As filed with the Securities and Exchange Registration No. 333-01107
Commission on April 14, 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. 5 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.
<PAGE>
VARIABLE ANNUITY ACCOUNT C
CROSS REFERENCE SHEET
FORM N-4
ITEM NO. PART A (PROSPECTUS) LOCATION
1 Cover Page.......................... Cover Page
2 Definitions......................... Definitions
3 Synopsis............................ Prospectus Summary; Fee Table
4 Condensed Financial Information..... Condensed Financial
Information; Appendix VII -
Condensed Financial
Information
5 General Description of Registrant, The Company; Variable Annuity
Depositor, and Portfolio Companies.. Account C; The Funds
6 Deductions and Expenses............. Charges and Fees During the
Accumulation Period
7 General Description of Variable
Annuity Contracts................... Purchase; Miscellaneous
8 Annuity Period...................... Annuity Period
9 Death Benefit....................... Death Benefit
10 Purchases and Contract Value........ Purchase; Determining
individual Account Current
Value
11 Redemptions......................... Contract Rights; Additional
Withdrawal Options
12 Taxes............................... Tax Status
13 Legal Proceedings................... Miscellaneous - Legal
Proceedings and Legal Matters
14 Table of Contents of the Statement of
Additional Information.............. Statement of Additional
Information - Table of
Contents
<PAGE>
FORM N-4 PART B (STATEMENT OF
ITEM NO. 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
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
================================================================================
The Contracts offered in connection with this Prospectus are the Retirement Plus
and Voluntary Contracts, which are group deferred variable annuity contracts
(the "Contracts") issued by Aetna Life Insurance and Annuity Company
("Company"). See "Purchase." The Contracts are designed to fund plans that
provide for retirement income and are established under the Internal Revenue
Code of 1986, as amended ("Code"). Amounts held under a Contract may be entitled
to tax-deferred treatment under certain sections of the Code.
Each Contract allows values to accumulate under variable investment options or
credited interest options, or a combination of these investment options. They
also provide for the payment of annuity benefits on a variable or fixed basis,
or a combination thereof.
The variable investment options ("Funds") currently available through Variable
Annuity Account C (the "Separate Account") under the Contracts described in this
Prospectus are as follows:
[bullet] Aetna Variable Fund
[bullet] Aetna Income Shares
[bullet] Aetna Variable Encore Fund
[bullet] Aetna Investment Advisers Fund, Inc.
[bullet] Aetna Ascent Variable Portfolio
[bullet] Aetna Crossroads Variable Portfolio
[bullet] Aetna Legacy Variable Portfolio
[bullet] Aetna Variable Capital Appreciation Portfolio
[bullet] Aetna Variable Growth Portfolio
[bullet] Aetna Variable Index Plus Portfolio
[bullet] Aetna Variable Small Company Portfolio
[bullet] Alger American Growth Portfolio
[bullet] Alger American Small Cap Portfolio
[bullet] American Century VP Capital Appreciation (formerly known as TCI Growth)
[bullet] Calvert Responsibly Invested Balanced Portfolio
[bullet] Fidelity VIP II Contrafund Portfolio
[bullet] Fidelity VIP Equity-Income Portfolio
[bullet] Fidelity VIP Growth Portfolio
[bullet] Fidelity VIP Overseas Portfolio
[bullet] Franklin Government Securities Trust
[bullet] Janus Aspen Aggressive Growth Portfolio
[bullet] Janus Aspen Balanced Portfolio
[bullet] Janus Aspen Flexible Income Portfolio
[bullet] Janus Aspen Growth Portfolio
[bullet] Janus Aspen Short-Term Bond Portfolio
[bullet] Janus Aspen Worldwide Growth Portfolio
[bullet] Lexington Natural Resources Trust
[bullet] Neuberger & Berman Growth Portfolio
[bullet] Scudder International Portfolio Class A Shares
The credited interest options available for the accumulation of values are the
Guaranteed Accumulation Account, the Fixed Plus Account and the Fixed Account.
The Guaranteed Accumulation Account and the Fixed Plus Account are offered only
in those jurisdictions in which they are approved. (See Appendices I, II and
III.) The Fixed Account is available for accumulation only in limited
circumstances. (See Appendix IV.) Except as specifically mentioned, this
Prospectus describes only the variable investment options of the Contracts.
Additional information about the Guaranteed Accumulation Account is also
contained in an accompanying prospectus.
The availability of the above Funds and credited interest options is subject to
applicable regulatory authorization. Not all Funds or credited interest options
are available in all jurisdictions, under all Plans or under a particular
Contract. Please check with your employer to determine option availability.
This Prospectus sets forth concisely the information about the Separate Account
that a prospective investor should know before investing. Additional information
about the Separate Account is contained in a Statement of Additional Information
("SAI") dated May 1, 1997, which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Table of Contents for
the SAI is printed in this Prospectus. An SAI may be obtained without charge by
indicating the request on the enrollment form or on the enclosed prospectus
receipt for this Prospectus or by calling 1-800-525-4225. You may also obtain
our 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.
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
<PAGE>
TABLE OF CONTENTS
================================================================================
DEFINITIONS .............................................. DEFINITIONS - 1
PROSPECTUS SUMMARY ..................................... SUMMARY - 1
FEE TABLE .............................................. FEE TABLE - 1
CONDENSED FINANCIAL INFORMATION ....................................... 1
PERFORMANCE DATA ...................................................... 1
THE COMPANY ......................................................... 1
VARIABLE ANNUITY ACCOUNT C .......................................... 1
THE FUNDS ............................................................ 2
Mixed and Shared Funding .......................................... 4
Fund Changes ...................................................... 4
Fund Limitations ................................................... 4
PURCHASE ............................................................ 5
The Contracts ...................................................... 5
Eligible Contract Holders .......................................... 5
Purchase By Exchange ................................................ 5
Contract Charges and Fees Options ................................. 5
Responsibilities of Contract Holders .............................. 5
Enrollment of Participants .......................................... 5
Contributions ...................................................... 6
Contribution Limits for Contracts Used with 403(b) Plans ......... 6
Contribution Limits for Contracts Used with 401(a)/401(k) Plans ... 6
Distribution ...................................................... 6
DETERMINING INDIVIDUAL ACCOUNT CURRENT VALUE ........................ 7
Fund Record Units ................................................... 7
Net Return Factor ................................................... 7
Transfer Credits ................................................... 7
CONTRACT RIGHTS ...................................................... 8
Right to Cancel ................................................... 8
Rights Under the Contracts .......................................... 8
Rights Under the Retirement Plus Contract ........................ 8
Rights Under the Voluntary Contract .............................. 8
Rights to your Individual Account ................................. 8
TRANSFERS AND ALLOCATION CHANGES .................................... 8
WITHDRAWALS ......................................................... 9
Withdrawal Restrictions for Contracts Used with 403(b) Plans ...... 9
Reinvestment Privilege ............................................. 10
CONTRACT LOANS ...................................................... 10
CHARGES AND FEES DURING THE ACCUMULATION PERIOD ..................... 10
Annual Maintenance Fee ............................................. 13
Withdrawal Fee ...................................................... 13
Mortality and Expense Risk Charges ................................. 14
<PAGE>
Administrative Expense Charge ....................................... 14
Fund Expenses ...................................................... 14
Premium and Other Taxes ............................................. 14
CHARGES AND FEES DURING THE ANNUITY PERIOD ........................... 14
Mortality and Expense Risk Charges ................................. 14
Administrative Expense Charge ....................................... 14
Withdrawal Fee ...................................................... 14
ADDITIONAL WITHDRAWAL OPTIONS ....................................... 15
ANNUITY PERIOD ...................................................... 15
Annuity Period Elections .......................................... 15
Annuity Options ................................................... 16
DEATH BENEFIT ......................................................... 17
Accumulation Period ................................................ 17
Annuity Period ...................................................... 18
TAX STATUS ............................................................ 18
Introduction ...................................................... 18
Taxation of the Company ............................................. 19
Tax Status of the Contracts ....................................... 19
Contracts Used with 403(b) Plans .................................... 19
Contracts Used with "Qualified" Plans .............................. 20
Penalty Tax on Certain Distributions .............................. 21
Other Tax Consequences ............................................. 21
MISCELLANEOUS ......................................................... 21
Voting Rights ...................................................... 21
Modification of the Contracts ....................................... 22
Contract Holder Inquiries .......................................... 22
Telephone Transfers ................................................ 22
Payments ............................................................ 22
Transfer of Ownership; Assignment ................................. 22
Legal Proceedings ................................................... 22
Legal Matters ...................................................... 22
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION .................. 23
APPENDIX I--GUARANTEED ACCUMULATION ACCOUNT ........................... 24
APPENDIX II--FIXED PLUS ACCOUNT ....................................... 25
APPENDIX III--FIXED PLUS ACCOUNT (Applicable only in
limited circumstances) ............................................... 28
APPENDIX IV--FIXED ACCOUNT (Applicable only in limited
circumstances) ..................................................... 30
APPENDIX V--EMPLOYEE APPOINTMENT OF EMPLOYER AS AGENT
UNDER AN ANNUITY CONTRACT ......................................... 32
APPENDIX VI--CONTRACTS ACQUIRED BY EXCHANGE ........................... 33
APPENDIX VII--CONDENSED FINANCIAL INFORMATION ........................ 35
<PAGE>
DEFINITIONS
================================================================================
As used in this Prospectus, the following terms have the meanings shown:
Accumulation Period: The period during which Net Contribution(s) are applied to
an Individual Account.
Adjusted Current Value: The Current Value of an Individual Account plus or minus
any applicable aggregate GA Account Market Value Adjustment, if applicable.
Aggregate Current Value: Current Value of Individual Accounts under a Contract
and other contracts of the same class as the Contract covering employees of the
employer maintaining the Plan. Where such other contract becomes effective after
the date a Contract became effective, the aggregation will commence in
accordance with the Company's existing administrative practice, but in no event
later than the first day of the next succeeding anniversary date. Where such
other contract is in existence prior to, or on the date a Contract became
effective, the aggregation will commence on the date the Contract becomes
effective.
Annuitant: A person on whose life an Annuity payment is based under a Contract.
Annuity: Payments of income:
(a) For the life of one or two persons;
(b) For a stated period; or
(c) For some combination of (a) and (b).
Annuity Period: The period during which Annuity payments are made.
Annuity Unit: A measure of the value attributable to each Fund selected during
the Annuity Period.
Beneficiary: The person named to receive any benefits which remain under a
Contract after a Participant's death. Participants designate a Plan beneficiary
for their Individual Accounts.
Code: Internal Revenue Code of 1986, as amended.
Company: Aetna Life Insurance and Annuity Company, sometimes referred to as "we"
or "us."
Contract(s): Either the Retirement Plus Contract or the Voluntary Contract
offered by this Prospectus or both.
Contract Holder: The entity to which a Contract is issued. The Contract Holder
is usually the employer.
Contribution: A payment received at the Company's Home Office and allocated to a
Contract.
Current Value: For an Individual Account during the Accumulation Period, the
Current Value is the total of:
(a) The amount, if any, in the Fixed Plus Account, with interest earned to
date; plus
(b) The amount, if any, in the GA Account with interest earned to date;
plus
(c) The amount, if any, in the Fixed Account with interest earned to date;
plus
(d) The value of all Fund Record Units, if any, as of the most recent
Valuation Period; less
(e) Any Maintenance Fee(s) due.
Distributor(s): The registered broker-dealer(s) which have entered into selling
agreements with the Company to offer and sell the Contracts. The Company may
also serve as a Distributor.
Employee Account: An Individual Account that will be credited with Participant
Contributions, specifically employee salary reduction contributions.
Employer Account: An Individual Account that will be credited with the employer
Contributions.
ERISA: Employee Retirement Income Security Act of 1974.
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DEFINITIONS - 1
<PAGE>
Fixed Account: An accumulation option with a guaranteed minimum interest rate
which is available for accumulation only in limited circumstances. See Appendix
IV.
Fixed Plus Account: An accumulation option with a guaranteed minimum interest
rate. The Company may credit a higher rate which is not guaranteed. See
Appendices II and III.
Fund Record Units: Units representing the portion of the Net Contribution(s)
applied to each Fund under the Separate Account.
Funds: The open-end registered management investment companies or separate
investment portfolio thereof, in which the Separate Account invests.
General Account: The account holding the assets of the Company, other than those
assets held in the Company's separate account(s).
Guaranteed Accumulation Account (GA Account or the GAA): An accumulation option
where the Company guarantees stipulated rate(s) of interest for a specified
period of time. See Appendix I. All General Account assets of the Company are
available to meet the guarantees for the GA Account.
Home Office: The Company's principal executive offices located at 151 Farmington
Avenue, Hartford, Connecticut 06156.
Individual Account(s): Account(s) established for each Participant under each
Contract in which he or she may be participating to keep a record of Current
Values and transactions.
Maintenance Fee: A maintenance fee will be charged for each Participant under
each Contract and will be deducted during the Accumulation Period from the sum
under each Contract of the Current Value of Participant's Individual Accounts
and upon full surrender of the Participant's Individual Accounts.
Market Value Adjustment: An adjustment to the amount withdrawn or transferred
from the Guaranteed Accumulation Account prior to the end of that Guaranteed
Term. The adjustment reflects the change in the value of the investment due to
changes in interest rates since the date of deposit. See Appendix I and the
prospectus for the Guaranteed Accumulation Account for a discussion of how the
market value adjustment is actually calculated.
Net Contributions: A Contribution less applicable premium taxes.
Participant: An eligible person participating in the Plan maintained by the
Contract Holder, for whom an Individual Account has been established by the
Contract Holder, referred to as "you."
Plan(s): The Plan named on the cover of a Contract established under Code
Section 403(b) or Sections 401(a)/401(k).
Retirement Plus Contract: The group deferred variable annuity contract offered
in connection with this Prospectus which allows for employer Contributions and
employee Contributions.
SEC: Securities and Exchange Commission.
Separate Account: Variable Annuity Account C, an account established by the
Company under Section 38a-433 of the Connecticut General Statutes, that buys and
holds shares of the Fund(s) available under a Contract.
Underwriter: The registered broker-dealer which contracts with other registered
broker-dealers on behalf of the Separate Account to offer and sell the
Contracts.
Valuation Period: The period of time from when the Company determines the
Accumulation Unit Value and Annuity Unit Value of a variable investment option
until the next time it determines such unit value. Currently, the 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.
Valuation Reserve: A reserve established pursuant to the insurance laws of
Connecticut to measure voting rights during the Annuity Period and the value of
a commutation right available under the "Payments for a Specified Period"
nonlifetime Annuity option when elected on a variable basis under a Contract.
- --------------------------------------------------------------------------------
DEFINITIONS - 2
<PAGE>
Variable Annuity: An Annuity providing for the accumulation of values and/or for
Annuity payments which vary in dollar amount with investment results.
Voluntary Contract: The group deferred variable annuity contract offered in
connection with this Prospectus which allows only for employee Contributions.
Withdrawal Fee: If all or any portion of an Individual Account's Current Value
is withdrawn during the Accumulation Period, a percentage of the amount
withdrawn may be deducted so that the Company may recover sales and
administrative related expenses.
- --------------------------------------------------------------------------------
DEFINITIONS - 3
<PAGE>
PROSPECTUS SUMMARY
================================================================================
CONTRACTS OFFERED
The Contracts offered in connection with this Prospectus are group
deferred, variable annuity contracts. Under the Retirement Plus Contract,
Contributions may be made by the Contract Holder (generally, the employer) and
the Participants. Under the Voluntary Contract, Contributions may be made only
by Participants. See "The Contracts," "Contract Rights" and "Miscellaneous."
The Contracts are being offered in certain markets to fund Plans that are
adopted under Sections 401(a), 401(k) or 403(b) of the Code. Amounts held under
the Plans may be entitled to tax-deferred treatment under the Code. Under the
Plans, Contributions made under the Plan are forwarded by the Contract Holder to
the Company.
PURCHASE
Each Contract may be purchased by eligible organizations on behalf of a
group made up of their employees. Eligible employees may participate in a
Contract by completing an enrollment form (and any other required forms) and
submitting it to the Company with an initial Contribution. See "Purchase."
WITHDRAWALS
Each Contract allows withdrawals of all or a portion of your Individual
Account Current Value during the Accumulation Period. Certain charges and fees
may be assessed upon withdrawal from either Contract. See "Charges and Fees
During the Accumulation Period." Limitations apply to withdrawals from the Fixed
Plus Account. See Appendices II and III. The Code restricts full and partial
withdrawals in certain circumstances. See "Withdrawal Restrictions For Contracts
Used with 403(b) Plans." Amounts withdrawn from the GAA may be subject to a
Market Value Adjustment. See Appendix I.
WITHDRAWAL FEE
Amounts withdrawn from either Contract may be subject to a Withdrawal Fee.
The maximum Withdrawal Fee that could be assessed on a full or partial
withdrawal is 8.5% of the total Contributions made to the Individual Account of
a Contract. See "Charges and Fees During the Accumulation Period--Withdrawal
Fee."
TAXES AND WITHHOLDING
A 10% federal tax penalty and a 20% withholding for income tax may be
imposed on certain withdrawals. See "Tax Status."
CONTRACT CHARGES
Certain charges are associated with each Contract; for example, mortality
and expense risk charges, administrative expense charges and Maintenance Fees.
The Funds are also subject to certain fees and expenses. Contributions may also
be subject to premium taxes. See "Charges and Fees During the Accumulation
Period" for a complete explanation of these charges.
FREE LOOK PERIOD
Contract Holders have the right to cancel their Contract and Participants
have the right to cancel their participation in a Contract within 10 days (or
longer if required by state law). Unless state law requires otherwise, the
Company will return the full amount of Contributions increased or decreased by
the investment performance of the variable funding options to which
Contributions were deposited.
- --------------------------------------------------------------------------------
SUMMARY - 1
<PAGE>
FEE TABLE
================================================================================
The purpose of the Fee Table is to assist Contract Holders in understanding the
various costs and expenses that may be borne, directly or indirectly, under each
Contract. The costs and expenses will be based upon the charges and fees option
the Contract Holder selects. The information listed reflects the charges due
under each Contract, as well as the fees and expenses deducted from the Funds.
Additional information regarding the charges and fees assessed under each
Contract can be found under "Contract Charges and Fees Options" and "Charges and
Fees During the Accumulation Period" in this Prospectus. Charges and expenses
shown do not take into account premium taxes that may be applicable. For more
information regarding expenses paid out of the assets of a particular Fund, see
the Fund's Prospectus.
CONTRACT HOLDER TRANSACTION EXPENSES
WITHDRAWAL FEE for withdrawals under each Contract (as a percentage of amount
withdrawn) (1):
Number of Years
Individual Account Has
Been Established Fee
----------------------------- -----
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
ANNUAL MAINTENANCE FEE(2)
Per Participant, Per Contract ............................ $20.00
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)
Mortality and Expense Risk Charge(3) ...................... 1.25%
Administrative Expense Charge(4) ......................... 0.25%
------
Total Separate Account Annual Expenses ...................... 1.50%
======
- ------------------
(1) This sets forth the Withdrawal Fee schedule for 10 years, the maximum
duration of the Withdrawal Fee. The total amount deducted for the Withdrawal
Fee will not exceed 8.5% of the Contributions made to an Individual Account.
See "Contract Charges and Fees Options" and "Charges and Fees During the
Accumulation Period--Withdrawal Fee" for instances in which the Withdrawal
Fee will only be charged for 5 years or not at all and for a description of
this charge.
(2) This represents the maximum annual Maintenance Fee that will be deducted
under a Contract. See "Contract Charges and Fees Options" and "Charges and
Fees During the Accumulation Period--Annual Maintenance Fee" for instances
in which this fee may be reduced and for a description of this charge. A
Maintenance Fee, to the extent permitted by state law, is also deducted upon
termination of an Individual Account.
(3) This represents the maximum mortality and expense risk charge that may be
deducted under a Contract. See "Contract Charges and Fees Options" and
"Charges and Fees During the Accumulation Period--Mortality and Expense Risk
Charges" for instances in which this fee may be reduced and for a
description of this charge.
(4) This represents the maximum annual administrative expense charge that will
be deducted under a Contract. See "Contract Charges and Fees Options" and
"Charges and Fees During the Accumulation Period--Administrative Expense
Charge" for instances in which this fee may be reduced and for a description
of this charge.
- --------------------------------------------------------------------------------
FEE TABLE - 1
<PAGE>
FUND ANNUAL EXPENSES
(Except as noted, the following figures are a percentage of average net assets
and, except where otherwise indicated, are based on figures for the year ended
December 31, 1996.) A Fund's "Other Expenses" include operating costs of the
Fund. These expenses shown below are reflected in the Fund's net asset value and
are not deducted from the Individual Account Current Value under the Contract.
<TABLE>
<CAPTION>
Investment
Advisory Fees(1) Other Expenses
(after expense (after expense Total Fund
reimbursement) reimbursement) Annual Expenses
------------------ ----------------- -----------------
<S> <C> <C> <C>
Aetna Variable Fund(2) 0.50% 0.06% 0.56%
Aetna Income Shares(2) 0.40% 0.08% 0.48%
Aetna Variable Encore Fund(2) 0.25% 0.10% 0.35%
Aetna Investment Advisers Fund, Inc(2) 0.50% 0.08% 0.58%
Aetna Ascent Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Crossroads Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Legacy Variable Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Capital Appreciation Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Growth Portfolio(2) 0.60% 0.15% 0.75%
Aetna Variable Index Plus Portfolio(2) 0.35% 0.15% 0.50%
Aetna Variable Small Company Portfolio(2) 0.75% 0.15% 0.90%
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Small Cap Portfolio 0.85% 0.03% 0.88%
American Century VP 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 Services Agreement was in
effect for Aetna Variable Capital Appreciation Portfolio, Aetna Variable
Growth Portfolio, Aetna Variable Index Plus Portfolio and Aetna Variable
Small Company Portfolio since their inception.
Effective August 1, 1996, Investment Advisory Fees were increased for Aetna
Variable Fund, Aetna Income Shares, Aetna Investment Advisers Fund, Inc.,
Aetna Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio, and
Aetna Legacy Variable Portfolio. The Advisory Fees shown above are not based
on actual figures for the year ended December 31, 1996, but reflect the
increased Investment Advisory Fees.
(3) The Portfolio's investment adviser pays all expenses of the Portfolio except
brokerage commissions, taxes, interest, fees and expenses of the
non-interested person directors (including counsel fees) and extraordinary
expenses. These expenses have historically represented a very small
percentage (less than 0.01%) of total net assets in a fiscal year.
(4) The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03%
expected to be incurred in 1997. "Investment Advisory Fees" include a
performance adjustment, which could cause the fee to be as high as 0.85% or
as low as 0.55%, depending on performance. "Other Expenses" reflect an
indirect fee of 0.03% (relating to an expense offset arrangement with the
Portfolio's custodian). Net fund operating expenses after reductions for
fees paid indirectly (again, restated) would be 0.81%.
- --------------------------------------------------------------------------------
FEE TABLE - 2
<PAGE>
(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, 0.73% for Asset Manager 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.
<TABLE>
<CAPTION>
EXAMPLE A
--------------------------------------------
If you withdraw your entire Account
Value at end of the periods shown,
you would pay the following expenses,
including any applicable deferred
sales charge:
1 year 3 years 5 years 10 years
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Aetna Variable Fund $73 $121 $161 $247
Aetna Income Shares $72 $119 $157 $238
Aetna Variable Encore Fund $71 $115 $150 $225
Aetna Investment Advisers Fund, Inc. $73 $122 $162 $249
Aetna Ascent Variable Portfolio $75 $127 $170 $266
Aetna Crossroads Variable Portfolio $75 $127 $170 $266
Aetna Legacy Variable Portfolio $75 $127 $170 $266
Aetna Variable Capital Appreciation Portfolio $75 $127 $170 $266
Aetna Variable Growth Portfolio $75 $127 $170 $266
Aetna Variable Index Plus Portfolio $73 $120 $158 $240
Aetna Variable Small Company Portfolio $76 $131 $177 $281
Alger American Growth Portfolio $75 $128 $172 $270
Alger American Small Cap Portfolio $76 $130 $176 $279
American Century VP Capital Appreciation $77 $134 $182 $291
Calvert Responsibly Invested Balanced Portfolio $76 $129 $174 $275
Fidelity VIP II Contrafund Portfolio $75 $126 $169 $265
Fidelity VIP Equity-Income Portfolio $73 $122 $162 $249
Fidelity VIP Growth Portfolio $74 $125 $167 $260
Fidelity VIP Overseas Portfolio $77 $132 $178 $284
Franklin Government Securities Trust $74 $125 $167 $261
Janus Aspen Aggressive Growth Portfolio $75 $127 $170 $267
Janus Aspen Balanced Portfolio $77 $132 $179 $285
Janus Aspen Flexible Income Portfolio $76 $129 $174 $275
Janus Aspen Growth Portfolio $74 $125 $167 $260
Janus Aspen Short-Term Bond Portfolio $74 $124 $166 $257
Janus Aspen Worldwide Growth Portfolio $75 $128 $172 $271
Lexington Natural Resources Trust $81 $146 $202 $331
Neuberger & Berman Growth Portfolio $77 $132 $178 $283
Scudder International Portfolio Class A Shares $78 $135 $184 $296
<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 $67 $115 $247
Aetna Income Shares $21 $64 $111 $238
Aetna Variable Encore Fund $20 $60 $104 $225
Aetna Investment Advisers Fund, Inc. $22 $67 $116 $249
Aetna Ascent Variable Portfolio $24 $73 $124 $266
Aetna Crossroads Variable Portfolio $24 $73 $124 $266
Aetna Legacy Variable Portfolio $24 $73 $124 $266
Aetna Variable Capital Appreciation Portfolio $24 $73 $124 $266
Aetna Variable Growth Portfolio $24 $73 $124 $266
Aetna Variable Index Plus Portfolio $21 $65 $112 $240
Aetna Variable Small Company Portfolio $25 $77 $132 $281
Alger American Growth Portfolio $24 $74 $126 $270
Alger American Small Cap Portfolio $25 $76 $131 $279
American Century VP Capital Appreciation $26 $80 $137 $291
Calvert Responsibly Invested Balanced Portfolio $24 $75 $129 $275
Fidelity VIP II Contrafund Portfolio $23 $72 $124 $265
Fidelity VIP Equity-Income Portfolio $22 $67 $116 $249
Fidelity VIP Growth Portfolio $23 $71 $121 $260
Fidelity VIP Overseas Portfolio $25 $78 $133 $284
Franklin Government Securities Trust $23 $71 $122 $261
Janus Aspen Aggressive Growth Portfolio $24 $73 $125 $267
Janus Aspen Balanced Portfolio $25 $78 $134 $285
Janus Aspen Flexible Income Portfolio $24 $75 $129 $275
Janus Aspen Growth Portfolio $23 $71 $121 $260
Janus Aspen Short-Term Bond Portfolio $23 $70 $120 $257
Janus Aspen Worldwide Growth Portfolio $24 $74 $127 $271
Lexington Natural Resources Trust $30 $93 $157 $331
Neuberger & Berman Growth Portfolio $25 $78 $133 $283
Scudder International Portfolio Class A Shares $27 $82 $139 $296
</TABLE>
- ------------------
* This hypothetical illustration assumes that (i) a withdrawal charge will be
applicable for a 10-year period, (ii) a transfer credit will apply, and (iii)
less than $500,000 in assets will be held by the Company. Accordingly, the
Individual Account is subject to a mortality and expense risk charge of 1.25%,
an administrative expense charge of 0.25%, $15.00 annual Maintenance Fee, as an
annual charge of 0.074% of the estimated assets held in the Separate Account
under the Contracts, and a Withdrawal Fee for 10 years. See "Charges and Fees
During the Accumulation Period."
** This Example would not apply if the Annuity Option of Payments for a
Specified Period of Time is selected, and a lump sum settlement is requested
before five years of payments have been made, 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 apply. (Refer to Example A.)
- --------------------------------------------------------------------------------
FEE TABLE - 4
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
Condensed Financial Information for the Separate Account is shown in
Appendix VII.
PERFORMANCE DATA
================================================================================
From time to time, the Company may advertise different types of historical
performance for the variable funding options of the Separate Account available
under the Contracts described in this Prospectus. The Company may advertise the
"standardized average annual total returns" of the variable funding options,
calculated in a manner prescribed by the SEC, as well as the "non-standardized
return." Both methods are described below. Further information is contained in
the SAI.
"Standardized average annual total returns" are computed according to a
formula in which a hypothetical investment of $1,000 is applied to the variable
investment options under the Contracts and then related to the ending redeemable
values over the most recent one, five and ten-year periods (or since inception
if less than 10 years). Standardized returns will reflect the deduction of all
recurring charges during each period based either on the fee schedule under the
Contract that generates the lowest return, or based on an actual fee schedule
applicable to a particular Contract Holder, if different.
"Non-standardized returns" will be calculated in a similar manner, except
that non-standardized figures will not reflect the deduction of any applicable
Withdrawal Fee (which would decrease the level of performance shown if reflected
in these calculations). The non-standardized figures may also include monthly,
quarterly, year-to-date and three-year periods.
The Company may also advertise certain ratings, rankings or other
information related to the Company, the variable investment options or the
Funds. Further details regarding performance reporting and advertising are
described in the Statement of Additional Information.
THE COMPANY
================================================================================
Aetna Life Insurance and Annuity Company (the "Company") is the issuer of
the Contract, and as such, it is responsible for providing the insurance and
annuity benefits under the Contract. The Company is a stock life insurance
company organized under the insurance laws of the State of Connecticut in 1976.
Through a merger, it succeeded to the business of Aetna Variable Annuity Life
Insurance Company (formerly Participating Annuity Life Insurance Company, an
Arkansas life insurance company organized in 1954). The Company is engaged in
the business of issuing life insurance policies and variable annuity contracts
in all states of the United States. The Company's principal executive offices
are located at 151 Farmington Avenue, Hartford, Connecticut 06156.
The Company is a wholly owned subsidiary of Aetna Retirement Holdings,
Inc. which is in turn a wholly owned subsidiary of Aetna Retirement Services,
Inc. and an indirect wholly owned subsidiary of Aetna Inc.
VARIABLE ANNUITY ACCOUNT C
================================================================================
Variable Annuity Account C is a separate account established by the
Company in 1976 pursuant to the insurance laws of the State of Connecticut. The
Separate Account was formed for the purpose of segregating assets attributable
to the variable portions of the Contracts from other assets of the Company. The
Separate Account is registered as a unit investment trust under the Investment
Company Act of 1940, and meets the definition of "separate account" under
federal securities laws.
Although the Company holds title to the assets of the Separate Account,
such assets are not chargeable with liabilities arising out of any other
business the Company may conduct. 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.
- --------------------------------------------------------------------------------
1
<PAGE>
THE FUNDS
================================================================================
The Contract Holder will designate some or all of the mutual funds
described below as variable funding options under the Contracts. Except where
noted, all of the Funds are diversified as defined in the Investment Company Act
of 1940.
The Contract Holder may decide to offer only a select number of Funds
under its Plan. The availability of 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.
[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)
[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. See the Fund's
prospectus for a description of the risks involved.(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 and 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
- --------------------------------------------------------------------------------
2
<PAGE>
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 SmallCap 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 known as 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)
[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 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 the preservation of capital and balanced by current
income. The Portfolio pursues its investment objective by, under normal
circumstances, investing 40%-60% of its assets in 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 risks
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
consistent with the preservation of capital. The Portfolio pursues its
investment objective by investing primarily in companies of any
size.(7)
- --------------------------------------------------------------------------------
3
<PAGE>
[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 the preservation of capital,
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 undervalued 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. (sub-adviser)
(2) Fred Alger Management, Inc.
(3) American Century Investment Management, Inc.
(4) Calvert Asset Management Company, Inc.
(5) Fidelity Management & Research Company
(6) Franklin Advisers, Inc.
(7) Janus Capital Corporation
(8) Lexington Management Corporation (adviser); Market
Systems Research Advisors, Inc. (subadviser)
(9) Neuberger & Berman Management Inc. (Investment
Manager); Neuberger & Berman, L.P. (Sub-Adviser)
(10) Scudder, Stevens & Clark, Inc.
There is no assurance that the Funds will achieve their investment
objectives. Participants bear the full investment risk of investments in the
Funds selected.
Some of the Funds may invest in instruments known as derivatives as part
of their investment strategies, as described in their respective prospectuses.
The use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the
prospectus for the Funds for a discussion of the risks associated with an
investment in those funds.
More comprehensive information, including a discussion of potential risks,
is found in the current prospectus for each Fund which is distributed with and
accompanies this Prospectus. Contract Holders and Participants should read
the accompanying prospectuses carefully before investing. Additional
prospectuses and the Statements of Additional Information for this Prospectus
and each of the Funds can be obtained from the Company's Home Office at the
address and telephone number listed on the cover of this Prospectus.
MIXED AND SHARED FUNDING
Shares of the Funds are available to insurance company separate accounts
which fund variable annuity contracts and variable life insurance policies,
including the Contracts described in this Prospectus. Because Fund shares are
offered to separate accounts of both affiliated and unaffiliated insurance
companies, it is conceivable that, in the future, it may not be advantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in these Funds simultaneously, since the interests of such
policyowners or contractholders may differ. Although neither the Company nor the
Funds currently foresee any such disadvantages either to variable life insurance
or to variable annuity policyowners, each Fund's Board of Trustees/Directors has
agreed to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one of the
separate accounts might withdraw its investment in a Fund. This might force that
Fund to sell portfolio securities at disadvantageous prices.
FUND CHANGES
The Company reserves the right, subject to compliance with appropriate
state and federal laws, to change the Fund(s) in which the Separate Account
invests, and/or replace the shares of any Fund(s) held in the Separate Account
with shares of any other Fund(s).
FUND LIMITATIONS
The Contract Holder may decide to offer only a select number of Funds as
funding options under its Plan, or may decide to change which Funds it offers.
Under some
- --------------------------------------------------------------------------------
4
<PAGE>
Contracts, no more than 18 different choices of investment options may be made
during the Accumulation Period. Each Fund, the Fixed Account, each version of
the Fixed Plus Account (See Appendices II and III), and each guaranteed term of
GAA counts as one option, even if amounts are no longer allocated to that
option. Please check with your local representative or contact the Company at
the toll-free number on the cover of this Prospectus to determine if this
limitation applies to you.
The Company reserves the right to limit the funding options available
during the Annuity Period.
PURCHASE
================================================================================
THE CONTRACTS
The Contracts are group deferred, variable annuity contracts. Under the
Retirement Plus Contract, Contributions may be made by the Contract Holder
(generally, the employer) and the Participants. The Contract Holder, or any
person designated by the Contract Holder, may exercise the rights under the
Retirement Plus Contract. The Contract Holder may, by written direction, allow
Participants to select the investment options for the Contract Holder
Contributions and Participant Contributions. Under the Voluntary Contract,
Contributions may be made only by Participants. Each Participant may exercise
the rights under the Voluntary Contract with respect to the Participant's
Individual Accounts. See "Contract Rights" and "Miscellaneous."
ELIGIBLE CONTRACT HOLDERS
An organization eligible to establish tax-deferred annuity plans under
Section 403(b) or Sections 401(a)/401(k) of the Code may acquire either or both
of the Contracts for its Plan by filling out the appropriate master application
forms and returning them to the Company or to a Distributor for delivery to the
Company. Once we approve the application, a group Contract is issued to the
organization as Contract Holder.
PURCHASE BY EXCHANGE
Certain organizations which own contracts issued by the Company may
exchange their existing contract(s) for either or both of the Contracts. See
Appendix VI.
CONTRACT CHARGES AND FEES OPTIONS
Your Contract's charges and fees will depend in part upon the Aggregate
Current Value and in part upon choices made by your Contract Holder. Each
Contract offers a Contract Holder the flexibility to choose a charges and fees
structure during the Accumulation Period that will best suit the needs of its
Participants. For a description of the Contracts' charges and fees, see "Charges
and Fees During the Accumulation Period."
RESPONSIBILITIES OF CONTRACT HOLDERS
The Contract Holder is responsible for maintaining all Participant vesting
percentages and records, ensuring that the Plan meets certain nondiscrimination
requirements imposed by the Code, and ensuring employee Contributions do not
exceed the maximum limits imposed by the Code.
If a Contract is used to fund an ERISA Plan, the Contract Holder must:
(a) provide written certification to the Company of the satisfaction of
applicable requirements for ERISA tax-deferred annuity plans, and
(b) certify that all distributions are made in accordance with the terms
of the Plan, and, if applicable, the requirements of the Code.
ENROLLMENT OF PARTICIPANTS
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.
After accepting your application, we will establish one or more Individual
Accounts to track Contributions and transactions. If you and your employer make
Contributions under a Retirement Plus Contract, we may establish an Employee
Account and an Employer Account. For any
- --------------------------------------------------------------------------------
5
<PAGE>
lump sum Contribution under either Contract, we may establish a separate
Individual Account for that Contribution.
CONTRIBUTIONS
Under a Contract, Contributions may be made on an installment basis or one
or more lump sum Contribution(s) may be made. The Company reserves the right not
to accept any Contribution. Each Contribution is forwarded to the Company
through a Distributor.
Net Contribution(s) may accumulate (a) on a variable basis by allocation
to one or more of the available Funds; (b) on a fixed basis under the GA
Account; (c) on a fixed basis under the Fixed Plus Account; and (d) in a
combination of any of the available investment options. See Appendices I, II and
III. Not all Funds or credited interest options are available in all
jurisdictions or under a particular Contract. The Fixed Account is available
only for Net Contribution(s) previously allocated to a fixed account under a
contract exchanged for a Contract. See Appendix IV. The Net Contribution(s) must
be allocated to the respective options in increments of whole percentage
amounts.
Contribution Limits for Contracts Used with 403(b) Plans
The Code imposes a maximum limit on annual Contributions which may be
excluded from your gross income. That limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Contributions
will be excluded from your gross income only if the 403(b) Plan meets certain
Code nondiscrimination requirements. It is the Contract Holder's responsibility
to determine compliance with these requirements and other provisions of the
Plan. See "Rights Under the Contracts."
Contribution Limits for Contracts Used with 401(a)/401(k) Plans
The Code imposes a maximum limit on annual Contributions that may be
excluded from a Participant's gross income. Such limit must be calculated under
the Plan by the Contract Holder in accordance with Sections 402(g) and 415 of
the Code. In addition, Contributions will be excluded from a Participant's gross
income only if the 401(a)/401(k) Plan meets certain nondiscrimination
requirements.
DISTRIBUTION
The Company will serve as Underwriter for the securities sold by this
Prospectus. The Company is registered as a broker-dealer with the SEC 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 Individual Accounts under a Contract.
Persons offering and selling the Contracts may receive commissions in
connection with the sale of a Contract. The sales commission will range from 1%
to 4% of the first year Contributions. The Company may also pay renewal
commissions on Contributions made after the first year and asset-based service
fees. The average of all payments made by the Company is estimated to equal
approximately 3% of the total Contributions 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 Individual Account are set forth on your enrollment form.
Commissions and sales related expenses are paid by the Company and are not
deducted from Contributions. See "Charges and Fees During the Accumulation
Period--Withdrawal Fee."
Occasionally, we may pay commissions and fees to Distributors which are
affiliated or associated with the Contract Holder or the Participants. We may
also enter into agreements with some entities associated with the Contract
Holder or Participants in which we would agree to pay the association for
certain services in connection with administering the Contracts. In both these
circumstances there may be an understanding that the Distributor or association
would endorse the Company as a provider of the Contracts. You will be notified
if a Contract is subject to these arrangements.
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6
<PAGE>
DETERMINING INDIVIDUAL ACCOUNT CURRENT VALUE
================================================================================
The Current Value of your Individual Account as of the most recent
Valuation Period, is determined by adding the value of any Fund Record Units
attributed to the Fund(s) you have selected to the value, with interest earned
to date, of any amounts invested in the Fixed Plus Account, the GAA and/or the
Fixed Account, less any Maintenance Fee(s) due.
FUND RECORD UNITS
A Contribution that is directed to one or more of the Funds is deposited
in the Separate Account and credited to your Individual Account in the form of
Fund Record Units for each Fund selected. The number of Fund Record Units
credited is determined by dividing the applicable portion of the Contribution by
that Contract's Fund Record Unit value of the appropriate Fund. The value of
Fund Record Units attributable to the Funds will be affected by the investment
performance, expenses and charges of those Funds. Generally, if the net asset
value of the Fund increases, so does the Fund Record Unit value; however,
performance of the Separate Account is reduced by charges and fees under a
Contract.
The Fund Record Unit value used is that next computed following the date
on which a Contribution is received, provided the Contribution is received by us
by the close of business of the New York Stock Exchange, unless the application
has not been accepted. In that event, Contributions will be credited at the Fund
Record Unit Value next determined after acceptance of the application. Shares of
the Funds are purchased by the Separate Account at the net asset value next
determined by the Fund following receipt of Contributions by the Separate
Account.
Fund Record Units are valued separately for each Fund. Therefore, if you
elect to have a Contribution invested in a combination of Funds, you will have
Fund Record Units credited from more than one source.
NET RETURN FACTOR
The value of a Fund Record Unit for any Valuation Period is calculated by
multiplying the Fund Record Unit value for the immediately preceding Valuation
Period by the net return factor of the appropriate investment option for the
Current Valuation Period.
The net return factor is calculated separately for each Fund in which
assets of the Separate Account are invested. It is determined by adding
1.0000000 to the net return rate.
The net return rate is equal to:
(a) The value of the shares of the Fund held by the Separate Account at
the end of a Valuation Period; minus
(b) The value of the shares of the Fund held by the Separate Account at
the start of the Valuation Period; plus or minus
(c) Taxes (or reserves for taxes) on the Separate Account (if any);
(d) Divided by the total value of the Fund Record Units and Fund Annuity
Units of the Separate Account at the start of the Valuation Period;
(e) Minus a Separate Account charge at an annual effective rate as shown
in a Contract for mortality and expense risks and profit and a daily
administrative expense charge which will not exceed the amount shown
on Contract Schedule I on an annual basis.
The net return rate may be more or less than zero.
TRANSFER CREDITS
If a Contract Holder is transferring to the Company assets held by another
provider of funding for a Plan, a transfer credit is applied to the Individual
Accounts, subject to certain conditions (and state approval). This benefit is
provided on a nondiscriminatory basis if your Contract is eligible. In certain
circumstances, a Contract Holder may elect to forego the transfer credit and the
Contract will be subject to lower charges and fees. See "Charges and Fees During
the Accumulation Period--Option B." The transfer credit will be credited to the
Fixed Plus Account. See Appendices II and III.
Once transfer credit amounts are applied to the Individual Accounts, all
provisions of the Contract apply. If a transfer credit is due under a Contract,
you will be provided with additional information specific to the Contract.
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7
<PAGE>
CONTRACT RIGHTS
================================================================================
RIGHT TO CANCEL
The Contract Holder may cancel a Contract and you may cancel your interest
in a Contract, no later than ten days after receiving it (or as otherwise
allowed by state law) by returning it, along with a written notice of
cancellation, to us. Within seven days after we receive the Contract and the
written notice at our Home Office, we will return your Current Value, unless the
laws of the state in which the Contract was issued require that we return
Contributions (if greater than your Current Value). In states that do not
require a return of Contributions, you bear the entire investment risk for
amounts allocated among the variable funding options during the free look
period.
RIGHTS UNDER THE CONTRACTS
Your rights and the Contract Holder's rights are set forth in each
Contract purchased by the Contract Holder. You should consult with your employer
to determine which Contract your employer has purchased and you should refer to
that Contract to determine your rights. Benefits payable to you are governed
exclusively by the Plan. The Company is not a party to the Plan.
Rights Under the Retirement Plus Contract. Under the Retirement Plus
Contract, the rights rest with the Contract Holder (generally the employer). The
Contract Holder may, by written direction, allow Participants to select the
investment options for the Employer Account and Employee Account. The exercise
of other rights under the Retirement Plus Contract must be made by the Contract
Holder on your behalf. You have no rights to direct the Company as to payments
under the Contract unless countersigned by the Contract Holder.
For the Retirement Plus Contract, the Contract Holder and each Participant
must agree in writing to the terms and conditions of the Contract, to have the
Contract Holder make choices under the Contract, and to be bound by the Contract
Holder's direction to the Company. See Appendix V.
Rights Under the Voluntary Contract. You may make any choices, subject to
the terms of your Plan, under the Voluntary Contract with respect to your
Individual Accounts.
Rights to your Individual Account. For Contracts used with a 403(b) Plan,
you have a nonforfeitable right to the value of your Contributions pursuant to
Code Section 403(b) and the terms of the Plan as interpreted by the Contract
Holder. You have a nonforfeitable right to the value of your Individual Account
to which your employer's Contributions are credited pursuant to the terms of,
and to the extent of your vested percentage under, the Plan as interpreted by
the Contract Holder.
For Contracts used with a 401(a)/401(k) Plan, your right to Contributions
derived from your Contributions and, with respect to the Retirement Plus
Contract, from your employer's Contributions, must be nonforfeitable in order
for the Plan to qualify for favorable tax treatment afforded to 401(a)/401(k)
Plans under the Code.
TRANSFERS AND ALLOCATION CHANGES
================================================================================
Before the Annuity Period, the allocation of future Net Contributions
among the allowable investment options under a Contract may be changed. There is
no limit on the number of these changes. Each Contract also allows any number of
transfers of not less than $500 among funding options during the calendar year,
without charge. The total number of funding options that may be invested in
during the Accumulation Period may be limited. (See "The Funds--Fund
Limitations.")
Subject to state regulatory approval, transfers during the Annuity Period
are permitted, however, we reserve the right to limit such transfers to four per
year.
Any transfer involving a Fund where the request is received by us by the
close of business of the New York Stock Exchange will be based on the Fund
Record Unit value next determined after we receive a valid request at our Home
Office.
Transfers from the Fixed Plus Account are limited. See Appendices I, II,
III and IV for more information on transfers from the GAA, the Fixed Plus
Account and the Fixed Account.
- --------------------------------------------------------------------------------
8
<PAGE>
WITHDRAWALS
================================================================================
Each Contract allows the withdrawal of all or a portion of an Individual
Account Adjusted Current Value during the Accumulation Period. To do so, we must
receive a properly completed disbursement form in our Home Office. Disbursement
forms are available from us and our representatives.
Withdrawals may be requested in one of the following four ways:
[bullet] Full Withdrawal from a Contract: The amount paid will be the sum of the
Individual Accounts allocated to the Funds, the GAA (plus or minus the
Market Value Adjustment), and the Fixed Account, minus any applicable
Withdrawal Fee and Maintenance Fee due plus one-fifth of the sum of the
Individual Accounts allocated to the Fixed Plus Account*, minus any
Fixed Plus Account withdrawals, transfers or annuitizations made in the
prior 12 months.
[bullet] Full Withdrawal from an Individual Account: The amount paid will be the
Individual Account allocated to the Funds, the GAA (plus or minus the
Market Value Adjustment), and the Fixed Account, minus any applicable
Withdrawal Fee and Maintenance Fee due plus one-fifth of the Individual
Account allocated to the Fixed Plus Account*, minus any Fixed Plus
Account withdrawals, transfers, loan or annuitizations made in the
prior 12 months.**
[bullet] Partial Withdrawal (Percentage): The amount paid will be the percentage
of the Individual Account Current Value requested minus any applicable
Withdrawal Fee.** However, amounts withdrawn from the Fixed Plus
Account may not exceed 20% minus any Fixed Plus Account*** withdrawals,
transfers or annuitizations in the prior 12 months.
[bullet] Partial Withdrawal (Specific Dollar Amount): The amount paid will be
the dollar amount requested. However, the amount withdrawn from the
Individual Account will equal the dollar amount requested plus any
applicable Withdrawal Fee.** The amount withdrawn from the Fixed Plus
Account may not exceed 20% minus any Fixed Plus Account*** withdrawals,
transfers or annuitizations in the prior 12 months.
* The balance of the amount held in the Fixed Plus Account will be paid in
four annual installments. Under certain circumstances, the entire amount
held in the Fixed Plus Account will be paid in one lump sum (or used to
provide Annuity payments) rather than in annual installments. See Appendices
II and III for more information.
** A 20% income tax may be withheld from amounts paid directly to you. See "Tax
Status--Contracts Used with Qualified Plans."
*** The 20% limit is waived under certain circumstances. See Appendices II and
III for more information.
All amounts paid will be based on Individual Account Current Values as of
the end of the Valuation Period in which the request is received, in good order
in our Home Office. For any partial withdrawal, unless otherwise requested,
partial withdrawals are satisfied by withdrawing amounts on a pro rata basis
from each investment option in which the Individual Account is invested.
WITHDRAWAL RESTRICTIONS FOR CONTRACTS USED WITH 403(b) PLANS
Code Section 403(b) imposes restrictions on full or partial withdrawals
from Individual Accounts attributable to: (a) Contributions made on or after
January 1, 1989, under a salary reduction agreement, and (b) any earnings on the
entire 403(b) Employee Account credited on and after January 1, 1989.
Withdrawals of these amounts are allowed only if: (a) you have died, (b) you
have become disabled, as defined in the Code, (c) you have attained age 59-1/2,
(d) you have separated from service, or (e) it is otherwise allowed by federal
law, regulations or rulings. Withdrawals are also allowed if you can prove
financial hardship as defined by the IRS, but the withdrawal is limited to the
lesser of Contributions attributable to Participant salary reduction
contributions made on or after January 1, 1989, or the amount necessary to
relieve the hardship. Even if a withdrawal is permitted under these provisions,
a 10% federal penalty tax may be assessed on the amount paid to you if it does
not otherwise meet the exceptions to the penalty tax provisions. See "Tax
Status--Contracts Used with Qualified Plans." We must receive certification in
writing that one of these conditions has been met before a payment will be made.
The Code permits a full or partial withdrawal of an amount equal to the
Employee Account Value as of December 31, 1988 (the "grandfathered" amount),
subject to the terms of the 403(b) Plan. Although the Code withdrawal
restrictions do not apply to this amount, a 10% federal penalty tax may be
assessed on the amount paid to you if it does not otherwise meet the exceptions
to the
- --------------------------------------------------------------------------------
9
<PAGE>
penalty tax provisions. See "Tax Status--Contracts Used with 403(b) Plans" and
"Tax Status--Contracts used with Qualified Plans."
We believe that the Code withdrawal restrictions do not apply to tax-free
transfers pursuant to Revenue Ruling 90-24. We further believe that the
withdrawal restrictions will not apply to any "grandfathered" amount which is
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
Revenue Ruling 90-24 provides that a direct transfer from one 403(b) investment
to another 403(b) investment is not a distribution and is not taxable if, after
the transfer, the transferred amounts continue to be subject to the same or more
stringent distribution requirements.
REINVESTMENT PRIVILEGE
All or a portion of the proceeds received for the full withdrawal of an
Individual Account may be reinvested within 30 days after the withdrawal if
allowed by law. Any Maintenance Fee and Withdrawal Fee charged at the time of
the withdrawal on the amount being reinvested will be included in the
reinstatement. Any Maintenance Fee which falls due after the withdrawal and
before the reinstatement will be deducted from the amount reinstated. Any
Market Value Adjustment deducted from GA Account withdrawals will not be
included in the reinstatement. Amounts will be reinstated among the Fixed Plus
Account, the GA Account, and/or the Fund(s) for the Separate Account in the
same proportion as they were at the time of withdrawal. Any amounts reinstated
to the GA Account will be credited to terms available during the then-current
Deposit Period. The number of Fund Record Units reinstated will be based on the
Fund Record Unit Value(s) next computed after receipt in good order at the
Company's Home Office of the reinstatement request and the amount to be
reinvested.
CONTRACT LOANS
================================================================================
During the Accumulation Period, loans from the Individual Account are
available from Contracts used with 403(b) plans, and from Contracts used with
401(a) plans to the extent provided in the Contract. Under the Retirement Plus
Contract, a loan may be restricted to your Employee Account unless the Contract
Holder has authorized loans from the value of the Employer Account
(check with the Contract Holder to see if this is available). Loans can only be
made from the Current Value held in the Funds, the Fixed Plus Account and/or the
Fixed Account. See Appendices II, III and IV. A loan may be obtained by
reviewing and reading the terms of your loan application, properly completing a
loan request form and submitting it to the Company's Home Office.
CHARGES AND FEES DURING THE ACCUMULATION PERIOD
================================================================================
The amount of the charges and fees that will be assessed under a Contract
will be based upon the charges and fees option selected by the Contract Holder.
See "Contract Charges and Fees Options." You should consult your employer to
determine which charges and fees option applies to your Individual Accounts.
Based upon its prior experience with similar annuity contracts, the
Company has determined that its costs of administering a Contract will fluctuate
with the amount of the Aggregate Current Value, the average Contributions per
Participant transferred under a Contract, and whether a Withdrawal Fee is
charged. The charges and fees for the initial Contract year will be based on the
estimated year-end Aggregate Current Value, as determined by the Company. If
your charges and fees change on your Contract Anniversary (because of an
increase or decrease in the Aggregate Current Value), a new Fund Record Unit
value might apply and the Fund Record Units might have to be adjusted so that
the Current Value of your Individual Account would stay the same. If you invest
in one of the series of the Aetna GET Fund, the GET Fund guarantee will be
recalculated so that the new guarantee would be equivalent to the original
guarantee.
A Contract Holder may elect whether a Withdrawal Fee will be applicable
under a Contract, and if so, whether the Withdrawal Fee will be applicable for a
5-year period or a 10-year period. When a Withdrawal Fee is not charged, the
Company has determined that more Individual Account transactions occur, and as
a result, in some circumstances the Company imposes a greater administrative
expense charge
- --------------------------------------------------------------------------------
10
<PAGE>
and Maintenance Fee charge. The 5-year period and 10-year period Withdrawal Fees
are as follows:
FIVE-YEAR WITHDRAWAL PERIOD:
Number of Years
Individual Account
Has Been Established Fee
---------------------------- -----
Less than 1 5%
1 or more but less than 2 4%
2 or more but less than 3 3%
3 or more but less than 4 2%
4 or more but less than 5 1%
5 or more 0%
TEN-YEAR WITHDRAWAL PERIOD:
Number of Years
Individual Account
Has Been Established Fee
----------------------------- -----
Less than 5 5%
5 or more but less than 7 4%
7 or more but less than 9 3%
9 or more but less than 10 2%
10 or more 0%
For Contracts issued in the State of New York only the Ten-Year Withdrawal
Period Fee Schedule will be available. Additionally, for those New York
Contracts under which the GAA is selected as a funding option, the withdrawal
fee imposed under the Ten-Year Withdrawal Period (as set forth in the schedule
above), will never be greater than (a) 7% of amounts withdrawn from investment
options other than the GAA, plus (b) 7% of amounts withdrawn from the GAA,
reduced (but not below zero) by one percent for each year the contract has been
in force.
The following schedule illustrates the withdrawal fee imposed if the
Ten-Year Withdrawal Period is selected for Contracts issued in the States of
Oregon and Texas:
Number of Years
Individual Account
Has Been Established Fee
---------------------------- -----
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%
In selecting a charges and fees option, a Contract Holder should consider
the composition and needs of its Participants to determine which option is most
appropriate.
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11
<PAGE>
OPTION A
A Contract Holder may select any of the charges and fees elections under
Option A below. Under Option A, a transfer credit may apply to transfers to the
Company of assets not previously held by the Company. See "Determining
Individual Account Current Value--Transfer Credits" and Appendices II and III.
If a Contract is purchased by exchange, then for existing participants of the
exchanged contract, the Option A charges and fees schedule set forth below with
a Withdrawal Fee for 10 years will apply. See Appendix VI. New participants of
a Contract purchased by exchange will be subject to the charges and fees
schedule selected by the Contract Holder.
<TABLE>
<CAPTION>
Less $500,000 $1,000,001 $5,000,001 Greater
OPTION "A" CHARGES than to to to than
$500,000 $1,000,000 $5,000,000 $15,000,000 $15,000,000
-------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
WITHDRAWAL FEE FOR 10 YEARS
Mortality and Expense Charge 1.25% 1.15% 1.05% 1.00% 0.95%
Administrative Expense Charge 0.25% 0.15% 0.10% 0.05% 0.00%
Maintenance Fee $15 $15 $0 $0 $0
WITHDRAWAL FEE FOR 5 YEARS
Mortality and Expense Charge 1.25% 1.25% 1.15% 1.10% 1.05%
Administrative Charge 0.25% 0.15% 0.10% 0.05% 0.00%
Maintenance Fee $15 $15 $0 $0 $0
NO WITHDRAWAL FEE
Mortality and Expense Charge 1.25% 1.25% 1.15% 1.10% 1.05%
Administrative Charge 0.25% 0.20% 0.15% 0.10% 0.05%
Maintenance Fee $20 $20 $10 $10 $10
</TABLE>
OPTION B
Charges and fees elections under Option B are available only if the
Company will hold all assets of the Plans of the Contract Holder and if the
Contract Holder is transferring assets to the Company in an amount which
satisfies the then current rules of the Company. This option is provided on a
nondiscriminatory basis if your contract is eligible. If a Contract Holder
selects a charges and fees election under Option B, no transfer credit will
apply.
<TABLE>
<CAPTION>
Less $500,000 $1,000,001 $5,000,001 Greater
OPTION "B" CHARGES than to to to than
$500,000 $1,000,000 $5,000,000 $15,000,000 $15,000,000
-------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
WITHDRAWAL FEE FOR 10 YEARS
Mortality and Expense Charge 1.15% 1.05% 0.95% 0.90% 0.85%
Administrative Expense Charge 0.25% 0.15% 0.10% 0.05% 0.00%
Maintenance Fee $15 $15 $0 $0 $0
WITHDRAWAL FEE FOR 5 YEARS
Mortality and Expense Charge 1.15% 1.15% 1.05% 1.00% 0.95%
Administrative Charge 0.25% 0.15% 0.10% 0.05% 0.00%
Maintenance Fee $15 $15 $0 $0 $0
NO WITHDRAWAL FEE
Mortality and Expense Charge 1.15% 1.15% 1.05% 1.00% 0.95%
Administrative Charge 0.25% 0.20% 0.15% 0.10% 0.05%
Maintenance Fee $20 $20 $10 $10 $10
</TABLE>
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12
<PAGE>
The following describes the charges and fees that we may deduct during the
Accumulation Period from the Individual Accounts under each Contract.
ANNUAL MAINTENANCE FEE
An annual Maintenance Fee is charged for each Participant and is deducted
from the sum of the Current Value of your Individual Accounts under a Contract.
This fee is to reimburse the Company for some of its administrative expenses
relating to the establishment and maintenance of the Individual Account. Because
the annual Maintenance Fee is based, in part, on the amount of the Aggregate
Current Value, the annual Maintenance Fee may change on each contract
anniversary.
The Maintenance Fee is deducted from your Individual Accounts on the
Contract anniversary date (or, if not a valuation date, on the next valuation
date). Under the Retirement Plus Contract, the Contract Holder may elect that
the entire Maintenance Fee be deducted from only one Individual Account--either
the Employee Account or the Employer Account. Alternatively, the Maintenance Fee
may be billed to the employer at or prior to such deduction under the Retirement
Plus Contract. A Maintenance Fee, to the extent permitted by state law, is also
deducted upon the full withdrawal of a Participant's Individual Accounts. We
deduct this fee from each investment option in the same proportion that the
values held under each option have to the total value under the Individual
Account. No Maintenance Fee is deducted from a separate Individual Account
established for the purpose of a lump sum contribution.
WITHDRAWAL FEE
There are no deductions from Contributions for sales commissions or
related expenses. Sales commissions and expenses are advanced by the Company and
recovered out of any Withdrawal Fees or, if Withdrawal Fees are insufficient,
out of its profits from investment activities, including the mortality and
expense risk charges under a Contract. The total amount deducted for the
Withdrawal Fee will not exceed 8.5% of the Contributions made to an Individual
Account. For sales commissions paid in connection with the sale of a Contract,
see "Contract Purchase--Distribution." If applicable, the Withdrawal Fee will
apply to withdrawals from the Funds, the GA Account or the Fixed Account. No
Withdrawal Fee will be deducted from the Fixed Plus Account. There are
additional restrictions and deductions on withdrawals. See "Contract
Rights--Withdrawals."
A Withdrawal Fee is not deducted from any portion of the Individual
Account Current Value under a Contract which is:
(a) withdrawn due to the Participant's separation from service with the
Contract Holder (the Contract Holder must submit documentation
satisfactory to the Company confirming the Participant is no longer
providing services to the employer);
(b) applied to provide Annuity benefits under a Contract;
(c) withdrawn on or after the tenth anniversary of the effective date of
the Individual Account if a ten-year duration for Withdrawal Fees has
been elected on or after the fifth anniversary if a five-year
duration has been elected;
(d) paid due to the death of the Participant before Annuity payments under
a Contract begin;
(e) withdrawn due to the election of any additional withdrawal option
under a Contract (see "Additional Withdrawal Options");
(f) withdrawn due to financial hardship, as specified in the Code;
(g) paid where the Individual Account Current Value 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
(h) paid in an amount of up to 10% of the Individual Account Current
Value. This applies only to the first partial withdrawal in each
calendar year. The 10% amount will be calculated using the Individual
Account Current Value on the date the request is received, in good
order, in the Home Office. This provision is available to Participants
who are between the ages of 59-1/2 and 70-1/2. Any loans outstanding
on an Individual Account are excluded from the Individual Account
Current Value when calculating the 10% amount. This provision is not
applicable to a full withdrawal of the Individual Account, or to
partial withdrawals due to loan defaults. See "Contract Rights--
Contract Loans." This provision may not be exercised if SWO is
elected. See "Additional Withdrawal Options."
Although no Withdrawal Fee is deducted in the above instances, the amount
withdrawn may, however, be subject to the 10% federal penalty tax. See "Tax
Status--Contracts Used with 403(b) Plans" and "Tax Status--Contracts Used with
Qualified Plans."
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13
<PAGE>
MORTALITY AND EXPENSE RISK CHARGES
We make a daily deduction from any portion of an Individual Account
Current Value allocated to the Funds under a Contract for mortality and expense
risks. The mortality risk charge is to compensate us for the risk we assume when
we promise to continue making payments for the lives of individual Annuitants
according to Annuity rates specified in the tables at the time Annuity payments
begin. The expense risk charge is to compensate us for the risk that actual
expenses for costs incurred under a Contract will exceed the maximum costs that
can be charged under the Contract. Because it is based, in part, on the amount
of the Aggregate Current Value, the charge for mortality and expense risks may
change on each contract anniversary.
Based on our actuarial determination, we do not anticipate that the
Withdrawal Fee will cover all sales and administrative expenses which we will
incur in connection with a Contract. Also, we do not intend to profit from
either the annual Maintenance Fee or the administrative expense charge, if
imposed. We do hope to profit from the daily deduction for mortality and expense
risks. Any such profit, as well as any other profit realized by us and held in
the general account (which supports insurance and annuity obligations), would be
available for any proper corporate purpose, including, but not limited to,
payment of sales and distribution expenses.
ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily charge for administrative expenses from any portion of
an Individual Account Current Value allocated to the Funds to reimburse the
Company for some of the expenses we incur for administering a Contract. Because
it is based, in part, on the amount of the Aggregate Current Value, the
administrative expense charge may change on each contract anniversary.
FUND EXPENSES
Each Fund has an investment adviser. An investment advisory fee, based on
the Fund's average net assets, is deducted from the assets of each Fund and paid
to the investment adviser.
Most expenses incurred in the operations of the Funds are borne by that
Fund. Fund advisers may reimburse the Funds they advise for some or all of these
expenses. For further details of each Fund's expenses, you and the Contract
Holder should read the accompanying prospectus for each Fund and refer to the
Fee Table in this Prospectus.
PREMIUM AND OTHER TAXES
Several states and municipalities impose a premium tax on Annuities.
Currently such taxes range from 0% to 4%. The Company reserves the right to
deduct premium tax against Contributions or Current Values at any time, but no
earlier than when due 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 premium tax, the Company reserves the right to assess a charge for
any state or federal taxes due against a Contract or the Separate Account
assets.
CHARGES AND FEES DURING THE ANNUITY PERIOD
================================================================================
This section describes the charges and fees that we may deduct during the
Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
During the Annuity Period a daily charge for mortality and expense risks
equal to an annual effective rate of 1.25% may be deducted from any portion of
an Individual Account allocated to the Funds.
ADMINISTRATIVE EXPENSE CHARGE
During the Annuity Period, a daily charge for administrative expenses
equal to an annual effective rate of up to 0.25% may be deducted from any
portion of an Individual Account under a Contract allocated to the Funds.
WITHDRAWAL FEE
A Withdrawal Fee will apply during the Annuity Period if a non-lifetime
Annuity Option is elected on a variable basis and the remaining value is
withdrawn prior to the minimum number of years specified in the Contract. See
"Annuity Period--Annuity Options."
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<PAGE>
ADDITIONAL WITHDRAWAL OPTIONS
================================================================================
The Company offers certain withdrawal options under each Contract that are
not considered annuity options ("Additional Withdrawal Options"). To exercise
these options, the Current Value must meet the minimum dollar amounts and you
must satisfy the 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 Individual 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. (See "Tax Status.")
Other Additional Withdrawal Options may be added from time to time.
Additional information relating to any of the Additional Withdrawal Options may
be obtained from your local representative or from the Company at its Home
Office. For Contracts issued in the state of New York, no Market Value
Adjustment will be imposed on withdrawals from the GA Account 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 Current 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 at 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 those Additional Withdrawal
Options at any time, and/or to change the terms of future elections.
ANNUITY PERIOD
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ANNUITY PERIOD ELECTIONS
We must receive in writing the Annuity start date and Annuity option you
have elected (for details, see the Statement of Additional Information). Until a
date and option are elected, your Individual Accounts will continue in the
Accumulation Period.
We must receive written notice at least 30 days before Annuity payments
begin electing or changing (a) the date on which Annuity payments are to begin,
(b) the Annuity option, (c) whether the payments are to be made monthly,
quarterly, semiannually or annually, and (d) the investment option(s) used to
provide Annuity payments (i.e., a fixed annuity using the general account, or a
variable annuity using any of the funds available at the time of annuitization.
Once Annuity Payments begin, the Annuity Option may not be changed. Subject to
state regulatory approval, transfers during the Annuity Period are allowed;
however, we reserve the right to limit such transfers to four per year.
If Annuity payments are to be made on a variable basis, the first and
subsequent payments will vary depending on the assumed net investment rate
(3-1/2% per annum, unless a 5% annual rate is elected). Selection of a 5% rate
causes a higher first payment, but Annuity payments will increase thereafter
only to the extent the net investment rate exceeds 5% on an annualized basis.
Annuity payments would decline if the rate were below 5%. Use of the 3-1/2%
assumed rate causes a lower first payment, but subsequent payments would
increase more rapidly or decline more slowly as changes occur in the net
investment rate. (See the Statement of Additional Information for details
regarding the selection of a net investment rate.)
No election may be made that would result in a first Annuity payment or
total yearly Annuity payments of less than the minimum amounts specified in the
Contract. If the combined value of the Employer and Employee
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Accounts is insufficient to elect an option for the minimum amount specified, a
lump sum payment must be elected.
When payments start, the age of the Annuitant plus the number of years for
which payments are guaranteed must not exceed 95.
Annuity payments may not extend beyond (a) your life, (b) the joint lives
of you and your Plan beneficiary, (c) a period certain greater than your life
expectancy, or (d) a period certain greater than the joint life expectancies of
you and your Plan beneficiary.
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, if
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 addition,
distributions must be in a form and amount sufficient to satisfy the Code
requirements.
In determining the amount of benefit payments, the minimum distribution
incidental death benefit rule described in IRS regulations* must be satisfied.
This distribution rule does not apply to certain 403(b) Plans if Annuity Option
3 is elected and your spouse is the second Annuitant. See "Annuity
Period--Annuity Options."
You will be subject to a 50% federal penalty tax on the amount of
distribution required each year that is not distributed under the Code's minimum
distribution rules.
* This rule assures that any death benefits payable under the Plan are
incidental to the primary purpose of the Plan which is to provide retirement
benefits to the Participant. The amount to be distributed under this rule is
determined based on the Participant's age and tables contained in the IRS
regulations.
If you elect a Variable Annuity Option, your Individual Account will be
allocated to the Separate Account and the Company will make a daily deduction
for mortality and expense risks. See "Charges and Fees During the Accumulation
Period--Mortality and Expense Risk Charges." Therefore, electing the nonlifetime
option on a variable basis will result in a deduction being made even though the
Company assumes no mortality risk. During the Accumulation Period, the Company
will also deduct daily a charge for administrative expenses. See "Charges and
Fees During the Annuity Period--Administrative Expense Charge."
ANNUITY OPTIONS
[bullet] Option 1--Payments for a Stated Period of Time--An Annuity will be paid
for 5 to 30 years.
For amounts held in the Fixed Plus Account the Annuity must be paid on a
fixed basis. If payments for this option are made under a Variable Annuity, the
present value of any remaining payments may be withdrawn at any time. If a
withdrawal is requested before five years of payments have been made, it will be
subject to any Withdrawal Fee, if applicable. (See "Charges and Fees During the
Accumulation Period.")
[bullet] Option 2--Life Income Based on the Life of the Annuitant--Payments will
be made until the death of the Annuitant. When this option is chosen, a
choice from the following must be made:
(a) payments cease at the death of the Annuitant;
(b) payments may be guaranteed for 5-30 years; or
(c) cash refund: if the Annuitant dies, the beneficiary will receive a
lump sum payment equal to the amount applied to the Annuity option
(less any premium tax) less the total amount of Fixed Annuity
payments paid prior to such death. This cash refund feature is only
available if the total amount applied to the Annuity option is
allocated to a Fixed Annuity.
[bullet] Option 3--Life Income Based Upon the Lives of Two Annuitants--An
Annuity will be paid during the lives of the Annuitant and a joint
Annuitant. Payments will continue until both Annuitants have died. When
this option is chosen, a choice of the following must be made:
(a) 100% of the payment to continue after the first death;
(b) 66-2/3% of the payment to continue after the first death;
(c) 50% of the payment to continue after the first death;
(d) 100% of the payment to continue after the first death with a
guarantee of 5-30 years;
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(e) 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; or
(f) 100% of the payment to continue after the first death with a cash
refund feature. If the Annuitant and joint Annuitant die, the
beneficiary will receive a lump sum payment equal to the amount
applied to the Annuity option (less any premium tax) less the total
amount of Fixed Annuity payments paid prior to such death. This
cash refund feature is only available if the total amount applied
to the Annuity option is allocated to a Fixed Annuity.
[bullet] Option 4--Payments of Interest on Sum Left with the Company (if
available under the Contract)--This Option may be used only by the Plan
beneficiary when the Participant dies before the Company has started
paying an Annuity. A portion or all of the sum paid upon death may be
held under this Option and will be held in the general account of the
Company at interest. The Contract Holder, on behalf of the Plan
beneficiary, may later tell the Company to:
Pay a portion or all of the sum held by the Company; or
Apply a portion or all of the sum held by the Company to any Annuity
Option above.
If the Plan beneficiary is the Participant's surviving spouse, the
lump-sum payment may be deferred to a date not later than when the Participant
would have attained age 70-1/2.
If the Plan beneficiary is not a spouse, the Contract Holder must tell the
Company to pay the full sum within 5 years after the death of the Participant.
If a Fixed Annuity is chosen under option 1, option 2 a) or b) or option 3
a) or d), the Participant may elect an annual increase of one, two or three
percent compounded annually.
We may also offer additional Annuity Options under your Contract from time
to time.
Payments under any lifetime Annuity option will be determined without
regard to the sex of the Annuitant(s). Such Annuity payments will be based
solely on the age of the Annuitant(s).
If a lifetime option is elected without a guaranteed minimum payment
period, it is possible that only one Annuity payment will be made if the
Annuitant under Option 2, or the surviving Annuitant under Option 3, should die
prior to the due date of the second Annuity payment.
Once lifetime Annuity payments begin, neither the Contract Holder nor the
Annuitant can elect to receive a lump sum settlement.
DEATH BENEFIT
================================================================================
ACCUMULATION PERIOD
A portion or all of any death proceeds may be (a) paid to the Plan
beneficiary in a lump sum; (b) applied to any of the Annuity Options; (c)
subject to applicable provisions of the Code, left in the variable investment
options; (d) if the beneficiary is your spouse, paid under an Additional
Withdrawal Option; or (e) subject to applicable provisions of the Code, left on
deposit in the Company's general account and the beneficiary may receive
monthly, quarterly, semiannual or annual interest payments at the interest rate
then currently being credited on such deposits. The balance on deposit can be
withdrawn at any time or applied under any Annuity Option. See "Annuity
Period--Annuity Options." Any lump sum payment paid during the Accumulation
Period or under the applicable lifetime or nonlifetime Annuity options will
normally be made within seven calendar days after proof of death acceptable to
the Company and a request for payment on a form acceptable to the Company is
received at our Home Office in good order.
Until the election of method of payment, amounts will remain invested as
they were before the death, and the beneficiary will assume all nonforfeitable
rights under a Contract. The Code requires that distributions begin within a
certain time period. If the Plan beneficiary is your surviving spouse and the
Plan allows, the Plan beneficiary has until you would have attained age 70-1/2
to begin Annuity payments, to receive a lump sum distribution, or to begin
receiving distributions under an Additional Withdrawal Option. If your Plan
beneficiary is not your surviving spouse, either Annuity payments must begin by
December 31 of the year following the year of your death, or the entire value
must be distributed by December 31 of the fifth year following the year of your
death. In no event may payments to any Plan beneficiary extend beyond the life
of the Plan beneficiary or any period certain greater than the Plan
beneficiary's life expectancy. Failure to commence distribution within the above
time periods can result in tax penalties.
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If a lump sum distribution is elected, the Plan beneficiary will receive
the value of the Individual Account determined as of the Valuation Period in
which proof of death acceptable to us and a request for payment on a form
acceptable to the Company is received at our Home Office in good order. The
distribution is taxed in the same manner as a full surrender. If an Annuity
Option is elected, the value applied to the Annuity Option is determined in the
same manner, and the proceeds are taxed in the same manner as the annuity
payments. If amounts are left in the variable investment options, the Individual
Account Current Value will continue to be affected by the investment performance
of the investment option(s) selected. If amounts are left on deposit in the
general account, the principal amount is guaranteed, but interest payments may
vary. In general, regardless of the method of payment, payments received by your
beneficiaries after your death are taxed in the same manner as if you had
received those payments. (See "Tax Status.")
ANNUITY PERIOD
If an Annuitant dies after Annuity payments have begun, any death benefit
payable will depend upon the terms of a Contract and the Annuity option
selected.
If Annuity Option 2 or 3 was elected without a guaranteed minimum payment
period under a Contract, Annuity payments will cease upon the death of the
Annuitant under a Life Annuity or the death of the surviving Annuitant under
Option 3.
Under a Contract, if Annuity Option 2 or 3 was elected with a guaranteed
minimum payment period and the death of the Annuitant under Annuity Option 2 or
the surviving Annuitant under Option 3 occurs prior to the end of that period,
we will pay to the person designated by the Contract Holder in a lump sum
(unless otherwise requested) the present value of the guaranteed Annuity
payments remaining. Such value will be determined as of the Valuation Period in
which proof of death acceptable to us and a request for payment are received at
our Home Office. The value will be reduced by any payments made after the date
of death.
If Annuity Option 2 was elected with a guaranteed minimum payment period
under a Contract and the Annuitant dies before all guaranteed payments are made,
the value of any remaining payments may be paid in a lump sum to your Plan
beneficiary and no Withdrawal Fee will be imposed. Such value will be determined
as of the Valuation Period in which proof of death acceptable to us and a
request for payment on a form acceptable to the Company are received at our Home
Office in good order.
If the Annuitant dies after Annuity payments have begun and if there is a
death benefit payable under the Annuity option elected, the remaining values
must be distributed to your designated 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 normally be made within seven calendar days after proof of
death, acceptable to us, and a request for payment are received at our Home
Office.
TAX STATUS
================================================================================
INTRODUCTION
The following discussion is a general discussion of federal income tax
considerations relating to a Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all of
the situations in which a person may be entitled to or may receive a
distribution under the Contracts. Any person concerned about these tax
implications should consult a competent tax adviser before initiating any
transaction.
This discussion is based upon the Company's understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service ("IRS"). The tax treatment of annuities may change by
legislation or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the change). No
representation is made as to the likelihood of the continuation of the present
federal income tax laws or of the current interpretation by the IRS. Moreover,
no attempt has been made to consider any applicable state or other tax laws.
The Contracts may be purchased and used in connection with certain
retirement arrangements entitled to special income tax treatment under Sections
403(b) or 401(a) of the Code. The ultimate effect of federal income taxes on the
amounts held under a Contract, or Annuity Payments, and on the economic benefit
to the Contract Holder, the Annuitant, or the Beneficiary may depend on the tax
status of the individual concerned.
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The Company makes no attempt to provide more than general information
about use of either Contract with the various types of retirement plans.
Contract Holders and participants under retirement plans as well as annuitants
and beneficiaries are cautioned that the rights of any person to any benefits
under a Contract may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the Contract issued in
connection with such a plan. Some retirement plans are subject to distribution
and other requirements that are not incorporated in the administration of a
Contract. Contract Holders are responsible for determining that contributions,
distributions and other transactions with respect to a Contract satisfy
applicable law. Purchasers of a Contract for use with any retirement plan should
consult their legal counsel and tax adviser regarding the suitability of the
Contract.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Code. Since the Separate Account is not an entity separate
from the Company, and its operation forms a part of the Company, it will not be
taxed separately as a "regulated investment company" under Subchapter M of 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 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 interpretations thereof result in
the Company being taxed on income or gains attributable to the Separate Account,
then the Company may impose a charge against the Separate Account (with respect
to some or all Contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACTS
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. One of the circumstances that has raised
this issue is the number of funding options available under the Contracts. The
Company reserves the right to modify the Contracts as necessary to attempt to
prevent a Contract Holder from being considered the owner of a pro rata share of
the assets of the Separate Account.
CONTRACTS USED WITH 403(b) PLANS
The Contracts are designed for use with Section 403(b) plans. The tax
rules applicable to participants and beneficiaries in retirement plans vary
according to the type of plan and the terms and conditions of the plan. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59-1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances.
Under Code Section 403(b), payments made by public school systems and
certain tax exempt organizations to purchase annuity contracts for their
employees are excludable from the gross income of the employee, subject to
certain limitations. However, these payments may be subject to FICA (Social
Security) taxes. A Contract issued as a tax-deferred annuity under
Section 403(b) will be amended as necessary to conform to the requirements of
the Code.
In order to be excludable from your taxable income, your total annual
contributions to Section 403(b) plans cannot exceed either of two limits set by
the Code. The first limit, under Section 415, is generally the lesser of 25
percent of your compensation or $30,000. This limit applies to all your own
contributions, your employer's contributions under the Plan on your behalf, and,
if you are in control of the employer as defined in the Code, contributions
under certain other retirement plans. The second limit, which is the exclusion
allowance under Section 403(b) of the Code, is usually calculated according to a
formula that takes account of your length of employment, any pretax
contributions you and your employer have already made under the Plan, and pretax
contributions to certain other retirement plans. There is also a third limit
that specifically limits your salary reduction contributions to the Plan to no
more than $9,500 annually (subject to indexing); your own limit may be lower.
Code Section 403(b)(11) restricts the distribution under Code Section
403(b) annuity contracts of: (1) elective contributions made in years beginning
after December 31, 1988; (2) earnings on those contributions; and (3) earnings
in such years on amounts held as of the last year beginning before January 1,
1989. Distribution of
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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 elective contributions may not be distributed in the case
of hardship.
The Code also has required distribution rules for Section 403(b) plans.
Distributions of amounts as of December 31, 1986, generally must begin by age
75. Distributions attributable to contributions made on or after January 1,
1987, and any earnings on the entire Individual Account on or after that date,
must begin by April 1 of the calendar year following the calendar year in which
the participant attains age 70-1/2 or retires, whichever occurs later, or for 5%
owners, by April 1 of the calendar year following the calendar year in which the
participant attains age 70-1/2. To comply with these provisions, distributions
must be in a form and amount sufficient to satisfy the minimum distribution
rules and the minimum distribution incidental death benefit rules specified in
IRS regulations. In general, annuity payments may not extend beyond your life,
the joint lives of you and your beneficiary, a period certain greater than your
life expectancy, or a period certain greater than the joint life expectancies of
you and your beneficiary. If you die after the required minimum distributions
have commenced, distributions to your beneficiary must be made at least as
rapidly as under the method of distribution in effect at the time of your death.
If you die before the required minimum distributions have commenced,
distribution to your beneficiary generally must either commence as an annuity
within one year or be completed within five years, subject to certain special
rules. If distributions are taken in excess of the minimum required
distribution, the Company will no longer maintain the grandfathered amount. See
"Contract Rights--Withdrawals."
All distributions will be taxed as they are received unless you made a
rollover contribution of the distribution to another Section 403(b) plan or an
individual retirement account ("IRA") in accordance with the Code, or unless you
have made after tax contributions to the plan, which are not taxed upon
distribution. The Code has specific rules that apply, depending on the type of
distribution received, if after-tax contributions were made.
In general, payments received by your beneficiaries after your death are
taxed in the same manner as if you had received those payments, except that a
limited death benefit exclusion may apply to payments made for deaths occurring
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 generally are
provided the opportunity to elect not to have tax withheld from distributions.
Certain distributions from Section 403(b) tax-sheltered annuities are subject to
mandatory federal income tax withholding. We will report to the IRS the taxable
portion of all distributions.
CONTRACTS USED WITH "QUALIFIED" PLANS
The Contracts are designed for use with certain types of retirement plans
that qualify for favorable tax treatment under Section 401(a) of the Code
("Qualified Plans"). Code section 401(a) permits employers to establish various
types of retirement plans for employees, and permits self-employed individuals
to establish retirement plans for themselves and 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 as a means to provide benefit payments.
The tax rules applicable to participants and beneficiaries in retirement
plans vary according to the type of plan and the terms and conditions of the
plan. Adverse tax consequences may result from contributions in excess of
specified limits; distributions prior to age 59-1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances.
In the case of a withdrawal under a Contract paid to a plan participant or
beneficiary, including withdrawals under the Systematic Withdrawal Option or the
Estate Conservation Option, a ratable portion of the amount received is taxable,
generally based on the ratio of the "investment in the contract" to the
individual's total accrued benefit under the retirement plan. The "investment in
the contract" generally equals the amount of any non-deductible contributions
paid by or on behalf of any individual's total accrued benefit under the
retirement plan. The "investment in the contract" generally equals the amount of
any non-deductible contributions paid by or on behalf of any individual. For a
Contract issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from a qualified plan.
In general, only the portion of the Annuity payment that represents the
amount by which the Account Value
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exceeds the "investment in the contract" will be taxed; after the "investment in
the contract" is recovered, the full amount of any additional Annuity payments
is taxable. For Variable Annuity payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic payments.
However, the entire distribution will be taxable once the recipient has
recovered the dollar amount of his or her "investment in the contract." For
Fixed Annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Annuity payments for the term of the
payments; however, the remainder of each Annuity payment is taxable. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional Annuity payments is taxable.
Pension 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 generally are
provided the opportunity to elect not to have tax withheld from distributions.
However, certain distributions are subject to mandatory federal income tax
withholding.
PENALTY TAX ON CERTAIN DISTRIBUTIONS
The Code generally imposes a 10% penalty tax on the taxable portion of any
distribution from a 403(b) plan or a Qualified Plan unless (a) made when you
have attained age 59-1/2, (b) attributable to your disability, (c) made to a
beneficiary or your estate on or after your death, (d) made when you have
attained age 55 and have separated from service with the plan sponsor, (e) the
distribution amount is rolled over into another Section 403(b) plan or an IRA in
accordance with the terms of the Code, or (f) the distribution amount is
annuitized over your life or life expectancy or the joint lives or life
expectancies of you and your plan beneficiary, provided you have separated from
service with the plan sponsor. In addition, the penalty tax is abated for the
amount of a distribution equal to unreimbursed medical expenses incurred by you
that qualify for deduction as specified in the Code. The Code may impose other
penalty taxes in other circumstances.
OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with respect to
other tax consequences not discussed in this Prospectus. A competent tax advisor
should be consulted for further information.
MISCELLANEOUS
================================================================================
VOTING RIGHTS
Each Contract Holder may direct us in the voting of shares at meetings of
shareholders of the appropriate Fund(s). The number of votes to which each
Contract Holder may give direction will be determined as of the record date.
The number of votes each Contract Holder is entitled to direct with
respect to a particular Fund during the Accumulation Period is equal to the
portion of the sum of all Current Values of a Contract attributable to that Fund
divided by the net asset value of one share of that Fund. During the Annuity
Period, the number of votes is equal to the Valuation Reserve applicable to the
portion of a Contract attributable to that Fund, divided by the net asset value
of one share of that Fund. In determining the number of votes, fractional votes
will be recognized. Where the value of a Contract or Valuation Reserve relates
to more than one Fund, the calculation of votes will be performed separately for
each Fund.
Participants and Annuitants have a fully vested (100%) interest in the
value of the Individual Accounts which are credited with Participant
Contributions. Participants and Annuitants 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 us to cast the
votes for the portion of the Current Value or Valuation Reserve attributable to
their Individual Accounts. Votes attributable to those Participants and
Annuitants who do not instruct the Contract Holder will be cast by us in the
same proportion as votes for which instructions have been received by the
Contract Holder. Votes attributable to Contract Holders who do not direct us
will be cast by us in the same proportion as the votes for which we have
received directions.
Contract Holders, or Participants and Annuitants entitled to instruct the
casting of votes, will receive a notice of each meeting of shareholders,
together with any proxy
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solicitation materials, and a statement of the number of votes attributable to
their participation under a Contract and stating the right to instruct the
Contract Holder how such votes shall be cast.
MODIFICATION OF THE CONTRACTS
Only an authorized officer of the Company may change the terms of this
Contract. The Company reserves the right to modify this Contract to meet the
requirements of applicable state and federal laws or regulations. The Company
will notify the Contract Holder and Participants in writing of any changes.
The Company may change the tables for determining the amount of Annuity
benefit payments attributable only to Contributions accepted after the effective
date of change, without Contract Holder consent. Such a change will not become
effective earlier than twelve months after (1) the effective date of the
Contract, or (2) the effective date of a previous change. The Company will
notify the Contract Holder in writing at least thirty (30) days before the
effective date of the change. The Company may not make changes which adversely
affect the Annuity benefits attributable to Contributions already made to the
Contract.
CONTRACT HOLDER INQUIRIES
A Contract Holder or a Participant may direct inquiries to a local
representative of the Distributor or may write directly to us at the address
shown on the cover page of this prospectus.
TELEPHONE TRANSFERS
Subject to the Contract Holder's approval, the Participant automatically
has the right to make transfers among Funds by telephone. We have enacted
procedures to prevent abuses of Individual Account transactions by telephone.
The procedures include requiring the use of a personal identification number
(PIN) to execute transactions. The Participant is responsible for safeguarding
his or her PIN, and for keeping Individual Account information confidential. If
the Company fails to follow its procedures, it would be liable for any losses to
the Participant's Individual Account resulting from the failure. To ensure
authenticity, we record all calls requesting transfers on the 800 line. Note:
all Individual Account information and transactions permitted are subject to the
terms of the Plan(s).
PAYMENTS
Payments for withdrawal requests (subject to the limitations on
withdrawals from the Fixed Plus Account described in Appendices II and III) will
be made in accordance with SEC requirements, but normally not later than seven
calendar days after a properly completed disbursement form is received at our
Home Office or within seven calendar days of the date the withdrawal form may
specify. Payments may be delayed for: (a) any period in which the New York Stock
Exchange ("Exchange") is closed (other than customary weekend and holiday
closings) or in which trading on the Exchange is restricted; (b) any period in
which an emergency exists where disposal of securities held by the Funds is not
reasonably practicable or is not reasonably practicable for the value of the
assets of the Funds to be fairly determined; or (c) such other periods as the
SEC may by order permit for the protection of Contract Holders and Participants.
The conditions under which restricted trading or an emergency exists shall be
determined by the rules and regulations of the SEC.
TRANSFER OF OWNERSHIP; ASSIGNMENT
Unless contrary to applicable law, assignment of a Contract or an
Individual Account is prohibited.
LEGAL PROCEEDINGS
We know of no material legal proceedings pending to which the Separate
Account is a party, nor which would materially affect the Separate Account.
LEGAL MATTERS
The validity of the securities offered by this Prospectus has been passed
upon by Counsel to the Company.
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22
<PAGE>
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
================================================================================
The following items are the contents of the Statement of Additional
Information:
General Information and History
Variable Annuity Account C
Offering and Purchase of Contracts
Performance Data
General
Average Annual Total Return Quotations
Annuity Payments
Sales Material
Independent Auditors
Financial Statements of the Separate Account
Financial Statements of Aetna Life Insurance and Annuity Company
- --------------------------------------------------------------------------------
23
<PAGE>
APPENDIX I
GUARANTEED ACCUMULATION ACCOUNT
================================================================================
The GAA is a credited interest option available during the Accumulation Period
under the Contracts. 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.
The GAA is a credited interest option in which we guarantee stipulated
rates of interest for stated periods of time on amounts directed to the GAA. The
interest rate stipulated is an annual effective yield; that is, it reflects a
full year's interest. Interest is credited daily at a rate that will provide the
guaranteed annual effective yield over the period of one year. This option
guarantees the minimum interest rate specified in the Contract.
During a specified period of time (the "deposit period"), amounts may be
applied to any or all available Guaranteed Terms within the Short-Term and
Long-Term classifications. Short-Term GAA has Guaranteed Terms from one to three
years and Long-Term GAA has Guaranteed Terms from more than three and up to ten
years.
Purchase Payments must remain in the GAA for the full Guaranteed Term to
receive the quoted interest rates. Withdrawals or transfers from a Guaranteed
Term before the end of that Guaranteed Term may be subject to a Market Value
Adjustment ("MVA"). For Contracts issued in New York, no MVA applies upon the
election of the Estate Conservation Option or the Systemic Withdrawal Option. An
MVA reflects the change in the value of the investments due to changes in
interest rates since the date of deposit. When interest rates increase after the
date of deposit, the value of the investment decreases, and the MVA is negative.
Conversely, when interest rates decrease after the date of deposit, the value of
the investment increases, and the MVA is positive. It is possible that a
negative MVA could result in the Participant receiving an amount that is less
than the amount paid into the GAA.
As a Guaranteed Term matures assets accumulating under the GAA may be (a)
transferred to a new Guaranteed Term, if available under the Contract, (b)
transferred to other available investment options, or (c) withdrawn. Amounts
withdrawn may be subject to a Withdrawal Fee, federal tax penalties or mandatory
income tax withholding and a Maintenance Fee.
By notifying us at least 30 days prior to the Annuity Date, you may elect a
variable annuity and have amounts which have been accumulating under the GAA
transferred to one or more of the Funds available during the Annuity Period. GAA
cannot be used as an investment option during the Annuity Period.
MORTALITY AND EXPENSE RISK CHARGES
The Company makes no deductions from the credited interest rate for
mortality and expense risks; these risks are considered in determining the
credited rate.
TRANSFERS
Transfers are permitted among Guaranteed Terms. However, amounts applied to
the 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 during 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 the GAA, although such value
is included in determining the value of the Individual Account against which a
loan may be made.
REINVESTMENT PRIVILEGE
If amounts are withdrawn from the 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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24
<PAGE>
APPENDIX II
FIXED PLUS ACCOUNT
================================================================================
After receipt of any required regulatory approval in a given state, all
Contracts issued in that state will provide for the availability of this Fixed
Plus Account investment option.
The following summarizes material information concerning the Fixed Plus Account
that is offered as an option under the Contracts. Additional information may by
found in your certificate or contract. Amounts allocated to the Fixed Plus
Accounts are held in the Company's general account that supports insurance and
annuity obligations. Interests in the Fixed Plus Account have not been
registered with the SEC in reliance on exemptions under the Securities Act of
1933, as amended. Disclosure in this prospectus regarding the Fixed Plus
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of the
statements. Disclosure in this Appendix regarding the Fixed Plus Account has not
been reviewed by the SEC.
The Fixed Plus Account guarantees that amounts allocated to this option
will earn the minimum Fixed Plus interest rate specified in a Contract. We may
credit a higher interest rate from time to time. The Company's determination of
interest rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of invested
assets. Under this option, we assume the risk of investment gain or loss by
guaranteeing Net Contribution values and promising a minimum interest rate and
Annuity payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
The Company reserves the right to limit Net Contribution(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, loan 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 an Additional Withdrawal Option.
The 20% limit is waived if the partial withdrawal is taken pro rata from each
investment option the Individual Account invests and 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 6 months after the Participant's date of death. Any
such surrender or annuitization must be made pro rata from all funding options.
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:
[bullet] One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, loan,
transfers or annuitizations made in the prior 12 months;
[bullet] One-fourth of the then remaining Fixed Plus Account Value 12 months
later;
[bullet] One-third of the then remaining Fixed Plus Account Value 12 months
later;
[bullet] One-half of the then remaining Fixed Plus Account Value 12 months
later; and
[bullet] The balance of the Fixed Plus Account Value 12 months later.
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25
<PAGE>
We will waive this payout provision for a Fixed Plus Account full surrender
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 non-lifetime 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.
(d) Subject to state regulatory approval, due to hardship from an
unforeseeable emergency, as defined by the Code, if the following
conditions are met:
(1) the hardship is certified by the employer;
(2) the amount is paid directly to you; and
(3) The amount paid for all withdrawals due to hardship during the
previous 12-month period does not exceed 10% of the average value of
all Accounts during that same period; or
(e) Subject to state regulatory approval, due to your separation from service
with the employer, provided that:
(1) the employer certifies that you have separated from service;
(2) the amount is withdrawn within one year from separation from service
or, if withdrawn after one year from separation from service, the
amount withdrawn is paid directly to you; and
(3) the amount paid for all withdrawals due to separation from service
during the previous 12-month period does not exceed 20% of the
average value of all Accounts under the Contract during that same
period.
Once we receive a request for a full withdrawal from an Account, no further
withdrawals or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be canceled at any time before the
end of the five-payment period.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day our Home Office receives a
written request, reduced by any Fixed Plus Account withdrawals, transfers, loan
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 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 Annuity payments
begin, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Funds 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.
LOANS
Loans may be made from those Individual Account Current Values held in the
Fixed Plus Account. A 5% default charge may be assessed on amounts loaned from,
but not repaid to the Fixed Plus Account. The default charge will apply to
borrowed amounts that exceed the amount eligible for withdrawal at the time the
loan is made.
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26
<PAGE>
TRANSFER CREDITS
The Company provides a transfer credit in certain circumstances. See
"Transfer Credits." The amount of the transfer credit may be changed in the
discretion of the Company, but is currently equal to 2% of the assets
transferred to the Company under a Contract that remain in the Individual
Accounts as of the one year anniversary of a participant's first Net
Contributions under the Contract, plus the interest that would have been
credited had that amount been deposited in the Fixed Plus Account on the first
business day of the calendar month following its calculation. The transfer
credit is applied to the Current Value held in the Fixed Plus Account.
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27
<PAGE>
APPENDIX III
FIXED PLUS ACCOUNT
(Applicable only in limited circumstances)
================================================================================
The Fixed Plus Account described below will be available as an investment option
for all contributions under Contracts issued in a given state until the Company
obtains any required state regulatory approval to offer the Fixed Plus Account
investment option described in Appendix II. Subject to state regulatory
approval, certain Contracts under which the Fixed Plus Account described below
is an investment option may be endorsed to (i) make available the Fixed Plus
Account investment option described in Appendix II and (ii) provide that no new
contributions or transfers may be made to the Fixed Plus Account described
below.
The following summarizes material information concerning the Fixed Plus Account
that is offered as an option under the Contracts. Additional information may be
found in your certificate or contract. Amounts allocated to the Fixed Plus
Accounts are held in the Company's general account that supports insurance and
annuity obligations. Interests in the Fixed Plus Account have not been
registered with the SEC in reliance on exemptions under the Securities Act of
1933, as amended. Disclosure in this prospectus regarding the Fixed Plus
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of the
statements. Disclosure in this Appendix regarding the Fixed Plus Account has not
been reviewed by the SEC.
The Fixed Plus Account guarantees that amounts allocated to this option
will earn the minimum Fixed Plus interest rate specified in a Contract. We may
credit a higher interest rate from time to time. The Company's determination of
interest rates reflects the investment income earned on invested assets and the
amortization of any capital gains and/or losses realized on the sale of invested
assets. Under this option, we assume the risk of investment gain or loss by
guaranteeing Net Contribution values and promising a minimum interest rate and
Annuity payment.
The Fixed Plus Account will reflect a compound interest rate credited by
us. The interest rate quoted is an annual effective yield. Amounts applied to
the Fixed Plus Account will earn the Fixed Plus interest rate in effect when
actually applied to the Fixed Plus Account. We make no deductions from the
credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
Beginning on the tenth Individual 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 Individual
Accounts that have not reached their tenth anniversary.
The Company reserves the right to limit Net Contribution(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, loan 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 an Additional Withdrawal Option.
The 20% limit is waived if the partial withdrawal is taken pro rata from each
investment option the Individual Account invests and 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 6 months after the Participant's date of death. Any
such surrender or annuitization must be made pro rata from all funding options.
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:
[bullet] One-fifth of the Fixed Plus Account Value on the day the request is
received, reduced by any Fixed Plus Account withdrawals, loan,
transfers or annuitizations made in the prior 12 months;
[bullet] One-fourth of the then remaining Fixed Plus Account Value 12 months
later;
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28
<PAGE>
[bullet] One-third of the then remaining Fixed Plus Account Value 12 months
later;
[bullet] One-half of the then remaining Fixed Plus Account Value 12 months
later; and
[bullet] The balance of the Fixed Plus Account Value 12 months later.
We will waive this payout provision for a Fixed Plus Account full surrender
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 non-lifetime 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.
Once we receive a request for a full withdrawal from an Account, no further
withdrawals or transfers will be permitted from the Fixed Plus Account. A full
withdrawal from the Fixed Plus Account may be canceled at any time before the
end of the five-payment period.
TRANSFERS AMONG INVESTMENT OPTIONS
The amount eligible for transfer from the Fixed Plus Account is 20% of the
amount held in the Fixed Plus Account on the day our Home Office receives a
written request, reduced by any Fixed Plus Account withdrawals, transfers, loan
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 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 Annuity payments
begin, you may elect to have amounts which have been accumulating under the
Fixed Plus Account transferred to one or more of the Funds 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.
LOANS
Loans may be made from those Individual Account Current Values held in the
Fixed Plus Account. A 5% default charge may be assessed on amounts loaned from,
but not repaid to the Fixed Plus Account. The default charge will apply to
borrowed amounts that exceed the amount eligible for withdrawal at the time the
loan is made.
TRANSFER CREDITS
The Company provides a transfer credit in certain circumstances. See
"Transfer Credits." The amount of the transfer credit may be changed in the
discretion of the Company, but is currently equal to 2% of the assets
transferred to the Company under a Contract that remain in the Individual
Accounts as of the one year anniversary of a participant's first Net
Contributions under the Contract, plus the interest that would have been
credited had that amount been deposited in the Fixed Plus Account on the first
business day of the calendar month following its calculation. The transfer
credit is applied to the Current Value held in the Fixed Plus Account.
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<PAGE>
APPENDIX IV
FIXED ACCOUNT
(Applicable only in limited circumstances)
================================================================================
The Fixed Account is an investment option available only for amounts previously
allocated to a fixed account under contracts that are exchanged into one or more
of the contracts. See Appendix VI. No new contributions or transfers to the
Fixed Account will be allowed.
The following summarizes material information concerning the fixed account.
Additional information may be found in your certificate or contract. Amounts
allocated to the Fixed Account are held in the Company's general account.
Interests in the Fixed Account have not been registered with the SEC in reliance
on exemptions under the Securities Act of 1933, as amended. Disclosure in this
prospectus regarding the Fixed Account, however, may be subject to certain
generally applicable provisions of the Federal Securities Laws relating to the
accuracy and completeness of the statements. Disclosure in this Appendix
regarding the Fixed Account has not been reviewed by the SEC.
The Fixed Account guarantees that amounts allocated to this option will
earn the minimum interest rate specified in the Contract. (This minimum interest
rate cannot be changed by the Company.) We may credit a higher interest rate
from time to time. The Company's determination of interest rates reflects the
investment income earned on invested assets and the amortization of any capital
gains and/or losses realized on the sale of invested assets. Under this option,
we assume the risk of investment gain or loss by guaranteeing Net Purchase
Payment values and promising a minimum interest rate and Annuity payment.
Under certain emergency conditions, we may defer payment of a Fixed Account
withdrawal value (a) for a period of up to 6 months or (b) as provided by
federal law.
In addition, if allowed by state law, we 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 any Account 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.
MORTALITY AND EXPENSE RISK CHARGES
The Fixed Account will reflect a compound interest rate credited by us. The
interest rate quoted is an annual effective yield. We make no deductions from
the credited interest rate for mortality and expense risks; these risks are
considered in determining the credited rate.
TRANSFERS AMONG INVESTMENT OPTIONS
Transfers from the Fixed Account to any other available investment
option(s) are allowed in each calendar year during the Accumulation Period. The
amount that may be transferred may vary at our discretion; however, it will
never be less than 10% of the amount held under the Fixed Account. Transfers to
the Fixed Plus Account will be permitted without regard to this limitation.
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30
<PAGE>
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
Funds available during the Annuity Period to provide Variable Annuity payments.
CONTRACT LOANS
Loans may be made from those Individual Account Current Values held in the
Fixed Account.
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31
<PAGE>
APPENDIX V
EMPLOYEE APPOINTMENT OF EMPLOYER
AS AGENT UNDER AN ANNUITY CONTRACT
================================================================================
My employer has adopted a 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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<PAGE>
APPENDIX VI
CONTRACTS ACQUIRED BY EXCHANGE
================================================================================
Certain holders of contracts issued by the Company may exchange their
contract(s) (the "Exchanged Contracts") for either or both of the Contracts (the
"Acquired Contract(s)"). The contracts eligible for exchange are existing group
tax-deferred annuity contracts issued by the Company of the same class as the
Contracts. The Company will not assess any charges or deductions in connection
with an exchange. See "Deferred Sales Charges" below. Upon an exchange, the
rights of the Exchanged Contract holder and participants under the Exchanged
Contract will be governed by the Acquired Contract(s).
DIFFERENCES BETWEEN EXCHANGED CONTRACTS AND ACQUIRED CONTRACTS
The terms of the Acquired Contracts vary from the Exchanged Contracts and
it may or may not be advantageous to make an exchange. Contract Holders and
Participants should review the Acquired Contract and an Exchanged Contract to
determine all the differences. Some differences relate to the minimum guaranteed
interest rates for the GAA, Fixed Plus Account and the Fixed Account, the
availability of the Fixed Account (see Appendix IV), the operation of the Fixed
Plus Account as to Net Contributions allocated or transferred to the Fixed Plus
Account under the Acquired Contract (see Appendix III), the annuity options, and
the tables on which Annuity payments are based.
SPECIAL ACQUIRED CONTRACTS PROVISIONS
Except as follows, terms of the Acquired Contracts are identical to the
Contracts described in the Prospectus:
Transfer Credit
If a new participant under an Acquired Contract transfers to the Company
assets not previously held by the Company, the new participant may receive a
transfer credit. Participants of an Exchanged Contract in effect for less than
one year who transferred assets not previously held by the Company may also
receive a transfer credit. See "Transfer Credit."
Deferred Sales Charge
Under the Acquired Contract, new participants of the Acquired Contract will
be subject to the Withdrawal Fee elected by the Contract Holder. See "Charges
and Fees During the Annuity Period." The Withdrawal Fee for existing
participants of an Exchanged Contract, however, will be subject to the deferred
sales charges outlined below and as previously set forth in their Exchanged
Contract. In general, deferred sales charges may be deducted from amounts
withdrawn during the first 10 Purchase Payment Periods completed (if the
Exchanged Contract is an Installment Purchase Payment Contract) or 9 Account
Years (if the Exchanged Contract is a Single Purchase Payment Contract), as set
forth in the table below. In some cases, the deferred sales charge will be based
on Account Years for both Installment Purchase Payment Contracts and for Single
Purchase Payment Contracts. Please refer to the Contract endorsement relating to
the exchange to obtain more specific information. Consult the Exchanged Contract
to determine whether it is an Installment Payment Contract or Single Purchase
Payment Contract. For purposes of determining if a deferred sales charge applies
under an Acquired Contract, amounts received under an Exchanged Contract will be
credited for the period of time during which the amount was held under an
Exchanged Contract.
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<PAGE>
The following tables reflect the deferred sales charge deduction as a
percentage of the amount withdrawn from the Funds, GAA and the Fixed Account:
INSTALLMENT PURCHASE PAYMENT ACCOUNT:
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 10 2%
More than 10 0%
*For some contracts, the deferred sales charge for Installment Purchase
Payment Accounts will be based on Account Years. Please refer to the Contract
endorsement relating to the exchange.
SINGLE PURCHASE PAYMENT ACCOUNT:
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%
The deduction for the deferred sales charge will not exceed 8.5% of the
total Purchase Payments actually made to an Individual Account.
The deferred sales charge will apply to withdrawals during the Accumulation
Period. It will apply during the Annuity Period if a non-lifetime Annuity option
is elected on a variable basis and the remaining value is withdrawn before five
years of Annuity payments have been completed.
FIXED PLUS ACCOUNT
All amounts transferred or allocated to the Fixed Plus Account on or after
the Contract effective date will be subject to the Fixed Plus Account rules
applicable to amounts attributable to Net Contributions made to the Contract on
or after that date.
One-time election for Individual Accounts established with Net Contributions
from exchanged Company Contracts.
1) During a specified period beginning on the Contract effective date,
Participants will have a one-time opportunity to elect, by giving notice
to the Company, to have all amounts held in the Fixed Plus Account be
subject to the Fixed Plus Account rules applicable to amounts attributable
to Net Contributions made to the Contract on or after the Contract
effective date (See Appendix II). Participants who make the election
described in the preceding sentence will not be entitled to be credited,
beginning on the tenth anniversary of the effective date of their
Individual Account, with an interest rate that is higher than the then
declared rate for Individual Accounts before the tenth anniversary on any
amounts held in the Fixed Plus Account (See Appendix III). An election
made pursuant to this provision may not be revoked.
2) For Participants who do not make the election allowed under 1) above,
amounts attributable to their balances in the Fixed Plus Account on the
Contract effective date will remain subject to the rules described in
Appendix III until such time as they are transferred to another investment
option or withdrawn.
- --------------------------------------------------------------------------------
34
<PAGE>
APPENDIX VII
CONDENSED FINANCIAL INFORMATION
TABLE I
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 0.95%
(Selected data for accumulation units outstanding throughout each period)
================================================================================
For Contracts with total Separate Account Charges of 0.95% the condensed
financial information presented below for the year or period ended December 31,
1996 is derived from the financial statements of the 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.
1996
----------------
AETNA VARIABLE FUND
Value at beginning of period $10.000(2)
Value at end of period $11.469
Increase (decrease) in value of accumulation unit(1) 14.69%(2)
Number of accumulation units outstanding at end of period 2,876,728
AETNA INCOME SHARES
Value at beginning of period $10.000(2)
Value at end of period $10.503
Increase (decrease) in value of accumulation unit(1) 5.03%(2)
Number of accumulation units outstanding at end of period 161,765
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.000(2)
Value at end of period $10.277
Increase (decrease) in value of accumulation unit(1) 2.77%(2)
Number of accumulation units outstanding at end of period 39,811
AETNA INVESTMENT ADVISERS FUND, INC.
Value at beginning of period $10.000(2)
Value at end of period $10.902
Increase (decrease) in value of accumulation unit(1) 9.02%(2)
Number of accumulation units outstanding at end of period 702,222
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.472
Increase (decrease) in value of accumulation unit(1) 14.72%(2)
Number of accumulation units outstanding at end of period 20,237
AETNA CROSSROADS VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.146
Increase (decrease) in value of accumulation unit(1) 11.46%(2)
Number of accumulation units outstanding at end of period 7,882
AETNA LEGACY VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.905
Increase (decrease) in value of accumulation unit(1) 9.05%(2)
Number of accumulation units outstanding at end of period 61
AETNA VARIABLE INDEX PLUS PORTFOLIO
Value at beginning of period $10.000(3)
Value at end of period $10.934
Increase (decrease) in value of accumulation unit(1) 9.34%(3)
Number of accumulation units outstanding at end of period 2,697
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.495
Increase (decrease) in value of accumulation unit(1) 4.95%(2)
Number of accumulation units outstanding at end of period 93,755
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.187
Increase (decrease) in value of accumulation unit(1) (8.13)%(2)
Number of accumulation units outstanding at end of period 248,597
AMERICAN CENTURY VP CAPITAL APPRECIATION*
Value at beginning of period $10.000(2)
Value at end of period $ 9.079
Increase (decrease) in value of accumulation unit(1) (9.21)%(2)
Number of accumulation units outstanding at end of period 389,788
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO**
Value at beginning of period $10.000(2)
Value at end of period $10.924
Increase (decrease) in value of accumulation unit(1) 9.24%(2)
Number of accumulation units outstanding at end of period 19,808
- --------------------------------------------------------------------------------
35
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
================================================================================
1996
----------------
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.243
Increase (decrease) in value of accumulation unit(1) 12.43%(2)
Number of accumulation units outstanding at end of period 95,199
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.819
Increase (decrease) in value of accumulation unit(1) 8.19%(2)
Number of accumulation units outstanding at end of period 27,639
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.362
Increase (decrease) in value of accumulation unit(1) 3.62%(2)
Number of accumulation units outstanding at end of period 54,133
FIDELITY VIP OVERSEAS PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.664
Increase (decrease) in value of accumulation unit(1) 6.64%(2)
Number of accumulation units outstanding at end of period 3,820
FRANKLIN GOVERNMENT SECURITIES TRUST
Value at beginning of period $10.000(2)
Value at end of period $10.525
Increase (decrease) in value of accumulation unit(1) 5.25%(2)
Number of accumulation units outstanding at end of period 1,554
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.510
Increase (decrease) in value of accumulation unit(1) (4.90)%(2)
Number of accumulation units outstanding at end of period 125,232
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.105
Increase (decrease) in value of accumulation unit(1) 11.05%(2)
Number of accumulation units outstanding at end of period 9,188
JANUS ASPEN FLEXIBLE INCOME PORTFOLIO
Value at beginning of period $10.000(3)
Value at end of period $10.902
Increase (decrease) in value of accumulation unit(1) 9.02%(3)
Number of accumulation units outstanding at end of period 1,402
JANUS ASPEN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.891
Increase (decrease) in value of accumulation unit(1) 8.91%(2)
Number of accumulation units outstanding at end of period 39,841
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.366
Increase (decrease) in value of accumulation unit(1) 3.66%(2)
Number of accumulation units outstanding at end of period 96
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.370
Increase (decrease) in value of accumulation unit(1) 13.70%(2)
Number of accumulation units outstanding at end of period 151,935
LEXINGTON NATURAL RESOURCES TRUST
Value at beginning of period $10.000(2)
Value at end of period $11.383
Increase (decrease) in value of accumulation unit(1) 13.83%(2)
Number of accumulation units outstanding at end of period 5,295
NEUBERGER & BERMAN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.970
Increase (decrease) in value of accumulation unit(1) (0.30)%(2)
Number of accumulation units outstanding at end of period 31,317
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $10.000(2)
Value at end of period $10.672
Increase (decrease) in value of accumulation unit(1) 6.72%(2)
Number of accumulation units outstanding at end of period 171,732
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year or
period, and dividing the result by the beginning Accumulation Unit value.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established during May 1996 when the fund became
available under the Contract, when funds were first received in this option
or when the applicable daily asset charge was first utilized.
(3) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established during August 1996 when the fund
became available under the Contract, when funds were first received in this
option or when the applicable daily asset charge was first utilized.
*Formerly TCI Portfolios, Inc.-TCI Growth
**Formerly Calvert Socially Responsible Series
- --------------------------------------------------------------------------------
36
<PAGE>
CONDENSED FINANCIAL INFORMATION
TABLE II
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.00%
(Selected data for accumulation units outstanding throughout each period)
================================================================================
For Contracts with total Separate Account Charges of 1.00% the condensed
financial information presented below for the year or period ended December 31,
1996 is derived from the financial statements of the 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.
1996
----------------
AETNA VARIABLE FUND
Value at beginning of period $10.000(2)
Value at end of period $11.465
Increase (decrease) in value of accumulation unit(1) 14.65%(2)
Number of accumulation units outstanding at end of period 13,125
AETNA INCOME SHARES
Value at beginning of period $10.000(2)
Value at end of period $10.500
Increase (decrease) in value of accumulation unit(1) 5.00%(2)
Number of accumulation units outstanding at end of period 679
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.000(2)
Value at end of period $10.274
Increase (decrease) in value of accumulation unit(1) 2.74%(2)
Number of accumulation units outstanding at end of period 1,551
AETNA ASCENT VARIABLE PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.468
Increase (decrease) in value of accumulation unit(1) 14.68%(2)
Number of accumulation units outstanding at end of period 13
ALGER AMERICAN GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.491
Increase (decrease) in value of accumulation unit(1) 4.91%(2)
Number of accumulation units outstanding at end of period 19,500
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.184
Increase (decrease) in value of accumulation unit(1) 8.16%(2)
Number of accumulation units outstanding at end of period 971
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.239
Increase (decrease) in value of accumulation unit(1) 12.39%(2)
Number of accumulation units outstanding at end of period 20,020
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.358
Increase (decrease) in value of accumulation unit(1) 3.58%(2)
Number of accumulation units outstanding at end of period 21
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.507
Increase (decrease) in value of accumulation unit(1) (4.93)%(2)
Number of accumulation units outstanding at end of period 17,055
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.366
Increase (decrease) in value of accumulation unit(1) 13.66%(2)
Number of accumulation units outstanding at end of period 36,305
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year or
period, and dividing the result by the beginning Accumulation Unit value.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established during May 1996 when the fund became
available under the Contract, when funds were first received in this option
or when the applicable daily asset charge was first utilized.
- --------------------------------------------------------------------------------
37
<PAGE>
CONDENSED FINANCIAL INFORMATION
TABLE III
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.15%
(Selected data for accumulation units outstanding throughout each period)
================================================================================
For Contracts with total Separate Account Charges of 1.15% the condensed
financial information presented below for the year or period ended December 31,
1996 is derived from the financial statements of the 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.
1996
----------------
AETNA VARIABLE ENCORE FUND
Value at beginning of period $10.000(2)
Value at end of period $10.264
Increase (decrease) in value of accumulation unit(1) 2.64%(2)
Number of accumulation units outstanding at end of period 9,856
ALGER AMERICAN SMALL CAP PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.175
Increase (decrease) in value of accumulation unit(1) (8.25)%(2)
Number of accumulation units outstanding at end of period 74
FIDELITY VIP II CONTRAFUND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.228
Increase (decrease) in value of accumulation unit(1) 12.28%(2)
Number of accumulation units outstanding at end of period 4,169
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.805
Increase (decrease) in value of accumulation unit(1) 8.05%(2)
Number of accumulation units outstanding at end of period 4,215
FIDELITY VIP GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.348
Increase (decrease) in value of accumulation unit(1) 3.48%(2)
Number of accumulation units outstanding at end of period 4,472
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.498
Increase (decrease) in value of accumulation unit(1) (5.02)%(2)
Number of accumulation units outstanding at end of period 4,932
JANUS ASPEN BALANCED PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.090
Increase (decrease) in value of accumulation unit(1) 10.90%(2)
Number of accumulation units outstanding at end of period 13
JANUS ASPEN SHORT-TERM BOND PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $10.353
Increase (decrease) in value of accumulation unit(1) 3.53%(2)
Number of accumulation units outstanding at end of period 5
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $11.355
Increase (decrease) in value of accumulation unit(1) 13.55%(2)
Number of accumulation units outstanding at end of period 9
SCUDDER INTERNATIONAL PORTFOLIO CLASS A SHARES
Value at beginning of period $10.000(2)
Value at end of period $10.658
Increase (decrease) in value of accumulation unit(1) 6.58%(2)
Number of accumulation units outstanding at end of period 63
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year or
period, and dividing the result by the beginning Accumulation Unit value.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Units value was established during May 1996 when the fund
became available under the Contract, when funds were first received in this
option or when the applicable daily asset charge was first utilized.
- --------------------------------------------------------------------------------
38
<PAGE>
CONDENSED FINANCIAL INFORMATION
TABLE IV
FOR CONTRACTS WITH TOTAL SEPARATE ACCOUNT CHARGES OF 1.50%
(Selected data for accumulation units outstanding throughout each period)
================================================================================
For Contracts with total Separate Account Charges of 1.50% the condensed
financial information presented below for the year or period ended December 31,
1996 is derived from the financial statements of the 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.
1996
----------------
AETNA VARIABLE FUND
Value at beginning of period $10.000(2)
Value at end of period $11.429
Increase (decrease) in value of accumulation unit(1) 14.29%(2)
Number of accumulation units outstanding at end of period 5
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Value at beginning of period $10.000(2)
Value at end of period $ 9.477
Increase (decrease) in value of accumulation unit(1) (5.23)%(2)
Number of accumulation units outstanding at end of period 9
- ------------------
(1) The above figures are calculated by subtracting the beginning Accumulation
Unit value from the ending Accumulation Unit value during a calendar year or
period, and dividing the result by the beginning Accumulation Unit value.
(2) Reflects less than a full year of performance activity. The initial
Accumulation Unit value was established during may 1996 when the fund became
available under the Contract, when funds were first received in this option
or when the applicable daily asset charge was first utilized.
- --------------------------------------------------------------------------------
39
<PAGE>
For Master Applications Only
I hereby acknowledge receipt of an Account C prospectus for Retirement Plus and
Voluntary Tax-Deferred Annuity Plans 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.01107-97) dated May 1, 1997.
- --------------------------------------------------------------------
CONTRACT HOLDER'S SIGNATURE
- --------------------------------------------------------------------
DATE
PROS.01107-97
- --------------------------------------------------------------------------------
<PAGE>
VARIABLE ANNUITY ACCOUNT C
OF
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Statement of Additional Information dated May 1, 1997
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus dated May 1, 1997. The Contracts
offered in connection with the prospectus are the Retirement Plus Contract and
Voluntary Contract funded through Variable Annuity Account C (the "Separate
Account"). A free prospectus is available upon request from the local Aetna Life
Insurance and Annuity Company office or by writing to or calling:
Aetna Life Insurance and Annuity Company
Customer Service
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest. Unless otherwise indicated, terms used in
this Statement of Additional Information shall have the same meaning as in the
prospectus.
TABLE OF CONTENTS
Page
General Information and History............................................ 1
Variable Annuity Account C................................................. 1
Offering and Purchase of Contracts......................................... 2
Performance Data........................................................... 2
General............................................................... 2
Average Annual Total Return Quotations................................ 3
Annuity Payments........................................................... 5
Sales Material and Advertising............................................. 6
Independent Auditors....................................................... 6
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 and in the
District of Columbia. 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 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, if any, described in the prospectus, all expenses incurred in the
operations of the Separate Account are borne by the Company. (See "Charges and
Deductions" in the prospectus.) The Company receives reimbursement for certain
administrative costs from some unaffiliated sponsors of the Funds used as
funding options under the Contract. These fees generally range up to 0.25%.
The assets of the Separate Account are held by the Company. Please refer to the
prospectuses of the individual Funds in whose shares the assets of the Separate
Account are invested regarding the custodians for those Funds.
VARIABLE ANNUITY ACCOUNT C
Variable Annuity Account C is a separate account established by the Company for
the purpose of funding variable annuity contracts issued by the Company. The
Separate Account is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940, as amended. The
assets of the Separate Account will be invested exclusively in shares of the
mutual funds described in the prospectus ("Funds"). Purchase Payments made under
the Contract may be allocated to one or more of the Funds. The Company may make
additions to, deletions from or substitution of available variable 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 Contracts.
1
<PAGE>
<TABLE>
The Funds currently available under the Contract are as follows:
<S> <C> <C>
Aetna Variable Fund Calvert Responsibly Invested Balanced Portfolio
Aetna Income Shares Fidelity VIP II Contrafund Portfolio
Aetna Variable Encore Fund Fidelity VIP Equity-Income Portfolio
Aetna Investment Advisers Fund, Inc. Fidelity VIP Growth Portfolio
Aetna Ascent Variable Portfolio Fidelity VIP Overseas Portfolio
Aetna Crossroads 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>
A complete description of each of the Funds, including their investment
objectives, policies, risks and fees and expenses, is contained in the
prospectus and statement 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 "Determining Individual
Account Current Value."
PERFORMANCE DATA
General
From time to time, the Company may advertise different types of historical
performance for the variable options 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 and for the periods prescribed by the
Securities and Exchange Commission (the "standardized total return"), as well as
the "non-standardized total return," 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 variable options 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 and expense risk
charges, any
2
<PAGE>
applicable administrative expense charge, the maintenance fee and the withdrawal
fee). These charges will be deducted on a pro rata basis in the case of
fractional periods. The maintenance fee is converted to a percentage of assets
based on the average account size under the Contracts described in the
prospectus.
The non-standardized total return figures will be calculated in a similar
manner, except that they will not reflect any applicable withdrawal fee ( which
would decrease the level of performance shown if reflected in these
calculations.) The non-standardized figures may also include monthly, quarterly,
year-to-date and three year periods.
The total return quotations are based upon historical earnings and are not
necessarily representative of future performance. Investment results of the
Funds will fluctuate over time, and any presentation of the Funds' total return
quotations for any prior period should not be considered as a representation of
how the Funds will perform in any future period. Additionally, your Current
Value upon redemption may be more or less than your original cost.
Average Annual Total Return Quotations - Standardized and Non-Standardized
The table below reflects the average annual standardized and non-standardized
total return quotation figures for the periods ended December 31, 1996 for the
variable investment options under the Contracts issued by the Company. The
standardized returns assume a mortality and expense risk charge of 1.25%, a $15
annual maintenance fee and a withdrawal fee for ten years. The non-standardized
returns assume the same charges but do not include the withdrawal fee. The
Company may also advertise returns based on other fee schedules that apply to a
particular Contract Holder. These fee schedules may result in higher returns
than those shown.
3
<PAGE>
<TABLE>
<CAPTION>
---------------------------------- -------------------------------------------- -----------
FUND
STANDARDIZED NON-STANDARDIZED INCEPTION
DATE
--------------------------------------- ---------------------------------- -------------------------------------------- -----------
SUBACCOUNT 1 Year 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 16.40% 10.51% 12.46% 22.53% 15.86% 11.41% 12.46% 05/01/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Income Shares (3.14%) 4.25% 7.14% 1.97% 3.94% 5.11% 7.14% 05/15/73
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Variable Encore Fund (1.47%) 2.00% 4.43% 3.72% 3.51% 2.83% 4.43% 08/01/75
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Investment Advisers Fund, Inc. 7.70% 8.65% 9.14%* 13.38% 11.65% 9.54% 9.57%* 04/03/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Ascent Variable Portfolio 15.58% 17.17%* n/a 21.67% 21.27%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Crossroads Variable Portfolio 11.11% 13.32%* n/a 16.96% 17.28%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Legacy Variable Portfolio 6.79% 9.65%* n/a 12.41% 13.48%* n/a n/a 07/05/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Aetna Variable Index Plus Portfolio 3.64%* n/a n/a 9.10%* n/a n/a n/a 09/16/96
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Alger American Growth Portfolio 6.00% 13.90% 16.40%* 11.58% 14.38% 14.83% 16.84%* 01/09/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Alger American Small Cap Portfolio (2.59%) 8.41% 17.93%* 2.55% 11.11% 9.29% 18.37%* 09/21/88
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
American Century VP Capital
Appreciation (10.55%) 3.67% 8.86%* (5.83%) 5.75% 4.52% 9.10%* 11/20/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Calvert Responsibly Invested Balanced
Portfolio 5.31% 7.85% 9.39% 10.86% 10.50% 8.73% 9.39% 09/02/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Fidelity VIP II Contrafund Portfolio 13.36% 25.02%* n/a 19.33% 28.28%* n/a n/a 01/03/95
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Fidelity VIP Equity-Income Portfolio 6.87% 15.21% 11.98% 12.49% 16.41% 16.16% 11.98% 10/09/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Fidelity VIP Growth Portfolio 7.27% 12.46% 13.37% 12.92% 14.00% 13.38% 13.37% 10/09/86
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Fidelity VIP Overseas Portfolio 5.81% 6.58% 6.04%* 11.38% 6.42% 7.46% 6.25%* 02/13/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Franklin Government Securities Trust (2.69%) 3.92% 6.40%* 2.43% 3.99% 4.77% 6.81%* 02/17/89
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Aggressive Growth
Portfolio 0.94% 17.57%* n/a 6.26% 15.17% 19.41%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Balanced Portfolio 8.65% 11.08%* n/a 14.37% 11.74% 12.82%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Flexible Income Portfolio 2.10% 6.15%* n/a 7.48% 8.54% 7.81%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Growth Portfolio 10.77% 12.61%* n/a 16.60% 14.78% 14.38%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Short-Term Bond Portfolio (2.78%) 1.19%* n/a 2.35% 3.12% 2.78%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Janus Aspen Worldwide Growth Portfolio 20.67% 19.38%* n/a 27.03% 16.77% 21.25%* n/a 09/13/93
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Lexington Natural Resources Trust 18.68% 7.35% 7.46%* 24.93% 10.22% 8.23% 8.30%* 10/14/91
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Neuberger & Berman Growth Portfolio 2.06% 7.24% 9.71% 7.43% 9.23% 8.12% 9.71% 09/10/84
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
Scudder International Portfolio
Class A Shares 7.33% 8.44% 8.00%* 12.99% 6.46% 9.33% 8.23%* 05/01/87
--------------------------------------- ---------- ----------- ----------- ----------- ---------- ---------- ---------- -----------
</TABLE>
Please refer to the discussion preceding the table 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.
4
<PAGE>
ANNUITY PAYMENTS
When Variable Annuity payments are to begin, the value of the Individual Account
is determined using Fund Annuity Unit values as of the tenth Valuation Period
before the first Annuity payment is due. Such value (less any applicable premium
tax) is applied to provide an Annuity in accordance with the Annuity and
investment options elected.
The Annuity option tables found in the Contract show, for each form of Annuity,
the amount of the first Variable Annuity payment for each $1,000 of value
applied. Thereafter, Variable Annuity payments fluctuate as the Fund 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
Fund 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 Fund Annuity Unit value for that investment
option. As noted, Fund Annuity Unit values fluctuate from one Valuation Period
to the next; such fluctuations reflect changes in the net investment factor for
the appropriate Fund(s) (with a ten Valuation Period lag which gives the Company
time to process Annuity payments) and a mathematical adjustment which offsets
the assumed net investment rate of 3.5% or 5% per annum.
The operation of all these factors can be illustrated by the following
hypothetical example. These procedures will be performed separately for the
investment options selected during the Annuity Period.
EXAMPLE:
Assume that, at the date Annuity payments are to begin, there are 3,000 Fund
Annuity Units credited under a particular Contract or Account and that the value
of a Fund Annuity Unit for the tenth Valuation Period 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 a Fund Annuity Unit for the Valuation Period in
which the first payment was due was $13.400000. When this value is divided into
the first monthly payment, the number of Fund Annuity Units is determined to be
20.414. The value of this number of Fund Annuity Units will be paid in each
subsequent month.
If the net investment factor with respect to the appropriate Fund is 1.0015000
as of the tenth Valuation Period preceding the due date of the second monthly
payment, multiplying this factor by .9999058* (to neutralize the assumed net
investment rate of 3.5% per annum built into the number of Fund Annuity Units
determined above) produces a result of 1.0014057. This is then multiplied by the
Fund Annuity Unit value for the prior Valuation Period (assume such value to be
$13.504376) to produce a Fund Annuity Unit value of $13.523359 for the Valuation
Period in which the second payment is due.
5
<PAGE>
The second monthly payment is then determined by multiplying the number of Fund
Annuity Units by the current Fund 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 variable investment options to
established market indices such as the Standard & Poor's 500 Stock Index and the
Dow Jones Industrial Average or to the percentage change in values of other
management investment companies that have investment objectives similar to the
Subaccount being compared.
We may publish in advertisements and reports, the ratings and other information
assigned to us by one or more independent rating organizations such as A.M. Best
Company, Duff & Phelps, Standard & Poor's Corporation and Moody's Investors
Services, Inc. The purpose of the ratings is to reflect our financial strength
and/or claims-paying ability. We may also quote ranking services such as
Morningstar's Variable Annuity/Life Performance Report and Lipper's Variable
Insurance Products Performance Analysis Service (VIPPAS), which rank variable
annuity or life subaccounts or their underlying funds by performance and/or
investment objective. We may illustrate in advertisements the performance of the
underlying funds, if accompanied by performance which also shows the performance
of such funds reduced by applicable charges under the Separate Account. We may
also show in advertisements the portfolio holdings of the underlying funds,
updated at various intervals. From time to time, we will quote articles from
newspapers and magazines or other publications or reports, including, but not
limited to The Wall Street Journal, Money magazine, USA Today and The VARDS
Report.
The Company may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to current and
prospective Contract Holders or Participants. These topics may include the
relationship between sectors of the economy and the economy as a whole and its
effect on various securities markets, investment strategies and techniques (such
as value investing, market timing, dollar cost averaging, asset allocation,
constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparison
between the Contracts and the characteristics of and market for such financial
instruments.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103, are the
independent auditors for the Separate Account and for the Company. The services
provided to the Separate Account include primarily the examination of the
Separate Account's financial statements and the review of filings made with the
SEC.
6
<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.01107-97 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 Group Combination Annuity Contract (Nonparticipating)
(A001RP95)(3)
(4.2) Form of Group Combination Annuity Certificate
(Nonparticipating) (A007RC95)(3)
(4.3) Form of Group Combination Annuity Contract (Nonparticipating)
(A020RV95)(3)
(4.4) Form of Group Combination Annuity Certificate
(Nonparticipating) (A027RV95)(3)
(4.5) Form of Endorsement for Exchanged Contracts (EINRP95)(3)
(4.6) Form of Endorsement for Exchanged Contracts (EINRV95)(3)
(4.7) Form of Endorsement for 401(a) Plans(3)
(4.8) Form of Endorsement (GET 9/96) for Contracts A001RP95 and
A020RV95(4)
(4.9) Form of Endorsement (E1OMNI97) to Contract A001RP95(5)
(4.10) Form of Endorsement (E2OMNI97) to Contract A001RP95(5)
<PAGE>
(4.11) Form of Endorsement (3OMNI97) to Contract A001RP95(5)
(4.12) Form of Endorsement (E1FXPL97) to Contract A001RP95(5)
(4.13) Form of Endorsement E2FXPL(97) to Contract A020RV95(5)
(4.14) Form of Endorsement E3FXPL97 to Contract A001RP95(5)
(4.15) Form of Endorsement EINRP97 to Contract A001RP95(5)
(4.16) Form of Endorsement E4OMNI97 to Contract A001RP95(5)
(4.17) Form of Endorsement EINRV97 to Contract A020RV95(5)
(4.18) Form of Endorsement E1PAY97 to Contracts A001RP95 and
A020RV95(5)
(4.19) Form of E2PAY97 to Contracts A001RP95 and A020RV95(5)
(5) Form of Variable Annuity Contract Application (300-MOP-IB)(6)
(6.1) Certification of Incorporation and By-Laws of Aetna Life
Insurance and Annuity Company(7)
(6.2) Amendment of Certificate of Incorporation of Aetna Life
Insurance and Annuity Company(8)
(7) Not applicable
(8.1) Fund Participation Agreement (Amended and Restated) between
Aetna Life Insurance and Annuity Company, Alger American Fund
and Fred Alger Management, Inc. dated March 31, 1995(2)
(8.2) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Calvert Asset Management Company (Calvert
Responsibly Invested Balanced Portfolio, formerly Calvert
Socially Responsible Series) dated March 13, 1989 and amended
December 27, 1993(2)
(8.3) Second Amendment dated January 1, 1996 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993(9)
(8.4) Third Amendment dated February 11, 1997 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Calvert Asset Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27, 1993 and
January 1, 1996(5)
(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(8)
(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(8)
<PAGE>
(8.7) Service Agreement between Aetna Life Insurance and Annuity
Company and Fidelity Investments Institutional Operations
Company dated as of November 1, 1995(9)
(8.8) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Franklin Advisers, Inc. dated January 31,
1989(2)
(8.9) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Janus Aspen Series dated April 19, 1994
and amended March 1, 1996(2)
(8.10) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Lexington Management Corporation regarding
Natural Resources Trust dated December 1, 1988 and amended
February 11, 1991(2)
(8.11) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Advisers Management Trust (now Neuberger &
Berman Advisers Management Trust) dated April 14, 1989 and as
assigned and modified on May 1, 1995(2)
(8.12) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company and Scudder Variable Life Investment Fund
dated April 27, 1992 and amended February 19, 1993 and August
13, 1993(2)
(8.13) Amendment dated as of February 20, 1996 to Fund Participation
Agreement between Aetna Life Insurance and Annuity Company and
Scudder Variable Life Investment Fund dated April 27, 1992 as
amended February 19, 1993 and August 13, 1993(9)
(8.14) Fund Participation Agreement between Aetna Life Insurance and
Annuity Company, Investors Research Corporation and TCI
Portfolios, Inc. dated July 29, 1992 and amended December 22,
1992 and June 1, 1994(2)
(9) Opinion of Counsel(10)
(10.1) Consent of Independent Auditors
(10.2) Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Schedule for 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 Registration Statement on Form N-4 (File No.
333-01107), as filed electronically on February 21, 1996.
<PAGE>
4. Incorporated by reference to Post-Effective Amendment No. 6 to Registration
Statement on Form N-4 (File No. 33-91846), as filed electronically on August
6, 1996.
5. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-4 (File No. 333-01107), as filed electronically on
February 26, 1997.
6. Incorporated by reference to Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-91846), as filed on May 1, 1995.
7. 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.
8. 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.
9. Incorporated by reference to Post -Effective Amendment No. 3 to Registration
Statement on form N-4 (File No. 33-88720), as filed electronically on June
28, 1996.
10. Incorporated by reference to Registrant's 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 Pre-Effective Amendment No. 1 to Registration
Statement on Form N-4 (File No. 33-88720), as filed electronically on
November 30, 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:
(1) (2) (3) (4) (5)
Name of Net Underwriting Compensation
Principal Discounts and on Redemption Brokerage
Underwriter Commissions or Annuitization Commissions Compensation*
- ----------- ----------- ---------------- ----------- -------------
Aetna Life $1,325,661 $96,924,599
Insurance and
Annuity Company
* Compensation shown in column 5 includes deductions for mortality and expense
risk guarantees and contract charges assessed to cover costs incurred in the
sales and administration of the contracts issued under Variable Annuity
Account C.
Item 30. Location of Accounts and Records
- -----------------------------------------
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules under it relating to the securities
described in and issued under this Registration Statement are located at the
home office of the Depositor as follows:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, Connecticut 06156
Item 31. Management Services
- ----------------------------
Not applicable
Item 32. Undertakings
- ---------------------
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement on Form
N-4 as frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than sixteen
months old for as long as payments under the variable annuity contracts
may be accepted;
<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) P. 78,904 at 78,523 (November 22, 1988).
(e) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(f) Aetna Life Insurance and Annuity Company represents that the fees and
charges deducted under the contracts covered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by
the insurance company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, 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. 5 to its
Registration Statement on Form N-4 (File No. 333-01107) and has duly caused this
Post-Effective Amendment No. 5 to its Registration Statement on Form N-4 (File
No. 333-01107) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hartford, State of Connecticut, on the 14th 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.
5 to the Registration Statement on Form N-4 (File No. 333-01107) has been signed
by the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Daniel P. Kearney* Director and President )
- ------------------------- (principal executive officer) )
Daniel P. Kearney )
)
Timothy A. Holt* Director and Chief Financial Officer ) April
- ------------------------- )
Timothy A. Holt ) 14, 1997
)
Christopher J. Burns* Director )
- ------------------------- )
Christopher J. Burns )
)
Laura R. Estes* Director )
- ------------------------- )
Laura R. Estes )
)
J. Scott Fox* Director )
- ------------------------- )
J. Scott Fox )
<PAGE>
Gail P. Johnson* Director )
- ------------------------- )
Gail P. Johnson )
)
John Y. Kim* Director )
- ------------------------- )
John Y. Kim )
)
Shaun P. Mathews* Director )
- ------------------------- )
Shaun P. Mathews )
)
Glen Salow* Director )
- ------------------------- )
Glen Salow )
)
Creed R. Terry* Director )
- ------------------------- )
Creed R. Terry )
)
Deborah Koltenuk* Vice President and Treasurer, Corporate )
- ------------------------- Controller )
Deborah Koltenuk )
By: /s/ Julie E. Rockmore
------------------------------------------
*Julie E. Rockmore
Attorney-in-Fact
<PAGE>
VARIABLE ANNUITY ACCOUNT C
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.1 Resolution of the Board of Directors of Aetna Life *
Insurance and Annuity Company establishing Variable
Annuity Account C
99-B.3.1 Form of Broker-Dealer Agreement *
99-B.3.2 Alternative Form of Wholesaling Agreement and Related *
Selling Agreement
99-B.4.1 Form of Group Combination Annuity Contract *
(Nonparticipating) (A001RP95)
99-B.4.2 Form of Group Combination Annuity Certificate *
(Nonparticipating) (A007RC95)
99-B.4.3 Form of Group Combination Annuity Contract *
(Nonparticipating) (A020RV95)
99-B.4.4 Form of Group Combination Annuity Certificate *
(Nonparticipating) (A027RV95)
99-B.4.5 Form of Endorsement for Exchanged Contracts (EINRP95) *
99-B.4.6 Form of Endorsement for Exchanged Contracts (EINRV95) *
99-B.4.7 Form of Endorsement for 401(a) Plans *
99-B.4.8 Form of Endorsement (GET 9/96) for Contracts A001RP95 *
and A020RV95
99-B.4.9 Form of Endorsement (E1OMNI97) to Contract A001RP95 *
99-B.4.10 Form of Endorsement (E2OMNI97) to Contract A001RP95 *
99-B.4.11 Form of Endorsement (3OMNI97) to Contract A001RP95 *
99-B.4.12 Form of Endorsement (E1FXPL97) to Contract A001RP95 *
99-B.4.13 Form of Endorsement (E2FXPL97) to Contract A020RV95 *
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
- ----------- ------- ----
99-B.4.14 Form of Endorsement (E3FXPL97) to Contract A001RP95 *
99-B.4.15 Form of Endorsement (EINRP97) to Contract A001RP95 *
99-B.4.16 Form of Endorsement (E4OMNI97) to Contract A001RP95 *
99-B.4.17 Form of Endorsement (EINRV97) to Contract A020RV95 *
99-B.4.18 Form of Endorsement (E1PAY97) to Contracts A001RP95 and *
A020RV95
99-B.4.19 Form of Endorsement (E2PAY97) to Contracts A001RP95 and *
A020RV95
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 12, 1993
99-B.8.3 Second Amendment dated January 1, 1996 to Fund *
Participation Agreement between Aetna Life
Insurance and Annuity Company and Calvert Asset
Management Company (Calvert Responsibly Invested
Balanced Portfolio, formerly Calvert Socially
Responsible Series) dated March 13, 1989 and
amended December 27, 1993
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
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 Responsibly Invested Balanced
Portfolio, formerly Calvert Socially Responsible
Series) dated March 13, 1989 and amended December 27,
1993 and January 1, 1997
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
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
*Incorporated by reference
<PAGE>
Exhibit No. Exhibit Page
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
___
*Incorporated by reference
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of Aetna Life Insurance and Annuity Company and Contract
Owners of Aetna Variable Annuity Account C:
We consent to the use of our reports dated February 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 14, 1997
[Aetna Letterhead]
151 Farmington Avenue
[Aetna Logo] Hartford, CT 06156
Susan E. Bryant
Counsel
Law Division, RE4A
April 14, 1997 Investments & Financial
Services
(860) 273-7834
Fax: (860) 273-0356
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Variable Annuity Account C of Aetna Life Insurance and Annuity Company
Post-Effective Amendment No. 5 to Registration Statement on Form N-4
File Nos. 333-01107 and 811-2513
Dear Sir or Madam:
As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1997 (incorporated herein by
reference to the 24f-2 Notice for the fiscal year ended December 31, 1996 filed
on behalf of Variable Annuity Account C of Aetna Life Insurance and Annuity
Company on February 28, 1997) as an exhibit to this Post-Effective Amendment No.
5 to Registration Statement on Form N-4 (File No. 333-01107).
Sincerely,
/s/ Susan E. Bryant
- -------------------
Susan E. Bryant
Counsel
Aetna Life Insurance and Annuity Company
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000103007
<NAME> Variable Annuity Account C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 7,952,811,278
<INVESTMENTS-AT-VALUE> 8,565,202,363
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,565,202,363
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
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<NET-ASSETS> 8,565,202,363
<DIVIDEND-INCOME> 712,854,599
<INTEREST-INCOME> 0
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<EXPENSES-NET> 93,446,331
<NET-INVESTMENT-INCOME> 619,408,268
<REALIZED-GAINS-CURRENT> 513,568,522
<APPREC-INCREASE-CURRENT> 18,307,901
<NET-CHANGE-FROM-OPS> 1,151,284,691
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
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</TABLE>
