a
deferred sales charge. The deferred sales charge is a percentage of the amounts
withdrawn from the Subaccounts, the Fixed Account and the 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 Account effective date. The amount of the deferred sales charge is
determined in accordance with the schedule set forth in the following tables:
INSTALLMENT PURCHASE PAYMENT ACCOUNTS:
Purchase Payment Deferred Sales
Periods Completed Charge Deduction
- ----------------------------- ------------------
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
More than 10 0%
SINGLE PURCHASE PAYMENT ACCOUNTS:
Account Years Deferred Sales
Completed Charge Deduction
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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%
Generally, if you transfer the total account value under another similar
annuity contract issued by the Company to an Account under this Contract, the
effective date of the new Account will be the same effective date as your former
contract for the purpose of calculating the applicable deferred sales charge
under this Contract.
A deferred sales charge will not be deducted from any portion of the
Account Value if the withdrawal is:
[bullet] due to the Participant's separation from service with the Employer (the
employer must submit documentation satisfactory to the Company
confirming that the Participant is no longer providing services to the
employer);
[bullet] applied to provide Annuity benefits;
[bullet] taken on or after the tenth anniversary of the effective date of the
Account;
[bullet] paid due to your death before Annuity payments begin;
[bullet] made due to the election of an Additional Withdrawal Option (see
"Additional Withdrawal Options");
[bullet] due to financial hardship as specified in the Code;
[bullet] paid where the Account Value of any one Account is $3,500 or less and
no amount has been withdrawn, taken as a loan, or used to purchase
Annuity benefits during the prior 12 months; or
[bullet] subject to state regulatory approval, paid as a premium for a Single
Premium Immediate Annuity issued by the Company or one of its
affiliates, provided that the "Right to Cancel" under such other
annuity contract is not exercised by the Participant. An exercise of
the "Right to Cancel" under such other annuity contract shall be
treated as a request for Reinstatement under this Contract of the
amount refunded, and, at the option of the Participant, may then be
withdrawn subject to any Deferred Sales Charge applicable to this
Contract at the
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time the Account Value was first applied toward such other annuity
contract; or
[bullet] taken from an installment Purchase Payment Account by a Participant who
is at least age 591/2 and who has completed nine or more 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
mortality and expense risk charges under the Contract described above.
Free Withdrawals. For Participants between the ages of 591/2 and 701/2, up to
10% of the current Account Value may be withdrawn during each calendar year
without imposition of a Deferred Sales Charge. The free withdrawal applies only
to the first partial withdrawal in each calendar year. The 10% amount will be
based on the Account Value calculated on the Valuation Date next following our
receipt of the request for withdrawal. Any outstanding contract loans are
excluded from the Account Value when calculating the 10% free withdrawal amount.
This provision does not apply to a full withdrawal of the Account, or to any
withdrawal due to a default on a contract loan (see "Contract Loans"). This
provision may not be exercised if SWO is elected. (See "Additional Withdrawal
Options.")
In the instances cited above, no deferred sales charge is deducted. However,
the amount withdrawn may be subject to the 10% federal penalty tax.
Reduction or Elimination of the Deferred Sales Charge. For a particular Plan,
we may reduce, waive or eliminate the deferred sales charge. Any reduction,
waiver or elimination of such charges will reflect differences or expected
differences in the amounts of unrecovered distribution costs or services of the
types that 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.
Any reduction, waiver or elimination of deferred sales charges will not be
unfairly discriminatory against any person.
We may also negotiate provisions regarding the deferred sales charge with
respect to Contracts issued to certain employer groups or associations which
have negotiated on behalf of its employees. All variations in, or elimination
of, provisions regarding the deferred sales charge resulting from such
negotiations will be offered uniformly to all employees within the group. For
specific information on fees applicable to your Account, please call the number
listed under the "Inquiries" section.
We will make any reduction in deferred sales charge according to our own
rules in effect at the time an application for a Contract is approved. We
reserve the right to change these rules from time to time.
DEFERRED SALES CHARGE SCHEDULE FOR GAA FOR
CERTAIN NEW YORK CONTRACTS
The following deferred sales charge schedule applies for withdrawals from
the Guaranteed Accumulation Account for group master Contracts, where available,
which are issued after July 29, 1993 in the State of New York. This schedule is
based on the number of completed Account Years for Single and Installment
Purchase Payment Contracts, as follows:
Completed Deferred Sales
Account Years Charge Deduction
- ---------------------------- ------------------
Less than 3 5%
3 or more but less than 4 4%
4 or more but less than 5 3%
5 or more but less than 6 2%
6 or more but less than 7 1%
7 or more 0%
FUND EXPENSES
Each Fund incurs certain expenses which are paid out of its net assets.
These expenses include, among other things, the investment advisory or
"management" fee. The expenses of the Funds are set forth in the Fee Table in
this
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Prospectus and described more fully in the accompanying Fund prospectuses.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities. These
taxes currently range from 0% to 4%. The Company reserves the right to deduct
premium tax against Purchase Payments or Account Values at any time, but no
earlier than when we have a tax liability under state law. The Company's current
practice is to deduct for premium taxes at the time of complete withdrawal or
annuitization. In addition to the premium tax, the Company reserves the right to
assess a charge for any state or federal taxes due against the Contract or the
Separate Account assets. (See "Tax Status.")
CONTRACT VALUATION
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ACCOUNT VALUE
Until the Annuity Date, the Account Value is the total dollar value of
amounts held in the Account as of any Valuation Date. The Account Value at any
given time is based on the value of the units held in each Subaccount, plus the
value of amounts held in any of the Credited Interest Options.
ACCUMULATION UNITS
The value of your interests in a Subaccount is expressed as the number of
"Accumulation Units" that you hold multiplied by an "Accumulation Unit Value"
(or "AUV") for each unit. The AUV on any Valuation Date is determined by
multiplying the value on the immediately preceding Valuation Date by the net
investment factor of that Subaccount for the period between the immediately
preceding Valuation Date and the current Valuation Date. (See "Net Investment
Factor" below.) The Accumulation Unit Value will be affected by the investment
performance, expenses and charges of the applicable Fund and is reduced each day
by a percentage that accounts for the daily assessment of mortality and expense
risk charges and the administrative charge (if any).
Initial Purchase Payments will be credited to your Account at the AUV
computed on the next Valuation Date following our acceptance of the application
or enrollment form, as described under "Purchase--Purchasing Interests in the
Contract." 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 1.000 plus the net
investment rate. The net investment rate equals:
(a) the net assets of the Fund held by the Subaccount on the current
Valuation Date, minus
(b) the net assets of the Fund held by the Subaccount on the preceding
Valuation Date, plus or minus
(c) taxes or provisions for taxes, if any, attributable to the operation
of the Subaccount;
(d) divided by the total value of the Subaccount's Accumulation and
Annuity Units preceding the Valuation Date;
(e) minus a daily charge at the annual effective rate of 1.25% for
mortality and expense risks and up to 0.25% as an administrative
expense charge.
The net investment rate may be either positive or negative.
TRANSFERS
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At any time prior to the Annuity Date, the Contract Holder (or you, if
authorized by the Contract Holder) can transfer amounts held under your Contract
from one Subaccount to another. Transfers between the Credited Interest Options
and the Subaccounts are subject to certain restrictions. (See Appendices I, II
and III.) A request for transfer can be made either in writing or by telephone.
The telephone transfer privilege is available automatically; no special election
is necessary. All transfers must be in accordance with the terms of the Contract
and your employer's Plan, as applicable.
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<PAGE>
The Company currently allows unlimited transfers of accumulated amounts to
available investment options without charge. The minimum transfer amount may not
be less than $500. However, the total number of investment options that you may
select during the Accumulation Period may be limited. (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
The Contract Holder (or you, if authorized) may establish automated
transfers of Account Values on a monthly or quarterly basis through the
Company's Dollar Cost Averaging Program, if available under your Plan. 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. Please refer to the "Inquiries"
section of the prospectus summary which describes how you can obtain further
information.
WITHDRAWALS
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The Contract Holder, on your behalf, may withdraw all or a portion of the
Account Value at any time during the Accumulation Period, subject to the
withdrawal restrictions under Section 403(b) Contracts described below, and to
the limitations on withdrawals from the Fixed Plus Account. To request a
withdrawal, the Contract Holder, on your behalf, must properly complete a
disbursement form and send it to our Home Office. If you are married and are
participating in a Plan subject to ERISA, the Contract Holder must provide
written certification that the applicable Retirement Equity Act requirements
have been met. Payments for withdrawal requests will be made in accordance with
SEC requirements, but normally not later than seven calendar days following our
receipt of a disbursement form.
Withdrawals may be requested in one of the following forms:
[bullet] Full Withdrawal of the Contract: The amount paid upon a full withdrawal
will be the Account Value of all Accounts allocated to the Subaccounts,
the Guaranteed Accumulation Account (plus or minus a market value
adjustment) (see Appendix I), and the Fixed Account, minus any
applicable deferred sales charge and maintenance fee due, plus the
amount available for withdrawal from the Fixed Plus Account (see
Appendix III).
[bullet] Full Withdrawal of an Account: The amount paid for a full withdrawal
will be the Account Value allocated to the Subaccounts, the Guaranteed
Accumulation Account (plus or minus a market value adjustment) (see
Appendix I), and the Fixed Account, 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 requested minus any applicable deferred
sales charge; however, amounts available for withdrawal from the Fixed
Plus Account are 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 requested otherwise in writing by the Contract Holder. All amounts paid
will be based on Account Values as of the next Valuation Date after we receive a
request for withdrawal at our Home Office, or on such later date as the
disbursement form may specify. A 20% federal income tax may be withheld from
amounts paid directly to you. (See "Tax Status--Contracts Used with Certain
Retirement Plans.")
Withdrawal Restrictions from 403(b) Plans. Under Section 403(b) Contracts,
a withdrawal of salary reduction contributions and earnings on such
contributions is generally prohibited prior to the Participant's death,
disability, attainment of age 59 1/2, separation from service or financial
hardship. (See "Tax Status.")
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10
<PAGE>
REINVESTMENT PRIVILEGE
The Contract Holder may elect to reinvest all or a portion of the proceeds
received from a full withdrawal of an Account within 30 days after such
withdrawal has been made. Accumulation Units will be credited to the Account for
the amount reinvested, as well as any maintenance fee and any deferred sales
charge imposed at the time of withdrawal. Any maintenance fee which falls due
after the withdrawal and before the reinvestment will be deducted from the
amounts reinvested. Reinvested amounts will be reallocated to the applicable
investment options in the same proportion as they were allocated at the time of
withdrawal. Accumulation Units will be credited to the Account based on the
Accumulation Unit Value next computed following our receipt of the request along
with the amount to be reinvested. The reinvestment privilege may be used only
once. See Appendix I for a discussion of amounts withdrawn from GAA and then
reinvested. If you are contemplating reinvestment, you should seek competent
advice regarding the tax consequences associated with such a transaction.
CONTRACT LOANS
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During the Accumulation Period, a Contract Holder of a 403(b) Plan may
request (on your behalf) a loan from your Employee Account. The Contract Holder
may also authorize contract loans from the value of the Employer Account (check
with the Contract Holder to see if this is available). Loans can only be taken
from those Account Values held in the Subaccounts or from those Credited
Interest Options that allow loans. (See Appendices I, II and III.) A loan may be
obtained by reviewing and reading the terms of the loan agreement, properly
completing a loan request form and submitting it to the Company's Home Office.
Loans are not available from Contracts issued to 401(a)/401(k) Plans, unless
provided for under your Contract.
ADDITIONAL WITHDRAWAL OPTIONS
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The Company offers certain withdrawal options under the Contract that are
not considered annuity options ("Additional Withdrawal Options"). To exercise
these options, the Account Value must meet the minimum dollar amounts and age
criteria applicable to that option.
The Additional Withdrawal Options currently available under the Contract
include the following:
[bullet] SWO--Systematic Withdrawal Option. SWO is a series of partial
withdrawals from your Account based on a payment method you select. It
is designed for those who want a periodic income while retaining
investment flexibility for amounts accumulated under a Contract. (This
option may not be elected if you have an outstanding contract loan.)
[bullet] ECO--Estate Conservation Option. ECO offers the same investment
flexibility as SWO but is designed for those who want to receive only
the minimum distribution that the Code requires each year. Under ECO,
the Company calculates the minimum distribution amount required by law
at the later of age 70 1/2 or retirement, or for 5% owners at age
70 1/2, and pays you that amount once a year.
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office. For Contracts issued in the state of New York, no market value
adjustment will be imposed on withdrawals from GAA for ECO.
If one of the Additional Withdrawal Options is selected, your Account will
retain all of the rights and flexibility permitted under the Contract during the
Accumulation Period. Your Account Value will continue to be subject to the
charges and deductions described in this Prospectus. 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 any time by submitting a written request to our Home Office.
Once an option is revoked, it may not be elected again, nor may any other
Additional Withdrawal Options be elected unless permitted by the Code. The
Company reserves the right to discontinue the availability of one or all of
these Additional Withdrawal Options at any time, and/or to change the terms of
future elections.
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<PAGE>
DEATH BENEFIT DURING ACCUMULATION PERIOD
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The Contract provides that a death benefit is payable to the Contract
Beneficiary(ies) upon the death of the Participant before the Annuity Date. The
amount of the death benefit will be equal to the Account Value. Death benefit
proceeds may be paid to the Plan Beneficiary (as directed in writing by the
Contract Holder):
[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 the Plan Beneficiary, may instead elect
one of the following two options; however, the Code limits how long the death
benefit proceeds may be left in these options (see below):
[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 Plan Beneficiary, we will determine the Account Value on
the Valuation Date following the date on which we receive proof of death
acceptable to the Company. Interest, if any, will be paid from the date of death
at a rate no less than required by law. We will mail payment to the Contract
Holder, or to the Plan Beneficiary, if requested by the Contract Holder, within
seven days after we receive proof of death.
The Code requires that distribution of death proceeds begin within a
certain period of time. Generally, if your Plan Beneficiary is not your spouse
either annuity payments must begin by December 31 of the year following the year
of your death, or the entire value of your benefits must be distributed by
December 31 of the fifth year following the year of your death. If your Plan
Beneficiary is your spouse, he or she is not required to begin distributions
until the year in which you would have attained age 70 1/2. In no event may
payments extend beyond the life expectancy of the Plan Beneficiary or any period
certain greater than the Plan Beneficiary's life expectancy. If no elections are
made, no distributions will be made. Failure to commence distributions within
the above time periods can result in tax penalties. Regardless of the method of
payment, death benefit proceeds will generally be taxed to the beneficiary in
the same manner as if you had received those payments. (See "Tax Status.")
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
The Code generally requires that minimum annual distributions of the
Account Value must begin by April 1st of the calendar year following the
calendar year in which a Participant attains age 70 1/2 or retires, if later.
In addition, distributions must be in a form and amount sufficient to satisfy
the Code requirements. These requirements may be satisfied by the election of
certain Annuity Options or Additional Withdrawal Options. (See "Tax Status.")
At least 30 days prior to the Annuity Date, the Contract Holder, on your
behalf, must notify us in writing of the following:
[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 the investment option(s) used to provide Annuity
payments (i.e., a fixed annuity using the general account or a variable
annuity using any of the Subaccounts available at the time of
annuitization). As of the date of this Prospectus, Aetna Variable Fund,
Aetna Income Shares and Aetna Investment Advisers Fund, Inc. are the
only Subaccounts available.
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<PAGE>
Annuity Payments will not begin until you have selected an Annuity Option.
Until a date and option are elected, the Account will continue in the
Accumulation Period. Once Annuity payments begin, the Annuity Option may not be
changed, nor may transfers be made among the investment option(s) selected.
ANNUITY OPTIONS
The Contract Holder, on behalf of the Participant, 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--A life annuity with
payments guaranteed for 5, 10, 15 or 20 years, or such other periods as
the Company may offer at the time of annuitization.
[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 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 type of annuity available (fixed or
variable) is determined by the investment options used prior to annuitization.
For amounts held in the Fixed Plus Account (if available under the Contract),
the annuity must be paid on a fixed basis and payments may be made for 5-30
years. For amounts held in the Subaccounts, the Guaranteed Accumulation Account
or the Fixed Account, an annuity may be selected on a fixed or variable basis
and payments may be made for 3-30 years. If 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 your Contract from time
to time.
ANNUITY PAYMENTS
Date Payouts Start. Annuity payments may not extend beyond (a) the life of
the Annuitant, (b) the joint lives of the Annuitant and Plan Beneficiary, (c) a
period certain greater than the Annuitant's life expectancy, or (d) a period
certain greater than the joint life expectancies of the Annuitant and Plan
Beneficiary.
Amount of Each Annuity Payment. The amount of each payment depends on your
Account Value, how it is allocated between fixed and variable payouts, and the
Annuity option chosen. No election may be made that would result in the first
Annuity payment of less than $20, or total yearly Annuity payments of less than
$100. If your combined Employer and Employee Account Value on the Annuity Date
is insufficient to elect an option for the minimum amount specified, a lump-
sum payment must be elected.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
selected (3 1/2% or 5% per annum). Selection of a 5% rate causes a higher first
payment, but Annuity payments will increase thereafter only to the extent that
the net investment rate exceeds 5% on an annualized basis. Annuity payments
would decline if the rate were below 5%. Use of the 31/2% assumed rate causes a
lower first payment, but subsequent payments would increase more rapidly or
decline more slowly as changes occur in the net investment rate. (See the
Statement of Additional Information for further information on the impact of
selecting a particular assumed net investment rate.)
CHARGES DEDUCTED DURING THE ANNUITY PERIOD
We make a daily deduction for mortality and expense risks from any amounts
held on a variable basis. Therefore,
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electing the nonlifetime option on a variable basis will result in a deduction
being made even though we assume no mortality risk. Effective July 1, 1997, we
will also deduct a daily administrative charge of 0.25% on an annual basis from
amounts held under the variable options for Participants who enrolled in a group
Contract on or after November 5, 1984. (See "Charges and Deductions.")
DEATH BENEFIT PAYABLE DURING THE ANNUITY PERIOD
If an Annuitant dies after Annuity Payments have begun, any death benefit
payable will depend on the terms of the Contract and the Annuity Option
selected. If Option 1 or Option 3 was elected, Annuity payments will cease on
the death of the Annuitant under Option 1 or the death of the surviving
Annuitant under Option 3.
If Lifetime Option 2 or Option 4 was elected and the death of the
Annuitant under Option 2, or the surviving Annuitant under Option 4, occurs
prior to the end of the guaranteed minimum payment period, we will pay to the
Plan Beneficiary in a lump sum, unless otherwise requested, the present value of
the guaranteed annuity payments remaining.
If the nonlifetime option was elected, and the Annuitant dies before all
payments are made, the value of any remaining payments may be paid in a lump-sum
to the Plan Beneficiary (unless otherwise requested), and no deferred sales
charge will be imposed.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining value must
be distributed to the Plan Beneficiary at least as rapidly as under the original
method of distribution.
Any lump-sum payment paid under the applicable lifetime or nonlifetime
Annuity options will be made within seven calendar days after proof of death
acceptable to us, and a request for payment are received at our Home Office. The
value of any death benefit proceeds will be determined as of the next Valuation
Date after we receive acceptable proof of death and a request for payment. Under
Options 2 and 4, such value will be reduced by any payments made after the date
of death.
TAX STATUS
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INTRODUCTION
The following provides a general discussion and is not intended as tax
advice. This discussion reflects the Company's understanding of current federal
income tax law. Such laws may change in the future, and it is possible that any
change could be retroactive (i.e., effective prior to the date of the change).
The Company makes no guarantee regarding the tax treatment of any Contract or
transaction involving a Contract. The ultimate effect of federal income taxes on
the amounts held under a Contract, on Annuity payments, and on the economic
benefit to the Contract Holder, Participant or Plan Beneficiary may depend upon
the tax status of the individual concerned. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under the Code. Since the
Separate Account is not an entity separate from the Company, it will not be
taxed separately as a "regulated investment company" under the Code. Investment
income and realized capital gains are automatically applied to increase reserves
under the Contracts. Under existing federal income tax law, the Company believes
that the Separate Account's investment income and realized net capital gains
will not be taxed to the extent that such income and gains are applied to
increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such taxes.
However, if changes in the federal tax laws or interpretation thereof result in
the Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
CONTRACTS USED WITH CERTAIN RETIREMENT PLANS
In General. The Contract is designed for use with Section 403(b) plans,
and Section 401(a) and Section 401(k) plans. The tax rules applicable to
retirement plans vary according to the type of plan and the terms and conditions
of the plan.
The Company makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans.
Participants as well as Plan Beneficiaries are cautioned that the rights of any
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person to any benefits under the Contracts may be subject to the terms and
conditions of the plans themselves, in addition to the terms and conditions of
the Contracts issued in connection with such plans. Some retirement plans are
subject to limitations on distribution and other requirements that are not
incorporated in the Contracts. Purchasers are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable laws, and should consult their legal counsel and
tax adviser regarding the suitability of the Contract.
Minimum Distribution Requirements. The Code has required distribution
rules for Section 403(b), 401(a) and 401(k) Plans. Under 403(b) Plans,
distributions of amounts held as of December 31, 1986 must generally begin by
the end of the calendar year in which you attain age 75 or retire, if later.
However, special rules require that some or all of that balance be distributed
earlier if any distributions are taken in excess of the minimum required amount.
For all Participants, other than 5% owners, distributions under 401(a) and
401(k) Plans, and distributions attributable to contributions under Section
403(b) Plans on or after January 1, 1987 (including any earnings on the entire
Account Value after that date), must generally begin by April 1 of the calendar
year following the calendar year in which you attain age 70 1/2 or retire,
whichever occurs later. For 5% owners, such distributions must begin by April
1st of the calendar year following the calendar year in which you attain age
70 1/2.
In general, annuity payments must be distributed over your life or the
joint lives of you and your Plan Beneficiary, or over a period not greater than
your life expectancy or the joint life expectancies of you and your Plan
Beneficiary.
If you die after the required minimum distribution has commenced,
distributions to your Plan Beneficiary must be made at least as rapidly as under
the method of distribution in effect at the time of your death. However, if the
minimum required distribution is calculated each year based on your single life
expectancy or the joint life expectancies of you and your beneficiary, the
regulations for Code Section 401(a)(9) provide specific rules for calculating
the minimum required distributions at your death. For example, if you have
elected ECO with the calculation based on your single life expectancy, and the
life expectancy is recalculated each year, your recalculated life expectancy
becomes zero in the calendar year following your death and the entire remaining
interest must be distributed to your beneficiary by December 31 of the year
following your death. However, a spousal beneficiary has certain rollover rights
which can only be exercised in the year of your death. The rules are complex and
you should consult your tax adviser before electing the method of calculation to
satisfy the minimum distribution requirements.
If you die before the required minimum distribution has commenced, your
entire interest must be distributed by December 31 of the calendar year
containing the fifth anniversary of the date of your death. Alternatively,
payments may be made over the life of the beneficiary or over a period not
extending beyond the life expectancy of the beneficiary provided the
distribution begins by December 31 of the calendar year following the calendar
year of your death, or December 31 of the calendar year in which you would have
attained age 70 1/2.
If you fail to receive the minimum required distribution for any tax year,
a 50% excise tax is imposed on the required amount that was not distributed.
Taxation of Distributions. All distributions will be taxed as they are
received unless you made a rollover contribution of the distribution to another
plan of the same type or to an individual retirement annuity/account ("IRA") in
accordance with the Code, or unless you have made after-tax contributions to the
plan, which are not taxed upon distribution. The Code has specific rules that
apply, depending on the type of distribution received, if after-tax
contributions were made.
In general, payments received by your Plan Beneficiaries after your death
are taxed in the same manner as if you had received those payments, except that
a limited death benefit exclusion may apply 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
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15
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is rolled over into another plan of the same type or to an IRA in accordance
with the terms of the Code, or (f) the distribution amount is made in
substantially equal periodic payments (at least annually) over your life or life
expectancy or the joint lives or joint life expectancies of you and your plan
beneficiary, provided you have separated from service with the plan sponsor. In
addition, the penalty tax does not apply for the amount of a distribution equal
to unreimbursed medical expenses incurred by you that qualify for deduction as
specified in the Code. The Code may impose other penalty taxes in other
circumstances.
Section 403(b) Plans. Under Code Section 403(b), contributions made by
nonprofit healthcare organizations and other Section 501(c)(3) tax exempt
organizations to purchase annuity contracts for their employees are generally
excludable from the gross income of the employee.
In order to be excludable from taxable income, total annual contributions
made by you and your employer cannot exceed either of two limits set by the
Code. The first limit, under Section 415, is generally the lesser of 25% of your
includable compensation or $30,000. The second limit, which is the exclusion
allowance under Section 403(b), is usually calculated according to a formula
that takes into account your length of employment and any pretax contributions
to certain other retirement plans. These two limits apply to your contributions
as well as to any contributions made by your employer on your behalf. There is
an additional limit that specifically limits your salary reduction contributions
to generally no more than $9,500 annually (subject to indexing); your own limit
may be higher or lower, depending on certain conditions. In addition Purchase
Payments will be excluded from a Participant's gross income only if the Plan
meets certain nondiscrimination requirements.
Section 403(b)(11) restricts the distribution under Section 403(b)
contracts of: (1) salary reduction contributions made after December 31, 1988;
(2) earnings on those contributions; and (3) earnings during such period on
amounts held as of December 31, 1988. Distribution of those amounts may only
occur upon death of the employee, attainment of age 59 1/2, separation from
service, disability, or financial hardship. In addition, income attributable to
salary reduction contributions may not be distributed in the case of hardship.
If, pursuant to Revenue Ruling 90-24, the Company agrees to accept, under
any of the Contracts covered by this Prospectus, amounts transferred from a Code
Section 403(b)(7) custodial account, such amounts will be subject to the
withdrawal restrictions set forth in Code Section 403(b)(7)(A)(ii).
Generally, no amounts accumulated under the Contract will be taxable prior
to the time of actual distribution. However, the IRS has stated in published
rulings that a variable contract owner, including participants under Section
403(b) Plans, will be considered the owner of separate account assets if the
contract owner possesses incidents of investment control over the assets. In
these circumstances, income and gains from the separate account assets would be
currently includable in the variable contract owner's gross income. The Treasury
announced that guidance would be issued in the future regarding the extent to
which owners could direct their investments among Subaccounts without being
treated as owners of the underlying assets of the Separate Account. It is
possible that the Treasury's position, when announced, may adversely affect the
tax treatment of existing contracts. The Company therefore reserves the right to
modify the Contract as necessary to attempt to prevent the owner from being
considered the federal tax owner of the assets of the Separate Account.
Section 401(a) and 401(k) Plans. Section 401(a) and 401(k) permits certain
employers to establish various types of retirement plans for employees, and
permits self-employed individuals to establish various types of retirement
plans for themselves and for their employees. These retirement plans may permit
the purchase of the Contracts to accumulate retirement savings under the plans.
Adverse tax consequences to the Plan, to the Participant or to both may result
if this Contract is assigned or transferred to any individual except to a
Participant as a means to provide benefit payments.
The Code imposes a maximum limit on annual Purchase Payments that may be
excluded from a Participant's gross income. Such limit must be calculated under
the Plan by the employer in accordance with Section 415 of the Code. This limit
is generally the lesser of 25% of your compensation or $30,000. The limit
applies to your contributions as well as any contributions made by your employer
on your behalf. There is an additional limit that specifically limits your
salary reduction contributions under a 401(k) Plan to generally no more than
$9,500 annually (subject to indexing). Your own limits may be higher or lower,
depending on certain conditions. In addition, Purchase Payments will be excluded
from a Participant's gross income only if the Plan meets certain
nondiscrimination requirements.
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MISCELLANEOUS
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DISTRIBUTION
The Company will serve as the Principal Underwriter for the securities
sold by this Prospectus. The Company is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. (NASD). As Underwriter, the Company will contract
with one or more registered broker-dealers ("Distributors"), including at least
one affiliate of the Company, to offer and sell the Contracts. All persons
offering and selling the Contracts must be registered representatives of the
Distributors and must also be licensed as insurance agents to sell variable
annuity contracts. These registered representatives may also provide services to
Participants in connection with establishing their Accounts under the Contract.
Payment of Commissions. Persons offering and selling the Contracts may
receive commissions in connection with the sale of the Contracts. The maximum
percentage amount that the Company will ever pay as commission with respect to
any given Purchase Payment is with respect to those made during the first year
of Purchase Payments under an Account. The percentage amount will range from 1%
to 6% of those Purchase Payments. The Company may also pay renewal commissions
and asset-based service fees on Purchase Payments made after the first year. The
average of all payments made by the Company is estimated to equal approximately
3% of the total Purchase Payments made over the life of an average Contract. 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 expenses.
The name of the Distributor and the registered representative responsible for
your Account are set forth in your enrollment materials. Commissions and sales
related expenses are paid by the Company and are not deducted from Purchase
Payments. (See "Charges and Deductions--Deferred Sales Charge.")
Third Party Compensation Arrangements. Occasionally, we may pay
commissions and fees to Distributors which are affiliated or associated with the
Contract Holder or the Participants. We may also enter into agreements with some
entities associated with the Contract Holder or Participants in which we would
agree to pay the entity for certain services in connection with administering
the Contracts. In both these circumstances there may be an understanding that
the Distributor or entity would endorse the Company as a provider of the
Contract. You will be notified if you are purchasing a Contract that is subject
to these arrangements.
DELAY OR SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone the date of payment
for any benefit or values (a) on any Valuation Date on which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or when trading on the Exchange is restricted; (b) when an emergency
exists, as determined by the SEC, so that disposal of securities held in the
Subaccounts is not reasonably practicable or 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.
PERFORMANCE REPORTING
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account. The Company may
advertise the "standardized average annual total returns" of the Subaccounts,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
returns." "Standardized average annual total returns" are computed according to
a formula in which a hypothetical investment of $1,000 is applied to the
Subaccount and then related to the ending redeemable values over the most recent
one, five and ten-year periods (or since inception, if less than ten years).
Standardized returns will reflect the reduction of all recurring charges during
each period (e.g., mortality and expense risk charges, annual maintenance fees,
administrative expense charge (if any) and any applicable deferred sales
charge). "Non-standardized returns" will be calculated in a similar manner,
except that non-standardized figures will not reflect the deduction of any
applicable deferred sales charge (which would decrease the level of performance
shown if reflected in these calculations). The non-standardized figures may also
include monthly, quarterly, year-to-date and three-year periods.
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The Company may also advertise certain ratings, rankings or other
information related to the Company, the Subaccounts or the Funds. Further
details regarding performance reporting and advertising are described in the
Statement of Additional Information.
VOTING RIGHTS
In accordance with the Company's view of present applicable law, it will
vote the shares of each of the Funds held by the Separate Account at regular and
special meetings of Fund shareholders in accordance with instructions received
from persons having a voting interest in the Separate Account. Participants and
Annuitants have a fully vested (100%) interest in the value of the Employee
Account and also have a nonforfeitable (vested) right to the value of the
Employer Account pursuant to the terms of, and to the extent of their vested
percentage under the Plan. Therefore, such Participants and Annuitants may
instruct the Contract Holder how to direct the Company to cast the votes for the
portion of the Account Value or valuation reserve attributable to their
Accounts. The Company will vote shares for which it has not received
instructions in the same proportion as it votes shares for which it has received
instructions.
Each person having a voting interest in the Separate Account will receive
periodic reports relating to the Fund(s) in which he or she has an interest, as
well as any proxy materials and a form on which to give voting instructions.
Voting instructions will be solicited by written communication at least 14 days
before such meeting. The number of votes to which each person may give direction
will be determined as of the record date set by the Fund.
The number of votes each Contract Holder, Participant or beneficiary, as
applicable, may cast during the Accumulation Period is equal to the portion of
the Account Value to that Fund, divided by the net asset value of one share of
that Fund. During the Annuity Period, the number of votes is equal to the
valuation reserve applicable to the portion of the Contract attributable to that
Fund, divided by the net asset value of one share of that Fund. In determining
the number of votes, fractional votes will be recognized.
MODIFICATION OF THE CONTRACT
The Company may change the Contract as required by federal or state law.
In addition, the Company may, upon 30 days written notice to the Contract
Holder, make other changes to the Contract that would apply only to individuals
who become Participants under that Contract after the effective date of such
changes. If the Contract Holder does not agree to a change, no new Participants
will be covered under the Contract. Certain changes will require the approval of
appropriate state or federal regulatory authorities.
LEGAL MATTERS AND PROCEEDINGS
The Company knows of no material legal proceedings pending to which the
Separate Account or the Company is a party or which would materially affect the
Separate Account. The validity of the securities offered by this Prospectus has
been passed upon by Counsel to the Company.
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CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
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The Statement of Additional Information contains more specific information
on the Separate Account and the Contract, as well as the financial statements of
the Separate Account and the Company. A list of the contents of the SAI is set
forth below:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material and Advertising
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of the Company
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APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
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The Guaranteed Accumulation Account ("GAA") is a Credited Interest Option
available during the Accumulation Period under the Contracts discussed in this
Prospectus. Amounts allocated to Long-Term Classifications of GAA are held in a
noninsulated, nonunitized separate account. Amounts allocated to Short-Term
Classifications of GAA are held in the Company's general account. This Appendix
is a summary of GAA and is not intended to replace the GAA prospectus. You
should read the accompanying GAA prospectus carefully before investing.
GAA is a Credited Interest Option in which we guarantee stipulated rates of
interest for stated periods of time on amounts directed to GAA. The interest
rate stipulated is an annual effective yield; that is, it reflects a full year's
interest. Interest is credited daily at a rate that will provide the guaranteed
annual effective yield for one year. This option guarantees the minimum interest
rate specified in the Contract.
During a specified period of time, (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to three
years, and Long-Term GAA has Guaranteed Terms from more than three and up to ten
years.
Purchase Payments must remain in GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a market value
adjustment ("MVA"). For Contracts issued in New York, no MVA applies upon the
election of the Estate Conservation Option. An MVA reflects the change in the
value of the investments due to changes in interest rates since the date of
deposit. When interest rates increase after the date of deposit, the value of
the investment decreases and the MVA is negative. Conversely, when interest
rates decrease after the date of deposit, the value of the investment increases,
and the MVA is positive. It is possible that a negative MVA could result in the
Participant receiving an amount which is less than the amount paid into GAA.
As a Guaranteed Term matures, assets accumulating under GAA may be (a)
transferred to a new Guaranteed Term, (b) transferred to other available
investment options, or (c) withdrawn. Amounts withdrawn may be subject to a
deferred sales charge, federal tax penalties or mandatory income tax withholding
and a maintenance fee.
By notifying us at least 30 days prior to the Annuity Date, the Contract
Holder may elect a variable annuity on your behalf and have amounts that have
been accumulating under GAA transferred to one or more of the Subaccounts
available during the Annuity Period. GAA cannot be used as an investment option
during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
We make no deductions from the credited interest rate for mortality and
expense risks; these risks are considered in determining the credited rate.
TRANSFERS
Transfers are permitted among Guaranteed Terms. However, amounts applied to
GAA may not be transferred to another Guaranteed Term of GAA, or to any other
Subaccount or Credited Interest Option available under the Contract, during the
deposit period or the 90 days after the close of the deposit period. We will
apply an MVA to transfers made before the end of a Guaranteed Term, unless such
transfer is due to the maturity of the Guaranteed Term.
CONTRACT LOANS
Loans may not be made against amounts held in GAA, although such value is
included in determining the Account Value against which a loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from GAA and reinvested, they will be applied to
the current deposit period. Amounts are proportionately reinvested to the
classifications in the same manner as they were allocated before the withdrawal.
Any negative MVA amount applied to a withdrawal is not included in the
reinvestment.
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APPENDIX II
FIXED ACCOUNT
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The following summarizes material information concerning the Fixed Account.
Amounts allocated to the Fixed Account are held in the Company's general account
that supports general insurance and annuity obligations. Interests in the Fixed
Account have not been registered with the SEC in reliance on exemptions under
the Securities Act of 1933, as amended. Disclosure in the Prospectus regarding
the Fixed Account, may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of such statements. Disclosure in this Appendix regarding the Fixed
Account has not been reviewed by the SEC.
The Fixed Account guarantees the minimum interest rate specified in the
Contract. The Company may credit a higher interest rate from time to time. The
current rate is subject to change at any time, but will never fall below the
guaranteed minimum. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under the Fixed
Account, the Company assumes the risk of investment gain or loss by guaranteeing
Account Values and promising a minimum interest rate and Annuity Payment.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to six months, or (b) as provided by
federal law.
In addition, if allowed by state law, the Company may pay any Fixed Account
withdrawal value in equal payments, with interest, over a period not to exceed
60 months, when:
(a) The Fixed Account withdrawal value for the Contract or for the total of the
Accounts under the Contract exceeds $250,000 on the day prior to the
withdrawal; and
(b) the sum of the current Fixed Account withdrawal and the total of all Fixed
Account withdrawals from the Contract or for the total of the Accounts under
the Contract within the past 12 calendar months exceeds 20% of the amount in
the Fixed Account on the day prior to the current withdrawal.
Interest, as used above, will not be more than two percentage points below
any rate determined prospectively by the Board of Directors for this class of
Contract. In no event will the interest rate be less than the minimum stated in
the Contract.
Amounts applied to the Fixed Account will earn the interest rate in effect
when actually applied to the Fixed Account.
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
If a withdrawal is made from the Fixed Account, a deferred sales charge may
apply. (See "Charges and Deductions--
Deferred Sales Charge.")
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
options(s) are allowed in each calendar year during the Accumulation Period. The
amount which may be transferred may vary at our discretion; however, it will
never be less than 10% of the amount held under the Fixed Account.
By notifying us at our Home Office at least 30 days before Annuity payments
begin, the Contract Holder, on your behalf, may elect to have amounts which have
been accumulating under the Fixed Account transferred to one or more of the
Subaccounts available during the Annuity Period to provide variable Annuity
payments.
CONTRACT LOANS
Loans may be made from Account Values held in the Fixed Account.
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APPENDIX III
FIXED PLUS ACCOUNT
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The following summarizes material information concerning the Fixed Plus
Account. Amounts allocated to the Fixed Plus Account are held in the Company's
general account that supports general insurance and annuity obligations.
Interests in the Fixed Plus Account have not been registered with the SEC in
reliance on exemptions under the Securities Act of 1933, as amended. Disclosure
in the Prospectus regarding the Fixed Plus Account, may, however, be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of such statements. Disclosure in this Appendix
regarding the Fixed Plus Account has not been reviewed by the SEC.
The Fixed Plus Account guarantees the minimum Fixed Plus interest rate
specified in the Contract. The Company may credit a higher interest rate from
time to time. The current rate is subject to change at any time, but will never
fall below the guaranteed minimum. The Company's determination of interest rates
reflects the investment income earned on invested assets and the amortization of
any capital gains and/or losses realized on the sale of invested assets. Under
the Fixed Plus Account, the Company assumes the risk of investment gain or loss
by guaranteeing Account Values and promising a minimum interest rate and Annuity
Payment. This option is not available in the state of New York.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Account Year, we will credit amounts held in the
Fixed Plus Account with an interest rate that is at least 0.25% higher than the
then-declared interest rate for the Fixed Plus Accounts for Accounts that have
not reached their tenth anniversary.
The Company reserves the right to limit Purchase Payment(s) and/or
transfers to the Fixed Plus Account.
FIXED PLUS ACCOUNT WITHDRAWALS
The amount eligible for partial withdrawal is 20% of the amount held in the
Fixed Plus Account on the day our Home Office receives a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made in the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of any of the
Additional Withdrawal Options.
The 20% limit is waived if the partial withdrawal is due to annuitization
under a fixed lifetime or non-lifetime Annuity option, or a variable lifetime
Annuity option, or due to death. The waiver upon death will only be exercised
once and must occur within six months after the Participant's date of death. Any
such surrender or annuitization must also be made pro rata from all Subaccounts
and Credited Interest Options available under the Contract.
If a full withdrawal is requested, we will pay any amounts held in the
Fixed Plus Account, with interest, in five annual payments equal to:
1. One-fifth of the Fixed Plus Account Value on the day the request is received,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months;
2. One-fourth of the remaining Fixed Plus Account Value 12 months later;
3. One-third of the remaining Fixed Plus Account Value 12 months later;
4. One-half of the remaining Fixed Plus Account Value 12 months later; and
5. The balance of the Fixed Plus Account Value 12 months later.
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Once we receive a request for a full withdrawal, no further withdrawals,
loans or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be cancelled at any time before the
end of the five-payment period. We will waive the Fixed Plus Account full
withdrawal provision if a full withdrawal is made due to:
(a) the Participant's death, before Annuity payments begin and request for
payment is received within 6 months after the Participant's date of death;
(b) the election of a fixed lifetime or nonlifetime Annuity option or a variable
lifetime Annuity option; or
(c) if the Fixed Plus Account value is $3,500 or less and no withdrawals,
transfers, loan or annuitizations have been made from the Account within the
prior 12 months.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day we receive a written request,
reduced by any Fixed Plus Account withdrawals, transfers, loans or
annuitizations made during the prior 12 months. In calculating the 20% limit, we
reserve the right to include payments made due to the election of an Additional
Withdrawal Option. The 20% limit on transfers will be waived when the value in
the Fixed Plus Account is $1,000 or less.
By notifying us at our Home Office at least 30 days before the Annuity
Date, you may elect to have amounts which have been accumulating under the Fixed
Plus Account transferred to one or more of the Subaccounts available during the
Annuity Period to provide lifetime variable Annuity Payments.
SWO
The Systematic Withdrawal Option may not be elected if you have requested a
Fixed Plus Account transfer or withdrawal within the prior 12 month period.
CONTRACT LOANS
If permitted under the Contract, loans may be made from Account Values held
in the Fixed Plus Account. See the loan agreement for a description of the
amount available and the consequences upon loan default if more than 20% of the
Fixed Plus Account Value is used for a loan.
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APPENDIX IV
EMPLOYEE APPOINTMENT OF EMPLOYER
AS AGENT UNDER AN ANNUITY CONTRACT
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My employer has adopted a Retirement Plan under Internal Revenue Code
Section 403(b) ("Plan") and has purchased an Aetna Life Insurance and Annuity
Company ("Company") group variable annuity contract ("Contract") as the funding
vehicle. Contributions under this Plan will be made by me through salary
reduction to an Employee Account, and by my employer to an Employer Account.
By electing to participate in my employer's Plan, I voluntarily appoint my
employer, who is the Contract Holder, as my agent for the purposes of all
transactions under the Contract in accordance with the terms of the Plan. The
Company is not a party to the Plan and does not interpret the Plan provisions.
As a Participant in the Plan, I understand and agree to the following terms
and conditions:
[bullet] I own the value of my Employee Account subject to the restrictions of
Section 403(b) and the terms of the Plan. Subject to the terms of the
vesting schedule in the Plan and the restrictions of Section 403(b), I
have ownership in the value of my Employer Account.
[bullet] I understand that the Company will process transactions only with my
employer's written direction to the Company. I agree to be bound by my
employer's interpretation of the Plan provisions and its written
direction to the Company.
[bullet] My employer may permit me to make investment selections under the
Employee Account and/or the Employer Account directly with the Company
under the terms of the Contract. Without my employer's written
permission, I will be unable to make any investment selections under
the Contract.
[bullet] On my behalf, my employer may request a loan in accordance with the
terms of the Contract and the provisions of the Plan. The Company will
make payment of the loan amount directly to me. I will be responsible
for making repayments directly to the Company in a timely manner.
[bullet] In the event of my death, my employer is the named beneficiary under
the terms of the Contract. I have the right to name a personal
beneficiary as determined under the terms of the Plan and file that
beneficiary election with my employer. It is my employer's
responsibility to direct the Company to properly pay any death
benefits.
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For Master Applications Only
I hereby acknowledge receipt of an Account C "Retirement Plus--Group Deferred
Variable Annuity" prospectus dated May 1, 1997, 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.75986-97) dated May 1, 1997.
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CONTRACT HOLDER'S SIGNATURE
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DATE
PROS.75986-97
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<PAGE>
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VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
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Statement of Additional Information dated May 1, 1997
Group Variable Annuity Contracts Available under Section 403(b) and 401(a)
RETIREMENT PLUS
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Variable Annuity Account C (the
"Separate Account") dated May 1, 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 of the Contract. The availability of the Funds
is subject to applicable regulatory authorization. Not all Funds are available
in all jurisdictions or under all Plans.
2
<PAGE>
The Funds currently available under the Contract are as follows:
<TABLE>
<S> <C>
Aetna Variable Fund Calvert Responsibly Invested Balanced Portfolio
Aetna Income Shares Fidelity VIP II Contrafund Portfolio
AetnaVariable Encore Fund Fidelity VIP Equity-Income Portfolio
AetnaInvestment Advisers Fund, Inc. Fidelity VIP Growth Portfolio
AetnaAscent Variable Portfolio Fidelity VIP Overseas Portfolio
AetnaCrossroads Variable Portfolio Franklin Government Securities Trust
Aetna Legacy Variable Portfolio Janus Aspen Aggressive Growth Portfolio
Aetna Variable Capital Appreciation Portfolio Janus Aspen Balanced Portfolio
Aetna Variable Growth Portfolio Janus Aspen Flexible Income Portfolio
Aetna Variable Index Plus Portfolio Janus Aspen Growth Portfolio
Aetna Variable Small Company Portfolio Janus Aspen Short-Term Bond Portfolio
Alger American Growth Portfolio Janus Aspen Worldwide Growth Portfolio
Alger American Small Cap Portfolio Lexington Natural Resources Trust
American Century VP Capital Appreciation Neuberger & Berman Growth Portfolio
(formerly TCI Growth) Scudder International Portfolio Class A Shares
</TABLE>
Complete descriptions of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, are contained in the
prospectuses and statements of additional information for each of the Funds.
OFFERING AND PURCHASE OF CONTRACTS
The Company is both the depositor and the principal underwriter for the
securities sold by the prospectus. The Company offers the Contracts through life
insurance agents licensed to sell variable annuities who are registered
representatives of the Company or of other registered broker-dealers who have
sales agreements with the Company. The offering of the Contracts is continuous.
A description of the manner in which Contracts are purchased may be found in the
prospectus under the sections titled "Purchase" and "Contract Valuation."
PERFORMANCE DATA
General
From time to time, the Company may advertise different types of historical
performance for the Subaccounts of the Separate Account available under the
Contracts issued by the Company in connection with Plans described in the
prospectus. The Company may advertise the "standardized average annual total
returns," calculated in a manner prescribed by the Securities and Exchange
Commission (the "standardized return"), as well as the "non-standardized total
returns," both of which are described below.
The standardized and non-standardized total return figures are computed
according to a formula in which a hypothetical initial Purchase Payment of
$1,000 is applied to the various Subaccounts under the Contract, and then
related to the ending redeemable values over one, five and ten year periods (or
fractional periods thereof). The 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 if
applicable during the period shown, 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. 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 $15 annual maintenance
fee. The Company may also advertise total return quotations for Installment
Payment Accounts with a $7.50 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 a charge. 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>
<C> <C>
TABLE A
----------------------------------------------------------------------------
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 8.05% 9.00% 9.48%* 13.73% 12.00% 9.89% 9.91%* 04/03/89
Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 15.94% 17.53%* n/a 22.04% 21.64%* n/a n/a 07/05/95
- -------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable 11.46% 13.67%* n/a 17.32% 17.64%* n/a n/a 07/05/95
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 3.78%* n/a n/a 9.24%* n/a n/a n/a 09/16/96
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 (2.26%) 8.75% 18.30%* 2.88% 11.46% 9.64% 18.74%* 09/21/88
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 5.66% 8.19% 9.74% 11.22% 10.86% 9.08% 9.74% 09/02/86
Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 13.72% 25.41%* n/a 19.71% 28.68%* n/a n/a 01/03/95
Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 7.21% 15.58% 12.33% 12.86% 16.78% 16.52% 12.33% 10/09/86
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 (2.37%) 4.25% 6.74%* 2.77% 4.33% 5.11% 7.15%* 02/17/89
Trust
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth 1.27% 17.94%* n/a 6.60% 15.53% 19.78%* n/a 9/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 2.44% 6.49%* n/a 7.83% 8.89% 8.16%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
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 (2.45%) 1.52%* n/a 2.68% 3.45% 3.11%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 21.06% 19.75%* n/a 27.43% 17.14% 21.63%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Lexington Natural Resources 19.04% 7.70% 7.80%* 25.31% 10.56% 8.58% 8.65%* 10/14/91
Trust
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth 2.39% 7.58% 10.06% 7.78% 9.58% 8.47% 10.06% 09/10/84
Portfolio
- -------------------------------------------------------------------------------------------------------------
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>
TABLE B
----------------------------------------------------------------------------
SINGLE PAYMENT ACCOUNT: FUND
($15 MAINTENANCE FEE) STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
- -------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Aetna Variable Fund 16.64% 10.50% 12.68% 22.78% 16.09% 11.64% 12.68% 05/01/75
- -------------------------------------------------------------------------------------------------------------
Aetna Income Shares (2.94%) 4.24% 7.36% 2.18% 4.15% 5.32% 7.36% 05/15/73
- -------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund (1.27%) 1.99% 4.64% 3.93% 3.71% 3.04% 4.64% 08/01/75
- -------------------------------------------------------------------------------------------------------------
Aetna Investment Advisers 7.92% 8.64% 9.06%* 13.61% 11.87% 9.77% 9.79%* 04/03/89
Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
Aetna Ascent Variable Portfolio 15.81% 17.41%* n/a 21.91% 21.51%* n/a n/a 07/05/95
- -------------------------------------------------------------------------------------------------------------
Aetna Crossroads Variable 11.33% 13.55%* n/a 17.20% 17.52%* n/a n/a 07/05/95
Portfolio
- -------------------------------------------------------------------------------------------------------------
Aetna Legacy Variable Portfolio 7.00% 9.87%* n/a 12.64% 13.71%* n/a n/a 07/05/95
- -------------------------------------------------------------------------------------------------------------
Aetna Variable Index Plus 3.65%* n/a n/a 9.11%* n/a n/a n/a 09/16/96
Portfolio
- -------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 6.21% 13.89% 16.33%* 11.81% 14.62% 15.07% 17.08%* 01/09/89
- -------------------------------------------------------------------------------------------------------------
Alger American Small Cap (2.39%) 8.40% 17.88%* 2.76% 11.34% 9.52% 18.61%* 09/21/88
Portfolio
- -------------------------------------------------------------------------------------------------------------
American Century VP Capital
Appreciation (10.37%) 3.66% 8.70%* (5.64%) 5.97% 4.73% 9.32%* 11/20/87
- -------------------------------------------------------------------------------------------------------------
Calvert Responsibly Invested
Balanced Portfolio 5.53% 7.84% 9.61% 11.09% 10.73% 8.96% 9.61% 09/02/86
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund 13.60% 25.28%* n/a 19.58% 28.55%* n/a n/a 01/03/95
Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Equity-Income 7.09% 15.21% 12.21% 12.73% 16.65% 16.40% 12.21% 10/09/86
Portfolio
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio 7.48% 12.45% 13.61% 13.15% 14.23% 13.62% 13.61% 10/09/86
- -------------------------------------------------------------------------------------------------------------
Fidelity VIP Overseas Portfolio 6.03% 6.58% 5.92%* 11.61% 6.63% 7.68% 6.47%* 02/13/87
- -------------------------------------------------------------------------------------------------------------
Franklin Government Securities (2.49%) 3.91% 6.33%* 2.65% 4.20% 4.98% 7.03%* 02/17/89
Trust
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth 1.15% 17.81%* n/a 6.48% 15.41% 19.66%* n/a 9/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Balanced Portfolio 8.87% 11.31%* n/a 14.61% 11.97% 13.05%* n/a 09/13/93
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Flexible Income 2.31% 6.36%* n/a 7.70% 8.76% 8.03%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Growth Portfolio 11.00% 12.85%* n/a 16.85% 15.01% 14.62%* n/a 09/13/93
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Short-Term Bond (2.58%) 1.40%* n/a 2.56% 3.33% 2.99%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Janus Aspen Worldwide Growth 20.93% 19.63%* n/a 27.30% 17.02% 21.50%* n/a 09/13/93
Portfolio
- -------------------------------------------------------------------------------------------------------------
Lexington Natural Resources 18.92% 7.35% 7.46%* 25.19% 10.44% 8.45% 8.52%* 10/14/91
Trust
- -------------------------------------------------------------------------------------------------------------
Neuberger & Berman Growth 2.26% 7.23% 9.93% 7.65% 9.45% 8.34% 9.93% 09/10/84
Portfolio
- -------------------------------------------------------------------------------------------------------------
Scudder International Portfolio
Class A Shares 7.56% 8.43% 7.87%* 13.22% 6.67% 9.55% 8.45%* 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
7
<PAGE>
Unit value for the prior Valuation Date (assume such value to be $13.504376) to
produce an Annuity Unit value of $13.523359 for the Valuation Date on which the
second payment is due. The second monthly payment is then determined by
multiplying the number of Annuity Units by the current Annuity Unit value, or
20.414 times $13.523359, which produces a payment of $276.07.
*If an assumed net investment rate of 5% is elected, the appropriate factor to
neutralize such assumed rate would be .9998663.
SALES MATERIAL AND ADVERTISING
The Company may include hypothetical illustrations in its sales literature that
explain the mathematical principles of dollar cost averaging, compounded
interest, tax deferred accumulation, and the mechanics of variable annuity
contracts. The Company may also discuss the difference between variable annuity
contracts and other types of savings or investment products, including, but not
limited to, personal savings accounts and certificates of deposit.
We may distribute sales literature that compares the percentage change in
Accumulation Unit values for any of the Subaccounts to established market
indices such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average or to the percentage change in values of other management
investment companies that have investment objectives similar to the Subaccount
being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (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
8
<PAGE>
include primarily the examination of the Separate Account's financial statements
and the review of filings made with the SEC.
9
<PAGE>
FINANCIAL STATEMENTS
VARIABLE ANNUITY ACCOUNT C
Index
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.75986-97 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-IA(RP)) and
Endorsement (EGET-IC(R))(2)
(4.2) Form of Variable Annuity Contract (G-CDA-IA(RPM/XC))(2)
(4.3) Form of Variable Annuity Contract (G-CDA-HF) and Endorsements
(EGET-IC(R))(3)
(4.4) Endorsement (EGETE-IC(R)) to Contract G-CDA-IA(RPM/XC)(4)
(4.5) Endorsement (EGHDHFRPSDO97) to Contracts G-CDA-HD, G-CDA-HF
and G-CDA-IA (RP)
(5) Form of Variable Annuity Contract Application (300-GTD-IA)(5)
<PAGE>
(6.1) Certification of Incorporation and By-Laws of Aetna Life
Insurance and Annuity Company(6)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(7)
(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(8)
(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(9)
(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(7)
(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(7)
(8.7) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(8)
(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)
<PAGE>
(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)
(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(8)
(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(10)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Computation of Performance Data(11)
(14) Not applicable
(15.1) Powers of Attorney(12)
(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. 8 to Registration
Statement on Form N-4 (File No. 33-75986), as filed electronically on August
30, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 60 to Registration
Statement on Form N-4 (File No. 2-52449), as filed on February 24, 1995.
6. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (File No. 33-60477), as filed electronically on April
15, 1996.
7. Incorporated by reference to Post-Effective Amendment No. 12 to Registration
Statement on Form N-4 (File No. 33-75964), as filed electronically on
February 11, 1997.
8. 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.
9. 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>
10. Incorporated by reference to Registrants 24f-2 Notice for the fiscal year
ended December 31, 1996, as filed electronically with the Securities and
Exchange Commission on February 28, 1997.
11. 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.
12. 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.
Item 27. Number of Contract Owners
<PAGE>
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
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
<PAGE>
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)
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
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 registration statement are never more than
sixteen months old for as long as payments under the variable annuity
contracts may be accepted;
<PAGE>
(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) The Company hereby represents that it is relying upon and complies with
the provisions of Paragraphs (1) through (4) of the SEC Staff's
No-Action Letter dated November 22, 1988 with respect to language
concerning withdrawal restrictions applicable to plans established
pursuant to Section 403(b) of the Internal Revenue Code. See American
Counsel of Life Insurance; SEC No-Action Letter, [1989 Transfer Binder]
Fed. SEC. L. Rep. (CCH) [Paragraph] 78,904 at 78,523 (November 22,
1988).
(e) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, 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. 33-75986) and has duly caused this
Post-Effective Amendment No. 13 to its Registration Statement on Form N-4 (File
No. 33-75986) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 11th 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. 33-75986) has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
Daniel P. Kearney* Director and President )
- ------------------------------------ (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director and Chief Financial Officer ) April
- ----------------------------------- )
Timothy A. Holt ) 11, 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 )
</TABLE>
By: /s/ Julie E. Rockmore
------------------------------------------------------------
*Julie E. Rockmore
Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT C
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <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-IA(RP)) and Endorsement (EGET-IC(R)) *
99-B.4.2 Form of Variable Annuity Contract (G-CDA-IA(RPM/XC)) *
99-B.4.3 Form of Variable Annuity Contract (G-CDA-HF) and Endorsement (EGET-IC(R)) *
99-B.4.4 Endorsement (EGETE-IC(R)) to Contract G-CDA-IA (RPM/XC) *
99-B.4.5 Endorsement (EGHDHFRPSDO97) to Contracts G-CDA-HD, G-CDA-HF and G-CDA-IA (RP)
-----------------
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
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
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
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
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
Aetna Life Insurance and Annuity Company
ENDORSEMENT
The Contract and Certificate are hereby endorsed as follows:
1. Add the following section to the Contract following the Section
entitled Surrender Fee:
SPIA Surrenders
No "Surrender Fee" is deducted from any portion of the Individual
Account which is paid as a premium for a Single Premium Immediate Annuity
issued by Aetna or one of its affiliates, provided that the "Right to
Cancel" under such other annuity contract is not exercised by the contract
holder of such other annuity contract. An exercise of the "Right to Cancel"
under such other annuity contract shall be treated as a Reinstatement under
this Contract of the amount surrendered, and, at the option of the
Participant, may then be withdrawn subject to any Surrender Fee applicable
to this Contract at the time the Individual Account Value was first applied
toward such other annuity contract. Under the circumstances described in
the preceding sentence, this Contract's Reinstatement Provision shall apply
notwithstanding the conditions contained within such provision that would
otherwise limit its availability to: (1) full surrenders of this Contract,
and (2) a one-time only basis.
2. The following provisions will replace the "Estate Conservation Option"
(ECO)" and the "Systematic Withdrawal Option (SWO)" provisions found in the
Contract.
Systematic Distribution Options
Without further amendment of this Contract, Aetna may, from time to
time, establish and make available for election by the Participant, one or
more Individual Account systematic distribution options (SDO). When an SDO
election is in effect as to any Individual Account, automatic withdrawals
will be made from the Individual Account. No Surrender Fees apply to such
automatic withdrawals made under an SDO. A Market Value Adjustment may
apply depending on the terms of the SDO.
Any SDO offered by Aetna will be subject to the following criteria:
(a) any SDO established by Aetna will be made available among similarly
situated contracts uniformly and on the basis of objective criteria
consistently applied;
(b) the availability of any SDO may be limited by terms and conditions
applicable to the election of such SDO; and
(c) Aetna may discontinue the availability of an SDO at any time. Except
to the extent required in order to comply with applicable law, any such
discontinuance shall not apply to any Individual Accounts as to which an
election under such SDO is in effect at the time of such SDO's
discontinuance.
Endorsed and made a part of this Contract and Certificate on the date,
after any required state approval, as of which it is issued by Aetna.
/s/ Dan Kearney
President
Aetna Life Insurance and Annuity Company
EGHDHFRPSDO97
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 11, 1997
151 Farmington Avenue Susan E. Bryant
Hartford, CT 06156 Counsel
Law and Regulatory Affairs, RE4A
(860) 273-7834
Fax: (860) 273-0356
April 11, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Variable Annuity Account C of Aetna Life Insurance and Annuity
Company Post-Effective Amendment No. 13 to the Registration Statement
on Form N-4 File Nos. 33-75986* and 811-2513
Gentlemen:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 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 the Registration Statement on Form N-4 (File No. 33-75986).
Very truly yours,
/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 the following earlier Registration Statements:
33-75970; and 33-75954 and 33-75956.
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